<PAGE>
PROSPECTUS
THE BOND FUND
OF AMERICA(SM)
AN OPPORTUNITY FOR CURRENT INCOME
AND PRESERVATION OF CAPITAL THROUGH
A DIVERSIFIED PORTFOLIO OF BONDS
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
March 1, 1995
THE BOND FUND OF AMERICA, INC.
333 South Hope Street
Los Angeles, CA 90071
The fund seeks to provide as high a level of current income as is consistent
with the preservation of capital by investing primarily in bonds.
This prospectus presents information you should know before investing in the
funds. It should be retained for future reference.
You may obtain the statement of additional information dated March 1, 1995,
which contains the fund's financial statements, without charge, by writing to
the Secretary of the fund at the above address or telephoning 800/421-0180.
These requests will be honored within three business days of receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED,
OR ENDORSED BY, THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON.
THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
08-010-0395
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses.................. 3
Financial Highlights................. 4
Investment Objective and Policies.... 4
Certain Securities and Investment
Techniques.......................... 6
Investment Results................... 10
Dividends, Distributions and Taxes... 10
Fund Organization and Management..... 11
The American Funds Shareholder Guide. 14-22
Purchasing Shares................... 14
Reducing Your Sales Charge.......... 17
Shareholder Services................ 18
Redeeming Shares.................... 20
Retirement Plans.................... 22
</TABLE>
IMPORTANT PHONE NUMBERS
Shareholder Services........800/421-0180 ext. 1
Dealer Services.............800/421-9900 ext. 11
American FundsLine(R).......800/325-3590
(24-hour information)
2
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SUMMARY
OF EXPENSES
Average annual
expenses paid over a
10-year period would
be approximately
$13 per year,
assuming a $1,000
investment and a 5%
annual return.
This table is designed to help you understand costs of
investing in the fund. These are historical expenses;
your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price)............... 4.75%/1/
</TABLE>
The fund has no sales charge on reinvested dividends,
deferred sales charge,/2/ redemption fees or exchange
fees.
ANNUAL FUND OPERATING EXPENSES (as a percentage of
average net assets)
<TABLE>
<S> <C>
Management fees.................................... 0.37%
12b-1 expenses..................................... 0.22%/3/
Other expenses (including audit, legal, shareholder
services, transfer agent and custodian expenses).. 0.10%
Total fund operating expenses...................... 0.69%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
cumulative expenses on a $1,000
investment, assuming a 5% annual
return./4/ $54 $69 $84 $129
</TABLE>
/1/ Sales charges are reduced for certain large
purchases. (See "The American Funds Shareholder
Guide: Purchasing Shares--Sales Charges.")
/2/ Any defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees or
any other purchaser investing at least $1 million in
shares of the fund (or in combination with shares of
other funds in The American Funds Group other than
the money market funds) may purchase shares at net
asset value; however, a contingent deferred sales
charge of 1% applies on certain redemptions within 12
months following such purchases. (See "The American
Funds Shareholder Guide: Redeeming Shares--Contingent
Deferred Sales Charge.")
/3/ These expenses may not exceed 0.25% of the fund's
average net assets annually. (See "Fund Organization
and Management--Plan of Distribution.") Due to these
distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum
front-end sales charge permitted by the National
Association of Securities Dealers.
/4/ Use of this assumed 5% return is required by the
Securities and Exchange Commission; it is not an
illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
3
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FINANCIAL The following information has been audited by Deloitte
HIGHLIGHTS & Touche LLP, independent accountants, whose unquali-
(For a share fied report covering each of the most recent five years
outstanding is included in the statement of additional information.
throughout the This information should be read in conjunction with the
fiscal year) financial statements and accompanying notes which are
included in the statement of additional information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $14.45 $13.99 $13.70 $12.39 $13.23 $13.24 $13.14 $14.21 $14.01 $12.34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.05 1.09 1.15 1.21 1.24 1.31 1.28 1.28 1.38 1.44
Net realized and
unrealized gain (loss)
on investments........ (1.76) .84 .34 1.28 (.84) (.02) .08 (1.02) .66 1.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations........... (0.71) 1.93 1.49 2.49 .40 1.29 1.36 .26 2.04 3.11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net in-
vestment income....... (1.05) (1.08) (1.16) (1.18) (1.24) (1.30) (1.26) (1.23) (1.44) (1.44)
Distributions from net
realized gains........ -- (.39) (.04) -- -- -- -- (.10)/1/ (.40) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions... (1.05) ( 1.47) (1.20) (1.18) (1.24) (1.30) (1.26) (1.33) (1.84) (1.44)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Year................... $12.69 $14.45 $13.99 $13.70 $12.39 $13.23 $13.24 $13.14 $14.21 $14.01
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/ (5.02)% 14.14% 11.34% 21.04% 3.27% 10.13% 10.70% 1.96% 15.17% 26.61%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions)......... $4,941 $5,285 $3,917 $2,859 $1,945 $1,481 $1,021 $ 825 $ 694 $ 451
Ratio of expenses to
average net assets.... .69% .71% .73% .77% .76% .76% .66% .59% .58% .61%
Ratio of net income to
average net assets.... 7.77% 7.53% 8.36% 9.28% 9.70% 9.73% 9.54% 9.45% 9.39% 10.80%
Portfolio turnover
rate.................. 57.0% 44.7% 49.7% 56.5% 59.9% 64.2% 93.0% 93.0% 107.8% 142.3%
</TABLE>
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/1/ Represents only net short-term realized gains.
/2/ This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
INVESTMENT The fund's investment objective is to provide as high a
OBJECTIVE level of current income as is consistent with the pres-
AND POLICIES ervation of capital. The fund invests substantially all
of its assets in marketable corporate debt securities,
The fund's goal is U.S. Government securities, mortgage-related securi-
to provide you ties, other asset-backed securities and cash or money
with high current market instruments. Normally, at least 65% of the
incomeand fund's assets will be invested in bonds. (For this pur-
conservationof pose, bonds are considered any debt securities having
capital. initial maturities in excess of one year.)
At least 60% of the value of the fund's assets, mea-
sured at the time of any purchase, must be invested in
the following categories:
. marketable corporate debt securities such as bonds
rated at the time of purchase within the three
highest investment grade ratings (A or better)
assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation (all ratings discussed
below refer to those assigned by these two rating
agencies) or, if not rated by either of these rating
agencies, determined by the fund's investment
adviser, Capital Research and Management Company, as
being of investment quality equivalent to securities
rated A or better;
4
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. U.S. Government securities including (1) direct
obligations of the U.S. Treasury (such as Treasury
bills, notes and bonds), (2) obligations guaranteed
as to principal and interest by the U.S. Treasury
such as Government National Mortgage Association
certificates (described below) and Federal Housing
Administration debentures, and (3) securities issued
by U.S. Government instrumentalities and certain
federal agencies that are neither direct obligations
of, nor guaranteed by, the Treasury;
. mortgage-related securities rated A or better or
unrated securities that are determined to be of
equivalent quality of (1) governmental issuers,
including Government National Mortgage Association
certificates, which are securities representing part
ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by
the U.S. Government, and securities issued and
guaranteed as to the payment of interest and
principal by the Federal National Mortgage
Association or the Federal Home Loan Mortgage
Corporation (but not backed by the U.S. Government);
(2) private issuers, including mortgage pass-through
certificates or mortgage-backed bonds; and (3) the
governmental issuers mentioned above or private
issuers, including collateralized mortgage
obligations and real estate mortgage investment
conduits which 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 prepayment of the
underlying mortgages which will substantially reduce
or eliminate interest payments (see the statement of
additional information for more about these
securities);
. other asset-backed securities rated A or better or
unrated securities that are determined to be of
equivalent quality (unrelated to mortgage loans) such
as securities whose assets consist of a pool of motor
vehicle retail installment sales contracts and
security interests in the vehicles securing the
contracts or a pool of credit card loan receivables
(see the statement of additional information for more
about these securities);
. cash or money market instruments, including commercial
bank obligations (certificates of deposit, which are
interest-bearing time deposits; bankers acceptances,
which are time drafts on a commercial bank where the
bank accepts an irrevocable obligation to pay at
maturity; and demand or time deposits), and commercial
paper (short-term notes with maturities of up to nine
months issued by corporations or government bodies).
The remaining 40% of the fund's assets, measured at the
time of purchase, may be invested in debt securities
rated below A or unrated securities that are determined
to be of equivalent quality, including marketable cor-
porate debt securities, mortgage-related securities and
other asset-backed securities. These securities may be
rated as low as Ca by Moody's or CC by S&P.
5
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However, securities rated Ba or BB or below or unrated
securities that are determined to be of equivalent
quality (commonly known as "junk" or "high-yield, high-
risk" bonds) will represent less than 35% of the fund's
net assets and are subject to special review before
purchase.
The fund may from time to time invest in fixed-income
securities of corporations outside the U.S. or govern-
mental entities, and the fund may purchase or sell var-
ious currencies on either a spot or forward basis in
connection with these investments.
The average monthly composition of the fund's portfolio
based on the higher of the Moody's or S&P ratings for
the fiscal year ended December 31, 1994 was as fol-
lows: bonds--Aaa/AAA-41.04%; Aa/AA-3.78%; A/A-6.61%;
Baa/BBB-13.46%; Ba/BB-9.34%; B/B-11.3%, and Caa/CCC-
0.8%. Other investments, including non-rated invest-
ments, equity-type securities and cash or cash equiva-
lents amounted to 2.35%, 2.24% and 9.08%, respectively.
The fund's investment restrictions (which are described
in the statement of additional information) and objec-
tive cannot be changed without shareholder approval.
All other investment practices may be changed by the
fund's board.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES.
CERTAIN SECURITIES RISKS OF INVESTING IN BONDS The market values of fixed-
AND INVESTMENT income securities generally vary inversely with the
TECHNIQUES level of interest rates--when interest rates rise,
their values will tend to decline and vice versa. The
Investing in bonds magnitude of these changes generally will be greater
involves certain the longer the remaining maturity of the security.
risks. Fluctuations in the value of the fund's investments
will be reflected in its net asset value per share;
typically declining when interest rates rise.
High-yield, high-risk bonds (bonds rated Ba or BB or
below) may be subject to greater market fluctuations
and to greater risk of loss of income and principal due
to default by the issuer than are higher-rated bonds.
Their values tend to reflect short-term corporate, eco-
nomic and market developments and investor perceptions
of the issuer's credit quality to a greater extent than
lower yielding higher-rated bonds. In addition, it may
be more difficult to dispose of, or to determine the
value of, high-yield, high-risk bonds. Bonds rated Ba
or BB are considered speculative. Bonds rated Ca or CC
are described by the ratings agencies as "speculative
in a high degree; often in default or [having] other
marked shortcomings." See the statement of additional
information for a complete description of the bond rat-
ings.
Capital Research and Management Company attempts to re-
duce 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 cor-
porate and legislative developments.
6
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RISKS OF INVESTING IN VARIOUS COUNTRIES The fund may
invest in securities of issuers located outside the
United States which may be denominated in currencies
other than the U.S. dollar. Companies located outside
the U.S. operate under different accounting, auditing
and financial reporting standards and practices and
regulatory requirements that may be less rigorous than
U.S. companies. There may be less information publicly
available about companies located outside the U.S. Ad-
ditionally, specific local political and economic fac-
tors must be evaluated in making these investments in-
cluding trade balances and imbalances; and related eco-
nomic policies; expropriation or confiscatory taxation;
limitations on the removal of funds or other assets;
political or social instability; the diverse structure
and liquidity of the various securities markets; and
nationalization policies of governments around the
world. Additional costs could be incurred in connection
with the fund's investment activities outside the U.S.
Increased custodian costs as well as administrative
difficulties (for example, delays in clearing and set-
tling portfolio transactions) may be associated with
the maintenance of assets in certain jurisdictions. The
fund may invest to a limited extent in countries that
are considered developing countries, and, in those
cases the degree of risk described above may be great-
er. However, in the opinion of Capital Research and
Management Company, global investing also can reduce
certain of these risks through greater diversification
opportunities.
CURRENCY TRANSACTIONS The fund has the ability to hold
a portion of its assets in currencies other than the
U.S. dollar and to enter into spot or forward currency
contracts to facilitate transactions and/or to protect
against changes in currency exchange rates. Although
this strategy could minimize the risk of loss due to a
decline in the value of the hedged currency, it could
also limit any potential gain which might result from
an increase in the value of the currency. (See "Cur-
rency Transactions," in the statement of additional in-
formation.)
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND
"ROLL" TRANSACTIONS The fund may purchase securities on
a delayed delivery or "when-issued" basis and enter
into firm commitment agreements (transactions whereby
the payment obligation and interest rate are fixed at
the time of the transaction but the settlement is de-
layed). The fund as purchaser assumes the risk of any
decline in value of the security beginning on the date
of the agreement or purchase. The fund also may enter
into "roll" transactions, which are the sale of GNMA
certificates or other securities together with a com-
mitment (for which the fund typically receives a fee)
to purchase similar, but not identical securities at a
later date. As the fund's aggregate commitments under
these transactions increase, the opportunity for lever-
age similarly may increase; however, it is not the in-
tent of the fund to engage in these transactions for
leveraging purposes.
The fund will segregate liquid assets such as cash,
U.S. Government securities or other appropriate high-
grade debt obligations in an amount sufficient to meet
its payment obligations in these transactions. Although
7
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these transactions will not be entered into for
leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its hold-
ings of cash and securities that do not fluctuate in
value (such as short-term money market instruments),
the fund temporarily will be in a leveraged position
(i.e., it will have an amount greater than its net as-
sets 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 neces-
sary to generate additional cash to meet its obliga-
tions thereunder.
REPURCHASE AGREEMENTS The fund may enter into repur-
chase agreements, under which it buys a security and
obtains a simultaneous commitment from the seller to
repurchase the security at a specified time and price.
The seller must maintain with the fund's custodian col-
lateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by Capi-
tal Research and Management Company. If the seller un-
der the repurchase agreement defaults, the fund may in-
cur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur dispo-
sition costs in connection with liquidating the collat-
eral. If bankruptcy proceedings are commenced with re-
spect to the seller, liquidation of the collateral by
the fund may be delayed or limited.
LOAN PARTICIPATIONS The fund may invest, subject to an
overall 10% limit on loans, in loan participations,
typically made by a syndicate of banks to U.S. and non-
U.S. corporate or governmental borrowers for a variety
of purposes. The underlying loans may be secured or
unsecured, and will vary in term and legal structure.
When purchasing such instruments the fund may assume
the credit risks associated with the original bank
lender as well as the credit risks associated with the
borrower. Investments in loan participations present
the possibility that the fund could be held liable as a
co-lender under emerging legal theories of lender lia-
bility. 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. Loan participations are generally
not rated by major rating agencies and may not be pro-
tected by the securities laws. Also, loan participa-
tions are generally considered to be illiquid.
PRIVATE PLACEMENTS Private placements may be either
purchased from another institutional investor that
originally acquired the securities in a private place-
ment or directly from the issuers of the securities.
Generally, securities acquired in private placements
are subject to contractual restrictions on resale and
may not be resold except pursuant to a registration
statement under the Securities Act of 1933 or in reli-
ance upon an exemption from the registration require-
ments under the Act, for example, private placements
sold pursuant to Rule 144A. Accordingly, any such obli-
gation will be deemed illiquid unless it has been spe-
cifically determined to be liquid under procedures
adopted by the fund's board of directors, and the fund
may incur certain additional costs in disposing of such
securities.
8
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In determining whether these securities are liquid,
factors such as the frequency and volume of trading and
the commitment of dealers to make markets will be con-
sidered. Additionally, the liquidity of any particular
security will depend on such factors as the availabil-
ity of "qualified" institutional investors and the ex-
tent of investor interest in the security, which can
change from time to time.
INVERSE FLOATING RATE NOTES The fund may invest to a
limited extent in inverse floating rate notes (a type
of derivative instrument). These notes have rates that
move in the opposite direction of prevailing interest
rates; thus, a change in prevailing interest rates will
often result in a greater change in the instruments'
interest rates. As a result, these instruments may have
a greater degree of volatility than other types of in-
terest-bearing securities.
MATURITY The maturity composition of the fund's portfo-
lio of fixed-income securities will be adjusted in re-
sponse to market conditions and expectations. There are
no restrictions on the maturity composition of the
portfolio, although it is anticipated that the fund
normally will be invested substantially in intermedi-
ate-term (3 to 10 years to maturity) and long-term
(over 10 years to maturity) securities.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values at
reasonable prices, using a system of multiple portfolio
counselors in managing mutual fund assets. Under this
system the portfolios of the managed funds are divided
into segments which are usually managed by individual
counselors. Each counselor decides how the segment will
be invested (within the limits provided by the fund's
objective and policies and by Capital Research and
Management Company's investment committee). In
addition, Capital Research and Management Company's
research professionals make investment decisions with
respect to a portion of the fund's portfolio. The
primary individual portfolio counselors for the fund
are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
YEARS OF
EXPERIENCE AS WITH CAPITAL
PORTFOLIO RESEARCH AND
PORTFOLIO COUNSELOR FOR MANAGEMENT
COUNSELORS FOR THE BOND FUND COMPANY OR
THE BOND FUND OF AMERICA ITS TOTAL
OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Abner D. Goldstine President and Director Since the fund began operations 28 years 43 years
of the fund. Senior Vice in 1974
President and Director,
Capital Research and
Management Company
- ----------------------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President of 17 years 17 years 28 years
the fund. Senior Vice
President, Capital
Research and Management
Company
- ----------------------------------------------------------------------------------------------------------------
John H. Smet Vice President of the 6 years 12 years 13 years
fund. Vice President,
Capital Research and
Management Company
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The fund began operations on May 28, 1974.
9
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INVESTMENT RESULTS The fund may from time to time compare its investment
results to various unmanaged indices or other mutual
The fund has funds in reports to shareholders, sales literature and
averaged a total advertisements. The results may be calculated on a total
return of 10.03% a return and/or yield basis for various periods, with or
year (assuming the without sales charges. Results calculated without a
maximum sales sales charge will be higher. Total returns assume the
charge was paid) reinvestment of all dividends and capital gain distribu-
over its lifetime tions.
(May 28, 1974
through December The fund's yield and the average annual total returns
31, 1994). are calculated in accordance with the Securities and
Exchange Commission requirements which provide that the
maximum sales charge be reflected. The fund's yield for
the 30-day period ended December 31, 1994 was 7.95%. The
fund's total return over the past 12 months and average
annual total returns over the past five-year and ten-
year periods, as of December 31, 1994, were -9.52%,
7.52% and 10.04%, respectively. Of course, past results
are not an indication of future results. Further
information regarding the fund's investment results is
contained in the fund's annual report which may be
obtained without charge by writing to the Secretary of
the fund at the address indicated on the cover of this
prospectus.
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS AND from its net investment income daily and distributes
TAXES such accrued dividends to shareholders each month.
Dividends begin accruing one day after payment for
Income shares is received by the fund or American Funds Service
distributions are Company. All capital gains, if any, are distributed
made each month. annually, usually in December. When a capital gain is
distributed, the net asset value per share is reduced by
the amount of the payment.
FEDERAL TAXES The fund intends to operate as a "regu-
lated investment company" under the Internal Revenue
Code. In any fiscal year in which the fund so qualifies
and distributes to shareholders all of its net invest-
ment income and net capital gains, the fund itself is
relieved of federal income tax.
All dividends and capital gains are taxable whether they
are reinvested or received in cash--unless you are ex-
empt from taxation or entitled to tax deferral. Early
each year, you will be notified as to the amount and
federal tax status of all dividends and capital gains
paid during the prior year. Such dividends and capital
gains may also be subject to state or local taxes.
