N-30D 1 bfaar.txt [American Funds(SM)] The right choice for the long term(SM) THE BOND FUND OF AMERICA [color photograph of a young girl looking through the catalog cards in a library] Doing our homework: the active search for income Annual report for the year ended December 31, 2001 The Bond Fund of America(SM) The Bond Fund of America is one of the 29 American Funds,(SM) the nation's third-largest mutual fund family. For seven decades, 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. The Bond Fund of America seeks as high a level of current income as is consistent with preservation of capital through a diversified portfolio of bonds and other fixed-income obligations. RESULTS AT A GLANCE (assuming distributions reinvested or interest compounded for periods ended December 31, 2001)
AVERAGE ANNUAL COMPOUND RETURNS LIFETIME SINCE 2001 5 YEARS 10 YEARS (MAY 28, 1974) The Bond Fund of America +7.2% +6.0% +7.4% +9.6% Lehman Brothers Aggregate +8.4 +7.4 +7.2 +9.3 Bond Index(1) Lipper Corporate A-Rated +7.5 +6.2 +6.7 +9.1 Bond Funds Average(2) Average savings +4.2 +4.1 +3.9 +6.3 institution(3) Consumer Price Index +1.6 +2.2 +2.5 +4.8 (inflation)(4)
(1) The Lehman Brothers Aggregate Bond Index began on January 1, 1976. From May 31, 1974, through December 31, 1975, the Lehman Brothers Government/Credit Bond Index was used. The indexes serve as proxies for the broad U.S. investment-grade bond market and are unmanaged. (2) Source: Lipper Inc. Lipper averages do not include the effects of sales charges. (3) Based on figures from the U.S. League of Savings Institutions and the Federal Reserve Board, which reflect all kinds of savings deposits (maximum allowable interest rates imposed by law until 1983). Savings accounts are guaranteed; the fund is not. (4) Computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. Fund results in this report were calculated for Class A shares at net asset value (without a sales charge) unless otherwise indicated. The fund's 30-day yield for Class A shares as of January 31, 2002, calculated in accordance with the Securities and Exchange Commission formula, was 6.51%. Please see the inside back cover for important information about other share classes. For the most current investment results, please refer to americanfunds.com. FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU 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. High-yield bonds are subject to greater default risk than investment-grade bonds. Investing outside the United States is subject to additional risks, such as currency fluctuations and differing securities regulations, which are detailed in the fund's prospectus. A common link: You may have noticed a new logo on the cover. The interlocking boxes have been adopted by American Funds and all The Capital Group Companies(SM) to signify our common commitment to helping our mutual fund shareholders and institutional clients meet their investment goals. Fellow shareholders: Bonds showed continued strength in 2001 as the U.S. economy slowed and interest rates fell sharply. Fixed-income markets generally outpaced the stock market, which fell for the second consecutive year. In that volatile environment, The Bond Fund of America produced a stream of generous income that helped many investors offset a decline in the value of their equity holdings. Shareholders who reinvested their monthly dividends totaling 89.5 cents a share saw an income return of 7.2%. The fund's net asset value began and ended the year at $12.79, resulting in a total return of 7.2% as well. Although results were hampered earlier in the year by difficulties among lower rated issues, a final-quarter rally in that sector helped lift the fund's total return close to its relevant benchmarks. The 183 A-rated corporate bond funds tracked by Lipper Inc. rose 7.5%, while the unmanaged Lehman Brothers Aggregate Bond Index gained 8.4% for the year. The Bond Fund of America has the latitude to invest in a wide range of income-producing securities. Over the years, the benefits of our flexible approach have added up impressively: Since beginning operations more than 27 years ago, the fund has achieved a cumulative return of 1,167.6% - an average annual compound return of 9.6%. In that time, it has slightly exceeded its benchmarks and provided shareholders with an ample cushion against inflation. A SALUTARY BOND ENVIRONMENT Business activity declined during much of the year, dampening earnings and continuing downward pressure on stock prices. Forced to tighten corporate belts, companies across many industries announced layoffs and reined in capital spending. The tragedy of September 11 helped intensify the first U.S. recession in a decade. The Federal Reserve Board responded to the business weakness aggressively. It lowered the target for the federal funds rate - a key short-term interest rate - 11 times in 2001, from 6.50% to 1.75%, the lowest level since the early 1960s. The alignment of plummeting interest rates, economic sluggishness and declining stocks made bonds particularly attractive for investors. Prices rose for fixed-income securities until the final months of the year, when rising interest rates pulled prices down. Lower rated bonds, which had been plagued by a steady rise in corporate defaults, proved an exception; they reversed a losing streak and rallied in the fourth quarter. Inflows to bond funds with longer maturities rose substantially during the year. The Bond Fund of America's net assets increased nearly 20%, and we welcome the many new shareholders who have joined us. GAINS FROM MANY QUARTERS The fund's portfolio is by design exceptionally well-diversified. That breadth, which over time has enabled shareholders to participate in upswings in some areas while mitigating downturns in others, proved to be an advantage in 2001 as well. Investment-grade corporate bonds had the strongest returns. Of note were banks based both in the U.S. and abroad, which benefited from lower interest rates. Consumer businesses, such as food, retailers and health care, also did well, although airlines were hobbled by a slowdown in travel, particularly following the September attacks. Farther along the credit spectrum, lower rated corporate bonds generally fared poorly before rebounding in October. A number of individual issues held up quite well for the year, however. These included several longtime media holdings that rose in price even as the industry suffered from a decline in ad revenues. Other investments also contributed positively to results. High-quality mortgage- and asset-backed securities posted increases, as did U.S. Treasuries, although the latter did not repeat their heady gains of 2000. [Begin Sidebar] OFFSETTING STOCK MARKET DECLINES
DECLINE PERIOD BFA'S RETURN S&P'S RETURN 5/28/74-10/3/74* 2.5% -27.8% 9/21/76-3/6/78 9.2 -13.8 11/28/80-8/12/82 22.5 -19.9 8/28/87-12/4/87 0.6 -33.0 7/16/90-10/11/90 -3.4 -19.1 7/17/98-8/31/98 -2.2 -19.3 3/24/00-12/20/00 4.1 -16.5
Declines are based on price drops of 15% or more for the S&P 500 Stock Composite Index, although figures shown include reinvestment of dividends. Returns are cumulative for each period. There have been times when the fund has trailed the index. *The full S&P decline period was 1/11/73 to 10/3/74. [End Sidebar] The volatility among bond sectors during the year created attractive buying opportunities. Our research led us to a substantial number of promising investment-grade corporate bonds. We also took advantage of the general weakness in the telecommunications sector to acquire dollar-denominated bonds of several European telecom firms that we believe should do well longer term. AN INVESTMENT FOR ALL SEASONS There is evidence that the U.S. may have come through the worst of its economic troubles. Technology demand appears to be edging up, and retail sales were slightly better than expected during the holiday season. Corporate profits are still weak, however, and it remains to be seen what effect rising unemployment will have on consumer spending. Adding to the uncertainty is our country's involvement in Afghanistan and the new geopolitical realities faced by businesses around the world. We are responding to these challenges by relying, as always, on fundamental research and focusing on securities that we believe will be resilient in a variety of economic conditions. The current stock market turbulence has been an object lesson in what diversification can bring to a successful financial plan. The steady income from a carefully managed portfolio of bonds can be a seawall against stock market storms and a solid foundation for growth. Indeed, The Bond Fond of America's 7.2% gain for 2001 stood in sharp contrast to the 11.8% decline in Standard & Poor's 500 Stock Composite Index; in the past two years, the fund has gained 13.8% while the S&P 500 has fallen 19.9%. Offsetting a decline in stock prices is a benefit the fund has delivered in every major stock market setback since its inception in 1974. We look forward to reporting to you in six months. Cordially, /s/ Paul G. Haaga, Jr. Paul G. Haaga, Jr. Chairman of the Board /s/ Abner D. Goldstine Abner D. Goldstine President February 11, 2002 THE VALUE OF A LONG-TERM PERSPECTIVE How a $10,000 investment has grown There have always been reasons not to invest. You will find, however, that despite occasional stumbles, financial markets have tended to reward investors over the long term. Active management - bolstered by experience and careful research - can add even more value: As the chart below shows, over its lifetime, The Bond Fund of America has done demonstrably better than its relevant benchmarks. Dividends, particularly when reinvested, have accounted for virtually all of the fund's overall results. The table beneath the chart breaks down The Bond Fund of America's year-by-year total returns into their income and capital components. [begin table] AVERAGE ANNUAL COMPOUND RETURNS (based on a $1,000 investment for periods ended December 31, 2001, with all distributions reinvested)
1 Year 5 Years 10 Years Class A shares* reflecting 3.75% maximum sales charge +3.12% +5.17% +6.97%
*Results for the other share classes can be found on page 43. [end table] [begin mountain chart] Year ended BFA with dividends Lehman Brothers Consumer Price December 31,2001 reinvested Bond Index Index original investment $10,000 $10,000 $10,000 1974* 9,988 10,318 10,679 1975 11,254 11,587 11,420 1976 13,294 13,395 11,975 1977 13,977 13,802 12,778 1978 14,261 13,994 13,930 1979 14,710 14,264 15,782 1980 15,230 14,650 17,757 1981 16,242 15,565 19,342 1982 21,586 20,643 20,082 1983 23,628 22,368 20,844 1984 26,450 25,756 21,667 1985 33,488 31,449 22,490 1986 38,568 36,251 22,737 1987 39,324 37,248 23,745 1988 43,533 40,186 24,794 1989 47,942 46,026 25,946 1990 49,509 50,149 27,531 1991 59,927 58,174 28,374 1992 66,722 62,480 29,197 1993 76,155 68,571 30,000 1994 72,335 66,571 30,802 1995 85,536 78,870 31,584 1996 91,273 81,733 32,634 1997 99,708 89,624 33,189 1998 104,863 97,410 33,724 1999 107,265 96,609 34,630 2000 113,906 107,840 35,802 2001 122,051/1/,/2/ 116,947/3/ 36,358/4/
Year ended 1974* 1975 1976 1977 1978 1979 1980 1981 1982 1983 December 31 TOTAL VALUE Dividends $418 907 1,020 1,126 1,211 1,401 1,725 2,118 2,435 2,526 Reinvested Value at $9,988 11,254 13,294 13,977 14,261 14,710 15,230 16,242 21,586 23,628 Year-End/1/ BFA's Total (0.1)% 12.7 18.1 5.1 2.0 3.1 3.5 6.6 32.9 9.5 Return Year ended 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 December 31 TOTAL VALUE Dividends 2,869 3,227 3,604 3,787 3,954 4,472 4,698 4,908 5,274 5,326 Reinvested Value at 26,450 33,488 38,568 39,324 43,533 47,942 49,509 59,927 66,722 76,155 Year-End/1/ BFA's Total 11.9 26.6 15.2 2.0 10.7 10.1 3.3 21.0 11.3 14.1 Return Year ended 1994 1995 1996 1997 1998 1999 2000 2001 December 31 TOTAL VALUE Dividends 5,733 6,180 6,473 6,703 7,008 7,398 8,190 8,228 Reinvested Value at 72,335 85,536 91,273 99,708 104,863 107,265 113,906 122,051 Year-End/1/ BFA's Total (5.0) 18.2 6.7 9.2 5.2 2.3 6.2 7.2 Return
Average annual Compound return for 27-1/2 years: 9.49%/1/,/2/ * For the period May 28 through December 31, 1974. /1/ Results reflect payment of maximum sales charge of 3.75% on the $10,000 investment. Thus, the net amount invested was $9,625. As outlined in the prospectus, the sales charge is reduced for larger investments. /2/ Includes reinvested dividends of $122,946 and reinvested captital gain distributions of $4,573. /3/ From May 31, 1974, through December 31, 1975, the Lehman Brothers Government/Credit Bond Index was used because the Lehman Brothers Aggregate Bond Index did not yet exist. Since January 1, 1976, the Lehman Brothers Aggregate Bond Index has been used. These indexes are unmanaged. /4/ Computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. Past results are not predictive of future results. [end mountain chart] [3 photographs: first, of a wall of books in a library; second, a blurred look at a bar chart in newsprint; and third, a man's hand holding a pen while turning a page of a document] DOING OUR HOMEWORK: THE ACTIVE SEARCH FOR INCOME Even as interest rates have trended lower in recent years, The Bond Fund of America has continued to provide shareholders with above-average current income - income that, over time, has translated into consistent total returns. The fund's investment professionals search for income opportunities from a broad array of fixed-income securities. Diversification and careful research help them mitigate risk. MANY "INTEREST RATES" In the past year we have seen a steady decline in short-term interest rates, largely a reflection of the weakening economy and dramatic interest-rate cuts by the Federal Reserve and other central banks to stimulate growth. Although lower rates have helped homeowners and other borrowers, they have created a quandary for investors who rely on income to help them meet their financial goals. Indeed, yields on savings accounts and certificates of deposit are at their lowest levels in decades. It is important to realize that despite broad references in the media to "interest rates," the income you can expect to receive from interest-bearing investments is not monolithic. Yields will vary widely depending on a range of factors - including underlying economic conditions, the type of security and its maturity, the credit health of the issuer and any number of provisions that can affect the value that investors place on a security. Securities that pay higher income often come at a price, and investors must weigh their search for income with considerations about risk. Striking a balance between the two is one of the ways in which professional management can add value for fund shareholders. On the following pages, we invite you to read about where the fund's investment professionals find income - and how research, diversification and patience have contributed to The Bond Fund of America's success. MATURITY MATTERS Notwithstanding the scant yields on savings accounts and CDs, not all interest rates are low at the moment. "What is notable about the current environment is the steepness of the yield curve," explains portfolio counselor John Smet. "Thanks to the Fed's aggressive rate cuts - from 6.50% to 1.75% in 2001 - there is a sharp difference between very short-term instruments, such as Treasury bills and CDs, and those with longer maturities." While short-term vehicles can be an intelligent place to keep money you will need in the near future, investors can increase the income potential of their portfolios by using a bond fund to extend the maturity of their holdings. Because longer term securities are more sensitive to changes in economic conditions than short-term instruments, they generally offer somewhat higher income returns. In managing your fund's holdings, portfolio counselors pay close attention to maturity; they try to determine where interest rates might be headed and make adjustments accordingly - shortening maturities to protect the portfolio from rising rates and lengthening them to take advantage of declining rates. "The fund's average term to maturity is typically positioned between six and eight years," notes John, "although that will vary in extreme interest rate environments." Currently, the securities in the portfolio have an average weighted term to maturity of 7.2 years. [Begin Sidebar] [begin line chart]
BFA LIPPER CORPORATE A-RATED BOND FUNDS AVERAGE 1986 9.86% 9.14% 1987 9.64 9.54 1988 9.45 8.72 1989 9.45 8.43 1990 10.15 8.39 1991 8.65 7.35 1992 7.96 6.96 1993 7.34 6.16 1994 8.28 7.04 1995 7.18 6.11 1996 7.18 6.14 1997 7.07 5.97 1998 6.80 5.60 1999 7.16 5.98 2000 7.33 5.89 2001 6.56 5.56
Chart shows 12-month distribution rates at December 31. ABOVE-AVERAGE INCOME - Even as rates have trended lower in recent years, the fund has continued to deliver higher income than its peers. [end line chart] [begin line chart]
MATURITY YIELDS 3 months 1.72% 6 months 1.79 2 years 3.02 5 years 4.30 10 years 5.05 30 years 5.47
Treasury yield curve on 12/31/01. Source: Bloomberg. A SHARP DIVERGENCE Throughout 2001, the Federal Reserve Board tried to stimulate economic growth by aggressively notching down short-term interest rates. As a result, rates on Treasury bills and other short-term savings vehicles are steeply lower than longer term bonds. [end line chart] [End Sidebar] Time can provide another buffer against volatility. Although interest rate changes will roil bond prices in the near term, over longer periods dividends, particularly when reinvested, can have a stabilizing effect on total return. BROADENING THE FIELD In addition to lengthening the maturity of their portfolios, investors can look to various types of bonds for added income. "Every sector has a unique risk-reward relationship," says Abner Goldstine, the president of The Bond Fund of America and one of its six portfolio counselors. "Generally speaking, the greater the perceived risk of a variety of bonds, the more income bondholders can expect to receive." For example, mortgage-backed securities issued by Ginnie Mae carry a government promise of repayment of principal, but they are also subject to the risk of prepayment, particularly when interest rates decline and large numbers of mortgage holders refinance their loans. (In fact, refinancings totaled some $1.2 trillion in 2001, up sixfold from the year before.) Because of that added risk, mortgage-backed securities typically offer a yield premium over U.S. Treasuries with similar maturities. Likewise, lower rated corporate bonds, which have more questionable prospects for longer run credit health, pay higher rates than their investment-grade counterparts. Because different bond sectors and industries often respond differently to economic or business conditions, diversification within a portfolio can help offset risk and enhance returns. "Changing relationships among parts of the bond market can create pockets of opportunity for investors with the resources to find them," explains Abner. "Business conditions in a particular industry, changes in new issues in various sectors or industries and fluctuations in global economic developments are among those factors that can make one part of the bond market more enticing than another. Using our research, we try to exploit those shifts advantageously. Recently, for example, we used a spike-up in Treasury prices to add substantially to holdings in triple-B corporate bonds, which were trading at very attractive ranges." [Begin bar chart] Striking a balance between income and risk is one of the ways in which professional management can add value.
