American Funds American Balanced Fund (ABALX) N-CSRS Certified semi-annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

Certified Shareholder Report of

Registered Management Investment Companies

Investment Company Act File Number: 811-00066

American Balanced Fund, Inc.

(Exact Name of Registrant as Specified in Charter)

P.O. Box 7650, One Market, Steuart Tower

San Francisco, California 94120

(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (415) 421-9360

Date of fiscal year end: December 31

Date of reporting period: June 30, 2008

Patrick F. Quan

Capital Research and Management Company

P.O. Box 7650, One Market, Steuart Tower

San Francisco, California 94120

(Name and Address of Agent for Service)

Copies to:

Michael Glazer

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street, 25th Floor

Los Angeles, California 90071

(Counsel for the Registrant)

ITEM 1 – Reports to Stockholders

[logo - American Funds®]

The right choice for the long term®

American Balanced Fund

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Semi-annual report for the six months ended June 30, 2008

American Balanced Fund® seeks conservation of capital, current income and long-term growth of both capital and income by investing in common stocks and fixed-income securities. The fund approaches the management of its investments as if they constituted the complete investment program of the prudent investor.

This fund is one of the 30 American Funds. American Funds is one of the nation’s largest mutual fund families. For more than 75 years, Capital Research and Management Company,SM the American Funds adviser, has invested with a long-term focus based on thorough research and attention to risk.

Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity. For current information and month-end results, visit americanfunds.com.

Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2008:

Class A shares	1 year			5 years			10 years
Reflecting 5.75% maximum sales charge		–13.10	%		5.20	%		6.08	%

The total annual fund operating expense ratio for Class A shares as of the most recent fiscal year-end was 0.60%. This figure does not reflect a fee waiver currently in effect; therefore, the actual expense ratio is lower.

The fund’s investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005. Fund results shown reflect actual expenses, with the waiver applied. Fund results would have been lower without the waiver. Please see the Financial Highlights table on pages 22 to 25 for details.

The fund’s 30-day yield for Class A shares as of July 31, 2008, calculated in accordance with the Securities and Exchange Commission formula, was 2.79% (2.76% without the fee waiver). The fund’s distribution rate for Class A shares as of that date was 2.86%. Both reflect the 5.75% maximum sales charge. The SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities while the distribution rate reflects the fund’s past dividends paid to shareholders. Accordingly, the fund’s SEC yield and distribution rate may differ.

Results for other share classes can be found on page 28.

The return of principal for the bond holdings in American Balanced Fund is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

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Fellow shareholders:

The first half of 2008 represented as difficult a period in the equity markets as we have seen in some time. Fixed-income investments generally held their value, but produced little in the way of absolute return.

In this environment, American Balanced Fund had a negative total return of 8.5% for the six-month period ended June 30, exceeding the 6.3% negative total return of the Lipper Balanced Funds Index. Stocks, as measured by Standard & Poor’s 500 Composite Index, had a negative total return of 11.9%. Bonds, as measured by the Lehman Brothers U.S. Aggregate Index, provided a positive total return of 1.1%. The latter two indexes are unmanaged.

Two major developments dominated the first half of 2008. The first was the very sharp rise in the price of oil from $96 at the beginning of the year to $140 as of June 30. The second was the continuing financial turmoil, heightened by defaults on home mortgages, substantial losses on exotic securities and declining house prices.

Given this background, it was somewhat surprising to us that economic growth continued in the first half, albeit at a slow pace. This was apparently the result of significant fiscal and monetary stimulus. The former came in the form of $50 billion of tax rebate checks which were mailed beginning in the spring. The latter came in the form of a continued reduction in the Fed funds rate by the Federal Reserve from 4.25% to 2%. While a gasoline price of $4 to $5 has stirred the ire of consumers, it doesn’t yet appear to have stopped them from spending money.

The stimulus referred to above has played a considerable role in keeping corporate profits quite strong. In part, this has been the result of an increasing dependence by U.S. multinationals on foreign earnings, which have been aided by the weakness of the dollar. The exception, of course, has been profits of financial institutions, which have been hit hard by credit problems. Our expectation is that several factors make it likely that the economy will continue to slow as we move through the rest of the year and into 2009.

As always, we focus intensively upon the fortunes and outlook of individual companies. Reflecting the dramatic rise in the price of oil, our energy stocks did extraordinarily well. On the other hand, financial stocks were extremely weak, reflecting the difficult credit conditions. While we had less exposure to this area than the broad market averages, we also had less exposure to the energy sector than the averages. The fund’s largest industry sector is technology stocks, which generally had a disappointing first half.

The bond portion of the portfolio lagged the Lehman Brothers U.S. Aggregate Index during the six months and showed a slightly negative return. In the early stages of this credit cycle, our research-driven approach to credit allowed us to avoid many of the problems in the investment pools of subprime mortgages. However, as the cycle developed, the financial pressures referred to above spread to other sectors of the fixed-income markets. Consequently, our holdings in the debt of financial companies and of higher rated mortgage-backed securities were affected negatively and hurt our results. As of June 30, the fund had 41% of the fixed-income portfolio in mortgage- and asset-backed securities, 36.5% in corporate bonds and 22.5% in government securities.

A diversified approach to investing lies at the core of American Balanced Fund. It is our policy to have between 50% and 75% invested in common stocks at all times. The percentage will vary based on our judgment of the relative attractiveness of equities, bonds and cash. As of June 30, the fund had 63% in common stocks, 30% in bonds and 7% in cash, virtually unchanged from six months ago.

In this difficult environment, we continue to emphasize our disciplined approach to investing which has rewarded long-term investors in the fund.

Cordially,

/s/ Robert G. O’Donnell

Robert G. O’Donnell

Vice Chairman of the Board

and Principal Executive Officer

/s/ Gregory D. Johnson

Gregory D. Johnson
President

July 25, 2008

For current information about the fund, visit americanfunds.com.

Summary investment portfolio, June 30, 2008

unaudited

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

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Investment mix by security type	Percent of net assets
Common stocks:		63	%
Fixed-income securities:		30
Short-term securities & other assets less liabilities		7

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		Market	Percent
		value	of net
Common stocks  - 62.46%	Shares	(000)	assets
Information technology  - 12.59%
International Business Machines Corp.	8,790,000	$                    1,041,879	1.89%
Oracle Corp. (1)	39,000,000	819,000	1.48
Cisco Systems, Inc. (1)	34,257,000	796,818	1.44
Microsoft Corp.	28,720,000	790,087	1.43
Nokia Corp. (ADR)	24,759,000	606,596	1.10
Yahoo  Inc. (1)	25,059,000	517,719	.94
Google Inc., Class A (1)	760,000	400,079	.72
Intel Corp.	16,500,000	354,420	.64
Hewlett-Packard Co.	7,500,000	331,575	.60
Other securities		1,301,232	2.35
		6,959,405	12.59
Industrials  - 8.90%
General Electric Co.	32,500,000	867,425	1.57
Northrop Grumman Corp.	8,735,000	584,372	1.06
FedEx Corp.	5,200,000	409,708	.74
Caterpillar Inc.	5,400,000	398,628	.72
Burlington Northern Santa Fe Corp.	3,000,000	299,670	.54
United Technologies Corp.	4,630,000	285,671	.52
Deere & Co.	3,750,000	270,488	.49
Other securities		1,802,026	3.26
		4,917,988	8.90
Health care  - 7.65%
Eli Lilly and Co.	13,102,000	604,788	1.09
Abbott Laboratories	8,500,000	450,245	.81
Wyeth	8,800,000	422,048	.76
Johnson & Johnson	5,200,000	334,568	.61
Aetna Inc.	7,900,000	320,187	.58
Roche Holding AG (2)	1,558,422	280,537	.51
Medtronic, Inc.	5,400,000	279,450	.51
Merck & Co., Inc.	7,227,200	272,393	.49
Other securities		1,263,443	2.29
		4,227,659	7.65
Energy  - 7.47%
Chevron Corp.	10,300,000	1,021,039	1.85
Schlumberger Ltd.	5,300,000	569,379	1.03
Occidental Petroleum Corp.	6,150,000	552,639	1.00
Exxon Mobil Corp.	6,100,000	537,593	.97
Other securities		1,446,035	2.62
		4,126,685	7.47
Consumer staples  - 7.21%
Wal-Mart Stores, Inc.	18,250,000	1,025,650	1.86
Walgreen Co.	17,650,000	573,802	1.04
Philip Morris International Inc.	10,350,000	511,186	.92
Coca-Cola Co.	9,750,000	506,805	.92
Kraft Foods Inc., Class A	10,500,000	298,725	.54
Other securities		1,067,023	1.93
		3,983,191	7.21
Financials  - 6.05%
Berkshire Hathaway Inc., Class A (1)	6,770	817,478	1.48
Wells Fargo & Co.	18,665,000	443,294	.80
Citigroup Inc.	25,340,000	424,698	.77
Fannie Mae	8,600,000	167,786	.30
Freddie Mac	2,500,000	41,000	.07
Other securities		1,449,815	2.63
		3,344,071	6.05
Consumer discretionary  - 4.58%
Target Corp.	11,329,348	526,701	.95
Time Warner Inc.	31,250,000	462,500	.84
Lowe's Companies, Inc.	14,200,000	294,650	.53
Other securities		1,245,916	2.26
		2,529,767	4.58
Telecommunication services  - 3.09%
AT&T Inc.	25,062,500	844,356	1.53
Vodafone Group PLC (2)	110,312,500	325,142	.59
Verizon Communications Inc.	8,500,000	300,900	.54
Other securities		237,500	.43
		1,707,898	3.09
Materials  - 2.64%
Alcoa Inc.	11,000,000	391,820	.71
E.I. du Pont de Nemours and Co.	8,500,000	364,565	.66
Other securities		702,208	1.27
		1,458,593	2.64
Utilities  - 0.90%
Exelon Corp.	5,500,000	494,780	.90
Miscellaneous -  1.38%
Other common stocks in initial period of acquisition		764,301	1.38
Total common stocks (cost: $31,421,029,000)		34,514,338	62.46
		Market	Percent
		value	of net
Preferred stocks  - 0.97%	Shares	(000)	assets
Financials  - 0.81%
Fannie Mae:
Series O, 7.00% (3)  (4)	805,000	38,162
Series E, 5.10%	108,000	3,692	.07
Freddie Mac, Series V, 5.57%	334,000	5,926	.01
Other securities		400,205	.73
		447,985	.81
U.S. government agency securities - 0.01%
Other securities		6,915	.01
Miscellaneous -  0.15%
Other preferred stocks in initial period of acquisition		80,299	.15
Total preferred stocks (cost: $650,277,000)		535,199	.97
		Market	Percent
		value	of net
Convertible securities  - 0.06%	Shares	(000)	assets
Financials  - 0.06%
Fannie Mae, Series 2004-1, 5.375% convertible preferred	150	9,000	.02
Other securities		24,219	.04
Total convertible securities (cost: $35,711,000)		33,219	.06
	Principal	Market	Percent
	amount	value	of net
Bonds & notes  - 29.98%	(000)	(000)	assets
Corporate bonds & notes - 10.94%
Financials  - 4.32%
Citigroup Inc. 4.125%-8.40% 2010-2017 (4)	$                           86,050	83,520
Citigroup Capital XXI 8.30% 2077 (4)	44,800	42,417	.23
Berkshire Hathaway Finance Corp. 4.60%-5.40% 2013-2018 (3)	33,500	33,475	.06
Wells Fargo & Co. 4.375% 2013	18,250	17,690	.03
Other securities		2,210,099	4.00
		2,387,201	4.32
Consumer discretionary  - 1.33%
AOL Time Warner Inc. 6.875%-7.625% 2012-2031	75,065	76,710
Time Warner Inc. 2.915%-6.50% 2009-2036 (4)	56,210	51,714	.23
Target Corp. 6.50%-7.00% 2037-2038	42,500	42,761	.08
Other securities		564,497	1.02
		735,682	1.33
Telecommunication services  - 1.22%
SBC Communications Inc. 4.125%-6.45% 2009-2034	129,300	127,895
BellSouth Capital Funding Corp. 7.875% 2030	51,500	57,042
AT&T Inc. 4.95%-6.50% 2013-2037	33,260	32,725
AT&T Wireless Services, Inc. 7.875%-8.125% 2011-2012	17,400	18,698
AT&T Corp. 8.00% 2031 (4)	15,000	17,269	.46
Other securities		420,504	.76
		674,133	1.22
Industrials  - 1.03%
General Electric Capital Corp., Series A, 3.04%-5.625% 2013-2026 (4)	89,000	81,353
General Electric Co. 5.00%-5.25% 2013-2017	44,250	43,519	.23
Other securities		443,074	.80
		567,946	1.03
Other corporate bonds & notes - 3.04%
Oracle Corp. 5.75%-6.50% 2018-2038	30,500	30,602	.06
Cisco Systems, Inc. 5.25% 2011	13,000	13,393	.02
Other securities		1,635,309	2.96
		1,679,304	3.04
Total corporate bonds & notes		6,044,266	10.94
Mortgage-backed obligations (5) - 10.26%
Fannie Mae 0%-11.887% 2010-2047 (2)  (4)	1,324,391	1,343,037	2.43
Freddie Mac:
6.00% 2038	496,970	501,999
0%-10.00% 2015-2037 (4)	527,915	521,201	1.85
Other securities		3,302,173	5.98
		5,668,410	10.26
Bonds & notes of U.S. government & government agencies  - 6.72%
U.S. Treasury:
4.25% 2012	376,600	392,018
4.25% 2013	773,835	807,450
0.875%-9.25% 2008-2036 (2)  (6)	1,470,315	1,651,814	5.16
Fannie Mae 3.00%-6.25% 2010-2029	289,150	299,324	.54
Federal Home Loan Bank 5.125%-5.625% 2013-2016	219,800	221,494	.40
Freddie Mac 4.875%-5.25% 2008-2011	174,575	181,812	.33
Other securities		158,859	.29
		3,712,771	6.72
Asset-backed obligations - 2.03%
Other securities		1,123,259	2.03
Municipals - 0.03%
Other securities		17,465	.03
Total bonds & notes (cost: $17,175,516,000)		16,566,171	29.98
	Principal	Market	Percent
	amount	value	of net
Short-term securities  - 7.49%	(000)	(000)	assets
Federal Home Loan Bank 1.73%-2.55% due 7/11-9/4/2008	$                          854,288	851,974	1.54
Freddie Mac 1.72%-2.13% due 7/9-11/18/2008	374,200	372,702	.67
Wells Fargo & Co. 2.35%-2.44% due 8/28-9/19/2008	212,700	211,803	.38
Coca-Cola Co. 1.98%-2.16% due 7/14-9/19/2008 (3)	199,900	199,076	.36
Fannie Mae 2.06%-2.07% due 7/23-8/6/2008	105,000	104,805	.19
Wal-Mart Stores Inc. 2.12%-2.15% due 7/14-9/3/2008 (3)	74,500	74,312	.13
Ciesco LLC 2.55%-2.59% due 7/21-7/30/2008 (3)	70,000	69,862	.13
NetJets Inc. 1.98%-2.15% due 7/17-7/22/2008 (3)	50,000	49,937	.09
U.S. Treasury Bills 1.81% due 9/25/2008	31,005	30,879	.06
General Electric Capital Services, Inc. 2.53% due 7/16/2008	28,700	28,672	.05
Other securities		2,146,590	3.89
Total short-term securities (cost: $4,141,785,000)		4,140,612	7.49
Total investment securities (cost: $53,424,318,000)		55,789,539	100.96
Other assets less liabilities		(527,466)	(.96)
Net assets		$55,262,073	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.
The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.
(1) Security did not produce income during the last 12 months.
(2) Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in "Other securities," was $1,518,063,000, which represented 2.75% of the net assets of the fund.
(3) Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the United States in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in "Other securities," was $4,317,919,000, which represented 7.81% of the net assets of the fund.
(4) Coupon rate may change periodically.
(5) Principal payments may be made periodically.  Therefore, the effective maturity date may be earlier than the stated maturity date.
(6) Index-linked bond whose principal amount moves with a government retail price index.
Key to abbreviation
ADR = American Depositary Receipts
See Notes to Financial Statements

