bfa497.htm

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THE BOND FUND OF AMERICA, INC.

Part B
Statement of Additional Information

March 1, 2007

(as supplemented November 19, 2007)

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, 2007. 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

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

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. . . . . . . . . . . . . . . . . . 34
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 37
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 42
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 49
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Shareholder account services and privileges . . . . . . . . . . . . 54
General information . . . . . . . . . . . . . . . . . . . . . . . . 56
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Financial statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

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

.. 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, the fund's current practice is 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.

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DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

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

DEBT SECURITIES -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors periodic interest and repay the amount borrowed
either periodically during the life of the security and/or at maturity. Some
debt securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values and accrue interest at the
applicable coupon rate over a specified time period. 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. For example, the prices of these securities can be affected by
financial contracts held by the issuer or third parties (such as
derivatives) relating to the security or other assets or indices.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the fund would have to replace the security with a lower
yielding security, resulting in decreased income to investors. If the
issuer of a debt security defaults on its obligations to pay interest or
principal or is the subject of bankruptcy proceedings, the fund may incur
losses or expenses in seeking recovery of amounts owed to it.

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

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The investment adviser attempts to reduce the risks described above through
diversification of the fund's portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.

Credit ratings for debt securities provided by rating agencies evaluate the
safety of principal and interest payments, not market value risk. The rating of
an issuer is a rating agency's view of past and future potential developments
related to the issuer and may not necessarily reflect actual outcomes. There can
be a lag between the time of developments relating to an issuer and the time a
rating is assigned and updated.

Bond rating agencies may assign modifiers (such as +/-) to ratings categories to
signify the relative position of a credit within the rating category. Investment
policies that are based on ratings categories should be read to include any
security within that category, without giving consideration to the modifier. See
the Appendix for more information about credit ratings.

INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities and corporations.

The principal amount of an inflation-indexed bond is adjusted in response to
changes in the level of the consumer price index. Repayment of the original bond
principal upon maturity (as adjusted for inflation) is guaranteed in the case of
U.S. Treasury inflation-indexed bonds, and therefore the principal amount of
such bonds cannot be reduced below par even during a period of deflation.
However, the current market value of these bonds is not guaranteed and will
fluctuate, reflecting the rise and fall of yields. In certain non-U.S.
jurisdictions the repayment of the original bond principal upon the maturity of
an inflation-indexed bond is not guaranteed, allowing for the amount repaid at
maturity of the bond to be less than par.

The interest rate for these bonds is fixed at issuance as a percentage of this
adjustable principal. Accordingly, the actual interest income may both rise and
fall as the principal amount of the bonds adjusts in response to movements of
the consumer price index. For example, typically interest income would rise
during a period of inflation and fall during a period of deflation.

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 securities automatically convert into
common stocks and some may be subject to redemption at the option of the issuer
at a predetermined price. The prices and yields of nonconvertible preferred
securities generally move with changes in interest rates and the issuer's credit
quality, similar to the factors affecting debt securities. Nonconvertible
preferred securities will be treated as debt for fund investment limit purposes.

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.

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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).

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

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

Mortgage-backed securities issued by private entities are structured
similarly to those issued by U.S. government agencies. However, these
securities and the underlying mortgages are not guaranteed by any
government agencies. These securities generally are structured with one or
more types of credit enhancements such as insurance or

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letters of credit issued by private companies. Mortgage-backed securities
generally permit borrowers to prepay their underlying mortgages.
Prepayments can alter the effective maturity of these instruments.

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

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

ASSET-BACKED SECURITIES -- These securities are backed by other assets such
as credit card, automobile or consumer loan receivables, retail installment
loans or participations in pools of leases. Credit support for these
securities may be based on the underlying assets and/or provided through
credit enhancements by a third party. The values of these securities are
sensitive to changes in the credit quality of the underlying collateral,
the credit strength of the credit enhancement, changes in interest rates
and at times the 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

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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 ("GDP") and a low market capitalization to GDP ratio relative
to those in the United States and the European Union. Historically, the markets
of developing countries have been more volatile than the markets of developed
countries. The fund may invest in securities of issuers in developing countries
only to a limited extent.

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

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 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, tax laws and regulatory requirements, such as those relating to
the environment. Both types of REITs are dependent upon management skill and the
cash flows generated by their holdings, the real estate market in general and
the possibility of failing to qualify for any applicable pass-through tax
treatment or failing to maintain any applicable exemptive status afforded under
relevant laws.

FORWARD COMMITMENT, WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The fund
may enter into commitments to purchase or sell securities at a future date. When
the fund agrees to purchase such securities, it assumes the risk of any decline
in value of the security from the date of the agreement. If the other party to
such a transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could experience a loss.

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The fund will not use these transactions for the purpose of leveraging and will
segregate liquid assets that will be marked to market daily in an amount
sufficient to meet its payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent the
fund's aggregate commitments in connection with these transactions exceed its
segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while the
fund is in a leveraged position, greater depreciation of its net assets would
likely occur than if it were not in such a position. The fund will not borrow
money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations. After a transaction is entered into,
the fund may still dispose of or renegotiate the transaction. Additionally,
prior to receiving delivery of securities as part of a transaction, the fund may
sell such securities.

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

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

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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. In
addition, the fund may not directly benefit from any collateral supporting the
loan in which it has purchased the participation and the fund will have to rely
on the agent bank or other financial intermediary to apply appropriate credit
remedies. 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 co-lender under emerging
legal theories of lender liability. In addition, if the loan is foreclosed, the
fund could be part owner of any collateral and could bear the costs and
liabilities of owning and disposing of the collateral. The fund anticipates that
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 OR ILLIQUID SECURITIES -- The fund may purchase securities subject to
restrictions on resale. Restricted securities may only be sold pursuant to an
exemption from registration under the Securities Act of 1933 (the "1933 Act"),
or in a registered public offering. Restricted securities held by the fund are
often eligible for resale under Rule 144A, an exemption under the 1933 Act
allowing for resales to "Qualified Institutional Buyers". Where registration is
required, the holder of a registered security may be obligated to pay all or
part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. Difficulty in selling
such securities may result in a loss to the fund or cause it to incur additional
administrative costs.

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

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.

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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, 2006 and 2005 were 53% and 50%,
respectively. See "Financial highlights" in the prospectus for the fund's annual
portfolio turnover rate for each of the last five fiscal years.

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
shareholder meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or by proxy, or (b) more than 50% of the
outstanding voting securities. 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.

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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;

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.

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

The Bond Fund of America -- Page 11
<PAGE>

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS

"INDEPENDENT" DIRECTORS/1/

NAME, AGE AND NUMBER OF
POSITION WITH FUND PORTFOLIOS/3/
(YEAR FIRST ELECTED AS A PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS/4/
DIRECTOR/2/) DURING PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- --------------------------------------------------------------------------------------------------------------

Ambassador Richard G. Corporate director and author; 15 Carnival Corporation
Capen, Jr., 73 former U.S. Ambassador to
Director (1999) Spain; former Vice Chairman,
Knight-Ridder, Inc.
(communications company);
former Chairman and Publisher,
The Miami Herald
- --------------------------------------------------------------------------------------------------------------
H. Frederick Christie, 74 Private investor; former 21 AECOM Technology
Director (1974) President and CEO, The Mission Corporation;
Group (non-utility holding Ducommun Incorporated;
company, subsidiary of Southern IHOP Corporation;
California Edison Company) Southwest Water Company
- --------------------------------------------------------------------------------------------------------------
James G. Ellis, 60 Vice Provost, Globalization, 12 Genius Products;
Director (2006) University of Southern Professional Business Bank
California; Dean and Professor,
Marshall School of Business,
University of Southern
California
- --------------------------------------------------------------------------------------------------------------
Martin Fenton, 72 Chairman of the Board, Senior 18 None
Chairman of the Board Resource Group LLC (development
(Independent and and management of senior living
Non-Executive) (1989) communities)
- --------------------------------------------------------------------------------------------------------------
Leonard R. Fuller, 61 President and CEO, Fuller 16 None
Director (1994) Consulting (financial
management consulting firm)
- --------------------------------------------------------------------------------------------------------------
R. Clark Hooper, 61 Private investor; former 18 JPMorgan Value Opportunities
Director (2005) President, Dumbarton Group LLC Fund; The Swiss Helvetia
(securities industry Fund Inc.
consulting); former Executive
Vice President - Policy and
Oversight, NASD
- --------------------------------------------------------------------------------------------------------------
Richard G. Newman,/5/ 72 Chairman of the Board, AECOM 14 Sempra Energy;
Director (1991) Technology Corporation Southwest Water Company
(engineering, consulting and
professional technical
services)
- --------------------------------------------------------------------------------------------------------------
Frank M. Sanchez, 64 Principal, The Sanchez Family 13 None
Director (1999) Corporation dba McDonald's
Restaurants (McDonald's
licensee)
- --------------------------------------------------------------------------------------------------------------
Steadman Upham, 58 President and Professor of 14 None
Director (2007) Anthropology, The University of
Tulsa; former President and
Professor of Archaeology,
Claremont Graduate University
- --------------------------------------------------------------------------------------------------------------

The Bond Fund of America -- Page 12
<PAGE>

"INTERESTED" DIRECTORS/6//,7/

PRINCIPAL OCCUPATION(S)
DURING PAST FIVE YEARS
NAME, AGE AND AND POSITIONS NUMBER OF
POSITION WITH FUND HELD WITH AFFILIATED ENTITIES PORTFOLIOS/3/
(YEAR FIRST ELECTED AS A OR THE PRINCIPAL UNDERWRITER OVERSEEN OTHER DIRECTORSHIPS/4/
DIRECTOR/OFFICER/2/) OF THE FUND BY DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------

Paul G. Haaga, Jr., 58 Vice Chairman of the Board, 14 None
Vice Chairman of the Capital Research and
Board and Director (1985) Management Company; Senior
Vice President - Fixed Income,
Capital Research and
Management Company; Director,
The Capital Group Companies,
Inc.*
- ------------------------------------------------------------------------------------------------------
Abner D. Goldstine, 77 Senior Vice President - Fixed 13 None
President and Director Income, Capital Research and
(1974) Management Company; Director,
Capital Research and
Management Company
- ------------------------------------------------------------------------------------------------------

OTHER OFFICERS

NAME, AGE AND
POSITION WITH FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
(YEAR FIRST ELECTED AS AND POSITIONS HELD WITH AFFILIATED ENTITIES
AN OFFICER/2/) OR THE PRINCIPAL UNDERWRITER OF THE FUND
- -------------------------------------------------------------------------------

David C. Barclay, 51 Senior Vice President - Fixed Income, Capital
Senior Vice President Research and Management Company; Director, The
(1997) Capital Group Companies, Inc.*
- -------------------------------------------------------------------------------
Mark R. Macdonald, 48 Senior Vice President - Fixed Income, Capital
Senior Vice President Research and Management Company; Director,
(2001) Capital Research and Management Company
- -------------------------------------------------------------------------------
John H. Smet, 51 Senior Vice President - Fixed Income, Capital
Senior Vice President Research and Management Company; Director,
(1994) American Funds Distributors, Inc.*
- -------------------------------------------------------------------------------
Kristine M. Nishiyama, Vice President and Senior Counsel - Fund Business
37 Management Group, Capital Research and Management
Vice President (2003) Company; Vice President and Counsel, Capital Bank
and Trust Company*
- -------------------------------------------------------------------------------
Kimberly S. Verdick, 43 Vice President - Fund Business Management Group,
Secretary (1994) Capital Research and Management Company
- -------------------------------------------------------------------------------
Ari M. Vinocor, 33 Vice President - Fund Business Management Group,
Treasurer (2007) Capital Research and Management Company
- -------------------------------------------------------------------------------
Courtney R. Taylor, 32 Assistant Vice President - Fund Business
Assistant Secretary Management Group, Capital Research and Management
(2006) Company
- -------------------------------------------------------------------------------
Sharon G. Moseley, 39 Vice President - Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(2003)
- -------------------------------------------------------------------------------

The Bond Fund of America -- Page 13
<PAGE>

* Company affiliated with Capital Research and Management Company.

/1/ The term "independent" director refers to a director who is not an "interested
person" of the fund within the meaning of the 1940 Act.

/2/ Directors and officers of the fund serve until their resignation, removal or
retirement.

/3/ Funds managed by Capital Research and Management Company, including the
American Funds, American Funds Insurance Series,(R) which is composed of 15
funds and serves as the underlying investment vehicle for certain variable
insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
which is composed of nine funds and is available to investors in tax-deferred
retirement plans and IRAs; and Endowments, which is composed of two portfolios
and is available to certain nonprofit organizations.

/4/ This includes all directorships (other than those in the American Funds) that
are held by each director as a director of a public company or a registered
investment company.
/5/ The investment adviser and its affiliates use a subsidiary of AECOM, Inc. to
perform architectural and space management services. The investment adviser's
business relationship with the subsidiary preceded its acquisition by AECOM in
1994. The total fees relating to this engagement for the last two years
represent less than 0.1% of AECOM, Inc.'s 2005 gross revenues.

/6/ "Interested persons" of the fund within the meaning of the 1940 Act, on the
basis of their affiliation with the fund's investment adviser, Capital Research
and Management Company, or affiliated entities (including the fund's principal
underwriter).

/7/ All of the officers listed are officers and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company
serves as investment adviser.

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

The Bond Fund of America -- Page 14
<PAGE>

FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2006

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
- -------------------------------------------------------------------------------

"INDEPENDENT" DIRECTORS
- -------------------------------------------------------------------------------
Richard G. Capen, Jr. None Over $100,000
- -------------------------------------------------------------------------------
H. Frederick Christie None Over $100,000
- -------------------------------------------------------------------------------
James G. Ellis/2/ None None
- -------------------------------------------------------------------------------
Martin Fenton $10,001 - $50,000 Over $100,000
- -------------------------------------------------------------------------------
Leonard R. Fuller $10,001 - $50,000 $50,001 - $100,000
- -------------------------------------------------------------------------------
R. Clark Hooper None $50,001 - $100,000
- -------------------------------------------------------------------------------
Richard G. Newman $10,001 - $50,000 Over $100,000
- -------------------------------------------------------------------------------
Frank M. Sanchez $1 - $10,000 $10,001 - $50,000
- -------------------------------------------------------------------------------
Steadman Upham/3/ None Over $100,000
- -------------------------------------------------------------------------------
"INTERESTED" DIRECTORS
- -------------------------------------------------------------------------------
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/ Mr. Ellis was appointed as a director December 12, 2006. The aggregate dollar
range of shares owned in all funds in the American Funds family overseen by
director on February 14, 2007 was $10,001 - $50,000.
/3/ Dr. Upham was appointed as a director on August 9, 2007.

DIRECTOR COMPENSATION -- No compensation is paid by the fund to any officer or
director who is a director, officer or employee of the investment adviser or its
affiliates. The boards of funds advised by the investment adviser typically meet
either individually or jointly with the boards of one or more other such funds
with substantially overlapping board membership (in each case referred to as a
"board cluster"). The fund typically pays each independent director an annual
fee, which ranges from $11,000 to $23,600, based primarily on the total number
of board clusters on which that independent director serves.

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

Independent directors also receive attendance fees for certain special joint
meetings and information sessions with directors and trustees of other groupings
of funds advised by the

The Bond Fund of America -- Page 15
<PAGE>

investment adviser. The fund and the other funds served by each independent
director each pay an equal portion of these attendance fees.

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

DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2006

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, Jr./3/ $15,649 $155,810
- ------------------------------------------------------------------------------------------
H. Frederick Christie/3/ 15,448 391,310
- ------------------------------------------------------------------------------------------
James G. Ellis/4/ 1,175 1,175
- ------------------------------------------------------------------------------------------
Martin Fenton/3/ 16,103 346,890
- ------------------------------------------------------------------------------------------
Leonard R. Fuller/3/ 15,648 227,810
- ------------------------------------------------------------------------------------------
R. Clark Hooper 15,725 117,493
- ------------------------------------------------------------------------------------------
Richard G. Newman 13,539 163,810
- ------------------------------------------------------------------------------------------
Frank M. Sanchez 16,670 91,135
- ------------------------------------------------------------------------------------------
Steadman Upham/5/ None 112,184
- ------------------------------------------------------------------------------------------

/1/ Amounts may be deferred by eligible directors under a nonqualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more American Funds
as designated by the directors. Compensation shown in this table for the fiscal
year ended December 31, 2006 does not include earnings on amounts deferred in
previous fiscal years. See footnote 3 to this table for more information.

/2/ Funds managed by Capital Research and Management Company, including the
American Funds, American Funds Insurance Series,(R) which is composed of 15
funds and serves as the underlying investment vehicle for certain variable
insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
which is composed of nine funds and is available to investors in tax-deferred
retirement plans and IRAs; and Endowments, which is composed of two portfolios
and is available to certain nonprofit organizations.

/3/ Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) through the 2006
fiscal year for participating directors is as follows: Richard G. Capen, Jr.
($120,850), H. Frederick Christie ($30,759), Martin Fenton ($84,335) and
Leonard R. Fuller ($142,180). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the directors.

/4/ Mr. Ellis was appointed as a director on December 12, 2006.
/5/ Dr. Upham was appointed as a director on August 9, 2007.

As of February 1, 2007, 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

The Bond Fund of America -- Page 16
<PAGE>

adviser, all fund operations are supervised by the fund's board, which meets
periodically and performs duties required by applicable state and federal laws.

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

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

The fund has several different classes of shares. Shares of each class represent
an interest in the same investment portfolio. Each class has pro rata rights as
to voting, redemption, dividends and liquidation, except that each class bears
different distribution expenses and may bear different transfer agent fees and
other expenses properly attributable to the particular class as approved by the
board of directors and set forth in the fund's rule 18f-3 Plan. Each class'
shareholders have exclusive voting rights with respect to the respective class'
rule 12b-1 plans adopted in connection with the distribution of shares and on
other matters in which the interests of one class are different from interests
in another class. Shares of all classes of the fund vote together on matters
that affect all classes in substantially the same manner. Each class votes as a
class on matters that affect that class alone. Note that 529 college savings
plan account owners invested in Class 529 shares are not shareholders of the
fund and, accordingly, do not have the rights of a shareholder, such as the
right to vote proxies relating to fund shares. As the legal owner of the fund's
Class 529 shares, the Virginia College Savings Plan/SM/ will vote any proxies
relating to such 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 independent
directors provide in effect that, subject to certain conditions, the fund will
indemnify its officers and directors against liabilities or expenses actually
and reasonably incurred by them relating to their service to the fund. However,
directors are not protected from liability by reason of their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.

COMMITTEES OF THE BOARD OF DIRECTORS -- The fund has an audit committee
comprised of Richard G. Capen, Jr.; H. Frederick Christie; Leonard R. Fuller; R.
Clark Hooper; and Steadman Upham, 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

The Bond Fund of America -- Page 17
<PAGE>

accounting firm and the full board of directors. Six audit committee meetings
were held during the 2006 fiscal year.

The fund has a contracts committee comprised of Richard G. Capen, Jr.; H.
Frederick Christie; James G. Ellis; Martin Fenton; Leonard R. Fuller; R. Clark
Hooper; Richard G. Newman; Frank M. Sanchez; and Steadman Upham, none of whom is
an "interested person" of the fund within the meaning of the 1940 Act. The
committee's principal function is to request, review and consider the
information deemed necessary to evaluate the terms of certain agreements between
the fund and its investment adviser or the investment adviser's affiliates, such
as the Investment Advisory and Service Agreement, Principal Underwriting
Agreement, Administrative Services Agreement and Plans of Distribution adopted
pursuant to rule 12b-1 under the 1940 Act, that the fund may enter into, renew
or continue, and to make its recommendations to the full board of directors on
these matters. One contracts committee meeting was held during the 2006 fiscal
year.

The fund has a nominating and governance committee comprised of Richard G.
Capen, Jr.; H. Frederick Christie; James G. Ellis; Martin Fenton; Leonard R.
Fuller; R. Clark Hooper; Richard G. Newman; Frank M. Sanchez; and Steadman
Upham, none of whom is an "interested person" of the fund within the meaning of
the 1940 Act. The committee periodically reviews such issues as the board's
composition, responsibilities, committees, compensation and other relevant
issues, and recommends any appropriate changes to the full board of directors.
The committee also evaluates, selects and nominates independent director
candidates to the full board of directors. While the committee normally is able
to identify from its own and other resources an ample number of qualified
candidates, it will consider shareholder suggestions of persons to be considered
as nominees to fill future vacancies on the board. Such suggestions must be sent
in writing to the nominating 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.
Four nominating and governance committee meetings were held during the 2006
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 voting committees that vote proxies or delegate to a voting
officer the authority to vote on behalf of those funds. Proxies for all other
funds (including the fund) are voted by a committee of the appropriate equity
investment division 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. For proxies of securities managed by a particular investment division
of the investment adviser, the initial voting recommendation is made by one or
more research analysts in that investment division familiar with the company and
industry. A second recommendation is made by a proxy coordinator (a senior
investment professional) within the appropriate investment division 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 Bond Fund of America -- Page 18
<PAGE>

The analyst and proxy coordinator making voting recommendations are responsible
for noting any potential material conflicts of interest. One example might be
where a director of one or more American Funds is also a director of a company
whose proxy is being voted. In such instances, proxy voting committee members
are alerted to the potential conflict. The proxy voting committee may then elect
to vote the proxy or seek a third-party recommendation or vote of an ad hoc
group of committee members.

The 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.

Information regarding how the fund voted proxies relating to portfolio
securities during the 12-month period ended June 30 of each year will be
available on or about September 1 of each year (a) without charge, upon request
by calling American Funds Service Company at 800/421-0180, (b) on the American
Funds website at americanfunds.com and (c) on the SEC's website at sec.gov.

The following summary sets forth the general positions of the American Funds,
Endowments, American Funds Insurance Series and the investment adviser on
various proposals. A copy of the full 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.

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.

The Bond Fund of America -- Page 19
<PAGE>

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, 2007. 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 17.14%
201 Progress Parkway Class B 9.15
Maryland Heights, MO 63043-3009
- ----------------------------------------------------------------------------
MLPF&S Class B 6.03
4800 Deer Lake Drive, East, Floor 2 Class C 17.29
Jacksonville, FL 32246-6484 Class F 6.34
Class R-5 12.07
- ----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class C 12.39
333 W. 34th Street
New York, NY 10001-2402
- ----------------------------------------------------------------------------
Hartford Life Insurance Co. Class R-1 9.48
P.O. Box 2999 Class R-3 6.53
Hartford, CT 06104-2999
- ----------------------------------------------------------------------------
Nationwide Trust Co. Class R-3 5.54
P.O. Box 182029 Class R-5 6.43
Columbus, OH 43218-2029
- ----------------------------------------------------------------------------
Charles Schwab & Co., Inc. Class R-4 7.44
101 Montgomery Street
San Francisco, CA 94104-4151
- ----------------------------------------------------------------------------
Prudential Retirement Class R-5 7.00
One Gustave L Levy Place
P.O. Box 1019
New York, NY 10029-0310
- ----------------------------------------------------------------------------

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

The investment adviser has adopted policies and procedures that address issues
that may arise as a result of an investment professional's management of the
fund and other funds and accounts. Potential issues could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, investment

The Bond Fund of America -- Page 20
<PAGE>

professional compensation and voting relating to portfolio securities. The
investment adviser believes that its policies and procedures are reasonably
designed to address these issues.

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. In addition, Capital Research and Management Company's investment
analysts may make investment decisions with respect to a portion of a fund's
portfolio within their research coverage. Portfolio counselors and investment
analysts may also make investment decisions for 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 may receive bonuses
based on their individual portfolio results. Investment professionals also may
participate in profit-sharing plans. The relative mix of compensation
represented by bonuses, salary and profit-sharing 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 to relevant benchmarks
over both the most recent year and a four-year rolling average, with the greater
weight placed on the four-year rolling average. 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 Brothers Aggregate Bond Index;
Credit Suisse First Boston High Yield Bond Index; Lipper High Current Yield Bond
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 portions of other mutual funds or accounts
advised by Capital Research and Management Company or its affiliates.

The Bond Fund of America -- Page 21
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF DECEMBER 31, 2006:

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)/2/ IN BILLIONS)/3/ IN BILLIONS)/4/
- ------------------------------------------------------------------------------------------

Abner D. Over 4 $181.2 None None
Goldstine $1,000,000
- ------------------------------------------------------------------------------------------
David C. Barclay $500,001 - 4 $192.5 5 $1.55 13 $3.21
$1,000,000
- ------------------------------------------------------------------------------------------
Mark R. Macdonald $100,001 - 5 $255.6 None None
$500,000
- ------------------------------------------------------------------------------------------
John H. Smet $100,001 - 6 $232.5 None 3 $2.44
$500,000
- ------------------------------------------------------------------------------------------
Mark H. Dalzell $50,001 - 2 $ 93.9 3 $0.50 18/5/ $5.24
$100,000
- ------------------------------------------------------------------------------------------
Susan M. Tolson $100,001- 3 $106.2 1 $0.25 1 $0.28
$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/ Indicates fund(s) where the portfolio counselor also has significant
responsibilities for the day to day management of the fund(s). Assets noted are
the total net assets of the registered investment companies and are not
indicative of the total assets managed by the individual, which is a
substantially lower amount.
/3/ Represents funds advised or sub-advised by Capital Research and Management
Company and sold outside the United States and/ or fixed-income assets in
institutional accounts managed by investment adviser subsidiaries of Capital
Group International, Inc., an affiliate of Capital Research and Management
Company. Assets noted are the total net assets of the funds or accounts and are
not indicative of the total assets managed by the individual, which is a
substantially lower amount.
/4/ Reflects other professionally managed accounts held at companies affiliated
with Capital Research and Management Company. Personal brokerage accounts of
portfolio counselors and their families are not reflected.
/5/ The advisory fee of two of these accounts (representing $0.24 billion in total
assets) is based partially on their investment results.

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, 2008, 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

The Bond Fund of America -- Page 22
<PAGE>

negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party, and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).

In addition 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 independent directors; association dues;
costs of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.

The management fee is based upon the 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 annualized 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 28,000,000,000
- ------------------------------------------------------------------------------
0.115 28,000,000,000 36,000,000,000
- ------------------------------------------------------------------------------
0.11 36,000,000,000
- ------------------------------------------------------------------------------

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

The Bond Fund of America -- Page 23
<PAGE>

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
- -----------------------------------------------------------------------------------

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.

For the fiscal years ended December 31, 2006, 2005 and 2004, the investment
adviser was entitled to receive from the fund management fees of $62,421,000,
$53,137,000, and $45,595,000, respectively. After giving effect to the
management fee waivers described below, the fund paid the investment adviser
management fees of $56,179,000 (a reduction of $6,242,000), $48,434,000 (a
reduction of $4,703,000), and $44,807,000 (a reduction of $788,000) for the
fiscal years ended December 31, 2006, 2005 and 2004, respectively.

For the period from September 1, 2004 through March 31, 2005, the investment
adviser agreed to waive 5% of the management fees that it was otherwise entitled
to receive under the Agreement. Beginning April 1, 2005, this waiver increased
to 10% of the management fees that the investment adviser is otherwise entitled
to receive and this waiver is expected to continue at this level until further
review. As a result of this waiver, management fees are reduced similarly for
all classes of shares of the fund.

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, 2008, unless sooner terminated, and may be renewed from year to year
thereafter, provided that any such renewal has been specifically approved at
least annually by the vote of a majority of directors who are not parties to the
Administrative Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The fund may terminate the Administrative Agreement at any time
by vote of a majority of independent directors. The investment adviser has the
right to terminate the Administrative Agreement upon 60 days' written notice to
the fund. The Administrative Agreement automatically terminates in the event of
its assignment (as defined in the 1940 Act).

Under the Administrative Agreement, the investment adviser provides certain
transfer agent and administrative services for shareholders of the fund's Class
C and F shares, and Class R and

The Bond Fund of America -- Page 24
<PAGE>

529 shares. The investment adviser may contract with third parties, including
American Funds Service Company, the fund's Transfer Agent, to provide some of
these services. Services include, but are not limited to, shareholder account
maintenance, transaction processing, tax information reporting and shareholder
and fund communications. In addition, the investment adviser monitors,
coordinates and oversees the activities performed by third parties providing
such services. For Class R-1 and R-2 shares, the investment adviser has agreed
to pay a portion of the fees payable under the Administrative Agreement that
would otherwise have been paid by the fund. For the year ended December 31,
2006, the total fees paid by the investment adviser were $993,000.

The investment adviser receives an administrative services fee at the annual
rate of up to 0.15% of the average daily net assets for Class C, F, R (excluding
Class R-5 shares) and 529 shares for administrative services provided to these
share classes. Administrative services fees are paid monthly and accrued daily.
The investment adviser uses a portion of this fee to compensate third parties
for administrative services provided to the fund. Of the remainder, the
investment adviser does not retain more than 0.05% of the average daily net
assets for each applicable share class. For Class R-5 shares, the administrative
services fee is calculated at the annual rate of up to 0.10% of the average
daily net assets. The administrative services fee includes compensation for
transfer agent and shareholder services provided to the fund's Class C, F, R and
529 shares. In addition to making administrative service fee payments to
unaffiliated third parties, the investment adviser also makes payments from the
administrative services fee to American Funds Service Company according to a fee
schedule contained in a Shareholder Services Agreement between the fund and
American Funds Service Company.

During the 2006 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

ADMINISTRATIVE SERVICES FEE
- ------------------------------------------------------------------------------

CLASS C $2,631,000
- ------------------------------------------------------------------------------
CLASS F 1,167,000
- ------------------------------------------------------------------------------
CLASS 529-A 359,000
- ------------------------------------------------------------------------------
CLASS 529-B 90,000
- ------------------------------------------------------------------------------
CLASS 529-C 185,000
- ------------------------------------------------------------------------------
CLASS 529-E 20,000
- ------------------------------------------------------------------------------
CLASS 529-F 11,000
- ------------------------------------------------------------------------------
CLASS R-1 48,000
- ------------------------------------------------------------------------------
CLASS R-2 2,740,000
- ------------------------------------------------------------------------------
CLASS R-3 1,131,000
- ------------------------------------------------------------------------------
CLASS R-4 373,000
- ------------------------------------------------------------------------------
CLASS R-5 257,000
- ------------------------------------------------------------------------------

The Bond Fund of America -- Page 25
<PAGE>

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; 6455 Irvine Center Drive, Irvine, CA 92618; 3500 Wiseman
Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513.

The Principal Underwriter receives revenues 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.

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 2006 $17,277,000 $66,722,000
2005 17,184,000 66,352,000
2004 15,056,000 58,069,000
CLASS B 2006 739,000 4,925,000
2005 901,000 6,196,000
2004 1,412,000 9,915,000
- -----------------------------------------------------------------------------------------------------
CLASS C 2006 0 5,761,000
2005 0 4,874,000
2004 0 4,210,000
- -----------------------------------------------------------------------------------------------------
CLASS 529-A 2006 643,000 2,452,000
2005 567,000 2,178,000
2004 492,000 1,881,000
- -----------------------------------------------------------------------------------------------------
CLASS 529-B 2006 44,000 287,000
2005 58,000 358,000
2004 103,000 570,000
- -----------------------------------------------------------------------------------------------------
CLASS 529-C 2006 0 479,000
2005 0 380,000
2004 0 320,000
- -----------------------------------------------------------------------------------------------------

The Bond Fund of America -- Page 26
<PAGE>

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 independent
directors of the fund 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; and benefits to the investment process
from growth or stability of assets. The selection and nomination of independent
directors are committed to the discretion of the independent directors 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 by the board of directors 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 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, up to 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, up to 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, respectively; (g) for Class R-1 shares, up to 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

The Bond Fund of America -- Page 27
<PAGE>

0.50% of the 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, after reimbursement for paying service-related
expenses, is reimbursed to the Principal Underwriter for paying
distribution-related expenses, including 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 the amount recovered
does not cause the fund to exceed the annual expense limit. After five quarters,
these commissions are not recoverable. As of December 31, 2006, unreimbursed
expenses which remain subject to reimbursement under the Plan for Class A shares
totaled $7,759,000 or 0.04% of Class A net assets.