YIELDS 3-month Treasuries 1.72% 2-year Treasuries 3.11% 10-year Treasuries 5.05% Mortgage-backed securities (GNMA) 6.07% A-rated corporate bonds 7.00% B-rated corporate bonds 11.73%
Figures are current yields as of 12/31/01. Sources: Treasuries - U.S. Federal Reserve; mortgage-backed securities - Salomon Brothers All-GNMA Index; A-rated corporate bonds - Lehman Brothers Corporate Bond Index; B-rated corporate bonds - CSFB High-Yield Index. AN INCOME SPECTRUM The greater a bond's perceived risk, the more income bondholders can generally expect to receive. [End bar chart] Unlike funds that concentrate on a narrow band of the bond market, The Bond Fund of America's investment panorama has always been extremely broad, encompassing virtually every area of the fixed-income universe. The portfolio is further diversified within sectors, with more than 1,190 bonds representing more than 440 issuers around the world and dozens of industries. RESEARCH YIELDS GEMS Over the years, The Bond Fund of America has managed to deliver above-average income, but finding attractive securities is a challenging enterprise. Many of the most rewarding fixed-income instruments are complicated. Lower rated bonds and some foreign-issue bonds carry special risks. Moreover, a single entity can issue dozens of bonds, each of which trades differently, depending on the coupon rate, maturity or other special characteristics. In addition, understanding the underlying health of a company or the demographics of a pool of mortgages can expose anomalies in the marketplace, providing good values and attractive yields. To make sense of this byzantine landscape, the fund's portfolio counselors and analysts draw on an integrated research network that spans the globe and involves 26 fixed-income investment professionals. These men and women, who serve all of the American Funds, conduct in-depth research to identify and evaluate potential investments for the fund. They visit companies, analyze balance sheets and share information with each other. Going the extra mile helps them avoid trouble spots and find gems that other investors may overlook. GETTING THERE EARLY Credit research has been particularly helpful in the high-yield sector. These bonds have not only contributed to the fund's income returns, but in many cases, they have provided capital appreciation, as the fortunes of the underlying companies improved. Understanding the fundamentals helps us pinpoint risk, identify value and get there early. Retail bonds, for example, have been a recent success for the fund. Most of our holdings in this area are "fallen angels," or previously investment-grade issues that have seen their creditworthiness decline. These bonds are often sold at enticing prices, but as analyst Ellen Carr cautions, they are not always good investments. "Retailing is a cyclical business and very competitive," she explains. "Investors have to choose carefully, know the company's track record and have reason to believe that management can turn the fortunes of a distressed company around." Several years ago, Ellen became intrigued by J.C. Penney's story. The retailer had fallen out of step with consumer trends and was beset by inefficiencies in its purchasing procedures. Although the company narrowly maintained an investment-grade rating, the price of its bonds declined to the point of offering high-yield levels of income. Ellen studied J.C. Penney's balance sheets, visited stores around the country, talked to competitors and worked with American Funds equity analysts. Ultimately, she liked what she saw. "The closer we looked, the more convinced we became that J.C. Penney had under-appreciated assets that significantly offset the credit risks of the bonds," she says. "What's more, the company had brought in a new CEO who we believed was taking the right steps to revitalize its operations." [photograph of a man at a computer terminal] The Bond Fund of America initially invested in J.C. Penney in early 1999 and gradually added to its holdings; at year-end it accounted for 1.2% of net assets. In addition to their attractive yields, the bonds have risen substantially in value in the past year. THE REWARDS OF PATIENCE The value of bonds is easily discerned during periods of stock market turmoil, but their true worth is perhaps best appreciated over time. Generous income from a portfolio of bonds can provide a solid foundation of long-term growth. A $10,000 investment in The Bond Fund of America made when the fund began in May 1974 would have grown to more than $122,000 - nearly all from reinvested income that compounded over time. As Leo Tolstoy wrote: "The strongest of all warriors are time and patience." [photograph of a line chart on a computer monitor; second photograph of a woman sitting at a table reading a book] [Begin Sidebar] CONSISTENCY AMID CHANGE The balancing relationship between income return and share price over time has helped The Bond Fund of America deliver consistent long-term returns in both rising and falling interest rate environments. [begin line chart]
YIELDS 1974 7.56% 1975 7.99 1976 7.61 1977 7.42 1978 8.41 1979 9.43 Rising interest rates (1974-1984) 1980 11.43 1981 13.92 1982 13.01 1983 11.10 1984 12.46 1985 10.62 1986 7.67 1987 8.39 1988 8.85 1989 8.49 1990 8.55 Declining interest rates (1985-2001) 1991 7.86 1992 7.01 1993 5.87 1994 7.09 1995 6.57 1996 6.44 1997 6.35 1998 5.26 1999 5.65 2000 6.03 2001 5.02
Chart shows annual yields on 10-year Treasury bonds. Source: Federal Reserve Board. [end line chart] [begin bar chart] BFA AVERAGE ANNUAL RETURN
(1974-1984) +10.0% (1985-2001) +9.4%
[end bar chart] [End Sidebar] [Begin Sidebar] BALANCING ACT: A LONG VIEW OF INTEREST RATES AND BONDS Interest rates generally move cyclically, reflecting changes in the economy. Bond prices respond to interest rate cycles in a seesaw pattern: When prevailing rates decline, bond prices rise and vice versa. Yet fluctuations in bond prices are only one part of the equation. The other component of your return is income, which by contrast has tended to be much more stable and predictable. Longer term, it is also the driving force in your overall returns - regardless of which direction interest rates are headed. "Rising interest rates may reduce the value of your holdings over the short term by causing share prices to fall," explains portfolio counselor Mark Macdonald, "but at the same time shareholders are also reinvesting their dividends at increasingly higher rates. Over extended periods - say, ten years or longer - the gradual increase in your income returns should offset declines in share value. The reverse would hold true when interest rates are declining." That offsetting relationship between share price and income return has helped the fund deliver consistent long-term total returns, both in "weak" (rising interest rate) and "strong" (declining interest rate) bond markets. [End Sidebar] Bond Fund of America Investment Portfolio 12/31/2001 [begin pie chart] Corporate Bonds 52.6% Federal Agency Mortgage Pass-Through Securities 9.3 Asset-Backed Securities 8.7 Cash & Equivalents 8.4 U.S. Treasury Notes & Bonds 7.5 Commercial Mortgage-Backed Securities 5.3 Governments & Governmental Bodies {Excluding U.S.} 4.8 Other Mortgage-Backed Securities 1.8 Federal Agency Notes & Bonds 1.4 Equity-Related Securities 0.2
[end pie chart] Shares or Principal Market Percent Amount Value of Net Bonds, Notes & Preferred Stocks (000) (000) Assets MEDIA - 8.01% Charter Communications Holdings, LLC: 10.75% 2009 $ 4,000 $ 4,240 0%/11.75% 2010 (1) 5,600 3,976 0%/9.92% 2011 (1) 39,250 28,260 11.125% 2011 12,763 13,593 0%/11.75% 2011 (1) 61,300 37,086 0%/13.50% 2011 (1) 48,500 32,252 Avalon Cable Holdings LLC 0%/11.875% 2008 (1) 5,625 4,648 1.04% Liberty Media Corp.: 7.75% 2009 11,950 12,022 7.875% 2009 39,880 40,405 8.50% 2029 9,500 9,278 8.25% 2030 29,750 28,127 .75 Adelphia Communications Corp.: 10.50% 2004 2,000 2,010 10.25% 2006 18,500 18,962 8.375% 2008 5,000 4,575 Series B, 13.00% preferred 2009 (2) 112,950 Shares 11,295 10.875% 2010 $ 1,250 1,262 10.25% 2011 30,000 30,075 Century Communications, Inc.: 0% 2003 9,000 8,010 8.75% 2007 2,200 2,090 FrontierVision 11.00% 2006 700 721 .66 Fox/Liberty Networks, LLC, FLN Finance, Inc.: 8.875% 2007 30,550 31,772 0%/9.75% 2007 (1) 36,325 36,507 .57 Clear Channel Communications, Inc.: 6.00% 2006 9,050 8,907 6.625% 2008 5,375 5,248 7.65% 2010 10,000 10,324 Chancellor Media Corp. of Los Angeles: Series B, 8.75% 2007 8,625 9,013 8.00% 2008 10,000 10,400 .37 Univision Communications Inc. 7.85% 2011 42,825 43,362 .36 Young Broadcasting Inc.: Series B, 9.00% 2006 2,250 2,115 Series B, 8.75% 2007 17,750 16,197 10.00% 2011 22,750 21,271 .33 Emmis Communications Corp. 0%/12.50% 2011 (1) 59,272 36,156 .30 Fox Family Worldwide, Inc.: 9.25% 2007 3,495 3,722 10.25% 2007 25,687 27,741 .26 A.H. Belo Corp.: 7.125% 2007 15,000 14,821 8.00% 2008 6,850 7,005 7.25% 2027 2,500 2,069 7.75% 2027 8,000 7,024 .26 Telemundo Holdings, Inc., Series D, 0%/11.50% 2008 (1) 31,775 30,027 .25 Comcast UK Cable Partners Ltd. 11.20% 2007 25,790 18,569 NTL Communications Corp.: 12.375% 2008 Euro 7,250 1,950 9.875% 2009 3,350 903 0%/11.50% 2009 (1) 8,000 1,567 Series B, 11.875% 2010 $ 3,000 975 NTL Inc. 12.75% 2005 11,000 3,465 .23 Viacom Inc.: 6.40% 2006 5,000 5,174 7.70% 2010 8,000 8,710 6.625% 2011 8,000 8,147 .18 News America Holdings Inc.: 6.625% 2008 16,900 16,934 8.625% 2014 A$ 5,150 2,537 8.875% 2023 $ 1,800 1,951 .18 Antenna TV SA: 9.00% 2007 9,750 8,482 9.75% 2008 Euro 16,000 12,392 .17 American Media Operations, Inc. 10.25% 2009 $ 19,820 20,018 .17 Key3Media Group, Inc. 11.25% 2011 22,269 18,483 .16 EchoStar DBS Corp. 9.125% 2009 (3) 18,000 18,000 .15 Cablevision Industries Corp.: 8.125% 2009 9,250 9,532 9.875% 2013 2,000 2,120 CSC Holdings, Inc., Series B, 8.125% 2009 5,000 5,151 .14 Telewest Communications PLC: 11.25% 2008 1,300 949 9.875% 2010 10,200 7,191 0%/11.375% 2010 (1) 12,500 4,875 TeleWest PLC 9.625% 2006 4,700 3,266 .14 Sinclair Broadcast Group, Inc.: 10.00% 2005 500 516 8.75% 2007 1,000 997 8.75% 2011 (3) 13,000 13,065 .12 British Sky Broadcasting Group PLC 8.20% 2009 13,500 13,917 .12 TransWestern Publishing Co. LLC, Series F, 9.625% 2007 12,080 12,442 .10 Carmike Cinemas, Inc., Series B, 9.375% 2009 (4) 11,425 11,653 .10 The Ackerley Group, Inc., Series B, 9.00% 2009 10,000 10,600 .09 Cumulus Media Inc. 13.75% preferred 2009 (2) (5) 10,655 Shares 10,548 .09 Penton Media, Inc. 10.375% 2011 $ 16,425 9,444 .08 AOL Time Warner Inc. 7.625% 2031 7,500 7,937 Time Warner Companies, Inc.: 9.15% 2023 500 597 6.95% 2028 500 488 .08 Cox Radio, Inc.: 6.375% 2005 8,000 7,939 6.625% 2006 650 658 .07 ACME Television, LLC, Series A, 10.875% 2004 8,000 7,680 .06 Lenfest Communications, Inc. 7.625% 2008 6,750 6,993 .06 Sun Media Corp. 9.50% 2007 6,139 6,293 .05 Gray Communications Systems, Inc.: 10.625% 2006 2,000 2,060 9.25% 2011 (3) 4,000 3,980 .05 Radio One, Inc., Series B, 8.875% 2011 5,500 5,665 .05 Hearst-Argyle Television, Inc. 7.00% 2018 6,050 5,082 .04 RBS Participacoes SA 11.00% 2007 (3) 7,250 5,021 .04 Sinclair Capital 11.625% preferred 2009 47,500 Shares 4,607 .04 Multicanal Participacoes SA, Series B, 12.625% 2004 $ 6,875 4,555 .04 STC Broadcasting, Inc. 11.00% 2007 3,250 2,762 .02 Big City Radio, Inc. 11.25% 2005 5,425 2,712 .02 Globo Comunicacoes e Participacoes SA: 10.50% 2006 (3) 1,990 1,398 10.50% 2006 690 485 .02 958,003 8.01 BANKS & THRIFTS - 7.20% HSBC Capital Funding LP: (6) 8.03% noncumulative preferred (undated) Euro 30,000 29,614 Series 1, 9.547% noncumulative step-up $ 38,250 44,348 perpetual preferred (undated) (3) Series 2, 10.176% noncumulative step-up 32,000 40,329 perpetual preferred (undated) (3) Midland Bank 2.25% Eurodollar Note (undated) (6) 15,000 12,042 1.06 SocGen Real Estate Co. LLC, Series A, 7.64% 83,375 85,929 (undated) (3) (6) Societe Generale 7.85% (undated) (3) (6) 11,105 11,543 .82 BNP U.S. Funding LLC, Series A, 7.738% 41,500 43,794 noncumulative preferred (undated) (3) (6) BNP Paribas Capital Trust, 9.003% noncumulative 15,000 16,919 trust preferred (undated) (3) Banque Nationale de Paris 2.535% (undated) (6) 12,500 12,220 .61 Fuji JGB Investment LLC, Series A, 9.87% 50,325 39,781 noncumulative preferred (undated) (3) (6) IBJ Preferred Capital Co. LLC, Series A, 23,930 17,868 .48 8.79% noncumulative preferred (undated) (3) (6) Bank of Scotland 7.00% (undated) (3) (6) 30,000 30,287 National Westminster Bank PLC 7.75% (undated) (6) 16,000 17,084 Halifax Building Society 8.75% 2006 Pounds 3,000 4,827 .44 Royal Bank of Scotland: 8.375% 2007 4,900 7,890 7.648% (undated) (6) $ 32,000 32,396 National Westminster Bank 6.625% (undated) Euro 4,700 4,300 .37 Washington Mutual Bank, FA 6.875% 2011 $ 20,000 20,558 Washington Mutual Finance 8.25% 2005 12,000 13,144 Great Western Financial Trust II, 7,600 7,388 Series A, 8.206% 2027 Ahmanson Capital Trust I Capital Securities, 2,030 2,027 .36 Series A, 8.36% 2026 (3) Skandinaviska Enskilda Banken AB: (6) 6.50% (undated) (3) 17,500 17,885 7.50% (undated) 23,000 22,997 .34 NB Capital Corp. 8.35% exchangeable depositary shares 1,200,000 Shares 31,200 National Bank of Canada 3.625% (undated) (6) $ 5,000 3,602 .29 Standard Chartered Bank: 8.00% 2031 (3) 3,740 3,890 2.079% (undated) (6) 5,000 3,127 3.938% Eurodollar Note (undated) (6) 15,000 9,535 Standard Chartered Capital Trust I 8.16% (undated) (6) Euro 10,000 9,169 .22 GS Escrow Corp.: 7.00% 2003 $ 10,450 10,580 7.125% 2005 12,000 11,963 .19 AB Spintab: 6.00% 