Financial statements

unaudited

Statement of assets and liabilities
at June 30, 2008	(dollars in thousands)
Assets:
Investment securities at market (cost: $53,424,318)			$	55,789,539
Cash				25,045
Receivables for:
Sales of investments	$	84,774
Sales of fund's shares		71,174
Dividends and interest		229,094		385,042
				56,199,626
Liabilities:
Payables for:
Purchases of investments		721,418
Repurchases of fund's shares		174,954
Investment advisory services		10,058
Services provided by affiliates		28,577
Directors' deferred compensation		1,930
Other		616		937,553
Net assets at June 30, 2008			$	55,262,073
Net assets consist of:
Capital paid in on shares of capital stock			$	53,316,004
Undistributed net investment income				122,829
Accumulated net realized loss				(542,153	)
Net unrealized appreciation				2,365,393
Net assets at June 30, 2008			$	55,262,073

(dollars and shares in thousands, except per-share amounts)
Total authorized capital stock - 5,500,000 shares, $.001 par value (3,201,683 total shares outstanding)
	Net assets		Shares outstanding		Net asset value per share*
Class A	$	34,480,222		1,995,566	$	17.28
Class B		4,705,927		273,252		17.22
Class C		5,451,643		316,824		17.21
Class F		1,232,627		71,356		17.27
Class 529-A		1,267,912		73,455		17.26
Class 529-B		317,516		18,403		17.25
Class 529-C		536,547		31,092		17.26
Class 529-E		79,605		4,614		17.25
Class 529-F		37,532		2,176		17.25
Class R-1		104,772		6,092		17.20
Class R-2		1,070,344		62,203		17.21
Class R-3		3,015,297		175,119		17.22
Class R-4		1,810,872		104,940		17.26
Class R-5		1,151,257		66,591		17.29
(*) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and 529-A, for which the maximum offering prices per share were $18.33 and $18.31, respectively.
See Notes to Financial Statements

Statement of operations					unaudited
for the six months ended June 30, 2008		(dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. taxes of $8,241)		$	435,107
Interest			552,040		$	987,147
Fees and expenses*:
Investment advisory services			68,579
Distribution services			119,573
Transfer agent services			23,607
Administrative services			13,569
Reports to shareholders			1,199
Registration statement and prospectus			786
Postage, stationery and supplies			2,309
Directors' compensation			125
Auditing and legal			28
Custodian			323
Other			122
Total fees and expenses before waiver			230,220
Less investment advisory services waiver			6,858
Total fees and expenses after waiver						223,362
Net investment income						763,785
Net realized loss and unrealized depreciation
on investments and currency:
Net realized loss on:
Investments			(521,582	)
Currency transactions			(1,058	)		(522,640	)
Net unrealized (depreciation) appreciation on:
Investments			(5,446,274	)
Currency translations			44			(5,446,230	)
Net realized loss and unrealized depreciation
on investments and currency						(5,968,870	)
Net decrease in net assets resulting from operations					$	(5,205,085	)
(*) Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.
See Notes to Financial Statements
Statements of changes in net assets		(dollars in thousands)
		Six months			Year ended
	ended June				December
			30, 2008*		31, 2007
Operations:
Net investment income		$	763,785		$	1,475,279
Net realized (loss) gain on investments and
currency transactions			(522,640	)		1,907,721
Net unrealized (depreciation) appreciation on investments
and currency translations			(5,446,230	)		224,752
Net (decrease) increase in net assets resulting from operations			(5,205,085	)		3,607,752
Dividends and distributions paid to shareholders:
Dividends from net investment income and currency gain			(801,778	)		(1,451,530	)
Distributions from net realized gain on investments			(440,270	)		(1,345,066	)
Total dividends and distributions paid to shareholders			(1,242,048	)		(2,796,596	)
Net capital share transactions			1,120,244			3,578,270
Total (decrease) increase in net assets			(5,326,889	)		4,389,426
Net assets:
Beginning of period			60,588,962			56,199,536
End of period (including undistributed
net investment income: $122,829 and $160,822, respectively)		$	55,262,073		$	60,588,962
*Unaudited.
See Notes to Financial Statements

Notes to financial statements                

             ��                                                                                       unaudited

1.  Organization and significant accounting policies

Organization – American Balanced Fund, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks conservation of capital, current income and long-term growth of both capital and income by investing in common stocks and fixed-income securities.

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

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

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

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

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

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

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

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

Dividends and distributions to shareholders –Dividends and distributions paid to shareholders are recorded on the ex-dividend date.

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

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

2.  Investments outside the U.S.

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

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

3.  Federal income taxation and distributions

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

As of and during the period ended June 30, 2008, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.

The fund is not subject to examination by U.S. federal tax authorities for tax years before 2004 and by state tax authorities for tax years before 2003.

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

The components of distributable earnings on a tax basis are reported as of the fund’s most recent year-end. As of December 31, 2007, the fund had tax basis undistributed ordinary income of $161,588,000 and undistributed long-term capital gains of $430,670,000.

As of June 30, 2008, the tax basis unrealized appreciation (depreciation) and cost of investment securities were as follows:

(dollars in thousands)
Gross unrealized appreciation on investment securities	$	6,739,903
Gross unrealized depreciation on investment securities		(4,385,111	)
Net unrealized appreciation on investment securities		2,354,792
Cost of investment securities		53,434,747

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

	Six months ended June 30, 2008						Year ended December 31, 2007
Share class	Ordinary income		Long-term capital gains		Total distributions paid		Ordinary income		Long-term capital gains		Total distributions paid
Class A	$	533,623	$	275,039	$	808,662	$	980,332	$	841,541	$	1,821,873
Class B		55,496		38,720		94,216		103,910		120,134		224,044
Class C		62,406		44,051		106,457		111,310		135,314		246,624
Class F		19,353		9,931		29,284		35,297		30,506		65,803
Class 529-A		18,724		9,715		28,439		32,076		29,147		61,223
Class 529-B		3,458		2,495		5,953		5,949		7,601		13,550
Class 529-C		5,794		4,147		9,941		9,777		12,566		22,343
Class 529-E		1,067		615		1,682		1,829		1,853		3,682
Class 529-F		557		262		819		905		788		1,693
Class R-1		1,207		806		2,013		1,808		2,316		4,124
Class R-2		12,089		8,441		20,530		21,104		25,958		47,062
Class R-3		42,164		23,940		66,104		76,178		73,791		149,969
Class R-4		27,499		14,212		41,711		49,609		42,800		92,409
Class R-5		18,341		7,896		26,237		21,446		20,751		42,197
Total	$	801,778	$	440,270	$	1,242,048	$	1,451,530	$	1,345,066	$	2,796,596

4.  Fees and transactions with related parties

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

Investment advisory services – The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.420% on the first $500 million of daily net assets and decreasing to 0.210% on such assets in excess of $71 billion. CRMC is currently waiving 10% of investment advisory services fees. During the six months ended June 30, 2008, total investment advisory services fees waived by CRMC were $6,858,000. As a result, the fee shown on the accompanying financial statements of $68,579,000, which was equivalent to an annualized rate of 0.238%, was reduced to $61,721,000, or 0.214% of average daily net assets.

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

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

For Class A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of June 30, 2008, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A.

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

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

Administrative services – The fund has an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all share classes other than Class A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant share class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. Each 529 share class is subject to an additional annual administrative services fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the 529 college savings plan.Although these amounts are included with administrative services fees on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.

Expenses under the agreements described above for the six months ended June 30, 2008, were as follows (dollars in thousands):

Share class	Distribution services	Transfer agent services	Administrative services
			CRMC administrative services	Transfer agent services	Commonwealth of Virginia administrative services
Class A	$43,402	$20,871	Not applicable	Not applicable	Not applicable
Class B	25,057	2,736	Not applicable	Not applicable	Not applicable
Class C	28,642	Included in administrative services	$3,971	$548	Not applicable
Class F	1,624		624	55	Not applicable
Class 529-A	1,398		609	96	$ 645
Class 529-B	1,641		156	41	164
Class 529-C	2,737		260	59	274
Class 529-E	204		38	6	41
Class 529-F	-		17	2	18
Class R-1	534		34	18	Not applicable
Class R-2	4,169		797	1,318	Not applicable
Class R-3	7,845		1,399	514	Not applicable
Class R-4	2,320		1,307	25	Not applicable
Class R-5	Not applicable		526	7	Not applicable
Total	$119,573	$23,607	$9,738	$2,689	$1,142

Directors’ deferred compensation – Since the adoption of the deferred compensation plan in 1993, directors who are unaffiliated with CRMCmay elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation of $125,000, shown on the accompanying financial statements, includes $186,000 in current fees (either paid in cash or deferred) and a net decrease of $61,000 in the value of the deferred amounts.

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

5. Disclosure of fair value measurements

The fund adopted the Statement of Financial Accounting Standards No. 157 (“FAS 157”), Fair Value Measurements, on January 1, 2008. FAS 157 requires the fund to classify its assets and liabilities based on valuation method using three levels. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the fund’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are generally high quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following table presents the fund’s valuation levels as of June 30, 2008 (dollars in thousands):

Investment securities
Level 1 – Quoted prices	$	33,501,319
Level 2 – Other significant observable inputs		22,255,901	(*)
Level 3 – Significant unobservable inputs		32,319
Total	$	55,789,539

The following table reconciles the valuation of the fund’s Level 3 investment securities and related transactions during the six months ended June 30, 2008 (dollars in thousands):

Beginning value at 1/1/2008	$	190,135
Net sales		(3,810	)
Net unrealized depreciation (†)		(9,590	)
Net transfers out of Level 3		(144,416	)
Ending value at 6/30/2008	$	32,319

Net unrealized depreciation during the period on Level 3 investment securities held at 6/30/2008 (†) $ (1,183 )

(*) Includes certain securities trading primarily outside the U.S. whose value the fund adjusted as a result of significant market movements following the close of local trading.

(†) Net unrealized depreciation is included in the related amounts on investments in the statement of operations.

6. Capital share transactions

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

Share class	Sales(*)				Reinvestments of dividends and distributions				Repurchases(*)						Net increase (decrease)
	Amount		Shares		Amount		Shares		Amount			Shares			Amount			Shares
Six months ended June 30, 2008
Class A	$	2,978,839		163,039	$	775,581		42,599	$	(3,244,120	)		(177,983	)	$	510,300			27,655
Class B		185,770		10,221		89,736		4,941		(400,222	)		(22,024	)		(124,716	)		(6,862	)
Class C		451,202		24,804		100,330		5,527		(536,977	)		(29,564	)		14,555			767
Class F		190,744		10,434		25,431		1,397		(211,805	)		(11,638	)		4,370			193
Class 529-A		115,698		6,336		28,434		1,563		(55,297	)		(3,026	)		88,835			4,873
Class 529-B		17,810		976		5,952		327		(12,014	)		(658	)		11,748			645
Class 529-C		55,486		3,039		9,939		546		(34,822	)		(1,907	)		30,603			1,678
Class 529-E		7,317		400		1,682		93		(4,073	)		(223	)		4,926			270
Class 529-F		7,582		418		819		45		(2,845	)		(155	)		5,556			308
Class R-1		28,161		1,538		1,996		110		(17,447	)		(963	)		12,710			685
Class R-2		184,020		10,124		20,508		1,130		(177,668	)		(9,772	)		26,860			1,482
Class R-3		408,709		22,397		66,094		3,642		(409,636	)		(22,472	)		65,167			3,567
Class R-4		383,427		20,892		41,709		2,294		(272,464	)		(14,929	)		152,672			8,257
Class R-5		457,244		24,865		26,174		1,437		(166,760	)		(9,246	)		316,658			17,056
Total net increase
(decrease)	$	5,472,009		299,483	$	1,194,385		65,651	$	(5,546,150	)		(304,560	)	$	1,120,244			60,574
Year ended December 31, 2007
Class A	$	6,267,912		319,127	$	1,748,923		89,690	$	(5,959,299	)		(303,537	)	$	2,057,536			105,280
Class B		373,510		19,119		213,611		10,987		(665,658	)		(33,984	)		(78,537	)		(3,878	)
Class C		957,450		48,945		232,473		11,967		(936,681	)		(47,906	)		253,242			13,006
Class F		385,326		19,618		56,897		2,920		(333,445	)		(16,953	)		108,778			5,585
Class 529-A		241,270		12,306		61,208		3,142		(118,911	)		(6,047	)		183,567			9,401
Class 529-B		37,533		1,914		13,548		696		(23,976	)		(1,219	)		27,105			1,391
Class 529-C		116,281		5,933		22,339		1,147		(78,824	)		(4,009	)		59,796			3,071
Class 529-E		16,013		817		3,680		189		(9,624	)		(489	)		10,069			517
Class 529-F		10,236		520		1,692		87		(4,134	)		(209	)		7,794			398
Class R-1		42,100		2,162		4,088		211		(25,553	)		(1,309	)		20,635			1,064
Class R-2		398,589		20,383		47,034		2,421		(372,699	)		(19,025	)		72,924			3,779
Class R-3		890,243		45,588		149,941		7,716		(843,517	)		(43,102	)		196,667			10,202
Class R-4		687,095		35,181		92,401		4,745		(667,360	)		(33,965	)		112,136			5,961
Class R-5		634,082		32,339		42,053		2,156		(129,577	)		(6,564	)		546,558			27,931
Total net increase
(decrease)	$	11,057,640		563,952	$	2,689,888		138,074	$	(10,169,258	)		(518,318	)	$	3,578,270			183,708
(*) Includes exchanges between share classes of the fund.

7. Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, of $3,450,726,000 and $1,811,892,000, respectively, during the six months ended June 30, 2008.

