-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SZa0Eepa3V+yrKY5GBwLdR1GyEZ56p4YEdtSByMi1Dej9jeLl6UV+qkx6LJXEM85 foSbg6fKn1DzhZCTzkHj3w== 0000013075-95-000014.txt : 19950621 0000013075-95-000014.hdr.sgml : 19950621 ACCESSION NUMBER: 0000013075-95-000014 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950620 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOND FUND OF AMERICA INC CENTRAL INDEX KEY: 0000013075 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 952884967 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-50700 FILM NUMBER: 95548142 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 497 1 THE BOND FUND OF AMERICA, INC. PART B STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1995 (AS AMENDED JUNE 15, 1995) This document is not a prospectus but should be read in conjunction with the current Prospectus of The Bond Fund of America, Inc. (the "fund") dated March 1, 1995. The Prospectus may be obtained from your investment dealer or financial planner or by writing to the fund at the following address: The Bond Fund of America, Inc. Attention: Secretary 333 South Hope Street Los Angeles, CA 90071 (213) 486-9200 The fund has two forms of prospectuses. Each reference to the prospectus in this Statement of Additional Information includes both of the fund's prospectuses. Shareholders who purchase shares at net asset value through eligible retirement plans should note that not all of the services or features described below may be available to them, and they should contact their employer for details. TABLE OF CONTENTS
ITEM PAGE NO. DESCRIPTION OF CERTAIN SECURITIES 2 INVESTMENT RESTRICTIONS 5 FUND OFFICERS AND DIRECTORS 7 MANAGEMENT 10 DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 12 PURCHASE OF SHARES 15 SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 17 REDEMPTION OF SHARES 18 EXECUTION OF PORTFOLIO TRANSACTIONS 18 GENERAL INFORMATION 19 INVESTMENT RESULTS 20 DESCRIPTION OF BOND RATINGS 25 FINANCIAL STATEMENTS ATTACHED
DESCRIPTION OF CERTAIN SECURITIES CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds can be sensitive to adverse economic changes and corporate developments. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. If the issuer of a bond defaulted on its obligations to pay interest or principal or entered into bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices and yields of high-yield, high-risk bonds. PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or call provisions. If an issuer exercised these provisions in a declining interest rate market, the fund would have to replace the security with a lower yielding security, resulting in a decreased return for investors. Conversely, a high-yield, high-risk bond's value will decrease in a rising interest rate market, as will the value of the fund's assets. LIQUIDITY AND VALUATION - There may be little trading in the secondary market for particular bonds, which may affect adversely the fund's ability to value accurately or dispose of such bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high-yield, high-risk bonds, especially in a thin market. DOWNGRADE POLICY - The fund is not normally required to dispose of a security in the event that its rating is reduced to Ba or below by Moody's Investors, Inc. or BB or below by Standard & Poors Corporation (or it is not rated and its quality becomes equivalent to such a security). The fund, however, has no current intention to hold 35% or more of its net assets in these securities (also known as "high-yield, high-risk" or "junk" bonds). GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by the Government National Mortgage Association ("GNMA") are mortgage-backed securities representing part ownership of a pool of mortgage loans, which are issued by lenders such as mortgage bankers, commercial banks and savings and loan associations, and are either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. A pool of these mortgages is assembled and, after being approved by GNMA, is offered to investors through securities dealers. The timely payment of interest and principal on each mortgage is guaranteed by GNMA and backed by the full faith and credit of the U.S. Government. Principal is paid back monthly by the borrower over the term of the loan. Reinvestment of prepayments may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current market rates, GNMA certificates can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates. GNMA certificates typically appreciate or decline in market value during periods of declining or rising interest rates, respectively. Due to the regular repayment of principal and the prepayment feature, the effective maturities of mortgage pass-through securities are shorter than stated maturities, will vary based on market conditions and cannot be predicted in advance. The effective maturities of newly-issued GNMA certificates backed by relatively new loans at or near the prevailing interest rates are generally assumed to range between approximately 9 and 12 years. FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - FNMA, a federally chartered and privately-owned corporation, issues pass-through securities representing interests in a pool of conventional mortgage loans. FNMA guarantees the timely payment of principal and interest but this guarantee is not backed by the full faith and credit of the U.S. Government. FHLMC, a corporate instrumentality of the U.S. Government, issues participation certificates which represent an interest in a pool of conventional mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate collection of principal, and maintains reserves to protect holders against losses due to default, but the certificates are not backed by the full faith and credit of the U.S. Government. As is the case with GNMA certificates, the actual maturity of and realized yield on particular FNMA and FHLMC pass-through securities will vary based on the prepayment experience of the underlying pool of mortgages. OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related securities issued by financial institutions such as commercial banks, savings and loan associations, mortgage bankers and securities broker-dealers (or separate trusts or affiliates of such institutions established to issue these securities). These securities include mortgage pass-through certificates, collateralized mortgage obligations (including real estate mortgage investment conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or mortgage-backed bonds. Each class of bonds in a CMO series may have a different maturity, bear a different coupon, and have a different priority in receiving payments. All principal payments, both regular principal payments as well as any prepayment of principal, are passed through to the holders of the various CMO classes dependent on the characteristics of each class. In some cases, all payments are passed through first to the holders of the class with the shortest stated maturity until it is completely retired. Thereafter, principal payments are passed through to the next class of bonds in the series, until all the classes have been paid off. In other cases, payments are passed through to holders of whichever class first has the shortest effective maturity at the time payments are made. As a result, an acceleration in the rate of prepayments that may be associated with declining interest rates shortens the expected life of each class. The impact of an acceleration in prepayments affects the expected life of each class differently depending on the unique characteristics of that class. In the case of some CMO series, each class may receive a differing proportion of the monthly interest and principal repayments on the underlying collateral. In these series the classes would be more affected by an acceleration (or slowing) in the rate of prepayments than CMOs which share principal and interest proportionally. Mortgage-backed bonds are general obligations of the issuer fully collateralized directly or indirectly by a pool of mortgages. The mortgages serve as collateral for the issuer's payment obligations on the bonds, but interest and principal payments on the mortgages are not passed through either directly (as with GNMA certificates and FNMA and FHLMC pass-through securities) or on a modified basis (as with CMO's). Accordingly, a change in the rate of prepayments on the pool of mortgages could change the effective maturity of a CMO but not that of a mortgage-backed bond (although, like many bonds, mortgage-backed bonds can provide that they are callable by the issuer prior to maturity). OTHER ASSET-BACKED SECURITIES - The fund may invest in bonds or notes backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit. These securities are often "enhanced" by a bank letter of credit or by insurance coverage provided by an institution other than the issuer; such an enhancement typically covers only a portion of the par value until exhausted. Generally, the originator of the loan or accounts receivable paper sells it to a specially created trust, which repackages it as securities with a term of five years or less. Examples of these types of securities include "certificates for automobile receivables" and bonds backed by credit card loan receivables. The loans underlying these securities are subject to prepayments which can decrease maturities and returns. The values of these securities are ultimately dependent upon payment of the underlying loans by individuals, and the holders generally have no recourse against the originator of the loans. Holders of these securities may experience losses or delays in payment if the original payments of principal and interest are not made to the trust with respect to the underlying loans. The values of these securities also may fluctuate due to changes in the market perception of the creditworthiness of the servicing agent for the loan pool, the originator of the loan, or the financial institution providing the credit enhancement. CURRENCY TRANSACTIONS - The fund has the ability to hold a portion of its assets in various currencies and to 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. The fund might purchase a currency or enter into a forward purchase contract for the currency to preserve the U.S. dollar price of securities it has the authority to purchase or has contracted to purchase. Alternatively, it might sell a currency on either a spot or forward basis to hedge against an anticipated decline in the U.S. dollar value of securities in its portfolio or which it intends or has contracted to sell. Although this strategy could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain which might result from an increase in the value of the currency. LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of doing so during the next 12 months, the fund is authorized to lend portfolio securities to selected securities dealers or to other institutional investors whose financial condition is monitored by Capital Research and Management Company (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 one-third of the value of its total assets, measured at the time any such loan is made. PORTFOLIO TRADING - The fund intends to engage in portfolio trading when it is believed that the sale of a security owned by the fund and the purchase of another security of better value can enhance principal and/or increase income. A security may be sold to avoid any prospective decline in market value in light of what is evaluated as an expected rise in prevailing yields, or a security may be purchased in anticipation of a market rise (a decline in prevailing yields). A security also may be sold and a comparable security purchased coincidentally in order to take advantage of what is believed to be a disparity in the normal yield and price relationship between the two securities, or in connection with a "roll" transaction as described in the Prospectus under "Certain Securities and Investment Techniques." INVERSE FLOATING RATE NOTES - The fund is authorized to invest up to 1.5% of the fund's net 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; thus, 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. STRATEGIC PORTFOLIO ADJUSTMENT - The composition of the fund's portfolio will change from time to time primarily in response to expected changes in interest rates and in the yield relationships among sectors of the fixed-income market. The Investment Adviser continually monitors the creditworthiness of companies, the price and yield relationships among different sections of the debt market and the outlook for interest rates in general and in particular parts of the debt market. Yield relationships among securities of various types of issuers, maturities, coupon rates or quality ratings frequently change in response to changing supply-demand influences in the market. When it appears to the Investment Adviser that the yield relationships may change, the composition of the portfolio may be adjusted, should such changes offer the opportunity to further the fund's investment objective. Changes may also be made if the Investment Adviser believes that there is a temporary disparity among individual securities of comparable characteristics. Some such changes may result in short-term gains or losses to the fund. This information, which is shared among the Investment Adviser's other departments and its affiliates, makes up a part of the Investment Adviser's investment decisions. PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. 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. The fund does not anticipate its portfolio turnover to exceed 100% annually. The fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio were replaced once per year. See "Financial Highlights" in the Prospectus for the fund's portfolio turnover for each of the last 10 years. OTHER POLICIES - The fund may not make direct purchases of common or preferred stocks or warrants or rights to acquire such common or preferred stocks. The fund may invest in debt securities which are convertible into or exchangeable for or which carry warrants or rights to purchase common stock or other equity interests. Equity interests acquired through such conversion, exchange or exercise will be disposed of by the fund as soon as it may feasibly be done in an orderly manner. INVESTMENT RESTRICTIONS The fund has adopted certain additional investment restrictions which may not be changed without approval of the holders of a majority of its outstanding shares. Such majority is defined by the 1940 Act as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. These restrictions provide that the fund may not: 1. Purchase any security (other than securities issued or guaranteed by the U.S. government or its agencies or instrumentalities) if, immediately after and as a result of such investment (a) more than 5% of the value of the fund's total assets would be invested in securities of the issuer; or (b) the fund would hold more than 10% of the voting securities of the issuer; or (c) 25% or more of the value of the fund's assets would be invested in a single industry. Each of the electric utility, natural gas distribution, natural gas pipeline, combined electric and natural gas utility, and telephone industries shall be considered as a separate industry for this purpose; 2. Invest in companies for the purpose of exercising control or management; 3. Knowingly purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; 4. 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; 5. 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; 6. Invest more than 15% of the value of its net assets in securities that are illiquid; 7. 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; 8. 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; 9. 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; 10. Purchase securities at margin; 11. Borrow money except from banks for temporary or emergency purposes, not in excess of 5% of the value of the fund's total assets; 12. Mortgage, pledge, or hypothecate any of its assets; 13. Purchase or retain the securities of any issuer, if those individual officers and directors of the fund, its investment adviser, or distributor, each owning beneficially more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; The fund has adopted the following non-fundamental investment policies, which may be changed by action of the Board of Directors without shareholder approval: (a) the fund will not invest more than 5% of its total assets in securities of companies having, together with their predecessors, a record of less than three years of continuous operation, and (b) the fund will not purchase partnership interests or invest in leases to develop, or explore for, oil, gas or minerals. Notwithstanding Investment Restriction #3, the fund may invest in securities of other managed investment companies if deemed advisable by its officers in connection with the administration of a deferred compensation plan adopted by Directors pursuant to an exemptive order granted by the Securities and Exchange Commission. FUND OFFICERS AND DIRECTORS Directors and Director Compensation (with their principal occupations during the past five years)#
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS/2/ ON CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH COMPENSATION/1/) FROM MANAGEMENT COMPANY/2/ DIRECTOR FUND DURING FISCAL SERVES YEAR ENDED 12/31/94 ++ H. Frederick Christie Director Private Investor. The Mission P. O. Box 144 Group (non-utility holding $6,000 $135,583 18 Palos Verdes, CA 90274 Company, subsidiary of Southern Age: 61 California Edison Company), former President and Chief Executive Officer Diane C. Creel Director Chairwoman, CEO and President, 100 W. Broadway The Earth Technology Corporation 533 7200 10 Suite 5000 Long Beach, CA 90802 Age: 46 Martin Fenton, Jr. Director Chairman, Senior Resource Group 4350 Executive Drive (management of senior living 5,600/3/ 93,050 15 Suite 101 centers) San Diego, CA 92123 Age: 59 Leonard R. Fuller Director President, Fuller & Company, Inc. 4333 Admiralty Way (financial management consulting 533 7,200 10 Suite 841 ETH firm) Marina del Rey, CA 90292 Age: 48 +* Abner D. Goldstine President, PEO Capital Research and Management Age: 65 and Director Company, Senior Vice President none/4/ none/4/ 12 and Director +** Paul G. Haaga, Jr. Chairman of Capital Research and Management Age: 46 the Board Company, Senior Vice President none/4/ none/4/ 14 and Director Herbert Hoover III Director Private Investor 200 S. Los Robles 5,400 57,850 14 Avenue Suite 520 Pasadena, CA 91101-2431 Age: 67 Richard G. Newman Director Chairman, President and CEO, 3250 Wilshire Boulevard AECOM Technology Corporation 5,600/3/ 42,050 12 Los Angeles, CA 90010- (architectural engineering) 1599 Age: 60 Peter C. Valli Director Chairman and CEO, BW/IP 200 Oceangate Boulevard International Inc. (industrial 5,600/3/ 40,850 12 Suite 900 manufacturing) Long Beach, CA 90802 Age: 68
