-----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, BIiMMgvdYHOzcQsfLS4gqD3HWosdXNt4G5ouA7F1TgdVUgMCDVvEoHpMdD1ngev1 q+tCoo8r+phhlhvEJ+s9wA== 0000013075-05-000009.txt : 20050611 0000013075-05-000009.hdr.sgml : 20050611 20050531155110 ACCESSION NUMBER: 0000013075-05-000009 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20050531 DATE AS OF CHANGE: 20050531 EFFECTIVENESS DATE: 20050531 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: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-50700 FILM NUMBER: 05867355 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 497 1 bfa497.txt THE BOND FUND OF AMERICA, INC. Part B Statement of Additional Information March 1, 2005 (as supplemented June 1, 2005) This document is not a prospectus but should be read in conjunction with the current prospectus or retirement plan prospectus of The Bond Fund of America (the "fund" or "BFA") dated March 1, 2005. You may obtain a prospectus from your financial adviser 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 Shareholders who purchase shares at net asset value through eligible retirement plans should note that not all of the services or features described below may be available to them. They should contact their employers for details. TABLE OF CONTENTS
Item Page no. - ---- -------- Certain investment limitations and guidelines . . . . . . . . . . . 2 Description of certain securities and investment techniques . . . . 3 Fundamental policies and investment restrictions. . . . . . . . . . 10 Management of the fund . . . . . . . . . . . . . . . . . . . . . . 12 Execution of portfolio transactions . . . . . . . . . . . . . . . . 31 Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 31 Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 34 Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 39 Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Sales charge reductions and waivers . . . . . . . . . . . . . . . . 42 Rollovers from retirement plans to IRAs . . . . . . . . . . . . . . 46 Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Shareholder account services and privileges . . . . . . . . . . . . 47 General information . . . . . . . . . . . . . . . . . . . . . . . . 49 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 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 (Moody's) or Standard & Poor's Corporation (S&P) or in unrated securities that are determined to be of equivalent quality at time of purchase, including U.S. government securities, money market instruments or cash. .. The fund may invest up to 40% of its assets in debt securities rated below A by Moody's and S&P or in unrated securities that are determined to be of equivalent quality. .. The fund may invest up to 35% of its assets in debt securities rated Ba or below by Moody's and BB or below by S&P or in unrated securities determined to be of equivalent quality. However, it is the fund's current practice not to invest more than 15% 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 United States. .. 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 or received in exchange for debt securities. .. The fund may invest up to 5% of its assets in IOs and POs (as defined in the following section). * * * * * * The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. The Bond Fund of America -- Page 2 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 -- Debt securities are used by issuers to borrow money. Generally, issuers pay investors interest and may repay the amount borrowed periodically during the life of the security or at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values and increase in value until maturity. The market prices of debt securities fluctuate depending on such factors as interest rates, credit quality and maturity. In general, market prices of debt securities decline when interest rates rise and increase when interest rates fall. Lower rated debt securities, rated Ba or below by Moody's and/or BB or below by S&P or unrated but determined to be of equivalent quality, are described by the rating agencies as speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness than higher rated debt securities, or they may already be in default. The market prices of these securities may fluctuate more than higher quality securities and may decline significantly in periods of general economic difficulty. It may be more difficult to dispose of, and to determine the value of, lower rated debt securities. Certain additional risk factors relating to debt securities are discussed below: SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be sensitive to economic changes, political and corporate developments, and interest rate changes. In addition, during an economic downturn or substantial period of rising interest rates, issuers that are highly leveraged may experience increased financial stress that would adversely affect their ability to meet projected business goals, to obtain additional financing and to service their principal and interest payment obligations. Periods of economic change and uncertainty also can be expected to result in increased volatility of market prices and yields of certain debt securities. PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call provisions. If an issuer exercises these provisions in a lower interest rate market, the fund would have to replace the security with a lower yielding security, resulting in decreased income to investors. If the issuer of a debt security defaults on its obligations to pay interest or principal or is the subject of bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it. LIQUIDITY AND VALUATION -- There may be little trading in the secondary market for particular debt securities, which may affect adversely the fund's ability to value accurately or dispose of such debt securities. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and/or liquidity of debt securities. The investment adviser attempts to reduce the risks described above through diversification of the fund's portfolio and by credit analysis of each issuer, as well as by monitoring broad economic trends and corporate and legislative developments, but there can be no assurance that it will be successful in doing so. The Bond Fund of America -- Page 3 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 adjusted in response to changes in the level of the consumer price index. The interest rate is fixed at issuance as a percentage of this adjustable principal. The actual interest income may therefore both rise and fall as the level of the consumer price index rises and falls. In particular, in a period of deflation the interest income would fall. While the interest income may adjust upward or downward without limit in response to changes in the consumer price index, the principal has a floor at par, meaning that the investor receives at least the par value at redemption. 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. 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 stocks automatically convert into common stocks. The prices and yields of nonconvertible preferred stocks generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Certain of these securities will be treated as debt for fund investment limit purposes. Convertible bonds, convertible preferred stocks and other securities may sometimes be converted, or may automatically convert, into common stocks or other securities at a stated conversion ratio. These securities, prior to conversion, may pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics, their value varies in response to many factors, including the value of the underlying assets, 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. GOVERNMENT OBLIGATIONS -- U.S. government obligations are securities backed by the full faith and credit of the U.S. government. U.S. government obligations include the following types of securities: U.S. TREASURY SECURITIES -- U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. government, and thus they are of the highest possible credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, will be paid in full. FEDERAL AGENCY SECURITIES BACKED BY "FULL FAITH AND CREDIT" -- The securities of certain U.S. government agencies and government-sponsored entities are guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. Such agencies and entities include the Government National Mortgage Association (Ginnie Mae), the Veterans Administration (VA), the Federal Housing Administration (FHA), the Export-Import Bank (Exim Bank), the Overseas Private Investment Corporation (OPIC), the Commodity Credit Corporation (CCC) and the Small Business Administration (SBA). The Bond Fund of America -- Page 4 OTHER FEDERAL AGENCY OBLIGATIONS -- Additional federal agency securities are neither direct obligations of, nor guaranteed by, the U.S. government. These obligations include securities issued by certain U.S. government agencies and government-sponsored entities. However, they generally involve some form of federal sponsorship: some operate under a government charter, some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; and others are supported only by the credit of the issuing government agency or entity. These agencies and entities include, but are not limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), Tennessee Valley Authority and Federal Farm Credit Bank System. PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations backed by pools of mortgages or other assets including, but not limited to, loans on single family residences, home equity loans, mortgages on commercial buildings, credit card receivables and leases on airplanes or other equipment. Principal and interest payments made on the underlying asset pools backing these obligations are typically passed through to investors. Pass-through securities may have either fixed or adjustable coupons. These securities include: "MORTGAGE-BACKED SECURITIES" -- These securities may be issued by U.S. government agencies and government-sponsored entities, such as Ginnie Mae, Fannie Mae and Freddie Mac, and by private entities. The payment of interest and principal on mortgage-backed obligations issued by U.S. government agencies may be guaranteed by the full faith and credit of the U.S. government (in the case of Ginnie Mae), or may be guaranteed by the issuer (in the case of Fannie Mae and Freddie Mac). However, these guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Mortgage-backed securities issued by private entities are structured similarly to those issued by U.S. government agencies. However, these securities and the underlying mortgages are not guaranteed by any government agencies. These securities generally are structured with one or more types of credit enhancement. Mortgage-backed securities generally permit borrowers to prepay their underlying mortgages. Prepayments can alter the effective maturity of these instruments. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) -- CMOs are also backed by a pool of mortgages or mortgage loans, which are divided into two or more separate bond issues. CMOs issued by U.S. government agencies are backed by agency mortgages. Payments of principal and interest are passed through to each bond issue at varying schedules resulting in bonds with different coupons, effective maturities and sensitivities to interest rates. Some CMOs may be structured in a way that when interest rates change, the impact of changing prepayment rates on the effective maturities of certain issues of these securities is magnified. COMMERCIAL MORTGAGE-BACKED SECURITIES -- These securities are backed by mortgages on commercial property, such as hotels, office buildings, retail stores, hospitals and other commercial buildings. These securities may have a lower prepayment uncertainty than other mortgage-related securities because commercial mortgage loans generally prohibit or impose penalties on prepayments of principal. In addition, commercial mortgage-related securities often are structured with some form of credit enhancement to protect against potential losses on the underlying mortgage loans. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of The Bond Fund of America -- Page 5 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 -- These securities are backed by other assets such as credit card, automobile or consumer loan receivables, retail installment loans, or participations in pools of leases. Credit support for these securities may be based on the underlying assets and/or provided through credit enhancements by a third party. The values of these securities are sensitive to changes in the credit quality of the underlying collateral, the credit strength of the credit enhancement, changes in interest rates and at times the financial condition of the issuer. Some asset-backed securities also may receive prepayments that can change their effective maturities. "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 that will substantially reduce or eliminate interest payments. INVESTING IN VARIOUS COUNTRIES -- Investing outside the United States may involve additional risks caused by, among other things, currency controls and fluctuating currency values; different accounting, auditing, financial reporting and legal standards and practices in some countries; changing local, regional and global economic, political and social conditions; expropriation; changes in tax policy; greater market volatility; differing securities market structures; higher transaction costs; and various administrative difficulties, such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. The risks described above may be heightened in connection with investments in developing countries. Although there is no universally accepted definition, the investment adviser generally considers a developing country as a country that is in the earlier stages of its industrialization cycle with a low per capita gross domestic product and a low market capitalization relative to those in the United States and western Europe. Historically, the markets of developing countries have been more volatile than the markets of developed countries. The fund may invest in securities of issuers in developing countries only to a limited extent. Additional costs could be incurred in connection with the fund's investment activities outside the United States. Brokerage commissions may be higher outside the United States, and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with maintaining assets in certain jurisdictions. CURRENCY TRANSACTIONS -- The fund may purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange rates. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Forward currency contracts entered into by the fund will involve the purchase or sale of one currency against the U.S. dollar. While entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain that may result from an increase in the value of the currency. The fund will not generally attempt to protect against all The Bond Fund of America -- Page 6 potential changes in exchange rates. The fund will segregate liquid assets that will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Internal Revenue Code may affect the extent to which the fund may enter into forward contracts. Such transactions also may affect the character and timing of income, gain or loss recognized by the fund for U.S. federal income tax purposes. REAL ESTATE INVESTMENT TRUSTS -- The fund may invest in debt securities issued by real estate investment trusts (REITs), which primarily invest in real estate or real estate-related loans. Equity REITs own real estate properties, while mortgage REITs hold construction, development and/or long-term mortgage loans. The values of REITs may be affected by changes in the value of the underlying property of the trusts, the creditworthiness of the issuer, property taxes, interest rates and tax and regulatory requirements, such as those relating to the environment. Both types of REITs are dependent upon management skill and are subject to cash flow dependency, the real estate market in general and the possibility of failing to qualify for any applicable pass-through tax treatment or failing to maintain any applicable exemptive status afforded under relevant laws. 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 from 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 that will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund's aggregate commitments in connection with these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than if it were not in such a position. The fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations. The fund may also enter into "roll" transactions which involve the sale of mortgage-backed or other securities together with a commitment to purchase similar, but not identical, securities at a later date. The fund assumes the risk of price and yield fluctuations during the time of the commitment. The fund will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. 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 The Bond Fund of America -- Page 7 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. CASH AND CASH EQUIVALENTS -- These include (a) commercial paper (for example, short-term notes with maturities typically up to 12 months in length issued by corporations, governmental bodies or bank/corporation sponsored conduits (asset-backed commercial paper)) (b) short-term bank obligations (for example, certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)) or bank notes, (c) savings association and savings bank obligations (for example, bank notes and certificates of deposit issued by savings banks or savings associations), (d) securities of the U.S. government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (e) corporate bonds and notes that mature, or that may be redeemed, in one year or less. 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 that 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 the 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 be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, a fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. When the fund purchases assignments from lenders, it acquires 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 colender 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 loan participations 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. Difficulty in selling such securities may result in a loss or be costly to a fund. Restricted The Bond Fund of America -- Page 8 securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933 (the "1933 Act"), or in a registered public offering. Where registration is required, the holder of a registered security may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time it may be permitted to sell a security under an effective registration statement. Securities (including restricted securities) not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures adopted by the fund's Board of Directors, taking into account factors such as the frequency and volume of trading, the commitment of dealers to make markets and the availability of qualified investors, all of which can change from time to time. The fund may incur certain additional costs in disposing of illiquid securities. 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. The fund does not currently intend 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 involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. Fixed-income securities are generally traded on a net basis and usually neither brokerage commissions nor transfer taxes are involved. Transaction costs are usually reflected in the spread between the bid and asked price. A fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio were replaced once per year. The fund's portfolio turnover rates for the fiscal years ended December 31, 2004 and 2003 were 45% and 60%, respectively. See "Financial highlights" in the prospectus for the fund's annual portfolio turnover rate for each of the last five fiscal years. The Bond Fund of America -- Page 9 FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies and investment restrictions, which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940, as amended (the "1940 Act"), as the vote of the lesser of (a) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (b) more than 50% of the outstanding voting securities. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. 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; 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; The Bond Fund of America -- Page 10 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. NONFUNDAMENTAL POLICIES -- The fund has adopted the following nonfundamental investment policies, which may be changed by action of the Board of Directors without shareholder approval: 1. The fund may not invest in securities of other investment companies, except as permitted by the 1940 Act. 2. The fund may not issue senior securities, except as permitted by the 1940 Act. The Bond Fund of America -- Page 11 MANAGEMENT OF THE FUND BOARD OF DIRECTORS AND OFFICERS
YEAR FIRST NUMBER OF PORTFOLIOS POSITION ELECTED WITHIN THE FUND WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) COMPLEX/2/ OVERSEEN OTHER DIRECTORSHIPS/3/ NAME AND AGE FUND OF THE FUND/1/ DURING PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Capen, Director 1999 Corporate director and 14 Carnival Corporation Jr. author; former U.S. Age: 70 Ambassador to Spain; former Vice Chairman, Knight-Ridder, Inc. (communications company); former Chairman and Publisher, The Miami Herald ---------------- - ----------------------------------------------------------------------------------------------------------------------------------- H. Frederick Director 1974 Private investor; former 19 Ducommun Incorporated; Christie President and CEO, The IHOP Corporation; Age: 71 Mission Group (non-utility Southwest Water Company; holding company, subsidiary Valero L.P. of Southern California Edison Company) - ----------------------------------------------------------------------------------------------------------------------------------- Diane C. Creel Director 1994 Chairman of the Board and 12 Allegheny Technologies; Age: 56 CEO, Ecovation, Inc. BF Goodrich; (organic waste management) Foster Wheeler Ltd.; Teledyne Technologies - ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Director 1989 Chairman of the Board and 16 None Age: 69 CEO, Senior Resource Group LLC (development and management of senior living communities) - ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Director 1994 President and CEO, Fuller 14 None Age: 58 Consulting (financial management consulting firm) - ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Director 1991 Chairman of the Board and 13 Sempra Energy; Age: 70 CEO, AECOM Technology Southwest Water Company Corporation (engineering, consulting and professional technical services) - ----------------------------------------------------------------------------------------------------------------------------------- Frank M. Sanchez Director 1999 Principal, The Sanchez 12 None Age: 61 Family Corporation dba McDonald's Restaurants (McDonald's licensee) - -----------------------------------------------------------------------------------------------------------------------------------
The Bond Fund of America -- Page 12
PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST FIVE YEARS AND ELECTED POSITIONS HELD NUMBER OF PORTFOLIOS POSITION A DIRECTOR WITH AFFILIATED ENTITIES WITHIN THE FUND WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ OVERSEEN OTHER DIRECTORSHIPS/3/ NAME AND AGE FUND OF THE FUND/1/ OF THE FUND BY DIRECTOR HELD BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/4,5/ - ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Jr. Chairman 1985 Executive Vice President and 17 None Age: 56 of the Director, Capital Research Board and Management Company; Director, The Capital Group Companies, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- Abner D. Goldstine President 1974 Senior Vice President and 12 None Age: 75 and Director, Capital Research Director and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Don R. Conlan Director 1996 President (retired), The 6 None Age: 69 Capital Group Companies, Inc.* - -----------------------------------------------------------------------------------------------------------------------------------
The Bond Fund of America -- Page 13
YEAR FIRST PRINCIPAL OCCUPATION(S) DURING POSITION ELECTED PAST FIVE 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, Capital Research and Management Company; Age: 48 Director, The Capital Group Companies, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- Mark R. Macdonald Senior Vice President 2001 Senior Vice President and Director, Capital Research and Age: 45 Management Company - ----------------------------------------------------------------------------------------------------------------------------------- John H. Smet Senior Vice President 1994 Senior Vice President, Capital Research and Management Company; Age: 48 Director, American Funds Distributors, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- Kristine M. Vice President 2003 Vice President and Counsel - Fund Business Management Group, Nishiyama Capital Research and Management Company; Vice President and Age: 34 Counsel, Capital Bank and Trust Company* - ----------------------------------------------------------------------------------------------------------------------------------- Julie F. Williams Secretary 1982 Vice President - Fund Business Management Group, Capital Research Age: 56 and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Susi M. Silverman Treasurer 2001 Vice President - Fund Business Management Group, Capital Research Age: 34 and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Kimberly S. Verdick Assistant Secretary 1994 Assistant Vice President - Fund Business Management Group, Age: 40 Capital Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Sharon G. Moseley Assistant Treasurer 2003 Vice President - Fund Business Management Group, Capital Research Age: 37 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,(R) which serves as the underlying investment vehicle for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain nonprofit organizations. 3 This includes all directorships (other than those of the American Funds) that are held by each Director as a director of a public company or a registered investment company. 4 "Interested persons," within the meaning of the 1940 Act, on the basis of their affiliation with the fund's investment adviser, Capital Research and Management Company, or 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 14 FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2004
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 G. 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 Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- Frank M. Sanchez $1 - $10,000 $10,001 - $50,000 - ------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/2/ - ------------------------------------------------------------------------------- Don R. Conlan None 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 affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION -- No compensation is paid by the fund to any officer or Director who is a director, officer or employee of the investment adviser or its affiliates. Certain of the fund's unaffiliated Directors may also serve as Board or Committee members for other American Funds whose Boards or Committees meet jointly with those of the fund. For joint Board or Contracts Committee meetings, the fund pays each Director a pro rata portion of an attendance fee of $2,520; for joint Nominating Committee meetings, the fund pays each Director a pro rata portion of an attendance fee of $1,200; and for joint Audit Committee meetings the fund pays each Director a pro rata portion of an annual attendance fee of $5,040. Several other American Funds meet jointly with the fund, but annual fees are paid by each fund individually. BFA pays annual retainer fees of $11,000. However, any unaffiliated Director who serves only BFA and the funds with which BFA meets jointly and no other American Funds is paid annual compensation aggregating $50,000, a pro rata portion of which is paid by each of the funds which meet jointly. The payment by the fund to certain unaffiliated Directors of a larger per fund annual fee reflects the significant time and labor commitment required of any mutual fund Board member overseeing even one fund. The Bond Fund of America -- Page 15 The Nominating and Governance Committee of the Board of Directors, a Committee comprised exclusively of Directors not affiliated with the investment adviser, reviews Director compensation periodically, and typically recommends adjustments every other year. In making its recommendations, the Nominating and Governance Committee considers a number of factors, including operational, regulatory and other developments affecting the complexity of the Board's oversight obligations, as well as comparative industry data. 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. DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2004
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 G. Capen, $14,804 $132,678 Jr./3/ - ------------------------------------------------------------------------------------------ H. Frederick 15,007 293,340 Christie/3/ - ------------------------------------------------------------------------------------------ Diane C. Creel/3/ 14,287 72,703 - ------------------------------------------------------------------------------------------ Martin Fenton/3/ 13,112 245,620 - ------------------------------------------------------------------------------------------ Leonard R. Fuller/3/ 16,304 183,115 - ------------------------------------------------------------------------------------------ Richard G. Newman 13,120 151,620 - ------------------------------------------------------------------------------------------ Frank M. Sanchez 14,538 76,203 - ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Directors under a nonqualified deferred compensation plan adopted by the fund in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more American Funds as designated by the Directors. Compensation for the fiscal year ended December 31, 2004, includes earnings on amounts deferred in previous fiscal years. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series,(R) which serves as the underlying investment vehicle for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain nonprofit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2004 fiscal year for participating Directors is as follows: Richard G. Capen, Jr. ($69,564), H. Frederick Christie ($24,017), Diane C. Creel ($79,459), Martin Fenton ($49,656) and Leonard R. Fuller ($111,727). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Directors. As of February 1, 2005, 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. Although the Board of Directors has delegated day-to-day oversight to the investment adviser, all fund operations are supervised by the fund's Board, which meets periodically and performs duties required by applicable state and federal laws. The Bond Fund of America -- Page 16 Under Maryland law, the business affairs of a fund are managed under the direction of the Board of Directors, and all powers of the fund are exercised by or under the authority of the Board except as reserved to the shareholders by law or the fund's charter or by-laws. Maryland law requires each Director to perform his/her duties as a Director, including his/her duties as a member of any Board committee on which he/she serves, in good faith, in a manner he/she reasonably believes to be in the best interest of the fund, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Members of the Board who are not employed by the investment adviser 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, B, C, F, 529-A, 529-B, 529-C, 529-E, 529-F, R-1, R-2, R-3, R-4 and R-5 shares. The 529 share classes are available only through CollegeAmerica/(R)/ to investors establishing qualified higher education savings accounts. The R share classes are generally available only to employer-sponsored retirement plans. Class R-5 shares are also available to clients of the Personal Investment Management group of Capital Guardian Trust Company who do not have an intermediary associated with their accounts and without regard to the $1 million purchase minimum. Shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Directors and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. Note that CollegeAmerica account owners are not shareholders of the fund and, accordingly, do not have the rights of a shareholder, such as the right to vote proxies relating to fund shares. As the legal owner of the fund's shares, the Virginia College Savings Plan/SM/ will vote any proxies relating to fund shares. The fund does not hold annual meetings of shareholders. However, significant matters that require shareholder approval, such as certain elections of Board members or a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the Board could be removed by a majority vote. The fund's Articles of Incorporation and by-laws as well as separate indemnification agreements that the fund has entered into with Directors who are not "interested persons" of the fund, provide in effect that, subject to certain conditions, the fund will indemnify its officers and Directors against liabilities or expenses actually and reasonably incurred by them relating to their service to the fund. However, Directors are not protected from liability by reason of their willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office. The Bond Fund of America -- Page 17 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 an "interested person" of the fund within the meaning of the 1940 Act. The Committee provides oversight regarding the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent registered public accounting firm and the full Board of Directors. Five Audit Committee meetings were held during the 2004 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 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, Administrative Services Agreement and Plans of Distribution adopted pursuant to rule 12b-1 under the 1940 Act, that the fund may enter into, renew or continue, and to make its recommendations to the full Board of Directors on these matters. Two Contracts Committee meetings were held during the 2004 fiscal year. The fund has a Nominating and Governance 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 an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates independent Director candidates to the full Board of Directors. While the Committee normally is able to identify from its own and other resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating and Governance Committee of the fund, addressed to the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee. Two Nominating and Governance Committee meetings were held during the 2004 fiscal year. PROXY VOTING PROCEDURES AND GUIDELINES -- The fund and its investment adviser have adopted Proxy Voting Guidelines (the "Guidelines") with respect to voting proxies of securities held by the fund, other American Funds, Endowments and American Funds Insurance Series. Certain American Funds have established separate proxy committees that vote proxies or delegate to a voting officer the authority to vote on behalf of those funds. Proxies for all other funds are voted by a committee of the investment adviser under authority delegated by those funds' Boards. Therefore, if more than one fund invests in the same company, they may vote differently on the same proposal. All U.S. proxies are voted. Non-U.S. proxies also are voted, provided there is sufficient time and information available. After a proxy is received, the investment adviser prepares a summary of the proposals in the proxy. A discussion of any potential conflicts of interest is also included in the summary. After reviewing the summary, one or more research analysts familiar with the company and industry make a voting recommendation on the proxy proposals. A second recommendation The Bond Fund of America -- Page 18 is made by a proxy coordinator (a senior investment professional) based on the individual's knowledge of the Guidelines and familiarity with proxy-related issues. The proxy summary and voting recommendations are then sent to the appropriate proxy voting committee for the final voting decision. The analyst and proxy coordinator making voting recommendations are responsible for noting any potential material conflicts of interest. One example might be where a director of one or more American Funds is also a director of a company whose proxy is being voted. In such instances, proxy committee members are alerted to the potential conflict. The proxy committee may then elect to vote the proxy or seek a third-party recommendation or vote of an ad hoc group of committee members. The Guidelines, which have been in effect in substantially their current form for many years, provide an important framework for analysis and decision-making by all funds. However, they are not exhaustive and do not address all potential issues. The Guidelines provide a certain amount of flexibility so that all relevant facts and circumstances can be considered in connection with every vote. As a result, each proxy received is voted on a case-by-case basis considering the specific circumstances of each proposal. The voting process reflects the funds' understanding of the company's business, its management and its relationship with shareholders over time. On August 31 of each year, each fund is required to file Form N-PX containing its complete voting record for the 12 months ended the preceding June 30. The fund's voting record for the 12 months ended June 30, 2004 is available on the American Funds website at americanfunds.com and on the SEC's website at www.sec.gov. The following summary sets forth the general positions of the American Funds, Endowments, American Funds Insurance Series and the investment adviser on various proposals. A copy of the full Guidelines is available upon request, free of charge, by calling American Funds Service Company at 800/421-0180 or visiting the American Funds website. DIRECTOR MATTERS -- The election of a company's slate of nominees for director is generally supported. Votes may be withheld for some or all of the nominees if this is determined to be in the best interest of shareholders. Separation of the chairman and CEO positions may also be supported. Typically, proposals to declassify the board (elect all directors annually) are supported based on the belief that this increases the directors' sense of accountability to shareholders. SHAREHOLDER RIGHTS -- Proposals to repeal an existing poison pill, to provide for confidential voting and to provide for cumulative voting are usually supported. Proposals to eliminate the right of shareholders to act by written consent or to take away a shareholder's right to call a special meeting are not typically supported. COMPENSATION AND BENEFIT PLANS -- Option plans are complicated, and many factors are considered in evaluating a plan. Each plan is evaluated based on protecting shareholder interests and a knowledge of the company and its management. Considerations include the pricing (or repricing) of options awarded under the plan and the impact of dilution on existing shareholders from past and future equity awards. Compensation packages should be structured to attract, motivate and retain existing employees and qualified directors; however, they should not be excessive. The Bond Fund of America -- Page 19 ROUTINE MATTERS -- The ratification of auditors, procedural matters relating to the annual meeting and changes to company name are examples of items considered routine. Such items are generally voted in favor of management's recommendations unless circumstances indicate otherwise. PRINCIPAL FUND SHAREHOLDERS -- The following table identifies those investors who own of record or are known by the fund to own beneficially 5% or more of any class of its shares as of the opening of business on February 1, 2005. Unless otherwise indicated, the ownership percentages below represent ownership of record rather than beneficial ownership.