2009 SKr 23,000 2,249 6.80% (undated) (3) (6) $ 6,500 6,623 7.50% (undated) (3) (6) 11,000 11,410 .17 Canadian Imperial Bank of Commerce 3.625% 25,000 19,531 .16 Eurodollar Note (undated) (6) Abbey National PLC: (6) 6.70% (undated) 7,500 7,386 7.35% (undated) 9,500 9,834 .15 DBS Bank Ltd. 7.875% 2009 (3) 10,000 10,732 Development Bank of Singapore Ltd. 7.125% 2011 (3) 6,100 6,285 .14 Regional Diversified Funding Ltd. 9.25% 2030 (3) 13,250 13,880 .12 Tokai Preferred Capital Co. LLC, Series A, 14,500 12,035 .10 9.98% noncumulative preferred (undated) (3) (6) Imperial Capital Trust I, Imperial Bancorp 9.98% 2026 10,200 11,484 .10 Barclays Bank PLC 7.375% (undated) (3) (6) 10,875 11,280 .09 Chevy Chase Preferred Capital Corp. 10.375% 195,200 Shares 10,857 .09 BCI U.S. Funding Trust I 8.01% noncumulative $ 10,000 10,266 .09 preferred (undated) (3) (6) Allfirst Preferred Capital Trust 3.93% 2029 (6) 10,000 9,532 .08 BankUnited Capital Trust, BankUnited Financial 10,000 9,425 .08 Corp., 10.25% 2026 J.P. Morgan & Co. Inc., Series A, 8.382% 2012 (6) 10,000 9,367 .08 Riggs Capital Trust II 8.875% 2027 7,500 5,625 Riggs National Corp. 8.625% 2026 4,400 3,253 .07 Bank of Nova Scotia 3.625% Eurodollar Note 10,000 7,698 .06 (undated) (6) Bank One Texas, NA 6.25% 2008 7,250 7,392 .06 Unicredito Italiano SpA 8.048% (undated) (6) Euro 7,000 6,770 .06 Komercni Finance BV: (6) 9.00% 2008 $ 3,100 3,239 9.00% 2008 (3) 2,795 2,921 .05 UBS Preferred Funding Trust 1 8.622% (undated) 5,500 6,131 .05 Lloyds Bank (#2) 2.284% (undated) (6) 8,000 6,114 .05 Allied Irish Banks Ltd. 2.813% (undated) (6) 7,000 5,857 .05 Bay View Capital 9.125% 2007 5,500 5,280 .04 Bergen Bank 3.625% (undated) (6) 5,000 3,957 .03 Christiana Bank Og Kreditkasse 2.188% (undated) (6) 4,000 3,260 .03 Sanpaolo IMI Capital Trust I 8.126% noncumulative Euro 3,000 2,932 .02 trust preferred (undated) (6) Banco General, SA 7.70% 2002 (3) $ 500 512 .00 861,353 7.20 WIRELESS TELECOMMUNICATION SERVICES - 4.43% Nextel Communications, Inc.: 0%/9.75% 2007 (1) 64,450 45,679 0%/10.65% 2007 (1) 10,000 7,550 0%/9.95% 2008 (1) 73,825 50,755 12.00% 2008 5,000 4,363 9.375% 2009 2,000 1,550 Series D, 13.00% exchangeable preferred 20,434 Shares 12,056 2009 (2) (5) 5.25% convertible senior notes 2010 $ 10,000 6,036 Series E, 11.125% exchangeable preferred, 9,849 Shares 4,826 1.11 redeemable 2010 (2) (5) Dobson Communications Corp.: 12.25% exchangeable preferred, redeemable 41,989 39,470 2008 (2) (5) 13.00% senior exchangeable preferred 2009 (2) (5) 6,114 6,053 10.875% 2010 $ 12,500 13,125 Dobson/Sygnet Communications Co. 12.25% 2008 7,500 7,950 American Cellular Corp. 9.50% 2009 4,250 4,165 .59 Leap Wireless International, Inc.: 12.50% 2010 23,525 17,879 0%/14.50% 2010 (1) (7) 34,962 13,006 Cricket Communications, Inc.: (6) 6.25% 2007 8,035 6,127 6.50% 2007 24,725 18,852 .47 Verizon Wireless Capital LLC 5.375% 2006 (3) 52,250 52,066 .44 Nextel Partners, Inc.: 12.50% 2009 (3) 2,000 1,760 0%/14.00% 2009 (1) 35,814 22,205 11.00% 2010 11,066 8,963 11.00% 2010 8,900 7,209 .34 Centennial Cellular Corp. 10.75% 2008 35,250 29,786 .25 Vodafone Group PLC 7.75% 2010 22,875 25,162 .21 TeleCorp PCS, Inc. 0%/11.625% 2009 (1) 19,800 17,028 Tritel PCS, Inc. 10.375% 2011 6,000 6,795 .20 CFW Communications Co. 13.00% 2010 (7) (8) 30,155 21,123 .18 Cingular Wireless: (3) 6.50% 2011 6,000 6,090 7.125% 2031 5,150 5,259 .09 Microcell Telecommunications Inc., Series B, 12,415 10,677 .09 14.00% 2006 Horizon PCS, Inc. 13.75% 2011 (3) 10,500 10,500 .09 PanAmSat Corp.: 6.00% 2003 2,400 2,366 6.125% 2005 5,250 4,759 6.375% 2008 1,250 1,065 6.875% 2028 1,000 685 .07 Cellco Finance NV: 12.75% 2005 6,000 5,235 15.00% 2005 500 454 .05 PTC International Finance BV 0%/10.75% 2007 (1) 5,950 5,340 .04 Mannesmann Finance BV 4.75% 2009 Euro 6,000 5,072 .04 Price Communications Wireless, Inc., $ 4,625 4,845 .04 Series B, 9.125% 2006 Triton PCS, Inc. 9.375% 2011 4,000 4,160 .03 AirGate PCS, Inc. 0%/13.50% 2009 (1) 5,123 3,893 .03 Rogers Cantel Inc. 9.75% 2016 3,375 3,358 .03 AT&T Wireless Services, Inc. 7.875% 2011 2,250 2,398 .02 Telesystem International Wireless Inc. 14.00% 2003 (3) 2,148 1,622 .01 Teletrac, Inc. 9.00% 2004 (3) (5) (8) 968 774 .01 PageMart Wireless, Inc.: (4) (8) 15.00% 2005 14,750 147 0%/11.25% 2008 (1) 40,500 101 .00 530,339 4.43 DIVERSIFIED TELECOMMUNICATION SERVICES - 3.73% British Telecommunications PLC: 8.375% 2010 (6) 37,500 41,432 6.875% 2011 Euro 4,000 3,734 8.875% 2030 (6) $ 29,500 33,852 .66 PCCW-HKT Capital Ltd. 7.75% 2011 (3) 61,825 61,808 .52 TCI Communications, Inc.: 8.00% 2005 10,000 10,433 8.75% 2015 5,000 5,739 AT&T Corp.: (3) 7.30% 2011 14,500 14,900 8.00% 2031 25,000 26,153 .48 Voicestream Wireless Corp.: 10.375% 2009 38,730 44,228 0%/11.875% 2009 (1) 11,035 9,592 .45 Bell Atlantic Financial Services, Inc. 35,750 35,661 .30 4.25% convertible debentures 2005 (3) TELUS Corp.: 7.50% 2007 15,250 15,874 8.00% 2011 11,650 12,285 .24 France Telecom: (6) 7.45% 2006 (3) 6,050 6,354 7.00% 2008 Euro 5,000 4,637 8.00% 2011 (3) $ 4,500 4,819 Orange PLC 8.75% 2006 8,000 8,363 .20 Koninklijke KPN NV: 4.75% 2008 Euro 1,000 769 8.00% 2010 $ 15,375 15,525 8.375% 2030 6,450 6,312 .19 Hellenic Exchangeable Finance SCA 2.00% Euro 22,000 21,102 .18 exchangeable bonds 2005 Qwest Capital Funding, Inc: 7.90% 2010 $ 11,500 11,715 7.625% 2021 (3) 5,000 4,781 US WEST Capital Funding, Inc. 6.25% 2005 2,000 1,965 .15 CenturyTel, Inc., Series H, 8.375% 2010 14,000 14,810 .12 Allegiance Telecom, Inc.: 0%/11.75% 2008 (1) 10,000 4,500 12.875% 2008 8,860 6,601 .09 WCG Note Trust 8.25% 2004 (3) 5,500 5,380 Williams Communications Group, Inc.: 10.70% 2007 550 235 11.70% 2008 2,950 1,261 10.875% 2009 3,750 1,603 .07 COLT Telecom Group PLC: 12.00% 2006 5,250 4,515 8.875% 2007 DM 4,250 1,528 .05 Sonera Group PLC 4.625% 2009 Euro 2,000 1,553 .01 VersaTel Telecom International NV 3,325 772 .01 4.00% convertible notes 2005 NEXTLINK Communications, Inc.: 12.50% 2006 $ 3,000 356 0%/12.125% 2009 (1) 3,975 313 XO Communications, Inc. 14.00% preferred 2009 (2) (5) 24 Shares .01 GT Group Telecom Inc., units 0%/13.25% $ 2,753 360 .00 2010 (1) (7) (8) IMPSAT Corp. 12.375% 2008 (4) 2,000 65 .00 445,885 3.73 COMMUNICATIONS EQUIPMENT - 2.71% Crown Castle International Corp.: 0%/10.625% 2007 (1) 18,850 16,494 12.75% senior exchangeable preferred 2010 (2) (5) 39,390 Shares 28,361 0%/10.375% 2011 (1) $ 2,385 1,497 10.75% 2011 28,500 27,859 0%/11.25% 2011 (1) 7,500 4,800 .66 Motorola, Inc.: 6.75% 2006 5,000 5,017 8.00% 2011 (3) 61,900 62,146 7.50% 2025 7,000 6,519 6.50% 2028 1,200 982 5.22% 2097 4,200 2,646 .65 SBA Communications Corp.: 0%/12.00% 2008 (1) 14,300 10,618 10.25% 2009 28,750 24,294 .29 SpectraSite Holdings, Inc., Series B: 0%/12.00% 2008 (1) 13,250 5,035 0%/11.25% 2009 (1) 16,750 4,606 10.75% 2010 9,250 4,718 12.50% 2010 26,250 14,306 0%/12.875% 2010 (1) 22,100 5,525 .29 American Tower Corp.: 9.375% 2009 36,700 29,085 5.00% convertible debentures 2010 4,000 2,418 .26 Corning Inc. 0% convertible debentures 2015 46,801 24,454 .20 Nortel Networks Ltd. 6.125% 2006 22,500 18,000 .15 Juniper Networks, Inc. 4.75% convertible 19,000 13,775 .12 subordinated notes 2007 Adaptec, Inc. 4.75% convertible 10,000 8,998 .08 subordinated notes 2004 Lucent Technologies Inc. 7.25% 2006 2,000 1,700 .01 323,853 2.71 INSURANCE - 2.57% Prudential Insurance Company of America 4,000 4,125 6.375% 2006 (3) Prudential Holdings, LLC, Series C, 8.695% 2023 (3) 77,000 80,333 .71 ReliaStar Financial Corp.: 8.625% 2005 5,000 5,458 8.00% 2006 23,250 25,594 ING Capital Funding Trust III 8.439% (undated) (6) 24,750 27,058 Ing Verzekeringen NV 6.25% 2021 (6) Euro 5,000 4,458 .52 Monumental Global Funding Trust II, $ 19,525 19,989 Series 2001-A, 6.05% 2006 (3) AEGON NV 6.125% 2031 Pounds 6,000 9,123 Transamerica Corp. 9.375% 2008 $ 7,500 8,542 .32 AIG SunAmerica Global Financing VII 5.85% 2008 (3) 35,250 35,515 .30 AXA 6.75% 2020 (6) Euro 14,700 13,251 Equitable Life Assurance Society of $ 11,500 12,084 .21 the United States 6.95% 2005 (3) Allstate Corp. 6.75% 2018 22,500 22,008 .18 UnumProvident Corp. 7.625% 2011 11,000 11,427 Unum Corp. 6.75% 2028 5,000 4,451 .13 Conseco Financing Trust II, Capital 39,600 7,920 Trust (TRUPS), 8.70% 2026 Conseco Financing Trust III 8.796% 2027 2,750 550 .07 Lincoln National Corp. 7.00% 2018 6,275 6,229 .05 AFLAC Inc. 6.50% 2009 5,875 5,904 .05 Lindsey Morden Group Inc., Series B, C$ 8,970 3,661 .03 7.00% 2008 (3) (8) 307,680 2.57 ELECTRIC UTILITIES - 2.47% Edison Mission Energy: 10.00% 2008 $ 2,000 2,060 7.73% 2009 24,175 22,482 9.875% 2011 38,510 40,120 Mission Energy Holding Co. 13.50% 2008 22,500 24,975 Homer City Funding LLC 8.734% 2026 20,200 18,601 Midwest Generation, LLC, Series B, 8.56% 2016 (9) 8,000 7,548 Edison International 6.875% 2004 3,375 3,105 .99 Israel Electric Corp. Ltd.: (3) 7.75% 2009 24,500 25,388 7.95% 2011 6,750 7,094 7.70% 2018 8,500 7,991 7.875% 2026 15,000 13,853 7.75% 2027 15,545 14,143 8.10% 2096 14,405 11,314 .67 Exelon Generation Co., LLC 6.95% 2011 (3) 23,775 24,149 Exelon Corp. 6.75% 2011 6,200 6,295 Commonwealth Edison Co. 6.40% 2005 1,079 1,107 .26 AES Drax Holdings Ltd., Series A, 10.41% 2020 (9) 25,625 22,998 AES Ironwood, LLC 8.857% 2025 (9) 3,500 3,301 AES Corp.: 9.50% 2009 1,450 1,262 9.375% 2010 1,915 1,733 .25 FirstEnergy Corp.: Series B, 6.45% 2011 3,500 3,427 Series C, 7.375% 2031 16,125 15,743 .16 Progress Energy, Inc.: 5.85% 2008 4,000 3,917 7.10% 2011 5,000 5,190 7.00% 2031 2,500 2,471 .10 American Electric Power Co., Inc., 3,705 3,662 .03 Series A, 6.125% 2006 TXU Corp., Series J, 6.375% 2006 1,000 1,008 .01 294,937 2.47 HOTELS, RESTAURANTS & LEISURE - 2.32% MGM Mirage, Inc. 8.50% 2010 30,600 30,425 Mirage Resorts, Inc.: 6.625% 2005 1,000 988 6.75% 2008 1,750 1,636 7.25% 2017 10,075 8,443 MGM Grand, Inc. 6.95% 2005 5,000 4,921 .39 Royal Caribbean Cruises Ltd.: 7.00% 2007 14,600 11,607 6.75% 2008 7,050 5,358 8.75% 2011 29,825 24,158 7.50% 2027 7,500 4,875 .38 Boyd Gaming Corp.: 9.25% 2003 13,475 13,711 9.50% 2007 5,500 5,555 9.25% 2009 (3) 13,500 13,838 .28 Premier Parks Inc.: 9.25% 2006 8,375 8,459 9.75% 2007 3,875 3,914 0%/10.00% 2008 (1) 8,250 7,033 Six Flags Entertainment Corp. 8.875% 2006 5,000 5,125 Six Flags Inc. 9.50% 2009 5,000 5,044 .25 Harrah's Operating Co., Inc. 7.125% 2007 23,300 23,604 .20 Ameristar Casinos, Inc. 10.75% 2009 14,300 15,516 .13 International Game Technology: 7.875% 2004 8,500 8,776 8.375% 2009 2,000 2,105 .09 William Hill Finance 10.625% 2008 Pounds 6,423 9,963 .08 Hollywood Casino Corp. 11.25% 2007 $ 7,500 8,100 .07 Eldorado Resorts LLC 10.50% 2006 8,075 7,833 .06 Mandalay Resort Group 10.25% 2007 7,000 7,263 .06 Station Casinos, Inc. 8.375% 2008 7,000 7,096 .06 Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 5,000 5,169 Horseshoe Gaming, LLC, Series B, 9.375% 2007 1,000 1,040 .05 KSL Recreation Group, Inc. 10.25% 2007 6,600 6,113 .05 Venetian Casino Resort, LLC 12.25% 2004 5,875 5,875 .05 Argosy Gaming Co.: 10.75% 2009 2,000 2,190 9.00% 2011 2,750 2,888 .04 Hard Rock Hotel, Inc., Series B, 9.25% 2005 4,303 4,131 .03 Jupiters Ltd. 8.50% 2006 3,000 3,015 .03 Carnival Corp. 6.15% 2008 2,000 1,823 .02 AMF Bowling Worldwide, Inc. 0% convertible 11,084 1 .00 debentures 2018 (3) (4) (8) 277,591 2.32 MULTILINE RETAIL - 1.52% J.C. Penney Co., Inc.: 7.375% 2004 3,500 3,483 7.05% 2005 21,000 20,580 6.00% 2006 1,600 1,448 6.50% 2007 3,750 3,403 7.60% 2007 23,850 23,373 7.375% 2008 4,975 4,851 6.875% 2015 7,100 5,858 7.65% 2016 14,300 12,513 7.95% 2017 39,325 34,803 9.75% 2021 (9) 550 534 8.25% 2022 (9) 12,275 10,618 8.125% 2027 2,175 1,871 7.40% 2037 7,825 7,688 7.625% 2097 18,055 13,935 1.21 Kmart Corp., Series 1995 K-2, 9.78% 2020 (9) 12,250 8,505 DR Securitized Lease Trust, Series 1994 8,000 5,614 .12 K-2, 9.35% 2019 (9) Dillard's, Inc.: 6.125% 2003 5,435 5,211 6.43% 2004 1,450 1,384 6.625% 2018 3,000 2,364 7.13% 2018 1,250 960 7.00% 2028 1,500 1,155 .09 Saks Inc. 7.375% 2019 10,075 7,128 .06 Federated Department Stores, Inc. 6.625% 2011 4,850 4,766 .04 182,045 1.52 AUTOMOBILES - 1.44% Ford Motor Credit Co.: 6.875% 2006 10,000 9,997 5.25% 2008 DM 18,000 7,586 5.80% 2009 $ 27,000 24,473 7.25% 2011 25,500 24,857 7.375% 2011 11,445 11,294 7.45% 2031 7,100 6,514 .71 General Motors Acceptance Corp.: 6.125% 2006 7,000 6,927 5.85% 2009 15,000 14,046 7.75% 2010 9,750 10,037 6.875% 2011 13,400 13,106 8.00% 2031 25,750 26,051 General Motors Nova Scotia Finance Co. 6.85% 2008 7,000 6,966 .64 DaimlerChrysler North America Holding Corp. 7.25% 2006 10,000 10,365 .09 172,219 1.44 PAPER & FOREST PRODUCTS - 1.43% Georgia-Pacific Corp.: 7.50% 2006 10,050 9,964 8.125% 2011 54,050 52,959 8.875% 2031 8,500 8,410 Fort James Corp. 6.875% 2007 11,000 10,396 .68 Scotia Pacific Co. LLC, Series B: Class A-1, 6.55% 2028 (9) 1,123 1,125 Class A-2, 7.11% 2028 (9) 31,400 26,444 Class A-3, 7.71% 2028 19,143 13,400 .34 Bowater Canada Finance Corp. 7.95% 2011 (3) 16,000 16,118 .14 Potlatch Corp. 10.00% 2011 (3) 11,450 11,965 .10 Kappa Beheer BV: 10.625% 2009 Euro 3,500 3,431 0%/12.50% 2009 (1) 9,500 7,205 .09 Appleton Papers Inc. 12.50% 2008 (3) $ 4,075 3,902 .03 Indah Kiat Finance Mauritius Ltd. 10.00% 2007 (4) 12,075 2,324 .02 Riverwood International Corp. 10.875% 2008 2,250 2,284 .02 Pindo Deli Finance Mauritius Ltd.: (4) 10.25% 2002 6,000 915 10.75% 2007 3,625 553 .01 APP International Finance Co. BV 11.75% 2005 (4) 275 72 .00 171,467 1.43 HEALTH CARE PROVIDERS & SERVICES - 1.33% Columbia/HCA Healthcare Corp.: 7.15% 2004 1,500 1,545 6.91% 2005 17,410 17,497 7.00% 2007 9,250 9,296 8.85% 