For Class B and 529-B shares: (a) up to 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) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 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) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 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 up to 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) up to 0.25% is paid to the Principal Underwriter for
paying service-related expenses, including paying service fees to qualified
dealers, and (b) up to 0.75% is paid to the Principal Underwriter for
distribution-related expenses, including commissions paid to qualified dealers.

For Class R-2 shares: currently (a) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 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) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 0.25%

The Bond Fund of America -- Page 28
<PAGE>

is paid to the Principal Underwriter for paying distribution-related expenses,
including commissions paid to qualified dealers.

For Class R-4 shares: currently up to 0.25% is paid to the Principal Underwriter
for paying service-related expenses, including paying service fees to qualified
dealers or advisers.

As of the end of the 2006 fiscal year, total 12b-1 expenses, and the portion of
the expenses that remained unpaid, were:

12B-1 UNPAID LIABILITY
12B-1 EXPENSES OUTSTANDING
- --------------------------------------------------------------------------------------------

CLASS A $47,213,000 $3,520,000
- --------------------------------------------------------------------------------------------
CLASS B 14,221,000 1,243,000
- --------------------------------------------------------------------------------------------
CLASS C 15,929,000 1,564,000
- --------------------------------------------------------------------------------------------
CLASS F 2,712,000 333,000
- --------------------------------------------------------------------------------------------
CLASS 529-A 622,000 47,000
- --------------------------------------------------------------------------------------------
CLASS 529-B 625,000 59,000
- --------------------------------------------------------------------------------------------
CLASS 529-C 1,417,000 144,000
- --------------------------------------------------------------------------------------------
CLASS 529-E 90,000 9,000
- --------------------------------------------------------------------------------------------
CLASS 529-F 0 0
- --------------------------------------------------------------------------------------------
CLASS R-1 221,000 31,000
- --------------------------------------------------------------------------------------------
CLASS R-2 3,194,000 315,000
- --------------------------------------------------------------------------------------------
CLASS R-3 2,287,000 249,000
- --------------------------------------------------------------------------------------------
CLASS R-4 611,000 72,000
- --------------------------------------------------------------------------------------------

OTHER COMPENSATION TO DEALERS -- As of January 2007, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

A. G. Edwards & Sons, Inc.
AIG Advisors Group:
Advantage Capital Corporation
AIG Financial Advisors, Inc.
American General Securities Incorporated
FSC Securities Corporation
Royal Alliance Associates, Inc.
AXA Advisors, LLC
Cadaret, Grant & Co., Inc.
Cambridge Investment Research, Inc.
Commonwealth Financial Network
Cuna Brokerage Services, Inc.
Deutsche Bank Securities Inc.

The Bond Fund of America -- Page 29
<PAGE>

Edward Jones
Genworth Financial Securities Corporation
Hefren-Tillotson, Inc.
HTK/Janney Montgomery Group:
Hornor, Townsend & Kent, Inc.
Janney Montgomery Scott LLC
ING Advisors Network Inc.:
Bancnorth Investment Group, Inc.
Financial Network Investment Corporation
Guaranty Brokerage Services, Inc.
ING Financial Partners, Inc.
Multi-Financial Securities Corporation
Primevest Financial Services, Inc.
InterSecurities/Transamerica:
InterSecurities, Inc.
Transamerica Financial Advisors, Inc.
J.J.B. Hilliard/PNC Bank:
J.J.B. Hilliard, W.L. Lyons, Inc.
PNC Bank, National Association
PNC Brokerage Corp.
PNC Investments LLC
Lincoln Financial Advisors Corporation:
Lincoln Financial Advisors Corporation
Jefferson Pilot Securities Corporation
LPL Financial Services:
Linsco/Private Ledger Corp.
Uvest Investment Services
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Metlife Enterprises:
Metlife Securities Inc.
Tower Square Securities
New England Securities
Walnut Street Securities, Inc.
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley DW Inc.
National Planning Holdings Inc.:
Invest Financial Corporation
Investment Centers of America, Inc.
National Planning Corporation
SII Investments, Inc.
NFP Securities, Inc.
Northwestern Mutual Investment Services, LLC
Pacific Select Distributors Inc.:
Associated Securities Corp.
Contemporary Financial Solutions, Inc.
M.L. Stern & Co., LLC
Mutual Service Corporation
Sorrento Pacific Financial, LLC
United Planners' Financial Services of America

The Bond Fund of America -- Page 30
<PAGE>

Waterstone Financial Group, Inc.
Park Avenue Securities LLC
Princor Financial Services Corporation
Raymond James Group:
Raymond James & Associates, Inc.
Raymond James Financial Services Inc.
RBC Dain Rauscher Inc.
Robert W. Baird & Co. Incorporated
Securian/C.R.I.:
CRI Securities, LLC
Securian Financial Services, Inc.
Smith Barney
U.S. Bancorp Investments, Inc.
UBS Financial Services Inc.
First Clearing LLC
Wells Fargo Investments, L.L.C.

EXECUTION OF PORTFOLIO TRANSACTIONS

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

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

The investment adviser may execute portfolio transactions with broker-dealers
who provide certain brokerage and/or investment research services to it, but
only when in the investment adviser's judgment the broker-dealer is capable of
providing best execution for that transaction. The receipt of these services
permits the investment adviser to supplement its own research and analysis and
makes available the views of, and information from, individuals and the research
staffs of other firms. Such views and information may be provided in the form of
written reports,

The Bond Fund of America -- Page 31
<PAGE>

telephone contacts and meetings with securities analysts. These services may
include, among other things, reports and other communications with respect to
individual companies, industries, countries and regions, economic, political and
legal developments, as well as setting up meetings with corporate executives and
seminars and conferences related to relevant subject matters. The investment
adviser considers these services to be supplemental to its own internal research
efforts and therefore the receipt of investment research from broker-dealers
does not tend to reduce the expenses involved in the investment adviser's
research efforts. If broker-dealers were to discontinue providing such services
it is unlikely the investment adviser would attempt to replicate them on its
own, in part because they would then no longer provide an independent,
supplemental viewpoint. Nonetheless, if it were to attempt to do so, the
investment adviser would incur substantial additional costs. Research services
that the investment adviser receives from broker-dealers may be used by the
investment adviser in servicing the fund and other funds and accounts that it
advises; however, not all such services will necessarily benefit the fund.

The investment adviser may pay commissions in excess of what other
broker-dealers might have charged - including on an execution-only basis - for
certain portfolio transactions in recognition of brokerage and/or investment
research services provided by a broker-dealer. In this regard, the investment
adviser has adopted a brokerage allocation procedure consistent with the
requirements of Section 28(e) of the U.S. Securities Exchange Act of 1934.
Section 28(e) permits an investment adviser to cause an account to pay a higher
commission to a broker-dealer that provides certain brokerage and/or investment
research services to the investment adviser, if the investment adviser makes a
good faith determination that such commissions are reasonable in relation to the
value of the services provided by such broker-dealer to the investment adviser
in terms of that particular transaction or the investment adviser's overall
responsibility to the fund and other accounts that it advises. Certain brokerage
and/or investment research services may not necessarily benefit all accounts
paying commissions to each such broker-dealer; therefore, the investment adviser
assesses the reasonableness of commissions in light of the total brokerage and
investment research services provided by each particular broker-dealer. In
accordance with its internal brokerage allocation procedure, the investment
adviser periodically assesses the brokerage and investment research services
provided by each broker-dealer from whom it receives such services. Using its
judgment, the investment adviser then creates lists with suggested levels of
commissions for particular broker-dealers and provides those lists to its
trading desks. Neither the investment adviser nor the fund incurs any obligation
to any broker-dealer to pay for research by generating trading commissions. The
actual level of business received by any broker-dealer may be less then the
suggested level of commissions and can, and often does, exceed the suggested
level in the normal course of business. As part of its ongoing relationships
with broker-dealers, the investment adviser routinely meets with firms,
typically at the firm's request, to discuss the level and quality of the
brokerage and research services provided, as well as the perceived value and
cost of such services. In valuing the brokerage and investment research services
the investment adviser receives from broker-dealers for its good faith
determination of reasonableness, the investment adviser does not attribute a
dollar value to such services, but rather takes various factors into
consideration, including the quantity, quality and usefulness of the services to
the investment adviser.

The investment adviser seeks, on an ongoing basis, to determine what the
reasonable levels of commission rates are in the marketplace. The investment
adviser takes various considerations into account when evaluating such
reasonableness, including, (a) rates quoted by broker-dealers, (b) the size of a
particular transaction in terms of the number of shares and dollar amount, (c)
the complexity of a particular transaction, (d) the nature and character of the
markets

The Bond Fund of America -- Page 32
<PAGE>

on which a particular trade takes place, (e) the ability of a broker-dealer to
provide anonymity while executing trades, (f) the ability of a broker-dealer to
execute large trades while minimizing market impact, (g) the extent to which a
broker-dealer has put its own capital at risk, (h) the level and type of
business done with a particular broker-dealer over a period of time, (i)
historical commission rates, and (j) commission rates that other institutional
investors are paying.

When executing portfolio transactions in the same equity security for the funds
and accounts, or portions of funds and accounts, over which the investment
adviser, through its equity investment divisions, has investment discretion,
each of the investment divisions will normally aggregate their respective
purchases or sales and execute them as part of the same transaction or series of
transactions. When executing portfolio transactions in the same fixed-income
security for the fund and the other funds or accounts over which it or one of
its affiliated companies has investment discretion, the investment adviser will
normally aggregate such purchases or sales and execute them as part of the same
transaction or series of transactions. The objective of aggregating purchases
and sales of a security is to allocate executions in an equitable manner among
the funds and other accounts that have concurrently authorized a transaction in
such security.

The investment adviser may place orders for the fund's portfolio transactions
with broker-dealers who have sold shares in the funds managed by the investment
adviser or its affiliated companies, however, it does not give consideration to
whether a broker-dealer has sold shares of the funds managed by the investment
adviser or its affiliated companies when placing any such orders for the fund's
portfolio transactions.

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
December 31, 2006, 2005 and 2004 amounted to $23,083,000, $18,003,000 and
$12,899,000. 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 securities purchased by the fund in the underwritten offerings
increased from 2004 to 2006, resulting in an increase in brokerage 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 CIBC Mellon Global Securities Services, Citigroup Global
Markets, Inc., Credit Suisse Group, Goldman Sachs & Co., J.P. Morgan Securities
Inc., Lehman Brothers, Merrill Lynch, Pierce, Fenner & Smith, Inc. and First
Clearing LLC. As of the fund's most recent fiscal year-end, the fund held debt
securities of Canadian Imperial Bank of Commerce in the amount of $20,875,000;
Citigroup, Inc. in the amount of $75,317,000; Credit Suisse Group in the amount
of $15,781,000; Goldman Sachs Group, Inc. in the amount of $6,573,000; J.P.
Morgan Chase & Co. in the amount of

The Bond Fund of America -- Page 33
<PAGE>

$121,196,000; Lehman Brothers Holdings in the amount of $5,004,000; Merrill
Lynch in the amount of $3,002,000; and Wachovia Corp. in the amount of
$12,077,000 .

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. In practice, the public portfolio
typically is posted on the website approximately 45 days after the end of the
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. The fund's custodian,
outside counsel and auditor, each of which requires portfolio holdings
information for legitimate business and fund oversight purposes, may receive the
information earlier.

Affiliated persons of the fund as described above who receive portfolio holdings
information are subject to restrictions and limitations on the use and handling
of such information pursuant to applicable codes of ethics, including
requirements 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.

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

The Bond Fund of America -- Page 34
<PAGE>

PRICE OF SHARES

Shares are purchased at the offering price or sold at the net asset value price
next determined after the purchase or sell order is received 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 should be indicated. The dealer is responsible for
promptly transmitting purchase and sell orders to the Principal Underwriter.

Orders received by the investment dealer or authorized designee, the Transfer
Agent or the fund after the time of the determination of the net asset value
will be entered at the next calculated offering price. Note that investment
dealers or other intermediaries may have their own rules about share
transactions and may have earlier cut-off times than those of the fund. For more
information about how to purchase through your intermediary, contact your
intermediary directly.

Prices that appear in the newspaper do not always indicate prices at which you
will be purchasing and redeeming shares of the fund, since such prices generally
reflect the previous day's closing price, while purchases and redemptions are
made at the next calculated price. The price you pay for shares, the offering
price, is based on the net asset value per share, which is calculated once daily
as of approximately 4:00 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 indicated below. The fund follows
standard industry practice by typically reflecting changes in its holdings of
portfolio securities on the first business day following a portfolio trade.

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. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3:00 p.m. New York time. The fund's investment adviser performs
certain checks on these prices prior to calculation of the fund's net asset
value.

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 prin-

The Bond Fund of America -- Page 35
<PAGE>

cipally 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 by the investment adviser, are valued in good
faith by the valuation committee based upon what the fund might reasonably
expect to receive upon their current sale. 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 identical in all respects to each other class, except for
differences relating to distribution, service and other charges and expenses,
certain voting rights, differences relating to eligible investors, the
designation of each class of shares, conversion features and exchange
privileges. Expenses attributable to the fund, but not to a particular class of
shares, are borne by each class pro rata based on relative aggregate net assets
of the classes. Expenses directly attributable to a class of shares are borne by
that class of shares. Liabilities, including accruals of taxes and other expense
items attributable to particular share classes, are deducted from total assets
attributable to such share classes.

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
nearest cent, is the net asset value per share for that share class.

The Bond Fund of America -- Page 36
<PAGE>

TAXES AND DISTRIBUTIONS

FUND TAXATION -- The fund has elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code"). A
regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including the excess of net short-term capital gain over
net long-term capital losses) and generally is not subject to federal income tax
to the extent that it distributes annually 100% of its investment company
taxable income and net realized capital gains in the manner required under the
Code. The fund intends to distribute annually all of its investment company
taxable income and net realized capital gains and therefore does not expect to
pay federal income tax, although in certain circumstances, the fund may
determine that it is in the interest of shareholders to distribute less than
that amount.

To be treated as a regulated investment company under Subchapter M of the Code,
the fund must also (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, net income from certain
publicly traded partnerships and gains from the sale or other disposition of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
the business of investing in such securities or currencies, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the fund's assets is represented by cash, U.S. government
securities and securities of other regulated investment companies, and other
securities (for purposes of this calculation, generally limited in respect of
any one issuer, to an amount not greater than 5% of the market value of the
fund's assets and 10% of the outstanding voting securities of such issuer) and
(ii) not more than 25% of the value of its assets is invested in the securities
of (other than U.S. government securities or the securities of other regulated
investment companies) any one issuer; two or more issuers which the fund
controls and which are determined to be engaged in the same or similar trades or
businesses; or the securities of certain publicly traded partnerships.

Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
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.

The Bond Fund of America -- Page 37
<PAGE>

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and capital gain
distributions on fund shares will be reinvested in shares of the fund of the
same class, unless shareholders indicate in writing that they wish to receive
them in cash or in shares of the same class of other American Funds, as provided
in the prospectus. Dividends and capital gain distributions by 529 share classes
will be automatically reinvested.

Distributions of investment company taxable income and net realized capital
gains to shareholders will be taxable whether received in shares or in cash,
unless such shareholders are exempt from taxation. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of that share on the reinvestment date. Dividends and capital gain
distributions by the fund to a tax-deferred retirement plan account are not
taxable currently.

DIVIDENDS -- The fund intends to follow the practice of distributing
substantially all of its investment company taxable income. Investment
company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and
certain foreign currency gains, if any, less expenses and certain foreign
currency losses.

Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time the fund accrues receivables or
liabilities denominated in a foreign currency and the time the fund
actually collects such receivables, or pays such liabilities, generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of
certain futures contracts, forward contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition
are also treated as ordinary gain or loss. These gains or losses, referred
to under the Code as Section 988 gains or losses, may increase or decrease
the amount of the fund's investment company taxable income to be
distributed to its shareholders as ordinary income.

If the fund invests in stock of certain passive foreign investment
companies, the fund may be subject to U.S. federal income taxation on a
portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the fund's holding period for
the stock. The distribution or gain so allocated to any taxable year of the
fund, other than the taxable year of the excess distribution or
disposition, would be taxed to the fund at the highest ordinary income rate
in effect for such year, and the tax would be further increased by an
interest charge to reflect the value of the tax deferral deemed to have
resulted from the ownership of the foreign company's stock. Any amount of
distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the fund's investment company taxable
income and, accordingly, would not be taxable to the fund to the extent
distributed by the fund as a dividend to its shareholders.

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

The Bond Fund of America -- Page 38
<PAGE>

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 may 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.

The price of a bond purchased after its original issuance may reflect
market discount which, depending on the particular circumstances, may
affect the tax character and amount of income required to be recognized by
a fund holding the bond. In determining whether a bond is purchased with
market discount, certain de minimis rules apply.

Dividend and interest income received by the fund from sources outside the
United States may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the
United States, however, may reduce or eliminate these foreign taxes. Some
foreign countries impose taxes on capital gains with respect to investments
by foreign investors.

CAPITAL 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 carryforward of
the fund.

If any net long-term capital gains in excess of net short-term capital
losses are retained by the fund for reinvestment, requiring federal income
taxes to be paid thereon by the fund, the fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result,
each shareholder will report such capital gains as long-term capital gains
taxable to individual shareholders at a maximum 15% capital gains rate,
will be able to claim a pro rata share of federal income taxes paid by the
fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on fund
shares by the difference between a pro rata share of the retained gains and
such shareholder's related tax credit.

The Bond Fund of America -- Page 39
<PAGE>

SHAREHOLDER TAXATION -- In January of each year, individual shareholders holding
fund shares in taxable accounts will receive a statement of the federal income
tax status of all distributions. Shareholders of the fund also may be subject to
state and local taxes on distributions received from the fund.

DIVIDENDS -- Fund dividends are taxable to shareholders as ordinary income.
All or a portion of a fund's dividend distribution may be a "qualified
dividend." If the fund meets the applicable holding period requirement, it
will distribute dividends derived from qualified corporation dividends to
shareholders as qualified dividends. Interest income from bonds and money
market instruments and nonqualified foreign dividends will be distributed
to shareholders as nonqualified fund dividends. The fund will report on
Form 1099-DIV the amount of each shareholder's dividend that may be treated
as a qualified dividend. If a shareholder other than a corporation meets
the requisite holding period requirement, qualified dividends are taxable
at a maximum rate of 15%.

CAPITAL GAINS -- Distributions of 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
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.

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

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

The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and

The Bond Fund of America -- Page 40
<PAGE>

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 41
<PAGE>

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 APPLICABLE PROGRAM
DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO
THESE ACCOUNTS. SHAREHOLDERS HOLDING SHARES THROUGH AN ELIGIBLE RETIREMENT PLAN
SHOULD CONTACT THEIR PLAN'S ADMINISTRATOR OR RECORDKEEPER FOR INFORMATION
REGARDING PURCHASES, SALES AND EXCHANGES.

PURCHASE AND EXCHANGE OF SHARES

PURCHASES BY INDIVIDUALS -- As described in the prospectus, you may generally
open an account and purchase fund shares by contacting a financial adviser or
investment dealer authorized to sell the fund's shares. You may make investments
by any of the following means:

CONTACTING YOUR FINANCIAL ADVISER -- Deliver or mail a check to your
financial adviser.

BY MAIL -- for initial investments, you may mail a check, made payable to
the fund, directly to the address indicated on the account application.
Please indicate an investment dealer on the account application. You may
make additional investments by filling out the "Account Additions" form at
the bottom of a recent account statement and mailing the form, along with a
check made payable to the fund, using the envelope provided with your
account statement.

The amount of time it takes for us to receive regular U.S. postal mail may
vary and there is no assurance that we will receive such mail on the day
you expect. Mailing addresses for regular U.S. postal mail can be found in
the prospectus. To send investments or correspondence to us via overnight
mail or courier service, use any of the following addresses:

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

American Funds
3500 Wiseman Blvd.
San Antonio, TX 78251-4321

American Funds
5300 Robin Hood Rd.
Norfolk, VA 23513-2407

BY TELEPHONE -- using the American FundsLine. Please see the "Shareholder
account services and privileges" section of this 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.

The Bond Fund of America -- Page 42
<PAGE>

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.

PURCHASES RECEIVED WITHOUT INVESTMENT INSTRUCTIONS -- When purchasing shares,
you should designate the fund or funds in which you wish to invest. In the
case of accounts other than 529 accounts, if no fund is designated and the
amount of your cash investment is more than $5,000, your money will be held
uninvested (without liability to the transfer agent for loss of income or
appreciation pending receipt of proper instructions) until investment
instructions are received, but for no more than three business days.
Your investment will be made at the net asset value (plus any applicable sales
charge in the case of Class A shares) next determined after investment
instructions are received and accepted by the transfer agent. If investment
instructions are not received, your money will be invested in Class A shares of
The Cash Management Trust of America on the third business day after receipt of
your investment.

In the case of accounts other than 529 accounts, if no fund is designated and
the amount of your cash investment is $5,000 or less, your money will be
invested in the same proportion and in the same fund or funds in which your last
cash investment (excludes exchanges) was made, provided such investment was made
within the last 16 months. If no investment was made within the last
16 months, your money will be held uninvested (without liability to the
transfer agent for loss of income or appreciation pending receipt of proper
instructions) until investment instructions are received, but for no more than
three business days. Your investment will be made at the net asset value (plus
any applicable sales charge in the case of Class A shares) next determined after
investment instructions are received and accepted by the transfer agent. If
investment instructions are not received, your money will be invested in Class A
shares of The Cash Management Trust of America on the third business day after
receipt of your investment.

OTHER PURCHASE INFORMATION -- 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.

The Bond Fund of America -- Page 43
<PAGE>

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

PURCHASE MINIMUMS AND MAXIMUMS -- All investments are subject to the purchase
minimums and maximums described in the prospectus. As noted in the prospectus,
purchase minimums may be waived or reduced in certain cases.

In the case of American Funds non-tax-exempt funds, the initial purchase minimum
of $25 may be waived for the following account types:

. Payroll deduction retirement plan accounts (such as, but not limited
to, 403(b), 401(k), SIMPLE IRA, SARSEP and deferred compensation plan
accounts); and

. Employer-sponsored CollegeAmerica accounts.

The following account types may be established without meeting the initial
purchase minimum:

. Retirement accounts that are funded with employer contributions; and

. Accounts that are funded with monies set by court decree.

The following account types may be established without meeting the initial
purchase minimum, but shareholders wishing to invest in two or more funds must
meet the normal initial purchase minimum of each fund:

. Accounts that are funded with (a) transfers of assets, (b) rollovers
from retirement plans, (c) rollovers from 529 college savings plans or
(d) required minimum distribution automatic exchanges; and

. American Funds money market fund accounts registered in the name of
clients of Capital Guardian Trust Company's Personal Investment
Management group.

Certain accounts held on the fund's books, known as omnibus accounts, contain
multiple underlying accounts that are invested in shares of the fund. These
underlying accounts are maintained by entities such as financial intermediaries
and are subject to the applicable initial purchase minimums as described in the
prospectus and statement of additional information.

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. Exchanges are not permitted from Class A shares
of The Cash Management Trust of America to Class B or C shares of Intermediate
Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America and
Short-Term Bond Fund of America. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies.

The Bond Fund of America -- Page 44
<PAGE>

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.

MOVING BETWEEN SHARE CLASSES

If you wish to "move" your investment between share classes (within the
same fund or between different funds), we generally will process your
request as an exchange of the shares you currently hold for shares in
the new class or fund. Below is more information about how sales charges
are handled for various scenarios.

EXCHANGING CLASS B SHARES FOR CLASS A SHARES -- If you exchange Class B
shares for Class A shares during the contingent deferred sales charge
period you are responsible for paying applicable deferred sales charges on
Class B shares, but you will not be required to pay a Class A sales charge.
If you exchange your Class B shares for Class A shares after the contingent
deferred sales charge period you are responsible for paying any applicable
Class A sales charges.

The Bond Fund of America -- Page 45
<PAGE>

If you redeem Class B shares after the contingent deferred sales charge
period, you may either reinvest the proceeds in Class B shares or purchase
Class A shares; if you purchase Class A shares you are responsible for
paying any applicable Class A sales charges.

EXCHANGING CLASS C SHARES FOR CLASS A SHARES -- If you exchange Class C
shares for Class A shares, you are still responsible for paying any Class C
contingent deferred sales charges and applicable Class A sales charges.

EXCHANGING CLASS C SHARES FOR CLASS F SHARES -- If you are part of a
qualified fee-based program and you wish to exchange your Class C shares
for Class F shares to be held in the program, you are still responsible for
paying any applicable Class C contingent deferred sales charges.

EXCHANGING CLASS F SHARES FOR CLASS A SHARES -- You can exchange Class F
shares held in a qualified fee-based program for Class A shares without
paying an initial Class A sales charge if all of the following are met: (a)
you are leaving or have left the fee-based program, (b) you have held the
Class F shares in the program for at least one year, and (c) you notify
American Funds Service Company of your request. If you have already
redeemed your Class F shares, the foregoing requirements apply and you must
purchase Class A shares within 90 days after redeeming your Class F shares.

In addition, you may redeem Class F shares held in a fee-based brokerage
account/ program for less than one year and with the redemption proceeds
purchase Class A shares without a sales charge if the redemption is
necessary to comply with the repeal of SEC Rule 202 under the Investment
Advisers Act of 1940 and the transaction occurs prior to October 1, 2007,
or such other date as determined by rule, regulation or court order.

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

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

MOVING BETWEEN OTHER SHARE CLASSES -- If you desire to move your investment
between share classes and the particular scenario is not described in this
statement of additional information, please contact American Funds Service
Company at 800/421-0180 for more information.

NON-REPORTABLE TRANSACTIONS -- Automatic conversions described in the prospectus
will be non-reportable for tax purposes. In addition, except in the case of a
movement between a 529 share class and a non-529 share class, an exchange of
shares from one share class of a fund to another share class of the same fund
will be treated as a non-reportable exchange for tax purposes, provided that the
exchange request is received in writing by American Funds Service Company and
processed as a single transaction.

The Bond Fund of America -- Page 46
<PAGE>

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

Individual 403(b) plans may be treated similarly to employer-sponsored
plans for Class A 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) currently registered representatives and assistants directly employed
by such representatives, retired registered representatives with
respect to accounts established while active, or full-time employees
(collectively, "Eligible Persons") (and their (a) spouses or
equivalents if recognized under local law, (b) parents and children,
including parents and children in step and adoptive relationships,
sons-in-law and daughters-in-law, and (c) parents-in-law, if the
Eligible Persons or the spouses, children or parents of the Eligible
Persons are listed in the account registration with the
parents-in-law) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such
dealers), plans for the dealers, and plans that include as
participants only the Eligible Persons, their spouses, parents and/or
children;

(3) currently registered investment advisers ("RIAs") and assistants
directly employed by such RIAs, retired RIAs with respect to accounts
established while active, or full-time employees (collectively,
"Eligible Persons") (and their (a) spouses or equivalents if
recognized under local law, (b) parents and children, including
parents and children in step and adoptive relationships, sons-in-law
and daughters-in-law and (c) parents-in-law, if the Eligible Persons
or the spouses, children or parents of the Eligible Persons are listed
in the account registration with the parents-in-law) of RIA firms that
are authorized to sell shares of the funds, plans for the RIA firms,
and plans that include as participants only the Eligible Persons,
their spouses, parents and/or children;

The Bond Fund of America -- Page 47
<PAGE>

(4) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;

(5) insurance company separate accounts;

(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.;

(7) The Capital Group Companies, Inc., its affiliated companies and
Washington Management Corporation;

(8) an individual or entity with a substantial business relationship with
The Capital Group Companies, Inc. or its affiliates, or an individual
or entity related or relating to such individual or entity;

(9) wholesalers and full-time employees directly supporting wholesalers
involved in the distribution of insurance company separate accounts
whose underlying investments are managed by any affiliate of The
Capital Group Companies, Inc.; and

(10) full-time employees of banks that have sales agreements with the
Principal Underwriter, who are solely dedicated to directly supporting
the sale of mutual funds.

Shares are offered at net asset value to these persons and organizations
due to anticipated economies in sales effort and expense. Once an account
is established under this net asset value privilege, additional investments
can be made at net asset value for the life of the account.

TRANSFERS TO COLLEGEAMERICA -- A transfer from the Virginia Prepaid
Education Program/SM/ or the Virginia Education Savings Trust/SM/ to a
CollegeAmerica account will be made with no sales charge. No commission
will be paid to the dealer on such a transfer.

MOVING BETWEEN ACCOUNTS -- Investments in certain account types may be moved to
other account types without incurring additional Class A sales charges. These
transactions include, for example:

. redemption proceeds from a non-retirement account (for example, a
joint tenant account) used to purchase fund shares in an IRA or other
individual-type retirement account;

. required minimum distributions from an IRA or other individual-type
retirement account used to purchase fund shares in a non-retirement
account; and

. death distributions paid to a beneficiary's account that are used by
the beneficiary to purchase fund shares in a different account.

LOAN REPAYMENTS -- Repayments on loans taken from a retirement plan or an
individual-type retirement account are not subject to sales charges if American
Funds Service Company is notified of the repayment.

DEALER COMMISSIONS AND COMPENSATION -- Commissions (up to 1.00%) are paid to
dealers who initiate and are responsible for certain Class A share purchases not
subject to 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

The Bond Fund of America -- Page 48
<PAGE>

more eligible employees, and purchases made at net asset value by certain
retirement plans, endowments and foundations with assets of $50 million or more.
Commissions on such investments (other than IRA rollover assets that roll over
at no sales charge under the fund's IRA rollover policy as described in the
prospectus) are paid to dealers at the following rates: 1.00% on amounts of less
than $4 million, 0.50% on amounts of at least $4 million but less than $10
million and 0.25% on amounts of at least $10 million. Commissions are based on
cumulative investments over the life of the account with no adjustment for
redemptions, transfers, or market declines. For example, if a shareholder has
accumulated investments in excess of $4 million (but less than $10 million) and
subsequently redeems all or a portion of the account(s), purchases following the
redemption will generate a dealer commission of 0.50%.

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

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 market funds over a 13-month period and receive
the same sales charge (expressed as a percentage of your purchases) as if
all shares had been purchased at once.

The Statement period starts on the date on which your first purchase made
toward satisfying the Statement is processed. The market value of your
existing holdings eligible to be aggregated (see below) as of the day
immediately before the start of the Statement period may be credited toward
satisfying the Statement.

The Statement may be revised upward at any time during the Statement
period, and such a revision will be treated as a new Statement, except that
the Statement period during which the purchases must be made will remain
unchanged. Purchases made from the date of revision will receive the
reduced sales charge, if any, resulting from the revised 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 a shareholder elects to use a Statement, shares equal to 5% of the
dollar amount specified in the Statement may be held in escrow in the
shareholder's account out of the initial purchase (or subsequent purchases,
if necessary) by the Transfer Agent. All dividends and any capital gain
distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified Statement period,
the purchaser may be required to remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge
which would have been paid if the total of such purchases had been

The Bond Fund of America -- Page 49
<PAGE>

made at a single time. Any dealers assigned to the shareholder's account at
the time a purchase was made during the Statement period will receive a
corresponding commission adjustment if appropriate. If the difference is
not paid by the close of the Statement period, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the
proceeds from this redemption are inadequate, the purchaser may be liable
to the Principal Underwriter for the balance still outstanding.

Certain payroll deduction retirement plans purchasing Class A shares under
a Statement on or before November 12, 2006, may continue to purchase Class
A shares at the sales charge determined by that particular Statement until
the plans' values reach the amounts specified in their Statements. Upon
reaching such amounts, the Statements for these plans will be deemed
completed and will terminate. After such termination, these plans are
eligible for additional sales charge reductions by meeting the criteria
under the fund's rights of accumulation policy.