NAME AND ADDRESS OWNERSHIP PERCENTAGE - ---------------------------------------------------------------------------- Edward D. Jones & Co. Class A 15.24% 201 Progress Parkway Class B 8.82 Maryland Heights, MO 63043-3009 - ---------------------------------------------------------------------------- Citigroup Global Market, Inc. Class C 10.95 333 W. 34th Street New York, NY 10001 - ---------------------------------------------------------------------------- MLPF&S For The Sole Benefit Of Its Customers Class B 6.52 4800 Deer Lake Drive East, Floor 2 Class C 15.95 Jacksonville, FL 32246 - ---------------------------------------------------------------------------- Trustlynx & Co. Class R-1 7.10 FBO Prime Retail LP 401K P.O. Box 173736 Denver, CO 80217-3736 - ---------------------------------------------------------------------------- Hartford Life Insurance Co. Class R-3 8.71 P.O. Box 2999 Hartford, CT 06104 - ---------------------------------------------------------------------------- Nationwide Trust Company FSB Class R-3 5.94 P.O. Box 182029 Columbus, OH 43218 - ---------------------------------------------------------------------------- FM Company Class R-4 7.19 FBO Huntington Bank Omnibus Account 7 Easton Oval EA4E69 Columbus, OH 43219 - ---------------------------------------------------------------------------- Trustlynx & Co. Class R-4 5.29 North Pacific Group 401K P.O. Box 173736 Denver, CO 80217 - ---------------------------------------------------------------------------- Capital Group Master Retirement Plan Class R-5 18.18 c/o Capital Guardian Trust Company 333 South Hope Street, Floor 49 Los Angeles, CA 90071 - ---------------------------------------------------------------------------- The Northern Trust Company Class R-5 11.38 UBS Financial Services Inc. P.O. Box 92994 Chicago, IL 60675 - ---------------------------------------------------------------------------- Reliance Trust Company TTEE Class R-5 10.14 Foamex LP Pension Plan 1000 Columbia Avenue Linwood, PA 19061 - ----------------------------------------------------------------------------
The Bond Fund of America -- Page 20 INVESTMENT ADVISER -- The investment adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the United States and abroad (Los Angeles; San Francisco; New York; Washington, DC; London; Geneva; Hong Kong; Singapore; and Tokyo) with a staff of professionals, many of whom have significant investment experience. The 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 $500 billion of stocks, bonds and money market instruments and serves over 20 million shareholder accounts of all types throughout the world. These investors include individuals, privately owned businesses and large corporations, as well as schools, colleges, foundations and other nonprofit and tax-exempt organizations. POTENTIAL CONFLICTS OF INTEREST -- The investment adviser has adopted policies and procedures that address potential conflicts of interest that may arise between a portfolio counselor's management of the fund and his or her management of other funds and accounts, such as conflicts relating to the allocation of investment opportunities, personal investing activities, portfolio counselor compensation and proxy voting of portfolio securities. While there is no guarantee that such policies and procedures will be effective in all cases, the investment adviser believes that all issues relating to potential material conflicts of interest involving the fund and its other managed funds and accounts have been addressed. COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the investment adviser uses a system of multiple portfolio counselors in managing mutual fund assets. In addition, Capital Research and Management Company's investment analysts may make investment decisions with respect to a portion of a fund's portfolio within their research coverage. Portfolio counselors and investment analysts may manage assets in other mutual funds advised by Capital Research and Management Company. Portfolio counselors and investment analysts are paid competitive salaries by Capital Research and Management Company. In addition, they receive bonuses based on their individual portfolio results. Investment professionals also may participate in profit-sharing plans. The relative mix of compensation represented by bonuses, salary and profit-sharing will vary depending on the individual's portfolio results, contributions to the organization and other factors. In order to encourage a long-term focus, bonuses based on investment results are calculated by comparing pretax total returns over a four-year period to relevant benchmarks. For portfolio counselors, benchmarks may include measures of the marketplaces in which the relevant fund invests and measures of the results of comparable mutual funds. For investment analysts, benchmarks may include relevant market measures and appropriate industry or sector indexes reflecting their areas of expertise. Capital Research and Management Company also separately compensates analysts for the quality of their research efforts. The benchmarks against which The Bond Fund of America portfolio counselors are measured include: Lehman Aggregate Bond Index; CS First Boston High Yield Index; Lipper High Current Yield Funds Average; and Citigroup World Government Bond Index. PORTFOLIO COUNSELOR FUND HOLDINGS AND OTHER MANAGED ACCOUNTS -- As described below, portfolio counselors may personally own shares of the fund. In addition, portfolio counselors may manage a portion of other mutual funds or accounts advised by Capital Research and Management Company or its affiliates. The Bond Fund of America -- Page 21 THE FOLLOWING TABLE REFLECTS INFORMATION AS OF DECEMBER 31, 2004:
NUMBER NUMBER OF OTHER OF OTHER NUMBER REGISTERED POOLED OF OTHER INVESTMENT INVESTMENT ACCOUNTS COMPANIES (RICS) VEHICLES (PIVS) THAT THAT THAT PORTFOLIO PORTFOLIO PORTFOLIO COUNSELOR DOLLAR RANGE COUNSELOR COUNSELOR MANAGES OF FUND MANAGES MANAGES (ASSETS OF PORTFOLIO SHARES (ASSETS OF RICS (ASSETS OF PIVS OTHER ACCOUNTS COUNSELOR OWNED/1/ IN BILLIONS) IN BILLIONS) IN BILLIONS)/2/ - ------------------------------------------------------------------------------------------ Abner D. Over 4 $117.2/3/ None None Goldstine $1,000,000 - ------------------------------------------------------------------------------------------ David C. Barclay $100,001 -- 4 $120.3/3/ None 19 $4.2/4/ $500,000 - ------------------------------------------------------------------------------------------ Mark R. Macdonald $100,001 -- 4 $193.8/3/ None None $500,000 - ------------------------------------------------------------------------------------------ John H. Smet $100,001 -- 6 $159.7/3/ None 3 $2.0/4/ $500,000 - ------------------------------------------------------------------------------------------ Mark H. Dalzell $50,001 -- 1 $2.0/3/ None 19 $3.9/4/ $100,000 - ------------------------------------------------------------------------------------------ Susan M. Tolson $100,001 -- 3 $65.4/3/ None 7 $2.1/4/ $500,000 - ------------------------------------------------------------------------------------------
1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 - $1,000,000; and Over $1,000,000. The amounts listed include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 Reflects other professionally managed accounts held at companies affiliated with Capital Research and Management Company. Personal brokerage accounts of portfolio counselors and their families are not reflected. 3 Assets noted are the total net assets of the registered investment companies and are not indicative of the total assets managed by the individual, which is a substantially lower amount. 4 Fixed-income assets in institutional accounts managed by investment adviser subsidiaries of Capital Group International, Inc., an affiliate of Capital Research and Management Company. 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, 2005, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (a) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the fund, and (b) the vote of a majority of Directors who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the investment adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written The Bond Fund of America -- Page 22 notice to the other party, and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). In considering the renewal of 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 renewal meetings on August 9 and September 23, 2004, the Committee considered a variety of factors, including the quality of the services provided to the funds by the investment adviser, fees and expenses borne by the fund, and the profitability to the investment adviser of its relationship to the fund. In arriving at their decision to renew the Agreement, the Committee met with representatives of the investment adviser, including relevant investment advisory personnel, and reviewed information prepared by management and by counsel to the fund and the independent Directors. The Committee noted that the investment results of BFA were above the medians for its peer groups for 2003 and for the three-, five- and 10-year periods ended June 30, 2004. They also noted that the fund's advisory fees and total expenses for 2003 as a percentage of its average net assets were below the medians of its peer groups, and that the advisory fees would be further decreased by the proposed voluntary 5% fee waiver by Capital Research and Management Company. They also considered the depth and quality of CRMC's research capabilities; the low turnover rates of its key personnel and the overall stability of its organization; the experience, capability and integrity of its senior management; and its commitment and systems in place to ensure a high level of compliance with applicable laws, rules and other requirements. In deliberating on these matters, the Committee was advised with respect to relevant legal standards by counsel to the fund and the independent Directors, who are independent of the investment adviser. In arriving at a decision, the Directors did not identify any single matter as controlling, and the summary above does not set forth all of the matters considered. The Committee judged the terms and conditions of the Agreement, including the investment advisory fees, in light of all the surrounding circumstances. Based on their review, the Committee concluded, in the exercise of their business judgment, that the fund's advisory fees are fair, both absolutely and in comparison with those of other similar funds in the industry, that the fund's shareholders have received reasonable value in return for those fees, and that continuation of the Agreement was in the best interest of the fund's shareholders. In addition to providing investment advisory services, the investment adviser furnishes the services and pays the compensation and travel expenses of persons to perform the fund's executive, administrative, clerical and bookkeeping functions, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies and postage used at the fund's offices. The fund pays all expenses not assumed by the investment adviser, including, but not limited to, custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements and notices to its shareholders; taxes; expenses of the issuance and redemption of fund shares (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's plans of distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to 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 Bond Fund of America -- Page 23 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 16,000,000,000 - ------------------------------------------------------------------------------ 0.13 16,000,000,000 20,000,000,000 - ------------------------------------------------------------------------------ 0.12 20,000,000,000 - ------------------------------------------------------------------------------
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 41,666,667 - ----------------------------------------------------------------------------------- 1.75 41,666,667 - -----------------------------------------------------------------------------------
Assuming average daily net assets of $20.0 billion and gross investment income levels of 3%, 4%, 5%, 6% and 7%, management fees would be .21%, .23%, .25%, .26% and .28%, 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) 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. The Bond Fund of America -- Page 24 For the fiscal years ended December 31, 2004, 2003 and 2002, the investment adviser received from the fund advisory fees of $45,595,000, $43,518,000 and $40,506,000, respectively. During the year ended December 31, 2003, the investment adviser voluntarily reduced investment advisory services fees to the rates based on daily net assets provided by the amended agreement. As a result, for the year ended December 31, 2003, the fee was voluntarily reduced by $17,000 to $43,501,000. The annualized rate was not affected by this voluntary reduction of fees. For the period from September 1, 2004 through March 31, 2005, the investment adviser agreed to waive 5% of the management fees that it was otherwise entitled to receive under the Agreement. Beginning April 1, 2005, this waiver increased to 10% of the management fees that it is otherwise entitled to receive and will continue at this level until further review. As a result of this waiver, management fees will be reduced similarly for all classes of shares of the fund. For the period ended December 31, 2004, management fees were reduced by $788,000 as a result of this waiver. ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the "Administrative Agreement") between the fund and the investment adviser relating to the fund's Class C, F, R and 529 shares will continue in effect until October 31, 2005, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by the vote of a majority of Directors who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The fund may terminate the Administrative Agreement at any time by vote of a majority of 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 Class C and F shares, and all Class R and 529 shares. 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. For Class R-1, R-2 and R-3 shares, the investment adviser has agreed to pay a portion of these fees. For the year ended December 31, 2004, the total fees paid by the investment adviser were $746,000. 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 applicable share class, except Class R-5 shares. For Class R-5 shares, the administrative services fee is paid monthly, accrued daily and calculated at the annual rate of 0.10% of the average net assets of Class R-5 shares. The Bond Fund of America -- Page 25 During the 2004 fiscal year, administrative services fees, gross of any payments made by the investment adviser, were:
ADMINISTRATIVE SERVICES FEE - -------------------------------------------------------------------------------- CLASS C $1,749,000 - -------------------------------------------------------------------------------- CLASS F 658,000 - -------------------------------------------------------------------------------- CLASS 529-A 249,000 - -------------------------------------------------------------------------------- CLASS 529-B 87,000 - -------------------------------------------------------------------------------- CLASS 529-C 138,000 - -------------------------------------------------------------------------------- CLASS 529-E 15,000 - -------------------------------------------------------------------------------- CLASS 529-F 5,000 - -------------------------------------------------------------------------------- CLASS R-1 21,000 - -------------------------------------------------------------------------------- CLASS R-2 1,472,000 - -------------------------------------------------------------------------------- CLASS R-3 453,000 - -------------------------------------------------------------------------------- CLASS R-4 73,000 - -------------------------------------------------------------------------------- CLASS R-5 121,000 - --------------------------------------------------------------------------------
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 and 529-A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A and 529-A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class B and 529-B shares, the Principal Underwriter sells the rights to the 12b-1 fees paid by the fund for distribution expenses to a third party and receives the revenue remaining after compensating investment dealers for sales of Class B and 529-B shares. The fund also pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers of Class B and 529-B shares. For Class C and 529-C shares, the Principal Underwriter receives any contingent deferred sales charges that apply during the first year after purchase. The fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers of Class C and 529-C shares. For Class 529-E shares, the fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers. For Class F and 529-F shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell Class F and 529-F shares. 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 Class R-1, R-2, R-3 and R-4 shares. The Bond Fund of America -- Page 26 Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:
COMMISSIONS, ALLOWANCE OR REVENUE COMPENSATION FISCAL YEAR/PERIOD OR FEES RETAINED TO DEALERS - ----------------------------------------------------------------------------------------------------- CLASS A 2004 $15,056,000 $58,069,000 2003 11,590,000 44,559,000 2002 10,609,000 40,421,000 - ----------------------------------------------------------------------------------------------------- CLASS B 2004 1,412,000 9,915,000 2003 2,416,000 15,396,000 2002 3,900,000 19,331,000 - ----------------------------------------------------------------------------------------------------- CLASS C 2004 -- 4,210,000 2003 65,000 3,732,000 2002 -- 4,038,000 - ----------------------------------------------------------------------------------------------------- CLASS 529-A 2004 492,000 1,881,000 2003 361,000 1,376,000 2002 287,000 1,099,000 - ----------------------------------------------------------------------------------------------------- CLASS 529-B 2004 103,000 570,000 2003 121,000 671,000 2002 90,000 643,000 - ----------------------------------------------------------------------------------------------------- CLASS 529-C 2004 -- 320,000 2003 13,000 279,000 2002 -- 270,000 - -----------------------------------------------------------------------------------------------------
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 quality shareholder services; savings to the fund in transfer agency costs; 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: (a) for Class A shares, up to 0.25% of the average daily net assets attributable to Class A shares; (b) for Class 529-A The Bond Fund of America -- Page 27 shares, up to 0.50% of the average daily net assets attributable to Class 529-A shares; (c) for Class B and 529-B shares, 1.00% of the average daily net assets attributable to Class B and 529-B shares, respectively; (d) for Class C and 529-C shares, 1.00% of the average daily net assets attributable to Class C and 529-C shares, respectively; (e) for Class 529-E shares, up to 0.75% of the average daily net assets attributable to Class 529-E shares; (f) for Class F and 529-F shares, up to 0.50% of the average daily net assets attributable to Class F and 529-F shares; (g) for Class R-1 shares, 1.00% of the average daily net assets attributable to Class R-1 shares; (h) for Class R-2 shares, up to 1.00% of the average daily net assets attributable to Class R-2 shares; (i) for Class R-3 shares, up to 0.75% of the average daily net assets attributable to Class R-3 shares; and (j) for Class R-4 shares, up to 0.50% of its average daily net assets attributable to Class R-4 shares. 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 and 529-A shares: (a) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) up to the amount allowable under the fund's Class A and 529-A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including for Class A and 529-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 and 529-A shares, in excess of the Class A and 529-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, 2004, unreimbursed expenses which remain subject to reimbursement under the Plan for Class A shares totaled $8,519,000. For Class B and 529-B shares: (a) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class C and 529-C shares: (a) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) 0.75% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class 529-E shares: currently (a) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class F and 529-F shares: currently 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers or advisers. For Class R-1 shares: (a) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including commissions paid to qualified dealers. The Bond Fund of America -- Page 28 For Class R-2 shares: currently (a) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) 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 (a) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees to qualified dealers, and (b) 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 paying service fees to qualified dealers or advisers. During the 2004 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 LIABILITY 12B-1 EXPENSES OUTSTANDING - ------------------------------------------------------------------------------ CLASS A $36,668,000 $2,189,000 - ------------------------------------------------------------------------------ CLASS B 13,187,000 1,110,000 - ------------------------------------------------------------------------------ CLASS C 9,700,000 886,000 - ------------------------------------------------------------------------------ CLASS F 936,000 94,000 - ------------------------------------------------------------------------------ CLASS 529-A 216,000 6,000 - ------------------------------------------------------------------------------ CLASS 529-B 421,000 39,000 - ------------------------------------------------------------------------------ CLASS 529-C 705,000 67,000 - ------------------------------------------------------------------------------ CLASS 529-E 44,000 4,000 - ------------------------------------------------------------------------------ CLASS 529-F 8,000 1,000 - ------------------------------------------------------------------------------ CLASS R-1 77,000 8,000 - ------------------------------------------------------------------------------ CLASS R-2 1,330,000 140,000 - ------------------------------------------------------------------------------ CLASS R-3 782,000 83,000 - ------------------------------------------------------------------------------ CLASS R-4 111,000 14,000 - ------------------------------------------------------------------------------
OTHER COMPENSATION TO DEALERS -- As of January 2005, the top dealers that American Funds Distributors anticipates will receive additional compensation (as described in the prospectus) include: 1717 Capital Management Company A. G. Edwards & Sons, Inc. AIG Advisors Group American General Securities Inc. Ameritas Investment Corp. AXA Advisors, LLC Cadaret, Grant & Co., Inc. The Bond Fund of America -- Page 29 Cambridge Investment Research, Inc. Capital Analysts, Inc. Commonwealth Financial Network Cuna Brokerage Services, Inc. Deutsche Bank Securities Inc. Edward Jones Ferris, Baker Watts, Inc. Hefren-Tillotson, Inc. Hornor, Townsend & Kent, Inc. ING Advisors Network Inc. InterSecurities, Inc./Transamerica Financial Advisors, Inc. Investacorp, Inc. Janney Montgomery Scott LLC Jefferson Pilot Securities Corporation JJB Hilliard, WL Lyons, Inc./PNC Bank Legg Mason Wood Walker, Inc. Lincoln Financial Advisors Corporation Linsco/Private Ledger Corp. McDonald Investments Inc./Society National Bank Merrill Lynch, Pierce, Fenner & Smith Inc. Metlife Enterprises MML Investors Services, Inc. Morgan Keegan & Company, Inc. NatCity Investment, Inc. National Planning Holdings Inc. NFP Securities, Inc. Northwestern Mutual Investment Services, LLC. Pacific Select Distributors Inc. Park Avenue Securities LLC Piper Jaffray & Co. Princor Financial Services/PPI Employee Benefits ProEquities, Inc. Raymond James Financial Services/Raymond James & Associates RBC Dain Rauscher Inc. Robert W. Baird & Co. Inc. Securian Financial Services/C.R.I. Securities Inc. Securities Service Network Inc. Signator Investors, Inc. Smith Barney Stifel, Nicolaus & Company, Inc. Terra Securities Corporation The O.N. Equity Sales Company UBS Financial Services Inc. US Bancorp Investments, Inc. Wachovia Securities WS Griffith Securities, Inc. The Bond Fund of America -- Page 30 EXECUTION OF PORTFOLIO TRANSACTIONS As described in the prospectus, the investment adviser places orders with broker-dealers for the fund's portfolio transactions. 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 investment adviser. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. Brokerage commissions paid on portfolio transactions, including investment dealer concessions on underwritings, if applicable, for the fiscal years ended December 31, 2004, 2003 and 2002 amounted to $12,888,000, $11,276,000 and $10,876,000. With respect to fixed-income securities, brokerage commissions include explicit investment dealer concessions and may exclude other transaction costs which may be reflected in the spread between the bid and asked price. The volume of underwriting activity increased during the year, resulting in an increase in brokerage commissions/concessions paid on portfolio transactions. The fund is required to disclose information regarding investments in the securities of its "regular" broker-dealers (or parent companies of its regular broker-dealers) that derive more than 15% of their revenue from broker-dealer, underwriter or investment adviser activities. A regular broker-dealer is (a) one of the 10 broker-dealers that received from the fund the largest amount of brokerage commissions by participating, directly or indirectly, in the fund's portfolio transactions during the fund's most recent fiscal year; (b) one of the 10 broker-dealers that engaged as principal in the largest dollar amount of portfolio transactions of the fund during the fund's most recent fiscal year; or (c) one of the 10 broker-dealers that sold the largest amount of securities of the fund during the fund's most recent fiscal year. At the end of the fund's most recent fiscal year, the fund's regular broker-dealers included J.P. Morgan Securities Inc., Smith Barney, Credit Suisse First Boston LLC, First Clearing, LLC and Deutsche Bank A.G. As of the fund's fiscal year-end, the fund held debt securities of J.P. Morgan Chase & Co. in the amount of $82,509,000; Citigroup Inc. in the amount of $46,283,000; Credit Suisse First Boston (USA), Inc. in the amount of $16,719,000; Wachovia Corporation in the amount of $4,947,000; and Deutsche Bank A.G. in the amount of $2,073,000. DISCLOSURE OF PORTFOLIO HOLDINGS The fund's investment adviser, on behalf of the fund, has adopted policies and procedures with respect to the disclosure of information about fund portfolio securities. These policies and procedures have been reviewed by the fund's Board of Directors and compliance will be periodically assessed by the Board in connection with reporting from the fund's Chief Compliance Officer. Under these policies and procedures, the fund's complete list of portfolio holdings available for public disclosure, dated as of the end of each calendar quarter, is permitted to be posted on the American Funds website no earlier than the tenth day after such calendar quarter. Such portfolio holdings information may then be disclosed to any person pursuant to an ongoing arrangement to disclose portfolio holdings information to such person no earlier than one day after the day on which the information is posted on the American Funds website. Affiliates of the fund (including the fund's Board members and officers, and certain personnel of the fund's investment adviser and its affiliates) and certain service providers (such as the fund's custodian and outside The Bond Fund of America -- Page 31 counsel) who require such information for legitimate business and fund oversight purposes may receive such information earlier. Affiliated persons of the fund as described above who receive portfolio holdings information are subject to restrictions and limitations on the use and handling of such information pursuant to a Code of Ethics, including requirements to maintain the confidentiality of such information, preclear securities trades and report securities transactions activity, as applicable. Third party service providers of the fund receiving such information are subject to confidentiality obligations. When portfolio holdings information is disclosed other than through the American Funds website to persons not affiliated with the fund (which, as described above, would typically occur no earlier than one day after the day on which the information is posted on the American Funds website), such persons may be bound by agreements (including confidentiality agreements) that restrict and limit their use of the information to legitimate business uses only. Neither the fund nor its investment adviser or any affiliate thereof receives compensation or other consideration in connection with the disclosure of information about portfolio securities. The authority to disclose a fund's portfolio holdings, and to establish policies with respect to such disclosure, resides with the Investment Committee of the fund's investment adviser. In exercising its authority, the Investment Committee determines whether disclosure of information about the fund's portfolio securities is appropriate and in the best interest of fund shareholders. The investment adviser has implemented policies and procedures to address conflicts of interest that may arise from the disclosure of fund holdings. For example, the Code of Ethics specifically requires, among other things, the safeguarding of information about fund holdings and contains prohibitions designed to prevent the personal use of confidential, proprietary investment information in a way that would conflict with fund transactions. In addition, the investment adviser believes that its current policy of not selling portfolio holdings information and not disclosing such information to unaffiliated third parties (other than to fund service providers for legitimate business and fund oversight purposes) until such holdings have been made public on the American Funds website, helps reduce potential conflicts of interest between fund shareholders and the investment adviser and its affiliates. PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the offering or net asset value price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer 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. Note that investment dealers or other intermediaries may have their own rules about share transactions and may have earlier cut-off times than those of the fund. For more information about how to purchase through your intermediary, contact your intermediary directly. Prices that appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous The Bond Fund of America -- Page 32 day's closing price, while purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share, which is calculated once daily as of approximately 4:00 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. Each share class of the fund has a separately calculated net asset value (and share price). All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset values per share for each share class are determined, as follows: 1. Equity securities, including depositary receipts, are valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities are valued at prices obtained from an independent pricing service, when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics (e.g., convertible bonds, preferred stocks, units comprised of more than one type of security, etc.), or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Securities with original maturities of one year or less having 60 days or less to maturity are amortized to maturity based on their cost if acquired within 60 days of maturity, or if already held on the 60th day, based on the value determined on the 61st day. Forward currency contracts are valued at the mean of representative quoted bid and asked prices. Assets or liabilities initially expressed in terms of 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 market quotations are not readily available or are considered unreliable are valued at fair value as determined in good faith under policies approved by the fund's Board. Subject to Board oversight, the fund's Board has delegated the obligation to make fair valuation determinations to a Valuation Committee established by the fund's investment adviser. The Board receives regular reports describing fair-valued securities and the valuation methods used. The Valuation Committee has adopted guidelines and procedures (consistent with SEC rules and guidance) to ensure that certain basic principles and factors are considered when making all fair value determinations. As a general principle, securities lacking readily available market quotations, or that have quotations that are considered unreliable, are valued in good faith by the The Bond Fund of America -- Page 33 Valuation Committee based upon what the fund might reasonably expect to receive upon their current sale. The Valuation Committee considers all indications of value available to it in determining the fair value to be assigned to a particular security, including, without limitation, the type and cost of the security, contractual or legal restrictions on resale of the security, relevant financial or business developments of the issuer, actively traded similar or related securities, conversion or exchange rights on the security, related corporate actions, significant events occurring after the close of trading in the security and changes in overall market conditions. 2. Each class of shares represents interests in the same portfolio of investments and is otherwise identical in all respects to each other class, except for differences relating to distribution, service and other charges and expenses, certain voting rights, differences relating to eligible investors, the designation of each class of shares, conversion features and exchange privileges. Expenses attributable to the fund, but not to a particular class of shares, are borne by each class on the basis of the relative aggregate net assets of the classes. Expenses directly attributable to a class of shares are borne by that class of shares. Liabilities, including accruals of taxes and other expense items attributable to particular share classes, are deducted from total assets attributable to the respective share classes. 3. Net assets so obtained for each share class are then divided by the total number of shares outstanding of that share class, and the result, rounded to the nearer cent, is the net asset value per share for that share class. TAXES AND DISTRIBUTIONS FUND TAXATION -- The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code"). A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually 100% of its investment company taxable income and net realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances, the fund may determine that it is in the interest of shareholders to distribute less than that amount. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the fund's assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities of (other than U.S. government securities or the securities of other regulated investment companies) any one issuer or two or more issuers which the fund controls and which are determined to be engaged in the same or similar trades or businesses. The Bond Fund of America -- Page 34 Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (a) 98% of ordinary income (generally net investment income) for the calendar year, (b) 98% of capital gain (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year) and (c) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (a) amounts actually distributed by the fund from its current year's ordinary income and capital gain net income and (b) any amount on which the fund pays income tax during the periods described above. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise tax liability, the fund may determine that it is in the interest of shareholders to distribute a lesser amount. The following information may not apply to you if you hold fund shares in a tax-deferred account, such as a retirement plan or education savings account. Please see your tax adviser for more information. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class, unless shareholders indicate in writing that they wish to receive them in cash or in shares of the same class of other American Funds, as provided in the prospectus. Dividends and capital gain distributions by 529 share classes will be automatically reinvested. Distributions of investment company taxable income and net realized capital gains to individual shareholders will be taxable whether received in shares or in cash, unless such shareholders are exempt from taxation. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of that share on the reinvestment date. Dividends and capital gain distributions by the fund to a tax-deferred retirement plan account are not taxable currently. DIVIDENDS -- The fund intends to follow the practice of distributing substantially all of its investment company taxable income, 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 that occur between the time the fund accrues receivables or liabilities denominated in a foreign currency and the time the fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as Section 988 gains or losses, may increase or decrease the amount of the fund's investment company taxable income to be distributed to its shareholders as ordinary income. The Bond Fund of America -- Page 35 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 may be eligible for the deduction for dividends received by corporations. Corporate shareholders will be informed of the portion of dividends that so qualifies. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law, and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days during the 90-day period beginning on the date that is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. A portion of the difference between the issue price of zero coupon securities and their face value (original issue discount) is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company taxable income of the fund that must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income taxation at the level of the fund. 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 The Bond Fund of America -- Page 36 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 a short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as a short-term capital gain. Dividend and interest income received by the fund from sources outside the United States may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the United States, however, may reduce or eliminate these foreign taxes. Most foreign countries do not impose taxes on capital gains with respect to investments by foreign investors. CAPITAL GAIN DISTRIBUTIONS -- The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss 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 15% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and such shareholder's related tax credit. SHAREHOLDER TAXATION -- In January of each year, individual shareholders holding fund shares in taxable accounts will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund. DIVIDENDS -- Fund dividends are taxable to shareholders as ordinary income. Under the 2003 Tax Act, all or a portion of a fund's dividend distribution may be a "qualified dividend." Only fund dividends derived from qualified corporation dividends paid to the fund after December 31, 2002, and held by the fund for the appropriate holding period, will be distributed to shareholders as qualified dividends. Interest income from bonds and money market instruments and nonqualified foreign dividends will be distributed to shareholders as nonqualified fund dividends. The fund will report on Form 1099-DIV the amount of each shareholder's dividend that may be treated as a qualified dividend. If a shareholder meets the requisite holding period requirement, qualified dividends are taxable at a maximum tax rate of 15%. CAPITAL GAINS -- Distributions of the excess of net long-term capital gains over net short-term capital losses that the fund properly designates as "capital gain dividends" generally will be taxable as long-term capital gain. Regardless of the length of time the shares of the fund have been held by a shareholder, a capital gain distribution by the fund is subject The Bond Fund of America -- Page 37 to a maximum tax rate of 15%. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gains during such six-month period. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Investors should consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will subsequently receive a partial return of their investment capital upon payment of the distribution, which will be taxable to them. Redemptions of shares, including exchanges for shares of other American Funds, may result in federal, state and local tax consequences (gain or loss) to the shareholder. 