2007 8,240 8,734 8.70% 2010 4,250 4,548 9.00% 2014 5,650 5,989 7.69% 2025 5,000 4,750 .44 Aetna Inc.: 7.375% 2006 28,140 28,277 7.875% 2011 23,750 23,344 .43 Humana Inc. 7.25% 2006 31,000 31,197 .26 UnitedHealth Group Inc. 7.50% 2005 10,000 10,722 .09 Clarent Hospital Corp. 11.50% 2005 (8) 7,544 7,167 .06 CIGNA Corp. 6.375% 2011 4,975 4,915 .04 Integrated Health Services, Inc.: (4) (8) 10.25% 2006 (6) 9,350 94 Series A, 9.50% 2007 12,175 122 Series A, 9.25% 2008 32,657 327 .01 Mariner Health Group, Inc. 9.50% 2006 (4) (8) 7,300 73 .00 158,597 1.33 ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.23% Solectron Corp.: 0% convertible note 2019 (8) 3,000 1,526 0% LYON convertible notes 2020 135,900 57,758 0% LYON convertible notes 2020 100,350 53,316 .94 Celestica Inc. 0% convertible debenture 2020 47,185 20,072 .17 SCI Systems, Inc. 3.00% convertible 12,000 9,971 .08 subordinated debentures 2007 Flextronics International Ltd. 9.875% 2010 4,000 4,200 .04 146,843 1.23 METALS & MINING - 1.02% Freeport-McMoRan Copper & Gold Inc.: 7.50% 2006 34,000 24,650 7.20% 2026 24,000 21,360 .39 BHP Finance Ltd.: 6.69% 2006 10,000 10,349 8.50% 2012 20,000 22,935 7.25% 2016 5,000 4,965 .32 Inco Ltd. 9.60% 2022 16,000 16,725 .14 Allegheny Technologies, Inc. 8.375% 2011 (3) 9,000 8,834 .07 Luscar Coal Ltd. 9.75% 2011 (3) 6,400 6,656 .06 Kaiser Aluminum & Chemical Corp. 12.75% 2003 7,250 5,283 .04 Doe Run Resources Corp., Series B, 9.38% 2003 (6) 3,000 330 .00 122,087 1.02 CONSUMER FINANCE - 0.99% Capital One Bank: 8.25% 2005 4,500 4,596 6.875% 2006 18,233 17,755 Capital One Financial Corp.: 7.25% 2006 16,358 14,886 7.125% 2008 2,000 1,858 Capital One Capital I 3.78% 2027 (3) (6) 10,000 7,588 .39 Household Finance Corp.: 7.875% 2007 20,000 21,836 6.40% 2008 10,000 9,985 6.375% 2011 4,900 4,749 .31 MBNA Corp., MBNA Capital B, Series B, 3.03% 2027 (6) 32,800 23,663 .20 Advanta Capital Trust I, Series B, 8.99% 2026 12,500 7,000 .06 Providian Financial Corp. 9.525% 2027 (3) 16,750 4,020 .03 117,936 .99 SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.94% Analog Devices, Inc. 4.75% convertible 15,100 14,414 .12 subordinated notes 2005 LSI Logic Corp., 4.00% convertible 16,024 13,600 .11 subordinated notes 2005 Micron Technology, Inc. 6.50% 2005 (3) 11,000 10,120 .09 Vitesse Semiconductor Corp. 4.00% convertible 12,675 9,966 .08 subordinated debentures 2005 Conexant Systems, Inc. 4.00% convertible 14,700 9,576 .08 subordinated notes 2007 TriQuint Semiconductor, Inc. 4.00% 12,775 9,356 .08 convertible subordinated notes 2007 TranSwitch Corp. 4.50% convertible notes 2005 16,500 9,240 .08 Hyundai Semiconductor America, Inc. 8.625% 2007 (3) 15,850 8,649 .07 Zilog, Inc. 9.50% 2005 (4) 25,550 7,601 .06 Cypress Semiconductor Corp., 3.75% 9,050 7,449 .06 convertible subordinated notes 2005 Fairchild Semiconductor Corp.: 10.125% 2007 2,135 2,199 10.50% 2009 4,225 4,457 .06 Amkor Technology, Inc.: 9.25% 2006 3,500 3,343 9.25% 2008 1,000 945 .04 RF Micro Devices, Inc., 3.75% convertible 1,590 1,316 .01 subordinated notes 2005 112,231 .94 COMMERCIAL SERVICES & SUPPLIES - 0.92% Allied Waste North America, Inc.: 8.50% 2008 (3) 13,000 13,195 8.875% 2008 5,250 5,434 10.00% 2009 31,600 32,390 .43 Waste Management, Inc.: 4.00% convertible debentures 2002 6,000 5,993 7.70% 2002 3,500 3,584 6.875% 2009 6,000 5,977 7.375% 2010 3,000 3,084 USA Waste Services, Inc.: 6.50% 2002 2,000 2,052 7.00% 2004 1,500 1,569 7.125% 2007 2,000 2,049 7.125% 2017 1,000 963 WMX Technologies, Inc. 6.375% 2003 1,000 1,036 .22 Sotheby's Holdings, Inc. 6.875% 2009 20,000 17,200 .14 KinderCare Learning Centers, Inc., 7,650 7,306 .06 Series B, 9.50% 2009 Protection One Alarm Monitoring, Inc. 5,000 4,100 .04 6.75% convertible debentures 2003 Cendant Corp. 6.875% 2006 (3) 2,000 1,934 .02 Stericycle, Inc., Series B, 12.375% 2009 1,461 1,731 .01 109,597 .92 REAL ESTATE - 0.91% CarrAmerica Realty Corp.: Series C, 8.55% cumulative redeemable preferred 373,100 Shares 9,104 Series B, 8.57% cumulative redeemable preferred 473,600 11,579 .17 Irvine Co. 7.46% 2006 (3) (8) $ 15,000 15,297 Irvine Apartment Communities, LP 7.00% 2007 5,000 4,899 .17 ERP Operating LP: 6.95% 2011 3,000 3,011 7.125% 2017 5,000 4,750 7.57% 2026 8,000 8,501 .14 EOP Operating LP 6.75% 2008 11,500 11,623 .10 ProLogis Trust, Series D, 7.92% preferred 342,000 Shares 8,146 .07 FelCor Suites LP 7.375% 2004 $ 6,250 6,250 .05 IAC Capital Trust, Series A, 8.25% TOPRS preferred 220,000 Shares 5,544 .05 New Plan Realty Trust, Series D, 7.80% preferred 112,500 5,428 .04 cumulative step-up premium rate Archstone-Smith Trust, Series C, 8.625% 200,000 5,032 .04 convertible preferred Duke-Weeks Realty Corp., Series B, 7.99% preferred 100,000 4,700 .04 cumulative step-up premium rate Nationwide Health Properties, Inc., Series A, 50,000 3,792 .03 7.677% preferred cumulative step-up premium rate Simon DeBartolo Group, Inc., Series C, 7.89% 30,000 1,416 .01 preferred cumulative step-up premium rate 109,072 .91 INDUSTRIAL CONGLOMERATES - 0.66% Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 1,670,000 Shares 40,080 perpetual capital securities (3) Swire Pacific Offshore Financing Ltd. 9.33% cumulative 230,000 5,750 .38 guaranteed perpetual preferred capital securities (3) Hutchison Whampoa International Ltd. 7.00% 2011 (3) $ 33,125 33,777 .28 79,607 .66 CONTAINERS & PACKAGING - 0.62% Container Corp. of America: Series B, 10.75% 2002 4,800 4,872 9.75% 2003 32,409 33,219 Stone Container Corp. 9.75% 2011 6,750 7,189 .38 Printpack, Inc.: Series B, 9.875% 2004 8,950 9,219 10.625% 2006 11,590 12,054 .18 Tekni-Plex, Inc., Series B, 12.75% 2010 7,750 7,556 .06 74,109 .62 SPECIALTY RETAIL - 0.61% Toys "R" Us, Inc. 7.625% 2011 (3) 27,205 26,588 .22 Gap, Inc. 8.80% 2008 (3) 25,840 22,637 .19 Sunglass Hut International Ltd. 5.25% convertible 11,150 11,150 .09 debentures 2003 Office Depot, Inc. 10.00% 2008 6,500 7,085 .06 Petco Animal Supplies, Inc. 10.75% 2011 (3) 5,375 5,509 .05 72,969 .61 AUTO COMPONENTS - 0.52% TRW Inc.: 8.75% 2006 8,000 8,575 7.125% 2009 12,000 11,634 7.75% 2029 9,455 8,890 .24 Dana Corp. 9.00% 2011 (3) 29,850 27,014 .23 Collins & Aikman Products Co. 10.75% 2011 (3) 4,000 4,030 .03 Tenneco Automotive Inc. 11.625% 2009 4,000 2,000 .02 62,143 .52 GAS PRODUCTION & DISTRIBUTION - 0.50% Gemstone Investor Ltd. 7.71% 2004 (3) 52,100 50,675 El Paso Corp.: 5.75% 2006 Euro 1,500 1,252 6.95% 2007 $ 4,000 3,991 7.80% 2031 4,000 4,048 .50 59,966 .50 MACHINERY - 0.43% Terex Corp.: 9.25% 2011 (3) 15,050 15,125 Class B, 10.375% 2011 5,250 5,486 .17 John Deere Capital Corp. 8.625% 2019 16,850 17,684 .15 Cummins Capital Trust I 7.00% QUIPS convertible 180,000 Shares 9,090 .08 preferred 2031 (3) AGCO Corp. 9.50% 2008 $ 3,500 3,658 .03 51,043 .43 OIL & GAS - 0.43% Pemex Finance Ltd.: (9) 8.875% 2010 7,000 7,881 9.03% 2011 2,000 2,179 Series 1999-2, Class A-3, 10.61% 2017 11,000 12,628 Pemex Project Funding Master Trust 9.125% 2010 4,500 4,781 .23 Pogo Producing Co. 10.375% 2009 14,500 15,551 .13 OXYMAR 7.50% 2016 (3) 8,500 6,951 .06 Newfield Exploration Co. 7.625% 2011 1,000 974 .01 50,945 .43 TEXTILES & APPAREL - 0.42% VF Corp. 8.50% 2010 36,000 39,549 .33 Levi Strauss & Co: 6.80% 2003 4,600 4,048 11.625% 2008 7,475 6,503 .09 50,100 .42 AIR FREIGHT & COURIERS - 0.38% Atlas Air, Inc., Pass Through Trust: (9) Series 2000-1, Class B, 9.057% 2017 3,242 2,924 Series 1998-1, Class A, 7.38% 2019 40,758 37,226 Series 1999-1, Class A-1, 7.20% 2020 2,484 2,262 Series 2000-1, Class A, 8.707% 2021 3,519 3,471 .38 45,883 .38 FOOD PRODUCTS - 0.38% Nabisco, Inc.: 7.05% 2007 2,500 2,637 7.55% 2015 5,955 6,571 6.375% 2035 (6) 12,300 12,716 .19 Gruma, SA de CV 7.625% 2007 8,000 7,540 .06 Kellogg Co.: 6.60% 2011 2,250 2,308 7.45% 2031 1,800 1,941 .04 Aurora Foods Inc.: Series B, 9.875% 2007 1,250 1,206 Series D, 9.875% 2007 2,800 2,702 .03 Fage Dairy Industry SA 9.00% 2007 4,000 3,760 .03 Smithfield Foods, Inc. 8.00% 2009 (3) 3,500 3,623 .03 45,004 .38 AEROSPACE & DEFENSE - 0.36% BAE SYSTEMS, Series 2001: (3) (9) Class B, 7.156% 2011 17,513 17,601 Class G, MBIA Insured, 6.664% 2013 22,039 22,644 .34 EarthWatch Inc., Series B, 7.00% convertible 1,102,582 Shares 2,438 .02 preferred 2009 (2) (3) (5) (8) 42,683 .36 FOOD & DRUG RETAILING - 0.35% Rite Aid Corp.: 7.125% 2007 $ 7,060 5,719 11.25% 2008 2,100 2,069 6.875% 2013 12,500 8,750 7.70% 2027 20,665 14,362 6.875% 2028 (3) 17,450 11,299 .35 42,199 .35 DIVERSIFIED FINANCIALS - 0.19% Heller Financial, Inc. 6.375% 2006 12,500 13,153 .11 AT&T Capital Corp. 6.60% 2005 9,000 9,380 .08 22,533 .19 MULTI-UTILITIES - 0.18% Williams Companies, Inc.: 7.625% 2019 7,750 7,661 7.875% 2021 13,750 13,899 .18 21,560 .18 CHEMICALS - 0.18% Equistar Chemicals, LP: 6.50% 2006 7,800 7,043 8.75% 2009 5,000 4,829 .10 Reliance Industries Ltd. 10.25% 2097 (3) 10,750 9,059 .08 20,931 .18 INTERNET & CATALOG RETAIL - 0.16% Amazon.com, Inc.: 4.75% convertible subordinated debentures 2009 1,325 656 6.875% PEACS convertible subordinated notes 2010 Euro 40,400 18,207 .16 18,863 .16 PHARMACEUTICALS - 0.15% Lilly Del Mar, Inc. 3.41% 2029 (3) (6) $ 18,000 18,030 .15 MARINE - 0.14% International Shipholding Corp.: 9.00% 2003 5,750 5,721 Series B, 7.75% 2007 5,300 4,770 .09 Teekay Shipping Corp.: 8.875% 2011 3,500 3,605 8.875% 2011 (3) 1,000 1,030 .04 Gearbulk Holding Ltd. 11.25% 2004 1,000 1,015 .01 16,141 .14 BEVERAGES - 0.12% Canandaigua Wine Co., Inc.: Series C, 8.75% 2003 7,500 7,481 8.75% 2003 6,650 6,633 .12 14,114 .12 LEISURE PRODUCTS - 0.11% Hasbro, Inc. 8.50% 2006 12,500 12,750 .11 AIRLINES - 0.10% Northwest Airlines, Inc.: 7.625% 2005 4,915 4,079 8.875% 2006 4,475 3,804 .07 Delta Air Lines, Inc. 10.375% 2022 2,577 2,036 .02 United Air Lines, Inc. 9.00% 2003 2,000 1,480 .01 11,399 .10 ENERGY EQUIPMENT & SERVICES - 0.09% Colonial Pipeline Co. 7.75% 2010 (3) 10,000 10,493 .09 HOUSEHOLD DURABLES - 0.06% Salton/Maxim Housewares, Inc. 10.75% 2005 5,600 5,369 .04 Boyds Collection, Ltd., Series B, 9.00% 2008 1,806 1,878 .02 7,247 .06 CONSTRUCTION & ENGINEERING - 0.05% McDermott Inc. 9.375% 2002 6,250 5,938 .05 ROAD & RAIL - 0.04% Union Pacific Capital Trust 6.25% TIDES 111,100 Shares 5,291 .04 convertible preferred 2028 (3) COMPUTERS & PERIPHERALS - 0.03% First International Computer Corp. 1.00% $ 3,000 3,810 .03 convertible debentures 2004 (3) PERSONAL PRODUCTS - 0.03% Revlon Consumer Products, Inc. 12.00% 2005 (3) 2,500 2,456 .02 Elizabeth Arden, Inc., Series B, 11.75% 2011 625 644 .01 3,100 .03 INTERNET SOFTWARE & SERVICES - 0.00% Exodus Communications, Inc. 11.625% 2010 (4) 1,500 345 .00 MORTGAGE-BACKED OBLIGATIONS (9) PRIVATE ISSUE COMMERCIAL MORTGAGE-BACKED SECURITIES - 5.28% Chase Commercial Mortgage Securities Corp.: Series 1996-1, Class A-1, 7.60% 2005 2,033 2,148 Series 1998-1, Class A-1, 6.34% 2030 10,205 10,642 Series 1998-2, Class A-2, 6.39% 2030 44,550 45,758 Series 1998-2, Class E, 6.39% 2030 10,000 9,563 Series 1998-1, Class A-2, 6.56% 2030 8,965 9,329 Series 1999-1, Class B, 7.619% 2031 17,125 18,474 Series 1999-1, Class C, 7.625% 2031 5,000 5,323 Series 2000-1, Class A-1, 7.656% 2032 12,075 13,039 .96 DLJ Mortgage Acceptance Corp.: Series 1997-CF1, Class A-1A, 7.40% 2006 (3) 2,617 2,700 Series 1998-CF1, Class A-1B, 6.41% 2008 10,000 10,303 Series 1996-CF2, Class A-1, 7.29% 2021 (3) 10,000 10,649 Series 1995-CF2, Class A-1B, 6.85% 2027 (3) 34,799 35,739 Series 1996-CF1, Class A-2, 7.681% 2028 (3) (6) 7,900 8,302 Series 1998-CF1, Class A-1A, 6.14% 2031 15,472 16,062 .70 GMAC Commercial Mortgage Securities, Inc.: Series 1997-C1, Class A-3, 6.869% 2007 20,000 20,945 Series 1997-C2, Class C, 6.50% 2008 9,000 9,094 Series 1997-C1, Class D, 6.997% 2008 8,300 8,613 Series 1997-C2, Class E, 7.624% 2011 27,703 24,800 Series 1997-C2, Class C, 6.91% 2029 8,900 8,961 .61 Morgan Stanley Capital I, Inc.: Series 1998-HF1, Class A-1, 6.19% 2007 19,089 19,833 Series 1998-WF2, Class A-1, 6.34% 2030 7,418 7,729 Series 1998-HF2, Class A-2, 6.48% 2030 17,000 17,578 Series 1999-FNV1, Class A-1 6.12% 2031 10,122 10,449 Series 1999-FNV1, Class A-2, 6.53% 2031 10,000 10,339 .55 Bear Stearns Commercial Mortgage Securities Inc.: Series 1999-WF2, Class X, interest only, 304,565 5,764 0.26% 2019 (6) Series 1998-C1, Class A-1, 6.34% 2030 6,505 6,741 Series 1999-C1, Class X, interest only, 167,017 9,799 1.051% 2031 (6) Series 2000-WF2, Class A-2, 7.32% 2032 16,480 17,573 .33 L.A. Arena Funding, LLC, Series 1, Class A, 38,529 38,668 .32 7.656% 2026 (3) GS Mortgage Securities Corp. II, Series 1998-C1: (6) Class D, 7.242% 2030 3,750 3,604 Class E, 7.242% 2030 31,076 29,085 .27 Merrill Lynch Mortgage Investors, Inc.: (6) Series 1995-C2, Class D, 7.603% 2021 326 331 Series 1995-C3, Class A-3, 7.051% 2025 24,413 24,894 Series 1996-C2, Class A-1, 6.69% 2028 3,259 3,318 .24 CS First Boston Mortgage Securities Corp., Series 20,000 20,156 .17 2001-CK6, Class A-2, 6.103% 2036 Prudential Securities Secured Financing Corp., 18,000 18,309 .15 Series 1999-NRF1, Class C, 6.746% 2009 Morgan Stanley Dean Witter Capital I Trust, 17,468 17,634 .15 Series 2001-TOP5, Class A-3, 6.16% 2035 GGP Mall Properties Trust, Series 2001-C1A, 15,735 15,228 .13 Class A-2, 5.007% 2011 (3) Commercial Mortgage, Series 2000-FL3, 13,776 13,588 .11 Class D, 3.117% 2012 (3) (6) Commercial Mortgage Acceptance Corp.: Series 1998-C1, Class A-1, 6.23% 2007 7,933 8,224 Series 1998-C2, Class A-1, 5.80% 2030 3,539 3,630 .10 LB-UBS Commercial Mortgage Trust, Series 2000-C3, 10,000 11,112 .09 Class A-2, 7.95% 2010 DLJ Commercial Mortgage Corp., Series 1999-CG1, 10,000 10,302 .09 Class A-1B, 6.46% 