In addition, if you currently have individual holdings in American Legacy
variable annuity contracts or variable life insurance policies that were
established on or before March 31, 2007, you may continue to apply
purchases under such contracts and policies to a Statement.

Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms and those in the prospectus with
their first purchase.

AGGREGATION -- Qualifying investments for aggregation include those made by
you and your "immediate family" as defined in the prospectus, if all
parties are purchasing shares for their own accounts and/or:

. individual-type employee benefit plans, such as an IRA, individual
403(b) plan (see exception in "Purchases by certain 403(b) plans"
under "Sales charges") 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 (for trusts
with only one primary beneficiary, upon the trustor's death the trust
account may be aggregated with such beneficiary's own accounts; for
trusts with multiple primary beneficiaries, upon the trustor's death
the trustees of the trust may instruct American Funds Service Company
to establish separate trust accounts for each primary beneficiary;
each primary beneficiary's separate trust account may then be
aggregated with such beneficiary's own accounts);

. endowments or foundations established and controlled by you or your
immediate family; or

. 529 accounts, which will be aggregated at the account owner level
(Class 529-E accounts may only be aggregated with an eligible employer
plan).

Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:

. for a single trust estate or fiduciary account, including employee
benefit plans other than the individual-type employee benefit plans
described above;

The Bond Fund of America -- Page 50
<PAGE>

. made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, excluding the
individual-type employee benefit plans described above;

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

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

. for individually established participant accounts of a 403(b) plan
that is treated similarly to an employer-sponsored plan for sales
charge purposes (see "Purchases by certain 403(b) plans" under "Sales
charges" above), or made for two or more such 403(b) plans that are
treated similarly to employer-sponsored plans for sales charge
purposes, in each case 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. 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. If you
currently have individual holdings in American Legacy variable annuity
contracts or variable life insurance policies that were established on or
before March 31, 2007, you may continue to combine purchases made under
such contracts and policies to reduce your Class A sales charge.

RIGHTS OF ACCUMULATION -- Subject to the limitations described in the
aggregation policy, you may take into account your accumulated holdings in
all share classes of the American Funds, as well as your holdings in
Endowments, to determine your sales charge on investments in accounts
eligible to be aggregated. Direct purchases of American Funds money market
funds are excluded. Subject to your investment dealer's or recordkeeper's
capabilities, your accumulated holdings will be calculated as the higher of
(a) the current value of your existing holdings (the "market value") or (b)
the amount you invested (including reinvested dividends and capital gains,
but excluding capital appreciation) less any withdrawals (the "cost
value"). Depending on the entity on whose books your account is held, the
value of your holdings in that account may not be eligible for calculation
at cost value. For example, accounts held in nominee or street name may not
be eligible for calculation at cost value and instead may be calculated at
market value for purposes of rights of accumulation.

The value of all of your holdings in accounts established in calendar year
2005 or earlier will be assigned an initial cost value equal to the market
value of those holdings as of the

The Bond Fund of America -- Page 51
<PAGE>

last business day of 2005. Thereafter, the cost value of such accounts will
increase or decrease according to actual investments or withdrawals. You
must contact your financial adviser or American Funds Service Company if
you have additional information that is relevant to the calculation of the
value of your holdings.

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

You may not purchase Class B or 529-B shares if your combined American
Funds and applicable American Legacy holdings cause you to be eligible to
purchase Class A or 529-A shares at the $100,000 or higher sales charge
discount rate, and you may not purchase Class C or 529-C shares if such
combined holdings cause you to be eligible to purchase Class A or 529-A
shares at the $1 million or more sales charge discount rate (i.e. at net
asset value).

If you make a gift of American Funds Class A shares, upon your request, you
may purchase the shares at the sales charge discount allowed under rights
of accumulation of all of your American Funds and applicable American
Legacy accounts.

CDSC WAIVERS FOR CLASS A, B AND C SHARES -- As noted in the prospectus, a
contingent deferred sales charge ("CDSC") may be waived for redemptions due to
death or 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 an automatic withdrawal plan (AWP) (see "Automatic
withdrawals" under "Shareholder account services and privileges"
below). For each AWP payment, assets that are not subject to a CDSC,
such as appreciation on shares and shares acquired through
reinvestment of dividends and/or capital gain distributions, will be
redeemed first and will count toward the 12% limit. If there is an
insufficient amount of assets not subject to a CDSC to cover a
particular AWP payment, shares subject to the lowest CDSC will be
redeemed next until the 12% limit is reached. Any dividends and/or
capital gain distributions

The Bond Fund of America -- Page 52
<PAGE>

taken in cash by a shareholder who receives payments through an AWP
will also count toward the 12% limit. In the case of an AWP, the 12%
limit is calculated at the time an automatic redemption is first made,
and is recalculated at the time each additional automatic redemption
is made. Shareholders who establish an AWP should be aware that the
amount of a payment not subject to a CDSC may vary over time depending
on fluctuations in the value of their accounts. This privilege may be
revised or terminated at any time.

For purposes of this paragraph, "account" means:

. 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 elimination of the fund by
the Virginia College Savings Plan as an option for additional investment within
CollegeAmerica.

SELLING SHARES

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

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

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

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

Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 10
business days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as

The Bond Fund of America -- Page 53
<PAGE>

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.

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 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);

The Bond Fund of America -- Page 54
<PAGE>

(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.

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

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

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

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

The Bond Fund of America -- Page 55
<PAGE>

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 liabilities (including attorney fees) that may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these services. However, you may elect to opt
out of these services by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, it and/or the fund may
be liable for losses due to unauthorized or fraudulent instructions. In the
event that shareholders are unable to reach the fund by telephone because of
technical difficulties, market conditions or a natural disaster, redemption and
exchange requests may be made in writing only.

CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) of American Funds money market funds upon meeting
the fund's initial purchase minimum of $1,000. This can be done by using an
account application. If you request check writing privileges, you will be
provided with checks that you may use to draw against your account. These checks
may be made payable to anyone you designate and must be signed by the authorized
number of registered shareholders exactly as indicated on your account
application.

REDEMPTION OF SHARES -- The fund's articles of incorporation permit the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per share if at such time the shareholder of record owns
shares having an aggregate net asset value of less than the minimum initial
investment amount required of new shareholders as set forth in the fund's
current registration statement under the 1940 Act, and subject to such further
terms and conditions as the board of directors of the fund may from time to time
adopt.

While payment of redemptions normally will be in cash, the fund's articles of
incorporation permit payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund when
the adviser determines that it is in the best interest of the remaining
shareholders.

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.

The Bond Fund of America -- Page 56
<PAGE>

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 6455 Irvine Center Drive, Irvine, CA 92618. American Funds Service
Company was paid a fee of $22,923,000 for Class A shares and $1,648,000 for
Class B shares for the 2006 fiscal year. American Funds Service Company is also
compensated for certain transfer agency services provided to all other share
classes from the administrative services fees paid to Capital Research and
Management Company, as described under "Administrative services agreement."

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- 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
independent directors in their capacities as such. Certain legal matters in
connection with certain 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 fund's investment
portfolio or summary 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,

The Bond Fund of America -- Page 57
<PAGE>

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 (now the Financial Industry
Regulatory Authority) filed an administrative complaint against the Principal
Underwriter. The complaint alleges violations of certain NASD rules by the
Principal Underwriter with respect to the selection of broker-dealer firms that
buy and sell securities for mutual fund investment portfolios. The complaint
seeks sanctions, restitution and disgorgement. On August 30, 2006, the NASD
Hearing Panel ruled against the Principal Underwriter and imposed a $5 million
fine. The Principal Underwriter has appealed this decision to the NASD's
National Adjudicatory Council.

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 alleged 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. 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 alleged
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. On November 22, 2005, the Los Angeles
Superior Court dismissed the Attorney General's complaint. The Attorney General
subsequently appealed the Superior Court's decision to California's Court of
Appeal for the Second Appellate District. On January 26, 2007, the Court of
Appeal issued a ruling allowing the California Attorney General to proceed with
his civil action.

The investment adviser and Principal Underwriter believe that the likelihood
that these matters could have a material adverse effect on the fund or on the
ability of the investment adviser or Principal Underwriter to perform their
contracts with the fund is remote. In addition, class action lawsuits have been
filed in the U.S. District Court, Central District of California, relating to
these matters. The investment adviser believes that these suits are without
merit and will defend itself vigorously. Further updates on these issues will be
available on the American Funds website (americanfunds.com) under "American
Funds regulatory matters."

The Bond Fund of America -- Page 58
<PAGE>

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- DECEMBER 31, 2006

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $13.32
Maximum offering price per share
(100/96.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . $13.84

OTHER INFORMATION -- The fund reserves the right to modify the privileges
described in this statement of additional information at any time.

The financial statements including the investment portfolio and the report of
the fund's independent registered public accounting firm contained in the annual
report are included in this statement of additional information. The following
information on fund numbers is not included in the annual report:

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
Short-Term Bond Fund of America/SM/ . . . . . . . . . . . . . 048 248 348 448
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 59
<PAGE>

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
Short-Term Bond Fund of America 1048 1248 1348 1548 1448
U.S. Government Securities Fund 1022 1222 1322 1522 1422
MONEY MARKET FUND
The Cash Management Trust of
America . . . . . . . . . . . . 1009 1209 1309 1509 1409

The Bond Fund of America -- Page 60
<PAGE>

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
Short-Term Bond Fund of America. . . 2148 2248 2348 2448 2548
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 61
<PAGE>

FUND NUMBERS
-------------------------------------------------
CLASS CLASS CLASS CLASS CLASS
FUND CLASS A R-1 R-2 R-3 R-4 R-5
- -------------------------------------------------------------------------------

AMERICAN FUNDS TARGET DATE RETIREMENT SERIES/(R)/
American Funds 2050 Target
Date Retirement Fund . . . 069 2169 2269 2369 2469 2569
American Funds 2045 Target
Date Retirement Fund . . . 068 2168 2268 2368 2468 2568
American Funds 2040 Target
Date Retirement Fund . . . 067 2167 2267 2367 2467 2567
American Funds 2035 Target
Date Retirement Fund . . . 066 2166 2266 2366 2466 2566
American Funds 2030 Target
Date Retirement Fund . . . 065 2165 2265 2365 2465 2565
American Funds 2025 Target
Date Retirement Fund . . . 064 2164 2264 2364 2464 2564
American Funds 2020 Target
Date Retirement Fund . . . 063 2163 2263 2363 2463 2563
American Funds 2015 Target
Date Retirement Fund . . . 062 2162 2262 2362 2462 2562
American Funds 2010 Target
Date Retirement Fund . . . 061 2161 2261 2361 2461 2561

The Bond Fund of America -- Page 62
<PAGE>

APPENDIX

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

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 63
<PAGE>

STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

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

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

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

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

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

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

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

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

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

The Bond Fund of America -- Page 64
<PAGE>

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 65

[logo - American Funds®]

Bond Fund of AmericaSM

Investment portfolio

December 31, 2006

Bonds & notes — 88.08%	Principal amount (000)			Market value (000)

CORPORATE BONDS & NOTES — 43.51%
FINANCIALS — 19.00%
General Motors Acceptance Corp. 6.15% 2007	$	2,750		$	2,750
General Motors Acceptance Corp. 6.274% 2007¹		2,000			2,000
General Motors Acceptance Corp. 5.85% 2009		7,790			7,764
Residential Capital Corp. 6.474% 2009¹		17,500			17,687
Residential Capital Corp. 7.204% 2009^1,2		6,000			6,033
Residential Capital Corp. 6.375% 2010		78,250			79,222
General Motors Acceptance Corp. 7.75% 2010		4,355			4,561
Residential Capital Corp. 6.00% 2011		19,500			19,481
General Motors Acceptance Corp. 7.25% 2011		44,790			46,620
General Motors Acceptance Corp. 6.875% 2012		10,000			10,280
General Motors Acceptance Corp. 7.00% 2012		34,000			35,114
Residential Capital Corp. 6.50% 2013		30,000			30,442
General Motors Acceptance Corp. 6.75% 2014		43,750			45,006
General Motors Acceptance Corp. 7.569% 2014¹		75,000			78,576
Residential Capital Corp. 6.875% 2015		12,780			13,270
International Lease Finance Corp., Series P, 3.125% 2007		2,000			1,986
ASIF Global Financing XVIII 3.85% 2007²		5,785			5,709
ASIF Global Financing XXVIII 5.41% 2007^1,2		2,000			2,001
International Lease Finance Corp. 4.35% 2008		20,500			20,159
AIG SunAmerica Global Financing VII 5.85% 2008²		24,250			24,451
International Lease Finance Corp. 3.50% 2009		13,000			12,512
International Lease Finance Corp. 4.75% 2009		22,000			21,744
International Lease Finance Corp. 5.00% 2010		4,565			4,518
International Lease Finance Corp. 5.125% 2010		25,000			24,826
International Lease Finance Corp., Series Q, 5.45% 2011		15,000			15,064
American General Finance Corp., Series J, 5.653% 2011¹		32,500			32,646
International Lease Finance Corp. 5.00% 2012		13,500			13,242
International Lease Finance Corp., Series R, 5.40% 2012		12,000			12,024
International Lease Finance Corp., Series R, 5.625% 2013		20,000			20,174
American General Finance Corp., Series I 5.85% 2013		27,500			28,065
International Lease Finance Corp. 5.875% 2013		5,000			5,112
American General Finance Corp., Series I, 5.40% 2015		20,000			19,833
American General Finance Corp., Series J, 5.75% 2016		2,500			2,540
American International Group, Inc. 6.25% 2036		8,750			9,329
ILFC E-Capital Trust II 6.25% 2065^1,2		44,975			45,766
Washington Mutual, Inc. 4.375% 2008		11,735			11,617
Washington Mutual, Inc. 5.55% 2010		4,000			4,031
Washington Mutual, Inc. 5.00% 2012		14,000			13,660
Washington Mutual, Inc. 5.665% 2012¹		41,000			41,131
Washington Mutual Bank 5.795% 2013¹		35,000			35,045
Washington Mutual, Inc. 5.95% 2013		5,000			5,089
Washington Mutual, Inc. 5.25% 2017		10,000			9,662
Washington Mutual Preferred Funding I Ltd. 6.534% (undated)^1,2		89,500			88,787
Washington Mutual Preferred Funding II Ltd. 6.665% (undated)^1,2		74,800			75,514
Ford Motor Credit Co. 4.875% 2007		€13,950			18,407
Ford Motor Credit Co. 7.20% 2007	$	3,000			3,003
Ford Motor Credit Co. 7.875% 2010		43,500			43,894
Ford Motor Credit Co. 9.75% 2010²		94,500			100,608
Ford Motor Credit Co. 7.375% 2011		2,150			2,130
Ford Motor Credit Co. 10.61% 2011^1,2		60,275			64,407
Ford Motor Credit Co. 8.11% 2012¹		8,000			7,937
J.P. Morgan Chase & Co. 5.35% 2007		3,285			3,284
J.P. Morgan Chase & Co. 4.00% 2008		12,500			12,337
BANK ONE, Texas, NA 6.25% 2008		7,250			7,325
J.P. Morgan Chase & Co. 6.75% 2011		15,000			15,784
J.P. Morgan Chase & Co. 4.875% 2014		18,340			17,822
J.P. Morgan Chase & Co. 4.75% 2015		7,500			7,217
J.P. Morgan Chase & Co. 4.891% 2015		55,000			53,938
Bank One Corp. 4.90% 2015		9,000			8,651
J.P. Morgan Chase & Co. 5.15% 2015		11,000			10,813
Chase Capital II, Global Floating Rate Capital Securities, Series B, 5.871% 2027¹		20,000			19,222
J.P. Morgan Chase Capital XX, Series T, 6.55% 2036		40,750			42,219
JPMorgan Chase Capital XVIII, Series R, 6.95% 2036		25,150			27,293
Household Finance Corp. 5.75% 2007		10,000			10,003
Household Finance Corp. 7.875% 2007		32,000			32,123
Household Finance Corp. 4.125% 2008		1,000			981
Household Finance Corp. 6.40% 2008		10,000			10,157
Household Finance Corp. 4.125% 2009		25,000			24,322
HSBC Finance Corp. 4.625% 2010		11,500			11,260
Household Finance Corp. 6.375% 2011		7,250			7,589
Household Finance Corp. 6.75% 2011		23,750			25,159
HSBC Finance Corp. 5.71% 2012¹		20,000			20,196
HSBC Finance Corp. 5.724% 2012¹		15,000			15,145
HSBC Bank USA 4.625% 2014²		6,550			6,253
HSBC Finance Corp. 5.00% 2015		31,730			30,906
HSBC Holdings PLC 6.50% 2036		1,950			2,105
Midland Bank 5.688% Eurodollar note (undated)¹		15,000			13,013
CIT Group Inc. 3.65% 2007		10,720			10,570
CIT Group Inc. 4.00% 2008		14,000			13,762
CIT Group Inc. 3.375% 2009		5,000			4,803
CIT Group Inc. 6.875% 2009		31,000			32,271
CIT Group Inc. 4.25% 2010		30,000			29,076
CIT Group Inc. 5.656% 2011¹		30,000			30,063
CIT Group Inc. 7.75% 2012		26,875			29,662
CIT Group Inc. 5.40% 2013		15,000			14,906
Sumitomo Mitsui Banking Corp. 5.625% (undated)^1,2		58,025			56,818
Sumitomo Mitsui Banking Corp. 6.078% (undated)^1,2		99,800			99,396
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 4.375% 2010²		57,950			55,942
Westfield Group 5.40% 2012²		50,000			49,866
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 2014²		26,600			25,881
Westfield Group 5.70% 2016²		7,000			7,039
WT Finance (Australia) Pty Ltd., Westfield Europe Finance PLC, and WEA Finance LLC 5.50% 2017		£3,470			6,638
HBOS PLC 5.375% (undated)^1,2	$	25,000			24,654
HBOS PLC, Series B, 5.92% (undated)^1,2		76,400			75,071
Bank of Scotland 7.00% (undated)^1,2		25,000			25,250
Bayerische Hypo- und Vereinsbank AG 6.00% 2014		€10,370			14,953
UniCredito Italiano SpA 5.584% 2017^1,2		57,590			57,975
HVB Funding Trust I 8.741% 2031²		19,564			24,872
HVB Funding Trust III 9.00% 2031²		12,530			16,342
Santander Issuances, SA Unipersonal 5.725% 2016^1,2		21,500			21,539
Santander Issuances, SA Unipersonal 5.805% 2016^1,2		62,000			62,593
Abbey National PLC 6.70% (undated)¹		18,380			18,673
Abbey National PLC 7.50% (undated)¹		£2,975			6,509
PRICOA Global Funding I, Series 2003-2, 3.90% 2008²	$	7,500			7,292
PRICOA Global Funding I, Series 2004-4, 4.35% 2008²		2,500			2,461
PRICOA Global Funding I 4.20% 2010²		17,000			16,445
Prudential Financial, Inc., Series D, 5.10% 2011		2,000			1,985
Prudential Financial, Inc., Series B, 4.75% 2014		4,000			3,817
Prudential Holdings, LLC, Series C, 8.695% 2023^2,3		57,035			69,907
Prudential Financial, Inc., Series D, 5.70% 2036		3,000			2,930
Simon Property Group, LP 4.875% 2010		12,000			11,862
Simon Property Group, LP 5.375% 2011		12,500			12,514
Simon Property Group, LP 5.60% 2011		32,060			32,351
Simon Property Group, LP 5.00% 2012		16,000			15,736
Simon Property Group, LP 5.75% 2012		4,000			4,046
Simon Property Group, LP 5.75% 2015		3,250			3,303
Simon Property Group, LP 5.25% 2016		1,000			976
Simon Property Group, LP 6.10% 2016		4,750			4,932
Simon Property Group, LP 5.875% 2017		17,250			17,605
USA Education, Inc. 5.625% 2007		16,100			16,111
SLM Corp., Series A, 3.95% 2008		17,500			17,128
SLM Corp., Series A, 4.00% 2010		5,500			5,309
SLM Corp., Series A, 4.50% 2010		38,000			37,018
SLM Corp., Series A, 5.40% 2011		5,000			5,010
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)^1,2		76,250			77,442
Citigroup Inc. 3.50% 2008		20,000			19,645
Citigroup Inc. 4.25% 2009		15,000			14,688
Citigroup Inc. 4.125% 2010		26,000			25,239
Citigroup Inc. 5.125% 2011		10,000			9,981
Citigroup Inc. 5.625% 2012		5,675			5,764
Bank of America Corp. 3.875% 2008		2,000			1,970
Bank of America Corp. 4.375% 2010		13,000			12,647
Bank of America Corp. 4.50% 2010		9,000			8,806
BankAmerica Corp. 7.125% 2011		1,750			1,885
Bank of America Corp. 4.875% 2012		2,000			1,962
MBNA Corp., Series F, 7.50% 2012		1,800			1,974
Bank of America Corp. 5.25% 2015		5,000			4,935
MBNA Capital A, Series A, 8.278% 2026		7,500			7,818
MBNA Global Capital Funding, Series B, 6.171% 2027¹		33,000			32,962
Kimco Realty Corp., Series C, 3.95% 2008		9,200			8,991
Kimco Realty Corp., Series C, 4.82% 2011		10,000			9,772
Kimco Realty Corp. 6.00% 2012		18,500			19,064
Kimco Realty Corp., Series C, 4.82% 2014		12,000			11,464
Kimco Realty Corp., Series C, 4.904% 2015		3,000			2,859
Kimco Realty Corp., Series C, 5.783% 2016		19,500			19,784
Standard Chartered Bank 5.50% Eurodollar note (undated)¹		15,000			12,412
Standard Chartered Bank 5.525% (undated)¹		5,000			4,162
Standard Chartered PLC 6.409% (undated)²		52,400			52,079
Resona Bank, Ltd. 3.75% 2015¹		€9,740			12,585
Resona Bank, Ltd. 5.85% (undated)^1,2	$	56,660			55,424
Capital One Bank 4.25% 2008		8,000			7,846
Capital One Financial Corp. 5.633% 2009¹		30,000			30,158
Capital One Financial Corp. 5.70% 2011		12,000			12,190
Capital One Financial Corp. 6.25% 2013		7,000			7,324
Capital One Financial Corp. 6.15% 2016		10,000			10,361
Royal Bank of Scotland Group PLC 8.375% 2007		£6,500			12,750
Royal Bank of Scotland Group PLC 5.00% 2014	$	3,000			2,916
Royal Bank of Scotland Group PLC 5.512% noncumulative trust preferred (undated)¹		35,000			34,648
National Westminster Bank PLC 7.75% (undated)¹		17,000			17,233
PNC Funding Corp. 4.20% 2008		6,750			6,625
PNC Funding Corp. 5.125% 2010		4,000			3,980
PNC Funding Corp., Series I, 6.517% (undated)^1,2		49,500			50,409
CNA Financial Corp. 5.85% 2014		8,500			8,548
CNA Financial Corp. 6.50% 2016		24,625			25,734
CNA Financial Corp. 7.25% 2023		24,145			26,243
Lazard Group LLC 7.125% 2015		56,765			58,891
American Express Credit Corp. 3.00% 2008		9,060			8,796
American Express Co. 6.80% 2066¹		46,500			49,673
Lincoln National Corp. 7.00% 2066¹		54,895			58,283
XL Capital Finance (Europe) PLC 6.50% 2012		12,455			12,989
XL Capital Ltd. 5.25% 2014		4,925			4,834
XL Capital Ltd. 6.375% 2024		3,000			3,127
Mangrove Bay Pass Through Trust 6.102% 2033^1,2		27,380			26,794
Twin Reefs Asset Trust (XLFA), Series B, 6.35% (undated)^1,2		10,200			10,219
EOP Operating LP 6.75% 2008		24,500			24,897
EOP Operating LP 4.65% 2010		17,010			16,906
EOP Operating LP 7.00% 2011		2,500			2,708
EOP Operating LP 6.75% 2012		8,250			8,919
EOP Operating LP 7.50% 2029		1,710			1,933
EOP Operating LP 7.875% 2031		2,000			2,364
Liberty Mutual Group Inc. 6.50% 2035²		34,965			34,188
Liberty Mutual Group Inc. 7.50% 2036²		20,500			22,499
ACE INA Holdings Inc. 5.875% 2014		26,775			27,330
ACE Capital Trust II 9.70% 2030		12,423			17,078
ACE INA Holdings Inc. 6.70% 2036		9,980			10,771
TuranAlem Finance BV 7.75% 2013²		11,000			11,234
TuranAlem Finance BV 8.00% 2014		9,710			9,941
TuranAlem Finance BV 8.00% 2014²		5,000			5,119
TuranAlem Finance BV 8.50% 2015²		20,560			21,408
TuranAlem Finance BV 8.50% 2015		6,890			7,174
Hospitality Properties Trust 7.00% 2008		1,000			1,016
Hospitality Properties Trust 6.75% 2013		17,845			18,700
Hospitality Properties Trust 5.125% 2015		6,850			6,518
Hospitality Properties Trust 6.30% 2016		24,175			24,783
Mizuho Capital Investment (EUR) 1 Ltd. 5.02% (undated)¹		€4,650			6,108
Mizuho Capital Investment (USD) 1 Ltd. and Mizuho Capital Investment (EUR) 1 Ltd. 6.686%
noncumulative preferred (undated)^1,2	$	41,262			41,703
World Savings Bank, FSB, Bank Notes, Series 2008-FXR, 4.125% 2008		34,250			33,661
Wachovia Corp. 5.30% 2011		5,000			5,003
Wachovia Corp. 5.625% 2016		7,000			7,074
Developers Diversified Realty Corp. 3.875% 2009		19,500			18,894
Developers Diversified Realty Corp. 5.00% 2010		2,500			2,468
Developers Diversified Realty Corp. 5.375% 2012		3,450			3,421
Developers Diversified Realty Corp. 5.50% 2015		19,500			19,236
Allstate Financial Global Funding LLC 5.25% 2007²		26,500			26,498
Allstate Life Global Funding Trust, Series 2004-2, 5.43% 2007¹		3,000			3,002
Allstate Financial Global Funding LLC 4.25% 2008²		7,500			7,383
Allstate Life Global Funding Trust, Series 2004-1, 4.50% 2009		5,000			4,929
ProLogis 5.25% 2010		10,884			10,831
PLD International Finance LLC 4.375% 2011		€4,150			5,435
ProLogis 5.625% 2015	$	25,000			24,920
Monumental Global Funding II, Series 2002-A, 5.20% 2007²		17,500			17,497
AEGON NV 4.625% 2008		€7,750			10,298
Transamerica Corp. 9.375% 2008	$	7,500			7,775
Monumental Global Funding II, Series 2004-F, 4.375% 2009²		2,000			1,958
AEGON NV 6.125% 2031		£1,600			3,577
Kazkommerts International BV 7.00% 2009²	$	5,500			5,596
Kazkommerts International BV 8.50% 2013		8,500			9,169
Kazkommerts International BV 7.875% 2014²		9,200			9,602
Kazkommerts International BV 8.00% 2015²		15,500			16,197
ORIX Corp. 5.48% 2011		36,175			36,151
Nationwide Life Insurance Co. 5.35% 2007²		4,250			4,250
North Front Pass Through Trust 5.81% 2024^1,2		19,085			18,819
Nationwide Mutual Insurance Co. 7.875% 2033²		8,000			9,518
Nationwide Mutual Insurance Co. 6.60% 2034²		2,000			1,964
Skandinaviska Enskilda Banken AB 5.471% (undated)^1,2		22,000			21,375
Skandinaviska Enskilda Banken AB 7.50% (undated)¹		12,500			13,126
American Honda Finance Corp. 5.125% 2010²		34,350			34,219
Development Bank of Singapore Ltd. 7.875% 2009²		20,000			21,261
DBS Bank Ltd. 5.984% 2021^1,2		12,500			12,702
ING Security Life Institutional Funding 2.70% 2007²		4,730			4,713
ReliaStar Financial Corp. 6.50% 2008		6,016			6,132
ING Bank NV 5.50% 2012		€3,750			5,208
ING Groep NV 5.775% (undated)¹	$	15,500			15,364
Principal Life Global Funding I 2.80% 2008²		11,625			11,215
Principal Life Global Funding I 4.40% 2010²		16,600			16,065
Principal Life Income Fundings Trust, Series 2005-34, 5.20% 2010		2,000			1,997
Berkshire Hathaway Finance Corp. 4.125% 2010		20,000			19,451
Berkshire Hathaway Finance Corp. 4.75% 2012		10,000			9,812
Plum Creek Timberlands, LP 5.875% 2015		29,000			28,546
Brandywine Operating Partnership, LP 5.75% 2012		27,110			27,327
Lloyds Bank, Series 2, 5.563% (undated)¹		8,000			6,963
Lloyds TSB Group PLC 6.267% (undated)^1,2		20,000			20,036
Hartford Financial Services Group, Inc. 4.70% 2007		16,250			16,172
Hartford Financial Services Group, Inc. 5.55% 2008		875			879
Hartford Financial Services Group, Inc. 5.25% 2011		5,625			5,618
Hartford Financial Services Group, Inc. 4.625% 2013		4,000			3,823
iStar Financial, Inc. 5.375% 2010		10,675			10,596
iStar Financial, Inc., Series B, 5.125% 2011		1,500			1,470
iStar Financial, Inc. 6.05% 2015		14,285			14,390
Rouse Co. 3.625% 2009		5,200			4,948
Rouse Co. 7.20% 2012		17,700			18,196
Rouse Co. 6.75% 2013²		2,465			2,488
UnionBanCal Corp. 5.25% 2013		2,000			1,966
Union Bank of California, NA 5.95% 2016		22,000			22,587
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007²		23,125			23,141
ZFS Finance (USA) Trust II 6.45% 2065^1,2		22,500			22,988
Metropolitan Life Global Funding I, Series 2004-2, 5.431% 2007^1,2		1,500			1,501
Metropolitan Life Global Funding I 2.60% 2008²		20,000			19,150
MetLife, Inc. 5.00% 2015		2,000			1,943
John Hancock Global Funding II, Series 2002-G, 5.00% 2007^2,4		5,000			4,985
John Hancock Global Funding II, Series 2004-A, 3.50% 2009²		18,000			17,368
United Overseas Bank Ltd. 5.375% 2019^1,2		22,250			22,065
Assurant, Inc. 5.625% 2014		22,000			21,972
Zions Bancorporation 5.50% 2015		21,625			21,312
Canadian Imperial Bank of Commerce 5.625% Eurodollar note 2085¹		25,000			20,875
Assured Guaranty US Holdings Inc., Series A, 6.40% 2066¹		19,700			19,752
Countrywide Home Loans, Inc., Series M, 4.125% 2009³		20,000			19,436
United Dominion Realty Trust, Inc., Series E, 4.50% 2008		17,000			16,701
Financial Security Assurance Holdings Ltd. 6.40% 2066^1,2		16,000			16,127
Wells Fargo & Co. 3.50% 2008		3,310			3,242
Wells Fargo & Co. 4.125% 2008		8,000			7,898
Wells Fargo Capital X 5.95% 2086¹		5,000			4,917
Credit Suisse First Boston (USA), Inc. 6.50% 2012		15,000			15,781
Protective Life Insurance Co., Series 2005-C, 4.85% 2010		15,000			14,839
Downey Financial Corp. 6.50% 2014		14,380			14,434
BOI Capital Funding (No. 2) LP 5.571% (undated)^1,2		14,420			14,107
ERP Operating LP 4.75% 2009		2,225			2,190
ERP Operating LP 6.625% 2012		5,000			5,278
ERP Operating LP 5.375% 2016		6,000			5,948
Advanta Capital Trust I, Series B, 8.99% 2026		12,500			12,813
E*TRADE Financial Corp. 8.00% 2011		1,025			1,076
E*TRADE Financial Corp. 7.375% 2013		925			967
E*TRADE Financial Corp. 7.875% 2015		9,720			10,376
Genworth Financial, Inc. 4.75% 2009		10,345			10,249
Genworth Financial, Inc. 6.15% 2066¹		1,670			1,671
Independence Community Bank Corp. 4.90% 2010		12,000			11,729
MassMutual Global Funding II, Series 2002-1, 3.50% 2010²		12,000			11,430
AB Spintab 6.00% 2009		SKr73,000			11,139
Banco Santander-Chile 5.375% 2014²	$	11,200			11,048
Comerica, Inc., Imperial Capital Trust I, Imperial Bancorp, Series B, 9.98% 2026		10,200			10,901
United Energy Distribution Pty Ltd., AMBAC insured, 4.70% 2011²		10,000			9,761
Post Apartment Homes, LP 7.70% 2010		1,400			1,503
Post Apartment Homes, LP 5.125% 2011		7,720			7,535
Shinsei Bank, Ltd. 3.75% 2016¹		€6,865			8,801
Banco Mercantil del Norte 6.135% 2016²	$	8,600			8,646
Bank of Nova Scotia 5.125% 2085¹		10,000			8,489
Host Marriott, LP, Series M, 7.00% 2012		7,130			7,273
Host Hotels & Resorts LP 6.875% 2014²		1,000			1,018
Realogy Corp. 6.50% 2016²		7,750			7,949
Chohung Bank 4.50% 2014^1,2		8,000			7,763
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)^1,2		6,500			6,722
Goldman Sachs Group, Inc., Series B, 5.455% 2009¹		2,500			2,503
Goldman Sachs Group, Inc. 5.75% 2016		4,000			4,070
Allied Irish Banks Ltd. 5.626% (undated)¹		7,000			6,376
Weingarten Realty Investors, Series A, 4.857% 2014		6,080			5,838
National Australia Bank Ltd. 5.486% (undated)^1,2		5,925			5,737
Lehman Brothers Holdings Inc., Series I, 5.475% 2009¹		5,000			5,004
Irvine Apartment Communities, LP 7.00% 2007		5,000			4,995
Industrial Bank of Korea 4.00% 2014^1,2		5,000			4,846
St. Paul Travelers Companies, Inc. 6.25% 2016		2,000			2,104
St. Paul Travelers Companies, Inc. 6.75% 2036		2,000			2,218
Bergen Bank 5.563% (undated)¹		5,000			4,250
Barclays Bank PLC 4.75% (undated)¹		€3,500			4,114
National Bank of Canada 5.625% 2087¹	$	5,000			4,088
Christiana Bank Og Kreditkasse 5.625% (undated)¹		4,000			3,575
Federal Realty Investment Trust 4.50% 2011		3,500			3,369
Principal Financial Group, Inc. 6.05% 2036		3,000			3,082
Merrill Lynch & Co., Inc., Series C, 5.449% 2009¹		3,000			3,002
FelCor Lodging LP 8.50% 2011¹		2,270			2,429
Den Danske Bank A/S 7.40% 2010^1,2		1,950			1,968
UnumProvident Finance Co. PLC 6.85% 2015²		1,425			1,484
AXA SA 6.379% (undated)^1,2		1,400			1,387
					5,321,609