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 backup withholding of federal income tax in the case of non-exempt U.S. shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if the fund is notified by the IRS or a broker that the taxpayer identification number furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons (i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates). Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. The Bond Fund of America -- Page 38 UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO COLLEGEAMERICA ACCOUNTS. SHAREHOLDERS HOLDING SHARES THROUGH AN ELIGIBLE RETIREMENT PLAN SHOULD CONTACT THEIR PLAN'S ADMINISTRATOR OR RECORDKEEPER FOR INFORMATION REGARDING PURCHASES, SALES AND EXCHANGES. PURCHASE AND EXCHANGE OF SHARES PURCHASES BY INDIVIDUALS -- As described in the prospectus, you may generally open an account and purchase fund shares by contacting a financial adviser or investment dealer authorized to sell the fund's shares. You may make investments by any of the following means: CONTACTING YOUR FINANCIAL ADVISER -- Deliver or mail a check to your financial adviser. BY MAIL -- for initial investments, you may mail a check, made payable to the fund, directly to the address indicated on the account application. Please indicate an investment dealer on the account application. You may make additional investments by filling out the "Account Additions" form at the bottom of a recent account statement and mailing the form, along with a check made payable to the fund, using the envelope provided with your account statement. BY TELEPHONE -- using the American FundsLine. Please see the "Shareholder account services and privileges" section of this document for more information regarding this service. BY INTERNET -- using americanfunds.com. Please see the "Shareholder account services and privileges" section of this document for more information regarding this service. BY WIRE -- If you are making a wire transfer, instruct your bank to wire funds to: Wells Fargo Bank ABA Routing No. 121000248 Account No. 4600-076178 Your bank should include the following information when wiring funds: For credit to the account of: American Funds Service Company (fund's name) For further credit to: (shareholder's fund account number) (shareholder's name) You may contact American Funds Service Company at 800/421-0180 if you have questions about making wire transfers. All investments are subject to the purchase minimums and maximums described in the prospectus. The fund and the Principal Underwriter reserve the right to reject any purchase The Bond Fund of America -- Page 39 order. 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. Class 529 shares may be purchased by investors only through CollegeAmerica accounts. Class 529-E shares may be purchased only by investors participating in CollegeAmerica through an eligible employer plan. In addition, the American Funds state tax-exempt funds are qualified for sale only in certain jurisdictions, and tax-exempt funds in general should not serve as retirement plan investments. EXCHANGES -- You may only exchange shares into other American Funds within the same share class. However, exchanges from Class A shares of The Cash Management Trust of America may be made to Class B or C shares of other American Funds for dollar cost averaging purposes. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from American Funds money market funds are subject to applicable sales charges on the fund being purchased, unless the money market fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment or cross-reinvestment of dividends or capital gain distributions. Exchanges of Class F shares generally may only be made through fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. You may exchange shares of other classes by contacting the Transfer Agent, by contacting your investment dealer or financial adviser, by using American FundsLine or americanfunds.com, or by telephoning 800/421-0180 toll-free, or faxing (see "American Funds Service Company service areas" in the prospectus for the appropriate fax numbers) the Transfer Agent. For more information, see "Shareholder account services and privileges" below. THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. Shares held in employer-sponsored retirement plans may be exchanged into other American Funds by contacting your plan administrator or recordkeeper. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received (see "Price of shares" above). FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain redemptions may trigger a purchase block lasting 30 calendar days under the fund's "purchase blocking policy." Under this policy, systematic redemptions will not trigger a purchase block and systematic purchases will not be prevented. For purposes of this policy, systematic redemptions include, for example, regular periodic automatic redemptions and statement of intention escrow share redemptions. Systematic purchases include, for example, regular periodic automatic purchases and automatic reinvestments of dividends and capital gain distributions. OTHER POTENTIALLY ABUSIVE ACTIVITY -- In addition to implementing purchase blocks, American Funds Service Company will monitor for other types of activity that could potentially be harmful to the American Funds - for example, short-term trading activity in multiple funds. When identified, American Funds Service Company will request that the shareholder discontinue the activity. If the activity continues, American Funds Service Company will freeze the shareholder account to prevent all activity other than redemptions of fund shares. The Bond Fund of America -- Page 40 SALES CHARGES CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES -- As described in the prospectus, certain purchases of Class A shares are not subject to a sales charge. Additional information regarding certain of such purchases is described below. EMPLOYER-SPONSORED RETIREMENT PLANS As noted in the prospectus, employer-sponsored retirement plans are not eligible to purchase Class A shares without a sales charge, or establish a statement of intention to do so, unless they currently invest in Class A shares without a sales charge. Individual 403(b) plans may be treated similarly to employer-sponsored plans for sales charge purposes (i.e., individual participant accounts are eligible to be aggregated together) if: (a) the American Funds are principal investment options; (b) the employer facilitates the enrollment process by, for example, allowing for onsite group enrollment meetings held during working hours; and (c) there is only one dealer firm assigned to the plans. OTHER PURCHASES Pursuant to a determination of eligibility by a vice president or more senior officer of the Capital Research and Management Company Fund Administration Unit, or by his or her designee, Class A shares of the American Funds stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives and assistants directly employed by such representatives, retired registered representatives with respect to accounts established while active, or full-time employees (collectively, "Eligible Persons") (and their (a) spouses or equivalents if recognized under local law, (b) parents and children, including parents and children in step and adoptive relationships, sons-in-law and daughters-in-law, and (c) parents-in-law, if the Eligible Persons or the spouses, children or parents of the Eligible Persons are listed in the account registration with the parents-in-law) of dealers who have sales agreements with the Principal Underwriter (or who clear transactions through such dealers), plans for the dealers, and plans that include as participants only the Eligible Persons, their spouses, parents and/or children; (3) current registered investment advisers ("RIAs") and assistants directly employed by such RIAs, retired RIAs with respect to accounts established while active, or full-time employees (collectively, "Eligible Persons") (and their (a) spouses or equivalents if recognized under local law, (b) parents and children, including parents and children in step and adoptive relationships, sons-in-law and daughters-in-law and (c) parents-in-law, if the Eligible Persons or the spouses, children or parents of the Eligible Persons are listed in the account registration with the parents-in-law) of RIA firms that are authorized to sell shares of the funds, The Bond Fund of America -- Page 41 plans for the RIA firms, and plans that include as participants only the Eligible Persons, their spouses, parents and/or children; (4) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (5) insurance company separate accounts; (6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (7) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; (8) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, or an individual or entity related or relating to such individual or entity; (9) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc.; and (10) full-time employees of banks that have sales agreements with the Principal Underwriter, who are solely dedicated to directly supporting the sale of mutual funds. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. Once an account is established under this net asset value privilege, additional investments can be made at net asset value for the life of the account. DEALER COMMISSIONS AND COMPENSATION -- Commissions (up to 1.00%) are paid to dealers who initiate and are responsible for certain Class A share purchases not subject to sales charges. These purchases consist of purchases of $1 million or more, purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees and purchases made at net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on such investments (other than IRA rollover assets that roll over at no sales charge under the fund's IRA rollover policy as described in the prospectus and statement of additional information) are paid to dealers 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. A dealer concession of up to 1% may be paid by the fund under its Class A plan of distribution to reimburse the Principal Underwriter in connection with dealer and wholesaler compensation paid by it with respect to investments made with no initial sales charge. SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A SALES CHARGE -- As described in the prospectus, there are various ways to reduce your sales charge when purchasing Class A shares. Additional information about Class A sales charge reductions is provided below. STATEMENT OF INTENTION -- By establishing a statement of intention (the "Statement"), you enter into a nonbinding commitment to purchase shares of American Funds non-money The Bond Fund of America -- Page 42 market funds over a 13-month period and receive the same sales charge as if all shares had been purchased at once. When a shareholder elects to use a Statement, 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 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. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions to dealers will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. When 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 shares representing direct purchases of money market funds) 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 and those in the prospectus with their first purchase. AGGREGATION -- Qualifying investments for aggregation include those made by you and your "immediate family" as defined in the prospectus, if all parties are purchasing shares for their own accounts and/or: The Bond Fund of America -- Page 43 . individual-type employee benefit plan(s), such as an IRA, 403(b) plan (see exception below) or single-participant Keogh-type plan; . business accounts solely controlled by you or your immediate family (for example, you own the entire business); . trust accounts established by you or your immediate family (however, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the person who is the primary beneficiary of the trust); . endowments or foundations established and controlled by you or your immediate family; or . CollegeAmerica accounts, which will be aggregated at the account owner level (Class 529-E accounts may only be aggregated with an eligible employer plan). Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are: . for a single trust estate or fiduciary account, including employee benefit plans other than the individual-type employee benefit plans described above; . made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; . for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares; . for nonprofit, charitable or educational organizations (or any employer-sponsored retirement plan for such an endowment or foundation), or any endowments or foundations established and controlled by the organization; or . for participant accounts of a 403(b) plan that is 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. Purchases made for nominee or street name accounts (securities held in the name of an investment dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above. CONCURRENT PURCHASES -- As described in the prospectus, you may reduce your Class A sales charge by combining purchases of all classes of shares in the American Funds, as well as individual holdings in Endowments, American Legacy variable annuity contracts and variable life insurance policies. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of American Funds money market funds are excluded. RIGHTS OF ACCUMULATION -- Subject to the limitations described in the aggregation policy, you may take into account the current value of your existing holdings in all share classes The Bond Fund of America -- Page 44 of the American Funds, as well as your holdings in Endowments, to determine your sales charge on investments in accounts eligible to be aggregated. Alternatively, if your investment is not in an employer-sponsored retirement plan, upon your request, you may take into account the amount you invested less any withdrawals (however, for this purpose, the amount invested does not include capital appreciation or reinvested dividends and capital gains). 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 annuity contracts and variable life insurance policies. An employer-sponsored retirement plan may also take into account the current value of its investments in American Legacy Retirement Investment Plans. Direct purchases of American Funds money market funds are excluded. If you make a gift of shares, upon your request, you may purchase the shares at the sales charge discount allowed under rights of accumulation of all of your American Funds and American Legacy accounts. CDSC WAIVERS FOR CLASS A, B AND C SHARES -- As noted in the prospectus, a contingent deferred sales charge ("CDSC") may be waived for redemptions due to death or postpurchase disability of a shareholder (this generally excludes accounts registered in the names of trusts and other entities). In the case of joint tenant accounts, if one joint tenant dies, a surviving joint tenant, at the time he or she notifies the Transfer Agent of the other joint tenant's death and removes the decedent's name from the account, may redeem shares from the account without incurring a CDSC. Redemptions made after the Transfer Agent is notified of the death of a joint tenant will be subject to a CDSC. In addition, a CDSC may be waived for the following types of transactions, if together they do not exceed 12% of the value of an "account" (defined below) annually (the "12% limit"): . Required minimum distributions taken from retirement accounts upon the shareholder's attainment of age 70-1/2 (required minimum distributions that continue to be taken by the beneficiary(ies) after the account owner is deceased also qualify for a waiver). . Redemptions through a systematic withdrawal plan (SWP) (see "Automatic withdrawals" under "Shareholder account services and privileges" below). For each SWP payment, assets that are not subject to a CDSC, such as appreciation on shares and shares acquired through reinvestment of dividends and/or capital gain distributions, will be redeemed first and will count toward the 12% limit. If there is an insufficient amount of assets not subject to a CDSC to cover a particular SWP payment, shares subject to the lowest CDSC will be redeemed next until the 12% limit is reached. Any dividends and/or capital gain distributions taken in cash by a shareholder who receives payments through a SWP will also count toward the 12% limit. In the case of a SWP, the 12% limit is calculated at the time a systematic redemption is first made, and is recalculated at the time each additional systematic redemption is made. Shareholders who establish a SWP should be aware that the amount of a payment not subject to a CDSC may vary over time depending on fluctuations in the value of their accounts. This privilege may be revised or terminated at any time. The Bond Fund of America -- Page 45 For purposes of this paragraph, "account" means: . in the case of Class A shares, your investment in Class A shares of all American Funds (investments representing direct purchases of American Funds money market funds are excluded); . in the case of Class B shares, your investment in Class B shares of the particular fund from which you are making the redemption; and . in the case of Class C shares, your investment in Class C shares of the particular fund from which you are making the redemption. CDSC waivers are allowed only in the cases listed here and in the prospectus. For example, CDSC waivers will not be allowed on redemptions of Class 529-B and 529-C shares due to termination of CollegeAmerica; a determination by the Internal Revenue Service that CollegeAmerica does not qualify as a qualified tuition program under the Code; proposal or enactment of law that eliminates or limits the tax-favored status of CollegeAmerica; or the Virginia College Savings Plan eliminating the fund as an option for additional investment within CollegeAmerica. ROLLOVERS FROM RETIREMENT PLANS TO IRAS As noted in the prospectus, assets from retirement plans may be invested in Class A, B, C or F shares through an IRA rollover. Rollovers invested in Class A shares from retirement plans will be subject to applicable sales charges. The following rollovers to Class A shares will be made at no sales charge: .. Rollovers to IRAs from 403(b) plans with Capital Bank and Trust Company as custodian; and .. Rollovers to IRAs that are attributable to American Funds investments, if they meet the following three requirements: -- The retirement plan from which assets are being rolled over is part of an American Funds proprietary retirement plan program (such as PlanPremier,/(R)/ Recordkeeper Direct/(R)/ or Recordkeeper Connect/(R)/) or is a plan whose participant subaccounts are serviced by American Funds Service Company. -- The plan's assets were invested in American Funds at the time of distribution. -- The plan's assets are rolled over to an American Funds IRA with Capital Bank and Trust Company as custodian. IRA rollover assets that roll over at no sales charge as described above will not be subject to a contingent deferred sales charge and investment dealers will be compensated solely with an annual service fee that begins to accrue immediately. IRA rollover assets that are not attributable to American Funds investments, as well as future contributions to the IRA, will be subject to sales charges and the terms and conditions generally applicable to Class A share investments as described in the prospectus and statement of additional information if invested in Class A shares. SELLING SHARES The methods for selling (redeeming) shares are described more fully in the prospectus. If you wish to sell your shares by contacting American Funds Service Company directly, any such request must be signed by the registered shareholders. A signature guarantee may be required for certain redemptions. In such an event, your signature may be guaranteed by a domestic stock exchange or the National Association of Securities Dealers, Inc., bank, savings association or credit union that is an eligible guarantor institution. The Transfer Agent reserves the right to require a signature guarantee on any redemptions. Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. You must include with your written request any shares you wish to sell that are in certificate form. If you sell Class A, B or C shares and request a specific dollar amount to be sold, we will sell sufficient shares so that the sale proceeds, after deducting any applicable CDSC, equals the dollar amount requested. Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 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. You may request that redemption proceeds of $1,000 or more from money market funds be wired to your bank by writing American Funds Service Company. A signature guarantee is required on all requests to wire funds. The Bond Fund of America -- Page 46 SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES The following services and privileges are generally available to all shareholders. However, certain services and privileges may not be available for Class 529 shareholders or if your account is held with an investment dealer or through an employer-sponsored retirement plan. AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make monthly or quarterly investments in the American Funds through automatic debits from your bank account. To set up a plan, you must fill out an account application and specify the amount that you would like to invest ($50 minimum) and the date on which you would like your investments to occur. The plan will begin within 30 days after your account application is received. Your bank account will be debited on the day or a few days before your investment is made, depending on the bank's capabilities. The Transfer Agent will then invest your money into the fund you specified on or around the date you specified. If the date you specified falls on a weekend or holiday, your money will be invested on the following business day. However, if the following business day falls in the next month, your money will be invested on the business day immediately preceding the weekend or holiday. If your bank account cannot be debited due to insufficient funds, a stop-payment or the closing of the account, the plan may be terminated and the related investment reversed. You may change the amount of the investment or discontinue the plan at any time by contacting the Transfer Agent. AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are reinvested in additional shares of the same class and fund at net asset value unless you indicate otherwise on the account application. You also may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. Dividends and capital gain distributions paid to retirement plan shareholders or shareholders of the 529 share classes will be automatically reinvested. If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- For all share classes, except the 529 classes of shares, you may cross-reinvest dividends and capital gains (distributions) into other American Funds in the same share class at net asset value, subject to the following conditions: (1) the aggregate value of your account(s) in the fund(s) paying distributions equals or exceeds $5,000 (this is waived if the value of the account in the fund receiving the distributions equals or exceeds that fund's minimum initial investment requirement); (2) if the value of the account of the fund receiving distributions is below the minimum initial investment requirement, distributions must be automatically reinvested; and (3) if you discontinue the cross-reinvestment of distributions, the value of the account of the fund receiving distributions must equal or exceed the minimum initial investment requirement. If you do not meet this requirement within 90 days of notification, the fund has the right to automatically redeem the account. The Bond Fund of America -- Page 47 AUTOMATIC EXCHANGES -- For all share classes, you may automatically exchange shares of the same class in amounts of $50 or more among any of the American Funds on any day (or preceding business day if the day falls on a nonbusiness day) of each month you designate. AUTOMATIC WITHDRAWALS -- For all share classes, except the R and 529 classes of shares, you may automatically withdraw shares from any of the American Funds. You can make automatic withdrawals of $50 or more as often as you wish if your account is worth at least $10,000, or up to four times a year for an account worth at least $5,000. You can designate the day of each period for withdrawals and request that checks be sent to you or someone else. Withdrawals may also be electronically deposited to your bank account. The Transfer Agent will withdraw your money from the fund you specify on or around the date you specify. If the date you specified falls on a weekend or holiday, the redemption will take place on the previous business day. However, if the previous business day falls in the preceding month, the redemption will take place on the following business day after the weekend or holiday. Withdrawal payments are not to be considered as dividends, yield or income. Automatic investments may not be made into a shareholder account from which there are automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends and distributions and increases in share value would reduce the aggregate value of the shareholder's account. The Transfer Agent arranges for the redemption by the fund of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified. ACCOUNT STATEMENTS -- Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, purchases through automatic investment plans and certain retirement plans, as well as automatic exchanges and withdrawals will be confirmed at least quarterly. AMERICAN FUNDSLINE AND AMERICANFUNDS.COM -- You may check your share balance, the price of your shares or your most recent account transaction; redeem shares (up to $75,000 per American Funds shareholder each day) from nonretirement plan accounts; or exchange shares around the clock with American FundsLine or using americanfunds.com. To use American FundsLine, call 800/325-3590 from a TouchTone(TM) telephone. Redemptions and exchanges through American FundsLine and americanfunds.com are subject to the conditions noted above and in "Telephone and Internet purchases, redemptions and exchanges" below. You will need your fund number (see the list of the American Funds under "General information -- fund numbers"), personal identification number (generally the last four digits of your Social Security number or other tax identification number associated with your account) and account number. Generally, all shareholders are automatically eligible to use these services. However, if you are not currently authorized to do so, you may complete an American FundsLink Authorization Form. Once you establish this privilege, you, your financial adviser or any person with your account information may use these services. TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the telephone (including American FundsLine) or the Internet (including americanfunds.com), or fax purchase, redemption and/or exchange options, you agree to hold the fund, the Transfer Agent, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liability (including attorney fees) that may be incurred in connection with the exercise of these privileges. The Bond Fund of America -- Page 48 Generally, all shareholders are automatically eligible to use these services. However, you may elect to opt out of these services by writing the Transfer Agent (you may also reinstate them at any time by writing the Transfer Agent). If the Transfer Agent does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions or a natural disaster, redemption and exchange requests may be made in writing only. CHECKWRITING -- You may establish check writing privileges for Class A shares (but not Class 529-A shares) of American Funds money market funds. This can be done by using an account application. If you request check writing privileges, you will be provided with checks that you may use to draw against your account. These checks may be made payable to anyone you designate and must be signed by the authorized number of registered shareholders exactly as indicated on your checking account signature card. REDEMPTION OF SHARES -- The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the fund may from time to time adopt. While payment of redemptions normally will be in cash, the fund's Articles of Incorporation permit payment of the redemption price wholly or partly in securities or other property included in the assets belonging to the fund 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 contacting the Transfer Agent. Certificates are not available for the 529 or R share classes. GENERAL INFORMATION CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to subcustodial 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 shareholder accounts, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. The principal office of American Funds Service Company is located at 135 South State College Boulevard, Brea, CA 92821-5823. American Funds Service Company was paid a fee of $17,649,000 for Class A shares and $1,405,000 for Class B shares for the 2004 fiscal year. In the case of certain shareholder accounts, third parties who may be unaffiliated with the investment adviser provide transfer agency and shareholder services in place of American Funds The Bond Fund of America -- Page 49 Service Company. These services are rendered under agreements with American Funds Service Company or its affiliates and the third parties receive compensation according to such agreements. Compensation for transfer agency and shareholder services, whether paid to American Funds Service Company or such third parties, is ultimately paid from fund assets and is reflected in the expenses of the fund as disclosed in the prospectus. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- Deloitte & Touche LLP, 695 Town Center Drive, Costa Mesa, California 92626, serves as the fund's independent registered public accounting firm, providing audit services, preparation of tax returns and review of certain documents to be filed with the Securities and Exchange Commission. The financial statements included in this statement of additional information from the annual report have been so included in reliance on the report of Deloitte & Touche LLP, independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent registered public accounting firm is reviewed and determined annually by the Board of Directors. INDEPENDENT LEGAL COUNSEL -- Paul, Hastings, Janofsky & Walker LLP, 515 South Flower Street, Los Angeles, CA 90071, serves as counsel for the fund and for Directors who are not "interested persons" (as defined by the 1940 Act) of the fund in their capacities as such. Certain legal matters in connection with the capital shares offered by the prospectus have been passed upon for the fund by Paul, Hastings, Janofsky & Walker LLP. Counsel does not provide legal services to the fund's investment adviser or any of its affiliated companies. A determination with respect to the independence of the fund's "independent legal counsel" will be made at least annually by the independent Directors of the fund, as prescribed by the 1940 Act and related rules. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The fund's fiscal year ends on 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 registered public accounting firm, Deloitte & Touche LLP. In addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of prospectuses, shareholder reports and proxy statements. To receive additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. CODES OF ETHICS -- The fund and Capital Research and Management Company and its affiliated companies, including the fund's Principal Underwriter, have adopted codes of ethics that allow for personal investments, including securities in which the fund may invest from time to time. These codes include a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; preclearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; blackout periods on personal investing for certain investment personnel; ban on short-term trading profits for investment personnel; limitations on service as a director of publicly traded companies; and disclosure of personal securities transactions. LEGAL PROCEEDINGS -- On February 16, 2005, the NASD filed an administrative complaint against the Principal Underwriter. The complaint alleges violations of certain NASD rules by the Principal Underwriter with respect to the selection of broker-dealer firms that buy and sell securities for mutual fund investment portfolios. The complaint seeks sanctions, restitution and disgorgement. On March 24, 2005, the investment adviser and Principal Underwriter filed a complaint against the Attorney General of the State of California in Los Angeles County Superior Court. The complaint alleges that the Attorney General threatened to take enforcement actions against the investment adviser and Principal Underwriter that are without merit and preempted by federal law. The complaint seeks injunctive and declaratory relief. On the same day, following the filing of the investment adviser's and Principal Underwriter's complaint, the Attorney General of the State of California filed a complaint against the Principal Underwriter and investment adviser. Filed in Los Angeles County Superior Court, the Attorney General's complaint alleges violations of certain sections of the California Corporations Code with respect to so-called "revenue sharing" disclosures in mutual fund prospectuses and statements of additional information. The complaint seeks injunctive relief, penalties, restitution and disgorgement. The investment adviser and Principal Underwriter believe that these matters are not likely to have a material adverse effect on the fund or on the ability of the investment adviser or Principal Underwriter to perform its contract with the fund. The SEC is conducting a related investigation as of the date of this statement of additional information. The investment adviser and Principal Underwriter are cooperating fully. In addition, a series of class action lawsuits have been filed in the U.S. District Court, Central District of California, raising issues related to so-called "directed brokerage" and "revenue sharing" practices. Further updates on these issues will be available on the American Funds website (americanfunds.com) under "American Funds regulatory matters." OTHER INFORMATION -- The financial statements including the investment portfolio and the report of the fund's independent registered public accounting firm contained in the annual report are included in this statement of additional information. The following information is not included in the annual report: The Bond Fund of America -- Page 50 DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- DECEMBER 31, 2004
Net asset value and redemption price per share (Net assets divided by shares outstanding). . $13.65 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). . . . . . . . . . . . . . . . $14.18
FUND NUMBERS -- Here are the fund numbers for use with our automated telephone line, American FundsLine/(R)/, or when making share transactions:
FUND NUMBERS ------------------------------------ FUND CLASS A CLASS B CLASS C CLASS F - --------------------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 002 202 302 402 American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . 011 211 311 411 American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . 003 203 303 403 Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . 012 212 312 412 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . 033 233 333 433 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . 016 216 316 416 Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . 010 210 310 410 The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . 005 205 305 405 The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . 006 206 306 406 The Investment Company of America/(R)/ . . . . . . . . . . . . . . 004 204 304 404 The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . 014 214 314 414 New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . 007 207 307 407 New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . 036 236 336 436 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . 035 235 335 435 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . 001 201 301 401 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . 040 240 340 440 American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . 021 221 321 421 The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . 008 208 308 408 Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . 031 231 331 431 Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . 023 223 323 423 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . 043 243 343 443 The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . 019 219 319 419 The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . 020 220 320 420 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . 024 224 324 424 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . 025 225 325 425 U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . 022 222 322 422 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . . . . . . . . 009 209 309 409 The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . 039 N/A N/A N/A The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . 049 N/A N/A N/A ___________ *Qualified for sale only in certain jurisdictions.
The Bond Fund of America -- Page 51
FUND NUMBERS --------------------------------------------- CLASS CLASS CLASS CLASS CLASS FUND 529-A 529-B 529-C 529-E 529-F - ------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund . . . . . . . . . . 1002 1202 1302 1502 1402 American Balanced Fund . . . . 1011 1211 1311 1511 1411 American Mutual Fund . . . . . 1003 1203 1303 1503 1403 Capital Income Builder . . . . 1012 1212 1312 1512 1412 Capital World Growth and Income Fund . . . . . . . . . . . . . 1033 1233 1333 1533 1433 EuroPacific Growth Fund . . . . 1016 1216 1316 1516 1416 Fundamental Investors . . . . . 1010 1210 1310 1510 1410 The Growth Fund of America . . 1005 1205 1305 1505 1405 The Income Fund of America . . 1006 1206 1306 1506 1406 The Investment Company of America . . . . . . . . . . . . 1004 1204 1304 1504 1404 The New Economy Fund . . . . . 1014 1214 1314 1514 1414 New Perspective Fund . . . . . 1007 1207 1307 1507 1407 New World Fund . . . . . . . . 1036 1236 1336 1536 1436 SMALLCAP World Fund . . . . . . 1035 1235 1335 1535 1435 Washington Mutual Investors Fund . . . . . . . . . . . . . . . 1001 1201 1301 1501 1401 BOND FUNDS American High-Income Trust . . 1021 1221 1321 1521 1421 The Bond Fund of America . . . 1008 1208 1308 1508 1408 Capital World Bond Fund . . . . 1031 1231 1331 1531 1431 Intermediate Bond Fund of America . . . . . . . . . . . . 1023 1223 1323 1523 1423 U.S. Government Securities Fund 1022 1222 1322 1522 1422 MONEY MARKET FUND The Cash Management Trust of America . . . . . . . . . . . . 1009 1209 1309 1509 1409
FUND NUMBERS ---------------------------------------- CLASS CLASS CLASS CLASS CLASS FUND R-1 R-2 R-3 R-4 R-5 - ------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund . . . . . . . . . . . . . 2102 2202 2302 2402 2502 American Balanced Fund . . . . . . . 2111 2211 2311 2411 2511 American Mutual Fund . . . . . . . . 2103 2203 2303 2403 2503 Capital Income Builder . . . . . . . 2112 2212 2312 2412 2512 Capital World Growth and Income Fund 2133 2233 2333 2433 2533 EuroPacific Growth Fund . . . . . . 2116 2216 2316 2416 2516 Fundamental Investors . . . . . . . 2110 2210 2310 2410 2510 The Growth Fund of America . . . . . 2105 2205 2305 2405 2505 The Income Fund of America . . . . . 2106 2206 2306 2406 2506 The Investment Company of America . 2104 2204 2304 2404 2504 The New Economy Fund . . . . . . . . 2114 2214 2314 2414 2514 New Perspective Fund . . . . . . . . 2107 2207 2307 2407 2507 New World Fund . . . . . . . . . . . 2136 2236 2336 2436 2536 SMALLCAP World Fund . . . . . . . . 2135 2235 2335 2435 2535 Washington Mutual Investors Fund . . 2101 2201 2301 2401 2501 BOND FUNDS American High-Income Municipal Bond Fund . . . . . . . . . . . . . . . . N/A N/A N/A N/A 2540 American High-Income Trust . . . . . 2121 2221 2321 2421 2521 The Bond Fund of America . . . . . . 2108 2208 2308 2408 2508 Capital World Bond Fund . . . . . . 2131 2231 2331 2431 2531 Intermediate Bond Fund of America . 2123 2223 2323 2423 2523 Limited Term Tax-Exempt Bond Fund of America. . . . . . . . . . . . . . . N/A N/A N/A N/A 2543 The Tax-Exempt Bond Fund of America N/A N/A N/A N/A 2519 The Tax-Exempt Fund of California* . N/A N/A N/A N/A 2520 The Tax-Exempt Fund of Maryland* . . N/A N/A N/A N/A 2524 The Tax-Exempt Fund of Virginia* . . N/A N/A N/A N/A 2525 U.S. Government Securities Fund . . 2122 2222 2322 2422 2522 MONEY MARKET FUNDS The Cash Management Trust of America 2109 2209 2309 2409 2509 The Tax-Exempt Money Fund of America N/A N/A N/A N/A 2539 The U.S. Treasury Money Fund of America . . . . . . . . . . . . . . 2149 2249 2349 2449 2549 ___________ *Qualified for sale only in certain jurisdictions.