IF YOU HAVE NOT FURNISHED A CERTIFIED CORRECT TAXPAYER
IDENTIFICATION NUMBER (GENERALLY YOUR SOCIAL SECURITY
NUMBER) AND HAVE NOT CERTIFIED THAT WITHHOLDING DOES NOT
APPLY, OR IF THE INTERNAL REVENUE SERVICE HAS NOTIFIED
THE FUND THAT THE TAXPAYER IDENTIFICATION NUMBER LISTED
ON YOUR ACCOUNT IS INCORRECT ACCORDING TO THEIR RECORDS
OR THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING, FEDERAL
LAW GENERALLY REQUIRES THE FUND TO WITHHOLD 31% FROM ANY
DIVIDENDS AND/OR REDEMPTIONS (INCLUDING EXCHANGE
REDEMPTIONS). Amounts withheld are applied to your
federal tax liability; a refund may be obtained from the
Service if withholding results in overpayment of taxes.
Federal law also requires the fund to withhold 30% or
the applicable tax treaty rate from dividends paid to
certain nonresident alien, non-U.S. partnership and non-
U.S. corporation shareholder accounts.
10
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This is a brief summary of some of the tax laws that
affect your investment in the fund. Please see the
statement of additional information and your tax
adviser for further information.
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was or-
AND MANAGEMENT ganized as a Maryland corporation in 1973. The fund's
board supervises fund operations and performs duties
The fund is a required by applicable state and federal law. Members
member of The of the board who are not employed by Capital Research
American Funds and Management Company or its affiliates are paid cer-
Group, which is tain fees for services rendered to the fund as de-
managed by one of scribed in the statement of additional information.
the largest and They may elect to defer all or a portion of these fees
most experienced through a deferred compensation plan in effect for the
investment fund. Shareholders have one vote per share owned and,
advisers. at the request of the holders of at least 10% of the
shares, the fund will hold a meeting at which any mem-
ber of the board could be removed by a majority vote.
There will not usually be a shareholder meeting in any
year except, for example, when the election of the
board is required to be acted upon by shareholders un-
der the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los Ange-
les, CA 90071 and at 135 South State College Boulevard,
Brea, CA 92621. (See "The American Funds Shareholder
Guide: Purchasing Shares-- Investment Minimums and Fund
Numbers" for a listing of funds in The American Funds
Group.) Capital Research and Management Company manages
the investment portfolio and business affairs of the
fund and receives a fee at the annual rate of 0.30% on
the first $60 million of the fund's net assets, plus
0.21% on net assets over $60 million to $1 billion,
plus 0.18% on assets over $1 billion to $3 billion,
plus 0.16% on assets over $3 billion, plus 3% of the
first $5.4 million of annual gross income, plus 2.25%
of annual gross income over $5.4 million. Assuming net
assets of $5 billion and gross investment income levels
of 8%, 9%, 10%, 11%, 12% and 13%, management fees would
be .36%, .38%, .40%, .43%, .45% and .47%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its affili-
ated companies have adopted a personal investing policy
that is consistent with the
11
<PAGE>
- -------------------------------------------------------------------------------
recommendations contained in the report dated May 9,
1994 issued by the Investment Company Institute's Advi-
sory Group on Personal Investing. (See the statement of
additional information.)
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. Fixed-income securities are
generally traded on a "net" basis with a dealer acting
as principal for its own account without a stated com-
mission, although the price of the security usually in-
cludes a profit to the dealer. In underwritten offer-
ings, securities are usually purchased at a fixed price
which includes an amount of compensation to the under-
writer, generally referred to as the underwriter's con-
cession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no
commissions or discounts are paid.
Subject to the above policy, when two or more brokers
are in a position to offer comparable prices and execu-
tions, preference may be given to brokers that have
sold shares of the fund or have provided investment re-
search, statistical, and other related services for the
benefit of the fund and/or of other funds served by
Capital Research and Management Company.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000 IH-
10 West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or moni-
tored for verification, recordkeeping and quality as-
surance purposes.
PLAN OF DISTRIBUTION The fund has a plan of distribu-
tion or "12b-1 Plan" under which it may finance activi-
ties primarily intended to sell shares, provided the
categories of expenses are approved in advance by the
board and the expenses paid under the plan were in-
curred within the last 12 months and accrued while the
plan is in effect. Expenditures by the fund under the
plan may not exceed 0.25% of its average net assets an-
nually (all of which may be for service fees). See
"Purchasing Shares--Sales Charges" below.
TRANSFER AGENT American Funds Service Company, a wholly
owned subsidiary of Capital Research and Management
Company, is the transfer agent and performs shareholder
service functions. It was paid a fee of $3,751,000 for
the fiscal year ended December 31, 1994. Telephone con-
versations with American Funds Service Company may be
recorded or monitored for verification, recordkeeping
and quality assurance purposes.
12
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
SERVICE ADDRESS AREAS SERVED
AREA
------------------------------------------------------------
WEST P.O. Box 2205 AK, AZ, CA, HI, ID,
Brea, CA 92622-2205 MT, NV, OR, UT, WA
Fax: 714/671-7080 and outside the U.S.
------------------------------------------------------------
CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA,
WEST San Antonio, TX 78265-9522 MN, MO, ND, NE, NM,
Fax: 210/530-4050 OK, SD, TX, and WY
------------------------------------------------------------
CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI,
EAST Indianapolis, IN 46206-6007 MS, OH, TNand WI
Fax: 317/735-6620
------------------------------------------------------------
EAST P.O. Box 2280 CT, DE, FL, GA, MA,
Norfolk, VA 23501-2280 MD, ME, NC, NH, NJ,
Fax: 804/670-4773 NY, PA, RI, SC, VA,
VT, WV and
Washington, D.C.
------------------------------------------------------------
ALL SHAREHOLDERS MAY CALL AMERICAN FUNDS SERVICE
COMPANY AT 800/421-0180 FOR SERVICE.
------------------------------------------------------------
[MAP OF THE UNITED STATES OF AMERICA]
------------------------------------------------------------
West (light grey); Central-West (white); Central-East
(dark grey), East (green)
13
<PAGE>
THE AMERCIAN FUNDS SHAREHOLDER GUIDE
PURCHASING SHARES METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
---------------------------------------------------------
Your investment See "Investment $50 minimum (except
dealer can help Minimums and Fund where a lower
you establish your Numbers" for minimum is noted
account--and help initial under "Investment
you add to it investment Minimums and Fund
whenever you like. minimums. Numbers").
---------------------------------------------------------
By Visit any Mail directly to
contacting investment dealer your investment
your who is registered dealer's address
investment in the state printed on your
dealer where the account statement.
purchase is made
and who has a
sales agreement
with American
Funds
Distributors.
---------------------------------------------------------
By mail Make your check Fill out the account
payable to the additions form at the
fund and mail to bottom of a recent
the address account statement,
indicated on the make your check
account payable to the fund,
application. write your account
Please indicate number on your check,
an investment and mail the check
dealer on the and form in the
account envelope provided
application. with your account
statement.
---------------------------------------------------------
By wire Call 800/421-0180 Your bank should wire
to obtain your your additional
account investments in the
number(s), if same manner as
necessary. Please described under
indicate an "Initial Investment."
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 FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE
THE RIGHT TO REJECT ANY PURCHASE ORDER.
SHARE PRICE Shares are purchased at the next offering
price after the order is received by the fund or
American Funds Service Company. In the case of orders
sent directly to the fund or American Funds Service
Company, an investment dealer MUST be indicated. This
price is the net asset value plus a sales charge, if
applicable. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
The net asset value per share is determined as of the
close of trading (currently 4:00 p.m., New York time) on
each day the New York Stock Exchange is open. The
current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share. The net asset value
per share of the money market funds normally will remain
constant at $1.00 based on the funds' current practice
of valuing their shares on the basis of the penny-
rounding method in accordance with rules of the
Securities and Exchange Commission.
SHARE CERTIFICATES Shares are credited to your account
and certificates are not issued unless specifically
requested. This eliminates the costly problem of lost or
destroyed certificates.
14
<PAGE>
- -------------------------------------------------------------------------------
If you would like certificates issued, please request
them by writing to American Funds Service Company.
There is usually no charge for issuing certificates in
reasonable denominations. CERTIFICATES ARE NOT
AVAILABLE FOR THE MONEY MARKET FUNDS.
INVESTMENT MINIMUMS AND FUND NUMBERS Here are the
minimum initial investments required by the funds in
The American Funds Group along with fund numbers for
use with our automated phone line, American
FundsLine(R) (see description below):
<TABLE>
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R).......................... $1,000 02
American Balanced Fund(R).............. 500 11
American Mutual Fund(R)................ 250 03
Capital Income Builder(R).............. 1,000 12
Capital World Growth and Income
Fund(SM)............................. 1,000 33
EuroPacific Growth Fund(R)............. 250 16
Fundamental Investors(SM).............. 250 10
The Growth Fund of America(R).......... 1,000 05
The Income Fund of America(R).......... 1,000 06
The Investment Company of America(R)... 250 04
The New Economy Fund(R)................ 1,000 14
New Perspective Fund(R)................ 250 07
SMALLCAP World Fund(SM)................ 1,000 35
Washington Mutual Investors Fund(SM)... 250 01
</TABLE>
<TABLE>
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
BOND FUNDS
American High-Income Municipal Bond
Fund(SM)............................. $1,000 40
American High-Income Trust(R).......... 1,000 21
The Bond Fund of America(SM)........... 1,000 08
Capital World Bond Fund(R)............. 1,000 31
Intermediate Bond Fund of America(R)... 1,000 23
Limited Term Tax-Exempt Bond Fund of
America(SM).......................... 1,000 43
The Tax-Exempt Bond Fund of
America(SM).......................... 1,000 19
The Tax-Exempt Fund of California(R)*.. 1,000 20
The Tax-Exempt Fund of Maryland(R)*.... 1,000 24
The Tax-Exempt Fund of Virginia(R)*.... 1,000 25
U.S. Government Securities Fund(SM).... 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of
America(R)........................... 2,500 09
The Tax-Exempt Money Fund of
America(SM).......................... 2,500 39
The U.S. Treasury Money Fund of
America(SM).......................... 2,500 49
</TABLE>
--------
* Available only in certain states.
For retirement plan investments, the minimum is $250,
except that the money market funds have a minimum of
$1,000 for individual retirement accounts (IRAs).
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. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS
RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES The sales charges you pay when purchasing
the 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 "Investment Minimums and Fund Numbers" for
a listing of the funds.)
15
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE NET AMOUNT OFFERING OFFERING
AT THE OFFERING PRICE INVESTED PRICE PRICE
--------------------- ---------- -------- -------------
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000...... 6.10% 5.75% 5.00%
$50,000 but less than
$100,000.............. 4.71 4.50 3.75
BOND FUNDS
Less than $25,000...... 4.99 4.75 4.00
$25,000 but less than
$50,000............... 4.71 4.50 3.75
$50,000 but less than
$100,000.............. 4.17 4.00 3.25
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 $1,000,000. 2.04 2.00 1.60
$1,000,000 or more..... none none (see below)
</TABLE>
Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1
million or more, for purchases by any defined
contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with
200 or more eligible employees (paid pursuant to the
fund's plan of distribution), and for purchases made at
net asset value by certain retirement plans of
organizations with collective retirement plan assets of
$100 million or more as set forth in the statement of
additional information (paid by American Funds
Distributors).
American Funds Distributors, at its expense (from a
designated percentage of its income), will provide
additional promotional incentives to dealers. Currently
these incentives are limited to the top one hundred
dealers who have sold shares of the fund or other funds
in The American Funds Group. These incentive payments
will be based on a pro rata share of a qualifying
dealer's sales.
Any defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees or
any other purchaser investing at least $1 million in
shares of the fund (or in combination with shares of
other funds in The American Funds Group other than the
money market funds) may purchase shares at net asset
value; however, a contingent deferred sales charge of
1% is imposed on certain redemptions within one year of
the purchase. (See "Redeeming Shares--Contingent
Deferred Sales Charge.")
Qualified dealers currently are paid a continuing
service fee not to exceed 0.25% of average net assets
(0.15% in the case of the money market funds) annually
in order to promote selling efforts and to compensate
them for providing certain services. (See "Fund
Organization and Management--
16
<PAGE>
- -------------------------------------------------------------------------------
Plan of Distribution.") These services include
processing purchase and redemption transactions,
establishing shareholder accounts and providing certain
information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES The stock, stock/bond and
bond funds may sell shares at net asset value to: (1)
current or retired directors, trustees, officers and
advisory board members of the funds managed by Capital
Research and Management Company, employees of
Washington Management Corporation, employees and
partners of The Capital Group Companies, Inc. and its
affiliated companies, certain family members of the
above persons, and trusts or plans primarily for such
persons; (2) current or retired registered
representatives or full-time employees and their
spouses and minor children of dealers having sales
agreements with American Funds Distributors and plans
for such persons; (3) companies exchanging securities
with the fund through a merger, acquisition or exchange
offer; (4) trustees or other fiduciaries purchasing
shares for certain retirement plans of organizations
with retirement plan assets of $100 million or more;
(5) insurance company separate accounts; (6) accounts
managed by subsidiaries of The Capital Group Companies,
Inc.; and (7) The Capital Group Companies, Inc., its
affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to
these persons and organizations due to anticipated
economies in sales effort and expense.
REDUCING AGGREGATION Sales charge discounts are available for
YOUR SALES certain aggregated investments. Qualifying investments
CHARGE include those by you, your spouse and your children
under the age of 21, if all parties are purchasing
You and your shares for their own account(s), which may include
immediate family purchases through employee benefit plan(s) such as an
may combine IRA, individual-type 403(b) plan or single-participant
investments to Keogh-type plan or by a business solely controlled by
reduce your costs. these individuals (for example, the individuals own the
entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these
individuals. Individual purchases by a trustee(s) or
other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or
fiduciary account, including an employee benefit plan
other than those described above or (2) made for two or
more employee benefit plans of a single employer or of
affiliated employers as defined in the Investment
Company Act of 1940, again excluding employee benefit
plans described above, or (3) for a diversified common
trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating
fund shares. 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.
17
<PAGE>
- -------------------------------------------------------------------------------
CONCURRENT PURCHASES To qualify for a reduced sales
charge, you may combine concurrent purchases of two or
more funds in The American Funds Group, except direct
purchases of the money market funds. (Shares of the
money market funds purchased through an exchange,
reinvestment or cross-reinvestment from a fund having a
sales charge do qualify.) For example, if you
concurrently invest $25,000 in one fund and $25,000 in
another, the sales charge would be reduced to reflect a
$50,000 purchase.
RIGHT OF ACCUMULATION The sales charge for your invest-
ment may also be reduced by taking into account the
current value of your existing holdings in The American
Funds Group. Direct purchases of the money market funds
are excluded. (See account application.)
STATEMENT OF INTENTION You may reduce sales charges on
all investments by meeting the terms of a statement of
intention, a non-binding commitment to invest a certain
amount in fund shares subject to a commission within a
13-month period. Five percent of the statement amount
will be held in escrow to cover additional sales
charges which may be due if your total investments over
the statement period are insufficient to qualify for a
sales charge reduction. (See account application.)
YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY KNOW IF YOU QUALIFY FOR A REDUCTION IN
YOUR SALES CHARGE USING ONE OR ANY COMBINATION OF THE
METHODS DESCRIBED ABOVE.
SHAREHOLDER AUTOMATIC INVESTMENT PLAN You may make regular monthly
SERVICES or quarterly investments through automatic charges to
your bank account. Once a plan is established, your ac-
The fund offers count will normally be charged by the 10th day of the
you a valuable month during which an investment is made (or by the
array of services 15th day of the month in the case of any retirement
designed to plan for which Capital Guardian Trust Company--another
increase the affiliate of The Capital Group Companies, Inc.--acts as
convenience and trustee or custodian).
flexibility of
your investment-- AUTOMATIC REINVESTMENT Dividends and capital gain dis-
services you can tributions are reinvested in additional shares at no
use to alter your sales charge unless you indicate otherwise on the
investment program account application. You also may elect to have divi-
as your needs and dends and/or capital gain distributions paid in cash by
circumstances informing the fund, American Funds Service Company or
change. your investment dealer.
CROSS-REINVESTMENT You may cross-reinvest dividends or
dividends and capital gain distributions paid by one
fund into another fund in The American Funds Group,
subject to conditions outlined in the statement of ad-
ditional information. Generally, to use this service
the value of your account in the paying fund must equal
at least $5,000.
EXCHANGE PRIVILEGE You may exchange shares into other
funds in The American Funds Group. Exchange purchases
are subject to the minimum investment requirements of
the fund purchased and no sales
18
<PAGE>
- -------------------------------------------------------------------------------
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.
You may exchange shares by writing to American Funds
Service Company (see "Redeeming Shares"), by contacting
your investment dealer, by using American FundsLine(R)
(see "Shareholder Services--American FundsLine(R)" be-
low), or by telephoning 800/421-0180 toll-free,
telexing 3778108 (answerback CGAFSBR), faxing (see
"Transfer Agent" above for the appropriate fax numbers)
or telegraphing American Funds Service Company. (See
"Telephone Redemptions and Exchanges" below.) Shares
held in corporate-type retirement plans for which Capi-
tal Guardian Trust Company serves as trustee may not be
exchanged by telephone, telex, fax or telegraph. Ex-
change redemptions and purchases are processed simulta-
neously at the share prices next determined after the
exchange order is received. (See "Purchasing Shares--
Share Price.") THESE TRANSACTIONS HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES You may automatically exchange
shares (in amounts of $50 or more) among any of the
funds in The American Funds Group on any day (or pre-
ceding business day if the day falls on a non-business
day) of each month you designate. You must either meet
the minimum initial investment requirement for the re-
ceiving fund OR the originating fund's balance must be
at least $5,000 and the receiving fund's minimum must
be met within one year.
AUTOMATIC WITHDRAWALS You may make automatic
withdrawals of $50 or more as follows: five or more
times per year if you have an account of $10,000 or
more, or four or fewer times per year if you have an
account of $5,000 or more. Withdrawals are made on or
about the 15th day of each month you designate, and
checks will be sent within seven days. (See "Other
Important Things to Remember.") Additional investments
in a withdrawal account must not be less than one
year's scheduled withdrawals or $1,200, whichever is
greater. However, additional investments in a
withdrawal account may be inadvisable due to sales
charges and tax liabilities.
THESE SERVICES ARE AVAILABLE ONLY IN STATES WHERE THE
FUND TO BE PURCHASED MAY BE LEGALLY OFFERED AND MAY BE
TERMINATED OR MODIFIED AT ANY TIME UPON 60 DAYS'
WRITTEN NOTICE.
ACCOUNT STATEMENTS Your account is opened in accordance
with your registration instructions. Transactions in
the account, such as additional investments and
dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service
Company.
19
<PAGE>
- -------------------------------------------------------------------------------
AMERICAN FUNDSLINE(R) You may check your share balance,
the price of your shares, or your most recent account
transaction, redeem shares (up to $10,000 per fund, per
account each day), or exchange shares around the clock
with American FundsLine(R). To use this service, call
800/325-3590 from a TouchTone(TM) telephone.
Redemptions and exchanges through American FundsLine(R)
are subject to the conditions noted above and in
"Redeeming Shares--Telephone Redemptions and Exchanges"
below. You will need your fund number (see the list of
funds in The American Funds Group under "Purchasing
Shares--Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of
your Social Security number or other tax identification
number associated with your account) and account
number.
--------------------------------------------------------
REDEEMING By writing to Send a letter of instruction
SHARES American specifying the name of the fund, the
Funds Service number of shares or dollar amount to
You may take money Company (at be sold, your name and account
out of your the number. You should also enclose any
account whenever appropriate share certificates you wish to
you please. address redeem. For redemptions over $50,000
indicated and for certain redemptions of
under "Fund $50,000 or less (see below), your
Organization signature must be guaranteed by a
and bank, savings association, credit
Management-- union, or member firm of a domestic
Transfer stock exchange or the National
Agent") Association of Securities Dealers,
Inc., that is an eligible guarantor
institution. You should verify with
the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required for redemption of shares
held in corporate, partnership or
fiduciary accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
--------------------------------------------------------
By contacting If you redeem shares through your
your investment dealer, you may be charged
investment for this service. SHARES HELD FOR YOU
dealer IN YOUR INVESTMENT DEALER'S STREET
NAME MUST BE REDEEMED THROUGH THE
DEALER.