CONSUMER DISCRETIONARY — 5.61%
DaimlerChrysler North America Holding Corp. 4.05% 2008		4,750			4,650
DaimlerChrysler North America Holding Corp. 4.75% 2008		4,800			4,757
DaimlerChrysler North America Holding Corp. 5.79% 2009¹		30,000			30,047
DaimlerChrysler North America Holding Corp. 7.20% 2009		5,000			5,190
DaimlerChrysler North America Holding Corp. 4.875% 2010		20,000			19,511
DaimlerChrysler North America Holding Corp. 8.00% 2010		56,500			60,578
DaimlerChrysler North America Holding Corp. 7.75% 2011		26,350			28,229
DaimlerChrysler North America Holding Corp. 6.50% 2013		11,610			11,936
Comcast Cable Communications, Inc. 6.20% 2008		7,150			7,266
Lenfest Communications, Inc. 7.625% 2008		6,750			6,909
Comcast Corp. 5.674% 2009¹		2,000			2,006
Comcast Cable Communications, Inc. 6.875% 2009		3,000			3,105
Tele-Communications, Inc. 9.80% 2012		17,500			20,657
Comcast Cable Communications, Inc. 7.125% 2013		1,650			1,781
Tele-Communications, Inc. 7.875% 2013		7,500			8,350
Comcast Corp. 5.85% 2015		29,025			29,116
Comcast Corp. 6.50% 2015		23,000			24,002
Comcast Corp. 5.90% 2016		6,570			6,600
Comcast Corp. 6.50% 2017		25,000			26,136
Comcast Corp. 5.65% 2035		6,670			6,075
Time Warner Inc. 8.18% 2007		2,225			2,262
Time Warner Inc. 5.606% 2009¹		30,000			30,043
Time Warner Inc. 5.50% 2011		1,000			998
AOL Time Warner Inc. 6.875% 2012		27,250			28,828
Time Warner Inc. 5.875% 2016		16,500			16,489
AOL Time Warner Inc. 7.625% 2031		18,575			20,812
Time Warner Inc. 6.50% 2036		750			749
Viacom Inc. 5.75% 2011		2,500			2,504
Viacom Inc. 6.25% 2016		34,110			33,933
Viacom Inc. 6.875% 2036		32,600			32,332
General Motors Nova Scotia Finance Co. 6.85% 2008		300			299
General Motors Corp. 7.20% 2011		22,700			22,076
General Motors Corp. 7.125% 2013		18,475			17,459
General Motors Corp. 7.25% 2013		€700			915
General Motors Corp. 7.70% 2016	$	8,375			7,914
General Motors Corp. 8.80% 2021		15,700			14,915
General Motors Corp. 9.40% 2021		1,875			1,809
General Motors Corp. 8.375% 2033		1,200			1,116
Harrah’s Operating Co., Inc. 5.50% 2010		17,320			16,989
Harrah’s Operating Co., Inc. 5.625% 2015		29,650			25,470
Harrah’s Operating Co., Inc. 6.50% 2016		20,000			17,937
D.R. Horton, Inc. 9.75% 2010		1,150			1,270
D.R. Horton, Inc. 7.875% 2011		800			860
D.R. Horton, Inc. 6.875% 2013		5,385			5,569
D.R. Horton, Inc. 5.25% 2015		20,000			18,698
D.R. Horton, Inc. 6.50% 2016		27,060			27,272
May Department Stores Co. 5.75% 2014		650			637
Federated Retail Holdings, Inc. 5.90% 2016		31,480			31,489
Federated Department Stores, Inc. 7.45% 2017		17,370			18,827
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.00% 2012²		10,150			10,594
Charter Communications Operating, LLC, Term Loan Facilities B, 8.005% 2013^1,3		4,400			4,433
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013		13,150			13,725
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.375% 2014²		3,200			3,356
CCH I, LLC and CCH I Capital Corp. 11.00% 2015		13,250			13,664
News America Holdings Inc. 8.00% 2016		1,000			1,151
News America Holdings Inc. 8.25% 2018		9,540			11,204
News America Inc. 6.40% 2035		26,000			25,914
Chancellor Media Corp. of Los Angeles 8.00% 2008		12,500			13,001
Clear Channel Communications, Inc. 5.75% 2013		10,000			8,904
Clear Channel Communications, Inc. 5.50% 2014		2,200			1,859
Clear Channel Communications, Inc. 6.875% 2018		13,000			11,315
Toll Brothers, Inc. 4.95% 2014		19,250			17,641
Toll Brothers, Inc. 5.15% 2015		14,000			12,849
Cox Communications, Inc. 5.91% 2007¹		5,000			5,022
Cox Communications, Inc. 7.875% 2009		1,000			1,059
Cox Communications, Inc. 7.75% 2010		10,000			10,764
Cox Communications, Inc. 5.45% 2014		12,750			12,441
Carnival Corp. 3.75% 2007		8,500			8,387
Carnival Corp. 6.15% 2008		18,623			18,717
Ryland Group, Inc. 5.375% 2008		2,000			1,987
Ryland Group, Inc. 5.375% 2012		22,500			21,502
Johnson Controls, Inc. 5.25% 2011		7,550			7,497
Johnson Controls, Inc. 5.50% 2016		15,000			14,733
American Media Operations, Inc., Series B, 10.25% 2009		15,865			15,409
American Media Operations, Inc. 8.875% 2011		7,060			6,478
Cinemark USA, Inc., Term Loan B, 7.32% 2013^1,3		3,417			3,442
Cinemark USA, Inc. 9.00% 2013		8,675			9,239
Cinemark, Inc. 0%/9.75% 2014⁵		8,750			7,558
Target Corp. 3.375% 2008		8,330			8,156
Target Corp. 5.375% 2009		12,000			12,075
J.C. Penney Co., Inc. 8.00% 2010		7,590			8,087
J.C. Penney Co., Inc. 9.00% 2012		995			1,139
J.C. Penney Co., Inc. 6.875% 2015		5,500			5,753
J.C. Penney Co., Inc. 7.65% 2016		2,315			2,549
J.C. Penney Co., Inc. 7.625% 2097		500			512
Mohegan Tribal Gaming Authority 6.375% 2009		14,410			14,482
Mohegan Tribal Gaming Authority 7.125% 2014		2,000			2,038
Delphi Automotive Systems Corp. 6.55% 2006⁶		500			559
Delphi Automotive Systems Corp. 6.50% 2009⁶		6,000			6,750
Delphi Corp. 6.50% 2013⁶		7,020			7,652
Delphi Automotive Systems Corp. 7.125% 2029⁶		1,350			1,499
Michaels Stores, Inc., Term Loan B, 8.375% 2013^1,3		3,378			3,412
Michaels Stores, Inc. 10.00% 2014²		11,975			12,514
K. Hovnanian Enterprises, Inc. 8.875% 2012		7,060			7,201
K. Hovnanian Enterprises, Inc. 7.75% 2013		1,425			1,429
K. Hovnanian Enterprises, Inc. 6.375% 2014		1,475			1,423
K. Hovnanian Enterprises, Inc. 6.25% 2015		500			478
K. Hovnanian Enterprises, Inc. 7.50% 2016		3,735			3,772
K. Hovnanian Enterprises, Inc. 8.625% 2017		1,000			1,070
MGM MIRAGE 6.00% 2009		1,975			1,980
MGM MIRAGE 8.50% 2010		6,850			7,364
MGM MIRAGE 6.75% 2012		1,050			1,040
MGM MIRAGE 6.75% 2013		2,500			2,456
MGM MIRAGE 5.875% 2014		500			465
MGM MIRAGE 6.625% 2015		2,025			1,939
Visteon Corp. 8.25% 2010		15,440			15,131
MDC Holdings, Inc. 5.50% 2013		6,555			6,276
MDC Holdings, Inc. 5.375% 2014		9,475			8,830
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014		14,415			14,397
CanWest Media Inc., Series B, 8.00% 2012		13,676			14,343
Royal Caribbean Cruises Ltd. 7.00% 2007		1,400			1,420
Royal Caribbean Cruises Ltd. 8.75% 2011		2,325			2,553
Royal Caribbean Cruises Ltd. 7.25% 2016		10,000			10,228
NTL Cable PLC 8.75% 2014		8,650			9,093
NTL Cable PLC 8.75% 2014		€1,000			1,420
NTL Cable PLC 9.125% 2016	$	2,925			3,104
Seminole Tribe of Florida 5.798% 2013^2,3		13,220			13,036
Centex Corp. 5.80% 2009		2,500			2,519
Centex Corp. 6.50% 2016		10,000			10,248
Circus and Eldorado Joint Venture and Silver Legacy Resort Casino 10.125% 2012		12,025			12,686
Grupo Posadas, SA de CV 8.75% 2011²		10,585			11,141
Grupo Posadas, SA de CV 8.75% 2011		1,050			1,105
Young Broadcasting Inc. 10.00% 2011		12,317			11,763
AMC Entertainment Inc., Series B, 8.625% 2012		3,000			3,154
AMC Entertainment Inc. 8.00% 2014		8,125			8,105
Bon-Ton Department Stores, Inc. 10.25% 2014		10,800			11,097
Burlington Coat Factory Warehouse Corp. 11.125% 2014²		10,400			10,192
Technical Olympic USA, Inc. 9.00% 2010		3,240			3,208
Technical Olympic USA, Inc. 9.00% 2010		950			940
Technical Olympic USA, Inc. 7.50% 2011		3,750			3,112
Technical Olympic USA, Inc. 10.375% 2012		3,235			2,928
Pulte Homes, Inc. 4.875% 2009		10,300			10,148
Linens ‘n Things, Inc. 10.999% 2014¹		9,750			9,506
Toys “R” Us, Inc. 7.625% 2011		3,420			3,163
Toys “R” Us-Delaware, Inc., Term Loan B, 9.625% 2012^1,3		6,000			6,195
Lowe’s Companies, Inc. 8.25% 2010		8,450			9,241
Century Communications Corp. 0% 2003⁶		5,000			5,337
Adelphia Communications Corp. 10.25% 2006⁶		3,500			3,194
Iesy Repository GmbH 10.375% 2015²		8,550			8,347
Standard Pacific Corp. 5.125% 2009		1,000			972
Standard Pacific Corp. 7.75% 2013		6,890			6,873
Standard Pacific Corp. 7.00% 2015		500			484
William Lyon Homes, Inc. 7.625% 2012		5,750			4,931
William Lyon Homes, Inc. 10.75% 2013		2,000			1,915
William Lyon Homes, Inc. 7.50% 2014		1,500			1,256
Kabel Deutschland GmbH 10.625% 2014		7,150			7,963
Neiman Marcus Group, Inc. 9.00% 2015⁷		7,120			7,805
CSC Holdings, Inc., Series B, 8.125% 2009		3,000			3,124
Cablevision Systems Corp., Series B, 8.00% 2012		3,635			3,590
Tenneco Automotive Inc., Series B, 10.25% 2013		750			825
Tenneco Automotive Inc. 8.625% 2014		5,510			5,648
Radio One, Inc., Series B, 8.875% 2011		4,000			4,150
Radio One, Inc. 6.375% 2013		2,450			2,303
Telenet Group Holding NV 0%/11.50% 2014^2,5		7,100			6,434
Regal Cinemas Corp., Series B, 9.375% 2012⁸		6,125			6,423
Thomson Corp. 5.50% 2035		7,000			6,390
Education Management LLC and Education Management Finance Corp. 10.25% 2016²		5,825			6,189
Quebecor Media Inc. 7.75% 2016		5,900			6,055
Walt Disney Co., Series B, 5.375% 2007		3,500			3,503
Walt Disney Co. 5.625% 2016		2,500			2,522
RBS-Zero Editora Jornalística SA 11.00% 2010²		5,492			5,945
Dollarama Group LP and Dollarama Corp. 8.875% 2012		5,550			5,772
Idearc Inc. 8.00% 2016²		5,625			5,738
Ford Capital BV 9.50% 2010		5,543			5,543
Beazer Homes USA, Inc. 8.625% 2011		2,000			2,070
Beazer Homes USA, Inc. 8.125% 2016		3,000			3,195
Morris Publishing Group, LLC and Morris Publishing Finance Co., Series B, 7.00% 2013		5,140			4,896
Fisher Communications, Inc. 8.625% 2014		4,550			4,846
Liberty Media Corp. 7.875% 2009		2,500			2,620
Liberty Media Corp. 8.25% 2030		2,000			1,970
Goodyear Tire & Rubber Co. 9.14% 2009^1,2		3,175			3,203
Goodyear Tire & Rubber Co. 8.625% 2011²		1,175			1,219
Atlantic Broadband Finance, LLC and Atlantic Broadband Finance, Inc. 9.375% 2014		4,300			4,370
Meritage Homes Corp. 6.25% 2015		3,975			3,796
Seneca Gaming Corp. 7.25% 2012		2,500			2,556
Seneca Gaming Corp. 7.25% 2012		1,000			1,023
Vidéotron Ltée 6.875% 2014		2,525			2,553
Vidéotron Ltée 6.375% 2015		1,000			983
WDAC Intermediate Corp. 8.375% 2014²		2,600			2,688
WDAC Intermediate Corp. 8.50% 2014		€500			699
Kingfisher PLC 5.625% 2014		£1,740			3,302
Warner Music Group 7.375% 2014	$	3,300			3,284
Hyatt Equities, LLC 6.875% 2007²		3,250			3,264
Sealy Mattress Co. 8.25% 2014		3,025			3,176
WCI Communities, Inc. 9.125% 2012		3,115			2,983
Sally Holdings LLC and Sally Capital Inc. 9.25% 2014²		2,875			2,943
Gaylord Entertainment Co. 8.00% 2013		2,300			2,398
Gaylord Entertainment Co. 6.75% 2014		500			499
Hanesbrands Inc. 8.734% 2014^1,2		2,720			2,781
Boyd Gaming Corp. 7.75% 2012		1,800			1,870
Boyd Gaming Corp. 6.75% 2014		750			752
Aztar Corp. 7.875% 2014		2,250			2,455
R.H. Donnelley Corp., Series A-1, 6.875% 2013		1,000			964
Dex Media, Inc., Series B, 8.00% 2013		525			543
R.H. Donnelley Corp., Series A-3, 8.875% 2016		850			897
LBI Media, Inc. 10.125% 2012		2,250			2,399
Gamestop Corp. 8.00% 2012		2,000			2,100
KB Home 6.25% 2015		2,000			1,878
Kohl’s Corp. 7.375% 2011		1,475			1,580
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013		1,493			1,560
Riddell Bell Holdings Inc. 8.375% 2012		1,430			1,405
XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. 9.75% 2014		1,175			1,181
TRW Automotive Acquisition Corp. 9.375% 2013		1,075			1,158
Entercom Radio, LLC 7.625% 2014		1,000			1,005
Dillard’s, Inc. 7.13% 2018		1,000			998
Warnaco, Inc. 8.875% 2013		925			987
Carmike Cinemas, Inc., Term Loan B, 8.60% 2012^1,3		572			581
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007		250			251
					1,570,405

INDUSTRIALS — 4.74%
Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 2011³		14,050			14,480
Continental Airlines, Inc., Series 1999-2, Class A-2, 7.056% 2011³		10,000			10,282
Continental Airlines, Inc. 8.75% 2011		2,800			2,835
Continental Airlines, Inc., Series 2000-2, Class A-2, 7.487% 2012³		12,500			13,220
Continental Airlines, Inc., Series 2006-1, Class G, FGIC insured, 5.72% 2015^1,3		6,500			6,468
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 2016³		10,194			10,609
Continental Airlines, Inc., Series 1996-2, Class D, 11.50% 2016³		1,668			1,690
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 2017³		189			192
Continental Airlines, Inc., Series 1998-1, Class B, 6.748% 2018³		3,249			3,218
Continental Airlines, Inc., Series 1997-4B, Class B, 6.90% 2018³		2,465			2,444
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 2019³		26,976			28,004
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 2019³		42,445			43,822
Continental Airlines, Inc., Series 2000-2, Class B, 8.307% 2019³		3,629			3,766
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 2020³		29,950			31,020
Continental Airlines, Inc., Series 1999-1, Class B, 6.795% 2020³		15,233			15,167
Continental Airlines, Inc., Series 2003-ERJ3, Class A, 7.875% 2020³		16,115			16,448
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 2021³		330			347
Continental Airlines, Inc., Series 1999-2, Class B, 7.566% 2021³		5,478			5,537
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 2022³		16,607			17,115
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 2022³		12,397			13,458
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 2022³		10,066			11,205
Continental Airlines, Inc., Series 2000-1, Class B, 8.388% 2022³		1,563			1,626
General Electric Capital Corp., Series A, 5.00% 2007⁴		21,500			21,473
General Electric Capital Corp., Series A, 5.375% 2007⁴		13,250			13,252
General Electric Capital Corp., Series A, 3.50% 2008		20,000			19,563
General Electric Capital Corp., Series A, 6.00% 2012		15,000			15,546
General Electric Co. 5.00% 2013		12,750			12,625
General Electric Capital Corp., Series A, 5.00% 2016		5,000			4,895
General Electric Capital Corp., Series A, 5.645% 2018¹		18,000			18,030
General Electric Capital Corp., Series A, 5.748% 2026¹		25,000			25,058
Delta Air Lines, Inc. 8.00% 2007^2,6		4,000			2,670
Delta Air Lines, Inc., Series 2002-1, Class C, 7.779% 2013³		3,603			3,583
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 2014³		53,658			54,362
Delta Air Lines, Inc., Series 1992-A2, 9.20% 2014^3,6		7,498			7,652
Delta Air Lines, Inc. 10.375% 2022⁶		2,577			1,720
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 2024³		47,690			48,435
American Airlines, Inc., Series 1999-1, Class A-1, 6.855% 2010³		7,334			7,376
AMR Corp., Series B, 10.45% 2011		150			151
American Airlines, Inc., Series 2001-1, Class A-2, 6.817% 2012³		3,750			3,812
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 2012³		21,911			22,418
American Airlines, Inc., Series 2001-2, Class B, 8.608% 2012		18,165			19,312
AMR Corp. 9.00% 2012		5,800			6,141
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 2013³		39,130			42,774
American Airlines, Inc., Series 1991-C2, 9.73% 2014³		6,410			6,061
American Airlines, Inc., Series 2001-1, Class B, 7.377% 2019³		10,486			10,256
Northwest Airlines, Inc. 9.875% 2007⁶		6,000			5,820
Northwest Airlines, Inc. 10.00% 2009⁶		4,000			3,800
Northwest Airlines, Inc., Series 2001-1, Class A-2, 6.841% 2012³		9,955			9,949
Northwest Airlines, Inc., Term Loan B, 8.866% 2013^1,3		3,920			3,949
Northwest Airlines, Inc., Term Loan A, 7.116% 2018^1,3		75,150			75,150
Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023³		1,757			1,772
BAE Systems Holding Inc. 4.75% 2010²		10,350			10,080
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011^2,3		40,513			41,904
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013^2,3		41,961			43,961
Hutchison Whampoa International Ltd. 7.00% 2011²		24,300			25,776
Hutchison Whampoa International Ltd. 6.50% 2013²		59,200			62,050
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 2010³		12,271			12,355
United Air Lines, Inc., Series 2000-2, Class B, 7.811% 2011^3,6		7,335			8,160
UAL Corp., Term Loan B, 9.123% 2012^1,3		7,538			7,594
UAL Corp., Term Loan B, 9.123% 2012^1,3		1,078			1,086
United Air Lines, Inc., Series 2001-1, Class A-1, 6.071% 2014³		2,073			2,085
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 2015³		6,710			6,806
Burlington Northern and Santa Fe Railway Co. Pass Through Trust, Series 1996-B, 6.96% 2009³		1,314			1,334
Burlington Northern and Santa Fe Railway Co. Pass Through Trust, Series 2002-2, 5.14% 2021³		12,280			12,163
Burlington Northern and Santa Fe Railway Co. Pass Through Trust, Series 2002-1, 5.943% 2022³		6,264			6,454
BNSF Funding Trust I 6.613% 2055¹		13,600			13,559
John Deere Capital Corp., Series D, 4.375% 2008		15,000			14,829
John Deere Capital Corp. 5.40% 2011		17,750			17,806
Union Pacific Railroad Co. Pass Through Trust, Series 2001-1, 6.63% 2022³		7,586			8,188
Union Pacific Railroad Co. Pass Through Trust, Series 2002-1, 6.061% 2023³		11,029			11,489
Union Pacific Railroad Co. Pass Through Trust, Series 2003-1, 4.698% 2024³		2,913			2,779
NTK Holdings Inc. 0%/10.75% 2014⁵		15,118			10,658
THL Buildco, Inc. 8.50% 2014		10,650			10,490
Qantas Airways Ltd. 6.05% 2016²		23,660			21,094
Bombardier Inc. 6.30% 2014²		19,800			18,711
Allied Waste North America, Inc. 8.50% 2008		7,500			7,922
Allied Waste North America, Inc., Series B, 6.50% 2010		500			504
Allied Waste North America, Inc., Series B, 5.75% 2011		2,500			2,431
Allied Waste North America, Inc., Series B, 6.125% 2014		3,000			2,865
Allied Waste North America, Inc., Series B, 7.375% 2014		3,750			3,750
Nielsen Finance LLC, Term Loan B, 8.125% 2013^1,3		2,000			2,025
Nielsen Finance LLC and Nielsen Finance Co. 10.00% 2014²		7,100			7,730
Nielsen Finance LLC and Nielsen Finance Co. 0%/12.50% 2016^2,5		6,100			4,232
Caterpillar Financial Services Corp. 2.70% 2008		845			814
Caterpillar Inc. 4.50% 2009		9,690			9,535
Caterpillar Financial Services Corp. 4.30% 2010		2,400			2,333
Caterpillar Financial Services Corp., Series F, 5.125% 2011		500			497
Caterpillar Inc. 6.05% 2036		300			310
Tyco International Group SA 6.125% 2008		5,000			5,064
Tyco International Group SA 6.125% 2009		500			508
Tyco International Group SA 7.00% 2028		620			714
Tyco International Group SA 6.875% 2029		6,190			7,058
Embraer Overseas Ltd. 6.375% 2017²		10,825			10,852
Raytheon Co. 6.55% 2010		6,000			6,221
Raytheon Co. 8.30% 2010		3,000			3,259
Standard Aero Holdings, Inc. 8.25% 2014		9,050			9,186
USG Corp. 6.30% 2016²		9,000			8,937
Goodman Global Holdings, Inc., Series B, 7.875% 2012		8,795			8,685
Northrop Grumman Systems Corp. 7.125% 2011		8,000			8,541
DRS Technologies, Inc. 6.875% 2013		5,035			5,098
DRS Technologies, Inc. 6.625% 2016		475			481
DRS Technologies, Inc. 7.625% 2018		2,725			2,820
Ashtead Group PLC 8.625% 2015²		3,875			4,049
Ashtead Capital, Inc. 9.00% 2016²		4,000			4,300
DynCorp International and DIV Capital Corp., Series A, 9.50% 2013		7,530			8,019
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012		7,071			7,460
TFM, SA de CV 9.375% 2012		4,450			4,773
TFM, SA de CV 12.50% 2012		2,145			2,327
AIR 2 US, Series A, 8.027% 2020^2,3		6,409			6,477
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 2023^2,3		6,446			6,392
Lockheed Martin Corp. 6.15% 2036		6,000			6,326
Accuride Corp. 8.50% 2015		6,525			6,313
United Rentals (North America), Inc., Series B, 6.50% 2012		6,250			6,203
Waste Management, Inc. 6.50% 2008		5,220			5,320
Waste Management, Inc. 5.00% 2014		765			736
K&F Industries, Inc. 7.75% 2014		5,375			5,563
General Dynamics Corp. 4.50% 2010		5,000			4,898
RBS Global, Inc. and Rexnord Corp. 9.50% 2014²		1,775			1,855
RBS Global, Inc. and Rexnord Corp. 11.75% 2016²		1,750			1,838
Argo-Tech Corp. 9.25% 2011		3,395			3,684
Quebecor World Inc. 8.75% 2016²		3,755			3,614
Williams Scotsman, Inc. 8.50% 2015		2,900			3,041
RSC Equipment Rental, Second Lien Term Loan B, 8.87% 2013^1,3		2,875			2,904
CCMG Acquisition Corp. 10.50% 2016²		2,250			2,486
FTI Consulting, Inc. 7.625% 2013		2,300			2,386
TransDigm Inc. 7.75% 2014		2,300			2,381
ACIH, Inc. 0%/11.50% 2012^2,5		3,390			2,356
Mobile Storage Group, Inc. 9.75% 2014²		1,725			1,811
UCAR Finance Inc. 10.25% 2012		1,385			1,466
Esco Corp. 8.625% 2013²		1,100			1,136
Kansas City Southern Railway Co. 7.50% 2009		1,000			1,014
AGCO Corp. 6.875% 2014		€700			963
H&E Equipment Services, Inc. 8.375% 2016	$	900			947
Terex Corp. 9.25% 2011		375			393
					1,327,772

TELECOMMUNICATION SERVICES — 4.51%
US Unwired Inc., Series B, 10.00% 2012		4,400			4,862
Nextel Communications, Inc., Series E, 6.875% 2013		109,480			110,723
Nextel Communications, Inc., Series D, 7.375% 2015		98,705			101,312
Sprint Capital Corp. 6.875% 2028		10,000			10,038
SBC Communications Inc. 4.125% 2009		19,465			18,917
SBC Communications Inc. 6.25% 2011		1,150			1,188
AT&T Corp. 7.30% 2011¹		4,734			5,131
SBC Communications Inc. 5.875% 2012		38,460			39,278
SBC Communications Inc. 5.875% 2012		13,000			13,259
SBC Communications Inc. 5.10% 2014		22,745			22,119
SBC Communications Inc. 5.625% 2016		18,000			17,950
SBC Communications Inc. 6.45% 2034		11,175			11,377
AT&T Inc. 6.80% 2036		3,710			3,956
AT&T Wireless Services, Inc. 7.875% 2011		28,855			31,502
AT&T Wireless Services, Inc. 8.125% 2012		87,630			98,715
BellSouth Corp. 4.20% 2009		3,250			3,161
BellSouth Corp. 4.75% 2012		50,000			48,312
BellSouth Capital Funding Corp. 7.875% 2030		10,490			12,216
BellSouth Corp. 6.55% 2034		35,260			36,262
France Télécom 6.75% 2008¹		€3,500			4,757
France Télécom 7.75% 2011¹	$	85,050			92,725
Sogerim SA 7.25% 2011		€2,650			3,847
Telecom Italia SpA 6.25% 2012		8,990			12,564
Telecom Italia Capital SA, Series B, 5.25% 2013	$	16,050			15,325
Telecom Italia Capital SA 5.25% 2015		37,000			34,621
Telecom Italia Capital SA 7.20% 2036		17,000			17,816
Telefónica Emisiones, SAU 6.421% 2016		20,000			20,669
Telefónica Emisiones, SAU 7.045% 2036		29,000			30,902
Verizon Global Funding Corp. 6.125% 2007		3,625			3,635
Verizon Global Funding Corp. 7.375% 2012		7,360			8,056
Verizon Global Funding Corp. 4.90% 2015		14,251			13,615
Verizon Global Funding Corp. 7.75% 2030		11,576			13,618
Vodafone Group PLC 7.75% 2010		35,285			37,629
Deutsche Telekom International Finance BV 6.625% 2011		€1,200			1,726
Deutsche Telekom International Finance BV 8.125% 2012¹		4,420			6,809
Deutsche Telekom International Finance BV 8.25% 2030¹	$	20,000			24,658
Windstream Corp. 8.125% 2013²		18,875			20,527
Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. 7.75% 2015		6,090			6,585
Windstream Corp. 8.625% 2016²		3,300			3,630
Triton PCS, Inc. 8.75% 2011⁸		3,975			3,717
Triton PCS, Inc. 9.375% 2011⁸		10,000			9,450
Triton PCS, Inc. 8.50% 2013		17,825			17,157
Dobson Cellular Systems, Inc. 8.375% 2011²		3,600			3,812
Dobson Cellular Systems, Inc. 8.375% 2011		900			953
Dobson Communications Corp. 9.624% 2012¹		1,650			1,691
Dobson Cellular Systems, Inc. 9.875% 2012		13,300			14,563
Dobson Communications Corp. 8.875% 2013		8,975			9,188
Intelsat (Bermuda), Ltd. 10.484% 2012¹		4,950			5,018
Intelsat (Bermuda), Ltd. 8.25% 2013		6,725			6,859
Intelsat (Bermuda), Ltd. 8.625% 2015		4,000			4,180
Intelsat PanAmSat Opco 9.00% 2016²		3,550			3,776
Intelsat (Bermuda), Ltd. 9.25% 2016²		6,500			7,020
Intelsat (Bermuda), Ltd. 11.25% 2016²		2,400			2,646
Singapore Telecommunications Ltd. 6.375% 2011²		16,250			17,049
Singapore Telecommunications Ltd. 6.375% 2011		3,475			3,646
Embarq Corp. 6.738% 2013		20,000			20,497
PCCW-HKT Capital Ltd. 8.00% 2011^1,2		15,000			16,529
PCCW-HKT Capital No. 3 Ltd. 5.25% 2015²		3,600			3,408
U S WEST Capital Funding, Inc. 6.375% 2008		500			504
Qwest Capital Funding, Inc. 7.90% 2010		950			994
Qwest Communications International Inc. 7.25% 2011		6,000			6,165
Qwest Capital Funding, Inc. 7.25% 2011		4,150			4,259
Qwest Communications International Inc., Series B, 7.50% 2014		3,750			3,881
Qwest Capital Funding, Inc. 7.625% 2021		500			495
U S WEST Capital Funding, Inc. 6.875% 2028		3,250			2,986
American Tower Corp. 7.125% 2012		17,525			18,095
Centennial Cellular Corp. 10.75% 2008		327			329
Centennial Communications Corp. 11.122% 2013¹		7,500			7,969
Centennial Communications Corp., Centennial Cellular Operating Co. LLC and Centennial Puerto Rico
Operations Corp. 8.125% 2014¹		9,300			9,591
British Telecommunications PLC 7.125% 2011¹		€5,500			8,063
British Telecommunications PLC 8.625% 2020		£ 900			2,147
British Telecommunications PLC 5.75% 2028		1,800			3,384
British Telecommunications PLC 8.875% 2030	$	1,600			2,195
Hawaiian Telcom Communications, Inc. 9.75% 2013		6,790			6,841
Hawaiian Telcom Communications, Inc. 10.889% 2013¹		3,605			3,623
Hawaiian Telcom Communications, Inc., Series B, 12.50% 2015		3,050			3,210
Cricket Communications, Inc. 9.375% 2014²		10,375			10,997
Rogers Wireless Inc. 7.25% 2012		1,275			1,358
Rogers Wireless Inc. 7.50% 2015		6,925			7,548
Rogers Cantel Inc. 9.75% 2016		1,250			1,575
Cincinnati Bell Inc. 7.25% 2013		6,800			7,072
Rural Cellular Corp. 9.75% 2010		1,750			1,807
Rural Cellular Corp. 8.25% 2012		750			785
Rural Cellular Corp. 11.121% 2012¹		3,260			3,415
SK Telecom Co., Ltd. 4.25% 2011²		6,000			5,776
Telekom Austria AG 3.375% 2010		€4,200			5,395
NTELOS Inc., Term Loan B, 7.60% 2011^1,3	$	4,962			4,992
Millicom International Cellular SA 10.00% 2013		3,930			4,303
Koninklijke KPN NV 8.00% 2010		2,950			3,186
Level 3 Financing, Inc. 9.25% 2014²		2,500			2,562
América Móvil SA de CV 8.46% 2036		MXP27,000			2,551
Nordic Telephone Co. Holding ApS 8.875% 2016²	$	1,000			1,075
					1,264,279