The Bond Fund of America -- Page 52 [This page is intentionally left blank for this filing.] The Bond Fund of America -- Page 53 APPENDIX The following descriptions of debt security ratings are based on information provided by Moody's Investors Service (Moody's) and Standard & Poor's Corporation (Standard & Poor's). DESCRIPTION OF BOND RATINGS MOODY'S LONG-TERM RATING DEFINITIONS Aaa Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. A Obligations rated A are considered upper-medium grade and are subject to low credit risk. Baa Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Ba Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk. B Obligations rated B are considered speculative and are subject to high credit risk. Caa Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk. Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. C Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest. NOTE: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. The Bond Fund of America -- Page 54 STANDARD & POOR'S LONG-TERM ISSUE CREDIT RATINGS AAA An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated CC is currently highly vulnerable to nonpayment. The Bond Fund of America -- Page 55 C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. The Bond Fund of America -- Page 56 [logo - American Funds (r)] BOND FUND OF AMERICA INVESTMENT PORTFOLIO December 31, 2004 Principal amount Market value BONDS & NOTES -- 89.79% (000) (000) CORPORATE BONDS & NOTES -- 47.85% FINANCIALS -- 14.09% AT&T Capital Corp., Series F, 6.60% 2005 $11,750 $11,853 CIT Group Inc. 4.125% 2006 25,000 25,261 CIT Group Inc. 3.65% 2007 25,720 25,638 CIT Group Inc. 5.75% 2007 20,500 21,564 CIT Group Inc. 7.375% 2007 12,500 13,504 CIT Group Inc. 4.00% 2008 14,000 14,062 CIT Group Inc. 3.375% 2009 5,000 4,862 CIT Group Inc. 6.875% 2009 31,000 34,481 CIT Group Inc. 7.75% 2012 26,875 31,857 Household Finance Corp. 5.75% 2007 10,000 10,444 Household Finance Corp. 7.875% 2007 32,000 34,839 Household Finance Corp. 4.125% 2008 1,000 1,005 Household Finance Corp. 6.40% 2008 10,000 10,797 Household Finance Corp. 4.125% 2009 25,000 24,893 Household Finance Corp. 4.75% 2009 20,000 20,529 Household Finance Corp. 6.375% 2011 7,250 8,018 Household Finance Corp. 6.75% 2011 23,750 26,688 HSBC Holdings PLC 5.25% 2012 10,000 10,383 Household Finance Corp. 7.00% 2012 10,000 11,436 HSBC Bank USA 4.625% 2014(1) 9,000 8,842 Midland Bank 3.063% Eurodollar note (undated)(2) 15,000 13,050 ASIF Global Financing XXVIII 2.22% 2007(1),(2) 2,000 2,000 International Lease Finance Corp., Series P, 3.125% 2007 4,000 3,954 International Lease Finance Corp. 3.75% 2007 15,000 15,006 International Lease Finance Corp. 4.35% 2008 21,000 21,240 International Lease Finance Corp. 4.50% 2008 29,500 29,900 AIG SunAmerica Global Financing VII 5.85% 2008(1) 16,750 17,858 International Lease Finance Corp. 3.50% 2009 16,000 15,595 International Lease Finance Corp., Series O, 4.55% 2009 20,600 20,838 International Lease Finance Corp. 4.75% 2009 25,000 25,557 American International Group, Inc. 4.25% 2013 3,500 3,387 International Lease Finance Corp. 5.875% 2013 9,700 10,306 Washington Mutual Finance 8.25% 2005 10,000 10,241 Washington Mutual, Inc. 7.50% 2006 12,000 12,753 Washington Mutual, Inc. 5.625% 2007 11,000 11,461 Washington Mutual, Inc. 4.375% 2008 12,500 12,704 Washington Mutual, Inc. 2.81% 2010(2) 31,000 30,997 Washington Mutual, Inc. 4.20% 2010 12,500 12,465 Washington Mutual Bank, FA 6.875% 2011 10,000 11,268 Washington Mutual Bank, FA 5.125% 2015 30,000 29,854 Prudential Financial, Inc. 4.104% 2006 10,000 10,114 Prudential Insurance Co. of America 6.375% 2006(1) 4,000 4,208 PRICOA Global Funding I, Series 2003-2, 3.90% 2008(1) 7,500 7,491 PRICOA Global Funding I, Series 2004-4, 4.35% 2008(1) 2,500 2,539 Prudential Funding LLC 6.60% 2008(1) 3,000 3,249 PRICOA Global Funding I 4.20% 2010(1) 17,000 16,988 Prudential Financial, Inc., Series B, 4.75% 2014 5,500 5,396 Prudential Holdings, LLC, Series C, 8.695% 2023(1),(3) 57,035 72,613 USA Education, Inc. 5.625% 2007 45,150 47,110 SLM Corp., Series A, 3.625% 2008 5,500 5,478 SLM Corp., Series A, 3.95% 2008 27,500 27,551 SLM Corp., Series A, 4.00% 2009 5,000 5,002 SLM Corp., Series A, 4.00% 2010 10,000 9,934 SLM Corp., Series A, 5.375% 2013 5,450 5,647 SLM Corp., Series A, 5.375% 2014 10,000 10,346 SocGen Real Estate Co. LLC, Series A, 7.64% (undated)(1),(2) 74,250 81,495 Societe Generale 7.85% (undated)(1),(2) 17,705 19,199 Halifax Building Society 8.75% 2006 Pound 2,500 5,055 HBOS Treasury Services PLC 3.75% 2008(1) $36,250 36,221 HBOS PLC 5.375% (undated)(1),(2) 22,050 22,648 HBOS Capital Funding LP, Series A, 6.461% non-cumulative preferred (undated)(2) Pound 3,000 6,284 Bank of Scotland 7.00% (undated)(1),(2) $25,000 27,051 Westfield Capital Corp. Ltd. and WT Finance (Aust) Pty Ltd. and WEA Finance LLC 4.375% 2010(1) 57,950 57,389 Westfield Capital Corp. Ltd. and WT Finance (Aust) Pty Ltd. and WEA Finance LLC 5.125% 2014(1) 26,600 26,523 J.P. Morgan Chase & Co. 5.35% 2007 3,285 3,412 J.P. Morgan Chase & Co. 4.00% 2008 12,500 12,592 BANK ONE, Texas, NA 6.25% 2008 7,250 7,735 J.P. Morgan Chase & Co. 6.625% 2012 14,165 15,878 J.P. Morgan Chase & Co. 5.75% 2013 31,000 32,902 J.P. Morgan Chase & Co. 5.125% 2014 6,000 6,051 BANK ONE CORP. 4.90% 2015 4,000 3,939 XL Capital Finance (Europe) PLC 6.50% 2012 12,455 13,652 XL Capital Ltd. 5.25% 2014 19,700 19,780 Mangrove Bay Pass Through Trust 6.102% 2033(1),(2),(3) 28,125 28,001 Twin Reefs Pass Through Trust 3.37% (undated)(1),(2),(3) 9,200 9,252 Monumental Global Funding Trust II, Series 2001-B, 6.05% 2006(1) 11,025 11,339 Monumental Global Funding Trust II, Series 2002-A, 5.20% 2007(1) 17,500 18,102 Monumental Global Funding Ltd., Series 2001-N, 5.75% 2007 Pound 1,840 3,584 AEGON NV 4.625% 2008 Euro 7,750 10,985 Transamerica Corp. 9.375% 2008 $7,500 8,686 Monumental Global Funding II, Series 2004-F, 4.375% 2009(1) 2,000 2,010 AEGON NV 6.125% 2031 Pound 1,600 3,401 EOP Operating LP 7.75% 2007 $2,000 2,209 EOP Operating LP 6.75% 2008 24,500 26,497 EOP Operating LP 4.65% 2010 15,300 15,389 EOP Operating LP 6.75% 2012 8,250 9,197 EOP Operating LP 7.50% 2029 3,420 3,976 Allstate Life Global Funding Trust, Series 2004-2, 2.441% 2007(2) 3,000 3,000 Allstate Financial Global Funding LLC 5.25% 2007(1) 26,500 27,406 Allstate Financial Global Funding LLC 4.25% 2008(1) 7,500 7,595 Allstate Life Global Funding Trust, Series 2004-1, 4.50% 2009 18,000 18,349 Abbey National PLC, Series 1-B, 6.69% 2005 5,000 5,126 Abbey National PLC 6.70% (undated)(2) 18,450 19,988 Abbey National PLC 7.35% (undated)(2) 28,000 29,654 ReliaStar Financial Corp. 8.625% 2005 5,000 5,031 ReliaStar Financial Corp. 8.00% 2006 23,160 25,053 ING Security Life Institutional Funding 2.70% 2007(1) 4,730 4,644 ReliaStar Financial Corp. 6.50% 2008 6,016 6,505 ING Bank NV 5.50% 2012 Euro 3,750 5,641 Ing Verzekeringen NV 6.25% 2021(2) 3,750 5,778 MBNA Europe Funding PLC 6.50% 2007 5,000 7,291 MBNA Corp., Series F, 7.50% 2012 $1,200 1,388 MBNA Capital A, Series A, 8.278% 2026 7,500 8,252 MBNA Global Capital Funding, Series B, 2.96% 2027(2) 34,800 33,112 Citigroup Inc. 3.50% 2008 20,000 19,925 Citigroup Inc. 4.25% 2009 15,000 15,175 Citigroup Inc. 5.625% 2012 5,675 6,053 Citigroup Inc. 5.125% 2014 5,000 5,130 BankAmerica Corp., Series I, 7.125% 2005 1,500 1,523 Bank of America Corp. 3.625% 2008 Euro 7,500 10,374 Bank of America Corp. 3.875% 2008 $2,000 2,017 Bank of America Corp. 4.25% 2010 5,000 4,993 Bank of America Corp. 4.375% 2010 17,000 17,073 BankAmerica Corp. 7.125% 2011 1,750 1,997 Bank of America Corp. 4.875% 2012 2,000 2,046 Bank of America Corp. 5.25% 2015 5,000 5,118 Royal Bank of Scotland Group PLC 8.375% 2007 Pound 6,500 13,275 Royal Bank of Scotland Group PLC 5.00% 2014 $6,500 6,578 RBS Capital Trust IV, noncumulative trust preferred 3.35% (undated)(2) 5,000 5,037 National Westminster Bank PLC 7.75% (undated)(2) 17,000 18,613 Kimco Realty Corp., Series B, 7.68% 2005 4,250 4,405 Price REIT, Inc. 7.50% 2006 2,760 2,970 Kimco Realty Corp., Series C, 3.95% 2008 5,000 4,985 Kimco Realty Corp., Series C, 4.82% 2011 10,000 10,059 Kimco Realty Corp. 6.00% 2012 13,500 14,594 Nationwide Life Insurance Co. 5.35% 2007(1) 4,250 4,403 North Front Pass Through Trust 5.81% 2024(1),(2),(3) 18,500 18,721 Nationwide Mutual Insurance Co. 7.875% 2033(1) 8,000 9,561 Nationwide Mutual Insurance Co. 6.60% 2034(1) 2,000 2,009 ACE Ltd. 6.00% 2007 1,000 1,044 ACE INA Holdings Inc. 5.875% 2014 17,260 17,714 ACE INA Holdings Inc. 8.875% 2029 2,450 3,169 ACE Capital Trust II 9.70% 2030 9,368 12,483 MetLife, Inc. 3.911% 2005 31,730 31,874 Metropolitan Life Global Funding I, Series 2004-2, 2.57% 2007(1),(2) 1,500 1,501 Countrywide Home Loans, Inc., Series M, 4.125% 2009 20,000 19,931 Countrywide Home Loans, Inc., Series L, 4.00% 2011 13,000 12,657 Capital One Financial Corp. 7.25% 2006 9,625 10,093 Capital One Financial Corp. 8.75% 2007 1,250 1,373 Capital One Financial Corp. 7.125% 2008 4,250 4,658 Capital One Bank 5.75% 2010 11,500 12,214 Capital One Financial Corp. 6.25% 2013 2,800 3,016 Hartford Financial Services Group, Inc. 2.375% 2006 2,000 1,964 Hartford Financial Services Group, Inc. 4.70% 2007 16,250 16,584 Hartford Financial Services Group, Inc. 4.625% 2013 5,000 4,851 Hartford Financial Services Group, Inc. 4.75% 2014 5,000 4,881 Development Bank of Singapore Ltd. 7.875% 2009(1) 20,000 23,045 Development Bank of Singapore Ltd. 7.125% 2011(1) 3,500 3,995 Assurant, Inc. 5.625% 2014 26,000 26,899 CNA Financial Corp. 6.75% 2006 3,000 3,149 CNA Financial Corp. 6.60% 2008 3,458 3,722 CNA Financial Corp. 5.85% 2014 13,625 13,622 CNA Financial Corp. 7.25% 2023 5,300 5,739 Bayerische Landesbank, Series F, 2.50% 2006 26,000 25,730 Kazkommerts International BV 7.00% 2009(1) 5,500 5,555 Kazkommerts International BV 8.50% 2013 5,000 5,250 Kazkommerts International BV (CGMD) 7.375% 2014(1),(2) 2,250 2,239 Kazkommerts International BV 7.875% 2014(1) 12,500 12,562 Rouse Co. 3.625% 2009 5,200 4,907 Rouse Co. 7.20% 2012 17,700 19,166 Jackson National Life Global Funding, Series 2002-1, 5.25% 2007(1) 23,125 24,052 John Hancock Global Funding II, Series 2002-G, 5.00% 2007(1) 5,000 5,157 John Hancock Global Funding II, Series 2004-A, 3.50% 2009(1) 18,000 17,612 United Overseas Bank Ltd. 5.375% 2019(1),(2) 22,250 22,614 Wells Fargo & Co. 3.50% 2008 21,310 21,192 Irvine Co., Class A, 7.46% 2006(1),(4) 15,000 15,551 Irvine Apartment Communities, LP 7.00% 2007 5,000 5,352 Canadian Imperial Bank of Commerce 2.125% Eurodollar note 2085(2) 25,000 20,844 Colonial Realty LP 6.15% 2013 10,000 10,404 Colonial Realty LP 6.25% 2014 9,700 10,215 Hospitality Properties Trust 7.00% 2008 1,000 1,069 Hospitality Properties Trust 6.75% 2013 17,095 18,906 Developers Diversified Realty Corp. 3.875% 2009 19,500 19,154 UFJ Finance Aruba AEC 6.75% 2013 17,045 19,026 Bayerische Hypo- und Vereinsbank AG 6.00% 2014 Euro 10,000 15,231 HVB Funding Trust III 9.00% 2031(1) $1,990 2,636 United Dominion Realty Trust, Inc., Series E, 4.50% 2008 17,000 17,362 Providian Financial Corp., Series A, 9.525% 2027(1) 16,750 17,252 Credit Suisse First Boston (USA), Inc. 6.50% 2012 15,000 16,719 Principal Life Global Funding I 4.40% 2010(1) 16,600 16,580 Genworth Financial, Inc. 2.64% 2007(2) 2,500 2,499 Genworth Financial, Inc. 4.75% 2009 10,345 10,601 Genworth Financial, Inc. 5.75% 2014 3,000 3,179 Weingarten Realty Investors, Series A, 5.263% 2012 5,000 5,161 Weingarten Realty Investors, Series A, 4.857% 2014 11,080 10,992 Skandinaviska Enskilda Banken AB, 4.958% (undated)(1),(2) 2,050 2,020 Skandinaviska Enskilda Banken AB, 7.50% (undated)(2) 12,500 14,116 Standard Chartered Bank 2.838% (undated)(2) 5,000 4,025 Standard Chartered Bank 2.875% Eurodollar note (undated)(2) 15,000 11,872 Simon Property Group, LP 4.875% 2010 12,000 12,239 Advanta Capital Trust I, Series B, 8.99% 2026 12,500 12,187 AB Spintab 6.00% 2009 SKr73,000 12,091 Comerica, Inc., Imperial Capital Trust I, Imperial Bancorp, Series B, 9.98% 2026 $10,200 11,945 Barclays Bank PLC 6.86% callable perpetual core tier one notes (undated)(1),(2) 5,000 5,641 Barclays Bank PLC 7.375% (undated)(1),(2) 5,375 6,245 MassMutual Global Funding II, Series 2002-1, 3.50% 2010(1) 12,000 11,582 Unicredito Italiano SpA, Series B, 8.048% (undated)(2) Euro 7,000 11,557 Banco Santander Chile 5.375% 2014(1) $11,200 11,414 United Energy Distribution Pty Ltd., AMBAC insured, 4.70% 2011(1) 10,000 10,076 Sumitomo Mitsui Banking Corp. 4.375% 2014(2) Euro 6,670 9,331 American Express Credit Corp. 3.00% 2008 $9,060 8,855 Bank of Nova Scotia 2.115% Eurodollar note (undated)(2) 10,000 8,358 Chohung Bank 4.50% 2014(1),(2) 8,000 7,966 Post Apartment Homes, LP 5.125% 2011 7,720 7,743 BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)(1),(2) 6,500 7,272 Lloyds Bank, Series 2, 2.563% (undated)(2) 8,000 7,104 Allied Irish Banks Ltd. 2.63% (undated)(2) 7,000 6,145 Munich Re Finance BV 6.75% 2023(2) Euro 3,670 5,772 PLD International Finance LLC 4.375% 2011 4,150 5,771 Travelers Property Casualty Corp. 3.75% 2008 $5,500 5,450 BNP Paribas 5.125% 2015(1) 5,100 5,216 FelCor Lodging LP 9.00% 2011(2) 4,500 5,119 Host Marriott, LP, Series G, 9.25% 2007 625 700 Host Marriott, LP, Series L, 7.00% 2012(1) 4,000 4,250 Wachovia Corp. 3.625% 2009 5,000 4,947 Industrial Bank of Korea 4.00% 2014(1),(2) 5,000 4,896 Westpac Capital Trust IV 5.256% (undated)(1),(2) 4,500 4,466 Bergen Bank 2.115% (undated)(2) 5,000 4,169 National Bank of Canada 2.125% (undated)(2) 5,000 4,125 iStar Financial, Inc., Series B, 4.875% 2009 2,500 2,540 iStar Financial, Inc., Series B, 5.125% 2011 1,500 1,518 Federal Realty Investment Trust 4.50% 2011 3,500 3,411 Christiana Bank Og Kreditkasse 2.66% (undated)(2) 4,000 3,357 Zions Bancorporation 6.00% 2015 2,675 2,857 Downey Financial Corp. 6.50% 2014 2,500 2,607 ERP Operating LP 4.75% 2009 2,225 2,274 Deutsche Bank Financial LLC 5.375% 2015 2,000 2,073 UnionBanCal Corp. 5.25% 2013 2,000 2,031 Principal Life Insurance Co. 3.20% 2009 2,000 1,936 LaBranche & Co Inc. 9.50% 2009 1,500 1,537 Crescent Real Estate LP 7.50% 2007 1,190 1,282 2,792,972 CONSUMER DISCRETIONARY -- 10.74% Ford Motor Credit Co. 6.875% 2006 46,000 47,401 Ford Motor Credit Co. 7.20% 2007 3,000 3,202 Ford Motor Credit Co. 5.80% 2009 8,500 8,696 Ford Motor Credit Co. 7.375% 2009 87,920 94,933 Ford Motor Credit Co. 3.93% 2010(2) 27,500 27,497 Ford Motor Credit Co. 5.70% 2010 10,000 10,102 Ford Motor Credit Co. 7.875% 2010 94,100 103,791 Ford Motor Credit Co. 7.375% 2011 42,875 46,265 Ford Motor Co. 7.45% 2031 10,370 10,460 General Motors Acceptance Corp. 7.50% 2005 40,000 40,829 General Motors Acceptance Corp. 6.125% 2007 5,000 5,151 General Motors Acceptance Corp. 6.15% 2007 7,500 7,712 General Motors Acceptance Corp. 5.75% 2010 Euro 7,000 9,696 General Motors Acceptance Corp. 7.75% 2010 $68,825 73,948 General Motors Acceptance Corp. 6.875% 2011 57,000 58,491 General Motors Corp. 7.20% 2011 1,650 1,694 General Motors Acceptance Corp. 7.25% 2011 17,000 17,820 General Motors Acceptance Corp. 7.00% 2012 26,190 27,022 General Motors Corp. 7.25% 2013 Euro 5,250 7,756 General Motors Acceptance Corp. 4.56% 2014(2) $61,000 59,949 General Motors Acceptance Corp. 8.00% 2031 15,000 15,461 General Motors Corp. 8.375% 2033 160 166 DaimlerChrysler North America Holding Corp. 7.75% 2005 18,462 18,857 DaimlerChrysler North America Holding Corp. 6.40% 2006 19,000 19,772 DaimlerChrysler North America Holding Corp. 4.05% 2008 9,750 9,738 DaimlerChrysler North America Holding Corp. 4.75% 2008 4,800 4,906 DaimlerChrysler North America Holding Corp. 7.20% 2009 17,500 19,497 DaimlerChrysler North America Holding Corp. 8.00% 2010 56,500 65,376 DaimlerChrysler North America Holding Corp. 7.75% 2011 23,600 27,247 DaimlerChrysler North America Holding Corp. 7.30% 2012 19,750 22,453 DaimlerChrysler North America Holding Corp. 6.50% 2013 5,000 5,432 DaimlerChrysler North America Holding Corp. 8.50% 2031 1,610 2,018 Cox Communications, Inc. 7.75% 2006 2,325 2,474 Cox Communications, Inc. 0% 2007(1),(2) 5,000 5,013 Cox Communications, Inc. 7.875% 2009 1,000 1,136 Cox Communications, Inc. 4.625% 2010(1) 27,500 27,467 Cox Communications, Inc. 7.75% 2010 10,000 11,469 Cox Communications, Inc. 4.625% 2013 10,000 9,583 Cox Communications, Inc. 5.45% 2014(1) 59,870 59,982 Clear Channel Communications, Inc. 6.625% 2008 5,375 5,749 Chancellor Media Corp. of Los Angeles 8.00% 2008 10,000 11,237 Clear Channel Communications, Inc. 7.65% 2010 33,000 37,592 Clear Channel Communications, Inc. 5.75% 2013 10,000 10,349 Clear Channel Communications, Inc. 5.50% 2014 44,155 44,408 Comcast Cable Communications, Inc. 8.375% 2007 7,000 7,746 Comcast Cable Communications, Inc. 6.20% 2008 2,300 2,486 Lenfest Communications, Inc. 7.625% 2008 6,750 7,444 Comcast Cable Communications, Inc. 6.875% 2009 15,194 16,896 Comcast Cable Communications, Inc. 6.75% 2011 8,000 8,995 Tele-Communications, Inc. 9.80% 2012 17,500 22,588 Comcast Cable Communications, Inc. 7.125% 2013 1,375 1,596 Tele-Communications, Inc. 7.875% 2013 10,750 12,910 Comcast Corp. 6.50% 2015 8,000 8,909 J.C. Penney Co., Inc. 7.375% 2008 2,000 2,205 J.C. Penney Co., Inc. 6.875% 2015 1,425 1,550 J.C. Penney Co., Inc. 7.65% 2016 7,500 8,625 J.C. Penney Co., Inc. 7.95% 2017 38,575 45,326 J.C. Penney Co., Inc. 7.625% 2097 7,500 8,025 Time Warner Inc. 8.18% 2007 2,225 2,472 AOL Time Warner Inc. 6.875% 2012 43,000 49,042 AOL Time Warner Inc. 7.625% 2031 10,500 12,742 Viacom Inc. 6.40% 2006 5,000 5,168 Viacom Inc. 5.625% 2007 6,600 6,904 Viacom Inc. 7.70% 2010 13,000 15,232 Viacom Inc. 6.625% 2011 25,000 28,108 Liberty Media Corp. 7.75% 2009 6,250 6,941 Liberty Media Corp. 7.875% 2009 32,380 36,121 Liberty Media Corp. 5.70% 2013 2,500 2,485 Toys "R" Us, Inc. 7.875% 2013 22,410 22,354 Toys "R" Us, Inc. 7.375% 2018 22,195 20,641 Pulte Homes, Inc. 4.875% 2009 25,300 25,666 Pulte Homes, Inc. 7.625% 2017 7,500 8,721 Harrah's Operating Co., Inc. 5.50% 2010 30,260 31,360 Toll Brothers, Inc. 6.875% 2012 9,875 11,023 Toll Brothers, Inc. 4.95% 2014 19,250 18,880 Carnival Corp. 3.75% 2007 8,500 8,516 Carnival Corp. 6.15% 2008 17,663 18,933 Six Flags, Inc. 9.50% 2009 3,375 3,527 Six Flags, Inc. 8.875% 2010 8,850 9,005 Six Flags, Inc. 9.75% 2013 10,250 10,455 Antenna TV SA 9.75% 2008 Euro 15,000 21,230 Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corp. 10.75% 2009 $1,000 915 CCH II, LLC and CCH II Capital Corp. 10.25% 2010 4,000 4,260 Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.00% 2012(1) 9,650 10,084 CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 5,500 5,706 May Department Stores Co. 4.80% 2009 14,185 14,438 May Department Stores Co. 5.75% 2014 6,180 6,363 Target Corp. 3.375% 2008 20,830 20,666 Delphi Corp. 6.50% 2013 6,000 5,943 Delphi Trust II, trust preferred securities, 6.197% 2033(2) 14,810 13,873 Visteon Corp. 8.25% 2010 17,940 18,882 Visteon Corp. 7.00% 2014 525 504 Young Broadcasting Inc. 8.50% 2008 5,200 5,590 Young Broadcasting Inc. 10.00% 2011 12,317 13,210 News America Holdings Inc. 6.625% 2008 12,900 13,932 News America Holdings Inc. 8.625% 2014 A$ 5,150 4,370 Telenet Group Holding NV 0%/11.50% 2014(1),(5) $22,300 17,059 Univision Communications Inc. 7.85% 2011 13,250 15,653 AMC Entertainment Inc. 8.00% 2014 14,175 14,175 Cinemark USA, Inc. 9.00% 2013 6,925 7,938 Cinemark, Inc. 0%/9.75% 2014(5) 8,000 6,080 CanWest Media Inc. 8.00% 2012(1) 12,426 13,389 Circus and Eldorado Joint Venture and Silver Legacy Resort Casino 10.125% 2012 12,025 13,137 Hilton Hotels Corp. 7.625% 2008 1,000 1,108 Hilton Hotels Corp. 8.25% 2011 3,485 4,128 Hilton Hotels Corp. 7.625% 2012 6,555 7,677 Ryland Group, Inc. 5.375% 2008 7,000 7,315 Ryland Group, Inc. 9.75% 2010 4,500 4,916 Kohl's Corp. 6.30% 2011 9,000 9,873 Kohl's Corp. 7.375% 2011 1,500 1,758 Centex Corp. 4.75% 2008 8,000 8,167 Centex Corp. 5.80% 2009 3,000 3,165 Kabel Deutschland GmbH 10.625% 2014(1) 9,650 11,146 Lowe's Companies, Inc. 8.25% 2010 8,450 10,145 Mohegan Tribal Gaming Authority 6.375% 2009 7,700 7,950 Mohegan Tribal Gaming Authority 7.125% 2014 1,500 1,586 William Lyon Homes, Inc. 7.625% 2012(1) 5,250 5,152 William Lyon Homes, Inc. 10.75% 2013 2,000 2,257 William Lyon Homes, Inc. 7.50% 2014 2,000 1,930 Century Communications Corp. 0% 2003(6) 5,000 5,325 Adelphia Communications Corp. 10.25% 2006(7) 3,500 3,421 NTL Cable PLC 8.75% 2014(1),(2) 5,825 6,597 NTL Cable PLC 8.75% 2014 Euro 1,000 1,514 Cox Radio, Inc. 6.375% 2005 8,000 8,075 Gannett Co., Inc. 4.95% 2005 8,000 8,040 Regal Cinemas Corp., Series B, 9.375% 2012(4) 7,250 7,902 MGM MIRAGE 8.50% 2010 6,850 7,826 Technical Olympic USA, Inc. 9.00% 2010 1,950 2,096 Technical Olympic USA, Inc. 9.00% 2010 1,550 1,666 Technical Olympic USA, Inc. 7.50% 2011 3,750 3,797 Payless ShoeSource, Inc. 8.25% 2013 7,000 7,184 Buffets, Inc. 11.25% 2010 6,500 6,987 PETCO Animal Supplies, Inc. 10.75% 2011 5,750 6,756 Royal Caribbean Cruises Ltd. 7.00% 2007 1,400 1,508 Royal Caribbean Cruises Ltd. 8.75% 2011 4,325 5,131 Tenneco Automotive Inc., Series B, 10.25% 2013 3,850 4,562 Tenneco Automotive Inc. 8.625% 2014(1) 850 888 RBS-Zero Editora Jornalistica SA 11.00% 2010(1) 5,492 5,217 Blockbuster Inc. 9.00% 2012(1) 5,025 4,987 Perkins Family Restaurants, LP, Perkins Finance Corp., Series B, 10.125% 2007 4,793 4,925 Radio One, Inc., Series B, 8.875% 2011 4,000 4,375 Carmike Cinemas, Inc. 7.50% 2014 4,200 4,321 Lear Corp., Series B, 8.11% 2009 3,580 4,064 Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014(1) 4,075 4,055 Jones Apparel Group, Inc. 4.25% 2009(1) 3,910 3,901 Boyd Gaming Corp. 9.25% 2009 3,500 3,780 Hyatt Equities, LLC 6.875% 2007(1) 3,185 3,353 MDC Holdings, Inc. 5.50% 2013 3,000 3,051 TRW Automotive Acquisition Corp. 9.375% 2013 1,925 2,243 TRW Automotive Acquisition Corp. 11.00% 2013 650 786 YUM! Brands, Inc. 7.70% 2012 2,500 2,966 Argosy Gaming Co. 7.00% 2014 2,650 2,941 Office Depot, Inc. 6.25% 2013 2,750 2,939 DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 2,300 2,590 Dex Media West LLC and Dex Media West Finance Co. 5.875% 2011(1) 2,000 2,000 Dex Media, Inc., Series B, 8.00% 2013 525 571 Globo Comunicacoes e Participacoes Ltda., Series B, 10.50% 2006(1),(7) 1,990 1,900 Globo Comunicacoes e Participacoes Ltda., Series B, 10.50% 2006(7) 690 659 LBI Media, Inc. 10.125% 2012 2,250 2,523 Dana Corp. 5.85% 2015(1) 2,500 2,487 WCI Communities, Inc. 9.125% 2012 2,000 2,230 ArvinMeritor, Inc. 8.75% 2012 1,725 2,001 Standard Pacific Corp. 5.125% 2009 1,000 990 Standard Pacific Corp. 6.25% 2014 1,000 985 NextMedia Operating, Inc. 10.75% 2011 1,750 1,969 Stoneridge, Inc. 11.50% 2012 1,360 1,588 D.R. Horton, Inc. 6.125% 2014 1,500 1,552 Jostens IH Corp. 7.625% 2012(1) 1,475 1,541 Bombardier Recreational Products Inc. 8.375% 2013 1,425 1,528 Boyds Collection, Ltd., Series B, 9.00% 2008 1,501 1,433 Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007 250 268 Starwood Hotels & Resorts Worldwide, Inc. 7.875% 2012 1,000 1,147 Warner Music Group 7.375% 2014(1) 1,250 1,288 Atlantic Broadband Finance, LLC and Atlantic Broadband Finance, Inc. 9.375% 2014(1) 1,300 1,264 La Quinta Properties, Inc. 7.00% 2012 1,000 1,063 Reader's Digest Association, Inc. 6.50% 2011 1,000 1,050 Videotron Ltee 6.875% 2014 1,000 1,039 Warnaco, Inc. 8.875% 2013 925 1,022 Dillard's, Inc. 6.625% 2018 1,000 1,005 Grupo Posadas, SA de CV 8.75% 2011(1) 250 268 2,130,204 TELECOMMUNICATION SERVICES -- 6.25% Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 116,830 121,069 Sprint Capital Corp. 4.78% 2006 27,225 27,758 Sprint Capital Corp. 6.375% 2009 8,880 9,653 Sprint Capital Corp. 7.625% 2011 39,760 46,220 Sprint Capital Corp. 6.90% 2019 21,615 24,237 Sprint Capital Corp. 6.875% 2028 7,550 8,291 SBC Communications Inc. 5.75% 2006 3,575 3,691 SBC Communications Inc. 4.125% 2009 31,345 31,321 SBC Communications Inc. 6.25% 2011 1,150 1,263 SBC Communications Inc. 5.10% 2014 76,010 76,862 SBC Communications Inc. 6.45% 2034 2,000 2,150 British Telecommunications PLC 8.375% 2010(2) 75,749 91,073 British Telecommunications PLC 7.125% 2011(2) Euro 6,170 9,895 BellSouth Corp. 4.20% 2009 $37,530 37,668 BellSouth Corp. 4.75% 2012 27,725 27,941 BellSouth Corp. 5.20% 2014 3,150 3,217 BellSouth Corp. 5.20% 2016 22,000 22,073 AT&T Corp. 6.00% 2009 23,000 24,121 AT&T Corp. 9.05% 2011(2) 52,500 60,703 France Telecom 7.50% 2008(2) Euro 3,500 5,310 France Telecom 8.50% 2011(2) $58,300 69,632 Vodafone Group PLC 4.25% 2009 Euro 7,000 9,865 Vodafone Group PLC 7.75% 2010 $55,210 64,138 Cingular Wireless LLC 5.625% 2006 5,000 5,196 AT&T Wireless Services, Inc. 7.875% 2011 15,355 18,120 AT&T Wireless Services, Inc. 8.125% 2012 37,630 45,554 Deutsche Telekom International Finance BV 7.50% 2007(2) Euro 3,500 5,232 Deutsche Telekom International Finance BV 3.875% 2008 $1,100 1,099 Deutsche Telekom International Finance BV 8.50% 2010(2) 24,000 28,625 Deutsche Telekom International Finance BV 8.125% 2012(2) Euro 3,910 6,722 Deutsche Telekom International Finance BV 9.25% 2032(2) $7,750 11,063 Telecom Italia Capital SA, Series A, 4.00% 2008 1,270 1,266 Sogerim SA 7.25% 2011 Euro 1,400 2,236 Telecom Italia SpA 6.25% 2012 15,000 23,066 Telecom Italia Capital SA, Series B, 5.25% 2013 $6,300 6,379 Telecom Italia Capital SA 4.95% 2014(1) 20,000 19,632 Koninklijke KPN NV, Series 7, 8.25% 2008 Pound 1,000 2,093 Koninklijke KPN NV 8.00% 2010 $35,945 42,477 Qwest Services Corp. 13.50% 2010(1) 12,175 14,701 Qwest Services Corp. 14.00% 2014(1) 9,550 12,129 Verizon Global Funding Corp. 6.125% 2007 2,550 2,702 Verizon Global Funding Corp. 7.25% 2010 7,690 8,821 Verizon New York Inc., Series A, 6.875% 2012 5,250 5,902 Verizon Global Funding Corp. 7.375% 2012 7,360 8,674 