Financial highlights (1)

			(Loss) income from investment operations(2)				Dividends and distributions
		Net asset value, beginning of period	Net investment income		Net (losses) gains on securities (both realized and unrealized)	Total from investment operations	Dividends (from net investment income)	Distributions (from capital gains)	Total dividends and distributions	Net asset value, end of period	Total return (3) (4)	Net assets, end of period (in millions)	Ratio of expenses to average net assets before reimbursements /waivers		Ratio of expenses to average net assets after reimbursements /waivers (4)		Ratio of net income   to average net assets (4)
Class A:
Six months ended 6/30/2008	(5)	$19.31	$.26	$	(1.88)	$(1.62)	$(.27)	$(.14)	$(.41)	$17.28	(8.49)%	$34,480	.61%	(6)	.59%	(6)	2.83%	(6)
Year ended 12/31/2007		19.02	.53		.72	1.25	(.52)	(.44)	(.96)	19.31	6.60	37,999	.60		.58		2.68
Year ended 12/31/2006		17.82	.47		1.61	2.08	(.47)	(.41)	(.88)	19.02	11.80	35,431	.61		.58		2.57
Year ended 12/31/2005		18.00	.41		.15	.56	(.40)	(.34)	(.74)	17.82	3.12	33,009	.61		.59		2.31
Year ended 12/31/2004		17.29	.39		1.12	1.51	(.36)	(.44)	(.80)	18.00	8.92	29,162	.63		.62		2.23
Year ended 12/31/2003		14.42	.37		2.87	3.24	(.37)	-	(.37)	17.29	22.82	19,951	.67		.67		2.38
Class B:
Six months ended 6/30/2008	(5)	19.25	.19		(1.88)	(1.69)	(.20)	(.14)	(.34)	17.22	(8.86)	4,706	1.36	(6)	1.34	(6)	2.08	(6)
Year ended 12/31/2007		18.96	.38		.72	1.10	(.37)	(.44)	(.81)	19.25	5.83	5,391	1.35		1.32		1.94
Year ended 12/31/2006		17.77	.33		1.60	1.93	(.33)	(.41)	(.74)	18.96	10.95	5,386	1.36		1.33		1.82
Year ended 12/31/2005		17.95	.28		.15	.43	(.27)	(.34)	(.61)	17.77	2.37	5,180	1.36		1.34		1.56
Year ended 12/31/2004		17.24	.26		1.12	1.38	(.23)	(.44)	(.67)	17.95	8.15	4,849	1.37		1.37		1.48
Year ended 12/31/2003		14.38	.25		2.86	3.11	(.25)	-	(.25)	17.24	21.90	3,344	1.42		1.42		1.62
Class C:
Six months ended 6/30/2008	(5)	19.23	.18		(1.86)	(1.68)	(.20)	(.14)	(.34)	17.21	(8.83)	5,452	1.41	(6)	1.39	(6)	2.03	(6)
Year ended 12/31/2007		18.95	.37		.72	1.09	(.37)	(.44)	(.81)	19.23	5.73	6,078	1.40		1.37		1.89
Year ended 12/31/2006		17.76	.32		1.60	1.92	(.32)	(.41)	(.73)	18.95	10.90	5,743	1.41		1.38		1.77
Year ended 12/31/2005		17.94	.27		.15	.42	(.26)	(.34)	(.60)	17.76	2.30	5,582	1.42		1.40		1.51
Year ended 12/31/2004		17.24	.25		1.11	1.36	(.22)	(.44)	(.66)	17.94	8.02	4,976	1.44		1.44		1.42
Year ended 12/31/2003		14.38	.24		2.87	3.11	(.25)	-	(.25)	17.24	21.84	2,968	1.48		1.48		1.55
Class F:
Six months ended 6/30/2008	(5)	19.31	.26		(1.89)	(1.63)	(.27)	(.14)	(.41)	17.27	(8.53)	1,233	.60	(6)	.58	(6)	2.84	(6)
Year ended 12/31/2007		19.02	.53		.72	1.25	(.52)	(.44)	(.96)	19.31	6.61	1,374	.59		.57		2.69
Year ended 12/31/2006		17.82	.48		1.60	2.08	(.47)	(.41)	(.88)	19.02	11.83	1,247	.59		.57		2.59
Year ended 12/31/2005		18.00	.41		.15	.56	(.40)	(.34)	(.74)	17.82	3.10	1,238	.63		.61		2.30
Year ended 12/31/2004		17.29	.39		1.11	1.50	(.35)	(.44)	(.79)	18.00	8.88	1,110	.67		.67		2.19
Year ended 12/31/2003		14.42	.36		2.88	3.24	(.37)	-	(.37)	17.29	22.79	659	.69		.69		2.34
Class 529-A:
Six months ended 6/30/2008	(5)	19.29	.25		(1.88)	(1.63)	(.26)	(.14)	(.40)	17.26	(8.53)	1,268	.68	(6)	.66	(6)	2.76	(6)
Year ended 12/31/2007		19.01	.51		.72	1.23	(.51)	(.44)	(.95)	19.29	6.47	1,323	.68		.66		2.60
Year ended 12/31/2006		17.81	.47		1.60	2.07	(.46)	(.41)	(.87)	19.01	11.76	1,125	.66		.63		2.53
Year ended 12/31/2005		17.99	.40		.15	.55	(.39)	(.34)	(.73)	17.81	3.06	907	.67		.65		2.26
Year ended 12/31/2004		17.28	.38		1.12	1.50	(.35)	(.44)	(.79)	17.99	8.88	679	.69		.68		2.18
Year ended 12/31/2003		14.41	.37		2.87	3.24	(.37)	-	(.37)	17.28	22.87	389	.67		.67		2.36
Class 529-B:
Six months ended 6/30/2008	(5)	19.28	.18		(1.88)	(1.70)	(.19)	(.14)	(.33)	17.25	(8.89)	317	1.47	(6)	1.45	(6)	1.97	(6)
Year ended 12/31/2007		19.00	.36		.71	1.07	(.35)	(.44)	(.79)	19.28	5.64	342	1.47		1.44		1.81
Year ended 12/31/2006		17.80	.31		1.61	1.92	(.31)	(.41)	(.72)	19.00	10.87	311	1.48		1.45		1.70
Year ended 12/31/2005		17.99	.25		.14	.39	(.24)	(.34)	(.58)	17.80	2.15	265	1.51		1.49		1.41
Year ended 12/31/2004		17.28	.23		1.12	1.35	(.20)	(.44)	(.64)	17.99	7.94	219	1.56		1.56		1.30
Year ended 12/31/2003		14.41	.23		2.87	3.10	(.23)	-	(.23)	17.28	21.74	137	1.58		1.58		1.44
Class 529-C:
Six months ended 6/30/2008	(5)	19.29	.18		(1.88)	(1.70)	(.19)	(.14)	(.33)	17.26	(8.89)	537	1.47	(6)	1.45	(6)	1.98	(6)
Year ended 12/31/2007		19.00	.36		.72	1.08	(.35)	(.44)	(.79)	19.29	5.70	567	1.47		1.44		1.82
Year ended 12/31/2006		17.81	.32		1.59	1.91	(.31)	(.41)	(.72)	19.00	10.81	501	1.47		1.44		1.71
Year ended 12/31/2005		17.99	.26		.14	.40	(.24)	(.34)	(.58)	17.81	2.22	418	1.50		1.48		1.42
Year ended 12/31/2004		17.28	.23		1.12	1.35	(.20)	(.44)	(.64)	17.99	7.94	327	1.55		1.55		1.31
Year ended 12/31/2003		14.41	.23		2.87	3.10	(.23)	-	(.23)	17.28	21.76	193	1.57		1.57		1.46
Class 529-E:
Six months ended 6/30/2008	(5)	19.28	.23		(1.88)	(1.65)	(.24)	(.14)	(.38)	17.25	(8.66)	80	.96	(6)	.94	(6)	2.48	(6)
Year ended 12/31/2007		19.00	.46		.71	1.17	(.45)	(.44)	(.89)	19.28	6.18	84	.96		.94		2.32
Year ended 12/31/2006		17.80	.41		1.61	2.02	(.41)	(.41)	(.82)	19.00	11.44	73	.96		.93		2.23
Year ended 12/31/2005		17.98	.35		.14	.49	(.33)	(.34)	(.67)	17.80	2.73	59	.99		.97		1.93
Year ended 12/31/2004		17.28	.32		1.11	1.43	(.29)	(.44)	(.73)	17.98	8.44	45	1.04		1.03		1.83
Year ended 12/31/2003		14.41	.31		2.87	3.18	(.31)	-	(.31)	17.28	22.37	27	1.05		1.05		1.97
Class 529-F:
Six months ended 6/30/2008	(5)	$19.28	$.27	$	(1.88)	$(1.61)	$(.28)	$(.14)	$(.42)	$17.25	(8.43)%	$37	.46%	(6)	.44%	(6)	2.98%	(6)
Year ended 12/31/2007		19.00	.56		.71	1.27	(.55)	(.44)	(.99)	19.28	6.71	36	.46		.44		2.82
Year ended 12/31/2006		17.80	.50		1.61	2.11	(.50)	(.41)	(.91)	19.00	11.99	28	.46		.43		2.73
Year ended 12/31/2005		17.98	.42		.15	.57	(.41)	(.34)	(.75)	17.80	3.15	19	.57		.55		2.35
Year ended 12/31/2004		17.27	.37		1.12	1.49	(.34)	(.44)	(.78)	17.98	8.78	14	.79		.78		2.09
Year ended 12/31/2003		14.41	.35		2.86	3.21	(.35)	-	(.35)	17.27	22.63	7	.80		.80		2.16
Class R-1:
Six months ended 6/30/2008	(5)	19.22	.19		(1.87)	(1.68)	(.20)	(.14)	(.34)	17.20	(8.81)	105	1.35	(6)	1.32	(6)	2.11	(6)
Year ended 12/31/2007		18.94	.37		.72	1.09	(.37)	(.44)	(.81)	19.22	5.74	104	1.40		1.37		1.89
Year ended 12/31/2006		17.75	.32		1.60	1.92	(.32)	(.41)	(.73)	18.94	10.91	82	1.41		1.39		1.77
Year ended 12/31/2005		17.94	.27		.13	.40	(.25)	(.34)	(.59)	17.75	2.24	62	1.45		1.42		1.49
Year ended 12/31/2004		17.24	.25		1.11	1.36	(.22)	(.44)	(.66)	17.94	8.01	41	1.48		1.46		1.43
Year ended 12/31/2003		14.39	.24		2.86	3.10	(.25)	-	(.25)	17.24	21.77	16	1.52		1.48		1.50
Class R-2:
Six months ended 6/30/2008	(5)	19.23	.19		(1.87)	(1.68)	(.20)	(.14)	(.34)	17.21	(8.83)	1,070	1.38	(6)	1.36	(6)	2.06	(6)
Year ended 12/31/2007		18.95	.37		.71	1.08	(.36)	(.44)	(.80)	19.23	5.71	1,168	1.41		1.39		1.87
Year ended 12/31/2006		17.76	.32		1.60	1.92	(.32)	(.41)	(.73)	18.95	10.90	1,079	1.45		1.39		1.77
Year ended 12/31/2005		17.94	.27		.15	.42	(.26)	(.34)	(.60)	17.76	2.31	902	1.48		1.40		1.51
Year ended 12/31/2004		17.24	.25		1.11	1.36	(.22)	(.44)	(.66)	17.94	8.05	648	1.55		1.42		1.45
Year ended 12/31/2003		14.39	.24		2.87	3.11	(.26)	-	(.26)	17.24	21.83	293	1.70		1.44		1.54
Class R-3:
Six months ended 6/30/2008	(5)	19.24	.23		(1.87)	(1.64)	(.24)	(.14)	(.38)	17.22	(8.59)	3,015	.87	(6)	.85	(6)	2.57	(6)
Year ended 12/31/2007		18.96	.46		.72	1.18	(.46)	(.44)	(.90)	19.24	6.23	3,301	.92		.90		2.36
Year ended 12/31/2006		17.77	.41		1.60	2.01	(.41)	(.41)	(.82)	18.96	11.44	3,059	.92		.90		2.26
Year ended 12/31/2005		17.95	.36		.15	.51	(.35)	(.34)	(.69)	17.77	2.83	2,541	.91		.89		2.02
Year ended 12/31/2004		17.25	.34		1.10	1.44	(.30)	(.44)	(.74)	17.95	8.52	1,828	.97		.97		1.94
Year ended 12/31/2003		14.40	.31		2.85	3.16	(.31)	-	(.31)	17.25	22.27	563	1.05		1.05		1.94
Class R-4:
Six months ended 6/30/2008	(5)	19.28	.26		(1.87)	(1.61)	(.27)	(.14)	(.41)	17.26	(8.46)	1,811	.64	(6)	.62	(6)	2.81	(6)
Year ended 12/31/2007		19.00	.52		.71	1.23	(.51)	(.44)	(.95)	19.28	6.50	1,865	.65		.62		2.64
Year ended 12/31/2006		17.80	.47		1.60	2.07	(.46)	(.41)	(.87)	19.00	11.78	1,724	.65		.62		2.53
Year ended 12/31/2005		17.99	.41		.13	.54	(.39)	(.34)	(.73)	17.80	3.03	1,441	.65		.63		2.28
Year ended 12/31/2004		17.28	.39		1.11	1.50	(.35)	(.44)	(.79)	17.99	8.89	830	.67		.66		2.23
Year ended 12/31/2003		14.41	.36		2.88	3.24	(.37)	-	(.37)	17.28	22.81	258	.68		.68		2.28
Class R-5:
Six months ended 6/30/2008	(5)	19.32	.28		(1.88)	(1.60)	(.29)	(.14)	(.43)	17.29	(8.36)	1,151	.34	(6)	.32	(6)	3.11	(6)
Year ended 12/31/2007		19.03	.58		.72	1.30	(.57)	(.44)	(1.01)	19.32	6.86	957	.35		.33		2.94
Year ended 12/31/2006		17.83	.52		1.61	2.13	(.52)	(.41)	(.93)	19.03	12.08	411	.35		.33		2.82
Year ended 12/31/2005		18.01	.46		.15	.61	(.45)	(.34)	(.79)	17.83	3.38	324	.36		.34		2.57
Year ended 12/31/2004		17.30	.44		1.12	1.56	(.41)	(.44)	(.85)	18.01	9.21	246	.37		.36		2.51
Year ended 12/31/2003		14.43	.41		2.87	3.28	(.41)	-	(.41)	17.30	23.16	127	.38		.38		2.62

	Six months ended June 30,			Year ended December 31
	2008(5)			2007			2006			2005			2004			2003
Portfolio turnover rate for all classes of shares		18	%		35	%		34	%		35	%		25	%		32	%

(1) Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year.

(2) Based on average shares outstanding.

(3) Total returns exclude any applicable sales charges, including contingent deferred sales charges.

(4) This column reflects the impact, if any, of certain reimbursements/waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services. In addition, during some of the periods shown, CRMC paid a portion of the fund's transfer agent fees for certain retirement plan share classes.

(5) Unaudited.

(6) Annualized.

See Notes to Financial Statements

Expense example

unaudited

As a shareholder of the fund, you incur two types of costs: (1) transaction costs such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2008, through June 30, 2008).

Actual expenses:

The first line of each share class in the table on the next page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes:

The second line of each share class in the table on the next page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Notes:

There are some account fees that are charged to certain types of accounts, such as individual retirement accounts and 529 college savings plan accounts(generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually) that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F and 529-Fshareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In addition, your ending account value would also be lower by the amount of these fees.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Beginning account value 1/1/2008		Ending account value 6/30/2008		Expenses paid during period*		Annualized expense ratio
Class A -- actual return	$	1,000.00	$	915.13	$	2.81		.59	%
Class A -- assumed 5% return		1,000.00		1,021.93		2.97		.59
Class B -- actual return		1,000.00		911.42		6.37		1.34
Class B -- assumed 5% return		1,000.00		1,018.20		6.72		1.34
Class C -- actual return		1,000.00		911.67		6.61		1.39
Class C -- assumed 5% return		1,000.00		1,017.95		6.97		1.39
Class F -- actual return		1,000.00		914.65		2.76		.58
Class F -- assumed 5% return		1,000.00		1,021.98		2.92		.58
Class 529-A -- actual return		1,000.00		914.73		3.14		.66
Class 529-A -- assumed 5% return		1,000.00		1,021.58		3.32		.66
Class 529-B -- actual return		1,000.00		911.08		6.89		1.45
Class 529-B -- assumed 5% return		1,000.00		1,017.65		7.27		1.45
Class 529-C -- actual return		1,000.00		911.14		6.89		1.45
Class 529-C -- assumed 5% return		1,000.00		1,017.65		7.27		1.45
Class 529-E -- actual return		1,000.00		913.39		4.47		.94
Class 529-E -- assumed 5% return		1,000.00		1,020.19		4.72		.94
Class 529-F -- actual return		1,000.00		915.70		2.10		.44
Class 529-F -- assumed 5% return		1,000.00		1,022.68		2.21		.44
Class R-1 -- actual return		1,000.00		911.86		6.27		1.32
Class R-1 -- assumed 5% return		1,000.00		1,018.30		6.62		1.32
Class R-2 -- actual return		1,000.00		911.67		6.46		1.36
Class R-2 -- assumed 5% return		1,000.00		1,018.10		6.82		1.36
Class R-3 -- actual return		1,000.00		914.05		4.05		.85
Class R-3 -- assumed 5% return		1,000.00		1,020.64		4.27		.85
Class R-4 -- actual return		1,000.00		915.37		2.95		.62
Class R-4 -- assumed 5% return		1,000.00		1,021.78		3.12		.62
Class R-5 -- actual return		1,000.00		916.39		1.52		.32
Class R-5 -- assumed 5% return		1,000.00		1,023.27		1.61		.32

*The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period (182), and divided by 366 (to reflect the one-half year period).

Other share class results

unaudited

Class B, Class C, Class F and Class 529

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com.

