497 1 filing.txt BOND FUND OF AMERICA(SM) SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 15, 2002 July 15, 2002 Beginning July 15, 2002, Class R-5 shares of Bond Fund of America will be available to certain clients of the Personal Investment Management Group of Capital Guardian Trust Company. Accordingly, the prospectus for this fund is supplemented as follows: FEES AND EXPENSES OF THE FUND - pages 5-6 Shareholder Fees Table (paid directly from your investment) Class R-5 Maximum sales charge imposed on purchases (as a percentage of offering price) none Maximum sales charge imposed on reinvested dividends none Maximum deferred sales charge none Redemption or exchange fees none Annual Fund Operating Expenses Table (deducted from fund assets) Class R-5/1/ Management Fees 0.32% Distribution and/or Service (12b-1) Fees none Other Expenses 0.14% Total Annual Fund Operating Expenses 0.46% /1/ Based on estimated amounts for the current fiscal year. Example The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown on the previous page. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be: One Year Three Years Five Years Ten Years Class R-5 $47 $148 $258 $579 PURCHASE AND EXCHANGE OF SHARES - pages 15-16 Class R-5 Shares Class R-5 shares of the fund are only available to certain clients of the Personal Investment Management Group of Capital Guardian Trust Company. Please contact Capital Guardian Trust Company if you wish to purchase Class R-5 shares of this fund. SALES CHARGES - pages 17-18 Class R-5 Shares Class R-5 shares are sold with no initial or deferred sales charges. In addition, no dealer compensation is paid on sales of Class R-5 shares. THE BOND FUND OF AMERICA, INC. Part B Statement of Additional Information February 15, 2002 (as amended July 15, 2002) This document is not a prospectus but should be read in conjunction with the current prospectus of The Bond Fund of America (the "fund" or "BFA") dated February 15, 2002. The prospectus may be obtained from your investment dealer or financial planner or by writing to the fund at the following address: The Bond Fund of America, Inc. Attention: Secretary 333 South Hope Street Los Angeles, California 90071 (213) 486-9200 Shareholders who purchase shares at net asset value through eligible retirement plans should note that not all of the services or features described below may be available to them. They should contact their employer for details. TABLE OF CONTENTS
Item Page No. ---- -------- Certain Investment Limitations and Guidelines . . . . . . . . . . . 2 Description of Certain Securities and Investment Techniques . . . . 2 Fundamental Policies and Investment Restrictions. . . . . . . . . . 9 Management of the Fund . . . . . . . . . . . . . . . . . . . . . . 11 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 22 Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 27 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 33 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 37 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Shareholder Account Services and Privileges . . . . . . . . . . . . 40 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 44 General Information . . . . . . . . . . . . . . . . . . . . . . . . 44 Class A Share Investment Results and Related Statistics . . . . . . 46 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Financial Statements
The Bond Fund of America - Page 1 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal circumstances, and are based on a percentage of the fund's net assets unless otherwise noted. This summary is not intended to reflect all of the fund's investment limitations. .. The fund will invest at least 80% of its assets in bonds (for purposes of this limit, bonds include any debt instrument and cash equivalents, and may include certain preferred securities). .. The fund will invest at least 60% of its assets in debt securities rated A or better by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P) or in unrated securities that are determined to be of comparable quality at time of purchase, including U.S. government securities, and cash or money market instruments. .. The fund may invest up to 40% of its assets in debt securities rated below A by Moody's or S&P or in unrated securities that are determined to be of comparable quality. .. The fund may invest up to 35% of its assets in debt securities rated Ba and BB or below by Moody's or S&P or in unrated securities determined to be of comparable quality. However, it is the fund's current practice not to invest more than 25% of its assets in debt securities rated Ba and BB or below or unrated but determined to be of equivalent quality. .. The fund may invest up to 10% of its assets in preferred stocks. .. The fund may invest up to 25% of its assets in securities of issuers domiciled outside the U.S. .. While the fund may not make direct purchases of common stocks or warrants or rights to acquire common stocks, the fund may invest in debt securities that are issued together with common stock or other equity interests or in securities that have equity conversion, exchange, or purchase rights. The fund may hold up to 5% of its assets in common stock, warrants and rights acquired after sales of the corresponding debt securities. .. The fund may invest up to 5% of its assets in IOs and POs. The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The descriptions below are intended to supplement the material in the prospectus under "Investment Objective, Strategies and Risks." DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow money. Issuers pay investors interest and generally must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. The prices of debt securities fluctuate depending on such factors as interest rates, credit quality, and maturity. In general, their prices decline when interest rates rise and increase when interest rates fall. Lower rated bonds, rated Ba or below by Moody's and BB or below by S&P or unrated but considered to be of equivalent quality, are described by the rating agencies as speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness than higher rated bonds, or they may already be in default. The market prices of these securities may fluctuate more than higher quality securities and may decline significantly in periods of The Bond Fund of America - Page 2 general economic difficulty. It may be more difficult to dispose of, or to determine the value of, lower rated bonds. Certain risk factors relating to lower rated bonds are discussed below. SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower rated bonds, like other bonds, may be sensitive to adverse economic changes and political and corporate developments and may be sensitive to interest rate changes. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience increased financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices and yields of lower rated bonds. PAYMENT EXPECTATIONS - Lower rated bonds, like other bonds, may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, the fund would have to replace the security with a lower yielding security, resulting in a decreased return to investors. If the issuer of a bond defaults on its obligations to pay interest or principal or enters into bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it. LIQUIDITY AND VALUATION - There may be little trading in the secondary market for particular bonds, which may affect adversely the fund's ability to value accurately or dispose of such bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of lower rated bonds. The Investment Adviser attempts to reduce the risks described above through diversification of the portfolio and by credit analysis of each issuer, as well as by monitoring broad economic trends and corporate and legislative developments, but there can be no assurance that it will be successful in doing so. INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued by governments, their agencies or instrumentalities, and corporations. The principal value of this type of bond is periodically adjusted according to changes in the rate of inflation. The interest rate is generally fixed at issuance; however, interest payments are based on an inflation adjusted principal value. For example, in a period of deflation, principal value will be adjusted downward, reducing the interest payable. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. The fund may also invest in other bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in securities that have a combination of equity and debt characteristics. These securities may at times behave more like equity than debt and vice versa. Some types of convertible bonds or preferred stock automatically convert into common stock. The prices and yields of non-convertible preferred The Bond Fund of America - Page 3 stock generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Convertible bonds, convertible preferred stock, and other securities may sometimes be converted into common stock or other securities at a stated conversion ratio. These securities, prior to conversion, pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics, their value varies in response to many factors, including the value of the underlying equity, general market and economic conditions, and convertible market valuations, as well as changes in interest rates, credit spreads, and the credit quality of the issuer. U.S. TREASURY AND AGENCY SECURITIES - U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. government, and thus they are of the highest possible credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, will be paid in full. U.S. agency securities include those issued by certain U.S. government instrumentalities and certain federal agencies. These securities are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve federal sponsorship in one way or another; some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer; and others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee Valley Authority, and Federal Farm Credit Bank System. PASS-THROUGH SECURITIES - The fund may invest in various debt obligations backed by a pool of mortgages or other assets including, but not limited to, loans on single family residences, home equity loans, mortgages on commercial buildings, credit card receivables, and leases on airplanes or other equipment. Principal and interest payments made on the underlying asset pools backing these obligations are typically passed through to investors. Pass-through securities may have either fixed or adjustable coupons. These securities include those discussed below. "Mortgage-backed securities" are issued both by U.S. government agencies, including the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and by private entities. The payment of interest and principal on securities issued by U.S. government agencies is guaranteed by the full faith and credit of the U.S. government (in the case of GNMA securities) or the issuer (in the case of FNMA and FHLMC securities). However, the guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Mortgage-backed securities issued by private entities are structured similarly to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities and the underlying mortgages are not guaranteed by government agencies. In addition, these securities generally are structured with one or more types of credit enhancement. Mortgage-backed securities generally permit borrowers to prepay their underlying mortgages. Prepayments can alter the effective maturity of these instruments. The Bond Fund of America - Page 4 "Collateralized mortgage obligations" (CMOs) are also backed by a pool of mortgages or mortgage loans, which are divided into two or more separate bond issues. CMOs issued by U.S. government agencies are backed by agency mortgages. Payments of principal and interest are passed through to each bond at varying schedules resulting in bonds with different coupons, effective maturities, and sensitivities to interest rates. In fact, some CMOs may be structured in a way that when interest rates change the impact of changing prepayment rates on these securities' effective maturities is magnified. "Commercial mortgage-backed securities" are backed by mortgages of commercial property, such as hotels, office buildings, retail stores, hospitals, and other commercial buildings. These securities may have a lower prepayment uncertainty than other mortgage-related securities because commercial mortgage loans generally prohibit or impose penalties on prepayments of principal. In addition, commercial mortgage-related securities often are structured with some form of credit enhancement to protect against potential losses on the underlying mortgage loans. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans, including the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. "Asset-backed securities" are backed by other assets such as credit card, automobile or consumer loan receivables, retail installment loans, or participations in pools of leases. Credit support for these securities may be based on the underlying assets and/or provided through credit enhancements by a third party. The values of these securities are sensitive to changes in the credit quality of the underlying collateral, the credit strength of the credit enhancement, changes in interest rates, and at times the financial condition of the issuer. Some asset-backed securities also may receive prepayments which can change the securities' effective maturities. "IOs and POs" are issued in portions or tranches with varying maturities and characteristics; some tranches may only receive the interest paid on the underlying mortgages (IOs) and others may only receive the principal payments (POs); the values of IOs and POs are extremely sensitive to interest rate fluctuations and prepayment rates, and IOs are also subject to the risk of early repayment of the underlying mortgages which will substantially reduce or eliminate interest payments. INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. involves special risks, caused by, among other things: currency controls and fluctuating currency values; different accounting, auditing, and financial reporting regulations and practices in some countries; changing local and regional economic, political, and social conditions; expropriation or confiscatory taxation; greater market volatility; differing securities market structures; and various administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of Capital Research and Management Company, investing outside the U.S. also can reduce certain portfolio risks due to greater diversification opportunities. The risks described above are potentially heightened in connection with investments in developing countries. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a low per capita gross national product. For example, political and/or economic structures in these countries may be in their infancy and developing rapidly. Historically, the markets of developing countries have been more volatile than the markets of developed countries. The fund may invest in securities of issuers in developing countries only to a limited extent. The Bond Fund of America - Page 5 Additional costs could be incurred in connection with the fund's investment activities outside the U.S. Brokerage commissions may be higher outside the U.S., and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange rates. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Forward currency contracts entered into by the fund will involve the purchase or sale of one currency against the U.S. dollar. While entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain which might result from an increase in the value of the currency. The fund will not generally attempt to protect against all potential changes in exchange rates. The fund will segregate liquid assets which will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Internal Revenue Code may affect the extent to which the fund may enter into forward contracts. Such transactions may also affect the character and timing of income, gain or loss recognized by the fund for U.S. federal income tax purposes. FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell securities at a future date. When the fund agrees to purchase such securities, it assumes the risk of any decline in value of the security beginning on the date of the agreement. When the fund agrees to sell such securities, it does not participate in further gains or losses with respect to the securities beginning on the date of the agreement. If the other party to such a transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity, or could experience a loss. The fund will not use these transactions for the purpose of leveraging and will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund's aggregate commitments under these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than were it not in such a position. The fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations thereunder. The fund may also enter into "roll" transactions which are the sale of mortgage-backed or other securities together with a commitment to purchase similar, but not identical, securities at a later date. The fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations as of the time of the agreement. The fund intends to treat roll transactions as two separate transactions: one involving the purchase of a security and a separate transaction involving the sale of a security. Since the fund does not intend to enter into roll transactions for financing purposes, it may treat these transactions as not falling within the definition of "borrowing" set forth in Section 2(a)(23) of the Investment Company Act of 1940 (the "1940 Act"). The Bond Fund of America - Page 6 The fund will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under which the fund buys a security and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. Repurchase agreements permit the fund to maintain liquidity and earn income over periods of time as short as overnight. The seller must maintain with the fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Investment Adviser. The fund will only enter into repurchase agreements involving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition is monitored by the Investment Adviser. If the seller under the repurchase agreement defaults, the fund may incur a loss if the value of the collateral securing the repurchase agreement has declined and may incur disposition costs in connection with liquidating the collateral. If bankruptcy proceedings are commenced with respect to the seller, realization of the collateral by the fund may be delayed or limited. REAL ESTATE INVESTMENT TRUSTS - The fund may invest in debt securities issued by real estate investment trusts (REITs), which are pooled investment vehicles that primarily invest in real estate or real estate related loans. REITs are not taxed on income distributed to shareholders provided they meet requirements imposed by the Internal Revenue Code. The risks associated with REIT debt investments are similar to the risks of investing in corporate-issued debt. In addition, the return on REITs is dependent on such factors as the skill of management and the real estate environment in general. Debt that is issued by REITs is typically rated by the credit rating agencies as investment grade or above. CASH AND CASH EQUIVALENTS - These securities include: (i) commercial paper (e.g., short-term notes up to 9 months in maturity issued by corporations, governmental bodies or bank/ corporation sponsored conduits (asset-backed commercial paper)), (ii) commercial bank obligations (e.g., certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)), (iii) savings association and savings bank obligations (e.g., bank notes and certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (v) corporate bonds and notes that mature, or that may be redeemed, in one year or less. LOAN PARTICIPATIONS AND ASSIGNMENTS - The fund may invest, subject to an overall 10% limit on loans, in loan participations or assignments. Loan participations are loans or other direct debt instruments which are interests in amounts owed by a corporate, governmental or other borrower to another party. They may represent amounts owed to lenders or lending syndicates to suppliers of goods or services, or to other parties. The fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing participations, the fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to loan, nor any rights of set-off against the borrower, and the fund may not directly benefit from any collateral supporting the loan in which it has purchased the participation. As a result, the fund will assume the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, a fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. The Bond Fund of America - Page 7 When the fund purchases assignments from lenders it will acquire direct rights against the borrower on the loan. However, because assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by a fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. Investments in loan participations and assignments present the possibility that the fund could be held liable as a co-lender under emerging legal theories of lender liability. In addition, if the loan is foreclosed, the fund could be part owner of any collateral and could bear the costs and liabilities of owning and disposing of the collateral. The fund anticipates that such securities could be sold only to a limited number of institutional investors. In addition, some loan participations and assignments may not be rated by major rating agencies and may not be protected by the securities laws. INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no more than 1% of its assets) in inverse floating rate notes (a type of derivative instrument). These notes have rates that move in the opposite direction of prevailing interest rates. A change in prevailing interest rates will often result in a greater change in the instruments' interest rates. As a result, these instruments may have a greater degree of volatility than other types of interest-bearing securities. RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. Securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures adopted by the fund's board of directors, taking into account factors such as the frequency and volume of trading, the commitment of dealers to make markets and the availability of qualified investors, all of which can change from time to time. The fund may incur certain additional costs in disposing of illiquid securities. MATURITY - There are no restrictions on the maturity composition of the portfolio, although it is anticipated that the fund normally will be invested substantially in securities with maturities in excess of three years. Under normal market conditions, longer term securities yield more than shorter term securities, but are subject to greater price fluctuations. LOANS OF PORTFOLIO SECURITIES - The fund is authorized to lend portfolio securities to selected securities dealers or other institutional investors whose financial condition is monitored by the Investment Adviser. The borrower must maintain with the fund's custodian collateral consisting of cash, cash equivalents or U.S. government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Investment Adviser will monitor the adequacy of the collateral on a daily basis. The fund may at any time call a loan of its portfolio securities and obtain the return of the loaned securities. The fund will receive any interest paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The fund will limit its loans of portfolio securities to an aggregate of 33 1/3% of the value of its total assets, measured at the time any such loan is made. There is no current intent to engage in this investment practice over the next 12 months. * * * * * * PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund's objective, and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. High portfolio turnover (100% or more) involves correspondingly greater transaction costs in the form of dealer spreads or brokerage The Bond Fund of America - Page 8 commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. Fixed-income securities are generally traded on a net basis and usually neither brokerage commissions nor transfer taxes are involved, although the price usually includes a profit to the dealer. A fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio was replaced once per year. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover for each of the last five fiscal periods. FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies and investment restrictions which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. These restrictions provide that the fund may not: 1. With respect to 75% of the fund's total assets, purchase the security of any issuer (other than securities issued or guaranteed by the U.S. government or its agencies or instrumentalities), if as a result, (a) more than 5% of the fund's total assets would be invested in securities of that issuer, or (b) the fund would hold more than 10% of the outstanding voting securities of that issuer. Concentrate its investments in a particular industry, as that term is used in the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. 2. Invest in companies for the purpose of exercising control or management; 3. Buy or sell real estate in the ordinary course of its business; however, the fund may invest in debt securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which invest in real estate or interests therein; 4. Buy or sell commodities or commodity contracts in the ordinary course of its business, provided, however, that this shall not prohibit the fund from purchasing or selling currencies including forward currency contracts; 5. Invest more than 15% of the value of its net assets in securities that are illiquid; The Bond Fund of America - Page 9 6. Engage in the business of underwriting of securities of other issuers, except to the extent that the disposal of an investment position may technically constitute the fund an underwriter as that term is defined under the Securities Act of 1933; 7. Make loans in an aggregate amount in excess of 10% of the value of the fund's total assets, taken at the time any loan is made, provided, (i) that the purchase of debt securities pursuant to the fund's investment objectives and entering into repurchase agreements maturing in seven days or less shall not be deemed loans for the purposes of this restriction, and (ii) that loans of portfolio securities as described under "Loans of Portfolio Securities," shall be made only in accordance with the terms and conditions therein set forth; 8. Sell securities short, except to the extent that the fund contemporaneously owns or has the right to acquire at no additional cost securities identical to those sold short; 9. Purchase securities at margin; 10. Borrow money except from banks for temporary or emergency purposes, not in excess of 5% of the value of the fund's total assets. Notwithstanding Investment Restriction #8, the fund has no current intention (at least during the next 12 months) to sell securities short to the extent the fund contemporaneously owns or has the right to acquire at no additional cost securities identical to those sold short. NON-FUNDAMENTAL POLICIES - The fund has adopted the following non-fundamental investment policy, which may be changed by action of the Board of Directors without shareholder approval: the fund may not invest in securities of other investment companies, except as permitted by the Investment Company Act of 1940, as amended. The Bond Fund of America - Page 10 MANAGEMENT OF THE FUND BOARD OF DIRECTORS AND OFFICERS
YEAR FIRST NUMBER OF BOARDS POSITION ELECTED WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ PAST 5 YEARS DIRECTOR SERVES BY DIRECTOR ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Capen, Director 1999 Corporate Director and author; 14 Carnival Corporation Jr. former United States Age: 67 Ambassador to Spain; former Vice Chairman, Knight Ridder, Inc.; former Chairman and Publisher, The --- Miami ----- Herald ------ ----------------------------------------------------------------------------------------------------------------------------------- H. Frederick Director 1974 Private Investor; former 19 Ducommun Incorporated; Christie President IHOP Corporation; Age: 68 and Chief Executive Officer, Southwest Water Company; The Valero L.P. Mission Group (non-utility holding company subsidiary of Southern California Edison Company) ----------------------------------------------------------------------------------------------------------------------------------- Diane C. Creel Director 1994 CEO and President, The Earth 12 Allegheny Technologies; Age: 53 Technology Corporation BF Goodrich; (international consulting Teledyne Technologies engineering) ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Director 1989 Managing Director, Senior 16 None Age: 66 Resource Group LLC (development and management of senior living communities) ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Director 1994 President, Fuller Consulting 13 None Age: 55 (financial management consulting firm) ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Director 1991 Chairman and CEO, AECOM 13 Southwest Water Company Age: 67 Technology Corporation (engineering, consulting and professional services) ----------------------------------------------------------------------------------------------------------------------------------- Frank M. Sanchez Director 1999 President, The Sanchez Family 12 None Age: 58 Corporation dba McDonald's Restaurants (McDonald's licensee) -----------------------------------------------------------------------------------------------------------------------------------
The Bond Fund of America - Page 11
PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST 5 YEARS AND ELECTED POSITIONS HELD NUMBER OF BOARDS POSITION A DIRECTOR WITH AFFILIATED ENTITIES WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ OF THE FUND DIRECTOR SERVES BY DIRECTOR OR OFFICER ----------------------------------------------------------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/4,5/ ----------------------------------------------------------------------------------------------------------------------------------- Don R. Conlan Director 1996 President (retired), The 12 None Age: 66 Capital Group Companies, Inc.* ----------------------------------------------------------------------------------------------------------------------------------- Abner D. Goldstine President, 1974 Senior Vice President and 12 None Age: 72 Principal Director, Executive Capital Research and Officer Management and Company Director ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Jr. Chairman 1985 Executive Vice President and 16 None Age: 53 of the Director, Capital Research and Board Management Company; Director, American Funds Distributors, Inc.*; Director, The Capital Group Companies, Inc.* -----------------------------------------------------------------------------------------------------------------------------------
The Bond Fund of America - Page 12
PRINCIPAL OCCUPATION(S) DURING POSITION YEAR FIRST ELECTED PAST 5 YEARS AND POSITIONS HELD WITH THE AN OFFICER WITH AFFILIATED ENTITIES NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND ----------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS/5/ ----------------------------------------------------------------------------------------------------------------------------------- David C. Barclay Senior Vice President 1997 Senior Vice President and Director, Capital Research and Age: 45 Management Company ----------------------------------------------------------------------------------------------------------------------------------- Mark R. Macdonald Senior Vice President 2001 Vice President - Investment Management Group, Capital Age: 42 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- John H. Smet Senior Vice President 1994 Senior Vice President, Capital Research and Management Age: 45 Company ----------------------------------------------------------------------------------------------------------------------------------- Michael J. Downer Vice President 1994 Vice President and Secretary, Capital Research and Management Age: 46 Company; Secretary, American Funds Distributors, Inc.*; Director, Capital Bank and Trust Company* ----------------------------------------------------------------------------------------------------------------------------------- Julie F. Williams Secretary 1982 Vice President - Fund Business Management Group, Capital Age: 53 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Anthony W. Hynes, Treasurer 1993 Vice President - Fund Business Management Group, Capital Jr. Research and Management Company Age: 39 ----------------------------------------------------------------------------------------------------------------------------------- Kimberly S. Verdick Assistant Secretary 1994 Assistant Vice President - Fund Business Management Group, Age: 37 Capital Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Susi M. Silverman Assistant Treasurer 2001 Vice President - Fund Business Management Group, Capital Age: 31 Research and Management Company -----------------------------------------------------------------------------------------------------------------------------------
* Company affiliated with Capital Research and Management Company. 1 Directors and officers of the fund serve until their resignation, removal or retirement. 2 Capital Research and Management Company manages the American Funds consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those in the American Funds Group) that are held by each director as a director of a public company or a registered investment company. 4 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). 5 All of the officers listed are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. The Bond Fund of America - Page 13 FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2001
AGGREGATE DOLLAR RANGE/1/ OF SHARES OWNED IN ALL FUNDS WITHIN AMERICAN FUNDS DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN NAME SHARES OWNED BY DIRECTOR ------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS ------------------------------------------------------------------------------- Richard J. Capen, Jr. None Over $100,000 ------------------------------------------------------------------------------- H. Frederick Christie None Over $100,000 ------------------------------------------------------------------------------- Diane C. Creel $1 - $10,000 $10,001 - $50,000 ------------------------------------------------------------------------------- Martin Fenton $10,001 - $50,000 Over $100,000 ------------------------------------------------------------------------------- Leonard R. Fuller $10,001 - $50,000 $50,001 - $100,000 ------------------------------------------------------------------------------- Richard G. Newman $1 - $10,000 Over $100,000 ------------------------------------------------------------------------------- Frank M. Sanchez $1 - $10,000 $10,001 - $50,000 ------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/2/ ------------------------------------------------------------------------------- Don R. Conlan $1 - $10,000 Over $100,000 ------------------------------------------------------------------------------- Abner D. Goldstine Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Paul G. Haaga, Jr. Over $100,000 Over $100,000 -------------------------------------------------------------------------------