--------------------------------------------------------
You may have You may use this option, provided the
a redemption account is registered in the name of
check sent to an individual(s), a UGMA/UTMA
you by using custodian, or a non-retirement plan
American trust. These redemptions may not
FundsLine(R) exceed $10,000 per day, per fund
or by account and the check must be made
telephoning, payable to the shareholder(s) of
telexing, record and be sent to the address of
faxing, or record provided the address has been
telegraphing used with the account for at least 10
American days. See "Transfer Agent" and
Funds Service "Exchange Privilege" above for the
Company appropriate telephone, fax, or telex
(subject to number.
the
conditions
noted in this
section and
in "Telephone
Redemptions
and
Exchanges"
below)
--------------------------------------------------------
In the case Upon request (use the account
of the money application for the money market
market funds, funds) you may establish telephone
you may have redemption privileges (which will
redemptions enable you to have a redemption sent
wired to your to your bank account) and/or check
bank by writing privileges. If you request
telephoning check writing privileges, you will be
American provided with checks that you may use
Funds Service to draw against your account. These
Company checks may be made payable to anyone
($1,000 or you designate and must be signed by
more) or by the authorized number of registered
writing a shareholders exactly as indicated on
check ($250 your checking account signature card.
or more)
--------------------------------------------------------
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY
REDEMPTION OF $50,000 OR LESS PROVIDED THE REDEMPTION
CHECK IS MADE PAYABLE TO THE REGISTERED SHAREHOLDER(S)
AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE
ADDRESS HAS BEEN USED WITH THE ACCOUNT FOR AT LEAST 10
DAYS.
20
<PAGE>
- -------------------------------------------------------------------------------
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND
ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
TELEPHONE REDEMPTIONS AND EXCHANGES By using the
telephone (including American FundsLine(R)), telex, fax
or telegraph redemption and/or exchange options, you
agree to hold the fund, American Funds Service Company,
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 American Funds Service Company (you
may reinstate them at any time also by writing American
Funds Service Company). If American Funds Service
Company does not employ reasonable procedures to
confirm that the instructions received from any person
with appropriate account information are genuine, 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.
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. 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 for the longest period are assumed to be
redeemed first for purposes of calculating this charge.
The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12
months of the initial purchase); for distributions from
qualified retirement plans and other employee benefit
plans; for distributions from 403(b) plans or IRAs due
to death, disability or attainment of age 59 1/2; for
tax-free returns of excess contributions to IRAs; for
redemptions through certain automatic withdrawals not
exceeding 10% of the amount that would otherwise be
subject to the charge; and for redemptions in
connection with loans made by qualified retirement
plans.
REINSTATEMENT PRIVILEGE You may reinvest proceeds from
a redemption or a dividend or capital gain distribution
without sales charge (any contingent deferred sales
charge paid will be credited to your account) in any
fund in The American Funds Group. Send a written
21
<PAGE>
- -------------------------------------------------------------------------------
request and a check to American Funds Service Company
within 90 days after the date of the redemption or
distribution. Reinvestment will be at the next
calculated net asset value after receipt. The tax
status of a gain realized on a redemption will not be
affected by exercise of the reinstatement privilege,
but a loss may be nullified if you reinvest in the same
fund within 30 days. If you redeem your shares within
90 days after purchase and the sales charge on the
purchase of other shares is waived under the
reinstatement privilege, the sales charge you
previously paid for the shares may not be taken into
account when you calculate your gain or loss on that
redemption.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under
"Purchasing Shares--Share Price." Because each stock,
stock/bond and bond fund's net asset value fluctuates,
reflecting the market value of the fund's portfolio,
the amount a shareholder receives for shares redeemed
may be more or less than the amount paid for them.
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 Investment Company Act of
1940), redemption proceeds will be paid on or before
the seventh day following receipt of a proper
redemption request.
A fund may, with 60 days' written notice, close your
account if, due to a redemption, the account has a
value of less than the minimum required initial
investment. (For example, a fund may close an account
if a redemption is made shortly after a minimum initial
investment is made.)
RETIREMENT You may invest in the funds through various retirement
PLANS plans including the following plans for which Capital
Guardian Trust Company acts as trustee or custodian:
IRAs, Simplified Employee Pension plans, 403(b) plans
and Keogh- and corporate-type business retirement
plans. For further information about any of the plans,
agreements, applications and annual fees, contact
American Funds Distributors or your investment dealer.
To determine which retirement plan is appropriate for
you, please consult your tax adviser. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS INVESTMENTS FOR RETIREMENT PLANS.
FOR MORE INFORMATION, PLEASE REFER TO THE ACCOUNT
APPLICATION OR THE STATEMENT OF ADDITIONAL INFORMATION.
IF YOU HAVE ANY QUESTIONS ABOUT ANY OF THE SHAREHOLDER
SERVICES DESCRIBED HEREIN OR YOUR ACCOUNT, PLEASE
CONTACT YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY.
[RECYCLE LOGO] This prospectus has been printed on
recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
22
<PAGE>
PROSPECTUS
for Eligible Retirement Plans
THE BOND FUND
OF AMERICA(SM)
AN OPPORTUNITY FOR CURRENT INCOME
AND PRESERVATION OF CAPITAL THROUGH
A DIVERSIFIED PORTFOLIO OF BONDS
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
March 1, 1995
THE BOND FUND OF AMERICA, INC.
333 South Hope Street
Los Angeles, CA 90071
The fund seeks to provide as high a level of current income as is consistent
with the preservation of capital by investing primarily in bonds.
This prospectus relates only to shares of the fund offered without a sales
charge to eligible retirement plans. For a prospectus regarding shares of the
fund to be acquired otherwise, contact the Secretary of the fund at the
address indicated above.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information for the fund dated
March 1, 1995, which contains the fund's financial statements, without charge,
by writing to the Secretary of the fund at the above address or telephoning
800/421-0180. These requests will be honored within three business days of
receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED,
OR ENDORSED BY THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON.
THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
08-010-0395 RP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses.................... 3
Financial Highlights................... 4
Investment Objective and Policies...... 4
Certain Securities and Investment Tech-
niques................................ 6
Investment Results..................... 10
Dividends, Distributions and Taxes..... 10
Fund Organization and Management....... 11
Purchasing Shares...................... 13
Shareholder Services................... 14
Redeeming Shares....................... 14
</TABLE>
2
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY
OF EXPENSES
Average annual
expenses paid over a
10-year period would
be approximately
$9 per year,
assuming a $1,000
investment and a 5%
annual return.
This table is designed to help you understand costs of investing in the fund.
These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
Certain retirement plans may purchase shares of the fund with no sales
charge./1/ The fund also has no sales charge on reinvested dividends, deferred
sales charge, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees....................................................... 0.37%
12b-1 expenses........................................................ 0.22%/2/
Other expenses (including audit, legal, shareholder services, transfer
agent and custodian expenses)........................................ 0.10%
Total fund operating expenses......................................... 0.69%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following cumulative
expenses on a $1,000 investment, assuming a 5%
annual return./3/ $7 $22 $38 $86
</TABLE>
/1/ Retirement plans of organizations with $100 million or more in collective
retirement plan assets may purchase shares of the fund with no sales charge.
Any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k)" plan with 200 or more eligible employees
or any other plan that invests at least $1 million in shares of the fund (or
in combination with shares of other funds in The American Funds Group other
than the money market funds) may purchase shares at net asset value;
however, a contingent deferred sales charge of 1% applies on certain
redemptions within 12 months following such purchases. (See "Redeeming
Shares--Contingent Deferred Sales Charge.")
/2/ These expenses may not exceed 0.25% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/3/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL The following information has been audited by Deloitte
HIGHLIGHTS & Touche LLP, independent accountants, whose unquali-
(For a share fied report covering each of the most recent five years
outstanding is included in the statement of additional information.
throughout the This information should be read in conjunction with the
fiscal year) financial statements and accompanying notes which are
included in the statement of additional information.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $14.45 $13.99 $13.70 $12.39 $13.23 $13.24 $13.14 $14.21 $14.01 $12.34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.05 1.09 1.15 1.21 1.24 1.31 1.28 1.28 1.38 1.44
Net realized and
unrealized gain (loss)
on investments........ (1.76) .84 .34 1.28 (.84) (.02) .08 (1.02) .66 1.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations........... (0.71) 1.93 1.49 2.49 .40 1.29 1.36 .26 2.04 3.11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net in-
vestment income....... (1.05) (1.08) (1.16) (1.18) (1.24) (1.30) (1.26) (1.23) (1.44) (1.44)
Distributions from net
realized gains........ -- (.39) (.04) -- -- -- -- (.10)/1/ (.40) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions... (1.05) ( 1.47) (1.20) (1.18) (1.24) (1.30) (1.26) (1.33) (1.84) (1.44)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Year................... $12.69 $14.45 $13.99 $13.70 $12.39 $13.23 $13.24 $13.14 $14.21 $14.01
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/ (5.02)% 14.14% 11.34% 21.04% 3.27% 10.13% 10.70% 1.96% 15.17% 26.61%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions)......... $4,941 $5,285 $3,917 $2,859 $1,945 $1,481 $1,021 $ 825 $ 694 $ 451
Ratio of expenses to
average net assets.... .69% .71% .73% .77% .76% .76% .66% .59% .58% .61%
Ratio of net income to
average net assets.... 7.77% 7.53% 8.36% 9.28% 9.70% 9.73% 9.54% 9.45% 9.39% 10.80%
Portfolio turnover
rate.................. 57.0% 44.7% 49.7% 56.5% 59.9% 64.2% 93.0% 93.0% 107.8% 142.3%
</TABLE>
- --------
/1/ Represents only net short-term realized gains.
/2/ Calculated with no sales charge.
INVESTMENT The fund's investment objective is to provide as high a
OBJECTIVE level of current income as is consistent with the pres-
AND POLICIES ervation of capital. The fund invests substantially all
of its assets in marketable corporate debt securities,
The fund's goal is U.S. Government securities, mortgage-related securi-
to provide you ties, other asset-backed securities and cash or money
with high current market instruments. Normally, at least 65% of the
incomeand fund's assets will be invested in bonds. (For this pur-
conservationof pose, bonds are considered any debt securities having
capital. initial maturities in excess of one year.)
At least 60% of the value of the fund's assets, mea-
sured at the time of any purchase, must be invested in
the following categories:
. marketable corporate debt securities such as bonds
rated at the time of purchase within the three
highest investment grade ratings (A or better)
assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation (all ratings discussed
below refer to those assigned by these two rating
agencies) or, if not rated by either of these rating
agencies, determined by the fund's investment
adviser, Capital Research and Management Company, as
being of investment quality equivalent to securities
rated A or better;
. U.S. Government securities including (1) direct
obligations of the U.S. Treasury (such as Treasury
bills, notes and bonds), (2) obligations guaranteed
as to principal and interest by the U.S. Treasury
such as
4
<PAGE>
- -------------------------------------------------------------------------------
Government National Mortgage Association certificates
(described below) and Federal Housing Administration
debentures, and (3) securities issued by U.S.
Government instrumentalities and certain federal
agencies that are neither direct obligations of, nor
guaranteed by, the Treasury;
. mortgage-related securities rated A or better or
unrated securities that are determined to be of
equivalent quality of (1) governmental issuers,
including Government National Mortgage Association
certificates, which are securities representing part
ownership of a pool of mortgage loans on which
timely payment of interest and principal is
guaranteed by the U.S. Government, and securities
issued and guaranteed as to the payment of interest
and principal by the Federal National Mortgage
Association or the Federal Home Loan Mortgage
Corporation (but not backed by the U.S. Government);
(2) private issuers, including mortgage pass-through
certificates or mortgage-backed bonds; and (3) the
governmental issuers mentioned above or private
issuers, including collateralized mortgage
obligations and real estate mortgage investment
conduits which 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 prepayment of the
underlying mortgages which will substantially reduce
or eliminate interest payments (see the statement of
additional information for more about these
securities);
. other asset-backed securities rated A or better or
unrated securities that are determined to be of
equivalent quality (unrelated to mortgage loans) such
as securities whose assets consist of a pool of motor
vehicle retail installment sales contracts and
security interests in the vehicles securing the
contracts or a pool of credit card loan receivables
(see the statement of additional information for more
about these securities);
. cash or money market instruments, including
commercial bank obligations (certificates of deposit,
which are interest-bearing time deposits; bankers
acceptances, which are time drafts on a commercial
bank where the bank accepts an irrevocable obligation
to pay at maturity; and demand or time deposits), and
commercial paper (short-term notes with maturities of
up to nine months issued by corporations or
government bodies).
The remaining 40% of the fund's assets, measured at the
time of purchase, may be invested in debt securities
rated below A or unrated securities that are determined
to be of equivalent quality, including marketable corpo-
rate debt securities, mortgage-related securities and
other asset-backed securities. These securities may be
rated as low as Ca by Moody's or CC by S&P. However, se-
curities rated Ba or BB or below or unrated securities
that are determined to be of equivalent quality (com-
monly known as "junk" or "high-yield, high-risk" bonds)
will represent less than 35% of the fund's net assets
and are subject to special review before purchase.
5
<PAGE>
- -------------------------------------------------------------------------------
The fund may from time to time invest in fixed-income
securities of corporations outside the U.S. or govern-
mental entities, and the fund may purchase or sell var-
ious currencies on either a spot or forward basis in
connection with these investments.
The average monthly composition of the fund's portfolio
based on the higher of the Moody's or S&P ratings for
the fiscal year ended December 31, 1994 was as fol-
lows: bonds--Aaa/AAA-41.04%; Aa/AA-3.78%; A/A-6.61%;
Baa/BBB-13.46%; Ba/BB-9.34%; B/B-11.3%, and Caa/CCC-
0.8%. Other investments, including non-rated invest-
ments, equity-type securities and cash or cash equiva-
lents amounted to 2.35%, 2.24% and 9.08%, respectively.
The fund's investment restrictions (which are described
in the statement of additional information) and objec-
tive cannot be changed without shareholder approval.
All other investment practices may be changed by the
fund's board.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES.
CERTAIN SECURITIES RISKS OF INVESTING IN BONDS The market values of fixed-
AND INVESTMENT income securities generally vary inversely with the
TECHNIQUES level of interest rates--when interest rates rise,
their values will tend to decline and vice versa. The
Investing in bonds magnitude of these changes generally will be greater
involves certain the longer the remaining maturity of the security.
risks. Fluctuations in the value of the fund's investments
will be reflected in its net asset value per share;
typically declining when interest rates rise.
High-yield, high-risk bonds (bonds rated Ba or BB or
below) may be subject to greater market fluctuations
and to greater risk of loss of income and principal due
to default by the issuer than are higher-rated bonds.
Their values tend to reflect short-term corporate, eco-
nomic and market developments and investor perceptions
of the issuer's credit quality to a greater extent than
lower yielding higher-rated bonds. In addition, it may
be more difficult to dispose of, or to determine the
value of, high-yield, high-risk bonds. Bonds rated Ba
or BB are considered speculative. Bonds rated Ca or CC
are described by the ratings agencies as "speculative
in a high degree; often in default or [having] other
marked shortcomings." See the statement of additional
information for a complete description of the bond rat-
ings.
Capital Research and Management Company attempts to re-
duce 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 cor-
porate and legislative developments.
RISKS OF INVESTING IN VARIOUS COUNTRIES The fund may
invest in securities of issuers located outside the
United States which may be denominated in currencies
other than the U.S. dollar. Companies located outside
the U.S. operate under different accounting, auditing
and financial reporting standards and practices and
regulatory requirements that may
6
<PAGE>
- -------------------------------------------------------------------------------
be less rigorous than U.S. companies. There may be less
information publicly available about companies located
outside the U.S. Additionally, specific local political
and economic factors must be evaluated in making these
investments including trade balances and imbalances;
and related economic policies; expropriation or confis-
catory taxation; limitations on the removal of funds or
other assets; political or social instability; the di-
verse structure and liquidity of the various securities
markets; and nationalization policies of governments
around the world. Additional costs could be incurred in
connection with the fund's investment activities out-
side the U.S. Increased custodian costs as well as ad-
ministrative difficulties (for example, delays in
clearing and settling portfolio transactions) may be
associated with the maintenance of assets in certain
jurisdictions. The fund may invest to a limited extent
in countries that are considered developing countries,
and, in those cases the degree of risk described above
may be greater. However, in the opinion of Capital Re-
search and Management Company, global investing also
can reduce certain of these risks through greater di-
versification opportunities.
CURRENCY TRANSACTIONS The fund has the ability to hold
a portion of its assets in currencies other than the
U.S. dollar and to enter into spot or forward currency
contracts to facilitate transactions and/or to protect
against changes in currency exchange rates. Although
this strategy could minimize the risk of loss due to a
decline in the value of the hedged currency, it could
also limit any potential gain which might result from
an increase in the value of the currency. (See "Cur-
rency Transactions" in the statement of additional in-
formation.)
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND
"ROLL" TRANSACTIONS The fund may purchase securities on
a delayed delivery or "when-issued" basis and enter
into firm commitment agreements (transactions whereby
the payment obligation and interest rate are fixed at
the time of the transaction but the settlement is de-
layed). The fund as purchaser assumes the risk of any
decline in value of the security beginning on the date
of the agreement or purchase. The fund also may enter
into "roll" transactions, which are the sale of GNMA
certificates or other securities together with a com-
mitment (for which the fund typically receives a fee)
to purchase similar, but not identical, securities at a
later date. As the fund's aggregate commitments under
these transactions increase, the opportunity for lever-
age similarly may increase; however, it is not the in-
tent of the fund to engage in these transactions for
leveraging purposes.
The fund will segregate liquid assets such as cash,
U.S. Government securities or other appropriate high-
grade debt obligations 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 hold-
ings of cash and securities that do not fluctuate in
value (such as short-term money market instruments),
the fund temporarily will be in a
7
<PAGE>
- -------------------------------------------------------------------------------
leveraged position (i.e., it will 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 oc-
cur 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 addi-
tional cash to meet its obligations thereunder.
REPURCHASE AGREEMENTS The fund may enter into repur-
chase agreements, under which it buys a security and
obtains a simultaneous commitment from the seller to
repurchase the security at a specified time and price.
The seller must maintain with the fund's custodian col-
lateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by Capi-
tal Research and Management Company. If the seller un-
der the repurchase agreement defaults, the fund may in-
cur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur dispo-
sition costs in connection with liquidating the collat-
eral. If bankruptcy proceedings are commenced with re-
spect to the seller, liquidation of the collateral by
the fund may be delayed or limited.
LOAN PARTICIPATIONS The fund may invest, subject to an
overall 10% limit on loans, in loan participations,
typically made by a syndicate of banks to U.S. and non-
U.S. corporate or governmental borrowers for a variety
of purposes. The underlying loans may be secured or
unsecured, and will vary in term and legal structure.
When purchasing such instruments the fund may assume
the credit risks associated with the original bank
lender as well as the credit risks associated with the
borrower. Investments in loan participations present
the possibility that the fund could be held liable as a
co-lender under emerging legal theories of lender lia-
bility. 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. Loan participations are generally
not rated by major rating agencies and may not be pro-
tected by the securities laws. Also, loan participa-
tions are generally considered to be illiquid.
PRIVATE PLACEMENTS Private placements may be either
purchased from another institutional investor that
originally acquired the securities in a private place-
ment or directly from the issuers of the securities.
Generally, securities acquired in private placements
are subject to contractual restrictions on resale and
may not be resold except pursuant to a registration
statement under the Securities Act of 1933 or in reli-
ance upon an exemption from the registration require-
ments under the Act, for example, private placements
sold pursuant to Rule 144A. Accordingly, any such obli-
gation will be deemed illiquid unless it has been spe-
cifically determined to be liquid under procedures
adopted by the fund's board of directors, and the fund
may incur certain additional costs in disposing of such
securities.