+ Directors who are considered "interested persons as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company. ++ May be deemed an "interested person" of the fund due to membership on the board of directors of the parent company of a registered broker-dealer. * Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025. ** Address is 333 South Hope Street, Los Angeles, CA 90071 /1/ Amounts may be deferred by eligible directors under a non-qualified deferred compensation plan adopted by the Fund in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Director. /2/ Capital Research and Management Company manages The American Funds Group consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of America, Capital Income Builder, Inc., Capital World Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury Money Fund of America, U.S. Government Securities Fund and Washington Mutual Investors Fund, Inc. Capital Research and Management Company also manages American Variable Insurance Series and Anchor Pathway Fund which serve as the underlying investment vehicle for certain variable insurance contracts; and Bond Portfolio for Endowments, Inc. and Endowments, Inc. whose shares may be owned only by tax-exempt organizations. /3/ Since the plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) for participating Directors is as follows: Martin Fenton, Jr. ($5,804), Richard G. Newman ($5,752) and Peter C. Valli ($5,737). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Director. /4/ Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated with the Investment Adviser and, accordingly, receive no compensation from the Fund. OFFICERS (with their principal occupations during the past five years)# * RICHARD T. SCHOTTE, SENIOR VICE PRESIDENT. Capital Research Company, Senior Vice President * JOHN H. SMET, VICE PRESIDENT. Capital Research and Management Company, Vice President ** MARY C. CREMIN, VICE PRESIDENT AND TREASURER. Capital Research and Management Company, Senior Vice President - Fund Business Management Group *** MICHAEL J. DOWNER, VICE PRESIDENT. Capital Research and Management Company, Senior Vice President - Fund Business Management Group *** JULIE F. WILLIAMS, SECRETARY. Capital Research and Management Company, Vice President - Fund Business Management Group *** KIMBERLY S. VERDICK, ASSISTANT SECRETARY. Capital Research and Management Company, Compliance Associate. OFFICERS (cont.) ** ANTHONY W. HYNES, Assistant Treasurer. Capital Research and Management Company, Vice President - Fund Business Management Group # Positions within the organizations listed may have changed during this period. * Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025. ** Address is 135 South State College Boulevard, Brea, CA 92621. *** Address is 333 South Hope Street, Los Angeles, CA 90071. The fund pays annual fees of $2850 to Directors who are not affiliated with the Investment Adviser, plus $200 for each Board of Directors meeting attended, plus $200 for each meeting attended as a member of a committee of the Board of Directors. The Directors may elect, on a voluntary basis, to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser. As of February 1, 1995, the officers and Directors and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. MANAGEMENT INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research facilities in the U.S. and abroad, with a staff of professionals, many of whom have a number of years of investment experience. The Investment Adviser's research professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. An affiliate of the Investment Adviser compiles indices for major stock markets around the world and compiles and edits the Morgan Stanley Capital International Perspective, providing financial and market information about more than 2,400 companies around the world. The Investment Adviser is responsible for approximately $100 billion of stocks, bonds and money market instruments and serve over five million investors of all types throughout the world. These investors include privately owned businesses and large corporations, as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue until October 31, 1995 unless sooner terminated and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (i) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities, and (ii) the vote of a majority of directors who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the Investment Adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, provides suitable office space and utilities, necessary small office equipment and general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to, custodian, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders, taxes; expenses of the issuance and redemption of shares (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to directors unaffiliated with the Investment Adviser; association dues; and costs of stationery and forms prepared exclusively for the fund. The Investment Adviser has agreed to reduce the fee payable to it under the agreement, (a) by 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, shall exceed the greater of (i) one percent (1%) of the average month-end net assets of the fund for such fiscal year, or (ii) ten percent (10%) of the fund's gross investment income, and (b) by any additional amount necessary to assure that such ordinary operating expenses of the fund in any year after such reduction do not exceed the lesser of (i) one and one-half percent (1 1/2%) of the first $30 million of average month-end net assets of the fund, plus one percent (1%) of the average month-end net assets in excess thereof or (ii) twenty-five percent (25%) of the fund's gross investment income. During the fiscal years ended December 31, 1994, 1993, and 1992, the Investment Adviser's total fees amounted to $18,755,000, $17,170,000, and $13,243,000, respectively. PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal Underwriter") is the principal underwriter of the fund's shares. The fund has adopted a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act (see "Principal Underwriter" in the Prospectus). The Principal Underwriter receives amounts payable pursuant to the Plan (see below) and commissions consisting of that portion of the sales charge remaining after the discounts which it allows to investment dealers. Commissions retained by the Principal Underwriter on sales of fund shares during the fiscal year ended December 31, 1994 amounted to $4,561,902 after allowance of $19,570,842 to dealers. During the fiscal years ended December 31, 1992 and 1991 the Principal Underwriter retained $8,418,631 and $7,091,000, respectively. As required by rule 12b-1, the Plan (together with the Principal Underwriting Agreement) has been approved by the full Board of Directors and separately by a majority of the Directors who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plan or the Principal Underwriting Agreement, and the Plan has been approved by the vote of a majority of the outstanding voting securities of the fund. The officers and directors who are "interested persons" of the fund due to present or past affiliations with the investment adviser and related companies may be considered to have a direct or indirect financial interest in the operation of the Plan. Potential benefits of the plan to the fund include improved shareholder services, savings to the fund in transfer agency costs, savings to the fund in advisory fees and other expenses, benefits to the investment process from growth or stability of assets and maintenance of a financially healthy management organization. The selection and nomination of Directors who are not "interested persons" of the fund is committed to the discretion of the Directors who are not "interested persons" during the existence of the Plan. The Plan is reviewed quarterly and must be renewed annually by the Board of Directors. Under the Plan the fund may expend up to 0.25% of its average net assets annually to finance any activity which is 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. These include service fees for qualified dealers and dealer commissions and wholesaler compensation on sales of shares exceeding $1 million (including purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees). Only expenses incurred during the preceding 12 months and accrued while the Plan is in effect may be paid by the fund. During the fiscal year ended December 31, 1994, the fund paid $11,347,000 under the Plan as compensation to dealers. As of December 31, 1994 accrued and unpaid distribution expenses were $829,000. The Glass-Steagall Act and other applicable laws, among other things, generally prohibit commercial banks from engaging in the business of underwriting, selling or distributing securities, but permit banks to make shares of mutual funds available to their customers and to perform administrative and shareholder servicing functions. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either federal or state statutes or regulations relating to the permissible activities of banks or their subsidiaries of affiliates, could prevent a bank from continuing to perform all or a part of its servicing activities. If a bank were prohibited from so acting, shareholder clients of such bank would be permitted to remain shareholders of the fund and alternate means for continuing the servicing of such shareholders would be sought. In such event, changes in the operation of the fund might occur and shareholders serviced by such bank might no longer be able to avail themselves of any automatic investment or other services then being provided by such bank. It is not expected that shareholders would suffer with adverse financial consequences as a result of any of these occurrences. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein and certain banks and financial institutions may be required to be registered as dealers pursuant to state law. DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES The fund intends to meet all the requirements and has elected the tax status of a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund distributes within specified times at least 90% of the sum of its investment company taxable investment income (net investment income and the excess of net short-term capital gains over net long-term capital losses) and its tax-exempt interest, if any, it will be taxed only on that portion (if any) of the investment company taxable income and net capital gain that it retains. To qualify, the fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities, currencies or other income derived with respect to its business of investing in such stock, securities or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of stock or securities held for less than three months; and (c) 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 other securities which must be limited, in respect of any one issuer, to an amount not greater than 5% of the fund's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or in two or more issuers which the fund controls and which are engaged in the same or similar trades or businesses or related trades or businesses. Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year), and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the fund from its current year's ordinary income and net capital gain and (ii) any amount on which the fund pays income tax during the periods described above. The fund intends to distribute net investment income and net capital gains so as to minimize or avoid the excise tax liability. The fund also intends to distribute to shareholders all of the excess of net long-term capital gain over net short-term capital loss on sales of securities. If the net asset value of shares of the fund should, by reason of a distribution of realized capital gains, be reduced below a shareholder's cost, such distribution would to that extent be a return of capital to that shareholder even though taxable to the shareholder, and a sale of shares by a shareholder at net asset value at that time would establish a capital loss for federal tax purposes. In particular, investors should consider the tax implications of purchasing shares just prior to a dividend or distribution record date. Those investors purchasing shares just prior to such a date will then receive a partial return of capital upon the dividend or distribution, which will nevertheless be taxable to them as an ordinary or capital gains dividend. Dividends generally are taxable to shareholders at the time they are paid. However, dividends and distributions declared in October, November and December and made payable to shareholders of record in such a month are treated as paid and are thereby taxable as of December 31, provided that the fund pays the dividend no later than the end of January of the following year. 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 shall not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purpose 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 shares. Also, any loss realized on a redemption or exchange of shares of a fund will be disallowed to the extent shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. Under the Code, distributions of net investment income by the fund to a shareholder who, as to the U.S., is a nonresident alien individual, nonresident alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S. partnership (a "non-U.S. shareholder") will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will not apply if a dividend paid by the fund to a non-U.S. shareholder is "effectively connected" with a U.S. trade or business, in which case the reporting and withholding requirements applicable to U.S. citizens, U.S. residents or domestic corporations will apply. However, if the distribution is effectively connected with the conduct of the non-U.S. shareholder's trade or business within the U.S., the distribution would be included in the net income of the shareholder and subject to U.S. income tax at the applicable marginal rate. Distributions of capital gains not effectively connected with a U.S. trade or business are not subject to the withholding, but if the non-U.S. shareholder was an individual who was physically present in the U.S. during the tax year for more than 182 days and such shareholder is nonetheless treated as a nonresident alien, the distributions would be subject to a 30% tax. The fund may be required to pay withholding and other taxes imposed by countries outside the United States which would reduce the fund's investment income, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% in value of the fund's total assets at the close of its taxable year consist of securities of non-U.S. corporations, the fund will be eligible to file elections with the Internal Revenue Service pursuant to which shareholders of the fund will be required to include their respective pro rata portions of such withholding taxes in their federal income tax returns as gross income, treat such amounts as foreign taxes paid by them, and deduct such amounts in computing their taxable incomes or, alternatively, use them as foreign tax credits against their federal income taxes. The fund does not currently expect to meet the eligibility requirement for filing this election as its investments in securities of non-U.S. issuers are limited. Sales of forward currency contracts which are intended to hedge against a change in the value of securities or currencies held by the fund may affect the holding period of such securities or currencies and, consequently, the nature of the gain or loss on such securities or currencies upon disposition. The amount of any realized gain or loss on closing out a forward currency contract such as a forward commitment for the purchase or sale of non-U.S. currency will generally result in a realized capital gain or loss for tax purposes. Under Code Section 1256, forward currency contracts held by the fund at the end of each fiscal year will be required to be "marked to market" for federal income tax purposes, that is, deemed to have been sold at market value. Except for transactions in forward currency contracts which are classified as part of a "mixed straddle," any gain nor loss recognized with respect to forward currency contracts is considered to be 60% long-term capital gain or loss, and 40% short-term capital gain or loss, without regard to the holding period of the contract. In the case of a transaction classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Code Section 988 may also apply to forward currency contracts. Under Section 988, each non-U.S. currency gain or loss is generally computed separately and treated as ordinary income or loss. In the case of overlap between Sections 1256 and 988, special provisions determine the character and timing of any income, gain or loss. The fund will attempt to monitor Section 988 transactions to avoid an adverse tax impact. Under the Code, a fund's taxable income for each year will be computed without regard to any net non-U.S. currency loss attributable to transactions after October 31, and any such net non-U.S. currency loss will be treated as arising on the first day of the following taxable year. As of the date of this statement of additional information, the maximum individual Federal tax rate applicable to ordinary income is 39.6% (effective tax rates may be higher for some individuals due to phase out of exemptions and elimination of deductions); the maximum individual tax rate applicable to net capital gain is 28%; and the maximum corporate tax applicable to ordinary income and net capital gain is 35% (except that corporations which have taxable income in excess of $100,000 for a taxable year will be required to pay an additional amount of income tax of up to $11,750 and corporations which have taxable income in excess of $15,000,000 for a taxable year will be required to pay an additional amount of income tax of up to $100,000). Naturally, the amount of tax payable by an individual will be affected by a combination of tax law rules covering, E.G., deductions, credits, deferrals, exemptions, sources of income and other matters. Under the Code, an individual is entitled to establish and contribute to an IRA each year (prior to the tax return filing deadline for that year) whereby earnings on investments are tax-deferred. In addition, in some cases, the IRA contribution itself may be deductible. The foregoing is limited to a summary discussion of federal taxation and should not be viewed as a comprehensive discussion of all provisions of the Code relevant to investors. Dividends and distributions may also be subject to state or local taxes. Investors should consult their own tax advisers for additional details as to their particular tax status. PURCHASE OF SHARES PRICE OF SHARES - Purchases of shares are made at the offering price next determined after the purchase order is received by the fund or American Funds Service Company; this offering price is effective for orders received by American Funds Service Company (the "Transfer Agent"), the fund or investment dealers prior to the time of determination of the net asset value and, in the case of orders placed with dealers, accepted by the Principal Underwriter prior to its close of business. The dealer is responsible for promptly transmitting purchase orders to the Principal Underwriter. Orders received by the investment dealer, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Prices which appear in the newspaper are not always indicative of prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day's closing price whereas purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share which is calculated once daily at the close of trading (currently 4:00 p.m., New York time) each day the New York Stock Exchange is open. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net asset value per share is determined as follows: 1. Stocks and convertible debentures are stated at market value based upon closing sales prices reported on recognized securities exchanges on the last business day of the period or, for listed securities having no sales reported, upon last-reported bid prices on that date. Securities traded in the over-the-counter market are valued at the last available sale prior prior to the time of valuation, or, lacking any sales, at the last reported bid price. Bonds and notes are valued at prices obtained from a bond-pricing service provided by a major dealer in bonds, 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 of representative quoted bid and asked prices or, if such prices are not available, at prices for securities of comparable maturity, quality and type. Securities denominated in non-U.S. currencies are generally valued on the basis of bid quotations. Short-term securities with original or remaining maturities in excess of 60 days are valued at the mean of their quoted bid and asked prices. Short-term securities with 60 days or less to maturity are valued at amortized cost, which approximates market value. The maturities of variable or floating rate instruments are deemed to be the time remaining until the next interest rate adjustment date. 2. Where pricing service or market quotations are not readily available, securities will be valued at fair value by the Valuation Committee of the Board of Directors. 3. There are deducted from the total assets, thus determined, the liabilities, including proper accruals of taxes and other expense items; and 4. The net assets so obtained is then divided by the total number of shares outstanding, and the result, rounded to the nearest cent, is the net asset value per share. Any purchase order may be rejected by the Principal Underwriter or by the fund. The fund will not knowingly sell shares (other than for the reinvestment of dividends or capital gain distributions) directly or indirectly or through a unit investment trust to any other investment company, person or entity, where, after the sale, such investment company, person, or entity would own beneficially directly, indirectly, or through a unit investment trust more than 3% of the outstanding shares of the fund without the consent of a majority of the Board of Directors. STATEMENT OF INTENTION - The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more made within a 13-month period pursuant to the terms of a written statement of intention (the "Statement") in the form provided by the Principal Underwriter and signed by the purchaser. The Statement is not a binding obligation to purchase the indicated amount. When a shareholder signs a Statement in order to qualify for a reduced sales charge, shares equal to 5% of the dollar amount specified in the Statement will be held in escrow in the shareholder's account out of the initial purchase (or subsequent purchases, if necessary) by the Transfer Agent. All dividends and capital gain distributions on shares held in escrow will be credited to the shareholder's account in shares (or paid in cash, if requested). If the intended investment is not completed within the specified 13-month period, the purchaser will remit to the Principal Underwriter the difference between the sales charge actually paid and the sales charge which would have been paid if the total of such purchases had been made at a single time. If the difference is not paid within 20 days after written request by the Principal Underwriter or the securities dealer, the appropriate number of escrowed shares will be redeemed to pay such difference. If the proceeds from this redemption are inadequate, the purchaser will be liable to the Principal Underwriter for the balance still outstanding. The Statement may be revised upward at any time during the 13-month period, and such a revision will be treated as a new Statement, except that the 13-month period during which the purchase must be made will remain unchanged and there will be no retroactive reduction of the sales charges paid on prior purchases. In the case of purchase orders by the trustees of certain retirement plans by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: The investment made the first month of the 13-month period will be multiplied by 13 and then multiplied by 1.5. On the first investment and all other investments made pursuant to the statement of intention, a sales charge will be assessed according to the sales charge breakpoint thus determined. There will be no retroactive adjustments in sales charges on investments previously made during the 13-month period. DEALER COMMISSIONS - The following commissions will be paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees, and for purchases made at net asset value by certain retirement plans of organizations with collective retirement plan assets of $100 million or more: 1.00% on amounts of $1 million to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts over $3 million to $50 million, 0.25% on amounts over $50 million to $100 million, and 0.15% on amounts over $100 million. The level of dealer commissions will be determined based on sales made over a 12-month period commencing from the date of the first sale at net asset value. See "The American Funds Shareholder Guide" in the fund's Prospectus for more information. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders to make regular monthly or quarterly investments in shares through automatic charges to their bank accounts. With shareholder authorization and bank approval, the Transfer Agent will automatically charge the bank account for the amount specified ($50 minimum), which will be automatically invested in shares at the offering price on or about the 10th day of the month (or on or about the 15th day of the month in the case of accounts for retirement plans where Capital Guardian Trust Company serves as trustee or custodian). Bank accounts will be charged on the day or a few days before investments are credited, depending on the bank's capabilities, and shareholders will receive a confirmation statement showing the current transaction. Participation in the plan will begin within 30 days after receipt of the account application. If the shareholder's bank account cannot be charged due to insufficient funds, a stop-payment order or closing of the account, the plan may be terminated and the related investment reversed. The shareholder may change the amount of the investment or discontinue the plan at any time by writing the Transfer Agent. AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as dividends, yield or income. Automatic investments may not be made into a shareholder account from which there are automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends and distributions and increases in share value would reduce the aggregate value of the shareholder's account. The Transfer Agent arranges for the redemption by the fund of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund may elect to cross-reinvest dividends or dividends and capital gain distributions paid by that fund (the "paying fund") into any other fund in The American Funds Group (the "receiving fund") subject to the following conditions: (i) the aggregate value of the shareholder's account(s) in the paying fund(s) must equal or exceed $5,000 (this condition is waived if the value of the account in the receiving fund equals or exceeds that fund's minimum initial investment requirement), (ii) as long as the value of the account in the receiving fund is below that fund's minimum initial investment requirement, dividends and capital gain distributions paid by the receiving fund must be automatically reinvested in the receiving fund, and (iii) if this privilege is discontinued with respect to a particular receiving fund, the value of the account in that fund must equal or exceed the fund's minimum initial investment requirement or the fund shall have the right, if the shareholder fails to increase the value of the account to such minimum within 90 days after being notified of the deficiency, automatically to redeem the account and send the proceeds to the shareholder. These cross-reinvestments of dividends and capital gain distributions will be at net asset value (without sales charge). REDEMPTION OF SHARES The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder if the shares owned by such shareholder through redemptions, market decline or otherwise, have a value of less than $150 (determined, for this purpose only as the greater of the shareholder's cost or the current net asset value of the shares, including any shares acquired through reinvestment of income dividends and capital gain distributions), or are fewer than ten shares. Prior notice of at least 60 days will be given to a shareholder before the involuntary redemption provision is made effective with respect to the shareholder's account. The shareholder will have not less than 30 days from the date of such notice within which to bring the account up to the minimum determined as set forth above. While payment of redemptions normally will be in cash, the fund's Articles of Incorporation permit payment of the redemption price wholly or partly in securities or other property included in the assets belonging to the fund when in the opinion of the fund's Board of Directors, which shall be conclusive, conditions exist which make payment wholly in cash unwise or undesirable. EXECUTION OF PORTFOLIO TRANSACTIONS There are occasions on which portfolio transactions for the fund may be executed as part of concurrent authorizations to purchase or sell the same security for other funds served by the Investment Adviser, or for trusts or other accounts served by affiliated companies of the Investment Adviser. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund does not intend to pay a mark-up in exchange for research in connection with principal transactions. The fund held certain debt securities of two of its regular brokers or dealers or their parents which included securities of Ford Motor Credit Co. and General Electric Capital Corp. in the amounts of $71,353,000 and $35,201,000, respectively, at December 31, 1994. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, for the fiscal years ended December 31, 1994, 1993, and 1992, amounted to $6,647,968, $8,431,000, and $5,572,000, respectively. 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 The Chase Manhattan Bank (National Association), One Chase Manhattan Plaza, New York, NY 10081, as Custodian. Non-U.S. securities may be held by the Custodian pursuant to sub-custodial agreements in non-U.S. banks or non-U.S. branches of U.S. banks. TRANSFER AGENT - The Transfer Agent, maintains the record of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. When fund shares are purchased by an insurance company separate account to serve as the underlying investment vehicle for variable insurance contracts, the fund may pay a fee to the insurance company or another party for performing certain transfer agent services with respect to contract owners having interests in the fund. The fund has entered into such an agreement with Nationwide Life Insurance Company. INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90017, has served as the fund's independent auditors since its inception, 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 attached Annual Report, have been so included in reliance on the independent auditors' report given on the authority of said firm as experts in accounting and auditing. REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly called and at which a quorum is present, the shareholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. The fund has made an undertaking, at the request of the staff of the Securities and Exchange Commission, to apply the provisions of section 16(c) of the 1940 Act with respect to the removal of directors, as though the fund were a common-law trust. Accordingly, the Directors of the fund shall promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any Director when requested in writing to do so by the record holders of not less than 10% of the outstanding shares. REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31. Shareholders are provided at least semi-annually with reports showing the investment portfolio, financial statements and other information. The fund's annual financial statements are audited by the fund's independent auditors, Deloitte & Touche LLP, whose selection is determined annually by the Board of Directors. PERSONAL INVESTING POLICY - Capital Research and Management Company and its affiliated companies have adopted a personal investing policy consistent with Investment Company Institute guidelines. This policy includes: a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; pre-clearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; disclosure of personal holdings by certain investment personnel prior to recommendation for purchase for the fund; 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. The financial statements including the investment portfolio and the report of Independent Auditors contained in the Annual Report are included in this Statement of Additional Information. The following information is not included in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE - DECEMBER 31, 1994 Net asset value and redemption price per share $12.69 (Net assets divided by shares outstanding) Maximum offering price per share $13.32 (100/95.25 of net asset value per share, which takes into account the fund's current maximum sales charge)
INVESTMENT RESULTS The fund's yield is 7.95% based on a 30-day (or one month) period ended December 31, 1994, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[( a-b/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The fund's total return over the past twelve months and average annual total returns over the past 5-year and 10-year periods ending on December 31, 1994, were -9.52%, 7.52%, and 10.04%, respectively. The average total return ("T") is computed by equating the value at the end of the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a period of years ("n") according to the following formula as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. The following assumptions will be reflected in computations made in accordance with the formula stated above: (1) deduction of the maximum sales charge of 4.75% from the $1,000 initial investment; (2) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board; and (3) a complete redemption at the end of any period illustrated. The investment results for the fund (also referred to as "BFA") set forth below were calculated as described in the fund's prospectus. Data contained in Salomon Brothers' Market Performance and Lehman Brother's The Bond Market Report are used to calculate cumulative total return from their base period (12/31/79 and 12/31/72, respectively) for each index. The percentage increases shown in the table below or used in published reports of the fund are obtained by subtracting the index results at the beginning of the period from the index results at the end of the period and dividing the difference by the index results at the beginning of the period. THE FUND VS. VARIOUS UNMANAGED INDICES
Period The Fund Salomon Lehman Average 1/1 - 12/31 Brothers (1) Brothers (2) Savings Deposit (3) 1985 - 1994 + 160% + 160% + 175% + 77% 1984 - 1993 + 207 + 208 + 233 + 88 1983 - 1992 + 194 + 203 + 225 + 99 1982 - 1991 + 252 + 271 + 316 + 112 1981 - 1990 + 210 + 240 + 261 + 122 1980 - 1989 + 210 + 221 + 236 + 125 1979 - 1988 + 191 n/a + 189 + 125 1978 - 1987 + 168 n/a + 165 + 125 1977 - 1986 + 176 n/a + 167 + 125 1976 - 1985 + 184 n/a + 173 + 123 1975 - 1984 + 152 n/a + 157 + 119 1974*- 1983 + 134 n/a + 118 + 109
* From May 28. (1) THE SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX SPANS THE AVAILABLE MARKET FOR U.S. TREASURY/AGENCY SECURITIES, INVESTMENT GRADE CORPORATE BONDS WHICH HAVE A RATING OF BBB OR BETTER BY STANDARD AND POOR'S CORPORATION, AND MORTGAGE PASS-THROUGH SECURITIES. THIS INDEX'S INCEPTION DATE IS 12/31/79. (2) THE LEHMAN BROTHERS CORPORATE BOND INDEX IS COMPRISED OF A LARGE UNIVERSE OF BONDS ISSUED BY INDUSTRIAL, UTILITY AND FINANCIAL COMPANIES WHICH HAVE A MINIMUM RATING OF BAA BY MOODY'S INVESTORS SERVICE, BBB BY STANDARD AND POOR'S CORPORATION OR, IN THE CASE OF BANK BONDS NOT RATED BY EITHER OF THE PREVIOUSLY MENTIONED SERVICES, BBB BY FITCH INVESTORS SERVICE. (3) BASED ON FIGURES SUPPLIED BY THE U.S. LEAGUE OF SAVINGS INSTITUTIONS AND THE FEDERAL RESERVE BOARD WHICH REFLECT ALL KINDS OF SAVINGS DEPOSITS, INCLUDING LONGER-TERM CERTIFICATES. SAVINGS ACCOUNTS OFFER A GUARANTEED RETURN OF PRINCIPAL, BUT NO OPPORTUNITY FOR CAPITAL GROWTH. DURING A PORTION OF THE PERIOD, THE MAXIMUM RATES PAID ON SOME SAVINGS DEPOSITS WERE FIXED BY LAW. IF YOU ARE CONSIDERING THE FUND FOR AN INDIVIDUAL RETIREMENT ACCOUNT . . .