1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000 and Over $100,000. The amounts listed for "interested" directors include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2001 No compensation is paid by the fund to any officer or Director who is a director, officer or employee of the Investment Adviser or its affiliates. The fund pays annual fees of $10,000 to Directors who are not affiliated with the Investment Adviser, plus $200 for each Board of Directors meeting attended, and $200 for each meeting attended as a member of a committee of the Board of Directors. No pension or retirement benefits are accrued as part of fund expenses. The Directors may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser. The Bond Fund of America - Page 14
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ ------------------------------------------------------------------------------------------ Richard J. Capen, $13,600'/3/ $ 94,600/3/ Jr. ------------------------------------------------------------------------------------------ H. Frederick $13,600/3/ $201,100/3/ Christie ------------------------------------------------------------------------------------------ Diane C. Creel $11,000/3/ $ 50,600/3/ ------------------------------------------------------------------------------------------ Martin Fenton $11,300/3/ $183,600/3/ ------------------------------------------------------------------------------------------ Leonard R. Fuller $13,600/3/ $ 79,100/3/ ------------------------------------------------------------------------------------------ Richard G. Newman $11,300 $118,600 ------------------------------------------------------------------------------------------ Frank M. Sanchez $11,300 $ 54,100 ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Directors under a non-qualified deferred compensation plan adopted by the fund in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Directors. 2 Capital Research and Management Company manages the American Funds consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2001 fiscal year for participating Directors is as follows: Richard G. Capen, Jr. ($23,969), H. Frederick Christie ($16,719), Diane C. Creel ($40,321), Martin Fenton ($31,396) and Leonard R. Fuller ($63,470). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Directors. As of January 15, 2002, the officers and Directors of the fund and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. FUND ORGANIZATION AND THE BOARD OF DIRECTORS The fund, an open-end, diversified management investment company, was organized as a Maryland corporation on December 3, 1973. All fund operations are supervised by the fund's Board of Directors, which meets periodically and performs duties required by applicable state and federal laws. Members of the board who are not employed by Capital Research and Management Company or its affiliates are paid certain fees for services rendered to the fund as described above. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund has several different classes of shares, including classes A, B, C, F, 529-A, 529-B, 529- C, 529-E and 529-F. The 529 share classes are available only through CollegeAmerica to investors establishing qualified higher education savings accounts. The shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Directors and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and on other matters in The Bond Fund of America - Page 15 which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. Note, CollegeAmerica account owners are technically not shareholders of the fund and accordingly, do not have the rights of a shareholder, including the right to vote any proxies relating to fund shares. The fund does not hold annual meetings of shareholders. However, significant matters which require shareholder approval, such as certain elections of board members or a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the board could be removed by a majority vote. COMMITTEES OF THE BOARD OF DIRECTORS The fund has an Audit Committee comprised of Richard G. Capen, Jr., H. Frederick Christie and Leonard R. Fuller, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee oversees the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent auditors and the full Board of Directors. There were four Audit Committee meetings held during the 2001 fiscal year. The fund has a Contracts Committee comprised of Richard G. Capen, Jr., H. Frederick Christie, Diane C. Creel, Martin Fenton, Leonard R. Fuller, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee's function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its Investment Adviser or the Investment Adviser's affiliates, such as the investment advisory and service agreement, principal underwriting agreement, and plans of distribution under rule 12b-1, that the fund may enter into, renew or continue, and to make its recommendations to the full Board of Directors on these matters. There was one Contracts Committee meeting during the 2001 fiscal year. The fund has a Nominating Committee comprised of Richard G. Capen, Jr., H. Frederick Christie, Diane C. Creel, Martin Fenton, Leonard R. Fuller, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates candidates for independent directors to the full Board of Directors. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, c/o the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee. There were no Nominating Committee meetings during the 2001 fiscal year. The Bond Fund of America - Page 16 INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo) with a staff of professionals, many of whom have significant investment experience. The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment Adviser's research professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. The Investment Adviser is responsible for managing more than $350 billion of stocks, bonds and money market instruments and serves over 11 million shareholder accounts of all types throughout the world. These investors include privately owned businesses and large corporations as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue in effect until October 31, 2002, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (i) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the fund, and (ii) the vote of a majority of Directors who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the Investment Adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party, and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). In determining whether to renew the Agreement each year, the Contracts Committee of the Board of Directors evaluates information provided by the Investment Adviser in accordance with Section 15(c) of the 1940 Act, and presents its recommendations to the full Board of Directors. At its most recent meeting, the Committee considered a number of factors in recommending renewal of the existing Agreement, including the quality of services provided to the fund, fees and expenses borne by the fund, and financial results of the Investment Adviser. In reviewing the quality of the services provided to the fund, the Committee noted that, although the fund's relative results were less favorable in 2000, its results for the six months and ten years ended June 30, 2001 placed it among the upper rankings of its peer group. The Committee discussed types of debt instruments represented in the fund's portfolio as compared to other funds in its peer group and the impact of these differences on the fund's relative results. The Committee also considered the quality and depth of the Investment Adviser's organization in general and of the investment professionals currently providing services to the fund. In reviewing the fees and expenses borne by the fund, the Committee noted, among other things, that the fund's advisory fees and its total expenses over various periods as a percentage of its average net assets were highly favorable in relation to its peer group. The Committee also The Bond Fund of America - Page 17 considered steps taken in recent years by the Investment Adviser to help control the fund's transfer agency expenses. Based on their review, the Committee and the Board concluded that the advisory fees and expenses of the fund are fair, both absolutely and in comparison with those of other funds in the industry, and that shareholders have received reasonable value in return for paying fees and expenses. The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to: custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plans of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to directors unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. The management fee is based upon the net assets of the fund and monthly gross investment income. Gross investment income is determined in accordance with generally accepted accounting principles and does not include gains or losses from sales of capital assets. The management fee is based on the following rates and average month-end net asset levels: NET ASSET LEVEL
RATE IN EXCESS OF UP TO ------------------------------------------------------------------------------ 0.30% $ 0 $ 60,000,000 ------------------------------------------------------------------------------ 0.21 60,000,000 1,000,000,000 ------------------------------------------------------------------------------ 0.18 1,000,000,000 3,000,000,000 ------------------------------------------------------------------------------ 0.16 3,000,000,000 6,000,000,000 ------------------------------------------------------------------------------ 0.15 6,000,000,000 10,000,000,000 ------------------------------------------------------------------------------ 0.14 10,000,000,000 ------------------------------------------------------------------------------
The Bond Fund of America - Page 18 The agreement also provides for fees based on monthly gross investment income at the following rates: MONTHLY GROSS INVESTMENT
RATE INCOME IN EXCESS OF UP TO ------------------------------------------------------------------------------ 2.25% $ 0 8,333,333 ------------------------------------------------------------------------------ 2.00 8,333,333 ------------------------------------------------------------------------------
Assuming average month-end net assets of $11.9 billion and gross investment income levels of 5%, 6%, 7%, 8% and 9%, management fees would be .27%, .29%, ..31%, .33% and .35%, respectively. The Investment Adviser has agreed to reduce the fee payable to it under the agreement by (a) the amount by which the ordinary operating expenses of the fund for any fiscal year of the fund, excluding interest, taxes and extraordinary expenses such as litigation, exceed the greater of (i) 1% of the average month-end net assets of the fund for such fiscal year, or (ii) 10% of the fund's gross investment income, and (b) by any additional amount necessary to assure that such ordinary operating expenses of the fund in any year after such reduction do not exceed the lesser of (i) 1 1/2% of the first $30 million of average month-end net assets of the fund, plus 1% of the average month-end net assets in excess thereof, or (ii) 25% of the fund's gross investment income. To the extent the fund's management fee must be waived due to Class A share expense ratios exceeding these limits, management fees will be reduced similarly for all classes of shares of the fund or other Class A fees will be waived in lieu of management fees. For the fiscal years ended 2001, 2000, and 1999, the Investment Adviser received from the fund advisory fees of $34,818,000, $30,566,000, and $30,826,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser relating to the fund's Class C, F and 529 shares will continue in effect until October 31, 2002, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by the vote of a majority of Directors who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Administrative Agreement provides that the fund may terminate the agreement at any time by vote of a majority of Directors who are not interested persons of the fund. The Investment Adviser has the right to terminate the Administrative Agreement upon 60 days' written notice to the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). Under the Administrative Agreement, the Investment Adviser provides certain transfer agent and administrative services for shareholders of the fund's Class C and F shares, and all Class 529 shares. The Investment Adviser contracts with third parties, including American Funds Service Company, the fund's Transfer Agent, to provide these services. Services include, but are not limited to, shareholder account maintenance, transaction processing, tax information reporting, and shareholder and fund communications. In addition, the Investment Adviser monitors, coordinates and oversees the activities performed by third parties providing such services. The Bond Fund of America - Page 19 As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's applicable share classes. Transfer agent fees are paid monthly according to a fee schedule contained in a Shareholder Services Agreement between the fund and American Funds Service Company. The Investment Adviser also receives an administrative services fee for administrative services provided to the fund's applicable share classes. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average daily net assets of each respective applicable share class. Administrative service fees paid for Class C and F shares for the fiscal period ended 2001 were $147,000 and $58,000, respectively. PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION - American Funds Distributors, Inc. (the "Principal Underwriter") is the principal underwriter of the fund's shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071; 135 South State College Boulevard, Brea, CA 92821; 3500 Wiseman Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513. The Principal Underwriter receives revenues from sales of the fund's shares. For Class A and 529-A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A and 529-A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class B and 529-B shares, the Principal Underwriter sells the rights to the 12b-1 fees paid by the fund for distribution expenses to a third party and receives the revenue remaining after compensating investment dealers for sales of Class B and 529-B shares. The fund also pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers of Class B and 529-B shares. For Class C and 529-C shares, the Principal Underwriter receives any contingent deferred sales charges that apply during the first year after purchase. The fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers of Class C and 529-C shares. For Class 529-E shares, the fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers. For Class F and 529-F shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell Class F and 529-F shares. Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:
COMMISSIONS, ALLOWANCE OR FISCAL YEAR/PERIOD REVENUE COMPENSATION --------------------------------------------------------------- OR FEES RETAINED TO DEALERS -------------------------------------- CLASS A 2001 $7,881,000 $30,392,000 2000 $3,608,000 $13,941,000 1999 $6,279,000 $26,010,000 ----------------------------------------------------------------------------------------------------- CLASS B 2001 $2,702,000 $15,360,000 2000 $ 558,000 $ 3,455,000 -----------------------------------------------------------------------------------------------------
The Bond Fund of America - Page 20 The fund has adopted Plans of Distribution (the "Plans"), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have been approved by the full Board of Directors and separately by a majority of the directors who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plans or the Principal Underwriting Agreement. Potential benefits of the Plans to the fund include: shareholder services; savings to the fund in transfer agency costs; savings to the fund in advisory fees and other expenses; benefits to the investment process from growth or stability of assets; and maintenance of a financially healthy management organization. The selection and nomination of directors who are not "interested persons" of the fund are committed to the discretion of the directors who are not "interested persons" during the existence of the Plans. The Plans may not be amended to increase materially the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly and the Plans must be renewed annually by the Board of Directors. Under the Plans, the fund may annually expend the following amounts to finance any activity primarily intended to result in the sale of fund shares, provided the fund's Board of Directors has approved the category of expenses for which payment is being made: (i) for Class A shares, up to 0.25% of its average daily net assets attributable to Class A shares; (ii) for Class 529-A shares, up to 0.50% of its average daily net assets attributable to Class 529-A shares; (iii) for Class B and 529-B shares, 1.00% of its average daily net assets attributable to Class B and 529-B shares, respectively; (iv) for Class C and 529-C shares, 1.00% of its average daily net assets attributable to Class C and 529-C shares, respectively; (v) for Class 529-E shares, up to 0.75% of its average daily net assets attributable to Class 529-E shares; and (vi) for Class F and 529-F shares, up to 0.50% of its average daily net assets attributable to Class F and 529-F shares, respectively. For Class A and 529-A shares, (i) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) up to the amount allowable under the fund's Class A and 529-A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including for Class A and 529-A shares dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees, and retirement plans, endowments and foundations with $50 million or more in assets) ("no load purchases"). Commissions on no load purchases of Class A shares, in excess of the Class A and 529-A Plan limitations not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters these commissions are not recoverable. As of December 31, 2001, unreimbursed expenses which remain subject to reimbursement under the Plan for Class A shares totaled $10,953,000. For Class B and 529-B shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class C and 529-C shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the The Bond Fund of America - Page 21 Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class 529-E shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class F and 529-F shares, 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. Currently, no compensation is paid under the fund's Class F and 529-F Plans for distribution-related expenses. During the 2001 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 EXPENSES 12B-1 LIABILITY -------------------------- ACCRUED OUTSTANDING ---------------------------------------------------- CLASS A $26,032,000 $1,770,000 ------------------------------------------------------------------------------ CLASS B $ 2,584,000 $ 385,000 ------------------------------------------------------------------------------ CLASS C $ 637,000 $ 149,000 ------------------------------------------------------------------------------ CLASS F $ 70,000 $ 15,000 ------------------------------------------------------------------------------
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from a designated percentage of its income), currently provides additional compensation to dealers. Currently, these payments are limited to the top 100 dealers who have sold shares of the fund or other funds in The American Funds Group. These payments will be based principally on a pro rata share of a qualifying dealer's sales. The Principal Underwriter will, on an annual basis, determine the advisability of continuing these payments. TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code ("Code"). A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually 100% of its investment company taxable income and net realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances the fund may determine that it is in the interest of shareholders to distribute less than that amount. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward The Bond Fund of America - Page 22 contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the fund's assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or two or more issuers which the fund controls and which are determined to be engaged in the same or similar trades or businesses. Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year), and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the fund from its current year's ordinary income and capital gain net income and (ii) any amount on which the fund pays income tax during the periods described above. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS - Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class, unless shareholders indicate in writing that they wish to receive them in cash or in shares of the same class of other American Funds, as provided in the prospectus. Distributions of investment company taxable income and net realized capital gains to individual shareholders will be taxable whether received in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of that share on the reinvestment date. Dividend and capital gain distributions by 529 share classes will be automatically reinvested. DIVIDENDS - The fund intends to follow the practice of distributing substantially all of its investment company taxable income, which includes any excess of net realized short-term gains over net realized long-term capital losses. Investment company taxable income generally includes dividends, interest, net short-term capital gains in excess of net long-term capital losses, and certain foreign currency gains, if any, less expenses and certain foreign currency losses. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the fund accrues receivables or liabilities denominated in a foreign currency and the time the fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of The Bond Fund of America - Page 23 certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the fund's investment company taxable income to be distributed to its shareholders as ordinary income. If the fund invests in stock of certain passive foreign investment companies, the fund may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the fund's holding period for the stock. The distribution or gain so allocated to any taxable year of the fund, other than the taxable year of the excess distribution or disposition, would be taxed to the fund at the highest ordinary income rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the fund's investment company taxable income and, accordingly, would not be taxable to the fund to the extent distributed by the fund as a dividend to its shareholders. To avoid such tax and interest, the fund intends to elect to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time. Under this election, deductions for losses are allowable only to the extent of any prior recognized gains, and both gains and losses will be treated as ordinary income or loss. The fund will be required to distribute any resulting income, even though it has not sold the security and received cash to pay such distributions. Upon disposition of these securities, any gain recognized is treated as ordinary income and loss is treated as ordinary loss to the extent of any prior recognized gain. Dividends from domestic corporations are expected to comprise some portion of the fund's gross income. To the extent that such dividends constitute any of the fund's gross income, a portion of the income distributions of the fund will be eligible for the deduction for dividends received by corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days during the 90-day period beginning on the date which is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company taxable income of the fund which must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income taxation at the level of the fund. The Bond Fund of America - Page 24 In addition, some of the bonds may be purchased by a fund at a discount that exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having a market discount may be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond or a fund may elect to include the market discount in income in tax years to which it is attributable. Generally, accrued market discount may be figured under either the ratable accrual method or constant interest method. If the fund has paid a premium over the face amount of a bond, the fund has the option of either amortizing the premium until bond maturity and reducing the fund's basis in the bond by the amortized amount, or not amortizing and treating the premium as part of the bond's basis. In the case of any debt security having a fixed maturity date of not more than one year from its date of issue, the gain realized on disposition generally will be treated as short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as short-term capital gain. Dividend and interest income received by the fund from sources outside the U.S. may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the U.S. may reduce or eliminate these foreign taxes, however. Most foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. CAPITAL GAIN DISTRIBUTIONS - The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carry-forward of the fund. If any net long-term capital gains in excess of net short-term capital losses are retained by the fund for reinvestment, requiring federal income taxes to be paid thereon by the fund, the fund intends to elect to treat such capital gains as having been distributed to shareholders. As a result, each shareholder will report such capital gains as long-term capital gains taxable to individual shareholders at a maximum 20% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and such shareholder's related tax credit. SHAREHOLDER TAXATION - In January of each year, individual shareholders of the fund will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund. Distributions of the excess of net long-term capital gains over net short-term capital losses which the fund properly designates as "capital gain dividends" generally will be taxable to individual shareholders at a maximum 20% capital gains rate, regardless of the length of time the shares of the fund have been held by such shareholders. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain during such six-month period. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would The Bond Fund of America - Page 25 nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of investment capital. For this reason, investors should consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive a partial return of investment capital upon the distribution, which will nevertheless be taxable to them. Redemptions of shares, including exchanges for shares of another American Fund, may result in federal, state and local tax consequences (gain or loss) to the shareholder. However, conversion from one class to another class in the same fund should not be a taxable event. If a shareholder exchanges or otherwise disposes of shares of the fund within 90 days of having acquired such shares, and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced sales charge for shares of the fund, or of a different fund, the sales charge previously incurred in acquiring the fund's shares will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes of determining the amount of gain or loss on the exchange, but will be treated as having been incurred in the acquisition of such other funds. Also, any loss realized on a redemption or exchange of shares of the fund will be disallowed to the extent substantially identical shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. The fund will be required to report to the IRS all distributions of investment company taxable income and capital gains as well as gross proceeds from the redemption or exchange of fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of investment company taxable income and capital gains and proceeds from the redemption or exchange of a regulated investment company may be subject to withholding of federal income tax in the case of non-exempt U.S. shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if the fund is notified by the IRS or a broker that the taxpayer identification number furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO COLLEGEAMERICA ACCOUNTS. The Bond Fund of America - Page 26 PURCHASE OF SHARES
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS ------------------------------------------------------------------------------- See "Purchase $50 minimum (except where a Minimums" for initial lower minimum is noted under investment minimums. "Purchase Minimums"). ------------------------------------------------------------------------------- By contacting Visit any investment Mail directly to your your investment dealer dealer who is investment dealer's address registered in the printed on your account state where the statement. purchase is made, has a sales agreement with American Funds Distributors and is authorized to sell a CollegeAmerica account in the case of 529 shares. ------------------------------------------------------------------------------- By mail Make your check Fill out the account additions payable to the fund form at the bottom of a recent and mail to the account statement, make your address indicated on check payable to the fund, the account write your account number on application. Please your check, and mail the check indicate an investment and form in the envelope dealer on the account provided with your account application. statement. ------------------------------------------------------------------------------- By telephone Please contact your Complete the "Investments by investment dealer to Phone" section on the account open account, then application or American follow the procedures FundsLink Authorization Form. for additional Once you establish the investments. privilege, you, your financial advisor or any person with your account information can call American FundsLine(R) and make investments by telephone (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Internet Purchases, Redemptions and Exchanges" below). ------------------------------------------------------------------------------- By Internet Please contact your Complete the American FundsLink investment dealer to Authorization Form. Once you open account, then establish the privilege, you, follow the procedures your financial advisor or any for additional person with your account investments. information may access American FundsLine OnLine(R) on the Internet and make investments by computer (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Internet Purchases, Redemptions and Exchanges" below). ------------------------------------------------------------------------------- By wire Call 800/421-0180 to Your bank should wire your obtain your account additional investments in the number(s), if same manner as described under necessary. Please "Initial Investment." indicate an investment dealer on the account. Instruct your bank to wire funds to: Wells Fargo Bank 155 Fifth Street, Sixth Floor San Francisco, CA 94106 (ABA#121000248) For credit to the account of: American Funds Service Company a/c# 4600-076178 (fund name) (your fund acct. no.) -------------------------------------------------------------------------------
The fund and the Principal Underwriter reserve the right to reject any purchase order. Generally, Class F shares are generally only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. Class B and C shares are generally not available to certain employer-sponsored retirement plans, such as 401(k) plans, 457 plans, employer-sponsored 403(b) plans, and money purchase pension and The Bond Fund of America - Page 27 profit sharing plans. Class 529 shares may be purchased by investors only through CollegeAmerica accounts. Class 529-E shares may only be purchased by investors participating in CollegeAmerica through an eligible employer plan. Class R-5 shares of the fund are available to clients of the Personal Investment Management Group of Capital Guardian Trust Company who do not have an intermediary associated with their accounts. In addition, the state tax-exempt funds are only offered in certain states, and tax-exempt funds in general should not serve as retirement plan investments. PURCHASE MINIMUMS - The minimum initial investment for all funds in The American Funds Group, except the money market funds and the state tax-exempt funds, is $250. The minimum initial investment for the money market funds (The Cash Management Trust of America, The Tax-Exempt Money Fund of America, and The U.S. Treasury Money Fund of America) and the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, and The Tax-Exempt Fund of Virginia) is $1,000. Purchase minimums are reduced to $50 for purchases through "Automatic Investment Plans" (except for the money market funds) or to $25 for purchases by retirement plans through payroll deductions and may be reduced or waived for shareholders of other funds in The American Funds Group. The minimum is $50 for additional investments (except for retirement plan payroll deductions as noted above). PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B shares for all American Funds is $100,000. Direct purchases of Class B shares of The Cash Management Trust of America are not permitted; shares may be acquired only by exchanging from Class B shares of other American Funds. For investments above $100,000, Class A shares are generally a less expensive option over time due to sales charge reductions or waivers. PURCHASE MAXIMUM FOR CLASS C SHARES - The maximum purchase order for Class C shares for all American Funds is $500,000. Direct purchases of Class C shares of The Cash Management Trust of America are not permitted; shares may be acquired only by exchanging from Class C shares of other American Funds. FUND NUMBERS - Here are the fund numbers for use with our automated telephone line, American FundsLine/(R)/ (see description below):
FUND NUMBERS ---------------------------------------- FUND CLASS A CLASS B CLASS C CLASS F ---------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . 002 202 302 402 American Balanced Fund/(R)/ . . . . . . . . . . . . 011 211 311 411 American Mutual Fund/(R)/ . . . . . . . . . . . . . 003 203 303 403 Capital Income Builder/(R)/ . . . . . . . . . . . . 012 212 312 412 Capital World Growth and Income Fund/SM/ . . . . . 033 233 333 433 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . 016 216 316 416 Fundamental Investors/SM/ . . . . . . . . . . . . . 010 210 310 410 The Growth Fund of America/(R)/ . . . . . . . . . . 005 205 305 405 The Income Fund of America/(R)/ . . . . . . . . . . 006 206 306 406 The Investment Company of America/(R)/ . . . . . . 004 204 304 404 The New Economy Fund/(R)/ . . . . . . . . . . . . . 014 214 314 414 New Perspective Fund/(R)/ . . . . . . . . . . . . . 007 207 307 407 New World Fund/SM/ . . . . . . . . . . . . . . . . 036 236 336 436 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . 035 235 335 435 Washington Mutual Investors Fund/SM/ . . . . . . . 001 201 301 401 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . 040 240 340 440 American High-Income Trust/SM/ . . . . . . . . . . 021 221 321 421 The Bond Fund of America/SM/ . . . . . . . . . . . 008 208 308 408 Capital World Bond Fund/(R)/ . . . . . . . . . . . 031 231 331 431 Intermediate Bond Fund of America/SM/ . . . . . . . 023 223 323 423 Limited Term Tax-Exempt Bond Fund of America/SM/ . 043 243 343 443 The Tax-Exempt Bond Fund of America/(R)/ . . . . . 019 219 319 419 The Tax-Exempt Fund of California/(R)/* . . . . . . 020 220 320 420 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . 024 224 324 424 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . 025 225 325 425 U.S. Government Securities Fund/SM/ . . . . . . . . 022 222 322 422 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . 009 209 309 409 The Tax-Exempt Money Fund of America/SM/ . . . . . 039 N/A N/A N/A The U.S. Treasury Money Fund of America/SM/ . . . . 049 N/A N/A N/A ___________ *Available only in certain states.