UTILITIES — 2.61%
Abu Dhabi National Energy Co. PJSC (TAQA) 5.875% 2016²		37,475			37,810
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 2036²		28,500			29,494
PECO Energy Co., First and Refunding Mortgage Bonds, 3.50% 2008		5,000			4,883
Commonwealth Edison Co., First Mortgage Bonds, Series 102, 4.74% 2010		12,500			12,200
Commonwealth Edison Co., First Mortgage Bonds, Series 105, 5.40% 2011		9,000			8,938
Exelon Corp. 6.75% 2011		2,200			2,300
Exelon Generation Co., LLC 6.95% 2011		19,475			20,536
PECO Energy Co., First and Refunding Mortgage Bonds, 4.75% 2012		3,900			3,780
Commonwealth Edison Co., First Mortgage Bonds, Series 103, 5.90% 2036		4,000			3,907
Edison Mission Energy 7.73% 2009		4,625			4,810
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2005-A, 5.00% 2016		4,000			3,867
Edison Mission Energy 7.75% 2016		6,025			6,417
Midwest Generation, LLC, Series B, 8.56% 2016³		10,310			11,373
Homer City Funding LLC 8.734% 2026³		10,948			12,645
Midwest Generation, LLC and Midwest Finance Corp. 8.75% 2034		7,600			8,284
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2006-E, 5.55% 2037		3,500			3,357
MidAmerican Energy Holdings Co. 5.875% 2012		15,000			15,288
MidAmerican Energy Co. 5.125% 2013		7,500			7,401
MidAmerican Energy Co. 4.65% 2014		5,000			4,740
MidAmerican Energy Holdings Co. 6.125% 2036		17,750			17,954
NGG Finance PLC 6.125% 2011		€3,480			4,911
National Grid PLC 6.30% 2016	$	37,605			39,017
Consolidated Edison Co. of New York, Inc., Series 2003-A, 3.625% 2008		6,000			5,848
Consolidated Edison Co. of New York, Inc., Series B, 3.85% 2013		5,000			4,587
Consolidated Edison Co. of New York, Inc., Series 2006-C, 5.50% 2016		30,000			30,013
Consolidated Edison Co. of New York, Inc., Series 2003-C, 5.10% 2033		2,000			1,785
PSEG Power LLC 3.75% 2009		6,825			6,595
PSEG Power LLC 7.75% 2011		18,700			20,224
PSEG Power LLC 5.00% 2014		11,690			11,167
PacifiCorp, First Mortgage Bonds, 4.30% 2008		3,060			3,012
PacifiCorp, First Mortgage Bonds, 5.45% 2013		2,875			2,877
Scottish Power PLC 5.375% 2015		31,415			31,048
Ameren Corp. 4.263% 2007		2,500			2,487
Cilcorp Inc. 8.70% 2009		1,000			1,076
Union Electric Co. 5.25% 2012		1,490			1,452
Union Electric Co. 4.65% 2013		11,000			10,312
Union Electric Co. 5.40% 2016		5,750			5,604
Cilcorp Inc. 9.375% 2029		12,265			13,779
Israel Electric Corp. Ltd. 7.95% 2011²		10,000			10,835
Israel Electric Corp. Ltd. 7.70% 2018²		8,500			9,367
Israel Electric Corp. Ltd. 8.10% 2096²		12,000			13,294
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007		14,140			14,137
Dominion Resources, Inc., Series 2002-C, 5.70% 2012¹		1,000			1,013
Dominion Resources, Inc., Series 2002-B, 6.25% 2012		10,000			10,385
Virginia Electric and Power Co., Series 2003-A, 4.75% 2013		6,000			5,769
Ohio Power Co., Series J, 5.30% 2010		8,000			7,978
Ohio Power Co., Series H, 4.85% 2014		5,965			5,730
Appalachian Power Co., Series I, 4.95% 2015		1,000			950
Ohio Power Co., Series K, 6.00% 2016		15,000			15,430
Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% 2011		5,000			4,843
San Diego Gas & Electric Co., Series CCC, 5.30% 2015		10,000			9,948
San Diego Gas & Electric Co., Series DDD, 6.00% 2026		5,000			5,180
Niagara Mohawk Power Corp., Series G, 7.75% 2008		17,460			18,101
Progress Energy Florida, Inc., First Mortgage Bonds, 4.80% 2013		7,000			6,792
Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc., First Mortgage Bonds, 5.125% 2013		5,000			4,922
Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc. 5.25% 2015		6,000			5,910
SP PowerAssets Ltd. 3.80% 2008²		10,000			9,755
SP PowerAssets Ltd. 5.00% 2013²		8,000			7,869
Empresa Nacional de Electricidad SA, Series B, 8.50% 2009		4,455			4,733
Empresa Nacional de Electricidad SA 8.35% 2013		5,000			5,680
Empresa Nacional de Electricidad SA 8.625% 2015		3,000			3,537
AES Corp. 9.50% 2009		927			996
AES Corp. 9.375% 2010		4,803			5,241
AES Corp. 8.75% 2013²		1,000			1,076
AES Gener SA 7.50% 2014		5,000			5,305
Old Dominion Electric Cooperative, Series 2003-A, 5.676% 2028³		12,375			12,379
Oncor Electric Delivery Co. 6.375% 2012		10,700			11,027
Duke Energy Corp., First and Refunding Mortgage Bonds, 4.50% 2010		4,500			4,396
Duke Energy Corp., First and Refunding Mortgage Bonds, 5.30% 2015		5,000			4,961
Kern River Funding Corp. 4.893% 2018^2,3		9,240			8,990
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012		700			722
Nevada Power Co., General and Refunding Mortgage Notes, Series G, 9.00% 2013		2,811			3,050
Sierra Pacific Resources 8.625% 2014		900			971
Nevada Power Co., General and Refunding Mortgage Notes, Series L, 5.875% 2015		2,550			2,551
Nevada Power Co., General and Refunding Mortgage Notes, Series M, 5.95% 2016		1,000			1,003
Anglian Water Services Financing PLC 4.625% 2013		€6,120			8,182
Veolia Environnement 4.875% 2013		6,060			8,141
Energy East Corp. 6.75% 2012	$	7,155			7,513
Constellation Energy Group, Inc. 6.125% 2009		3,500			3,565
Baltimore Gas and Electric Co. 5.20% 2033		3,000			2,633
Pacific Gas and Electric Co., First Mortgage Bonds, 4.20% 2011		2,000			1,917
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034		4,000			4,048
NRG Energy, Inc. 7.25% 2014		1,500			1,515
NRG Energy, Inc. 7.375% 2016		3,700			3,728
Korea East-West Power Co., Ltd. 4.875% 2011²		5,000			4,905
Florida Power & Light Co. 4.85% 2013		5,000			4,899
FPL Energy National Wind, LLC 5.608% 2024^2,3		4,622			4,548
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 2018^2,3		3,500			3,538
Enersis SA 7.375% 2014		3,000			3,234
Centerpoint Energy Resources Corp., Series B, 7.875% 2013		2,000			2,222
Alabama Power Co., Series R, 4.70% 2010		2,250			2,204
Wisconsin Gas Co. 5.20% 2015		2,025			1,978
Mirant Americas Generation, Inc. 8.30% 2011		1,700			1,751
					731,125

ENERGY — 2.57%
Energy Transfer Partners, LP 5.65% 2012	$	28,270		$	28,184
Energy Transfer Partners, LP 5.95% 2015		72,670			73,198
Energy Transfer Partners, LP 6.125% 2017		9,800			9,955
Energy Transfer Partners, LP 6.625% 2036		2,650			2,738
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009^2,3		30,985			30,209
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009³		1,710			1,667
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014^2,3		15,570			17,410
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014³		1,000			1,118
Ras Laffan Liquefied Natural Gas II 5.298% 2020^2,3		45,970			44,148
Ras Laffan Liquefied Natural Gas III 5.838% 2027^2,3		15,000			14,452
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 2014^2,3		59,400			59,549
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 2014³		6,000			6,015
Enterprise Products Operating LP, Series B, 4.625% 2009		8,000			7,838
Enterprise Products Operating LP 4.95% 2010		8,000			7,871
Enterprise Products Operating LP 7.50% 2011		8,000			8,539
Enterprise Products Operating LP, Series B 6.375% 2013		17,000			17,488
Enterprise Products Partners LP 5.60% 2014		6,855			6,743
Enterprise Products Operating LP, Series B, 5.00% 2015		8,645			8,165
Enterprise Products Operating LP 6.875% 2033		2,000			2,095
Enterprise Products Operating LP 8.375% 2066¹		2,700			2,930
Pemex Finance Ltd. 8.875% 2010³		24,000			25,751
Pemex Project Funding Master Trust 5.75% 2015		10,000			9,942
Pemex Finance Ltd., Series 19990-2, Class A-3, 10.61% 2017³		11,700			15,092
Pemex Project Funding Master Trust 8.625% 2022		750			929
Kinder Morgan Energy Partners LP 6.75% 2011		2,500			2,604
Kinder Morgan Energy Partners LP 5.00% 2013		14,029			13,352
Kinder Morgan Energy Partners LP 5.125% 2014		28,552			27,236
Kinder Morgan Energy Partners LP 7.30% 2033		5,000			5,439
Qatar Petroleum 5.579% 2011^2,3		38,400			38,498
Nakilat Inc. 6.067% 2033^2,3		5,000			4,905
Petroleum Export Ltd., Class A-1, MBIA insured, 4.623% 2010^2,3		26,833			26,424
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 2010^2,3		5,056			4,979
Williams Companies, Inc. 6.375% 2010²		1,500			1,517
Williams Companies, Inc. 7.372% 2010^1,2		2,500			2,562
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011		300			310
Williams Companies, Inc. 7.125% 2011		500			523
Williams Partners LP 7.50% 2011²		5,725			5,997
Transcontinental Gas Pipe Line Corp. 6.40% 2016		200			203
Williams Partners LP 7.25% 2017²		1,675			1,717
Williams Companies, Inc. 7.875% 2021		3,025			3,259
Transcontinental Gas Pipe Line Corp. 7.25% 2026		1,750			1,813
Williams Companies, Inc. 8.75% 2032		5,080			5,766
Gulfstream Natural Gas 5.56% 2015²		5,000			4,940
Gulfstream Natural Gas 6.19% 2025²		12,235			12,329
Apache Corp. 6.25% 2012		16,000			16,632
Delek & Avner-Yam Tethys Ltd. 5.326% 2013^2,3		15,632			15,237
Sunoco, Inc. 4.875% 2014		14,830			13,906
Pogo Producing Co. 7.875% 2013		6,725			6,859
Pogo Producing Co. 6.625% 2015		300			287
Pogo Producing Co. 6.875% 2017		6,850			6,576
Reliance Industries Ltd. 10.25% 2097²		8,750			12,305
Drummond Co., Inc. 7.375% 2016²		9,600			9,456
Open Joint Stock Co. Gazprom 9.125% 2007		2,000			2,031
Gaz Capital SA 5.875% 2015		€5,125			7,134
Newfield Exploration Co. 7.625% 2011	$	3,000			3,157
Newfield Exploration Co. 6.625% 2014		2,000			2,010
Newfield Exploration Co. 6.625% 2016		3,775			3,775
El Paso Corp. 6.375% 2009		750			761
El Paso Corp. 7.75% 2010		250			266
El Paso Energy Corp. 7.375% 2012		1,745			1,845
El Paso Corp. 7.875% 2012		875			943
El Paso Corp. 7.75% 2032		4,000			4,400
OPTI Canada Inc. 8.25% 2014²		5,975			6,169
Teekay Shipping Corp. 8.875% 2011		5,625			6,068
Devon Financing Corp., ULC 6.875% 2011		4,500			4,763
American Commercial Lines LLC and ACL Finance Corp. 9.50% 2015		3,928			4,385
XTO Energy Inc. 5.65% 2016		4,250			4,209
Encore Acquisition Co. 6.00% 2015		4,450			4,083
OXYMAR 7.50% 2016^2,3		3,077			3,258
Premcor Refining Group Inc. 9.50% 2013		2,750			2,971
PETRONAS Capital Ltd. 7.00% 2012²		2,250			2,430
Sabine Pass LNG, L.P. 7.25% 2013²		2,000			1,992
International Coal Group, Inc. 10.25% 2014		1,500			1,507
Overseas Shipholding Group, Inc. 8.25% 2013		1,400			1,479
Peabody Energy Corp., Series B, 6.875% 2013		1,200			1,236
Ultrapetrol (Bahamas) Ltd., First Preferred Ship Mortgage Notes, 9.00% 2014		1,265			1,235
Petrozuata Finance, Inc., Series B, 8.22% 2017^2,3		250			251
					720,015

MATERIALS — 1.59%
Stora Enso Oyj 5.125% 2014		€4,250			5,725
Stora Enso Oyj 6.404% 2016²	$	30,040			30,862
Stora Enso Oyj 7.25% 2036²		29,715			31,243
Norske Skogindustrier ASA 7.625% 2011²		29,630			31,245
Norske Skogindustrier ASA 7.125% 2033²		16,335			15,468
UPM-Kymmene Corp. 5.625% 2014²		41,790			40,728
C5 Capital (SPV) Ltd. 6.196% (undated)^1,2		15,000			14,979
C10 Capital (SPV) Ltd. 6.722% (undated)^1,2		18,695			18,731
JSG Funding PLC 7.75% 2015		€2,000			2,678
JSG Funding PLC 7.75% 2015	$	2,500			2,413
JSG Holdings PLC 11.50% 2015⁷		€10,321			13,842
Weyerhaeuser Co. 5.95% 2008	$	3,000			3,025
Weyerhaeuser Co. 7.375% 2032		12,500			13,086
Scotia Pacific Co. LLC, Series B, Class A-2, 7.11% 2028³		21,160			15,883
Dow Chemical Co. 5.75% 2008		11,100			11,193
Dow Chemical Co. 6.00% 2012		2,400			2,469
Jefferson Smurfit Corp. (U.S.) 8.25% 2012		10,775			10,559
Stone Container Corp. 8.375% 2012		1,675			1,650
Jefferson Smurfit Corp. (U.S.) 7.50% 2013		250			236
Owens-Illinois, Inc. 8.10% 2007		3,130			3,153
Owens-Illinois, Inc. 7.35% 2008		5,250			5,309
Owens-Brockway Glass Container Inc. 8.875% 2009		1,319			1,355
Owens-Illinois, Inc. 7.50% 2010		2,250			2,270
BHP Finance (USA) Ltd. 8.50% 2012		10,000			11,558
Associated Materials Inc. 9.75% 2012		9,765			10,107
AMH Holdings, Inc. 0%/11.25% 2014⁵		2,000			1,360
Georgia Gulf Corp. 9.50% 2014²		8,300			8,134
Georgia Gulf Corp. 10.75% 2016²		3,175			3,064
Building Materials Corp. of America, Series B, 8.00% 2007		1,000			1,019
Building Materials Corp. of America 8.00% 2008		1,975			2,069
Building Materials Corp. of America 7.75% 2014		8,900			8,099
Abitibi-Consolidated Co. of Canada 6.00% 2013		1,310			1,055
Abitibi-Consolidated Co. of Canada 8.375% 2015		9,515			8,278
Equistar Chemicals, LP 10.125% 2008		6,100			6,512
Lyondell Chemical Co. 8.25% 2016		2,400			2,532
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014		9,150			8,898
Nalco Co. 7.75% 2011		775			796
Nalco Co. 8.875% 2013		6,200			6,595
Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. 0%/9.00% 2014⁵		1,654			1,348
International Paper Co. 5.85% 2012		8,463			8,647
Graphic Packaging International, Inc. 8.50% 2011		3,325			3,458
Graphic Packaging International, Inc. 9.50% 2013		4,000			4,240
Plastipak Holdings, Inc. 8.50% 2015²		6,965			7,278
Momentive Performance Materials Inc. 9.75% 2014²		4,750			4,774
Momentive Performance Materials Inc. 11.50% 2016²		2,000			1,970
Praxair, Inc. 2.75% 2008		5,000			4,829
FMG Finance Pty Ltd. 10.625% 2016²		4,100			4,418
Domtar Inc. 7.125% 2015		4,475			4,408
Rhodia 10.25% 2010		97			111
Rhodia 8.875% 2011		549			582
Rhodia SA 9.25% 2011		€2,511			3,522
Ainsworth Lumber Co. Ltd. 7.25% 2012	$	700			555
Ainsworth Lumber Co. Ltd. 6.75% 2014		2,750			2,104
Ainsworth Lumber Co. Ltd. 6.75% 2014		1,750			1,312
AEP Industries Inc. 7.875% 2013		3,775			3,832
Georgia-Pacific Corp., First Lien Term Loan B, 7.353% 2012^1,3		3,469			3,495
Arbermarle Corp. 5.10% 2015		3,656			3,473
Chemtura Corp. 6.875% 2016		3,025			2,927
Mosaic Co. 7.375% 2014²		2,450			2,527
Mosaic Co. 7.625% 2016²		225			234
Rockwood Specialties Group, Inc. 10.625% 2011		218			233
Rockwood Specialties Group, Inc. 7.50% 2014		1,675			1,696
Rockwood Specialties Group, Inc. 7.625% 2014		€500			704
Crystal US Holdings 3 LLC and Crystal US Sub 3 Corp., Series B, 0%/10.50% 2014⁵	$	1,928			1,668
BCP Caylux Holdings Luxembourg SCA 9.625% 2014		735			816
ICI Wilmington, Inc. 4.375% 2008		200			196
ICI Wilmington, Inc. 5.625% 2013		2,000			1,978
E.I. du Pont de Nemours and Co. 4.125% 2010		2,000			1,942
Covalence Specialty Materials Corp. 10.25% 2016²		1,750			1,610
Vale Overseas Ltd. 6.25% 2017		1,500			1,514
Packaging Corp. of America 4.375% 2008		1,500			1,473
Neenah Paper, Inc. 7.375% 2014		1,250			1,200
Foundation PA Coal Co. 7.25% 2014		975			997
Potash Corp. of Saskatchewan Inc. 5.875% 2036		1,000			968
Airgas, Inc. 6.25% 2014		550			533
Ispat Inland ULC 9.75% 2014		206			231
					445,981

HEALTH CARE — 1.27%
Cardinal Health, Inc. 6.25% 2008		3,000			3,035
Cardinal Health, Inc. 5.64% 2009^1,2		3,500			3,504
Cardinal Health, Inc. 6.75% 2011		12,625			13,238
Cardinal Health, Inc. 5.80% 2016²		10,000			9,995
Cardinal Health, Inc. 5.85% 2017		12,000			11,956
Allegiance Corp. 7.00% 2026		9,260			9,926
Humana Inc. 6.45% 2016		25,375			26,121
Humana Inc. 6.30% 2018		17,000			17,159
UnitedHealth Group Inc. 5.20% 2007		8,000			7,999
UnitedHealth Group Inc. 3.30% 2008		4,000			3,913
UnitedHealth Group Inc. 4.125% 2009		14,335			13,923
UnitedHealth Group Inc. 5.25% 2011		3,165			3,157
UnitedHealth Group Inc. 5.375% 2016		10,000			9,921
Wyeth 4.375% 2008¹		7,195			7,121
Wyeth 5.50% 2016		21,165			21,231
HCA Inc., Term Loan B, 8.114% 2013^1,3		19,325			19,615
HCA Inc. 9.125% 2014²		1,570			1,682
HCA Inc. 9.25% 2016²		2,180			2,341
HCA Inc. 9.625% 2016^2,7		2,280			2,457
Aetna Inc. 5.75% 2011		24,000			24,389
Amgen Inc. 4.00% 2009		24,000			23,300
Boston Scientific Corp. 6.00% 2011		1,700			1,717
Boston Scientific Corp. 6.40% 2016		17,675			17,918
WellPoint, Inc. 5.00% 2011		6,500			6,426
WellPoint, Inc. 5.25% 2016		6,455			6,339
HealthSouth Corp. 11.354% 2014^1,2		4,550			4,869
HealthSouth Corp. 10.75% 2016²		6,600			7,136
Hospira, Inc. 4.95% 2009		7,391			7,250
Hospira, Inc. 5.90% 2014		4,100			3,989
Tenet Healthcare Corp. 7.375% 2013		2,375			2,194
Tenet Healthcare Corp. 9.875% 2014		2,830			2,894
Tenet Healthcare Corp. 9.25% 2015		5,500			5,529
Accellent Inc. 10.50% 2013		9,450			9,852
Bristol-Myers Squibb Co. 4.00% 2008		10,000			9,804
Warner Chilcott Corp. 8.75% 2015		9,455			9,739
Universal Health Services, Inc. 7.125% 2016		7,440			7,784
Concentra Operating Corp. 9.50% 2010		3,020			3,186
Concentra Operating Corp. 9.125% 2012		3,835			4,046
Team Finance LLC and Health Finance Corp. 11.25% 2013		3,450			3,588
AMR HoldCo, Inc. and EmCare HoldCo, Inc. 10.00% 2015		2,000			2,175
Mylan Laboratories Inc. 5.75% 2010		2,025			2,030
Elan Corp., PLC 8.875% 2013²		1,300			1,306
Angiotech Pharmaceuticals, Inc. 9.12% 2013^1,2		1,000			1,017
					356,771

INFORMATION TECHNOLOGY — 0.93%
Electronic Data Systems Corp., Series B, 6.50% 2013¹		55,575			56,023
Electronic Data Systems Corp. 7.45% 2029		13,190			14,475
Cisco Systems, Inc. 5.25% 2011		45,750			45,907
Freescale Semiconductor, Inc., Term Loan B, 7.37% 2013^1,3		25,000			25,110
Firestone Acquisition Corp. 8.875% 2014²		850			851
Sanmina-SCI Corp., Term Loan B, 7.938% 2008^1,3		4,250			4,266
Sanmina-SCI Corp. 8.125% 2016		13,850			13,469
Hughes Communications, Inc. 9.50% 2014		15,425			16,177
Celestica Inc. 7.875% 2011		11,730			11,671
Celestica Inc. 7.625% 2013		4,170			4,087
NXP BV and NXP Funding LLC 8.118% 2013^1,2		500			510
NXP BV and NXP Funding LLC 7.875% 2014²		3,750			3,895
NXP BV and NXP Funding LLC 9.50% 2015²		9,950			10,248
SunGard Data Systems Inc. 9.125% 2013		8,175			8,625
SunGard Data Systems Inc. 10.25% 2015		2,000			2,145
Hyundai Semiconductor America, Inc. 8.625% 2007²		10,150			10,184
Sensata Technologies BV 8.25% 2014^1,2		8,575			8,275
Serena Software, Inc. 10.375% 2016		4,647			4,955
Jabil Circuit, Inc. 5.875% 2010		4,750			4,720
Solectron Global Finance, LTD 8.00% 2016		4,000			4,070
Motorola, Inc. 8.00% 2011		2,750			3,046
Nortel Networks Ltd. 9.624% 2011^1,2		2,500			2,647
Sabre Holdings Corp. 6.35% 2016		2,875			2,574
Iron Mountain Inc. 7.75% 2015		2,010			2,060
Exodus Communications, Inc. 11.625% 2010^6,8		1,132			0
					259,990

CONSUMER STAPLES — 0.68%
CVS Corp. 5.298% 2027^2,3		4,548			4,316
CVS Corp. 6.036% 2028^2,3		46,825			46,773
Tyson Foods, Inc. 6.85% 2016¹		43,750			45,142
SUPERVALU INC., Term Loan B, 7.10% 2012^1,3		6,219			6,250
SUPERVALU INC. 7.50% 2012		365			378
Albertson’s, Inc. 7.25% 2013		3,525			3,603
Albertson’s, Inc. 8.00% 2031		4,000			4,077
Dole Food Co., Inc. 7.25% 2010		2,175			2,083
Dole Food Co., Inc. 8.875% 2011		8,935			8,846
Diageo Capital PLC 3.50% 2007		5,000			4,925
Diageo Capital PLC 4.375% 2010		2,395			2,331
Grand Metropolitan Investment Corp. 7.45% 2035		2,290			2,711
Rite Aid Corp. 6.125% 2008²		2,750			2,726
Rite Aid Corp. 9.50% 2011		4,500			4,731
Rite Aid Corp. 7.50% 2015		1,000			995
Vitamin Shoppe 12.874% 2012¹		7,490			7,864
Petro Stopping Centers, LP and Petro Financial Corp. 9.00% 2012		6,560			6,822
Jean Coutu Group (PJC) Inc. 7.625% 2012		800			846
Jean Coutu Group (PJC) Inc. 8.50% 2014		5,735			5,800
Nabisco, Inc. 7.05% 2007		6,500			6,559
Stater Bros. Holdings Inc. 8.86% 2010¹		475			483
Stater Bros. Holdings Inc. 8.125% 2012		5,585			5,697
Cadbury Schweppes Investments PLC, Series 41, 4.25% 2009		€4,250			5,591
Spectrum Brands, Inc. 7.375% 2015	$	3,500			3,045
Kellogg Co. 7.45% 2031		2,310			2,767
Elizabeth Arden, Inc. 7.75% 2014		1,780			1,802
Smithfield Foods, Inc., Series A, 8.00% 2009		1,000			1,050
Winn-Dixie Pass Through Trust, Series 1999-1, Class A-1, 7.803% 2017^2,3,6,8		1,232			925
					189,138