Here's how much you would have if you had invested $2,000 on January 1 of each year in the Fund over the past 5 and 10 years: 5 Years 10 Years (1/1/90-12/31/94) (1/1/85-12/31/94) $11,832 $31,405
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
If you had invested ...and taken all $10,000 in the Fund distributions in shares, this many years ago... your investment would have been worth this much at Dec. 31, 1994 | Period | Number of Years 1/1-12/31 Value 1 1994 $ 9,048 2 1993 - 1994 10,325 3 1992 - 1994 11,500 4 1991 - 1994 13,914 5 1990 - 1994 14,371 6 1989 - 1994 15,827 7 1988 - 1994 17,515 8 1987 - 1994 17,863 9 1986 - 1994 20,572 10 1985 - 1994 26,039 11 1984 - 1994 29,157 12 1983 - 1994 31,924 13 1982 - 1994 42,433 14 1981 - 1994 45,221 15 1980 - 1994 46,825 16 1979 - 1994 48,307 17 1978 - 1994 49,289 18 1977 - 1994 51,827 19 1976 - 1994 61,237 20 1975 - 1994 68,988 21 1974*- 1994 71,582
* From May 28, 1974, the fund's inception date FUND COMPARISONS According to Lipper Analytical Services, during the period May 31, 1974 through December 31, 1994 (the fund's lifetime), the fund ranked first among the thirteen similar bond funds that were in existence for that period. The fund may also refer to results compiled by organizations such as CDA Investment Technologies, Ibbottson Associates, Lipper Analytical Services and Wiesenberger Investment Companies Services. Additionally, the Fund may, from time to time, refer to results published in various periodicals, including Barrons, Forbes, Institutional Investor, Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The Wall Street Journal. In addition, the fund may also, from time to time, illustrate the benefits of tax deferral by comparing taxable investments to investments made through tax-deferred retirement plans. Past results are not an indication of future investment results. ILLUSTRATION OF A $10,000 INVESTMENT IN THE FUND WITH DIVIDENDS REINVESTED AND CAPITAL GAIN DISTRIBUTIONS TAKEN IN SHARES (For the lifetime of the Fund May 28, 1974 through December 31, 1994)
COST OF SHARES VALUE OF SHARES Fiscal Annual Dividends Total From From From Total Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value Dec. 31 Cost Investment Reinvested Reinvested 1974 $ 413 $ 413 $10,413 $ 9,473 $ 0 $ 411 $ 9,884 1975 897 1,310 11,310 9,799 0 1,338 11,137 1976 1,010 2,320 12,320 10,555 126 2,473 13,154 1977 1,114 3,434 13,434 10,125 240 3,466 13,831 1978 1,198 4,632 14,632 9,438 278 4,396 14,112 1979 1,387 6,019 16,019 8,848 260 5,448 14,556 1980 1,706 7,725 17,725 8,147 240 6,685 15,072 1981 2,096 9,821 19,821 7,564 222 8,287 16,073 1982 2,408 12,229 22,229 8,799 259 12,303 21,361 1983 2,529 14,758 24,758 8,612 253 14,517 23,382 1984 2,838 17,596 27,596 8,563 252 17,360 26,175 1985 3,193 20,789 30,789 9,722 286 23,132 33,140 1986 3,566 24,355 34,355 9,861 1,325 26,980 38,166 1987 3,746 28,101 38,101 9,119 1,225 28,571 38,915 1988 3,912 32,013 42,013 9,188 1,235 32,657 43,080 1989 4,425 36,438 46,438 9,181 1,234 37,028 47,443 1990 4,650 41,088 51,088 8,598 1,155 39,240 48,993 1991 4,859 45,947 55,947 9,507 1,277 48,519 59,303 1992 5,221 51,168 61,168 9,709 1,491 54,828 66,028 1993 5,269 56,437 66,437 10,028 3,501 61,833 75,362 1994 5,673 62,110 72,110 8,806 3,075 59,701 71,582
The dollar amount of capital gain distributions during the period was $3,490 DESCRIPTION OF BOND RATINGS MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by various entities from "Aaa" to "C," according to quality as described below: "AAA -- Best quality. These securities carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "AA -- High quality by all standards. They are rated lower than the best bond because margins of protection may not be as large as in Aaa securities, fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat greater." "A -- Upper medium grade obligations. These bonds possess many favorable investment attributes. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." "BAA -- Medium grade obligations. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "BA -- Have speculative elements; future cannot be considered as well assured. The protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Bonds in this class are characterized by uncertainty of position." "B -- Generally lack characteristics of the desirable investment; assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." "CAA -- Of poor standing. Issues may be in default or there may be present elements of danger with respect to principal or interest." "CA -- Speculative in a high degree; often in default or have other marked shortcomings." "C -- Lowest rated class of bonds; can be regarded as having extremely poor prospects of ever attaining any real investment standing." STANDARD & POOR'S CORPORATION rates the long-term securities debt of various entities in categories ranging from "AAA" to "D" according to quality as described below: "AAA -- Highest rating. Capacity to pay interest and repay principal is extremely strong." "AA -- High grade. Very strong capacity to pay interest and repay principal. Generally, these bonds differ from AAA issues only in a small degree." "A -- Have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of change in circumstances and economic conditions, than debt in higher rated categories." "BBB -- Regarded as having adequate capacity to pay interest and repay principal. These bonds normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for debt in higher rated categories." "BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions." "C1 -- Reserved for income bonds on which no interest is being paid." "D -- In default and payment of interest and/or repayment of principal is in arrears." THE BOND FUND OF AMERICA INVESTMENT PORTFOLIO December 31, 1994 Corporate Bonds 41% U.S. Treasury Securities 23% Mortgage and Asset-Backed Securities 19% Cash Equivalents 11% Non-U.S. Government Bonds and Development Agencies 6% THE BOND FUND OF AMERICA INVESTMENT PORTFOLIO DECEMBER 31, 1994
THE BOND FUND OF AMERICA Market Percent Principal of INVESTMENT PORTFOLIO DECEMBER 31, 1994 Amount Value Net Assets (000) (000) ELECTRICAL & GAS UTILITIES UTILITIES: ELECTRICAL & GAS Big Rivers Electic Corp. 10.70% 2017 $17,000 $18,610 .38% CEZ Finance BV 8.875% 1999/1/ 3,000 2,977 0.06 CMS Energy 0%/9.50% 1997/2/ 2,000 1,860 0.04 Commonwealth Edison Co. 6.50% 2000 5,000 4,515 0.09 Coso Funding Corp. 8.87% 2001/1/ 7,500 7,215 0.15 Hero Asia (BVI) Co. Ltd. 9.11% 2001/1/ 5,000 4,826 0.1 Korea Electric Power Corp. 6.375% 2003 13,000 11,036 0.22 Long Island Lighting Co. 8.90% 2019 5,000 4,090 0.08 Midland Cogeneration Venture, LP 10.33% 2002 13,537 12,861 0.26 Midland Cogeneration Venture, LP, secured lease obligation bonds, 10.33% 2002 7,209 6,849 0.14 Transco Energy Co. 9.125% 1998 2,000 2,002 0.04 Transco Energy Co. 9.625% 2000 2,000 2,030 0.04 Transco Energy Co. 9.375% 2001 5,800 5,829 0.12 United Illuminating Co. 9.76% 2006 5,388 5,455 0.11 ---------- --------- - 90,155 1.45 ---------- --------- - INDUSTRIAL & SERVICE AUTOMOBILES General Motors Corp. 9.45% 2011 20,000 20,504 0.41 General Motors Corp. 8.80% 2021 50,000 51,191 1.04 ---------- --------- - 71,695 1.45 ---------- --------- - BEVERAGES & TOBACCO Canandaigua Wine Co., Inc. 8.75% 2003 5,000 4,550 0.09 Dr. Pepper Bottlng Co. of Texas 10.25% 2000 8,500 8,500 0.17 Dr. Pepper/Seven-Up Cos. 0%/11.50% 2002/2/ 5,572 4,416 0.09 RJR Nabisco, Inc. 8.75% 2004 5,000 4,606 0.09 RJR Nabisco, Inc. 8.75% 2005 4,000 3,647 0.07 RJR Nabisco, Inc. 9.25% 2013 6,000 5,396 0.11 ---------- --------- - 31,115 0.62 ---------- --------- - BROADCASTING & PUBLISHING Infinity Broadcasting Corp. 10.375% 2002 11,250 11,362 0.23 Marvel Holdings, Inc. 0% 1998 52,750 32,441 0.66 Univision Television Group, Inc. 11.75% 2001/1/ 5,500 5,748 0.12 Univision Television Group, Inc. 7.00% 2002/1/ 3,498 2,064 0.04 ---------- --------- - 51,615 1.05 ---------- --------- - CONSTRUCTION & HOUSING Del Webb Corp. 9.75% 2003 10,000 8,300 0.17 Kaufman & Broad Home Corp. 10.375% 1999 7,500 7,462 0.15 M.D.C. Holdings, Inc. 11.125% 2003 9,000 7,200 0.15 ---------- --------- - 22,962 0.47 ---------- --------- - DATA PROCESSING & REPRODUCTION Data General Corp. 7.75% convertible debentures 2001 8,000 6,920 0.14 Data General Corp. 8.375% 2002 1,250 1,084 0.02 Digital Equipment Corp. 7.125% 2002 6,500 5,377 0.11 Maxtor Corp. 5.75% convertible debentures 2012 2,000 1,050 0.02 Neodata Services, Inc. 0%/12.00% 2003/2/ 12,000 9,360 0.19 Unisys Corp. 15.00% 1997 4,000 4,280 0.09 ---------- --------- - 28,071 0.57 ---------- --------- - DIVERSIFIED MEDIA & CABLE TELEVISION Adelphia Communications Corp. 9.50% 2004 3,507 2,359 0.05 American Media Operations, Inc. 11.625% 2004 2,000 2,050 0.04 Bell Cablemedia PLC 0%/11.95% 2004/2/ 36,000 19,260 0.39 Cablevision Industries Corp. 10.75% 2004 1,000 1,000 0.02 Cablevision Industries Corp. 9.875% 2013 5,000 4,500 0.09 Century Communications Corp. 9.50% 2000 5,650 5,424 0.11 Century Communications Corp. 9.75% 2002 5,550 5,328 0.11 Comcast Corp. 10.25% 2001 11,000 10,780 0.22 Comcast Corp. 1.125% convertible debentures 2007 25,000 10,062 0.2 Continental Cablevision, Inc. 8.50% 2001 22,050 20,506 0.42 Continental Cablevision, Inc. 10.625% 2002 4,500 4,511 0.09 Continental Cablevision, Inc. 8.625% 2003 4,000 3,640 0.07 Continental Cablevision, Inc. 8.875% 2005 12,000 10,860 0.22 Continental Cablevision, Inc. 11.00% 2007 4,000 4,060 0.08 Continental Cablevision, Inc. 9.00% 2008 12,000 10,800 0.22 Continental Cablevision, Inc. 9.50 % 2013 13,000 11,895 0.24 Insight Communications Co. 8.25% 2000/3/ 11,250 10,575 0.21 International CableTel Inc. 0%/10.875% 2003/2/ 9,000 4,770 0.1 News America Holdings Inc. 9.125% 1999 7,000 7,056 0.14 News America Holdings Inc. 12.00% 2001 4,250 4,722 0.1 News America Holdings Inc. 8.625% 2003 7,000 6,809 0.14 News America Holdings Inc. 10.125% 2012 27,500 28,366 0.58 News America Holdings Inc. 9.25% 2013 15,000 14,592 0.3 News America Holdings Inc. 8.625% 2014 3,250 1,890 0.04 News America Holdings Inc. 8.45% 2034 10,000 9,592 0.19 Rogers Communications Inc. 10.875% 2004 3,500 3,552 0.07 Storer Communications, Inc. 10.00% 2003 12,087 11,362 0.23 Tele-Communications, Inc. 7.375% 2000 6,000 5,624 0.11 Tele-Communications, Inc. 10.125% 2001 2,500 2,613 0.05 Time Warner Inc. 7.95% 2000 5,000 4,687 0.09 Time Warner Inc. 9.625% 2002/1/ 21,000 21,181 0.43 Time Warner Inc. 10.15% 2012/1/ 10,000 10,063 0.2 Time Warner Inc. 8.875% 2012/1/,/3/ 5,000 4,548 0.09 Time Warner Inc. 0% convertible debentures 2012 100,000 30,500 0.62 TKR Cable I, Inc. 10.50% 2007 26,000 26,590 0.54 Turner Broadcasting System 0% 2007 15,000 5,888 0.12 Viacom International Inc. 9.125% 1999 5,000 4,950 0.1 Viacom International Inc. 10.25% 2001 1,600 1,636 0.03 Videotron Holdings PLC 0%/11.125% 2004/2/ 16,500 8,663 0.18 ---------- --------- - 357,264 7.23 ---------- --------- - ELECTRICAL & ELECTRONICS General Electric Co. 8.625% 2008 3,000 3,084 0.06 MagneTek, Inc. 10.75% 1998 7,500 7,500 0.15 Samsung Electronics Co., Ltd. 8.50% 2002/1/ 27,850 26,590 0.54 Westinghouse Electric Corp. 8.875% 2001 4,000 3,855 0.08 Westinghouse