The Bond Fund of America - Page 28
FUND NUMBERS --------------------------------------------- CLASS CLASS CLASS CLASS CLASS FUND 529-A 529-B 529-C 529-E 529-F ------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . 1002 1202 1302 1502 1402 American Balanced Fund/(R)/ . . 1011 1211 1311 1511 1411 American Mutual Fund/(R)/ . . . 1003 1203 1303 1503 1403 Capital Income Builder/(R)/ . . 1012 1212 1312 1512 1412 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . 1033 1233 1333 1533 1433 EuroPacific Growth Fund/(R)/ . 1016 1216 1316 1516 1416 Fundamental Investors/SM/ . . . 1010 1210 1310 1510 1410 The Growth Fund of America/(R)/ 1005 1205 1305 1505 1405 The Income Fund of America/(R)/ 1006 1206 1306 1506 1406 The Investment Company of America/(R)/. . . . . . . . . . 1004 1204 1304 1504 1404 The New Economy Fund/(R)/ . . . 1014 1214 1314 1514 1414 New Perspective Fund/(R)/ . . . 1007 1207 1307 1507 1407 New World Fund/SM/ . . . . . . 1036 1236 1336 1536 1436 SMALLCAP World Fund/(R)/ . . . 1035 1235 1335 1535 1435 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . 1001 1201 1301 1501 1401 BOND FUNDS American High-Income Trust/SM/ 1021 1221 1321 1521 1421 The Bond Fund of America/SM/ . 1008 1208 1308 1508 1408 Capital World Bond Fund/(R)/ . 1031 1231 1331 1531 1431 Intermediate Bond Fund of America/SM/ . . . . . . . . . . 1023 1223 1323 1523 1423 U.S. Government Securities Fund/SM/. . . . . . . . . . . . 1022 1222 1322 1522 1422 MONEY MARKET FUND The Cash Management Trust of America/(R)/. . . . . . . . . . 1009 1209 1309 1509 1409
The Bond Fund of America - Page 29 SALES CHARGES CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares of stock, stock/bond, and bond funds of The American Funds Group are set forth below. The money market funds of The American Funds Group are offered at net asset value. (See "Fund Numbers" above for a listing of the funds.)
DEALER SALES CHARGE AS COMMISSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING -INVESTED- PRICE PRICE ------------------------------------------------------------------- -------- ----- ----- STOCK AND STOCK/BOND FUNDS Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00% $25,000 but less than $50,000 . . . 5.26 5.00 4.25 $50,000 but less than $100,000. . 4.71 4.50 3.75 BOND FUNDS Less than $100,000 . . . . . . . . 3.90 3.75 3.00 STOCK, STOCK/BOND, AND BOND FUNDS $100,000 but less than $250,000 . 3.63 3.50 2.75 $250,000 but less than $500,000 . 2.56 2.50 2.00 $500,000 but less than $750,000 . 2.04 2.00 1.60 $750,000 but less than $1 million 1.52 1.50 1.20
$1 million or more. . . . . . . . none none (see below) ------------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE (CDSC) MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers from retirement plans with assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest with no sales charge and are not subject to a CDSC. 403(b) plans may be treated as employer-sponsored plans for sales charge purposes if: (i) the American Funds are principal investment options; (ii) the employer facilitates the enrollment process by, for example, allowing for onsite group enrollment meetings held during working hours; and (iii) there is only one dealer firm assigned to the plans. 403(b) plans meeting these criteria may invest with no sales charge and are not subject to a CDSC if investing $1 million or more or having 100 or more eligible employees. Investments made through accounts that purchased Class A shares of the fund before March 15, 2001 and are part of certain qualified fee-based programs, and retirement plans, endowments or foundations with $50 million or more in assets, may also be made with no sales charge and are not subject to a CDSC. A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution on investments made with no initial sales charge. The Bond Fund of America - Page 30 A transfer from the Virginia Prepaid Education Program or the Virginia Education Savings Trust to a CollegeAmerica account will be made with no sales charge. No commission will be paid to the dealer on such a transfer. In addition, Class A shares of the stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives, retired registered representatives with respect to accounts established while active, or full-time employees (and their spouses, parents, and children) of dealers who have sales agreements with the Principal Underwriter (or who clear transactions through such dealers) and plans for such persons or the dealers; (3) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (4) insurance company separate accounts; (5) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (6) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; (7) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, as determined by a Vice President or more senior officer of the Capital Research and Management Company Fund Administration and Compliance Unit; and (8) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. CONTINGENT DEFERRED SALES CHARGE ON CLASS A AND C SHARES - Except as described above, a CDSC of 1% applies to redemptions of Class A shares of the American Funds, other than the money market funds, made within 12 months following the purchase of Class A shares of $1 million or more made without an initial sales charge. A CDSC of 1% also applies to redemptions of Class C shares of the American Funds made within 12 months following the purchase of the Class C shares. The charge is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. Shares held the longest are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC may be waived in certain circumstances. See "CDSC Waivers for Class A Shares" and "CDSC Waivers for Class B and C Shares" below. The Bond Fund of America - Page 31 CLASS B SALES CHARGES - Class B shares are sold without any initial sales charge. However, a CDSC may be applied to shares you sell within six years of purchase, as shown in the table below:
CONTINGENT DEFERRED SALES CHARGE ON SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD -------------------------------------------------------------------------- 1 5.00% 2 4.00 3 4.00 4 3.00 5 2.00 6 1.00
There is no CDSC on appreciation in share value above the initial purchase price or on shares acquired through reinvestment of dividends or capital gain distributions. In addition, the CDSC may be waived in certain circumstances. See "CDSC Waivers for Class B and C shares" below. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. In processing redemptions of Class B shares, shares that are not subject to any CDSC will be redeemed first followed by shares that you have owned the longest during the six-year period. CLASS F AND CLASS 529-E SALES CHARGE - Class F and 529-E shares are sold with no initial or contingent deferred sales charge. DEALER COMMISSIONS AND COMPENSATION - For Class A shares, commissions (up to 1%) are paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored defined contribution-type plan investing $1 million or more or with 100 or more eligible employees, IRA rollover accounts (as described in "Individual Retirement Account (IRA) Rollovers" below), and for purchases made at net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on investments in Class A shares are paid at the following rates: 1.00% on amounts of $1 million to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on amounts over $10 million. Commissions are based on cumulative investments and are not annually reset. For Class B shares, compensation equal to 4.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class B shares. For Class C shares, compensation equal to 1.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class C shares. CONVERSION OF CLASS B AND C SHARES - Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date. Class 529-C shares will not convert to Class 529-F shares. The conversion of shares is subject to the Internal Revenue Service's continued position that the conversions are not subject to federal income tax. In the event the Internal Revenue Service no longer takes this position, the The Bond Fund of America - Page 32 automatic conversion feature may be suspended, in which event no further conversions of Class B or C shares would occur while such suspension remained in effect. In that event, at your option, Class B shares could be exchanged for Class A shares and Class C shares for Class F shares on the basis of the relative net asset values of the two classes, without the imposition of a sales charge or fee; however, such an exchange could constitute a taxable event for you. Absent such an exchange, Class B and C shares would continue to be subject to higher expenses for longer than eight years and ten years, respectively. SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A SALES CHARGE - You and your "immediate family" (your spouse and your children under age 21) may combine investments to reduce your costs. You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know at the time you purchase shares if you qualify for a reduction in your sales charge using one or any combination of the methods described below. STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) over a 13-month period and receive the same sales charge as if all shares had been purchased at once. This includes purchases made during the previous 90 days, but does not include future appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more for equity funds and $100,000 or more for bond funds made within a 13-month period subject to the following statement of intention (the "Statement"). The Statement is not a binding obligation to purchase the indicated amount. When a shareholder elects to use a Statement in order to qualify for a reduced sales charge, shares equal to 5% of the dollar amount specified in the Statement will be held in escrow in the shareholder's account out of the initial purchase (or subsequent purchases, if necessary) by the Transfer Agent. All dividends and any capital gain distributions on shares held in escrow will be credited to the shareholder's account in shares (or paid in cash, if requested). If the intended investment is not completed within the specified 13-month period, the purchaser will remit to the Principal Underwriter the difference between the sales charge actually paid and the sales charge which would have been paid if the total of such purchases had been made at a single time. The dealer assigned to the account at the end of the period will receive an appropriate commission adjustment. If the difference is not paid by the close of the Statement period, the appropriate number of shares held in escrow will be redeemed to pay such difference. If the proceeds from this redemption are inadequate, the purchaser will be liable to the Principal Underwriter for the balance still outstanding. The Statement may be revised upward at any time during the 13-month period, and such a revision will be treated as a new Statement, except that the 13-month period during which the purchase must be made will remain unchanged. Accordingly, upon your request, the sales charge paid on investments made 90 days prior to the Statement revision will be adjusted to reflect the revised Statement. Existing holdings eligible for rights of accumulation (see below), including Class A shares held in a fee-based arrangement, other classes of shares of the American Funds, and any individual investments in American Legacy variable annuities and variable life insurance policies (American Legacy, American Legacy II and American Legacy III The Bond Fund of America - Page 33 variable annuities, American Legacy Life, American Legacy Variable Life, and American Legacy Estate Builder) may be credited toward satisfying the Statement. During the Statement period reinvested dividends and capital gain distributions, investments in money market funds, and investments made under a right of reinstatement will not be credited toward satisfying the Statement. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. When the trustees of certain retirement plans purchase shares by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: the total monthly investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. On the first investment and all other investments made pursuant to the Statement, a sales charge will be assessed according to the sales charge breakpoint thus determined. There will be no retroactive adjustments in sales charges on investments made during the 13-month period. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. AGGREGATION - Sales charge discounts are available for certain aggregated investments. Qualifying investments include those made by you and your immediate family (your spouse and your children under the age of 21), if all parties are purchasing shares for their own accounts and/or: .individual-type employee benefit plan(s), such as an IRA, 403(b) plan (see exception below), or single-participant Keogh-type plan; .business accounts solely controlled by you or your immediate family (for example, you own the entire business); .trust accounts established by you or your immediate family. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the person who is the primary beneficiary of the trust; .endowments or foundations established and controlled by you or your immediate family; or .CollegeAmerica accounts. Accounts will be aggregated at the account owner level. Class 529-E accounts may only be aggregated with an eligible employer plan. Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are: .for a single trust estate or fiduciary account, including employee benefit plans other than the individual-type employee benefit plans described above; The Bond Fund of America - Page 34 .made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; .for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares; .for non-profit, charitable or educational organizations (or any employer-sponsored retirement plan for such an endowment or foundation) or any endowments or foundations established and controlled by the organization; or .for participant accounts of a 403(b) plan that is treated as an employer-sponsored plan (see "Class A Purchases Not Subject to Sales Charges" above), or made for two or more 403(b) plans that are treated as employer-sponsored plans of a single employer or affiliated employers as defined in the 1940 Act. Purchases made for nominee or street name accounts (securities held in the name of an investment dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above. CONCURRENT PURCHASES - You may combine purchases of all classes of shares of two or more funds in The American Funds Group, as well as individual holdings in American Legacy variable annuities and variable life insurance policies. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of the money market funds are excluded. RIGHTS OF ACCUMULATION - Subject to the limitations described under the aggregation policy, you may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in all share classes of The American Funds Group, as well as your holdings in Endowments (shares of which may be owned only by tax-exempt organizations), to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. When determining your sales charge, you may also take into account the value of your individual holdings, as of the end of the week prior to your investment, in various American Legacy variable annuities and variable life insurance policies. Direct purchases of the money market funds are excluded. CDSC WAIVERS FOR CLASS A SHARES - Any CDSC on Class A shares may be waived in the following cases: (1) Exchanges (except if shares acquired by exchange are then redeemed within 12 months of the initial purchase). (2) Distributions due to death or post-purchase disability of a shareholder. In the case of joint tenant accounts, if one joint tenant dies, the surviving joint tenant(s), at the time they notify the Transfer Agent of the decedent's death and remove his/her name from the account, may redeem shares from the account without incurring a CDSC. Redemptions subsequent to the notification to the Transfer Agent of the death of one of the joint owners will be subject to a CDSC. The Bond Fund of America - Page 35 (3) Distributions from 403(b) plans or IRAs due to attainment of age 59-1/2, and required minimum distributions from retirement accounts upon the attainment of age 70-1/2. Such distributions may not exceed 12% of the value of the account annually.(4) Tax-free returns of excess contributions to IRAs. (5) Redemptions through systematic withdrawal plans (see "Automatic Withdrawals" below), not exceeding 12% each year of the lesser of the original purchase cost or the current market value of the shares being sold that would otherwise be subject to a CDSC. (6) For Class 529-A shareholders only, redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship. CDSC WAIVERS FOR CLASS B AND C SHARES - Any CDSC on Class B and C shares may be waived in the following cases: (1) Redemptions through systematic withdrawal plans ("SWPs") (see "Automatic Withdrawals" below) not exceeding 12% each year of the lesser of the original purchase cost or the current market value of the shares being sold that would otherwise be subject to a CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC will be redeemed next until the 12% limit is reached. The 12% SWP limit is calculated on a pro rata basis at the time the first payment is made and is recalculated thereafter on a pro rata basis at the time of each SWP payment. Shareholders who establish a SWP should be aware that the amount of that payment not subject to a CDSC may vary over time depending on fluctuations in net asset value of their account. This privilege may be revised or terminated at any time. (2) Required minimum distributions taken from retirement accounts upon the attainment of age 70-1/2. Such distributions may not exceed 12% of the value of the account annually. (3) Distributions due to death or post-purchase disability of a shareholder. In the case of joint tenant accounts, if one joint tenant dies, the surviving joint tenant(s), at the time they notify the Transfer Agent of the decedent's death and remove his/her name from the account, may redeem shares from the account without incurring a CDSC. Redemptions subsequent to the notification to the Transfer Agent of the death of one of the joint owners will be subject to a CDSC. (4) For Class 529-B and 529-C shareholders only, redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship. CDSC waivers on Class A, B and C shares are allowed only in the cases listed above. For example, CDSC waivers will not be allowed for: .Redemptions of dividend and capital gain distributions, redemptions of appreciated shares, redemptions through SWPs, and required minimum distributions, to the extent in aggregate they exceed 12% of an account value; or .Redemptions of Class 529-B and 529-C shares due to: termination of CollegeAmerica; a determination by the Internal Revenue Service that CollegeAmerica does not qualify as a qualified tuition program under the Code; The Bond Fund of America - Page 36 proposal or enactment of law that eliminates or limits the tax-favored status of CollegeAmerica; or the Virginia College Savings Plan eliminating the fund as an option for additional investment within CollegeAmerica. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. An IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: 1) Class A shares at net asset value; 2) Class A shares subject to the applicable initial sales charge; 3) Class B shares; 4) Class C shares; or 5) Class F shares. Plan assets invested in Class A shares with a sales charge, B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class and described in the fund's current prospectus and statement of additional information. Plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees (i.e., shares do not have to age). Dealer commissions will be paid only on IRA rollovers of $1 million or more according to the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). IRA rollovers that do not indicate which share class plan assets should be invested in and which do not have an adviser associated with the account will be invested in Class F shares. Additional plan assets may be rolled into the account holding F shares; however, subsequent contributions will not be allowed to be invested in F shares. PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the offering or net asset value price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter. Orders received by the investment dealer or authorized designee, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Prices which appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day's closing price whereas purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share which is calculated once daily as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange each day the Exchange is open. If, The Bond Fund of America - Page 37 for example, the Exchange closes at 1:00 p.m., the fund's share price would still be determined as of 4:00 p.m. New York time. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset value per share is determined as follows: 1. Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the Investment Adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the Investment Adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost which approximates market value. Assets or liabilities initially expressed in terms of non-U.S. currencies are translated prior to the next determination of the net asset value of the fund's shares into U.S. dollars at the prevailing market rates. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by authority of the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets; 2. Liabilities, including accruals of taxes and other expense items, are deducted from total assets; and 3. Net assets so obtained are then divided by the total number of shares outstanding, and the result, rounded to the nearer cent, is the net asset value per share. Any purchase order may be rejected by the Principal Underwriter or by the fund. The Principal Underwriter will not knowingly sell shares of the fund directly or indirectly to any person or entity, where, after the sale, such person or entity would own beneficially directly or indirectly more than 3% of the outstanding shares of the fund without the consent of a majority of the fund's Board of Directors. The Bond Fund of America - Page 38 SELLING SHARES Shares are sold at the net asset value next determined after your request is received in good order by the Transfer Agent, dealer or any of their designees. Sales of certain Class A, B and C shares may be subject to a CDSC. Generally, Class F shares may only be sold through fee-based programs of investment firms and registered investment advisers with special agreements with the fund's distributor. You may sell (redeem) other classes of shares in your account in any of the following ways: THROUGH YOUR DEALER (certain charges may apply) -Shares held for you in your dealer's street name must be sold through the dealer. WRITING TO AMERICAN FUNDS SERVICE COMPANY - Requests must be signed by the registered shareholder(s). - A signature guarantee is required if the redemption is: - Over $75,000; - Made payable to someone other than the registered shareholder(s); or - Sent to an address other than the address of record, or an address of record which has been changed within the last 10 days. Your signature may be guaranteed by a domestic stock exchange or the National Association of Securities Dealers, Inc., bank, savings association or credit union that is an eligible guarantor institution. The Transfer Agent reserves the right to require a signature guarantee on any redemptions. - Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. - You must include with your written request any shares you wish to sell that are in certificate form. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR USING THE INTERNET - Redemptions by telephone, fax or the Internet (including American FundsLine/(R)/ and American FundsLine OnLine/(R)/) are limited to $75,000 per shareholder each day. - Checks must be made payable to the registered shareholder(s). - Checks must be mailed to an address of record that has been used with the account for at least 10 days. The Bond Fund of America - Page 39 MONEY MARKET FUNDS - You may have redemptions of $1,000 or more wired to your bank by writing American Funds Service Company. - You may establish check writing privileges (use the money market funds application). - If you request check writing privileges, you will be provided with checks that you may use to draw against your account. These checks may be made payable to anyone you designate and must be signed by the authorized number of registered shareholders exactly as indicated on your checking account signature card. - Check writing is not available for any of the 529 share classes or B, C or F share classes of The Cash Management Trust of America. If you sell Class A, B or C shares and request a specific dollar amount to be sold, we will sell sufficient shares so that the sale proceeds, after deducting any applicable CDSC, equals the dollar amount requested. Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 15 calendar days from the purchase date). Except for delays relating to clearance of checks for share purchases or in extraordinary circumstances (and as permissible under the 1940 Act), sale proceeds will be paid on or before the seventh day following receipt and acceptance of an order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks. You may reinvest proceeds from a redemption or a dividend or capital gain distribution without a sales charge in any fund in The American Funds Group within 90 days after the date of the redemption or distribution. Proceeds from a Class B share redemption where a CDSC was charged will be reinvested in Class A shares. Proceeds from any other type of redemption and all dividend and capital gain distributions will be reinvested in the same share class from which the original redemption or distribution was made. Any CDSC on Class B or C shares will be credited to your account. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by the Transfer Agent. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES The following services and privileges are generally available to all shareholders. However, certain services and privileges may not be available for Class 529 shareholders or if your account is held with an investment dealer. AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make monthly or quarterly investments in The American Funds through automatic debits from your bank account. To set up a plan you must fill out an account application and specify the amount you would like to invest ($50 minimum) and the date on which you would like your investments to occur. The plan The Bond Fund of America - Page 40 will begin within 30 days after your account application is received. Your bank account will be debited on the day or a few days before your investment is made, depending on the bank's capabilities. The Transfer Agent will then invest your money into the fund you specified on or around the date you specified. If the date you specified falls on a weekend or holiday, your money will be invested on the following business day. However, if the following business day falls in the next month, your money will be invested on the business day immediately preceding the weekend or holiday. If your bank account cannot be debited due to insufficient funds, a stop-payment or the closing of the account, the plan may be terminated and the related investment reversed. You may change the amount of the investment or discontinue the plan at any time by writing to the Transfer Agent. AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested in additional shares of the same class and fund at net asset value unless you indicate otherwise on the account application. You also may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. Dividend and capital gain distributions paid by the 529 share classes will automatically be reinvested. If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - For all share classes, except the 529 classes of shares, you may cross-reinvest dividends and capital gains ("distributions") of the same share class into any other fund in The American Funds Group at net asset value, subject to the following conditions: (a) The aggregate value of your account(s) in the fund(s) paying distributions equals or exceeds $5,000 (this is waived if the value of the account in the fund receiving the distributions equals or exceeds that fund's minimum initial investment requirement), (b) If the value of the account of the fund receiving distributions is below the minimum initial investment requirement, distributions must be automatically reinvested, (c) If you discontinue the cross-reinvestment of distributions, the value of the account of the fund receiving distributions must equal or exceed the minimum initial investment requirement. If you do not meet this requirement within 90 days of notification, the fund has the right to automatically redeem the account. EXCHANGE PRIVILEGE - You may only exchange shares into other funds in The American Funds Group within the same class. However, exchanges from Class A shares of The Cash Management Trust of America may be made to Class B or C shares of any other American Fund for dollar cost averaging purposes. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from the money market funds are subject to applicable sales charges on the fund being purchased, unless the money market fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment or cross-reinvestment of dividends or capital gain distributions. Exchanges of Class F shares generally may only be done through fee-based The Bond Fund of America - Page 41 programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. Exchanges from Class A, C or F shares to the corresponding 529 share class, particularly in the case of Uniform Gifts to Minors Act or Uniform Transfer to Minors Act custodial accounts, may result in significant legal and tax consequences as described in the CollegeAmerica Program Description. Please consult your financial adviser prior to making such an exchange. You may exchange shares of other classes by writing to the Transfer Agent (see "Selling Shares"), by contacting your investment dealer, by using American FundsLine and American FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "American Funds Service Company Service Areas" in the prospectus for the appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone and Internet Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type retirement plans for which Capital Bank and Trust Company serves as trustee may not be exchanged by telephone, Internet, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "Price of Shares" above.) THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. AUTOMATIC EXCHANGES - For all share classes, except the 529 classes of shares, you may automatically exchange shares of the same class in amounts of $50 or more among any of the funds in The American Funds Group on any day (or preceding business day if the day falls on a non-business day) of each month you designate. AUTOMATIC WITHDRAWALS - For all share classes, except the 529 classes of shares, you may automatically withdraw shares from any of the funds in The American Funds Group. You can make automatic withdrawals of $50 or more as often as you wish if your account is worth at least $10,000, or up to four times a year for an account worth at least $5,000. You can designate the day of each period for withdrawals and request that checks be sent to you or someone else. Withdrawals may also be electronically deposited to your bank account. The Transfer Agent will withdraw your money from the fund you specify on or around the date you specify. If the date you specified falls on a weekend or holiday, the redemption will take place on the previous business day. However, if the previous business day falls in the preceding month, the redemption will take place on the following business day after the weekend or holiday. Withdrawal payments are not to be considered as dividends, yield or income. Automatic investments may not be made into a shareholder account from which there are automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends and distributions and increases in share value would reduce the aggregate value of the shareholder's account. The Transfer Agent arranges for the redemption by the fund of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified. ACCOUNT STATEMENTS - Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, purchases through automatic investment plans and certain retirement plans, as well as automatic exchanges and withdrawals will be confirmed at least quarterly. The Bond Fund of America - Page 42 AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share balance, the price of your shares, or your most recent account transaction, redeem shares (up to $75,000 per American Funds shareholder each day) from non-retirement plan accounts, or exchange shares around the clock with American FundsLine and American FundsLine OnLine. To use these services, call 800/325-3590 from a TouchTone(TM) telephone or access the American Funds website on the Internet at www.americanfunds.com. Redemptions and exchanges through American FundsLine and American FundsLine OnLine are subject to the conditions noted above and in "Telephone and Internet Purchases, Redemptions and Exchanges" below. You will need your fund number (see the list of funds in The American Funds Group under "Purchase of Shares - Fund Numbers"), personal identification number (generally the last four digits of your Social Security number or other tax identification number associated with your account) and account number. TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES - By using the telephone (including American FundsLine) or the Internet (including American FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange options, you agree to hold the fund, the Transfer Agent, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liability (including attorney fees) which may be incurred in connection with the exercise of these privileges. Generally, all shareholders are automatically eligible to use these options. However, you may elect to opt out of these options by writing the Transfer Agent (you may also reinstate them at any time by writing the Transfer Agent). If the Transfer Agent does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions, or a natural disaster, redemption and exchange requests may be made in writing only. REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the fund may from time to time adopt. While payment of redemptions normally will be in cash, the fund's Articles of Incorporation permits payment of the redemption price wholly or partly in securities or other property included in the assets belonging to the fund when in the opinion of the fund's Board of Directors, which shall be conclusive, conditions exist which make payment wholly in cash unwise or undesirable. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. Certificates are not available for the 529 share classes. The Bond Fund of America - Page 43 EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions. The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and quality of executions. When, in the opinion of the Investment Adviser, two or more brokers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the fund or who have provided investment research, statistical, or other related services to the Investment Adviser. The fund does not consider that it has an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. There are occasions on which portfolio transactions for the fund may be executed as part of concurrent authorizations to purchase or sell the same security for other funds served by the Investment Adviser, or for trusts or other accounts served by affiliated companies of the Investment Adviser. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund will not pay a mark-up for research in principal transactions. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, for the fiscal years ended December 31, 2001, 2000 and 1999, amounted to $17,370,000, $10,100,000 and $10,164,000, respectively. The fund is required to disclose information regarding investments in the securities of broker-dealers (or parent companies of broker-dealers that derive more than 15% of their revenue from broker-dealer activities) which have certain relationships with the fund. During the last fiscal year, J.P. Morgan Securities, Inc, and UBS Warburg were among the top 10 dealers that received the largest amount of brokerage commissions and that acted as principals in portfolio transactions. The fund held debt securities of J.P. Morgan Chase & Co. and UBS Preferred Funding Trust in the amount of $9,367,000 and $6,131,000 respectively, as of the close of its most recent fiscal year. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to sub-custodial arrangements in non-U.S. banks or non-U.S. branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. American Funds Service Company was paid a fee of $10,892,000 for Class A shares and $291,000 for Class B shares for the 2001 fiscal year. The Bond Fund of America - Page 44 INDEPENDENT AUDITORS - Deloitte & Touche LLP, Two California Plaza, 350 South Grand Avenue, Suite 200, Los Angeles, CA 90071, serves as the fund's independent auditors providing audit services, preparation of tax returns and review of certain documents to be filed with the Securities and Exchange Commission. The financial statements included in this Statement of Additional Information from the Annual Report have been so included in reliance on the report of Deloitte & Touche LLP, independent auditors, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent auditors is reviewed and determined annually by the Board of Directors. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS - The fund's fiscal year ends on December 31. Shareholders are provided updated prospectuses annually and at least semiannually with reports showing the investment portfolio, financial statements and other information. The fund's annual financial statements are audited by the fund's independent auditors, Deloitte & Touche LLP. In addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of prospectuses, shareholder reports and proxy statements. To receive additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company and its affiliated companies, including the fund's principal underwriter, have adopted codes of ethics which allow for personal investments, including securities in which the fund may invest from time to time. This policy includes: a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; pre-clearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; blackout periods on personal investing for certain investment personnel; ban on short-term trading profits for investment personnel; limitations on service as a director of publicly traded companies; and disclosure of personal securities transactions. OTHER INFORMATION - The financial statements including the investment portfolio and the report of Independent Auditors contained in the Annual Report are included in this Statement of Additional Information. The following information is not included in the Annual Report: DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- DECEMBER 31, 2001
Net asset value and redemption price per share (Net assets divided by shares outstanding) . . . . . . . . . $12.79 Maximum offering price per share (100/96.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . . . . . . . . . $13.29
