-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T9NyJz1IT466kCxlGjb/rB3GG1iezrvCX00afgseQkAdaTMRtPc4BfnLp8J/3wvr 1NpgCffx/EPxmeJrDXNTEQ== 0000013075-02-000004.txt : 20020514 0000013075-02-000004.hdr.sgml : 20020514 ACCESSION NUMBER: 0000013075-02-000004 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20020514 EFFECTIVENESS DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOND FUND OF AMERICA INC CENTRAL INDEX KEY: 0000013075 IRS NUMBER: 952884967 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-50700 FILM NUMBER: 02644556 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOND FUND OF AMERICA INC CENTRAL INDEX KEY: 0000013075 IRS NUMBER: 952884967 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02444 FILM NUMBER: 02644557 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 485BPOS 1 edg485b.txt SEC. FILE NOS. 2- 50700 811-2444 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A Registration Statement Under the Securities Act of 1933 Post-Effective Amendment No. 49 and Registration Statement Under The Investment Company Act of 1940 Amendment No. 30 THE BOND FUND OF AMERICA, INC. (Exact Name of Registrant as specified in charter) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) Registrant's telephone number, including area code: (213) 486-9200 JULIE F. WILLIAMS, Secretary The Bond Fund of America, Inc. 333 South Hope Street Los Angeles, California 90071 (name and address of agent for service) Copies to: ROBERT E. CARLSON, ESQ. PAUL, HASTINGS, JANOFSKY & WALKER LLP 555 S. Flower Street Los Angeles, CA 90071-2371 (Counsel for the Registrant) Approximate date of proposed public offering: It is proposed that this filing become effective on May 15, 2002, pursuant to paragraph (b) of rule 485. [logo - American Funds (sm)] The right choice for the long term/SM/ The Bond Fund of America/SM/ Retirement Plan Prospectus
TABLE OF CONTENTS 1 Risk/Return Summary 4 Fees and Expenses of the Fund 5 Investment Objective, Strategies and Risks 8 Management and Organization 10 Purchase, Exchange and Sale of Shares 11 Sales Charges 12 Sales Charge Reductions 13 Individual Retirement Account (IRA) Rollovers 13 Plans of Distribution 14 Distributions and Taxes 15 Financial Highlights 16 Appendix
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS May 15, 2002 Risk/Return Summary The fund seeks to maximize your level of current income and preserve your capital by investing primarily in bonds. Normally, the fund invests the majority of its assets in bonds rated A and above. The fund may also invest in lower rated bonds. The fund is designed for investors seeking income and more price stability than that offered by stocks, and capital preservation over the long term. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to economic, political or social events in the U.S. or abroad. The values of and the income generated by debt securities owned by the fund may be affected by changing interest rates and credit risk assessments. Lower quality or longer maturity bonds may be subject to greater price fluctuations than higher quality or shorter maturity bonds. Although all securities in the fund's portfolio may be adversely affected by currency fluctuations or global political, social or economic instability, securities issued by entities based outside the U.S. may be affected to a greater extent. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 The Bond Fund of America / Prospectus HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, returns would be lower.) [bar chart] 1992 11.34% 1993 14.13 1994 -5.02 1995 18.25 1996 6.71 1997 9.24 1998 5.17 1999 2.29 2000 6.19 2001 7.15 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 6.08% (quarter ended June 30, 1995) LOWEST -3.68% (quarter ended March 31, 1994)
The year-to-date result was 0.56% for the three months ended March 31, 2002. 2 The Bond Fund of America / Prospectus Unlike the bar chart on the previous page, the Investment Results Table below reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial sales charge imposed. Class A share results reflect the maximum initial sales charge of 3.75%. Sales charges are reduced for purchases of $100,000 or more. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividend and capital gain distributions. Since the fund's Class R shares were first available on May 15, 2002, comparable results for these classes are not available for the 2001 calendar year.
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - ------------------------------------------------------------------------------- CLASS A - BEGAN 5/28/74 3.12% 5.17% 6.97% 9.49% Lehman Brothers Aggregate Bond 8.44% 7.43% 7.23% N/A Index/2/ Lipper Average of Corporate 7.47% 6.24% 6.75% 9.09% Debt A-Rated Bond Funds/3/ Consumer Price Index/4/ 1.55% 2.18% 2.51% 4.79% - ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2001: 6.46% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Lehman Brothers Aggregate Bond Index represents investment grade debt. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. This index was not in existence as of the date the fund's Class A shares became available; therefore, lifetime results are not available. 3 The Lipper Average of Corporate Debt A-Rated Bond Funds consists of funds that invest at least 65% of their assets in corporate debt issues rated "A" or better or government issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges or taxes. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 3 The Bond Fund of America / Prospectus Fees and Expenses of the Fund
SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) ALL R SHARE CLASS A CLASSES Maximum sales charge imposed on purchases (as a percentage of offering price) 3.75%/1/ none Maximum sales charge imposed on reinvested dividends none none Maximum deferred sales charge none/2/ none Redemption or exchange fees none none
1 Sales charges are reduced or eliminated for purchases of $100,000 or more. 2 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A R-1/1/ R-2/1/ R-3/1/ R-4/1/ R-5/1/ Management Fees 0.32% 0.32% 0.32% 0.32% 0.32% 0.32% Distribution and/or Service (12b-1) Fees/2/ 0.25% 1.00% 0.75% 0.50% 0.25% none Other Expenses 0.14% 0.21% 0.41% 0.27% 0.19% 0.14% Total Annual Fund Operating Expenses 0.71% 1.53% 1.48% 1.09% 0.76% 0.46%
1 Based on estimated amounts for the current fiscal year. 2 Class A, R-2, R-3 and R-4 12b-1 fees may not exceed 0.25%, 1.00%, 0.75%, and 0.50%, respectively, of the class' average net assets annually. Class R-1 fees will always be 1.00% of the class' average net assets annually. EXAMPLE The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown above. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A/1/ $445 $594 $755 $1,224 R-1 $156 $483 $834 $1,824 R-2 $151 $468 $808 $1,768 R-3 $111 $347 $601 $1,329 R-4 $ 78 $243 $422 $ 942 R-5 $ 47 $148 $258 $ 579
1 Reflects the maximum initial sales charge in the first year. 4 The Bond Fund of America / Prospectus Investment Objective, Strategies and Risks The fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital. Normally, the fund invests at least 80% of its assets in bonds. The fund invests a majority of its assets in bonds and debt securities rated A and above, including securities issued and guaranteed by the U.S. and other governments, and securities backed by mortgages and other assets. It is the fund's current practice not to invest more than 25% of its assets in bonds rated Ba and BB or below or in bonds that are unrated but determined to be of equivalent quality. The values of and the income generated by most debt securities held by the fund may be affected by changing interest rates and by changes in effective maturities and credit ratings of these securities. For example, the values of debt securities in the fund's portfolio generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Debt securities are also subject to credit risk, which is the possibility that the credit strength of an issuer will weaken and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. Lower quality or longer maturity securities generally have higher rates of interest and may be subject to greater price fluctuations than higher quality or shorter maturity securities. The fund's investment adviser attempts to reduce these risks through diversification of the portfolio and with ongoing credit analysis of each issuer, as well as by monitoring economic and legislative developments. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market prices for these securities will fluctuate with changes in interest rates. Many types of debt securities, including mortgage-related securities, are subject to prepayment risk. For example, when interest rates fall, homeowners are more likely to refinance their home mortgages and "prepay" their principal earlier than expected. The fund must then reinvest the prepaid principal in new securities when interest rates on new mortgage investments are falling, thus reducing the fund's income. Although all securities in the fund's portfolio may be adversely affected by currency fluctuations or global political, social or economic instability, securities issued by entities based outside the U.S. may be affected to a greater extent. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objective in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. 5 The Bond Fund of America / Prospectus The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek reasonably priced securities that represent above average long-term investment opportunities. This is accomplished not only through fundamental analysis, but also by meeting with company executives and employees, suppliers, customers and competitors in order to gain in-depth knowledge of a company's true value. Securities may be sold when the investment adviser believes they no longer represent good long-term value.
INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - ------------------------------------------------------------------------------- CLASS A - BEGAN 5/28/74 7.15% 5.98% 7.37% 9.64% ------------ ------------- Lehman Brothers Aggregate Bond 8.44% 7.43% 7.23% N/A Index/2/ ------------ ------------- Lipper Average of Corporate 7.47% 6.24% 6.75% 9.09% Debt A-Rated Bond Funds/3/ ------------ ------------- Consumer Price Index/4/ 1.55% 2.18% 2.51% 4.79% - ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2001/5/: 6.56% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Lehman Brothers Aggregate Bond Index represents investment grade debt. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. This index was not in existence as of the date the fund's Class A shares became available; therefore, lifetime results are not available. 3 The Lipper Average of Corporate Debt A-Rated Bond Funds consists of funds that invest at least 65% of their assets in corporate debt issues rated "A" or better or government issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges or taxes. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 5 The distribution rate represents actual distributions paid by the fund. It was calculated at net asset value by annualizing dividends paid by the fund over one month and dividing that number by the fund's average net asset value for the month. 6 The Bond Fund of America / Prospectus HOLDINGS BY INDUSTRY AS OF DECEMBER 31, 2001 [pie chart] Corporate Bonds 52.6% Federal Agency Mortgage Pass-Through Securities 9.3 Other Mortgage-/Asset-Backed Securities 15.8 U.S. Treasury Notes & Bonds 7.5 Governments & Governmental Bodies] (Excluding U.S.) 4.8 Federal Agency Notes & Bonds 1.4 Equity-Related Securities 0.2 Cash & Equivalents 8.4 [end chart]
HOLDINGS BY QUALITY RATING AS OF DECEMBER 31, 2001 PERCENT OF NET ASSETS - ------------------------------------------------------------------- U.S. Treasury and Agency 18.2% - ------------------------------------------------------------------- Cash & Equivalents 8.4 - -------------------------------------------- Aaa/AAA 12.5 - ------------------------------------------------------------------- Aa/AA 5.1 - ------------------------------------------------------------------- A/A 17.9 - ------------------------------------------------------------------- Baa/BBB 17.0 - ------------------------------------------------------------------- Ba/BB 6.1 - ------------------------------------------------------------------- B/B 12.4 - ------------------------------------------------------------------- Caa/CCC 2.0 - ------------------------------------------------------------------- Ca/CC 0.1 - ------------------------------------------------------------------- C/C 0.1 - ------------------------------------------------------------------- Other 0.2 - -------------------------------------------------------------------
Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 7 The Bond Fund of America / Prospectus Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach, the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for The Bond Fund of America are: 8 The Bond Fund of America / Prospectus
PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE - ----------------------------------------------------------------------------------------------------------- ABNER D. GOLDSTINE 28 years Senior Vice President and Director, Capital President, Principal Research and Management Company Executive Officer and Director Investment professional for 50 years in total;34 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DAVID C. BARCLAY 7 years Senior Vice President and Director, Capital Senior Vice President Research and Management Company Investment professional for 21 years in total;14 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- MARK R. MACDONALD 3 years Vice President - Investment Management Group, Senior Vice President Capital Research and Management Company Investment professional for 16 years in total;8 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JOHN H. SMET 13 years Senior Vice President, Capital Research and Senior Vice President Management Company Investment professional for 20 years in total;19 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- MARK H. DALZELL 8 years Vice President - Investment Management Group, Capital Research and Management Company Investment professional for 24 years in total;14 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- SUSAN M. TOLSON 4 years Senior Vice President, Capital Research Company (plus 7 years prior experience as a research Investment professional for 14 years in total;12 professional for the fund) years with Capital Research and Management Company or affiliate - -----------------------------------------------------------------------------------------------------------
9 The Bond Fund of America / Prospectus Purchase, Exchange and Sale of Shares PURCHASES AND EXCHANGES Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares also are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the fund. In addition, Class R-5 shares generally are available only to retirement plans with $1 million or more in plan assets. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans generally may open an account and purchase Class A or R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. Some or all R share classes may not be available through certain investment dealers. Additional shares may be purchased through a plan's administrator or recordkeeper. Shares of the fund offered through this prospectus generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchanges of Class A shares from money market funds purchased without a sales charge generally will be subject to the appropriate sales charge. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM STOCK MARKET FLUCTUATIONS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAVE DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. SALES Please contact your plan administrator or recordkeeper. VALUING SHARES The fund's net asset value is the value of a single share. The fund calculates its net asset value, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. 10 The Bond Fund of America / Prospectus Sales Charges CLASS A SHARES The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be paid directly from your investment and, as a result, will reduce the amount of your investment.
SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE - ---------------------------------------------------------------------------- Less than $100,000 3.75% 3.90% 3.00% - ---------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% - ---------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% - ---------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% - ---------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% - ---------------------------------------------------------------------------- $1 million or more and certain other none none none investments described below - ----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE Employer-sponsored defined contribution-type plans, including certain 403(b) plans, investing $1 million or more or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). CLASS R SHARES Class R shares are sold with no initial or deferred sales charges. The distributor will pay dealers annually, asset-based compensation of 1.00% for sales of Class R-1 shares, 0.75% for Class R-2 shares, 0.50% for Class R-3 shares, and 0.25% for Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). 11 The Bond Fund of America / Prospectus Sales Charge Reductions Class A sales charges may be reduced in the following ways: CONCURRENT PURCHASES Simultaneous purchases of any class of shares of two or more American Funds may be combined to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION The current value (or if greater, the amount invested less any withdrawals) of existing holdings in any class of shares of the American Funds may be taken into account to determine Class A sales charges. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION Class A sales charges may be reduced by establishing a Statement of Intention. A Statement of Intention allows all non-money market fund purchases of all share classes intended to be made over a 13-month period to be combined in order to determine the applicable sales charge. At the request of a plan, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of the account may be held in escrow to cover additional Class A sales charges which may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. 12 The Bond Fund of America / Prospectus Individual Retirement Account (IRA) Rollovers Assets from a retirement plan may be invested in Class A, B, C or F shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. An IRA rollover involving retirement plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: . Class A shares at net asset value; . Class A shares subject to the applicable initial sales charge; . Class B shares; . Class C shares; or . Class F shares Retirement plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Retirement plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees. Dealer commissions on such assets will be paid only on rollovers of $1 million or more. Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.25% for Class A shares, 1.00% for Class R-1 shares, and up to 1.00%, 0.75% and 0.50% for Class R-2, R-3 and R-4 shares, respectively. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The remaining expense for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 13 The Bond Fund of America / Prospectus Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund declares dividends from net investment income daily and distributes the accrued dividends, which may fluctuate, to shareholders each month. Dividends begin accruing one day after payment for shares is received by the fund or American Funds Service Company. Capital gains, if any, are usually distributed in December. When a capital gain is distributed, the net asset value per share is reduced by the amount of the payment. All dividend and capital gain distributions paid to retirement plan shareholders will automatically be reinvested. TAXES ON DISTRIBUTIONS Dividends and capital gains distributed by the fund to retirement plan accounts currently are not taxable. TAXES ON TRANSACTIONS Distributions taken from a retirement plan account generally are taxable as ordinary income. Please see your tax adviser for further information. 14 The Bond Fund of America / Prospectus Financial Highlights The financial highlights table is intended to help you understand the fund's results for the past five years and is currently only shown for Class A shares. A similar table will be shown for the R share classes beginning with the fund's 2002 fiscal year end. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by Deloitte & Touche LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
CLASS A YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997 NET ASSET VALUE, BEGINNING $ 12.79 $12.98 $13.61 $14.00 $13.75 OF YEAR - ------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income .93/1/ .94/1/ .93 .94 .98 Net (losses) gains on securities (both (.03 )/1 (.17 )/1/ (.63) (.24) .25 realized and unrealized) - ------------------------------ Total from investment .90 .77 .30 .70 1.23 operations - ------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (.90 ) (.96 ) (.93) (.95) (.98) investment income) Distributions (from capital - - - (.14) - gains) - ------------------------------------------------------------------------------- Total distributions (.90 ) (.96 ) (.93) (1.09) (.98) - ------------------------------------------------------------------------------- NET ASSET VALUE, END OF $ 12.79 $12.79 $12.98 $13.61 $14.00 YEAR - ------------------------------------------------------------------------------- TOTAL RETURN/2/ 7.15 % 6.19 % 2.29% 5.17% 9.24% - ------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in $11,223 $9,366 $9,477 $9,541 $8,176 millions) - ------------------------------------------------------------------------------- Ratio of expenses to .71 % .72 % .69% .66% .68% average net assets - ------------------------------------------------------------------------------- Ratio of net income to 7.17 % 7.35 % 6.96% 6.94% 6.95% average net assets Portfolio turnover rate 64 % 62 % 47% 66% 52%
1 Based on average shares outstanding. 2 Total returns exclude all sales charges, including contingent deferred sales charges. 15 The Bond Fund of America / Prospectus Appendix Moody's Investors Service, Inc. (Moody's) rates the long-term debt securities - ----------------------------------------- issued by various entities from "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: "Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as 'gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities." "Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." 16 The Bond Fund of America / Prospectus "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." Standard & Poor's Corporation (Standard & Poor's) rates the long-term debt - ------------------------------------------------- securities of various entities in categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA - "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." AA - "An obligation rated 'AA' differs from the highest rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A - "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB - "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB - "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B - "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." CCC - "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." 17 The Bond Fund of America / Prospectus CC - "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C - "A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." D - "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." 18 The Bond Fund of America / Prospectus NOTES 19 The Bond Fund of America / Prospectus NOTES 20 The Bond Fund of America / Prospectus NOTES 21 The Bond Fund of America / Prospectus [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. - -----------------------------------------------------------------------------------
MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The Retirement Plan SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the Retirement Plan SAI or Codes of Ethics, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [LOGO - recycled bug
Printed on recycled paper Investment Company File No. 811-2444 RPBFA-010-0502/MC - ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
THE FUND PROVIDES SPANISH TRANSLATION IN CONNECTION WITH THE PUBLIC OFFERING AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND. /s/ JULIE F. WILLIAMS JULIE F. WILLIAMS SECRETARY [logo - American Funds (sm)] The right choice for the long term/SM/ The Bond Fund of America/SM/ Retirement Plan Prospectus
TABLE OF CONTENTS 1 Risk/Return Summary 4 Fees and Expenses of the Fund 5 Investment Objective, Strategies and Risks 8 Management and Organization 10 Purchase, Exchange and Sale of Shares 11 Sales Charges 12 Sales Charge Reductions 13 Individual Retirement Account (IRA) Rollovers 13 Plans of Distribution 14 Distributions and Taxes 15 Financial Highlights 16 Appendix
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS May 15, 2002 Risk/Return Summary The fund seeks to maximize your level of current income and preserve your capital by investing primarily in bonds. Normally, the fund invests the majority of its assets in bonds rated A and above. The fund may also invest in lower rated bonds. The fund is designed for investors seeking income and more price stability than that offered by stocks, and capital preservation over the long term. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to economic, political or social events in the U.S. or abroad. The values of and the income generated by debt securities owned by the fund may be affected by changing interest rates and credit risk assessments. Lower quality or longer maturity bonds may be subject to greater price fluctuations than higher quality or shorter maturity bonds. Although all securities in the fund's portfolio may be adversely affected by currency fluctuations or global political, social or economic instability, securities issued by entities based outside the U.S. may be affected to a greater extent. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 The Bond Fund of America / Prospectus HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, returns would be lower.) [bar chart] 1992 11.34% 1993 14.13 1994 -5.02 1995 18.25 1996 6.71 1997 9.24 1998 5.17 1999 2.29 2000 6.19 2001 7.15 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 6.08% (quarter ended June 30, 1995) LOWEST -3.68% (quarter ended March 31, 1994)
The year-to-date result was 0.56% for the three months ended March 31, 2002. 2 The Bond Fund of America / Prospectus Unlike the bar chart on the previous page, the Investment Results Table below reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial sales charge imposed. Class A share results reflect the maximum initial sales charge of 3.75%. Sales charges are reduced for purchases of $100,000 or more. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividend and capital gain distributions. Since the fund's Class R shares were first available on May 15, 2002, comparable results for these classes are not available for the 2001 calendar year.
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - ------------------------------------------------------------------------------- CLASS A - BEGAN 5/28/74 3.12% 5.17% 6.97% 9.49% Lehman Brothers Aggregate Bond 8.44% 7.43% 7.23% N/A Index/2/ Lipper Average of Corporate 7.47% 6.24% 6.75% 9.09% Debt A-Rated Bond Funds/3/ Consumer Price Index/4/ 1.55% 2.18% 2.51% 4.79% - ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2001: 6.46% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Lehman Brothers Aggregate Bond Index represents investment grade debt. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. This index was not in existence as of the date the fund's Class A shares became available; therefore, lifetime results are not available. 3 The Lipper Average of Corporate Debt A-Rated Bond Funds consists of funds that invest at least 65% of their assets in corporate debt issues rated "A" or better or government issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges or taxes. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 3 The Bond Fund of America / Prospectus Fees and Expenses of the Fund
SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) ALL R SHARE CLASS A CLASSES Maximum sales charge imposed on purchases (as a percentage of offering price) 3.75%/1/ none Maximum sales charge imposed on reinvested dividends none none Maximum deferred sales charge none/2/ none Redemption or exchange fees none none
1 Sales charges are reduced or eliminated for purchases of $100,000 or more. 2 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A R-1/1/ R-2/1/ R-3/1/ R-4/1/ R-5/1/ Management Fees 0.32% 0.32% 0.32% 0.32% 0.32% 0.32% Distribution and/or Service (12b-1) Fees/2/ 0.25% 1.00% 0.75% 0.50% 0.25% none Other Expenses 0.14% 0.21% 0.41% 0.27% 0.19% 0.14% Total Annual Fund Operating Expenses 0.71% 1.53% 1.48% 1.09% 0.76% 0.46%
1 Based on estimated amounts for the current fiscal year. 2 Class A, R-2, R-3 and R-4 12b-1 fees may not exceed 0.25%, 1.00%, 0.75%, and 0.50%, respectively, of the class' average net assets annually. Class R-1 fees will always be 1.00% of the class' average net assets annually. EXAMPLE The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown above. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A/1/ $445 $594 $755 $1,224 R-1 $156 $483 $834 $1,824 R-2 $151 $468 $808 $1,768 R-3 $111 $347 $601 $1,329 R-4 $ 78 $243 $422 $ 942 R-5 $ 47 $148 $258 $ 579
1 Reflects the maximum initial sales charge in the first year. 4 The Bond Fund of America / Prospectus Investment Objective, Strategies and Risks The fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital. Normally, the fund invests at least 80% of its assets in bonds. The fund invests a majority of its assets in bonds and debt securities rated A and above, including securities issued and guaranteed by the U.S. and other governments, and securities backed by mortgages and other assets. It is the fund's current practice not to invest more than 25% of its assets in bonds rated Ba and BB or below or in bonds that are unrated but determined to be of equivalent quality. The values of and the income generated by most debt securities held by the fund may be affected by changing interest rates and by changes in effective maturities and credit ratings of these securities. For example, the values of debt securities in the fund's portfolio generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Debt securities are also subject to credit risk, which is the possibility that the credit strength of an issuer will weaken and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. Lower quality or longer maturity securities generally have higher rates of interest and may be subject to greater price fluctuations than higher quality or shorter maturity securities. The fund's investment adviser attempts to reduce these risks through diversification of the portfolio and with ongoing credit analysis of each issuer, as well as by monitoring economic and legislative developments. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market prices for these securities will fluctuate with changes in interest rates. Many types of debt securities, including mortgage-related securities, are subject to prepayment risk. For example, when interest rates fall, homeowners are more likely to refinance their home mortgages and "prepay" their principal earlier than expected. The fund must then reinvest the prepaid principal in new securities when interest rates on new mortgage investments are falling, thus reducing the fund's income. Although all securities in the fund's portfolio may be adversely affected by currency fluctuations or global political, social or economic instability, securities issued by entities based outside the U.S. may be affected to a greater extent. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objective in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. 5 The Bond Fund of America / Prospectus The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek reasonably priced securities that represent above average long-term investment opportunities. This is accomplished not only through fundamental analysis, but also by meeting with company executives and employees, suppliers, customers and competitors in order to gain in-depth knowledge of a company's true value. Securities may be sold when the investment adviser believes they no longer represent good long-term value.
INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - ------------------------------------------------------------------------------- CLASS A - BEGAN 5/28/74 7.15% 5.98% 7.37% 9.64% ------------ ------------- Lehman Brothers Aggregate Bond 8.44% 7.43% 7.23% N/A Index/2/ ------------ ------------- Lipper Average of Corporate 7.47% 6.24% 6.75% 9.09% Debt A-Rated Bond Funds/3/ ------------ ------------- Consumer Price Index/4/ 1.55% 2.18% 2.51% 4.79% - ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2001/5/: 6.56% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Lehman Brothers Aggregate Bond Index represents investment grade debt. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. This index was not in existence as of the date the fund's Class A shares became available; therefore, lifetime results are not available. 3 The Lipper Average of Corporate Debt A-Rated Bond Funds consists of funds that invest at least 65% of their assets in corporate debt issues rated "A" or better or government issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges or taxes. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 5 The distribution rate represents actual distributions paid by the fund. It was calculated at net asset value by annualizing dividends paid by the fund over one month and dividing that number by the fund's average net asset value for the month. 6 The Bond Fund of America / Prospectus HOLDINGS BY INDUSTRY AS OF DECEMBER 31, 2001 [pie chart] Corporate Bonds 52.6% Federal Agency Mortgage Pass-Through Securities 9.3 Other Mortgage-/Asset-Backed Securities 15.8 U.S. Treasury Notes & Bonds 7.5 Governments & Governmental Bodies] (Excluding U.S.) 4.8 Federal Agency Notes & Bonds 1.4 Equity-Related Securities 0.2 Cash & Equivalents 8.4 [end chart]
HOLDINGS BY QUALITY RATING AS OF DECEMBER 31, 2001 PERCENT OF NET ASSETS - ------------------------------------------------------------------- U.S. Treasury and Agency 18.2% - ------------------------------------------------------------------- Cash & Equivalents 8.4 - -------------------------------------------- Aaa/AAA 12.5 - ------------------------------------------------------------------- Aa/AA 5.1 - ------------------------------------------------------------------- A/A 17.9 - ------------------------------------------------------------------- Baa/BBB 17.0 - ------------------------------------------------------------------- Ba/BB 6.1 - ------------------------------------------------------------------- B/B 12.4 - ------------------------------------------------------------------- Caa/CCC 2.0 - ------------------------------------------------------------------- Ca/CC 0.1 - ------------------------------------------------------------------- C/C 0.1 - ------------------------------------------------------------------- Other 0.2 - -------------------------------------------------------------------
Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 7 The Bond Fund of America / Prospectus Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach, the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for The Bond Fund of America are: 8 The Bond Fund of America / Prospectus
PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE - ----------------------------------------------------------------------------------------------------------- ABNER D. GOLDSTINE 28 years Senior Vice President and Director, Capital President, Principal Research and Management Company Executive Officer and Director Investment professional for 50 years in total;34 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DAVID C. BARCLAY 7 years Senior Vice President and Director, Capital Senior Vice President Research and Management Company Investment professional for 21 years in total;14 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- MARK R. MACDONALD 3 years Vice President - Investment Management Group, Senior Vice President Capital Research and Management Company Investment professional for 16 years in total;8 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JOHN H. SMET 13 years Senior Vice President, Capital Research and Senior Vice President Management Company Investment professional for 20 years in total;19 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- MARK H. DALZELL 8 years Vice President - Investment Management Group, Capital Research and Management Company Investment professional for 24 years in total;14 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- SUSAN M. TOLSON 4 years Senior Vice President, Capital Research Company (plus 7 years prior experience as a research Investment professional for 14 years in total;12 professional for the fund) years with Capital Research and Management Company or affiliate - -----------------------------------------------------------------------------------------------------------
9 The Bond Fund of America / Prospectus Purchase, Exchange and Sale of Shares PURCHASES AND EXCHANGES Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares also are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the fund. In addition, Class R-5 shares generally are available only to retirement plans with $1 million or more in plan assets. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans generally may open an account and purchase Class A or R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. Some or all R share classes may not be available through certain investment dealers. Additional shares may be purchased through a plan's administrator or recordkeeper. Shares of the fund offered through this prospectus generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchanges of Class A shares from money market funds purchased without a sales charge generally will be subject to the appropriate sales charge. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM STOCK MARKET FLUCTUATIONS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAVE DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. SALES Please contact your plan administrator or recordkeeper. VALUING SHARES The fund's net asset value is the value of a single share. The fund calculates its net asset value, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. 10 The Bond Fund of America / Prospectus Sales Charges CLASS A SHARES The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be paid directly from your investment and, as a result, will reduce the amount of your investment.
SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE - ---------------------------------------------------------------------------- Less than $100,000 3.75% 3.90% 3.00% - ---------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% - ---------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% - ---------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% - ---------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% - ---------------------------------------------------------------------------- $1 million or more and certain other none none none investments described below - ----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE Employer-sponsored defined contribution-type plans, including certain 403(b) plans, investing $1 million or more or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). CLASS R SHARES Class R shares are sold with no initial or deferred sales charges. The distributor will pay dealers annually, asset-based compensation of 1.00% for sales of Class R-1 shares, 0.75% for Class R-2 shares, 0.50% for Class R-3 shares, and 0.25% for Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). 11 The Bond Fund of America / Prospectus Sales Charge Reductions Class A sales charges may be reduced in the following ways: CONCURRENT PURCHASES Simultaneous purchases of any class of shares of two or more American Funds may be combined to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION The current value (or if greater, the amount invested less any withdrawals) of existing holdings in any class of shares of the American Funds may be taken into account to determine Class A sales charges. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION Class A sales charges may be reduced by establishing a Statement of Intention. A Statement of Intention allows all non-money market fund purchases of all share classes intended to be made over a 13-month period to be combined in order to determine the applicable sales charge. At the request of a plan, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of the account may be held in escrow to cover additional Class A sales charges which may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. 12 The Bond Fund of America / Prospectus Individual Retirement Account (IRA) Rollovers Assets from a retirement plan may be invested in Class A, B, C or F shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. An IRA rollover involving retirement plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: . Class A shares at net asset value; . Class A shares subject to the applicable initial sales charge; . Class B shares; . Class C shares; or . Class F shares Retirement plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Retirement plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees. Dealer commissions on such assets will be paid only on rollovers of $1 million or more. Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.25% for Class A shares, 1.00% for Class R-1 shares, and up to 1.00%, 0.75% and 0.50% for Class R-2, R-3 and R-4 shares, respectively. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The remaining expense for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 13 The Bond Fund of America / Prospectus Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund declares dividends from net investment income daily and distributes the accrued dividends, which may fluctuate, to shareholders each month. Dividends begin accruing one day after payment for shares is received by the fund or American Funds Service Company. Capital gains, if any, are usually distributed in December. When a capital gain is distributed, the net asset value per share is reduced by the amount of the payment. All dividend and capital gain distributions paid to retirement plan shareholders will automatically be reinvested. TAXES ON DISTRIBUTIONS Dividends and capital gains distributed by the fund to retirement plan accounts currently are not taxable. TAXES ON TRANSACTIONS Distributions taken from a retirement plan account generally are taxable as ordinary income. Please see your tax adviser for further information. 14 The Bond Fund of America / Prospectus Financial Highlights The financial highlights table is intended to help you understand the fund's results for the past five years and is currently only shown for Class A shares. A similar table will be shown for the R share classes beginning with the fund's 2002 fiscal year end. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by Deloitte & Touche LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
CLASS A YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997 NET ASSET VALUE, BEGINNING $ 12.79 $12.98 $13.61 $14.00 $13.75 OF YEAR - ------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income .93/1/ .94/1/ .93 .94 .98 Net (losses) gains on securities (both (.03 )/1 (.17 )/1/ (.63) (.24) .25 realized and unrealized) - ------------------------------ Total from investment .90 .77 .30 .70 1.23 operations - ------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (.90 ) (.96 ) (.93) (.95) (.98) investment income) Distributions (from capital - - - (.14) - gains) - ------------------------------------------------------------------------------- Total distributions (.90 ) (.96 ) (.93) (1.09) (.98) - ------------------------------------------------------------------------------- NET ASSET VALUE, END OF $ 12.79 $12.79 $12.98 $13.61 $14.00 YEAR - ------------------------------------------------------------------------------- TOTAL RETURN/2/ 7.15 % 6.19 % 2.29% 5.17% 9.24% - ------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in $11,223 $9,366 $9,477 $9,541 $8,176 millions) - ------------------------------------------------------------------------------- Ratio of expenses to .71 % .72 % .69% .66% .68% average net assets - ------------------------------------------------------------------------------- Ratio of net income to 7.17 % 7.35 % 6.96% 6.94% 6.95% average net assets Portfolio turnover rate 64 % 62 % 47% 66% 52%
1 Based on average shares outstanding. 2 Total returns exclude all sales charges, including contingent deferred sales charges. 15 The Bond Fund of America / Prospectus Appendix Moody's Investors Service, Inc. (Moody's) rates the long-term debt securities - ----------------------------------------- issued by various entities from "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: "Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as 'gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities." "Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." 16 The Bond Fund of America / Prospectus "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." Standard & Poor's Corporation (Standard & Poor's) rates the long-term debt - ------------------------------------------------- securities of various entities in categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA - "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." AA - "An obligation rated 'AA' differs from the highest rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A - "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB - "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB - "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B - "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." CCC - "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." 17 The Bond Fund of America / Prospectus CC - "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C - "A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." D - "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." 18 The Bond Fund of America / Prospectus NOTES 19 The Bond Fund of America / Prospectus NOTES 20 The Bond Fund of America / Prospectus NOTES 21 The Bond Fund of America / Prospectus [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. - -----------------------------------------------------------------------------------
MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The Retirement Plan SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the Retirement Plan SAI or Codes of Ethics, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [LOGO - recycled bug
Printed on recycled paper Investment Company File No. 811-2444 RPBFA-010-0502/MC - ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
THE BOND FUND OF AMERICA, INC. Part B Retirement Plan Statement of Additional Information May 15, 2002 This document is not a prospectus but should be read in conjunction with the current Retirement Plan Prospectus of The Bond Fund of America (the "fund" or "BFA") dated May 15, 2002. The prospectus may be obtained from your investment dealer or financial planner or by writing to the fund at the following address: The Bond Fund of America, Inc. Attention: Secretary 333 South Hope Street Los Angeles, California 90071 (213) 486-9200 TABLE OF CONTENTS
Item Page No. - ---- -------- Certain Investment Limitations and Guidelines . . . . . . . . . . . 2 Description of Certain Securities and Investment Techniques . . . . 2 Fundamental Policies and Investment Restrictions. . . . . . . . . . 9 Management of the Fund . . . . . . . . . . . . . . . . . . . . . . 11 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 22 Purchase, Exchange and Sale of Shares . . . . . . . . . . . . . . . 26 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Class A Sales Charge Reductions . . . . . . . . . . . . . . . . . . 30 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 32 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Shareholder Account Services and Privileges . . . . . . . . . . . . 34 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 34 General Information . . . . . . . . . . . . . . . . . . . . . . . . 35 Class A Share Investment Results and Related Statistics . . . . . . 36 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Financial Statements
The Bond Fund of America - Page 1 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal circumstances, and are based on a percentage of the fund's net assets unless otherwise noted. This summary is not intended to reflect all of the fund's investment limitations. ... The fund will invest at least 80% of its assets in bonds (for purposes of this limit, bonds include any debt instrument and cash equivalents, and may include certain preferred securities). ... The fund will invest at least 60% of its assets in debt securities rated A or better by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P) or in unrated securities that are determined to be of comparable quality at time of purchase, including U.S. government securities, and cash or money market instruments. ... The fund may invest up to 40% of its assets in debt securities rated below A by Moody's or S&P or in unrated securities that are determined to be of comparable quality. ... The fund may invest up to 35% of its assets in debt securities rated Ba and BB or below by Moody's or S&P or in unrated securities determined to be of comparable quality. However, it is the fund's current practice not to invest more than 25% of its assets in debt securities rated Ba and BB or below or unrated but determined to be of equivalent quality. ... The fund may invest up to 10% of its assets in preferred stocks. ... The fund may invest up to 25% of its assets in securities of issuers domiciled outside the U.S. ... While the fund may not make direct purchases of common stocks or warrants or rights to acquire common stocks, the fund may invest in debt securities that are issued together with common stock or other equity interests or in securities that have equity conversion, exchange, or purchase rights. The fund may hold up to 5% of its assets in common stock, warrants and rights acquired after sales of the corresponding debt securities. ... The fund may invest up to 5% of its assets in IOs and POs. The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The descriptions below are intended to supplement the material in the prospectus under "Investment Objective, Strategies and Risks." DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow money. Issuers pay investors interest and generally must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. The prices of debt securities fluctuate depending on such factors as interest rates, credit quality, and maturity. In general, their prices decline when interest rates rise and increase when interest rates fall. Lower rated bonds, rated Ba or below by Moody's and BB or below by S&P or unrated but considered to be of equivalent quality, are described by the rating agencies as speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness than higher rated bonds, or they may already be in default. The market prices of these securities may fluctuate more than higher quality securities and may decline significantly in periods of The Bond Fund of America - Page 2 general economic difficulty. It may be more difficult to dispose of, or to determine the value of, lower rated bonds. Certain risk factors relating to lower rated bonds are discussed below: SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower rated bonds, like other bonds, may be sensitive to adverse economic changes and political and corporate developments and may be sensitive to interest rate changes. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience increased financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices and yields of lower rated bonds. PAYMENT EXPECTATIONS - Lower rated bonds, like other bonds, may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, the fund would have to replace the security with a lower yielding security, resulting in a decreased return to investors. If the issuer of a bond defaults on its obligations to pay interest or principal or enters into bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it. LIQUIDITY AND VALUATION - There may be little trading in the secondary market for particular bonds, which may affect adversely the fund's ability to value accurately or dispose of such bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of lower rated bonds. The Investment Adviser attempts to reduce the risks described above through diversification of the portfolio and by credit analysis of each issuer, as well as by monitoring broad economic trends and corporate and legislative developments, but there can be no assurance that it will be successful in doing so. INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued by governments, their agencies or instrumentalities, and corporations. The principal value of this type of bond is periodically adjusted according to changes in the rate of inflation. The interest rate is generally fixed at issuance; however, interest payments are based on an inflation adjusted principal value. For example, in a period of deflation, principal value will be adjusted downward, reducing the interest payable. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. The fund may also invest in other bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in securities that have a combination of equity and debt characteristics. These securities may at times behave more like equity than debt and vice versa. Some types of convertible bonds or preferred stock automatically convert into common stock. The prices and yields of non-convertible preferred The Bond Fund of America - Page 3 stock generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Convertible bonds, convertible preferred stock, and other securities may sometimes be converted into common stock or other securities at a stated conversion ratio. These securities, prior to conversion, pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics, their value varies in response to many factors, including the value of the underlying equity, general market and economic conditions, and convertible market valuations, as well as changes in interest rates, credit spreads, and the credit quality of the issuer. U.S. TREASURY AND AGENCY SECURITIES - U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. government, and thus they are of the highest possible credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, will be paid in full. U.S. agency securities include those issued by certain U.S. government instrumentalities and certain federal agencies. These securities are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve federal sponsorship in one way or another; some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer; and others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Tennessee Valley Authority, and Federal Farm Credit Bank System. PASS-THROUGH SECURITIES - The fund may invest in various debt obligations backed by a pool of mortgages or other assets including, but not limited to, loans on single family residences, home equity loans, mortgages on commercial buildings, credit card receivables, and leases on airplanes or other equipment. Principal and interest payments made on the underlying asset pools backing these obligations are typically passed through to investors. Pass-through securities may have either fixed or adjustable coupons. These securities include those discussed below. "Mortgage-backed securities" are issued both by U.S. government agencies, including the Government National Mortgage Association (GNMA), FNMA, FHLMC , and by private entities. The payment of interest and principal on securities issued by U.S. government agencies is guaranteed by the full faith and credit of the U.S. government (in the case of GNMA securities) or the issuer (in the case of FNMA and FHLMC securities). However, the guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Mortgage-backed securities issued by private entities are structured similarly to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities and the underlying mortgages are not guaranteed by government agencies. In addition, these securities generally are structured with one or more types of credit enhancement. Mortgage-backed securities generally permit borrowers to prepay their underlying mortgages. Prepayments can alter the effective maturity of these instruments. The Bond Fund of America - Page 4 "Collateralized mortgage obligations" (CMOs) are also backed by a pool of mortgages or mortgage loans, which are divided into two or more separate bond issues. CMOs issued by U.S. government agencies are backed by agency mortgages. Payments of principal and interest are passed through to each bond at varying schedules resulting in bonds with different coupons, effective maturities, and sensitivities to interest rates. In fact, some CMOs may be structured in a way that when interest rates change the impact of changing prepayment rates on these securities' effective maturities is magnified. "Commercial mortgage-backed securities" are backed by mortgages of commercial property, such as hotels, office buildings, retail stores, hospitals, and other commercial buildings. These securities may have a lower prepayment uncertainty than other mortgage-related securities because commercial mortgage loans generally prohibit or impose penalties on prepayments of principal. In addition, commercial mortgage-related securities often are structured with some form of credit enhancement to protect against potential losses on the underlying mortgage loans. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans, including the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. "Asset-backed securities" are backed by other assets such as credit card, automobile or consumer loan receivables, retail installment loans, or participations in pools of leases. Credit support for these securities may be based on the underlying assets and/or provided through credit enhancements by a third party. The values of these securities are sensitive to changes in the credit quality of the underlying collateral, the credit strength of the credit enhancement, changes in interest rates, and at times the financial condition of the issuer. Some asset-backed securities also may receive prepayments which can change the securities' effective maturities. "IOs and POs" are issued in portions or tranches with varying maturities and characteristics; some tranches may only receive the interest paid on the underlying mortgages (IOs) and others may only receive the principal payments (POs); the values of IOs and POs are extremely sensitive to interest rate fluctuations and prepayment rates, and IOs are also subject to the risk of early repayment of the underlying mortgages which will substantially reduce or eliminate interest payments. INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. involves special risks, caused by, among other things: currency controls and fluctuating currency values; different accounting, auditing, and financial reporting regulations and practices in some countries; changing local and regional economic, political, and social conditions; expropriation or confiscatory taxation; greater market volatility; differing securities market structures; and various administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of Capital Research and Management Company, investing outside the U.S. also can reduce certain portfolio risks due to greater diversification opportunities. The risks described above are potentially heightened in connection with investments in developing countries. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a low per capita gross national product. For example, political and/or economic structures in these countries may be in their infancy and developing rapidly. Historically, the markets of developing countries have been more volatile than the markets of developed countries. The fund may invest in securities of issuers in developing countries only to a limited extent. The Bond Fund of America - Page 5 Additional costs could be incurred in connection with the fund's investment activities outside the U.S. Brokerage commissions may be higher outside the U.S., and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange rates. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Forward currency contracts entered into by the fund will involve the purchase or sale of one currency against the U.S. dollar. While entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain which might result from an increase in the value of the currency. The fund will not generally attempt to protect against all potential changes in exchange rates. The fund will segregate liquid assets which will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Internal Revenue Code may affect the extent to which the fund may enter into forward contracts. Such transactions may also affect the character and timing of income, gain or loss recognized by the fund for U.S. federal income tax purposes. FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell securities at a future date. When the fund agrees to purchase such securities, it assumes the risk of any decline in value of the security beginning on the date of the agreement. When the fund agrees to sell such securities, it does not participate in further gains or losses with respect to the securities beginning on the date of the agreement. If the other party to such a transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity, or could experience a loss. The fund will not use these transactions for the purpose of leveraging and will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund's aggregate commitments under these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than were it not in such a position. The fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations thereunder. The fund may also enter into "roll" transactions which are the sale of mortgage-backed or other securities together with a commitment to purchase similar, but not identical, securities at a later date. The fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations as of the time of the agreement. The fund intends to treat roll transactions as two separate transactions: one involving the purchase of a security and a separate transaction involving the sale of a security. Since the fund does not intend to enter into roll transactions for financing purposes, it may treat these transactions as not falling within the definition of "borrowing" set forth in Section 2(a)(23) of the Investment Company Act of 1940 (the "1940 Act"). The Bond Fund of America - Page 6 The fund will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under which the fund buys a security and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. Repurchase agreements permit the fund to maintain liquidity and earn income over periods of time as short as overnight. The seller must maintain with the fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Investment Adviser. The fund will only enter into repurchase agreements involving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition is monitored by the Investment Adviser. If the seller under the repurchase agreement defaults, the fund may incur a loss if the value of the collateral securing the repurchase agreement has declined and may incur disposition costs in connection with liquidating the collateral. If bankruptcy proceedings are commenced with respect to the seller, realization of the collateral by the fund may be delayed or limited. REAL ESTATE INVESTMENT TRUSTS - The fund may invest in debt securities issued by real estate investment trusts (REITs), which are pooled investment vehicles that primarily invest in real estate or real estate related loans. REITs are not taxed on income distributed to shareholders provided they meet requirements imposed by the Internal Revenue Code. The risks associated with REIT debt investments are similar to the risks of investing in corporate-issued debt. In addition, the return on REITs is dependent on such factors as the skill of management and the real estate environment in general. Debt that is issued by REITs is typically rated by the credit rating agencies as investment grade or above. CASH AND CASH EQUIVALENTS - These securities include: (i) commercial paper (e.g., short-term notes up to 9 months in maturity issued by corporations, governmental bodies or bank/ corporation sponsored conduits (asset-backed commercial paper)), (ii) commercial bank obligations (e.g., certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)), (iii) savings association and savings bank obligations (e.g., bank notes and certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (v) corporate bonds and notes that mature, or that may be redeemed, in one year or less. LOAN PARTICIPATIONS AND ASSIGNMENTS - The fund may invest, subject to an overall 10% limit on loans, in loan participations or assignments. Loan participations are loans or other direct debt instruments which are interests in amounts owed by a corporate, governmental or other borrower to another party. They may represent amounts owed to lenders or lending syndicates to suppliers of goods or services, or to other parties. The fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing participations, the fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to loan, nor any rights of set-off against the borrower, and the fund may not directly benefit from any collateral supporting the loan in which it has purchased the participation. As a result, the fund will assume the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, a fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. The Bond Fund of America - Page 7 When the fund purchases assignments from lenders it will acquire direct rights against the borrower on the loan. However, because assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by a fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. Investments in loan participations and assignments present the possibility that the fund could be held liable as a co-lender under emerging legal theories of lender liability. In addition, if the loan is foreclosed, the fund could be part owner of any collateral and could bear the costs and liabilities of owning and disposing of the collateral. The fund anticipates that such securities could be sold only to a limited number of institutional investors. In addition, some loan participations and assignments may not be rated by major rating agencies and may not be protected by the securities laws. INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no more than 1% of its assets) in inverse floating rate notes (a type of derivative instrument). These notes have rates that move in the opposite direction of prevailing interest rates. A change in prevailing interest rates will often result in a greater change in the instruments' interest rates. As a result, these instruments may have a greater degree of volatility than other types of interest-bearing securities. RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. Securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures adopted by the fund's board of directors, taking into account factors such as the frequency and volume of trading, the commitment of dealers to make markets and the availability of qualified investors, all of which can change from time to time. The fund may incur certain additional costs in disposing of illiquid securities. MATURITY - There are no restrictions on the maturity composition of the portfolio, although it is anticipated that the fund normally will be invested substantially in securities with maturities in excess of three years. Under normal market conditions, longer term securities yield more than shorter term securities, but are subject to greater price fluctuations. LOANS OF PORTFOLIO SECURITIES - The fund is authorized to lend portfolio securities to selected securities dealers or other institutional investors whose financial condition is monitored by the Investment Adviser. The borrower must maintain with the fund's custodian collateral consisting of cash, cash equivalents or U.S. government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Investment Adviser will monitor the adequacy of the collateral on a daily basis. The fund may at any time call a loan of its portfolio securities and obtain the return of the loaned securities. The fund will receive any interest paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The fund will limit its loans of portfolio securities to an aggregate of 33 1/3% of the value of its total assets, measured at the time any such loan is made. There is no current intent to engage in this investment practice over the next 12 months. * * * * * * PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund's objective, and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. High portfolio turnover (100% or more) involves correspondingly greater transaction costs in the form of dealer spreads or brokerage The Bond Fund of America - Page 8 commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. Fixed-income securities are generally traded on a net basis and usually neither brokerage commissions nor transfer taxes are involved, although the price usually includes a profit to the dealer. A fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio was replaced once per year. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover for each of the last five fiscal periods. FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies and investment restrictions which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. These restrictions provide that the fund may not: 1. With respect to 75% of the fund's total assets, purchase the security of any issuer (other than securities issued or guaranteed by the U.S. government or its agencies or instrumentalities), if as a result, (a) more than 5% of the fund's total assets would be invested in securities of that issuer, or (b) the fund would hold more than 10% of the outstanding voting securities of that issuer. Concentrate its investments in a particular industry, as that term is used in the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. 2. Invest in companies for the purpose of exercising control or management; 3. Buy or sell real estate in the ordinary course of its business; however, the fund may invest in debt securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which invest in real estate or interests therein; 4. Buy or sell commodities or commodity contracts in the ordinary course of its business, provided, however, that this shall not prohibit the fund from purchasing or selling currencies including forward currency contracts; 5. Invest more than 15% of the value of its net assets in securities that are illiquid; 6. Engage in the business of underwriting of securities of other issuers, except to the extent that the disposal of an investment position may technically constitute the fund an underwriter as that term is defined under the Securities Act of 1933; The Bond Fund of America - Page 9 7. Make loans in an aggregate amount in excess of 10% of the value of the fund's total assets, taken at the time any loan is made, provided, (i) that the purchase of debt securities pursuant to the fund's investment objectives and entering into repurchase agreements maturing in seven days or less shall not be deemed loans for the purposes of this restriction, and (ii) that loans of portfolio securities as described under "Loans of Portfolio Securities," shall be made only in accordance with the terms and conditions therein set forth; 8. Sell securities short, except to the extent that the fund contemporaneously owns or has the right to acquire at no additional cost securities identical to those sold short; 9. Purchase securities at margin; 10. Borrow money except from banks for temporary or emergency purposes, not in excess of 5% of the value of the fund's total assets. Notwithstanding Investment Restriction #8, the fund has no current intention (at least during the next 12 months) to sell securities short to the extent the fund contemporaneously owns or has the right to acquire at no additional cost securities identical to those sold short. NON-FUNDAMENTAL POLICIES - The fund has adopted the following non-fundamental investment policy, which may be changed by action of the Board of Directors without shareholder approval: the fund may not invest in securities of other investment companies, except as permitted by the Investment Company Act of 1940, as amended. The Bond Fund of America - Page 10 MANAGEMENT OF THE FUND BOARD OF DIRECTORS AND OFFICERS
YEAR FIRST NUMBER OF BOARDS POSITION ELECTED WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ PAST 5 YEARS DIRECTOR SERVES BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Capen, Director 1999 Corporate Director and author; 14 Carnival Corporation Jr. former United States Age: 67 Ambassador to Spain; former Vice Chairman, Knight Ridder, Inc.; former Chairman and Publisher, The Miami Herald ---------------- - ----------------------------------------------------------------------------------------------------------------------------------- H. Frederick Director 1974 Private Investor; former 19 Ducommun Christie President and Chief Executive Incorporated;IHOP Age: 68 Officer, The Mission Group Corporation;Southwest (non-utility holding company Water Company;Valero subsidiary of Southern L.P. California Edison Company) - ----------------------------------------------------------------------------------------------------------------------------------- Diane C. Creel Director 1994 CEO and President, The Earth 12 Allegheny Age: 53 Technology Corporation Technologies;BF (international consulting Goodrich;Teledyne engineering) Technologies - ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Director 1989 Managing Director, Senior 16 None Age: 66 Resource Group LLC (development and management of senior living communities) - ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Director 1994 President, Fuller Consulting 13 None Age: 55 (financial management consulting firm) - ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Director 1991 Chairman and CEO, AECOM 13 Southwest Water Company Age: 67 Technology Corporation (engineering, consulting and professional services) - ----------------------------------------------------------------------------------------------------------------------------------- Frank M. Sanchez Director 1999 President, The Sanchez Family 12 None Age: 58 Corporation dba McDonald's Restaurants (McDonald's licensee) - -----------------------------------------------------------------------------------------------------------------------------------
The Bond Fund of America - Page 11
PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST 5 YEARS AND ELECTED POSITIONS HELD NUMBER OF BOARDS POSITION A DIRECTOR WITH AFFILIATED ENTITIES WITHIN THE FUND WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ ON WHICH NAME AND AGE FUND OF THE FUND/1/ OF THE FUND DIRECTOR SERVES - ------------------------------------------------------------------------------------------------------------------ "INTERESTED" DIRECTORS/4,5/ - ------------------------------------------------------------------------------------------------------------------------------------ Don R. Conlan Director 1996 President (retired), The Capital 7 Age: 66 Group Companies, Inc.* - ------------------------------------------------------------------------------------------------------------------ Abner D. Goldstine President, 1974 Senior Vice President and Director, 12 Age: 72 Principal Capital Research and Management Executive Company Officer and Director - ------------------------------------------------------------------------------------------------------------------ Paul G. Haaga, Jr. Chairman of 1985 Executive Vice President and 16 Age: 53 the Board Director, Capital Research and Management Company; Director, American Funds Distributors, Inc.*; Director, The Capital Group Companies, Inc.* - ------------------------------------------------------------------------------------------------------------------ OTHER DIRECTORSHIPS/3/ HELD NAME AND AGE BY DIRECTOR - --------------------------------------------------- "INTERESTED" DIRECTORS/4,5/ - ---------------------------------------------------- Don R. Conlan None Age: 66 - --------------------------------------------------- Abner D. Goldstine None Age: 72 - --------------------------------------------------- Paul G. Haaga, Jr. None Age: 53 - ---------------------------------------------------