Electric Corp. 8.375% 2002 7,000 6,504 0.13 ---------- --------- - 47,533 0.96 ---------- --------- - ENERGY & RELATED COMPANIES BP America Inc. 10.00% 2018 4,000 4,339 0.09 California Energy Co., Inc. 0%/10.25% 2004/2/ 33,600 24,024 0.49 Global Marine Inc. 12.75% 1999 12,750 13,706 0.28 Maxus Energy Corp. 9.875% 2002 5,500 4,785 0.1 Occidental Petroleum Corp. 9.25% 2019 12,000 12,521 0.25 Oryx Energy Co. 9.30% 1996 6,000 5,975 0.12 Oryx Energy Co. 9.50% 1999 3,500 3,351 0.07 Petronas 6.875% 2003/2/ 6,000 5,378 0.11 Subic Power Corp. 9.50% 2008/1/ 8,448 7,244 0.15 ---------- --------- - 81,323 1.66 ---------- --------- - FOOD RETAILING Ralphs Grocery Co. 10.25% 2002 16,700 16,408 0.33 Ralphs Grocery Co. 9.00% 2003 4,000 3,880 0.08 Safeway Inc. 10.00% 2002 1,500 1,530 0.03 Smith's Food & Drug Centers, Inc., Series 94A2, 0%/8.64% 2012/2/ 12,000 11,046 0.22 Star Markets Co., Inc. 13.00% 2004/1/ 1,500 1,530 0.03 Stater Brothers Holdings, Inc. 11.00% 2001 9,500 8,883 0.18 Vons Companies, Inc. 9.625% 2002 8,000 7,840 0.16 ---------- --------- - 51,117 1.03 ---------- --------- - FOREST PRODUCTS & PAPER Container Corp. of America 9.75% 2003 38,000 36,290 0.74 Container Corp. of America 11.25% 2004 2,500 2,562 0.05 Fort Howard Corp. 9.25% 2001 7,750 7,246 0.15 Fort Howard Corp. 10.00% 2003 9,750 9,116 0.18 Fort Howard Paper Co. 8.25% 2002 3,000 2,685 0.05 Fort Howard Paper Co. 9.00% 2006 6,750 5,805 0.12 Grupo Industrial Durango SA de CV 9.6875% 1996/1/,/3/ 7,500 7,200 0.15 Klabin Fabricadora de Papel e Celulose SA 10.00% 2001 2,500 2,213 0.04 P.T. Indah Kiat Paper & Pulp Corp. 11.375% 1999/1/ 4,500 4,388 0.09 P.T. Indah Kiat Paper & Pulp Corp. 8.875% 2000/1/ 9,135 7,947 0.16 P.T. Indorayon Yankee 9.125% 2000 3,000 2,445 0.05 Pacific Lumber Co. 10.50% 2003 500 465 0.01 Riverwood International Corp. 10.75% 2000 12,000 12,210 0.25 Riverwood International Corp. 11.25% 2002 5,000 5,137 0.1 Riverwood International Corp., Series II 10.75% 2000 3,500 3,561 0.07 Tjiwi Kimia International Finance Co. 13.25% 2001 10,250 10,352 0.21 ---------- --------- - 119,622 2.42 ---------- --------- - GENERAL RETAILING & MERCHANDISING Allied Supermarkets Inc. 6.625% 1998 3,590 3,267 0.07 Ann Taylor 8.75% 2000 5,000 4,725 0.1 Barnes & Noble, Inc. 11.875% 2003/1/ 10,500 11,235 0.23 CompUSA, Inc. 9.50% 2000 6,000 4,980 0.1 Dayton Hudson Corp. 9.52% 2015 7,500 8,197 0.17 Dayton Hudson Corp. 9.35% 2020 6,000 6,528 0.13 Levitz Furniture Corp. 12.375% 1997 7,750 7,982 0.16 Payless Cashways, Inc. 9.125% 2003 7,000 6,265 0.13 Thrifty Payless, Inc. 11.75% 2003 11,500 11,270 0.23 Thrifty Payless, Inc. 12.25% 2004 1,500 1,410 0.03 Thrifty Payless, Inc. 12.25% 2004 5,000 5,050 0.1 ---------- --------- - 70,909 1.45 ---------- --------- - HEALTH & PERSONAL CARE FHP International Corp. 7.00% 2003 5,000 4,440 0.09 ---------- --------- - LEISURE & TOURISM Circus Circus Enterprises, Inc. 10.625% 1997 8,000 8,233 0.17 Embassy Suites, Inc. 8.75% 2000 3,000 2,820 0.06 Euro Disney S.C.A. 6.75% convertible debentures 2001 FF108,780 14,441 0.29 Foodmaker, Inc. 9.25% 1999 $12,200 10,370 0.21 Foodmaker, Inc. 9.75% 2002 4,300 3,268 0.07 Four Seasons Hotels Inc. 9.125% 2000 6,000 5,520 0.11 Host Marriott Hospitality, Inc. 9.125% 2000 5,833 5,753 0.12 Host Marriott Hospitality, Inc. 10.375% 2011 1,480 1,480 0.03 Kloster Cruise Ltd. 13.00% 2003 13,500 12,150 0.25 Six Flags Corp. 0% 1999 22,000 13,690 0.28 ---------- --------- - 77,725 1.59 ---------- --------- - MACHINERY & ENGINEERING Coleman Holdings, Inc. 0% 1998 3,500 2,354 0.05 Coltec Industries 9.75% 1999 7,000 6,860 0.14 Coltec Industries 9.75% 2000 7,500 7,350 0.15 John Deere Capital Corp. 8.625% 2019 9,150 9,296 0.19 ---------- --------- - 25,860 0.53 ---------- --------- - METALS Acme Metals Inc. 0%/13.50% 2004/2/ 9,000 6,075 0.12 Armco Inc. 11.375% 1999 12,000 12,000 0.24 ISPAT Mexicana (Euro) 10.375% 2001 4,650 3,976 0.08 ISPAT Mexicana 10.375% 2001/1/ 5,000 4,275 0.09 Kaiser Aluminum and Chemical Corp. 12.75% 2003 2,500 2,519 0.05 Pohang Iron & Steel Co., Ltd. 7.50% 2002 10,000 9,282 0.19 Tubos de Acero de Mexico, SA 13.750% 1999/1/ 2,500 2,363 0.05 USX Corp. 9.625% 2003 6,000 6,157 0.12 USX Corp. 0% convertible debentures 2005 40,000 17,500 0.35 USX Corp. 9.125% 2013 5,000 4,770 0.1 ---------- --------- - 68,917 1.39 ---------- --------- - MISCELLANEOUS MATERIALS & COMMODITIES Anchor Glass Container Corp. 10.25% 2002 3,000 2,850 0.06 Hyster-Yale Materials Handling, Inc. 12.375% 1999 447 469 0.01 Owens-Illinois, Inc. 11.00% 2003 7,000 7,263 0.15 Tolmex, SA de CV 8.375% 2003 5,500 3,960 0.08 ---------- --------- - 14,542 0.3 ---------- --------- - MULTI-INDUSTRY Hanson America, Inc. 144A 2.39% convertible debentures 2001/1/ 40,000 28,600 0.58 Tenneco Inc. 7.875% 2002 3,000 2,851 0.06 Tenneco Inc. 10.00% 2008 8,720 9,543 0.19 ---------- --------- - 40,994 0.83 ---------- --------- - OTHER United States Banknote Co. 10.375% 2002 1,500 1,275 0.03 ---------- --------- - TELECOMMUNICATIONS Cellular Inc. 0%/11.75% 2003/2/ 10,500 6,930 0.14 CenCall Communications Corp. 10.125% 2004 33,500 11,725 0.24 Centennial Cellular Corp. 8.875% 2001 19,000 16,815 0.34 Comcast Cellular Corp., Series A, 0% 2000 23,500 15,862 0.32 Comcast Cellular Corp., Series B, 0% 2000 29,400 19,845 0.4 Dial Call Communications, Inc. 0%/12.25% 2004/2/ 38,750 13,562 0.27 GTE Corp. 8.85% 1998 9,500 9,591 0.19 Horizon Cellular Telephone Co., LP 0%/11.375% 2000/2/ 13,000 9,165 0.19 MFS Communications Co., Inc. 0%/9.375% 2004/2/ 35,000 21,000 0.43 MobileMedia Communications, Inc. 0%/10.50% 2003/2/ 14,600 7,884 0.16 NEXTEL Communications, Inc. 0%/11.50% 2003/2/ 56,000 21,840 0.44 NEXTEL Communications, Inc. 0%/9.75% 2004/2/ 60,000 21,000 0.43 Northern Telecom Ltd. 8.75% 2001 3,500 3,544 0.07 Paging Network, Inc. 11.75% 2002 11,675 11,675 0.24 Paging Network, Inc. 8.875% 2006 2,000 1,560 0.03 PanAmSat, LP PanAmSat Capital Corp. 0%/11.375% 2003/2/ 14,000 8,750 0.18 PanAmSat, LP PanAmSat Capital Corp. 9.75% 2000 9,800 9,237 0.19 PriCellular Wireless Corp. 0%/14.00% 2001/2/ 3,500 2,328 0.05 Rogers Cantel Mobile Communications Inc. 10.75% 2001 38,475 38,956 0.79 ---------- --------- - 251,269 5.1 ---------- --------- - TEXTILES & APPAREL VF Corp. 9.25% 2022 4,000 4,032 0.08 Westpoint Stevens Inc. 8.75% 2001 4,500 4,140 0.08 ---------- --------- - 8,172 0.16 ---------- --------- - TRANSPORTATION Air Wis Services, Inc. 7.75% convertible debentures 2010 4,000 2,440 0.05 Alaska Air Lyon 0% convertible debentures 2006 23,750 9,916 0.2 Alaska Airlines, Series A, 9.50% 2010 2,461 2,236 0.05 Alaska Airlines, Series B, 9.50% 2010 3,092 2,806 0.06 Alaska Airlines, Series C, 9.50% 2010 3,002 2,705 0.05 Alaska Airlines, Series D, 9.50% 2012 4,990 4,513 0.09 American Airlines, Inc., 1991-A, pass-through certificates, 9.71% 2007/1/, 4 9,496 9,131 0.18 AMR Corp. 9.00% 2012 7,500 6,732 0.14 Delta Air Lines, Inc. 8.25% 1996 6,000 5,937 0.12 Delta Air Lines, Inc. 9.875% 2000 8,000 7,971 0.16 Delta Air Lines, Inc. 10.375% 2011 2,500 2,444 0.05 Delta Air Lines, Inc. 10.00% 2014/1/ 3,000 2,700 0.05 Delta Air Lines, Inc., pass-through certificates, Series 1992-A2, 9.20% 2014/4/ 5,000 4,275 0.09 Delta Air Lines, Inc., pass-through certificates, Series 1992-B1, 9.375% 2007/4/ 9,495 8,866 0.18 Federal Express Corp. 8.40% 2010 10,000 9,245 0.19 NWA, Inc. 8.625% 1996 5,000 4,800 0.1 Northwest Airlines, Inc. 12.0916% 2000/1/ 7,973 7,813 0.16 TNT Transport (Euro) PLC/TNT (USA) Inc. 11.50% 2004 4,750 4,774 0.1 United Air Lines, Inc. 10.67% 2004 4,500 4,532 0.09 United Air Lines, Inc. 9.125% 2012 5,000 4,330 0.09 United Air Lines, Inc., pass-through certificates, Series 1993-A3, 8.39% 2011/4/ 7,500 6,315 0.13 Viking 9.625% 2003 7,000 6,510 0.13 ---------- --------- - 120,991 2.46 ---------- --------- - FINANCE BANKING & THRIFTS Bank of Scotland 8.80% 2004/1/ 16,000 16,123 0.33 CalFed Inc. 10.00% 2003 846 753 0.02 Chevy Chase Savings Bank, F.S.B. 9.25% 2005 3,500 2,940 0.06 Coast Federal Bank 13.00% 2002 5,000 5,500 0.11 Coast Savings Financial, Inc. 10.00% 2000 6,500 6,110 0.12 First Federal Michigan Eurobond 0% 2005 10,000 4,206 0.09 First Nationwide 12.25% 2001 9,000 9,045 0.18 First Nationwide 10.00% 2006 5,850 5,843 0.12 Midland American Capital 12.75% 2003 12,150 13,816 0.28 Skandinaviska Enskilda Banken (N.Y. City) 6.875% 2009 5,000 4,162 0.08 State Bank of New South Wales Euronotes 10.375% 1999 3,000 3,221 0.07 Union Bank Finland Ltd. 5.25% 1996 3,000 2,873 0.06 ---------- --------- - 74,592 1.52 ---------- --------- - FINANCIAL SERVICES Beneficial Corp. 12.875% 2013 3,800 4,449 0.09 Fairfax Financial Holdings Ltd. 7.75% 2003 7,750 6,870 0.14 Ford Motor Credit Co. 9.50% 2000 7,350 7,637 0.15 General Electric Capital Corp. 8.875% 2009 8,000 8,200 0.17 General Motors Acceptance Corp. 6.70% 1997 8,000 7,704 0.16 General Motors Acceptance Corp. 7.00% 2000 5,000 4,681 0.09 General Motors Acceptance Corp. 9.625% 2001 6,500 6,827 0.14 General Motors Acceptance Corp. 8.75% 2005 10,000 10,000 0.2 General Motors Acceptance Corp. 8.875% 2010 2,500 2,504 0.05 General Motors Acceptance Corp. International, medium-term note (Euro-Yen), 3.75% 1999 1000000 9,719 0.2 New American Capital, Inc. 9.60% 1999/1/ 15,000 14,813 0.3 Xerox Credit Corp. 10.125% 1999 5,000 5,113 0.1 ---------- --------- - 88,517 1.79 ---------- --------- - INSURANCE American Re Corp. 10.875% 2004 46,000 48,662 0.98 ---------- --------- - REAL ESTATE B.F. Saul REIT 11.625% 2002 13,500 11,340 0.23 Beverly Finance Corp. 8.36% 2004/1/ 15,000 14,284 0.29 Corporate Property Investors 9.00% 2002/1/ 15,000 15,206 0.31 Corporate Property Investors 7.75% 2004/1/ 7,500 7,023 0.14 Shopping Center Associates 6.75% 2004/1/ 7,500 6,514 0.13 ---------- --------- - 54,367 1.1 ---------- --------- - COLLATERALIZED MORTGAGE/ASSET-BACKED OBLIGATIONS/4/ (EXCLUDING THOSE ISSUED BY FEDERAL AGENCIES) Capstead Securities Corp., collateralized mortgage obligations, Series 1992-A, Class 10, 13.123% 2002 3,913 1,937 0.04 Capstead Securities Corp. IV, collateralized mortgage obligations, Series 1992-4, Class J, 24.231% 2002/5/ 8,750 8,312 0.17 Chase Manhattan Bank, N.A., Series 93-I, Class 2A5, 7.25% 2024 10,000 9,175 0.19 Countrywide Funding Corp., Series 94-2, Class A-12, 9.50341% 2009/5/ 5,206 2,291 0.05 GCC Home Equity Trust, asset-backed certificates, Series 1990-1, 10.00% 2005 5,667 5,678 0.11 G E Capital Mortgage Services,Series 1994-15, Class A10, 6.00% 2009 16,376 12,814 0.26 G E Capital Mortgage Services, Series 1994-10, Class A26, 9.152% 2024/5/ 6,009 1,562 0.03 Green Tree Financial Corp., pass-through certificates, Series 1994-A, Class NIM, 6.90% 2004 4,118 3,922 0.08 Green Tree Financial Corp., pass-through certificates, Series 1993-2, Class B, 8.00% 2018 2,250 1,993 0.04 Jet Equipment Trust Series 1994-A 10.91% 2006 7,000 7,014 0.14 MBNA Credit Card Trust, asset-backed certificates, Series 1991-1, 7.75% 1998 11,000 10,921 0.22 Prudential Home Mortgage Securities Co., Inc., Series 1993-48, Class A-6, 6.25% 2008 4,466 3,594 0.07 Prudential Home Mortgage Securities Co., Inc., Series 1992-46, Class A-13, 10.682% 2008/5/ 4,431 2,171 0.04 Prudential Home Mortgage Securities Co., Inc., Series 