The Bond Fund of America - Page 45 CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 6.46% based on a 30-day (or one month) period ended December 31, 2001, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula as required by the Securities and Exchange Commission: YIELD = 2[((a-b)/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The fund may also calculate a distribution rate on a taxable and tax equivalent basis. The distribution rate is computed by dividing the dividends paid by the fund over the last 12 months by the sum of the month-end net asset value or maximum offering price and the capital gains paid over the last 12 months. The distribution rate may differ from the yield. The fund's one-year total return and five- and ten-year average annual total returns at the maximum offering price for the periods ended December 31, 2001 were 3.12%, 5.17%, and 6.97%, respectively. The fund's one-year total return and five- and ten-year average annual total returns at net asset value for the periods ended December 31, 2001 were 7.15%, 5.98%, and 7.37%, respectively. The average total return ("T") is computed by equating the value at the end of the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a period of years ("n") according to the following formula as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. In calculating average annual total return at the maximum offering price, the fund assumes: (1) deduction of the maximum sales load of 3.75% from the $1,000 initial investment; (2) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board; and (3) a complete redemption at the end of any period illustrated. In addition, the fund will provide lifetime average total return figures. From time to time, the fund may calculate investment results for Class B, C, and F shares, as well as the 529 share classes. The fund may also, at times, calculate total return based on net asset value per share (rather than the offering price), in which case the figure would not reflect the effect of any sales charges which would have been paid if shares were purchased during the period reflected in the computation. Consequently, total return calculated in this manner will be higher. These total returns may be calculated over periods in addition to those described above. Total return for the unmanaged indices will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for advisory fees, brokerage costs or administrative expenses. The fund may include information on its investment results and/or comparisons of its investment results to various unmanaged indices (such as the Dow Jones Average of 30 Industrial Stocks The Bond Fund of America - Page 46 and the Standard and Poor's 500 Composite Stock Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The fund may also, from time to time, combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The fund may refer to results and surveys compiled by organizations such as CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer to results published in various newspapers and periodicals, including Barron's, --------- Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, ------------------------------------------------------------------------------- Money, U.S. News and World Report and The Wall Street Journal. --------------------------------- ----------------------- The fund may illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. The fund may compare its investment results with the Consumer Price Index, which is a measure of the average change in prices over time in a fixed market basket of goods and services (e.g. food, clothing, fuels, transportation, and other goods and services that people buy for day-to-day living). The Bond Fund of America - Page 47 APPENDIX Description of Bond Ratings BOND RATINGS - The ratings of Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P) represent their opinions as to the quality of the municipal bonds which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal bonds with the same maturity, coupon and rating may have different yields, while municipal bonds of the same maturity and coupon with different ratings may have the same yield. Moody's rates the long-term debt securities issued by various entities from ------- "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: "Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as 'gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities." "Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." The Bond Fund of America - Page 48 "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." S&P rates the long-term debt securities of various entities in categories --- ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." AA "An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions that obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." The Bond Fund of America - Page 49 CCC "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." CC "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C "A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." D "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." The Bond Fund of America - Page 50 Bond Fund of America Investment Portfolio 12/31/2001 Corporate Bonds 52.6% Federal Agency Mortgage Pass-Through Securities 9.3 Asset-Backed Securities 8.7 Cash & Equivalents 8.4 U.S. Treasury Notes & Bonds 7.5 Commercial Mortgage-Backed Securities 5.3 Governments & Governmental Bodies {Excluding U.S.} 4.8 Other Mortgage-Backed Securities 1.8 Federal Agency Notes & Bonds 1.4 Equity-Related Securities 0.2
Bond Fund of America, Inc. Investment Portfolio, December 31, 2001 Shares or Principal Market Percent Amount Value of Net Bonds, Notes & Preferred Stocks (000) (000) Assets MEDIA - 8.01% Charter Communications Holdings, LLC: 10.75% 2009 $ 4,000 $ 4,240 0%/11.75% 2010 (1) 5,600 3,976 0%/9.92% 2011 (1) 39,250 28,260 11.125% 2011 12,763 13,593 0%/11.75% 2011 (1) 61,300 37,086 0%/13.50% 2011 (1) 48,500 32,252 Avalon Cable Holdings LLC 0%/11.875% 2008 (1) 5,625 4,648 1.04% Liberty Media Corp.: 7.75% 2009 11,950 12,022 7.875% 2009 39,880 40,405 8.50% 2029 9,500 9,278 8.25% 2030 29,750 28,127 .75 Adelphia Communications Corp.: 10.50% 2004 2,000 2,010 10.25% 2006 18,500 18,962 8.375% 2008 5,000 4,575 Series B, 13.00% preferred 2009 (2) 112,950 Shares 11,295 10.875% 2010 $ 1,250 1,262 10.25% 2011 30,000 30,075 Century Communications, Inc.: 0% 2003 9,000 8,010 8.75% 2007 2,200 2,090 FrontierVision 11.00% 2006 700 721 .66 Fox/Liberty Networks, LLC, FLN Finance, Inc.: 8.875% 2007 30,550 31,772 0%/9.75% 2007 (1) 36,325 36,507 .57 Clear Channel Communications, Inc.: 6.00% 2006 9,050 8,907 6.625% 2008 5,375 5,248 7.65% 2010 10,000 10,324 Chancellor Media Corp. of Los Angeles: Series B, 8.75% 2007 8,625 9,013 8.00% 2008 10,000 10,400 .37 Univision Communications Inc. 7.85% 2011 42,825 43,362 .36 Young Broadcasting Inc.: Series B, 9.00% 2006 2,250 2,115 Series B, 8.75% 2007 17,750 16,197 10.00% 2011 22,750 21,271 .33 Emmis Communications Corp. 0%/12.50% 2011 (1) 59,272 36,156 .30 Fox Family Worldwide, Inc.: 9.25% 2007 3,495 3,722 10.25% 2007 25,687 27,741 .26 A.H. Belo Corp.: 7.125% 2007 15,000 14,821 8.00% 2008 6,850 7,005 7.25% 2027 2,500 2,069 7.75% 2027 8,000 7,024 .26 Telemundo Holdings, Inc., Series D, 0%/11.50% 2008 (1) 31,775 30,027 .25 Comcast UK Cable Partners Ltd. 11.20% 2007 25,790 18,569 NTL Communications Corp.: 12.375% 2008 Euro 7,250 1,950 9.875% 2009 3,350 903 0%/11.50% 2009 (1) 8,000 1,567 Series B, 11.875% 2010 $ 3,000 975 NTL Inc. 12.75% 2005 11,000 3,465 .23 Viacom Inc.: 6.40% 2006 5,000 5,174 7.70% 2010 8,000 8,710 6.625% 2011 8,000 8,147 .18 News America Holdings Inc.: 6.625% 2008 16,900 16,934 8.625% 2014 A$ 5,150 2,537 8.875% 2023 $ 1,800 1,951 .18 Antenna TV SA: 9.00% 2007 9,750 8,482 9.75% 2008 Euro 16,000 12,392 .17 American Media Operations, Inc. 10.25% 2009 $ 19,820 20,018 .17 Key3Media Group, Inc. 11.25% 2011 22,269 18,483 .16 EchoStar DBS Corp. 9.125% 2009 (3) 18,000 18,000 .15 Cablevision Industries Corp.: 8.125% 2009 9,250 9,532 9.875% 2013 2,000 2,120 CSC Holdings, Inc., Series B, 8.125% 2009 5,000 5,151 .14 Telewest Communications PLC: 11.25% 2008 1,300 949 9.875% 2010 10,200 7,191 0%/11.375% 2010 (1) 12,500 4,875 TeleWest PLC 9.625% 2006 4,700 3,266 .14 Sinclair Broadcast Group, Inc.: 10.00% 2005 500 516 8.75% 2007 1,000 997 8.75% 2011 (3) 13,000 13,065 .12 British Sky Broadcasting Group PLC 8.20% 2009 13,500 13,917 .12 TransWestern Publishing Co. LLC, Series F, 9.625% 2007 12,080 12,442 .10 Carmike Cinemas, Inc., Series B, 9.375% 2009 (4) 11,425 11,653 .10 The Ackerley Group, Inc., Series B, 9.00% 2009 10,000 10,600 .09 Cumulus Media Inc. 13.75% preferred 2009 (2) (5) 10,655 Shares 10,548 .09 Penton Media, Inc. 10.375% 2011 $ 16,425 9,444 .08 AOL Time Warner Inc. 7.625% 2031 7,500 7,937 Time Warner Companies, Inc.: 9.15% 2023 500 597 6.95% 2028 500 488 .08 Cox Radio, Inc.: 6.375% 2005 8,000 7,939 6.625% 2006 650 658 .07 ACME Television, LLC, Series A, 10.875% 2004 8,000 7,680 .06 Lenfest Communications, Inc. 7.625% 2008 6,750 6,993 .06 Sun Media Corp. 9.50% 2007 6,139 6,293 .05 Gray Communications Systems, Inc.: 10.625% 2006 2,000 2,060 9.25% 2011 (3) 4,000 3,980 .05 Radio One, Inc., Series B, 8.875% 2011 5,500 5,665 .05 Hearst-Argyle Television, Inc. 7.00% 2018 6,050 5,082 .04 RBS Participacoes SA 11.00% 2007 (3) 7,250 5,021 .04 Sinclair Capital 11.625% preferred 2009 47,500 Shares 4,607 .04 Multicanal Participacoes SA, Series B, 12.625% 2004 $ 6,875 4,555 .04 STC Broadcasting, Inc. 11.00% 2007 3,250 2,762 .02 Big City Radio, Inc. 11.25% 2005 5,425 2,712 .02 Globo Comunicacoes e Participacoes SA: 10.50% 2006 (3) 1,990 1,398 10.50% 2006 690 485 .02 958,003 8.01 BANKS & THRIFTS - 7.20% HSBC Capital Funding LP: (6) 8.03% noncumulative preferred (undated) Euro 30,000 29,614 Series 1, 9.547% noncumulative step-up $ 38,250 44,348 perpetual preferred (undated) (3) Series 2, 10.176% noncumulative step-up 32,000 40,329 perpetual preferred (undated) (3) Midland Bank 2.25% Eurodollar Note (undated) (6) 15,000 12,042 1.06 SocGen Real Estate Co. LLC, Series A, 7.64% 83,375 85,929 (undated) (3) (6) Societe Generale 7.85% (undated) (3) (6) 11,105 11,543 .82 BNP U.S. Funding LLC, Series A, 7.738% 41,500 43,794 noncumulative preferred (undated) (3) (6) BNP Paribas Capital Trust, 9.003% noncumulative 15,000 16,919 trust preferred (undated) (3) Banque Nationale de Paris 2.535% (undated) (6) 12,500 12,220 .61 Fuji JGB Investment LLC, Series A, 9.87% 50,325 39,781 noncumulative preferred (undated) (3) (6) IBJ Preferred Capital Co. LLC, Series A, 23,930 17,868 .48 8.79% noncumulative preferred (undated) (3) (6) Bank of Scotland 7.00% (undated) (3) (6) 30,000 30,287 National Westminster Bank PLC 7.75% (undated) (6) 16,000 17,084 Halifax Building Society 8.75% 2006 Pounds 3,000 4,827 .44 Royal Bank of Scotland: 8.375% 2007 4,900 7,890 7.648% (undated) (6) $ 32,000 32,396 National Westminster Bank 6.625% (undated) Euro 4,700 4,300 .37 Washington Mutual Bank, FA 6.875% 2011 $ 20,000 20,558 Washington Mutual Finance 8.25% 2005 12,000 13,144 Great Western Financial Trust II, 7,600 7,388 Series A, 8.206% 2027 Ahmanson Capital Trust I Capital Securities, 2,030 2,027 .36 Series A, 8.36% 2026 (3) Skandinaviska Enskilda Banken AB: (6) 6.50% (undated) (3) 17,500 17,885 7.50% (undated) 23,000 22,997 .34 NB Capital Corp. 8.35% exchangeable depositary shares 1,200,000 Shares 31,200 National Bank of Canada 3.625% (undated) (6) $ 5,000 3,602 .29 Standard Chartered Bank: 8.00% 2031 (3) 3,740 3,890 2.079% (undated) (6) 5,000 3,127 3.938% Eurodollar Note (undated) (6) 15,000 9,535 Standard Chartered Capital Trust I 8.16% (undated) (6) Euro 10,000 9,169 .22 GS Escrow Corp.: 7.00% 2003 $ 10,450 10,580 7.125% 2005 12,000 11,963 .19 AB Spintab: 6.00% 2009 SKr 23,000 2,249 6.80% (undated) (3) (6) $ 6,500 6,623 7.50% (undated) (3) (6) 11,000 11,410 .17 Canadian Imperial Bank of Commerce 3.625% 25,000 19,531 .16 Eurodollar Note (undated) (6) Abbey National PLC: (6) 6.70% (undated) 7,500 7,386 7.35% (undated) 9,500 9,834 .15 DBS Bank Ltd. 7.875% 2009 (3) 10,000 10,732 Development Bank of Singapore Ltd. 7.125% 2011 (3) 6,100 6,285 .14 Regional Diversified Funding Ltd. 9.25% 2030 (3) 13,250 13,880 .12 Tokai Preferred Capital Co. LLC, Series A, 14,500 12,035 .10 9.98% noncumulative preferred (undated) (3) (6) Imperial Capital Trust I, Imperial Bancorp 9.98% 2026 10,200 11,484 .10 Barclays Bank PLC 7.375% (undated) (3) (6) 10,875 11,280 .09 Chevy Chase Preferred Capital Corp. 10.375% 195,200 Shares 10,857 .09 BCI U.S. Funding Trust I 8.01% noncumulative $ 10,000 10,266 .09 preferred (undated) (3) (6) Allfirst Preferred Capital Trust 3.93% 2029 (6) 10,000 9,532 .08 BankUnited Capital Trust, BankUnited Financial 10,000 9,425 .08 Corp., 10.25% 2026 J.P. Morgan & Co. Inc., Series A, 8.382% 2012 (6) 10,000 9,367 .08 Riggs Capital Trust II 8.875% 2027 7,500 5,625 Riggs National Corp. 8.625% 2026 4,400 3,253 .07 Bank of Nova Scotia 3.625% Eurodollar Note 10,000 7,698 .06 (undated) (6) Bank One Texas, NA 6.25% 2008 7,250 7,392 .06 Unicredito Italiano SpA 8.048% (undated) (6) Euro 7,000 6,770 .06 Komercni Finance BV: (6) 9.00% 2008 $ 3,100 3,239 9.00% 2008 (3) 2,795 2,921 .05 UBS Preferred Funding Trust 1 8.622% (undated) 5,500 6,131 .05 Lloyds Bank (#2) 2.284% (undated) (6) 8,000 6,114 .05 Allied Irish Banks Ltd. 2.813% (undated) (6) 7,000 5,857 .05 Bay View Capital 9.125% 2007 5,500 5,280 .04 Bergen Bank 3.625% (undated) (6) 5,000 3,957 .03 Christiana Bank Og Kreditkasse 2.188% (undated) (6) 4,000 3,260 .03 Sanpaolo IMI Capital Trust I 8.126% noncumulative Euro 3,000 2,932 .02 trust preferred (undated) (6) Banco General, SA 7.70% 2002 (3) $ 500 512 .00 861,353 7.20 WIRELESS TELECOMMUNICATION SERVICES - 4.43% Nextel Communications, Inc.: 0%/9.75% 2007 (1) 64,450 45,679 0%/10.65% 2007 (1) 10,000 7,550 0%/9.95% 2008 (1) 73,825 50,755 12.00% 2008 5,000 4,363 9.375% 2009 2,000 1,550 Series D, 13.00% exchangeable preferred 20,434 Shares 12,056 2009 (2) (5) 5.25% convertible senior notes 2010 $ 10,000 6,036 Series E, 11.125% exchangeable preferred, 9,849 Shares 4,826 1.11 redeemable 2010 (2) (5) Dobson Communications Corp.: 12.25% exchangeable preferred, redeemable 41,989 39,470 2008 (2) (5) 13.00% senior exchangeable preferred 2009 (2) (5) 6,114 6,053 10.875% 2010 $ 12,500 13,125 Dobson/Sygnet Communications Co. 12.25% 2008 7,500 7,950 American Cellular Corp. 9.50% 2009 4,250 4,165 .59 Leap Wireless International, Inc.: 12.50% 2010 23,525 17,879 0%/14.50% 2010 (1) (7) 34,962 13,006 Cricket Communications, Inc.: (6) 6.25% 2007 8,035 6,127 6.50% 2007 24,725 18,852 .47 Verizon Wireless Capital LLC 5.375% 2006 (3) 52,250 52,066 .44 Nextel Partners, Inc.: 12.50% 2009 (3) 2,000 1,760 0%/14.00% 2009 (1) 35,814 22,205 11.00% 2010 11,066 8,963 11.00% 2010 8,900 7,209 .34 Centennial Cellular Corp. 10.75% 2008 35,250 29,786 .25 Vodafone Group PLC 7.75% 2010 22,875 25,162 .21 TeleCorp PCS, Inc. 0%/11.625% 2009 (1) 19,800 17,028 Tritel PCS, Inc. 10.375% 2011 6,000 6,795 .20 CFW Communications Co. 13.00% 2010 (7) (8) 30,155 21,123 .18 Cingular Wireless: (3) 6.50% 2011 6,000 6,090 7.125% 2031 5,150 5,259 .09 Microcell Telecommunications Inc., Series B, 12,415 10,677 .09 14.00% 2006 Horizon PCS, Inc. 13.75% 2011 (3) 10,500 10,500 .09 PanAmSat Corp.: 6.00% 2003 2,400 2,366 6.125% 2005 5,250 4,759 6.375% 2008 1,250 1,065 6.875% 2028 1,000 685 .07 Cellco Finance NV: 12.75% 2005 6,000 5,235 15.00% 2005 500 454 .05 PTC International Finance BV 0%/10.75% 2007 (1) 5,950 5,340 .04 Mannesmann Finance BV 4.75% 2009 Euro 6,000 5,072 .04 Price Communications Wireless, Inc., $ 4,625 4,845 .04 Series B, 9.125% 2006 Triton PCS, Inc. 9.375% 2011 4,000 4,160 .03 AirGate PCS, Inc. 0%/13.50% 2009 (1) 5,123 3,893 .03 Rogers Cantel Inc. 9.75% 2016 3,375 3,358 .03 AT&T Wireless Services, Inc. 7.875% 2011 2,250 2,398 .02 Telesystem International Wireless Inc. 14.00% 2003 (3) 2,148 1,622 .01 Teletrac, Inc. 9.00% 2004 (3) (5) (8) 968 774 .01 PageMart Wireless, Inc.: (4) (8) 15.00% 2005 14,750 147 0%/11.25% 2008 (1) 40,500 101 .00 530,339 4.43 DIVERSIFIED TELECOMMUNICATION SERVICES - 3.73% British Telecommunications PLC: 8.375% 2010 (6) 37,500 41,432 6.875% 2011 Euro 4,000 3,734 8.875% 2030 (6) $ 29,500 33,852 .66 PCCW-HKT Capital Ltd. 7.75% 2011 (3) 61,825 61,808 .52 TCI Communications, Inc.: 8.00% 2005 10,000 10,433 8.75% 2015 5,000 5,739 AT&T Corp.: (3) 7.30% 2011 14,500 14,900 8.00% 2031 25,000 26,153 .48 Voicestream Wireless Corp.: 10.375% 2009 38,730 44,228 0%/11.875% 2009 (1) 11,035 9,592 .45 Bell Atlantic Financial Services, Inc. 35,750 35,661 .30 4.25% convertible debentures 2005 (3) TELUS Corp.: 7.50% 2007 15,250 15,874 8.00% 2011 11,650 12,285 .24 France Telecom: (6) 7.45% 2006 (3) 6,050 6,354 7.00% 2008 Euro 5,000 4,637 8.00% 2011 (3) $ 4,500 4,819 Orange PLC 8.75% 2006 8,000 8,363 .20 Koninklijke KPN NV: 4.75% 2008 Euro 1,000 769 8.00% 2010 $ 15,375 15,525 8.375% 2030 6,450 6,312 .19 Hellenic Exchangeable Finance SCA 2.00% Euro 22,000 21,102 .18 exchangeable bonds 2005 Qwest Capital Funding, Inc: 7.90% 2010 $ 11,500 11,715 7.625% 2021 (3) 5,000 4,781 US WEST Capital Funding, Inc. 6.25% 2005 2,000 1,965 .15 CenturyTel, Inc., Series H, 8.375% 2010 14,000 14,810 .12 Allegiance Telecom, Inc.: 0%/11.75% 2008 (1) 10,000 4,500 12.875% 2008 8,860 6,601 .09 WCG Note Trust 8.25% 2004 (3) 5,500 5,380 Williams Communications Group, Inc.: 10.70% 2007 550 235 11.70% 2008 2,950 1,261 10.875% 2009 3,750 1,603 .07 COLT Telecom Group PLC: 12.00% 2006 5,250 4,515 8.875% 2007 DM 4,250 1,528 .05 Sonera Group PLC 4.625% 2009 Euro 2,000 1,553 .01 VersaTel Telecom International NV 3,325 772 .01 4.00% convertible notes 2005 NEXTLINK Communications, Inc.: 12.50% 2006 $ 3,000 356 0%/12.125% 2009 (1) 3,975 313 XO Communications, Inc. 14.00% preferred 2009 (2) (5) 24 Shares .01 GT Group Telecom Inc., units 0%/13.25% $ 2,753 360 .00 2010 (1) (7) (8) IMPSAT Corp. 12.375% 2008 (4) 2,000 65 .00 445,885 3.73 COMMUNICATIONS EQUIPMENT - 2.71% Crown Castle International Corp.: 0%/10.625% 2007 (1) 18,850 16,494 12.75% senior exchangeable preferred 2010 (2) (5) 39,390 Shares 28,361 0%/10.375% 2011 (1) $ 2,385 1,497 10.75% 2011 28,500 27,859 0%/11.25% 2011 (1) 7,500 4,800 .66 Motorola, Inc.: 6.75% 2006 5,000 5,017 8.00% 2011 (3) 61,900 62,146 7.50% 2025 7,000 6,519 6.50% 2028 1,200 982 5.22% 2097 4,200 2,646 .65 SBA Communications Corp.: 0%/12.00% 2008 (1) 14,300 10,618 10.25% 2009 28,750 24,294 .29 SpectraSite Holdings, Inc., Series B: 0%/12.00% 2008 (1) 13,250 5,035 0%/11.25% 2009 (1) 16,750 4,606 10.75% 2010 9,250 4,718 12.50% 2010 26,250 14,306 0%/12.875% 2010 (1) 22,100 5,525 .29 American Tower Corp.: 9.375% 2009 36,700 29,085 5.00% convertible debentures 2010 4,000 2,418 .26 Corning Inc. 0% convertible debentures 2015 46,801 24,454 .20 Nortel Networks Ltd. 6.125% 2006 22,500 18,000 .15 Juniper Networks, Inc. 4.75% convertible 19,000 13,775 .12 subordinated notes 2007 Adaptec, Inc. 4.75% convertible 10,000 8,998 .08 subordinated notes 2004 Lucent Technologies Inc. 7.25% 2006 2,000 1,700 .01 323,853 2.71 INSURANCE - 2.57% Prudential Insurance Company of America 4,000 4,125 6.375% 2006 (3) Prudential Holdings, LLC, Series C, 8.695% 2023 (3) 77,000 80,333 .71 ReliaStar Financial Corp.: 8.625% 2005 5,000 5,458 8.00% 2006 23,250 25,594 ING Capital Funding Trust III 8.439% (undated) (6) 24,750 27,058 Ing Verzekeringen NV 6.25% 2021 (6) Euro 5,000 4,458 .52 Monumental Global Funding Trust II, $ 19,525 19,989 Series 2001-A, 6.05% 2006 (3) AEGON NV 6.125% 2031 Pounds 6,000 9,123 Transamerica Corp. 9.375% 2008 $ 7,500 8,542 .32 AIG SunAmerica Global Financing VII 5.85% 2008 (3) 35,250 35,515 .30 AXA 6.75% 2020 (6) Euro 14,700 13,251 Equitable Life Assurance Society of $ 11,500 12,084 .21 the United States 6.95% 2005 (3) Allstate Corp. 6.75% 2018 22,500 22,008 .18 UnumProvident Corp. 7.625% 2011 11,000 11,427 Unum Corp. 6.75% 2028 5,000 4,451 .13 Conseco Financing Trust II, Capital 39,600 7,920 Trust (TRUPS), 8.70% 2026 Conseco Financing Trust III 8.796% 2027 2,750 550 .07 Lincoln National Corp. 7.00% 2018 6,275 6,229 .05 AFLAC Inc. 6.50% 2009 5,875 5,904 .05 Lindsey Morden Group Inc., Series B, C$ 8,970 3,661 .03 7.00% 2008 (3) (8) 307,680 2.57 ELECTRIC UTILITIES - 2.47% Edison Mission Energy: 10.00% 2008 $ 2,000 2,060 7.73% 2009 24,175 22,482 9.875% 2011 38,510 40,120 Mission Energy Holding Co. 13.50% 2008 22,500 24,975 Homer City Funding LLC 8.734% 2026 20,200 18,601 Midwest Generation, LLC, Series B, 8.56% 2016 (9) 8,000 7,548 Edison International 6.875% 2004 3,375 3,105 .99 Israel Electric Corp. Ltd.: (3) 7.75% 2009 24,500 25,388 7.95% 2011 6,750 7,094 7.70% 2018 8,500 7,991 7.875% 2026 15,000 13,853 7.75% 2027 15,545 14,143 8.10% 2096 14,405 11,314 .67 Exelon Generation Co., LLC 6.95% 2011 (3) 23,775 24,149 Exelon Corp. 6.75% 2011 6,200 6,295 Commonwealth Edison Co. 6.40% 2005 1,079 1,107 .26 AES Drax Holdings Ltd., Series A, 10.41% 2020 (9) 25,625 22,998 AES Ironwood, LLC 8.857% 2025 (9) 3,500 3,301 AES Corp.: 9.50% 2009 1,450 1,262 9.375% 2010 1,915 1,733 .25 FirstEnergy Corp.: Series B, 6.45% 2011 3,500 3,427 Series C, 7.375% 2031 16,125 15,743 .16 Progress Energy, Inc.: 5.85% 2008 4,000 3,917 7.10% 2011 5,000 5,190 7.00% 2031 2,500 2,471 .10 American Electric Power Co., Inc., 3,705 3,662 .03 Series A, 6.125% 2006 TXU Corp., Series J, 6.375% 2006 1,000 1,008 .01 294,937 2.47 HOTELS, RESTAURANTS & LEISURE - 2.32% MGM Mirage, Inc. 8.50% 2010 30,600 30,425 Mirage Resorts, Inc.: 6.625% 2005 1,000 988 6.75% 2008 1,750 1,636 7.25% 2017 10,075 8,443 MGM Grand, Inc. 6.95% 2005 5,000 4,921 .39 Royal Caribbean Cruises Ltd.: 7.00% 2007 14,600 11,607 6.75% 2008 7,050 5,358 8.75% 2011 29,825 24,158 7.50% 2027 7,500 4,875 .38 Boyd Gaming Corp.: 9.25% 2003 13,475 13,711 9.50% 2007 5,500 5,555 9.25% 2009 (3) 13,500 13,838 .28 Premier Parks Inc.: 9.25% 2006 8,375 8,459 9.75% 2007 3,875 3,914 0%/10.00% 2008 (1) 8,250 7,033 Six Flags Entertainment Corp. 8.875% 2006 5,000 5,125 Six Flags Inc. 9.50% 2009 5,000 5,044 .25 Harrah's Operating Co., Inc. 7.125% 2007 23,300 23,604 .20 Ameristar Casinos, Inc. 10.75% 2009 14,300 15,516 .13 International Game Technology: 7.875% 2004 8,500 8,776 8.375% 2009 2,000 2,105 .09 William Hill Finance 10.625% 2008 Pounds 6,423 9,963 .08 Hollywood Casino Corp. 11.25% 2007 $ 7,500 8,100 .07 Eldorado Resorts LLC 10.50% 2006 8,075 7,833 .06 Mandalay Resort Group 10.25% 2007 7,000 7,263 .06 Station Casinos, Inc. 8.375% 2008 7,000 7,096 .06 Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 5,000 5,169 Horseshoe Gaming, LLC, Series B, 9.375% 2007 1,000 1,040 .05 KSL Recreation Group, Inc. 10.25% 2007 6,600 6,113 .05 Venetian Casino Resort, LLC 12.25% 2004 5,875 5,875 .05 Argosy Gaming Co.: 10.75% 2009 2,000 2,190 9.00% 2011 2,750 2,888 .04 Hard Rock Hotel, Inc., Series B, 9.25% 2005 4,303 4,131 .03 Jupiters Ltd. 8.50% 2006 3,000 3,015 .03 Carnival Corp. 6.15% 2008 2,000 1,823 .02 AMF Bowling Worldwide, Inc. 