Average annual total returns for periods ended							Life
June 30, 2008:	1 year			5 years			of class
Class B shares — first sold 3/15/00
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares
are sold within six years of purchase		–12.83	%		5.34	%		6.92	%
Not reflecting CDSC		–8.48			5.66			6.92
Class C shares — first sold 3/15/01
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase		–9.39			5.61			4.91
Not reflecting CDSC		–8.52			5.61			4.91
Class F shares* — first sold 3/15/01
Not reflecting annual asset-based fee charged
by sponsoring firm		–7.80			6.44			5.74
Class 529-A shares† — first sold 2/15/02
Reflecting 5.75% maximum sales charge		–13.17			5.13			4.54
Not reflecting maximum sales charge		–7.88			6.39			5.52
Class 529-B shares† — first sold 2/15/02
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase		–12.96			5.18			4.63
Not reflecting CDSC		–8.61			5.51			4.63
Class 529-C shares† — first sold 2/19/02
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase		–9.43			5.53			4.87
Not reflecting CDSC		–8.56			5.53			4.87
Class 529-E shares*† — first sold 3/5/02		–8.14			6.05			4.74
Class 529-F shares*† — first sold 9/17/02
Not reflecting annual asset-based fee charged
by sponsoring firm		–7.67			6.50			7.77
*These shares are sold without any initial or contingent deferred sales charge.
† Results shown do not reflect the $10 initial account setup fee and an annual $10 account maintenance fee.

The fund’s investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005. Fund results shown reflect the waiver, without which they would have been lower. Please see the Financial Highlights table on pages 22 to 25 for details that include expense ratios for all share classes.

For information regarding the differences among the various share classes, please refer to the fund’s prospectus.

Office of the fund

One Market

Steuart Tower, Suite 1800

Mailing address: P.O. Box 7650

San Francisco, CA 94120-7650

Investment adviser

Capital Research and Management Company

333 South Hope Street

Los Angeles, CA 90071-1406

6455 Irvine Center Drive

Irvine, CA 92618

Custodian of assets

JPMorgan Chase Bank

270 Park Avenue

New York, NY 10017-2070

Independent registered public

accounting firm

Deloitte & Touche LLP

695 Town Center Drive

Suite 1200

Costa Mesa, CA 92626-7188

Transfer agent for shareholder accounts

American Funds Service Company

(Please write to the address nearest you.)

P.O. Box 25065

Santa Ana, CA 92799-5065

P.O. Box 659522

San Antonio, TX 78265-9522

P.O. Box 6007

Indianapolis, IN 46206-6007

P.O. Box 2280

Norfolk, VA 23501-2280

Counsel

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street

Los Angeles, CA 90071-2228

Principal underwriter

American Funds Distributors, Inc.

333 South Hope Street

Los Angeles, CA 90071-1406

Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in the fund’s prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at 800/421-0180 or visit the American Funds website at americanfunds.com.

“American Funds Proxy Voting Guidelines” — which describes how we vote proxies relating to portfolio securities — is available free of charge on the U.S. Securities and Exchange Commission (SEC) website at sec.gov, on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the SEC for the 12 months ended June 30 by August 31. The report also is available on the SEC and American Funds websites.

A complete June 30, 2008, portfolio of American Balanced Fund’s investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).

American Balanced Fund files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. (800/SEC-0330). Additionally, the list of portfolio holdings also is available by calling AFS.

This report is for the information of shareholders of American Balanced Fund, but it also may be used as sales literature when preceded or accompanied by the current prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after September 30, 2008, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.

[logo - American Funds®]

The right choice for the long term®

What makes American Funds different?

For more than 75 years, we have followed a consistent philosophy to benefit our investors. Our 30 carefully conceived, broadly diversified funds, in addition to the target date retirement series, offer opportunities that have attracted over 50 million shareholder accounts.

Our unique combination of strengths includes these five factors:

•A long-term, value-oriented approach

We seek to buy securities at reasonable prices relative to their prospects and hold them for the long term.

•An extensive global research effort

Our investment professionals travel the world to find the best investment opportunities and gain a comprehensive understanding of companies and markets.

•The multiple portfolio counselor system

Our unique method of portfolio management, developed 50 years ago, blends teamwork with individual accountability and has provided American Funds with a sustainable method of achieving fund objectives.

•Experienced investment professionals

American Funds portfolio counselors have an average of 26 years of investment experience, providing a wealth of knowledge and experience that few organizations have.

•A commitment to low operating expenses

The American Funds provide exceptional value for shareholders, with operating expenses that are among the lowest in the mutual fund industry.

American Funds span a range of investment objectives

•Growth funds

AMCAP Fund®

EuroPacific Growth Fund®

The Growth Fund of America®

The New Economy Fund®

New Perspective Fund®

New World FundSM

SMALLCAP World Fund®

•Growth-and-income funds

American Mutual Fund®

Capital World Growth and Income FundSM

Fundamental InvestorsSM

The Investment Company of America®

Washington Mutual Investors FundSM

•Equity-income funds

Capital Income Builder®

The Income Fund of America®

•Balanced fund

>American Balanced Fund®

•Bond funds

American High-Income TrustSM

The Bond Fund of AmericaSM

Capital World Bond Fund®

Intermediate Bond Fund of America®

Short-Term Bond Fund of AmericaSM

U.S. Government Securities FundSM

•Tax-exempt bond funds

American High-Income Municipal Bond Fund®

Limited Term Tax-Exempt Bond Fund of AmericaSM

The Tax-Exempt Bond Fund of America®

State-specific tax-exempt funds

The Tax-Exempt Fund of California®

The Tax-Exempt Fund of Maryland®

The Tax-Exempt Fund of Virginia®

•Money market funds

The Cash Management Trust of America®

The Tax-Exempt Money Fund of AmericaSM

The U.S. Treasury Money Fund of AmericaSM

•American Funds Target Date Retirement Series®

The Capital Group Companies

American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust

Lit. No. MFGESR-911-0808P

Litho in USA AGD/ALD/8077-S16784

Printed on paper containing 10% post-consumer waste

Printed with inks containing soy and/or vegetable oil

ITEM 2 – Code of Ethics

Not applicable for filing of semi-annual reports to shareholders.

ITEM 3 – Audit Committee Financial Expert

Not applicable for filing of semi-annual reports to shareholders.

ITEM 4 – Principal Accountant Fees and Services

Not applicable for filing of semi-annual reports to shareholders.

ITEM 5 – Audit Committee of Listed Registrants

Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.

ITEM 6 – Schedule of Investments

[logo – American Funds®]