MORTGAGE-BACKED OBLIGATIONS³— 20.37%
Fannie Mae 7.00% 2009		47			48
Fannie Mae 7.50% 2009		102			103
Fannie Mae 7.50% 2009		98			100
Fannie Mae 7.50% 2009		23			24
Fannie Mae 7.50% 2009		15			15
Fannie Mae 7.50% 2009		14			14
Fannie Mae 7.50% 2009		8			8
Fannie Mae 8.50% 2009		40			40
Fannie Mae 9.50% 2009		20			21
Fannie Mae 7.00% 2010		43			43
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010		57,100			61,213
Fannie Mae, Series 2001-T6B, 6.088% 2011		48,000			49,942
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012		46,225			44,775
Fannie Mae 4.89% 2012		25,000			24,600
Fannie Mae 4.00% 2015		28,809			27,527
Fannie Mae 7.00% 2016		251			257
Fannie Mae 11.50% 2016		557			623
Fannie Mae, Series 2002-15, Class PG, 6.00% 2017		12,425			12,560
Fannie Mae 5.00% 2018		22,784			22,473
Fannie Mae 5.00% 2018		16,159			15,938
Fannie Mae 5.00% 2018		8,837			8,716
Fannie Mae 5.50% 2018		2,857			2,864
Fannie Mae, Series 2003-35, Class FY, 5.75% 2018¹		17,206			17,322
Fannie Mae 9.00% 2018		41			44
Fannie Mae 10.00% 2018		387			430
Fannie Mae 5.50% 2019		29,785			29,853
Fannie Mae 5.50% 2019		11,655			11,669
Fannie Mae 12.00% 2019		477			541
Fannie Mae 4.50% 2020		6,886			6,642
Fannie Mae, Series 90-93, Class G, 5.50% 2020		38			38
Fannie Mae 11.00% 2020		179			200
Fannie Mae 11.249% 2020¹		459			520
Fannie Mae 6.00% 2021		10,842			10,994
Fannie Mae 9.00% 2022		109			115
Fannie Mae 7.50% 2023		127			132
Fannie Mae, Series 2001-4, Class GA, 10.269% 2025¹		817			904
Fannie Mae, Series 2001-4, Class NA, 11.905% 2025¹		4,083			4,536
Fannie Mae 6.157% 2026¹		644			652
Fannie Mae 7.00% 2026		1,506			1,561
Fannie Mae 8.50% 2027		17			18
Fannie Mae, Series 1998-W5, Class B3, 6.50% 2028		2,562			2,494
Fannie Mae 7.00% 2028		879			911
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028		5,481			5,683
Fannie Mae 6.50% 2029		282			285
Fannie Mae, Series 2002-W7, Class A-5, 7.50% 2029		910			949
Fannie Mae 7.50% 2029		72			75
Fannie Mae 7.50% 2029		68			70
Fannie Mae 7.00% 2030		199			207
Fannie Mae 7.50% 2030		203			210
Fannie Mae, Series 2001-25, Class ZA, 6.50% 2031		8,023			8,221
Fannie Mae 7.00% 2031		339			350
Fannie Mae 7.50% 2031		532			551
Fannie Mae 7.50% 2031		62			64
Fannie Mae, Series 2001-20, Class E, 9.611% 2031¹		147			159
Fannie Mae, Series 2001-20, Class C, 12.046% 2031¹		182			203
Fannie Mae 7.00% 2032		255			263
Fannie Mae 3.74% 2033¹		3,246			3,193
Fannie Mae 5.50% 2033		71,852			71,201
Fannie Mae 4.476% 2035¹		4,056			3,990
Fannie Mae 4.569% 2035¹		19,058			18,781
Fannie Mae 5.00% 2035		36,288			35,039
Fannie Mae 5.00% 2035		9,051			8,742
Fannie Mae 5.50% 2035		79,710			78,888
Fannie Mae 5.50% 2035		8,453			8,362
Fannie Mae, Series 2005-68, Class PG, 5.50% 2035		6,859			6,802
Fannie Mae 6.50% 2035		15,216			15,559
Fannie Mae, Series 2006-51, Class PO, principal only, 0% 2036		11,196			8,428
Fannie Mae, Series 2006-32, Class OA, principal only, 0% 2036		9,772			7,056
Fannie Mae, Series 2006-96, Class OP, principal only, 0% 2036		2,266			1,664
Fannie Mae 5.50% 2036		79,036			78,123
Fannie Mae 5.50% 2036		66,188			65,433
Fannie Mae 5.50% 2036		65,906			65,144
Fannie Mae 5.50% 2036		43,262			42,768
Fannie Mae 5.50% 2036		31,708			31,346
Fannie Mae 5.50% 2036		522			516
Fannie Mae 5.50% 2036		46			45
Fannie Mae, Series 2006-96, Class FD, 5.85% 2036¹		1,809			1,825
Fannie Mae 6.00% 2036		50,000			50,344
Fannie Mae, Series 2006-106, Class HG, 6.00% 2036		27,259			27,585
Fannie Mae, Series 2006-43, Class PX, 6.00% 2036		24,560			24,830
Fannie Mae 6.00% 2036		16,356			16,479
Fannie Mae 6.00% 2036		4,228			4,257
Fannie Mae 6.50% 2036		13,189			13,513
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041		8,563			8,802
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		2,669			2,740
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042		6,087			6,316
Freddie Mac 8.25% 2007		15			15
Freddie Mac 8.25% 2007		3			3
Freddie Mac 8.50% 2007		2			2
Freddie Mac 8.00% 2008		1			1
Freddie Mac 8.50% 2008		9			9
Freddie Mac 8.50% 2008		8			8
Freddie Mac 8.50% 2008		2			2
Freddie Mac 8.50% 2008		1			1
Freddie Mac 8.75% 2008		28			28
Freddie Mac 8.75% 2008		10			10
Freddie Mac 8.75% 2008		5			5
Freddie Mac 8.75% 2008		4			4
Freddie Mac 8.00% 2009		3			3
Freddie Mac 8.50% 2009		66			67
Freddie Mac 8.50% 2010		80			82
Freddie Mac 8.50% 2010		19			19
Freddie Mac 4.00% 2015		39,483			37,333
Freddie Mac 6.00% 2017		646			656
Freddie Mac, Series 2310, Class A, 10.518% 2017¹		818			881
Freddie Mac 5.00% 2018		21,648			21,322
Freddie Mac 11.00% 2018		100			111
Freddie Mac 8.50% 2020		215			230
Freddie Mac 8.50% 2020		68			73
Freddie Mac, Series 41, Class F, 10.00% 2020		147			147
Freddie Mac, Series 178, Class Z, 9.25% 2021		110			117
Freddie Mac, Series 1617, Class PM, 6.50% 2023		2,750			2,825
Freddie Mac 8.00% 2026		127			135
Freddie Mac 8.50% 2027		28			31
Freddie Mac 4.50% 2035		27,857			26,097
Freddie Mac 4.646% 2035¹		24,153			23,748
Freddie Mac 4.789% 2035¹		12,425			12,252
Freddie Mac 5.00% 2035		45,807			44,224
Freddie Mac, Series 3061, Class PN, 5.50% 2035		59,206			59,308
Freddie Mac 5.50% 2035		22,522			22,276
Freddie Mac 5.50% 2035		22,366			22,121
Freddie Mac, Series 3136, Class OP, principal only, 0% 2036		9,750			7,327
Freddie Mac, Series 3149, Class AO, principal only, 0% 2036		6,301			4,846
Freddie Mac, Series 3147, Class OD, principal only, 0% 2036		6,309			4,677
Freddie Mac, Series 3149, Class MO, principal only, 0% 2036		6,309			4,662
Freddie Mac, Series 3257, Class PA, 5.50% 2036		57,275			56,975
Freddie Mac 5.50% 2036		39,229			38,800
Freddie Mac 6.00% 2036		308,540			310,805
Freddie Mac, Series 3233, Class PA, 6.00% 2036		49,748			50,464
Freddie Mac, Series 3156, Class NG, 6.00% 2036		16,947			17,281
CS First Boston Mortgage Securities Corp., Series 2003-23, Class II-A-8, 4.50% 2018		14,684			14,086
CS First Boston Mortgage Securities Corp., Series 2003-27, Class VI-A-1, 5.00% 2018		11,756			11,486
CS First Boston Mortgage Securities Corp., Series 2003-23, Class VII-A-1, 5.00% 2018		5,906			5,772
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032		1,150			1,153
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032		118			119
CS First Boston Mortgage Securities Corp., Series 2003-AR12, Class II-A-2, 4.326% 2033¹		849			840
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033		6,562			6,619
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033		1,737			1,770
CS First Boston Mortgage Securities Corp., Series 2004-AR5, Class VII-A-2, 4.604% 2034¹		18,713			18,466
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034		10,448			10,416
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034		5,897			5,924
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-4, 6.505% 2034		460			479
CS First Boston Mortgage Securities Corp., Series 2002-CP5, Class A-1, 4.106% 2035		1,518			1,483
CS First Boston Mortgage Securities Corp., Series 2005-6, Class VI-A-1, 6.00% 2035		17,881			17,895
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035		6,899			6,939
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035		67,122			69,423
CS First Boston Mortgage Securities Corp., Series 2002-CKP1, Class F, 7.067% 2035²		1,500			1,611
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 2036²		32,621			22,521
CS First Boston Mortgage Securities Corp., Series 2006-7, Class 6-A-3, 5.50% 2036		32,353			31,959
CS First Boston Mortgage Securities Corp., Series 2006-2, Class 5-A-6, 6.00% 2036		33,750			33,724
CS First Boston Mortgage Securities Corp., Series 2002-CKS4, Class G, 6.006% 2036²		500			509
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036		26,650			27,803
CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-1A, 3.883% 2037		7,548			7,400
CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-2, 4.183% 2037		16,000			15,521
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-2, 4.512% 2037		1,000			977
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-AB, 4.614% 2037		20,000			19,320
CS First Boston Mortgage Securities Corp., Series 2004-C1, Class E, 5.015% 2037²		5,000			4,856
CS First Boston Mortgage Securities Corp., Series 2005-C4, Class A-2, 5.017% 2038		10,000			9,916
CS First Boston Mortgage Securities Corp., Series 2005-C5, Class A-AB, 5.10% 2038		12,000			11,853
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039		20,600			19,761
CS First Boston Mortgage Securities Corp., Series 2006-C1, Class A-3, 5.711% 2039		14,000			14,228
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 2040		42,000			41,690
CS First Boston Mortgage Securities Corp., Series 1999-C1, Class D, 7.791% 2041¹		5,725			6,122
Countrywide Alternative Loan Trust, Series 2004-5CB, Class 2-A-1, 5.00% 2019		10,155			9,956
Countrywide Alternative Loan Trust, Series 2006-J3, Class 2-A-1, 4.75% 2020		12,963			12,721
Countrywide Alternative Loan Trust, Series 2005-J8, Class 2-A-1, 5.00% 2020		17,406			17,006
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 7-A-1, 5.00% 2020		4,211			4,099
Countrywide Alternative Loan Trust, Series 2005-9CB, Class 2-A-1, 6.00% 2020		7,397			7,401
Countrywide Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50% 2035		87,742			87,613
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035		54,980			54,932
Countrywide Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50% 2035		34,308			34,018
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035		21,086			20,724
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-9, 5.50% 2035		14,256			14,222
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75% 2035		2,948			2,914
Countrywide Alternative Loan Trust, Series 2005-62, Class 2-A-1, 5.758% 2035¹		25,614			25,640
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035		33,008			32,893
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035		16,196			16,286
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 6-A-1, 6.00% 2035		1,203			1,199
Countrywide Alternative Loan Trust, Series 2006-16CB, Class A-2, 6.00% 2036		32,193			32,146
Countrywide Alternative Loan Trust, Series 2006-24CB, Class A-1, 6.00% 2036		25,628			25,618
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C2, Class F, 5.98% 2034²		2,500			2,549
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C3, Class A-1, 4.20% 2035		1,292			1,259
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC11, Class A-2, 5.016% 2037		11,232			11,141
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-3B, 5.333% 2037¹		45,000			45,218
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C1, Class E, 6.135% 2037²		400			413
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039		15,439			14,979
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C3, Class A-3, 4.545% 2042		21,000			20,328
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP2, Class A-2, 4.575% 2042		20,058			19,618
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042		10,508			10,355
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-3A1, 4.871% 2042		25,000			24,591
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP5, Class A-2, 5.198% 2044		10,080			10,065
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046		91,455			89,923
Bear Stearns Commercial Mortgage Securities Inc., Series 1998-C1, Class A-1, 6.34% 2030		1,361			1,364
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-WF2, Class X, interest only, 0.221% 2031¹		217,104			2,460
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X, interest only, 1.008% 2031^1,2		144,478			3,754
Bear Stearns Commercial Mortgage Securities Inc., Series 2000-WF2, Class A-2, 7.32% 2032		16,480			17,512
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		20,785			20,302
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class D, 6.94% 2035²		3,000			3,176
Bear Stearns Commercial Mortgage Securities Inc., Series 2004-PWR6, Class A-1, 3.688% 2041		2,752			2,705
Bear Stearns Commercial Mortgage Securities Inc., Series 2004-PWR6, Class A-4, 4.521% 2041		10,000			9,665
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-2, 4.735% 2042		64,000			63,047
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-3, 4.868% 2042		38,825			37,867
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S12, Class 1-A-1, 4.50% 2018		10,294			9,872
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S6, Class II-A-3, 4.75% 2018		1,370			1,326
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-CB2, Class VII-A, 5.50% 2019		1,652			1,649
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR7, Class A-7, 3.842% 2033¹		28,470			27,823
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03% 2033¹		6,190			6,122
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR5, Class A-7, 4.208% 2033¹		5,470			5,419
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1, 4.337% 2033¹		14,288			14,112
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.564% 2034¹		31,620			31,117
WaMu Mortgage Pass-Through Certificates Trust, Series 2006-AR2, Class 2-A1, 5.843% 2037¹		28,652			28,509
WaMu Mortgage Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A, 5.61% 2045¹		17,730			17,800
Residential Accredit Loans, Inc., Series 2003-QS16, Class A-1, 5.00% 2018		18,879			18,424
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019		6,225			6,080
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034		11,816			11,728
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		39,775			39,861
Residential Accredit Loans, Inc., Series 2004-QS12, Class M-1, 6.00% 2034		2,419			2,375
Residential Accredit Loans, Inc., Series 2005-QS4, Class A-3, 5.50% 2035		37,600			37,114
Residential Accredit Loans, Inc., Series 2005-QS9, Class A-6, 5.50% 2035		1,000			962
Residential Accredit Loans, Inc., Series 2005-QS5, Class A-5, 5.75% 2035		3,000			2,942
Residential Accredit Loans, Inc., Series 2006-QS10, Class I-A, 6.00% 2035		11,142			11,147
Residential Accredit Loans, Inc., Series 2006-QS1, Class A-3, 5.75% 2036		8,400			8,412
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 2035²		33,000			33,141
SBA CMBS Trust, Series 2005-1, Class B, 5.565% 2035²		3,300			3,324
SBA CMBS Trust, Series 2005-1, Class E, 6.706% 2035²		7,460			7,632
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 2036²		48,500			48,614
SBA CMBS Trust, Series 2006-1A, Class B, 5.451% 2036²		7,680			7,704
SBA CMBS Trust, Series 2006-1A, Class D, 5.852% 2036²		3,200			3,206
SBA CMBS Trust, Series 2006-1A, Class F, 6.709% 2036²		375			375
SBA CMBS Trust, Series 2006-1A, Class G, 6.904% 2036²		3,375			3,375
SBA CMBS Trust, Series 2006-1A, Class H, 7.389% 2036²		3,375			3,375
SBA CMBS Trust, Series 2006-1A, Class J, 7.825% 2036²		2,375			2,376
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 2035²		36,000			35,297
Crown Castle Towers LLC, Series 2005-1, Class C, 5.074% 2035²		43,000			42,469
Crown Castle Towers LLC, Series 2006-1, Class E, 6.065% 2036²		19,000			18,988
Crown Castle Towers LLC, Series 2006-1, Class F, 6.650% 2036²		7,150			7,132
Crown Castle Towers LLC, Series 2006-1, Class G, 6.795% 2036²		1,400			1,397
Structured Adjustable Rate Mortgage Loan Trust, Series 2005-22, Class 5-A-1, 6.023% 2035¹		27,195			27,270
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 4-A-1, 5.961% 2036¹		16,452			16,493
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.963% 2036¹		49,601			49,726
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-2, Class 5-A-1, 6.00% 2036¹		8,969			8,986
Bear Stearns ARM Trust, Series 2003-6, Class I-A-2, 3.969% 2033¹		24,939			24,530
Bear Stearns ARM Trust, Series 2003-3, Class II-A-2, 4.043% 2033¹		5,188			5,125
Bear Stearns ARM Trust, Series 2003-3, Class III-A-1, 5.114% 2033¹		5,471			5,428
Bear Stearns ARM Trust, Series 2004-3, Class II-A, 4.232% 2034¹		13,839			13,548
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.97% 2034¹		2,381			2,349
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 2035¹		51,800			50,541
Wells Fargo Mortgage-backed Securities Trust, Series 2004-7, Class I-A-1, 4.50% 2019		3,930			3,768
Wells Fargo Mortgage-backed Securities Trust, Series 2004-2, Class A-1, 5.00% 2019		6,863			6,704
Wells Fargo Mortgage-backed Securities Trust, Series 2003-3, Class II-A-1, 5.25% 2033		22,224			21,901
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1, 5.697% 2036		67,558			67,493
CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1, 3.467% 2033¹		3,810			3,748
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.688% 2033¹		8,070			7,974
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.629% 2034¹		9,891			9,756
CHL Mortgage Pass-Through Trust, Series 2004-HYB6, Class A-3, 5.129% 2034¹		4,063			4,054
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.675% 2035¹		71,974			71,425
Wachovia Bank Commercial Mortgage Trust, Series 2003-C9, Class A-2, 3.958% 2035		4,200			4,094
Wachovia Bank Commercial Mortgage Trust, Series 2003-C9, Class A-3, 4.608% 2035		1,979			1,931
Wachovia Bank Commercial Mortgage Trust, Series 2004-C14, Class A-2, 4.368% 2041		1,530			1,492
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042		24,000			23,686
Wachovia Bank Commercial Mortgage Trust, Series 2005-C18, Class A-PB, 4.807% 2042		3,000			2,923
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 2042		35,000			34,392
Wachovia Bank Commercial Mortgage Trust, Series 2006-C22, Class A-PB, 5.446% 2044		8,038			8,032
Wachovia Bank Commercial Mortgage Trust, Series 2006-C23, Class A-PB, 5.446% 2045		16,750			16,862
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		53,475			55,541
Banc of America Commercial Mortgage Inc., Series 2003-2, Class A-2, 4.342% 2041		13,875			13,575
Banc of America Commercial Mortgage Inc., Series 2004-5, Class A-3, 4.561% 2041		9,975			9,679
Banc of America Commercial Mortgage Inc., Series 2004-5, Class A-AB, 4.673% 2041		2,000			1,945
Banc of America Commercial Mortgage Inc., Series 2005-3, Class A-2, 4.501% 2043		1,260			1,231
Chase Commercial Mortgage Securities Corp., Series 1998-2, Class A-2, 6.39% 2030		40,957			41,562
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030		11,607			11,718
Chase Commercial Mortgage Securities Corp., Series 2000-2, Class A-1, 7.543% 2032		8,841			9,029
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032		6,190			6,546
Bear Stearns ALT-A Trust, Series 2005-9, Class II-6A-1, 5.828% 2035¹		28,902			28,928
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.943% 2036¹		30,305			30,443
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, Class A-3, 6.869% 2029		6,191			6,215
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, Class D, 6.997% 2029		8,300			8,366
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, Class F, 7.222% 2029		1,800			1,929
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034		30,250			31,488
GMAC Commercial Mortgage Securities, Inc., Series 1998-C2, Class C, 6.50% 2035		9,000			9,153
Government National Mortgage Assn. 7.50% 2007		2			2
Government National Mortgage Assn. 6.50% 2008		90			92
Government National Mortgage Assn. 6.50% 2008		26			27
Government National Mortgage Assn. 7.50% 2008		20			21
Government National Mortgage Assn. 7.50% 2008		18			18
Government National Mortgage Assn. 7.50% 2008		15			15
Government National Mortgage Assn. 7.50% 2008		12			12
Government National Mortgage Assn. 7.50% 2008		4			4
Government National Mortgage Assn. 6.50% 2009		32			32
Government National Mortgage Assn. 7.50% 2009		34			34
Government National Mortgage Assn. 7.50% 2009		33			34
Government National Mortgage Assn. 7.50% 2009		28			28
Government National Mortgage Assn. 7.50% 2009		26			27
Government National Mortgage Assn. 7.50% 2009		24			24
Government National Mortgage Assn. 7.50% 2009		20			21
Government National Mortgage Assn. 7.50% 2009		13			13
Government National Mortgage Assn. 9.00% 2009		312			317
Government National Mortgage Assn. 9.50% 2009		373			385
Government National Mortgage Assn. 9.50% 2009		28			29
Government National Mortgage Assn. 9.00% 2016		112			122
Government National Mortgage Assn. 9.00% 2017		31			34
Government National Mortgage Assn. 9.50% 2019		277			308
Government National Mortgage Assn. 8.50% 2020		48			52
Government National Mortgage Assn. 8.50% 2020		30			32
Government National Mortgage Assn. 9.50% 2020		93			103
Government National Mortgage Assn. 10.00% 2020		708			799
Government National Mortgage Assn. 8.50% 2021		236			256
Government National Mortgage Assn. 8.50% 2021		152			164
Government National Mortgage Assn. 8.50% 2021		71			76
Government National Mortgage Assn. 8.50% 2021		41			44
Government National Mortgage Assn. 10.00% 2021		1,544			1,718
Government National Mortgage Assn. 9.00% 2022		27			30
Government National Mortgage Assn. 8.50% 2023		30			33
Government National Mortgage Assn. 8.50% 2024		26			28
Government National Mortgage Assn. 8.50% 2024		24			26
Government National Mortgage Assn. 8.50% 2027		30			32
Government National Mortgage Assn. 8.50% 2028		25			26
Government National Mortgage Assn. 8.50% 2029		28			30
Government National Mortgage Assn. 4.00% 2035¹		13,625			13,423
Government National Mortgage Assn. 4.00% 2035¹		6,317			6,208
Government National Mortgage Assn. 4.00% 2035¹		2,858			2,809
Government National Mortgage Assn. 6.00% 2036		25,510			25,817
Nykredit 4.00% 2035		DKr305,842			50,025
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.878% 2036¹	$	49,643			49,458
Tower Ventures, LLC, Series 2006-1, Class A-2, 5.45% 2036²		22,500			22,616
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 2036²		3,670			3,696
Tower Ventures, LLC, Series 2006-1, Class D, 6.052% 2036²		10,000			10,098
Tower Ventures, LLC, Series 2006-1, Class E, 6.495% 2036²		4,000			4,057
Tower Ventures, LLC, Series 2006-1, Class F, 7.036% 2036²		8,730			8,887
Banc of America Funding Corp., Series 2005-H, Class 9-A-1, 5.967% 2035¹		45,716			45,816
J.P. Morgan Alternative Loan Trust, Series 2006-S3, Class A-6, 6.12% 2036		44,563			44,870
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026²		39,928			43,929
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033²		2,177			2,186
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-2, 6.592% 2033		17,250			17,933
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-2, 6.226% 2035		3,714			3,727
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035		16,420			17,061
Banc of America Mortgage Securities Trust, Series 2003-10, Class 3-A-1, 5.00% 2019		5,503			5,375
Banc of America Mortgage Securities Trust, Series 2003-F, Class 2-A-1, 3.734% 2033¹		20,358			20,126
Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1, 4.088% 2033¹		6,049			5,975
Banc of America Mortgage Securities Trust, Series 2003-I, Class 3-A-1, 4.53% 2033¹		9,048			8,880
Deutsche Genossen-Hypobank, Series 883, 5.25% 2009		€29,447			40,056
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.647% 2036¹		38,083			38,002
Merrill Lynch Mortgage Investors, Inc., Series 2003-A4, Class II-A, 4.61% 2033¹		12,777			12,686
Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1, 4.582% 2034¹		23,734			23,488
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC8, Class A-4, 5.50% 2035		15,050			14,966
Bear Stearns Asset-backed Securities I Trust, Series 2006-AC-2, Class II-1A-1, 6.00% 2036		20,951			20,945
GS Mortgage Securities Corp. II, Series 1998-C1, Class E, 7.197% 2030¹		31,076			32,038
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.197% 2030¹		3,750			3,860
MASTR Alternative Loan Trust, Series 2004-5, Class 5-A-1, 4.75% 2019		8,216			7,955
MASTR Alternative Loan Trust, Series 2003-2, Class 6-A-1, 6.00% 2033		729			730
MASTR Alternative Loan Trust, Series 2004-2, Class 2-A-1, 6.00% 2034		1,399			1,395
MASTR Alternative Loan Trust, Series 2005-1, Class 1-A-1, 5.50% 2035		16,283			15,962
MASTR Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50% 2035		4,021			3,960
MASTR Alternative Loan Trust, Series 2005-3, Class 2-A-1, 6.00% 2035		5,212			5,208
MASTR Alternative Loan Trust, Series 2005-3, Class 3-A-1, 6.50% 2035		565			571
Residential Asset Mortgage Products Trust, Series 2004-RS9, Class A-I-4, AMBAC insured, 4.767% 2032		10,000			9,887
Residential Asset Mortgage Products Trust, Series 2004-RS10, Class A-I-6, 4.55% 2034		26,100			25,213
Structured Asset Securities Corp., Series 2003-29, Class 1-A-1, 4.75% 2018		14,030			13,580
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.52% 2027^1,2		6,270			6,296
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.729% 2027^1,2		2,330			2,336
Structured Asset Securities Corp., Series 1999-RF1, Class A, 7.851% 2028^1,2		1,539			1,572
Structured Asset Securities Corp., Series 2003-17A, Class 3-A-1, 4.01% 2033¹		1,898			1,868
Structured Asset Securities Corp., Series 2005-6, Class 5-A-4, 5.00% 2035		6,814			6,326
Structured Asset Securities Corp., Series 2005-6, Class 5-A-9, 5.00% 2035		2,654			2,613
HarborView Mortgage Loan Trust, Series 2005-15, Class 2-A1A2, 6.15% 2045¹		32,422			32,734
Residential Asset Securitization Trust, Series 2005-A8CB, Class A-11, 6.00% 2035		19,742			19,689
Residential Asset Securitization Trust, Series 2005-A6CB, Class A-7, 6.00% 2035		12,987			12,999
Banc of America Alternative Loan Trust, Series 2005-4, Class 2-A-1, 5.00% 2020		16,175			15,798
Banc of America Alternative Loan Trust, Series 2005-6, Class 2-CB-2, 6.00% 2035		15,411			15,425
J.P. Morgan Mortgage Trust, Series 2004-S1, Class 1-A-7, 5.00% 2019		24,132			23,560
J.P. Morgan Mortgage Trust, Series 2005-A1, Class 4-A-1, 4.776% 2035¹		7,903			7,634
Commercial Mortgage Trust, Series 2004-LB3A, Class A-4, 5.234% 2037		10,956			10,933
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038		20,000			18,744
GSR Mortgage Loan Trust, Series 2004-2F, Class XIIIA-1, 5.00% 2019		16,740			16,392
GSR Mortgage Loan Trust, Series 2005-AR1, Class 2-A-1, 4.941% 2035¹		12,763			12,651
Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class A-2, 7.439% 2031		5,000			5,230
Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class B, 7.619% 2031		17,125			18,070
Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class C, 7.625% 2031		5,000			5,282
Adjustable Rate Mortgage Trust, Series 2006-1, Class 3-A-3, 5.96% 2036¹		27,487			27,664
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025		14,500			15,511
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-3, 6.226% 2026		8,300			8,454
LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class A-2, 5.103% 2030		3,468			3,452
GE Commercial Mortgage Corp., Series 2004-C3, Class B, 5.278% 2039		8,000			7,955
GE Commercial Mortgage Corp., Series 2004-C2, Class B, 4.983% 2040		19,193			18,721
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.688% 2034¹		22,719			22,198
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 3-A, 6.00% 2034		2,990			2,981
CSAB Mortgage-backed Trust, Series 2006-2, Class A-6-A, 5.72% 2036¹		25,000			24,779
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035		17,468			17,784
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036		7,090			6,884
Morgan Stanley Capital I, Inc., Series 1998-HF2, Class A-2, 6.48% 2030		13,131			13,292
Morgan Stanley Capital I, Inc., Series 1999-FNV1, Class A-2, 6.53% 2031		9,779			9,946
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033		179			181
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-2, 6.531% 2033		17,590			18,413
GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-1, 5.56% 2038		1,799			1,811
GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07% 2038		2,500			2,590
Citigroup Mortgage Loan Trust, Inc., Series 2003-UST1, Class A-3, 5.00% 2018		16,733			16,421
Citigroup Mortgage Loan Trust, Inc., Series 2004-HYB1, Class A-3-1, 4.55% 2034¹		4,548			4,493
Prudential Securities Secured Financing Corp., Series 1999-NRF1, Class C, 6.746% 2031		18,000			18,487
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A-4-1, 5.243% 2037		15,000			14,978
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA8, Class I-A-14, 5.50% 2035		13,339			13,315
Dexia Municipal Agency 3.50% 2009		€10,076			13,124
First Horizon Mortgage Pass-Through Trust, Series 2003-5, Class II-A-2, 5.00% 2018	$	11,951			11,737
DLJ Commercial Mortgage Corp., Series 1999-CG1, Class A-1B, 6.46% 2032		10,000			10,200
Residential Funding Mortgage Securities I, Inc., Series 2004-SA1, Class A-II, 4.319% 2034¹		10,090			9,886
Washington Mutual Securities Corp., Series 2005-AR1, Class A-1-A, 5.61% 2035¹		7,495			7,506
Washington Mutual Securities Corp., WMALT Series 2005-1, Class 6-A-1, 6.50% 2035		1,469			1,495
American General Mortgage Loan Trust, Series 2006-1, Class A-5, 5.75% 2035²		8,500			8,488
DLJ Mortgage Acceptance Corp., Series 1998-CF1, Class A-1B, 6.41% 2031		8,261			8,317
Hypothekenbank in Essen AG 5.25% 2008		€6,000			8,021
Morgan Stanley Capital I Trust, Series 2005-HQ7, Class A-2, 5.203% 2042¹	$	7,875			7,865
Rheinische Hypothekenbank Eurobond 4.25% 2008		€5,000			6,629
Merrill Lynch Mortgage Trust, Series 2004-MKB1, Class A-2, 4.353% 2042	$	6,675			6,533
Bank of America, NA and First Union National Bank Commercial Mortgage Trust, Series 2001-3, Class A-1, 4.89% 2037		6,569			6,522
CS First Boston Mortgage Acceptance Corp., Series 2004-7, Class IV-A-1, 4.50% 2019		6,662			6,389
First Union National Bank Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.739% 2032		3,209			3,246
First Union National Bank Commercial Mortgage Trust, Series 2001-C4, Class A-1, 5.673% 2033		2,283			2,295
Hilton Hotel Pool Trust, Series 2000-HLTA, Class F, 7.75% 2015²		5,000			5,165
RAAC Mortgage Loan Asset-backed Trust, Series 2004-SP3, Class A-I-5, 4.89% 2032		5,000			4,736
Specialty Underwriting and Residential Finance Trust, Series 2004-AA1, Class I-A1, 5.00% 2034		3,047			2,989
Ocwen Residential MBS Corp., Series 1998-R1, Class AWAC, 5.487% 2040^1,2		2,070			1,993
SACO I Trust, Series 2005-2, Class A, interest only, 4.50% 2007^1,2		24,546			681
SACO I Trust, Series 2005-1, Class A, interest only, 4.50% 2007^1,2		16,489			339
SACO I Trust, Series 2005-3, Class A, interest only, 6.00% 2035²		29,359			919
GS Mortgage Securities Corp., Series 1998-2, Class M, 7.75% 2027²		571			592
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027		416			415
First Boston Mortgage Securities Corp., Series D, principal only, 0% 2017		105			84
First Boston Mortgage Securities Corp., Series D, interest only, 10.965% 2017		105			26
					5,704,798

U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES — 10.93%
U.S. Treasury 3.125% 2007		150			149
U.S. Treasury 3.625% 2007		96,945			96,301
U.S. Treasury 3.375% 2007⁹		63,719			63,635
U.S. Treasury 6.25% 2007		143,385			143,597
U.S. Treasury 3.375% 2008		10,500			10,231
U.S. Treasury 3.625% 2008⁹		825			834
U.S. Treasury 3.625% 2009		25,000			24,340
U.S. Treasury 5.50% 2009⁴		5,510			5,602
U.S. Treasury 0.875% 2010⁹		21,795			20,669
U.S. Treasury 6.50% 2010		40,000			42,031
U.S. Treasury 2.375% 2011⁹		18,158			18,089
U.S. Treasury 3.50% 2011⁹		81,206			84,546
U.S. Treasury 4.25% 2011		30,000			29,510
U.S. Treasury 4.50% 2011		108,000			107,055
U.S. Treasury 4.50% 2011		275			273
U.S. Treasury 4.875% 2011		23,850			24,020
U.S. Treasury 5.00% 2011		25,000			25,316
U.S. Treasury 4.875% 2012		56,335			56,863
U.S. Treasury 10.375% 2012		24,500			25,595
U.S. Treasury 3.625% 2013		100,000			94,250
U.S. Treasury 4.25% 2013		793,650			773,936
U.S. Treasury 12.00% 2013		10,000			11,094
U.S. Treasury 2.00% 2014⁹		54,254			52,713
U.S. Treasury 4.00% 2014		275			263
U.S. Treasury 4.25% 2014		60,000			58,256
U.S. Treasury 11.25% 2015		90,000			129,333
U.S. Treasury 4.50% 2016		146,495			144,207
U.S. Treasury 9.25% 2016		10,000			13,327
U.S. Treasury 8.875% 2017		80,000			107,050
U.S. Treasury Principal Strip 0% 2018		31,220			18,106
U.S. Treasury 8.00% 2021		200			265
U.S. Treasury 6.875% 2025		129,700			160,544
U.S. Treasury 3.875% 2029⁹		6,786			8,560
U.S. Treasury 3.375% 2032⁹		882			1,067
U.S. Treasury 4.50% 2036		76,975			73,235
Fannie Mae 4.25% 2007		210,731			209,610
Fannie Mae 4.75% 2007		65,210			65,001
Fannie Mae 5.25% 2007		103,500			103,485
Fannie Mae 5.25% 2012		50,000			50,286
Federal Home Loan Bank 3.70% 2007		35,280			34,937
Federal Home Loan Bank 4.625% 2007		25,550			25,460
Federal Home Loan Bank 5.625% 2016		17,000			17,503
Freddie Mac 4.125% 2009		25,000			24,469
Freddie Mac 4.125% 2010		13,250			12,905
Freddie Mac 5.25% 2011		20,000			20,235
Freddie Mac 6.25% 2012		15,000			15,018
Federal Agricultural Mortgage Corp. 4.25% 2008		17,000			16,782
Federal Agricultural Mortgage Corp. 4.875% 2011²		15,000			14,945
Federal Agricultural Mortgage Corp. 5.50% 2011²		10,000			10,117
United States Government-Guaranteed Certificates of Participation, Overseas Private Investment Corp., Series 2000-044-A, 3.74% 2015³		9,790			9,308
United States Agency for International Development, Republic of Egypt 4.45% 2015		5,000			4,840
					3,059,763