In determining whether these securities are liquid,
factors such as the frequency and volume of trading and
the commitment of dealers to make
8
<PAGE>
- -------------------------------------------------------------------------------
markets will be considered. Additionally, the liquidity
of any particular security will depend on such factors
as the availability of "qualified" institutional in-
vestors and the extent of investor interest in the se-
curity, which can change from time to time.
INVERSE FLOATING RATE NOTES The fund may invest to a
limited extent in inverse floating rate notes (a type
of derivative instrument). These notes have rates that
move in the opposite direction of prevailing interest
rates; thus, a change in prevailing interest rates will
often result in a greater change in the instruments'
interest rates. As a result, these instruments may have
a greater degree of volatility than other types of in-
terest-bearing securities.
MATURITY The maturity composition of the fund's portfo-
lio of fixed-income securities will be adjusted in re-
sponse to market conditions and expectations. There are
no restrictions on the maturity composition of the
portfolio, although it is anticipated that the fund
normally will be invested substantially in intermedi-
ate-term (3 to 10 years to maturity) and long-term
(over 10 years to maturity) securities.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values at
reasonable prices, using a system of multiple portfolio
counselors in managing mutual fund assets. Under this
system the portfolios of the managed funds are divided
into segments which are usually managed by individual
counselors. Each counselor decides how the segment will
be invested (within the limits provided by the fund's
objective and policies and by Capital Research and
Management Company's investment committee). In
addition, Capital Research and Management Company's
research professionals make investment decisions with
respect to a portion of the fund's portfolio segments.
The primary individual portfolio counselors for the
fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
YEARS OF
EXPERIENCE AS WITH CAPITAL
PORTFOLIO RESEARCH AND
PORTFOLIO COUNSELOR FOR MANAGEMENT
COUNSELORS FOR THE BOND FUND COMPANY OR
THE BOND FUND OF AMERICA ITS TOTAL
OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Abner D. Goldstine President and Director Since the fund began operations 28 years 43 years
of the fund. Senior Vice in 1974
President and Director,
Capital Research and
Management Company
- -----------------------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President of 17 years 17 years 28 years
the fund. Senior Vice
President, Capital
Research and Management
Company
- -----------------------------------------------------------------------------------------------------------------
John H. Smet Vice President of the 6 years 12 years 13 years
fund. Vice President,
Capital Research and
Management Company
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The fund began operations on May 28, 1974.
9
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RESULTS The fund may from time to time compare its investment
results to various indices or other mutual funds in re-
The fund has ports to shareholders, sales literature and advertise-
averaged a total ments. The results may be calculated on a total return
return (at no and/or yield basis for various periods, with or without
sales charge) of sales charges. Results calculated without a sales charge
10.29% a year over will be higher. Total returns assume the reinvestment of
its lifetime all dividends and capital gain distributions.
(May 28, 1974
through December The fund's yield and the average annual total returns
31, 1994). are calculated in accordance with Securities and
Exchange Commission requirementswith no sales charge.
The fund's yield for the 30-day period endedDecember 31,
1994 was 8.35%. The fund's total return over the past 12
months and average annual total returns over the past
five-year and ten-year periods, as of December 31, 1994,
were -5.02%, 8.57% and 10.58%, respectively. Of course,
past results are not an indication of future results.
Further information regarding the fund's investment
results is contained in the fund's annual report which
may be obtained without charge by writing to the
Secretary of the fund at the address indicated on the
cover of this prospectus.
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS AND from its net investment income daily and distributes the
TAXES accrued dividends to shareholders each month. Dividends
begin accruing one day after payment for shares is re-
Income ceived by the fund or American Funds Service Company.
distributions are All capital gains, if any, are distributed annually,
made each month. usually in December. When a capital gain is declared,
the net asset value per share is reduced by the amount
of the payment.
The terms of your plan will govern how your plan may
receive distributions from the fund. Generally, periodic
distributions from the fund to your plan are reinvested
in additional fund shares, although your plan may permit
fund distributions from net investment income to be
received by you in cash while reinvesting capital gains
distributions in additional shares or all fund
distributions to be received in cash. Unless you select
another option, all distributions will be reinvested in
additional fund shares.
FEDERAL TAXES The fund intends to operate as a "regu-
lated investment company" under the Internal Revenue
Code. For any fiscal year in which the fund so qualifies
and distributes to shareholders all of its net invest-
ment income and net capital gains, the fund itself is
relieved of federal income tax. The tax treatment of re-
demptions from a retirement plan may differ from redemp-
tions from an ordinary shareholder account.
Please see the statement of additional information and
your tax adviser for further information.
10
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FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was or-
AND MANAGEMENT ganized as a Maryland corporation in 1973. The fund's
board supervises fund operations and performs duties
The fund is a required by applicable state and federal law. Members
member of The of the board who are not employed by Capital Research
American Funds and Management Company or its affiliates are paid cer-
Group, which is tain fees for services rendered to the fund as de-
managed by one of scribed in the statement of additional information.
the largest and They may elect to defer all or a portion of these fees
most experienced through a deferred compensation plan in effect for the
investment fund. Shareholders have one vote per share owned and,
advisers. at the request of the holders of at least 10% of the
shares, the fund will hold a meeting at which any mem-
ber of the board could be removed by a majority vote.
There will not usually be a shareholder meeting in any
year except, for example, when the election of the
board is required to be acted upon by shareholders un-
der the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los Ange-
les, CA 90071 and at 135 South State College Boulevard,
Brea, CA 92621. Capital Research and Management Company
manages the investment portfolio and business affairs
of the fund and receives a fee at the annual rate of
0.30% on the first $60 million of the fund's net as-
sets, plus 0.21% on net assets in excess of $60 million
to $1 billion, plus 0.18% on assets over $1 billion to
$3 billion, plus 0.16% on assets over $3 billion, plus
3% of the first $5.4 million of annual gross income,
plus 2.25% of annual gross income over $5.4 million.
Assuming net assets of $5 billion and gross investment
income levels of 8%, 9%, 10%, 11%, 12% and 13%, manage-
ment fees would be .36%, .38%, .40%, .43%, .45% and
.47%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by the
Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information.)
11
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PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. Fixed-income securities are
generally traded on a "net" basis with a dealer acting
as principal for its own account without a stated com-
mission, although the price of the security usually in-
cludes a profit to the dealer. In underwritten offer-
ings, securities are usually purchased at a fixed price
which includes an amount of compensation to the under-
writer, generally referred to as the underwriter's con-
cession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no
commissions or discounts are paid.
Subject to the above policy, when two or more brokers
are in a position to offer comparable prices and execu-
tions, preference may be given to brokers that have
sold shares of the fund or have provided investment re-
search, statistical, and other related services for the
benefit of the fund and/or of other funds served by
Capital Research and ManagementCompany.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000 IH-
10 West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or moni-
tored for verification, recordkeeping and quality as-
surance purposes.
PLAN OF DISTRIBUTION The fund has a plan of distribu-
tion or "12b-1 Plan" under which it may finance activi-
ties primarily intended to sell shares, provided the
categories of expenses are approved in advance by the
board and the expenses paid under the plan were in-
curred within the last 12 months and accrued while the
plan is in effect. Expenditures by the fund under the
plan may not exceed 0.25% of its average net assets an-
nually (all of which may be for service fees).
TRANSFER AGENT American Funds Service Company, 800/421-
0180, a wholly owned subsidiary of Capital Research and
ManagementCompany, is the transfer agent and performs
shareholder service functions. American Funds Service
Company is located at 333 South Hope Street, Los
Angeles, CA 90071, 135 South State College Boulevard,
Brea, CA 92621, 8000 IH-10 West, San Antonio, TX 78230,
8332 Woodfield Crossing Boulevard, Indianapolis, IN
46240, and 5300 Robin Hood Road, Norfolk, VA 23513. It
was paid a fee of $3,751,000 for the fiscal year ended
December 31, 1994. Telephone conversations with
American Funds Service Company may be recorded or
monitored for verification, recordkeeping and quality
assurance purposes.
12
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PURCHASING ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
SHARES RETIREMENT PLAN. FOR MORE INFORMATION ABOUT HOW TO
PURCHASE SHARES OF THE FUND THROUGH YOUR PLAN OR
LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT WITH YOUR EMPLOYER. Shares are sold to eligible
retirement plans at the net asset value per share next
determined after receipt of an order by the fund or
American Funds Service Company. Orders must be received
before the close of regular trading on the New York
Stock Exchange in order to receive that day's net asset
value. Plans of organizations with collective
retirement plan assets of $100 million or more may
purchase shares at net asset value. In addition, any
defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees or
any other plan that invests at least $1 million in
shares of the fund (or in combination with shares of
other funds in The American Funds Group other than the
money market funds) may purchase shares at net asset
value; however, a contingent deferred sales charge of
1% is imposed on certain redemptions within one year of
such purchase. (See "Redeeming Shares--Contingent
Deferred Sales Charge.") Plans may also qualify to
purchase shares at net asset value by completing a
statement of intention to purchase $1 million in fund
shares subject to a commission over a maximum of 13
consecutive months. Certain redemptions of such shares
may also be subject to a contingent deferred sales
charge as described above. (See the statement of
additional information.)
American Funds Distributors, at its expense, (from a
designated percentage of its income), will provide
additional promotional incentives to dealers. Currently
these incentives are limited to the top one hundred
dealers who have sold shares of the fund or other funds
in The American Funds Group. The incentive payments
will be based on a pro rata share of a qualifying
dealer's sales.
Qualified dealers currently are paid a continuing serv-
ice fee not to exceed 0.25% of average net assets
(0.15% in the case of the money market funds) annually
in order to promote selling efforts and to compensate
them for providing certain services. (See "Fund Organi-
zation and Management--Plan of Distribution.") These
services include processing purchase and redemption
transactions, establishing shareholder accounts and
providing certain information and assistance with re-
spect to the fund.
Shares of the fund are offered to other shareholders
pursuant to another prospectus at public offering
prices that may include an initial sales charge.
SHARE PRICE Shares are offered to eligible retirement
plans at the net asset value after the order is
received by the fund or American Funds Service Company.
In the case of orders sent directly to the fund or
American Funds Service Company, an investment dealer
must be indicated. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
13
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The fund's net asset value per share is determined as
of the close of trading (currently 4:00 p.m., New York
time) on each day the New York Stock Exchange is open.
The current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share.
SHAREHOLDER Subject to any restrictions contained in your plan, you
SERVICES can exchange your shares for shares of other funds in
The American Funds Group which are offered through the
plan at net asset value. In addition, again depending
on your plan, you may be able to exchange shares
automatically orcross-reinvest dividends in shares of
other funds. Contact your plan administrator/trustee
regarding how to use these services. Also, see the
fund's statement of additional information for a
description of these and other services that may be
available through your plan. These services are
available only in states where the fund to be purchased
may be legally offered and may be terminated or
modified at any time upon 60 days' written notice.
REDEEMING SHARES Subject to any restrictions imposed by your plan, you
can sell your shares through the plan to the fund any
day the New York Stock Exchange is open. For more
information about how to sell shares of the fund
through your retirement plan, including any charges
that may be imposed by the plan, please consult with
your employer.
--------------------------------------------------------
By Your plan administrator/trustee must
contacting send a letter of instruction
your plan specifying the name of the fund, the
administrator/ number of shares or dollar amount to
trustee be sold, and, if applicable, your
name and account number. For your
protection, if you redeem more than
$50,000, the signatures of the
registered owners or their legal
representatives must be guaranteed by
a bank, savings association, credit
union, or member firm of a domestic
stock exchange or the National
Association of Securities Dealers,
Inc., that is an eligible guarantor
institution. Your plan
administrator/trustee should verify
with the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required to redeem shares from
certain accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
--------------------------------------------------------
By Shares may also be redeemed through
contacting an investment dealer; however, you or
an your plan may be charged for this
investment service. SHARES HELD FOR YOU IN AN
dealer INVESTMENT DEALER'S STREET NAME MUST
BE REDEEMED THROUGH THE DEALER.
14
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THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND ALL
REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. 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 for the longest period are assumed to be
redeemed first for purposes of calculating this charge.
The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12
months of the initial purchase); for distributions from
qualified retirement plans and other employee benefit
plans; and for redemptions in connection with loans
made by qualified retirement plans.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under "Pur-
chasing Shares--Share Price." Because the fund's net
asset value fluctuates, reflecting the market value of
the portfolio, the amount you receive for shares re-
deemed may be more or less than the amount paid for
them.
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 Investment Company Act of
1940), redemption proceeds will be paid on or before
the seventh day following receipt of a proper redemp-
tion request.
[RECYCLE LOGO] This prospectus has been printed on
recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
15
<PAGE>
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THIS PROSPECTUS RELATES ONLY TO SHARES OF THE FUND
OFFERED WITHOUT A SALES CHARGE TO ELIGIBLE RETIREMENT
PLANS. FOR A PROSPECTUS REGARDING SHARES OF THE FUND
TO BE ACQUIRED OTHERWISE, CONTACT THE SECRETARY OF
THE FUND AT THE ADDRESS INDICATED ON THE FRONT.
----------------------------------------------------------
THE BOND FUND OF AMERICA, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Bond Fund of America, Inc. (the "fund") dated March
1, 1995. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
The Bond Fund of America, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
The fund has two forms of prospectuses. Each reference to the prospectus in
this Statement of Additional Information includes both of the fund's
prospectuses. Shareholders who purchase shares at net asset value through
eligible retirement plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
DESCRIPTION OF CERTAIN SECURITIES 2
INVESTMENT RESTRICTIONS 5
FUND OFFICERS AND DIRECTORS 7
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 12
PURCHASE OF SHARES 15
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 17
REDEMPTION OF SHARES 18
EXECUTION OF PORTFOLIO TRANSACTIONS 18
GENERAL INFORMATION 19
INVESTMENT RESULTS 20
DESCRIPTION OF BOND RATINGS 25
FINANCIAL STATEMENTS ATTACHED
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
can be sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices and yields of high-yield, high-risk
bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
DOWNGRADE POLICY - The fund is not normally required to dispose of a security
in the event that its rating is reduced to Ba or below by Moody's Investors,
Inc. or BB or below by Standard & Poors Corporation (or it is not rated and its
quality becomes equivalent to such a security). The fund, however, has no
current intention to hold 35% or more of its net assets in these securities
(also known as "high-yield, high-risk" or "junk" bonds).
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association ("GNMA") are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - FNMA, a federally chartered and
privately-owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by the full
faith and credit of the U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal, and maintains reserves to protect
holders against losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different maturity, bear a different coupon, and have a different priority in
receiving payments. All principal payments, both regular principal payments as
well as any prepayment of principal, are passed through to the holders of the
various CMO classes dependent on the characteristics of each class. In some
cases, all payments are passed through first to the holders of the class with
the shortest stated maturity until it is completely retired. Thereafter,
principal payments are passed through to the next class of bonds in the series,
until all the classes have been paid off. In other cases, payments are passed
through to holders of whichever class first has the shortest effective maturity
at the time payments are made. As a result, an acceleration in the rate of
prepayments that may be associated with declining interest rates shortens the
expected life of each class. The impact of an acceleration in prepayments
affects the expected life of each class differently depending on the unique
characteristics of that class. In the case of some CMO series, each class may
receive a differing proportion of the monthly interest and principal repayments
on the underlying collateral. In these series the classes would be more
affected by an acceleration (or slowing) in the rate of prepayments than CMOs
which share principal and interest proportionally.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMO's). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
OTHER ASSET-BACKED SECURITIES - The fund may invest in bonds or notes backed by
loan paper or accounts receivable originated by banks, credit card companies,
or other providers of credit. These securities are often "enhanced" by a bank
letter of credit or by insurance coverage provided by an institution other than
the issuer; such an enhancement typically covers only a portion of the par
value until exhausted. Generally, the originator of the loan or accounts
receivable paper sells it to a specially created trust, which repackages it as
securities with a term of five years or less. Examples of these types of
securities include "certificates for automobile receivables" and bonds backed
by credit card loan receivables. The loans underlying these securities are
subject to prepayments which can decrease maturities and returns. The values
of these securities are ultimately dependent upon payment of the underlying
loans by individuals, and the holders generally have no recourse against the
originator of the loans. Holders of these securities may experience losses or
delays in payment if the original payments of principal and interest are not
made to the trust with respect to the underlying loans. The values of these
securities also may fluctuate due to changes in the market perception of the
creditworthiness of the servicing agent for the loan pool, the originator of
the loan, or the financial institution providing the credit enhancement.
CURRENCY TRANSACTIONS - The fund has the ability to hold a portion of its
assets in various currencies and to enter into forward currency contracts to
protect against changes in currency exchange rates. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. The
fund might purchase a currency or enter into a forward purchase contract for
the currency to preserve the U.S. dollar price of securities it has the
authority to purchase or has contracted to purchase. Alternatively, it might
sell a currency on either a spot or forward basis to hedge against an
anticipated decline in the U.S. dollar value of securities in its portfolio or
which it intends or has contracted to sell. Although this strategy could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency.
LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or to other institutional investors
whose financial condition is monitored by Capital Research and Management
Company (the "Investment Adviser"). The borrower must maintain with the fund's
custodian collateral consisting of cash, cash equivalents or U.S. Government
securities equal to at least 100% of the value of the borrowed securities, plus
any accrued interest. The Investment Adviser will monitor the adequacy of the
collateral on a daily basis. The fund may at any time call a loan of its
portfolio securities and obtain the return of the loaned securities. The fund
will receive any interest paid on the loaned securities and a fee or a portion
of the interest earned on the collateral. The fund will limit its loans of
portfolio securities to an aggregate of one-third of the value of its total
assets, measured at the time any such loan is made.
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when it is
believed that the sale of a security owned by the fund and the purchase of
another security of better value can enhance principal and/or increase income.
A security may be sold to avoid any prospective decline in market value in
light of what is evaluated as an expected rise in prevailing yields, or a
security may be purchased in anticipation of a market rise (a decline in
prevailing yields). A security also may be sold and a comparable security
purchased coincidentally in order to take advantage of what is believed to be a
disparity in the normal yield and price relationship between the two
securities, or in connection with a "roll" transaction as described in the
Prospectus under "Certain Securities and Investment Techniques."
INVERSE FLOATING RATE NOTES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to invest up to 1.5%
of the fund's net assets in inverse floating rate notes (a type of derivative
instrument). These notes have rates that move in the opposite direction of
prevailing interest rates; thus, a change in prevailing interest rates will
often result in a greater change in the instruments' interest rates. As a
result, these instruments may have a greater degree of volatility than other
types of interest-bearing securities.
STRATEGIC PORTFOLIO ADJUSTMENT - The composition of the fund's portfolio will
change from time to time primarily in response to expected changes in interest
rates and in the yield relationships among sectors of the fixed-income market.
The Investment Adviser continually monitors the creditworthiness of companies,
the price and yield relationships among different sections of the debt market
and the outlook for interest rates in general and in particular parts of the
debt market. Yield relationships among securities of various types of issuers,
maturities, coupon rates or quality ratings frequently change in response to
changing supply-demand influences in the market. When it appears to the
Investment Adviser that the yield relationships may change, the composition of
the portfolio may be adjusted, should such changes offer the opportunity to
further the fund's investment objective. Changes may also be made if the
Investment Adviser believes that there is a temporary disparity among
individual securities of comparable characteristics. Some such changes may
result in short-term gains or losses to the fund. This information, which is
shared among the Investment Adviser's other departments and its affiliates,
makes up a part of the Investment Adviser's investment decisions.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
Prospectus for the fund's portfolio turnover for each of the last 10 years.
OTHER POLICIES - The fund may not make direct purchases of common or preferred
stocks or warrants or rights to acquire such common or preferred stocks. The
fund may invest in debt securities which are convertible into or exchangeable
for or which carry warrants or rights to purchase common stock or other equity
interests. Equity interests acquired through such conversion, exchange or
exercise will be disposed of by the fund as soon as it may feasibly be done in
an orderly manner.