Crown Castle International Corp. 10.75% 2011 5,000 5,450 Crown Castle International Corp., Series B, 7.50% 2013 11,200 12,096 Crown Castle International Corp. 7.50% 2013 4,475 4,833 Nextel Communications, Inc. 6.875% 2013 875 954 Nextel Communications, Inc. 7.375% 2015 17,420 19,249 American Tower Corp. 9.375% 2009 1,820 1,934 American Tower Corp. 7.125% 2012(1) 17,275 17,750 Singapore Telecommunications Ltd. 6.375% 2011 3,475 3,846 Singapore Telecommunications Ltd. 7.375% 2031(1) 10,000 12,252 PCCW-HKT Capital Ltd. 8.00% 2011(1),(2) 12,375 14,500 ALLTEL Corp. 7.00% 2012 10,000 11,532 Dobson Communications Corp. 10.875% 2010 50 39 Dobson Cellular Systems, Inc. 9.875% 2012(1) 8,500 8,415 Dobson Communications Corp. 8.875% 2013 4,000 2,830 Rogers Wireless Inc. 7.25% 2012(1) 1,275 1,358 Rogers Wireless Inc. 7.50% 2015(1) 6,925 7,341 Rogers Cantel Inc. 9.75% 2016 1,250 1,500 Nextel Partners, Inc. 12.50% 2009 677 770 Nextel Partners, Inc. 8.125% 2011 5,370 5,988 Nextel Partners, Inc. 8.125% 2011 3,000 3,345 AirGate PCS, Inc. 9.375% 2009(1) 6,692 7,244 Cincinnati Bell Inc. 7.25% 2013 6,800 7,021 Triton PCS, Inc. 8.75% 2011 2,000 1,590 Triton PCS, Inc. 9.375% 2011 6,000 4,830 TELUS Corp. 8.00% 2011 5,250 6,230 Centennial Cellular Corp. 10.75% 2008 786 819 Centennial Communications Corp. and Centennial Cellular Operating Co. LLC and Centennial Puerto Rico Operations Corp. 8.625% 2014(2) 5,000 5,163 SK Telecom Co., Ltd. 4.25% 2011(1) 6,000 5,873 Telefonica Europe BV 5.125% 2013 Euro 3,600 5,299 Cellco Finance NV 12.75% 2005 $3,500 3,658 SpectraSite, Inc. 8.25% 2010 2,100 2,252 Millicom International Cellular SA 10.00% 2013(1) 1,500 1,577 iPCS Escrow Co. 11.50% 2012(1) 1,000 1,140 US Unwired Inc., Series B, 10.00% 2012 1,000 1,133 GT Group Telecom Inc., units, 0%/13.25% 2010(1),(4),(5),(7),(9) 2,753 0 1,239,651 INDUSTRIALS -- 5.13% Continental Airlines, Inc., Series 1998-3, Class C-2, 7.25% 2005 12,000 11,300 Continental Airlines, Inc., MBIA insured, 3.338% 2009(2) 2,000 2,019 Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 2011 14,050 13,791 Continental Airlines, Inc., Series 1999-2, Class A-2, 7.056% 2011(3) 10,000 10,281 Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 2016(3) 10,668 10,333 Continental Airlines, Inc., Series 1996-2, Class D, 11.50% 2016(3) 1,888 1,362 Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 2017(3) 4,308 3,639 Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 2019(3) 22,837 22,196 Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 2019(3) 28,409 28,496 Continental Airlines, Inc., Series 1999-1, Class B, 6.795% 2020(3) 15,833 13,846 Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 2021(3) 8,872 8,630 Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 2022(3) 4,210 4,267 Hutchison Whampoa International Ltd. 7.00% 2011(1) 33,125 37,062 Hutchison Whampoa International Ltd. 6.50% 2013(1) 40,000 43,190 Hutchison Whampoa International Ltd. 6.25% 2014(1) 17,200 18,151 General Electric Capital Corp., Series A, 5.00% 2007 21,500 22,238 General Electric Capital Corp., Series A, 5.375% 2007 13,250 13,770 General Electric Capital Corp., Series A, 7.25% 2007 Pound 1,030 2,085 General Electric Capital Corp., Series A, 3.50% 2008 $20,000 19,866 General Electric Capital Corp., Series A, 6.00% 2012 15,000 16,375 General Electric Co. 5.00% 2013 12,750 13,103 Tyco International Group SA 6.125% 2008 14,500 15,636 Tyco International Group SA 6.125% 2009 5,500 5,940 Tyco International Group SA 6.375% 2011 47,765 52,808 Tyco International Group, SA 6.50% 2031 Pound 3,250 7,003 BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011(1),(3) $32,936 35,771 BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013(1),(3) 32,411 35,933 Delta Air Lines, Inc. 8.00% 2007(1) 7,710 5,725 Delta Air Lines, Inc. 10.00% 2008 1,500 1,114 Delta Air Lines, Inc., Series 2003-1, Class G, AMBAC insured, 2.85% 2009(2),(3) 14,575 14,675 Delta Air Lines, Inc., Series 2001-1, Class A-1, 6.619% 2011(3) 11,229 11,039 Delta Air Lines, Inc., Series 2000-1, Class A-2, 7.57% 2012 3,500 3,455 Delta Air Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013 15,000 14,749 Delta Air Lines, Inc., Series 2002-1, Class C, 7.779% 2013(3) 12,105 7,917 Delta Air Lines, Inc., Series 1992-A2, 9.20% 2014(3) 11,500 6,325 Delta Air Lines, Inc., 1991 Equipment Certificates Trust, Series J, 10.00% 2014(1),(3) 5,000 2,400 Delta Air Lines, Inc., 1990 Equipment Certificates Trust, Series F, 10.79% 2014(1),(3) 1,700 935 Delta Air Lines, Inc. 10.375% 2022 2,577 1,327 American Airlines, Inc., Series 1999-1, Class A-1, 6.855% 2010(3) 12,726 13,027 American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 2012(3) 32,764 33,583 American Airlines, Inc., Series 2001-2, Class B, 8.608% 2012 9,000 8,287 American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 2013 5,000 5,171 American Airlines, Inc., Series 1991-C2, 9.73% 2014(3) 6,410 4,218 American Airlines, Inc., Series 2001-1, Class B, 7.377% 2019(3) 7,640 5,361 Cendant Corp. 6.875% 2006 11,755 12,372 Cendant Corp. 6.25% 2008 9,500 10,146 Cendant Corp. 7.375% 2013 23,660 27,413 Bombardier Inc. 6.75% 2012(1) 10,000 9,225 Bombardier Inc. 6.30% 2014(1) 45,000 39,263 Northwest Airlines, Inc. 7.625% 2005 1,100 1,107 Northwest Airlines, Inc. 8.875% 2006 875 844 Northwest Airlines, Inc. 8.70% 2007 400 356 Northwest Airlines, Inc. 9.875% 2007 14,325 13,000 Northwest Airlines, Inc. 10.00% 2009 6,025 5,106 Northwest Airlines, Inc., Series 2001-1, Class A-2, 6.841% 2012 9,955 10,027 Northwest Airlines, Inc., Series 1999-2, Class A, 7.575% 2020(3) 6,079 6,284 Northwest Airlines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.264% 2021(3) 7,672 7,909 Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023(3) 2,170 2,182 Allied Waste North America, Inc., Series B, 7.625% 2006 2,000 2,070 Allied Waste North America, Inc. 8.50% 2008 7,500 7,988 Allied Waste North America, Inc., Series B, 8.875% 2008 5,250 5,644 Allied Waste North America, Inc., Series B, 6.50% 2010 4,000 3,940 Allied Waste North America, Inc., Series B, 5.75% 2011 2,500 2,363 Allied Waste North America, Inc., Series B, 6.125% 2014 3,000 2,835 Allied Waste North America, Inc., Series B, 7.375% 2014 3,750 3,609 Southwest Airlines Co., Series 2001-1, Class A-2, 5.496% 2006(3) 5,000 5,152 Southwest Airlines Co., Series 2001-1, Class B, 6.126% 2006(3) 7,500 7,835 Southwest Airlines Co. 5.25% 2014 13,000 13,072 Union Pacific Railroad Co. Pass Through Trust, Series 2001-1, 6.63% 2022(3) 8,000 9,010 Union Pacific Railroad Co. Pass Through Trust, Series 2002-1, 6.061% 2023(3) 11,500 12,496 Union Pacific Railroad Co. Pass Through Trust, Series 2003-1, 4.698% 2024(3) 2,978 2,905 Burlington Northern and Santa Fe Railway Co. Pass Through Trust, Series 1996-B, 6.96% 2009(3) 2,301 2,426 Burlington Northern and Santa Fe Railway Co. Pass Through Trust, Series 2002-2, 5.14% 2021(3) 12,500 12,590 Burlington Northern and Santa Fe Railway Co. Pass Through Trust, Series 2002-1, 5.943% 2022(3) 6,694 7,196 John Deere Capital Corp. 3.90% 2008 15,000 15,117 Deere & Co. 8.95% 2019 5,000 5,902 Goodrich Corp. 7.50% 2008 2,000 2,216 Goodrich Corp. 7.625% 2012 9,000 10,688 Caterpillar Financial Services Corp., Series F, 2.35% 2006 5,000 4,920 Caterpillar Financial Services Corp. 2.70% 2008 4,845 4,671 Caterpillar Inc. 4.50% 2009 2,500 2,555 Caterpillar Inc. 7.25% 2009 300 340 Northrop Grumman Corp. 4.079% 2006 2,000 2,021 Northrop Grumman Systems Corp. 7.125% 2011 8,000 9,192 Terex Corp. 9.25% 2011 6,625 7,470 Terex Corp., Class B, 10.375% 2011 2,725 3,066 Raytheon Co. 6.55% 2010 6,000 6,610 Raytheon Co. 8.30% 2010 3,000 3,559 Jacuzzi Brands, Inc. 9.625% 2010 9,000 10,035 Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 2023(1),(3) 8,271 8,596 United Air Lines, Inc. 9.00% 2003(6) 2,000 185 United Air Lines, Inc., Series 2000-1, Class A-2, 7.73% 2012(3),(7) 8,998 8,003 Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012(1) 7,350 7,938 AIR 2 US, Series A, 8.027% 2020(1),(3) 8,515 7,679 American Standard Inc. 7.625% 2010 6,000 6,867 Waste Management, Inc. 6.50% 2008 5,220 5,688 Waste Management, Inc. 5.00% 2014 765 772 United Rentals (North America), Inc., Series B, 6.50% 2012 3,250 3,185 United Rentals (North America), Inc., Series B, 7.00% 2014 2,700 2,538 General Dynamics Corp. 4.50% 2010 5,000 5,115 TFM, SA de CV 11.75% 2009 1,855 1,899 TFM, SA de CV 12.50% 2012 2,145 2,515 Nortek, Inc. 8.50% 2014(1) 4,025 4,226 KinderCare Learning Centers, Inc., Series B, 9.50% 2009 3,071 3,098 Standard Aero Holdings, Inc. 8.25% 2014(1) 2,200 2,387 Synagro Technologies, Inc. 9.50% 2009 2,025 2,217 AGCO Corp. 6.875% 2014 Euro 700 1,010 Argo-Tech Corp. 9.25% 2011 $450 496 Laidlaw International, Inc. 10.75% 2011 285 334 Jet Equipment Trust, Series 1994-A, 11.79% 2013(1),(7) 4,000 - Jet Equipment Trust, Series 1995-B, 10.91% 2014(1),(7) 5,000 1 Jet Equipment Trust, Series 1995-D, 11.44% 2014(1),(7) 2,500 - 1,017,875 UTILITIES -- 3.93% Edison Mission Energy 10.00% 2008 2,000 2,305 Edison Mission Energy 7.73% 2009 10,125 10,935 Edison Mission Energy 9.875% 2011 34,160 40,650 Midwest Generation, LLC, Series B, 8.56% 2016(3) 8,000 8,885 Homer City Funding LLC 8.734% 2026(3) 20,178 23,608 Midwest Generation, LLC and Midwest Finance Corp. 8.75% 2034 7,600 8,664 Duke Capital LLC 4.331% 2006 20,000 20,260 Duke Capital Corp. 4.37% 2009 7,500 7,556 Duke Capital Corp. 7.50% 2009 25,325 28,692 Duke Energy Corp., First and Refunding Mortgage Bonds, 4.50% 2010 4,500 4,558 Duke Capital Corp. 6.25% 2013 9,000 9,743 Duke Capital Corp. 5.50% 2014 10,000 10,235 Duke Capital LLC 5.668% 2014 5,000 5,169 PECO Energy Co., First and Refunding Mortgage Bonds, 3.50% 2008 5,000 4,969 Commonwealth Edison Co., Series 99, 3.70% 2008 7,125 7,176 Commonwealth Edison Co., First Mortgage Bonds, Series 102, 4.74% 2010 12,500 12,888 Exelon Corp. 6.75% 2011 2,200 2,464 Exelon Generation Co., LLC 6.95% 2011 22,975 25,967 PECO Energy Co., First and Refunding Mortgage Bonds, 4.75% 2012 3,900 3,945 Dominion Resources, Inc., Series A, 3.66% 2006 3,000 3,006 Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 14,140 14,654 Dominion Resources, Inc., Series 2002-C, 5.70% 2012(2) 1,000 1,060 Virginia Electric and Power Co., Series 2003-A, 4.75% 2013 25,000 25,045 Drax Group Ltd., Class A-1, 7.418% 2015(1),(2) Pound 4,603 8,870 Drax Group Ltd., Class A-2, unit, 8.918% 2015(1),(2),(10) 5,293 25,865 Drax Group Ltd., Class B, 6.918% 2025(1),(2) 3,894 8,022 Israel Electric Corp. Ltd. 7.75% 2009(1) $17,000 18,947 Israel Electric Corp. Ltd. 7.70% 2018(1) 8,500 9,705 Israel Electric Corp. Ltd. 8.10% 2096(1) 12,000 12,304 TXU Corp., Series O, 4.80% 2009(1) 25,000 25,072 Oncor Electric Delivery Co. 6.375% 2012 10,700 11,818 Cilcorp Inc. 8.70% 2009 1,000 1,179 Union Electric Co. 4.65% 2013 11,000 10,889 Cilcorp Inc. 9.375% 2029 12,265 16,866 PSEG Power LLC 3.75% 2009 6,825 6,727 PSEG Power LLC 7.75% 2011 18,700 21,832 Alabama Power Co., Series U, 2.65% 2006 20,500 20,393 Alabama Power Co., Series R, 4.70% 2010 2,250 2,286 Southern Power Co., Series B, 6.25% 2012 2,500 2,736 AES Corp. 9.50% 2009 4,677 5,343 AES Corp. 9.375% 2010 4,803 5,608 AES Gener SA 7.50% 2014(1) 9,000 9,495 Niagara Mohawk Power Corp., Series G, 7.75% 2008 17,460 19,658 SP PowerAssets Ltd. 3.80% 2008(1) 10,000 10,004 SP PowerAssets Ltd. 5.00% 2013(1) 8,000 8,132 Empresa Nacional de Electricidad SA, Series B, 8.50% 2009 4,455 5,075 Empresa Nacional de Electricidad SA 8.35% 2013 5,000 5,805 Empresa Nacional de Electricidad SA 8.625% 2015 3,000 3,600 Constellation Energy Group, Inc. 6.125% 2009 10,500 11,373 Baltimore Gas and Electric Co. 5.20% 2033 3,000 2,798 Old Dominion Electric Cooperative, Series 2003-A, 5.676% 2028(3) 13,500 14,087 PacifiCorp, First Mortgage Bonds, 4.30% 2008 3,060 3,093 PacifiCorp, First Mortgage Bonds, 5.45% 2013 9,775 10,249 MidAmerican Energy Co. 5.125% 2013 7,500 7,766 MidAmerican Energy Co. 4.65% 2014 5,000 4,949 Consolidated Edison Co. of New York, Inc., Series 2003-A, 3.625% 2008 6,000 5,949 Consolidated Edison Co. of New York, Inc., Series B, 3.85% 2013 5,000 4,726 Consolidated Edison Co. of New York, Inc., Series 2003-C, 5.10% 2033 2,000 1,889 Progress Energy Florida, Inc., First Mortgage Bonds 4.80% 2013 7,000 7,041 Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc., First Mortgage Bonds, 5.125% 2013 5,000 5,124 Essent NV 4.50% 2013 Euro 8,410 11,792 Anglian Water Services Financing PLC 4.625% 2013 8,250 11,709 Veolia Environnement 4.875% 2013 8,000 11,520 Pacific Gas and Electric Co., First Mortgage Bonds, 4.20% 2011 $7,000 6,930 Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034 4,000 4,169 NGG Finance PLC 6.125% 2011 Euro 6,980 10,758 Reliant Energy Resources Corp. 7.75% 2011 $7,000 8,170 Centerpoint Energy Resources Corp., Series B, 7.875% 2013 2,000 2,381 Kern River Funding Corp. 4.893% 2018(1),(3) 10,208 10,418 Dynegy Holdings Inc. 10.125% 2013(1) 6,675 7,676 E.ON International Finance BV 5.75% 2009 Euro 5,000 7,477 Edison SpA 5.125% 2010 4,730 6,906 Nevada Power Co., Series I, 6.50% 2012 $700 744 Nevada Power Co., General and Refunding Mortgage Notes, Series G, 9.00% 2013 3,600 4,230 Sierra Pacific Resources 8.625% 2014 900 1,022 Nevada Power Co. 5.875% 2015(1) 550 557 NiSource Finance Corp. 6.15% 2013 5,600 6,080 Red Electrica de Espana Finance BV 4.75% 2013 Euro 4,000 5,776 Korea East-West Power Co., Ltd. 4.875% 2011(1) $5,000 5,050 Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% 2011 5,000 5,022 Tri-State Generation and Transmission Association Inc., Pass Through Trust, Series 2003-A, 6.04% 2018(1),(3) 3,500 3,700 Energy East Corp. 6.75% 2012 2,955 3,318 Equitable Resources, Inc. 5.15% 2018 2,500 2,502 Enersis SA 7.375% 2014 2,000 2,184 Wisconsin Gas Co. 5.20% 2015 2,025 2,068 779,868 MATERIALS -- 2.52% Dow Chemical Co. 5.75% 2008 11,100 11,830 Dow Chemical Pass Through Trust, Series 2004, 4.027% 2009(1),(3) 31,000 30,306 Dow Chemical Co. 5.75% 2009 13,250 14,188 Weyerhaeuser Co. 5.95% 2008 8,596 9,213 Weyerhaeuser Co. 5.25% 2009 15,104 15,788 Weyerhaeuser Co. 6.75% 2012 20,750 23,416 Norske Skogindustrier ASA 7.625% 2011(1) 28,415 32,581 Norske Skogindustrier ASA 6.125% 2015(1) 6,370 6,615 Norske Skogindustrier ASA 7.125% 2033(1) 4,100 4,489 Scotia Pacific Co. LLC, Series B, Class A-2, 7.11% 2028(3) 27,100 23,442 Scotia Pacific Co. LLC, Series B, Class A-3, 7.71% 2028 17,043 12,441 Millennium America Inc. 9.25% 2008 4,840 5,530 Equistar Chemicals, LP 10.125% 2008 5,400 6,251 Equistar Chemicals, LP 8.75% 2009 12,800 14,400 SCA Coordination Center NV 4.50% 2015(1) 27,000 25,922 International Paper Co. 5.375% 2006 Euro 4,500 6,327 International Paper Co. 4.00% 2010 $16,000 15,705 International Paper Co. 5.85% 2012 1,500 1,601 BHP Finance (USA) Ltd. 6.69% 2006 10,000 10,379 BHP Finance (USA) Ltd. 8.50% 2012 10,000 12,505 ICI Wilmington, Inc. 4.375% 2008 200 201 ICI Wilmington, Inc. 5.625% 2013 19,165 19,884 Stone Container Corp. 9.25% 2008 1,000 1,110 Stone Container Corp. 9.75% 2011 3,250 3,575 Jefferson Smurfit Corp. (U.S.) 8.25% 2012 11,625 12,729 Owens-Illinois, Inc. 8.10% 2007 5,750 6,153 Owens-Illinois, Inc. 7.35% 2008 5,250 5,539 Owens-Brockway Glass Container Inc. 8.875% 2009 3,000 3,274 Owens-Illinois, Inc. 7.50% 2010 2,250 2,399 Phelps Dodge Corp. 8.75% 2011 7,000 8,546 Phelps Dodge Corp. 6.125% 2034 7,500 7,685 Packaging Corp. of America 4.375% 2008 1,500 1,508 Packaging Corp. of America 5.75% 2013 13,000 13,430 Alcan Inc. 5.20% 2014 13,000 13,363 UPM-Kymmene Corp. 6.125% 2012 Euro 7,500 11,504 Longview Fibre Co. 10.00% 2009 $5,500 6,036 Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 5,000 5,738 Crystal US Holdings 3 LLC and Crystal US Sub 3 Corp., Series B, 0%/10.50% 2014(1),(5) 5,675 3,916 BCP Caylux Holdings Luxembourg SCA 9.625% 2014(1) 1,575 1,784 Koppers Inc. 9.875% 2013 4,370 5,004 KI Holdings Inc. 0%/9.875% 2014(1),(5) 800 516 MeadWestvaco Corp. 2.75% 2005 5,180 5,165 Temple-Inland Inc. 7.875% 2012 3,900 4,622 Ainsworth Lumber Co. Ltd. 7.25% 2012(1) 650 665 Ainsworth Lumber Co. Ltd. 6.75% 2014 2,250 2,213 Ainsworth Lumber Co. Ltd. 6.75% 2014 1,750 1,722 Luscar Coal Ltd. 9.75% 2011 4,000 4,560 Kappa Beheer BV 12.50% 2009 Euro 3,000 4,393 Building Materials Corp. of America 7.75% 2014(1) $4,250 4,308 Georgia-Pacific Corp. 7.50% 2006 4,050 4,263 Earle M. Jorgensen Co. 9.75% 2012 3,600 4,068 Yara International ASA 5.25% 2014(1) 4,000 4,033 INVISTA 9.25% 2012(1) 3,600 4,032 Ispat Inland ULC 9.75% 2014 3,132 3,884 Associated Materials Inc. 9.75% 2012 3,100 3,480 Graphic Packaging International, Inc. 9.50% 2013 3,000 3,428 Crompton Corp. 7.67% 2010(1),(2) 2,400 2,622 Crompton Corp. 9.875% 2012(1) 500 575 E.I. du Pont de Nemours and Co. 4.125% 2010 2,700 2,725 Gerdau Ameristeel Corp. and GUSAP Partners 10.375% 2011 2,100 2,473 Inco Ltd. 7.20% 2032 2,000 2,339 Sino-Forest Corp., 9.125% 2011(1) 2,065 2,266 Huntsman LLC 9.32% 2011(1),(2) 275 308 Huntsman LLC 11.50% 2012(1) 1,475 1,752 Praxair, Inc. 3.95% 2013 2,100 1,999 Foundation PA Coal Co. 7.25% 2014(1) 1,800 1,926 Pindo Deli Finance Mauritius Ltd. 10.25% 2002(6) 6,000 1,890 Steel Dynamics, Inc. 9.50% 2009 1,250 1,375 Indah Kiat Finance Mauritius Ltd. 10.00% 2007(7) 2,250 1,204 Norampac Inc. 6.75% 2013 1,000 1,058 AK Steel Corp. 7.75% 2012 1,000 1,035 Nalco Co. 7.75% 2011 775 841 Georgia Gulf Corp. 7.125% 2013 770 835 Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. 0%/9.00% 2014(5) 829 618 Airgas, Inc. 6.25% 2014 450 461 Rockwood Specialties Group, Inc. 7.50% 2014(1) 175 182 APP International Finance Co. BV 11.75% 2005(7) 275 144 500,287 ENERGY -- 1.42% Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(1),(3) 49,794 48,948 Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(3) 2,748 2,701 Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014(1),(3) 4,500 5,340 Pemex Finance Ltd. 8.875% 2010(3) 24,000 28,208 Pemex Finance Ltd., Series 1999-2, Class A-2, MBIA insured, 7.33% 2012(3) 8,105 9,232 Pemex Finance Ltd., Series 1999-2, Class A-3, 10.61% 2017(3) 11,700 15,721 Pemex Project Funding Master Trust 8.625% 2022 750 875 ConocoPhillips 3.625% 2007 14,500 14,518 ConocoPhillips 4.75% 2012 26,750 27,318 Tengizchevroil Finance Co. S.ar.L., Series A, 6.124% 2014(1),(3) 33,450 33,701 Port Arthur Finance Corp. 12.50% 2009(3) 1,236 1,452 Premcor Refining Group Inc. 6.125% 2011 3,000 3,158 Premcor Refining Group Inc. 7.75% 2012 3,875 4,292 Premcor Refining Group Inc. 9.50% 2013 2,750 3,204 Premcor Refining Group Inc. 6.75% 2014 3,000 3,203 El Paso Corp. 7.75% 2032 12,000 11,550 Reliance Industries Ltd. 10.25% 2097(1) 8,750 9,649 Devon Financing Corp., ULC 6.875% 2011 8,500 9,640 Newfield Exploration Co. 7.625% 2011 2,500 2,825 Newfield Exploration Co. 8.375% 2012 2,150 2,419 Newfield Exploration Co. 6.625% 2014(1) 2,000 2,125 ChevronTexaco Capital Co. 3.50% 2007 7,000 7,036 OXYMAR 7.50% 2016(1) 5,500 5,761 Petrozuata Finance, Inc., Series B, 8.22% 2017(1),(3) 5,250 5,270 Teekay Shipping Corp. 8.875% 2011 4,250 4,951 General Maritime Corp. 10.00% 2013 4,000 4,620 Ultrapetrol Ltd., First Preferred Ship Mortgage Notes, 9.00% 2014(1) 3,225 3,237 Sunoco, Inc. 4.875% 2014 3,100 3,071 Overseas Shipholding Group, Inc. 8.25% 2013 2,500 2,794 Williams Companies, Inc. 7.125% 2011 500 549 Williams Companies, Inc. 7.875% 2021 2,000 2,240 PETRONAS Capital Ltd. 7.00% 2012(1) 2,250 2,582 282,190 HEALTH CARE -- 1.32% Columbia/HCA Healthcare Corp. 6.91% 2005 9,410 9,549 HCA Inc. 7.125% 2006 9,065 9,413 Columbia/HCA Healthcare Corp. 8.85% 2007 2,000 2,158 Columbia/HCA Healthcare Corp. 8.70% 2010 1,750 1,984 HCA Inc. 6.95% 2012 3,000 3,163 HCA Inc. 6.25% 2013 21,071 21,289 HCA Inc. 6.75% 2013 2,000 2,082 Columbia/HCA Healthcare Corp. 7.69% 2025 5,000 5,138 UnitedHealth Group Inc. 7.50% 2005 13,000 13,420 UnitedHealth Group Inc. 5.20% 2007 8,000 8,291 UnitedHealth Group Inc. 3.75% 2009 2,500 2,462 UnitedHealth Group Inc. 4.125% 2009 8,000 8,003 UnitedHealth Group Inc. 5.00% 2014 5,000 5,040 Cardinal Health, Inc. 6.25% 2008 3,000 3,171 Cardinal Health, Inc. 6.75% 2011 24,750 27,260 Cardinal Health, Inc. 4.00% 2015 3,050 2,723 Wyeth 4.375% 2008(2) 2,125 2,161 Wyeth 5.50% 2013(2) 24,000 24,985 Amgen Inc. 4.00% 2009(1) 24,000 23,952 Humana Inc. 7.25% 2006 5,000 5,266 Humana Inc. 6.30% 2018 12,000 12,336 Schering-Plough Corp. 5.30% 2013 14,250 14,920 Aetna Inc. 7.875% 2011 9,635 11,290 Bristol-Myers Squibb Co. 4.00% 2008 10,000 10,063 Tenet Healthcare Corp. 9.875% 2014(1) 7,000 7,665 Quintiles Transnational Corp. 10.00% 2013 3,500 3,938 Pharma Services Intermediate Holding Corp. 0%/11.50% 2014(1),(5) 1,750 1,251 Hospira, Inc. 4.95% 2009 2,891 2,956 Hospira, Inc. 5.90% 2014 2,000 2,106 Health Net, Inc. 9.875% 2011(2) 4,000 4,831 WellPoint, Inc. 3.75% 2007(1) 4,000 4,001 Elan Finance PLC and Elan Finance Corp. 7.75% 2011(1) 2,100 2,247 Team Health, Inc. 9.00% 2012 1,750 1,719 Concentra Operating Corp. 9.125% 2012(1) 1,500 1,703 262,536 CONSUMER STAPLES -- 1.30% CVS Corp. 6.117% 2013(1),(3) 27,867 29,565 CVS Corp. 5.789% 2026(1),(3) 15,164 15,759 CVS Corp. 5.298% 2027(1),(3) 28,500 28,490 Nabisco, Inc. 7.05% 2007 6,500 7,014 Nabisco, Inc. 7.55% 2015 5,105 6,156 Nabisco, Inc. 6.375% 2035(2) 12,300 12,323 Wal-Mart Stores, Inc. 5.45% 2006 10,000 10,347 Wal-Mart Stores, Inc. 3.375% 2008 12,000 11,881 Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 10.75% 2011 1,500 1,695 Burns Philp Capital Pty Ltd., Series B, 9.75% 2012 17,750 19,614 Ahold Finance U.S.A., Inc. 6.25% 2009 2,325 2,430 Ahold Finance U.S.A., Inc. 8.25% 2010 4,610 5,244 Ahold Lease Pass Through Trust, Series 2001-A-1, 7.82% 2020(3) 1,891 2,053 Ahold Lease Pass Through Trust, Series 2001-A-2, 8.62% 2025(3) 3,595 3,939 SUPERVALU INC. 7.50% 2012 10,810 12,635 Jean Coutu Group (PJC) Inc. 7.625% 2012(1) 300 319 Jean Coutu Group (PJC) Inc. 8.50% 2014(1) 10,650 10,970 Pepsi Bottling Holdings Inc. 5.625% 2009(1) 9,000 9,604 Anheuser-Busch Cos. Inc. 9.00% 2009 7,750 9,407 Pathmark Stores, Inc. 8.75% 2012 9,290 8,918 Gold Kist Inc. 10.25% 2014 6,783 7,970 Cadbury Schweppes US Finance LLC 5.125% 2013(1) 6,750 6,883 Petro Stopping Centers, LP and Petro Financial Corp. 9.00% 2012 4,760 5,058 Diageo Capital PLC 3.50% 2007 5,000 4,987 Rite Aid Corp. 6.875% 2013 2,675 2,421 Rite Aid Corp. 9.25% 2013 2,075 2,106 Kellogg Co. 6.60% 2011 4,000 4,487 Delhaize America, Inc. 8.125% 2011 3,500 4,098 Winn-Dixie Stores, Inc. 8.875% 2008 2,000 1,900 Winn-Dixie Pass Through Trust, Series 1999-1, Class A-1, 7.803% 2017(1),(3) 2,087 1,739 WH Holdings (Cayman Islands) Ltd. and WH Capital Corp. 9.50% 2011 2,500 2,763 Fage Dairy Industry SA 9.00% 2007 2,500 2,525 Stater Bros. Holdings Inc. 5.99% 2010(2) 475 490 Stater Bros. Holdings Inc. 8.125% 2012 1,800 1,913 Great Atlantic & Pacific Tea Co., Inc. 9.125% 2011 300 283 257,986 INFORMATION TECHNOLOGY -- 1.15% Electronic Data Systems Corp. 6.334% 2006 18,000 18,706 Electronic Data Systems Corp. 7.125% 2009 39,245 43,268 Electronic Data Systems Corp., Series B, 6.50% 2013(2) 50,750 53,675 Motorola, Inc. 8.00% 2011 42,380 50,753 Motorola, Inc. 7.50% 2025 6,000 7,026 Motorola, Inc. 6.50% 2028 3,695 3,913 Motorola, Inc. 5.22% 2097 6,250 5,062 Solectron Corp. 9.625% 2009 12,925 14,282 Hyundai Semiconductor America, Inc. 8.625% 2007(1) 10,150 10,375 Micron Technology, Inc. 6.50% 2005(1),(3) 9,952 9,903 Jabil Circuit, Inc. 5.875% 2010 4,750 5,006 Flextronics International Ltd. 9.75% 2010 Euro 1,250 1,862 Flextronics International Ltd. 6.50% 2013 $925 953 Viasystems, Inc. 10.50% 2011 2,550 2,512 Exodus Communications, Inc. 11.625% 2010(3),(4),(7) 1,147 0 227,296 MORTGAGE-BACKED OBLIGATIONS(3) -- 15.76% Freddie Mac 8.25% 2007 130 135 Freddie Mac 8.25% 2007 35 37 Freddie Mac 8.50% 2007 21 22 Freddie Mac, Series H009, Class A-2, 1.876% 2008(2) 4,018 3,963 Freddie Mac 8.00% 2008 23 24 Freddie Mac 8.50% 2008 62 64 Freddie Mac 8.50% 2008 57 60 Freddie Mac 8.50% 2008 26 27 Freddie Mac 8.50% 2008 9 10 Freddie Mac 8.75% 2008 145 153 Freddie Mac 8.75% 2008 54 56 Freddie Mac 8.75% 2008 24 25 Freddie Mac 8.75% 2008 20 21 Freddie Mac 8.00% 2009 16 17 Freddie Mac 8.50% 2009 265 279 Freddie Mac 8.00% 2010 3 3 Freddie Mac 8.50% 2010 229 243 Freddie Mac 8.50% 2010 188 196 Freddie Mac 6.00% 2017 1,092 1,144 Freddie Mac 6.00% 2017 1,081 1,133 Freddie Mac, Series 2310, Class A, 10.61% 2017(2) 1,740 1,910 Freddie Mac 5.00% 2018 33,311 33,920 Freddie Mac 11.00% 2018 211 239 Freddie Mac 8.50% 2020 402 437 Freddie Mac 8.50% 2020 160 175 Freddie Mac, Series 41, Class F, 10.00% 2020 286 286 Freddie Mac, Series 178, Class Z, 9.25% 2021 203 203 Freddie Mac 8.00% 2026 239 260 Freddie Mac 8.50% 2027 48 52 Freddie Mac 5.00% 2033 12,984 12,931 Freddie Mac 6.00% 2033 19,000 19,640 Freddie Mac 6.00% 2033 5,205 5,380 Freddie Mac 6.00% 2034 314,363 324,947 Freddie Mac 6.00% 2034 28,000 28,943 Freddie Mac 6.00% 2034 26,825 27,728 Freddie Mac 6.00% 2034 22,402 23,156 Freddie Mac 6.00% 2034 20,000 20,673 Freddie Mac 6.00% 2034 20,000 20,673 Freddie Mac 6.00% 2034 16,456 17,010 Freddie Mac 6.00% 2034 14,454 14,941 Freddie Mac 6.00% 2034 14,000 14,471 Freddie Mac 6.00% 2034 13,000 13,438 Freddie Mac 6.00% 2034 11,000 11,370 Freddie Mac, Series T-056, Class A-2A, 2.842% 2036 15,335 15,229 Fannie Mae 7.00% 2009 168 179 Fannie Mae 7.50% 2009 198 210 Fannie Mae 7.50% 2009 155 165 Fannie Mae 7.50% 2009 90 96 Fannie Mae 7.50% 2009 64 66 Fannie Mae 7.50% 2009 63 65 Fannie Mae 7.50% 2009 56 59 Fannie Mae 7.50% 2009 31 33 Fannie Mae 8.50% 2009 222 230 Fannie Mae 9.50% 2009 45 48 Fannie Mae 7.00% 2010 132 140 Fannie Mae 6.00% 2016 6,825 7,163 Fannie Mae 6.00% 2016 3,511 3,685 Fannie Mae 6.00% 2016 3,135 3,290 Fannie Mae 6.00% 2016 1,943 2,039 Fannie Mae 7.00% 2016 481 511 Fannie Mae 11.50% 2016 994 1,146 Fannie Mae 6.00% 