2032 Salomon Brothers Commercial Mortgage Trust, 8,750 8,997 .08 Series 2000-C3, Class A-2, 6.592% 2033 Nomura Asset Securities Corp., Series 1998-D6, 8,083 8,410 .07 Class A-A1, 6.28% 2030 Mortgage Capital Funding, Inc., Series 1998-MC1, 6,264 6,519 .05 Class A-1, 6.417% 2030 Chase Manhattan Bank - First Union National Bank, 5,000 5,394 .05 Commercial Mortgage Trust, Series 1999-1, Class A-2, 7.439% 2031 Asset Securitization Corp.: Series 1996-D3, Class A-1B, 7.21% 2026 3,000 3,161 Series 1997-D4, Class A-1A, 7.35% 2029 435 447 .03 Government Lease Trust Series 1999-GSA1, Class A-1, 1,782 1,816 .02 MBIA Insured, 5.86% 2003 (3) J.P. Morgan Commercial Mortgage Finance Corp.: Series 1995-C1, Class A-2, 7.352% 2010 (6) 1,297 1,305 Series 1996-C3, Class A-1, 7.33% 2028 463 483 .01 Structured Asset Securities Corp., Series 1996-CFL, 523 530 .00 Class D, 7.034% 2028 631,394 5.28 COLLATERALIZED MORTGAGE OBLIGATIONS - 0.95% GE Capital Mortgage Services, Inc.: Series 1994-15, Class A-10, 6.00% 2009 16,376 16,202 Series 1994-9, Class A-9, 6.50% 2024 5,615 5,627 .18 Fannie Mae Trust, Series 2001-50, Class B-A, 15,469 15,866 .13 7.00% 2041 Structured Asset Notes Transaction, Ltd., Series 13,289 13,658 .11 1996-A, Class A-1, 7.156% 2003 (3) Residential Asset Securitization Trust, Series 8,899 9,207 .08 1997-A3, Class B-1, 7.75% 2027 PNC Mortgage Securities Corp., Series 1998-10, 9,262 9,005 .08 Class 1-B1, 6.50% 2028 (3) Security National Mortgage Loan Trust: (3) Series 2001-3, Class A-2, 5.37% 2014 1,670 1,674 Series 2000-1, Class A-2, 8.75% 2024 6,800 7,127 .07 Ocwen Residential MBS Corp., Series 1998-R1, 9,087 8,750 .07 Class AWAC, 5.38% 2040 (3) (6) Residential Funding Mortgage Securities I, Inc.: Series 2001-S1, Class A-1, 7.00% 2016 3,821 3,963 Series 1998-S17, Class M-1, 6.75% 2028 3,855 3,828 .07 First Nationwide Trust, Series 1999-2, 4,478 4,478 .04 Class 1PA-1, 6.50% 2029 Collateralized Mortgage Obligation Trust, 2,803 2,876 .02 Series 63, Class Z, 9.00% 2020 Travelers Mortgage Securities Corp., Series 1, 2,630 2,854 .02 Class Z-2, 12.00% 2014 Financial Asset Securitization, Inc., Series 2,476 2,520 .02 1997-NAM1, Class B-1, 7.75% 2027 Nationsbanc Montgomery Funding Corp., Series 1,912 1,912 .02 1998-5, Class A-1, 6.00% 2013 Prudential Home Mortgage Securities Co., Inc. 1,872 1,875 .02 , Series 1993-48, Class A-6, 6.25% 2008 Bear Stearns Structured Securities Inc., Series 1,071 1,171 .01 1997-2, Class AWAC, 7.093% 2036 (3) (6) GS Mortgage Securities Corp., Series 1998-2, 1,097 1,152 .01 Class M, 7.75% 2027 (3) 113,745 .95 OTHER - 0.91% Structured Asset Securities Corp.: (3) (6) Series 1998-RF2, Class A, 8.527% 2027 29,902 32,154 Series 1998-RF1, Class A, 8.664% 2027 10,248 10,968 Series 1999-RF1, Class A, 7.861% 2028 7,205 7,415 .42 Arena BV, Series 2000-1, Class A, 6.10% 2062 (6) Euro 15,500 14,404 .12 Bayerische Vereinsbank 5.50% 2008 13,271 12,191 .10 Nykredit 6.00% 2029 DKr102,982 11,980 .10 Allgemeine Hypotheken Bank AG 5.00% 2009 Euro 11,000 9,673 .08 Hypothekenbank in Essen AG 5.25% 2008 6,000 5,436 .05 Rheinische Hypothekenbank Eurobond 4.25% 2008 5,000 4,261 .04 First Boston Mortgage Securities Corp.: Class P-O, 0% 2017 $ 418 379 Class I-O, interest only, 10.965% 2017 418 81 .00 108,942 .91 AGENCY PASS-THROUGHS GOVERNMENT NATIONAL MORTGAGE-ASSOCIATION - 4.14% 6.00% 2029 - 2031 85,057 83,489 6.50% 2008 - 2024 6,013 6,070 7.00% 2008 - 2031 190,784 194,847 7.50% 2007 - 2030 52,637 54,527 8.00% 2017 - 2030 108,477 113,559 8.50% 2020 - 2029 6,117 6,488 9.00% 2009 - 2022 6,291 6,694 9.50% 2009 - 2021 5,480 5,831 10.00% 2019 - 2022 20,404 23,066 4.14 494,571 4.14 FANNIE MAE - 3.88% 5.50% 2016 34,118 33,542 6.00% 2016 - 2032 122,197 122,202 6.50% 2016 - 2031 174,889 176,992 7.00% 2009 - 2031 74,916 76,498 7.50% 2009 - 2031 35,469 36,646 7.508% 2026 (6) 4,289 4,424 8.00% 2023 - 2031 3,739 3,939 8.071% 2002 (6) 696 696 8.50% 2009 - 2027 1,250 1,338 9.00% 2018 - 2022 1,190 1,289 9.50% 2009 130 141 10.00% 2018 3,206 3,591 12.00% 2019 2,148 2,494 3.88 463,792 3.88 FREDDIE MAC - 0.37% 6.00% 2032 33,185 32,490 8.00% 2003 - 2026 2,098 2,191 8.25% 2007 737 778 8.50% 2002 - 2027 6,672 7,115 8.75% 2008 944 1,005 11.00% 2018 599 679 .37 44,258 .37 AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 0.89% Fannie Mae: Series 90-93, Class G, 5.50% 2020 307 308 Series 93-247, Class Z, 7.00% 2023 5,215 5,412 Series 1994-4, Class ZA, 6.50% 2024 3,982 3,941 Series 2001-4, Class GA, 10.018% 2025 (6) 4,333 4,825 Series 2001-4, Class NA, 11.683% 2025 (6) 20,039 23,051 REMIC Trust, Series 1998-W5, Class B-3, 4,705 4,316 6.50% 2028 (3) Series 2001-20, Class E, 9.592% 2031 (6) 955 1,050 Series 2001-20, Class C, 11.538% 2031 (6) 1,043 1,186 Grantor Trust, Series 2001-T10, Class A-1, 7.00% 2041 44,514 46,113 .76 Freddie Mac: Series 1849, Class Z, 6.00% 2008 6,984 7,071 Series 2310, Class A, 10.546% 2017 (6) 5,845 6,491 Series 41, Class F, 10.00% 2020 1,155 1,221 Series 178, Class Z, 9.25% 2021 977 1,033 .13 106,018 .89 ASSET-BACKED OBLIGATIONS (9) AIRPLANE EQUIPMENT TRUST CERTIFICATES - SINGLE LESSEE - 2.80% Continental Airlines, Inc.: Series 1998-3, Class C-1, 7.08% 2004 2,054 1,684 Series 1998-3, Class C-2, 7.25% 2005 12,000 8,880 Series 1999-2, Class C-2, 7.434% 2006 2,000 1,550 Series 1997-1, Class C-1, 7.42% 2007 (6) 1,814 1,422 Series 1998-3, Class A-2, 6.32% 2008 15,000 13,677 Series 1999-2, Class A-2, 7.056% 2011 2,000 1,808 Series 2000-2, Class C, 8.312% 2011 3,097 2,354 Series 1997-1, Class B, 7.46% 2014 924 799 Series 1996-2, Class B, 8.56% 2014 1,642 1,514 Series 1999-1, 10.22% 2014 5,034 3,675 Series 2001-1, Class B, 7.373% 2015 2,996 2,583 Series 1996, Class B, 7.82% 2015 10,992 9,519 Series 1997-1, Class A, 7.461% 2016 15,872 13,862 Series 1996-2, Class D, 11.50% 2016 2,137 1,471 Series 1997-4, Class A, 6.90% 2018 27,587 24,461 Series 2000-2, Class B, 8.307% 2018 1,957 1,644 Series 1998-1, Class A, 6.648% 2019 33,904 30,067 Series 1999-1, Class A, 6.545% 2020 5,612 4,874 Series 1999-1, Class B, 6.795% 2020 16,853 13,950 Series 2000-1, Class A-1, 8.048% 2020 11,530 10,935 Series 2000-1, Class B, 8.388% 2020 4,444 3,786 1.29 US Airways, Inc. Pass Through Trust: Series 2000-2G, 8.02% 2019 14,000 14,171 Series 2000-3G, 7.89% 2020 25,173 25,246 Series 2001-1G, 7.076% 2021 15,748 15,792 USAir, Inc., Pass Through Trust, Series 2,250 1,485 .47 1993-A3, 10.375% 2013 American Airlines Inc.: Series 2001-2, Class A-1, 6.978% 2011 (3) 4,900 4,899 Series 2001-2, Class A-2, 7.858% 2011 (3) 2,000 1,996 Series 2001-2, Class B, 8.608% 2011 (3) 13,790 13,806 Series 1991-C2, 9.73% 2014 6,410 5,513 Series 2001-1, Class B, 7.377% 2019 (3) 9,833 9,178 .30 Delta Air Lines, Inc.: Series 2000-1, Class A-2, 7.57% 2010 7,500 7,585 Series 2001-1, Class A-2, 7.111% 2011 3,000 2,962 Series 1992-A2, 9.20% 2014 11,500 9,275 1990 Equipment trust certificates: (3) Series I, 10.00% 2014 5,000 3,925 Series J, 10.00% 2014 5,000 3,925 Series F, 10.79% 2014 1,700 1,334 .24 Jet Equipment Trust: (3) Series 1994-A, Class B-1, 11.79% 2013 4,000 2,600 Series 1995-B, 10.91% 2014 5,000 3,250 Series 1995-D, 11.44% 2014 10,000 6,500 Series 1995-B, Class A, 7.63% 2015 3,777 3,135 Series 1995-B, Class C, 9.71% 2015 5,500 3,575 Series 1995-A, Class C, 10.69% 2015 2,750 1,974 .18 Southwest Airlines Co.: Series 2001-1, Class A-2, 5.496% 2006 5,000 4,895 Series 2001-1, Class B, 6.126% 2006 7,500 7,345 .10 AIR 2 US, Series A, 8.027% 2020 (3) 10,993 10,276 .09 United Air Lines, Inc.: Series 2000-1, Class A-2, 7.73% 2012 4,000 3,460 Series 1995-A2, 9.56% 2018 8,000 6,341 .08 Northwest Airlines, Inc.: 8.375% 2004 2,450 2,168 8.52% 2004 4,140 3,616 .05 334,742 2.80 CREDIT CARD - 1.16% First Consumer Master Trust, Series 1999-A, 35,000 36,333 .31 Class A, 5.80% 2005 (3) Metris Master Trust: (6) Series 1997-2, Class C, 3.153% 2006 (3) 7,200 7,193 Series 2001-3, Class B, 3.003% 2008 12,000 11,780 Series 2001-2, Class B, 3.183% 2009 10,000 9,721 .24 NextCard Credit Card Master Note Trust: (3) (6) Series 2000-1, Class B, 2.696% 2006 14,125 13,673 Series 2001-1A, Class B, 2.776% 2007 6,000 6,000 .17 H.S. Receivables Corp., Series 1999-1, 12,656 13,122 .11 Class A, 8.13% 2006 (3) MBNA Master Credit Card Trust: (3) Series 1999-D, Class B, 6.95% 2008 4,700 4,851 Series 1998-E, Class C, 6.60% 2010 5,000 5,063 .08 Providian Master Trust, Series 2000-3, 8,750 8,654 .07 Class C, 7.60% 2007 (3) Capital One Secured Note Trust, Series 1999-2, 4,250 4,244 2.496% 2005 (3) (6) Capital One Master Trust, Series 1999-1, 2,500 2,618 .06 Class C, 6.60% 2007 (3) First USA Credit Card Master Trust, Series 6,630 6,362 .05 1997-4, Class A, 2.896% 2010 (3) (6) BA Master Credit Card Trust, Series 1998-A, 6,000 6,000 .05 Class B, 2.166% 2005 (6) Hitachi Shinpan Co. Ltd., Series 1999-3, 1,500 1,592 .01 Class A, 9.60% 2006 (3) CompuCredit Credit Card Master Note Business 1,500 1,472 .01 Trust, Series 2001-One, Class B, 3.376% 2008 (3) (6) 138,678 1.16 ASSET-BACKED SECURITIES - 1.14% NPF XII, Inc.: (3) Series 1999-3, Class B, 3.075% 2003 (6) 3,000 3,001 Series 1999-2, Class A, 7.05% 2003 15,000 15,297 Series 2001-1, Class A, 2.738% 2004 (6) 7,000 7,002 Series 2001-3, Class A, 5.52% 2007 16,000 15,370 NPF VI, Inc., Series 1999-1, Class A, 6.25% 2003 (3) 5,000 5,043 .38 Tobacco Settlement Financing Corp., 36,000 35,142 .29 Series 2001A, 6.36% 2025 Garanti Trade Payment Rights Master Trust, 22,476 22,252 .19 Series 1999-B, Class 1, 10.81% 2004 (3) Puerto Rico Public Financing Corp., Series 21,416 21,416 .18 1999-1, Class A, AMBAC Insured, 6.15% 2008 PF Export Receivables Master Trust, Series 10,000 10,082 .08 2001-B, MBIA Insured, 6.60% 2011 (3) Grupo Financiero Banamex-Accival, 2,371 2,179 .02 SA de CV 0% 2002 (3) 136,784 1.14 AUTO LOAN - 1.07% MMCA Auto Owner Trust: Series 2000-2, Class B, 7.42% 2005 7,000 7,492 Series 2000-1, Class B, 7.55% 2005 14,750 15,688 Series 2001-2, Class B, 5.75% 2007 9,000 9,213 Series 2001-3, Class B, 2.846% 2008 (6) 21,000 20,696 .44 Team Fleet Financing Corp.: (3) Series 1996-1, Class A, 6.65% 2002 2,396 2,413 Series 2001-3A, Class A, 2.83% 2005 (6) 11,125 11,118 Series 2001-3A, Class B, 3.11% 2005 (6) 10,500 10,450 .20 Drive Auto Receivables Trust, MBIA Insured: (3) Series 2000-1, Class A, 6.672% 2006 5,116 5,266 Series 2001-2, Class A, 3.91% 2007 11,500 11,492 .14 Prestige Auto Receivables Trust, Series 2001-1A, 8,695 8,824 .07 Class A, FSA Insured, 5.26% 2009 (3) Harley-Davidson Motorcycle Trust, Series 2001-3: Class B, 3.72% 2009 2,500 2,498 Class A-2, 4.04% 2009 5,000 4,964 .06 Continental Auto Receivables Owner Trust, Series 5,261 5,568 .05 2000-B, Class CTFS, MBIA Insured, 7.11% 2007 (3) Chevy Chase Auto Receivables Trust, Series 4,000 3,977 .03 2001-2, Class A-4, 4.44% 2007 CPS Auto Receivables Trust, Series 1998-4, 3,397 3,445 .03 Class A-3, FSA Insured, 5.74% 2003 Hyundai Auto Receivables Trust, Series 2001-A, 2,380 2,378 .02 Class C, 5.57% 2006 (3) Triad Auto Receivables Owner Trust, Series 1999-1, 1,709 1,756 .02 Class A-2, FSA Insured, 6.09% 2005 FACTA Securitization LLC, Series 2000-A: (3) Class A, 8.00% 2004 88 88 Class B, 8.96% 2004 1,219 1,221 .01 128,547 1.07 AIRPLANE EQUIPMENT TRUST CERTIFICATES - MULTIPLE LESSEE - 0.81% Pegasus Aviation Lease Securitization, Series 2000-1, 51,000 43,080 .36 Class A-2, 8.37% 2030 (3) Airplanes Pass Through Trust: Class B, 2.646% 2019 (6) 12,788 10,230 Class 1-C, 8.15% 2019 (8) 34,321 20,593 .26 Lease Investment Flight Trust, Series 2001-1, 14,180 13,684 .12 Class A-3, 2.326% 2016 (3) (6) Triton Aviation Finance, Series 1A, Class A-2, 6,587 6,229 .05 2.396% 2025 (3) (6) Aircraft Finance Trust, Series 1999-1, Class A-2, 2,542 2,453 .02 2.396% 2024 (6) Embarcadero Aircraft Securitization Trust, Series 358 346 .00 2000-1, Class A-2, 2.376% 2025 (3) (6) 96,615 .81 MANUFACTURED HOUSING - 0.55% Green Tree Financial Corp.: Series 1993-2, Class B, 8.00% 2018 2,250 2,193 Series 1995-3, Class B-2, 8.10% 2025 5,000 2,705 Series 1995-8, Class B-2, 7.65% 2026 8,197 4,267 Series 1995-6, Class B-2, 8.00% 2026 2,790 1,452 Series 1996-6, Class B-2, 8.35% 2027 10,309 5,386 Series 1996-5, Class B-2, 8.45% 2027 6,742 3,565 Series 1996-10, Class A-6, 7.30% 2028 8,487 8,609 Series 1997-8, Class B-2, 7.75% 2028 3,119 1,209 Series 1998-4, Class B-2, 8.11% 2028 13,193 5,351 Series 1997-6, Class A-7, 7.14% 2029 15,687 16,506 Series 1997-6, Class B-2, 7.75% 2029 4,958 1,900 Conseco Finance Manufactured Housing Contract Trust, Series 2001-3: Class A-2, 5.16% 2033 8,000 8,087 Class A-3, 5.79% 2033 5,000 4,974 .55 66,204 .55 HOME EQUITY - 0.39% Residential Funding Mortgage Securities II, Inc.: Series 2000-HI5, Class A-I-4, 6.94% 2014 9,000 9,398 Series 2001-H14, AMBAC Insured: Class A-3, 5.32% 2015 8,539 8,605 Class A-4, 5.64% 2016 12,000 12,046 Series 2001-HS2, Class A-4, 6.43% 2016 7,500 7,663 .32 Asset-Backed Securities Corp. Home Equity Loan Trust, interest only: Series 2001-HE2, Class A-IO, 4.50% 2031 82,960 5,049 Series 2001-HE3, Class A-IO, 6.50% 2031 (6) 14,785 1,456 .05 CS First Boston Mortgage Securities Corp., Series 57,562 2,742 .02 2001-HE16, Class A, interest only, 5.64% 2004 46,959 .39 FRANCHISE/EQUIPMENT - 0.37% GRCT Consumer Loan Trust, Series 2001-1A, Class 14,988 15,321 .13 2BRV, 6.251% 2020 (3) CNL Funding, Series 2000-AA, Class A-2, MBIA Insured, 13,800 14,232 .12 8.044% 2017 (3) Xerox Equipment Lease Owner Trust, Series 2001-1, 9,635 9,672 .08 Class A, 3.896% 2008 (3) (6) Green Tree Recreational, Equipment and Consumer Trust, 8,500 5,185 .04 Series 1997-D, 7.25% 2029 44,410 .37 STRANDED ASSET - 0.29% PP&L Transition Bond Co. LLC, Series 