American Balanced Fund®

Investment portfolio

June 30, 2008 

unaudited

Common stocks — 62.46%	Shares			Market value (000)
INFORMATION TECHNOLOGY — 12.59%
International Business Machines Corp.		8,790,000		$	1,041,879
Oracle Corp.1		39,000,000			819,000
Cisco Systems, Inc.1		34,257,000			796,818
Microsoft Corp.		28,720,000			790,087
Nokia Corp. (ADR)		24,759,000			606,596
Yahoo! Inc.1		25,059,000			517,719
Google Inc., Class A1		760,000			400,079
Intel Corp.		16,500,000			354,420
Hewlett-Packard Co.		7,500,000			331,575
QUALCOMM Inc.		6,000,000			266,220
Corning Inc.		8,000,000			184,400
Agilent Technologies, Inc.1		5,000,000			177,700
EMC Corp.1		10,500,000			154,245
Automatic Data Processing, Inc.		2,750,000			115,225
Intuit Inc.1		4,000,000			110,280
Texas Instruments Inc.		3,000,000			84,480
Paychex, Inc.		2,500,000			78,200
Dell Inc.1		3,000,000			65,640
Motorola, Inc.		6,000,000			44,040
Nortel Networks Corp.1		2,535,000			20,802
					6,959,405
INDUSTRIALS — 8.90%
General Electric Co.		32,500,000			867,425
Northrop Grumman Corp.		8,735,000			584,372
FedEx Corp.		5,200,000			409,708
Caterpillar Inc.		5,400,000			398,628
Burlington Northern Santa Fe Corp.		3,000,000			299,670
United Technologies Corp.		4,630,000			285,671
Deere & Co.		3,750,000			270,488
Union Pacific Corp.		3,400,000			256,700
United Parcel Service, Inc., Class B		4,000,000			245,880
Parker Hannifin Corp.		3,000,000			213,960
Emerson Electric Co.		4,000,000			197,800
Boeing Co.		3,000,000			197,160
General Dynamics Corp.		2,100,000			176,820
Koninklijke Philips Electronics NV2		4,250,000			143,601
Tyco International Ltd.		3,460,000			138,538
Illinois Tool Works Inc.		2,700,000			128,277
European Aeronautic Defence and Space Co. EADS NV2		5,500,000			103,290
					4,917,988
HEALTH CARE — 7.65%
Eli Lilly and Co.		13,102,000			604,788
Abbott Laboratories		8,500,000			450,245
Wyeth		8,800,000			422,048
Johnson & Johnson		5,200,000			334,568
Aetna Inc.		7,900,000			320,187
Roche Holding AG2		1,558,422			280,537
Medtronic, Inc.		5,400,000			279,450
Merck & Co., Inc.		7,227,200			272,393
Pfizer Inc		13,700,000			239,339
UnitedHealth Group Inc.		8,300,000			217,875
Bristol-Myers Squibb Co.		9,500,000			195,035
Amgen Inc.1		4,000,000			188,640
Schering-Plough Corp.		6,000,000			118,140
Stryker Corp.		1,800,000			113,184
CIGNA Corp.		3,000,000			106,170
AstraZeneca PLC (ADR)		2,000,000			85,060
					4,227,659
ENERGY — 7.47%
Chevron Corp.		10,300,000			1,021,039
Schlumberger Ltd.		5,300,000			569,379
Occidental Petroleum Corp.		6,150,000			552,639
Exxon Mobil Corp.		6,100,000			537,593
Royal Dutch Shell PLC, Class A (ADR)		2,550,000			208,360
Royal Dutch Shell PLC, Class B (ADR)		1,800,000			144,198
EnCana Corp.		2,500,000			229,228
TOTAL SA (ADR)		2,500,000			213,175
Diamond Offshore Drilling, Inc.		1,500,000			208,710
ConocoPhillips		1,650,000			155,744
Marathon Oil Corp.		3,000,000			155,610
Baker Hughes Inc.		1,500,000			131,010
					4,126,685
CONSUMER STAPLES — 7.21%
Wal-Mart Stores, Inc.		18,250,000			1,025,650
Walgreen Co.		17,650,000			573,802
Philip Morris International Inc.		10,350,000			511,186
Coca-Cola Co.		9,750,000			506,805
Kraft Foods Inc., Class A		10,500,000			298,725
PepsiCo, Inc.		3,800,000			241,642
Altria Group, Inc.		11,500,000			236,440
Avon Products, Inc.		5,700,000			205,314
H.J. Heinz Co.		2,750,000			131,587
Unilever NV (New York registered)		4,500,000			127,800
Anheuser-Busch Companies, Inc.		2,000,000			124,240
					3,983,191
FINANCIALS — 6.05%
Berkshire Hathaway Inc., Class A1		6,770			817,478
Wells Fargo & Co.		18,665,000			443,294
Citigroup Inc.		25,340,000			424,698
Bank of America Corp.		10,300,000			245,861
SunTrust Banks, Inc.		5,755,000			208,446
American Express Co.		5,000,000			188,350
Allstate Corp.		4,100,000			186,919
Fannie Mae		8,600,000			167,786
American International Group, Inc.		6,000,000			158,760
Marsh & McLennan Companies, Inc.		4,700,000			124,785
Lincoln National Corp.		2,650,000			120,098
Chubb Corp.		2,300,000			112,723
Société Générale2		550,000			47,377
Freddie Mac		2,500,000			41,000
Wachovia Corp.		2,526,800			39,241
Washington Mutual, Inc.		3,500,000			17,255
					3,344,071
CONSUMER DISCRETIONARY — 4.58%
Target Corp.		11,329,348			526,701
Time Warner Inc.		31,250,000			462,500
Lowe’s Companies, Inc.		14,200,000			294,650
Kohl’s Corp.1		6,100,000			244,244
Best Buy Co., Inc.		5,100,000			201,960
News Corp., Class A		12,700,000			191,008
Carnival Corp., units		4,916,100			162,035
Magna International Inc., Class A		1,750,000			103,670
Sony Corp.2		2,200,000			94,689
Macy’s, Inc.		4,500,000			87,390
CBS Corp., Class B		3,605,400			70,269
Gannett Co., Inc.		2,400,000			52,008
Home Depot, Inc.		1,650,000			38,643
					2,529,767
TELECOMMUNICATION SERVICES — 3.09%
AT&T Inc.		25,062,500			844,356
Vodafone Group PLC2		110,312,500			325,142
Verizon Communications Inc.		8,500,000			300,900
Sprint Nextel Corp., Series 1		25,000,000			237,500
					1,707,898
MATERIALS — 2.64%
Alcoa Inc.		11,000,000			391,820
E.I. du Pont de Nemours and Co.		8,500,000			364,565
Weyerhaeuser Co.		4,590,000			234,733
Bayer AG, non-registered shares2		2,000,000			168,089
Rohm and Haas Co.		2,912,000			135,233
Dow Chemical Co.		2,800,000			97,748
International Paper Co.		2,850,000			66,405
					1,458,593
UTILITIES — 0.90%
Exelon Corp.		5,500,000			494,780
MISCELLANEOUS — 1.38%
Other common stocks in initial period of acquisition					764,301
Total common stocks (cost: $31,421,029,000)					34,514,338
				Market value
Preferred stocks — 0.97%	Shares				(000	)
FINANCIALS — 0.81%
Fannie Mae, Series O, 7.00%3,4		805,000			38,162
Fannie Mae, Series E, 5.10%		108,000			3,692
Washington Mutual Preferred Funding Trust I, Series A-1, 6.534%3,4		107,000,000			47,592
Washington Mutual Preferred Funding Trust IV 9.75%3,4		18,000,000			14,195
BNP Paribas 7.195%3,4		57,500,000			52,143
BNP Paribas Capital Trust 9.003% noncumulative trust3,4		6,000,000			6,265
Barclays Bank PLC 7.434%3,4		50,975,000			47,892
Bank of America Corp., Series K, 8.00% noncumulative4		23,500,000			22,052
AXA SA, Series B, 6.379%3,4		42,000,000			33,783
SMFG Preferred Capital USD 1 Ltd. 6.078%3,4		32,456,000			27,605
QBE Capital Funding II LP 6.797%3,4		24,470,000			20,546
XL Capital Ltd., Series E, 6.50%4		25,035,000			16,924
Lloyds TSB Group PLC 6.267%3,4		19,100,000			15,259
ILFC E-Capital Trust II 6.25%3,4		17,930,000			14,987
Aspen Insurance Holdings Ltd. 7.401% noncumulative4		515,000			11,346
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital securities3		370,000			10,880
Freddie Mac, Series V, 5.57%		334,000			5,926
Standard Chartered PLC 6.409%3,4		12,400,000			9,966
Mizuho Capital Investment (USD) 1 Ltd. 6.686% noncumulative3,4		11,650,000			9,910
PNC Preferred Funding Trust I 6.517%3,4		12,000,000			9,576
National Bank of Canada, Series A, 8.35% exchangeable depositary shares		300,000			7,098
ING Capital Funding Trust III 8.439% noncumulative4		6,750,000			6,824
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up3,4		5,000,000			6,149
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares3,4		5,500,000			5,564
CIT Group Inc., Series B, 5.189%		70,000			3,649
					447,985
U.S. GOVERNMENT AGENCY SECURITIES — 0.01%
US AgBank 6.11%3,4		10,000,000			6,915
MISCELLANEOUS — 0.15%
Other preferred stocks in initial period of acquisition					80,299
Total preferred stocks (cost: $650,277,000)					535,199
	Shares or
Convertible securities — 0.06%	principal amount
FINANCIALS — 0.06%
Countrywide Financial Corp., Series A, 0.00% convertible debentures 20373,4	$	25,000,000			24,219
Fannie Mae, Series 2004-1, 5.375% convertible preferred		150			9,000
Total convertible securities (cost: $35,711,000)					33,219
	Principal amount			Market value
Bonds & notes — 29.98%		(000	)		(000	)
CORPORATE BONDS & NOTES — 10.94%
FINANCIALS — 4.32%
International Lease Finance Corp. 5.00% 2010	$	5,000		$	4,849
American General Finance Corp., Series J, 2.999% 20114		10,000			9,220
International Lease Finance Corp. 5.00% 2012		10,000			8,684
International Lease Finance Corp., Series R, 5.40% 2012		7,500			6,737
International Lease Finance Corp., Series R, 5.625% 2013		10,000			8,752
American General Finance Corp., Series I, 5.85% 2013		2,500			2,207
International Lease Finance Corp. 5.875% 2013		12,100			10,806
International Lease Finance Corp., Series R, 5.65% 2014		16,000			13,916
American General Finance Corp., Series I, 5.40% 2015		7,500			6,374
American General Finance Corp., Series J, 6.50% 2017		19,000			16,717
American General Finance Corp., Series J, 6.90% 2017		15,500			13,532
American International Group, Inc. 8.175% 20583,4		21,820			20,590
ILFC E-Capital Trust I 5.90% 20653,4		4,500			3,645
American International Group, Inc., Series A-1, 6.25% 20874		7,790			6,115
Citigroup Inc. 4.125% 2010		20,000			19,823
Citigroup Inc. 5.125% 2011		15,000			14,952
Citigroup Inc. 6.125% 2017		16,000			15,382
Citigroup Inc., Series E, 8.40% (undated)4		35,050			33,363
Citigroup Capital XXI 8.30% 20774		44,800			42,417
Liberty Mutual Group Inc. 6.50% 20353		19,845			15,670
Liberty Mutual Group Inc. 7.50% 20363		25,350			22,228
Liberty Mutual Group Inc., Series A, 7.80% 20873		4,505			3,605
Liberty Mutual Group Inc., Series C, 10.75% 20883,4		34,095			32,716
Liberty Mutual Group Inc. 7.697% 20973		22,180			18,871
JPMorgan Chase & Co. 4.891% 20154		20,000			19,630
JPMorgan Chase Bank NA 6.00% 2017		5,000			4,866
Bear Stearns Companies Inc. 7.25% 2018		17,000			17,771
JPMorgan Chase Capital XXV, Series Y, 6.80% 2037		14,865			13,382
JPMorgan Chase & Co., Series I, 7.90% (undated)4		37,250			35,031
Metropolitan Life Global Funding I, 5.125% 20133		12,000			11,829
MetLife Capital Trust IV 7.875% 20673,4		4,500			4,422
MetLife Capital Trust X 9.25% 20683,4		50,700			54,739
Westfield Group 5.70% 20163		36,430			34,074
Westfield Group 7.125% 20183		35,750			36,712
Royal Bank of Scotland Group PLC 6.99% (undated)3,4		67,300			60,796
CIT Group Inc. 6.875% 2009		11,500			10,706
CIT Group Inc. 3.187% 20114		5,000			4,082
CIT Group Inc. 7.625% 2012		21,000			17,470
CIT Group Inc. 5.40% 2013		31,000			23,592
CIT Group Inc. 6.10% 20674		5,000			2,302
Countrywide Home Loans, Inc., Series M, 4.125% 2009		5,250			5,016
Countrywide Home Loans, Inc., Series H, 6.25% 2009		2,490			2,453
Countrywide Financial Corp., Series A, 4.50% 2010		8,975			8,356
Countrywide Home Loans, Inc., Series L, 4.00% 2011		3,500			3,188
Countrywide Financial Corp., Series B, 3.21% 20124		15,000			13,594
Countrywide Financial Corp., Series B, 5.80% 2012		25,655			24,285
Hartford Financial Services Group, Inc. 6.30% 2018		9,000			9,007
Glen Meadow Pass-Through Trust 6.505% 20673,4		36,750			31,211
Hartford Financial Services Group, Inc. 8.125% 20684		12,250			11,942
Wachovia Corp. 5.50% 2013		15,000			14,371
Wachovia Bank NA 6.60% 2038		41,750			36,489
Washington Mutual, Inc. 5.55% 2010		15,000			13,881
Washington Mutual, Inc. 5.00% 2012		4,000			3,463
Washington Mutual Bank 3.115% 20134		5,000			4,038
Washington Mutual, Inc. 5.95% 2013		3,500			2,908
Washington Mutual Bank, FA, Series 16, 5.125% 2015		31,175			24,036
UniCredito Italiano SpA 5.584% 20173,4		40,000			38,628
UniCredito Italiano SpA 6.00% 20172,3		10,000			9,313
PRICOA Global Funding I 4.20% 20103		11,000			10,976
Prudential Financial, Inc., Series D, 5.50% 2016		14,000			13,682
Prudential Holdings, LLC, Series C, 8.695% 20233,5		19,500			22,730
Kimco Realty Corp. 6.00% 2012		2,750			2,680
Kimco Realty Corp., Series C, 4.82% 2014		13,000			11,845
Kimco Realty Corp., Series C, 5.783% 2016		14,000			12,933
Kimco Realty Corp. 5.70% 2017		21,180			19,455
CNA Financial Corp. 5.85% 2014		25,000			24,020
CNA Financial Corp. 6.50% 2016		16,000			15,446
CNA Financial Corp. 7.25% 2023		8,000			7,438
Developers Diversified Realty Corp. 3.875% 2009		7,500			7,412
Developers Diversified Realty Corp. 4.625% 2010		28,625			27,675
Developers Diversified Realty Corp. 5.50% 2015		13,000			11,619
Simon Property Group, LP 5.30% 2013		11,750			11,572
Simon Property Group, LP 5.75% 2015		2,500			2,430
Simon Property Group, LP 5.875% 2017		15,165			14,587
Simon Property Group, LP 6.125% 2018		18,500			18,030
MBNA Global Capital Funding, Series B, 3.673% 20274		18,000			14,405
Bank of America Corp. 6.50% 2037		17,500			15,963
Bank of America Corp., Series M, 8.125% noncumulative preferred (undated)4		15,000			14,198
American Express Bank 5.50% 2013		34,100			33,377
American Express Co. 6.15% 2017		10,000			9,784
Hospitality Properties Trust 6.85% 2012		2,000			1,921
Hospitality Properties Trust 6.75% 2013		14,720			13,996
Hospitality Properties Trust 6.30% 2016		6,500			5,762
Hospitality Properties Trust 6.70% 2018		21,025			18,089
Merrill Lynch & Co., Inc., 6.875% 2018		41,000			39,089
iStar Financial, Inc. 5.375% 2010		8,250			7,428
iStar Financial, Inc. 6.50% 2013		3,000			2,583
iStar Financial, Inc. 8.625% 2013		7,500			6,832
iStar Financial, Inc. 6.05% 2015		11,000			8,812
iStar Financial, Inc. 5.875% 2016		17,000			13,413
New York Life Global Funding 3.875% 20093		13,500			13,531
New York Life Global Funding 5.25% 20123		25,000			25,158
Monumental Global Funding 5.50% 20133		12,000			12,018
Monumental Global Funding III 2.913% 20143,4		29,000			25,830
Household Finance Corp. 6.75% 2011		5,000			5,200
Household Finance Corp. 6.375% 2012		13,000			13,343
HSBC Holdings PLC 6.50% 2037		17,200			15,728
Midland Bank 3.438% Eurodollar note (undated)4		4,000			2,660
Fifth Third Bancorp 8.25% 2038		9,000			7,308
Fifth Third Capital Trust IV 6.50% 20674		50,500			29,324
ProLogis 5.50% 2012		15,000			14,660
ProLogis 5.625% 2015		13,030			12,260
ProLogis 6.625% 2018		8,830			8,714
Lincoln National Corp. 5.65% 2012		10,250			10,174
Lincoln National Corp. 7.00% 20664		27,583			25,161
Allstate Life Global Funding Trust, Series 2008-4, 5.375% 2013		13,000			12,963
Allstate Corp., Series B, 6.125% 20674		17,525			15,927
Allstate Corp., Series A, 6.50% 20674		7,290			6,389
HBOS PLC 6.75% 20183		34,050			32,622
HBOS PLC 6.657% (undated)3,4		3,000			2,107
Santander Issuances, SA Unipersonal 5.805% 20163,4		20,000			19,338
Santander Perpetual, SA Unipersonal 6.671% (undated)3,4		15,400			14,903
Berkshire Hathaway Finance Corp. 4.60% 20133		21,000			20,958
Berkshire Hathaway Finance Corp. 5.40% 20183		12,500			12,517
ERP Operating LP 4.75% 2009		6,730			6,677
ERP Operating LP 5.375% 2016		25,000			22,741
ERP Operating LP 5.75% 2017		4,000			3,698
Capital One Financial Corp. 2.976% 20094		15,000			13,998
Capital One Financial Corp. 6.15% 2016		20,000			17,658
Principal Life Insurance Co. 3.20% 2009		14,000			13,949
Principal Life Insurance Co. 5.30% 2013		15,500			15,516
XL Capital Finance (Europe) PLC 6.50% 2012		3,015			2,952
Mangrove Bay Pass Through Trust 6.102% 20332,3,4		57,885			25,469
US Bank National Assn. 4.40% 2008		25,000			25,028
Lazard Group LLC 7.125% 2015		25,500			23,874
Goldman Sachs Group, Inc. 6.15% 2018		24,000			23,326
Capmark Financial Group Inc. 5.875% 2012		31,650			22,344
Capmark Financial Group Inc. 6.30% 2017		1,300			842
PNC Funding Corp. 3.099% 20144		15,000			13,573
PNC Funding Corp., Series II, 6.113% (undated)3,4		10,200			7,900
American Honda Finance Corp. 5.125% 20103		20,500			21,132
Charles Schwab Corp., Series A, 6.375% 2017		10,000			9,978
Schwab Capital Trust I 7.50% 20374		11,750			10,667
ACE INA Holdings Inc. 5.875% 2014		20,000			20,073
ZFS Finance (USA) Trust V 6.50% 20673,4		21,590			18,874
Catlin Insurance Ltd. 7.249% (undated)3,4		25,135			18,373
Protective Life Insurance Co., Series 2005-C, 4.85% 2010		18,000			18,021
Wells Fargo & Co. 4.375% 2013		18,250			17,690
Nationwide Financial Services, Inc. 6.75% 20674		21,950			17,433
SLM Corp., Series A, 3.95% 2008		7,500			7,450
SLM Corp., Series A, 4.50% 2010		5,500			5,092
SLM Corp., Series A, 8.45% 2018		5,000			4,805
Assurant, Inc. 5.625% 2014		15,320			14,538
John Hancock Global Funding II, Series 2004-A, 3.50% 20093		14,000			13,974
Lehman Brothers Holdings Inc., Series I, 6.875% 2018		14,000			13,577
United Dominion Realty Trust, Inc. 6.50% 2009		7,375			7,440
United Dominion Realty Trust, Inc. 5.00% 2012		6,000			5,720
Resona Bank, Ltd. 5.85% (undated)3,4		15,000			12,922
Zions Bancorporation 5.50% 2015		412			329