2017 2,200 2,309 Fannie Mae 5.00% 2018 23,570 24,025 Fannie Mae 5.00% 2018 12,695 12,940 Fannie Mae 5.50% 2018 4,587 4,750 Fannie Mae 9.00% 2018 65 71 Fannie Mae 10.00% 2018 726 823 Fannie Mae 4.50% 2019 8,874 8,855 Fannie Mae 5.50% 2019 48,643 50,374 Fannie Mae 5.50% 2019 16,817 17,426 Fannie Mae 12.00% 2019 869 1,021 Fannie Mae, Series 90-93, Class G, 5.50% 2020 72 74 Fannie Mae 11.00% 2020 291 334 Fannie Mae 11.259% 2020(2) 802 934 Fannie Mae 9.00% 2022 304 330 Fannie Mae 7.50% 2023 230 248 Fannie Mae 8.00% 2023 79 85 Fannie Mae 8.00% 2023 53 58 Fannie Mae, Series 2001-4, Class GA, 10.239% 2025(2) 1,411 1,608 Fannie Mae, Series 2001-4, Class NA, 11.82% 2025(2) 7,479 8,663 Fannie Mae 4.60% 2026(2) 1,397 1,437 Fannie Mae 7.00% 2026 2,488 2,650 Fannie Mae 8.50% 2027 18 20 Fannie Mae, Series 1998-W5, Class B3, 6.50% 2028 3,633 3,680 Fannie Mae 7.00% 2028 1,165 1,238 Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028 11,371 12,227 Fannie Mae 8.00% 2028 128 139 Fannie Mae, Series 2003-T3, Class 2A-3, 2.869% 2029 1,744 1,742 Fannie Mae 6.50% 2029 538 564 Fannie Mae, Series 2002-W7, Class A-5, 7.50% 2029 1,704 1,833 Fannie Mae 7.50% 2029 180 193 Fannie Mae 7.50% 2029 147 158 Fannie Mae 7.00% 2030 395 420 Fannie Mae 7.50% 2030 458 491 Fannie Mae 6.50% 2031 2,270 2,383 Fannie Mae 6.50% 2031 1,603 1,683 Fannie Mae 6.50% 2031 773 813 Fannie Mae 6.50% 2031 245 258 Fannie Mae 7.00% 2031 856 909 Fannie Mae 7.50% 2031 1,181 1,266 Fannie Mae 7.50% 2031 143 153 Fannie Mae, Series 2001-20, Class E, 9.594% 2031(2) 274 307 Fannie Mae, Series 2001-20, Class C, 12.018% 2031(2) 326 384 Fannie Mae 6.50% 2032 13,967 14,660 Fannie Mae 6.50% 2032 9,362 9,826 Fannie Mae 7.00% 2032 568 603 Fannie Mae 3.811% 2033(2) 5,874 5,858 Fannie Mae 5.00% 2033 6,099 6,067 Fannie Mae 5.50% 2033 110,529 112,339 Fannie Mae 6.50% 2034 13,919 14,609 Fannie Mae 6.00% 2035 193,388 199,884 Fannie Mae, Series 2003-W10, Class 1A-2B, 3.112% 2037 19,200 19,099 Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041 16,593 17,502 Fannie Mae, Series 2001-50, Class BA, 7.00% 2041 5,443 5,807 Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042 12,352 13,203 CS First Boston Mortgage Securities Corp., Series 2002-FL2, Class A-2, 2.76% 2010(1),(2) 5,616 5,610 CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032 5,268 5,395 CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032 469 481 CS First Boston Mortgage Securities Corp., Series 2003-AR20, Class II-A-2, 3.996% 2033(2) 6,800 6,776 CS First Boston Mortgage Securities Corp., Series 2003-AR12, Class II-A-2, 4.334% 2033(2) 2,556 2,575 CS First Boston Mortgage Securities Corp., Series 2003-AR28, Class II-A-1, 4.542% 2033(2) 5,859 5,874 CS First Boston Mortgage Securities Corp., Series 2003-23, Class V-A-1, 6.00% 2033 15,139 15,518 CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033 25,536 26,533 CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033 7,034 7,309 CS First Boston Mortgage Securities Corp., Series 2004-AR5, Class VII-A-2, 4.612% 2034(2) 30,514 30,567 CS First Boston Mortgage Securities Corp., Series 2004-AR7, Class II-A-1, 4.889% 2034(2) 4,530 4,552 CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-2, 5.935% 2034 13,000 13,276 CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034 22,402 22,983 CS First Boston Mortgage Securities Corp., Series 2004-3, Class IV-A-1, 6.00% 2034 1,672 1,719 CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034 9,000 9,575 CS First Boston Mortgage Securities Corp., Series 2002-CP5, Class A-1, 4.106% 2035 1,817 1,818 CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035 53,915 59,293 CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-2, 6.103% 2036 19,939 21,190 CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-1, 3.883% 2037 12,500 12,491 CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-1, 4.637% 2037 3,640 3,695 CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039 20,600 20,357 CS First Boston Mortgage Securities Corp., Series 1999-C1, Class D, 7.841% 2041(2) 5,250 5,984 WaMu Mortgage Pass-Through Certificates Trust, Series 2004-CB2, Class VII-A, 5.50% 2019 2,341 2,372 WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR7, Class A-7, 3.842% 2033(2) 44,451 43,727 WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03% 2033(2) 9,175 9,084 WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR5, Class A-7, 4.208% 2033(2) 8,795 8,826 WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1, 4.362% 2033(2) 31,415 31,431 WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A, 4.229% 2034(2) 3,457 3,429 WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.669% 2034(2) 57,949 57,790 Bear Stearns ARM Trust, Series 2003-6, Class I-A-2, 4.026% 2033(2) 43,852 43,445 Bear Stearns ARM Trust, Series 2003-3, Class II-A-2, 4.139% 2033(2) 19,026 18,900 Bear Stearns ARM Trust, Series 2003-3, Class III-A-1, 5.135% 2033(2) 9,424 9,433 Bear Stearns ARM Trust, Series 2004-3, Class II-A, 4.334% 2034(2) 23,224 23,140 Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 5.052% 2034(2) 7,301 7,311 Bear Stearns ARM Trust, Series 2004-9, Class I-2-A-3, 5.077% 2034(2) 7,191 7,273 Bear Stearns ARM Trust, Series 2003-8, Class III-A, 5.173% 2034(2) 6,970 7,033 Chase Commercial Mortgage Securities Corp., Series 1998-2, Class A-2, 6.39% 2030 44,550 48,176 Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030 14,588 15,675 Chase Commercial Mortgage Securities Corp., Series 2000-2, Class A-1, 7.543% 2032 17,635 18,985 Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-1, 7.656% 2032 7,664 7,683 Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032 18,350 21,092 CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1, 3.492% 2033(2) 6,789 6,742 CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.784% 2033(2) 19,723 19,647 CHL Mortgage Pass-Through Trust, Series 2004-7, Class 2-A-1, 4.123% 2034(2) 8,458 8,390 CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.734% 2034(2) 27,067 27,182 CHL Mortgage Pass-Through Trust, Series 2004-12, Class 12-A-1, 4.889% 2034(2) 13,418 13,515 CHL Mortgage Pass-Through Trust, Series 2004-12, Class 13-A-1, 4.928% 2034(2) 12,233 12,334 CHL Mortgage Pass-Through Trust, Series 2004-HYB6, Class A-3, 5.26% 2034(2) 9,535 9,649 Realkredit Danmark A/S, Series 23D, 5.00% 2035 DKr503,768 92,283 Merrill Lynch Mortgage Investors, Inc., Series 1995-C2, Class D, 7.545% 2021(2) $219 225 Merrill Lynch Mortgage Investors, Inc., Series 2003-A6, Class II-A, 4.265% 2033(2) 7,420 7,391 Merrill Lynch Mortgage Investors, Inc., Series 2003-A4, Class II-A, 4.61% 2033(2) 26,549 26,652 Merrill Lynch Mortgage Investors, Inc., Series 2004-A4, Class A-1, 4.298% 2034(2) 10,539 10,439 Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1, 4.67% 2034(2) 44,762 44,736 Bear Stearns Commercial Mortgage Securities Inc., Series 1998-C1, Class A-1, 6.34% 2030 3,959 4,111 Bear Stearns Commercial Mortgage Securities Inc., Series 1999-WF2, Class X, interest only, 0.263% 2031(2) 254,080 3,964 Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X, interest only, 1.034% 2031(1),(2) 156,166 6,696 Bear Stearns Commercial Mortgage Securities Inc., Series 2000-WF2, Class A-2, 7.32% 2032 16,480 18,817 Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035 38,640 38,611 Bear Stearns Commercial Mortgage Securities Inc., Series 2004-PWR6, Class A-1, 3.688% 2041 5,000 4,994 Bear Stearns Commercial Mortgage Securities Inc., Series 2004-PWR6, Class A-4, 4.521% 2041 10,000 9,986 Banc of America Mortgage Securities Trust, Series 2003-F, Class 2-A-1, 3.734% 2033(2) 36,637 36,138 Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1, 4.088% 2033(2) 10,433 10,439 Banc of America Mortgage Securities Trust, Series 2003-D, Class 2-A-1, 4.183% 2033(2) 7,945 7,907 Banc of America Mortgage Securities Trust, Series 2003-I, Class 3-A-1, 4.54% 2033(2) 16,314 16,301 Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036 56,200 62,394 Morgan Stanley Capital I, Inc., Series 2003-KIDS, Class A, 3.078% 2016(1),(2) 26,135 26,270 Morgan Stanley Capital I, Inc., Series 1998-WF2, Class A-1, 6.34% 2030 956 960 Morgan Stanley Capital I, Inc., Series 1998-HF2, Class A-2, 6.48% 2030 17,000 18,310 Morgan Stanley Capital I, Inc., Series 1999-FNV1, Class A-1, 6.12% 2031 5,766 5,945 Morgan Stanley Capital I, Inc., Series 1999-FNV1, Class A-2, 6.53% 2031 10,000 10,862 Government National Mortgage Assn. 7.50% 2007 59 62 Government National Mortgage Assn. 6.50% 2008 274 292 Government National Mortgage Assn. 6.50% 2008 76 81 Government National Mortgage Assn. 7.50% 2008 84 87 Government National Mortgage Assn. 7.50% 2008 81 84 Government National Mortgage Assn. 7.50% 2008 70 73 Government National Mortgage Assn. 7.50% 2008 50 52 Government National Mortgage Assn. 7.50% 2008 26 27 Government National Mortgage Assn. 6.50% 2009 112 120 Government National Mortgage Assn. 7.50% 2009 106 113 Government National Mortgage Assn. 7.50% 2009 88 94 Government National Mortgage Assn. 7.50% 2009 84 88 Government National Mortgage Assn. 7.50% 2009 81 87 Government National Mortgage Assn. 7.50% 2009 71 74 Government National Mortgage Assn. 7.50% 2009 62 64 Government National Mortgage Assn. 7.50% 2009 59 63 Government National Mortgage Assn. 9.00% 2009 932 989 Government National Mortgage Assn. 9.50% 2009 947 1,017 Government National Mortgage Assn. 9.50% 2009 72 77 Government National Mortgage Assn. 9.00% 2016 176 195 Government National Mortgage Assn. 8.00% 2017 45 49 Government National Mortgage Assn. 9.00% 2017 54 59 Government National Mortgage Assn. 9.00% 2019 201 224 Government National Mortgage Assn. 9.50% 2019 300 335 Government National Mortgage Assn. 8.50% 2020 97 107 Government National Mortgage Assn. 8.50% 2020 49 54 Government National Mortgage Assn. 9.00% 2020 154 171 Government National Mortgage Assn. 9.50% 2020 141 158 Government National Mortgage Assn. 10.00% 2020 1,142 1,308 Government National Mortgage Assn. 7.50% 2021 97 104 Government National Mortgage Assn. 7.50% 2021 13 14 Government National Mortgage Assn. 8.50% 2021 413 454 Government National Mortgage Assn. 8.50% 2021 255 280 Government National Mortgage Assn. 8.50% 2021 134 147 Government National Mortgage Assn. 8.50% 2021 52 57 Government National Mortgage Assn. 9.00% 2021 72 80 Government National Mortgage Assn. 9.00% 2021 47 52 Government National Mortgage Assn. 10.00% 2021 2,739 3,113 Government National Mortgage Assn. 7.00% 2022 174 185 Government National Mortgage Assn. 7.00% 2022 108 116 Government National Mortgage Assn. 7.00% 2022 48 51 Government National Mortgage Assn. 7.50% 2022 130 140 Government National Mortgage Assn. 7.50% 2022 84 90 Government National Mortgage Assn. 7.50% 2022 63 68 Government National Mortgage Assn. 7.50% 2022 63 68 Government National Mortgage Assn. 7.50% 2022 52 56 Government National Mortgage Assn. 7.50% 2022 44 48 Government National Mortgage Assn. 8.00% 2022 356 387 Government National Mortgage Assn. 9.00% 2022 78 87 Government National Mortgage Assn. 7.00% 2023 411 440 Government National Mortgage Assn. 7.50% 2023 698 754 Government National Mortgage Assn. 7.50% 2023 413 446 Government National Mortgage Assn. 7.50% 2023 142 153 Government National Mortgage Assn. 7.50% 2023 139 150 Government National Mortgage Assn. 7.50% 2023 131 141 Government National Mortgage Assn. 7.50% 2023 106 115 Government National Mortgage Assn. 7.50% 2023 104 113 Government National Mortgage Assn. 7.50% 2023 92 100 Government National Mortgage Assn. 7.50% 2023 86 93 Government National Mortgage Assn. 7.50% 2023 69 74 Government National Mortgage Assn. 7.50% 2023 62 67 Government National Mortgage Assn. 7.50% 2023 59 64 Government National Mortgage Assn. 7.50% 2023 48 52 Government National Mortgage Assn. 7.50% 2023 46 50 Government National Mortgage Assn. 7.50% 2023 45 48 Government National Mortgage Assn. 7.50% 2023 43 47 Government National Mortgage Assn. 7.50% 2023 38 41 Government National Mortgage Assn. 7.50% 2023 35 38 Government National Mortgage Assn. 7.50% 2023 33 36 Government National Mortgage Assn. 7.50% 2023 31 34 Government National Mortgage Assn. 7.50% 2023 30 33 Government National Mortgage Assn. 7.50% 2023 30 32 Government National Mortgage Assn. 7.50% 2023 29 31 Government National Mortgage Assn. 7.50% 2023 22 24 Government National Mortgage Assn. 7.50% 2023 8 8 Government National Mortgage Assn. 8.00% 2023 1,332 1,450 Government National Mortgage Assn. 8.00% 2023 796 866 Government National Mortgage Assn. 8.00% 2023 112 122 Government National Mortgage Assn. 8.00% 2023 65 71 Government National Mortgage Assn. 8.00% 2023 50 54 Government National Mortgage Assn. 8.00% 2023 32 35 Government National Mortgage Assn. 8.00% 2023 30 33 Government National Mortgage Assn. 8.00% 2023 15 17 Government National Mortgage Assn. 8.50% 2023 49 54 Government National Mortgage Assn. 7.00% 2024 3,423 3,664 Government National Mortgage Assn. 7.00% 2024 2,978 3,188 Government National Mortgage Assn. 7.50% 2024 341 370 Government National Mortgage Assn. 7.50% 2024 277 301 Government National Mortgage Assn. 7.50% 2024 122 133 Government National Mortgage Assn. 7.50% 2024 88 96 Government National Mortgage Assn. 7.50% 2024 69 74 Government National Mortgage Assn. 7.50% 2024 68 74 Government National Mortgage Assn. 7.50% 2024 64 69 Government National Mortgage Assn. 7.50% 2024 59 64 Government National Mortgage Assn. 7.50% 2024 55 60 Government National Mortgage Assn. 7.50% 2024 46 50 Government National Mortgage Assn. 7.50% 2024 36 39 Government National Mortgage Assn. 7.50% 2024 35 37 Government National Mortgage Assn. 7.50% 2024 25 27 Government National Mortgage Assn. 8.00% 2024 23 26 Government National Mortgage Assn. 8.50% 2024 52 57 Government National Mortgage Assn. 8.50% 2024 28 31 Government National Mortgage Assn. 7.00% 2025 2,692 2,882 Government National Mortgage Assn. 7.00% 2025 1,157 1,239 Government National Mortgage Assn. 7.00% 2026 1,035 1,110 Government National Mortgage Assn. 7.00% 2026 1,022 1,096 Government National Mortgage Assn. 7.00% 2026 288 309 Government National Mortgage Assn. 8.00% 2026 78 85 Government National Mortgage Assn. 8.00% 2026 63 69 Government National Mortgage Assn. 8.00% 2026 34 37 Government National Mortgage Assn. 7.50% 2027 91 98 Government National Mortgage Assn. 8.50% 2027 47 51 Government National Mortgage Assn. 6.50% 2028 899 953 Government National Mortgage Assn. 7.00% 2028 2,994 3,202 Government National Mortgage Assn. 7.00% 2028 678 726 Government National Mortgage Assn. 7.50% 2028 71 77 Government National Mortgage Assn. 7.50% 2028 65 71 Government National Mortgage Assn. 7.50% 2028 24 26 Government National Mortgage Assn. 7.50% 2028 20 22 Government National Mortgage Assn. 7.50% 2028 18 20 Government National Mortgage Assn. 7.50% 2028 17 18 Government National Mortgage Assn. 7.50% 2028 16 17 Government National Mortgage Assn. 8.50% 2028 63 69 Government National Mortgage Assn. 8.50% 2028 26 28 Government National Mortgage Assn. 7.00% 2029 1,956 2,089 Government National Mortgage Assn. 7.00% 2029 1,590 1,698 Government National Mortgage Assn. 7.00% 2029 1,203 1,287 Government National Mortgage Assn. 7.00% 2029 705 754 Government National Mortgage Assn. 7.00% 2029 650 695 Government National Mortgage Assn. 7.50% 2029 125 136 Government National Mortgage Assn. 8.00% 2029 359 391 Government National Mortgage Assn. 8.50% 2029 45 50 Government National Mortgage Assn. 7.50% 2030 998 1,076 Government National Mortgage Assn. 8.00% 2030 1,532 1,670 Government National Mortgage Assn. 8.00% 2030 1,200 1,307 Government National Mortgage Assn. 8.00% 2030 1,140 1,242 Government National Mortgage Assn. 8.00% 2030 844 920 Government National Mortgage Assn. 8.00% 2030 403 439 Government National Mortgage Assn. 8.00% 2030 352 383 Government National Mortgage Assn. 8.00% 2030 49 54 Government National Mortgage Assn. 7.00% 2031 1,053 1,123 Government National Mortgage Assn. 7.00% 2031 689 735 Government National Mortgage Assn. 7.50% 2032 2,376 2,564 L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026(1) 42,486 46,103 Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033(1) 4,857 5,116 Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-2, 6.592% 2033 17,250 19,075 Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035 16,420 18,094 GS Mortgage Securities Corp. II, Series 1998-C1, Class E, 7.207% 2030(2) 31,076 33,385 GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.207% 2030(2) 3,750 4,083 Morgan Stanley Dean Witter Capital I Trust, Series 2002-HQ, Class A-1, 4.59% 2034 5,695 5,755 Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035 17,468 18,840 Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036 9,229 9,152 Morgan Stanley Dean Witter Capital I Trust, Series 2002-IQ3, Class A-1, 3.48% 2037 3,661 3,647 GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, Class A-3, 6.869% 2029 16,354 17,312 GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, Class D, 6.997% 2029 8,300 8,949 GMAC Commercial Mortgage Securities, Inc., Series 1998-C2, Class C, 6.50% 2035 9,000 9,752 Morgan Stanley Mortgage Trust, Series 2004-3, Class 4-A, 5.718% 2034(2) 35,470 35,956 Commercial Mortgage Trust, Series 2000-FL3A, Class D, 3.733% 2012(1),(2) 13,776 12,131 Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038 20,000 19,212 Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class A-2, 7.439% 2031 5,000 5,658 Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class B, 7.619% 2031 17,125 19,545 Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class C, 7.625% 2031 5,000 5,700 GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033 427 450 GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-2, 6.531% 2033 17,590 19,583 GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-1, 5.56% 2038 3,775 3,955 GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07% 2038 2,500 2,733 Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.551% 2027(1),(2) 11,445 12,192 Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.748% 2027(1),(2) 3,949 4,134 Structured Asset Securities Corp., Series 1999-RF1, Class A, 7.892% 2028(1),(2) 2,630 2,777 Structured Asset Securities Corp., Series 2003-17A, Class 3-A1, 4.01% 2033(2) 3,651 3,621 Bank of America, NA and First Union National Bank Commercial Mortgage Trust, Series 2001-3, Class A-1, 4.89% 2037 19,775 20,234 Tower Ventures, LLC, Series 2004-1, Class A, 3.711% 2034(1) 19,986 19,903 Prudential Securities Secured Financing Corp., Series 1999-NRF1, Class C, 6.746% 2031 18,000 19,734 First Union National Bank Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.739% 2032 14,061 15,268 First Union National Bank Commercial Mortgage Trust, Series 2001-C4, Class A-1, 5.673% 2033 4,151 4,371 Countrywide Alternative Loan Trust, Series 2004-14T2, Class A-6, 5.50% 2034 18,703 18,912 MASTR Asset Securitization Trust, Series 2004-10, Class 1-A-1, 4.50% 2019 14,585 14,556 MASTR Asset Securitization Trust, Series 2003-2, Class 3-A-13, 5.75% 2033 2,750 2,776 LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025 14,500 16,845 J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039 16,892 16,776 GGP Mall Properties Trust, Series 2001-GGP1, Class A-2, 5.007% 2011(1) 15,321 15,694 Residential Funding Mortgage Securities I, Inc., Series 2004-SA1, Class A-II, 4.361% 2034(2) 14,787 14,660 DLJ Commercial Mortgage Corp., Series 1998-CF1, Class A-1A, 6.14% 2031 2,408 2,414 DLJ Commercial Mortgage Corp., Series 1999-CG1, Class A-1B, 6.46% 2032 10,000 10,853 Citigroup Mortgage Loan Trust Inc., Series 2004-HYB1, Class A-3-1, 4.55% 2034(2) 11,662 11,597 DLJ Mortgage Acceptance Corp., Series 1998-CF1, Class A-1B, 6.41% 2031 10,000 10,687 Hypothekenbank in Essen AG 5.25% 2008 Euro 6,000 8,703 Rheinische Hypothekenbank Eurobond 4.25% 2008 5,000 7,089 PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6.50% 2028 $6,342 6,334 RAAC Mortgage Loan Asset-backed Trust, Series 2004-SP3, Class A-I-5, 4.89% 2032 5,000 4,961 Hilton Hotel Pool Trust, Series 2000-HLTA, Class F, 7.75% 2015(1) 5,000 4,953 Bear Stearns Asset Backed Securities I Trust, Series 2004-AC2, Class II-A, 5.00% 2034 4,786 4,757 Nomura Asset Securities Corp., Series 1998-D6, Class A-1A, 6.28% 2030 4,158 4,310 Ocwen Residential MBS Corp., Series 1998-R1, Class AWAC, 4.997% 2040(1),(2) 3,814 3,661 First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust, Series 1998-C2, Class A-1, 6.28% 2035 2,525 2,542 Travelers Mortgage Securities Corp., Series 1, Class Z-2, 12.00% 2014 951 963 GS Mortgage Securities Corp., Series 1998-2, Class M, 7.75% 2027(1) 850 901 Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 783 782 Commercial Mortgage Acceptance Corp., Series 1998-C2, Class A-1, 5.80% 2030 293 295 Commercial Mortgage Acceptance Corp., Series 1998-C1, Class A-1, 6.23% 2031 322 323 First Boston Mortgage Securities Corp., Series D, interest only, 10.965% 2017 174 43 First Boston Mortgage Securities Corp., Series D, principal only, 0% 2017 174 157 First Nationwide Trust, Series 1999-2, Class 1PA-1, 6.50% 2029 182 184 Nationsbanc Montgomery Funding Corp., Series 1998-5, Class A-1, 6.00% 2013 107 107 3,124,468 U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES -- 13.40% U.S. Treasury Obligations 1.125% 2005 10 10 U.S. Treasury Obligations 5.75% 2005 111,000 113,862 U.S. Treasury Obligations 5.875% 2005 20,000 20,534 U.S. Treasury Obligations 6.75% 2005 213,245 216,527 U.S. Treasury Obligations 5.625% 2006 17,560 18,105 U.S. Treasury Obligations 6.875% 2006 281,990 296,904 U.S. Treasury Obligations 3.00% 2007 70,500 70,071 U.S. Treasury Obligations 3.25% 2007 18,645 18,676 U.S. Treasury Obligations 3.375% 2007(11) 156,611 165,893 U.S. Treasury Obligations 4.375% 2007 32,500 33,401 U.S. Treasury Obligations 6.125% 2007 25,000 26,836 U.S. Treasury Obligations 6.25% 2007 43,885 46,707 U.S. Treasury Obligations 6.625% 2007 40,000 43,150 U.S. Treasury Obligations 2.625% 2008 20,000 19,552 U.S. Treasury Obligations 3.625% 2008(11) 124,878 136,099 U.S. Treasury Obligations 4.75% 2008 40,000 41,894 U.S. Treasury Obligations 5.625% 2008 40,000 42,903 U.S. Treasury Obligations 3.875% 2009(11) 73,321 82,202 U.S. Treasury Obligations Principal Strip 0% 2009 1,250 1,061 U.S. Treasury Obligations 10.00% 2010 5,000 5,134 U.S. Treasury Obligations 3.50% 2011(11) 54,833 62,290 U.S. Treasury Obligations 5.00% 2011 25,000 26,601 U.S. Treasury Obligations Principal Strip 0% 2011 10,495 8,062 U.S. Treasury Obligations 3.00% 2012(11) 2,723 3,040 U.S. Treasury Obligations 10.375% 2012 24,500 29,231 U.S. Treasury Obligations 12.00% 2013 10,000 12,900 U.S. Treasury Obligations 4.00% 2014 4,000 3,944 U.S. Treasury Obligations 11.250% 2015 70,000 110,009 U.S. Treasury Obligations 9.250% 2016 40,000 57,094 U.S. Treasury Obligations 8.875% 2017 20,000 28,328 U.S. Treasury Obligations Principal Strip 0% 2018 24,120 12,713 U.S. Treasury Obligations 7.875% 2021 10,500 14,175 U.S. Treasury Obligations 6.875% 2025 263,250 331,324 U.S. Treasury Obligations 5.25% 2028 77,165 80,770 U.S. Treasury Obligations 3.875% 2029(11) 5,968 8,204 U.S. Treasury Obligations Principal Strip 0% 2029 7,500 2,159 U.S. Treasury Obligations 6.25% 2030 6,460 7,715 Fannie Mae 7.00% 2005 90,000 92,057 Fannie Mae 6.25% 2011 29,250 32,089 Fannie Mae 5.25% 2012 20,000 20,775 Fannie Mae 7.25% 2030 23,750 30,287 Federal Home Loan Bank 2.00% 2006 67,775 66,941 Federal Home Loan Bank 2.375% 2006 62,695 62,123 Federal Home Loan Bank 4.50% 2012 31,500 31,864 Freddie Mac 4.25% 2005 27,250 27,445 Freddie Mac 1.875% 2006 8,780 8,667 Freddie Mac 6.625% 2009 10,000 11,173 Freddie Mac 4.75% 2012 20,000 19,974 Freddie Mac 6.25% 2012 15,000 15,698 Freddie Mac 6.75% 2031 22,650 27,438 U.S. Government-Guaranteed Certificates of Participation, Overseas Private Investment Corp., Series 2000-044-A, 3.74% 2015(3) 12,430 12,258 2,656,869 NON-U.S. GOVERNMENT BONDS & NOTES -- 5.63% German Government 5.00% 2005 Euro 55,270 76,110 German Government 4.50% 2006 41,920 58,657 German Government 4.50% 2009 55,000 79,189 German Government 6.25% 2030 43,630 77,020 Japanese Government 0.50% 2007 (Y) 2,266,150 22,242 Japanese Government 0.90% 2008 11,030,000 109,442 Japanese Government 0.50% 2013 7,890,800 72,347 United Mexican States Government Global 4.625% 2008 $11,000 11,151 United Mexican States Government Global 10.375% 2009 14,500 17,763 United Mexican States Government, Series MI10, 8.00% 2013 MXP 171,200 13,770 United Mexican States Government Global 11.375% 2016 $18,658 27,586 United Mexican States Government, Series M20, 8.00% 2023 MXP 303,800 21,477 United Mexican States Government Global 8.30% 2031 $8,220 9,654 United Mexican States Government Global 7.50% 2033 3,750 4,059 Canadian Government 4.25% 2026(11) C$ 67,142 78,027 Korean Government 4.50% 2008 KRW 70,438,000 70,840 Swedish Government 5.00% 2009 SKr 105,000 16,888 Swedish Government 5.25% 2011 311,885 51,254 Polish Government 8.50% 2006 PLZ 72,000 24,387 Polish Government 6.00% 2010 116,750 38,798 Russian Federation 8.25% 2010 $21,580 23,993 Russian Federation 8.25% 2010(1) 3,300 3,669 Russian Federation 5.00% 2030(2) 26,300 27,221 Russian Federation 5.00% 2030(1),(2) 145 150 United Kingdom 8.50% 2005 Pound 4,295 8,538 United Kingdom 5.00% 2008 6,960 13,551 United Kingdom 6.00% 2028 1,800 4,230 United Kingdom 4.25% 2032 10,190 19,006 Italian Government BTPS Eurobond 6.00% 2007 Euro 16,204 23,935 French Government O.A.T. Eurobond Strip Principal 0% 2019 $14,000 10,452 French Government O.A.T. Eurobond 5.50% 2029 7,610 12,261 New South Wales Treasury Corp. 8.00% 2008 A$ 26,000 21,834 State of Qatar 9.75% 2030 $12,220 17,780 Banque Centrale de Tunisie 4.75% 2011 Euro 3,000 4,189 Banque Centrale de Tunisie 