The Bond Fund of America - Page 12
PRINCIPAL OCCUPATION(S) DURING POSITION YEAR FIRST ELECTED PAST 5 YEARS AND POSITIONS HELD WITH THE AN OFFICER WITH AFFILIATED ENTITIES NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND - ----------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS/5/ - ----------------------------------------------------------------------------------------------------------------------------------- David C. Barclay Senior Vice President 1997 Senior Vice President and Director, Capital Research and Age: 45 Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Mark R. Macdonald Senior Vice President 2001 Vice President - Investment Management Group, Capital Age: 43 Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- John H. Smet Senior Vice President 1994 Senior Vice President, Capital Research and Management Age: 45 Company - ----------------------------------------------------------------------------------------------------------------------------------- Michael J. Downer Vice President 1994 Vice President and Secretary, Capital Research and Management Age: 47 Company; Secretary, American Funds Distributors, Inc.*; Director, Capital Bank and Trust Company* - ----------------------------------------------------------------------------------------------------------------------------------- Julie F. Williams Secretary 1982 Vice President - Fund Business Management Group, Capital Age: 53 Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Anthony W. Hynes, Treasurer 1993 Vice President - Fund Business Management Group, Capital Jr. Research and Management Company Age: 39 - ----------------------------------------------------------------------------------------------------------------------------------- Kimberly S. Verdick Assistant Secretary 1994 Assistant Vice President - Fund Business Management Group, Age: 37 Capital Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Susi M. Silverman Assistant Treasurer 2001 Vice President - Fund Business Management Group, Capital Age: 32 Research and Management Company - -----------------------------------------------------------------------------------------------------------------------------------
* Company affiliated with Capital Research and Management Company. 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 and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those in the American Funds Group) 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 the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). 5 All of the officers listed are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET - - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. The Bond Fund of America - Page 13 FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2001
AGGREGATE DOLLAR RANGE/1/ OF SHARES OWNED IN ALL FUNDS IN THE AMERICAN FUNDS DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN NAME SHARES OWNED BY DIRECTOR - ------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ------------------------------------------------------------------------------- Richard J. Capen, Jr. None Over $100,000 - ------------------------------------------------------------------------------- H. Frederick Christie None Over $100,000 - ------------------------------------------------------------------------------- Diane C. Creel $1 - $10,000 $10,001 - $50,000 - ------------------------------------------------------------------------------- Martin Fenton $10,001 - $50,000 Over $100,000 - ------------------------------------------------------------------------------- Leonard R. Fuller $10,001 - $50,000 $50,001 - $100,000 - ------------------------------------------------------------------------------- Richard G. Newman $1 - $10,000 Over $100,000 - ------------------------------------------------------------------------------- Frank M. Sanchez $1 - $10,000 $10,001 - $50,000 - ------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/2/ - ------------------------------------------------------------------------------- Don R. Conlan $1 - $10,000 Over $100,000 - ------------------------------------------------------------------------------- Abner D. Goldstine Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- Paul G. Haaga, Jr. Over $100,000 Over $100,000 - -------------------------------------------------------------------------------
1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000 and Over $100,000. The amounts listed for "interested" directors include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2001 No compensation is paid by the fund to any officer or Director who is a director, officer or employee of the Investment Adviser or its affiliates. The fund pays annual fees of $10,000 to Directors who are not affiliated with the Investment Adviser, plus $200 for each Board of Directors meeting attended; $2,520 per Contracts Committee meeting attended; and $1,000 per Audit and Nominating Committee meeting attended. Certain of the fund's directors may also serve as Committee members for other American Funds whose Committees meet jointly with those of the fund. Accordingly, the Committee fees are allocated among the funds participating. No pension or retirement benefits are accrued as part of fund expenses. The Directors may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser. The Bond Fund of America - Page 14
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ - ------------------------------------------------------------------------------------------ Richard J. Capen, $13,600/3/ $ 94,600/3/ Jr. - ------------------------------------------------------------------------------------------ H. Frederick $13,600/3/ $201,100/3/ Christie - ------------------------------------------------------------------------------------------ Diane C. Creel $11,000/3/ $ 50,600/3/ - ------------------------------------------------------------------------------------------ Martin Fenton $11,300/3/ $183,600/3/ - ------------------------------------------------------------------------------------------ Leonard R. Fuller $13,600/3/ $ 79,100/3/ - ------------------------------------------------------------------------------------------ Richard G. Newman $11,300 $118,600 - ------------------------------------------------------------------------------------------ Frank M. Sanchez $11,300 $ 54,100 - ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Directors under a non-qualified deferred compensation plan adopted by the fund in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Directors. 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 and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2001 fiscal year for participating Directors is as follows: Richard G. Capen, Jr. ($23,969), H. Frederick Christie ($16,719), Diane C. Creel ($40,321), Martin Fenton ($31,396) and Leonard R. Fuller ($63,470). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Directors. As of April 15, 2002, the officers and Directors of the fund and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. FUND ORGANIZATION AND THE BOARD OF DIRECTORS The fund, an open-end, diversified management investment company, was organized as a Maryland corporation on December 3, 1973. All fund operations are supervised by the fund's Board of Directors, which meets periodically and performs duties required by applicable state and federal laws. Members of the board who are not employed by Capital Research and Management Company or its affiliates are paid certain fees for services rendered to the fund as described above. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund has several different classes of shares, including Class A, R-1, R-2, R-3, R-4 and R-5 shares. Class R shares are generally only available to employer-sponsored retirement plans. The shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Directors and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and The Bond Fund of America - Page 15 on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. The fund does not hold annual meetings of shareholders. However, significant matters which require shareholder approval, such as certain elections of board members or a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the board could be removed by a majority vote. COMMITTEES OF THE BOARD OF DIRECTORS The fund has an Audit Committee comprised of Richard G. Capen, Jr., H. Frederick Christie and Leonard R. Fuller, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee oversees the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent auditors and the full Board of Directors. There were four Audit Committee meetings held during the 2001 fiscal year. The fund has a Contracts Committee comprised of Richard G. Capen, Jr., H. Frederick Christie, Diane C. Creel, Martin Fenton, Leonard R. Fuller, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee's function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its Investment Adviser or the Investment Adviser's affiliates, such as the investment advisory and service agreement, principal underwriting agreement, and plans of distribution under rule 12b-1, that the fund may enter into, renew or continue, and to make its recommendations to the full Board of Directors on these matters. There was one Contracts Committee meeting during the 2001 fiscal year. The fund has a Nominating Committee comprised of Richard G. Capen, Jr., H. Frederick Christie, Diane C. Creel, Martin Fenton, Leonard R. Fuller, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates candidates for independent directors to the full Board of Directors. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, c/o the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee. There were no Nominating Committee meetings during the 2001 fiscal year. INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo) with a staff of professionals, many of whom have significant investment experience. The The Bond Fund of America - Page 16 Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment Adviser's research professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. The Investment Adviser is responsible for managing more than $350 billion of stocks, bonds and money market instruments and serves over 11 million shareholder accounts of all types throughout the world. These investors include privately owned businesses and large corporations as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue in effect until October 31, 2002, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (i) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the fund, and (ii) the vote of a majority of Directors who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the Investment Adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party, and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). In determining whether to renew the Agreement each year, the Contracts Committee of the Board of Directors evaluates information provided by the Investment Adviser in accordance with Section 15(c) of the 1940 Act, and presents its recommendations to the full Board of Directors. At its most recent meeting, the Committee considered a number of factors in recommending renewal of the existing Agreement, including the quality of services provided to the fund, fees and expenses borne by the fund, and financial results of the Investment Adviser. In reviewing the quality of the services provided to the fund, the Committee noted that, although the fund's relative results were less favorable in 2000, its results for the six months and ten years ended June 30, 2001 placed it among the upper rankings of its peer group. The Committee discussed types of debt instruments represented in the fund's portfolio as compared to other funds in its peer group and the impact of these differences on the fund's relative results. The Committee also considered the quality and depth of the Investment Adviser's organization in general and of the investment professionals currently providing services to the fund. In reviewing the fees and expenses borne by the fund, the Committee noted, among other things, that the fund's advisory fees and its total expenses over various periods as a percentage of its average net assets were highly favorable in relation to its peer group. The Committee also considered steps taken in recent years by the Investment Adviser to help control the fund's transfer agency expenses. The Bond Fund of America - Page 17 Based on their review, the Committee and the Board concluded that the advisory fees and expenses of the fund are fair, both absolutely and in comparison with those of other funds in the industry, and that shareholders have received reasonable value in return for paying fees and expenses. The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to: custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plans of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to directors unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. The management fee is based upon the net assets of the fund and monthly gross investment income. Gross investment income is determined in accordance with generally accepted accounting principles and does not include gains or losses from sales of capital assets. The management fee is based on the following rates and average daily net asset levels: NET ASSET LEVEL
RATE IN EXCESS OF UP TO - ------------------------------------------------------------------------------ 0.30% $ 0 $ 60,000,000 - ------------------------------------------------------------------------------ 0.21 60,000,000 1,000,000,000 - ------------------------------------------------------------------------------ 0.18 1,000,000,000 3,000,000,000 - ------------------------------------------------------------------------------ 0.16 3,000,000,000 6,000,000,000 - ------------------------------------------------------------------------------ 0.15 6,000,000,000 10,000,000,000 - ------------------------------------------------------------------------------ 0.14 10,000,000,000 - ------------------------------------------------------------------------------
The agreement also provides for fees based on monthly gross investment income at the following rates: MONTHLY GROSS INVESTMENT INCOME
RATE IN EXCESS OF UP TO - ----------------------------------------------------------------------------------- 2.25% $ 0 8,333,333 - ----------------------------------------------------------------------------------- 2.00 8,333,333 - -----------------------------------------------------------------------------------
The Bond Fund of America - Page 18 Assuming average daily net assets of $12.5 billion and gross investment income levels of 5%, 6%, 7%, 8% and 9%, management fees would be .26%, .28%, .30%, .32% and .34%, respectively. The Investment Adviser has agreed to reduce the fee payable to it under the agreement by (a) the amount by which the ordinary operating expenses of the fund for any fiscal year of the fund, excluding interest, taxes and extraordinary expenses such as litigation, exceed the greater of (i) 1% of the average month-end net assets of the fund for such fiscal year, or (ii) 10% of the fund's gross investment income, and (b) by any additional amount necessary to assure that such ordinary operating expenses of the fund in any year after such reduction do not exceed the lesser of (i) 1 1/2% of the first $30 million of average month-end net assets of the fund, plus 1% of the average month-end net assets in excess thereof, or (ii) 25% of the fund's gross investment income. To the extent the fund's management fee must be waived due to Class A share expense ratios exceeding these limits, management fees will be reduced similarly for all classes of shares of the fund or other Class A fees will be waived in lieu of management fees. For the fiscal years ended 2001, 2000 and 1999, the Investment Adviser received from the fund advisory fees of $34,818,000, $30,566,000 and $30,826,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser relating to the fund's R share classes will continue in effect until October 31, 2002, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by the vote of a majority of Directors who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Administrative Agreement provides that the fund may terminate the agreement at any time by vote of a majority of Directors who are not interested persons of the fund. The Investment Adviser has the right to terminate the Administrative Agreement upon 60 days' written notice to the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). Under the Administrative Agreement, the Investment Adviser provides certain transfer agent and administrative services for shareholders of the fund's R share classes. The Investment Adviser contracts with third parties, including American Funds Service Company, the fund's Transfer Agent, to provide these services. Services include, but are not limited to, shareholder account maintenance, transaction processing, tax information reporting, and shareholder and fund communications. In addition, the Investment Adviser monitors, coordinates and oversees the activities performed by third parties providing such services. As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's applicable share classes. Transfer agent fees are paid monthly according to a fee schedule contained in a Shareholder Services Agreement between the fund and American Funds Service Company. The Investment Adviser also receives an administrative services fee for administrative services provided to the fund's applicable share classes. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average daily net assets for each R share class except Class R-5 shares. For Class R-5 shares, the administrative fee is paid monthly, accrued daily and calculated at the annual rate of 0.10% of the average daily net assets of Class R-5 shares. The Bond Fund of America - Page 19 PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION - American Funds Distributors, Inc. (the "Principal Underwriter") is the principal underwriter of the fund's shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071; 135 South State College Boulevard, Brea, CA 92821; 3500 Wiseman Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513. The Principal Underwriter receives revenues from sales of the fund's shares. For Class A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class R-1, R-2, R-3 and R-4 shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell the shares. Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:
COMMISSIONS, ALLOWANCE OR FISCAL YEAR REVENUE COMPENSATION - -------------------------------------------------------------- OR FEES RETAINED TO DEALERS -------------------------------------- CLASS A 2001 $7,881,000 $30,392,000 2000 3,608,000 13,941,000 1999 6,279,000 26,010,000 - ----------------------------------------------------------------------------------------------------
The fund has adopted Plans of Distribution (the "Plans"), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have been approved by the full Board of Directors and separately by a majority of the directors who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plans or the Principal Underwriting Agreement. Potential benefits of the Plans to the fund include: shareholder services; savings to the fund in transfer agency costs; savings to the fund in advisory fees and other expenses; benefits to the investment process from growth or stability of assets; and maintenance of a financially healthy management organization. The selection and nomination of directors who are not "interested persons" of the fund are committed to the discretion of the directors who are not "interested persons" during the existence of the Plans. The Plans may not be amended to increase materially the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly and the Plans must be renewed annually by the Board of Directors. Under the Plans, the fund may annually expend the following amounts to finance any activity primarily intended to result in the sale of fund shares, provided the fund's Board of Directors has approved the category of expenses for which payment is being made: (i) for Class A shares, up to 0.25% of its average daily net assets attributable to Class A shares; (ii) for Class R-1 shares, 1.00% of its average daily net assets attributable to Class R-1 shares; (iii) for Class R-2 shares, up to 1.00% of its average daily net assets attributable to Class R-2 shares; (iv) for Class R-3 shares, up to 0.75% of its average daily net assets attributable to Class R-3 shares; and (v) for Class R-4 shares, up to 0.50% of its average daily net assets attributable to Class R-4 shares. The Bond Fund of America - Page 20 The fund has not adopted a Plan for Class R-5 shares; accordingly, no 12b-1 fees are paid from Class R-5 share assets. For Class A shares, (i) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) up to the amount allowable under the fund's Class A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including for Class A shares dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees, and retirement plans, endowments and foundations with $50 million or more in assets) ("no load purchases"). Commissions on no load purchases of Class A shares, in excess of the Class A Plan limitations not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters these commissions are not recoverable. As of December 31, 2001, unreimbursed expenses which remain subject to reimbursement under the Plan for Class A shares totaled $10,953,000. For Class R-1 shares (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class R-2 shares, currently (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.50% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class R-3 shares, currently (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class R-4 shares, currently 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. During the 2001 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 EXPENSES 12B-1 LIABILITY - -------------------------- ACCRUED OUTSTANDING ---------------------------------------------------- CLASS A $26,032,000 $1,770,000 - ------------------------------------------------------------------------------
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from a designated percentage of its income), currently provides additional compensation to dealers. Currently, these payments are limited to the top 100 dealers who have sold shares of the fund or other funds in The American Funds Group. These payments are based principally on a pro rata share of a qualifying dealer's sales. The Principal Underwriter will, on an annual basis, determine the advisability of continuing these payments. The Bond Fund of America - Page 21 TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code ("Code"). A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually 100% of its investment company taxable income and net realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances the fund may determine that it is in the interest of shareholders to distribute less than that amount. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the fund's assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or two or more issuers which the fund controls and which are determined to be engaged in the same or similar trades or businesses. Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year), and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the fund from its current year's ordinary income and capital gain net income and (ii) any amount on which the fund pays income tax during the periods described above. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. The following information may or may not apply to you depending on whether you hold fund shares in a non-taxable account, such as a qualified retirement plan. Please see your tax adviser for more information. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS - Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class. Dividends and capital gains distributed by the fund to a retirement plan currently are not taxable. The Bond Fund of America - Page 22 DIVIDENDS - The fund intends to follow the practice of distributing substantially all of its investment company taxable income, which includes any excess of net realized short-term gains over net realized long-term capital losses. Investment company taxable income generally includes dividends, interest, net short-term capital gains in excess of net long-term capital losses, and certain foreign currency gains, if any, less expenses and certain foreign currency losses. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the fund accrues receivables or liabilities denominated in a foreign currency and the time the fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the fund's investment company taxable income to be distributed to its shareholders as ordinary income. If the fund invests in stock of certain passive foreign investment companies, the fund may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the fund's holding period for the stock. The distribution or gain so allocated to any taxable year of the fund, other than the taxable year of the excess distribution or disposition, would be taxed to the fund at the highest ordinary income rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the fund's investment company taxable income and, accordingly, would not be taxable to the fund to the extent distributed by the fund as a dividend to its shareholders. To avoid such tax and interest, the fund intends to elect to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time. Under this election, deductions for losses are allowable only to the extent of any prior recognized gains, and both gains and losses will be treated as ordinary income or loss. The fund will be required to distribute any resulting income, even though it has not sold the security and received cash to pay such distributions. Upon disposition of these securities, any gain recognized is treated as ordinary income and loss is treated as ordinary loss to the extent of any prior recognized gain. Dividends from domestic corporations are expected to comprise some portion of the fund's gross income. To the extent that such dividends constitute any of the fund's gross income, a portion of the income distributions of the fund will be eligible for the deduction for dividends received by corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days during the 90-day period beginning on the The Bond Fund of America - Page 23 date which is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company taxable income of the fund which must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income taxation at the level of the fund. In addition, some of the bonds may be purchased by the fund at a discount that exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having a market discount may be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond or a fund may elect to include the market discount in income in tax years to which it is attributable. Generally, accrued market discount may be figured under either the ratable accrual method or constant interest method. If the fund has paid a premium over the face amount of a bond, the fund has the option of either amortizing the premium until bond maturity and reducing the fund's basis in the bond by the amortized amount, or not amortizing and treating the premium as part of the bond's basis. In the case of any debt security having a fixed maturity date of not more than one year from its date of issue, the gain realized on disposition generally will be treated as short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as short-term capital gain. Dividend and interest income received by the fund from sources outside the U.S. may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the U.S. may reduce or eliminate these foreign taxes, however. Most foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. CAPITAL GAIN DISTRIBUTIONS - The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carry-forward of the fund. If any net long-term capital gains in excess of net short-term capital losses are retained by the fund for reinvestment, requiring federal income taxes to be paid thereon by the fund, the fund intends to elect to treat such capital gains as having been distributed to shareholders. As a result, each shareholder will report such capital gains as long-term capital gains taxable to individual shareholders at a maximum 20% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and such shareholder's related tax credit. SHAREHOLDER TAXATION - In January of each year, individual shareholders of the fund will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also The Bond Fund of America - Page 24 may be subject to state and local taxes on distributions received from the fund. Distributions of the excess of net long-term capital gains over net short-term capital losses which the fund properly designates as "capital gain dividends" generally will be taxable to individual shareholders at a maximum 20% capital gains rate, regardless of the length of time the shares of the fund have been held by such shareholders. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain during such six-month period. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of investment capital. For this reason, investors should consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive a partial return of investment capital upon the distribution, which will nevertheless be taxable to them. Redemptions of shares, including exchanges for shares of another American Fund, may result in federal, state and local tax consequences (gain or loss) to the shareholder. However, conversion from one class to another class in the same fund should not be a taxable event. If a shareholder exchanges or otherwise disposes of shares of the fund within 90 days of having acquired such shares, and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced sales charge for shares of the fund, or of a different fund, the sales charge previously incurred in acquiring the fund's shares will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes of determining the amount of gain or loss on the exchange, but will be treated as having been incurred in the acquisition of such other funds. Also, any loss realized on a redemption or exchange of shares of the fund will be disallowed to the extent substantially identical shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. The fund will be required to report to the IRS all distributions of investment company taxable income and capital gains as well as gross proceeds from the redemption or exchange of fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of investment company taxable income and capital gains and proceeds from the redemption or exchange of a regulated investment company may be subject to withholding of federal income tax in the case of non-exempt U.S. shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if the fund is notified by the IRS or a broker that the taxpayer identification number furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts The Bond Fund of America - Page 25 and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. PURCHASE, EXCHANGE AND SALE OF SHARES PURCHASES - Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares are generally only available to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares are also generally only available to retirement plans where plan level or omnibus accounts (i.e., no participant accounts) are held on the books of a fund. In addition, Class R-5 shares are generally only available to retirement plans with at least $1 million or more in plan assets. This minimum does not apply to clients of the Personal Investment Management division of Capital Guardian Trust Company. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans may generally open an account and purchase Class A and R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in the fund's prospectus and statement of additional information) authorized to sell the fund's shares. Additional shares may be purchased through a plan's administrator or recordkeeper. THE FUND AND THE PRINCIPAL UNDERWRITER RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER. EXCHANGES - Shares of the fund generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of Class A shares from the money market funds purchased without a sales charge generally will be subject to the appropriate sales charge, unless the money market fund shares were acquired by an exchange from a fund having a sales charge. Shares may be exchanged into other American Funds by contacting your plan administrator or recordkeeper. Shares held in corporate-type retirement plans for which Capital Bank and Trust Company serves as trustee may not be exchanged by telephone, Internet, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. EXCHANGE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. SALES - Shares of the fund may be sold by contacting your plan administrator or recordkeeper. Shares are sold at the net asset value next determined after the request is received in good order by the Transfer Agent, dealer or any of their designees. The Bond Fund of America - Page 26 Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 15 calendar days from the purchase date). Except for delays relating to clearance of checks for share purchases or in extraordinary circumstances (and as permissible under the 1940 Act), sale proceeds will be paid on or before the seventh day following receipt and acceptance of an order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks. Proceeds from a redemption or a dividend or capital gain distribution may be reinvested without a sales charge in any fund in The American Funds Group within 90 days after the date of the redemption or distribution. Proceeds will be reinvested in the same share class from which the original redemption or distribution was made. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after the request is received and accepted by the Transfer Agent. FUND NUMBERS - Here are the fund numbers for use when making share transactions:
FUND NUMBERS ------------------------------------------ CLASS CLASS CLASS CLASS CLASS CLASS FUND A R-1 R-2 R-3 R-4 R-5 - -------------------------------------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 002 2102 2202 2302 2402 2502 American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 011 2111 2211 2311 2411 2511 American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 003 2103 2203 2303 2403 2503 Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 012 2112 2212 2312 2412 2512 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . . . . . . 033 2133 2233 2333 2433 2533 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 016 2116 2216 2316 2416 2516 Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . 010 2110 2210 2310 2410 2510 The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 005 2105 2205 2305 2405 2505 The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 006 2106 2206 2306 2406 2506 The Investment Company of America/(R)/ . . . . . . . . . . . . . . . . . . . 004 2104 2204 2304 2404 2504 The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 014 2114 2214 2314 2414 2514 New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 007 2107 2207 2307 2407 2507 New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 036 2136 2236 2336 2436 2536 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 035 2135 2235 2335 2435 2535 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . . . . . . 001 2101 2201 2301 2401 2501 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . . . . . . . 040 N/A N/A N/A N/A 2540 American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . . . . . . 021 2121 2221 2321 2421 2521 The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . . . . . 008 2108 2208 2308 2408 2508 Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 031 2131 2231 2331 2431 2531 Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . 023 2123 2223 2323 2423 2523 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . . . 043 N/A N/A N/A N/A 2543 The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . . . . . . 019 N/A N/A N/A N/A 2519 The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . . . . . . . 020 N/A N/A N/A N/A 2520 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . . . . . . . 024 N/A N/A N/A N/A 2524 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . . . . . . . 025 N/A N/A N/A N/A 2525 U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . . . . . . . 022 2122 2222 2322 2422 2522 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . . . . . . . . . . . . . . 009 2109 2209 2309 2409 2509 The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . . . . . . 039 N/A N/A N/A N/A 2539 The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . . . . . . . 049 2149 2249 2349 2449 2549 ___________ *Available only in certain states.
The Bond Fund of America - Page 27 SALES CHARGES CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares of stock, stock/bond, and bond funds of The American Funds Group are set forth below. The money market funds of The American Funds Group are offered at net asset value. (See "Fund Numbers" above for a listing of the funds.)