0% convertible 11,084 1 .00 debentures 2018 (3) (4) (8) 277,591 2.32 MULTILINE RETAIL - 1.52% J.C. Penney Co., Inc.: 7.375% 2004 3,500 3,483 7.05% 2005 21,000 20,580 6.00% 2006 1,600 1,448 6.50% 2007 3,750 3,403 7.60% 2007 23,850 23,373 7.375% 2008 4,975 4,851 6.875% 2015 7,100 5,858 7.65% 2016 14,300 12,513 7.95% 2017 39,325 34,803 9.75% 2021 (9) 550 534 8.25% 2022 (9) 12,275 10,618 8.125% 2027 2,175 1,871 7.40% 2037 7,825 7,688 7.625% 2097 18,055 13,935 1.21 Kmart Corp., Series 1995 K-2, 9.78% 2020 (9) 12,250 8,505 DR Securitized Lease Trust, Series 1994 8,000 5,614 .12 K-2, 9.35% 2019 (9) Dillard's, Inc.: 6.125% 2003 5,435 5,211 6.43% 2004 1,450 1,384 6.625% 2018 3,000 2,364 7.13% 2018 1,250 960 7.00% 2028 1,500 1,155 .09 Saks Inc. 7.375% 2019 10,075 7,128 .06 Federated Department Stores, Inc. 6.625% 2011 4,850 4,766 .04 182,045 1.52 AUTOMOBILES - 1.44% Ford Motor Credit Co.: 6.875% 2006 10,000 9,997 5.25% 2008 DM 18,000 7,586 5.80% 2009 $ 27,000 24,473 7.25% 2011 25,500 24,857 7.375% 2011 11,445 11,294 7.45% 2031 7,100 6,514 .71 General Motors Acceptance Corp.: 6.125% 2006 7,000 6,927 5.85% 2009 15,000 14,046 7.75% 2010 9,750 10,037 6.875% 2011 13,400 13,106 8.00% 2031 25,750 26,051 General Motors Nova Scotia Finance Co. 6.85% 2008 7,000 6,966 .64 DaimlerChrysler North America Holding Corp. 7.25% 2006 10,000 10,365 .09 172,219 1.44 PAPER & FOREST PRODUCTS - 1.43% Georgia-Pacific Corp.: 7.50% 2006 10,050 9,964 8.125% 2011 54,050 52,959 8.875% 2031 8,500 8,410 Fort James Corp. 6.875% 2007 11,000 10,396 .68 Scotia Pacific Co. LLC, Series B: Class A-1, 6.55% 2028 (9) 1,123 1,125 Class A-2, 7.11% 2028 (9) 31,400 26,444 Class A-3, 7.71% 2028 19,143 13,400 .34 Bowater Canada Finance Corp. 7.95% 2011 (3) 16,000 16,118 .14 Potlatch Corp. 10.00% 2011 (3) 11,450 11,965 .10 Kappa Beheer BV: 10.625% 2009 Euro 3,500 3,431 0%/12.50% 2009 (1) 9,500 7,205 .09 Appleton Papers Inc. 12.50% 2008 (3) $ 4,075 3,902 .03 Indah Kiat Finance Mauritius Ltd. 10.00% 2007 (4) 12,075 2,324 .02 Riverwood International Corp. 10.875% 2008 2,250 2,284 .02 Pindo Deli Finance Mauritius Ltd.: (4) 10.25% 2002 6,000 915 10.75% 2007 3,625 553 .01 APP International Finance Co. BV 11.75% 2005 (4) 275 72 .00 171,467 1.43 HEALTH CARE PROVIDERS & SERVICES - 1.33% Columbia/HCA Healthcare Corp.: 7.15% 2004 1,500 1,545 6.91% 2005 17,410 17,497 7.00% 2007 9,250 9,296 8.85% 2007 8,240 8,734 8.70% 2010 4,250 4,548 9.00% 2014 5,650 5,989 7.69% 2025 5,000 4,750 .44 Aetna Inc.: 7.375% 2006 28,140 28,277 7.875% 2011 23,750 23,344 .43 Humana Inc. 7.25% 2006 31,000 31,197 .26 UnitedHealth Group Inc. 7.50% 2005 10,000 10,722 .09 Clarent Hospital Corp. 11.50% 2005 (8) 7,544 7,167 .06 CIGNA Corp. 6.375% 2011 4,975 4,915 .04 Integrated Health Services, Inc.: (4) (8) 10.25% 2006 (6) 9,350 94 Series A, 9.50% 2007 12,175 122 Series A, 9.25% 2008 32,657 327 .01 Mariner Health Group, Inc. 9.50% 2006 (4) (8) 7,300 73 .00 158,597 1.33 ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.23% Solectron Corp.: 0% convertible note 2019 (8) 3,000 1,526 0% LYON convertible notes 2020 135,900 57,758 0% LYON convertible notes 2020 100,350 53,316 .94 Celestica Inc. 0% convertible debenture 2020 47,185 20,072 .17 SCI Systems, Inc. 3.00% convertible 12,000 9,971 .08 subordinated debentures 2007 Flextronics International Ltd. 9.875% 2010 4,000 4,200 .04 146,843 1.23 METALS & MINING - 1.02% Freeport-McMoRan Copper & Gold Inc.: 7.50% 2006 34,000 24,650 7.20% 2026 24,000 21,360 .39 BHP Finance Ltd.: 6.69% 2006 10,000 10,349 8.50% 2012 20,000 22,935 7.25% 2016 5,000 4,965 .32 Inco Ltd. 9.60% 2022 16,000 16,725 .14 Allegheny Technologies, Inc. 8.375% 2011 (3) 9,000 8,834 .07 Luscar Coal Ltd. 9.75% 2011 (3) 6,400 6,656 .06 Kaiser Aluminum & Chemical Corp. 12.75% 2003 7,250 5,283 .04 Doe Run Resources Corp., Series B, 9.38% 2003 (6) 3,000 330 .00 122,087 1.02 CONSUMER FINANCE - 0.99% Capital One Bank: 8.25% 2005 4,500 4,596 6.875% 2006 18,233 17,755 Capital One Financial Corp.: 7.25% 2006 16,358 14,886 7.125% 2008 2,000 1,858 Capital One Capital I 3.78% 2027 (3) (6) 10,000 7,588 .39 Household Finance Corp.: 7.875% 2007 20,000 21,836 6.40% 2008 10,000 9,985 6.375% 2011 4,900 4,749 .31 MBNA Corp., MBNA Capital B, Series B, 3.03% 2027 (6) 32,800 23,663 .20 Advanta Capital Trust I, Series B, 8.99% 2026 12,500 7,000 .06 Providian Financial Corp. 9.525% 2027 (3) 16,750 4,020 .03 117,936 .99 SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.94% Analog Devices, Inc. 4.75% convertible 15,100 14,414 .12 subordinated notes 2005 LSI Logic Corp., 4.00% convertible 16,024 13,600 .11 subordinated notes 2005 Micron Technology, Inc. 6.50% 2005 (3) 11,000 10,120 .09 Vitesse Semiconductor Corp. 4.00% convertible 12,675 9,966 .08 subordinated debentures 2005 Conexant Systems, Inc. 4.00% convertible 14,700 9,576 .08 subordinated notes 2007 TriQuint Semiconductor, Inc. 4.00% 12,775 9,356 .08 convertible subordinated notes 2007 TranSwitch Corp. 4.50% convertible notes 2005 16,500 9,240 .08 Hyundai Semiconductor America, Inc. 8.625% 2007 (3) 15,850 8,649 .07 Zilog, Inc. 9.50% 2005 (4) 25,550 7,601 .06 Cypress Semiconductor Corp., 3.75% 9,050 7,449 .06 convertible subordinated notes 2005 Fairchild Semiconductor Corp.: 10.125% 2007 2,135 2,199 10.50% 2009 4,225 4,457 .06 Amkor Technology, Inc.: 9.25% 2006 3,500 3,343 9.25% 2008 1,000 945 .04 RF Micro Devices, Inc., 3.75% convertible 1,590 1,316 .01 subordinated notes 2005 112,231 .94 COMMERCIAL SERVICES & SUPPLIES - 0.92% Allied Waste North America, Inc.: 8.50% 2008 (3) 13,000 13,195 8.875% 2008 5,250 5,434 10.00% 2009 31,600 32,390 .43 Waste Management, Inc.: 4.00% convertible debentures 2002 6,000 5,993 7.70% 2002 3,500 3,584 6.875% 2009 6,000 5,977 7.375% 2010 3,000 3,084 USA Waste Services, Inc.: 6.50% 2002 2,000 2,052 7.00% 2004 1,500 1,569 7.125% 2007 2,000 2,049 7.125% 2017 1,000 963 WMX Technologies, Inc. 6.375% 2003 1,000 1,036 .22 Sotheby's Holdings, Inc. 6.875% 2009 20,000 17,200 .14 KinderCare Learning Centers, Inc., 7,650 7,306 .06 Series B, 9.50% 2009 Protection One Alarm Monitoring, Inc. 5,000 4,100 .04 6.75% convertible debentures 2003 Cendant Corp. 6.875% 2006 (3) 2,000 1,934 .02 Stericycle, Inc., Series B, 12.375% 2009 1,461 1,731 .01 109,597 .92 REAL ESTATE - 0.91% CarrAmerica Realty Corp.: Series C, 8.55% cumulative redeemable preferred 373,100 Shares 9,104 Series B, 8.57% cumulative redeemable preferred 473,600 11,579 .17 Irvine Co. 7.46% 2006 (3) (8) $ 15,000 15,297 Irvine Apartment Communities, LP 7.00% 2007 5,000 4,899 .17 ERP Operating LP: 6.95% 2011 3,000 3,011 7.125% 2017 5,000 4,750 7.57% 2026 8,000 8,501 .14 EOP Operating LP 6.75% 2008 11,500 11,623 .10 ProLogis Trust, Series D, 7.92% preferred 342,000 Shares 8,146 .07 FelCor Suites LP 7.375% 2004 $ 6,250 6,250 .05 IAC Capital Trust, Series A, 8.25% TOPRS preferred 220,000 Shares 5,544 .05 New Plan Realty Trust, Series D, 7.80% preferred 112,500 5,428 .04 cumulative step-up premium rate Archstone-Smith Trust, Series C, 8.625% 200,000 5,032 .04 convertible preferred Duke-Weeks Realty Corp., Series B, 7.99% preferred 100,000 4,700 .04 cumulative step-up premium rate Nationwide Health Properties, Inc., Series A, 50,000 3,792 .03 7.677% preferred cumulative step-up premium rate Simon DeBartolo Group, Inc., Series C, 7.89% 30,000 1,416 .01 preferred cumulative step-up premium rate 109,072 .91 INDUSTRIAL CONGLOMERATES - 0.66% Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 1,670,000 Shares 40,080 perpetual capital securities (3) Swire Pacific Offshore Financing Ltd. 9.33% cumulative 230,000 5,750 .38 guaranteed perpetual preferred capital securities (3) Hutchison Whampoa International Ltd. 7.00% 2011 (3) $ 33,125 33,777 .28 79,607 .66 CONTAINERS & PACKAGING - 0.62% Container Corp. of America: Series B, 10.75% 2002 4,800 4,872 9.75% 2003 32,409 33,219 Stone Container Corp. 9.75% 2011 6,750 7,189 .38 Printpack, Inc.: Series B, 9.875% 2004 8,950 9,219 10.625% 2006 11,590 12,054 .18 Tekni-Plex, Inc., Series B, 12.75% 2010 7,750 7,556 .06 74,109 .62 SPECIALTY RETAIL - 0.61% Toys "R" Us, Inc. 7.625% 2011 (3) 27,205 26,588 .22 Gap, Inc. 8.80% 2008 (3) 25,840 22,637 .19 Sunglass Hut International Ltd. 5.25% convertible 11,150 11,150 .09 debentures 2003 Office Depot, Inc. 10.00% 2008 6,500 7,085 .06 Petco Animal Supplies, Inc. 10.75% 2011 (3) 5,375 5,509 .05 72,969 .61 AUTO COMPONENTS - 0.52% TRW Inc.: 8.75% 2006 8,000 8,575 7.125% 2009 12,000 11,634 7.75% 2029 9,455 8,890 .24 Dana Corp. 9.00% 2011 (3) 29,850 27,014 .23 Collins & Aikman Products Co. 10.75% 2011 (3) 4,000 4,030 .03 Tenneco Automotive Inc. 11.625% 2009 4,000 2,000 .02 62,143 .52 GAS PRODUCTION & DISTRIBUTION - 0.50% Gemstone Investor Ltd. 7.71% 2004 (3) 52,100 50,675 El Paso Corp.: 5.75% 2006 Euro 1,500 1,252 6.95% 2007 $ 4,000 3,991 7.80% 2031 4,000 4,048 .50 59,966 .50 MACHINERY - 0.43% Terex Corp.: 9.25% 2011 (3) 15,050 15,125 Class B, 10.375% 2011 5,250 5,486 .17 John Deere Capital Corp. 8.625% 2019 16,850 17,684 .15 Cummins Capital Trust I 7.00% QUIPS convertible 180,000 Shares 9,090 .08 preferred 2031 (3) AGCO Corp. 9.50% 2008 $ 3,500 3,658 .03 51,043 .43 OIL & GAS - 0.43% Pemex Finance Ltd.: (9) 8.875% 2010 7,000 7,881 9.03% 2011 2,000 2,179 Series 1999-2, Class A-3, 10.61% 2017 11,000 12,628 Pemex Project Funding Master Trust 9.125% 2010 4,500 4,781 .23 Pogo Producing Co. 10.375% 2009 14,500 15,551 .13 OXYMAR 7.50% 2016 (3) 8,500 6,951 .06 Newfield Exploration Co. 7.625% 2011 1,000 974 .01 50,945 .43 TEXTILES & APPAREL - 0.42% VF Corp. 8.50% 2010 36,000 39,549 .33 Levi Strauss & Co: 6.80% 2003 4,600 4,048 11.625% 2008 7,475 6,503 .09 50,100 .42 AIR FREIGHT & COURIERS - 0.38% Atlas Air, Inc., Pass Through Trust: (9) Series 2000-1, Class B, 9.057% 2017 3,242 2,924 Series 1998-1, Class A, 7.38% 2019 40,758 37,226 Series 1999-1, Class A-1, 7.20% 2020 2,484 2,262 Series 2000-1, Class A, 8.707% 2021 3,519 3,471 .38 45,883 .38 FOOD PRODUCTS - 0.38% Nabisco, Inc.: 7.05% 2007 2,500 2,637 7.55% 2015 5,955 6,571 6.375% 2035 (6) 12,300 12,716 .19 Gruma, SA de CV 7.625% 2007 8,000 7,540 .06 Kellogg Co.: 6.60% 2011 2,250 2,308 7.45% 2031 1,800 1,941 .04 Aurora Foods Inc.: Series B, 9.875% 2007 1,250 1,206 Series D, 9.875% 2007 2,800 2,702 .03 Fage Dairy Industry SA 9.00% 2007 4,000 3,760 .03 Smithfield Foods, Inc. 8.00% 2009 (3) 3,500 3,623 .03 45,004 .38 AEROSPACE & DEFENSE - 0.36% BAE SYSTEMS, Series 2001: (3) (9) Class B, 7.156% 2011 17,513 17,601 Class G, MBIA Insured, 6.664% 2013 22,039 22,644 .34 EarthWatch Inc., Series B, 7.00% convertible 1,102,582 Shares 2,438 .02 preferred 2009 (2) (3) (5) (8) 42,683 .36 FOOD & DRUG RETAILING - 0.35% Rite Aid Corp.: 7.125% 2007 $ 7,060 5,719 11.25% 2008 2,100 2,069 6.875% 2013 12,500 8,750 7.70% 2027 20,665 14,362 6.875% 2028 (3) 17,450 11,299 .35 42,199 .35 DIVERSIFIED FINANCIALS - 0.19% Heller Financial, Inc. 6.375% 2006 12,500 13,153 .11 AT&T Capital Corp. 6.60% 2005 9,000 9,380 .08 22,533 .19 MULTI-UTILITIES - 0.18% Williams Companies, Inc.: 7.625% 2019 7,750 7,661 7.875% 2021 13,750 13,899 .18 21,560 .18 CHEMICALS - 0.18% Equistar Chemicals, LP: 6.50% 2006 7,800 7,043 8.75% 2009 5,000 4,829 .10 Reliance Industries Ltd. 10.25% 2097 (3) 10,750 9,059 .08 20,931 .18 INTERNET & CATALOG RETAIL - 0.16% Amazon.com, Inc.: 4.75% convertible subordinated debentures 2009 1,325 656 6.875% PEACS convertible subordinated notes 2010 Euro 40,400 18,207 .16 18,863 .16 PHARMACEUTICALS - 0.15% Lilly Del Mar, Inc. 3.41% 2029 (3) (6) $ 18,000 18,030 .15 MARINE - 0.14% International Shipholding Corp.: 9.00% 2003 5,750 5,721 Series B, 7.75% 2007 5,300 4,770 .09 Teekay Shipping Corp.: 8.875% 2011 3,500 3,605 8.875% 2011 (3) 1,000 1,030 .04 Gearbulk Holding Ltd. 11.25% 2004 1,000 1,015 .01 16,141 .14 BEVERAGES - 0.12% Canandaigua Wine Co., Inc.: Series C, 8.75% 2003 7,500 7,481 8.75% 2003 6,650 6,633 .12 14,114 .12 LEISURE PRODUCTS - 0.11% Hasbro, Inc. 8.50% 2006 12,500 12,750 .11 AIRLINES - 0.10% Northwest Airlines, Inc.: 7.625% 2005 4,915 4,079 8.875% 2006 4,475 3,804 .07 Delta Air Lines, Inc. 10.375% 2022 2,577 2,036 .02 United Air Lines, Inc. 9.00% 2003 2,000 1,480 .01 11,399 .10 ENERGY EQUIPMENT & SERVICES - 0.09% Colonial Pipeline Co. 7.75% 2010 (3) 10,000 10,493 .09 HOUSEHOLD DURABLES - 0.06% Salton/Maxim Housewares, Inc. 10.75% 2005 5,600 5,369 .04 Boyds Collection, Ltd., Series B, 9.00% 2008 1,806 1,878 .02 7,247 .06 CONSTRUCTION & ENGINEERING - 0.05% McDermott Inc. 9.375% 2002 6,250 5,938 .05 ROAD & RAIL - 0.04% Union Pacific Capital Trust 6.25% TIDES 111,100 Shares 5,291 .04 convertible preferred 2028 (3) COMPUTERS & PERIPHERALS - 0.03% First International Computer Corp. 1.00% $ 3,000 3,810 .03 convertible debentures 2004 (3) PERSONAL PRODUCTS - 0.03% Revlon Consumer Products, Inc. 12.00% 2005 (3) 2,500 2,456 .02 Elizabeth Arden, Inc., Series B, 11.75% 2011 625 644 .01 3,100 .03 INTERNET SOFTWARE & SERVICES - 0.00% Exodus Communications, Inc. 11.625% 2010 (4) 1,500 345 .00 MORTGAGE-BACKED OBLIGATIONS (9) PRIVATE ISSUE COMMERCIAL MORTGAGE-BACKED SECURITIES - 5.28% Chase Commercial Mortgage Securities Corp.: Series 1996-1, Class A-1, 7.60% 2005 2,033 2,148 Series 1998-1, Class A-1, 6.34% 2030 10,205 10,642 Series 1998-2, Class A-2, 6.39% 2030 44,550 45,758 Series 1998-2, Class E, 6.39% 2030 10,000 9,563 Series 1998-1, Class A-2, 6.56% 2030 8,965 9,329 Series 1999-1, Class B, 7.619% 2031 17,125 18,474 Series 1999-1, Class C, 7.625% 2031 5,000 5,323 Series 2000-1, Class A-1, 7.656% 2032 12,075 13,039 .96 DLJ Mortgage Acceptance Corp.: Series 1997-CF1, Class A-1A, 7.40% 2006 (3) 2,617 2,700 Series 1998-CF1, Class A-1B, 6.41% 2008 10,000 10,303 Series 1996-CF2, Class A-1, 7.29% 2021 (3) 10,000 10,649 Series 1995-CF2, Class A-1B, 6.85% 2027 (3) 34,799 35,739 Series 1996-CF1, Class A-2, 7.681% 2028 (3) (6) 7,900 8,302 Series 1998-CF1, Class A-1A, 6.14% 2031 15,472 16,062 .70 GMAC Commercial Mortgage Securities, Inc.: Series 1997-C1, Class A-3, 6.869% 2007 20,000 20,945 Series 1997-C2, Class C, 6.50% 2008 9,000 9,094 Series 1997-C1, Class D, 6.997% 2008 8,300 8,613 Series 1997-C2, Class E, 7.624% 2011 27,703 24,800 Series 1997-C2, Class C, 6.91% 2029 8,900 8,961 .61 Morgan Stanley Capital I, Inc.: Series 1998-HF1, Class A-1, 6.19% 2007 19,089 19,833 Series 1998-WF2, Class A-1, 6.34% 2030 7,418 7,729 Series 1998-HF2, Class A-2, 6.48% 2030 17,000 17,578 Series 1999-FNV1, Class A-1 6.12% 2031 10,122 10,449 Series 1999-FNV1, Class A-2, 6.53% 2031 10,000 10,339 .55 Bear Stearns Commercial Mortgage Securities Inc.: Series 1999-WF2, Class X, interest only, 304,565 5,764 0.26% 2019 (6) Series 1998-C1, Class A-1, 6.34% 2030 6,505 6,741 Series 1999-C1, Class X, interest only, 167,017 9,799 1.051% 2031 (6) Series 2000-WF2, Class A-2, 7.32% 2032 16,480 17,573 .33 L.A. Arena Funding, LLC, Series 1, Class A, 38,529 38,668 .32 7.656% 2026 (3) GS Mortgage Securities Corp. II, Series 1998-C1: (6) Class D, 7.242% 2030 3,750 3,604 Class E, 7.242% 2030 31,076 29,085 .27 Merrill Lynch Mortgage Investors, Inc.: (6) Series 1995-C2, Class D, 7.603% 2021 326 331 Series 1995-C3, Class A-3, 7.051% 2025 24,413 24,894 Series 1996-C2, Class A-1, 6.69% 2028 3,259 3,318 .24 CS First Boston Mortgage Securities Corp., Series 20,000 20,156 .17 2001-CK6, Class A-2, 6.103% 2036 Prudential Securities Secured Financing Corp., 18,000 18,309 .15 Series 1999-NRF1, Class C, 6.746% 2009 Morgan Stanley Dean Witter Capital I Trust, 17,468 17,634 .15 Series 2001-TOP5, Class A-3, 6.16% 2035 GGP Mall Properties Trust, Series 2001-C1A, 15,735 15,228 .13 Class A-2, 5.007% 2011 (3) Commercial Mortgage, Series 2000-FL3, 13,776 13,588 .11 Class D, 3.117% 2012 (3) (6) Commercial Mortgage Acceptance Corp.: Series 1998-C1, Class A-1, 6.23% 2007 7,933 8,224 Series 1998-C2, Class A-1, 5.80% 2030 3,539 3,630 .10 LB-UBS Commercial Mortgage Trust, Series 2000-C3, 10,000 11,112 .09 Class A-2, 7.95% 2010 DLJ Commercial Mortgage Corp., Series 1999-CG1, 10,000 10,302 .09 Class A-1B, 6.46% 2032 Salomon Brothers Commercial Mortgage Trust, 8,750 8,997 .08 Series 2000-C3, Class A-2, 6.592% 2033 Nomura Asset Securities Corp., Series 1998-D6, 8,083 8,410 .07 Class A-A1, 6.28% 2030 Mortgage Capital Funding, Inc., Series 1998-MC1, 6,264 6,519 .05 Class A-1, 6.417% 2030 Chase Manhattan Bank - First Union National Bank, 5,000 5,394 .05 Commercial Mortgage Trust, Series 1999-1, Class A-2, 7.439% 2031 Asset Securitization Corp.: Series 1996-D3, Class A-1B, 7.21% 2026 3,000 3,161 Series 1997-D4, Class A-1A, 7.35% 2029 435 447 .03 Government Lease Trust Series 1999-GSA1, Class A-1, 1,782 1,816 .02 MBIA Insured, 5.86% 2003 (3) J.P. Morgan Commercial Mortgage Finance Corp.: Series 1995-C1, Class A-2, 7.352% 2010 (6) 1,297 1,305 Series 1996-C3, Class A-1, 7.33% 2028 463 483 .01 Structured Asset Securities Corp., Series 1996-CFL, 523 530 .00 Class D, 7.034% 2028 631,394 5.28 COLLATERALIZED MORTGAGE OBLIGATIONS - 0.95% GE Capital Mortgage Services, Inc.: Series 1994-15, Class A-10, 6.00% 2009 16,376 16,202 Series 1994-9, Class A-9, 6.50% 2024 5,615 5,627 .18 Fannie Mae Trust, Series 2001-50, Class B-A, 15,469 15,866 .13 7.00% 2041 Structured Asset Notes Transaction, Ltd., Series 13,289 13,658 .11 1996-A, Class A-1, 7.156% 2003 (3) Residential Asset Securitization Trust, Series 8,899 9,207 .08 1997-A3, Class B-1, 7.75% 2027 PNC Mortgage Securities Corp., Series 1998-10, 9,262 9,005 .08 Class 1-B1, 6.50% 2028 (3) Security National Mortgage Loan Trust: (3) Series 2001-3, Class A-2, 5.37% 2014 1,670 1,674 Series 2000-1, Class A-2, 8.75% 2024 6,800 7,127 .07 Ocwen Residential MBS Corp., Series 1998-R1, 9,087 8,750 .07 Class AWAC, 5.38% 2040 (3) (6) Residential Funding Mortgage Securities I, Inc.: Series 2001-S1, Class A-1, 7.00% 2016 3,821 3,963 Series 1998-S17, Class M-1, 6.75% 2028 3,855 3,828 .07 First Nationwide Trust, Series 1999-2, 4,478 4,478 .04 Class 1PA-1, 6.50% 2029 Collateralized Mortgage Obligation Trust, 2,803 2,876 .02 Series 63, Class Z, 9.00% 2020 Travelers Mortgage Securities Corp., Series 1, 2,630 2,854 .02 Class Z-2, 12.00% 2014 Financial Asset Securitization, Inc., Series 2,476 2,520 .02 1997-NAM1, Class B-1, 7.75% 2027 Nationsbanc Montgomery Funding Corp., Series 1,912 1,912 .02 1998-5, Class A-1, 6.00% 2013 Prudential Home Mortgage Securities Co., Inc. 1,872 1,875 .02 , Series 1993-48, Class A-6, 6.25% 2008 Bear Stearns Structured Securities Inc., Series 1,071 1,171 .01 1997-2, Class AWAC, 7.093% 2036 (3) (6) GS Mortgage Securities Corp., Series 1998-2, 1,097 1,152 .01 Class M, 7.75% 2027 (3) 113,745 .95 OTHER - 0.91% Structured Asset Securities Corp.: (3) (6) Series 1998-RF2, Class A, 8.527% 2027 29,902 32,154 Series 1998-RF1, Class A, 8.664% 2027 10,248 10,968 Series 1999-RF1, Class A, 7.861% 2028 7,205 7,415 .42 Arena BV, Series 2000-1, Class A, 6.10% 2062 (6) Euro 15,500 14,404 .12 Bayerische Vereinsbank 5.50% 2008 13,271 12,191 .10 Nykredit 6.00% 2029 DKr102,982 11,980 .10 Allgemeine Hypotheken Bank AG 5.00% 2009 Euro 11,000 9,673 .08 Hypothekenbank in Essen AG 5.25% 2008 6,000 5,436 .05 Rheinische Hypothekenbank Eurobond 4.25% 2008 5,000 4,261 .04 First Boston Mortgage Securities Corp.: Class P-O, 0% 2017 $ 418 379 Class I-O, interest only, 10.965% 2017 418 81 .00 108,942 .91 AGENCY PASS-THROUGHS GOVERNMENT NATIONAL MORTGAGE-ASSOCIATION - 4.14% 6.00% 2029 - 2031 85,057 83,489 6.50% 2008 - 2024 6,013 6,070 7.00% 2008 - 2031 190,784 194,847 7.50% 2007 - 2030 52,637 54,527 8.00% 2017 - 2030 108,477 113,559 8.50% 2020 - 2029 6,117 6,488 9.00% 2009 - 2022 6,291 6,694 9.50% 2009 - 2021 5,480 5,831 10.00% 2019 - 2022 20,404 23,066 4.14 494,571 4.14 FANNIE MAE - 3.88% 5.50% 2016 34,118 33,542 6.00% 2016 - 2032 122,197 122,202 6.50% 2016 - 2031 174,889 176,992 7.00% 2009 - 2031 74,916 76,498 7.50% 2009 - 2031 35,469 36,646 7.508% 2026 (6) 4,289 4,424 8.00% 2023 - 2031 3,739 3,939 8.071% 2002 (6) 696 696 8.50% 2009 - 2027 1,250 1,338 9.00% 2018 - 2022 1,190 1,289 9.50% 2009 130 141 10.00% 2018 3,206 3,591 12.00% 2019 2,148 2,494 3.88 463,792 3.88 FREDDIE MAC - 0.37% 6.00% 2032 33,185 32,490 8.00% 2003 - 2026 2,098 2,191 8.25% 2007 737 778 8.50% 2002 - 2027 6,672 7,115 8.75% 2008 944 1,005 11.00% 2018 599 679 .37 44,258 .37 AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 0.89% Fannie Mae: Series 90-93, Class G, 5.50% 2020 307 308 Series 93-247, Class Z, 7.00% 2023 5,215 5,412 Series 1994-4, Class ZA, 6.50% 2024 3,982 3,941 Series 2001-4, Class GA, 10.018% 2025 (6) 4,333 4,825 Series 2001-4, Class NA, 11.683% 2025 (6) 20,039 23,051 REMIC Trust, Series 1998-W5, Class B-3, 4,705 4,316 6.50% 2028 (3) Series 2001-20, Class E, 9.592% 2031 (6) 955 1,050 Series 2001-20, Class C, 11.538% 2031 (6) 1,043 1,186 Grantor Trust, Series 2001-T10, Class A-1, 7.00% 2041 44,514 46,113 .76 Freddie Mac: Series 1849, Class Z, 6.00% 2008 6,984 7,071 Series 2310, Class A, 10.546% 2017 (6) 5,845 6,491 Series 41, Class F, 10.00% 2020 1,155 1,221 Series 178, Class Z, 9.25% 2021 977 1,033 .13 106,018 .89 ASSET-BACKED OBLIGATIONS (9) AIRPLANE EQUIPMENT TRUST CERTIFICATES - SINGLE LESSEE - 2.80% Continental Airlines, Inc.: Series 