1999-1, 15,000 16,182 .14 Class A-7, 7.05% 2009 California Infrastructure and Economic Development Bank, Special Purpose Trust, PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 12,499 13,120 .11 ComEd Transitional Funding Trust, Series 1998, 3,500 3,580 .03 Class A-4, 5.39% 2005 California Infrastructure and Economic Development Bank, Special Purpose Trust, SCE-1, Series 1997-1, Class A-7, 6.42% 2009 1,500 1,547 .01 34,429 .29 HOME IMPROVEMENT - 0.09% FIRSTPLUS Home Loan Owner Trust, Series 1997-1, 6,885 6,983 .06 Class A-7, MBIA Insured, 7.16% 2018 The Money Store Trust, Series 1996-D, Class A-14, 3,953 4,055 .03 MBIA Insured, 6.985% 2016 11,038 .09 GOVERNMENT OBLIGATIONS U.S. GOVERNMENT U.S. TREASURY NOTES & BONDS - 7.54% 11.625% November 2004 60,000 72,750 7.50% February 2005 15,000 16,591 6.50% October 2006 37,000 40,238 3.375% January 2007 (10) 240,326 241,040 5.625% May 2008 10,000 10,477 4.75% November 2008 40,000 39,825 9.125% May 2009 18,000 20,213 6.00% August 2009 17,500 18,643 10.375% November 2009 12,500 14,678 10.00% May 2010 5,000 5,906 3.50% January 2011 (10) 71,478 71,288 5.00% February 2011 25,000 24,906 5.00% August 2011 66,200 65,993 10.375% November 2012 24,500 31,391 12.00% August 2013 10,000 13,952 7.875% February 2021 25,000 31,098 6.25% August 2023 95,000 100,507 7.50% November 2024 1,220 1,487 6.00% February 2026 35,000 36,012 Principal Strip 0% 2027 10,740 2,387 5.25% November 2028 22,740 21,237 5.375% February 2031 21,710 21,395 7.54 902,014 7.54 NON-PASS-THROUGH AGENCY SECURIITES FREDDIE MAC BONDS & NOTES - 0.66% 5.75% 2010 Euro 12,000 11,082 6.75% 2031 $ 64,000 67,870 .66 78,952 .66 FANNIE MAE BONDS & NOTES - 0.53% Medium Term Note, 6.75% 2028 15,000 14,154 7.25% 2030 43,750 49,287 .53 63,441 .53 FEDERAL HOME LOAN BANK BONDS & NOTES - 0.19% 4.875% 2004 21,750 22,341 .19 GOVERNMENTS & GOVERNMENTAL BODIES (EXCLUDING U.S.) NON-U.S. GOVERNMENT OBLIGATIONS - 4.64% Deutschland Republic 5.25% 2008 Euro 82,000 74,822 Bundesrepublik: 6.00% 2007 23,827 22,658 5.25% 2010 36,150 32,723 Treuhandanstalt 7.125% 2003 12,376 11,433 1.18 Polish Government: 12.00% 2003 PLZ 11,000 2,852 8.50% 2004 15,000 3,660 8.50% 2005 50,000 12,125 8.50% 2005 37,600 9,157 Series 0605, 8.50% 2005 22,525 5,465 8.50% 2006 83,000 20,079 .45 Canadian Government: 9.00% 2004 C$ 10,000 7,152 4.25% 2026 (6) (10) 62,209 42,251 .41 United Mexican States Government Eurobonds, Global: 8.625% 2008 $ 170 183 9.875% 2010 2,175 2,436 8.375% 2011 16,000 16,640 11.375% 2016 6,658 8,226 8.30% 2031 12,615 12,426 .33 Hellenic Republic: 8.90% 2004 Euro 14,380 14,163 8.60% 2008 22,010 23,420 7.50% 2013 1,820 1,889 .33 Spanish Government 6.00% 2008 36,061 34,038 .28 United Kingdom: 6.50% 2003 Pounds 5,700 8,551 5.75% 2009 16,000 24,196 .27 French Treasury Note 4.50% 2003 Euro 9,465 8,548 French Government O.A.T. Eurobond 0% 2019 55,000 18,814 .23 Kingdom of Denmark 6.00% 2009 DKr190,000 24,024 .20 Norwegian Government: 6.75% 2007 NOK 75,000 8,574 5.50% 2009 124,500 13,266 .18 Japanese Government: 0.90% 2008 Yen 1,400,000 10,652 1.90% 2010 1,000,000 8,040 .16 Italian Government BTPS Eurobond 6.00% 2007 Euro 16,204 15,303 .13 New South Wales Treasury Corp. 8.00% 2008 A$ 26,000 14,671 .12 Panama (Republic of): 9.625% 2011 $ 500 511 Interest Reduction Bond 4.75% 2014 (6) (9) 8,657 7,710 10.75% 2020 210 224 8.875% 2027 250 231 9.375% 2029 675 709 .08 Russian Federation: (6) (9) 5.00% 2030 10,640 6,198 5.00% 2030 (3) 145 84 .05 Bulgaria (Republic of): (6) (9) Past Due Interest 4.563% 2011 3,960 3,475 Front Loaded Interest Reduction Bond, 4.563% 2012 2,470 2,235 .05 Brazil (Federal Republic of): Eligible Interest Bond 3.188% 2006 (6) (9) 940 824 Bearer 8.00% 2014 (5) (9) 1,060 819 8.875% 2024 1,375 918 12.25% 2030 425 367 11.00% 2040 915 707 .03 State of Qatar 9.75% 2030 (3) 2,750 3,149 .03 Chile (Republic of) 7.125% 2012 3,000 3,061 .02 Dominican Republic 9.50% 2006 (3) 2,135 2,183 .02 Argentina (Republic of): Series E, 0% 2003 1,000 553 7.00%/15.50% 2008 (1) (9) 3,370 918 12.25% 2018 (5) (9) 968 235 12.00% 2031 (5) (9) 1,776 395 .02 Ukraine Government 11.00% 2007 (9) 1,880 1,796 .02 New Zealand Government 4.50% 2016 (6) (10) NZ$ 3,326 1,361 .01 Guatemala (Republic of) 10.25% 2011 (3) $ 1,000 1,058 .01 Turkey (Republic of): 12.375% 2009 500 506 11.875% 2030 500 484 .01 Philippines (Republic of): 9.875% 2019 500 477 10.625% 2025 470 462 .01 Peru (Republic of): (6) (9) Past Due Interest Eurobond 4.50% 2017 875 674 Front-Loaded Interest Reduction Eurobond 4.00% 2017 100 71 .01 Venezuela (Republic of) Eurobond 2.875% 2007 (6) (9) 714 520 .00 555,352 4.64 NON-U.S. AGENCY BONDS - 0.15% KfW International Finance Inc. 5.00% 2011 Euro 20,700 18,213 .15 DEVELOPMENT AUTHORITIES - 0.05% International Bank for Reconstruction & Development, $ 40,000 6,280 .05 Series MTN, 0% 2031 TAXABLE MUNICIPAL OBLIGATIONS - 0.13% California Maritime Infrastructure Authority, Taxable 8,137 8,305 .07 Lease Revenue Bonds (San Diego Unified Port District- South Bay Plant Acquisition), Series 1999, 6.63% 2009 (3) (9) Chugach Electric Association, Inc., 2001 Series A, 7,500 7,555 .06 15,860 .13 Shares Market Percent Value of Net Equity Related Securities (000) Assets Stocks & Warrants - 0.20% (2) Nextel Communications, Inc., Class A (3) 1,455,283 15,950 .13 Price Communications Corp. 216,953 4,142 .03 Wilshire Financial Services Group, Inc. (11) 1,601,967 3,284 .03 Clarent Hospital Corp. (8) (11) 354,301 886 .01 Protection One Alarm Monitoring, Inc., 54,400 19 .00 warrants, expire 2005 (3) (8) Viatel, Inc. 32,363 1 .00 McCaw International, Ltd., warrants, 30,500 - - expire 2007 (3) (8) NTL Inc., warrants, expire 2008 (3) (8) 26,362 - - 24,282 .20 TOTAL BONDS, NOTES & EQUITY SECURITIES 10,958,792 91.64 (cost: $11,424,100,000) Principal Market Percent Amount Value of Net Short-Term Securities (000) (000) Assets Corporate Short-Term Notes - 5.69% Procter & Gamble Co.: (3) 1.98% due 1/22/2002 25,400 25,369 2.00% due 1/23/2002 25,000 24,968 1.78% due 3/19/2002 25,000 24,905 .63 Park Avenue Receivables Corp.: (3) 1.86% due 1/15/2002 50,000 49,961 2.12% due 1/28/2002 25,000 24,959 .63 General Electric Capital Corp.: 1.82% due 1/2/2002 29,760 29,757 2.04% due 1/4/2002 42,000 41,991 .60 SBC Communications Inc.: (3) 1.80% due 1/30/2002 13,000 12,980 1.865% due 2/14/2002 50,000 49,883 .52 Ciesco L.P.: 1.78% due 1/11/2002 30,000 29,984 1.98% due 1/15/2002 14,000 13,988 1.78% due 2/5/2002 10,000 9,982 .45 Emerson Electric Co. 1.82% due 1/18/2002 (3) 47,000 46,957 .39 Corporate Asset Funding Co. Inc.: (3) 2.33% due 1/17/2002 15,000 14,983 1.72% due 3/13/2002 30,000 29,893 .38 BellSouth Corp.: (3) 1.80% due 1/11/2002 26,000 25,986 2.00% due 1/18/2002 18,800 18,781 .37 Triple-A One Funding Corp.: (3) 1.94% due 1/14/2002 31,558 31,534 1.86% due 2/8/2002 8,900 8,882 .34 Wells Fargo & Co. 1.79% due 3/12/2002 35,500 35,375 .30 FCAR Owner Trust I 1.93% due 1/24/2002 31,800 31,759 .26 American Express Credit Corp. 2.00% due 1/8/2002 30,000 29,987 .25 Texaco Inc. 1.88% due 2/7/2002 23,800 23,753 .20 Estee Lauder Companies Inc. 2.25% due 1/16/2002 (3) 20,000 19,980 .17 Tribune Co. 2.07% due 1/29/2002 (3) 14,600 14,576 .12 American General Corp. 1.99% due 1/16/2002 9,600 9,592 .08 680,765 5.69 Federal Agency Discount Notes - 1.50% Freddie Mac: 2.02% due 1/2/2002 16,900 16,898 2.195% due 1/24/2002 13,800 13,780 2.19% due 1/30/2002 25,600 25,553 1.74% due 3/21/2002 23,000 22,911 .66 Federal Home Loan Banks 2.05% due 1/4/2002 50,000 49,989 .42 Fannie Mae 1.73% due 3/21/2002 50,000 49,807 .42 178,938 1.50 TOTAL SHORT-TERM SECURITIES (cost: $859,705,000) 859,703 7.19 TOTAL INVESTMENT SECURITIES (cost: $12,283,805,000) 11,818,495 98.83 Excess of cash and receivables over payables 139,402 1.17 NET ASSETS $11,957,897 100.00 (1) Step bond; coupon rate will increase at a later date. (2) Non-income-producing security. (3) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to public may require registration. (4) Company not making interest payments; bankruptcy proceedings pending. (5) Payment in kind; the issuer has the option of paying additional securities in lieu of cash. (6) Coupon rate may change periodically. (7) Purchased as a unit; issue was separated but reattached for reporting purposes. (8) Valued under procedures established by the Board of Directors. (9) Pass-through securities backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturities are shorter than the stated maturities. (10) Index-linked bond whose principal amount moves with a government retail price index. (11) The fund owns 7.90% and 5.80% of the outstanding voting securities of Wilshire Financial Services and Clarent Hospital Corp., respectively, and thus are considered an affiliate as defined in the Investment Company Act of 1940. See Notes to Financial Statements
Financial statements Statement of assets and liabilities at December 31, 2001 (dollars in thousands) Assets: Investment securities at market (cost: $12,283,805) $11,818,495 Cash 16,148 Receivables for - Sales of investments $18,206 Sales of fund's shares 44,119 Forward currency contracts - net 3,146 Dividends and interest 172,309 Other 121 237,901 12,072,544 Liabilities: Payables for - Purchases of investments 63,943 Repurchases of fund's shares 43,128 Forward currency contracts - net 907 Management services 3,252 Other expenses 3,417 114,647 Net assets at December 31, 2001 $11,957,897 Total authorized capital stock - 2,500,000,000 shares, $.001 par value Class A shares: Net assets $11,222,884 Shares outstanding 877,223,090 Net asset value per share $12.79 Class B shares: Net assets $470,654 Shares outstanding 36,787,590 Net asset value per share $12.79 Class C shares: Net assets $187,921 Shares outstanding 14,688,430 Net asset value per share $12.79 Class F shares: Net assets $76,438 Shares outstanding 5,974,640 Net asset value per share $12.79 See Notes to Financial Statements Statement of operations for the year ended December 31, 2001 (dollars in thousands) Investment income: Income: Interest $833,519 Dividends 14,098 $847,617 Expenses: Management services fee 34,818 Distribution expenses - Class A 26,032 Distribution expenses - Class B 2,584 Distribution expenses - Class C 637 Distribution expenses - Class F 70 Transfer agent fee - Class A 10,892 Transfer agent fee - Class B 291 Administrative services fees - Class C 147 Administrative services fees - Class F 58 Reports to shareholders 410 Registration statement and prospectus 612 Postage, stationery and supplies 1,280 Directors' fees 69 Auditing and legal fees 81 Custodian fee 526 Taxes other than federal income tax 121 Other expenses 20 78,648 Net investment income 768,969 Realized loss and unrealized appreciation on investments: Net realized loss (125,097) Net unrealized appreciation on: Investments 61,868 Open forward currency contracts 4,423 Net unrealized appreciation 66,291 Net realized loss and unrealized appreciation on investments (58,806) Net increase in net assets resulting from operations $710,163 See Notes to Financial Statements Statement of changes in net assets (dollars in thousands) Year ended December 31 2001 2000 Operations: Net investment income $768,969 $678,652 Net realized loss on investments (125,097) (72,414) Net unrealized appreciation (depreciation) on investments 66,291 (50,346) Net increase in net assets resulting from operations 710,163 555,892 Dividends paid to shareholders: Dividends from net investment income: Class A (718,108) (688,050) Class B (15,528) (2,035) Class C (3,716) - Class F (1,846) - Total dividends (739,198) (690,085) Capital share transactions: Proceeds from shares sold 4,575,179 2,190,967 Proceeds from shares issued in reinvestment of net investment income dividends 598,345 550,406 Cost of shares repurchased (2,641,046) (2,630,060) Net increase in net assets resulting from capital share transactions 2,532,478 111,313 Total increase (decrease) in net assets 2,503,443 (22,880) Net assets: Beginning of year 9,454,454 9,477,334 End of year (including distributions in excess of net investment income: $(7,454) and $(7,328), respectively) $11,957,897 $9,454,454 See notes to financial statements