Zions Bancorporation 6.00% 20152		15,000			12,300
North Front Pass Through Trust 5.81% 20243,4		10,000			9,293
Nationwide Mutual Insurance Co. 7.875% 20333		3,425			3,305
Loews Corp. 6.00% 2035		14,000			12,482
Downey Financial Corp. 6.50% 2014		15,390			11,614
Chubb Corp. 6.375% 20674		12,440			11,398
Standard Chartered Bank 6.40% 20173		10,800			10,576
Sovereign Bancorp, Inc. 8.75% 2018		9,000			9,090
Sumitomo Mitsui Banking Corp. 5.625% (undated)3,4		10,000			8,987
Assured Guaranty US Holdings Inc., Series A, 6.40% 20664		12,975			8,573
ING Groep NV 5.775% (undated)4		10,300			8,561
Federal Realty Investment Trust 4.50% 2011		8,500			8,174
Silicon Valley Bank 5.70% 2012		8,000			7,450
Credit Agricole SA 6.637% (undated)3,4		8,000			6,766
City National Corp. 5.125% 2013		7,000			6,672
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)3,4		4,000			4,006
Genworth Financial, Inc. 6.15% 20664		5,000			3,936
Ambac Financial Group, Inc. 6.15% 20874		20,000			3,212
Bank of Nova Scotia 3.188% 20852,4		4,000			2,480
Den Norske CreditBank 2.938% (undated)4		3,000			2,004
Canadian Imperial Bank of Commerce 3.188% Eurodollar note 20852,4		1,600			960
					2,387,201
CONSUMER DISCRETIONARY — 1.33%
Time Warner Inc. 2.915% 20094		10,000			9,721
AOL Time Warner Inc. 6.875% 2012		49,750			50,939
Time Warner Inc. 5.875% 2016		14,210			13,421
AOL Time Warner Inc. 7.625% 2031		25,315			25,771
Time Warner Inc. 6.50% 2036		32,000			28,572
Comcast Cable Communications, Inc. 6.875% 2009		3,000			3,082
Comcast Corp. 5.45% 2010		25,000			25,428
Comcast Corp. 5.85% 2015		13,000			12,746
TCI Communications, Inc. 8.75% 2015		2,670			3,022
Comcast Corp. 6.45% 2037		16,500			15,404
Comcast Corp. 6.95% 2037		34,250			33,792
Comcast Corp. 6.40% 2038		20,000			18,508
Time Warner Cable Inc. 6.75% 2018		55,370			55,838
Cox Communications, Inc. 4.625% 2010		25,000			24,871
Cox Communications, Inc. 7.75% 2010		15,000			15,814
Cox Communications, Inc. 5.45% 2014		15,500			14,915
Macy’s Retail Holdings, Inc. 7.875% 2015		17,000			17,147
Federated Retail Holdings, Inc. 5.90% 2016		31,890			27,747
Federated Retail Holdings, Inc. 6.375% 2037		12,025			9,287
Viacom Inc. 5.75% 2011		47,000			47,140
News America Holdings Inc. 9.25% 2013		17,500			20,070
News America Inc. 5.30% 2014		8,750			8,589
News America Inc. 6.65% 2037		17,500			17,142
Target Corp. 6.50% 2037		15,000			14,476
Target Corp. 7.00% 2038		27,500			28,285
Thomson Reuters Corp. 5.95% 2013		8,140			8,181
Thomson Reuters Corp. 6.50% 2018		31,875			31,820
Toll Brothers, Inc. 4.95% 2014		35,000			30,917
DaimlerChrysler North America Holding Corp. 7.75% 2011		7,930			8,425
DaimlerChrysler North America Holding Corp. 6.50% 2013		14,155			14,695
Omnicom Group Inc. 5.90% 2016		20,000			19,572
Johnson Controls, Inc. 5.50% 2016		18,000			17,294
McGraw-Hill Companies, Inc. 5.375% 2012		16,000			15,994
Seminole Tribe of Florida 5.798% 20133,5		13,140			13,118
ERAC USA Finance Co. 7.00% 20373		15,000			12,511
Chancellor Media Corp. of Los Angeles 8.00% 2008		9,500			9,642
J.C. Penney Corp., Inc. 5.75% 2018		10,400			9,296
Ryland Group, Inc. 5.375% 2012		2,750			2,490
					735,682
TELECOMMUNICATION SERVICES — 1.22%
SBC Communications Inc. 4.125% 2009		10,000			10,015
SBC Communications Inc. 6.25% 2011		15,000			15,520
AT&T Wireless Services, Inc. 7.875% 2011		12,170			12,965
AT&T Wireless Services, Inc. 8.125% 2012		5,230			5,733
AT&T Inc. 4.95% 2013		16,250			16,210
SBC Communications Inc. 5.10% 2014		15,000			14,723
SBC Communications Inc. 5.625% 2016		49,300			48,900
BellSouth Capital Funding Corp. 7.875% 2030		51,500			57,042
AT&T Corp. 8.00% 20314		15,000			17,269
SBC Communications Inc. 6.45% 2034		40,000			38,737
AT&T Inc. 6.50% 2037		17,010			16,515
Verizon Global Funding Corp. 7.25% 2010		30,000			31,867
Verizon Communications Inc. 5.25% 2013		8,325			8,286
Verizon Communications Inc. 5.50% 2017		19,000			18,293
Verizon Communications Inc. 6.10% 2018		21,250			21,135
Verizon Global Funding Corp. 7.75% 2030		9,395			10,121
Verizon Communications Inc. 6.25% 2037		50,000			46,199
Verizon Communications Inc. 6.40% 2038		12,195			11,388
Verizon Communications Inc. 6.90% 2038		7,500			7,435
Nextel Communications, Inc., Series E, 6.875% 2013		54,913			46,434
Nextel Communications, Inc., Series D, 7.375% 2015		35,092			29,145
Sprint Capital Corp. 8.75% 2032		31,500			30,076
Telecom Italia Capital SA 5.25% 2015		38,425			35,216
Telecom Italia Capital SA 7.20% 2036		16,000			15,517
Telecom Italia Capital SA 7.721% 2038		31,500			32,103
British Telecommunications PLC 5.15% 2013		16,250			15,858
British Telecommunications PLC 5.95% 2018		19,500			18,675
Vodafone Group PLC 6.15% 2037		18,000			16,514
Singapore Telecommunications Ltd. 6.375% 20113		10,000			10,431
CenturyTel, Inc., Series N, 6.00% 2017		9,500			8,567
Embarq Corp. 6.738% 2013		7,500			7,244
					674,133
INDUSTRIALS — 1.03%
General Electric Capital Corp., Series A, 4.80% 2013		24,000			23,537
General Electric Co. 5.00% 2013		20,000			20,164
General Electric Co. 5.25% 2017		24,250			23,355
General Electric Capital Corp., Series A, 3.04% 20184		10,000			9,187
General Electric Capital Corp., Series A, 5.625% 2018		15,000			14,533
General Electric Capital Corp., Series A, 3.164% 20264		40,000			34,096
Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 20115		5,000			4,625
Continental Airlines, Inc., Series 1999-2, Class A-2, 7.056% 20115		3,085			3,000
Continental Airlines, Inc., Series 2000-2, Class A-2, 7.487% 20125		300			291
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20165		18,955			16,775
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20195		9,833			8,948
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20195		5,021			4,632
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20205		12,252			11,211
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 20215		1,644			1,553
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20225		8,602			7,495
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20225		9,045			6,919
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20225		14,805			14,106
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20145		29,550			28,368
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20245		19,152			17,141
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20113,5		24,454			25,308
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20133,5		17,048			17,516
Union Pacific Corp. 5.75% 2017		13,325			13,130
Union Pacific Corp. 5.70% 2018		29,150			28,500
John Deere Capital Corp., Series D, 3.75% 2009		12,000			11,995
John Deere Capital Corp., Series D, 4.125% 2010		10,000			10,017
John Deere Capital Corp., Series D, 4.50% 2013		16,000			15,817
Hutchison Whampoa International Ltd. 6.50% 20133		31,500			31,958
CSX Corp. 5.75% 2013		7,670			7,526
CSX Corp. 6.25% 2015		5,990			6,018
CSX Corp. 6.15% 2037		17,645			14,838
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 20125		5,655			5,178
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 20125		5,040			4,863
American Airlines, Inc., Series 2001-2, Class B, 8.608% 20125		3,000			2,745
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20135		13,650			13,104
Koninklijke Philips Electronics NV 5.75% 2018		23,500			23,066
Raytheon Co. 4.85% 2011		20,000			20,252
Norfolk Southern Corp. 5.75% 20183		15,500			15,283
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 20105		412			406
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 20155		1,217			1,194
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20245		14,777			12,236
Atlas Copco AB 5.60% 20173		14,000			13,643
Caterpillar Financial Services Corp. 5.45% 2018		10,400			10,330
Canadian National Railway Co. 4.95% 2014		6,000			5,968
BNSF Funding Trust I 6.613% 20554		6,175			5,599
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 20233,5		1,447			1,520
					567,946
UTILITIES — 0.82%
National Rural Utilities Cooperative Finance Corp. 5.50% 2013		65,500			66,323
National Rural Utilities Cooperative Finance Corp. 5.45% 2017		2,000			1,956
National Rural Utilities Cooperative Finance Corp. 5.45% 2018		9,600			9,353
National Rural Utilities Cooperative Finance Corp. 8.00% 2032		8,000			9,216
MidAmerican Energy Holdings Co., Series D, 5.00% 2014		18,000			17,567
MidAmerican Energy Holdings Co. 5.75% 20183		30,925			30,688
MidAmerican Energy Holdings Co. 6.125% 2036		9,750			9,393
MidAmerican Energy Holdings Co. 6.50% 2037		5,000			5,066
Exelon Corp. 4.45% 2010		20,000			19,832
Exelon Generation Co., LLC 6.95% 2011		12,020			12,432
Exelon Generation Co., LLC 6.20% 2017		7,000			6,830
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2006-B, 2.95% 20094		15,000			14,904
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2005-A, 5.00% 2016		16,000			15,790
Pacific Gas and Electric Co., First Mortgage Bonds, 3.60% 2009		9,500			9,494
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034		20,000			19,346
Abu Dhabi National Energy Co. PJSC (TAQA) 5.875% 20163		15,350			15,064
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20363		14,000			13,031
E.ON International Finance BV 5.80% 20183		24,450			24,030
Alabama Power Co., Series FF, 5.20% 2016		24,000			23,701
PSEG Power LLC 3.75% 2009		14,700			14,684
Public Service Electric and Gas Co., Series E, 5.30% 2018		8,500			8,401
Veolia Environnement 5.25% 2013		16,500			16,502
Consolidated Edison Co. of New York, Inc., Series 2004-C, 4.70% 2009		15,000			15,160
San Diego Gas & Electric Co., Series CCC, 5.30% 2015		15,000			15,114
Virginia Electric and Power Co., Series 2003-B, 4.50% 2010		3,500			3,520
Virginia Electric and Power Co., Series B, 5.95% 2017		10,000			10,067
Israel Electric Corp. Ltd. 7.25% 20193		12,500			12,783
SP PowerAssets Ltd. 3.80% 20083		11,500			11,515
Appalachian Power Co., Series M, 5.55% 2011		7,800			7,836
Kern River Funding Corp. 4.893% 20183,5		5,292			5,115
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20183,5		4,453			4,429
Constellation Energy Group, Inc. 6.125% 2009		2,515			2,551
					451,693
ENERGY — 0.77%
Kinder Morgan Energy Partners LP 6.00% 2017		41,610			41,183
Kinder Morgan Energy Partners LP 6.50% 2037		10,000			9,485
Gaz Capital SA 8.146% 20183		7,000			7,271
Gaz Capital SA 6.51% 20223		27,495			24,746
Gaz Capital SA, Series 9, 6.51% 2022		20,000			18,000
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20093,5		4,930			4,940
Ras Laffan Liquefied Natural Gas II 5.298% 20203,5		22,000			20,577
Ras Laffan Liquefied Natural Gas III 5.838% 20273,5		20,000			16,984
Enbridge Energy Partners, LP 6.50% 20183		12,250			12,325
Enbridge Energy Partners, LP 7.50% 20383		12,250			12,839
Enbridge Energy Partners, LP 8.05% 20674		17,520			16,328
TransCanada PipeLines Ltd. 6.35% 20674		44,785			38,733
Enterprise Products Operating LLC 6.30% 2017		13,000			12,931
Enterprise Products Operating LP 6.875% 2033		25,000			24,618
Rockies Express Pipeline LLC 6.85% 20183		28,750			29,153
Williams Companies, Inc. 7.875% 2021		15,850			16,880
Williams Companies, Inc. 8.75% 2032		6,025			6,869
Canadian Natural Resources Ltd. 5.70% 2017		19,690			19,323
Husky Energy Inc. 6.80% 2037		18,375			18,262
XTO Energy Inc. 6.25% 2017		14,500			14,674
Sunoco, Inc. 4.875% 2014		15,000			14,181
Devon Financing Corp. ULC 7.875% 2031		9,305			11,022
Marathon Oil Corp. 6.00% 2017		6,000			5,976
Marathon Oil Corp. 6.60% 2037		4,500			4,451
Enbridge Inc. 5.60% 2017		10,000			9,649
Polar Tankers, Inc. 5.951% 20373,5		6,685			6,417
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 20103,5		5,111			5,078
					422,895
HEALTH CARE — 0.66%
Cardinal Health, Inc. 2.958% 20094		23,000			22,595
Cardinal Health, Inc. 4.00% 2015		50,000			45,264
Cardinal Health, Inc. 5.80% 2016		27,500			26,958
Cardinal Health, Inc. 5.85% 2017		3,575			3,503
GlaxoSmithKline Capital Inc. 4.85% 2013		33,700			33,691
GlaxoSmithKline Capital Inc. 6.375% 2038		31,250			31,123
UnitedHealth Group 6.00% 2017		22,170			21,623
UnitedHealth Group Inc. 6.00% 2018		35,000			33,917
UnitedHealth Group Inc. 6.875% 2038		8,700			8,258
AstraZeneca PLC 5.40% 2012		15,250			15,610
AstraZeneca PLC 5.90% 2017		25,000			25,670
Hospira, Inc. 3.281% 20104		10,000			9,699
Hospira, Inc. 5.55% 2012		14,120			13,883
Hospira, Inc. 6.05% 2017		6,700			6,477
Coventry Health Care, Inc. 6.30% 2014		16,500			15,574
Humana Inc. 6.45% 2016		14,200			13,795
Biogen Idec Inc. 6.00% 2013		13,500			13,410
Abbott Laboratories 5.60% 2017		9,670			9,772
Amgen Inc. 6.15% 2018		9,625			9,691
Aetna Inc. 5.75% 2011		3,500			3,623
					364,136
MATERIALS — 0.36%
ArcelorMittal 5.375% 20133		27,750			27,406
ArcelorMittal 6.125% 20183		29,425			28,724
Rio Tinto Finance (USA) Ltd. 5.875% 2013		28,500			28,689
International Paper Co. 7.40% 2014		23,250			23,233
C8 Capital (SPV) Ltd. 6.64% (undated)3,4		22,025			20,483
Stora Enso Oyj 7.25% 20363		24,000			19,015
Rohm and Haas Co. 6.00% 2017		17,445			17,016
Nucor Corp. 5.00% 2013		10,000			10,040
Alcoa Inc. 5.55% 2017		10,000			9,379
Dow Chemical Co. 5.70% 2018		9,000			8,732
SCA Coordination Center NV 4.50% 20153		6,750			6,103
					198,820
INFORMATION TECHNOLOGY — 0.32%
Electronic Data Systems Corp., Series B, 6.50% 20134		46,500			47,810
Electronic Data Systems Corp. 7.45% 2029		16,594			18,283
KLA-Tencor Corp. 6.90% 2018		39,750			39,038
Oracle Corp. 5.75% 2018		15,500			15,515
Oracle Corp. 6.50% 2038		15,000			15,087
Hewlett-Packard Co. 4.50% 2013		20,000			19,829
Cisco Systems, Inc. 5.25% 2011		13,000			13,393
Western Union Co. 5.93% 2016		10,000			9,823
					178,778
CONSUMER STAPLES — 0.11%
CVS Corp. 6.036% 20283,5		7,568			7,047
CVS Caremark Corp. 6.943% 20303,5		12,899			12,432
Kroger Co. 6.40% 2017		15,150			15,479
Tyson Foods, Inc. 6.85% 20164		16,795			15,346
Kraft Foods Inc. 6.875% 2038		13,000			12,678
					62,982
Total corporate bonds & notes					6,044,266
MORTGAGE-BACKED OBLIGATIONS5 — 10.26%
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010		52,930			55,906
Fannie Mae, Series 2001-T11, Class B, 5.503% 2011		45,000			46,311
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012		16,000			15,858
Fannie Mae 4.89% 2012		30,000			29,897
Fannie Mae 4.00% 2015		20,365			20,169
Fannie Mae 5.00% 2018		3,435			3,450
Fannie Mae 5.00% 2018		1,894			1,902
Fannie Mae 11.00% 2018		469			535
Fannie Mae 5.50% 2019		3,109			3,152
Fannie Mae 5.50% 2020		43,696			44,379
Fannie Mae 11.00% 2020		147			161
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022		15,872			15,737
Fannie Mae 10.50% 2022		287			322
Fannie Mae, Series 2001-4, Class NA, 11.887% 20254		415			467
Fannie Mae 6.00% 2026		21,488			21,868
Fannie Mae 6.00% 2027		19,311			19,605
Fannie Mae 8.50% 2027		93			102
Fannie Mae 8.50% 2027		70			76
Fannie Mae 8.50% 2027		40			44
Fannie Mae 8.50% 2027		32			35
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028		1,008			1,073
Fannie Mae 7.50% 2030		168			179
Fannie Mae 7.50% 2030		54			58
Fannie Mae 7.50% 2031		252			269
Fannie Mae 7.50% 2031		181			192
Fannie Mae, Series 2001-20, Class D, 11.074% 20314		110			126
Fannie Mae 5.50% 2032		3,725			3,698
Fannie Mae 5.50% 2033		117,139			116,150
Fannie Mae 5.50% 2033		45,527			45,142
Fannie Mae 5.50% 2033		34,450			34,159
Fannie Mae 5.50% 2033		25,647			25,406
Fannie Mae 5.50% 2033		4,302			4,265
Fannie Mae 5.50% 2035		22,001			21,767
Fannie Mae 5.50% 2035		15,443			15,299
Fannie Mae 6.50% 2035		18,029			18,714
Fannie Mae, Series 2006-43, Class JO, principal only, 0% 2036		6,956			5,177
Fannie Mae 5.50% 2036		31,988			31,608
Fannie Mae 5.50% 2036		4,042			3,994
Fannie Mae 5.50% 2036		3,779			3,734
Fannie Mae, Series 2006-49, Class PA, 6.00% 2036		17,644			18,179
Fannie Mae 6.00% 2036		8,348			8,444
Fannie Mae 6.50% 2036		14,390			14,743
Fannie Mae 5.636% 20374		29,897			30,446
Fannie Mae 6.00% 2037		120,431			121,796
Fannie Mae 6.00% 2037		27,788			28,068
Fannie Mae 6.00% 20372		27,257			27,173
Fannie Mae 6.50% 2037		68,607			70,290
Fannie Mae 6.50% 2037		26,401			27,049
Fannie Mae 6.50% 2037		10,640			10,961
Fannie Mae 6.50% 2037		4,744			4,861
Fannie Mae 6.50% 2037		3,027			3,101
Fannie Mae 7.00% 2037		48,286			50,293
Fannie Mae 7.00% 2037		46,988			49,323
Fannie Mae 7.00% 2037		17,775			18,514
Fannie Mae 7.00% 2037		13,371			13,926
Fannie Mae 7.00% 2037		13,347			13,901
Fannie Mae 7.00% 2037		9,450			9,843