NON-U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES — 6.63%
Japanese Government 0.50% 2007		¥10,511,900			88,346
Japanese Government 0.90% 2008		7,187,550			60,531
Japanese Government 1.80% 2010		487,350			4,201
Japanese Government 1.30% 2011		1,160,250			9,813
Japanese Government 1.50% 2014		3,150,950			26,426
Japanese Government 2.30% 2035		5,212,000			43,878
United Mexican States Government Global 10.375% 2009	$	9,700			10,718
United Mexican States Government, Series MI10, 9.50% 2014		MXP547,600			57,047
United Mexican States Government Global 11.375% 2016	$	3,750			5,409
United Mexican States Government, Series M20, 8.00% 2023		MXP153,800			14,867
United Mexican States Government, Series M20, 10.00% 2024		489,800			56,310
United Mexican States Government Global 7.50% 2033	$	6,705			7,929
United Mexican States Government Global 6.75% 2034		9,795			10,603
Israeli Government 7.50% 2014		ILS539,902			141,977
Israeli Government 6.50% 2016		66,360			16,724
Polish Government 5.75% 2010		PLN259,820			91,990
Polish Government 6.00% 2010		157,250			56,204
Singapore (Republic of) 3.125% 2011		S$ 94,525			61,929
Singapore (Republic of) 3.625% 2011		11,395			7,623
Singapore (Republic of) 3.75% 2016		105,325			72,727
German Government 4.50% 2009		€55,000			73,570
German Government 4.25% 2014		5,580			7,501
German Government 4.00% 2016		25,290			33,477
German Government 6.25% 2030		11,120			19,259
United Kingdom 4.50% 2007		£ 5,554			10,861
United Kingdom 5.00% 2008		1,380			2,697
United Kingdom 4.75% 2010		11,890			23,031
United Kingdom 4.75% 2015		21,303			41,599
United Kingdom 4.75% 2038		23,305			50,242
Swedish Government 5.00% 2009		SKr422,380			63,260
Swedish Government 5.25% 2011		311,885			48,073
Korean Government 5.00% 2011		KRW12,182,520			13,110
Korean Government 4.25% 2014		15,528,880			15,888
Korean Government 5.25% 2015		72,471,970			79,117
Canadian Government 4.25% 2026⁹		C$64,829			78,733
Thai Government 4.125% 2009		THB1,325,000			36,593
Thai Government 5.25% 2013		100,000			2,844
Thai Government 5.00% 2014		735,810			20,493
Thai Government 5.40% 2016		378,000			10,672
French Government O.A.T. Eurobond Strip Principal 0% 2019		€14,000			11,146
French Government O.A.T. Eurobond 5.50% 2029		7,610			12,031
French Government O.A.T. Eurobond 4.75% 2035		26,150			38,082
Russian Federation 5.00%/7.50% 2030^3,5	$	45,695			51,807
Russian Federation 5.00%/7.50% 2030^2,3,5		145			164
Spanish Government 4.25% 2007		€34,030			45,030
Netherlands Government Eurobond 5.75% 2007		17,863			23,622
Netherlands Government Eurobond 5.25% 2008		6,000			8,069
Netherlands Government Eurobond 5.00% 2012		9,560			13,267
Aries Vermögensverwaltungs GmbH, Series C, 9.60% 2014	$	23,000			29,699
Export-Import Bank of China 4.875% 2015²		20,000			19,344
Argentina (Republic of) 4.193% 2012^1,3		4,265			3,025
Argentina (Republic of) 5.83% 2033^3,7,9		ARS33,653			11,592
Argentina (Republic of) GDP-Linked 2035		53,810			2,093
Argentina (Republic of) 0.63% 2038^3,9		12,716			1,937
Hungarian Government 6.00% 2011		HUF2,995,150			14,928
Italian Government BTPS Eurobond 6.00% 2007		€10,354			13,896
Brazilian Treasury Bill 6.00% 2010⁹		R$8,579			3,844
Brazil (Federal Republic of) Global 7.875% 2015	$	1,250			1,396
Brazil (Federal Republic of) Global 8.00% 2018³		644			718
Brazil (Federal Republic of) Global 8.875% 2024		1,375			1,717
Brazil (Federal Republic of) Global 12.25% 2030		425			707
Brazil (Federal Republic of) Global 11.00% 2040		3,110			4,125
El Salvador (Republic of) 7.65% 2035²		8,580			9,760
Banque Centrale de Tunisie 4.75% 2011		€3,000			3,995
Banque Centrale de Tunisie 7.375% 2012	$	4,500			4,896
Corporación Andina de Fomento 6.875% 2012		5,895			6,277
Corporación Andina de Fomento 5.125% 2015		2,000			1,928
State of Qatar 9.75% 2030		5,220			7,804
Panama (Republic of) Global 7.125% 2026		690			749
Panama (Republic of) Global 8.875% 2027		250			319
Panama (Republic of) Global 9.375% 2029		340			456
Panama (Republic of) Global 6.70% 2036³		5,748			6,007
Columbia (Republic of) Global 8.25% 2014		2,500			2,850
Colombia (Republic of) Global 12.00% 2015		COP4,600,000			2,445
Egypt (Arab Republic of) Treasury Bill 0% 2007		EGP18,425			2,968
Egypt (Arab Republic of) Treasury Bill 0% 2007		6,175			1,079
Egypt (Arab Republic of) Treasury Bill 0% 2007		EGP1,825			318
Turkey (Republic of) 12.375% 2009	$	500			579
Turkey (Republic of) 15.00% 2010		TRY5,250			3,314
Peru (Republic of) 9.125% 2012	$	432			501
Peru (Republic of) 8.375% 2016		2,500			2,981
Peru (Republic of) Past Due Interest Eurobond 5.00% 2017^1,3		331			330
Indonesia (Republic of) 11.00% 2020		IDR10,000,000			1,143
Indonesia (Republic of) 12.80% 2021		11,890,000			1,561
Indonesia (Republic of) 12.90% 2022		2,562,000			338
Dominican Republic 9.50% 2011^2,3	$	2,344			2,530
Venezuela (Republic of) Global 8.50% 2014		245			278
Venezuela (Republic of) 9.25% 2027		780			996
Guatemala (Republic of) 10.25% 2011²		1,000			1,184
					1,856,097

ASSET-BACKED OBLIGATIONS³— 6.02%
Drive Auto Receivables Trust, Series 2005-2, Class A-2, MBIA insured, 4.12% 2010²		4,915			4,886
Drive Auto Receivables Trust, Series 2006-2, Class A-2, MBIA insured, 5.30% 2011²		2,150			2,152
Drive Auto Receivables Trust, Series 2005-1, Class A-4, MBIA insured, 4.01% 2012		28,125			27,688
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 2012²		60,520			59,717
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 2013²		17,500			17,473
Drive Auto Receivables Trust, Series 2006-1, Class A-4, FSA insured, 5.54% 2013²		67,000			67,691
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 2014²		20,000			20,119
ARG Funding Corp., Series 2005-1, Class A-1, MBIA insured, 4.02% 2009²		21,000			20,706
ARG Funding Corp., Series 2005-2, Class A-1, AMBAC insured, 4.54% 2009²		51,820			51,385
ARG Funding Corp., Series 2005-1, Class A-3, MBIA insured, 4.29% 2011²		55,200			53,827
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 2011²		30,000			29,750
CPS Auto Receivables Trust, Series 2003-A, Class A-2, XLCA insured, 2.89% 2009²		1,615			1,591
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52% 2009²		208			206
CPS Auto Receivables Trust, Series 2004-A, Class A-2, FSA insured, 3.87% 2010²		6,488			6,401
CPS Auto Receivables Trust, Series 2004-D, Class A-2, XLCA insured, 3.86% 2011²		13,051			12,859
CPS Auto Receivables Trust, Series 2006-C, Class A-3, XLCA insured, 5.14% 2011²		16,300			16,309
CPS Auto Receivables Trust, Series 2005-B, Class A-2, FSA insured, 4.36% 2012²		17,605			17,365
CPS Auto Receivables Trust, Series 2005-D, Class A-2, FSA insured, 5.06% 2012²		7,600			7,596
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 2012²		10,000			10,047
CPS Auto Receivables Trust, Series 2006-B, Class A-4, MBIA insured, 5.81% 2012²		23,000			23,467
CPS Auto Receivables Trust, Series 2006-C, Class A-4, XLCA insured, 5.14% 2013²		26,200			26,252
CWABS, Inc., Series 2006-23, Class 2-A-3, 5.52% 2033¹		20,000			19,981
CWABS, Inc., Series 2004-12, Class 2-AV-2, 5.63% 2033¹		1,986			1,988
CWABS, Inc., Series 2004-15, Class 2-AV-2, 5.62% 2034¹		7,264			7,274
CWABS, Inc., Series 2005-11, Class AF-2, 4.657% 2036		22,666			22,415
CWABS, Inc., Series 2006-24, Class 2-A-3, 5.50% 2036¹		37,506			37,586
MBNA Credit Card Master Note Trust, Series 2002-1, Class B, 5.15% 2009		17,000			16,997
MBNA Credit Card Master Note Trust, Series 2005-6, Class A, 4.50% 2013		42,500			41,776
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011		26,000			25,976
Triad Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured, 4.22% 2012		20,000			19,663
Triad Automobile Receivables Trust, Series 2006-C, Class A-4, AMBAC insured, 5.31% 2013		10,000			10,020
AmeriCredit Automobile Receivables Trust, Series 2003-A-M, Class A-4-A, MBIA insured, 3.10% 2009		786			773
AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA insured, 3.48% 2010		8,790			8,735
AmeriCredit Automobile Receivables Trust, Series 2005-C-F, Class A-4, FSA insured, 4.63% 2012		16,950			16,759
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013		23,680			23,695
WFS Financial Owner Trust, Series 2003-1, Class A-4, 2.74% 2010		1,849			1,818
WFS Financial Owner Trust, Series 2004-1, Class C, 2.49% 2011		1,426			1,398
WFS Financial Owner Trust, Series 2004-1, Class A-4, 2.81% 2011		11,357			11,105
WFS Financial Owner Trust, Series 2005-1, Class A-4, 3.87% 2012		35,250			34,440
GS Auto Loan Trust, Series 2006-1, Class A-4, 5.38% 2014		20,000			20,153
GS Auto Loan Trust, Series 2006-1, Class A-4, 5.60% 2014		25,312			25,379
Vega ContainerVessel PLC, Series 2006-1, Class A, XLCA insured, 5.562% 2021²		45,000			44,930
Long Beach Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA insured, 4.522% 2012		17,000			16,770
Long Beach Acceptance Auto Receivables Trust, Series 2006-B, Class A-4, FSA insured, 5.18% 2013		27,800			27,829
Vanderbilt Mortgage and Finance, Inc., Series 2002-B, Class A-3, 4.70% 2018		4,253			4,227
Vanderbilt Mortgage and Finance, Inc., Series 2002-C, Class A-4, 6.57% 2024		7,660			7,952
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024		10,250			10,533
Vanderbilt Mortgage and Finance, Inc., Series 2000-C, Class A-4, 7.905% 2026		3,271			3,427
Vanderbilt Mortgage and Finance, Inc., Series 1997-C, Class II-A-1, 5.56% 2027¹		971			971
Vanderbilt Mortgage and Finance, Inc., Series 2000-D, Class A-4, 7.715% 2027		3,774			3,935
Vanderbilt Mortgage and Finance, Inc., Series 2000-C, Class A-5, 8.195% 2030		6,889			7,335
Vanderbilt Mortgage and Finance, Inc., Series 2001-C, Class M-1, 6.76% 2032		1,473			1,503
Vanderbilt Mortgage and Finance, Inc., Series 2002-C, Class M-1, 7.82% 2032		3,000			3,201
UPFC Auto Receivables Trust, Series 2006-B, Class A-2, AMBAC insured, 5.15% 2009		740			739
UPFC Auto Receivables Trust, Series 2005-A, Class A-3, AMBAC insured, 4.34% 2010		12,166			12,077
UPFC Auto Receivables Trust, Series 2005-B, Class A-3, XLCA insured, 4.98% 2011		20,000			19,922
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class A-5, MBIA insured, 5.08% 2011²		18,000			17,897
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-2, Class A-6, AMBAC insured, 5.08% 2011²		14,500			14,417
Residential Funding Mortgage Securities II, Inc., Series 2005-HI1, Class A-4, FGIC insured, 4.70% 2034		19,594			19,319
Residential Funding Mortgage Securities II, Inc., Series 2005-HS1, Class A-1-2, FGIC insured, 4.66% 2035		12,500			12,203
Drivetime Auto Owner Trust, Series 2004-C, Class A-3, XLCA insured, 3.493% 2010²		3,782			3,748
Drivetime Auto Owner Trust, Series 2006-A, Class A-3, XLCA insured, 5.501% 2011²		25,460			25,575
Capital Auto Receivables Asset Trust, Series 2004-2, Class A-4, 3.75% 2009		21,750			21,332
Capital Auto Receivables Asset Trust, Series 2005-SN1, Class B-2, 6.10% 2009¹		2,485			2,503
Capital Auto Receivables Asset Trust, Series 2006-SN1, Class C, 5.77% 2010²		3,700			3,743
Spirit Master Funding LLC, Net-Lease Mortgage Notes, Series 2005-1, Class A-1, AMBAC insured, 5.05% 2023²		28,152			27,079
Capital One Multi-asset Execution Trust, Series 2006-10, Class A, 5.15% 2014		25,830			25,919
CWHEQ Home Equity Loan Trust, Series 2006-S2, Class A-5, FGIC insured, 5.753% 2027		15,750			15,789
CWHEQ Home Equity Loan Trust, Series 2006-S4, Class A-6, AMBAC insured, 5.834% 2034		9,650			9,700
Chase Issuance Trust, Series 2005-7, Class A, 4.55% 2013		17,500			17,188
Chase Issuance Trust, Series 2006-4, Class C, 5.64% 2014¹		8,000			8,004
Prestige Auto Receivables Trust, Series 2005-1A, Class A-2, FSA insured, 4.37% 2012²		10,000			9,903
Prestige Auto Receivables Trust, Series 2006-1A, Class A-2, FSA insured, 5.25% 2013²		15,000			15,012
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031		17,055			17,044
Residential Asset Securities Corp. Trust, Series 2004-KS12, Class A-1-2, 5.58% 2035¹		7,427			7,430
Honda Auto Receivables Owner Trust, Series 2006-2, Class A-4, 5.28% 2012		24,250			24,379
Advanta Business Card Master Trust, Series 2006-A5, Class A, 5.10% 2012		20,000			19,981
Advanta Business Card Master Trust, Series 2005-A2, Class A-2, 5.48% 2013¹		2,000			1,998
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class B-1, 7.30% 2021		10,148			10,196
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-4, 6.57% 2027		8,290			8,539
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-5, 7.12% 2032		3,000			3,189
Bear Stearns Asset-backed Securities I Trust, Series 2004-HE11, Class I-A-2, 5.65% 2033¹		198			198
Bear Stearns Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 5.85% 2034¹		20,534			20,614
Morgan Stanley ABS Capital I, Inc., Series 2004-NC3, Class M-1, 5.88% 2034¹		18,822			18,878
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 2025⁶		3,991			1,348
Green Tree Financial Corp., Series 1996-10, Class A-6, 7.30% 2028		3,332			3,430
Green Tree Financial Corp., Series 1997-6, Class A-7, 7.14% 2029		7,526			7,798
Green Tree Recreational, Equipment & Consumer Trust, Series 1997-D, 7.25% 2029		3,972			3,653
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 2029⁶		3,051			—
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 2030⁶		8,028			80
Conseco Finance Home Equity Loan Trust, Series 2002-B, Class M-1, 7.10% 2033¹		2,551			2,568
Consumer Credit Reference Index Securities Program Trust, Series 2002-1A, Class A, 7.365% 2007^1,2		10,158			10,194
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FX, 10.421% 2007²		8,250			8,315
AEP Texas Central Transitioning Funding II LLC, Senior Secured Transition Bonds, Series A, Class A-3, 5.09% 2015		16,545			16,364
Wachovia Auto Loan Owner Trust, Series 2006-1, Class A-4, 5.08% 2012²		10,000			9,989
Wachovia Auto Loan Owner Trust, Series 2006-1, Class B, 5.15% 2012²		5,000			4,991
Providian Gateway Master Trust, Series 2004-DA, Class A, 3.35% 2011²		15,000			14,791
CNL Funding, Series 2000-AA, Class A-2, MBIA insured, 8.044% 2017²		13,800			14,508
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 2017²		14,558			14,398
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009		14,250			14,379
American Express Credit Account Master Trust, Series 2005-3, Class B, 5.49% 2011¹		7,000			7,004
American Express Credit Account Master Trust, Series 2006-3, Class C, 5.63% 2014^1,2		6,000			5,997
New Century Home Equity Loan Trust, Series 2001-NC2, Class M-1, 6.58% 2031¹		1,513			1,515
New Century Home Equity Loan Trust, Series 2004-A, Class A-II-5, FGIC insured, 5.25% 2034		11,000			10,924
First Investors Auto Owner Trust, Series 2003-A, Class A, MBIA insured, 2.58% 2011²		5,750			5,648
First Investors Auto Owner Trust, Series 2005-A, Class A-2, MBIA insured, 4.23% 2012²		6,791			6,716
Franklin Auto Trust, Series 2006-1, Class A-4, 5.03% 2014		10,000			9,981
Franklin Auto Trust, Series 2006-1, Class B, 5.14% 2014		2,000			1,993
MASTR Asset-backed Securities Trust, Series 2006-AB1, Class A-4, 5.719% 2036		11,500			11,374
Lehman ABS Manufactured Housing Contract Trust, Series 2001-B, Class A-3, 4.35% 2014		3,327			3,177
Lehman ABS Manufactured Housing Contract Trust, Series 2001-B, Class A-4, 5.27% 2018		1,706			1,683
Lehman ABS Manufactured Housing Contract Trust, Series 2001-B, Class A-5, 5.873% 2022		5,602			5,614
Providian Master Note Trust, Series 2005-A1A, Class A, 5.41% 2012^1,2		10,000			10,008
Nordstrom Credit Card Master Note Trust, Series 2002-1, Class B, 6.05% 2010^1,2		8,000			8,014
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-2, 3.87% 2011		7,552			7,430
Ford Credit Auto Owner Trust, Series 2006-B, Class B, 5.43% 2012		7,333			7,364
Discover Card Master Trust I, Series 1996-4, Class B, 5.90% 2013¹		7,000			7,119
MBNA Master Credit Card Trust II, Series 1999-B, Class A, 5.90% 2011		3,000			3,055
MBNA Master Credit Card Trust II, Series 1999-B, Class B, 6.20% 2011		3,750			3,834
First USA Credit Card Master Trust, Series 1997-4, Class C, 6.361% 2010^1,2		6,630			6,642
Home Equity Asset Trust, Series 2004-7, Class M-1, 5.97% 2035¹		6,500			6,573
ACLC Business Loan Receivables Trust, Series 2002-1, Class A-2, 7.462% 2022²		5,470			5,525
GMAC Mortgage Loan Trust, Series 2006-HE3, Class A-5, FGIC insured, 5.809% 2036¹		5,000			5,037
Chase Credit Card Owner Trust, Series 2003-6, Class B, 5.70% 2011¹		5,000			5,023
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05% 2009		4,968			4,999
Origen Manufactured Housing Contract Trust, Series 2004-B, Class M-1, 5.73% 2035		2,500			2,432
Origen Manufactured Housing Contract Trust, Series 2004-B, Class M-2, 6.51% 2035		2,000			2,019
PCR Auto Receivables Trust, Series 2004-1, Class A-2, XLCA insured, 3.995% 2010²		3,853			3,854
West Penn Funding LLC, Series 1999-A, Class A-4, 6.98% 2008		3,581			3,629
GreenPoint Credit Manufactured Housing Contract Trust, Series 2000-7, Class A-1, MBIA insured, 5.64% 2022¹		3,582			3,593
Credit-Based Asset Servicing and Securitization LLC, Series 2005-CB4, Class AF-4, 5.028% 2035¹		3,490			3,430
Countryplace Manufactured Housing Contract, Series 2005-1, Class A-2, AMBAC insured, 4.42% 2035²		3,400			3,353
SLM Student Loan Trust, Series 2003-10, Class A-4, 5.15% 2039²		£1,160			2,247
Irwin Home Equity, Series 2006-2, Class 2-A3, FGIC insured, 6.40% 2036^1,2	$	2,000			2,051
IndyMac Home Equity Mortgage Loan Asset-backed Trust, Series SPMD 2001-A, Class AF-6, 6.537% 2030		1,642			1,638
Chase Auto Owner Trust, Series 2006-B, Class B, 5.24% 2014		1,500			1,497
Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2B, 5.66% 2035¹		1,432			1,432
Capital One Master Trust, Series 2002-1A, Class B, 5.95% 2011¹		1,000			1,010
Capital One Auto Finance Trust, Series 2004-B, Class A-3, MBIA insured, 2.96% 2009		889			888
NPF XII, Inc., Series 1999-3, Class B, 2.763% 2003^1,2,6		3,000			0
NPF XII, Inc., Series 2001-1A, Class A, 2.30% 2004^1,2,6		7,000			193
NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007^2,6		16,000			440
Option One Mortgage Loan Trust, Series 2002-1, Class M-1, 6.475% 2032¹		581			581
Harley-Davidson Motorcycle Trust, Series 2002-2, Class B, 2.84% 2010		577			564
New South Motor Vehicle Trust, Series 2002-A, Class A-3, AMBAC insured, 3.03% 2010		442			438
Continental Auto Receivables Owner Trust, Series 2000-B, Class CTFS, MBIA insured, 7.11% 2007²		47			47
					1,686,937

MUNICIPALS — 0.62%
State of California, Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A-1, 6.25% 2033	$	64,975		$	72,639
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement Asset-backed Bonds, 6.125% 2027		26,905			29,067
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025		27,136			27,072
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025		18,067			18,050
State of California, Los Angeles County Metropolitan Transportation Authority, General Revenue Refunding Bonds (Workers’ Compensation Funding Program), Series 2003, AMBAC insured, 3.83% 2008		5,000			4,902
State of California, Los Angeles County Metropolitan Transportation Authority, General Revenue Refunding Bonds (Workers’ Compensation Funding Program), Series 2003, AMBAC insured, 4.56% 2010		5,000			4,905
State of Washington, Tobacco Settlement Authority, Asset-backed Bonds, Series 2002, 6.50% 2026		6,585			7,258
California Maritime Infrastructure Authority, Taxable Lease Revenue Bonds (San Diego Unified Port District-South Bay Plant Acquisition), Series 1999, 6.63% 2009²		6,855			6,901
State of New York, Housing Finance Agency, State Personal Income Tax Revenue Bonds
(Economic Development and Housing), Series B, 2.88% 2007		2,000			1,990
State of New York, Housing Finance Agency, State Personal Income Tax Revenue Bonds
(Economic Development and Housing), Series B, 3.09% 2007		2,200			2,166
					174,950


Total bonds & notes (cost: $24,331,753,000)					24,669,630



Convertible securities — 0.37%		Shares or principal amount

INFORMATION TECHNOLOGY — 0.10%
Conexant Systems, Inc. 4.00% convertible notes 2007	$	14,700,000			14,718
SCI Systems, Inc. 3.00% convertible debentures 2007	$	12,000,000			11,985
					26,703

TELECOMMUNICATION SERVICES — 0.07%
American Tower Corp. 5.00% convertible debentures 2010	$	21,000,000			21,026


CONSUMER DISCRETIONARY — 0.07%
Amazon.com, Inc. 6.875% PEACS convertible notes 2010		€9,005,000			12,089
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032		228,100			7,801
					19,890

UTILITIES — 0.06%
AES Trust VII 6.00% convertible preferred 2008		351,450			17,397


FINANCIALS — 0.02%
Equity Office Properties Trust, Series B, 5.25% convertible preferred 2008		70,400			4,737


MISCELLANEOUS — 0.05%
Other convertible securities in initial period of acquisition					12,640


Total convertible securities (cost: $89,079,000)					102,393



Preferred securities — 3.75%		Shares			Market value (000	)

FINANCIALS — 3.71%
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred^1,2		121,238,000		$	128,522
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred^1,2		52,000,000			54,410
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred^1,2		85,750,000			96,683
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual preferred^1,2		25,000,000			37,044
HSBC Capital Funding LP 8.03% noncumulative preferred¹		20,000,000			30,750
MUFG Capital Finance 1 Ltd. 6.346% noncumulative preferred¹		105,720,000			107,570
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred^1,2		12,000,000			12,731
MUFG Capital Finance 2 Ltd. 4.85% noncumulative preferred¹		4,650,000			6,000
Shinsei Finance II (Cayman) Ltd. 7.16% noncumulative preferred^1,2		57,995,000			59,082
Fannie Mae, Series O, 7.00% preferred^1,2		900,000			48,206
Fannie Mae, Series E, 5.10% preferred		150,000			6,787
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred^1,2		21,750,000			22,144
BNP Paribas Capital Trust 9.003% noncumulative trust preferred^1,2		15,000,000			16,781
BNP Paribas 5.186% noncumulative^1,2		12,000,000			11,540
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital securities²		1,670,000			48,065
Wachovia Capital Trust III 5.80%¹		45,000,000			45,413
Banco Santander Central Hispano, SA 6.80%^2,10		1,600,000			41,200
Resona Preferred Global Securities (Cayman) Ltd. 7.191%^1,2		33,925,000			35,454
National Bank of Canada, Series A, 8.35% exchangeable preferred depositary shares		1,200,000			31,548
ING Capital Funding Trust III 8.439% noncumulative preferred¹		24,750,000			27,341
Chuo Mitsui Trust and Banking Co., Ltd. 5.506%^1,2		24,970,000			23,889
RBS Capital Trust I 4.709% noncumulative trust preferred¹		16,000,000			15,231
Royal Bank of Scotland Group PLC 6.625%¹		4,700,000			6,567
Weingarten Realty Investors, Series D, 6.75% preferred 2008		495,420			12,569
Weingarten Realty Investors, Series E, 6.95% cumulative redeemable preferred depositary shares		250,000			6,435
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred^1,2		17,638,000			18,571
Société Générale 7.85%^1,2		17,705,000			17,839
Standard Chartered Capital Trust I 8.16%¹		10,000,000			14,628
Freddie Mac, Series U, 5.90%		500,000			13,075
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares^1,2		11,250,000			12,110
HVB Funding Trust VIII 7.055%¹		7,400,000			10,847
HBOS Capital Funding LP, Series A, 6.461% noncumulative preferred¹		3,000,000			6,192
New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative step-up premium rate		112,500			6,019
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative step-up premium rate		50,000			5,055
Westpac Capital Trust IV 5.256%^1,2		4,500,000			4,285
					1,040,583

CONSUMER STAPLES — 0.00%
Great Atlantic & Pacific Tea Co., Inc. 9.375% QUIBS preferred 2039		18,500			475


CONSUMER DISCRETIONARY — 0.00%
Adelphia Communications Corp., Series B, 13.00% preferred 2009^8,10		50,565			0


TELECOMMUNICATION SERVICES — 0.00%
XO Holdings, Inc. 14.00% preferred 2009^7,8,10		24			0


MISCELLANEOUS — 0.04%
Other preferred securities in initial period of acquisition					9,987


Total preferred securities (cost: $973,016,000)					1,051,045



Common stocks — 0.32%		Shares			Market value (000	)

UTILITIES — 0.23%
Drax Group PLC		4,014,950		$	64,148


TELECOMMUNICATION SERVICES — 0.03%
Dobson Communications Corp., Class A¹⁰		1,051,359			9,157
XO Holdings, Inc.¹⁰		7,614			33
					9,190

INDUSTRIALS — 0.02%
DigitalGlobe Inc.^2,8,10		3,984,039			3,984
Delta Air Lines, Inc.^2,10		312,961			407
					4,391

INFORMATION TECHNOLOGY — 0.02%
ZiLOG, Inc.^10,11		879,000			3,850


FINANCIALS — 0.01%
Beverly Hills Bancorp Inc.		446,000			3,697


HEALTH CARE — 0.00%
Clarent Hospital Corp.^8,10,11		331,291			83


MISCELLANEOUS — 0.01%
Other common stocks in initial period of acquisition					2,615


Total common stocks (cost: $53,405,000)					87,974



Warrants — 0.00%

TELECOMMUNICATION SERVICES — 0.00%
XO Holdings, Inc., Series A, warrants, expire 2010¹⁰		15,233			11
XO Holdings, Inc., Series B, warrants, expire 2010¹⁰		11,424			5
XO Holdings, Inc., Series C, warrants, expire 2010¹⁰		11,424			2
GT Group Telecom Inc., warrants, expire 2010^2,8,10		2,750			0


Total warrants (cost: $143,000)					18


		Principal amount			Market value
Short-term securities — 6.44%		(000	)		(000	)

Federal Home Loan Bank 5.15%-5.195% due 1/10-3/28/2007	$	231,900		$	230,678
Variable Funding Capital Corp. 5.24%-5.27% due 1/5-1/16/2007²		214,900			214,615
Abbott Laboratories 5.20%-5.24% due 1/16-2/8/2007²		89,200			88,854
Abbott Laboratories 5.20%-5.205% due 3/13-3/15/2007^2,4		64,800			64,124
Hewlett-Packard Co. 5.28%-5.29% due 2/6-2/9/2007²		148,500			147,658
Clipper Receivables Co., LLC 5.24%-5.28% due 1/23-2/5/2007²		145,800			145,218
Three Pillars Funding, LLC 5.28%-5.32% due 1/16-1/24/2007²		109,747			109,404
Three Pillars Funding, LLC 5.27% due 3/19/2007^2,4		35,775			35,375
CAFCO, LLC 5.24%-5.25% due 1/16-1/19/2007²		90,800			90,569
Ciesco LLC 5.25% due 1/30/2007²		50,000			49,783
Procter & Gamble International Funding S.C.A. 5.23%-5.26% due 1/8-2/9/2007²		120,400			120,056
CIT Group, Inc. 5.26% due 1/24/2007²		50,000			49,832
CIT Group, Inc. 5.25% due 2/15-2/23/2007^2,4		50,200			49,852
HSBC Finance Corp. 5.23% due 1/12/2007		63,000			62,890
Bank of America Corp. 5.25% due 2/21/2007		60,700			60,266
AT&T Inc. 5.32% due 1/2/2007²		54,900			54,868
American General Finance Corp. 5.22% due 1/4/2007		50,000			49,971
FCAR Owner Trust I 5.27% due 1/9/2007		50,000			49,934
Johnson & Johnson 5.18% due 1/19/2007²		39,500			39,392
Park Avenue Receivables Co., LLC 5.25% due 1/11/2007²		32,031			31,979
Atlantic Industries 5.23% due 2/28/2007^2,4		30,000			29,750
Kimberly-Clark Worldwide Inc. 5.25% due 1/18/2007²		18,000			17,953
Concentrate Manufacturing Co. of Ireland 5.20% due 1/22/2007²		11,300			11,264


Total short-term securities (cost: $1,804,217,000)					1,804,285

Total investment securities (cost: $27,251,613,000)					27,715,345
Other assets less liabilities					292,455

Net assets				$	28,007,800

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

¹Coupon rate may change periodically.

² 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 $6,559,882,000, which represented 23.42% of the net assets of the fund.

³ Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

⁴ This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.

⁵ Step bond; coupon rate will increase at a later date.

⁶ Scheduled interest and/or principal payment was not received.

⁷ Payment in kind; the issuer has the option of paying additional securities in lieu of cash.

⁸ Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in “Miscellaneous,”

was $24,582,000.

⁹ Index-linked bond whose principal amount moves with a government retail price index.

¹⁰Security did not produce income during the last 12 months.

¹¹Represents an affiliated company as defined under the Investment Company Act of 1940.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money.

Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in each fund’s prospectus, which can be obtained from a financial adviser and should be read carefully before investing.