1998-3, Class C-1, 7.08% 2004 2,054 1,684 Series 1998-3, Class C-2, 7.25% 2005 12,000 8,880 Series 1999-2, Class C-2, 7.434% 2006 2,000 1,550 Series 1997-1, Class C-1, 7.42% 2007 (6) 1,814 1,422 Series 1998-3, Class A-2, 6.32% 2008 15,000 13,677 Series 1999-2, Class A-2, 7.056% 2011 2,000 1,808 Series 2000-2, Class C, 8.312% 2011 3,097 2,354 Series 1997-1, Class B, 7.46% 2014 924 799 Series 1996-2, Class B, 8.56% 2014 1,642 1,514 Series 1999-1, 10.22% 2014 5,034 3,675 Series 2001-1, Class B, 7.373% 2015 2,996 2,583 Series 1996, Class B, 7.82% 2015 10,992 9,519 Series 1997-1, Class A, 7.461% 2016 15,872 13,862 Series 1996-2, Class D, 11.50% 2016 2,137 1,471 Series 1997-4, Class A, 6.90% 2018 27,587 24,461 Series 2000-2, Class B, 8.307% 2018 1,957 1,644 Series 1998-1, Class A, 6.648% 2019 33,904 30,067 Series 1999-1, Class A, 6.545% 2020 5,612 4,874 Series 1999-1, Class B, 6.795% 2020 16,853 13,950 Series 2000-1, Class A-1, 8.048% 2020 11,530 10,935 Series 2000-1, Class B, 8.388% 2020 4,444 3,786 1.29 US Airways, Inc. Pass Through Trust: Series 2000-2G, 8.02% 2019 14,000 14,171 Series 2000-3G, 7.89% 2020 25,173 25,246 Series 2001-1G, 7.076% 2021 15,748 15,792 USAir, Inc., Pass Through Trust, Series 2,250 1,485 .47 1993-A3, 10.375% 2013 American Airlines Inc.: Series 2001-2, Class A-1, 6.978% 2011 (3) 4,900 4,899 Series 2001-2, Class A-2, 7.858% 2011 (3) 2,000 1,996 Series 2001-2, Class B, 8.608% 2011 (3) 13,790 13,806 Series 1991-C2, 9.73% 2014 6,410 5,513 Series 2001-1, Class B, 7.377% 2019 (3) 9,833 9,178 .30 Delta Air Lines, Inc.: Series 2000-1, Class A-2, 7.57% 2010 7,500 7,585 Series 2001-1, Class A-2, 7.111% 2011 3,000 2,962 Series 1992-A2, 9.20% 2014 11,500 9,275 1990 Equipment trust certificates: (3) Series I, 10.00% 2014 5,000 3,925 Series J, 10.00% 2014 5,000 3,925 Series F, 10.79% 2014 1,700 1,334 .24 Jet Equipment Trust: (3) Series 1994-A, Class B-1, 11.79% 2013 4,000 2,600 Series 1995-B, 10.91% 2014 5,000 3,250 Series 1995-D, 11.44% 2014 10,000 6,500 Series 1995-B, Class A, 7.63% 2015 3,777 3,135 Series 1995-B, Class C, 9.71% 2015 5,500 3,575 Series 1995-A, Class C, 10.69% 2015 2,750 1,974 .18 Southwest Airlines Co.: Series 2001-1, Class A-2, 5.496% 2006 5,000 4,895 Series 2001-1, Class B, 6.126% 2006 7,500 7,345 .10 AIR 2 US, Series A, 8.027% 2020 (3) 10,993 10,276 .09 United Air Lines, Inc.: Series 2000-1, Class A-2, 7.73% 2012 4,000 3,460 Series 1995-A2, 9.56% 2018 8,000 6,341 .08 Northwest Airlines, Inc.: 8.375% 2004 2,450 2,168 8.52% 2004 4,140 3,616 .05 334,742 2.80 CREDIT CARD - 1.16% First Consumer Master Trust, Series 1999-A, 35,000 36,333 .31 Class A, 5.80% 2005 (3) Metris Master Trust: (6) Series 1997-2, Class C, 3.153% 2006 (3) 7,200 7,193 Series 2001-3, Class B, 3.003% 2008 12,000 11,780 Series 2001-2, Class B, 3.183% 2009 10,000 9,721 .24 NextCard Credit Card Master Note Trust: (3) (6) Series 2000-1, Class B, 2.696% 2006 14,125 13,673 Series 2001-1A, Class B, 2.776% 2007 6,000 6,000 .17 H.S. Receivables Corp., Series 1999-1, 12,656 13,122 .11 Class A, 8.13% 2006 (3) MBNA Master Credit Card Trust: (3) Series 1999-D, Class B, 6.95% 2008 4,700 4,851 Series 1998-E, Class C, 6.60% 2010 5,000 5,063 .08 Providian Master Trust, Series 2000-3, 8,750 8,654 .07 Class C, 7.60% 2007 (3) Capital One Secured Note Trust, Series 1999-2, 4,250 4,244 2.496% 2005 (3) (6) Capital One Master Trust, Series 1999-1, 2,500 2,618 .06 Class C, 6.60% 2007 (3) First USA Credit Card Master Trust, Series 6,630 6,362 .05 1997-4, Class A, 2.896% 2010 (3) (6) BA Master Credit Card Trust, Series 1998-A, 6,000 6,000 .05 Class B, 2.166% 2005 (6) Hitachi Shinpan Co. Ltd., Series 1999-3, 1,500 1,592 .01 Class A, 9.60% 2006 (3) CompuCredit Credit Card Master Note Business 1,500 1,472 .01 Trust, Series 2001-One, Class B, 3.376% 2008 (3) (6) 138,678 1.16 ASSET-BACKED SECURITIES - 1.14% NPF XII, Inc.: (3) Series 1999-3, Class B, 3.075% 2003 (6) 3,000 3,001 Series 1999-2, Class A, 7.05% 2003 15,000 15,297 Series 2001-1, Class A, 2.738% 2004 (6) 7,000 7,002 Series 2001-3, Class A, 5.52% 2007 16,000 15,370 NPF VI, Inc., Series 1999-1, Class A, 6.25% 2003 (3) 5,000 5,043 .38 Tobacco Settlement Financing Corp., 36,000 35,142 .29 Series 2001A, 6.36% 2025 Garanti Trade Payment Rights Master Trust, 22,476 22,252 .19 Series 1999-B, Class 1, 10.81% 2004 (3) Puerto Rico Public Financing Corp., Series 21,416 21,416 .18 1999-1, Class A, AMBAC Insured, 6.15% 2008 PF Export Receivables Master Trust, Series 10,000 10,082 .08 2001-B, MBIA Insured, 6.60% 2011 (3) Grupo Financiero Banamex-Accival, 2,371 2,179 .02 SA de CV 0% 2002 (3) 136,784 1.14 AUTO LOAN - 1.07% MMCA Auto Owner Trust: Series 2000-2, Class B, 7.42% 2005 7,000 7,492 Series 2000-1, Class B, 7.55% 2005 14,750 15,688 Series 2001-2, Class B, 5.75% 2007 9,000 9,213 Series 2001-3, Class B, 2.846% 2008 (6) 21,000 20,696 .44 Team Fleet Financing Corp.: (3) Series 1996-1, Class A, 6.65% 2002 2,396 2,413 Series 2001-3A, Class A, 2.83% 2005 (6) 11,125 11,118 Series 2001-3A, Class B, 3.11% 2005 (6) 10,500 10,450 .20 Drive Auto Receivables Trust, MBIA Insured: (3) Series 2000-1, Class A, 6.672% 2006 5,116 5,266 Series 2001-2, Class A, 3.91% 2007 11,500 11,492 .14 Prestige Auto Receivables Trust, Series 2001-1A, 8,695 8,824 .07 Class A, FSA Insured, 5.26% 2009 (3) Harley-Davidson Motorcycle Trust, Series 2001-3: Class B, 3.72% 2009 2,500 2,498 Class A-2, 4.04% 2009 5,000 4,964 .06 Continental Auto Receivables Owner Trust, Series 5,261 5,568 .05 2000-B, Class CTFS, MBIA Insured, 7.11% 2007 (3) Chevy Chase Auto Receivables Trust, Series 4,000 3,977 .03 2001-2, Class A-4, 4.44% 2007 CPS Auto Receivables Trust, Series 1998-4, 3,397 3,445 .03 Class A-3, FSA Insured, 5.74% 2003 Hyundai Auto Receivables Trust, Series 2001-A, 2,380 2,378 .02 Class C, 5.57% 2006 (3) Triad Auto Receivables Owner Trust, Series 1999-1, 1,709 1,756 .02 Class A-2, FSA Insured, 6.09% 2005 FACTA Securitization LLC, Series 2000-A: (3) Class A, 8.00% 2004 88 88 Class B, 8.96% 2004 1,219 1,221 .01 128,547 1.07 AIRPLANE EQUIPMENT TRUST CERTIFICATES - MULTIPLE LESSEE - 0.81% Pegasus Aviation Lease Securitization, Series 2000-1, 51,000 43,080 .36 Class A-2, 8.37% 2030 (3) Airplanes Pass Through Trust: Class B, 2.646% 2019 (6) 12,788 10,230 Class 1-C, 8.15% 2019 (8) 34,321 20,593 .26 Lease Investment Flight Trust, Series 2001-1, 14,180 13,684 .12 Class A-3, 2.326% 2016 (3) (6) Triton Aviation Finance, Series 1A, Class A-2, 6,587 6,229 .05 2.396% 2025 (3) (6) Aircraft Finance Trust, Series 1999-1, Class A-2, 2,542 2,453 .02 2.396% 2024 (6) Embarcadero Aircraft Securitization Trust, Series 358 346 .00 2000-1, Class A-2, 2.376% 2025 (3) (6) 96,615 .81 MANUFACTURED HOUSING - 0.55% Green Tree Financial Corp.: Series 1993-2, Class B, 8.00% 2018 2,250 2,193 Series 1995-3, Class B-2, 8.10% 2025 5,000 2,705 Series 1995-8, Class B-2, 7.65% 2026 8,197 4,267 Series 1995-6, Class B-2, 8.00% 2026 2,790 1,452 Series 1996-6, Class B-2, 8.35% 2027 10,309 5,386 Series 1996-5, Class B-2, 8.45% 2027 6,742 3,565 Series 1996-10, Class A-6, 7.30% 2028 8,487 8,609 Series 1997-8, Class B-2, 7.75% 2028 3,119 1,209 Series 1998-4, Class B-2, 8.11% 2028 13,193 5,351 Series 1997-6, Class A-7, 7.14% 2029 15,687 16,506 Series 1997-6, Class B-2, 7.75% 2029 4,958 1,900 Conseco Finance Manufactured Housing Contract Trust, Series 2001-3: Class A-2, 5.16% 2033 8,000 8,087 Class A-3, 5.79% 2033 5,000 4,974 .55 66,204 .55 HOME EQUITY - 0.39% Residential Funding Mortgage Securities II, Inc.: Series 2000-HI5, Class A-I-4, 6.94% 2014 9,000 9,398 Series 2001-H14, AMBAC Insured: Class A-3, 5.32% 2015 8,539 8,605 Class A-4, 5.64% 2016 12,000 12,046 Series 2001-HS2, Class A-4, 6.43% 2016 7,500 7,663 .32 Asset-Backed Securities Corp. Home Equity Loan Trust, interest only: Series 2001-HE2, Class A-IO, 4.50% 2031 82,960 5,049 Series 2001-HE3, Class A-IO, 6.50% 2031 (6) 14,785 1,456 .05 CS First Boston Mortgage Securities Corp., Series 57,562 2,742 .02 2001-HE16, Class A, interest only, 5.64% 2004 46,959 .39 FRANCHISE/EQUIPMENT - 0.37% GRCT Consumer Loan Trust, Series 2001-1A, Class 14,988 15,321 .13 2BRV, 6.251% 2020 (3) CNL Funding, Series 2000-AA, Class A-2, MBIA Insured, 13,800 14,232 .12 8.044% 2017 (3) Xerox Equipment Lease Owner Trust, Series 2001-1, 9,635 9,672 .08 Class A, 3.896% 2008 (3) (6) Green Tree Recreational, Equipment and Consumer Trust, 8,500 5,185 .04 Series 1997-D, 7.25% 2029 44,410 .37 STRANDED ASSET - 0.29% PP&L Transition Bond Co. LLC, Series 1999-1, 15,000 16,182 .14 Class A-7, 7.05% 2009 California Infrastructure and Economic Development Bank, Special Purpose Trust, PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 12,499 13,120 .11 ComEd Transitional Funding Trust, Series 1998, 3,500 3,580 .03 Class A-4, 5.39% 2005 California Infrastructure and Economic Development Bank, Special Purpose Trust, SCE-1, Series 1997-1, Class A-7, 6.42% 2009 1,500 1,547 .01 34,429 .29 HOME IMPROVEMENT - 0.09% FIRSTPLUS Home Loan Owner Trust, Series 1997-1, 6,885 6,983 .06 Class A-7, MBIA Insured, 7.16% 2018 The Money Store Trust, Series 1996-D, Class A-14, 3,953 4,055 .03 MBIA Insured, 6.985% 2016 11,038 .09 GOVERNMENT OBLIGATIONS U.S. GOVERNMENT U.S. TREASURY NOTES & BONDS - 7.54% 11.625% November 2004 60,000 72,750 7.50% February 2005 15,000 16,591 6.50% October 2006 37,000 40,238 3.375% January 2007 (10) 240,326 241,040 5.625% May 2008 10,000 10,477 4.75% November 2008 40,000 39,825 9.125% May 2009 18,000 20,213 6.00% August 2009 17,500 18,643 10.375% November 2009 12,500 14,678 10.00% May 2010 5,000 5,906 3.50% January 2011 (10) 71,478 71,288 5.00% February 2011 25,000 24,906 5.00% August 2011 66,200 65,993 10.375% November 2012 24,500 31,391 12.00% August 2013 10,000 13,952 7.875% February 2021 25,000 31,098 6.25% August 2023 95,000 100,507 7.50% November 2024 1,220 1,487 6.00% February 2026 35,000 36,012 Principal Strip 0% 2027 10,740 2,387 5.25% November 2028 22,740 21,237 5.375% February 2031 21,710 21,395 7.54 902,014 7.54 NON-PASS-THROUGH AGENCY SECURIITES FREDDIE MAC BONDS & NOTES - 0.66% 5.75% 2010 Euro 12,000 11,082 6.75% 2031 $ 64,000 67,870 .66 78,952 .66 FANNIE MAE BONDS & NOTES - 0.53% Medium Term Note, 6.75% 2028 15,000 14,154 7.25% 2030 43,750 49,287 .53 63,441 .53 FEDERAL HOME LOAN BANK BONDS & NOTES - 0.19% 4.875% 2004 21,750 22,341 .19 GOVERNMENTS & GOVERNMENTAL BODIES (EXCLUDING U.S.) NON-U.S. GOVERNMENT OBLIGATIONS - 4.64% Deutschland Republic 5.25% 2008 Euro 82,000 74,822 Bundesrepublik: 6.00% 2007 23,827 22,658 5.25% 2010 36,150 32,723 Treuhandanstalt 7.125% 2003 12,376 11,433 1.18 Polish Government: 12.00% 2003 PLZ 11,000 2,852 8.50% 2004 15,000 3,660 8.50% 2005 50,000 12,125 8.50% 2005 37,600 9,157 Series 0605, 8.50% 2005 22,525 5,465 8.50% 2006 83,000 20,079 .45 Canadian Government: 9.00% 2004 C$ 10,000 7,152 4.25% 2026 (6) (10) 62,209 42,251 .41 United Mexican States Government Eurobonds, Global: 8.625% 2008 $ 170 183 9.875% 2010 2,175 2,436 8.375% 2011 16,000 16,640 11.375% 2016 6,658 8,226 8.30% 2031 12,615 12,426 .33 Hellenic Republic: 8.90% 2004 Euro 14,380 14,163 8.60% 2008 22,010 23,420 7.50% 2013 1,820 1,889 .33 Spanish Government 6.00% 2008 36,061 34,038 .28 United Kingdom: 6.50% 2003 Pounds 5,700 8,551 5.75% 2009 16,000 24,196 .27 French Treasury Note 4.50% 2003 Euro 9,465 8,548 French Government O.A.T. Eurobond 0% 2019 55,000 18,814 .23 Kingdom of Denmark 6.00% 2009 DKr190,000 24,024 .20 Norwegian Government: 6.75% 2007 NOK 75,000 8,574 5.50% 2009 124,500 13,266 .18 Japanese Government: 0.90% 2008 Yen 1,400,000 10,652 1.90% 2010 1,000,000 8,040 .16 Italian Government BTPS Eurobond 6.00% 2007 Euro 16,204 15,303 .13 New South Wales Treasury Corp. 8.00% 2008 A$ 26,000 14,671 .12 Panama (Republic of): 9.625% 2011 $ 500 511 Interest Reduction Bond 4.75% 2014 (6) (9) 8,657 7,710 10.75% 2020 210 224 8.875% 2027 250 231 9.375% 2029 675 709 .08 Russian Federation: (6) (9) 5.00% 2030 10,640 6,198 5.00% 2030 (3) 145 84 .05 Bulgaria (Republic of): (6) (9) Past Due Interest 4.563% 2011 3,960 3,475 Front Loaded Interest Reduction Bond, 4.563% 2012 2,470 2,235 .05 Brazil (Federal Republic of): Eligible Interest Bond 3.188% 2006 (6) (9) 940 824 Bearer 8.00% 2014 (5) (9) 1,060 819 8.875% 2024 1,375 918 12.25% 2030 425 367 11.00% 2040 915 707 .03 State of Qatar 9.75% 2030 (3) 2,750 3,149 .03 Chile (Republic of) 7.125% 2012 3,000 3,061 .02 Dominican Republic 9.50% 2006 (3) 2,135 2,183 .02 Argentina (Republic of): Series E, 0% 2003 1,000 553 7.00%/15.50% 2008 (1) (9) 3,370 918 12.25% 2018 (5) (9) 968 235 12.00% 2031 (5) (9) 1,776 395 .02 Ukraine Government 11.00% 2007 (9) 1,880 1,796 .02 New Zealand Government 4.50% 2016 (6) (10) NZ$ 3,326 1,361 .01 Guatemala (Republic of) 10.25% 2011 (3) $ 1,000 1,058 .01 Turkey (Republic of): 12.375% 2009 500 506 11.875% 2030 500 484 .01 Philippines (Republic of): 9.875% 2019 500 477 10.625% 2025 470 462 .01 Peru (Republic of): (6) (9) Past Due Interest Eurobond 4.50% 2017 875 674 Front-Loaded Interest Reduction Eurobond 4.00% 2017 100 71 .01 Venezuela (Republic of) Eurobond 2.875% 2007 (6) (9) 714 520 .00 555,352 4.64 NON-U.S. AGENCY BONDS - 0.15% KfW International Finance Inc. 5.00% 2011 Euro 20,700 18,213 .15 DEVELOPMENT AUTHORITIES - 0.05% International Bank for Reconstruction & Development, $ 40,000 6,280 .05 Series MTN, 0% 2031 TAXABLE MUNICIPAL OBLIGATIONS - 0.13% California Maritime Infrastructure Authority, Taxable 8,137 8,305 .07 Lease Revenue Bonds (San Diego Unified Port District- South Bay Plant Acquisition), Series 1999, 6.63% 2009 (3) (9) Chugach Electric Association, Inc., 2001 Series A, 7,500 7,555 .06 15,860 .13 Shares Market Percent Value of Net Equity Related Securities (000) Assets Stocks & Warrants - 0.20% (2) Nextel Communications, Inc., Class A (3) 1,455,283 15,950 .13 Price Communications Corp. 216,953 4,142 .03 Wilshire Financial Services Group, Inc. (11) 1,601,967 3,284 .03 Clarent Hospital Corp. (8) (11) 354,301 886 .01 Protection One Alarm Monitoring, Inc., 54,400 19 .00 warrants, expire 2005 (3) (8) Viatel, Inc. 32,363 1 .00 McCaw International, Ltd., warrants, 30,500 - - expire 2007 (3) (8) NTL Inc., warrants, expire 2008 (3) (8) 26,362 - - 24,282 .20 TOTAL BONDS, NOTES & EQUITY SECURITIES 10,958,792 91.64 (cost: $11,424,100,000) Principal Market Percent Amount Value of Net Short-Term Securities (000) (000) Assets Corporate Short-Term Notes - 5.69% Procter & Gamble Co.: (3) 1.98% due 1/22/2002 25,400 25,369 2.00% due 1/23/2002 25,000 24,968 1.78% due 3/19/2002 25,000 24,905 .63 Park Avenue Receivables Corp.: (3) 1.86% due 1/15/2002 50,000 49,961 2.12% due 1/28/2002 25,000 24,959 .63 General Electric Capital Corp.: 1.82% due 1/2/2002 29,760 29,757 2.04% due 1/4/2002 42,000 41,991 .60 SBC Communications Inc.: (3) 1.80% due 1/30/2002 13,000 12,980 1.865% due 2/14/2002 50,000 49,883 .52 Ciesco L.P.: 1.78% due 1/11/2002 30,000 29,984 1.98% due 1/15/2002 14,000 13,988 1.78% due 2/5/2002 10,000 9,982 .45 Emerson Electric Co. 1.82% due 1/18/2002 (3) 47,000 46,957 .39 Corporate Asset Funding Co. Inc.: (3) 2.33% due 1/17/2002 15,000 14,983 1.72% due 3/13/2002 30,000 29,893 .38 BellSouth Corp.: (3) 1.80% due 1/11/2002 26,000 25,986 2.00% due 1/18/2002 18,800 18,781 .37 Triple-A One Funding Corp.: (3) 1.94% due 1/14/2002 31,558 31,534 1.86% due 2/8/2002 8,900 8,882 .34 Wells Fargo & Co. 1.79% due 3/12/2002 35,500 35,375 .30 FCAR Owner Trust I 1.93% due 1/24/2002 31,800 31,759 .26 American Express Credit Corp. 2.00% due 1/8/2002 30,000 29,987 .25 Texaco Inc. 1.88% due 2/7/2002 23,800 23,753 .20 Estee Lauder Companies Inc. 2.25% due 1/16/2002 (3) 20,000 19,980 .17 Tribune Co. 2.07% due 1/29/2002 (3) 14,600 14,576 .12 American General Corp. 1.99% due 1/16/2002 9,600 9,592 .08 680,765 5.69 Federal Agency Discount Notes - 1.50% Freddie Mac: 2.02% due 1/2/2002 16,900 16,898 2.195% due 1/24/2002 13,800 13,780 2.19% due 1/30/2002 25,600 25,553 1.74% due 3/21/2002 23,000 22,911 .66 Federal Home Loan Banks 2.05% due 1/4/2002 50,000 49,989 .42 Fannie Mae 1.73% due 3/21/2002 50,000 49,807 .42 178,938 1.50 TOTAL SHORT-TERM SECURITIES (cost: $859,705,000) 859,703 7.19 TOTAL INVESTMENT SECURITIES (cost: $12,283,805,000) 11,818,495 98.83 Excess of cash and receivables over payables 139,402 1.17 NET ASSETS $11,957,897 100.00 (1) Step bond; coupon rate will increase at a later date. (2) Non-income-producing security. (3) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to public may require registration. (4) Company not making interest payments; bankruptcy proceedings pending. (5) Payment in kind; the issuer has the option of paying additional securities in lieu of cash. (6) Coupon rate may change periodically. (7) Purchased as a unit; issue was separated but reattached for reporting purposes. (8) Valued under procedures established by the Board of Directors. (9) Pass-through securities backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturities are shorter than the stated maturities. (10) Index-linked bond whose principal amount moves with a government retail price index. (11) The fund owns 7.90% and 5.80% of the outstanding voting securities of Wilshire Financial Services and Clarent Hospital Corp., respectively, and thus are considered an affiliate as defined in the Investment Company Act of 1940. See Notes to Financial Statements
Bond Fund of America Financial statements Statement of assets and liabilities at December 31, 2001 (dollars in thousands) Assets: Investment securities at market (cost: $12,283,805) $11,818,495 Cash 16,148 Receivables for - Sales of investments $18,206 Sales of fund's shares 44,119 Forward currency contracts - net 3,146 Dividends and interest 172,309 Other 121 237,901 12,072,544 Liabilities: Payables for - Purchases of investments 63,943 Repurchases of fund's shares 43,128 Forward currency contracts - net 907 Management services 3,252 Other expenses 3,417 114,647 Net assets at December 31, 2001 $11,957,897 Total authorized capital stock - 2,500,000,000 shares, $.001 par value Class A shares: Net assets $11,222,884 Shares outstanding 877,223,090 Net asset value per share $12.79 Class B shares: Net assets $470,654 Shares outstanding 36,787,590 Net asset value per share $12.79 Class C shares: Net assets $187,921 Shares outstanding 14,688,430 Net asset value per share $12.79 Class F shares: Net assets $76,438 Shares outstanding 5,974,640 Net asset value per share $12.79 See Notes to Financial Statements Statement of operations for the year ended December 31, 2001 (dollars in thousands) Investment income: Income: Interest $833,519 Dividends 14,098 $847,617 Expenses: Management services fee 34,818 Distribution expenses - Class A 26,032 Distribution expenses - Class B 2,584 Distribution expenses - Class C 637 Distribution expenses - Class F 70 Transfer agent fee - Class A 10,892 Transfer agent fee - Class B 291 Administrative services fees - Class C 147 Administrative services fees - Class F 58 Reports to shareholders 410 Registration statement and prospectus 612 Postage, stationery and supplies 1,280 Directors' fees 69 Auditing and legal fees 81 Custodian fee 526 Taxes other than federal income tax 121 Other expenses 20 78,648 Net investment income 768,969 Realized loss and unrealized appreciation on investments: Net realized loss (125,097) Net unrealized appreciation on: Investments 61,868 Open forward currency contracts 4,423 Net unrealized appreciation 66,291 Net realized loss and unrealized appreciation on investments (58,806) Net increase in net assets resulting from operations $710,163 See Notes to Financial Statements Statement of changes in net assets (dollars in thousands) Year ended December 31 2001 2000 Operations: Net investment income $768,969 $678,652 Net realized loss on investments (125,097) (72,414) Net unrealized appreciation (depreciation) on investments 66,291 (50,346) Net increase in net assets resulting from operations 710,163 555,892 Dividends paid to shareholders: Dividends from net investment income: Class A (718,108) (688,050) Class B (15,528) (2,035) Class C (3,716) - Class F (1,846) - Total dividends (739,198) (690,085) Capital share transactions: Proceeds from shares sold 4,575,179 2,190,967 Proceeds from shares issued in reinvestment of net investment income dividends 598,345 550,406 Cost of shares repurchased (2,641,046) (2,630,060) Net increase in net assets resulting from capital share transactions 2,532,478 111,313 Total increase (decrease) in net assets 2,503,443 (22,880) Net assets: Beginning of year 9,454,454 9,477,334 End of year (including distributions in excess of net investment income: $(7,454) and $(7,328), respectively) $11,957,897 $9,454,454 See notes to financial statements