Fannie Mae 7.00% 2037		6,020			6,270
Fannie Mae 6.00% 2038		77,780			78,564
Fannie Mae 6.50% 2038		60,000			61,810
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041		723			757
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		661			675
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042		914			962
Fannie Mae 6.50% 2047		9,837			10,023
Fannie Mae 6.50% 2047		5,806			5,916
Fannie Mae 6.50% 2047		4,334			4,416
Fannie Mae 6.50% 2047		3,376			3,440
Fannie Mae 6.50% 2047		3,182			3,243
Fannie Mae 6.50% 2047		2,764			2,817
Fannie Mae 6.50% 2047		1,341			1,367
Fannie Mae 7.00% 2047		8,119			8,411
Fannie Mae 7.00% 2047		4,825			4,999
Fannie Mae 7.00% 2047		3,366			3,487
Fannie Mae 7.00% 2047		3,362			3,483
Fannie Mae 7.00% 2047		3,022			3,131
Fannie Mae 7.00% 2047		2,742			2,841
Fannie Mae 7.00% 2047		1,709			1,770
Fannie Mae 7.00% 2047		1,554			1,609
Fannie Mae 7.00% 2047		710			735
Fannie Mae 7.00% 2047		399			414
Freddie Mac, Series 2310, Class B, 9.892% 20154		166			171
Freddie Mac 10.00% 2018		354			397
Freddie Mac 8.50% 2020		269			288
Freddie Mac 8.50% 2020		22			24
Freddie Mac 5.00% 2023		32,981			32,622
Freddie Mac 5.00% 2023		29,893			29,567
Freddie Mac 5.00% 2023		24,310			24,045
Freddie Mac 5.00% 2023		22,173			21,932
Freddie Mac 5.00% 2023		13,093			12,951
Freddie Mac 5.00% 2023		11,699			11,572
Freddie Mac 5.00% 2023		11,113			10,992
Freddie Mac 5.00% 2023		10,000			9,891
Freddie Mac 5.00% 2023		8,738			8,642
Freddie Mac 5.00% 2023		6,528			6,456
Freddie Mac 5.00% 2023		608			601
Freddie Mac 5.50% 2023		25,370			25,554
Freddie Mac 5.50% 2023		20,307			20,455
Freddie Mac 5.50% 2023		12,770			12,863
Freddie Mac 6.00% 2026		24,520			24,955
Freddie Mac 6.00% 2026		17,764			18,079
Freddie Mac 6.00% 2026		13,873			14,119
Freddie Mac 6.50% 2027		4,376			4,513
Freddie Mac 6.50% 2027		1,723			1,777
Freddie Mac 6.50% 2027		1,525			1,573
Freddie Mac 6.50% 2028		3,466			3,575
Freddie Mac, Series T-041, Class 3-A, 7.50% 2032		3,677			3,727
Freddie Mac, Series 3061, Class PN, 5.50% 2035		16,146			16,353
Freddie Mac, Series 3156, Class PO, principal only, 0% 2036		19,989			15,227
Freddie Mac, Series 3146, Class PO, principal only, 0% 2036		14,160			10,775
Freddie Mac, Series 3233, Class PA, 6.00% 2036		34,606			35,359
Freddie Mac 5.442% 20374		11,772			11,921
Freddie Mac, Series 3318, Class JT, 5.50% 2037		34,237			34,176
Freddie Mac 5.50% 2037		29,078			28,683
Freddie Mac, Series 3312, Class PA, 5.50% 2037		25,499			25,434
Freddie Mac 5.649% 20374		4,762			4,827
Freddie Mac 5.726% 20374		8,957			9,130
Freddie Mac, Series 3272, Class PA, 6.00% 2037		27,391			27,975
Freddie Mac 6.00% 2038		496,970			501,999
CS First Boston Mortgage Securities Corp., Series 2003-23, Class VII-A-1, 5.00% 2018		4,722			4,439
CS First Boston Mortgage Securities Corp., Series 2005-7, Class III-A-1, 5.00% 2020		10,891			9,692
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032		1,705			1,663
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032		1,455			1,386
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033		1,859			1,588
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033		2,625			2,492
CS First Boston Mortgage Securities Corp., Series 2001-CKN5, Class A-4, 5.435% 2034		23,388			23,548
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034		7,421			6,494
CS First Boston Mortgage Securities Corp., Series 2001-CP4, Class A-4, 6.18% 2035		34,900			35,603
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035		16,354			14,792
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035		37,945			38,977
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 20363		17,643			10,949
CS First Boston Mortgage Securities Corp., Series 2003-CK2, Class A-4, 4.801% 2036		17,585			17,049
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036		20,675			21,306
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037		16,045			16,391
CS First Boston Mortgage Securities Corp., Series 2005-C1, Class A-3, 4.813% 2038		13,200			12,873
CS First Boston Mortgage Securities Corp., Series 2005-C4, Class A-2, 5.017% 2038		10,000			9,944
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-2, 3.88% 2039		13,000			12,927
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039		5,000			4,830
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20404		30,875			30,213
Countrywide Alternative Loan Trust, Series 2005-6CB, Class 2-A-1, 5.00% 2020		3,427			3,239
Countrywide Alternative Loan Trust, Series 2005-20CB, Class 4-A-1, 5.25% 2020		28,808			27,734
Countrywide Alternative Loan Trust, Series 2006-J3, Class 3-A-1, 5.50% 2021		18,655			16,194
Countrywide Alternative Loan Trust, Series 2004-5CB, Class 1-A-1, 6.00% 2034		10,376			8,665
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035		20,863			17,918
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-9, 5.50% 2035		16,279			15,300
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035		15,468			15,153
Countrywide Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50% 2035		13,409			12,752
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75% 2035		15,057			12,620
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035		20,270			17,844
Countrywide Alternative Loan Trust, Series 2005-50CB, Class 3-A-1, 6.00% 2035		10,931			8,472
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50% 2036		7,638			6,622
Countrywide Alternative Loan Trust, Series 2007-14T2, Class A-4, 2.833% 20374		20,932			13,832
Countrywide Alternative Loan Trust, Series 2007-2CB, Class 1-A-9, 5.75% 2037		13,187			10,951
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 3-A-1, 5.872% 20474		34,948			25,314
Residential Accredit Loans, Inc., Series 2003-QS14, Class A-1, 5.00% 2018		7,222			6,824
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019		14,601			13,646
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034		23,714			21,506
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		34,108			28,483
Residential Accredit Loans, Inc., Series 2005-QS4, Class A-3, 5.50% 2035		30,171			27,468
Residential Accredit Loans, Inc., Series 2006-QS1, Class A-3, 5.75% 2036		29,245			27,519
Residential Accredit Loans, Inc., Series 2006-QA1, Class A-III-1, 6.252% 20364		24,528			18,049
Residential Accredit Loans, Inc., Series 2007-QS9, Class A-33, 6.50% 2037		45,469			39,126
Residential Accredit Loans, Inc., Series 2007-QS11, Class A-1, 7.00% 2037		25,115			21,316
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-CIBC10, Class A-2, 3.89% 2037		5,861			5,831
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-CIBC5, Class A-1, 4.372% 2037		10,131			10,043
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037		2,208			2,203
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C1, Class A-3, 5.376% 2037		10,680			10,670
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-3B, 5.494% 20374		63,000			62,267
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039		7,357			7,090
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042		14,178			14,084
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-SB, 4.824% 2042		25,000			24,048
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-3A1, 4.871% 2042		5,000			4,901
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A-4, 6.065% 20454		20,375			20,033
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046		34,265			34,113
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.907% 20364		107,341			89,512
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 6-A, 5.919% 20364		23,610			21,095
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-2, Class 5-A-1, 6.00% 20364		45,277			36,970
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-12, Class 2-A1, 5.961% 20374		20,646			15,838
Wells Fargo Mortgage-backed Securities Trust, Series 2003-16, Class II-A-1, 4.50% 2018		19,125			17,698
Wells Fargo Mortgage-backed Securities Trust, Series 2005-13, Class A-1, 5.00% 2020		18,567			17,571
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-3, 5.00% 2021		18,573			17,577
Wells Fargo Mortgage-backed Securities Trust, Series 2003-B, Class A-1, 4.15% 20334		3,101			3,025
Wells Fargo Mortgage-backed Securities Trust, Series 2003-3, Class II-A-1, 5.25% 2033		14,883			14,396
Wells Fargo Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6, 4.108% 20354		30,000			29,569
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR19, Class A-6, 5.634% 20364		22,000			18,083
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1, 5.652% 20364		33,869			32,495
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038		3,000			2,968
GE Commercial Mortgage Corp., Series 2005-C3, Class A-4, 5.046% 20454		24,730			24,672
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.512% 20454		65,575			64,926
GE Commercial Mortgage Corp., Series 2005-C1, Class A-2, 4.353% 2048		34,140			33,802
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041		32,750			31,519
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042		25,784			25,732
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 20424		50,455			48,380
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034		83,495			86,071
GMAC Commercial Mortgage Securities, Inc., Series 1999-C3, Class F, 8.137% 20364		4,000			4,028
GMAC Commercial Mortgage Securities, Inc., Series 2002-C2, Class A-2, 5.389% 2038		2,765			2,786
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 20353		65,800			64,820
Crown Castle Towers LLC, Series 2005-1, Class C, 5.074% 20353		10,200			9,854
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 20353		7,550			7,161
Crown Castle Towers LLC, Series 2006-1, Class E, 6.065% 20363		10,000			8,903
Bear Stearns ARM Trust, Series 2003-3, Class III-A-1, 5.124% 20334		2,938			2,891
Bear Stearns ARM Trust, Series 2003-9, Class III-A-3, 4.332% 20344		19,726			19,015
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.957% 20344		13,270			12,916
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 20354		20,000			17,965
Bear Stearns ARM Trust, Series 2005-6, Class I-A-1, 4.949% 20354		23,803			20,709
Bear Stearns ARM Trust, Series 2006-4, Class II-A-1, 5.794% 20364		14,924			12,789
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class III-A-1, 6.25% 2037		66,012			57,645
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class IV-A-1, 6.50% 2037		24,198			21,809
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		8,429			8,331
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035		13,205			13,557
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PW10, Class AM, 5.449% 20404		20,000			19,097
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-2, 4.735% 2042		38,000			37,664
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20373		18,300			17,647
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20372,3		20,000			18,346
American Tower Trust I, Series 2007-1A, Class C, 5.615% 20373		12,000			10,420
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20372,3		32,200			26,868
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-2, 6.592% 2033		19,479			19,957
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035		50,992			52,222
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.681% 20344		22,238			20,842
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 4-A-1, 5.50% 2035		35,014			30,560
Morgan Stanley Mortgage Loan Trust, Series 2007-11AR, Class 2-A-1, 6.625% 20374		27,120			20,680
Banc of America Commercial Mortgage Inc., Series 2002-PB2, Class A-4, 6.186% 2035		4,350			4,464
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		42,123			43,204
Banc of America Commercial Mortgage Inc., Series 2005-4, Class A-2, 4.764% 2045		23,175			22,942
Tower Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 20362,3		22,800			22,483
Tower Ventures, LLC, Series 2006-1, Class A-2, 5.45% 20362,3		31,000			30,600
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 20363		15,000			14,382
Commercial Mortgage Trust, Series 2000-C1, Class E, 8.132% 2033		4,000			4,181
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038		39,825			37,463
Commercial Mortgage Trust, Series 2004-LNB2, Class A-3, 4.221% 2039		17,217			16,972
CHL Mortgage Pass-Through Trust, Series 2003-J1, Class 3-A-1, 5.00% 2018		15,744			14,799
CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1, 4.733% 20334		1,681			1,498
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.84% 20334		9,866			9,717
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.611% 20354		25,355			19,624
CHL Mortgage Pass-Through Trust, Series 2006-HYB5, Class 3-A-1B, 5.927% 20364		14,212			11,513
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC3, Class II-A-1, 5.25% 2020		38,732			35,696
Bear Stearns Asset-backed Securities I Trust, Series 2006-AC2, Class II-1A-1, 6.00% 2036		18,229			16,199
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 20352,3		16,250			16,138
SBA CMBS Trust, Series 2005-1, Class D, 6.219% 20352,3		4,000			3,792
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20363		27,350			26,653
SBA CMBS Trust, Series 2006-1A, Class B, 5.451% 20362,3		2,000			1,909
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA8, Class I-A-14, 5.50% 2035		26,390			24,646
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA11, Class I-A-5, 5.75% 2036		24,481			22,742
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048		46,550			44,650
American Home Mortgage Assets Trust, Series 2007-3, Class II-2A-1, 6.25% 20374		55,274			44,103
GSR Mortgage Loan Trust, Series 2004-6F, Class IVA-1, 5.00% 2019		29,729			28,134
GSR Mortgage Loan Trust, Series 2004-2F, Class XIIIA-1, 5.00% 2019		7,686			7,370
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020		7,726			7,441
IndyMac IMSC Mortgage Loan Trust, Series 2007-F2, Class 2-A-1, 6.50% 2037		12,951			9,311
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 3-A-1, 7.00% 2037		36,988			31,401
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.836% 20364		13,093			10,773
IndyMac INDX Mortgage Loan Trust, Series 2006-AR11, Class 6-A-1, 5.874% 20364		22,708			17,500
IndyMac INDX Mortgage Loan Trust, Series 2006-AR25, Class 3-A-1, 6.365% 20364		15,479			12,236
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S6, Class II-A-1, 5.00% 2018		6,089			5,762
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 2-A1, 5.878% 20374		33,087			29,909
GE Capital Commercial Mortgage Corp., Series 2002-2, Class A-3, 5.349% 2036		10,000			9,975
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037		24,722			24,537
Chase Commercial Mortgage Securities Corp., Series 1998-2, Class A-2, 6.39% 2030		11,968			11,999
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032		21,626			22,429
Structured Products Asset Return Certificates Trust, Series 2001-CF1, Class A, 6.36% 20332		33,632			33,968
Bank of America 5.50% 20123		32,500			33,754
Nationwide Building Society, Series 2007-2, 5.50% 20123		32,500			33,015
Citigroup Commercial Mortgage Trust, Series 2004-C2, Class A-4, 4.623% 2041		21,190			20,315
Citigroup Commercial Mortgage Trust, Series 2006-C4, Class A-M, 5.915% (undated)4		13,000			12,170
J.P. Morgan Mortgage Trust, Series 2006-A3, Class 3-A-3, 5.738% 20364		40,000			32,044
Bear Stearns Commercial Mortgage Securities Trust, Series 2005-PWR7, Class A-2, 4.945% 2041		31,940			31,410
Lehman Mortgage Trust, Series 2005-1, Class 6-A1, 5.00% 2020		5,424			5,133
Lehman Mortgage Trust, Series 2006-2, Class 4-A1, 5.00% 2036		13,233			12,688
Lehman Mortgage Trust, Series 2007-7, Class 6-A4, 7.00% 2037		15,269			13,457
Chase Mortgage Finance Trust, Series 2003-S4, Class II-A-1, 5.00% 2018		29,463			27,883
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20263		23,550			23,321
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.922% 20364		29,079			21,912
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.37% 20304		10,000			10,014
GS Mortgage Securities Corp. II, Series 2006-GG8, Class A-4, 5.56% 2039		11,880			11,360
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025		3,633			3,777
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-4, 6.462% 2031		13,185			13,658
Morgan Stanley Dean Witter Capital I Trust, Series 2000-PRIN, Class C, 7.738% 20344		7,435			8,101
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035		6,668			6,736
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036		1,949			1,928