INVESTMENT RESTRICTIONS
The fund has adopted certain additional investment restrictions which may not
be changed without approval of the holders of a majority of its outstanding
shares. Such majority is defined by the 1940 Act as the vote of the lesser of
(i) 67% or more of the outstanding voting securities present at a meeting, if
the holders of more than 50% of the outstanding voting securities are present
in person or by proxy, or (ii) more than 50% of the outstanding voting
securities. These restrictions provide that the fund may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if, immediately after and
as a result of such investment (a) more than 5% of the value of the fund's
total assets would be invested in securities of the issuer; or (b) the fund
would hold more than 10% of the voting securities of the issuer; or (c) 25% or
more of the value of the fund's assets would be invested in a single industry.
Each of the electric utility, natural gas distribution, natural gas pipeline,
combined electric and natural gas utility, and telephone industries shall be
considered as a separate industry for this purpose;
2. Invest in companies for the purpose of exercising control or management;
3. Knowingly purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization;
4. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in debt securities secured by real estate or interests
therein or issued by companies, including real estate investment trusts, which
invest in real estate or interests therein;
5. Buy or sell commodities or commodity contracts in the ordinary course of
its business, provided, however, that this shall not prohibit the fund from
purchasing or selling currencies including forward currency contracts;
6. Invest more than 15% of the value of its net assets in securities that are
illiquid;
7. Engage in the business of underwriting of securities of other issuers,
except to the extent that the disposal of an investment position may
technically constitute the fund an underwriter as that term is defined under
the Securities Act of 1933;
8. Make loans in an aggregate amount in excess of 10% of the value of the
fund's total assets, taken at the time any loan is made, provided, (i) that the
purchase of debt securities pursuant to the fund's investment objectives and
entering into repurchase agreements maturing in seven days or less shall not be
deemed loans for the purposes of this restriction, and (ii) that loans of
portfolio securities as described under "Loans of Portfolio Securities," shall
be made only in accordance with the terms and conditions therein set forth;
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;
10. Purchase securities at margin;
11. Borrow money except from banks for temporary or emergency purposes, not in
excess of 5% of the value of the fund's total assets;
12. Mortgage, pledge, or hypothecate any of its assets;
13. Purchase or retain the securities of any issuer, if those individual
officers and directors of the fund, its investment adviser, or distributor,
each owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
The fund has adopted the following non-fundamental investment policies, which
may be changed by action of the Board of Directors without shareholder
approval: (a) the fund will not invest more than 5% of its total assets in
securities of companies having, together with their predecessors, a record of
less than three years of continuous operation, and (b) the fund will not
purchase partnership interests or invest in leases to develop, or explore for,
oil, gas or minerals.
Notwithstanding Investment Restriction #3, the fund may invest in securities
of other managed investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND
ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS/2/ ON
CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH
COMPENSATION/1/) FROM MANAGEMENT COMPANY/2/ DIRECTOR
FUND DURING FISCAL SERVES
YEAR ENDED 12/31/94
<S> <C> <C> <C> <C> <C>
++ H. Frederick Christie Director Private Investor. The Mission
P. O. Box 144 Group (non-utility holding $6,000 $135,583 18
Palos Verdes, CA 90274 Company, subsidiary of Southern
Age: 61 California Edison Company),
former President and Chief
Executive Officer
Diane C. Creel Director Chairwoman, CEO and President,
100 W. Broadway The Earth Technology Corporation 533 7200 10
Suite 5000
Long Beach, CA 90802
Age: 46
Martin Fenton, Jr. Director Chairman, Senior Resource Group
4350 Executive Drive (management of senior living 5,600 /3/ 93,050 15
Suite 101 centers)
San Diego, CA 92123
Age: 59
Leonard R. Fuller Director President, Fuller & Company, Inc.
4333 Admiralty Way (financial management consulting 533 7,200 10
Suite 841 ETH firm)
Marina del Rey, CA
90292
Age: 48
+* Abner D. Goldstine President, PEO Capital Research and Management
Age: 65 and Director Company, Senior Vice President none/4/ none/4/ 12
and Director
+** Paul G. Haaga, Jr. Chairman of Capital Research and Management
Age: 46 the Board Company, Senior Vice President none/4/ none/4/ 14
and Director
Herbert Hoover III Director Private Investor
200 S. Los Robles 5,400 57,850 14
Avenue
Suite 520
Pasadena, CA
91101-2431
Age: 57
Richard G. Newman Director Chairman, President and CEO,
3250 Wilshire Boulevard AECOM Technology Corporation 5,600 /3/ 42,050 12
Los Angeles, CA 90010- (architectural engineering)
1599
Age: 50
Peter C. Valli Director Chairman and CEO, BW/IP
200 Oceangate Boulevard International Inc. (industrial 5,600 /3/ 40,850 12
Suite 900 manufacturing)
Long Beach, CA 90802
Age: 68
</TABLE>
+ Directors who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and Management
Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: Martin Fenton, Jr. ($5,804), Richard G. Newman ($5,752) and Peter C.
Valli ($5,737). Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
Director.
/4/ Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated with the
Investment Adviser and, accordingly, receive no compensation from the Fund.
OFFICERS
(with their principal occupations during the past five years)#
* RICHARD T. SCHOTTE, SENIOR VICE PRESIDENT. Capital Research Company, Senior
Vice
President
* JOHN H. SMET, VICE PRESIDENT. Capital Research and Management Company, Vice
President
** MARY C. CREMIN, VICE PRESIDENT AND TREASURER. Capital Research and
Management
Company, Senior Vice President - Fund Business Management Group
*** MICHAEL J. DOWNER, VICE PRESIDENT. Capital Research and Management
Company,
Senior Vice President - Fund Business Management Group
*** JULIE F. WILLIAMS, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
*** KIMBERLY S. VERDICK, ASSISTANT SECRETARY. Capital Research and Management
Company, Compliance Associate.
OFFICERS (cont.)
** ANTHONY W. HYNES, Assistant Treasurer. Capital Research and Management
Company, Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
** Address is 135 South State College Boulevard, Brea, CA 92621.
*** Address is 333 South Hope Street, Los Angeles, CA 90071.
The fund pays annual fees of $2850 to Directors who are not affiliated with
the Investment Adviser, plus $200 for each Board of Directors meeting attended,
plus $200 for each meeting attended as a member of a committee of the Board of
Directors. The Directors may elect, on a voluntary basis, to defer all or a
portion of these fees through a deferred compensation plan in effect for the
fund. The fund also reimburses certain expenses of the Directors who are not
affiliated with the Investment Adviser. As of February 1, 1995, the officers
and Directors and their families, as a group, owned beneficially or of record
less than 1% of the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for approximately $100 billion of
stocks, bonds and money market instruments and serve over five million
investors of all types throughout the world. These investors include privately
owned businesses and large corporations, as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the "Agreement") between the fund and the Investment Adviser
will continue until October 31, 1995 unless sooner terminated and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors, or by
the vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities, and (ii) the vote of a majority of directors who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in the performance of its obligations to
the fund not involving willful misconduct, bad faith, gross negligence or
reckless disregard of its obligations under the Agreement. The Agreement also
provides that either party has the right to terminate it, without penalty, upon
60 days' written notice to the other party and that the Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, provides suitable office space and utilities, necessary small office
equipment and general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer
and dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders, taxes; expenses of the issuance and redemption of shares
(including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; compensation, fees, and expenses paid
to directors unaffiliated with the Investment Adviser; association dues; and
costs of stationery and forms prepared exclusively for the fund.
The Investment Adviser has agreed to reduce the fee payable to it under the
agreement, (a) by the amount by which the ordinary operating expenses of the
fund for any fiscal year of the fund, excluding interest, taxes and
extraordinary expenses such as litigation, shall exceed the greater of (i) one
percent (1%) of the average month-end net assets of the fund for such fiscal
year, or (ii) ten percent (10%) of the fund's gross investment income, and (b)
by any additional amount necessary to assure that such ordinary operating
expenses of the fund in any year after such reduction do not exceed the lesser
of (i) one and one-half percent (1 1/2%) of the first $30 million of average
month-end net assets of the fund, plus one percent (1%) of the average
month-end net assets in excess thereof or (ii) twenty-five percent (25%) of the
fund's gross investment income.
During the fiscal years ended December 31, 1994, 1993, and 1992, the
Investment Adviser's total fees amounted to $18,755,000, $17,170,000, and
$13,243,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the
1940 Act (see "Principal Underwriter" in the Prospectus). The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended
December 31, 1994 amounted to $4,561,902 after allowance of $19,570,842 to
dealers. During the fiscal years ended December 31, 1992 and 1991 the
Principal Underwriter retained $8,418,631 and $7,091,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors and separately by a
majority of the Directors who are not "interested persons" of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested persons" of the fund due to present
or past affiliations with the investment adviser and related companies may be
considered to have a direct or indirect financial interest in the operation of
the Plan. Potential benefits of the plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Directors who
are not "interested persons" of the fund is committed to the discretion of the
Directors who are not "interested persons" during the existence of the Plan.
The Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the fund's Board of Directors has approved the
category of expenses for which payment is being made. These include service
fees for qualified dealers and dealer commissions and wholesaler compensation
on sales of shares exceeding $1 million (including purchases by any defined
contribution plan qualified under Section 401(a) of the Internal Revenue Code
including a "401(k)" plan with 200 or more eligible employees). Only expenses
incurred during the preceding 12 months and accrued while the Plan is in effect
may be paid by the fund. During the fiscal year ended December 31, 1994, the
fund paid $11,347,000, $9,768,000 under the Plan as compensation to dealers.
As of December 31, 1994 accrued and unpaid distribution expenses were $829,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable investment income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) and its tax-exempt
interest, if any, it will be taxed only on that portion (if any) of the
investment company taxable income and net capital gain that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months; and (c)
diversify its holdings so that at the end of each fiscal quarter, (i) at least
50% of the market value of the fund's assets is represented by cash, U.S.
Government securities and other securities which must be limited, in respect of
any one issuer, to an amount not greater than 5% of the fund's assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which the fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and net capital
gain and (ii) any amount on which the fund pays income tax during the periods
described above. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends and distributions declared in October, November and December
and made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the fund pays the
dividend no later than the end of January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a "non-U.S. shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. However, if the distribution is effectively connected
with the conduct of the non-U.S. shareholder's trade or business within the
U.S., the distribution would be included in the net income of the shareholder
and subject to U.S. income tax at the applicable marginal rate. Distributions
of capital gains not effectively connected with a U.S. trade or business are
not subject to the withholding, but if the non-U.S. shareholder was an
individual who was physically present in the U.S. during the tax year for more
than 182 days and such shareholder is nonetheless treated as a nonresident
alien, the distributions would be subject to a 30% tax.
The fund may be required to pay withholding and other taxes imposed by
countries outside the United States which would reduce the fund's investment
income, generally at rates from 10% to 40%. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If more
than 50% in value of the fund's total assets at the close of its taxable year
consist of securities of non-U.S. corporations, the fund will be eligible to
file elections with the Internal Revenue Service pursuant to which shareholders
of the fund will be required to include their respective pro rata portions of
such withholding taxes in their federal income tax returns as gross income,
treat such amounts as foreign taxes paid by them, and deduct such amounts in
computing their taxable incomes or, alternatively, use them as foreign tax
credits against their federal income taxes. The fund does not currently expect
to meet the eligibility requirement for filing this election as its investments
in securities of non-U.S. issuers are limited.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of non-U.S.
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Except for transactions in forward currency contracts which are classified as
part of a "mixed straddle," any gain nor loss recognized with respect to
forward currency contracts is considered to be 60% long-term capital gain or
loss, and 40% short-term capital gain or loss, without regard to the holding
period of the contract. In the case of a transaction classified as a "mixed
straddle," the recognition of losses may be deferred to a later taxable year.
Code Section 988 may also apply to forward currency contracts. Under Section
988, each non-U.S. currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
Under the Code, a fund's taxable income for each year will be computed without
regard to any net non-U.S. currency loss attributable to transactions after
October 31, and any such net non-U.S. currency loss will be treated as arising
on the first day of the following taxable year.
As of the date of this statement of additional information, the maximum
individual Federal tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gain is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gain is 35% (except that corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of income tax of up to $100,000). Naturally, the
amount of tax payable by an individual will be affected by a combination of tax
law rules covering, E.G., deductions, credits, deferrals, exemptions, sources
of income and other matters. Under the Code, an individual is entitled to
establish and contribute to an IRA each year (prior to the tax return filing
deadline for that year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary discussion of federal taxation and
should not be viewed as a comprehensive discussion of all provisions of the
Code relevant to investors. Dividends and distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received by
American Funds Service Company (the "Transfer Agent"), the fund or investment
dealers prior to the time of determination of the net asset value and, in the
case of orders placed with dealers, accepted by the Principal Underwriter prior
to its close of business. The dealer is responsible for promptly transmitting
purchase orders to the Principal Underwriter. Orders received by the
investment dealer, the Transfer Agent, or the fund after the time of the
determination of the net asset value will be entered at the next calculated
offering price. Prices which appear in the newspaper are not always indicative
of prices at which you will be purchasing and redeeming shares of the fund,
since such prices generally reflect the previous day's closing price whereas
purchases and redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Stocks and convertible bonds will be valued at closing sales prices
reported on recognized securities exchanges on the day of valuation or, for
listed stocks and convertible bonds having no sales reported and for unlisted
stocks and convertible bonds, upon last-reported bid prices on that date.
Non-convertible bonds, debentures and other long-term debt securities are
valued at prices obtained from a bond-pricing service provided by a major
dealer in bonds, when such prices are available; however, in circumstances
where the Investment Adviser deems it appropriate to do so, such securities
will be valued at the mean of representative quoted bid and asked prices or, if
such prices are not available, at prices for securities of comparable maturity,
quality and type. Short-term securities with original maturities of less than
one year and remaining maturities in excess of 60 days will be valued at the
mean of their quoted bid and asked prices or, if such prices are not available,
at prices for securities of comparable maturity, quality and type. Short-term
securities with original maturities of less than one year and with 60 days or
less to maturity will be amortized to maturity based on their cost to the fund
if acquired within 60 days of maturity or, if already held by the fund on the
60th day, based on the value determined on the 61st day.
Bonds denominated in currencies other than U.S. dollars will be valued at the
closing bid quotation obtained from Reuters Information Services Inc. The
value of each security denominated in a currency other than U.S. dollars will
be translated into U.S. dollars at the prevailing exchange rate as determined
by the fund's officers.
2. Where pricing service or market quotations are not readily available,
securities will be valued at fair value by the Valuation Committee of the Board
of Directors.
3. There are deducted from the total assets, thus determined, the liabilities,
including proper accruals of taxes and other expense items; and
4. The net assets so obtained is then divided by the total number of shares
outstanding, and the result, rounded to the nearest cent, is the net asset
value per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell shares (other than for the reinvestment
of dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
3% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $25,000 or more made within a
13-month period pursuant to the terms of a written statement of intention (the
"Statement") in the form provided by the Principal Underwriter and signed by
the purchaser. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder signs a Statement in order to qualify for
a reduced sales charge, shares equal to 5% of the dollar amount specified in
the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and capital gain distributions on shares held in escrow will be
credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 20 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
escrowed shares will be redeemed to pay such difference. If the proceeds from
this redemption are inadequate, the purchaser will be liable to the Principal
Underwriter for the balance still outstanding. The Statement may be revised
upward at any time during the 13-month period, and such a revision will be
treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The investment made the first
month of the 13-month period will be multiplied by 13 and then multiplied by
1.5. On the first investment and all other investments made pursuant to the
statement of intention, a sales charge will be assessed according to the sales
charge breakpoint thus determined. There will be no retroactive adjustments in
sales charges on investments previously made during the 13-month period.
DEALER COMMISSIONS - The following commissions will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k)" plan with 200 or more eligible employees, and
for purchases made at net asset value by certain retirement plans of
organizations with collective retirement plan assets of $100 million or more:
1.00% on amounts of $1 million to $2 million, 0.80% on amounts over $2 million
to $3 million, 0.50% on amounts over $3 million to $50 million, 0.25% on
amounts over $50 million to $100 million, and 0.15% on amounts over $100
million. The level of dealer commissions will be determined based on sales
made over a 12-month period commencing from the date of the first sale at net
asset value. See "The American Funds Shareholder Guide" in the fund's
Prospectus for more information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as trustee or custodian). Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement showing the current transaction. Participation in the
plan will begin within 30 days after receipt of the account application. If
the shareholder's bank account cannot be charged due to insufficient funds, a
stop-payment order or closing of the account, the plan may be terminated and
the related investment reversed. The shareholder may change the amount of the
investment or discontinue the plan at any time by writing the Transfer Agent.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
REDEMPTION OF SHARES
The fund's Articles of Incorporation permit the fund to direct the Transfer
Agent to redeem the shares of any shareholder if the shares owned by such
shareholder through redemptions, market decline or otherwise, have a value of
less than $150 (determined, for this purpose only as the greater of the
shareholder's cost or the current net asset value of the shares, including any
shares acquired through reinvestment of income dividends and capital gain
distributions), or are fewer than ten shares. Prior notice of at least 60 days
will be given to a shareholder before the involuntary redemption provision is
made effective with respect to the shareholder's account. The shareholder will
have not less than 30 days from the date of such notice within which to bring
the account up to the minimum determined as set forth above.
While payment of redemptions normally will be in cash, the fund's Articles of
Incorporation permit payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund when
in the opinion of the fund's Board of Directors, which shall be conclusive,
conditions exist which make payment wholly in cash unwise or undesirable.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund does not intend to pay a mark-up
in exchange for research in connection with principal transactions.
The fund held certain debt securities of two of its regular brokers or dealers
or their parents which included securities of Ford Motor Credit Co. and General
Electric Capital Corp. in the amounts of $71,353,000 and $35,201,000,
respectively, at December 31, 1994.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended December 31, 1994,
1993, and 1992, amounted to $6,647,968, $8,431,000, and $5,572,000,
respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank (National Association), One Chase
Manhattan Plaza, New York, NY 10081, as Custodian. Non-U.S. securities may be
held by the Custodian pursuant to sub-custodial agreements in non-U.S. banks or
non-U.S. branches of U.S. banks.
TRANSFER AGENT - The Transfer Agent, maintains the record of each shareholder's
account, processes purchases and redemptions of the fund's shares, acts as
dividend and capital gain distribution disbursing agent, and performs other
related shareholder service functions. When fund shares are purchased by an
insurance company separate account to serve as the underlying investment
vehicle for variable insurance contracts, the fund may pay a fee to the
insurance company or another party for performing certain transfer agent
services with respect to contract owners having interests in the fund. The
fund has entered into such an agreement with Nationwide Life Insurance Company.
INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent auditors
since its inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements, included in this Statement of Additional
Information from the attached Annual Report, have been so included in reliance
on the independent auditors' report given on the authority of said firm as
experts in accounting and auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors, as
though the fund were a common-law trust. Accordingly, the Directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any Director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined annually by the Board of
Directors.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE - DECEMBER 31, 1994
<S> <C>
Net asset value and redemption price per share $12.69
(Net assets divided by shares outstanding)
Maximum offering price per share $13.32
(100/95.25 of net asset value per share, which takes
into account the fund's current maximum sales charge)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 7.95% based on a 30-day (or one month) period ended
December 31, 1994, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's total return over the past twelve months and average annual total
returns over the past 5-year and 10-year periods ending on December 31, 1994,
were -9.52%, 7.52%, and 10.04%, respectively. The average total return ("T")
is computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales charge of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The investment results for the fund (also referred to as "BFA") set forth
below were calculated as described in the fund's prospectus. Data contained in
Salomon Brothers' Market Performance and Lehman Brother's The Bond Market
Report are used to calculate cumulative total return from their base period
(12/31/79 and 12/31/72, respectively) for each index. The percentage increases
shown in the table below or used in published reports of the fund are obtained
by subtracting the index results at the beginning of the period from the index
results at the end of the period and dividing the difference by the index
results at the beginning of the period.