Notes to financial statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The Bond Fund of America, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks as high a level of current income as is consistent with preservation of capital through a diversified portfolio of bonds and other fixed-income obligations. The fund offers four classes of shares as described below: Class A shares are sold with an initial sales charge of up to 3.75%. Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales charge ("CDSC") paid upon redemption. This charge declines from 5% to zero over a period of six years. Class B shares automatically convert to Class A shares after eight years. Class C shares are sold without an initial sales charge but are subject to a CDSC of 1% for redemptions within one year of purchase. Class C shares automatically convert to Class F shares after ten years. Class F shares, which are sold exclusively through fee-based programs, are sold without an initial sales charge or CDSC. Holders of all classes of shares have equal pro rata rights to assets, dividends, liquidation and other rights. Each class has identical voting rights, except for exclusive rights to vote on matters affecting only its class. Each class of shares may have different distribution, administrative services and transfer agent fees and expenses. Differences in class-specific expenses will result in the payment of different per-share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the fund in the preparation of its financial statements: SECURITY VALUATION - Equity securities, including depositary receipts, are valued at 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. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the investment adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost, which approximates market value. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Forward currency contracts are valued at the mean of their representative quoted bid and asked prices. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith by a committee appointed by the fund's Board of Directors. NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in terms of non-U.S. currencies are translated into U.S. dollars at the prevailing market rates at the end of the reporting period. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are combined with the net realized and unrealized gain or loss on investment securities for financial reporting purposes. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for as of the trade date. Realized gains and losses from securities transactions are determined based on specific identified cost. In the event securities are purchased on a delayed delivery or when-issued basis, the fund will instruct the custodian to segregate liquid assets sufficient to meet its payment obligations in these transactions. 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. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are declared daily after the determination of the fund's net investment income and are paid to shareholders monthly. Distributions paid to shareholders are recorded on the ex-dividend date. Forward currency contracts - The fund may enter into forward currency contracts, which represent agreements to exchange currencies of different countries at specified future dates at specified rates. The fund enters into these contracts to manage its exposure to fluctuations in foreign exchange rates arising from investments denominated in non-U.S. currencies. The fund's use of forward currency contracts involves market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contracts are recorded in the Statement of Assets and Liabilities at their net unrealized value. The fund records realized gains or losses at the time the forward contract is closed or offset by a matching contract. The face or contract amount in U.S. dollars reflects the total exposure the fund has in that particular contract. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from possible movements in non-U.S. exchange rates and securities' values underlying these instruments. Purchases and sales of forward currency exchange contracts having the same settlement date and broker are offset and presented net in the Statement of Assets and Liabilities. CLASS ALLOCATIONS - Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net asset values. Distribution expenses, administrative services fees, certain transfer agent fees and other applicable class-specific expenses are accrued daily and charged to the respective share class. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain countries involve special investment risks. These risks 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. For the year ended December 31, 2001, non-U.S. taxes paid were $2,000. CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends, interest, sales of non-U.S. bonds and notes, forward contracts, and other receivables and payables, on a book basis, were $36,385,000 for the year December 31, 2001. 3. FEDERAL INCOME TAXATION The fund complies with the requirements of the Internal Revenue Code applicable to regulated investment companies and intends to distribute all of its net taxable income and net capital gains for the fiscal year. As a regulated investment company, the fund is not subject to income taxes if such distributions are made. Required distributions are based on net investment income and net realized gains determined on a tax basis and may differ from such amounts for financial reporting purposes. In addition, the year in which amounts are distributed may differ from the year in which the net investment income is earned and the net gains are realized by the fund. As of December 31, 2001, the cost of investment securities, excluding forward currency contracts, for federal income tax reporting purposes was $12,290,666,000. Net unrealized depreciation on investments, excluding forward currency contracts, aggregated $472,171,000; $265,704,000 related to appreciated securities and $737,875,000 related to depreciated securities. For the year ended December 31, 2001, the fund realized tax basis net capital losses of $141,597,000, which includes $51,238,000 of net capital losses realized during the period November 1, 2000 through December 31, 2000. The fund had available at December 31, 2001, a net capital loss carryforward totaling $208,555,000 which may be used to offset capital gains realized during subsequent years through 2009 and thereby relieve the fund and its shareholders of any federal income tax liability with respect to the capital gains that are so offset. The fund will not make distributions from capital gains while a capital loss carryforward remains. In addition, the fund has deferred, for tax purposes, net capital losses totaling $5,246,000 which were realized during the period November 1, 2001 through December 31, 2001. Net losses related to non-U.S. currency transactions of $43,789,000 (including $19,628,000 which were realized during the period November 1, 2000 through December 1, 2000) were treated as an adjustment to ordinary income for federal income tax purposes. 4. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $34,818,000 for management services was incurred pursuant to an agreement with Capital Research and Management Company ("CRMC") with which officers and certain Directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees accrued daily, based on a series of rates beginning with 0.30% per annum of the first $60 million of daily net assets decreasing to 0.14% of such assets in excess of $10 billion. The agreement also provides for monthly fees, accrued daily, of 2.25% on the first $8,333,333 of the fund's monthly gross investment income and 2.00% of such income in excess of $8,333,333. For the year ended December 31, 2001, the management services fee was equivalent to an annualized rate of 0.323% of average daily net assets. DISTRIBUTION EXPENSES - The fund has adopted plans of distribution under which it may finance activities primarily intended to sell fund shares, provided the categories of expenses are approved in advance by the fund's Board of Directors. The plans provide for annual expenses, based on average daily net assets, of up to 0.25% for Class A shares, 1.00% for Class B and Class C shares, and up to 0.50% for Class F shares. All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate American Funds Distributors, Inc. ("AFD"), the principal underwriter of the fund's shares, for paying service fees to firms that have entered into agreements with AFD for providing certain shareholder services. The balance may be used for approved distribution expenses as follows: CLASS A SHARES - Approved categories of expense include reimbursements to AFD for commissions paid to dealers and wholesalers in respect of certain shares sold without a sales charge. Those reimbursements are permitted for amounts billed to the fund within the prior 15 months but only to the extent that the overall 0.25% annual expense limit for Class A shares is not exceeded. For the year ended December 31, 2001, aggregate distribution expenses were limited to $26,032,000, equivalent to an annualized rate of 0.25% of average daily net assets attributable to Class A shares. As of December 31, 2001, unreimbursed expenses which remain subject to reimbursement totaled $10,953,000. CLASS B SHARES - In addition to service fees of 0.25%, approved categories of expense include fees of 0.75% per annum of average daily net assets attributable to Class B shares payable to AFD. AFD sells the rights to receive such payments (as well as any contingent deferred sales charges payable in respect of shares sold during the period) in order to finance the payment of dealer commissions. For the year ended December 31, 2001, aggregate distribution expenses were $2,584,000, equivalent to an annualized rate of 1.00% of average daily net assets attributable to Class B shares. CLASS C SHARES - In addition to service fees of 0.25%, the Board of Directors has approved the payment of 0.75% per annum of average daily net assets attributable to Class C shares to AFD to compensate firms selling Class C shares of the fund. For the period ended December 31, 2001, aggregate distribution expenses were $637,000, equivalent to an annualized rate of 1.00% of average daily net assets attributable to Class C shares. CLASS F SHARES - The plan has an expense limit of 0.50%. However, the Board of Directors has presently approved expenses under the plan of 0.25% per annum of average daily net assets attributable to Class F shares. For the period ended December 31, 2001, aggregate distribution expenses were $70,000, equivalent to an annualized rate of 0.25% of average daily net assets attributable to Class F shares. As of December 31, 2001, aggregate distribution expenses payable to AFD were $2,319,000. AFD received $7,881,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's Class A shares for the year ended December 31, 2001. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying Statement of Operations. TRANSFER AGENT FEE - A fee of $11,183,000 was incurred during the year ended December 31, 2001, pursuant to an agreement with American Funds Service Company ("AFS"), the transfer agent for the fund. As of December 31, 2001, aggregate transfer agent fees payable to AFS for Class A and Class B shares were $790,000. ADMINISTRATIVE SERVICES FEES - The fund has an administrative services agreement with CRMC for Class C and Class F shares. Pursuant to this agreement, CRMC provides transfer agency and other related shareholder services. CRMC may contract with third parties to perform these services. Under the agreement, the fund pays CRMC a fee equal to 0.15% per annum of average daily net assets of Class C and Class F shares, plus amounts payable for certain transfer agency services according to a specified schedule. For the period ended December 31, 2001, total fees under the agreement were $205,000. As of December 31, 2001, aggregate administrative services fees payable to CRMC for Class C and Class F shares were $35,000. DEFERRED DIRECTORS'FEES - Since the adoption of the deferred compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to defer the receipt of part or all of their compensation. Deferred compensation amounts, which remain in 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. As of December 31, 2001, the cumulative amount of these liabilities was $176,000. Directors' fees on the Statement of Operations include the current fees (either paid in cash or deferred) and the net increase or decrease in the value of deferred compensation. AFFILIATED OFFICERS AND DIRECTORS - CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Officers and certain Directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No such persons received any remuneration directly from the fund. 5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $8,510,478,000 and $6,379,620,000, respectively, during the year ended December 31, 2001. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. For the year ended December 31, 2001, the custodian fee of $526,000 includes $247,000 that was paid by these credits rather than in cash. For the year ended December 31, 2001, the fund reclassified $29,018,000 to undistributed net realized gains and $880,000 to additional paid-in capital from undistributed net investment income. As of December 31, 2001, net assets consisted of the following: (dollars in thousands) Capital paid in on shares of capital stock $12,646,960 Distributions in excess of net investment income (7,454) Accumulated net realized loss (215,919) Net unrealized depreciation (465,690) Net assets $11,957,897
Capital share transactions in the fund were as follows: Year ended December 31, 2001 Year ended December 31, 2000 Amount (000) Shares Amount (000) Shares Class A Shares: Sold $3,848,566 297,308,857 $2,100,818 164,508,807 Reinvestment of dividends 582,309 45,082,058 548,746 43,009,488 Repurchased (2,551,817) (197,331,185) (2,626,235) (205,443,815) Net increase in Class A 1,879,058 145,059,730 23,329 2,074,480 Class B Shares: (1) Sold 409,659 31,665,721 90,149 7,089,300 Reinvestment of dividends 11,772 912,927 1,660 130,466 Repurchased (35,003) (2,710,048) (3,825) (300,776) Net increase in Class B 386,428 29,868,600 87,984 6,918,990 Class C Shares: (2) Sold 218,877 16,942,621 - - Reinvestment of dividends 2,915 226,549 - - Repurchased (32,026) (2,480,740) - - Net increase in Class C 189,766 14,688,430 - - Class F Shares: (2) Sold 98,077 7,588,450 - - Reinvestment of dividends 1,349 104,825 - - Repurchased (22,200) (1,718,635) - - Net increase in Class F 77,226 5,974,640 - - Total net increase in fund $2,532,478 195,591,400 $ 111,313 8,993,470 (1) Class B shares were not offered before March 15, 2000. (2) Class C and Class F shares were not offered before March 15, 2001.