7.375% 2012 $6,250 7,172 Corporacion Andina de Fomento 6.875% 2012 5,895 6,636 Panama (Republic of) Global 10.75% 2020 210 274 Panama (Republic of) Global 9.375% 2023 3,837 4,451 Panama (Republic of) Global 8.875% 2027 250 276 Panama (Republic of) Global 9.375% 2029 675 797 Bulgaria (Republic of) 8.25% 2015 4,000 5,040 Hungarian Government 8.50% 2006 HUF 500,000 2,762 Hungarian Government 6.25% 2008 300,000 1,570 Peru (Republic of) 9.125% 2012 $432 505 Peru (Republic of) 8.375% 2016 2,500 2,813 Peru (Republic of) Past Due Interest Eurobond 5.00% 2017(2) 383 369 Brazil (Federal Republic of), Bearer 8.00% 2014(12) 681 697 Brazil (Federal Republic of) Global 8.875% 2024 1,375 1,430 Brazil (Federal Republic of) Global 12.25% 2030 425 563 Brazil (Federal Republic of) Global 11.00% 2040 610 725 New Zealand Government 4.50% 2016(11) NZ$ 3,553 2,792 Dominican Republic 9.50% 2006(1) $2,135 2,015 Guatemala (Republic of) 10.25% 2011(1) 1,000 1,184 Venezuela (Republic of) 9.25% 2027 915 968 El Salvador (Republic of) 7.625% 2034(1) 750 776 Turkey (Republic of) 12.375% 2009 500 630 Argentina (Republic of), Series E, 0% 2003(13) 1,000 260 Argentina (Republic of) Global 15.50% 2008(13) 725 243 Argentina (Republic of) Global 11.75% 2009(13) 60 21 Argentina (Republic of) Global 12.25% 2018(12),(13) 80 26 Argentina (Republic of) Global 12.00% 2031(12),(13) 53 18 1,116,483 ASSET-BACKED OBLIGATIONS(3) -- 5.60% CWABS, Inc., Series 2004-15, Class AF-2, 3.775% 2024 10,000 9,994 CWABS, Inc., Series 2004-15, Class AF-4, 4.614% 2032 15,000 14,958 CWABS, Inc., Series 2004-15, Class 2-AV-2, 2.69% 2034(2) 30,000 30,000 CWABS, Inc., Series 2004-12, Class 2-AV-2, 2.698% 2033(2) 26,750 26,766 CWABS, Inc., Series 2004-10, Class AF-6, 4.485% 2034 16,000 15,798 Residential Asset Mortgage Products Trust, Series 2004-RZ1, Class A-I-2, 2.34% 2027 19,000 18,735 Residential Asset Mortgage Products Trust, Series 2003-RS1, Class A-I-3, 3.495% 2028 51 51 Residential Asset Mortgage Products Trust, Series 2004-RS3, Class A-I-2, 3.052% 2029 1,550 1,531 Residential Asset Mortgage Products Trust, Series 2004-RS9, Class A-I-4, AMBAC insured, 4.767% 2032 10,000 10,033 Residential Asset Mortgage Products Trust, Series 2004-RZ3, Class A-I-4, 4.572% 2033 6,038 5,977 Residential Asset Mortgage Products Trust, Series 2003-RZ4, Class A-7, 4.79% 2033(2) 10,000 10,044 Residential Asset Mortgage Products Trust, Series 2003-RS11, Class A-I-7, 4.828% 2033 9,000 9,025 Residential Asset Mortgage Products Trust, Series 2004-RS10, Class A-I-6, 4.55% 2034 26,100 25,727 Metris Master Trust, Series 2000-1, Class A, 2.71% 2008(2) 41,100 41,129 Metris Master Trust, Series 2000-3, Class A, 2.67% 2009(2) 3,500 3,495 Metris Master Trust, Series 2001-2, Class A, 2.73% 2009(2) 23,000 22,957 Residential Asset Securities Corp. Trust, Series 2002-KS4, Class A-1-3, AMBAC insured, 4.59% 2026 80 80 Residential Asset Securities Corp. Trust, Series 2003-KS2, Class A-I-3, 2.66% 2028 16,236 16,168 Residential Asset Securities Corp. Trust, Series 1999-KS3, Class A-I-7, AMBAC insured, 7.505% 2030 3,034 3,115 Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031 24,400 25,037 Residential Asset Securities Corp. Trust, Series 2004-KS12, Class A-I-2, 2.64% 2035(2) 20,000 19,986 CPS Auto Receivables Trust, Series 2003-A, Class A-2, XLCA insured, 2.89% 2009(1) 25,539 25,256 CPS Auto Receivables Trust, Series 2002-B, Class A-2, XLCA insured, 3.50% 2009(1) 2,096 2,104 CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52% 2009(1) 1,105 1,102 CPS Auto Receivables Trust, Series 2004-A, Class A-2, FSA insured, 3.87% 2010(1) 7,141 7,150 CPS Auto Receivables Trust, Series 2004-D, Class A-2, XLCA insured, 3.86% 2011(1) 27,600 27,747 Wells Fargo Home Equity Trust, Series 2004-2, Class AI-5, 4.89% 2028 39,935 40,291 Green Tree Financial Corp., Series 1993-2, Class B, 8.00% 2018 2,156 2,036 Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 2025(7) 4,192 1,048 Green Tree Financial Corp., Series 1995-8, Class B-2, 7.65% 2026(7) 7,046 88 Green Tree Financial Corp., Series 1995-6, Class B-2, 8.00% 2026(7) 2,383 119 Green Tree Financial Corp., Series 1996-6, Class B-2, 8.35% 2027(7) 6,984 35 Green Tree Financial Corp., Series 1996-5, Class B-2, 8.45% 2027(7) 4,489 22 Green Tree Financial Corp., Series 1996-10, Class A-6, 7.30% 2028 5,487 5,855 Green Tree Financial Corp., Series 1997-8, Class B-2, 7.75% 2028(7) 2,139 11 Green Tree Financial Corp., Series 1997-6, Class A-7, 7.14% 2029 10,913 11,707 Green Tree Recreational, Equipment & Consumer Trust, Series 1997-D, 7.25% 2029(4) 8,337 7,086 Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 2029(7) 3,432 17 Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 2030(7) 9,019 - Conseco Finance Home Equity Loan Trust, Series 2002-B, Class M-1, 4.153% 2033(2) 4,500 4,581 Conseco Finance Manufactured Housing Contract Trust, Series 2001-3, Class A-2, 5.16% 2033 2,117 2,131 Conseco Finance Manufactured Housing Contract Trust, Series 2001-3, Class A-3, 5.79% 2033 5,000 5,093 Vanderbilt Mortgage and Finance, Inc., Series 2002-B, Class A-3, 4.70% 2018 5,100 5,122 Vanderbilt Mortgage and Finance, Inc., Series 2002-C, Class A-4, 6.57% 2024 7,660 8,094 Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024 10,250 10,596 Vanderbilt Mortgage and Finance, Inc., Series 2000-C, Class A-4, 7.905% 2026 5,000 5,454 Vanderbilt Mortgage and Finance, Inc., Series 2000-C, Class A-5, 8.195% 2030 6,889 7,721 Vanderbilt Mortgage and Finance, Inc., Series 2001-C, Class M-1, 6.76% 2032 1,500 1,569 AmeriCredit Automobile Receivables Trust, Series 2003-A-M, Class A-3-A, MBIA insured, 2.37% 2007 17,000 16,984 AmeriCredit Automobile Receivables Trust, Series 2003-A-M, Class A-4-A, MBIA insured, 3.10% 2009 2,000 1,991 AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4, FSA insured, 3.55% 2009 4,000 4,016 AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA insured, 3.48% 2010 15,500 15,524 MMCA Auto Owner Trust, Series 2001-2, Class B, 5.75% 2007 1,620 1,633 MMCA Auto Owner Trust, Series 2001-3, Class B, 3.353% 2008(2) 4,880 4,876 MMCA Auto Owner Trust, Series 2002-4, Class B, 3.82% 2009 3,933 3,935 MMCA Auto Owner Trust, Series 2002-2, Class A-4, 4.30% 2010 24,221 24,324 WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 15,000 15,063 WFS Financial Owner Trust, Series 2004-1, Class C, 2.49% 2011 4,722 4,669 WFS Financial Owner Trust, Series 2004-1, Class A-4, 2.81% 2011 12,000 11,837 Ameriquest Mortgage Securities Inc., Series 2004-R4, Class A-4, 2.898% 2034(2) 22,757 22,769 Vanderbilt Acquisition Loan Trust, Series 2002-1, Class B-1, 7.30% 2021 10,000 10,491 Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-4, 6.57% 2027 8,290 8,794 Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-5, 7.12% 2032 3,000 3,274 First Investors Auto Owners Trust, Series 2002-A, Class A, MBIA insured, 3.46% 2008(1) 1,931 1,932 First Investors Auto Owners Trust, Series 2003-A, Class A, MBIA insured, 2.58% 2011(1) 20,649 20,473 Morgan Stanley Capital I, Inc., Series 2004-NC3, Class M-1, 2.948% 2034(2) 20,000 20,013 New Century Home Equity Loan Trust, Series 2001-NC2, Class M-1, 3.23% 2031(2) 5,000 5,005 New Century Home Equity Loan Trust, Series 2004-A, Class A-II-5, FGIC insured, 5.25% 2034 11,000 11,236 New Century Home Equity Loan Trust, Series 2004-A, Class M-II, FGIC insured, 5.65% 2034 3,000 3,048 Consumer Credit Reference Index Securities Program Trust, Series 2002-1A, Class A, 4.521% 2007(1),(2) 10,158 10,288 Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FX, 10.421% 2007(1) 8,250 8,624 MBNA Credit Card Master Note Trust, Series 2002-1, Class B, 5.15% 2009 17,000 17,510 Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 17,425 17,396 Household Automotive Trust, Series 2001-3, Class A-4, 4.37% 2008 16,000 16,098 PP&L Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05% 2009 15,000 15,969 Drive Auto Receivables Trust, Series 2004-A, Class A-2, XLCA insured, 1.638% 2006(1) 8,369 8,323 Drive Auto Receivables Trust, Series 2003-1, Class A-3, MBIA insured, 2.41% 2007(1) 5,000 4,971 Drive Auto Receivables Trust, Series 2001-2, Class A, MBIA insured, 3.91% 2007(1) 2,288 2,301 PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 14,250 15,247 CNL Funding, Series 2000-AA, Class A-2, MBIA Insured, 8.044% 2017(1) 13,800 15,197 Impac CMB Grantor Trust, Series 2004-6, Class M-4, 3.568% 2034(2) 9,742 9,830 Impac CMB Trust, Series 2004-10, Class 1-A-2, FGIC insured, 2.768% 2035(2) 4,978 4,979 Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured, 2.524% 2008(1) 7,642 7,626 Drivetime Auto Owner Trust, Series 2004-C, Class A-3, XLCA insured, 3.493% 2010(1) 5,584 5,552 Banco Itau SA, Series 2002, XLCA insured, 2.78% 2007(1),(2) 12,509 12,415 AESOP Funding II LLC, Series 2003-2, Class A-1, MBIA insured, 2.74% 2007(1) 12,000 11,897 Triad Automobile Receivables Trust, Series 2002-1, Class A-3, AMBAC insured, 3.00% 2009(1) 7,976 7,979 Triad Automobile Receivables Trust, Series 2002-A, Class A-3, AMBAC insured, 2.62% 2007 3,899 3,900 PF Export Receivables Master Trust, Series 2001-B, MBIA insured, 6.60% 2011(1) 10,000 10,683 Origen Manufactured Housing Contract Trust, Series 2004-B, Class A-1, 2.87% 2013 5,698 5,657 Origen Manufactured Housing Contract Trust, Series 2004-B, Class M-1, 5.73% 2035 2,500 2,465 Origen Manufactured Housing Contract Trust, Series 2004-B, Class M-2, 6.51% 2035 2,000 1,949 Capital One Auto Finance Trust, Series 2004-B, Class A-3, MBIA insured, 2.96% 2009 10,000 9,923 Prestige Auto Receivables Trust, Series 2003-1, Class A-2, FSA insured, 2.41% 2010(1) 9,905 9,855 IndyMac Home Equity Mortgage Loan Asset-backed Trust, Series 2004-C, Class II-A-2, 2.66% 2035(2) 5,500 5,500 IndyMac Home Equity Mortgage Loan Asset-backed Trust, Series SPMD 2001-A, Class AF-6, 6.537% 2030 3,907 3,922 California Infrastructure and Economic Development Bank, Special Purpose Trust, SCE-1, Series 1997-1, Class A-6, 6.38% 2008 2,292 2,364 California Infrastructure and Economic Development Bank, Special Purpose Trust, PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 6,788 6,997 Pass-through Amortizing Credit Card Trusts, Series 2002-1A, Class A-2FX, 4.685% 2012(1) 2,146 2,154 Pass-through Amortizing Credit Card Trusts, Series 2002-1A, Class A-3FX, 6.298% 2012(1) 6,830 6,844 ACLC Business Loan Receivables Trust, Series 2002-1, Class A-2, 7.462% 2022(1) 8,988 8,651 Home Equity Asset Trust, Series 2004-2, Class M-1, 2.948% 2034(2) 1,000 1,001 Home Equity Asset Trust, Series 2004-7, Class M-1, 3.038% 2035(2) 7,500 7,539 Nordstrom Credit Card Master Note Trust, Series 2002-1, Class B, 3.103% 2010(1),(2) 8,000 8,060 Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2-B, 2.73% 2035(2) 7,450 7,452 MBNA Master Credit Card Trust II, Series 1999-B, Class A, 5.90% 2011 3,000 3,236 MBNA Master Credit Card Trust II, Series 1999-B, Class B, 6.20% 2011 3,750 4,055 Lehman ABS Manufactured Housing Contract Trust, Series 2001-B, Class A-3, 4.35% 2014 4,788 4,737 Lehman ABS Manufactured Housing Contract Trust, Series 2001-B, Class A-4, 5.27% 2018 2,456 2,461 Bear Stearns Asset Backed Securities I Trust, Series 2004-HE11, Class I-A-2, 2.718% 2033(2) 7,125 7,125 First USA Credit Card Master Trust, Series 1997-4, Class C, 3.41% 2010(1),(2) 6,630 6,655 PCR Auto Receivables Trust, Series 2004-1, Class A-2, XLCA insured, 3.995% 2010(1) 6,357 6,363 GRCT Consumer Loan Trust, Series 2001-1A, Class 2BRV, 6.251% 2020(1) 6,076 6,289 CitiFinancial Mortgage Securities Inc., Series 2003-1, Class AF-2, 2.948% 2033 5,733 5,728 Popular ABS Mortgage Pass Through Trust, Series 2004-4, Class AF-4, 4.628% 2034 5,650 5,656 Harley-Davidson Motorcycle Trust, Series 2001-3, Class B, 3.72% 2009 579 581 Harley-Davidson Motorcycle Trust, Series 2001-3, Class A-2, 4.04% 2009 3,117 3,129 Harley-Davidson Motorcycle Trust, Series 2002-2, Class B, 2.84% 2010 1,862 1,844 Continental Auto Receivables Owner Trust, Series 2000-B, Class CTFS, MBIA insured, 7.11% 2007(1) 5,261 5,271 Chase Manhattan Auto Owner Trust, Series 2002-B, 4.24% 2009 4,931 4,973 West Penn Funding LLC, Series 1999-A, Class A-4, 6.98% 2008 4,500 4,889 Hyundai Auto Receivables Trust, Series 2001-A, Class C, 5.57% 2006(1) 2,380 2,389 Hyundai Auto Receivables Trust, Series 2002-A, Class C, 3.91% 2009(1) 2,000 2,007 New South Motor Vehicle Trust, Series 2002-A, Class A-3, AMBAC insured, 3.03% 2010 4,337 4,342 Chase Funding Trust, Series 2003-1, Class IA-3, 3.14% 2023 2,303 2,301 Chase Funding Trust, Series 1999-3, Class IIM-1, 3.068% 2029(2) 1,556 1,558 Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured, 2.29% 2009(1) 3,571 3,532 NextCard Credit Card Master Note Trust, Series 2000-1, Class B, 3.203% 2006(1),(2) 3,393 3,405 Advanta Mortgage Loan Trust, Series 1999-2, Class A-6, AMBAC insured, 6.82% 2029 2,771 2,845 SLM Private Credit Student Loan Trust, Series 2003-10, 5.15% 2039(1) Pound 1,160 2,242 SeaWest Securitization, LLC, Series 2002-A, Class A-3, XLCA insured, 3.58% 2008(1) $1,446 1,448 SeaWest Securitization, LLC, Series 2003-A, Class A-2, XLCA insured, 2.84% 2009(1) 766 765 NPF XII, Inc., Series 1999-3, Class B, 2.389% 2003(1),(2),(4),(6) 3,000 30 NPF XII, Inc., Series 2001-1A, Class A, 1.989% 2004(1),(2),(4),(6) 7,000 656 NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007(1),(4),(7) 16,000 1,500 Chevy Chase Auto Receivables Trust, Series 2001-2, Class A-4, 4.44% 2007 2,114 2,125 Option One Mortgage Loan Trust, Series 2002-1, Class M-1, 3.168% 2032(2) 2,000 1,998 CIT Equipment Collateral, Series 2002-VT1, Class B, 3.97% 2009 1,162 1,159 Capital One Master Trust, Series 2002-1A, Class B, 3.003% 2011(2) 1,000 1,012 World Omni Auto Receivables Trust, Series 2001-B, Class B, 4.14% 2008 640 644 1,110,596 MUNICIPALS -- 1.55% State of California, Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A1, 5.00% 2021 8,055 8,131 State of California, Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A1, 6.25% 2033 64,975 65,076 State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2003, 4.375% 2019 6,000 5,987 State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2003, 6.125% 2024 27,290 27,014 State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2002, 5.75% 2032 31,360 29,965 State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement Asset-backed Bonds, 6.125% 2027 40,110 40,059 State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025 29,321 28,175 State of California, Department of Water Resources, Power Supply Revenue Bonds, Series 2002-E, 3.975% 2005 14,450 14,503 State of California, Department of Water Resources, Power Supply Revenue Bonds, Series 2002-E, 4.33% 2006 13,320 13,458 State of Louisianna, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025 24,095 23,748 California Maritime Infrastructure Authority, Taxable Lease Revenue Bonds (San Diego Unified Port District-South Bay Plant Acquisition), Series 1999, 6.63% 2009(1),(3) 10,744 11,177 Los Angeles County Metropolitan Transportation Authority, General Revenue Refunding Bonds (Workers' Compensation Funding Program), Series 2003, AMBAC insured, 3.83% 2008 5,000 5,002 Los Angeles County Metropolitan Transportation Authority, General Revenue Refunding Bonds (Workers' Compensation Funding Program), Series 2003, AMBAC insured, 4.56% 2010 5,000 5,072 State of Louisianna, Tobacco Settlement Authority, Asset-backed Bonds, Series 2001-B, 5.50% 2030 10,000 9,370 State of South Carolina, Tobacco Settlement Revenue Management Authority, Tobacco Settlement Asset-backed Bonds, Series 2001-B, 6.00% 2022 6,410 6,345 State of South Carolina, Piedmont Municipal Power Agency, Electric Revenue Bonds, Refunding Series 2004-A-1, 3.60% 2006 5,000 4,984 State of New York, Dormitory Authority, City University System Consolidated Third General Resolution Revenue Bonds, Series 2003-2, 2.38% 2005 4,500 4,489 State of New York, Housing Finance Agency, State Personal Income Tax Revenue Bonds (Economic Development and Housing), Series B, 2.88% 2007 2,000 1,973 State of New York, Housing Finance Agency, State Personal Income Tax Revenue Bonds (Economic Development and Housing), Series B, 3.09% 2007 2,200 2,167 306,695 TOTAL BONDS & NOTES (cost: $17,016,321,000) $17,805,976 Shares or CONVERTIBLE SECURITIES -- 0.97% Principal amount CONSUMER DISCRETIONARY -- 0.34% Amazon.com, Inc. 6.875% PEACS convertible subordinated notes 2010 Euro 25,975,000 36,060 Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 351,600 18,561 General Motors Corp., Series B, 5.25% convertible senior debentures 2032 $13,125,000 12,112 66,733 TELECOMMUNICATION SERVICES -- 0.28% Hellenic Exchangeable Finance SCA 2.00% exchangeable bonds 2005 Euro 22,000,000 32,829 American Tower Corp. 5.00% convertible debentures 2010 $21,000,000 21,210 Dobson Communications Corp., Series F, 6.00% convertible preferred(1),(4) 15,400 986 55,025 INFORMATION TECHNOLOGY -- 0.16% Conexant Systems, Inc. 4.00% convertible subordinated notes 2007 $14,700,000 13,377 SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 $12,000,000 11,640 Celestica Inc. 0% convertible debentures 2020 $14,000,000 7,805 32,822 UTILITIES -- 0.09% AES Trust VII 6.00% convertible preferred 2008 351,450 17,080 INDUSTRIALS -- 0.08% Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031(1) 180,000 16,447 FINANCIALS -- 0.02% Equity Office Properties Trust, Series B, 5.25% convertible preferred 2008 70,400 3,602 TOTAL CONVERTIBLE SECURITIES (cost: $138,215,000) 191,709 WARRANTS -- 0.00% Shares TELECOMMUNICATION SERVICES -- 0.00% XO Communications, Inc., Series A, warrants, expire 2010(8) 11,372 8 XO Communications, Inc., Series B, warrants, expire 2010(8) 8,529 4 XO Communications, Inc., Series C, warrants, expire 2010(8) 8,529 4 16 INDUSTRIALS -- 0.00% Protection One, Inc., warrants, expire 2005(1),(4),(8) 54,400 $ 1 TOTAL WARRANTS (cost: $190,000) 17 PREFERRED STOCKS -- 3.94% FINANCIALS -- 3.91% HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred (undated)(1),(2) 85,750,000 106,951 HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual preferred (undated)(1),(2) 32,000,000 49,692 HSBC Capital Funding LP 8.03% noncumulative preferred (undated)(2) 20,000,000 34,136 Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred (undated)(1),(2) 93,375,000 109,317 IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred (undated)(1),(2) 57,500,000 65,176 Fannie Mae, Series O, 7.00% preferred 2007(1),(8) 1,314,000 73,584 Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital securities(1) 1,670,000 45,299 Swire Pacific Offshore Financing Ltd. 9.33% cumulative guaranteed perpetual preferred capital securities(1) 230,000 6,296 Royal Bank of Scotland Group PLC, Series 3 Preference Shares, 7.816% (undated) 18,000,000 18,722 RBS Capital Trust I noncumulative trust preferred 4.709% (undated)(2) 18,550,000 18,102 Royal Bank of Scotland Group PLC 6.625% (undated)(2) 4,700,000 7,211 BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (undated)(1),(2) 21,750,000 24,058 BNP Paribas Capital Trust 9.003% noncumulative trust preferred (undated)(1),(2) 15,000,000 18,506 Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred (undated)(1),(2) 34,850,000 40,763 ING Capital Funding Trust III 8.439% noncumulative preferred (undated)(2) 29,750,000 35,663 NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 1,200,000 33,360 SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred (undated)(1),(2) 26,721,000 30,808 ACE Ltd., Series C, 7.80% preferred depositary shares 680,000 18,054 Standard Chartered Capital Trust I 8.16% (undated)(2) 10,000,000 16,299 DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares (undated)(1),(2) 11,250,000 13,025 New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative step-up premium rate 112,500 5,850 Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative step-up premium rate 50,000 5,275 776,147 TELECOMMUNICATION SERVICES -- 0.03% Dobson Communications Corp. 13.00% senior exchangeable preferred 2009(4) 11,704 5,267 XO Communications, Inc. 14.00% preferred 2009(8),(12) 24 - 5,267 CONSUMER STAPLES -- 0.00% Great Atlantic & Pacific Tea Co., Inc. 9.375% QUIBS preferred 2039 18,500 443 CONSUMER DISCRETIONARY -- 0.00% Adelphia Communications Corp., Series B, 13.00% preferred 2009(8) 50,565 63 INFORMATION TECHNOLOGY -- 0.00% ZiLOG, Inc. - MOD III Inc., units(4),(14) 1,447 0 TOTAL PREFERRED STOCKS (cost: $664,844,000) 781,920 Market value COMMON STOCKS -- 0.51% Shares (000) TELECOMMUNICATION SERVICES -- 0.36% NTELOS Inc.(1),(4),(8),(14) 1,623,569 $ 59,341 AirGate PCS, Inc.(1),(8) 148,128 5,273 Dobson Communications Corp., Class A(1),(8) 2,432,959 4,185 VersaTel Telecom International NV(8) 779,280 2,248 XO Communications, Inc.(8) 5,685 17 71,064 FINANCIALS -- 0.08% Beverly Hills Bancorp Inc.(14) 1,601,967 16,180 INFORMATION TECHNOLOGY -- 0.04% ZiLOG, Inc.(8),(14) 879,000 7,032 INDUSTRIALS -- 0.03% DigitalGlobe, Inc.(1),(4),(8) 3,984,039 3,984 Delta Air Lines, Inc.(1),(4),(8) 312,961 1,990 5,974 HEALTH CARE -- 0.00% Clarent Hospital Corp.(4),(8),(14) 331,291 166 TOTAL COMMON STOCKS (cost: $102,168,000) 100,416 Principal amount SHORT-TERM SECURITIES -- 4.55% (000) Proctor & Gamble Co. 2.08%-2.35% due 1/21-3/9/2005(1),(15) $ 133,000 132,692 CAFCO, LLC 2.05%-2.32% due 1/21-2/10/2005(1) 130,000 129,696 SBC Communications Inc. 2.22%-2.34% due 1/24-2/15/2005(1),(15) 90,500 90,281 U.S. Treasury Bills 1.705%-2.045% due 1/6-3/10/2005(15) 80,200 79,933 Clipper Receivables Co., LLC 2.31%-2.35% due 1/28-2/11/2005(1),(15) 65,000 64,836 Three Pillars Funding, LLC 2.03%-2.39% due 1/7-3/10/2005(1),(15) 55,295 55,187 Coca-Cola Co. 2.15%-2.20% due 1/25-1/27/2005(15) 53,800 53,715 Gannett Co. 2.20%-2.26% due 1/19/2005(1) 51,000 50,939 American Express Credit Corp. 2.15% due 1/5/2005 50,000 49,985 Pfizer Inc 2.23% due 2/2/2005(1) 31,900 31,835 Federal Home Loan Bank 2.21% due 2/4/2005(15) 28,400 28,339 Abbott Laboratories Inc. 2.18% due 1/20/2005(1) 26,200 26,168 BellSouth Corp. 2.30% due 2/7/2005(1) 24,800 24,740 Variable Funding Capital Corp. 2.25% due 1/24/2005(1),(15) 20,000 19,970 General Electric Capital Corp. 2.20% due 1/3/2005 18,100 18,097 Hershey Foods Corp. 2.26% due 2/2/2005(1) 12,600 12,574 NetJets Inc. 1.95% due 1/11/2005(1) 12,500 12,492 3M Co. 1.97% due 1/18/2005(15) 10,000 9,989 Caterpillar Inc. 2.28% due 1/18/2005(1) 10,000 9,989 Triple-A One Funding Corp. 2.08% due 1/7/2005(1) 1,087 1,087 TOTAL SHORT-TERM SECURITIES (cost: $902,570,000) 902,544 TOTAL INVESTMENT SECURITIES (cost: $18,824,308,000) $19,782,582 OTHER ASSETS LESS LIABILITIES 46,826 NET ASSETS $19,829,408
(1) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. The total value of all such restricted securities was $3,738,854,000, which represented 18.86% of the net assets of the fund. (2) Coupon rate may change periodically. (3) 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. (4) Valued under fair value procedures adopted by authority of the Board of Directors. (5) Step bond; coupon rate will increase at a later date. (6) Company did not make principal payment upon scheduled maturity date; reorganization pending. (7) Company not making scheduled interest payments; bankruptcy proceedings pending. (8) Security did not produce income during the last 12 months. (9) Purchased as a unit; issue was separated but reattached for reporting purposes. (10) This unit also contains 999,000 par of Drax Group Ltd., Class A-3, 10.0375% 2020 and 999,000 shares of Drax Group Ltd. common stock. (11) Index-linked bond whose principal amount moves with a government retail price index. (12) Payment in kind; the issuer has the option of paying additional securities in lieu of cash. (13) Scheduled interest or principal payments not made; reorganization pending. (14) Represents an affiliated company as defined under the Investment Company Act of 1940. (15) This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future. See Notes to Financial Statements FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES at December 31, 2004 (dollars and shares in thousands, except per-share amounts) ASSETS: Investment securities at market: Unaffiliated issuers (cost: $18,749,079) $19,699,863 Affiliated issuers (cost: $75,229) 82,719 $19,782,582 Cash 15,052 Receivables for: Sales of investments 11,299 Sales of fund's shares 57,572 Open forward currency contracts 47 Dividends and interest 234,363 303,281 20,100,915 LIABILITIES: Payables for: Purchases of investments 218,948 Repurchases of fund's shares 33,460 Open forward currency contracts 5,986 Closed forward currency contracts 1,793 Investment advisory services 3,880 Services provided by affiliates 6,762 Deferred Directors' compensation 318 Other fees and expenses 360 271,507 NET ASSETS AT DECEMBER 31, 2004 $19,829,408 NET ASSETS CONSIST OF: Capital paid in on shares of capital stock $19,415,819 Undistributed net investment income 24,684 Accumulated net realized loss (565,902) Net unrealized appreciation 954,807 NET ASSETS AT DECEMBER 31, 2004 $19,829,408
Total authorized capital stock - 2,500,000 shares, $.001 par value (1,452,899 total shares outstanding) Net asset value Net assets Shares outstanding per share (1) Class A $15,822,324 1,159,300 $13.65 Class B 1,394,158 102,150 13.65 Class C 1,123,060 82,286 13.65 Class F 486,539 35,649 13.65 Class 529-A 187,358 13,728 13.65 Class 529-B 49,440 3,622 13.65 Class 529-C 86,163 6,313 13.65 Class 529-E 10,715 785 13.65 Class 529-F 4,222 309 13.65 Class R-1 10,452 766 13.65 Class R-2 237,846 17,427 13.65 Class R-3 212,754 15,589 13.65 Class R-4 76,932 5,637 13.65 Class R-5 127,445 9,338 13.65 (1) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for classes A and 529-A, for which the maximum offering prices per share were $14.18 for each.