MFGEFP-908-0207-S6863

Company	Beginning shares	Purchases	Sales	Ending shares	Dividend income (000)		Market value of affiliates at 12/31/06 (000)
ZiLOG, Inc. (6)	879,000	-	-	879,000	-	$	3,850
ZiLOG, Inc. - MOD III Inc., units	1,447	-	1,447	-	-		-
Clarent Hospital Corp. (6) (7)	331,291	-	-	331,291	-		83
					-	$	3,933

The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

(1) Coupon rate may change periodically.
(2) 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, including those in "Other securities" in the summary investment portfolio, was $6,559,882,000, which represented 23.42% of the net assets of the fund.
(3) Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.
(4) Index-linked bond whose principal amount moves with a government retail price index.
(5) This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.
(6) Security did not produce income during the last 12 months.
(7) Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in “Miscellaneous” and “Other securities,” was $24,582,000.
The industry classifications shown in the summary investment portfolio were obtained from sources believed to be reliable and are not covered by the Report of Independent Registered Public Accounting Firm.

See Notes to Financial Statements

Statement of assets and liabilities
at December 31, 2006	(dollars and shares in thousands, except per-share amounts					)

Assets:
Investment securities at market:
Unaffiliated issuers (cost: $27,235,506)		$	27,711,412
Affiliated issuers (cost: $16,107)			3,933	$	27,715,345
Cash					21,328
Receivables for:
Sales of investments			84,267
Sales of fund's shares			98,512
Open forward currency contracts			29
Dividends and interest			325,994		508,802
					28,245,475
Liabilities:
Payables for:
Purchases of investments			149,373
Repurchases of fund's shares			68,536
Open forward currency contracts			55
Closed forward currency contracts			2,444
Investment advisory services			5,185
Services provided by affiliates			11,024
Deferred directors' compensation			467
Other			591		237,675
Net assets at December 31, 2006				$	28,007,800

Net assets consist of:
Capital paid in on shares of capital stock				$	28,074,131
Undistributed net investment income					9,082
Accumulated net realized loss					(540,592	)
Net unrealized appreciation					465,179
Net assets at December 31, 2006				$	28,007,800

Total authorized capital stock - 5,000,000 shares, $.001 par value (2,103,404 total shares outstanding)
		Net assets	Shares outstanding		Net asset value per share*

Class A	$	20,670,101	1,552,338	$	13.32
Class B		1,458,357	109,524		13.32
Class C		1,847,118	138,720		13.32
Class F		1,610,750	120,969		13.32
Class 529-A		387,879	29,130		13.32
Class 529-B		68,588	5,151		13.32
Class 529-C		169,734	12,747		13.32
Class 529-E		21,000	1,577		13.32
Class 529-F		14,523	1,091		13.32
Class R-1		29,193	2,192		13.32
Class R-2		499,561	37,517		13.32
Class R-3		570,174	42,820		13.32
Class R-4		324,874	24,398		13.32
Class R-5		335,948	25,230		13.32
(*) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and 529-A, for which the maximum offering prices per share were $13.84 each.


See Notes to Financial Statements

Statement of operations
for the year ended December 31, 2006		(dollars in thousands				)

Investment income:
Income:
Interest (net of non-U.S. taxes of $594)	$	1,397,817
Dividends		22,223		$	1,420,040

Fees and expenses(*):
Investment advisory services		62,421
Distribution services		89,142
Transfer agent services		24,571
Administrative services		9,569
Reports to shareholders		872
Registration statement and prospectus		1,232
Postage, stationery and supplies		2,513
Directors' compensation		192
Auditing and legal		136
Custodian		1,253
State and local taxes		184
Other		274
Total fees and expenses before reimbursements/waivers		192,359
Less reimbursements/waivers of fees and expenses:
Investment advisory services		6,242
Administrative services		993
Total fees and expenses after reimbursements/waivers					185,124
Net investment income					1,234,916

Net realized loss and unrealized appreciation on investments and non-U.S. currency:
Net realized loss on:
Investments (including $791 net loss from affiliate)		(40,050	)
Non-U.S. currency transactions		(47,624	)		(87,674	)
Net unrealized appreciation (depreciation) on:
Investments		265,200
Non-U.S. currency translations		(855	)		264,345
Net realized loss and unrealized appreciation on investments and non-U.S. currency					176,671
Net increase in net assets resulting from operations				$	1,411,587

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

See Notes to Financial Statements



Statements of changes in net assets		(dollars in thousands				)

		Year ended December 31
		2006			2005
Operations:
Net investment income	$	1,234,916		$	965,151
Net realized (loss) gain on investments and non-U.S. currency transactions		(87,674	)		193,485
Net unrealized appreciation (depreciation) on investments and non-U.S. currency translations		264,345			(753,973	)
Net increase in net assets resulting from operations		1,411,587			404,663

Dividends paid to shareholders from net investment income		(1,214,994	)		(1,081,144	)

Capital share transactions		4,835,584			3,822,696

Total increase in net assets		5,032,177			3,146,215

Net assets:
Beginning of year		22,975,623			19,829,408
End of year (including undistributed net investment income: $9,082 and $13,350, respectively)	$	28,007,800		$	22,975,623


See Notes to Financial Statements

Corporate bonds & notes	43.5
Mortgage-backed obligations		20.4
U.S. government & government agency bonds & notes		10.9
Non-U.S. government & government agency bonds & notes		6.6
Asset-backed obligations		6.0
Preferred securities		3.8
Municipals		0.6
Convertible securities		0.4
Common stocks & warrants		0.3
Short-term securities & other assets less liabilities		7.5

	Principal			Market			Percent
		amount			value			of net
Bonds & notes - 88.08%		(000	)		(000	)		assets

Corporate bonds & notes - 43.51%
Financials - 19.00%
General Motors Acceptance Corp.:
7.569% 2014 (1)	$	75,000		$	78,576
5.85%-7.75% 2007-2014 (1)		149,435			154,095
Residential Capital Corp.:
6.375% 2010		78,250			79,222
6.00%-7.204% 2009-2015 (1) (2)		85,780			86,913			1.42	%
International Lease Finance Corp. 3.125%-5.875% 2007-2013		152,565			151,361
American General Finance Corp. 5.40%-5.85% 2011-2016 (1)		82,500			83,084
ILFC E-Capital Trust II 6.25% 2065 (1) (2)		44,975			45,766
AIG SunAmerica Global Financing VII 5.85% 2008 (2)		24,250			24,451
American International Group, Inc. 6.25% 2036		8,750			9,329
ASIF Global Financing XVIII 3.85% 2007 (2)		5,785			5,709
ASIF Global Financing XXVIII 5.41% 2007 (1) (2)		2,000			2,001			1.15
Washington Mutual Preferred Funding I Ltd. 6.534% (undated) (1) (2)		89,500			88,787
Washington Mutual Preferred Funding II Ltd. 6.665% (undated) (1) (2)		74,800			75,514
Washington Mutual, Inc. 4.375%-5.95% 2008-2017 (1)		85,735			85,190
Washington Mutual Bank 5.795% 2013 (1)		35,000			35,045			1.02
Ford Motor Credit Co.:
4.875% 2007		€13,950			18,407
9.75% 2010 (2)	$	94,500			100,608
7.20%-10.61% 2007-2012 (1) (2)		116,925			121,371			.86
Household Finance Corp. 4.125%-7.875% 2007-2011		109,000			110,334
HSBC Finance Corp. 4.625%-5.724% 2010-2015 (1)		78,230			77,507
Midland Bank 5.688% Eurodollar note (undated) (1)		15,000			13,013
HSBC Bank USA 4.625% 2014 (2)		6,550			6,253
HSBC Holdings PLC 6.50% 2036		1,950			2,105			.75
Sumitomo Mitsui Banking Corp. 6.078% (undated) (1) (2)		99,800			99,396			.35
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (1) (2)		76,250			77,442			.28
HBOS PLC, Series B, 5.92% (undated) (1) (2)		76,400			75,071			.27
World Savings Bank, FSB, Bank Notes, Series 2008-FXR, 4.125% 2008		34,250			33,661
Wachovia Corp. 5.30%-5.625% 2011-2016		12,000			12,077			.16
Other securities					3,569,321			12.74
					5,321,609			19.00

Consumer discretionary - 5.61%
Ford Capital BV 9.50% 2010		5,543			5,543			.02
Other securities					1,564,862			5.59
					1,570,405			5.61

Industrials - 4.74%
Northwest Airlines, Inc., Term Loan A, 7.116% 2018 (1) (3)		75,150			75,150			.27
Other securities					1,252,622			4.47
					1,327,772			4.74

Telecommunication services - 4.51%
Nextel Communications, Inc.:
Series E, 6.875% 2013		109,480			110,723
Series D, 7.375% 2015		98,705			101,312			.76
AT&T Wireless Services, Inc. 8.125% 2012		87,630			98,715			.35
France Télécom 7.75% 2011 (1)		85,050			92,725			.33
Other securities					860,804			3.07
					1,264,279			4.51

Utilities - 2.61%
Other securities					731,125			2.61


Energy - 2.57%
Energy Transfer Partners, LP 5.95% 2015		72,670			73,198			.26
Other securities					646,817			2.31
					720,015			2.57

Other corporate bonds & notes - 4.47%
Other securities					1,251,880			4.47


Mortgage-backed obligations (3) - 20.37%
Fannie Mae:
5.50% 2035		79,710			78,888
5.50% 2036		79,036			78,123
0%-12.046% 2009-2042 (1)		934,533			929,530			3.88
Freddie Mac:
6.00% 2036		308,540			310,805
0%-11.00% 2007-2036 (1)		472,600			459,178			2.75
CS First Boston Mortgage Securities Corp. 0%-7.791% 2018-2041 (1) (2)		452,947			442,641			1.58
Countrywide Alternative Loan Trust:
Series 2005-46CB, Class A-8, 5.50% 2035		87,742			87,613
4.75%-6.00% 2019-2036 (1)		313,552			311,775			1.43
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046		91,455			89,923			.32
Other securities					2,916,322			10.41
					5,704,798			20.37

U.S. government & government agency bonds & notes - 10.93%
U.S. Treasury:
3.625% 2007		96,945			96,301
6.25% 2007		143,385			143,597
3.50% 2011 (4)		81,206			84,546
4.50% 2011		108,000			107,055
3.625% 2013		100,000			94,250
4.25% 2013		793,650			773,936
11.25% 2015		90,000			129,333
4.50% 2016		146,495			144,207
8.875% 2017		80,000			107,050
6.875% 2025		129,700			160,544
4.50% 2036		76,975			73,235
0%-12.00% 2007-2032 (4) (5)		519,234			510,808			8.66
Fannie Mae:
4.25% 2007		210,731			209,610
5.25% 2007		103,500			103,485
4.75%-5.25% 2007-2012		115,210			115,287			1.53
Federal Home Loan Bank 3.70%-5.625% 2007-2016		77,830			77,900			.28
Freddie Mac 4.125%-6.25% 2009-2012		73,250			72,627			.26
Other securities					55,992			.20
					3,059,763			10.93

Non-U.S. government & government agency bonds & notes - 6.63%
Israeli Government 7.50% 2014		ILS539,902			141,977			.51
Polish Government 5.75% 2010		PLN259,820			91,990			.33
Japanese Government 0.50% 2007		¥10,511,900			88,346			.32
Korean Government 5.25% 2015		KRW72,471,970			79,117			.28
Canadian Government 4.25% 2026 (4)		C$64,829			78,733			.28
German Government 4.50% 2009		€55,000			73,570			.26
Other securities					1,302,364			4.65
					1,856,097			6.63

Asset-backed obligations - 6.02%
Other securities					1,686,937			6.02


Municipals - 0.62%
Other securities					174,950			.62


Total bonds & notes (cost: $24,331,753,000)					24,669,630			88.08



Convertible securities - 0.37%

Other - 0.32%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032		228,100			7,801			.03
Other securities					81,952			.29
					89,753			.32

Miscellaneous - 0.05%
Other convertible securities in initial period of acquisition					12,640			.05


Total convertible securities (cost: $89,079,000)					102,393			.37



					Market			Percent
					value			of net
Preferred securities - 3.75%		Shares			(000	)		assets

Financials - 3.71%
HSBC Capital Funding LP:
Series 1, 9.547% noncumulative step-up perpetual preferred (1) (2)		85,750,000			96,683
Series 2, 10.176% noncumulative step-up perpetual preferred (1) (2)		25,000,000			37,044
8.03% noncumulative preferred (1)		20,000,000			30,750			.59
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred (1) (2)		121,238,000			128,522			.46
MUFG Capital Finance 1 Ltd. 6.346% noncumulative preferred (1)		105,720,000			107,570			.38
Fannie Mae:
Series O, 7.00% preferred (1) (2)		900,000			48,206
Series E, 5.10% preferred		150,000			6,787			.20
Wachovia Capital Trust III 5.80% preferred (1)		45,000,000			45,413			.16
Freddie Mac, Series U, 5.90% preferred		500,000			13,075			.05
Other securities					526,533			1.87
					1,040,583			3.71

Other - 0.00%
Other securities					475			.00


Miscellaneous - 0.04%
Other preferred securities in initial period of acquisition					9,987			.04


Total preferred securities (cost: $973,016,000)					1,051,045			3.75



Common stocks - 0.32%


Other - 0.31%
Other securities					85,359			.31


Miscellaneous - 0.01%
Other common stocks in initial period of acquisition					2,615			.01


Total common stocks (cost: $53,405,000)					87,974			.32



Warrants - 0.00%

Telecommunication services - 0.00%
Other securities					18			.00


Total warrants (cost: $143,000)					18			.00



		Principal			Market			Percent
		amount			value			of net
Short-term securities - 6.44%		(000	)		(000	)		assets


Federal Home Loan Bank 5.15%-5.195% due 1/10-3/28/2007	$	231,900		$	230,678			.82	%
Variable Funding Capital Corp. 5.24%-5.27% due 1/5-1/16/2007 (2)		214,900			214,615			.77
Abbott Laboratories 5.20%-5.24% due 1/16-3/15/2007 (2) (5)		154,000			152,978			.55
Hewlett-Packard Co. 5.28%-5.29% due 2/6-2/9/2007 (2)		148,500			147,658			.53
Clipper Receivables Co., LLC 5.24%-5.28% due 1/23-2/5/2007 (2)		145,800			145,218			.52
Three Pillars Funding, LLC 5.27%-5.32% due 1/16-3/19/2007 (2) (5)		145,522			144,779			.52
CAFCO, LLC 5.24%-5.25% due 1/16-1/19/2007 (2)		90,800			90,569
Ciesco LLC 5.25% due 1/30/2007 (2)		50,000			49,783			.50
Procter & Gamble International Funding S.C.A. 5.23%-5.26% due 1/8-2/9/2007 (2)		120,400			120,056			.43
CIT Group, Inc. 5.25%-5.26% due 1/24-2/23/2007 (2) (5)		100,200			99,684			.35
HSBC Finance Corp. 5.23% due 1/12/2007		63,000			62,890			.22
American General Finance Corp. 5.22% due 1/4/2007		50,000			49,971			.18
FCAR Owner Trust I 5.27% due 1/9/2007		50,000			49,934			.18
Other securities					245,472			.87

Total short-term securities (cost: $1,804,217,000)					1,804,285			6.44


Total investment securities (cost: $27,251,613,000)					27,715,345			98.96
Other assets less liabilities					292,455			1.04

Net assets				$	28,007,800			100.00	%


"Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.
"Other securities" includes all issues that are not disclosed separately in the summary investment portfolio.

Share class	Initial sales charge	Contingent deferred sales charge upon redemption	Conversion feature
Class A and 529-A	Up to 3.75%	None (except 1% for certain redemptions within one year of purchase without an initial sales charge)	None
Class B and 529-B	None	Declines from 5% to 0% for redemptions within six years of purchase	Class B and 529-B convert to Class A and 529-A, respectively, after eight years
Class C	None	1% for redemptions within one year of purchase	Class C converts to Class F after 10 years
Class 529-C	None	1% for redemptions within one year of purchase	None
Class 529-E	None	None	None
Class F and 529-F	None	None	None
Class R-1, R-2, R-3, R-4 and R-5	None	None	None

		(dollars in thousands)
Undistributed ordinary income				$	19,605
Capital loss carryforwards*:
Expiring 2010	$	(183,032	)
Expiring 2011		(243,982	)
Expiring 2014		(69,196	)		(496,210	)
Gross unrealized appreciation on investment securities					631,724
Gross unrealized depreciation on investment securities					(221,776	)
Net unrealized appreciation on investment securities					409,948
Cost of investment securities					27,305,397
*The 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.

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

Share class	Distribution services	Transfer agent services	Administrative services
Share class	Distribution services	Transfer agent services	CRMC administrative services	Transfer agent services	Commonwealth of Virginia administrative services
Class A	$47,213	$22,923	Not applicable	Not applicable	Not applicable
Class B	14,221	1,648	Not applicable	Not applicable	Not applicable
Class C	15,929	Included in administrative services	$2,143	$488	Not applicable
Class F	2,712		903	264	Not applicable
Class 529-A	622		285	74	$325
Class 529-B	625		55	35	62
Class 529-C	1,417		124	61	141
Class 529-E	90		16	4	18
Class 529-F	-		9	2	11
Class R-1	221		28	20	Not applicable
Class R-2	3,194		622	2,118	Not applicable
Class R-3	2,287		645	486	Not applicable
Class R-4	611		351	22	Not applicable
Class R-5	Not applicable		247	10	Not applicable
Total	$89,142	$24,571	$5,428	$3,584	$557

Share class	*Sales^()**			Reinvestments of dividends			*Repurchases^()**					Net increase
		Amount	Shares		Amount	Shares		Amount		Shares			Amount	Shares
Year ended December 31, 2006
Class A	$	5,447,659	413,075	$	828,398	62,824	$	(3,488,816	)	(264,831	)	$	2,787,241	211,068
Class B		211,762	16,071		50,434	3,825		(228,925	)	(17,385	)		33,271	2,511
Class C		676,419	51,255		56,789	4,305		(327,868	)	(24,894	)		405,340	30,666
Class F		981,606	74,277		44,262	3,353		(228,643	)	(17,352	)		797,225	60,278
Class 529-A		124,278	9,418		16,139	1,224		(28,777	)	(2,183	)		111,640	8,459
Class 529-B		11,920	903		2,563	195		(4,252	)	(323	)		10,231	775
Class 529-C		58,933	4,463		5,874	445		(17,057	)	(1,294	)		47,750	3,614
Class 529-E		6,627	502		837	64		(1,969	)	(149	)		5,495	417
Class 529-F		7,487	568		549	42		(945	)	(72	)		7,091	538
Class R-1		16,185	1,224		931	71		(5,750	)	(436	)		11,366	859
Class R-2		228,880	17,369		17,884	1,355		(102,796	)	(7,797	)		143,968	10,927
Class R-3		295,955	22,433		21,159	1,604		(112,658	)	(8,548	)		204,456	15,489
Class R-4		187,503	14,206		12,269	929		(58,770	)	(4,461	)		141,002	10,674
Class R-5		171,087	12,937		11,226	851		(52,805	)	(3,994	)		129,508	9,794
Total net increase
(decrease)	$	8,426,301	638,701	$	1,069,314	81,087	$	(4,660,031	)	(353,719	)	$	4,835,584	366,069

Year ended December 31, 2005
Class A	$	4,739,784	353,095	$	753,982	56,328	$	(3,046,419	)	(227,453	)	$	2,447,347	181,970
Class B		210,741	15,691		51,049	3,814		(196,388	)	(14,642	)		65,402	4,863
Class C		539,360	40,179		46,353	3,465		(239,621	)	(17,876	)		346,092	25,768
Class F		439,809	32,789		26,293	1,966		(129,966	)	(9,713	)		336,136	25,042
Class 529-A		99,048	7,386		11,692	874		(17,655	)	(1,317	)		93,085	6,943
Class 529-B		11,021	821		2,274	170		(3,178	)	(237	)		10,117	754
Class 529-C		43,687	3,257		4,404	330		(10,279	)	(767	)		37,812	2,820
Class 529-E		5,516	411		616	46		(1,102	)	(82	)		5,030	375
Class 529-F		3,351	250		295	22		(383	)	(28	)		3,263	244
Class R-1		10,761	802		627	46		(3,762	)	(281	)		7,626	567
Class R-2		185,712	13,833		13,048	976		(75,678	)	(5,646	)		123,082	9,163
Class R-3		211,778	15,775		14,002	1,047		(68,049	)	(5,080	)		157,731	11,742
Class R-4		130,864	9,741		7,037	526		(29,203	)	(2,180	)		108,698	8,087
Class R-5		121,222	9,076		5,937	444		(45,884	)	(3,422	)		81,275	6,098
Total net increase
(decrease)	$	6,752,654	503,106	$	937,609	70,054	$	(3,867,567	)	(288,724	)	$	3,822,696	284,436

(*) Includes exchanges between share classes of the fund.

	Contract amount				U.S. valuations at December 31, 2006

Non-U.S. currency contracts		Non-U.S.		U.S.		Amount		Unrealized appreciation (depreciation	)

Sales:

British pounds expiring3/22/2007		£1,070		2,102		2,096	$	6
Euros expiring1/12 to 3/20/2007		€9,302	$	12,282	$	12,314		(32	)

Forward currency contracts			$	14,384	$	14,410	$	(26	)

			Income from investment operations⁽²⁾

		Net asset value, beginning of period			Net investment income		Net gains (losses) on securities (both realized and unrealized	)		Total from investment operations		Dividends (from net investment income	)		Net asset value, end of period	Total return(3	)		Net assets, end of period (in millions	)			Ratio of expenses to average net assets before reimbursements/ waivers				Ratio of expenses to average net assets after reimbursements/ waivers		(4	)	Ratio of net income to average net assets
Class A:
Year ended 12/31/2006	$	13.22		$	.67	$	.09		$	.76	$	(.66	)	$	13.32	5.88	%	$	20,670				.65	%			.62	%			5.07	%
Year ended 12/31/2005		13.65			.62		(.36	)		.26		(.69	)		13.22	1.94			17,738				.65				.62				4.60
Year ended 12/31/2004		13.51			.61		.16			.77		(.63	)		13.65	5.85			15,822				.65				.65				4.54
Year ended 12/31/2003		12.70			.68		.84			1.52		(.71	)		13.51	12.22			13,991				.67				.67				5.15
Year ended 12/31/2002		12.79			.82		(.08	)		.74		(.83	)		12.70	6.11			12,600				.71				.71				6.59
Class B:
Year ended 12/31/2006		13.22			.57		.09			.66		(.56	)		13.32	5.09			1,458				1.40				1.37				4.33
Year ended 12/31/2005		13.65			.52		(.36	)		.16		(.59	)		13.22	1.19			1,415				1.38				1.36				3.87
Year ended 12/31/2004		13.51			.51		.16			.67		(.53	)		13.65	5.07			1,394				1.39				1.38				3.80
Year ended 12/31/2003		12.70			.58		.84			1.42		(.61	)		13.51	11.38			1,274				1.41				1.41				4.37
Year ended 12/31/2002		12.79			.72		(.08	)		.64		(.73	)		12.70	5.28			939				1.47				1.47				5.77
Class C:
Year ended 12/31/2006		13.22			.56		.09			.65		(.55	)		13.32	5.04			1,847				1.45				1.42				4.27
Year ended 12/31/2005		13.65			.51		(.36	)		.15		(.58	)		13.22	1.12			1,429				1.44				1.42				3.81
Year ended 12/31/2004		13.51			.50		.16			.66		(.52	)		13.65	4.99			1,123				1.46				1.45				3.71
Year ended 12/31/2003		12.70			.57		.84			1.41		(.60	)		13.51	11.29			848				1.49				1.49				4.26
Year ended 12/31/2002		12.79			.71		(.08	)		.63		(.72	)		12.70	5.20			554				1.55				1.55				5.66
Class F:
Year ended 12/31/2006		13.22			.67		.09			.76		(.66	)		13.32	5.90			1,611				.63				.60				5.07
Year ended 12/31/2005		13.65			.62		(.36	)		.26		(.69	)		13.22	1.92			803				.65				.63				4.60
Year ended 12/31/2004		13.51			.60		.16			.76		(.62	)		13.65	5.80			487				.70				.69				4.46
Year ended 12/31/2003		12.70			.67		.84			1.51		(.70	)		13.51	12.15			292				.72				.72				5.02
Year ended 12/31/2002		12.79			.81		(.08	)		.73		(.82	)		12.70	6.04			180				.77				.77				6.44
Class 529-A:
Year ended 12/31/2006		13.22			.66		.09			.75		(.65	)		13.32	5.85			388				.68				.66				5.05
Year ended 12/31/2005		13.65			.61		(.36	)		.25		(.68	)		13.22	1.88			273				.69				.67				4.57
Year ended 12/31/2004		13.51			.60		.16			.76		(.62	)		13.65	5.80			187				.70				.70				4.48
Year ended 12/31/2003		12.70			.67		.84			1.51		(.70	)		13.51	12.21			110				.68				.68				5.05
Period from 2/15/2002 to 12/31/2002		12.76			.69		(.04	)		.65		(.71	)		12.70	5.33			50				.75		(5	)	.75		(5	)	6.46		(5	)
Class 529-B:
Year ended 12/31/2006		13.22			.55		.09			.64		(.54	)		13.32	4.97			69				1.53				1.50				4.20
Year ended 12/31/2005		13.65			.50		(.36	)		.14		(.57	)		13.22	1.02			58				1.54				1.52				3.71
Year ended 12/31/2004		13.51			.48		.16			.64		(.50	)		13.65	4.86			49				1.59				1.58				3.60
Year ended 12/31/2003		12.70			.55		.84			1.39		(.58	)		13.51	11.18			35				1.61				1.61				4.13
Period from 2/15/2002 to 12/31/2002		12.76			.60		(.04	)		.56		(.62	)		12.70	4.55			17				1.64		(5	)	1.64		(5	)	5.57		(5	)
Class 529-C:
Year ended 12/31/2006		13.22			.55		.09			.64		(.54	)		13.32	4.99			170				1.51				1.49				4.22
Year ended 12/31/2005		13.65			.50		(.36	)		.14		(.57	)		13.22	1.03			121				1.53				1.51				3.74
Year ended 12/31/2004		13.51			.48		.16			.64		(.50	)		13.65	4.88			86				1.57				1.57				3.61
Year ended 12/31/2003		12.70			.55		.84			1.39		(.58	)		13.51	11.19			56				1.59				1.59				4.15
Period from 2/19/2002 to 12/31/2002		12.73			.60		(.02	)		.58		(.61	)		12.70	4.75			28				1.63		(5	)	1.63		(5	)	5.58		(5	)
Class 529-E:
Year ended 12/31/2006		13.22			.62		.09			.71		(.61	)		13.32	5.53			21				.99				.97				4.74
Year ended 12/31/2005		13.65			.57		(.36	)		.21		(.64	)		13.22	1.56			15				1.01				.99				4.25
Year ended 12/31/2004		13.51			.55		.16			.71		(.57	)		13.65	5.43			11				1.05				1.05				4.13
Year ended 12/31/2003		12.70			.62		.84			1.46		(.65	)		13.51	11.77			7				1.06				1.06				4.68
Period from 3/7/2002 to 12/31/2002		12.70			.61		.02			.63		(.63	)		12.70	5.14			3				1.13		(5	)	1.13		(5	)	6.06		(5	)
Class 529-F:
Year ended 12/31/2006		13.22			.69		.09			.78		(.68	)		13.32	6.05			14				.49				.46				5.25
Year ended 12/31/2005		13.65			.62		(.36	)		.26		(.69	)		13.22	1.98			7				.58				.56				4.69
Year ended 12/31/2004		13.51			.59		.16			.75		(.61	)		13.65	5.69			4				.80				.80				4.36
Year ended 12/31/2003		12.70			.64		.84			1.48		(.67	)		13.51	11.96			2				.82				.82				4.72
Period from 9/26/2002 to 12/31/2002		12.31			.19		.40			.59		(.20	)		12.70	4.81			-		(6	)	.30				.30				1.51




Class R-1:
Year ended 12/31/2006	$	13.22		$	.56	$	.09		$	.65	$	(.55	)	$	13.32	5.05	%	$	29				1.49	%			1.42	%			4.28	%
Year ended 12/31/2005		13.65			.51		(.36	)		.15		(.58	)		13.22	1.11			18				1.51				1.43				3.82
Year ended 12/31/2004		13.51			.50		.16			.66		(.52	)		13.65	4.98			11				1.55				1.47				3.70
Year ended 12/31/2003		12.70			.57		.84			1.41		(.60	)		13.51	11.29			5				1.65				1.49				4.13
Period from 6/11/2002 to 12/31/2002		12.65			.38		.06			.44		(.39	)		12.70	3.59			1				2.53		(5	)	1.52		(5	)	5.55		(5	)
Class R-2:
Year ended 12/31/2006		13.22			.56		.09			.65		(.55	)		13.32	5.06			500				1.67				1.41				4.30
Year ended 12/31/2005		13.65			.51		(.36	)		.15		(.58	)		13.22	1.14			352				1.74				1.41				3.84
Year ended 12/31/2004		13.51			.50		.16			.66		(.52	)		13.65	5.02			238				1.85				1.43				3.73
Year ended 12/31/2003		12.70			.57		.84			1.41		(.60	)		13.51	11.33			111				1.94				1.46				4.20
Period from 5/31/2002 to 12/31/2002		12.72			.40		(.01	)		.39		(.41	)		12.70	3.23			21				1.67		(5	)	1.48		(5	)	5.56		(5	)
Class R-3:
Year ended 12/31/2006		13.22			.62		.09			.71		(.61	)		13.32	5.49			570				1.02				.99				4.71
Year ended 12/31/2005		13.65			.56		(.36	)		.20		(.63	)		13.22	1.53			361				1.05				1.02				4.23
Year ended 12/31/2004		13.51			.55		.16			.71		(.57	)		13.65	5.42			213				1.06				1.05				4.12
Year ended 12/31/2003		12.70			.62		.84			1.46		(.65	)		13.51	11.76			95				1.12				1.07				4.59
Period from 6/4/2002 to 12/31/2002		12.73			.42		(.02	)		.40		(.43	)		12.70	3.31			18				1.20		(5	)	1.10		(5	)	5.95		(5	)
Class R-4:
Year ended 12/31/2006		13.22			.66		.09			.75		(.65	)		13.32	5.86			325				.67				.65				5.06
Year ended 12/31/2005		13.65			.61		(.36	)		.25		(.68	)		13.22	1.91			182				.67				.65				4.61
Year ended 12/31/2004		13.51			.60		.16			.76		(.62	)		13.65	5.81			77				.68				.68				4.48
Year ended 12/31/2003		12.70			.67		.84			1.51		(.70	)		13.51	12.15			18				.72				.72				5.05
Period from 5/20/2002 to 12/31/2002		12.67			.47		.04			.51		(.48	)		12.70	4.21			11				.77		(5	)	.74		(5	)	6.20		(5	)
Class R-5:
Year ended 12/31/2006		13.22			.70		.09			.79		(.69	)		13.32	6.17			336				.37				.35				5.36
Year ended 12/31/2005		13.65			.66		(.36	)		.30		(.73	)		13.22	2.21			204				.37				.35				4.91
Year ended 12/31/2004		13.51			.65		.16			.81		(.67	)		13.65	6.14			127				.37				.37				4.81
Year ended 12/31/2003		12.70			.71		.84			1.55		(.74	)		13.51	12.52			106				.40				.40				5.39
Period from 5/15/2002 to 12/31/2002		12.66			.52		.05			.57		(.53	)		12.70	4.66			78				.42		(5	)	.42		(5	)	6.75		(5	)

	Year ended December 31
		2006		2005		2004		2003		2002

Portfolio turnover rate for all classes of shares		53	%	50	%	45	%	60	%	50	%

Qualified dividend income	$	13,957,000
Corporate dividends received deduction		6,581,000
U.S. government income that may be exempt from state taxation		95,619,000