DEALER SALES CHARGE AS COMMISSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING -INVESTED- PRICE PRICE - ------------------------------------------------------------------- -------- ----- ----- STOCK AND STOCK/BOND FUNDS Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00% $25,000 but less than $50,000 . . . 5.26 5.00 4.25 $50,000 but less than $100,000. . 4.71 4.50 3.75 BOND FUNDS Less than $100,000 . . . . . . . . 3.90 3.75 3.00 STOCK, STOCK/BOND, AND BOND FUNDS $100,000 but less than $250,000 . 3.63 3.50 2.75 $250,000 but less than $500,000 . 2.56 2.50 2.00 $500,000 but less than $750,000 . 2.04 2.00 1.60 $750,000 but less than $1 million 1.52 1.50 1.20 $1 million or more. . . . . . . . none none none - ----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers from retirement plans with assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest with no sales charge and are not subject to a CDSC. 403(b) plans may be treated as employer-sponsored plans for sales charge purposes if: (i) the American Funds are principal investment options; (ii) the employer facilitates the enrollment The Bond Fund of America - Page 28 process by, for example, allowing for onsite group enrollment meetings held during working hours; and (iii) there is only one dealer firm assigned to the plans. 403(b) plans meeting these criteria may invest with no sales charge and are not subject to a CDSC if investing $1 million or more or having 100 or more eligible employees. Investments made through accounts that purchased Class A shares of the fund before March 15, 2001 and are part of certain qualified fee-based programs, and retirement plans, endowments or foundations with $50 million or more in assets, may also be made with no sales charge and are not subject to a CDSC. A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution on investments made with no initial sales charge. In addition, Class A shares of the stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives, retired registered representatives with respect to accounts established while active, or full-time employees (and their spouses, parents, and children) of dealers who have sales agreements with the Principal Underwriter (or who clear transactions through such dealers) and plans for such persons or the dealers; (3) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (4) insurance company separate accounts; (5) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (6) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; (7) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, as determined by a Vice President or more senior officer of the Capital Research and Management Company Fund Administration Unit; and (8) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. DEALER COMMISSIONS AND COMPENSATION - For Class A shares, commissions (up to 1%) are paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored defined contribution-type plan investing $1 million or The Bond Fund of America - Page 29 more or with 100 or more eligible employees, IRA rollover accounts of $1 million or more (as described in "Individual Retirement Account (IRA) Rollovers" below), and for purchases made at net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on investments in Class A shares are paid at the following rates: 1.00% on amounts to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on amounts over $10 million. Commissions are based on cumulative investments and are not annually reset. For Class R-1 shares, annual asset-based compensation of 1.00% is paid by the Principal Underwriter to dealers who sell Class R-1 shares. For Class R-2 shares, annual asset-based compensation of 0.75% is paid by the Principal Underwriter to dealers who sell Class R-2 shares. For Class R-3 shares, annual asset-based compensation of 0.50% is paid by the Principal Underwriter to dealers who sell Class R-3 shares. For Class R-4 shares, annual asset-based compensation of 0.25% is paid by the Principal Underwriter to dealers who sell Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund has not adopted a plan for Class R-5 shares; accordingly no 12b-1 fee is paid from Class R-5 assets. CLASS A SALES CHARGE REDUCTIONS REDUCING YOUR CLASS A SALES CHARGE - You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know at the time you purchase shares if you qualify for a reduction in your sales charge using one or any combination of the methods described below. STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) over a 13-month period and receive the same sales charge as if all shares had been purchased at once. This includes purchases made during the previous 90 days, but does not include future appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more for equity funds and $100,000 or more for bond funds made within a 13-month period subject to the following statement of intention (the "Statement"). The Statement is not a binding obligation to purchase the indicated amount. When a shareholder elects to use a Statement in order to qualify for a reduced sales charge, shares equal to 5% of the dollar amount specified in the Statement will be held in escrow in the shareholder's account out of the initial purchase (or subsequent purchases, if necessary) by the Transfer Agent. All dividends and any capital gain distributions on shares held in escrow will be credited to the shareholder's account in shares (or paid in cash, if requested). If the intended investment is not completed within the specified 13-month period, the purchaser will remit to the Principal Underwriter the difference between the sales charge actually paid and the sales charge which would have been paid if the total of such purchases had been made at a single time. The dealer assigned to the account at the end of the period will receive an appropriate commission adjustment. If the difference is not paid by the close of the Statement period, the appropriate number of The Bond Fund of America - Page 30 shares held in escrow will be redeemed to pay such difference. If the proceeds from this redemption are inadequate, the purchaser will be liable to the Principal Underwriter for the balance still outstanding. The Statement may be revised upward at any time during the 13-month period, and such a revision will be treated as a new Statement, except that the 13-month period during which the purchase must be made will remain unchanged. Accordingly, upon your request, the sales charge paid on investments made 90 days prior to the Statement revision will be adjusted to reflect the revised Statement. Existing holdings eligible for rights of accumulation (see below) may be credited toward satisfying the Statement. During the Statement period reinvested dividends and capital gain distributions, investments in money market funds, and investments made under a right of reinstatement will not be credited toward satisfying the Statement. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. When the trustees of certain retirement plans purchase shares by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: the total monthly investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. On the first investment and all other investments made pursuant to the Statement, a sales charge will be assessed according to the sales charge breakpoint thus determined. There will be no retroactive adjustments in sales charges on investments made during the 13-month period. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. AGGREGATION - Sales charge discounts are available for certain aggregated investments. Individual purchases by a trustee(s) or other fiduciary(ies) may be aggregated if the investments are: .for a fiduciary account, including employee benefit plans other than individual-type employee benefit plans, such as an IRA, 403(b) plan (except as described below), or single-participant Keogh-type plan; .made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; or .for participant accounts of a 403(b) plan that are treated as an employer-sponsored plan (see "Class A Purchases Not Subject to Sales Charges" above), or made for two or more 403(b) plans that are treated as employer-sponsored plans of a single employer or affiliated employers as defined in the 1940 Act. The Bond Fund of America - Page 31 Purchases made for nominee or street name accounts (securities held in the name of an investment dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above. CONCURRENT PURCHASES - You may combine purchases of all classes of shares of two or more funds in The American Funds Group. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of the money market funds are excluded. RIGHTS OF ACCUMULATION - Subject to the limitations described under the aggregation policy, you may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in all share classes of The American Funds Group, as well as your holdings in Endowments (shares of which may be owned only by tax-exempt organizations), to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. When determining your sales charge, you may also take into account the value of your individual holdings, as of the end of the week prior to your investment, in various American Legacy variable annuities and variable life insurance policies. Direct purchases of the money market funds are excluded. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. An IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: i) Class A shares at net asset value; ii) Class A shares subject to the applicable initial sales charge; iii) Class B shares; iv) Class C shares; or v) Class F shares. Plan assets invested in Class A shares with a sales charge, B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees (i.e., shares do not have to age). Dealer commissions will be paid only on IRA rollovers of $1 million or more according to the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). IRA rollovers that do not indicate which share class plan assets should be invested in and which do not have an adviser associated with the account will be invested in Class F shares. Additional plan assets may be rolled into the account holding F shares; however, subsequent contributions will not be allowed to be invested in F shares. The Bond Fund of America - Page 32 PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the offering or net asset value price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter. Orders received by the investment dealer or authorized designee, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Prices which appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day's closing price whereas purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share which is calculated once daily as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange, each day the Exchange is open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price would still be determined as of 4:00 p.m. New York time. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset value per share is determined as follows: 1. 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. Assets or liabilities initially expressed in terms of non-U.S. currencies are translated prior to the next determination of the net asset value of the fund's shares into U.S. dollars at the prevailing market rates. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by authority of the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets; The Bond Fund of America - Page 33 2. Liabilities, including accruals of taxes and other expense items, are deducted from total assets; and 3. Net assets so obtained are then divided by the total number of shares outstanding, and the result, rounded to the nearer cent, is the net asset value per share. Any purchase order may be rejected by the Principal Underwriter or by the fund. The Principal Underwriter will not knowingly sell shares of the fund directly or indirectly to any person or entity, where, after the sale, such person or entity would own beneficially directly or indirectly more than 3% of the outstanding shares of the fund without the consent of a majority of the fund's Board of Directors. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES ACCOUNT STATEMENTS - Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, and purchases through certain retirement plans, will be confirmed at least quarterly. REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the fund may from time to time adopt. While payment of redemptions normally will be in cash, the fund's Articles of Incorporation permits payment of the redemption price wholly or partly in securities or other property included in the assets belonging to the fund when in the opinion of the fund's Board of Directors, which shall be conclusive, conditions exist which make payment wholly in cash unwise or undesirable. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. Certificates are not available for the R share classes. EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions. The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and quality of executions. When, in the opinion of the Investment Adviser, two or more brokers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the fund or who have provided investment research, statistical, or other related services to the Investment Adviser. The fund does not consider that it has an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. There are occasions on which portfolio transactions for the fund may be executed as part of concurrent authorizations to purchase or sell the same security for other funds served by the Investment Adviser, or for trusts or other accounts served by affiliated companies of the The Bond Fund of America - Page 34 Investment Adviser. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund will not pay a mark-up for research in principal transactions. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, if applicable, for the fiscal years ended December 31, 2001, 2000 and 1999, amounted to $17,370,000, $10,100,000 and $10,164,000, respectively. The fund is required to disclose information regarding investments in the securities of broker-dealers (or parent companies of broker-dealers that derive more than 15% of their revenue from broker-dealer activities) which have certain relationships with the fund. During the last fiscal year, J.P. Morgan Securities, Inc, and UBS Warburg were among the top 10 dealers that received the largest amount of brokerage commissions and that acted as principals in portfolio transactions. The fund held debt securities of J.P. Morgan Chase & Co. and UBS Preferred Funding Trust in the amount of $9,367,000 and $6,131,000 respectively, as of the close of its most recent fiscal year. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to sub-custodial arrangements in non-U.S. banks or non-U.S. branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. American Funds Service Company was paid a fee of $10,892,000 for Class A shares for the 2001 fiscal year. INDEPENDENT AUDITORS - Deloitte & Touche LLP, Two California Plaza, 350 South Grand Avenue, Suite 200, Los Angeles, CA 90071, serves as the fund's independent auditors providing audit services, preparation of tax returns and review of certain documents to be filed with the Securities and Exchange Commission. The financial statements included in this Statement of Additional Information from the Annual Report have been so included in reliance on the report of Deloitte & Touche LLP, independent auditors, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent auditors is reviewed and determined annually by the Board of Directors. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS - The fund's fiscal year ends on December 31. Shareholders are provided updated prospectuses annually and at least semiannually with reports showing the investment portfolio, financial statements and other information. The fund's annual financial statements are audited by the fund's independent auditors, Deloitte & Touche LLP. In addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of prospectuses, shareholder reports and proxy statements. To receive The Bond Fund of America - Page 35 additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company and its affiliated companies, including the fund's principal underwriter, have adopted codes of ethics which allow for personal investments, including securities in which the fund may invest from time to time. This policy includes: a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; pre-clearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; blackout periods on personal investing for certain investment personnel; ban on short-term trading profits for investment personnel; limitations on service as a director of publicly traded companies; and disclosure of personal securities transactions. OTHER INFORMATION - The financial statements including the investment portfolio and the report of Independent Auditors contained in the Annual Report are included in this Statement of Additional Information. The following information is not included in the Annual Report: DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- DECEMBER 31, 2001
Net asset value and redemption price per share (Net assets divided by shares outstanding) . . . . . . . . . $12.79 Maximum offering price per share (100/96.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . . . . . . . . . $13.29
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 6.46% based on a 30-day (or one month) period ended December 31, 2001, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula as required by the Securities and Exchange Commission: YIELD = 2[((a-b)/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The fund may also calculate a distribution rate on a taxable and tax equivalent basis. The distribution rate is computed by dividing the dividends paid by the fund over the last 12 months by the sum of the month-end net asset value or maximum offering price and the capital gains paid over the last 12 months. The distribution rate may differ from the yield. The Bond Fund of America - Page 36 The fund's one-year total return and five- and ten-year average annual total returns at the maximum offering price for the periods ended December 31, 2001 were 3.12%, 5.17% and 6.97%, respectively. The fund's one-year total return and five- and ten-year average annual total returns at net asset value for the periods ended December 31, 2001 were 7.15%, 5.98% and 7.37%, respectively. The average total return ("T") is computed by equating the value at the end of the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a period of years ("n") according to the following formula as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. In calculating average annual total return at the maximum offering price, the fund assumes: (1) deduction of the maximum sales load of 3.75% from the $1,000 initial investment; (2) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board; and (3) a complete redemption at the end of any period illustrated. In addition, the fund will provide lifetime average total return figures. From time to time, the fund may calculate investment results for Class B, C, F, 529 and R shares. The fund may also, at times, calculate total return based on net asset value per share (rather than the offering price), in which case the figure would not reflect the effect of any sales charges which would have been paid if shares were purchased during the period reflected in the computation. Consequently, total return calculated in this manner will be higher. These total returns may be calculated over periods in addition to those described above. Total return for the unmanaged indices will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for advisory fees, brokerage costs or administrative expenses. The fund may include information on its investment results and/or comparisons of its investment results to various unmanaged indices (such as the Dow Jones Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The fund may also, from time to time, combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The fund may refer to results and surveys compiled by organizations such as CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer to results published in various newspapers and periodicals, including Barron's, -------- Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, - ------ ------- ---------------------- ------------------------------------- Money, U.S. News and World Report and The Wall Street Journal. - ----- -------------------------- ----------------------- The fund may illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. The fund may compare its investment results with the Consumer Price Index, which is a measure of the average change in prices over time in a fixed market basket of goods and services (e.g. food, clothing, fuels, transportation, and other goods and services that people buy for day-to-day living). The Bond Fund of America - Page 37 APPENDIX Description of Bond Ratings BOND RATINGS - The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard & Poor's") are based on the analysis and represents a judgment expressed in shorthand terms of the strengths and weaknesses of the bonds which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Moody's rates the long-term debt securities issued by various entities from - ------- "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: "Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as 'gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities." "Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." The Bond Fund of America - Page 38 "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." Standard & Poor's rates the long-term debt securities of various entities in - ----------------- categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." AA "An obligation rated 'AA' differs from the highest rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions that obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." The Bond Fund of America - Page 39 CCC "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." CC "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C "A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." D "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." The Bond Fund of America - Page 40 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. PART C OTHER INFORMATION THE BOND FUND OF AMERICA, INC. ITEM 23. EXHIBITS (a) Articles of Incorporation - previously filed (see P/E Amendment No. 41 filed 2/28/97; No. 46 filed 3/9/00; No. 47 filed 3/9/01; and No. 48 filed 2/15/02) (b) By-laws - previously filed (see P/E Amendment No. 41 filed 2/28/97; and No. 47 filed 3/9/01) (c) Form of share certificate - previously filed (see P/E Amendment No. 47 filed 3/9/01) (d) Form of Amended Investment Advisory and Service Agreement - previously filed (see P/E Amendment No. 45 filed 1/5/00) (e-1) Form of Amended and Restated Principal Underwriting Agreement - previously filed (see P/E Amendment No. 48 filed 2/15/02) (e-2) Form of Selling Group Agreement; form of Banking Selling Group Agreement; form of Omnibus addendum to the Selling Group Agreement (for retirement plan share classes (R shares) only); and form of Institutional Selling Group Agreement (f) None (g) Form of Global Custody Agreement (h) Form of Amended and Restated Administrative Services Agreement; and Form of Amended Shareholder Services Agreement dated 7/1/01 - previously filed (see P/E Amendment No. 48 filed 2/15/02) (i) Legal opinion for Classes R-1, R-2, R-3, R-4, and R-5 Shares (j) Consent of Independent Auditors (k) None (l) Initial capital agreements - previously filed (see P/E Amendment No. 41 filed 2/28/97) (m-1) Forms of Plans of Distribution - previously filed (see P/E Amendment No. 41 filed 2/28/97; No. 46 filed 3/9/00; No. 47 filed 3/9/01; and No. 48 filed 2/15/02 (m-2) Form of Plans of Distribution relating to Class R-1, R-2, R-3, and R-4 shares (n) Form of Amended and Restated Multiple Class Plan - previously filed (see P/E Amendment No. 48 filed 2/15/02) (o) None (p) Code of Ethics - previously filed (see P/E Amendment No. 48 filed 2/15/02) ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None ITEM 25. INDEMNIFICATION Registrant is a joint-insured under Investment Advisor/Mutual fund Errors and Omissions Policies written by American International Surplus Lines Insurance Company, Chubb Custom Insurance Company, and ICI Mutual Insurance Company which insures its officers and directors against certain liabilities. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which Registrant itself is not permitted to indemnify the individual. Article VI, Section 7 of the Articles of Incorporation of the Fund provides that: "(7) The Corporation shall provide any indemnification required by the laws of Maryland and shall indemnify directors, officers, agents and employees as follows: (a) The Corporation shall indemnify any director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was such director or officer or an employee or agent of the corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgement, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify any director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was such director or officer or employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in defense or settlement of such action or suit if he acted in good faith and in a manner he ITEM 25. INDEMNIFICATION (CONTINUED) reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the court in which such action or suit was brought, or any other court having jurisdiction in the premises, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subparagraphs (a) or (b) above or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity for the determination as to the standard of conduct as provided in subparagraph (d). (d) Any indemnification under subparagraph (a) or (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in subparagraph (a) or (b). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, such a quorum of disinterested directors so directs, by independent legal counsel (who may be regular counsel for the Corporation) in a written opinion; and any determination so made shall be conclusive. (e) Expenses incurred in defending a civil or criminal action, writ or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding, as authorized in the particular case, upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized herein. (f) Agents and employees of the Corporation who are not directors or officers of the Corporation may be indemnified under the same standards and procedures set forth above, in the discretion of the Board of Directors. (g) Any indemnification pursuant to this paragraph shall not be deemed exclusive of any other rights to which those indemnified may be entitled and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. ITEM 25. INDEMNIFICATION (CONTINUED) (h) Nothing in these Articles of Incorporation or in the By-Laws shall be deemed to protect any director or officer of the Corporation against any liability to the Corporation or to its security holders to which he would otherwise be subject by reason of willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office." Subsection (b) of Section 2-418 of the General Corporation Law of Maryland empowers a corporation to indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against reasonable expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually incurred by him in connection with such action, suit or proceeding unless it is proved that: (i) the act or omission of the person was material to the cause of action adjudicated in the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the person actually received an improper personal benefit of money, property or services; or (iii) with respect to any criminal action or proceeding, the person had reasonable cause to believe his act or omission was unlawful. Indemnification under subsection (b) of Section 2-418 may not be made by a corporation unless authorized for a specific proceeding after a determination has been made that indemnification is permissible in the circumstances because the party to be indemnified has met the standard of conduct set forth in subsection (b). This determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or, if such quorum cannot be obtained, then by a majority vote of a committee of the Board consisting solely of two or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate; (ii) by special legal counsel selected by the Board of Directors of a committee of the Board by vote as set forth in subparagraph (i), or, if the requisite quorum of the full Board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full Board in which any director who is a party may participate; or (iii) by the stockholders (except that shares held by any party to the specific proceeding may not be voted). A court of appropriate jurisdiction may also order indemnification if the court determines that a person seeking indemnification is entitled to reimbursement under subsection (b). Section 2-418 further provides that indemnification provided for by Section 2-418 shall not be deemed exclusive of any rights to which the indemnified party may be entitled; that the scope of indemnification extends to directors, officers, employees or agents of a constituent corporation absorbed in a consolidation or merger and persons serving in that capacity at the request of the constituent corporation for another; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in any such capacity or arising out of such ITEM 25. INDEMNIFICATION (CONTINUED) person's status as such whether or not the corporation would have the power to indemnify such person against such liabilities under Section 2-418. Registrant will comply with the indemnification requirements contained in the Investment Company Act of 1940 (the "1940 Act") Releases No. 7221 (June 9, 1972) and No. 11330 (September 4, 1980). In addition, indemnification by the Registrant shall be consistent with the requirements of rule 484 under the Securities Act of 1933. Furthermore, Registrant undertakes to the staff of the Securities and Exchange Commission that the Fund's indemnification provisions quoted above prohibit indemnification for liabilities arising under the Securities Act of 1933 and the 1940 Act. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER None ITEM 27. PRINCIPAL UNDERWRITERS (a) American Funds Distributors, Inc. is the Principal Underwriter of shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds Income Series, The American Funds Tax-Exempt Series I, The American Funds Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., The Investment Company of America, Intermediate Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Money Fund of America, U.S. Treasury Money Fund of America and Washington Mutual Investors Fund, Inc.
(B) (1) (2) (3) NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT David L. Abzug Vice President None P.O. Box 2248 Agoura Hills, CA 91376 John A. Agar Vice President None P.O. Box 7326 Little Rock, AR 72217 Robert B. Aprison Vice President None 2983 Bryn Wood Drive Madison, WI 53711 L William W. Bagnard Vice President None Steven L. Barnes Senior Vice President None 7490 Clubhouse Road Suite 100 Boulder, CO 80301 B Carl R. Bauer Vice President None Michelle A. Bergeron Senior Vice President None 4160 Gateswalk Drive Smyrna, GA 30080 J. Walter Best, Jr. Regional Vice President None 9013 Brentmeade Blvd. Brentwood, TN 37027 Joseph T. Blair Senior Vice President None P.O. Box 3529 148 E. Shore Avenue Groton Long Point, CT 06340 John A. Blanchard Vice President None 576 Somerset Lane Northfield, IL 60093 Ian B. Bodell Senior Vice President None P.O. Box 1665 Brentwood, TN 37024-1665 Mick L. Brethower Senior Vice President None 601 E. Whitestone Blvd. Building 6, Suite 115 Cedar Park, TX 78613 Alan Brown Vice President None 4129 Laclede Avenue St. Louis, MO 63108 B J. Peter Burns Vice President None Cody Callaway Regional Vice President None 803 South Desert Palm Place Broken Arrow, OK 74012 Matthew C. Carlisle Regional Vice President None 4500 Fairvista Drive Charlotte, NC 28269 Damian F. Carroll Regional Vice President None 40 Ten Acre Road New Britain, CT 06052 Brian C. Casey Vice President None 8002 Greentree Road Bethesda, MD 20817 Victor C. Cassato Senior Vice President None 609 W. Littleton Blvd., Suite 310 Littleton, CO 80120 Christopher J. Cassin Senior Vice President None 19 North Grant Street Hinsdale, IL 60521 Denise M. Cassin Vice President None 1301 Stoney Creek Drive San Ramon, CA 94583 L David Charlton Senior Vice President None L Larry P. Clemmensen Director None L Kevin G. Clifford Director, President and None Co-Chief Executive Officer H Cheri Coleman Assistant Vice None President Ruth M. Collier Senior Vice President None 29 Landsdowne Drive Larchmont, NY 10538 S David Coolbaugh Vice President None Carlo O. Cordasco Regional Vice President None 101 Five Forks Lane Hampton, VA 23669 Thomas E. Cournoyer Vice President None 2333 Granada Boulevard Coral Gables, FL 33134 Joseph G. Cronin Regional Vice President None 1533 Wilmot Road Deerfield, IL 60015 William F. Daugherty Regional Vice President None 1216 Highlander Way Mechanicsburg, PA 17050 Guy E. Decker Regional Vice President None 2990 Topaz Lane Carmel, IN 46032 Daniel J. Delianedis Vice President None Edina Executive Plaza 5200 Willson Road, Suite 150 Edina, MN 55424 James A. DePerno, Jr. Regional Vice President None 91 Church Street East Aurora, NY 14052 L Bruce L. DePriester Senior Vice President None Thomas J. Dickson Regional Vice President None 108 Wilmington Court Southlake, TX 76092 Michael A. DiLella Vice President None P. O. Box 661 Ramsey, NJ 07446 G. Michael Dill Senior Vice President None 505 E. Main Street Jenks, OK 74037 Kirk D. Dodge Senior Vice President None 2627 Mission Street San Marino, CA 91108 Peter J. Doran Director, Executive Vice President None 100 Merrick Road, Suite 216W Rockville Centre, NY 11570 L Michael J. Downer Secretary Vice President Michael J. Dullaghan Regional Vice President None 5040 Plantation Grove Lane Roanoke, VA 24012 S J. Steven Duncan Senior Vice President None Robert W. Durbin Vice President None 74 Sunny Lane Tiffin, OH 44883 I Lloyd G. Edwards Senior Vice President None Timothy L. Ellis Regional Vice President None 1441 Canton Mart Road, Suite 9 Jackson, MS 39211 John R. Fodor Senior Vice President None 15 Latisquama Road Southborough, MA 01772 Daniel B. Frick Regional Vice President None 845 Western Avenue Glen Ellyn, IL 60137 Clyde E. Gardner Senior Vice President None Route 2, Box 3162 Osage Beach, MO 65065 L Linda S. Gardner Assistant Vice President None B Evelyn K. Glassford Vice President None Jack E. Goldin Regional Vice President None 7995 Northwest 20th Street Pembroke Pines, FL 33024 Jeffrey J. Greiner Vice President None 12210 Taylor Road Plain City, OH 43064 L Paul G. Haaga, Jr. Director Chairman and Director B Mariellen Hamann Vice President None Derek S. Hansen Regional Vice President None 13033 Ridgedale Drive, PMB 147 Minnetonka, MN 55305 David E. Harper Senior Vice President None 150 Old Franklin School Road Pittstown, NJ 08867 H Mary Pat Harris Vice President None Robert J. Hartig, Jr. Regional Vice President None 8504 Scenic View Drive, Apt. 103 Fishers, IN 46038 Steven J. Hipsley Regional Vice President None 14 Dyer Switch Road Saratoga Springs, NY 12866 Ronald R. Hulsey Senior Vice President None 6202 Llano Dallas, TX 75214 Robert S. Irish Vice President None 1225 Vista Del Mar Drive Delray Beach, FL 33483 Michael J. Johnston Director None 630 Fifth Avenue, 36th Floor New York, NY 10111 B Damien M. Jordan Senior Vice President None John P. Keating Regional Vice President None 2285 Eagle Harbor Parkway Orange Park, FL 30073 Dorothy Klock Vice President None 555 Madison Avenue, 29th Floor New York, NY 10022 Dianne L. Koske Assistant Vice President 122 Clydesdale Court Hampton, VA 23666 Andrew R. LeBlanc Regional Vice President None 78 Eton Road Garden City, NY 11530 B Karl A. Lewis Vice President None T. Blake Liberty Vice President None 5506 East Mineral Lane Littleton, CO 80122 Mark J. Lien Regional Vice President None 1103 Tulip Tree Lane West Des Moines, IA 50266 L Lorin E. Liesy Vice President None I Kelle Lindenberg Assistant Vice President None Louis K. Linquata Regional Vice President None 5214 Cass Street Omaha, NE 68132 LW Robert W. Lovelace Director None Brendan T. Mahoney Regional Vice President None 29 Harvard Drive Sudbury, MA 01776 Stephen A. Malbasa Director, Senior Vice None President 13405 Lake Shore Blvd. Cleveland, OH 44110 Steven M. Markel Senior Vice President None 5241 South Race Street Greenwood Village, CO 80121 L J. Clifton Massar Director, Senior Vice None President James R. McCrary Regional Vice President None 28812 Crestridge Rancho Palos Verdes, CA 90275 L Scott F. McIntyre Senior Vice President None S John V. McLaughlin Senior Vice President None Terry W. McNabb Vice President None 2002 Barrett Station Road St. Louis, MO 63131 Scott M. Meade Regional Vice President None P.O. Box 122 Rye Beach, NH 03871 Monty L. Moncrief Regional Vice President None 55 Chandler Creek Court The Woodlands, TX 77381 William E. Noe Vice President None 304 River Oaks Road Brentwood, TN 37027 Peter A. Nyhus Vice President None 3084 Wilds Ridge Court Prior Lake, MN 55372 Eric P. Olson Vice President None 62 Park Drive Glenview, IL 60025 Jeffrey A. Olson Regional Vice President None 930 S. Cowley Street, #305 Spokane, WA 99202 Gary A. Peace Regional Vice President None 291 Kaanapali Drive Napa, CA 94558 Samuel W. Perry Regional Vice President None 4730 East Indian School Road Suite 120 Phoenix, AZ 85018 David K. Petzke Regional Vice President None 4016 Saint Lucia Street Boulder, CO 80301 Fredric Phillips Senior Vice President None 175 Highland Avenue, 4th Floor Needham, MA 02494 B Candance D. Pilgrim Assistant Vice President None Carl S. Platou Vice President None 7455 80th Place, S.E. Mercer Island, WA 98040 S Richard P. Prior Vice President None Mark S. Reischmann Regional Vice President None 5485 East Mineral Lane Littleton, CO 80122 Steven J. Reitman Senior Vice President None 212 The Lane Hinsdale, IL 60521 Brian A. Roberts Vice President None 418 S. Royal Street Alexandria, VA 22314 L Julie D. Roth Vice President None L James F. Rothenberg Director None Douglas F. Rowe Vice President None 414 Logan Ranch Road Georgetown, TX 78628 Christopher S. Rowey Vice President None 10538 Cheviot Drive Los Angeles, CA 90064 H Steve Rubin Assistant Vice President None Dean B. Rydquist Senior Vice President None 1080 Bay Pointe Crossing Alpharetta, GA 30005 Richard R. Samson Senior Vice President None 4604 Glencoe Avenue, #4 Marina del Rey, CA 90292 Paul V. Santoro Regional Vice President None 17 Willow Street Boston, MA 02108 Joseph D. Scarpitti Vice President None 31465 St. Andrews Westlake, OH 44145 Shannon D. Schofield Regional Vice President None 201 McIver Street Greenville, SC 29601 S Sherrie Senft Vice President None L R. Michael Shanahan Director None Brad Short Regional Vice President None 1601 Seal Way Seal Beach, CA 90740 David W. Short Chairman of the Board None and 1000 RIDC Plaza, Suite 212 Co-Chief Executive Officer Pittsburgh, PA 15238 William P. Simon Senior Vice President None 912 Castlehill Lane Devon, PA 19333 Jerry L. Slater Regional Vice President None 4152 42nd Avenue, NE Seattle, WA 98105 Rodney G. Smith Senior Vice President None 5520 Frankford Court Dallas, TX 75252 Anthony L. Soave Regional Vice President None 5397 W. Rosebud Court, S.E. Kentwood, MI 49512 L Therese L. Soullier Assistant Vice None President Nicholas D. Spadaccini Vice President None 855 Markley Woods Way Cincinnati, OH 45230 L Kristen J. Spazafumo Assistant Vice None President Daniel S. Spradling Senior Vice President None 181 Second Avenue Suite 228 San Mateo, CA 94401 B Raymond Stein Assistant Vice None President LW Eric H. Stern Director None Brad Stillwagon Regional Vice President None 2438 Broadmeade Road Louisville, KY 40205 Thomas A. Stout Vice President None 1004 Ditchley Road Virginia Beach, VA 23451 Craig R. Strauser Vice President None 3 Dover Way Lake Oswego, OR 97034 Francis N. Strazzeri Senior Vice President None 3021 Kensington Trace Tarpon Springs, FL 34689 L Lisa F. Swaiman Vice President None L Drew W. Taylor Vice President None Gary J. Thoma Regional Vice President None 21 White Cloud HCR 1 Box 172-A Keshena, WI 54135 Cynthia M. Thompson Regional Vice President None 4 Franklin Way Ladera Ranch, CA 92694 L James P. Toomey Vice President None I Christopher E. Trede Vice President None George F. Truesdail Senior Vice President None 400 Abbotsford Court Charlotte, NC 28270 Scott W. Ursin-Smith Vice President None 60 Reedland Woods Way Tiburon, CA 94920 J. David Viale Regional Vice President None 39 Old Course Drive Newport Beach, CA 92660 Gerald J. Voss Regional Vice President None The Pines at Four Hills 3900 S. Southeastern Ave., #304 Sioux Falls, SD 57103 Thomas E. Warren Vice President None 7347 Turnstone Road Sarasota, FL 34242 L J. Kelly Webb Senior Vice President, None Treasurer and Controller Gregory J. Weimer Vice President None 206 Hardwood Drive Venetia, PA 15367 B Timothy W. Weiss Director None SF Gregory W. Wendt Director None George J. Wenzel Regional Vice President None 251 Barden Road Bloomfield Hills, MI 48304 H J. D. Wiedmaier Assistant Vice President None SF N. Dexter Williams, Jr. Senior Vice President None Timothy J. Wilson Vice President None 113 Farmview Place Venetia, PA 15367 B Laura L. Wimberly Vice President None H Marshall D. Wingo Director, Senior Vice None President L Robert L. Winston Director, Senior Vice None President William R. Yost Senior Vice President None 9320 Overlook Trail Eden Prairie, MN 55347 Jonathan A. Young Regional Vice President None 329 Downing Drive Chesapeake, VA 23322 Scott D. Zambon Regional Vice President None 2178 Piper Lane Tustin, CA 92782
__________ L Business Address, 333 South Hope Street, Los Angeles, CA 90071 LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025 B Business Address, 135 South State College Boulevard, Brea, CA 92821 S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251 SF Business Address, One Market, Steuart Tower, Suite 1800, San Francisco, CA 94105-1016 H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513 I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 (c) None ITEM 28. LOCATION OF ACCOUNTS AND RECORDS Accounts, books and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and held in the offices of its investment adviser, Capital Research and Management Company, 333 South Hope Street, Los Angeles, California 90071, and/or 135 South State College Boulevard, Brea, California 92821. Registrant's records covering shareholder accounts are maintained and kept by its transfer agent, American Funds Service Company, 135 South State College Boulevard, Brea, California 92821; 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240; 3500 Wiseman Boulevard, San Antonio, Texas 78251; and 5300 Robin Hood Road, Norfolk, VA 23513. Registrant's records covering portfolio transactions are maintained and kept by its custodian, JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017-2070. ITEM 29. MANAGEMENT SERVICES None ITEM 30. UNDERTAKINGS n/a SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, and State of California, on the 10th day of May, 2002. THE BOND FUND OF AMERICA, INC. By /s/ Paul G. Haaga, Jr. (Paul G. Haaga, Jr., Chairman of the Board) Pursuant to the requirements of the Securities Act of 1933, this amendment to Registration Statement has been signed below on May 10, 2002, by the following persons in the capacities indicated.