1992-37, Class A-6, 7.00% 2022 2,500 2,416 0.05 Prudential Home Mortgage Securities Co., Inc., Series 1993-7, Class A-4, 8.00% 2003 9,323 9,011 0.18 Prudential Home Mortgage Securities Co., Inc., Series 1993-7, Class A-5, 8.00% 2003 7,336 7,276 0.15 Residential Funding Mortgage Securities I, Inc., Series 1992-S22, Class A-5, 8.00% 2005 221 220 0 Residential Funding Mortgage Securities I, Inc., Series 1993-48, Class A-10, 8.2331% 2008 4,598 2,391 0.05 Residential Funding Mortgage Securities I, Inc., Series 1991-S5, Class A-8, 9.225% 2021 83 83 0 Residential Funding Mortgage Securities I, Inc., Series 1992-S6, Class A-10, 15.333% 2022/5/ 10,124 7,897 0.16 Resolution Trust Corp., Series 1991-M5, Class B, 9.00% 2017 2,806 2,701 0.05 Resolution Trust Corp., Series 1992-C5, Class C, 8.85% 2022 10,404 9,832 0.2 Resolution Trust Corp., Series 1992-6, Class A-2B, 8.40% 2024 10,602 10,443 0.21 Resolution Trust Corp., Series 1992-C6, Class C, 8.00% 2024 7,257 6,595 0.13 Resolution Trust Corp., Series 1993-C1, Class D, 9.45% 2024 9,352 8,943 0.18 Resolution Trust Corp., Series 1993-C1, Class E, 9.50% 2024 1,042 992 0.02 Resolution Trust Corp., Series 1993-C2, Class C, 8.00% 2025 3,000 2,738 0.06 Resolution Trust Corp., Series 1993-C2, Class D, 8.50% 2025 3,290 3,075 0.06 Resolution Trust Corp., Series 1993-C2, Class E, 8.50% 2025 1,244 1,172 0.02 Ryland Mortgage Securities Corp., Series 1991-14, Class F, 26.374% 2021/5/ 1,070 1,188 0.02 Sears Credit Account Trust, Series 1991-C, 8.65% 1998 20,000 20,162 0.41 Standard Credit Card Master Trust I, credit card participation certificates, Series 1991-1A, 8.50% 1997 20,500 20,654 0.42 Standard Credit Card Master Trust I, credit card participation certificates, Series 1994-2A, 7.25% 2008 5,000 4,563 0.09 Standard Credit Card Trust, credit card participation certificates, Series 1990-3A, 9.50% 1998 5,000 5,136 0.1 Standard Credit Card Trust, credit card participation certificates, Series 1990-6A, 9.375% 1998 9,500 9,737 0.2 Standard Credit Card Trust, credit card participation certificates, Series 1991-3A, 8.875% 1999 11,000 11,223 0.23 Travelers Mortgage Services, Inc., pass-through certificates, Series 1989-9, Class Z-2, 8.80% 2019 1,003 978 0.02 ---------- --------- - 220,810 4.45 ---------- --------- - GOVERNMENTAL GOVERNMENTS (EXCLUDING U.S. GOVERNMENT) Argentina (Republic of) 8.37% 2003 14,000 9,975 0.2 Argentina (Republic of) 4.00% 2023 15,000 6,356 0.13 Argentina Bocon 4.3125% 2001 11,500 6,692 0.14 British Columbia Hydro & Power Authority 15.50% 2011/1/ 17,000 19,743 0.4 British Columbia Hydro & Power Authority 15.50% 2011/1/ 11,967 14,127 0.29 British Columbia Hydro & Power Authority 12.50% 2013/3/ 4,000 4,637 0.09 British Columbia Hydro & Power Authority 12.50% 2014/4/ 7,000 8,165 0.17 Canadian Government 8.75% 1996 C$40,000 28,541 0.58 Canadian Government 9.25% 1996 46,250 33,252 0.67 Canadian Government 10.50% 2001 3,000 2,280 0.05 Canadian Government 4.25% 2021 1,000 661 0.01 Italian Government National 8.50% 1999 ITL5,000,0 2,706 0.05 00 Italian Government National 8.50% 2004 3,200,000 1,601 0.03 Italian Government National 8.50% 2004 12,500,000 6,185 0.13 Italy (Republic of) 6.875% 2023 $20000 15,754 0.32 Manitoba (Province of) 9.25% 2020 5,000 5,252 0.11 National Bank of Hungary 8.80% 2002 3,500 3,080 0.06 Netherlands Government DFL 7.50% 2023 FL5,000 2,711 0.05 New South Wales Treasury 6.50% 2006 A$3,000 1,711 0.03 Nova Scotia (Province of) 7.25% 2013 $ 4000 3,384 0.07 Nova Scotia (Province of) 11.50% 2013 2,212 2,460 0.05 Ontario (Province of) 7.75% 2002 3,500 3,381 0.07 Ontario (Province of) 17.00% 2011 11,250 13,535 0.27 Ontario (Province of) 15.25% 2012 6,985 8,443 0.17 Ontario (Province of) 11.50% 2013 5,000 5,553 0.11 Petroleo Brasileiro S.A. 9.275% debentures 1998/3/ 7,500 7,613 0.15 Quebec (Province of) 13.25% 2014 5,500 6,672 0.14 Queensland Global Treasury Note 8.00% 2001 17,000 11,701 0.24 Queensland Global Treasury Note 12.00% 2001 5,000 4,190 0.08 Spain (Kingdom of) 11.45% 1998 PTA600,000 4,530 0.09 Spain (Kingdom of) 10.50% 2003 600,000 4,231 0.09 United Mexican States Government Eurobonds, Series A, 6.25% 2019 1,000 538 0.01 United Mexican States Government Eurobonds, Series B, 6.25% 2019 6,500 3,494 0.07 ---------- --------- - 253,154 5.12 ---------- --------- - DEVELOPMENT AUTHORITIES Inter-American Development Bank 8.875% 2009 10,000 10,585 0.21 International Bank for Reconstruction & Development 14.90% 1997 2,500 2,854 0.06 ---------- --------- - 13,439 0.27 ---------- --------- - FEDERAL AGENCY OBLIGATIONS - MORTGAGE PASS-THROUGHS/4/ Federal Home Loan Mortgage Corp. 8.00% 2003-2010 Federal Home Loan Mortgage Corp. 8.00% 2003-2010 Federal Home Loan Mortgage Corp. 8.00% 2003-2010 Federal Home Loan Mortgage Corp. 8.00% 2003-2010 Federal Home Loan Mortgage Corp. 8.00% 2003-2010 Federal Home Loan Mortgage Corp. 8.00% 2003-2010 9,114 8,740 0.18 Federal Home Loan Mortgage Corp. 8.25% 2007 Federal Home Loan Mortgage Corp. 8.25% 2007 Federal Home Loan Mortgage Corp. 8.25% 2007 4,011 3,874 0.08 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 Federal Home Loan Mortgage Corp. 8.50% 2002-2020 16,442 16,172 0.33 Federal Home Loan Mortgage Corp. 8.75% 2008 Federal Home Loan Mortgage Corp. 8.75% 2008 Federal Home Loan Mortgage Corp. 8.75% 2008 Federal Home Loan Mortgage Corp. 8.75% 2008 Federal Home Loan Mortgage Corp. 8.75% 2008 5,267 5,191 0.11 Federal Home Loan Mortgage Corp. 9.00% 2021 1,548 1,557 0.03 Federal Home Loan Mortgage Corp. 10.00% 2011-2019 Federal Home Loan Mortgage Corp. 10.00% 2011-2019 Federal Home Loan Mortgage Corp. 10.00% 2011-2019 960 1,001 0.02 Federal Home Loan Mortgage Corp. 10.75% 2010 Federal Home Loan Mortgage Corp. 10.75% 2010 Federal Home Loan Mortgage Corp. 10.75% 2010 220 235 0 Federal Home Loan Mortgage Corp. 11.50% 2000 Federal Home Loan Mortgage Corp. 11.50% 2000 Federal Home Loan Mortgage Corp. 11.50% 2000 79 84 0 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 Federal Home Loan Mortgage Corp. 12.00% 2010-2015 2,542 2,749 0.06 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 Federal Home Loan Mortgage Corp. 12.50% 2009-2019 2,816 3,212 0.07 Federal Home Loan Mortgage Corp. 12.75% 2015-2019 Federal Home Loan Mortgage Corp. 12.75% 2015-2019 Federal Home Loan Mortgage Corp. 12.75% 2015-2019 963 1,095 0.02 Federal Home Loan Mortgage Corp. 13.00% 2014 80 92 0 Federal Home Loan Mortgage Corp. 13.50% 2018 50 58 0 Federal Home Loan Mortgage Corp. 13.75% 2014 40 45 0 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 Federal National Mortgage Assn. 7.00% 2013-2023 34,509 31,318 0.63 Federal National Mortgage Assn. 7.50% 2023-2024 Federal National Mortgage Assn. 7.50% 2023-2024 Federal National Mortgage Assn. 7.50% 2023-2024 Federal National Mortgage Assn. 7.50% 2023-2024 Federal National Mortgage Assn. 7.50% 2023-2024 FNCI POOL #286168 7.500% 06-01-09 FNCI POOL #292811 7.500% 10-01-09 FNCI POOL #292956 7.500% 10-01-09 FNCI POOL #294214 7.500% 10-01-09 FNCI POOL #296707 7.500% 10-01-09 Federal National Mortgage Assn. 7.50% 2023-2024 18,472 17,366 0.35 Federal National Mortgage Assn. 8.00% 2023 Federal National Mortgage Assn. 8.00% 2023 Federal National Mortgage Assn. 8.00% 2023 3,985 3,817 0.08 Federal National Mortgage Assn. 8.50% 2022-2023 Federal National Mortgage Assn. 8.50% 2022-2023 Federal National Mortgage Assn. 8.50% 2022-2023 Federal National Mortgage Assn. 8.50% 2022-2023 9,083 8,936 0.18 Federal National Mortgage Assn. 9.00% 2018-2025 Federal National Mortgage Assn. 9.00% 2018-2025 Federal National Mortgage Assn. 9.00% 2018-2025 6,020 6,051 0.12 Federal National Mortgage Assn. 11.00% 2015 213 229 0 Federal National Mortgage Assn. 11.25% 2014 110 118 0 Federal National Mortgage Assn. 11.50% 2010-2014 Federal National Mortgage Assn. 11.50% 2010-2014 Federal National Mortgage Assn. 11.50% 2010-2014 454 493 0.01 Federal National Mortgage Assn. 12.00% 2015-2019 Federal National Mortgage Assn. 12.00% 2015-2019 Federal National Mortgage Assn. 12.00% 2015-2019 229 251 0.01 Federal National Mortgage Assn. 12.50% 2015 Federal National Mortgage Assn. 12.50% 2015 Federal National Mortgage Assn. 12.50% 2015 508 559 0.01 Federal National Mortgage Assn. 13.00% 2014 67 77 0 Federal National Mortgage Assn. 13.25% 2015 28 32 0 Federal National Mortgage Assn. 15.00% 2013 99 114 0 Government National Mortgage Assn. 4.50% 2023-2024 Government National Mortgage Assn. 4.50% 2023-2024 Government National Mortgage Assn. 4.50% 2023-2024 Government National Mortgage Assn. 4.50% 2023-2024 Government National Mortgage Assn. 4.50% 2023-2024 Government National Mortgage Assn. 4.50% 2023-2024/3/ 159,115 144,758 2.93 Government National Mortgage Assn. 5.00% 2024 Government National Mortgage Assn. 5.00% 2024 Government National Mortgage Assn. 5.00% 2024 Government National Mortgage Assn. 5.00% 2024 Government National Mortgage Assn. 5.00% 2024 Government National Mortgage Assn. 5.00% 2024 Government National Mortgage Assn. 5.00% 2024/3/ 66,023 61,131 1.24 Government National Mortgage Assn. 5.50% 2024 Government National Mortgage Assn. 5.50% 2024 Government National Mortgage Assn. 5.50% 2024/3/ 1,921 1,809 0.04 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 Government National Mortgage Assn. 6.50% 2023-2024 38,758 33,587 0.68 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 Government National Mortgage Assn. 7.00% 2022-2025 79,215 71,154 1.44 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2022-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2017-2024 Government National Mortgage Assn. 7.50% 2022-2024 Government National Mortgage Assn. 7.50% 2022-2024 Government National Mortgage Assn. 7.50% 2022-2024 58,614 54,417 1.1 Government National Mortgage Assn. 8.00% 2017-2023 Government National Mortgage Assn. 8.00% 2017-2023 Government National Mortgage Assn. 8.00% 2017-2023 Government National Mortgage Assn. 8.00% 2017-2023 4,167 4,013 0.08 Government National Mortgage Assn. 8.50% 2020 2,153 2,116 0.04 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2021 Government National Mortgage Assn. 9.00% 2016-2024 Government National Mortgage Assn. 9.00% 2016-2024 Government National Mortgage Assn. 9.00% 2016-2024 Government National Mortgage Assn. 9.00% 2016-2024 Government National Mortgage Assn. 9.00% 2016-2024 13,111 13,226 0.27 Government National Mortgage Assn. 9.50% 2017-2020 Government National Mortgage Assn. 9.50% 2017-2020 Government National Mortgage Assn. 9.50% 2017-2020 Government National Mortgage Assn. 9.50% 2017-2020 3,172 3,272 0.07 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 Government National Mortgage Assn. 10.00% 2017-2019 3,665 3,852 0.08 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 Government National Mortgage Assn. 10.50% 2015-2019 1,224 1,305 0.03 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 Government National Mortgage Assn. 11.00% 2013-2016 2,177 2,365 0.05 Government National Mortgage Assn. 11.50% 2015 82 90 0 Government National Mortgage Assn. 12.00% 2014 201 218 0 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 Government National Mortgage Assn. 12.50% 2010-2015 1,388 1,559 0.03 Government National