Prudential Mortgage Capital Funding, LLC, Series ROCK 2001-C1, Class A-2, 6.605% 2034		15,460			15,920
Four Times Square Trust, Series 2000-4TS, Class C, 7.86% 20153		14,000			14,975
Washington Mutual Mortgage, WMALT Series 2005-1, Class 5-A-1, 6.00% 2035		17,159			14,329
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-1, 5.585% 2034		4,736			4,774
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 6.141% 2034		8,810			8,997
Meristar Commercial Mortgage Trust, Series 1999-C1, Class A-1, 7.28% 20163		1,942			1,988
Meristar Commercial Mortgage Trust, Series 1999-C1, Class B, 7.90% 20163		7,750			8,132
Banc of America Alternative Loan Trust, Series 2005-2, Class 3-A-1, 5.00% 2020		10,407			9,380
Merrill Lynch Mortgage Trust, Series 2005-LC1, Class A-2, 5.202% 20444		8,615			8,641
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.641% 20364		7,181			6,928
Residential Funding Corp., Series 2003-RM2, Class A-II, 5.00% 2018		6,881			6,512
Structured Asset Securities Corp., Series 2004-3, Class 3-A-1, 5.50% 2019		5,238			5,161
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.582% 20273,4		1,075			1,073
Morgan Stanley Capital I, Inc., Series 1999-FNV1, Class A-2, 6.53% 2031		6,083			6,115
Adjustable Rate Mortgage Trust, Series 2006-1, Class 3-A-3, 5.887% 20364		6,931			5,615
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031		5,283			5,409
Banc of America Mortgage Securities, Inc., Series 2003-G, Class 2-A-1, 4.088% 20334		4,293			4,050
Hilton Hotel Pool Trust, Series 2000-HLTA, Class A-1, 7.055% 20153		3,440			3,586
MASTR Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50% 2035		3,460			3,193
Chase Manhattan Bank — First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class C, 7.625% 2031		3,000			3,090
DLJ Commercial Mortgage Corp., Series 1999-CG1, Class A-1B, 6.46% 2032		2,980			3,001
Host Marriott Pool Trust, Series 1999-HMTA, Class A, 6.98% 20153		1,822			1,856
Government National Mortgage Assn. 9.00% 2009		76			76
Government National Mortgage Assn. 10.00% 2020		332			377
Government National Mortgage Assn. 10.00% 2021		612			698
Bank of America, NA and First Union National Bank Commercial Mortgage Trust, Series 2001-3, Class A-1, 4.89% 2037		1,070			1,072
Morgan Stanley Capital I Trust, Series 2003-IQ5, Class C, 5.431% 20384		1,200			1,067
					5,668,410
BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 6.72%
U.S. Treasury 4.75% 2008		20,000			20,194
U.S. Treasury 3.625% 2009		10,000			10,135
U.S. Treasury 0.875% 20102,6		22,675			23,077
U.S. Treasury 4.625% 2011		248,000			260,593
U.S. Treasury 5.00% 2011		25,000			26,408
U.S. Treasury 4.25% 2012		376,600			392,018
U.S. Treasury 4.875% 2012		210,000			223,173
U.S. Treasury 3.625% 2013		25,000			25,364
U.S. Treasury 4.25% 2013		773,835			807,450
U.S. Treasury 9.25% 2016		55,000			74,880
U.S. Treasury 4.50% 2017		215,500			224,525
U.S. Treasury 8.875% 2017		85,000			115,773
U.S. Treasury 7.875% 2021		34,000			45,350
U.S. Treasury 6.25% 2023		88,500			105,266
U.S. Treasury 2.375% 20252,6		56,972			59,737
U.S. Treasury 6.875% 2025		104,750			133,507
U.S. Treasury 6.00% 2026		42,000			49,196
U.S. Treasury 5.50% 2028		140,000			156,330
U.S. Treasury 5.25% 2029		15,000			16,283
U.S. Treasury 4.50% 2036		82,565			82,023
Fannie Mae 3.00% 2010		114,150			113,566
Fannie Mae 5.25% 2012		100,000			100,972
Fannie Mae 6.25% 2029		75,000			84,786
Federal Home Loan Bank 5.125% 2013		75,000			78,175
Federal Home Loan Bank 5.625% 2016		144,800			143,319
Freddie Mac 4.875% 2008		14,575			14,650
Freddie Mac 5.25% 2011		160,000			167,162
Federal Agricultural Mortgage Corp. 4.25% 2008		64,500			64,612
Federal Agricultural Mortgage Corp. 4.875% 20113		40,000			41,236
Federal Agricultural Mortgage Corp. 5.50% 20113		7,000			7,273
CoBank ACB 7.875% 20183		20,000			19,893
CoBank ACB 3.376% 20223,4		23,425			18,634
United States Government-Guaranteed Certificates of Participation, Overseas Private Investment Corp.,
Series 2000-044-A, 3.74% 20155		7,143			7,211
					3,712,771
ASSET-BACKED OBLIGATIONS5 — 2.03%
Drive Auto Receivables Trust, Series 2005-1, Class A-4, MBIA insured, 4.01% 2012		13,710			13,673
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 20123		15,763			15,624
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 20133		47,500			46,892
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20143		18,750			17,836
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013		20,880			18,978
AmeriCredit Automobile Receivables Trust, Series 2006-A-F, Class A-4, FSA insured, 5.64% 2013		20,000			19,156
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 2014		14,225			12,688
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014		15,000			14,609
World Omni Auto Receivables Trust, Series 2006-B, Class A-4, 5.12% 2012		62,000			63,025
ARG Funding Corp., Series 2005-1, Class A-3, MBIA insured, 4.29% 20113		8,000			7,414
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 20113		49,500			44,712
CPS Auto Receivables Trust, Series 2003-D, Class A-2, FSA insured, 3.56% 20103		1,664			1,633
CPS Auto Receivables Trust, Series 2004-B, Class A-2, XLCA insured, 3.56% 20113		2,423			2,421
CPS Auto Receivables Trust, Series 2005-D, Class A-2, FSA insured, 5.06% 20123		15,431			15,484
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20123		9,000			8,969
CPS Auto Receivables Trust, Series 2007-A, Class A-4, MBIA insured, 5.05% 20132,3		9,000			5,850
CPS Auto Receivables Trust, Series 2007-TFC, Class A-2, XLCA insured, 5.25% 20133		13,918			12,815
New Century Home Equity Loan Trust, Series 2004-A, Class A-II-5, FGIC insured, 5.25% 2034		10,000			5,364
New Century Home Equity Loan Trust, Series 2004-A, Class A-II-6, FGIC insured, 5.515% 20344		34,977			19,882
New Century Home Equity Loan Trust, Series 2006-2, Class A-2-b, 2.643% 20364		19,000			16,826
Washington Mutual Master Note Trust, Series 2007-A4A, Class A-4, 5.20% 20143		25,000			23,605
Washington Mutual Master Note Trust, Series 2006-A2A, Class A, 2.521% 20153,4		15,000			13,184
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 2014		36,750			34,499
Rental Car Finance Corp., Series 2005-1, Class A-2, XLCA insured, 4.59% 20113		36,230			32,211
Susquehanna Auto Lease Trust, Series 2007-1, Class A-3, 5.25% 20103		31,050			31,534
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class A-5, MBIA insured, 5.08% 20113		29,550			27,587
Nissan Auto Lease Trust, Series 2008-A, Class A-3a, 5.14% 2011		25,750			25,891
USAA Auto Owner Trust, Series 2007-1, Class A-4, 5.55% 2013		24,000			24,274
GMAC Mortgage Loan Trust, Series 2006-HE3, Class A-5, FGIC insured, 5.809% 20364		13,000			5,634
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-2, FGIC insured, 6.054% 20374		10,000			6,497
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-3, FGIC insured, 6.193% 20374		24,000			11,892
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA2, Class A-1F, MBIA insured, 8.47% 20374		22,221			21,725
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-2, 3.87% 2011		4,819			4,834
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014		16,076			16,245
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031		6,465			5,930
Residential Asset Securities Corp. Trust, Series 2004-KS9, Class A-I-4, FGIC insured, 4.61% 2032		9,942			8,206
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 3.083% 20334		150			118
Residential Asset Securities Corp. Trust, Series 2003-KS8, Class A-I-6, 4.83% 2033		7,443			6,357
Long Beach Acceptance Auto Receivables Trust, Series 2004-C, Class A-4, FSA insured, 3.777% 2011		8,677			8,469
Long Beach Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA insured, 4.522% 2012		12,383			12,120
Securitized Asset-backed Receivables LLC Trust, Series 2006-HE2, Class A-2C, 2.633% 20364		20,000			13,244
Securitized Asset-backed Receivables LLC Trust, Series 2006-NC3, Class A-2B, 2.633% 20364		10,000			6,348
American Express Credit Account Master Trust, Series 2005-5, Class A, 2.511% 20134		19,500			19,223
CarMax Auto Owner Trust, Series 2007-2, Class A-3, 5.23% 2011		19,125			19,143
Honda Auto Receivables Owner Trust, Series 2005-4, Class A-4, 4.60% 2010		18,853			18,961
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011		18,904			18,499
Ameriquest Mortgage Securities Inc., Series 2004-R4, Class M-1, 3.033% 20344		21,811			18,268
Providian Master Note Trust, Series 2006-B1A, Class B-1, 5.35% 20133		19,235			17,834
West Penn Funding LLC, Transition Bonds, Series 2005-A, Class A-1, 4.46% 20103		16,942			17,053
Discover Card Execution Note Trust, Series 2008-3, Class A, 5.10% 2013		17,000			17,040
Chase Issuance Trust, Series 2008-4, Class A, 4.65% 2015		17,000			16,761
Capital Auto Receivables Asset Trust, Series 2004-2, Class A-4, 3.75% 2009		16,338			16,341
Credit-Based Asset Servicing and Securitization LLC, Series 2007-CB1, Class AF-2, 5.721% 20374		18,000			16,162
Prestige Auto Receivables Trust, Series 2007-1, Class A-3, FSA insured, 5.58% 20142,3		17,000			15,640
Advanta Business Card Master Trust, Series 2005-A3, Class A, 4.70% 2011		14,250			14,225
RAMP Trust, Series 2003-RZ4, Class A-7, 4.79% 20334		7,337			6,888
RAMP Trust, Series 2003-RS11, Class A-I-7, 4.828% 20332		8,403			7,142
CWABS Asset-backed Certificates Trust, Series 2007-10, Class 2-A-2, 2.603% 20474		15,000			13,627
Santander Drive Auto Receivables Trust, Series 2007-1, Class A-4, FGIC insured, 2.521% 20144		15,000			13,520
Chase Credit Card Owner Trust, Series 2003-4, Class B, 3.121% 20164		14,000			12,922
MBNA Credit Card Master Note Trust, Series 2002-1, Class C, 6.80% 2014		12,500			12,343
Bear Stearns Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 2.983% 20344		14,434			12,272
Citibank Credit Card Issuance Trust, Series 2008, Class A5, 4.85% 2015		12,000			11,893
Morgan Stanley ABS Capital I Inc., Series 2004-NC3, Class M-1, 3.013% 20344		14,117			11,437
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 2.782% 20192,3,4		12,629			10,829
Structured Asset Securities Corp., Series 2007-BC3, Class 2-A2, 2.623% 20474		10,800			9,308
Drivetime Auto Owner Trust, Series 2005-C, Class A-3, MBIA insured, 5.006% 20113,4		9,263			9,047
Option One Mortgage Loan Trust, Series 2006-3, Class II-A-2, 2.583% 20374		10,000			8,941
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20173		11,020			8,066
World Financial Network Credit Card Master Note Trust, Series 2004-A, Class B, 2.971% 20134		7,000			6,817
CWHEQ Home Equity Loan Trust, Series 2006-S4, Class A-6, AMBAC insured, 5.834% 20344		10,000			6,646
Home Equity Asset Trust, Series 2004-2, Class M-1, 3.013% 20344		7,984			6,410
CWHEQ Revolving Home Equity Loan Trust, Series 2007-C, Class A, FGIC insured, 2.621% 20374		12,497			6,025
First Investors Auto Owner Trust, Series 2005-A, Class A-2, MBIA insured, 4.23% 20123		5,567			5,335
CWABS, Inc., Series 2004-BC1, Class M-1, 2.983% 20344		5,581			4,228
GSAA Home Equity Trust, Series 2006-7, Class AF-5A, 6.205% 20464		5,125			4,212
MASTR Asset-backed Securities Trust, Series 2006-AB1, Class A-4, 5.719% 20364		3,000			2,459
Impac CMB Grantor Trust, Series 2004-6, Class 1-A-1, 3.283% 20344		1,721			1,379
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 3.383% 20344		1,663			844
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70% 20232		1,331			1,264
					1,123,259
MUNICIPALS — 0.03%
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
Series 2002-A, Class A, 6.72% 2025		16,556			15,327
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025		2,185			2,138
					17,465
Total bonds & notes (cost: $17,175,516,000)					16,566,171
Short-term securities — 7.49%
Federal Home Loan Bank 1.73%–2.55% due 7/11–9/4/2008		854,288			851,974
Freddie Mac 1.72%–2.13% due 7/9–11/18/2008		374,200			372,702
Park Avenue Receivables Co., LLC 2.55% due 8/14/20083		125,000			124,545
JPMorgan Chase & Co. 2.50%–2.82% due 7/14–7/17/2008		121,400			121,267
Wells Fargo & Co. 2.35%–2.44% due 8/28–9/19/2008		212,700			211,803
Bank of America Corp. 2.615% due 7/9–10/1/2008		200,000			199,195
Coca-Cola Co. 1.98%–2.16% due 7/14–9/19/20083		199,900			199,076
Procter & Gamble International Funding S.C.A. 2.00%–2.20% due 7/14–8/27/20083		197,200			196,627
Walt Disney Co. 1.97% due 8/1–8/22/2008		150,000			149,567
John Deere Capital Corp. 2.02%–2.14% due 7/1–7/25/20083		114,900			114,776
United Parcel Service Inc. 2.04% due 9/2–9/8/20083		108,200			107,647
Fannie Mae 2.06%–2.07% due 7/23–8/6/2008		105,000			104,805
Honeywell International Inc. 2.00%–2.20% due 7/28–8/12/20083		103,650			103,370
Paccar Financial Corp. 2.00%–2.20% due 7/17–9/18/2008		101,476			101,028
Union Bank of California, N.A. 2.50%–2.57% due 7/15–8/7/2008		100,000			99,992
Johnson & Johnson 2.05%–2.10% due 8/25–9/25/20083		100,000			99,451
E.I. duPont de Nemours and Co. 2.08%–2.10% due 7/2–7/10/20083		97,000			96,955
Abbott Laboratories 2.00%–2.22% due 7/22–8/5/20083		88,000			87,840
Private Export Funding Corp. 2.12% due 7/28–8/18/20083		80,400			80,192
Medtronic Inc. 2.15%–2.20% due 7/14–8/26/20083		80,300			80,059
Wal-Mart Stores Inc. 2.12%–2.15% due 7/14–9/3/20083		74,500			74,312
Ciesco LLC 2.55%–2.59% due 7/21–7/30/20083		70,000			69,862
Harley-Davidson Funding Corp. 2.07%–2.10% due 7/25–8/11/20083		68,000			67,857
Pfizer Inc 2.18% due 9/5/20083		54,500			54,227
NetJets Inc. 1.98%–2.15% due 7/17–7/22/20083		50,000			49,937
Variable Funding Capital Corp. 2.50% due 8/4/20083		50,000			49,860
State Street Corp. 2.40% due 8/15/2008		50,000			49,828
HSBC Finance Corp. 2.30% due 7/14/2008		42,100			42,062
Eaton Corp. 2.20%–2.25% due 8/4–8/11/20083		31,000			30,908
U.S. Treasury Bills 1.81% due 9/25/2008		31,005			30,879
General Electric Capital Services, Inc. 2.53% due 7/16/2008		28,700			28,672
Merck & Co. Inc. 2.14% due 8/15/2008		25,000			24,914
Kimberly-Clark Worldwide Inc. 2.15% due 7/14/20083		23,200			23,181
Brown-Forman Corp. 2.20% due 9/2/20083		21,700			21,596
Yale University 2.35% due 8/11/2008		19,700			19,646
Total short-term securities (cost: $4,141,785,000)					4,140,612
Total investment securities (cost: $53,424,318,000)					55,789,539
Other assets less liabilities					(527,466	)
Net assets				$	55,262,073

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

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

2 Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities was $1,518,063,000, which represented 2.75% of the net assets of the fund.

3 Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the United States in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $4,317,919,000, which represented 7.81% of the net assets of the fund.

4 Coupon rate may change periodically.

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

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

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-911-0808O-S15871

ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

ITEM 10 – Submission of Matters to a Vote of Security Holders

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of directors since the Registrant last submitted a proxy statement to its shareholders.  The procedures are as follows.  The Registrant has a nominating committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. 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. While the committee normally is able to identify from its own 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 Registrant, c/o the Registrant’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 nominating committee.

ITEM 11 – Controls and Procedures

(a)	The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule.
(b)	There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

ITEM 12 – Exhibits

(a)(1)	Not applicable for filing of semi-annual reports to shareholders.
(a)(2)	The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN BALANCED FUND, INC.

By /s/ Robert G. O'Donnell

Robert G. O'Donnell, Vice Chairman and

Principal Executive Officer

Date: September 8, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By /s/ Robert G. O'Donnell

Robert G. O'Donnell, Vice Chairman and

Principal Executive Officer

Date: September 8, 2008

By /s/ Jennifer M. Buchheim

Jennifer M. Buchheim, Treasurer and

Principal Financial Officer

Date: September 8, 2008