SIGNATURE TITLE (1) Principal Executive Officer: /s/ Abner D. Goldstine President/PEO and Director (Abner D. Goldstine) (2) Principal Financial Officer and Principal Accounting Officer: /s/ Anthony W. Hynes, Jr. Treasurer (Anthony W. Hynes, Jr.) (3) Trustees: Richard G. Capen, Jr.* Director H. Frederick Christie* Director Don R. Conlan* Director Diane C. Creel* Director Martin Fenton* Director Leonard R. Fuller* Director /s/ Abner D. Goldstine President/PEO and Director (Abner D. Goldstine) /s/ Paul G. Haaga, Jr. Chairman and Director (Paul G. Haaga, Jr.) Richard G. Newman* Director Frank M. Sanchez* Director
*By /s/ Julie F. Williams Julie F. Williams, Attorney-in-Fact Counsel represents that this amendment does not contain disclosures that would make the amendment ineligible for effectiveness under the provisions of rule 485(b). /s/ Kristine M. Nishiyama (Kristine M. Nishiyama) EX-99.E UNDR CONTR 4 ex-e.txt [LOGO - AMERICAN FUNDS (SM)] AMERICAN FUNDS DISTRIBUTORS, INC. 333 South Hope Street Los Angeles, California 90071 Telephone 800/421-9900, ext. 4 Form of selling group agreement Ladies and Gentlemen: We have entered into a principal underwriting agreement with each Fund in The American Funds Group (Funds) under which we are appointed exclusive agent for the sale of shares. As such agent we offer to sell to you as a member of a Selling Group, shares of the Funds as are qualified for sale in your state, on the terms set forth below. We are acting as an underwriter within the meaning of the applicable rules of the National Association of Securities Dealers, Inc. (NASD). In addition, we are the distributor of CollegeAmerica (Program), a college savings program as described in Section 529 of the Internal Revenue Code. 1. AUTHORIZATION TO SELL You are to offer and sell shares only at the regular public price currently determined by the respective Funds in the manner described in their offering Prospectuses. This Agreement on your part runs to us and to the respective Funds and is for the benefit of and enforceable by each. The offering Prospectuses and this Agreement set forth the terms applicable to members of the Selling Group and all other representations or documents are subordinate. You understand that Class 529 shares of the Funds are available only as underlying investments through the Program. 2. COMPENSATION ON SALES OF CLASS A SHARES AND CLASS 529-A SHARES A. On sales of Class A shares and Class 529-A shares of Funds listed in Category 1 on the attached Schedule A that are accepted by us and for which you are responsible, you will be paid dealer concessions as follows:
Purchases CONCESSION AS SALES CHARGE PERCENTAGE OF AS PERCENTAGE OFFERING PRICE OF OFFERING PRICE Less than $25,000 5.00% 5.75% $25,000 but less than $50,000 4.25% 5.00% $50,000 but less than $100,000 3.75% 4.50% $100,000 but less than $250,000 2.75% 3.50% $250,000 but less than $500,000 2.00% 2.50% $500,000 but less than $750,000 1.60% 2.00% $750,000 but less than $1,000,000 1.20% 1.50% $1,000,000 or more See below None
B. On sales of Class A shares and Class 529-A shares of Funds listed in Category 2 on the attached Schedule A that are accepted by us and for which you are responsible, you will be paid the same dealer concessions indicated above except as follows:
PURCHASES CONCESSION AS SALES CHARGE PERCENTAGE OF AS PERCENTAGE OFFERING PRICE OF OFFERING PRICE Less than $100,000 3.00% 3.75%
C. If you initiate and are responsible for sales of Class A shares and Class 529-A shares, a) amounting to $1 million or more, b) made to employer-sponsored defined contribution-type retirement plans that qualify to invest at net asset value under the terms of the Fund Prospectuses, or c) made at net asset value to endowments and foundations with assets of $50 million or more, you will be paid a dealer concession of 1.00% on sales to $4 million, plus 0.50% on amounts over $4 million up to $10 million, plus 0.25% on amounts over $10 million. No dealer concessions are paid on any other sales of shares at net asset value, except that concessions may be paid to dealers on their sales of fund shares to accounts managed by affiliates of The Capital Group Companies, Inc. as set forth in this Agreement. Sales of shares of Washington Mutual Investors Fund below $1 million made in connection with certain accounts established before September 1, 1969 are subject to reduced concessions and sales charges as described in the Washington Mutual Investors Fund Prospectus. With respect to sales of shares of any tax-exempt fund, the concession schedule for sales of shares to endowments and foundations or retirement plans of organizations with assets of $50 million or more is inapplicable. The schedules of sales charges above apply to single purchases, concurrent purchases of two or more of the Funds (except those listed in Category 3 on the attached Schedule A), and purchases made under a statement of intention and pursuant to the right of accumulation, both of which are described in the Prospectuses. D. On sales of Class A shares and Class 529-A shares of Funds listed in Category 3 on the attached Schedule A, no dealer concessions will be paid. 3. COMPENSATION ON SALES OF CLASS B SHARES AND CLASS 529-B SHARES A. On sales of Class B shares and Class 529-B shares of Funds listed in Category 1 and Category 2 on the attached Schedule A that are accepted by us and for which you are responsible, you will be paid: - - a dealer concession of 3.75% of the amount invested, plus - - an immediate service fee of 0.25% of the amount invested. B. On sales of Class B shares and Class 529-B shares of Funds listed in Category 3 on the attached Schedule A, no dealer concessions will be paid. 4. ONGOING SERVICE FEES FOR CLASS A, CLASS 529-A, CLASS B AND CLASS 529-B SHARES We are also authorized to pay you continuing service fees each quarter with respect to the Class A, Class 529-A, Class B and Class 529-B shares of all the Funds to promote selling efforts and to compensate you for providing certain services to your clients, subject to your compliance with the following terms, which may be revised by us from time to time. Your eligibility to continue receiving this compensation will be evaluated periodically, and your failure to comply with the terms below may result in our discontinuing service fee payments to you. Initial qualification does not assure continued participation, and this service fee program may be amended or terminated by us at any time as indicated below. A. You agree to cooperate as requested with programs that we provide to enhance shareholder service. You also agree to assume an active role in providing shareholder services such as processing purchase and redemption transactions, establishing shareholder accounts, and providing certain information and assistance with respect to the Funds. Redemption levels of shareholder accounts assigned to you will be considered in evaluating your continued participation in this service fee program. B. You agree to support our marketing efforts by granting reasonable requests for visits to your offices by our wholesalers and, to the extent applicable, by including all Funds covered by this Agreement on your "approved" list. C. You agree to assign an individual to each shareholder account on your books and to reassign the account should that individual no longer be assigned to the account. You agree to instruct each such individual to regularly contact shareholders having accounts so assigned. D. You agree to pass through either directly or indirectly to the individual(s) assigned to such accounts a share of the service fees paid to you pursuant to this Agreement. You recognize that the service fee is intended to compensate the individual for providing, and encourage the individual to continue to provide, service to the account holder. E. You acknowledge that (i) all service fee payments are subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time, (ii) in order to receive a service fee for a particular quarter, the fee must amount to at least $100, and (iii) no service fees will be paid on shares purchased under the net asset value purchase privilege as described in the Funds' statements of additional information. F. On Class A, Class 529-A, Class B and Class 529-B shares of Funds listed in Category 1 and Category 2 on the attached Schedule A, we will pay you a quarterly service fee at the following annual rates, based on the average daily net asset value of Class A, Class 529-A, Class B and Class 529-B shares, respectively, that have been invested for 12 months and are held in an account assigned to you at the end of the quarter for which payment is made: ANNUAL SERVICE FEE RATE Shares with a first anniversary of purchase before 7-1-88* 0.15% Shares with a first anniversary of purchase on or after 7-1-88 0.25% Shares of state-specific tax-exempt funds 0.25% G. On Class A, Class 529-A, Class B and Class 529-B shares of Funds listed in Category 3 on the attached Schedule A, we will pay you a quarterly service fee at the following annual rates, based on the average daily net asset value of Class A, Class 529-A, Class B and Class 529-B shares, respectively, that have been invested for 12 months and are held in an account assigned to you at the end of the quarter for which payment is made: ANNUAL SERVICE FEE RATE All Shares 0.15% 5. COMPENSATION ON SALES OF CLASS C SHARES AND CLASS 529-C SHARES A. On sales of Class C shares and Class 529-C shares of Funds listed in Category 1 and Category 2 on the attached Schedule A that are accepted by us and for which you are responsible, we will pay you: - - a dealer concession of 0.75% of the amount invested, plus - - an immediate service fee of 0.25% of the amount invested. B. In addition, we will pay you ongoing compensation on a quarterly basis at the annual rate of 1.00% of the average daily net asset value of Class C shares and Class 529-C shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that have been invested for 12 months and are held in an account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. 6. COMPENSATION ON SALES OF CLASS 529-E SHARES We will pay you ongoing compensation on a quarterly basis at the annual rate of 0.50% of the average daily net asset value of Class 529-E shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that are held in an account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. 7. RETIREMENT PLAN SHARE CLASSES (R SHARES) AND ACCOUNT OPTIONS (FOR RETIREMENT PLANS ONLY) A. We will pay you ongoing compensation on a quarterly basis, at the applicable annual rate set forth below, of the average daily net asset value of R shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that are held in a retirement plan (Plan) account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. We expect that you will maintain one account for each of your Plan customers on the books of the Funds.
R SHARE CLASS ANNUAL COMPENSATION RATE Class R-1 1.00% Class R-2 0.75% Class R-3 0.50% Class R-4 0.25% Class R-5 No compensation paid
B. IF YOU HOLD PLAN ACCOUNTS IN AN OMNIBUS ACCOUNT (I.E., MULTIPLE PLANS IN ONE ACCOUNT ON THE BOOKS OF THE FUNDS), PLANS THAT ARE ADDED TO THE OMNIBUS ACCOUNT AFTER MAY 15, 2002 MAY INVEST ONLY IN R SHARES, AND YOU MUST EXECUTE AN OMNIBUS ADDENDUM TO THE SELLING GROUP AGREEMENT, WHICH YOU CAN OBTAIN BY CALLING OUR DEALER SUPPORT DEPARTMENT, EXTENSION 34222. 8. ORDER PROCESSING ANY ORDER BY YOU FOR THE PURCHASE OF SHARES OF THE RESPECTIVE FUNDS THROUGH US SHALL BE ACCEPTED AT THE TIME WHEN IT IS RECEIVED BY US (OR ANY CLEARINGHOUSE AGENCY THAT WE MAY DESIGNATE FROM TIME TO TIME), AND AT THE OFFERING AND SALE PRICE NEXT DETERMINED, UNLESS REJECTED BY US OR THE RESPECTIVE FUNDS. IN ADDITION TO THE RIGHT TO REJECT ANY ORDER, THE FUNDS HAVE RESERVED THE RIGHT TO WITHHOLD SHARES FROM SALE TEMPORARILY OR PERMANENTLY. WE WILL NOT ACCEPT ANY ORDER FROM YOU THAT IS PLACED ON A CONDITIONAL BASIS OR SUBJECT TO ANY DELAY OR CONTINGENCY PRIOR TO EXECUTION. THE PROCEDURE RELATING TO THE HANDLING OF ORDERS SHALL BE SUBJECT TO INSTRUCTIONS THAT WE SHALL FORWARD FROM TIME TO TIME TO ALL MEMBERS OF THE SELLING GROUP. THE SHARES PURCHASED WILL BE ISSUED BY THE RESPECTIVE FUNDS ONLY AGAINST RECEIPT OF THE PURCHASE PRICE, IN COLLECTED NEW YORK OR LOS ANGELES CLEARING HOUSE FUNDS SUBJECT TO DEDUCTION OF ALL CONCESSIONS ON SUCH SALE (REALLOWANCE OF ANY CONCESSIONS TO WHICH YOU ARE ENTITLED ON PURCHASES AT NET ASSET VALUE WILL BE PAID THROUGH OUR DIRECT PURCHASE CONCESSION SYSTEM). IF PAYMENT FOR THE SHARES PURCHASED IS NOT RECEIVED WITHIN THREE DAYS AFTER THE DATE OF CONFIRMATION THE SALE MAY BE CANCELLED FORTHWITH, BY US OR BY THE RESPECTIVE FUNDS, WITHOUT ANY RESPONSIBILITY OR LIABILITY ON OUR PART OR ON THE PART OF THE FUNDS, AND WE AND/OR THE RESPECTIVE FUNDS MAY HOLD YOU RESPONSIBLE FOR ANY LOSS, EXPENSE, LIABILITY OR DAMAGE, INCLUDING LOSS OF PROFIT SUFFERED BY US AND/OR THE RESPECTIVE FUNDS RESULTING FROM YOUR DELAY OR FAILURE TO MAKE PAYMENT AS AFORESAID. 9. TIMELINESS OF SUBMITTING ORDERS YOU ARE OBLIGED TO DATE AND INDICATE THE TIME OF RECEIPT OF ALL ORDERS YOU RECEIVE FROM YOUR CUSTOMERS AND TO TRANSMIT PROMPTLY ALL ORDERS TO US IN TIME TO PROVIDE FOR PROCESSING AT THE PRICE NEXT DETERMINED AFTER RECEIPT BY YOU, IN ACCORDANCE WITH THE PROSPECTUSES. YOU ARE NOT TO WITHHOLD PLACING WITH US ORDERS RECEIVED FROM ANY CUSTOMERS FOR THE PURCHASE OF SHARES. YOU SHALL NOT PURCHASE SHARES THROUGH US EXCEPT FOR THE PURPOSE OF COVERING PURCHASE ORDERS ALREADY RECEIVED BY YOU, OR FOR YOUR BONA FIDE INVESTMENT. 10. REPURCHASE OF SHARES IF ANY SHARE IS REPURCHASED BY ANY OF THE FUNDS OR IS TENDERED THERETO FOR REDEMPTION WITHIN SEVEN BUSINESS DAYS AFTER CONFIRMATION BY US OF THE ORIGINAL PURCHASE ORDER FROM YOU FOR SUCH SECURITY, YOU SHALL FORTHWITH REFUND TO US THE FULL CONCESSIONS PAID TO YOU ON THE ORIGINAL SALE. 11. PROCESSING REDEMPTION REQUESTS YOU SHALL NOT PURCHASE ANY SHARE OF ANY OF THE FUNDS FROM A RECORD HOLDER AT A PRICE LOWER THAN THE NET ASSET VALUE NEXT DETERMINED BY OR FOR THE FUNDS' SHARES. YOU SHALL, HOWEVER, BE PERMITTED TO SELL ANY SHARES FOR THE ACCOUNT OF A SHAREHOLDER OF THE FUNDS AT THE NET ASSET VALUE CURRENTLY QUOTED BY OR FOR THE FUNDS' SHARES, AND MAY CHARGE A FAIR SERVICE FEE FOR HANDLING THE TRANSACTION PROVIDED YOU DISCLOSE THE FEE TO THE RECORD OWNER. 12. PROSPECTUSES AND MARKETING MATERIALS WE SHALL FURNISH YOU WITHOUT CHARGE REASONABLE QUANTITIES OF OFFERING PROSPECTUSES (INCLUDING ANY SUPPLEMENTS CURRENTLY IN EFFECT), CURRENT SHAREHOLDER REPORTS OF THE FUNDS, AND SALES MATERIALS ISSUED BY US FROM TIME TO TIME. IN THE PURCHASE OF SHARES THROUGH US, YOU ARE ENTITLED TO RELY ONLY ON THE INFORMATION CONTAINED IN THE OFFERING PROSPECTUS(ES). YOU MAY NOT PUBLISH ANY ADVERTISEMENT OR DISTRIBUTE SALES LITERATURE OR OTHER WRITTEN MATERIAL TO THE PUBLIC THAT MAKES REFERENCE TO US OR ANY OF THE FUNDS (EXCEPT MATERIAL THAT WE FURNISHED TO YOU) WITHOUT OUR PRIOR WRITTEN APPROVAL. 13. EFFECT OF PROSPECTUS THIS AGREEMENT IS IN ALL RESPECTS SUBJECT TO STATEMENTS REGARDING THE SALE AND REPURCHASE OR REDEMPTION OF SHARES MADE IN OFFERING PROSPECTUSES OF THE FUNDS, AND TO THE APPLICABLE RULES OF THE NASD, WHICH SHALL CONTROL AND OVERRIDE ANY PROVISION TO THE CONTRARY IN THIS AGREEMENT. 14. RELATIONSHIP OF PARTIES YOU SHALL MAKE AVAILABLE SHARES OF THE FUNDS ONLY THROUGH US. IN NO TRANSACTION (WHETHER OF PURCHASE OR SALE) SHALL YOU HAVE ANY AUTHORITY TO ACT AS AGENT FOR, PARTNER OF, OR PARTICIPANT IN A JOINT VENTURE WITH US OR WITH THE FUNDS OR ANY OTHER ENTITY HAVING EITHER A SELLING GROUP AGREEMENT OR OTHER AGREEMENT WITH US. 15. STATE SECURITIES QUALIFICATION WE ACT SOLELY AS AGENT FOR THE FUNDS AND ARE NOT RESPONSIBLE FOR QUALIFYING THE FUNDS OR THEIR SHARES FOR SALE IN ANY JURISDICTION. UPON WRITTEN REQUEST WE WILL PROVIDE YOU WITH A LIST OF THE JURISDICTIONS IN WHICH THE FUNDS OR THEIR SHARES ARE QUALIFIED FOR SALE. WE ALSO ARE NOT RESPONSIBLE FOR THE ISSUANCE, FORM, VALIDITY, ENFORCEABILITY OR VALUE OF FUND SHARES. 16. REPRESENTATIONS A. YOU REPRESENT THAT (A) YOU ARE A PROPERLY REGISTERED OR LICENSED BROKER OR DEALER UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS AND ARE COMPLYING WITH AND WILL CONTINUE TO COMPLY WITH ALL APPLICABLE FEDERAL AND STATE LAWS, RULES AND REGULATIONS, (B) YOU ARE A MEMBER OF THE NASD, (C) YOUR MEMBERSHIP WITH THE NASD IS NOT CURRENTLY SUSPENDED OR TERMINATED AND (D) TO THE EXTENT YOU OFFER ANY CLASS 529 SHARES, YOU ARE PROPERLY REGISTERED TO OFFER SUCH SHARES. YOU AGREE TO NOTIFY US IMMEDIATELY IF ANY OF THE FOREGOING REPRESENTATIONS IS NO LONGER TRUE TO A MATERIAL EXTENT. B. WE REPRESENT THAT (A) WE ARE ACTING AS AN UNDERWRITER WITHIN THE MEANING OF THE APPLICABLE RULES OF THE NASD AND ARE COMPLYING WITH AND WILL CONTINUE TO COMPLY WITH ALL APPLICABLE FEDERAL AND STATE LAWS, RULES AND REGULATIONS, (B) WE ARE A MEMBER OF THE NASD AND (C) OUR MEMBERSHIP WITH THE NASD IS NOT CURRENTLY SUSPENDED OR TERMINATED. WE AGREE TO NOTIFY YOU IMMEDIATELY IF ANY OF THE FOREGOING REPRESENTATIONS IS NO LONGER TRUE TO A MATERIAL EXTENT. 17. CONFIDENTIALITY EACH PARTY TO THIS AGREEMENT AGREES TO MAINTAIN ALL INFORMATION RECEIVED FROM THE OTHER PARTY PURSUANT TO THIS AGREEMENT IN CONFIDENCE, AND EACH PARTY AGREES NOT TO USE ANY SUCH INFORMATION FOR ANY PURPOSE, OR DISCLOSE ANY SUCH INFORMATION TO ANY PERSON, EXCEPT AS PERMITTED BY APPLICABLE LAWS, RULES AND REGULATIONS. THIS PROVISION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT. 18. TERMINATION EITHER OF US MAY CANCEL THIS AGREEMENT AT ANY TIME BY WRITTEN NOTICE TO THE OTHER. 19. NOTICES ALL COMMUNICATIONS TO US SHOULD BE SENT TO THE ABOVE ADDRESS. ANY NOTICE TO YOU SHALL BE DULY GIVEN IF MAILED OR SENT BY OVERNIGHT COURIER TO YOU AT THE ADDRESS SPECIFIED BY YOU BELOW. * * * * * EXECUTE THIS AGREEMENT IN DUPLICATE AND RETURN ONE OF THE DUPLICATE ORIGINALS TO US FOR OUR FILE. THIS AGREEMENT (I) MAY BE AMENDED BY NOTIFICATION FROM US AND ORDERS RECEIVED FOLLOWING SUCH NOTIFICATION SHALL BE DEEMED TO BE AN ACCEPTANCE OF ANY SUCH AMENDMENT AND (II) SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. VERY TRULY YOURS, AMERICAN FUNDS DISTRIBUTORS, INC. BY KEVIN G. CLIFFORD PRESIDENT ACCEPTED FIRM BY PRINT NAME ____________________________________ TITLE __________________________________________ ADDRESS: DATE: SCHEDULE A MAY 15, 2002 (SUPERSEDES SCHEDULE A DATED JANUARY 1, 2002)
A B C 529-A 529-B 529-C 529-E CATEGORY 1 AMCAP FUND - - - - - - - AMERICAN BALANCED FUND - - - - - - - AMERICAN MUTUAL FUND - - - - - - - CAPITAL INCOME BUILDER - - - - - - - CAPITAL WORLD GROWTH - - - - - - - AND INCOME FUND EUROPACIFIC GROWTH FUND - - - - - - - FUNDAMENTAL INVESTORS - - - - - - - GROWTH FUND OF AMERICA - - - - - - - INCOME FUND OF AMERICA - - - - - - - INVESTMENT COMPANY OF AMERICA - - - - - - - NEW ECONOMY FUND - - - - - - - NEW PERSPECTIVE FUND - - - - - - - NEW WORLD FUND - - - - - - - SMALLCAP WORLD FUND - - - - - - - WASHINGTON MUTUAL INVESTORS FUND - - - - - - - CATEGORY 2 AMERICAN HIGH-INCOME TRUST - - - - - - - AMERICAN HIGH-INCOME MUNICIPAL - - - NA NA NA NA BOND FUND BOND FUND OF AMERICA - - - - - - - CAPITAL WORLD BOND FUND - - - - - - - INTERMEDIATE BOND FUND OF AMERICA - - - - - - - LIMITED TERM TAX-EXEMPT - - - NA NA NA NA BOND FUND OF AMERICA TAX-EXEMPT BOND FUND OF AMERICA - - - NA NA NA NA TAX-EXEMPT FUND OF CALIFORNIA - - - NA NA NA NA TAX-EXEMPT FUND OF MARYLAND - - - NA NA NA NA TAX-EXEMPT FUND OF VIRGINIA - - - NA NA NA NA U.S. GOVERNMENT SECURITIES FUND - - - - - - - CATEGORY 3 CASH MANAGEMENT TRUST OF AMERICA - X X - X X - TAX-EXEMPT MONEY FUND OF AMERICA - NA NA NA NA NA NA U.S. TREASURY MONEY FUND OF AMERICA - NA NA NA NA NA NA R-1 R-2 R-3 R-4 R-5 CATEGORY 1 AMCAP FUND - - - - - AMERICAN BALANCED FUND - - - - - AMERICAN MUTUAL FUND - - - - - CAPITAL INCOME BUILDER - - - - - CAPITAL WORLD GROWTH - - - - - AND INCOME FUND EUROPACIFIC GROWTH FUND - - - - - FUNDAMENTAL INVESTORS - - - - - GROWTH FUND OF AMERICA - - - - - INCOME FUND OF AMERICA - - - - - INVESTMENT COMPANY OF AMERICA - - - - - NEW ECONOMY FUND - - - - - NEW PERSPECTIVE FUND - - - - - NEW WORLD FUND - - - - - SMALLCAP WORLD FUND - - - - - WASHINGTON MUTUAL INVESTORS FUND - - - - - CATEGORY 2 AMERICAN HIGH-INCOME TRUST - - - - - AMERICAN HIGH-INCOME MUNICIPAL NA NA NA NA NA BOND FUND BOND FUND OF AMERICA - - - - - CAPITAL WORLD BOND FUND - - - - - INTERMEDIATE BOND FUND OF AMERICA - - - - - LIMITED TERM TAX-EXEMPT NA NA NA NA NA BOND FUND OF AMERICA TAX-EXEMPT BOND FUND OF AMERICA NA NA NA NA NA TAX-EXEMPT FUND OF CALIFORNIA NA NA NA NA NA TAX-EXEMPT FUND OF MARYLAND NA NA NA NA NA TAX-EXEMPT FUND OF VIRGINIA NA NA NA NA NA U.S. GOVERNMENT SECURITIES FUND - - - - - CATEGORY 3 CASH MANAGEMENT TRUST OF AMERICA - - - - - TAX-EXEMPT MONEY FUND OF AMERICA NA NA NA NA NA U.S. TREASURY MONEY FUND OF AMERICA - - - - -
NOTES AND SYMBOLS CLASS F AND CLASS 529-F SHARES ARE AVAILABLE PURSUANT TO A SEPARATE AGREEMENT. - - SHARE CLASS IS AVAILABLE. X SHARE CLASS IS AVAILABLE FOR EXCHANGES ONLY. NA SHARE CLASS IS NOT AVAILABLE. [logo - American Funds (sm)] AMERICAN FUNDS DISTRIBUTORS, INC. 333 South Hope Street Los Angeles, California 90071 Telephone 800/421-9900, ext. 4 Form of bank selling group agreement Ladies and Gentlemen: We have entered into a principal underwriting agreement with each Fund in The American Funds Group (Funds) under which we are appointed exclusive agent for the sale of shares. You have indicated that you wish to act as agent for your customers in connection with the purchase, sale and redemption of shares of the Funds as are qualified for sale in your state. We agree to honor your request, subject to the terms set forth below. In addition, we are the distributor of CollegeAmerica (Program), a college savings program as described in Section 529 of the Internal Revenue Code. 1. AUTHORIZATION In placing orders for the purchase and sale of shares of the Funds, you will be acting as agent for your customers. We shall execute transactions for each of your customers only upon your authorization, at the regular public price currently determined by the respective Funds in the manner described in their offering Prospectuses. The offering Prospectuses and this Agreement set forth the terms applicable to sales of shares of the Funds through you and all other representations or documents are subordinate. You understand that Class 529 shares of the Funds are available only as underlying investments through the Program. 2. COMPENSATION ON SALES OF CLASS A SHARES AND CLASS 529-A SHARES a. On each purchase order for Class A shares and Class 529-A shares of Funds listed in Category 1 on the attached Schedule A that is accepted by us and for which you are responsible, you will be paid compensation as follows:
PURCHASES COMPENSATION AS SALES CHARGE PERCENTAGE OF AS PERCENTAGE OFFERING PRICE OF OFFERING PRICE Less than $25,000 5.00% 5.75% $25,000 but less than $50,000 4.25% 5.00% $50,000 but less than $100,000 3.75% 4.50% $100,000 but less than $250,000 2.75% 3.50% $250,000 but less than $500,000 2.00% 2.50% $500,000 but less than $750,000 1.60% 2.00% $750,000 but less than 1.20% 1.50% $1,000,000 $1,000,000 or more See below None
B. On each purchase order for Class A shares and Class 529-A shares of Funds listed in Category 2 on the attached Schedule A that is accepted by us and for which you are responsible, you will be paid the same compensation indicated above except as follows:
PURCHASES COMPENSATION AS SALES CHARGE PERCENTAGE OF AS PERCENTAGE OFFERING PRICE OF OFFERING PRICE Less than $100,000 3.00% 3.75%
C.For purchase orders of Class A shares and Class 529-A shares for which you are responsible, a) amounting to $1 million or more, b) made to employer-sponsored defined contribution-type retirement plans that qualify to invest at net asset value under the terms of the Fund Prospectuses, or c) made at net asset value to endowments and foundations with assets of $50 million or more, you will be paid compensation of 1.00% on sales to $4 million, plus 0.50% on amounts over $4 million up to $10 million, plus 0.25% on amounts over $10 million. No compensation is paid on any other sales of shares at net asset value, except that compensation may be paid on sales of fund shares to accounts managed by affiliates of The Capital Group Companies, Inc. as set forth in this Agreement. Sales of shares of Washington Mutual Investors Fund below $1 million made in connection with certain accounts established before September 1, 1969 are subject to reduced compensation and sales charges as described in the Washington Mutual Investors Fund Prospectus. With respect to sales of shares of any tax-exempt fund, the compensation schedule for sales of shares to endowments and foundations or retirement plans of organizations with assets of $50 million or more is inapplicable. The schedules of sales charges above apply to single purchases, concurrent purchases of two or more of the Funds (except those listed in Category 3 on the attached Schedule A), and purchases made under a statement of intention and pursuant to the right of accumulation, both of which are described in the Prospectuses. D. On each purchase order for Class A shares and Class 529-A shares of Funds listed in Category 3 on the attached Schedule A, no compensation will be paid. 3. COMPENSATION ON SALES OF CLASS B SHARES AND CLASS 529-B SHARES A.On purchase orders for Class B shares and Class 529-B shares of Funds listed in Category 1 and Category 2 on the attached Schedule A that are accepted by us and for which you are responsible, you will be paid: - - compensation of 3.75% of the amount invested, plus - - an immediate service fee of 0.25% of the amount invested. B. On purchase orders for Class B shares and Class 529-B shares of Funds listed in Category 3 on the attached Schedule A, no compensation will be paid. 4. ONGOING SERVICE FEES FOR CLASS A, CLASS 529-A, CLASS B AND CLASS 529-B SHARES We are also authorized to pay you continuing service fees each quarter with respect to the Class A, Class 529-A, Class B and Class 529-B shares of all the Funds to compensate you for providing certain services to your clients, subject to your compliance with the following terms, which may be revised by us from time to time. Your eligibility to continue receiving this compensation will be evaluated periodically, and your failure to comply with the terms below may result in our discontinuing service fee payments to you. Initial qualification does not assure continued participation, and this service fee program may be amended or terminated by us at any time as indicated below. A. You agree to cooperate as requested with programs that we provide to enhance shareholder service. You also agree to assume an active role in providing shareholder services such as processing purchase and redemption transactions, establishing shareholder accounts, and providing certain information and assistance with respect to the Funds. Redemption levels of shareholder accounts assigned to you will be considered in evaluating your continued participation in this service fee program. B. You agree to support our marketing efforts by granting reasonable requests for visits to your offices by our wholesalers and, to the extent applicable, by including all Funds covered by this Agreement on your "approved" list. C. You agree to assign an individual to each shareholder account on your books and to reassign the account should that individual no longer be assigned to the account. You agree to instruct each such individual to regularly contact shareholders having accounts so assigned. D. You agree to pass through either directly or indirectly to the individual(s) assigned to such accounts a share of the service fees paid to you pursuant to this Agreement. You recognize that the service fee is intended to compensate the individual for providing, and encourage the individual to continue to provide, service to the account holder. E. You acknowledge that (i) all service fee payments are subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time, (ii) in order to receive a service fee for a particular quarter, the fee must amount to at least $100, and (iii) no service fees will be paid on shares purchased under the net asset value purchase privilege as described in the Funds' statements of additional information. F. On Class A, Class 529-A, Class B and Class 529-B shares of Funds listed in Category 1 and Category 2 on the attached Schedule A, we will pay you a quarterly service fee at the following annual rates, based on the average daily net asset value of Class A, Class 529-A, Class B and Class 529-B shares, respectively, that have been invested for 12 months and are held in an account assigned to you at the end of the quarter for which payment is made: ANNUAL SERVICE FEE RATE Shares with a first anniversary of purchase before 7-1-88* 0.15% Shares with a first anniversary of purchase on or after 7-1-88 0.25% Shares of state-specific tax-exempt funds 0.25% G. On Class A, Class 529-A, Class B and Class 529-B shares of Funds listed in Category 3 on the attached Schedule A, we will pay you a quarterly service fee at the following annual rates, based on the average daily net asset value of Class A, Class 529-A, Class B and Class 529-B shares, respectively, that have been invested for 12 months and are held in an account assigned to you at the end of the quarter for which payment is made: ANNUAL SERVICE FEE RATE All Shares 0.15% 5. COMPENSATION ON SALES OF CLASS C SHARES AND CLASS 529-C SHARES A. On purchase orders for Class C shares and Class 529-C shares of Funds listed in Category 1 and Category 2 on the attached Schedule A that are accepted by us and for which you are responsible, we will pay you: - - compensation of 0.75% of the amount invested, plus - - an immediate service fee of 0.25% of the amount invested. B. In addition, we will pay you ongoing compensation on a quarterly basis at the annual rate of 1.00% of the average daily net asset value of Class C shares and Class 529-C shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that have been invested for 12 months and are held in an account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. *Except U.S. Government Securities Fund, which pays service fees at the 0.25% rate on all shares held at least 12 months 6. COMPENSATION ON SALES OF CLASS 529-E SHARES We will pay you ongoing compensation on a quarterly basis at the annual rate of 0.50% of the average daily net asset value of Class 529-E shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that are held in an account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. 7. RETIREMENT PLAN SHARE CLASSES (R SHARES) AND ACCOUNT OPTIONS (FOR RETIREMENT PLANS ONLY) A. We will pay you ongoing compensation on a quarterly basis, at the applicable annual rate set forth below, of the average daily net asset value of R shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that are held in a retirement plan (Plan) account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. We expect that you will maintain one account for each of your Plan customers on the books of the Funds.