Notes to financial statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The Bond Fund of America, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks as high a level of current income as is consistent with preservation of capital through a diversified portfolio of bonds and other fixed-income obligations. The fund offers four classes of shares as described below: Class A shares are sold with an initial sales charge of up to 3.75%. Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales charge ("CDSC") paid upon redemption. This charge declines from 5% to zero over a period of six years. Class B shares automatically convert to Class A shares after eight years. Class C shares are sold without an initial sales charge but are subject to a CDSC of 1% for redemptions within one year of purchase. Class C shares automatically convert to Class F shares after ten years. Class F shares, which are sold exclusively through fee-based programs, are sold without an initial sales charge or CDSC. Holders of all classes of shares have equal pro rata rights to assets, dividends, liquidation and other rights. Each class has identical voting rights, except for exclusive rights to vote on matters affecting only its class. Each class of shares may have different distribution, administrative services and transfer agent fees and expenses. Differences in class-specific expenses will result in the payment of different per-share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the fund in the preparation of its financial statements: SECURITY VALUATION - Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the investment adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost, which approximates market value. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Forward currency contracts are valued at the mean of their representative quoted bid and asked prices. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith by a committee appointed by the fund's Board of Directors. NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in terms of non-U.S. currencies are translated into U.S. dollars at the prevailing market rates at the end of the reporting period. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are combined with the net realized and unrealized gain or loss on investment securities for financial reporting purposes. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for as of the trade date. Realized gains and losses from securities transactions are determined based on specific identified cost. In the event securities are purchased on a delayed delivery or when-issued basis, the fund will instruct the custodian to segregate liquid assets sufficient to meet its payment obligations in these transactions. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are declared daily after the determination of the fund's net investment income and are paid to shareholders monthly. Distributions paid to shareholders are recorded on the ex-dividend date. Forward currency contracts - The fund may enter into forward currency contracts, which represent agreements to exchange currencies of different countries at specified future dates at specified rates. The fund enters into these contracts to manage its exposure to fluctuations in foreign exchange rates arising from investments denominated in non-U.S. currencies. The fund's use of forward currency contracts involves market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contracts are recorded in the Statement of Assets and Liabilities at their net unrealized value. The fund records realized gains or losses at the time the forward contract is closed or offset by a matching contract. The face or contract amount in U.S. dollars reflects the total exposure the fund has in that particular contract. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from possible movements in non-U.S. exchange rates and securities' values underlying these instruments. Purchases and sales of forward currency exchange contracts having the same settlement date and broker are offset and presented net in the Statement of Assets and Liabilities. CLASS ALLOCATIONS - Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net asset values. Distribution expenses, administrative services fees, certain transfer agent fees and other applicable class-specific expenses are accrued daily and charged to the respective share class. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain countries involve special investment risks. These risks may include, but are not limited to, investment and repatriation restrictions, revaluation of currencies, adverse political, social and economic developments, government involvement in the private sector, limited and less reliable investor information, lack of liquidity, certain local tax law considerations, and limited regulation of the securities markets. TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid. For the year ended December 31, 2001, non-U.S. taxes paid were $2,000. CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends, interest, sales of non-U.S. bonds and notes, forward contracts, and other receivables and payables, on a book basis, were $36,385,000 for the year December 31, 2001. 3. FEDERAL INCOME TAXATION The fund complies with the requirements of the Internal Revenue Code applicable to regulated investment companies and intends to distribute all of its net taxable income and net capital gains for the fiscal year. As a regulated investment company, the fund is not subject to income taxes if such distributions are made. Required distributions are based on net investment income and net realized gains determined on a tax basis and may differ from such amounts for financial reporting purposes. In addition, the year in which amounts are distributed may differ from the year in which the net investment income is earned and the net gains are realized by the fund. As of December 31, 2001, the cost of investment securities, excluding forward currency contracts, for federal income tax reporting purposes was $12,290,666,000. Net unrealized depreciation on investments, excluding forward currency contracts, aggregated $472,171,000; $265,704,000 related to appreciated securities and $737,875,000 related to depreciated securities. For the year ended December 31, 2001, the fund realized tax basis net capital losses of $141,597,000, which includes $51,238,000 of net capital losses realized during the period November 1, 2000 through December 31, 2000. The fund had available at December 31, 2001, a net capital loss carryforward totaling $208,555,000 which may be used to offset capital gains realized during subsequent years through 2009 and thereby relieve the fund and its shareholders of any federal income tax liability with respect to the capital gains that are so offset. The fund will not make distributions from capital gains while a capital loss carryforward remains. In addition, the fund has deferred, for tax purposes, net capital losses totaling $5,246,000 which were realized during the period November 1, 2001 through December 31, 2001. Net losses related to non-U.S. currency transactions of $43,789,000 (including $19,628,000 which were realized during the period November 1, 2000 through December 1, 2000) were treated as an adjustment to ordinary income for federal income tax purposes. 4. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $34,818,000 for management services was incurred pursuant to an agreement with Capital Research and Management Company ("CRMC") with which officers and certain Directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees accrued daily, based on a series of rates beginning with 0.30% per annum of the first $60 million of daily net assets decreasing to 0.14% of such assets in excess of $10 billion. The agreement also provides for monthly fees, accrued daily, of 2.25% on the first $8,333,333 of the fund's monthly gross investment income and 2.00% of such income in excess of $8,333,333. For the year ended December 31, 2001, the management services fee was equivalent to an annualized rate of 0.323% of average daily net assets. DISTRIBUTION EXPENSES - The fund has adopted plans of distribution under which it may finance activities primarily intended to sell fund shares, provided the categories of expenses are approved in advance by the fund's Board of Directors. The plans provide for annual expenses, based on average daily net assets, of up to 0.25% for Class A shares, 1.00% for Class B and Class C shares, and up to 0.50% for Class F shares. All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate American Funds Distributors, Inc. ("AFD"), the principal underwriter of the fund's shares, for paying service fees to firms that have entered into agreements with AFD for providing certain shareholder services. The balance may be used for approved distribution expenses as follows: CLASS A SHARES - Approved categories of expense include reimbursements to AFD for commissions paid to dealers and wholesalers in respect of certain shares sold without a sales charge. Those reimbursements are permitted for amounts billed to the fund within the prior 15 months but only to the extent that the overall 0.25% annual expense limit for Class A shares is not exceeded. For the year ended December 31, 2001, aggregate distribution expenses were limited to $26,032,000, equivalent to an annualized rate of 0.25% of average daily net assets attributable to Class A shares. As of December 31, 2001, unreimbursed expenses which remain subject to reimbursement totaled $10,953,000. CLASS B SHARES - In addition to service fees of 0.25%, approved categories of expense include fees of 0.75% per annum of average daily net assets attributable to Class B shares payable to AFD. AFD sells the rights to receive such payments (as well as any contingent deferred sales charges payable in respect of shares sold during the period) in order to finance the payment of dealer commissions. For the year ended December 31, 2001, aggregate distribution expenses were $2,584,000, equivalent to an annualized rate of 1.00% of average daily net assets attributable to Class B shares. CLASS C SHARES - In addition to service fees of 0.25%, the Board of Directors has approved the payment of 0.75% per annum of average daily net assets attributable to Class C shares to AFD to compensate firms selling Class C shares of the fund. For the period ended December 31, 2001, aggregate distribution expenses were $637,000, equivalent to an annualized rate of 1.00% of average daily net assets attributable to Class C shares. CLASS F SHARES - The plan has an expense limit of 0.50%. However, the Board of Directors has presently approved expenses under the plan of 0.25% per annum of average daily net assets attributable to Class F shares. For the period ended December 31, 2001, aggregate distribution expenses were $70,000, equivalent to an annualized rate of 0.25% of average daily net assets attributable to Class F shares. As of December 31, 2001, aggregate distribution expenses payable to AFD were $2,319,000. AFD received $7,881,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's Class A shares for the year ended December 31, 2001. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying Statement of Operations. TRANSFER AGENT FEE - A fee of $11,183,000 was incurred during the year ended December 31, 2001, pursuant to an agreement with American Funds Service Company ("AFS"), the transfer agent for the fund. As of December 31, 2001, aggregate transfer agent fees payable to AFS for Class A and Class B shares were $790,000. ADMINISTRATIVE SERVICES FEES - The fund has an administrative services agreement with CRMC for Class C and Class F shares. Pursuant to this agreement, CRMC provides transfer agency and other related shareholder services. CRMC may contract with third parties to perform these services. Under the agreement, the fund pays CRMC a fee equal to 0.15% per annum of average daily net assets of Class C and Class F shares, plus amounts payable for certain transfer agency services according to a specified schedule. For the period ended December 31, 2001, total fees under the agreement were $205,000. As of December 31, 2001, aggregate administrative services fees payable to CRMC for Class C and Class F shares were $35,000. DEFERRED DIRECTORS'FEES - Since the adoption of the deferred compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to defer the receipt of part or all of their compensation. Deferred compensation amounts, which remain in the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. As of December 31, 2001, the cumulative amount of these liabilities was $176,000. Directors' fees on the Statement of Operations include the current fees (either paid in cash or deferred) and the net increase or decrease in the value of deferred compensation. AFFILIATED OFFICERS AND DIRECTORS - CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Officers and certain Directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No such persons received any remuneration directly from the fund. 5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $8,510,478,000 and $6,379,620,000, respectively, during the year ended December 31, 2001. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. For the year ended December 31, 2001, the custodian fee of $526,000 includes $247,000 that was paid by these credits rather than in cash. For the year ended December 31, 2001, the fund reclassified $29,018,000 to undistributed net realized gains and $880,000 to additional paid-in capital from undistributed net investment income. As of December 31, 2001, net assets consisted of the following: (dollars in thousands) Capital paid in on shares of capital stock $12,646,960 Distributions in excess of net investment income (7,454) Accumulated net realized loss (215,919) Net unrealized depreciation (465,690) Net assets $11,957,897
Capital share transactions in the fund were as follows: Year ended December 31, 2001 Year ended December 31, 2000 Amount (000) Shares Amount (000) Shares Class A Shares: Sold $3,848,566 297,308,857 $2,100,818 164,508,807 Reinvestment of dividends 582,309 45,082,058 548,746 43,009,488 Repurchased (2,551,817) (197,331,185) (2,626,235) (205,443,815) Net increase in Class A 1,879,058 145,059,730 23,329 2,074,480 Class B Shares: (1) Sold 409,659 31,665,721 90,149 7,089,300 Reinvestment of dividends 11,772 912,927 1,660 130,466 Repurchased (35,003) (2,710,048) (3,825) (300,776) Net increase in Class B 386,428 29,868,600 87,984 6,918,990 Class C Shares: (2) Sold 218,877 16,942,621 - - Reinvestment of dividends 2,915 226,549 - - Repurchased (32,026) (2,480,740) - - Net increase in Class C 189,766 14,688,430 - - Class F Shares: (2) Sold 98,077 7,588,450 - - Reinvestment of dividends 1,349 104,825 - - Repurchased (22,200) (1,718,635) - - Net increase in Class F 77,226 5,974,640 - - Total net increase in fund $2,532,478 195,591,400 $ 111,313 8,993,470 (1) Class B shares were not offered before March 15, 2000. (2) Class C and Class F shares were not offered before March 15, 2001.
At December 31, 2001, the fund had outstanding forward currency contracts to sell non-U.S. currencies as follows: U.S. Valuations Contract Amount at 12/31/2001 Non-U.S. Unrealized Currency (Depreciation) Contracts Non-U.S. U.S. Amount Appreciation (000) (000) (000) (000) Sales: British Pounds expiring 1/24 to 3/19/2002 Pounds 15,552 $ 22,125 $ 22,533 $(408) Euros expiring 1/2 to 3/19/2002 Euro 74,444 65,859 66,170 (311) Japanese Yen expiring 1/4 to 3/14/2002 Yen 1,106,574 8,789 8,446 343 $ 96,773 $ 97,149 $(376)
Per-share data and ratios Class A Year ended December 31 2001 2000 1999 Net asset value, beginning of year $12.79 $12.98 $13.61 Income from investment operations: Net investment income .93 (1) .94 (1) .93 Net (losses) gains on securities (.03) (1) (.17) (1) (.63) (both realized and unrealized) Total from investment operations .90 .77 .30 Less distributions: Dividends (from net investment income) (.90) (.96) (.93) Distributions (from capital gains) - - - Total distributions (.90) (.96) (.93) Net asset value, end of year $12.79 $12.79 $12.98 Total return (2) 7.15% 6.19% 2.29% Ratios/supplemental data: Net assets, end of year (in millions) $11,223 $9,366 $9,477 Ratio of expenses to average net assets .71% .72% .69% Ratio of net income to average net assets 7.17% 7.35% 6.96% 1998 1997 Net asset value, beginning of year $14.00 $13.75 Income from investment operations: Net investment income .94 .98 Net (losses) gains on securities (.24) .25 (both realized and unrealized) Total from investment operations .70 1.23 Less distributions: Dividends (from net investment income) (.95) (.98) Distributions (from capital gains) (.14) - Total distributions (1.09) (.98) Net asset value, end of year $13.61 $14.00 Total return (2) 5.17% 9.24% Ratios/supplemental data: Net assets, end of year (in millions) $9,541 $8,176 Ratio of expenses to average net assets .66% .68% Ratio of net income to average net assets 6.94% 6.95% Class B Year ended March 15 to December 31, December 31, 2001 2000 (3) Net asset value, beginning of period $12.79 $12.92 Income from investment operations: (1) Net investment income .83 .62 Net losses on securities (.03) (.08) (both realized and unrealized) Total from investment operations .80 .54 Less distributions: Dividends (from net investment income) (.80) (.67) Net asset value, end of period $12.79 $12.79 Total return (2) 6.37% 4.33% Ratios/supplemental data: Net assets, end of period (in millions) $471 $88 Ratio of expenses to average net assets 1.45% 1.42% (4) Ratio of net income to average net assets 6.30% 6.65% (4) Class C Class F March 15 to March 15 to December 31, December 31, 2001 (3) 2001 (3) Net asset value, beginning of period $13.05 $13.05 Income from investment operations: (1) Net investment income .63 .70 Net losses on securities (.27) (.27) (both realized and unrealized) Total from investment operations .36 .43 Less distributions: Dividends (from net investment income) (.62) (.69) Net asset value, end of period $12.79 $12.79 Total return (2) 2.83% 3.35% Ratios/supplemental data: Net assets, end of period (in millions) $188 $76 Ratio of expenses to average net assets 1.57% .79% (4) Ratio of net income to average net assets 6.25% 7.03% (4) Supplemental data - all classes Year ended December 31 2001 2000 1999 Portfolio turnover rate 64.28% 62.07% 46.71% 1998 1997 Portfolio turnover rate 66.25% 51.96% 1) Based on average shares outstanding. 2) Total returns exclude all sales charges, including contingent deferred sales charges. 3) Based on operations for the period shown and, accordingly, not representative of a full year (unless otherwise noted). 4) Annualized.
Independent Auditors' Report To the Board of Directors and Shareholders of The Bond Fund of America, Inc. We have audited the accompanying statement of assets and liabilities of The Bond Fund of America, Inc. (the "Fund"), including the investment portfolio, as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the per-share data and ratios for each of the five years in the period then ended for Class A shares, and the period March 15, 2000 through December 31, 2000 and the year ended December 31, 2001 for Class B shares, and the period March 15, 2001 through December 31, 2001 for Class C and Class F shares. These financial statements and per-share data and ratios are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and per-share data and ratios based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and per-share data and ratios are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and per-share data and ratios referred to above present fairly, in all material respects, the financial position of The Bond Fund of America, Inc. as of December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the per-share data and ratios for each of the five years in the period then ended for Class A shares, and the period March 15, 2000 through December 31, 2000 and the year ended December 31, 2001 for Class B shares, and the period March 15, 2001 through December 31, 2001 for Class C and Class F shares, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Los Angeles, California February 6, 2002 Tax Information (unaudited) We are required to advise you within 60 days of the fund's fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. Corporate shareholders may exclude up to 70% of qualifying dividends received during the year. For purposes of computing this exclusion, 1% of the dividends paid by the fund from net investment income represent qualifying dividends. Certain states may exempt from income taxation that portion of the dividends paid from net investment income that was derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 8% of the dividends paid by the fund from net investment income were derived from interest on direct U.S. Treasury obligations. Dividends and distributions received by retirement plans such as IRAs, Keogh-type plans and 403(b) plans need not be reported as taxable income. However, many retirement plan trusts may need this information for their annual information reporting. SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WAS MAILED IN JANUARY 2002 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 2001 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.