THE FUND VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Period The Fund Salomon Lehman Average
1/1 - 12/31 Brothers (1) Brothers (2) Savings
Deposit (3)
<S> <C> <C> <C> <C>
1985 - 1994 + 160% + 160% + 175% + 77%
1984 - 1993 + 207 + 208 + 233 + 88
1983 - 1992 + 194 + 203 + 225 + 99
1982 - 1991 + 252 + 271 + 316 + 112
1981 - 1990 + 210 + 240 + 261 + 122
1980 - 1989 + 210 + 221 + 236 + 125
1979 - 1988 + 191 n/a + 189 + 125
1978 - 1987 + 168 n/a + 165 + 125
1977 - 1986 + 176 n/a + 167 + 125
1976 - 1985 + 184 n/a + 173 + 123
1975 - 1984 + 152 n/a + 157 + 119
1974*- 1983 + 134 n/a + 118 + 109
</TABLE>
* From May 28.
(1) The Salomon Brothers Broad Investment Grade Bond Index spans the available
market for U.S. Treasury/Agency securities, investment grade corporate bonds
which have a rating of BBB or better by Standard and Poor's Corporation, and
mortgage pass-through securities. This index's inception date is 12/31/79.
(2) The Lehman Brothers Corporate Bond Index is comprised of a large universe
of bonds issued by industrial, utility and financial companies which have a
minimum rating of Baa by Moody's Investors Service, BBB by Standard and Poor's
Corporation or, in the case of bank bonds not rated by either of the previously
mentioned services, BBB by Fitch Investors Service.
(3) Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
IF YOU ARE CONSIDERING THE FUND FOR AN INDIVIDUAL RETIREMENT ACCOUNT . . .
<TABLE>
<CAPTION>
<S> <C>
Here's how much you would have if you had invested $2,000 on
January 1 of each year in the Fund over the past 5 and 10 years:
5 Years 10 Years
(1/1/90-12/31/94) (1/1/85-12/31/94)
$31,405
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had invested ...and taken all
$10,000 in the Fund distributions in shares,
this many years ago... your investment would
have been worth this
much at Dec. 31, 1994
| Period |
Number of Years 1/1-12/31 Value
<S> <C> <C>
1 1994
$ 9,048
2 1993 - 1994
10,325
3 1992 - 1994
11,500
4 1991 - 1994
13,914
5 1990 - 1994
14,371
6 1989 - 1994
15,827
7 1988 - 1994
17,515
8 1987 - 1994
17,863
9 1986 - 1994
20,572
10 1985 - 1994
26,039
11 1984 - 1994
29,157
12 1983 - 1994
31,924
13 1982 - 1994
42,433
14 1981 - 1994
45,221
15 1980 - 1994
46,825
16 1979 - 1994
48,307
17 1978 - 1994
49,289
18 1977 - 1994
51,827
19 1976 - 1994
61,237
20 1975 - 1994
68,988
21 1974*- 1994
71,582
</TABLE>
* From May 28, 1974, the fund's inception date
FUND COMPARISONS
According to Lipper Analytical Services, during the period May 31, 1974
through December 31, 1994 (the fund's lifetime), the fund ranked first among
the thirteen similar bond funds that were in existence for that period.
The fund may also refer to results compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services and
Wiesenberger Investment Companies Services. Additionally, the Fund may, from
time to time, refer to results published in various periodicals, including
Barrons, Forbes, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
In addition, the fund may also, from time to time, illustrate the benefits of
tax deferral by comparing taxable investments to investments made through
tax-deferred retirement plans.
Past results are not an indication of future investment results.
ILLUSTRATION OF A $10,000 INVESTMENT IN THE FUND WITH
DIVIDENDS REINVESTED AND CAPITAL GAIN DISTRIBUTIONS TAKEN IN SHARES
(For the lifetime of the Fund May 28, 1974 through December 31, 1994)
<TABLE>
<CAPTION>
COST OF SHARES VALUE
OF SHARES
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value
Dec. 31 Cost Investment Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1974 $ 413 $ 413 $10,413 $ 9,473 $ 0 $ 411 $ 9,884
1975 897 1,310 11,310 9,799 0 1,338 11,137
1976 1,010 2,320 12,320 10,555 126 2,473 13,154
1977 1,114 3,434 13,434 10,125 240 3,466 13,831
1978 1,198 4,632 14,632 9,438 278 4,396 14,112
1979 1,387 6,019 16,019 8,848 260 5,448 14,556
1980 1,706 7,725 17,725 8,147 240 6,685 15,072
1981 2,096 9,821 19,821 7,564 222 8,287 16,073
1982 2,408 12,229 22,229 8,799 259 12,303 21,361
1983 2,529 14,758 24,758 8,612 253 14,517 23,382
1984 2,838 17,596 27,596 8,563 252 17,360 26,175
1985 3,193 20,789 30,789 9,722 286 23,132 33,140
1986 3,566 24,355 34,355 9,861 1,325 26,980 38,166
1987 3,746 28,101 38,101 9,119 1,225 28,571 38,915
1988 3,912 32,013 42,013 9,188 1,235 32,657 43,080
1989 4,425 36,438 46,438 9,181 1,234 37,028 47,443
1990 4,650 41,088 51,088 8,598 1,155 39,240 48,993
1991 4,859 45,947 55,947 9,507 1,277 48,519 59,303
1992 5,221 51,168 61,168 9,709 1,491 54,828 66,028
1993 5,269 56,437 66,437 10,028 3,501 61,833 75,362
1994 5,673 62,110 72,110 8,806 3,075 59,701 71,582
</TABLE>
The dollar amount of capital gain distributions during the period was $3,490
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C," according to quality as described below:
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality as
described below:
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
THE BOND FUND OF AMERICA
INVESTMENT PORTFOLIO DECEMBER 31, 1994
<TABLE>
<CAPTION>
THE BOND FUND OF AMERICA Market Percent
Principal of
INVESTMENT PORTFOLIO DECEMBER 31, 1994 Amount Value Net
Assets
(000) (000)
<S> <C> <C> <C>
ELECTRICAL & GAS UTILITIES
UTILITIES: ELECTRICAL & GAS
Big Rivers Electic Corp. 10.70% 2017 $17,000 $18,610 .38%
CEZ Finance BV 8.875% 1999/1/ 3,000 2,977 0.06
CMS Energy 0%/9.50% 1997/2/ 2,000 1,860 0.04
Commonwealth Edison Co. 6.50% 2000 5,000 4,515 0.09
Coso Funding Corp. 8.87% 2001/1/ 7,500 7,215 0.15
Hero Asia (BVI) Co. Ltd. 9.11% 2001/1/ 5,000 4,826 0.1
Korea Electric Power Corp. 6.375% 2003 13,000 11,036 0.22
Long Island Lighting Co. 8.90% 2019 5,000 4,090 0.08
Midland Cogeneration Venture, LP 10.33% 2002 13,537 12,861 0.26
Midland Cogeneration Venture, LP, secured lease
obligation bonds, 10.33% 2002 7,209 6,849 0.14
Transco Energy Co. 9.125% 1998 2,000 2,002 0.04
Transco Energy Co. 9.625% 2000 2,000 2,030 0.04
Transco Energy Co. 9.375% 2001 5,800 5,829 0.12
United Illuminating Co. 9.76% 2006 5,388 5,455 0.11
---------- ---------
-
90,155 1.45
---------- ---------
-
INDUSTRIAL & SERVICE
AUTOMOBILES
General Motors Corp. 9.45% 2011 20,000 20,504 0.41
General Motors Corp. 8.80% 2021 50,000 51,191 1.04
---------- ---------
-
71,695 1.45
---------- ---------
-
BEVERAGES & TOBACCO
Canandaigua Wine Co., Inc. 8.75% 2003 5,000 4,550 0.09
Dr. Pepper Bottlng Co. of Texas 10.25% 2000 8,500 8,500 0.17
Dr. Pepper/Seven-Up Cos. 0%/11.50% 2002/2/ 5,572 4,416 0.09
RJR Nabisco, Inc. 8.75% 2004 5,000 4,606 0.09
RJR Nabisco, Inc. 8.75% 2005 4,000 3,647 0.07
RJR Nabisco, Inc. 9.25% 2013 6,000 5,396 0.11
---------- ---------
-
31,115 0.62
---------- ---------
-
BROADCASTING & PUBLISHING
Infinity Broadcasting Corp. 10.375% 2002 11,250 11,362 0.23
Marvel Holdings, Inc. 0% 1998 52,750 32,441 0.66
Univision Television Group, Inc. 11.75% 2001/1/ 5,500 5,748 0.12
Univision Television Group, Inc. 7.00% 2002/1/ 3,498 2,064 0.04
---------- ---------
-
51,615 1.05
---------- ---------
-
CONSTRUCTION & HOUSING
Del Webb Corp. 9.75% 2003 10,000 8,300 0.17
Kaufman & Broad Home Corp. 10.375% 1999 7,500 7,462 0.15
M.D.C. Holdings, Inc. 11.125% 2003 9,000 7,200 0.15
---------- ---------
-
22,962 0.47
---------- ---------
-
DATA PROCESSING & REPRODUCTION
Data General Corp. 7.75% convertible debentures 2001 8,000 6,920 0.14
Data General Corp. 8.375% 2002 1,250 1,084 0.02
Digital Equipment Corp. 7.125% 2002 6,500 5,377 0.11
Maxtor Corp. 5.75% convertible debentures 2012 2,000 1,050 0.02
Neodata Services, Inc. 0%/12.00% 2003/2/ 12,000 9,360 0.19
Unisys Corp. 15.00% 1997 4,000 4,280 0.09
---------- ---------
-
28,071 0.57
---------- ---------
-
DIVERSIFIED MEDIA & CABLE TELEVISION
Adelphia Communications Corp. 9.50% 2004 3,507 2,359 0.05
American Media Operations, Inc. 11.625% 2004 2,000 2,050 0.04
Bell Cablemedia PLC 0%/11.95% 2004/2/ 36,000 19,260 0.39
Cablevision Industries Corp. 10.75% 2004 1,000 1,000 0.02
Cablevision Industries Corp. 9.875% 2013 5,000 4,500 0.09
Century Communications Corp. 9.50% 2000 5,650 5,424 0.11
Century Communications Corp. 9.75% 2002 5,550 5,328 0.11
Comcast Corp. 10.25% 2001 11,000 10,780 0.22
Comcast Corp. 1.125% convertible debentures 2007 25,000 10,062 0.2
Continental Cablevision, Inc. 8.50% 2001 22,050 20,506 0.42
Continental Cablevision, Inc. 10.625% 2002 4,500 4,511 0.09
Continental Cablevision, Inc. 8.625% 2003 4,000 3,640 0.07
Continental Cablevision, Inc. 8.875% 2005 12,000 10,860 0.22
Continental Cablevision, Inc. 11.00% 2007 4,000 4,060 0.08
Continental Cablevision, Inc. 9.00% 2008 12,000 10,800 0.22
Continental Cablevision, Inc. 9.50 % 2013 13,000 11,895 0.24
Insight Communications Co. 8.25% 2000/3/ 11,250 10,575 0.21
International CableTel Inc. 0%/10.875% 2003/2/ 9,000 4,770 0.1
News America Holdings Inc. 9.125% 1999 7,000 7,056 0.14
News America Holdings Inc. 12.00% 2001 4,250 4,722 0.1
News America Holdings Inc. 8.625% 2003 7,000 6,809 0.14
News America Holdings Inc. 10.125% 2012 27,500 28,366 0.58
News America Holdings Inc. 9.25% 2013 15,000 14,592 0.3
News America Holdings Inc. 8.625% 2014 3,250 1,890 0.04
News America Holdings Inc. 8.45% 2034 10,000 9,592 0.19
Rogers Communications Inc. 10.875% 2004 3,500 3,552 0.07
Storer Communications, Inc. 10.00% 2003 12,087 11,362 0.23
Tele-Communications, Inc. 7.375% 2000 6,000 5,624 0.11
Tele-Communications, Inc. 10.125% 2001 2,500 2,613 0.05
Time Warner Inc. 7.95% 2000 5,000 4,687 0.09
Time Warner Inc. 9.625% 2002/1/ 21,000 21,181 0.43
Time Warner Inc. 10.15% 2012/1/ 10,000 10,063 0.2
Time Warner Inc. 8.875% 2012/1/,/3/ 5,000 4,548 0.09
Time Warner Inc. 0% convertible debentures 2012 100,000 30,500 0.62
TKR Cable I, Inc. 10.50% 2007 26,000 26,590 0.54
Turner Broadcasting System 0% 2007 15,000 5,888 0.12
Viacom International Inc. 9.125% 1999 5,000 4,950 0.1
Viacom International Inc. 10.25% 2001 1,600 1,636 0.03
Videotron Holdings PLC 0%/11.125% 2004/2/ 16,500 8,663 0.18
---------- ---------
-
357,264 7.23
---------- ---------
-
ELECTRICAL & ELECTRONICS
General Electric Co. 8.625% 2008 3,000 3,084 0.06
MagneTek, Inc. 10.75% 1998 7,500 7,500 0.15
Samsung Electronics Co., Ltd. 8.50% 2002/1/ 27,850 26,590 0.54
Westinghouse Electric Corp. 8.875% 2001 4,000 3,855 0.08
Westinghouse Electric Corp. 8.375% 2002 7,000 6,504 0.13
---------- ---------
-
47,533 0.96
---------- ---------
-
ENERGY & RELATED COMPANIES
BP America Inc. 10.00% 2018 4,000 4,339 0.09
California Energy Co., Inc. 0%/10.25% 2004/2/ 33,600 24,024 0.49
Global Marine Inc. 12.75% 1999 12,750 13,706 0.28
Maxus Energy Corp. 9.875% 2002 5,500 4,785 0.1
Occidental Petroleum Corp. 9.25% 2019 12,000 12,521 0.25
Oryx Energy Co. 9.30% 1996 6,000 5,975 0.12
Oryx Energy Co. 9.50% 1999 3,500 3,351 0.07
Petronas 6.875% 2003/2/ 6,000 5,378 0.11
Subic Power Corp. 9.50% 2008/1/ 8,448 7,244 0.15
---------- ---------
-
81,323 1.66
---------- ---------
-
FOOD RETAILING
Ralphs Grocery Co. 10.25% 2002 16,700 16,408 0.33
Ralphs Grocery Co. 9.00% 2003 4,000 3,880 0.08
Safeway Inc. 10.00% 2002 1,500 1,530 0.03
Smith's Food & Drug Centers, Inc., Series 94A2,
0%/8.64% 2012/2/ 12,000 11,046 0.22
Star Markets Co., Inc. 13.00% 2004/1/ 1,500 1,530 0.03
Stater Brothers Holdings, Inc. 11.00% 2001 9,500 8,883 0.18
Vons Companies, Inc. 9.625% 2002 8,000 7,840 0.16
---------- ---------
-
51,117 1.03
---------- ---------
-
FOREST PRODUCTS & PAPER
Container Corp. of America 9.75% 2003 38,000 36,290 0.74
Container Corp. of America 11.25% 2004 2,500 2,562 0.05
Fort Howard Corp. 9.25% 2001 7,750 7,246 0.15
Fort Howard Corp. 10.00% 2003 9,750 9,116 0.18
Fort Howard Paper Co. 8.25% 2002 3,000 2,685 0.05
Fort Howard Paper Co. 9.00% 2006 6,750 5,805 0.12
Grupo Industrial Durango SA de CV 9.6875% 1996/1/,/3/ 7,500 7,200 0.15
Klabin Fabricadora de Papel e Celulose SA 10.00% 2001 2,500 2,213 0.04
P.T. Indah Kiat Paper & Pulp Corp. 11.375% 1999/1/ 4,500 4,388 0.09
P.T. Indah Kiat Paper & Pulp Corp. 8.875% 2000/1/ 9,135 7,947 0.16
P.T. Indorayon Yankee 9.125% 2000 3,000 2,445 0.05
Pacific Lumber Co. 10.50% 2003 500 465 0.01
Riverwood International Corp. 10.75% 2000 12,000 12,210 0.25
Riverwood International Corp. 11.25% 2002 5,000 5,137 0.1
Riverwood International Corp., Series II 10.75% 2000 3,500 3,561 0.07
Tjiwi Kimia International Finance Co. 13.25% 2001 10,250 10,352 0.21
---------- ---------
-
119,622 2.42
---------- ---------
-
GENERAL RETAILING & MERCHANDISING
Allied Supermarkets Inc. 6.625% 1998 3,590 3,267 0.07
Ann Taylor 8.75% 2000 5,000 4,725 0.1
Barnes & Noble, Inc. 11.875% 2003/1/ 10,500 11,235 0.23
CompUSA, Inc. 9.50% 2000 6,000 4,980 0.1
Dayton Hudson Corp. 9.52% 2015 7,500 8,197 0.17
Dayton Hudson Corp. 9.35% 2020 6,000 6,528 0.13
Levitz Furniture Corp. 12.375% 1997 7,750 7,982 0.16
Payless Cashways, Inc. 9.125% 2003 7,000 6,265 0.13
Thrifty Payless, Inc. 11.75% 2003 11,500 11,270 0.23
Thrifty Payless, Inc. 12.25% 2004 1,500 1,410 0.03
Thrifty Payless, Inc. 12.25% 2004 5,000 5,050 0.1
---------- ---------
-
70,909 1.45
---------- ---------
-
HEALTH & PERSONAL CARE
FHP International Corp. 7.00% 2003 5,000 4,440 0.09
---------- ---------
-
LEISURE & TOURISM
Circus Circus Enterprises, Inc. 10.625% 1997 8,000 8,233 0.17
Embassy Suites, Inc. 8.75% 2000 3,000 2,820 0.06
Euro Disney S.C.A. 6.75% convertible debentures 2001 FF108,780 14,441 0.29
Foodmaker, Inc. 9.25% 1999 $12,200 10,370 0.21
Foodmaker, Inc. 9.75% 2002 4,300 3,268 0.07
Four Seasons Hotels Inc. 9.125% 2000 6,000 5,520 0.11
Host Marriott Hospitality, Inc. 9.125% 2000 5,833 5,753 0.12
Host Marriott Hospitality, Inc. 10.375% 2011 1,480 1,480 0.03
Kloster Cruise Ltd. 13.00% 2003 13,500 12,150 0.25
Six Flags Corp. 0% 1999 22,000 13,690 0.28
---------- ---------
-
77,725 1.59
---------- ---------
-
MACHINERY & ENGINEERING
Coleman Holdings, Inc. 0% 1998 3,500 2,354 0.05
Coltec Industries 9.75% 1999 7,000 6,860 0.14
Coltec Industries 9.75% 2000 7,500 7,350 0.15
John Deere Capital Corp. 8.625% 2019 9,150 9,296 0.19
---------- ---------
-
25,860 0.53
---------- ---------
-
METALS
Acme Metals Inc. 0%/13.50% 2004/2/ 9,000 6,075 0.12
Armco Inc. 11.375% 1999 12,000 12,000 0.24
ISPAT Mexicana (Euro) 10.375% 2001 4,650 3,976 0.08
ISPAT Mexicana 10.375% 2001/1/ 5,000 4,275 0.09
Kaiser Aluminum and Chemical Corp. 12.75% 2003 2,500 2,519 0.05
Pohang Iron & Steel Co., Ltd. 7.50% 2002 10,000 9,282 0.19
Tubos de Acero de Mexico, SA 13.750% 1999/1/ 2,500 2,363 0.05
USX Corp. 9.625% 2003 6,000 6,157 0.12
USX Corp. 0% convertible debentures 2005 40,000 17,500 0.35
USX Corp. 9.125% 2013 5,000 4,770 0.1
---------- ---------
-
68,917 1.39
---------- ---------
-
MISCELLANEOUS MATERIALS & COMMODITIES
Anchor Glass Container Corp. 10.25% 2002 3,000 2,850 0.06
Hyster-Yale Materials Handling, Inc. 12.375% 1999 447 469 0.01
Owens-Illinois, Inc. 11.00% 2003 7,000 7,263 0.15
Tolmex, SA de CV 8.375% 2003 5,500 3,960 0.08
---------- ---------
-
14,542 0.3
---------- ---------
-
MULTI-INDUSTRY
Hanson America, Inc. 144A 2.39% convertible
debentures 2001/1/ 40,000 28,600 0.58
Tenneco Inc. 7.875% 2002 3,000 2,851 0.06
Tenneco Inc. 10.00% 2008 8,720 9,543 0.19
---------- ---------
-
40,994 0.83
---------- ---------
-
OTHER
United States Banknote Co. 10.375% 2002 1,500 1,275 0.03
---------- ---------
-
TELECOMMUNICATIONS
Cellular Inc. 0%/11.75% 2003/2/ 10,500 6,930 0.14
CenCall Communications Corp. 10.125% 2004 33,500 11,725 0.24
Centennial Cellular Corp. 8.875% 2001 19,000 16,815 0.34
Comcast Cellular Corp., Series A, 0% 2000 23,500 15,862 0.32
Comcast Cellular Corp., Series B, 0% 2000 29,400 19,845 0.4
Dial Call Communications, Inc. 0%/12.25% 2004/2/ 38,750 13,562 0.27
GTE Corp. 8.85% 1998 9,500 9,591 0.19
Horizon Cellular Telephone Co., LP 0%/11.375% 2000/2/ 13,000 9,165 0.19
MFS Communications Co., Inc. 0%/9.375% 2004/2/ 35,000 21,000 0.43