R SHARE CLASS ANNUAL COMPENSATION RATE Class R-1 1.00% Class R-2 0.75% Class R-3 0.50% Class R-4 0.25% Class R-5 No compensation paid
B. If you hold Plan accounts in an omnibus account (I.E., multiple Plans in one account on the books of the Funds), Plans that are added to the omnibus account after May 15, 2002 may invest only in R shares, and you must execute an Omnibus Addendum to the Selling Group Agreement, which you can obtain by calling our Dealer Support department, extension 34222. 8. ORDER PROCESSING Any order by you for the purchase of shares of the respective Funds through us shall be accepted at the time when it is received by us (or any clearinghouse agency that we may designate from time to time), and at the offering and sale price next determined, unless rejected by us or the respective Funds. In addition to the right to reject any order, the Funds have reserved the right to withhold shares from sale temporarily or permanently. We will not accept any order from you that is placed on a conditional basis or subject to any delay or contingency prior to execution. The procedure relating to the handling of orders shall be subject to instructions that we shall forward from time to time to all members of the Selling Group. The shares purchased will be issued by the respective Funds only against receipt of the purchase price, in collected New York or Los Angeles Clearing House funds subject to deduction of all compensation on such sale (reallowance of any compensation to which you are entitled on purchases at net asset value will be paid through our direct purchase compensation system). If payment for the shares purchased is not received within three days after the date of confirmation the sale may be cancelled forthwith, by us or by the respective Funds, without any responsibility or liability on our part or on the part of the Funds, and we and/or the respective Funds may hold you responsible for any loss, expense, liability or damage, including loss of profit suffered by us and/or the respective Funds resulting from your delay or failure to make payment as aforesaid. 9. TIMELINESS OF SUBMITTING ORDERS You are obliged to date and indicate the time of receipt of all orders you receive from your customers and to transmit promptly all orders to us in time to provide for processing at the price next determined after receipt by you, in accordance with the Prospectuses. You are not to withhold placing with us orders received from any customers for the purchase of shares. You shall not purchase shares through us except for the purpose of covering purchase orders already received by you, or for your bona fide investment. 10. REPURCHASE OF SHARES If any share is repurchased by any of the Funds or is tendered thereto for redemption within seven business days after confirmation by us of the original purchase order from you for such security, you shall forthwith refund to us the full compensation paid to you on the original sale. 11. PROCESSING REDEMPTION REQUESTS You shall not purchase any share of any of the Funds from a record holder at a price lower than the net asset value next determined by or for the Funds' shares. You shall, however, be permitted to sell any shares for the account of a shareholder of the Funds at the net asset value currently quoted by or for the Funds' shares, and may charge a fair service fee for handling the transaction provided you disclose the fee to the record owner. 12. PROSPECTUSES AND MARKETING MATERIALS We shall furnish you without charge reasonable quantities of offering Prospectuses (including any supplements currently in effect) current shareholder reports of the Funds, and sales materials issued by us from time to time. In the purchase of shares through us, you are entitled to rely only on the information contained in the offering Prospectus(es). You may not publish any advertisement or distribute sales literature or other written material to the public that makes reference to us or any of the Funds (except material that we furnished to you) without our prior written approval. 13. EFFECT OF PROSPECTUS This Agreement is in all respects subject to statements regarding the sale and repurchase or redemption of shares made in offering Prospectuses of the Funds, which shall control and override any provision to the contrary in this Agreement. 14. RELATIONSHIP OF PARTIES You shall make available shares of the Funds only through us. In no transaction (whether of purchase or sale) shall you have any authority to act as agent for, partner of, or participant in a joint venture with us or with the Funds or any other entity having either a Bank Selling Group Agreement or other Agreement with us. 15. STATE SECURITIES QUALIFICATION We act solely as agent for the Funds and are not responsible for qualifying the Funds or their shares for sale in any jurisdiction. Upon written request we will provide you with a list of the jurisdictions in which the Funds or their shares are qualified for sale. We also are not responsible for the issuance, form, validity, enforceability or value of Fund shares. 16. REPRESENTATIONS A. You represent that (1) you are (a) a properly registered or licensed broker or dealer under applicable federal and state securities laws and regulations, a member of the National Association of Securities Dealers, Inc. (NASD), and your membership with the NASD is not currently suspended or terminated or (b) a "bank" as defined in Section 3(a)(6) of the Securities Exchange Act of 1934 (or other financial institution) and not otherwise required to register as a broker or dealer under such Act or any state laws; (2) you are complying with and will continue to comply with all applicable federal and state laws, rules and regulations; and (3) to the extent you offer any Class 529 shares, you are permitted by applicable law to offer such shares. You agree to notify us immediately if any of the foregoing representations is no longer true to a material extent. You also agree that, if you are a bank or other financial institution as set forth above, you will comply with the applicable rules of the NASD, that you will maintain adequate records with respect to your customers and their transactions, and that such transactions will be without recourse against you by your customers. We recognize that, in addition to applicable provisions of state and federal securities laws, you may be subject to the provisions of other laws governing, among other things, the conduct of activities by federal and state-chartered and supervised financial institutions and their affiliated organizations. Because you will be the only entity having a direct relationship with the customer in connection with securities purchases hereunder, you will be responsible in that relationship for insuring compliance with all applicable federal and state laws, rules and regulations relating to securities purchases hereunder. B. We represent that (a) we are acting as an underwriter within the meaning of the applicable rules of the NASD and are complying with and will continue to comply with all applicable federal and state laws, rules and regulations, (b) we are a member of the NASD and (c) our membership with the NASD is not currently suspended or terminated. We agree to notify you immediately if any of the foregoing representations is no longer true to a material extent. 17. CONFIDENTIALITY Each party to this Agreement agrees to maintain all information received from the other party pursuant to this Agreement in confidence, and each party agrees not to use any such information for any purpose, or disclose any such information to any person, except as permitted by applicable laws, rules and regulations. This provision shall survive the termination of this Agreement. 18. TERMINATION Either of us may cancel this Agreement at any time by written notice to the other. 19. NOTICES All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or sent by overnight courier to you at the address specified by you below. * * * * * Execute this Agreement in duplicate and return one of the duplicate originals to us for our file. This Agreement (i) may be amended by notification from us and orders received following such notification shall be deemed to be an acceptance of any such amendment and (ii) shall be construed in accordance with the laws of the State of California. Very truly yours, American Funds Distributors, Inc. By Kevin G. Clifford President Accepted Firm By Print Name _____________________________________ Title __________________________________________ Address: Date: Schedule A May 15, 2002 (supersedes Schedule A dated January 1, 2002)
A B C 529-A 529-B 529-C 529-E CATEGORY 1 AMCAP Fund - - - - - - - American Balanced Fund - - - - - - - American Mutual Fund - - - - - - - Capital Income Builder - - - - - - - Capital World Growth - - - - - - - and Income Fund EuroPacific Growth Fund - - - - - - - Fundamental Investors - - - - - - - Growth Fund of America - - - - - - - Income Fund of America - - - - - - - Investment Company of America - - - - - - - New Economy Fund - - - - - - - New Perspective Fund - - - - - - - New World Fund - - - - - - - SMALLCAP World Fund - - - - - - - Washington Mutual Investors Fund - - - - - - - CATEGORY 2 American High-Income Trust - - - - - - - American High-Income - - - na na na na Municipal Bond Fund Bond Fund of America - - - - - - - Capital World Bond Fund - - - - - - - Intermediate Bond Fund of America - - - - - - - Limited Term Tax-Exempt - - - na na na na Bond Fund of America Tax-Exempt Bond Fund of America - - - na na na na Tax-Exempt Fund of California - - - na na na na Tax-Exempt Fund of Maryland - - - na na na na Tax-Exempt Fund of Virginia - - - na na na na U.S. Government Securities Fund - - - - - - - CATEGORY 3 Cash Management Trust of America - X X - X X - Tax-Exempt Money Fund of America - na na na na na na U.S. Treasury Money - na na na na na na Fund of America R-1 R-2 R-3 R-4 R-5 CATEGORY 1 AMCAP Fund - - - - - American Balanced Fund - - - - - American Mutual Fund - - - - - Capital Income Builder - - - - - Capital World Growth - - - - - and Income Fund EuroPacific Growth Fund - - - - - Fundamental Investors - - - - - Growth Fund of America - - - - - Income Fund of America - - - - - Investment Company of America - - - - - New Economy Fund - - - - - New Perspective Fund - - - - - New World Fund - - - - - SMALLCAP World Fund - - - - - Washington Mutual Investors Fund - - - - - CATEGORY 2 American High-Income Trust - - - - - American High-Income na na na na na Municipal Bond Fund Bond Fund of America - - - - - Capital World Bond Fund - - - - - Intermediate Bond Fund of America - - - - - Limited Term Tax-Exempt na na na na na Bond Fund of America Tax-Exempt Bond Fund of America na na na na na Tax-Exempt Fund of California na na na na na Tax-Exempt Fund of Maryland na na na na na Tax-Exempt Fund of Virginia na na na na na U.S. Government Securities Fund - - - - - CATEGORY 3 Cash Management Trust of America - - - - - Tax-Exempt Money Fund of America na na na na na U.S. Treasury Money - - - - - Fund of America
NOTES AND SYMBOLS CLASS F AND CLASS 529-F SHARES ARE AVAILABLE PURSUANT TO A SEPARATE AGREEMENT. - - SHARE CLASS IS AVAILABLE. X SHARE CLASS IS AVAILABLE FOR EXCHANGES ONLY. na SHARE CLASS IS NOT AVAILABLE. [LOGO - AMERICAN FUNDS (SM)] AMERICAN FUNDS DISTRIBUTORS, INC. 333 South Hope Street Los Angeles, California 90071 Telephone 800/421-9900, ext. 4 Form of omnibus addendum to the Selling group agreement (for retirement plan share classes (R shares) only) Ladies and Gentlemen: This Omnibus Addendum (Addendum) to the Selling Group Agreement (Agreement/1/) into which we previously entered is made by and between you and American Funds Distributors, Inc. as of the date indicated below. This Addendum constitutes the agreement between you and us in respect of your holding retirement plan (Plan) accounts in an omnibus account on the books of the Funds. All terms of the Agreement and of addenda to the Agreement dated on or prior to the date of this Addendum continue in full force and effect. If any provision of the Agreement or any addenda to the Agreement is inconsistent with this Addendum, this Addendum shall supersede such other provisions. REQUIREMENTS TO MAINTAIN RETIREMENT PLAN OMNIBUS ACCOUNTS A. In order for you to hold Plan accounts in an omnibus account on the books of the Funds, you agree to provide us with the following information, current as of the end of each calendar month, and in a manner and format satisfactory to us, for each Plan account in the omnibus account within fifteen (15) calendar days following the end of such month: 1. Plan's name 2. Selling representative's name 3. Selling representative's number 4. Selling representative's street address, city, state and zip code 5. Selling representative's branch number 6. Name of selling representative's affiliated firm 7. Dollar amount of investments to American Funds during the month (Include investments from mapped takeover assets, participant contributions and employer contributions. Do not include participant-initiated transactions that result in (i) asset movement between American Funds or (ii) investments to American Funds from other mutual fund families.) 8. Dollar amount of redemptions from American Funds during the month (Include redemptions or distributions due to a participant's separation of service or the removal of an American Fund as an investment option within the Plan. Do not include participant-initiated transactions that result in (i) asset movement between American Funds or (ii) asset movement from American Funds to other mutual fund families.) Please note that if you are an institution that conducts retirement plan business through only one branch and has no representatives (such as a bank), then you are required to provide only the information listed in items 1, 7 and 8 above. /1/ Agreement means the Selling Group Agreement, Bank Selling Group Agreement, or Institutional Selling Group Agreement, as the case may be, into which we previously entered. B. If you provide third parties with trading or clearing services, you may not give such third parties access to the Funds without our written consent. Should you hold Plan accounts in an omnibus account, failure to comply with the requirements set forth above will constitute a breach of the Agreement, thereby giving us the right to terminate the Agreement. * * * * * Execute this Addendum in duplicate and return one of the duplicate originals to us for our file. This Addendum (i) may be amended by notification from us and orders received following such notification shall be deemed to be an acceptance of any such amendment and (ii) shall be construed in accordance with the laws of the State of California. Very truly yours, American Funds Distributors, Inc. By Kevin G. Clifford President Accepted Firm By Officer or Partner Address: Date: [logo - American Funds Distributors (r)] AMERICAN FUNDS DISTRIBUTORS 333 South Hope Street Los Angeles, California 90071 Telephone 800/421-9900, ext. 4 INSTITUTIONAL SELLING GROUP AGREEMENT Ladies and Gentlemen: We have entered into a principal underwriting agreement with each Fund in The American Funds Group (Funds) under which we are appointed exclusive agent for the sale of shares. You have indicated that you wish to act as agent for your customers in connection with the purchase, sale and redemption of shares of the Funds as are qualified for sale in your state. We agree to honor your request, subject to the terms of this Selling Group Agreement (Agreement) set forth below. 1. AUTHORIZATION As a member of a group of firms authorized to make shares of the Funds available to institutional customers (Selling Group), you will make shares of the Funds available only to retirement plans of entities that have retirement plan assets of at least $50 million (Plans). In placing orders for the purchase and sale of shares of the Funds, you will be acting as agent for your customers. We shall execute transactions for each of your customers only upon your authorization, at the regular public price currently determined by the respective Funds in the manner described in their offering prospectuses (Prospectuses). This Agreement on your part runs to us and to the respective Funds and is for the benefit of and enforceable by each. The offering Prospectuses and this Agreement set forth the terms applicable to sales of shares of the Funds through you and all other representations or documents are subordinate. 2. COMPENSATION ON CLASS A SHARES In consideration of your acting as agent for your customers in connection with the purchase and redemption of Fund shares and to compensate you for providing certain services to your customers, we will pay you compensation as described below, subject to your compliance with the following terms. Your eligibility to continue receiving this compensation will be evaluated periodically, and your failure to comply with the terms below may result in our discontinuing ongoing payments to you. Initial qualification does not assure continued participation, and the payment of this compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued by us at any time. a. You agree to cooperate as requested with programs that we provide to enhance shareholder service. You also agree to assume an active role in providing shareholder services such as processing purchase and redemption transactions, establishing shareholder accounts, and providing certain information and assistance with respect to the Funds. May 2002 b. You agree to support our marketing efforts by granting reasonable requests for visits to your offices by our wholesalers and, to the extent applicable, by including all Funds covered by this Agreement on your "approved" list. c. You agree to assign an individual to each Plan account on your books and to reassign the account should that individual no longer be assigned to the account. You agree to instruct each such individual to regularly contact shareholders having accounts so assigned. d. You agree to pass through either directly or indirectly to the individual(s) assigned to such accounts a share of the compensation paid to you pursuant to this Agreement. You recognize that payments under this Agreement are intended to compensate the individual for providing, and encourage the individual to continue to provide, service to the account holder. e. You acknowledge that (i) all compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time, (ii) in order to receive a payment for a particular month, the payment must amount to at least $100, and (iii) no compensation will be paid on shares purchased under the net asset value purchase privilege as described in the Funds' statements of additional information. f. You will be paid a monthly fee in respect of Class A shares of Funds held in accounts that are assigned to you. The fee shall be the product of the average daily net asset value of Class A shares of Funds in Category 1 and Category 2 on the attached Schedule A held in such accounts for the applicable month multiplied by one-twelfth of 0.25%. The rate for Class A shares of Funds in Category 3 on the attached Schedule A shall be one-twelfth of 0.15%. 3. RETIREMENT PLAN SHARE CLASSES (R SHARES) AND ACCOUNT OPTIONS (FOR RETIREMENT PLANS ONLY) a. We will pay you ongoing compensation on a quarterly basis, at the applicable annual rate set forth below, of the average daily net asset value of R shares of Funds listed in Category 1, Category 2 and Category 3 on the attached Schedule A that are held in a Plan account assigned to you at the end of the quarter for which payment is made. The payment of this ongoing compensation is subject to the limitations contained in each Fund's Plan of Distribution and may be varied or discontinued at any time. We expect that you will maintain one account for each of your Plan customers on the books of the Funds.