Mortgage Assn. 13.25% 2014 Government National Mortgage Assn. 13.25% 2014 Government National Mortgage Assn. 13.25% 2014 113 126 0 ---------- --------- - 512,464 10.37 ---------- --------- - FEDERAL AGENCY OBLIGATION - OTHER Federal Home Loan Bank Bonds 6.00% 1996 10,000 9,787 0.2 Federal Home Loan Bank Bonds 8.23% 2004 5,000 4,830 0.1 Federal Home Loan Bank Notes 6.41% 2003 3,685 3,178 0.06 Federal Home Loan Bank Notes 6.16% 2004 24,000 20,625 0.42 Federal Home Loan Bank Notes 6.27% 2004 5,000 4,341 0.09 Federal Home Loan Mortgage Notes 5.74% 2003 6,500 5,450 0.11 Federal Home Loan Mortgage Notes 6.185% 2003 13,100 11,381 0.23 Federal Home Loan Mortgage Notes 6.24% 2003 2,900 2,508 0.05 Federal Home Loan Mortgage Notes 6.28% 2003 3,000 2,559 0.05 Federal Home Loan Mortgage Notes 6.30% 2003 2,000 1,756 0.04 Federal Home Loan Mortgage Notes 6.375% 2003 5,820 5,136 0.1 Federal Home Loan Mortgage Notes 6.39% 2003 4,500 3,960 0.08 Federal Home Loan Mortgage Notes 6.50% 2003 6,200 5,413 0.11 Federal Home Loan Mortgage Notes 6.19% 2004 6,000 5,137 0.1 Federal Home Loan Mortgage Notes 6.27% 2004 2,500 2,163 0.04 Federal Home Loan Mortgage Notes 7.29% 2004 6,000 5,535 0.11 Federal National Mortgage Association Notes 6.30% 1997 15,000 14,255 0.29 Federal National Mortgage Association, medium-term note, 5.20% 1998 15,000 13,733 0.28 Federal National Mortgage Association, medium-term note, 5.30% 1998 12,500 11,438 0.23 Federal National Mortgage Association, medium-term note, 6.14% 2004 13,000 11,239 0.23 FNSM Callable Principal STRIPS 0%/8.25% 2022/2/ 4,500 2,945 0.06 ---------- --------- - 147,369 2.98 ---------- --------- - COLLATERALIZED MORTGAGE OBLIGATIONS - FEDERAL AGENCIES/4/ Federal Home Loan Mortgage Corp., Series 1604, Class SA, 7.5067% 2008/5/ 2,000 1,015 0.02 Federal Home Loan Mortgage Corp., Series 1625, Class SC, 7.117803% 2008/5/ 3,000 1,515 0.03 Federal Home Loan Mortgage Corp., Series 1716, Claass A, 6.50% 2009 4,750 4,061 0.08 Federal Home Loan Mortgage Corp., Series 1082, Class B, 9.00% 2020 2,522 2,533 0.05 Federal Home Loan Mortgage Corp., Series 1574, Class AB, 6.50% 2023 4,338 2,533 0.05 Federal Home Loan Mortgage Corp., Series 21, Class GNMA SE, 8.0309% 2023/5/ 4,000 1,598 0.03 Federal Home Loan Mortgage Corp., Series 1657, Class SA, 8.6026% 2023/5/ 7,520 2,999 0.06 Federal Home Loan Mortgage Corp., Series 1673, Class SA, 6.7691% 2024/5/ 7,879 2,718 0.06 Federal Home Loan Mortgage Corp., Series 1671, Class O, 16.3085% 2024/5/ 13,330 4,399 0.09 Federal National Mortgage Assn., Series 90-142, Class J, 9.25% 2003 5,000 5,028 0.1 Federal National Mortgage Assn., Series 91-146, Class Z, 8.00% 2006 5,793 5,400 0.11 Federal National Mortgage Assn., Series 93-229, Class SB, 7.134% 2008/5/ 4,000 1,600 0.03 Federal National Mortgage Assn., Series 93-78, Class SB, 9.054% 2008 3,412 1,842 0.04 Federal National Mortgage Assn., Series 93-107, Class SA, 9.6212% 2008/5/ 5,906 3,278 0.07 Federal National Mortgage Assn., Series 91-65, Class X, 6.50% 2019 18,473 14,940 0.3 Federal National Mortgage Assn., Series 90-93, Class G, 5.50% 2020 1,500 1,190 0.02 Federal National Mortgage Assn., Series G93-19SJ, Class I, 1.7647% 2023/5/ 467 119 0 Federal National Mortgage Assn., Series 93-130, Class SA, 10.9133% 2023/5/ 3,758 1,747 0.04 Federal National Mortgage Assn., Series 93-120, Class SB, 10.9134% 2023/5/ 5,828 2,928 0.06 ---------- --------- - 61,443 1.24 ---------- --------- - U.S. TREASURY OBLIGATIONS 12.625% May 1995 15,000 15,340 0.31 8.875% February 1996 42,000 42,623 0.86 7.625% April 1996 30,000 30,052 0.61 9.375% April 1996 20,000 20,444 0.41 7.25% August 1996 20,000 19,884 0.4 8.00% October 1996 14,500 14,577 0.3 8.00% January 1997 63,000 63,325 1.28 8.50% April 1997 50,000 50,750 1.03 8.75% October 1997 7,500 7,669 0.16 8.875% November 1997 11,500 11,804 0.24 8.125% February 1998 207,000 208,586 4.22 9.25% August 1998 170,000 177,385 3.59 8.875% February 1999 21,000 21,735 0.44 9.125% May 1999 18,750 19,605 0.4 6.875% July 1999 42,000 40,425 0.82 8.875% May 2000 10,000 10,459 0.21 8.750% August 2000 25,000 26,023 0.53 8.50% November 2000 30,000 30,923 0.63 7.75% February 2001 5,000 4,980 0.1 13.125% May 2001 21,500 27,147 0.55 14.25% February 2002 7,000 9,399 0.19 6.375% August 2002 9,200 8,424 0.17 11.625% November 2002 70,000 85,093 1.72 11.625% November 2004 94,750 118,674 2.4 10.375% November 2009 7,000 8,127 0.16 14.00% November 2011 12,000 17,467 0.35 8.875% August 2017 31,500 34,315 0.69 6.25% August 2023 10,000 8,130 0.16 ---------- --------- - 1,133,365 22.93 ---------- --------- - FLOATING RATE EURODOLLAR NOTES (UNDATED)/3/ Allied Irish Banks Ltd. 6.187% 10,000 8,500 0.17 Bank of Nova Scotia 5.437% 15,000 11,903 0.24 Bergen Bank 5.4375% 5,000 3,913 0.08 Canadian Imperial Bank of Commerce 3.875% 18,500 14,800 0.3 Christiana Bank Og Kreditkasse 6.3125% 6,000 4,725 0.1 Financiere Credit Suisse 3.4375% 8,000 6,440 0.13 Hongkong and Shanghai Banking Corp. 5.5625% 10,000 8,050 0.16 Lloyds Bank FRN (#2) 5.412% 5,000 4,263 0.09 Lloyds Bank FRN (#3) 6.187% 5,000 4,213 0.09 National Bank of Canada 2.7187% 5,000 3,400 0.07 Standard Chartered Bank 7.00% 15,000 11,400 0.23 Standard Chartered Bank 5.025% 5,000 3,800 0.08 ---------- --------- - 85,407 1.74 ---------- --------- - EQUITY-TYPE SECURITIES & MISCELLANEOUS EQUITY-TYPE SECURITIES/6/ California Federal Bank, Inc., Class A 2,002 21,768 0.44 Dial Page, Inc., warrants 39 5 0 Glendale Federal Bank, warrants expire 03/10/00 8 8 0 ---------- --------- - 21,781 0.44 ---------- --------- - MISCELLANEOUS ASH Capital Finance, Ltd. 9.50% 2006 4,500 4,625 #DIV/0 #N/A 12,500 3,687 #DIV/0 #N/A 3,500 2,415 #DIV/0 #N/A 20,000 6,800 #DIV/0 Investment securities in the initial period of acquisition 17,527 0.35 ---------- --------- - TOTAL BONDS, NOTES AND EQUITY-TYPE SECURITIES ---------- --------- - (cost $4,718,738) 4,370,463 88.12 ---------- --------- - SHORT-TERM SECURITIES COMMERCIAL PAPER AIG Funding Inc. 5.80% due 1/3/95 20,000 19,990 0.4 AIG Funding Inc. 6.01% due 1/11/95 10,000 9,982 0.2 American Telephone and Telegraph Co. 5.45% due 1/12/95 25,000 24,953 0.51 Bayerische Landesbank Girozentrale 6.01% due 1/11/95 12,000 11,978 0.24 Beneficial Corp. 5.76% due 1/18/95 10,000 9,971 0.2 Beneficial Corp. 5.99% due 1/31/95 10,000 9,949 0.2 Beneficial Corp. 6.15% due 2/17/95 25,000 24,797 0.5 Commerzbank U.S. Finance Inc. 5.88% due 1/3/95 27,700 27,686 0.56 Deere & Co. 6.11% due 2/21/95 20,000 19,827 0.4 Eli Lilly & Co. 5.77% due 1/6/95 15,800 15,785 0.32 Ford Motor Credit Co. 6.03% due 1/5/95 15,000 14,988 0.3 Ford Motor Credit Co. 6.10% due 1/19/95 25,000 24,920 0.5 Ford Motor Credit Co. 5.81% due 1/20/95 23,350 23,275 0.47 Ford Motor Credit Co. 6.01% due 2/28/95 8,250 8,170 0.17 General Electric Capital Corp. 5.49% due 1/9/95 35,250 35,201 0.71 H.J. Heinz Co. 5.95% due 1/20/95 15,000 14,951 0.3 H.J. Heinz Co. 5.95% due 1/23/95 3,970 3,955 0.08 H.J. Heinz Co. 6.10% due 1/24/95 25,000 24,899 0.5 H.J. Heinz Co. 5.95% due 2/15/95 8,000 7,939 0.16 John Deere Capital Corp. 6.14% due 2/6/95 15,000 14,907 0.3 Kimberly-Clark Corp. 5.93% due 1/18/95 20,000 19,941 0.4 Miles, Inc. 5.80% due 1/19/95 20,000 19,939 0.4 Monsanto Co. 5.93% due 1/6/95 6,150 6,144 0.12 National Rural Utilities Cooperative Finance Corp. 5.94% due 1/12/95 10,000 9,980 0.2 Texaco Inc. 6.02% due 1/17/95 20,000 19,944 0.4 U S WEST Communications, Inc. 5.47% due 1/17/95 5,300 5,286 0.11 U S WEST Communications, Inc. 5.99% due 2/22/95 7,000 6,938 0.14 Xerox Corp. 5.89% due 2/6/95 22,000 21,868 0.44 Xerox Corp. 6.12% due 2/10/95 23,600 23,437 0.47 ---------- --------- - 481,600 9.7 ---------- --------- - Federal Agency Discount Notes Federal Farm Credit Banks 5.94% due 1/11/95 10,000 9,982 0.2 ---------- --------- - TOTAL SHORT-TERM SECURITIES (Cost $491,585) 491,582 9.9 ---------- --------- - TOTAL INVESTMENT SECURITIES (cost $5,210,323) 4,862,045 98.02 Excess of cash and receivables over payables 79,105 1.6 ---------- --------- - NET ASSETS 4,941,150 99.62 ========== =========
/1/ Purchased in a private placement transaction; resale to the public may require registration. /2/ Represents a zero coupon bond which will convert to an interest bearing security at a later date. /3/ Coupon rates may change periodically. /4/ Pass-through securities backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturity of these securities is shorter than the stated maturity. /5/ Represents an inverse floater, which is a floating rate note whose interest rate moves in the opposite direction of prevailing interest rates. /6/ Non-income-producing security See Notes to Financial Statements The Bond Fund of America FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (dollars in thousands) Assets: Investment securities at market (cost: $5,210,323) $4,862,045 Cash 3,838 Prepaid expense .................... Receivables for-- Sales of investments $19,418 Sales of Fund's shares 13,531 Dividends and accrued interest 86,501 119,450 ------------ -------------- - 4,985,333 Liabilities: Payables for-- Purchases of investments 29,639 Repurchases of fund's shares 11,087 Forward currency contracts 1,403 Management services 1,586 Accrued expenses 468 44,183 ------------ -------------- - Net Assets at December 31, 1994-- Equivalent to $12.69 per share on 389,436,473 shares of $1 par value capital stock outstanding (authorized capital stock - 500,000,000 shares) $4,941,150 ============== = STATEMENT OF OPERATIONS for the year ended December 31, 1994 (dollars in thousands) Investment Income: Income: Interest 430,119 Dividends from investment in stocks 20 $430,139 ------------ Expenses: Management services fee 18,755 Distribution expenses 11,347 Transfer agent fee 3,751 Reports to shareholders 175 Registration statement and prospectus 146 Postage, stationery and supplies 301 Directors' fees 37 Auditing and legal fees 46 Custodian fee 293 Taxes other than federal income tax 81 34,932 ------------ -------------- - Net investment income $395,207 ============== = Realized Loss and Unrealized Depreciation on Investments: Net realized loss (36,092) Net unrealized depreciation on Investments (624,178) Open forward currency contracts (2,363) ------------ Net unrealized depreciation (626,541) -------------- - Net realized loss and unrealized depreciation on investments (662,633) -------------- - Net Decrease in Net Assets Resulting ($267,426) from Operations ============== = STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands) Year ended December 31 1994 1993 Operations: Net investment income $395,207 $352,923 Net realized gain(loss) on investments (36,092) 130,054 Net unrealized appreciation (depreciation) on investments (626,541) 121,833 ------------ -------------- - Net increase (decrease) in net assets resulting from operations (267,426) 604,810 ------------ -------------- - Dividends and Distributions Paid to Shareholders: Dividends from net investment income (396,205) (348,157) Distributions from net realized gain on investments -- (137,077) ------------ -------------- - Total dividends and distributions (396,205) (485,234) ------------ -------------- - Capital Share Transactions: Proceeds from shares sold: 99,296,409 and 127,144,414 shares, respectively 1,337,647 1,858,704 Proceeds from shares issued in reinvestment of net investment income dividends and distributions of net realized gain on investments: 20,827,138 and 24,515,759 shares, respectively 277,618 357,602 Cost of shares repurchased: 96,388,393 and 66,054,022 shares, respectively (1,295,101) (968,614) ------------ -------------- - Net increase in net assets resulting from capital share transactions 320,164 1,247,692 ------------ -------------- - Total Increase (Decrease) in Net Assets (343,467) 1,367,268 Net Assets: Beginning of year 5,284,617 3,917,349 ------------ -------------- - End of year (including undistributed net investment income: $10,433 and $10,941 respectively) 4,941,150 $5,284,617 ============ ============== =