MobileMedia Communications, Inc. 0%/10.50% 2003/2/ 14,600 7,884 0.16
NEXTEL Communications, Inc. 0%/11.50% 2003/2/ 56,000 21,840 0.44
NEXTEL Communications, Inc. 0%/9.75% 2004/2/ 60,000 21,000 0.43
Northern Telecom Ltd. 8.75% 2001 3,500 3,544 0.07
Paging Network, Inc. 11.75% 2002 11,675 11,675 0.24
Paging Network, Inc. 8.875% 2006 2,000 1,560 0.03
PanAmSat, LP PanAmSat Capital Corp. 0%/11.375% 2003/2/ 14,000 8,750 0.18
PanAmSat, LP PanAmSat Capital Corp. 9.75% 2000 9,800 9,237 0.19
PriCellular Wireless Corp. 0%/14.00% 2001/2/ 3,500 2,328 0.05
Rogers Cantel Mobile Communications Inc. 10.75% 2001 38,475 38,956 0.79
---------- ---------
-
251,269 5.1
---------- ---------
-
TEXTILES & APPAREL
VF Corp. 9.25% 2022 4,000 4,032 0.08
Westpoint Stevens Inc. 8.75% 2001 4,500 4,140 0.08
---------- ---------
-
8,172 0.16
---------- ---------
-
TRANSPORTATION
Air Wis Services, Inc. 7.75% convertible debentures 2010 4,000 2,440 0.05
Alaska Air Lyon 0% convertible debentures 2006 23,750 9,916 0.2
Alaska Airlines, Series A, 9.50% 2010 2,461 2,236 0.05
Alaska Airlines, Series B, 9.50% 2010 3,092 2,806 0.06
Alaska Airlines, Series C, 9.50% 2010 3,002 2,705 0.05
Alaska Airlines, Series D, 9.50% 2012 4,990 4,513 0.09
American Airlines, Inc., 1991-A, pass-through
certificates, 9.71% 2007/1/, 4 9,496 9,131 0.18
AMR Corp. 9.00% 2012 7,500 6,732 0.14
Delta Air Lines, Inc. 8.25% 1996 6,000 5,937 0.12
Delta Air Lines, Inc. 9.875% 2000 8,000 7,971 0.16
Delta Air Lines, Inc. 10.375% 2011 2,500 2,444 0.05
Delta Air Lines, Inc. 10.00% 2014/1/ 3,000 2,700 0.05
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014/4/ 5,000 4,275 0.09
Delta Air Lines, Inc., pass-through certificates,
Series 1992-B1, 9.375% 2007/4/ 9,495 8,866 0.18
Federal Express Corp. 8.40% 2010 10,000 9,245 0.19
NWA, Inc. 8.625% 1996 5,000 4,800 0.1
Northwest Airlines, Inc. 12.0916% 2000/1/ 7,973 7,813 0.16
TNT Transport (Euro) PLC/TNT (USA) Inc. 11.50% 2004 4,750 4,774 0.1
United Air Lines, Inc. 10.67% 2004 4,500 4,532 0.09
United Air Lines, Inc. 9.125% 2012 5,000 4,330 0.09
United Air Lines, Inc., pass-through certificates,
Series 1993-A3, 8.39% 2011/4/ 7,500 6,315 0.13
Viking 9.625% 2003 7,000 6,510 0.13
---------- ---------
-
120,991 2.46
---------- ---------
-
FINANCE
BANKING & THRIFTS
Bank of Scotland 8.80% 2004/1/ 16,000 16,123 0.33
CalFed Inc. 10.00% 2003 846 753 0.02
Chevy Chase Savings Bank, F.S.B. 9.25% 2005 3,500 2,940 0.06
Coast Federal Bank 13.00% 2002 5,000 5,500 0.11
Coast Savings Financial, Inc. 10.00% 2000 6,500 6,110 0.12
First Federal Michigan Eurobond 0% 2005 10,000 4,206 0.09
First Nationwide 12.25% 2001 9,000 9,045 0.18
First Nationwide 10.00% 2006 5,850 5,843 0.12
Midland American Capital 12.75% 2003 12,150 13,816 0.28
Skandinaviska Enskilda Banken (N.Y. City) 6.875% 2009 5,000 4,162 0.08
State Bank of New South Wales Euronotes 10.375% 1999 3,000 3,221 0.07
Union Bank Finland Ltd. 5.25% 1996 3,000 2,873 0.06
---------- ---------
-
74,592 1.52
---------- ---------
-
FINANCIAL SERVICES
Beneficial Corp. 12.875% 2013 3,800 4,449 0.09
Fairfax Financial Holdings Ltd. 7.75% 2003 7,750 6,870 0.14
Ford Motor Credit Co. 9.50% 2000 7,350 7,637 0.15
General Electric Capital Corp. 8.875% 2009 8,000 8,200 0.17
General Motors Acceptance Corp. 6.70% 1997 8,000 7,704 0.16
General Motors Acceptance Corp. 7.00% 2000 5,000 4,681 0.09
General Motors Acceptance Corp. 9.625% 2001 6,500 6,827 0.14
General Motors Acceptance Corp. 8.75% 2005 10,000 10,000 0.2
General Motors Acceptance Corp. 8.875% 2010 2,500 2,504 0.05
General Motors Acceptance Corp. International,
medium-term note (Euro-Yen), 3.75% 1999 (yen)1,000,000 9,719 0.2
New American Capital, Inc. 9.60% 1999/1/ 15,000 14,813 0.3
Xerox Credit Corp. 10.125% 1999 5,000 5,113 0.1
---------- ---------
-
88,517 1.79
---------- ---------
-
INSURANCE
American Re Corp. 10.875% 2004 46,000 48,662 0.98
---------- ---------
-
REAL ESTATE
B.F. Saul REIT 11.625% 2002 13,500 11,340 0.23
Beverly Finance Corp. 8.36% 2004/1/ 15,000 14,284 0.29
Corporate Property Investors 9.00% 2002/1/ 15,000 15,206 0.31
Corporate Property Investors 7.75% 2004/1/ 7,500 7,023 0.14
Shopping Center Associates 6.75% 2004/1/ 7,500 6,514 0.13
---------- ---------
-
54,367 1.1
---------- ---------
-
COLLATERALIZED MORTGAGE/ASSET-BACKED OBLIGATIONS/4/
(EXCLUDING THOSE ISSUED BY FEDERAL AGENCIES)
Capstead Securities Corp., collateralized mortgage
obligations, Series 1992-A, Class 10, 13.123% 2002 3,913 1,937 0.04
Capstead Securities Corp. IV, collateralized mortgage
obligations, Series 1992-4, Class J, 24.231% 2002/5/ 8,750 8,312 0.17
Chase Manhattan Bank, N.A., Series 93-I, Class 2A5,
7.25% 2024 10,000 9,175 0.19
Countrywide Funding Corp., Series 94-2, Class A-12,
9.50341% 2009/5/ 5,206 2,291 0.05
GCC Home Equity Trust, asset-backed certificates,
Series 1990-1, 10.00% 2005 5,667 5,678 0.11
G E Capital Mortgage Services,Series 1994-15, Class
A10, 6.00% 2009 16,376 12,814 0.26
G E Capital Mortgage Services, Series 1994-10, Class
A26, 9.152% 2024/5/ 6,009 1,562 0.03
Green Tree Financial Corp., pass-through
certificates, Series 1994-A, Class NIM, 6.90% 2004 4,118 3,922 0.08
Green Tree Financial Corp., pass-through
certificates, Series 1993-2, Class B, 8.00% 2018 2,250 1,993 0.04
Jet Equipment Trust Series 1994-A 10.91% 2006 7,000 7,014 0.14
MBNA Credit Card Trust, asset-backed certificates,
Series 1991-1, 7.75% 1998 11,000 10,921 0.22
Prudential Home Mortgage Securities Co., Inc.,
Series 1993-48, Class A-6, 6.25% 2008 4,466 3,594 0.07
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-46, Class A-13, 10.682% 2008/5/ 4,431 2,171 0.04
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-37, Class A-6, 7.00% 2022 2,500 2,416 0.05
Prudential Home Mortgage Securities Co., Inc.,
Series 1993-7, Class A-4, 8.00% 2003 9,323 9,011 0.18
Prudential Home Mortgage Securities Co., Inc.,
Series 1993-7, Class A-5, 8.00% 2003 7,336 7,276 0.15
Residential Funding Mortgage Securities I, Inc.,
Series 1992-S22, Class A-5, 8.00% 2005 221 220 0
Residential Funding Mortgage Securities I, Inc.,
Series 1993-48, Class A-10, 8.2331% 2008 4,598 2,391 0.05
Residential Funding Mortgage Securities I, Inc.,
Series 1991-S5, Class A-8, 9.225% 2021 83 83 0
Residential Funding Mortgage Securities I, Inc.,
Series 1992-S6, Class A-10, 15.333% 2022/5/ 10,124 7,897 0.16
Resolution Trust Corp., Series 1991-M5, Class B,
9.00% 2017 2,806 2,701 0.05
Resolution Trust Corp., Series 1992-C5, Class C,
8.85% 2022 10,404 9,832 0.2
Resolution Trust Corp., Series 1992-6, Class A-2B,
8.40% 2024 10,602 10,443 0.21
Resolution Trust Corp., Series 1992-C6, Class C,
8.00% 2024 7,257 6,595 0.13
Resolution Trust Corp., Series 1993-C1, Class D,
9.45% 2024 9,352 8,943 0.18
Resolution Trust Corp., Series 1993-C1, Class E,
9.50% 2024 1,042 992 0.02
Resolution Trust Corp., Series 1993-C2, Class C,
8.00% 2025 3,000 2,738 0.06
Resolution Trust Corp., Series 1993-C2, Class D,
8.50% 2025 3,290 3,075 0.06
Resolution Trust Corp., Series 1993-C2, Class E,
8.50% 2025 1,244 1,172 0.02
Ryland Mortgage Securities Corp., Series 1991-14,
Class F, 26.374% 2021/5/ 1,070 1,188 0.02
Sears Credit Account Trust, Series 1991-C, 8.65% 1998 20,000 20,162 0.41
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1991-1A, 8.50% 1997 20,500 20,654 0.42
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 4,563 0.09
Standard Credit Card Trust, credit card participation
certificates, Series 1990-3A, 9.50% 1998 5,000 5,136 0.1
Standard Credit Card Trust, credit card participation
certificates, Series 1990-6A, 9.375% 1998 9,500 9,737 0.2
Standard Credit Card Trust, credit card participation
certificates, Series 1991-3A, 8.875% 1999 11,000 11,223 0.23
Travelers Mortgage Services, Inc., pass-through
certificates, Series 1989-9, Class Z-2, 8.80% 2019 1,003 978 0.02
---------- ---------
-
220,810 4.45
---------- ---------
-
GOVERNMENTAL
GOVERNMENTS (EXCLUDING U.S. GOVERNMENT)
Argentina (Republic of) 8.37% 2003 14,000 9,975 0.2
Argentina (Republic of) 4.00% 2023 15,000 6,356 0.13
Argentina Bocon 4.3125% 2001 11,500 6,692 0.14
British Columbia Hydro & Power Authority 15.50% 2011/1/ 17,000 19,743 0.4
British Columbia Hydro & Power Authority 15.50% 2011/1/ 11,967 14,127 0.29
British Columbia Hydro & Power Authority 12.50% 2013/3/ 4,000 4,637 0.09
British Columbia Hydro & Power Authority 12.50% 2014/4/ 7,000 8,165 0.17
Canadian Government 8.75% 1996 C$40,000 28,541 0.58
Canadian Government 9.25% 1996 46,250 33,252 0.67
Canadian Government 10.50% 2001 3,000 2,280 0.05
Canadian Government 4.25% 2021 1,000 661 0.01
Italian Government National 8.50% 1999 ITL5,000,0 2,706 0.05
00
Italian Government National 8.50% 2004 3,200,000 1,601 0.03
Italian Government National 8.50% 2004 12,500,000 6,185 0.13
Italy (Republic of) 6.875% 2023 $20000 15,754 0.32
Manitoba (Province of) 9.25% 2020 5,000 5,252 0.11
National Bank of Hungary 8.80% 2002 3,500 3,080 0.06
Netherlands Government DFL 7.50% 2023 FL5,000 2,711 0.05
New South Wales Treasury 6.50% 2006 A$3,000 1,711 0.03
Nova Scotia (Province of) 7.25% 2013 $ 4000 3,384 0.07
Nova Scotia (Province of) 11.50% 2013 2,212 2,460 0.05
Ontario (Province of) 7.75% 2002 3,500 3,381 0.07
Ontario (Province of) 17.00% 2011 11,250 13,535 0.27
Ontario (Province of) 15.25% 2012 6,985 8,443 0.17
Ontario (Province of) 11.50% 2013 5,000 5,553 0.11
Petroleo Brasileiro S.A. 9.275% debentures 1998/3/ 7,500 7,613 0.15
Quebec (Province of) 13.25% 2014 5,500 6,672 0.14
Queensland Global Treasury Note 8.00% 2001 17,000 11,701 0.24
Queensland Global Treasury Note 12.00% 2001 5,000 4,190 0.08
Spain (Kingdom of) 11.45% 1998 PTA600,000 4,530 0.09
Spain (Kingdom of) 10.50% 2003 600,000 4,231 0.09
United Mexican States Government Eurobonds, Series A,
6.25% 2019 1,000 538 0.01
United Mexican States Government Eurobonds, Series B,
6.25% 2019 6,500 3,494 0.07
---------- ---------
-
253,154 5.12
---------- ---------
-
DEVELOPMENT AUTHORITIES
Inter-American Development Bank 8.875% 2009 10,000 10,585 0.21
International Bank for Reconstruction & Development
14.90% 1997 2,500 2,854 0.06
---------- ---------
-
13,439 0.27
---------- ---------
-
FEDERAL AGENCY OBLIGATIONS - MORTGAGE PASS-THROUGHS/4/
Federal Home Loan Mortgage Corp. 8.00% 2003-2010
Federal Home Loan Mortgage Corp. 8.00% 2003-2010
Federal Home Loan Mortgage Corp. 8.00% 2003-2010
Federal Home Loan Mortgage Corp. 8.00% 2003-2010
Federal Home Loan Mortgage Corp. 8.00% 2003-2010
Federal Home Loan Mortgage Corp. 8.00% 2003-2010 9,114 8,740 0.18
Federal Home Loan Mortgage Corp. 8.25% 2007
Federal Home Loan Mortgage Corp. 8.25% 2007
Federal Home Loan Mortgage Corp. 8.25% 2007 4,011 3,874 0.08
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020
Federal Home Loan Mortgage Corp. 8.50% 2002-2020 16,442 16,172 0.33
Federal Home Loan Mortgage Corp. 8.75% 2008
Federal Home Loan Mortgage Corp. 8.75% 2008
Federal Home Loan Mortgage Corp. 8.75% 2008
Federal Home Loan Mortgage Corp. 8.75% 2008
Federal Home Loan Mortgage Corp. 8.75% 2008 5,267 5,191 0.11
Federal Home Loan Mortgage Corp. 9.00% 2021 1,548 1,557 0.03
Federal Home Loan Mortgage Corp. 10.00% 2011-2019
Federal Home Loan Mortgage Corp. 10.00% 2011-2019
Federal Home Loan Mortgage Corp. 10.00% 2011-2019 960 1,001 0.02
Federal Home Loan Mortgage Corp. 10.75% 2010
Federal Home Loan Mortgage Corp. 10.75% 2010
Federal Home Loan Mortgage Corp. 10.75% 2010 220 235 0
Federal Home Loan Mortgage Corp. 11.50% 2000
Federal Home Loan Mortgage Corp. 11.50% 2000
Federal Home Loan Mortgage Corp. 11.50% 2000 79 84 0
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015
Federal Home Loan Mortgage Corp. 12.00% 2010-2015 2,542 2,749 0.06
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019
Federal Home Loan Mortgage Corp. 12.50% 2009-2019 2,816 3,212 0.07
Federal Home Loan Mortgage Corp. 12.75% 2015-2019
Federal Home Loan Mortgage Corp. 12.75% 2015-2019
Federal Home Loan Mortgage Corp. 12.75% 2015-2019 963 1,095 0.02
Federal Home Loan Mortgage Corp. 13.00% 2014 80 92 0
Federal Home Loan Mortgage Corp. 13.50% 2018 50 58 0
Federal Home Loan Mortgage Corp. 13.75% 2014 40 45 0
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023
Federal National Mortgage Assn. 7.00% 2013-2023 34,509 31,318 0.63
Federal National Mortgage Assn. 7.50% 2023-2024
Federal National Mortgage Assn. 7.50% 2023-2024
Federal National Mortgage Assn. 7.50% 2023-2024
Federal National Mortgage Assn. 7.50% 2023-2024
Federal National Mortgage Assn. 7.50% 2023-2024
FNCI POOL #286168 7.500% 06-01-09
FNCI POOL #292811 7.500% 10-01-09
FNCI POOL #292956 7.500% 10-01-09
FNCI POOL #294214 7.500% 10-01-09
FNCI POOL #296707 7.500% 10-01-09
Federal National Mortgage Assn. 7.50% 2023-2024 18,472 17,366 0.35
Federal National Mortgage Assn. 8.00% 2023
Federal National Mortgage Assn. 8.00% 2023
Federal National Mortgage Assn. 8.00% 2023 3,985 3,817 0.08
Federal National Mortgage Assn. 8.50% 2022-2023
Federal National Mortgage Assn. 8.50% 2022-2023
Federal National Mortgage Assn. 8.50% 2022-2023
Federal National Mortgage Assn. 8.50% 2022-2023 9,083 8,936 0.18
Federal National Mortgage Assn. 9.00% 2018-2025
Federal National Mortgage Assn. 9.00% 2018-2025
Federal National Mortgage Assn. 9.00% 2018-2025 6,020 6,051 0.12
Federal National Mortgage Assn. 11.00% 2015 213 229 0
Federal National Mortgage Assn. 11.25% 2014 110 118 0
Federal National Mortgage Assn. 11.50% 2010-2014
Federal National Mortgage Assn. 11.50% 2010-2014
Federal National Mortgage Assn. 11.50% 2010-2014 454 493 0.01
Federal National Mortgage Assn. 12.00% 2015-2019
Federal National Mortgage Assn. 12.00% 2015-2019
Federal National Mortgage Assn. 12.00% 2015-2019 229 251 0.01
Federal National Mortgage Assn. 12.50% 2015
Federal National Mortgage Assn. 12.50% 2015
Federal National Mortgage Assn. 12.50% 2015 508 559 0.01
Federal National Mortgage Assn. 13.00% 2014 67 77 0
Federal National Mortgage Assn. 13.25% 2015 28 32 0
Federal National Mortgage Assn. 15.00% 2013 99 114 0
Government National Mortgage Assn. 4.50% 2023-2024
Government National Mortgage Assn. 4.50% 2023-2024
Government National Mortgage Assn. 4.50% 2023-2024
Government National Mortgage Assn. 4.50% 2023-2024
Government National Mortgage Assn. 4.50% 2023-2024
Government National Mortgage Assn. 4.50% 2023-2024/3/ 159,115 144,758 2.93
Government National Mortgage Assn. 5.00% 2024
Government National Mortgage Assn. 5.00% 2024
Government National Mortgage Assn. 5.00% 2024
Government National Mortgage Assn. 5.00% 2024
Government National Mortgage Assn. 5.00% 2024
Government National Mortgage Assn. 5.00% 2024
Government National Mortgage Assn. 5.00% 2024/3/ 66,023 61,131 1.24
Government National Mortgage Assn. 5.50% 2024
Government National Mortgage Assn. 5.50% 2024
Government National Mortgage Assn. 5.50% 2024/3/ 1,921 1,809 0.04
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024
Government National Mortgage Assn. 6.50% 2023-2024 38,758 33,587 0.68
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025
Government National Mortgage Assn. 7.00% 2022-2025 79,215 71,154 1.44
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2022-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2017-2024
Government National Mortgage Assn. 7.50% 2022-2024
Government National Mortgage Assn. 7.50% 2022-2024
Government National Mortgage Assn. 7.50% 2022-2024 58,614 54,417 1.1
Government National Mortgage Assn. 8.00% 2017-2023
Government National Mortgage Assn. 8.00% 2017-2023
Government National Mortgage Assn. 8.00% 2017-2023
Government National Mortgage Assn. 8.00% 2017-2023 4,167 4,013 0.08
Government National Mortgage Assn. 8.50% 2020 2,153 2,116 0.04
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2021
Government National Mortgage Assn. 9.00% 2016-2024
Government National Mortgage Assn. 9.00% 2016-2024
Government National Mortgage Assn. 9.00% 2016-2024