At December 31, 2001, the fund had outstanding forward currency contracts to sell non-U.S. currencies as follows: U.S. Valuations Contract Amount at 12/31/2001 Non-U.S. Unrealized Currency (Depreciation) Contracts Non-U.S. U.S. Amount Appreciation (000) (000) (000) (000) Sales: British Pounds expiring 1/24 to 3/19/2002 Pounds 15,552 $ 22,125 $ 22,533 $(408) Euros expiring 1/2 to 3/19/2002 Euro 74,444 65,859 66,170 (311) Japanese Yen expiring 1/4 to 3/14/2002 Yen 1,106,574 8,789 8,446 343 $ 96,773 $ 97,149 $(376)
Per-share data and ratios Class A Year ended December 31 2001 2000 1999 Net asset value, beginning of year $12.79 $12.98 $13.61 Income from investment operations: Net investment income .93 (1) .94 (1) .93 Net (losses) gains on securities (.03) (1) (.17) (1) (.63) (both realized and unrealized) Total from investment operations .90 .77 .30 Less distributions: Dividends (from net investment income) (.90) (.96) (.93) Distributions (from capital gains) - - - Total distributions (.90) (.96) (.93) Net asset value, end of year $12.79 $12.79 $12.98 Total return (2) 7.15% 6.19% 2.29% Ratios/supplemental data: Net assets, end of year (in millions) $11,223 $9,366 $9,477 Ratio of expenses to average net assets .71% .72% .69% Ratio of net income to average net assets 7.17% 7.35% 6.96% 1998 1997 Net asset value, beginning of year $14.00 $13.75 Income from investment operations: Net investment income .94 .98 Net (losses) gains on securities (.24) .25 (both realized and unrealized) Total from investment operations .70 1.23 Less distributions: Dividends (from net investment income) (.95) (.98) Distributions (from capital gains) (.14) - Total distributions (1.09) (.98) Net asset value, end of year $13.61 $14.00 Total return (2) 5.17% 9.24% Ratios/supplemental data: Net assets, end of year (in millions) $9,541 $8,176 Ratio of expenses to average net assets .66% .68% Ratio of net income to average net assets 6.94% 6.95% Class B Year ended March 15 to December 31, December 31, 2001 2000 (3) Net asset value, beginning of period $12.79 $12.92 Income from investment operations: (1) Net investment income .83 .62 Net losses on securities (.03) (.08) (both realized and unrealized) Total from investment operations .80 .54 Less distributions: Dividends (from net investment income) (.80) (.67) Net asset value, end of period $12.79 $12.79 Total return (2) 6.37% 4.33% Ratios/supplemental data: Net assets, end of period (in millions) $471 $88 Ratio of expenses to average net assets 1.45% 1.42% (4) Ratio of net income to average net assets 6.30% 6.65% (4) Class C Class F March 15 to March 15 to December 31, December 31, 2001 (3) 2001 (3) Net asset value, beginning of period $13.05 $13.05 Income from investment operations: (1) Net investment income .63 .70 Net losses on securities (.27) (.27) (both realized and unrealized) Total from investment operations .36 .43 Less distributions: Dividends (from net investment income) (.62) (.69) Net asset value, end of period $12.79 $12.79 Total return (2) 2.83% 3.35% Ratios/supplemental data: Net assets, end of period (in millions) $188 $76 Ratio of expenses to average net assets 1.57% .79% (4) Ratio of net income to average net assets 6.25% 7.03% (4) Supplemental data - all classes Year ended December 31 2001 2000 1999 Portfolio turnover rate 64.28% 62.07% 46.71% 1998 1997 Portfolio turnover rate 66.25% 51.96% 1) Based on average shares outstanding. 2) Total returns exclude all sales charges, including contingent deferred sales charges. 3) Based on operations for the period shown and, accordingly, not representative of a full year (unless otherwise noted). 4) Annualized.
Independent Auditors' Report To the Board of Directors and Shareholders of The Bond Fund of America, Inc. We have audited the accompanying statement of assets and liabilities of The Bond Fund of America, Inc. (the "Fund"), including the investment portfolio, as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the per-share data and ratios for each of the five years in the period then ended for Class A shares, and the period March 15, 2000 through December 31, 2000 and the year ended December 31, 2001 for Class B shares, and the period March 15, 2001 through December 31, 2001 for Class C and Class F shares. These financial statements and per-share data and ratios are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and per-share data and ratios based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and per-share data and ratios are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and per-share data and ratios referred to above present fairly, in all material respects, the financial position of The Bond Fund of America, Inc. as of December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the per-share data and ratios for each of the five years in the period then ended for Class A shares, and the period March 15, 2000 through December 31, 2000 and the year ended December 31, 2001 for Class B shares, and the period March 15, 2001 through December 31, 2001 for Class C and Class F shares, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Los Angeles, California February 6, 2002 OTHER SHARE CLASS RESULTS (unaudited) Class B, Class C and Class F Returns for periods ended December 31, 2001:
ONE LIFE OF YEAR CLASS CLASS B SHARES Reflecting applicable contingent deferred +1.37% +3.84%(1) sales charge (CDSC), maximum of 5%, payable only if shares are sold within six years of purchase Not reflecting CDSC +6.37% +5.96%(1) CLASS C SHARES Reflecting CDSC, maximum of 1%, payable - +1.85%(2) only if shares are sold within one year of purchase Not reflecting CDSC - +2.83%(2) CLASS F SHARES Not reflecting annual asset-based fee - +3.35%(2) charged by sponsoring firm
(1) Average annual compound return from March 15, 2000, when Class B shares first became available. (2) Total return from March 15, 2001, when Class C and Class F shares first became available. Tax Information (unaudited) We are required to advise you within 60 days of the fund's fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. Corporate shareholders may exclude up to 70% of qualifying dividends received during the year. For purposes of computing this exclusion, 1% of the dividends paid by the fund from net investment income represent qualifying dividends. Certain states may exempt from income taxation that portion of the dividends paid from net investment income that was derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 8% of the dividends paid by the fund from net investment income were derived from interest on direct U.S. Treasury obligations. Dividends and distributions received by retirement plans such as IRAs, Keogh-type plans and 403(b) plans need not be reported as taxable income. However, many retirement plan trusts may need this information for their annual information reporting. SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WAS MAILED IN JANUARY 2002 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 2001 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. BOARD OF DIRECTORS AND OFFICERS
NAME AND AGE YEAR PRINCIPAL NUMBER OF OTHER FIRST OCCUPATION(S) DURING BOARDS WITHIN DIRECTORSHIPS(3) ELECTED A PAST FIVE YEARS THE FUND HELD BY DIRECTOR DIRECTOR COMPLEX(2) ON OF THE WHICH DIRECTOR FUND(1) SERVES "NON-INTERESTED" DIRECTORS Ambassador 1999 Corporate director and 14 Carnival Richard G. author; former U.S. Corporation Capen, Jr., 67 Ambassador to Spain; former Vice Chairman, Knight-Ridder, Inc.; former Chairman and Publisher, The Miami Herald H. Frederick 1974 Private investor; 19 Ducommun Christie, 68 former President and Incorporated; IHOP CEO, The Mission Group Corporation; (non-utility holding Southwest Water company, subsidiary of Company Southern California Edison Company) Diane C. Creel, 1994 President and CEO, The 12 Allegheny 53 Earth Technology Technologies; BF Corporation Goodrich; Teledyne (international Technologies consulting engineering) Martin Fenton, 1989 Managing Director, 16 None 66 Senior Resource Group LLC; (development and management of senior living communities) Leonard R. 1994 President, Fuller 13 None Fuller, 55 Consulting (financial management consulting firm) Richard G. 1991 Chairman of the Board 13 Southwest Water Newman, 67 and CEO, AECOM Company Technology Corporation (engineering, consulting and professional services) Frank M. 1999 Chairman of the Board 12 None Sanchez, 58 and CEO, The Sanchez Family Corporation dba McDonald's Restaurants (McDonald's licensee)
NAME, AGE AND YEAR FIRST PRINCIPAL OCCUPATION(S) NUMBER OF OTHER POSITION WITH ELECTED A DURING PAST FIVE YEARS BOARDS DIRECTORSHIPS(3) FUND DIRECTOR AND POSITIONS HELD WITH WITHIN THE HELD BY OR OFFICER AFFILIATED ENTITIES OR FUND DIRECTOR OF THE THE PRINCIPAL UNDERWRITER COMPLEX(2) FUND(1) OF THE FUND ON WHICH DIRECTOR SERVES "INTERESTED" DIRECTORS(4) Paul G. Haaga, Jr., 1985 Executive Vice President 16 None 53 and Director, Capital Chairman of the Research and Management Board Company; Director, American Funds Distributors, Inc.;(5) Director, The Capital Group Companies, Inc.(5) Abner D. 1974 Senior Vice President and 12 None Goldstine, 72 Director, Capital President and Research and Management Principal Executive Company Officer Don R. Conlan, 1996 President (retired), The 7 None 66 Capital Group Companies, Inc.(5)
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION: FUND SECRETARY. (1) Directors and officers of the fund serve until their resignation, removal or retirement. (2) Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series(R) and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts; and Endowments, whose shareholders are limited to certain nonprofit organizations. (3) This includes all directorships (other than those in the American Funds) that are held by each Director as a Director of a public company or a registered investment company. (4) "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with fund's investment adviser, Capital Research and Management Company or affiliated entities (including the fund's principal underwriter). (5) Company affiliated with Capital Research and Management Company.
NAME, AGE AND POSITION YEAR FIRST PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS WITH FUND ELECTED AN AND POSITIONS HELD WITH AFFILIATED ENTITIES OR OFFICER OF THE PRINCIPAL UNDERWRITER OF THE FUND THE FUND(1) OTHER OFFICERS David C. Barclay, 45 1997 Senior Vice President and Director, Capital Senior Vice President Research and Management Company Mark R. Macdonald, 42 2001 Vice President - Investment Management Group, Senior Vice President Capital Research and Management Company John H. Smet, 45 1994 Senior Vice President, Capital Research and Senior Vice President Management Company Michael J. Downer, 46 1994 Vice President and Secretary, Capital Research Vice President and Management Company; Secretary, American Funds Distributors, Inc.;(5) Director, Capital Bank and Trust Company(5) Julie F. Williams, 53 1982 Vice President - Fund Business Management Group, Secretary Capital Research and Management Company Anthony W. Hynes, Jr., 39 1993 Vice President - Fund Business Management Group, Treasurer Capital Research and Management Company Kimberly S. Verdick, 37 1994 Assistant Vice President - Fund Business Assistant Secretary Management Group, Capital Research and Management Company Susi M. Silverman, 31 2001 Vice President - Fund Business Management Group, Assistant Treasurer Capital Research and Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND MANAGEMENT COMPANY 333 South Hope Street Los Angeles, CA 90071-1443 135 South State College Boulevard Brea, CA 92821-5823 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 CUSTODIAN OF ASSETS JPMorgan Chase Bank 270 Park Avenue New York, NY 10017-2070 COUNSEL Paul, Hastings, Janofsky & Walker LLP 555 South Flower Street Los Angeles, CA 90071-2371 INDEPENDENT AUDITORS Deloitte & Touche LLP Two California Plaza 350 South Grand Avenue Los Angeles, CA 90071-3462 PRINCIPAL UNDERWRITER American Funds Distributors, Inc. 333 South Hope Street Los Angeles, CA 90071-1462 There are several ways to invest in The Bond Fund of America. Class A shares are subject to a 3.75% maximum up-front sales charge that declines for accounts of $100,000 or more. Other share classes have no up-front sales charges but are subject to additional annual expenses and fees. Annual expenses for Class B shares were 0.74% higher than for Class A shares; Class B shares convert to Class A shares after eight years of ownership. If redeemed within six years, Class B shares may also be subject to a contingent deferred sales charge (CDSC) of up to 5% that declines over time. Class C shares were subject to annualized expenses 0.86% higher than those for Class A shares and a 1% CDSC if redeemed within the first year after purchase. Class C shares convert to Class F shares after 10 years. Class F shares, which are available only through certain fee-based programs offered by broker-dealer firms and registered investment advisers, had higher expenses (0.08% annualized) than did Class A shares, and an annual asset-based fee charged by the sponsoring firm. Expenses are deducted from income earned by the fund. As a result, dividends and investment results will differ for each share class. FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY, AT 800/421-0180 OR VISIT US AT AMERICANFUNDS.COM ON THE WORLD WIDE WEB. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY. This report is for the information of shareholders of The Bond Fund of America, but it may also 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 March 31, 2002, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter. [American Funds(SM)] WHAT MAKES AMERICAN FUNDS DIFFERENT? Each of our funds is built on a tradition spanning seven decades of investing. No matter which of the American Funds you may own, you can rest assured that your fund will follow these time-tested approaches to investing your money. * A long-term, value-oriented approach * An unparalleled global research effort * A unique method of portfolio management * Experienced investment professionals * A commitment to low operating expenses Here are the 29 American Funds: * GROWTH FUNDS Emphasis on long-term growth through stocks AMCAP Fund(R) EuroPacific Growth Fund(R) The Growth Fund of America(SM) The New Economy Fund(R) New Perspective Fund(R) New World Fund(SM) * GROWTH-AND-INCOME FUNDS Emphasis on long-term growth and dividends through stocks American Mutual Fund(R) Capital World Growth and Income Fund(SM) Fundamental Investors(SM) The Investment Company of America(R) Washington Mutual Investors Fund(SM) * EQUITY-INCOME FUNDS Emphasis on above-average income and growth through stocks and/or bonds Capital Income Builder(R) The Income Fund of America(R) * BALANCED FUND Emphasis on long-term growth and current income through stocks and bonds American Balanced Fund(R) * BOND FUNDS Emphasis on current income through bonds American High-Income Trust(SM) The Bond Fund of America(SM) Capital World Bond Fund(R) Intermediate Bond Fund of America(R) U.S. Government Securities Fund(SM) * TAX-EXEMPT BOND FUNDS Emphasis on tax-free current income through municipal bonds American High-Income Municipal Bond Fund(R) Limited Term Tax-Exempt Bond Fund of America(SM) The Tax-Exempt Bond Fund of America(R) STATE-SPECIFIC TAX-EXEMPT FUNDS The Tax-Exempt Fund of California(R) The Tax-Exempt Fund of Maryland(R) The Tax-Exempt Fund of Virginia(R) * MONEY MARKET FUNDS Seek stable monthly income through money market instruments The Cash Management Trust of America(R) The Tax-Exempt Money Fund of America(SM) The U.S. Treasury Money Fund of America(SM) THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust Litho in USA BG/LPT/5473 Lit. No. BFA-011-0202 (C)2002 American Funds Distributors, Inc. Printed on recycled paper