See Notes to Financial Statements NOTES TO FINANCIAL STATEMENTS 1. Bond Fund of America (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The following paragraphs summarize the significant accounting policies consistently followed by the fund in the preparation of its financial statements: Bonds and notes are valued at prices obtained from a bond-pricing service provided by a major dealer in bonds, 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 of their representative quoted bid and asked prices or, if such prices are not available, at the mean of such prices for securities of comparable maturity, quality and type. Securities denominated in non-U.S. currencies are generally valued on the basis of bid quotations. Equity-type securities are stated at market value based upon closing sales prices reported on recognized securities exchanges on the last business day of the period or, for listed securities having no sales reported and for unlisted securities, upon last-reported bid prices on that date. Short-term securities with original or remaining maturities in excess of 60 days, including forward currency contracts, are valued at the mean of their quoted bid and asked prices. Short-term securities with 60 days or less to maturity are valued at amortized cost, which approximates market value. The maturities of variable or floating rate instruments are deemed to be the time remaining until the next interest rate adjustment date. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by the Valuation Committee of the Board of Directors. As is customary in the mutual fund industry, securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses from securities transactions are reported on an identified cost basis. Interest income is reported on the accrual basis. Discounts on securities purchased are amortized over the life of the respective securities. The fund does not amortize premiums on securities purchased. Dividends are declared on a daily basis after determination of the fund's net asset value and are paid to shareholders on a monthly basis. Investment securities, including forward currency contracts, denominated in non-U.S. currencies are recorded in the financial statements after translation into U.S. dollars utilizing rates of exchange on the last business day of the year. Interest income from such investments is calculated using the approximate exchange rate as accrued or when received. Purchases and sales of investment securities and interest income are calculated using the approximate exchange rate as accrued. The fund does not identify the portion of each amount shown in the fund's Statement of Operations under the caption "Realized Loss and Unrealized Depreciation on Investments" that arises from changes in non-U.S. currency exchange rates. Pursuant to the custodian agreement, the fund receives credit against its custodian fee for imputed interest on certain balances with the with the custodian bank. The custodian fee of $293,000 includes $111,000 that was paid by credits rather than in cash. 2. It is the fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net taxable income, including any net realized gain on investments, to its shareholders. Therefore, no federal income tax provision is required. As of December 31, 1994, net unrealized depreciation on investments, excluding forward currency contracts, for book and federal income tax purposes aggregated $348,278,000, of which $29,860,000 related to appreciated securities and $378,138,000 related to depreciated securities. During the year ended December 31, 1994, the fund realized, on a tax basis, a net capital loss of $36,090,000 on securities transactions. The fund has available at December 31, 1994, a net capital loss carryforward totaling $23,841,000 which may be used to offset capital gains realized during subsequent years through 2002 and thereby relieve the fund and its shareholders of any federal income tax liability with respect to capital gains that are so offset. It is the intention of the fund not to make distributions from capital gains while there is a capital loss carryforward. The cost of portfolio securities, excluding foreign currency contracts, for book and federal income tax purposes was $5,210,323,000 at December 31, 1994. 3. The fee of $18,755,0000 for management services was paid pursuant to an agreement with Capital Research and Management Company (CRMC), with which certain officers and Directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees, accrued daily, based on an annual rate of 0.30% of the first $60 million of average net assets; 0.21% of such assets in excess of $60 million but not exceeding $1 billion; 0.18% of such assets in excess of $1 billion but not exceeding $3 billion; and 0.16% of such assets in excess of $3 billion ("asset-based fee"); plus 3.00% on the first $450,000 of the fund's monthly gross investment income, plus 2.25% of such income in excess of $450,000 ("income-based fee"). Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its average net assets annually for any activities primarily intended to result in sales of fund shares, provided the categories of expenses for which reimbursement is made are approved by the fund's Board of Directors. Fund expenses under the Plan include payments to dealers to compensate them for their selling and servicing efforts. During the year ended December 31, 1994, distribution expenses under the Plan were $11,347,000. As of December 31, 1994, accrued and unpaid distribution expenses were $829,000. American Funds Service Company (AFS), the transfer agent for the fund, was paid a fee of $3,751,000. American Funds Distributors, Inc. (AFD), the principal underwriter of the fund's shares, received $4,562,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's shares. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying statement of operations. CRMC is owned by The Capital Group, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Certain of the Directors and officers of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers, directors or employees of CRMC, AFS and AFD received any remuneration directly from the fund. 4. As of December 31, 1994, accumulated undistributed net realized loss on investments was $35,644,000 and paid-in capital was $4,926,606,000. The fund made purchases and sales of investment securities, excluding short-term securities, of $2,822,901,000 and $2,634,896,000, respectively, during the year ended December 31, 1994. The fund purchases forward currency contracts in anticipation of, or to protect itself against, fluctuations in exchange rates. The contracts are recorded at market value and reflect the extent of the fund's involvement in these financial instruments. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from the possible movements in foreign exchange rates and securities values underlying these instruments. The fund reclassified $7,850,000 from undistributed net realized gains to undistributed net investment income for the year ended December 31, 1994. At December 31, 1994, the fund had outstanding forward currency contracts to sell non-U.S. currencies as follows: *****
Contract Amount U.S. at 12/31/94 Valuations ------------ ----------- ------------ ------------ Unrealized Appreciation Non-U.S. currency contracts Non-U.S. U.S. Amount (Depreciation ) French Francs expiring 11/27/95 to 9/9/98 FF 70,000,000 $11,811,000 $13,051,000 ($1,240,000) Great Britain Pounds expiring 5/19/95 GB 3,325,000 4,996,000 5,205,000 (209,000) P Japanese Yen expiring 11/22/95 ye 1,000,000,000 10,582,000 10,492,000 90,000 n Netherland Guilders expiring 6/8/95 FL 4,820,000 2,753,000 2,797,000 (44,000) ----------- ----------- ---------- $30,142,000 $31,545,000 ($1,403,000) ============ ============ ==========
***** Per-Share Data and Ratios
Year Ended December 31 1994 1993 1992 1991 1990 Net asset value, beginning of years $14.45 $13.99 $13.70 $12.39 $13.23 ------- ------- ------- ------ ----- Income from investment operations: Net investment income 1.05 1.09 1.15 1.21 1.24 Net realized and unrealized gain(loss) on investments (1.76) 0.84 0.34 1.28 (0.84) ------- ------- ------- ------ ----- Total from investment operations (0.71) 1.93 1.49 2.49 0.40 ------- ------- ------- ------ ----- Less distributions: Dividends from net investment income (1.05) (1.08) (1.16) (1.18) (1.24) Distributions from capital gains -- (0.39) (0.04) -- -- ------- ------- ------- ------ ----- Total distributions (1.05) (1.47) (1.20) (1.18) (1.24) ------- ------- ------ ------ ----- Net asset value, end of year $12.69 $14.45 $13.99 $13.70 $12.39 ======== ======== ======= ====== ===== Total Return* (5.02%) 14.14% 11.34% 21.04% 3.27% Ratios/supplemental data: Net assets, end of period (in millions) $4,941 $5,285 $3,917 $2,859 $1,945 Ratio of expenses to average net assets .69% .71% .73% .77% .76% Ratio of net income to average net assets 7.77% 7.53% 8.36% 9.28% 9.70% Portfolio turnover rate 57.0% 44.7% 49.7% 56.5% 59.9%
*This was calculated without deducting a sales charge. The maximum sales charge is 4.75% of the fund's offering price. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of The Bond Fund of America, Inc.: We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of The Bond Fund of America, Inc., as of December 31, 1994, and the related statement of operations for the year then ended, the statement of changes in net assets for the two years then ended, and the per-share data and ratios for each of the five years in the period then ended. These financial statements and the per-share data and ratios are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the per-share data and ratios based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and per-share data and ratios are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1994 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and per-share data and ratios referred to above present fairly, in all material respects, the financial position of The Bond Fund of America, Inc., at December 31, 1994, the results of its operations, the changes in its net assets and the per-share data and ratios for the respective stated years, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Los Angeles, California January 27, 1995 -----END PRIVACY-ENHANCED MESSAGE-----