R SHARE CLASS ANNUAL COMPENSATION RATE Class R-1 1.00% Class R-2 0.75% Class R-3 0.50% Class R-4 0.25% Class R-5 No compensation paid
b. If you hold Plan accounts in an omnibus account (I.E., multiple Plans in one account on the books of the Funds), Plans that are added to the omnibus account after May 15, 2002 may invest only in R shares, and you must execute an Omnibus Addendum to the Selling Group Agreement, which you can obtain by calling our Dealer Support department, extension 34222. 4. ORDER PROCESSING Any order by you for the purchase of shares of the respective Funds through us shall be accepted at the time when it is received by us (or any clearinghouse agency that we may designate from time to time), and at the offering and sale price next determined, unless rejected by us or the respective Funds. In addition to the right to reject any order, the Funds have reserved the right to withhold shares from sale temporarily or permanently. We will not accept any order from you that is placed on a conditional basis or subject to any delay or contingency prior to execution. The procedure relating to the handling of orders shall be subject to instructions that we shall forward from time to time to all members of the Selling Group. The shares purchased will be issued by the respective Funds only against receipt of the purchase price, in collected New York or Los Angeles Clearing House funds. If payment for the shares purchased is not received within three days after the date of confirmation the sale may be cancelled forthwith, by us or by the respective Funds, without any responsibility or liability on our part or on the part of the Funds, and we and/or the respective Funds may hold you responsible for any loss, expense, liability or damage, including loss of profit suffered by us and/or the respective Funds, resulting from your delay or failure to make payment as aforesaid. If this section conflicts with provisions of any operational agreement you have with any of our affiliates, such operational agreement shall control. 5. TIMELINESS OF SUBMITTING ORDERS You are obliged to date and indicate the time of receipt of all orders you receive from your customers and to transmit promptly all orders to us in time to provide for processing at the price next determined after receipt by you, in accordance with the Prospectuses. You are not to withhold placing with us orders received from any customers for the purchase of shares. You shall not purchase shares through us except for the purpose of covering purchase orders already received by you, or for your bona fide investment. 6. REPURCHASE OF SHARES If any share is repurchased by any of the Funds or is tendered thereto for redemption within seven business days after confirmation by us of the original purchase order from you for such security, you shall forthwith refund to us the full compensation paid to you on the original sale. 7. PROCESSING REDEMPTION REQUESTS You shall not purchase any share of any of the Funds from a record holder at a price lower than the net asset value next determined by or for the Funds' shares. You shall, however, be permitted to sell any shares for the account of a shareholder of the Funds at the net asset value currently quoted by or for the Funds' shares, and may charge a fair service fee for handling the transaction provided you disclose the fee to the record owner. 8. PROSPECTUSES AND MARKETING MATERIALS We shall furnish you without charge reasonable quantities of offering Prospectuses (including any supplements currently in effect), current shareholder reports of the Funds, and sales materials issued by us from time to time. In the purchase of shares through us, you are entitled to rely only on the information contained in the offering Prospectus(es). You may not publish any advertisement or distribute sales literature or other written material to the public that makes reference to us or any of the Funds (except material that we furnished to you) without our prior written approval. 9. EFFECT OF PROSPECTUS This Agreement is in all respects subject to statements regarding the sale and repurchase or redemption of shares made in offering Prospectuses of the Funds, which shall control and override any provision to the contrary in this Agreement. 10. RELATIONSHIP OF PARTIES You shall make available shares of the Funds only through us. In no transaction (whether of purchase or sale) shall you have any authority to act as agent for, partner of, or participant in a joint venture with us or with the Funds or any other entity having either a Selling Group Agreement or other agreement with us. 11. STATE SECURITIES QUALIFICATION We act solely as agent for the Funds and are not responsible for qualifying the Funds or their shares for sale in any jurisdiction. Upon written request we will provide you with a list of the jurisdictions in which the Funds or their shares are qualified for sale. We also are not responsible for the issuance, form, validity, enforceability or value of Fund shares. 12. REPRESENTATIONS a. You represent that you are (a) a properly registered or licensed broker or dealer under applicable federal and state securities laws and regulations and are complying with and will continue to comply with all applicable federal and state laws, rules and regulations; a member of the National Association of Securities Dealers, Inc. (NASD); and your membership with the NASD is not currently suspended or terminated; or (b) a "bank" as defined in Section 3(a)(6) of the Securities Exchange Act of 1934 (or other financial institution) and not otherwise required to register as a broker or dealer under such Act or any state laws. You agree to notify us immediately in writing if any of the foregoing representations ceases to be true to a material extent. You also agree that, if you are a bank or other financial institution as set forth above, you will comply with the applicable rules of the NASD, that you will maintain adequate records with respect to your customers and their transactions, and that such transactions will be without recourse against you by your customers. We recognize that, in addition to applicable provisions of state and federal securities laws, you may be subject to the provisions of other laws governing, among other things, the conduct of activities by federal- and state-chartered and supervised financial institutions and their affiliated organizations. Because you will be the only entity having a direct relationship with the customer in connection with securities purchases hereunder, you will be responsible in that relationship for ensuring compliance with all applicable federal and state laws, rules and regulations relating to securities purchases hereunder. b. We represent that (a) we are acting as an underwriter within the meaning of the applicable rules of the NASD and are complying with and will continue to comply with all applicable federal and state laws, rules and regulations, (b) we are a member of the NASD and (c) our membership with the NASD is not currently suspended or terminated. We agree to notify you immediately in writing if any of the foregoing representations ceases to be true to a material extent. 13. CONFIDENTIALITY Each party to this Agreement agrees to maintain all information received from the other party pursuant to this Agreement in confidence, and each party agrees not to use any such information for any purpose, or disclose any such information to any person, except as permitted by applicable laws, rules and regulations. This provision shall survive the termination of this Agreement. 14. TERMINATION Either of us may cancel this Agreement at any time by written notice to the other. 15. NOTICES All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or sent by overnight courier to you at the address specified by you below. * * * * * Execute this Agreement in duplicate and return one of the duplicate originals to us for our file. This Agreement (i) may be amended by notification from us and orders received following such notification shall be deemed to be an acceptance of any such amendment and (ii) shall be construed in accordance with the laws of the State of California. Accepted: Firm By Officer or Partner ___________________________________ Print Name ___________________________________ Title Very truly yours, AMERICAN FUNDS DISTRIBUTORS, INC. By Kevin G. Clifford President Address: Date: SCHEDULE A January 15, 2001 (supersedes Schedule A dated May 3, 1999)
CATEGORY 1 CATEGORY 2 AMCAP FUND AMCAP FUND AMERICAN BALANCED FUND BOND FUND OF AMERICA AMERICAN MUTUAL FUND CAPITAL WORLD BOND FUND CAPITAL INCOME BUILDER INTERMEDIATE BOND FUND OF AMERICA CAPITAL WORLD GROWTH AND INCOME FUND U.S. GOVERNMENT SECURITIES FUND EUROPACIFIC GROWTH FUND FUNDAMENTAL INVESTORS GROWTH FUND OF AMERICA INCOME FUND OF AMERICA INVESTMENT COMPANY OF AMERICA NEW ECONOMY FUND NEW PERSPECTIVE FUND NEW WORLD FUND SMALLCAP WORLD FUND WASHINGTON MUTUAL INVESTORS FUND CATEGORY 3 Cash Management Trust of America U.S. Treasury Money Fund of America
EX-99.G CUST AGREEMT 5 gchase.txt GLOBAL CUSTODY AGREEMENT This AGREEMENT is effective as of June 29, 2001, and is between THE CHASE MANHATTAN BANK ("Bank") and each of the investment companies and other pooled investment vehicles (which may be organized as corporations, business or other trusts, limited liability companies, partnerships or other entities) managed by Capital Research and Management Company and listed on Appendix A hereto, as such Appendix may be amended from time to time (each a "Customer"). WHEREAS, each Customer is or may be organized with one or more series of shares, each of which shall represent an interest in a separate investment portfolio of cash, securities and other assets; WHEREAS, each Customer desires to appoint, in accordance with the provisions of the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder, Bank as custodian on behalf of itself or those of its existing or additional series of shares that are also listed on Appendix A hereto (each such listed investment portfolio being referred to hereinafter as a "Portfolio"), and Bank has agreed to act as custodian for the Portfolios under the terms and conditions hereinafter set forth; WHEREAS, for administrative purposes only, each Customer wishes to evidence its individual agreement with Bank in a single instrument, notwithstanding each Customer's intention to be separately bound; NOW THEREFORE, Bank and each Customer agree as follows: 1. APPOINTMENT OF CUSTODIAN; CUSTOMER ACCOUNTS. Customer hereby appoints Bank as its custodian for each Portfolio. Bank hereby accepts such appointment. Bank, acting as "Securities Intermediary" (as defined in Section 2 hereof) shall establish and maintain the following accounts in the name of Customer on behalf of each Portfolio: (a) a Custody Account for Securities and other Financial Assets (as such terms are defined in Section 2 hereof); (b) an account ("Deposit Account") for any and all cash in any currency received by Bank or its Subcustodian for the account of the Portfolio, which cash shall not be subject to withdrawal by draft or check; and (c) upon Instructions from Customer, an account ("Transaction Account") for a given Portfolio for U.S. dollar cash movements not related to Securities and other Financial Assets held in the Custody Account or the Deposit Account, with cash in such Account to be used by Chase to fund withdrawals by draft or check as determined by Customer. Customer warrants its authority on behalf of each Portfolio to: (i) deposit the Financial Assets and cash (collectively, "Assets") received in the Custody Account or the Deposit Account, as the case may be (collectively, "Accounts") and (ii) give Instructions concerning the Accounts and such Instructions shall be clear as to which Portfolio they relate. Bank may deliver Financial Assets of the same class in place of those deposited in the Custody Account. Bank shall be accountable under the terms of this agreement to the Customer for all Assets held in the Accounts and shall take prompt and appropriate action to remedy any discrepancies with respect to such Assets. Upon written agreement between Bank and Customer, additional Accounts may be established and separately accounted for as additional Accounts hereunder. 2. DEFINITIONS. As used herein, the following terms shall have the following respective meanings: (a) "Affiliate" shall mean an entity controlling, controlled by, or under common control with, another entity. (b) "Authorized Person" shall mean an employee or agent (including an investment manager) designated by prior written notice from Customer or its designated agent to act on behalf of Customer hereunder. Such persons shall continue to be Authorized Persons until such time as Bank receives Instructions from Customer or its designated agent that any such employee or agent is no longer an Authorized Person. (c) "Certificated Security" shall mean a Security that is represented by a certificate. (d) "Custody Account" shall mean each custody account on Bank's records to which Financial Assets are or may be credited pursuant hereto. (e) "Eligible Foreign Custodian" shall have the meaning assigned thereto in Rule 17f-5 (and shall include any entity qualifying as such pursuant to an exemption, rule or other appropriate action of the U.S. Securities and Exchange Commission). (f) "Eligible Securities Depository" shall have the meaning assigned thereto in Rule 17f-7 (and shall include any entity qualifying as such pursuant to an exemption, rule or other appropriate action of the U.S. Securities and Exchange Commission). (g) "Eligible Contract" shall mean a currently effective written contract between Bank and a Subcustodian satisfying the requirements of paragraph (c)(2) of Rule 17f-5 (including any amendments thereto or successor provisions). (h) "Entitlement Holder" shall mean the person on the records of a Securities Intermediary as the person having a Securities Entitlement against the Securities Intermediary. (i) "Financial Asset" shall have the meaning assigned thereto in Article 8 of the Uniform Commercial Code, which, as of the date hereof, generally means: (i) a Security; (ii) an obligation of a person or a share, participation or other interest in a person or property or enterprise of a person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment; or (iii) any property that is held by a Securities Intermediary for another person in a Securities account if the Securities Intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under Article 8 of the Uniform Commercial Code. As the context requires, the term means either the interest itself or the means by which a person's claim to it is evidenced, including a Certificated Security or an Uncertificated Security, a Security certificate, or a Security Entitlement. Financial Asset shall in no event mean cash. (j) "Foreign Assets" shall have the meaning assigned thereto under Rule 17f-5, which, as of the date hereof, means any investments (including foreign currencies) for which the primary market is outside the United States, and any cash and cash equivalents that are reasonably necessary to effect Customer's transactions in those investments. (k) "Instructions" shall mean instructions of any Authorized Person received by Bank, via telephone, telex, facsimile transmission, bank wire or other teleprocess or electronic instruction or trade information system (which may include Internet-based systems involving appropriate testing and authentication) acceptable to Bank which Bank believes in good faith to have been given by, or under the direction of, Authorized Persons. The term "Instructions" includes, without limitation, instructions to sell, assign, transfer, deliver, purchase or receive for the Custody Account, any and all stocks, bonds and other Financial Assets or to transfer funds in the Deposit Account. (l) "Local Practice" shall mean the customary securities trading or securities processing practices and procedures generally accepted by Institutional Investors in the jurisdiction or market in which the transaction occurs, including, without limitation: (i) delivering Financial Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such securities from such purchaser or dealer; (ii) delivering cash to a seller or a dealer (or an agent for such seller or dealer) against expectation of receiving later delivery of purchased Financial Assets; or (iii) in the case of a purchase or sale effected through a securities system, in accordance with the rules governing the operation of such system. (m) "Institutional Investor" shall mean a major commercial bank, corporation, insurance company, or substantially similar institution, which, as a substantial part of its business operations, purchases and sells Financial Assets and makes use of global custodial services. (n) "Riders" shall have the meaning assigned thereto in Section 16(f) of this Agreement. (o) "Rule 17f-5" shall mean rule 17f-5 under the 1940 Act, including any amendments thereto or successor rules. (p) "Rule 17f-7" shall mean rule 17f-7 under the 1940 Act, including any amendments thereto or successor rules. (q) "Security" shall have the meaning assigned thereto in Article 8 of the Uniform Commercial Code, which, as of the date hereof, generally means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer: (i) which is represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer; (ii) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations; and (iii) which: (A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or (B) is a medium for investment and by its terms expressly provides that it is a security governed by Article 8 of the Uniform Commercial Code. (r) "Securities Entitlement" shall mean the rights and property interest of an Entitlement Holder with respect to a Financial Asset as set forth in Part 5 of Article 8 of the Uniform Commercial Code. (s) "Securities Intermediary" shall have the meaning assigned thereto in Article 8 of the Uniform Commercial Code, which, as of the date hereof, means Bank, a Subcustodian, a securities depository, clearing corporation or any other person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. (t) "Uncertificated Security" shall mean a Security that is not represented by a certificate. (u) "Uniform Commercial Code" shall mean the Uniform Commercial Code of the State of New York, as amended from time to time. 3. MAINTENANCE OF FINANCIAL ASSETS AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS. Unless Instructions specifically require another location reasonably acceptable to Bank: (a) Financial Assets shall be held in the country or other jurisdiction in which the principal trading market for such Financial Assets is located, where such Financial Assets are to be presented for payment or where such Financial Assets are acquired; and (b) Cash shall be credited to an account in a country or other jurisdiction in which such cash may be legally deposited or is the legal currency for the payment of public or private debts. Cash may be held pursuant to Instructions in either interest or non-interest bearing accounts as may be available for the particular currency. To the extent Instructions are issued and Bank can comply with such Instructions, Bank is authorized to maintain cash balances on deposit for Customer with itself (or its Affiliates, in accordance with applicable law and regulation), at such reasonable rates of interest as may from time to time be paid on such accounts, or in non-interest bearing accounts as Customer may direct, if acceptable to Bank. If Customer wishes to have any Foreign Assets belonging to one or more Portfolios held in the custody of an institution other than the established Subcustodians as defined in Section 4 (or an Eligible Securities Depository listed on Schedule B hereto), such arrangement must be authorized by a written agreement, signed by Bank and Customer. 4. SUBCUSTODIANS. (a) Bank may act under the Agreement through the subcustodians with which Bank has entered into Eligible Contracts and which are listed on Schedule A attached hereto ("Subcustodians"). Bank reserves the right, exercising reasonable discretion, to amend Schedule A from time to time. Any such amendment shall be effective upon 45 calendar days' notice to Customer in accordance with the Agreement. (b) Bank hereby represents to Customer that each Subcustodian is an Eligible Foreign Custodian. If Schedule A is amended to add one or more Subcustodians, this representation shall be effective as to the amended Schedule on the date of such amendment. Bank shall promptly advise Customer if any Subcustodian ceases to be an Eligible Foreign Custodian. (c) Customer authorizes Bank to hold Assets belonging to each Portfolio in accounts that Bank has established with one or more of its branches or such Subcustodians, provided that, in the case of an Eligible Foreign Custodian, Customer's Foreign Custody Manager has made the determinations required by Rule 17f-5 with respect to the Portfolio's Foreign Assets to be held by such Subcustodian. If Bank is not acting as Foreign Custody Manager for the relevant Portfolio at such time, Customer shall give Bank appropriate notice of such determinations. 5. APPOINTMENT AS FOREIGN CUSTODY MANAGER. Customer hereby appoints Bank as its Foreign Custody Manager for each Portfolio in accordance with Rule 17f-5. Bank hereby accepts such appointment. Customer and Bank shall act in conformity with such rule (including any amendments thereto or successor provisions) for as long as Bank acts as Customer's Foreign Custody Manager. Bank's appointment as Foreign Custody Manager for a Portfolio (or for a particular country or other political or geographical jurisdiction) may be terminated at any time by Customer or Bank, regardless of whether Bank serves as custodian for such Portfolio hereunder. Any such termination as to one or more Portfolios (or jurisdictions) shall be effected in a manner consistent with the provisions for notice and termination set forth elsewhere in this Agreement. Bank shall not be obligated to serve in this capacity for a Portfolio if Bank no longer acts as Customer's custodian for such Portfolio. As of the date hereof, Rule 17f-5 provides that Customer may from time to time place or maintain in the care of an Eligible Foreign Custodian any of Customer's Foreign Assets, PROVIDED THAT: (a) Customer's Foreign Custody Manager determines that Customer's assets will be subject to reasonable care, based on the standards applicable to custodians in the relevant market, if maintained with the Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation: (i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for Certificated Securities (if applicable), the method of keeping custodial records, and the security and data protection practices; (ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for Foreign Assets; (iii) The Eligible Foreign Custodian's general reputation and standing; and (iv) Whether Customer will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of the custodian in the United States or the custodian's consent to service of process in the United States. (b) The arrangement with the Eligible Foreign Custodian is governed by a written contract that Customer's Foreign Custody Manager, has determined will provide reasonable care for Customer's assets based on the standards set forth in paragraph (a) above. (i) Such contract must provide: (A) For indemnification or insurance arrangements (or any combination of the foregoing) that will adequately protect Customer against the risk of loss of Foreign Assets held in accordance with such contract; (B) That Foreign Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors, except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of the custodian arising under bankruptcy, insolvency, or similar laws; (C) That beneficial ownership of the Foreign Assets will be freely transferable without the payment of money or value other than for safe custody or administration; (E) That adequate records will be maintained identifying the assets as belonging to Customer or as being held by a third party for the benefit of Customer; (F) That Customer's independent public accountants will be given access to those records or confirmation of the contents of those records; and (G) That Customer will receive periodic reports with respect to the safekeeping of Customer's assets, including, but not limited to, notification of any transfer to or from Customer's account or a third party account containing assets held for the benefit of Customer. (ii) Such contract may contain, in lieu of any or all of the provisions specified in paragraph (b)(i) above, such other provisions that Customer's Foreign Custody Manager, determines will provide, in their entirety, the same or a greater level of care and protection for the Foreign Assets as the specified provisions, in their entirety. (c) (i) Customer's Foreign Custody Manager, has established a system to monitor the appropriateness of maintaining Customer's assets with a particular custodian under paragraph (a) above, and to monitor performance of the contract under paragraph (b) above. (ii) If an arrangement no longer meets these requirements, Customer must withdraw its assets from the Eligible Foreign Custodian as soon as reasonably practicable. Customer's Foreign Custody Manager will provide written reports in a form reasonably acceptable to Customer (or an Authorized Person) notifying Customer's Board of Directors (or equivalent body; hereinafter, "Board") of the placement of Customer's Foreign Assets with a particular custodian and of any material change in Customer's non-U.S. custody arrangements, with the reports to be provided to the Board at such times as the Board deems reasonable and appropriate based on the circumstances of Customer's non-U.S. custody arrangements. Customer hereby confirms that Customer will withdraw its Foreign Assets from any non-U.S. custodian as soon as reasonably practicable upon written notification from Customer's Foreign Custody Manager that custody arrangements with such custodian no longer meet the requirements of Rule 17f-5 (an "Adverse Notification"). Customer also confirms that, if Bank is acting as Customer's Foreign Custody Manager and has delivered an Adverse Notification to Customer, Bank, as Foreign Custody Manager, shall have no further responsibility under this Agreement in relation to Customer's Foreign Assets held under any custody arrangement covered by such Adverse Notification. (However, the existence of an Adverse Notification shall not affect the scope of responsibilities, or the standard of care, applicable to Bank in relation to such Assets under other provisions of this Agreement.) 6. SECURITIES DEPOSITORIES. (a) Bank hereby represents to Customer that each securities depository listed on Schedule B is an Eligible Securities Depository. If Schedule B is amended, this representation shall be effective as to the amended Schedule on the date of such amendment. Bank shall promptly advise Customer if any securities depository listed on Schedule B ceases to be an Eligible Securities Depository. (b) Bank shall provide Customer an analysis of the custody risks (which analyses may be provided to Customer electronically) associated with maintaining Customer's Foreign Assets with each Eligible Securities Depository used by Bank as of a date to be agreed upon between the parties, but which shall in no event be later than June 15, 2001, (or, in the case of an Eligible Securities Depository not used by Bank as of the agreed upon date, prior to the initial placement of Customer's Foreign Assets at such Depository after such date) and at which any Foreign Assets of Customer are held or are expected to be held. Bank shall monitor the custody risks associated with maintaining Customer's Foreign Assets at each such Eligible Securities Depository on a continuing basis, and shall promptly notify Customer or its investment adviser of any material changes in such risks. (c) Bank shall, upon Customer's reasonable request from time to time, provide certain additional information ("Additional Information") to Customer beyond the scope of the information Bank is otherwise obligated to provide to Customer under this Agreement, or any other agreement between the parties relating to Customer's Foreign Assets. For example, Additional Information may relate to a country's financial infrastructure, prevailing custody and settlement practices, laws applicable to the safekeeping and recovery of Foreign Assets held in custody, and the likelihood of nationalization, currency controls and similar risks, but shall not include information required to be provided under this Agreement or any other agreement between the parties relating to Customer's Foreign Assets. (d) Bank's obligation to provide Customer with Additional Information shall be limited to the extent Additional Information is (i) already in the possession of Bank, or (ii) available to Bank using commercially reasonable means. Customer hereby acknowledges that: (i) Additional Information is designed solely to inform Customer of certain market conditions and procedures and is not intended as a recommendation to invest or not invest in particular markets; and (ii) Bank has gathered the information from sources it considers reliable, but does not assume responsibility for inaccuracies or incomplete information attributable to actions or omissions of third parties. (For this purpose, "third parties" shall not include any of the Subcustodians listed on Schedule A, except to the extent that, in a given case, a Subcustodian accurately transmitted information it had itself received from a third party (such as from a regulator or securities depository) rather than information it had generated itself.) (e) Customer and Bank hereby acknowledge and agree that the decision to place Customer's Foreign Assets with an Eligible Securities Depository shall be made by Customer's investment adviser (subject to the Board's oversight) or the Customer, after consideration of the information provided by Bank and other information Customer deems relevant, and based on standards of care that are generally applicable to investment advisers and the Board. Further, the parties understand that the decision to place Customer's Foreign Assets with an Eligible Securities Depository does not have to be made separately, but may be made in the overall context of the decision to invest in a particular country. 7. USE OF SUBCUSTODIANS AND SECURITIES DEPOSITORIES. (a) Bank shall identify the Assets on its books as belonging to Customer and identify the Portfolio to which such Assets belong. (b) A Subcustodian shall hold such Assets together with assets belonging to other customers of Bank in accounts identified on such Subcustodian's books as custody accounts for the exclusive benefit of customers of Bank. (c) Any Financial Assets in the Accounts held by a Subcustodian shall be subject only to the instructions of Bank or its agent. Any Financial Assets held in a securities depository for the account of a Subcustodian shall be subject only to the instructions of such Subcustodian or its agent. (d) Where Securities are deposited by a Subcustodian with a securities depository, Bank shall cause the Subcustodian to identify on its books as belonging to Bank, as agent, the Securities shown on the Subcustodian's account on the books of such securities depository. (e) Bank shall supply periodically, as mutually agreed upon, a statement in respect of any Securities and cash, including identification of the foreign entities having custody of the Securities and cash and descriptions thereof. 8. DEPOSIT ACCOUNT TRANSACTIONS. (a) Bank (or the applicable Subcustodian) shall make payments from the Deposit Account upon receipt of Instructions which include all information required by Bank. (b) In the event that any payment to be made under this Section 8 exceeds the funds available in the Deposit Account, Bank, in its discretion, may advance Customer such excess amount which shall be deemed a loan payable on demand, bearing interest at the rate customarily charged by Bank on similar loans. (c) Bank shall, or shall cause the applicable Subcustodian to: (i) subject to the last sentence hereof, collect amounts due and payable to Customer with respect to Financial Assets and other assets held in the Accounts; (ii) promptly credit to the account of Customer all income and other payments relating to Financial Assets or other Assets held by Bank hereunder upon Bank's receipt (or the applicable Subcustodian's receipt) of such income or payments or as otherwise agreed in writing by Customer and Bank; and (iii) promptly endorse and deliver instruments required to effect such collections. If Bank credits the Deposit Account on a payable date, or at any time prior to actual collection and reconciliation to the Deposit Account, with interest, dividends, redemptions or any other amount due, Customer shall promptly return any such amount upon oral or written notification: (i) that such amount has not been received in the ordinary course of business or (ii) that such amount was incorrectly credited. If Customer does not promptly return any amount upon such notification, Bank shall be entitled, upon oral or written notification to Customer, to reverse such credit by debiting the Deposit Account for the amount previously credited. Bank shall furnish regular overdue income reports to Customer in writing (or by any means by which Instructions may be transmitted hereunder, other than by telephone) of any amounts payable with respect to Financial Assets or other Assets of Customer if such amounts are not received by Bank (or the applicable Subcustodian) when due (or otherwise in accordance with Local Practice). Bank or its Subcustodian shall have no duty or obligation to institute legal proceedings, file a claim or a proof of claim in any insolvency proceeding or take any other action with respect to the collection of such amount, but may act for Customer upon Instructions after consultation with Customer. 9. CUSTODY ACCOUNT TRANSACTIONS. (a) Financial Assets shall be transferred, exchanged or delivered by Bank or its Subcustodian upon receipt by Bank of Instructions which include all information required by Bank. Settlement and payment for Financial Assets received for, and delivery of Financial Assets out of, the Custody Account shall be made in accordance with Local Practice. In connection with the foregoing, where Bank believes in good faith that use of a reasonably available alternative practice to Local Practice would be more protective of Financial Assets than Local Practice, Bank shall advise Customer of such practice and if Customer authorizes its use such practice shall then be deemed to be Local Practice. (b) Bank, in its discretion, may credit or debit the Accounts on a contractual settlement date with cash or Financial Assets with respect to any sale, exchange or purchase of Financial Assets. Otherwise, such transactions shall be credited or debited to the Accounts on the date cash or Financial Assets are actually received by Bank (or the applicable Subcustodian) and reconciled to the Account. (i) Bank may reverse credits or debits made to the Accounts in its discretion if the related transaction fails to settle within a reasonable period, determined by Bank in its discretion, after the contractual settlement date for the related transaction; provided however that prior to taking action, Bank will use every reasonable effort to give Customer written notice of any such reversal which may include back valuation. (ii) If any Financial Assets delivered pursuant to this Section 9 are returned by the recipient thereof, Bank may reverse the credits and debits of the particular transaction at any time. 10. ACTIONS OF BANK. Bank shall follow Instructions received regarding Assets held in the Accounts. However, until it receives Instructions to the contrary, Bank shall: (a) Present for payment any Financial Assets which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation, to the extent that Bank or Subcustodian is actually aware of such opportunities. (b) Execute in the name of Customer such ownership and other certificates as may be required to obtain payments in respect of Financial Assets. (c) Exchange interim receipts or temporary Financial Assets for definitive Financial Assets. (d) Appoint brokers and agents for any transaction involving the Financial Assets, including, without limitation, Affiliates of Bank or any Subcustodian. (e) Issue statements to Customer, at times mutually agreed upon, identifying the Assets in the Accounts. Bank shall send Customer an advice or notification of any transfers of Assets to or from the Accounts. Such statements, advices or notifications shall indicate the identity of the entity having custody of the Assets. All collections of funds or other property paid or distributed in respect of Financial Assets in the Custody Account shall be made at the risk of Customer until such funds or other property have been received by Bank (or the applicable Subcustodian). Bank shall have no liability for any loss occasioned by delay (other than its own) in the actual receipt of notice by Bank or by its Subcustodians of any payment, redemption or other transaction regarding Financial Assets in the Custody Account in respect of which Bank has agreed to take any action hereunder. 11. CORPORATE ACTIONS; PROXIES; TAXES. (a) Corporate Actions. Bank shall transmit promptly to Customer on behalf of each Portfolio summary notification of corporate action information received on a timely basis by Bank (including, without limitation, pendency of calls and maturities of Financial Assets and expirations of rights in connection therewith and notices of exercise of call and put options written by Customer on behalf of a Portfolio and the maturity of futures contracts (and options thereon) purchased or sold by Customer on behalf of a Portfolio) from issuers of the Financial Assets being held for a Portfolio. With respect to tender or exchange offers, Bank shall transmit promptly to Customer on behalf of each Portfolio notice of corporate action information received on a timely basis by Bank from issuers of the Financial Assets whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If Customer desires to take action with respect to any tender offer, exchange offer or any other similar transaction, Customer shall notify Bank within such period as will give Bank (including any Subcustodian) sufficient time to take such action. Bank shall inform Customer of pertinent deadlines in each case. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar corporate action is received which bears an expiration date, Bank shall use reasonable efforts to obtain Instructions from Customer or its Authorized Person, even if its own deadlines for receiving instructions have passed; however, if Instructions are not received in time for Bank to take timely action, or actual notice of such Corporate Action was received too late to seek Instructions, Bank shall take no action. (b) Proxy Voting. (i) Bank shall, with respect to Financial Assets that are not Foreign Assets, cause to be promptly executed by the registered holder of such Financial Assets, if the Financial Assets are registered otherwise than in the name of Customer on behalf of a Portfolio or a nominee thereof, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to Customer such proxies, all proxy soliciting materials and all notices relating to such Financial Assets. (ii) Bank shall, with respect to Financial Assets that are Foreign Assets, use commercially reasonable efforts to facilitate the exercise of voting and other shareholder proxy rights; it being understood and agreed that (A) proxy voting may not be available in all markets (it being understood that Bank shall make proxy voting services available to Customer in a given market where Bank offers such services to any other custody client), and (B) apart from voting, Bank will, upon request and in its discretion, assist customer in exercising other shareholder rights such as attending shareholder meetings, nominating directors and proposing agenda items. In particular, and without limiting the generality of the foregoing, Bank may provide written summaries of proxy materials in lieu of providing original materials (or copies thereof) and while Bank shall attempt to provide accurate summaries, whether or not translated, Bank shall not be liable for any losses or other consequences that may result from reliance by Customer upon the same where Bank prepared the same in good faith and with reasonable efforts. Customer acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice, practical constraints and other facts, may have the effect of severely limiting the ability of Customer to exercise shareholder rights. In addition, Customer acknowledges that: (A) in certain countries Bank may be unable to vote individual proxies but shall only be able to vote proxies on a net basis (E.G., a net yes or no vote given the voting instructions received from all customers); and (B) proxy voting may be precluded or restricted in a variety of circumstances, including, without limitation, where the relevant Financial Assets are: (1) on loan; (2) at registrar for registration or reregistration; (3) the subject of a conversion or other corporate action; (4) not held in a name subject to the control of Bank or its Subcustodian or are otherwise held in a manner which precludes voting; (5) held in a margin or collateral account; and (6) American Depository Receipts. (iii) Customer and each Authorized Person shall respect the proprietary nature of information developed exclusively through the efforts of Bank (or Subcustodians or other parties acting under Bank's direction) in relation to proxy voting services. (c) Taxes. (i) Customer confirms that Bank is authorized to deduct from any cash received or credited to the Deposit Account any taxes or levies required to be deducted by any revenue or other governmental authority for whatever reason in respect of the Custody Account. (ii) Customer shall provide Bank with all required tax-related documentation and other information relating to Assets held hereunder ("Tax Information"). Tax Information shall include, but shall not be limited to, information necessary for submission to revenue or other governmental authorities to establish taxable amounts or reduce tax burdens that would otherwise be borne by a Portfolio. Upon receipt of Instructions and all required Tax Information from Customer, Bank shall (A) execute ownership and other certificates and affidavits for all tax purposes (within and outside of the United States) in connection with receipt of income and other payments with respect to Assets held hereunder, or in connection with the purchase, sale or transfer of such Assets, and (B) where appropriate, file any certificates or other affidavits for the refund or reclaim of non-U.S. taxes paid with respect to such Assets. Customer warrants that, when given, Tax Information shall be true and correct in all material respects. Customer shall notify Bank promptly if any Tax Information requires updating or amendment to correct misleading information. (iii) Bank shall have no responsibility or liability for any tax obligations (including both taxes and any and all penalties, interest or additions to tax) now or hereafter imposed on Customer, its Portfolio, or Bank as Customer's custodian, by any revenue or governmental authority, or penalties or other costs or expenses arising out of the delivery of, or failure to deliver, Tax Information by Customer (iv) Bank shall perform tax reclaim services only with respect to taxation levied by the revenue authorities of the countries notified to Customer from time to time and Bank may, by notification in writing, in Bank's absolute discretion, supplement or amend the markets in which tax reclaim services are offered; provided that, Bank shall make tax reclaim services available to Customer in a given country where Bank offers such services to any other custody client having the same tax status. Other than as expressly provided in this sub-clause, Bank shall have no responsibility with regard to Customer's tax position or status in any jurisdiction. (v) Tax reclaim services may be provided by Bank or, in whole or in part, by one or more third parties appointed by Bank (which may be Bank's affiliates); provided that Bank shall be liable for the performance of any such third party to the same extent as Bank would have been if Bank had performed such services. (vi) If Bank does not receive appropriate declarations, documentation and information then any applicable United States withholding tax shall be deducted from income received from Financial Assets. 12. NOMINEES. Financial Assets which are ordinarily held in registered form may be registered in a nominee name of Bank, Subcustodian or Eligible Securities Depository, as the case may be. Bank may without notice to Customer cause any such Financial Assets to cease to be registered in the name of any such nominee and to be registered in the name of Customer. In the event that any Financial Assets registered in a nominee name are called for partial redemption by the issuer, Bank may allot the called portion to the respective beneficial holders of such class of security in any manner Bank deems to be fair and equitable. Customer shall hold Bank, Subcustodians, and their respective nominees harmless from any liability arising directly or indirectly from their status as a mere record holder of Financial Assets in the Custody Account. Financial Assets accepted by Custodian on behalf of a Portfolio under this Agreement shall be in a form and delivered in a manner consistent with Local Practice. 13. INSTRUCTIONS. Unless otherwise expressly provided, all Instructions shall continue in full force and effect until canceled or superseded. Any Instructions delivered to Bank by telephone shall promptly thereafter be confirmed in writing by an Authorized Person (which confirmation may bear the facsimile signature of such Person), but Customer shall hold Bank harmless for the failure of an Authorized Person to send such confirmation in writing, the failure of such confirmation to conform to the telephone instructions received or Bank's failure to produce such confirmation at any subsequent time. Bank may electronically record any Instructions given by telephone, and any other telephone discussions with respect to the Custody Account. Customer shall be responsible for safeguarding any testkeys, identification codes or other security devices which Bank shall make available to Customer or its Authorized Persons. 14. STANDARD OF CARE; LIABILITIES. (a) Bank shall exercise reasonable care and diligence in carrying out all of its duties and obligations under this Agreement, and shall be liable to Customer for any and all claims, liabilities, losses, damages, fines, penalties, and expenses, including out-of-pocket and incidental expenses and reasonable attorneys' fees ("Losses") suffered or incurred by Customer resulting from failure of Bank (including any branch thereof, regardless of location) to exercise such reasonable care and diligence. Bank shall be liable to Customer in respect of such Losses to the same extent that Bank would be liable to Customer if Bank were holding the affected Assets in New York City, but only to the extent of Customer's direct damages, to be determined based on the market value of the property which is the subject of the Loss at the date of discovery of such Loss by Customer and without reference to any special conditions or circumstances. (b) Bank shall be liable to Customer for all Losses resulting from the action or inaction of any Subcustodian to the same extent that Bank would be liable to Customer if Bank were holding the affected Assets in New York City, and such action or inaction were that of the Bank. (c) As long as and to the extent that it has exercised reasonable care and acted in good faith, Bank shall not be responsible for: (i) the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement; it being understood that Bank shall be deemed to have exercised reasonable care in respect of this subparagraph (i) if Financial Assets are received by Bank in accordance with Local Practice for the particular Financial Asset in question; (ii) any act, omission, default or for the solvency of any broker or agent which it or a Subcustodian appoints; it being understood that Bank or a Subcustodian shall be deemed to have exercised reasonable care in respect of this subparagraph (ii) if it exercised reasonable care in the selection of any such broker or agent; or (iii) the insolvency of any Subcustodian which is not a branch or Affiliate of Bank; it being understood that Bank shall be deemed to have exercised reasonable care in respect of this subparagraph (iii) where Bank used reasonable care in the monitoring of a Subcustodian's financial condition as reflected in its most recently published financial statements and other publicly available financial information. (d) Neither Bank nor any Subcustodian shall be liable for the acts or omissions of any Eligible Securities Depository (or, for purposes of clarity, any domestic securities depository). (e) In no event shall Bank incur liability hereunder if Bank or any Subcustodian, or any nominee of Bank or any Subcustodian (each a "Person"), is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of: (i) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction; or (ii) events or circumstances beyond the reasonable control of the applicable Person, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts, unless, in each case, such delay or nonperformance is caused by (A) the negligence, misfeasance or misconduct of the applicable Person, or (B) a malfunction or failure of equipment operated or utilized by the applicable Person other than a malfunction or failure beyond such Person's control and which could not be reasonably anticipated or prevented by such Person (each such provision, event or circumstance being a "Force Majeure Event"). (f) In no event shall Customer incur liability to Bank if it is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of a Force Majeure Event. (g) Customer shall indemnify and hold Bank and its directors, officers, agents and employees (collectively the "Indemnitees") harmless from and against any and all Losses that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any Instructions or other directions upon which Bank is authorized to rely pursuant to the terms of this Agreement, or for any action taken or omitted by it in good faith, provided that such action or omission is consistent with the standard of care applicable to Bank under this Agreement. (h) In performing its obligations hereunder, Bank may rely on the genuineness of any document which it believes in good faith to have been validly executed, and shall be entitled to rely on and may act upon advice of counsel (which may be counsel for Customer) on all matters, and shall be without liability for action reasonably taken or omitted pursuant to such advice. (i) Customer shall pay for and hold Bank harmless from any liability or loss resulting from the imposition or assessment of any taxes or other governmental charges, and any related expenses (including, without limitation, penalties, interest or additions to tax due), with respect to income from or Assets in the Accounts, provided that Bank has complied with the standard of care set forth in Section 14(a) of this Agreement (it being understood that while Bank's failure to comply with such standard of care shall constitute a breach of this Agreement, Bank shall have no liability for taxes or governmental charges and related expenses imposed or assessed with respect to such Assets prior to such breach or that would have been imposed or assessed even absent such breach). (j) Bank need not maintain any insurance for the benefit of Customer. (k) Without limiting the foregoing, Bank shall not be liable for any Loss which results from (i) the general risk of investing, or (ii) investing or holding Assets in a particular country including, but not limited to, losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of Assets. (l) Consistent with and without limiting the application of the foregoing paragraphs of this Section 14, it is specifically acknowledged that Bank shall have no duty or responsibility to: (i) question Instructions or make any suggestions to Customer or an Authorized Person regarding such Instructions; (ii) supervise or make recommendations with respect to investments or the retention of Financial Assets; (iii) advise Customer or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Section 8(c) hereof; (iv) evaluate or report to Customer or an Authorized Person regarding the financial condition of any broker, agent or other party to which Financial Assets are delivered or payments are made pursuant hereto; (v) review or reconcile trade confirmations received from brokers. Customer or its Authorized Persons issuing Instructions shall bear any responsibility to review such confirmations against Instructions issued to and statements issued by Bank; (vi) advise Customer or an Authorized Person regarding information (i) held on a confidential basis by an officer, director or employee of Bank (or any Affiliate of Bank) and (ii) obtained by such person in connection with the provision of services or other activities unrelated to global custody; and (vii) advise Customer or an Authorized Person promptly regarding corporate action information obtained by an officer, director or employee of Bank (or any Affiliate of Bank) who is not engaged directly in the provision of global custody services. (m) Customer authorizes Bank to act hereunder notwithstanding that Bank or any of its divisions or Affiliates may have a material interest in a transaction, or circumstances are such that Bank may have a potential conflict of duty or interest including the fact that Bank or any of its Affiliates may provide brokerage services to other customers, act as financial advisor to the issuer of Financial Assets, act as a lender to the issuer of Financial Assets, act in the same transaction as agent for more than one customer, have a material interest in the issue of Financial Assets, or earn profits from any of the activities listed herein. (n) Upon the occurrence of any event which causes or may cause any Loss to the other party, each of Customer and Bank shall (and Bank shall cause each applicable Subcustodian to) use all commercially reasonable efforts and take all reasonable steps under the circumstances to mitigate the effects of such event and to avoid continuing harm to the other party. For this purpose, the obligations of Customer and Bank to mitigate Losses (or potential Losses) hereunder shall include (but shall not be limited to) the periodic review and reconciliation by Bank and Customer (or Authorized Persons) of statements provided to Customer under Section 10 of this Agreement; provided, however, that Bank's obligations to Customer with respect to any transaction covered by a given statement shall be reduced to the extent that Bank's ability to mitigate damages related to such transaction has been compromised by Customer's failure to object to such statement within 180 days of Customer's receipt thereof. 15. BANK FEES AND EXPENSES. Customer agrees to pay Bank for its services under this Agreement such amount as may be agreed upon in writing. Customer agrees to reimburse Bank for its reasonable out-of-pocket or incidental expenses (including, without limitation, legal fees) incurred on behalf of Customer, provided that, in respect of such expenses, Bank has acted in conformity with the standard of care set forth in Section 14 hereof. Bank shall obtain Customer's prior approval, which approval shall not be unreasonably withheld, of out-of-pocket or incidental expenses that Bank reasonably expects to exceed $10,000 or that approaches $10,000 during the process of incurring such expenses. In the latter case, Customer shall not withhold its approval on the ground that Bank had not obtained Customer's approval prior to beginning to incur such expenses if Bank believed in good faith that the subject expenses would not exceed $10,000. Subject to the foregoing, Bank shall have a lien on and is authorized to charge any Accounts of the Customer for any amount owing to the Bank under any provision of this Agreement. 16. MISCELLANEOUS. (a) Foreign Exchange Transactions Other Than as Principal. Upon receipt of Instructions, Bank shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Portfolio with such currency brokers or banking institutions as Customer may determine and direct pursuant to Instructions. Bank shall be responsible for the transmission of cash and instructions to and from the currency broker or banking institution with which the contract or option is made, the safekeeping of all certificates and other documents and agreements evidencing or relating to such foreign exchange transactions and the maintenance of proper records in accordance with this Agreement. Bank shall have no duty with respect to the selection of currency brokers or banking institutions with which Customer deals on behalf of its Portfolio or, as long as Bank acts in accordance with Instructions, for the failure of such brokers or banking institutions to comply with the terms of any contract or option. (b) Foreign Exchange Transactions as Principal. Bank shall not be obligated to enter into foreign exchange transactions as principal. However, if and to the extent that Bank makes available to Customer its services as principal in foreign exchange transactions, upon receipt of Instructions, Bank shall enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of Customer on behalf of its Portfolio with Bank as principal. Instructions may be issued with respect to such contracts but Bank may establish rules or limitations concerning any foreign exchange facility made available. Bank shall be responsible for the selection of currency brokers or banking institutions (which may include Affiliates of Bank and Subcustodians) and the failure of such currency brokers or banking institutions to comply with the terms of any contract or option. (c) Certification of Residency, etc. Customer certifies that it is a resident of the United States and shall notify Bank of any changes in residency. Bank may rely upon this certification or the certification of such other facts as may be required to administer Bank's obligations hereunder. Customer shall indemnify Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications. (d) Custodian's Records; Access to Records. Bank shall provide any assistance reasonably requested by Customer in the preparation of reports to Customer's shareholders and others, audits of accounts, and other ministerial matters of like nature. Bank shall maintain complete and accurate records with respect to Financial Assets and other Assets held for the account of Customer as required by the rules and regulations of the U.S. Securities and Exchange Commission applicable to investment companies registered under the 1940 Act. All such books and records maintained by Bank shall be made available to Customer upon request and shall, where required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act. Bank shall allow Customer's independent public accountant reasonable access to the records of Bank relating to Financial Assets as is required in connection with their examination of books and records pertaining to Customer's affairs. Subject to restrictions under applicable law, Bank shall also obtain an undertaking to permit Customer's independent public accountants reasonable access to the records of any Subcustodian which has physical possession of any Financial Assets as may be required in connection with the examination of Customer's books and records. Bank shall not unreasonably refuse to furnish to Customer such reports (or portions thereof) of Bank's external auditors as they relate directly to the Bank's system of internal accounting controls applicable to Bank's duties under this Agreement (commonly referred to as a "SAS 70 report"). Bank shall endeavor to obtain and furnish Customer with such similar reports as Customer may reasonably request with respect to each Subcustodian holding Assets of Customer. Except as respects Bank's SAS Report, as to which there shall be no charge, the Customer shall pay expenses of the Bank and any Subcustodians under this provision. (e) Confidential Information. The parties hereto agree that each shall treat confidentially all confidential information provided by each party to the other regarding its business and operations in accordance with this Agreement. All confidential information provided by a party hereto shall be used by the other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to a third party without the prior written consent of such providing party. Confidential information for purposes hereof shall include information traditionally recognized as confidential, such as financial information, strategies, security practices, product and business proposals, business plans, and the like. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, that is generally furnished to third parties by the providing party without confidentiality restriction, or that is required to be disclosed by any bank examiner of Bank or any Subcustodian, any auditor of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation. For this purpose, Customer and any Authorized Person shall be permitted to disclose any information provided by Bank hereunder to the U.S. Securities and Exchange Commission (or its staff) in connection with any inspection or examination or other action or proceeding. (f) Governing Law; Successors and Assigns; Immunity; Captions. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK and shall not be assigned by either party, but shall bind the successors in interest of Customer and Bank. To the extent that in any jurisdiction Customer or Bank may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, Customer or Bank, as the case may be, irrevocably shall not claim, and it hereby waives, such immunity. The captions given to the sections and subsections of this Agreement are for convenience of reference only and are not to be used to interpret this Agreement. (g) Entire Agreement. This Agreement consists exclusively of this document (including Appendix A and Schedules A-1 and A-2 hereof), together with the applicable riders for Russia and Taiwan (collectively "Riders") to the predecessor agreement to this Agreement. The Riders are hereby modified to apply to and amend the applicable sections of this Agreement in the same manner as they amended the equivalent sections of the predecessor agreement. There are no other provisions hereof and this Agreement supersedes any other agreements, whether written or oral, between the parties. Any amendment hereto must be in writing, executed by both parties. (h) Severability. In the event that one or more provisions hereof are held invalid, illegal or unenforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions shall not in any way be affected or impaired. (i) Waiver. Except as otherwise provided herein, no failure or delay on the part of either party in exercising any power or right hereunder operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision hereof, or waiver of any breach or default, is effective unless in writing and signed by the party against whom the waiver is to be enforced. (j) Representations and Warranties. (i) Customer hereby represents and warrants to Bank that: (A) it has full power and authority to deposit and control the Financial Assets and cash deposited in the Accounts; (B) it has all necessary authority to use Bank as its custodian; (C) this Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms; (D) it has taken all necessary action to authorize the execution and delivery hereof. (ii) Bank hereby represents and warrants to Customer that: (A) it has the full power and authority to perform its obligations hereunder, (B) this Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms; and (C) that it has taken all necessary action to authorize the execution and delivery hereof. (k) Notices. All notices hereunder shall be effective when actually received. Any notices or other communications which may be required hereunder are to be sent to the parties at the following addresses or such other addresses as may subsequently be given to the other party in writing: (a) Bank: The Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention: Jerry E. Garcia, Vice President, Global Investor Services, Investment Management Group; and (b) Customer: [Name of Customer], c/o Capital Research and Management Company, Attention: Thomas M. Rowland, Senior Vice President, 135 South State College Boulevard, Brea, CA 92821-5804; with a copy to: Stuart R. Strachan, Vice President and Senior Counsel, Capital Research and Management Company, 333 S. Hope Street, 55th Floor, Los Angeles, CA 90071. (l) Termination. This Agreement may be terminated as to one or more Portfolios by Customer or Bank by giving sixty (60) days' written notice to the other, provided that such notice to Bank shall specify the names of the persons to whom Bank shall deliver the Assets belonging to the affected Portfolios in the Accounts. If notice of termination is given by Bank, Customer shall, within sixty (60) days following receipt of the notice, deliver to Bank Instructions specifying the names of the persons to whom Bank shall deliver the Assets belonging to the affected Portfolios. In either case Bank shall deliver the Assets belonging to the affected Portfolios to the persons so specified, after deducting any amounts which Bank determines in good faith to be owed to it under Section 15. If within sixty (60) days following receipt of a notice of termination by Bank, Bank does not receive Instructions from Customer specifying the names of the persons to whom Bank shall deliver the Assets belonging to the affected Portfolios, Bank, at its election, may deliver such Assets to a bank or trust company doing business in the State of New York to be held and disposed of pursuant to the provisions hereof, or to Authorized Persons, or may continue to hold such Assets until Instructions are provided to Bank. For avoidance of doubt, each Customer, Portfolio or the Bank may terminate this Agreement pursuant to its provisions and the Agreement shall survive such termination in respect of the remaining Customers and Portfolios that have not so terminated or been terminated. (m) Representative Capacity; Non-recourse Obligations. A COPY OF THE DECLARATION OF TRUST OR OTHER ORGANIZATIONAL DOCUMENT OF EACH CUSTOMER IS ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF THE CUSTOMER'S FORMATION, AND NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT IS NOT EXECUTED ON BEHALF OF THE TRUSTEES OF ANY CUSTOMER AS INDIVIDUALS, AND THE OBLIGATIONS OF THIS AGREEMENT ARE NOT BINDING UPON ANY OF THE TRUSTEES, OFFICERS, SHAREHOLDERS OR PARTNERS OF ANY FUND INDIVIDUALLY, BUT ARE BINDING ONLY UPON THE ASSETS AND PROPERTY OF EACH CUSTOMER'S RESPECTIVE PORTFOLIOS. BANK AGREES THAT NO SHAREHOLDER, TRUSTEE, OFFICER OR PARTNER OF ANY FUND MAY BE HELD PERSONALLY LIABLE OR RESPONSIBLE FOR ANY OBLIGATIONS OF ANY CUSTOMER ARISING OUT OF THIS AGREEMENT. (n) Several Obligations of each Customer and Portfolio. With respect to any obligations of a customer on behalf of any of its Portfolios arising OUT OF THIS AGREEMENT, Bank shall look for payment or satisfaction of any such obligation solely to THE ASSETS AND PROPERTY OF THE Portfolio TO WHICH SUCH obligation relates as though that CUSTOMER had separately contracted with Bank by separate written agreement with respect to EACH OF ITS PORTFOLIOS. The rights and benefits to which a given Portfolio is entitled hereunder shall be solely those of such Portfolio and no other Portfolio hereunder shall receive such benefits. (o) Information Concerning Deposits at Bank. Bank's London Branch is a member of the United Kingdom Deposit Protection Scheme (the "Scheme") established under Banking Act 1987 (as amended). The Scheme provides that in the event of Bank's insolvency, payments may be made to certain customers of Bank's London Branch. Payments under the Scheme are limited to 90% of a depositor's total cash deposits subject to a maximum payment to any one depositor of 18,000 pounds(or euro 20,000 if greater). Most deposits denominated in sterling and other European Economic Area Currencies and euros made with Bank within the United Kingdom are covered. Further details of the Scheme are available on request. Any cash so deposited with Bank's London Branch will be payable exclusively by Bank's London Branch in the applicable currency, subject to compliance with applicable law, including, without limitation, any restrictions on transactions in the applicable currency imposed by the country of the applicable currency. IN WITNESS WHEREOF, each of the Customers and Bank have executed this Agreement as of the date first-written above. Execution of this Agreement by more than one Customer shall not create a contractual or other obligation between or among such Customers (or between or among their respective Portfolios) and this Agreement shall constitute a separate agreement between Bank and each Customer on behalf of itself or each of its Portfolios. EACH OF THE CUSTOMERS LISTED ON APPENDIX A ATTACHED HERETO, ON BEHALF OF ITSELF OR ITS LISTED PORTFOLIOS By: CAPITAL RESEARCH AND MANAGEMENT COMPANY By:____________________________________ Name: Title: THE CHASE MANHATTAN BANK By:________________________________________ Name: Jerry E. Garcia Title: Vice President APPENDIX A CUSTOMERS AND PORTFOLIOS Dated as of June 29, 2001 The following is a list of Customers and their respective Portfolios for which Bank shall serve under this Agreement.
CUSTOMER PORTFOLIO: EFFECTIVE AS OF: TAIWAN RIDER:RUSSIA RIDER AMCAP Fund, Inc. June 29, 2001 EuroPacific Growth Fund June 29, 2001 December 16, 1996 New Perspective Fund, Inc. June 29, 2001 December 16, 1996 New World Fund, Inc. June 29, 2001 April 13, 1999 American Funds Insurance Series - New World Fund June 29, 2001 April 13, 1999 American Mutual Fund, Inc. June 29, 2001 Capital World Growth and Income Fund, Inc. June 29, 2001 December 16, 1996 The Investment Company of June 29, 2001 March 15, 2001 America Capital Income Builder, Inc. June 29, 2001 The Income Fund of America, Inc. June 29, 2001 American Balanced Fund, Inc. June 29, 2001 American High Income Trust June 29, 2001 The Bond Fund of America, Inc. June 29, 2001 Capital World Bond Fund, Inc. June 29, 2001 Intermediate Bond Fund of June 29, 2001 America U.S. Government Securities Fund June 29, 2001 American High-Income Municipal June 29, 2001 Bond Fund, Inc. Limited Term Tax-Exempt Bond June 29, 2001 Fund of America The Tax-Exempt Bond Fund of June 29, 2001 America, Inc. The Tax-Exempt Fund of June 29, 2001 California The Cash Management Trust of June 29, 2001 America The Tax-Exempt Money Fund of June 29, 2001 America The U.S. Treasury Money Fund of June 29, 2001 America Endowments - Equity Portfolio June 29, 2001 Endowments - Fixed Income June 29, 2001 Portfolio
IN WITNESS WHEREOF, each of the Customers and Bank have executed this Appendix A as of the date first-written above. Execution of this Appendix A by more than one Customer shall not create a contractual or other obligation between or among such Customers (or between or among their respective Portfolios) and this Appendix shall constitute a separate agreement between Bank and each Customer on behalf of itself or each of its Portfolios. EACH OF THE CUSTOMERS LISTED ON APPENDIX A ATTACHED HERETO, ON BEHALF OF ITSELF OR ITS LISTED PORTFOLIOS By: CAPITAL RESEARCH AND MANAGEMENT COMPANY By:____________________________________ Name: Title: THE CHASE MANHATTAN BANK By:________________________________________ Name: Jerry E. Garcia Title: Vice President EX-99.I LEGAL OPININ 6 opinion.txt PAUL, HASTINGS, JANOFSKY & WALKER LLP 555 South Flower Street, Twenty-Third Floor Los Angeles, California 90071 May 8, 2002 The Bond Fund of America, Inc. 333 South Hope Street Los Angeles, California 90071 Ladies and Gentlemen: We have acted as counsel to The Bond Fund of America, Inc., a Maryland corporation (the "Fund"), in connection with Post-Effective Amendment No. 49 to the Fund's Registration Statement on Form N-1A (Registration No. 2-50700) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Registration Statement"), relating to the issuance by the Fund of an indefinite number of Class R-1, R-2, R-3, R-4 and R-5 shares of common stock of the Fund (the "Shares"). In our capacity as counsel for the Fund, we have examined the Articles of Incorporation of the Fund filed with the State of Maryland Department of Assessments and Taxation on December 3, 1973, as amended, the bylaws of the Fund, as amended, and originals or copies of actions of the Board of Directors of the Fund, as furnished to us by the Fund, certificates of public officials, and such other documents, records and certificates as we have deemed necessary for the purposes of this opinion. Our opinion below is limited to the federal law of the United States of America and the Maryland General Corporation Law. We are not licensed to practice law in the State of Maryland, and we have based our opinion solely on our review of the Maryland General Corporation Law and the case law interpreting such Law as reported in Title 2 and Title 4 of the Annotated Code of the Public General Laws of Maryland (Matthew Bender 1999, 2001 Supp.). We have not undertaken a review of other Maryland law or of any administrative or court decisions in connection with rendering this opinion. We disclaim any opinion as to any law other than as described above, and we disclaim any opinion as to any statute, rule, regulation, ordinance, order or other promulgation of any regional or local governmental authority. Based on the foregoing and our examination of such questions of law as we have deemed necessary and appropriate for the purpose of this opinion, we are of the opinion that the Shares are duly authorized and, when purchased and paid for as described in the Registration Statement, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion of counsel as an exhibit to the Registration Statement. Very truly yours, /s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP EX-99.J OTHER OPININ 7 consent.txt INDEPENDENT AUDITORS' CONSENT The Bond Fund of America, Inc.: We consent to (a) the use in this Post-Effective Amendment No. 49 to Registration Statement No. 2-50700 on Form N-1A of our report dated February 6, 2002 appearing in the Financial Statements which are included in Part B, the Statement of Additional Information of such Registration Statement, (b) the references to us under the heading "General Information" in such Statement of Additional Information and (c) the reference to us under the heading "Financial Highlights" in the Prospectus, which is a part of such Registration Statement. DELOITTE & TOUCHE LLP Los Angeles, California May 10, 2002 EX-99.M 12B-1 PLAN 8 exh-m.txt FORM OF PLAN OF DISTRIBUTION OF [NAME OF FUND] RELATING TO ITS CLASS R-[ ] SHARES WHEREAS, [name of fund] (the "Fund") is a [state][corporation][business trust] that offers fourteen classes of shares of [common stock][beneficial interest], designated as Class A shares, Class B shares, Class C shares, Class F shares, Class 529-A shares, Class 529-B shares, Class 529-C shares, Class 529-E shares, Class 529-F shares, Class R-1 shares, Class R-2 shares, Class R-3 shares, Class R-4 shares and Class R-5 shares; WHEREAS, American Funds Distributors, Inc. ("AFD") or any successor entity designated by the Fund (AFD and any such successor collectively are referred to as "Distributor") will serve as distributor of the shares of common stock of the Fund, and the Fund and Distributor are parties to a principal underwriting agreement (the "Agreement"); WHEREAS, the purpose of this Plan of Distribution (the "Plan") is to authorize the Fund to bear expenses of distribution of its Class R- [ ] shares; and WHEREAS, the Board of [Directors][Trustees] of the Fund has determined that there is a reasonable likelihood that this Plan will benefit the Fund and its shareholders; NOW, THEREFORE, the Fund adopts this Plan as follows: 1. PAYMENTS TO DISTRIBUTOR. The Fund may expend pursuant to this Plan and as set forth below an aggregate amount not to exceed [ ]% per annum of the average net assets of the Fund's Class R-[ ] shares. The categories of expenses permitted under this Plan include service fees ("Service Fees") in an amount not to exceed .25%, and distribution fees ("Distribution Fees") in an amount not to exceed [ ]%, each such percentage being per annum of the average net assets of the Fund's Class R-[ ] shares. The actual amounts paid shall be determined by the Board of [Directors][Trustees]. The Service Fee compensates the Distributor for service-related expenses, including paying Service Fees to others in respect of Class R-[ ] shares of the Fund. The Distribution Fee compensates the Distributor for providing distribution services in respect of Class R-[ ] shares of the Fund. 2. APPROVAL BY THE BOARD. This Plan shall not take effect until it has been approved, together with any related agreement, by votes of the majority of both (i) the Board of [Directors][Trustees] of the Fund and (ii) those [Directors][Trustees] of the Fund who are not "interested persons" of the Fund (as defined in the Investment Company Act of 1940) and have no direct or indirect financial interest in the operation of this Plan or any agreement related to it (the "Independent [Directors][Trustees]"), cast in person at a meeting called for the purpose of voting on this Plan and/or such agreement. 3. REVIEW OF EXPENDITURES. At least quarterly, the Board of [Directors][Trustees] shall be provided by any person authorized to direct the disposition of monies paid or payable by the Fund pursuant to this Plan or any related agreement, and the Board shall review, a written report of the amounts expended pursuant to this Plan and the purposes for which such expenditures were made. 4. TERMINATION OF PLAN. This Plan may be terminated as to the Fund's Class R-[ ] shares at any time by vote of a majority of the Independent [Directors][Trustees], or by vote of a majority of the outstanding Class R-[ ] shares of the Fund. Unless sooner terminated in accordance with this provision, this Plan shall continue in effect until [date]. It may thereafter be continued from year to year in the manner provided for in paragraph 2 hereof. 5. REQUIREMENTS OF AGREEMENT. Any Agreement related to this Plan shall be in writing, and shall provide: a. that such Agreement may be terminated as to the Fund at any time, without payment of any penalty by the vote of a majority of the Independent [Directors][Trustees] or by a vote of a majority of the outstanding Class R-[ ] shares of the Fund, on not more than sixty (60) days' written notice to any other party to the Agreement; and b. that such Agreement shall terminate automatically in the event of its assignment. 6. AMENDMENT. This Plan may not be amended to increase materially the maximum amount of fees or other distribution expenses provided for in paragraph 1 hereof with respect to the Class R-[ ] shares of the Fund unless such amendment is approved by vote of a majority of the outstanding voting securities of the Class R-[ ] shares of the Fund and as provided in paragraph 2 hereof, and no other material amendment to this Plan shall be made unless approved in the manner provided for in paragraph 2 hereof. 7. NOMINATION OF [DIRECTORS][TRUSTEES]. While this Plan is in effect, the selection and nomination of Independent [Directors][Trustees] shall be committed to the discretion of the Independent [Directors][Trustees] of the Fund. 8. ISSUANCE OF SERIES OF SHARES. If the Fund shall at any time issue shares in more than one series, this Plan may be adopted, amended, continued or renewed with respect to a series as provided herein, notwithstanding that such adoption, amendment, continuance or renewal has not been effected with respect to any one or more other series of the Fund. 9. RECORD RETENTION. The Fund shall preserve copies of this Plan and any related agreement and all reports made pursuant to paragraph 3 hereof for not less than six (6) years from the date of this Plan, or such agreement or reports, as the case may be, the first two (2) years of which such records shall be stored in an easily accessible place. IN WITNESS WHEREOF, the Fund has caused this Plan to be executed by its officers thereunto duly authorized, as of May 1, 2002. [NAME OF FUND] By [name] Chairman By [name] Secretary -----END PRIVACY-ENHANCED MESSAGE-----