See Notes to Financial Statements STATEMENT OF OPERATIONS for the year ended December 31, 2004 (dollars in thousands) INVESTMENT INCOME: Income: Interest (net of non-U.S. withholding tax of $402) $922,486 Dividends (includes $1,260 from affiliates) 15,008 $937,494 Fees and expenses: Investment advisory services 45,595 Distribution services 64,185 Transfer agent services 19,054 Administrative services 5,310 Reports to shareholders 904 Registration statement and prospectus 762 Postage, stationery and supplies 1,934 Directors' compensation 143 Auditing and legal 183 Custodian 648 State and local taxes 157 Other 107 Total expenses before reimbursement/waiver 138,982 Reimbursement/waiver of expenses 1,534 137,448 Net investment income 800,046 NET REALIZED GAIN AND UNREALIZED APPRECIATION ON INVESTMENTS AND NON-U.S. CURRENCY: Net realized gain (loss) on: Investments (including $2,120 net loss from affiliates) 212,803 Non-U.S. currency transactions (21,034) 191,769 Net unrealized appreciation (depreciation) on: Investments 33,845 Non-U.S. currency translations (956) 32,889 Net realized gain and unrealized appreciation on investments and non-U.S. currency 224,658 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,024,704 See Notes to Financial Statements STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands) Year ended December 31 2004 2003 OPERATIONS: Net investment income $800,046 $804,752 Net realized gain on investments and non-U.S. currency transactions 191,769 10,312 Net unrealized appreciation on investments and non-U.S. currency translations 32,889 983,905 Net increase in net assets resulting from operations 1,024,704 1,798,969 DIVIDENDS PAID TO SHAREHOLDERS FROM NET INVESTMENT INCOME (822,839) (836,446) CAPITAL SHARE TRANSACTIONS 2,677,089 1,487,583 TOTAL INCREASE IN NET ASSETS 2,878,954 2,450,106 NET ASSETS: Beginning of year 16,950,454 14,500,348 End of year (including undistributed net investment income and distributions in excess of net investment income: $24,684 and $2,806, respectively) $19,829,408 $16,950,454 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 14 share classes consisting of four retail share classes, five CollegeAmerica(R) savings plan share classes and five retirement plan share classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C, 529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be utilized to save for college education. The five retirement plan share classes (R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry any conversion rights. The fund's share classes are described below: - --------------------------------------------------------------------------------------------------------- Share class Initial sales charge Contingent deferred sales Conversion feature charge upon redemption - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes A and 529-A Up to 3.75% None (except 1% for None certain redemptions within one year of purchase without an initial sales charge) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to for redemptions within classes A and 529-A, six years of purchase respectively, after eight years - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class C None 1% for redemptions within Class C converts to Class F one year of purchase after 10 years - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class 529-C None 1% for redemptions within None one year of purchase - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class 529-E None None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes F and 529-F None None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes R-1, R-2, R-3, None None None R-4 and R-5 - ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the fund: SECURITY VALUATION - Equity securities are valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities are valued at prices obtained from an independent pricing service, when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities purchased with greater than 60 days to maturity with 60 days or less remaining to maturity is determined based on the market value on the 61st day. 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 representative quoted bid and asked prices. Securities and other assets for which representative market quotations are not readily available are fair valued as determined in good faith under procedures adopted by authority of the fund's Board of Directors. Various factors may be reviewed in order to make a good faith determination of a security's fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. CollegeAmerica is a registered trademark of the Virginia College Savings Plan./SM/ SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security. CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific fees and expenses) are allocated daily among the various share classes based on the relative value of their settled shares. Realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends paid to shareholders are declared daily from net investment income and are paid to shareholders monthly. Distributions paid to shareholders are recorded on the ex-dividend date. NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including investment securities, denominated in non-U.S. currencies are translated into U.S. dollars at the exchange rates in effect at the end of the reporting period. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. In the accompanying financial statements, the effects of changes in non-U.S. exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in non-U.S. currencies are disclosed separately. FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency contracts, which represent agreements to exchange non-U.S. currencies on specific future dates at predetermined rates. The fund enters into these contracts to manage its exposure to changes in non-U.S. exchange rates arising from investments denominated in non-U.S. currencies. Upon entering into these contracts, risks may arise from the potential inability of counterparties to meet the terms of their contracts and from possible movements in non-U.S. exchange rates. Due to these risks, the fund could incur losses up to the entire contract amount, which may exceed the net unrealized value shown in the accompanying financial statements. On a daily basis, the fund values forward currency contracts based on the applicable exchange rates and records unrealized gains or losses. The fund records realized gains or losses at the time the forward contract is closed or offset by another contract with the same broker for the same settlement date and currency. MORTGAGE DOLLAR ROLLS - The fund may enter into mortgage dollar roll transactions in which the fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Each mortgage dollar roll is treated as a financing transaction, therefore, any gain or loss is considered unrealized until the roll reaches completion. Risks may arise due to the delayed payment date and the potential inability of counterparties to complete the transaction. Income is generated as consideration for entering into these transactions and is included in interest income in the accompanying financial statements. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may include, but are not limited to, investment and repatriation restrictions; revaluation of currencies; adverse political, social and economic developments; government involvement in the private sector; limited and less reliable investor information; lack of liquidity; certain local tax law considerations; and limited regulation of the securities markets. TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid. 3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. DISTRIBUTIONS - Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as non-U.S. currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; unrealized appreciation of certain investments in non-U.S. securities; deferred expenses; cost of investments sold; paydowns on investments and net capital losses. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund. As of December 31, 2004, the cost of investment securities, excluding forward currency contracts, for federal income tax purposes was $18,885,300,000. During the year ended December 31, 2004, the fund reclassified $50,303,000 from undistributed net realized gains to undistributed net investment income and reclassified $20,000 from undistributed net investment income to additional paid-in capital to align financial reporting with tax reporting. As of December 31, 2004, the components of distributable earnings on a tax basis were as follows (dollars in thousands): Undistributed net investment income and currency gains $30,203 Short-term and long-term capital loss deferrals (514,781) Gross unrealized appreciation on investment securities 1,039,952 Gross unrealized depreciation on investment securities (142,670) Net unrealized appreciation on investment securities 897,282
Undistributed net investment income and currency gains above include currency losses of $7,763,000 that were realized during the period November 1, 2003 through December 31, 2003. Short-term capital loss deferrals above include capital loss carryforwards of $243,982,000, $254,538,000 and $16,261,000 expiring in 2011, 2010 and 2009, respectively. These numbers reflect the utilization of a capital loss carryforward of $108,272,000. The remaining capital loss carryforwards will be used to offset any capital gains realized by the fund in future years through the expiration dates. The fund will not make distributions from capital gains while capital loss carryforwards remain. During the year ended December 31, 2004, the fund realized, on a tax basis, a net capital gain of $134,335,000, which was offset by capital losses of $26,063,000 that were realized during the period November 1, 2003 through December 31, 2003. Ordinary income distributions paid to shareholders from net investment income and currency gains were as follows (dollars in thousands): Ordinary income distributions paid to shareholders from net investment income and currency gains were as follows (dollars in thousands): Share class Year ended December 31, 2004 Year ended December 31, 2003 Class A $ 683,482 $ 720,504 Class B 51,745 52,350 Class C 37,239 32,059 Class F 17,193 11,977 Class 529-A 6,705 4,034 Class 529-B 1,568 1,127 Class 529-C 2,641 1,805 Class 529-E 375 249 Class 529-F 135 48 Class R-1 297 122 Class R-2 6,883 3,030 Class R-3 6,674 2,906 Class R-4 2,053 605 Class R-5 5,849 5,630 Total $ 822,839 $ 836,446
4. FEES AND TRANSACTIONS WITH RELATED PARTIES Capital Research and Management Company ("CRMC"), the fund's investment adviser, is the parent company of American Funds Service Company ("AFS"), the fund's transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal underwriter of the fund's shares. INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.30% on the first $60 million of daily net assets and decreasing to 0.13% on such assets in excess of $16 billion. The agreement also provides for monthly fees, accrued daily, based on a declining series of annual rates beginning with 2.25% on the first $8,333,333 of the fund's monthly gross income and decreasing to 1.75% on such income in excess of $41,666,667. The Board of Directors approved an amended agreement effective April 1, 2004, continuing the series of rates to include an additional annual rate of 0.12% on daily net assets in excess of $20 billion. During the year ended December 31, 2004, CRMC reduced investment advisory services fees by $788,000. As a result, the fee shown on the accompanying financial statements of $45,595,000, which was equivalent to an annualized rate of 0.252%, was reduced to $44,807,000, or 0.248% of average daily net assets. CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below: DISTRIBUTION SERVICES - The fund has adopted plans of distribution for all share classes, except Class R-5. Under the plans, the Board of Directors approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares. The plans provide for annual expenses, based on a percentage of average daily net assets, ranging from 0.25% to 1.00% as noted below. In some cases, the Board of Directors has approved expense amounts lower than plan limits. All share classes may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD for providing certain shareholder services. Expenses in excess of these amounts, up to approved limits, may be used to compensate dealers and wholesalers for shares sold. For classes A and 529-A, the Board of Directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. Each class reimburses AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of December 31, 2004, unreimbursed expenses subject to reimbursement totaled $8,519,000 for Class A. There were no unreimbursed expenses subject to reimbursement for Class 529-A. ------------------------------------------------ ----------------------------- ----------------------------- Share class Currently approved limits Plan limits ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class A 0.25% 0.25% ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class 529-A 0.25 0.50 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes B and 529-B 1.00 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes C, 529-C and R-1 1.00 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class R-2 0.75 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes 529-E and R-3 0.50 0.75 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes F, 529-F and R-4 0.25 0.50 ------------------------------------------------ ----------------------------- -----------------------------
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with AFS for classes A and B. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent services provided to all other share classes from the administrative services fees paid to CRMC described below. ADMINISTRATIVE SERVICES - The fund has an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all classes of shares other than classes A and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. During the year ended December 31, 2004, CRMC agreed to pay a portion of these fees for classes R-1, R-2 and R-3. For the year ended December 31, 2004, the total fees paid by CRMC were $5,000, $733,000 and $8,000 for Class R-1, Class R-2 and Class R-3, respectively. Administrative services fees are presented gross of any payments made by CRMC. Each 529 share class is subject to an additional annual administrative services fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the CollegeAmerica plan. Although these amounts are included with administrative services fees in the accompanying financial statements, the Commonwealth of Virginia is not considered a related party. Expenses under the agreements described on the previous page for the year ended December 31, 2004, were as follows (dollars in thousands): -------------------------------------------------------------------------------------------------------------- Share class Distribution Transfer agent Administrative services services services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- CRMC Transfer agent Commonwealth of administrative services Virginia services administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class A $36,668 $17,649 Not applicable Not applicable Not applicable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class B 13,187 1,405 Not applicable Not applicable Not applicable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class C 9,700 Included $1,455 $294 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class F 936 Included 561 97 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-A 216 Included 217 32 $145 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-B 421 Included 63 24 42 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-C 705 Included 106 32 70 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-E 44 Included 13 2 9 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-F 8 Included 4 1 3 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-1 77 Included 12 9 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-2 1,330 Included 266 1,206 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-3 782 Included 235 218 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-4 111 Included 67 6 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-5 Not applicable Included 118 3 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Total $64,185 $19,054 $3,117 $1,924 $269 --------------------------------------------------------------------------------------------------------------
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors' compensation of $143,000 shown on the accompanying financial statements includes $104,000 in current fees (either paid in cash or deferred) and a net increase of $39,000 in the value of the deferred amounts. AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or Directors received any compensation directly from the fund. 5. CAPITAL SHARE TRANSACTIONS Capital share transactions in the fund were as follows (dollars and shares in thousands): Share class Sales(1) Reinvestments of dividends Amount Shares Amount Shares Year ended December 31, 2004 Class A $ 4,113,288 304,709 $ 585,100 43,375 Class B 290,080 21,493 42,293 3,135 Class C 452,065 33,472 30,241 2,242 Class F 276,299 20,471 13,677 1,014 Class 529-A 81,558 6,041 6,689 496 Class 529-B 15,159 1,123 1,564 116 Class 529-C 34,537 2,558 2,635 195 Class 529-E 3,881 287 374 28 Class 529-F 2,019 150 135 10 Class R-1 7,762 575 295 22 Class R-2 163,885 12,152 6,838 507 Class R-3 149,741 11,099 6,643 493 Class R-4 70,820 5,252 2,044 151 Class R-5 39,652 2,956 3,979 295 Total net increase (decrease) $ 5,700,746 422,338 $ 702,507 52,079 Year ended December 31, 2003 Class A $ 3,914,006 298,503 $ 606,086 46,021 Class B 447,795 34,182 41,587 3,155 Class C 439,411 33,447 25,135 1,906 Class F 247,799 18,925 9,380 711 Class 529-A 58,345 4,428 4,025 305 Class 529-B 17,719 1,348 1,125 85 Class 529-C 29,195 2,219 1,798 136 Class 529-E 4,019 306 247 19 Class 529-F 1,906 145 48 3 Class R-1 5,828 442 121 9 Class R-2 113,952 8,680 3,007 227 Class R-3 99,210 7,575 2,884 218 Class R-4 19,077 1,446 604 46 Class R-5 49,613 3,802 3,594 272 Total net increase (decrease) $ 5,447,875 415,448 $ 699,641 53,113 Share class Repurchases(1) Net increase Amount Shares Amount Shares Year ended December 31, 2004 Class A $ (3,028,423) (224,803) $ 1,669,965 123,281 Class B (226,378) (16,819) 105,995 7,809 Class C (218,016) (16,201) 264,290 19,513 Class F (100,016) (7,438) 189,960 14,047 Class 529-A (12,466) (925) 75,781 5,612 Class 529-B (3,056) (228) 13,667 1,011 Class 529-C (8,033) (597) 29,139 2,156 Class 529-E (721) (54) 3,534 261 Class 529-F (119) (9) 2,035 151 Class R-1 (2,382) (176) 5,675 421 Class R-2 (46,485) (3,445) 124,238 9,214 Class R-3 (41,099) (3,048) 115,285 8,544 Class R-4 (15,251) (1,131) 57,613 4,272 Class R-5 (23,719) (1,764) 19,912 1,487 Total net increase (decrease) $ (3,726,164) (276,638) $ 2,677,089 197,779 Year ended December 31, 2003 Class A $ (3,944,314) (300,701) $ 575,778 43,823 Class B (222,252) (16,906) 267,130 20,431 Class C (213,329) (16,240) 251,217 19,113 Class F (159,243) (12,222) 97,936 7,414 Class 529-A (7,496) (567) 54,874 4,166 Class 529-B (1,780) (134) 17,064 1,299 Class 529-C (5,184) (392) 25,809 1,963 Class 529-E (969) (74) 3,297 251 Class 529-F (38) (3) 1,916 145 Class R-1 (2,261) (172) 3,688 279 Class R-2 (30,794) (2,338) 86,165 6,569 Class R-3 (28,674) (2,178) 73,420 5,615 Class R-4 (12,668) (971) 7,013 521 Class R-5 (30,931) (2,348) 22,276 1,726 Total net increase (decrease) $ (4,659,933) (355,246) $ 1,487,583 113,315 (1) Includes exchanges between share classes of the fund.
6. FORWARD CURRENCY CONTRACTS As of December 31, 2004, the fund had outstanding forward currency contracts to sell non-U.S. currencies as follows: U.S. valuations Non-U.S. Contract amount at December 31, 2004 currency contracts Unrealized Non-U.S. U.S. Amount (depreciation) appreciation (000) (000) (000) (000) Sales: Euros expiring 1/20 to 3/29/2005 Euro 175,887 $233,602 $238,453 ($4,851) Japanese Yen expiring 3/14/2005 JPY 4,629,127 44,139 45,274 (1,135) British pounds expiring 3/9/2005 Pound 1,920 3,711 3,664 47 Forward currency contracts - net $281,452 $287,391 ($5,939)
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $9,767,170,000 and $7,824,192,000, respectively, during the year ended December 31, 2004. The fund receives a reduction in its custodian fee equal to the amount of interest calculated on certain cash balances held at the custodian bank. For the year ended December 31, 2004, the custodian fee of $648,000, shown on the accompanying financial statements, included $118,000 that was offset by this reduction, rather than paid in cash. FINANCIAL HIGHLIGHTS (1) Income from investment operations(2) Net Net asset gains (losses) value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class A: Year ended 12/31/2004 $13.51 $.61 $.16 $.77 Year ended 12/31/2003 12.70 .68 .84 1.52 Year ended 12/31/2002 12.79 .82 (.08) .74 Year ended 12/31/2001 12.79 .93 (.03) .90 Year ended 12/31/2000 12.98 .94 (.17) .77 Class B: Year ended 12/31/2004 13.51 .51 .16 .67 Year ended 12/31/2003 12.70 .58 .84 1.42 Year ended 12/31/2002 12.79 .72 (.08) .64 Year ended 12/31/2001 12.79 .83 (.03) .80 Period from 3/15/2000 to 12/31/2000 12.92 .62 (.08) .54 Class C: Year ended 12/31/2004 13.51 .50 .16 .66 Year ended 12/31/2003 12.70 .57 .84 1.41 Year ended 12/31/2002 12.79 .71 (.08) .63 Period from 3/15/2001 to 12/31/2001 13.05 .63 (.27) .36 Class F: Year ended 12/31/2004 13.51 .60 .16 .76 Year ended 12/31/2003 12.70 .67 .84 1.51 Year ended 12/31/2002 12.79 .81 (.08) .73 Period from 3/15/2001 to 12/31/2001 13.05 .70 (.27) .43 Class 529-A: Year ended 12/31/2004 13.51 .60 .16 .76 Year ended 12/31/2003 12.70 .67 .84 1.51 Period from 2/15/2002 to 12/31/2002 12.76 .69 (.04) .65 Class 529-B: Year ended 12/31/2004 13.51 .48 .16 .64 Year ended 12/31/2003 12.70 .55 .84 1.39 Period from 2/15/2002 to 12/31/2002 12.76 .60 (.04) .56 Class 529-C: Year ended 12/31/2004 13.51 .48 .16 .64 Year ended 12/31/2003 12.70 .55 .84 1.39 Period from 2/19/2002 to 12/31/2002 12.73 .60 (.02) .58 Class 529-E: Year ended 12/31/2004 13.51 .55 .16 .71 Year ended 12/31/2003 12.70 .62 .84 1.46 Period from 3/7/2002 to 12/31/2002 12.70 .61 .02 .63 Class 529-F: Year ended 12/31/2004 13.51 .59 .16 .75 Year ended 12/31/2003 12.70 .64 .84 1.48 Period from 9/26/2002 to 12/31/2002 12.31 .19 .40 .59 FINANCIAL HIGHLIGHTS (1) (continued) Income from investment operations(2) Net Net asset gains (losses) value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class R-1: Year ended 12/31/2004 13.51 .50 .16 .66 Year ended 12/31/2003 12.70 .57 .84 1.41 Period from 6/11/2002 to 12/31/2002 12.65 .38 .06 .44 Class R-2: Year ended 12/31/2004 13.51 .50 .16 .66 Year ended 12/31/2003 12.70 .57 .84 1.41 Period from 5/31/2002 to 12/31/2002 12.72 .40 (.01) .39 Class R-3: Year ended 12/31/2004 13.51 .55 .16 .71 Year ended 12/31/2003 12.70 .62 .84 1.46 Period from 6/4/2002 to 12/31/2002 12.73 .42 (.02) .40 Class R-4: Year ended 12/31/2004 13.51 .60 .16 .76 Year ended 12/31/2003 12.70 .67 .84 1.51 Period from 5/20/2002 to 12/31/2002 12.67 .47 .04 .51 Class R-5: Year ended 12/31/2004 13.51 .65 .16 .81 Year ended 12/31/2003 12.70 .71 .84 1.55 Period from 5/15/2002 to 12/31/2002 12.66 .52 .05 .57 FINANCIAL HIGHLIGHTS (1) Dividends (from net Net asset Net assets, investment value, end Total end of period income) of period return(3) (in millions) Class A: Year ended 12/31/2004 $(.63) $13.65 5.85% $15,822 Year ended 12/31/2003 (.71) 13.51 12.22 13,991 Year ended 12/31/2002 (.83) 12.70 6.11 12,600 Year ended 12/31/2001 (.90) 12.79 7.15 11,223 Year ended 12/31/2000 (.96) 12.79 6.19 9,366 Class B: Year ended 12/31/2004 (.53) 13.65 5.07 1,394 Year ended 12/31/2003 (.61) 13.51 11.38 1,274 Year ended 12/31/2002 (.73) 12.70 5.28 939 Year ended 12/31/2001 (.80) 12.79 6.37 471 Period from 3/15/2000 to 12/31/2000 (.67) 12.79 4.33 88 Class C: Year ended 12/31/2004 (.52) 13.65 4.99 1,123 Year ended 12/31/2003 (.60) 13.51 11.29 848 Year ended 12/31/2002 (.72) 12.70 5.20 554 Period from 3/15/2001 to 12/31/2001 (.62) 12.79 2.83 188 Class F: Year ended 12/31/2004 (.62) 13.65 5.80 487 Year ended 12/31/2003 (.70) 13.51 12.15 292 Year ended 12/31/2002 (.82) 12.70 6.04 180 Period from 3/15/2001 to 12/31/2001 (.69) 12.79 3.35 76 Class 529-A: Year ended 12/31/2004 (.62) 13.65 5.80 187 Year ended 12/31/2003 (.70) 13.51 12.21 110 Period from 2/15/2002 to 12/31/2002 (.71) 12.70 5.33 50 Class 529-B: Year ended 12/31/2004 (.50) 13.65 4.86 49 Year ended 12/31/2003 (.58) 13.51 11.18 35 Period from 2/15/2002 to 12/31/2002 (.62) 12.70 4.55 17 Class 529-C: Year ended 12/31/2004 (.50) 13.65 4.88 86 Year ended 12/31/2003 (.58) 13.51 11.19 56 Period from 2/19/2002 to 12/31/2002 (.61) 12.70 4.75 28 Class 529-E: Year ended 12/31/2004 (.57) 13.65 5.43 11 Year ended 12/31/2003 (.65) 13.51 11.77 7 Period from 3/7/2002 to 12/31/2002 (.63) 12.70 5.14 3 Class 529-F: Year ended 12/31/2004 (.61) 13.65 5.69 4 Year ended 12/31/2003 (.67) 13.51 11.96 2 Period from 9/26/2002 to 12/31/2002 (.20) 12.70 4.81 - (6) FINANCIAL HIGHLIGHTS (1) (continued) Dividends (from net Net asset Net assets, investment value, end Total end of period income) of period return (in millions) Class R-1: Year ended 12/31/2004 (.52) 13.65 4.98 11 Year ended 12/31/2003 (.60) 13.51 11.29 5 Period from 6/11/2002 to 12/31/2002 (.39) 12.70 3.59 1 Class R-2: Year ended 12/31/2004 (.52) 13.65 5.02 238 Year ended 12/31/2003 (.60) 13.51 11.33 111 Period from 5/31/2002 to 12/31/2002 (.41) 12.70 3.23 21 Class R-3: Year ended 12/31/2004 (.57) 13.65 5.42 213 Year ended 12/31/2003 (.65) 13.51 11.76 95 Period from 6/4/2002 to 12/31/2002 (.43) 12.70 3.31 18 Class R-4: Year ended 12/31/2004 (.62) 13.65 5.81 77 Year ended 12/31/2003 (.70) 13.51 12.15 18 Period from 5/20/2002 to 12/31/2002 (.48) 12.70 4.21 11 Class R-5: Year ended 12/31/2004 (.67) 13.65 6.14 127 Year ended 12/31/2003 (.74) 13.51 12.52 106 Period from 5/15/2002 to 12/31/2002 (.53) 12.70 4.66 78
FINANCIAL HIGHLIGHTS (1) Ratio of expenses Ratio of expenses to average to average Ratio of net assets net assets net income before reimbursement/ after reimbursement/ to average waiver waiver (4) net assets Class A: Year ended 12/31/2004 .65% .65% 4.54% Year ended 12/31/2003 .67 .67 5.15 Year ended 12/31/2002 .71 .71 6.59 Year ended 12/31/2001 .71 .71 7.17 Year ended 12/31/2000 .72 .72 7.35 Class B: Year ended 12/31/2004 1.39 1.38 3.80 Year ended 12/31/2003 1.41 1.41 4.37 Year ended 12/31/2002 1.47 1.47 5.77 Year ended 12/31/2001 1.45 1.45 6.30 Period from 3/15/2000 to 12/31/2000 1.42 (5) 1.42 (5) 6.65 (5) Class C: Year ended 12/31/2004 1.46 1.45 3.71 Year ended 12/31/2003 1.49 1.49 4.26 Year ended 12/31/2002 1.55 1.55 5.66 Period from 3/15/2001 to 12/31/2001 1.57 (5) 1.57 (5) 6.25 (5) Class F: Year ended 12/31/2004 .70 .69 4.46 Year ended 12/31/2003 .72 .72 5.02 Year ended 12/31/2002 .77 .77 6.44 Period from 3/15/2001 to 12/31/2001 .79 (5) .79 (5) 7.03 (5) Class 529-A: Year ended 12/31/2004 .70 .70 4.48 Year ended 12/31/2003 .68 .68 5.05 Period from 2/15/2002 to 12/31/2002 .75 (5) .75 (5) 6.46 (5) Class 529-B: Year ended 12/31/2004 1.59 1.58 3.60 Year ended 12/31/2003 1.61 1.61 4.13 Period from 2/15/2002 to 12/31/2002 1.64 (5) 1.64 (5) 5.57 (5) Class 529-C: Year ended 12/31/2004 1.57 1.57 3.61 Year ended 12/31/2003 1.59 1.59 4.15 Period from 2/19/2002 to 12/31/2002 1.63 (5) 1.63 (5) 5.58 (5) Class 529-E: Year ended 12/31/2004 1.05 1.05 4.13 Year ended 12/31/2003 1.06 1.06 4.68 Period from 3/7/2002 to 12/31/2002 1.13 (5) 1.13 (5) 6.06 (5) Class 529-F: Year ended 12/31/2004 .80 .80 4.36 Year ended 12/31/2003 .82 .82 4.72 Period from 9/26/2002 to 12/31/2002 .30 .30 1.51 FINANCIAL HIGHLIGHTS (1) (continued) Ratio of expenses Ratio of expenses to average to average Ratio of net assets net assets net income before reimbursement/ after reimbursement/ to average waiver waiver (4) net assets Class R-1: Year ended 12/31/2004 1.55 1.47 3.70 Year ended 12/31/2003 1.65 1.49 4.13 Period from 6/11/2002 to 12/31/2002 2.53 (5) 1.52 (5) 5.55 (5) Class R-2: Year ended 12/31/2004 1.85 1.43 3.73 Year ended 12/31/2003 1.94 1.46 4.20 Period from 5/31/2002 to 12/31/2002 1.67 (5) 1.48 (5) 5.56 (5) Class R-3: Year ended 12/31/2004 1.06 1.05 4.12 Year ended 12/31/2003 1.12 1.07 4.59 Period from 6/4/2002 to 12/31/2002 1.20 (5) 1.10 (5) 5.95 (5) Class R-4: Year ended 12/31/2004 .68 .68 4.48 Year ended 12/31/2003 .72 .72 5.05 Period from 5/20/2002 to 12/31/2002 .77 (5) .74 (5) 6.20 (5) Class R-5: Year ended 12/31/2004 .37 .37 4.81 Year ended 12/31/2003 .40 .40 5.39 Period from 5/15/2002 to 12/31/2002 .42 (5) .42 (5) 6.75 (5)
Year ended December 31 2004 2003 2002 2001 2000 Portfolio turnover rate for all classes of shares 45% 60% 50% 64% 62%
(1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Based on average shares outstanding. (3) Total returns exclude all sales charges, including contingent deferred sales charges. (4) The ratios in this column reflect the impact, if any, of certain reimbursements/waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services for all share classes. In addition, during the start-up period for the retirement plan share classes (except Class R-5), CRMC agreed to pay a portion of the fees related to transfer agent services. (5) Annualized. (6) Amount less than $1 million. See Notes to Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors 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, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Bond Fund of America, Inc. as of December 31, 2004, 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 financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP February 10, 2005 Costa Mesa, CA 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. The information below is provided for the fund's fiscal year ending December 31, 2004. Individual shareholders are eligible for reduced tax rates on qualified dividend income. The fund designates $7,338,000 of the dividends paid by the fund as qualified dividend income. Corporate shareholders may exclude up to 70% of qualifying dividends. The fund designates $7,337,000 of dividends received as qualified dividend income. For state tax purposes, certain states may exempt from income taxation that portion of the income dividends paid by the fund that were derived from direct U.S. government obligations. The fund designates $89,073,000 as interest derived on direct U.S. government obligations. INDIVIDUAL SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WAS MAILED IN JANUARY 2005 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON THEIR 2004 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. -----END PRIVACY-ENHANCED MESSAGE-----