Government National Mortgage Assn. 9.00% 2016-2024
Government National Mortgage Assn. 9.00% 2016-2024 13,111 13,226 0.27
Government National Mortgage Assn. 9.50% 2017-2020
Government National Mortgage Assn. 9.50% 2017-2020
Government National Mortgage Assn. 9.50% 2017-2020
Government National Mortgage Assn. 9.50% 2017-2020 3,172 3,272 0.07
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019
Government National Mortgage Assn. 10.00% 2017-2019 3,665 3,852 0.08
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019
Government National Mortgage Assn. 10.50% 2015-2019 1,224 1,305 0.03
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016
Government National Mortgage Assn. 11.00% 2013-2016 2,177 2,365 0.05
Government National Mortgage Assn. 11.50% 2015 82 90 0
Government National Mortgage Assn. 12.00% 2014 201 218 0
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015
Government National Mortgage Assn. 12.50% 2010-2015 1,388 1,559 0.03
Government National Mortgage Assn. 13.25% 2014
Government National Mortgage Assn. 13.25% 2014
Government National Mortgage Assn. 13.25% 2014 113 126 0
---------- ---------
-
512,464 10.37
---------- ---------
-
FEDERAL AGENCY OBLIGATION - OTHER
Federal Home Loan Bank Bonds 6.00% 1996 10,000 9,787 0.2
Federal Home Loan Bank Bonds 8.23% 2004 5,000 4,830 0.1
Federal Home Loan Bank Notes 6.41% 2003 3,685 3,178 0.06
Federal Home Loan Bank Notes 6.16% 2004 24,000 20,625 0.42
Federal Home Loan Bank Notes 6.27% 2004 5,000 4,341 0.09
Federal Home Loan Mortgage Notes 5.74% 2003 6,500 5,450 0.11
Federal Home Loan Mortgage Notes 6.185% 2003 13,100 11,381 0.23
Federal Home Loan Mortgage Notes 6.24% 2003 2,900 2,508 0.05
Federal Home Loan Mortgage Notes 6.28% 2003 3,000 2,559 0.05
Federal Home Loan Mortgage Notes 6.30% 2003 2,000 1,756 0.04
Federal Home Loan Mortgage Notes 6.375% 2003 5,820 5,136 0.1
Federal Home Loan Mortgage Notes 6.39% 2003 4,500 3,960 0.08
Federal Home Loan Mortgage Notes 6.50% 2003 6,200 5,413 0.11
Federal Home Loan Mortgage Notes 6.19% 2004 6,000 5,137 0.1
Federal Home Loan Mortgage Notes 6.27% 2004 2,500 2,163 0.04
Federal Home Loan Mortgage Notes 7.29% 2004 6,000 5,535 0.11
Federal National Mortgage Association Notes 6.30% 1997 15,000 14,255 0.29
Federal National Mortgage Association, medium-term note,
5.20% 1998 15,000 13,733 0.28
Federal National Mortgage Association, medium-term note,
5.30% 1998 12,500 11,438 0.23
Federal National Mortgage Association, medium-term note,
6.14% 2004 13,000 11,239 0.23
FNSM Callable Principal STRIPS 0%/8.25% 2022/2/ 4,500 2,945 0.06
---------- ---------
-
147,369 2.98
---------- ---------
-
COLLATERALIZED MORTGAGE OBLIGATIONS - FEDERAL AGENCIES/4/
Federal Home Loan Mortgage Corp., Series 1604, Class SA,
7.5067% 2008/5/ 2,000 1,015 0.02
Federal Home Loan Mortgage Corp., Series 1625, Class SC,
7.117803% 2008/5/ 3,000 1,515 0.03
Federal Home Loan Mortgage Corp., Series 1716, Claass A,
6.50% 2009 4,750 4,061 0.08
Federal Home Loan Mortgage Corp., Series 1082, Class B,
9.00% 2020 2,522 2,533 0.05
Federal Home Loan Mortgage Corp., Series 1574, Class AB,
6.50% 2023 4,338 2,533 0.05
Federal Home Loan Mortgage Corp., Series 21, Class GNMA
SE, 8.0309% 2023/5/ 4,000 1,598 0.03
Federal Home Loan Mortgage Corp., Series 1657, Class SA,
8.6026% 2023/5/ 7,520 2,999 0.06
Federal Home Loan Mortgage Corp., Series 1673, Class SA,
6.7691% 2024/5/ 7,879 2,718 0.06
Federal Home Loan Mortgage Corp., Series 1671, Class O,
16.3085% 2024/5/ 13,330 4,399 0.09
Federal National Mortgage Assn., Series 90-142, Class J,
9.25% 2003 5,000 5,028 0.1
Federal National Mortgage Assn., Series 91-146, Class Z,
8.00% 2006 5,793 5,400 0.11
Federal National Mortgage Assn., Series 93-229, Class SB,
7.134% 2008/5/ 4,000 1,600 0.03
Federal National Mortgage Assn., Series 93-78, Class SB,
9.054% 2008 3,412 1,842 0.04
Federal National Mortgage Assn., Series 93-107, Class SA,
9.6212% 2008/5/ 5,906 3,278 0.07
Federal National Mortgage Assn., Series 91-65, Class X,
6.50% 2019 18,473 14,940 0.3
Federal National Mortgage Assn., Series 90-93, Class G,
5.50% 2020 1,500 1,190 0.02
Federal National Mortgage Assn., Series G93-19SJ, Class I,
1.7647% 2023/5/ 467 119 0
Federal National Mortgage Assn., Series 93-130, Class SA,
10.9133% 2023/5/ 3,758 1,747 0.04
Federal National Mortgage Assn., Series 93-120, Class SB,
10.9134% 2023/5/ 5,828 2,928 0.06
---------- ---------
-
61,443 1.24
---------- ---------
-
U.S. TREASURY OBLIGATIONS
12.625% May 1995 15,000 15,340 0.31
8.875% February 1996 42,000 42,623 0.86
7.625% April 1996 30,000 30,052 0.61
9.375% April 1996 20,000 20,444 0.41
7.25% August 1996 20,000 19,884 0.4
8.00% October 1996 14,500 14,577 0.3
8.00% January 1997 63,000 63,325 1.28
8.50% April 1997 50,000 50,750 1.03
8.75% October 1997 7,500 7,669 0.16
8.875% November 1997 11,500 11,804 0.24
8.125% February 1998 207,000 208,586 4.22
9.25% August 1998 170,000 177,385 3.59
8.875% February 1999 21,000 21,735 0.44
9.125% May 1999 18,750 19,605 0.4
6.875% July 1999 42,000 40,425 0.82
8.875% May 2000 10,000 10,459 0.21
8.750% August 2000 25,000 26,023 0.53
8.50% November 2000 30,000 30,923 0.63
7.75% February 2001 5,000 4,980 0.1
13.125% May 2001 21,500 27,147 0.55
14.25% February 2002 7,000 9,399 0.19
6.375% August 2002 9,200 8,424 0.17
11.625% November 2002 70,000 85,093 1.72
11.625% November 2004 94,750 118,674 2.4
10.375% November 2009 7,000 8,127 0.16
14.00% November 2011 12,000 17,467 0.35
8.875% August 2017 31,500 34,315 0.69
6.25% August 2023 10,000 8,130 0.16
---------- ---------
-
1,133,365 22.93
---------- ---------
-
FLOATING RATE EURODOLLAR NOTES (UNDATED)/3/
Allied Irish Banks Ltd. 6.187% 10,000 8,500 0.17
Bank of Nova Scotia 5.437% 15,000 11,903 0.24
Bergen Bank 5.4375% 5,000 3,913 0.08
Canadian Imperial Bank of Commerce 3.875% 18,500 14,800 0.3
Christiana Bank Og Kreditkasse 6.3125% 6,000 4,725 0.1
Financiere Credit Suisse 3.4375% 8,000 6,440 0.13
Hongkong and Shanghai Banking Corp. 5.5625% 10,000 8,050 0.16
Lloyds Bank FRN (#2) 5.412% 5,000 4,263 0.09
Lloyds Bank FRN (#3) 6.187% 5,000 4,213 0.09
National Bank of Canada 2.7187% 5,000 3,400 0.07
Standard Chartered Bank 7.00% 15,000 11,400 0.23
Standard Chartered Bank 5.025% 5,000 3,800 0.08
---------- ---------
-
85,407 1.74
---------- ---------
-
EQUITY-TYPE SECURITIES & MISCELLANEOUS
EQUITY-TYPE SECURITIES/6/
California Federal Bank, Inc., Class A 2,002 21,768 0.44
Dial Page, Inc., warrants 39 5 0
Glendale Federal Bank, warrants expire 03/10/00 8 8 0
---------- ---------
-
21,781 0.44
---------- ---------
-
MISCELLANEOUS
ASH Capital Finance, Ltd. 9.50% 2006 4,500 4,625 #DIV/0
#N/A 12,500 3,687 #DIV/0
#N/A 3,500 2,415 #DIV/0
#N/A 20,000 6,800 #DIV/0
Investment securities in the initial period of
acquisition 17,527 0.35
---------- ---------
-
TOTAL BONDS, NOTES AND EQUITY-TYPE SECURITIES ---------- ---------
-
(cost $4,718,738) 4,370,463 88.12
---------- ---------
-
SHORT-TERM SECURITIES
COMMERCIAL PAPER
AIG Funding Inc. 5.80% due 1/3/95 20,000 19,990 0.4
AIG Funding Inc. 6.01% due 1/11/95 10,000 9,982 0.2
American Telephone and Telegraph Co. 5.45% due 1/12/95 25,000 24,953 0.51
Bayerische Landesbank Girozentrale 6.01% due 1/11/95 12,000 11,978 0.24
Beneficial Corp. 5.76% due 1/18/95 10,000 9,971 0.2
Beneficial Corp. 5.99% due 1/31/95 10,000 9,949 0.2
Beneficial Corp. 6.15% due 2/17/95 25,000 24,797 0.5
Commerzbank U.S. Finance Inc. 5.88% due 1/3/95 27,700 27,686 0.56
Deere & Co. 6.11% due 2/21/95 20,000 19,827 0.4
Eli Lilly & Co. 5.77% due 1/6/95 15,800 15,785 0.32
Ford Motor Credit Co. 6.03% due 1/5/95 15,000 14,988 0.3
Ford Motor Credit Co. 6.10% due 1/19/95 25,000 24,920 0.5
Ford Motor Credit Co. 5.81% due 1/20/95 23,350 23,275 0.47
Ford Motor Credit Co. 6.01% due 2/28/95 8,250 8,170 0.17
General Electric Capital Corp. 5.49% due 1/9/95 35,250 35,201 0.71
H.J. Heinz Co. 5.95% due 1/20/95 15,000 14,951 0.3
H.J. Heinz Co. 5.95% due 1/23/95 3,970 3,955 0.08
H.J. Heinz Co. 6.10% due 1/24/95 25,000 24,899 0.5
H.J. Heinz Co. 5.95% due 2/15/95 8,000 7,939 0.16
John Deere Capital Corp. 6.14% due 2/6/95 15,000 14,907 0.3
Kimberly-Clark Corp. 5.93% due 1/18/95 20,000 19,941 0.4
Miles, Inc. 5.80% due 1/19/95 20,000 19,939 0.4
Monsanto Co. 5.93% due 1/6/95 6,150 6,144 0.12
National Rural Utilities Cooperative Finance Corp. 5.94%
due 1/12/95 10,000 9,980 0.2
Texaco Inc. 6.02% due 1/17/95 20,000 19,944 0.4
U S WEST Communications, Inc. 5.47% due 1/17/95 5,300 5,286 0.11
U S WEST Communications, Inc. 5.99% due 2/22/95 7,000 6,938 0.14
Xerox Corp. 5.89% due 2/6/95 22,000 21,868 0.44
Xerox Corp. 6.12% due 2/10/95 23,600 23,437 0.47
---------- ---------
-
481,600 9.7
---------- ---------
-
Federal Agency Discount Notes
Federal Farm Credit Banks 5.94% due 1/11/95 10,000 9,982 0.2
---------- ---------
-
TOTAL SHORT-TERM SECURITIES (Cost $491,585) 491,582 9.9
---------- ---------
-
TOTAL INVESTMENT SECURITIES (cost $5,210,323) 4,862,045 98.02
Excess of cash and receivables over payables 79,105 1.6
---------- ---------
-
NET ASSETS 4,941,150 99.62
========== =========
</TABLE>
/1/ Purchased in a private placement transaction; resale
to the public may require registration.
/2/ Represents a zero coupon bond which will convert to
an interest bearing security at a later date.
/3/ Coupon rates may change periodically.
/4/ Pass-through securities backed by a pool of
mortgages or other loans on which principal payments
are periodically made. Therefore, the effective
maturity of these securities is shorter than the stated
maturity.
/5/ Represents an inverse floater, which is a floating
rate note whose interest rate moves in the opposite
direction of prevailing interest rates.
/6/ Non-income-producing security
See Notes to Financial Statements
The Bond Fund of America
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1994 (dollars in thousands)
Assets:
Investment securities at market
<S> <C> <C>
(cost: $5,210,323) $4,862,045
Cash 3,838
Prepaid expense ....................
Receivables for--
Sales of investments $19,418
Sales of Fund's shares 13,531
Dividends and accrued interest 86,501 119,450
------------ --------------
-
4,985,333
Liabilities:
Payables for--
Purchases of investments 29,639
Repurchases of fund's shares 11,087
Forward currency contracts 1,403
Management services 1,586
Accrued expenses 468 44,183
------------ --------------
-
Net Assets at December 31, 1994--
Equivalent to $12.69 per share on
389,436,473 shares of $1 par value
capital stock outstanding (authorized
capital stock - 500,000,000 shares) $4,941,150
==============
=
STATEMENT OF OPERATIONS
for the year ended December 31, 1994 (dollars in thousands)
Investment Income:
Income:
Interest 430,119
Dividends from investment in stocks 20 $430,139
------------
Expenses:
Management services fee 18,755
Distribution expenses 11,347
Transfer agent fee 3,751
Reports to shareholders 175
Registration statement and prospectus 146
Postage, stationery and supplies 301
Directors' fees 37
Auditing and legal fees 46
Custodian fee 293
Taxes other than federal income tax 81 34,932
------------ --------------
-
Net investment income $395,207
==============
=
Realized Loss and Unrealized
Depreciation on Investments:
Net realized loss (36,092)
Net unrealized depreciation on
Investments (624,178)
Open forward currency contracts (2,363)
------------
Net unrealized depreciation (626,541)
--------------
-
Net realized loss and
unrealized depreciation
on investments (662,633)
--------------
-
Net Decrease in Net Assets Resulting ($267,426)
from Operations ==============
=
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended December 31
1994 1993
Operations:
Net investment income $395,207 $352,923
Net realized gain(loss) on investments (36,092) 130,054
Net unrealized appreciation
(depreciation) on investments (626,541) 121,833
------------ --------------
-
Net increase (decrease) in net assets
resulting from operations (267,426) 604,810
------------ --------------
-
Dividends and Distributions Paid to
Shareholders:
Dividends from net
investment income (396,205) (348,157)
Distributions from net realized gain
on investments -- (137,077)
------------ --------------
-
Total dividends and distributions (396,205) (485,234)
------------ --------------
-
Capital Share Transactions:
Proceeds from shares sold:
99,296,409 and 127,144,414
shares, respectively 1,337,647 1,858,704
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
20,827,138 and 24,515,759 shares,
respectively 277,618 357,602
Cost of shares repurchased:
96,388,393 and 66,054,022
shares, respectively (1,295,101) (968,614)
------------ --------------
-
Net increase in net assets
resulting from capital share
transactions 320,164 1,247,692
------------ --------------
-
Total Increase (Decrease) in Net Assets (343,467) 1,367,268
Net Assets:
Beginning of year 5,284,617 3,917,349
------------ --------------
-
End of year (including
undistributed net investment
income: $10,433 and $10,941
respectively) 4,941,150 $5,284,617
============ ==============
=
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. Bond Fund of America (the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at the mean of such
prices for securities of comparable maturity, quality and type. Securities
denominated in non-U.S. currencies are generally valued on the basis of bid
quotations. Equity-type securities are stated at market value based upon
closing sales prices reported on recognized securities exchanges on the last
business day of the period or, for listed securities having no sales reported
and for unlisted securities, upon last-reported bid prices on that date.
Short-term securities with original or remaining maturities in excess of 60
days, including forward currency contracts, are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost, which approximates market value. The
maturities of variable or floating rate instruments are deemed to be the time
remaining until the next interest rate adjustment date. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Discounts on
securities purchased are amortized over the life of the respective securities.
The fund does not amortize premiums on securities purchased. Dividends are
declared on a daily basis after determination of the fund's net asset value and
are paid to shareholders on a monthly basis.
Investment securities, including forward currency contracts, denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Interest income from such investments is calculated using the
approximate exchange rate as accrued or when received. Purchases and sales of
investment securities and interest income are calculated using the approximate
exchange rate as accrued. The fund does not identify the portion of each
amount shown in the fund's Statement of Operations under the caption "Realized
Loss and Unrealized Depreciation on Investments" that arises from changes in
non-U.S. currency exchange rates.
Pursuant to the custodian agreement, the fund receives credit against its
custodian fee for imputed interest on certain balances with the with the
custodian bank. The custodian fee of $293,000 includes $111,000 that was paid
by credits rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of December 31, 1994, net unrealized depreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $348,278,000, of which $29,860,000 related to appreciated securities
and $378,138,000 related to depreciated securities. During the year ended
December 31, 1994, the fund realized, on a tax basis, a net capital loss of
$36,090,000 on securities transactions. The fund has available at December 31,
1994, a net capital loss carryforward totaling $23,841,000 which may be used to
offset capital gains realized during subsequent years through 2002 and thereby
relieve the fund and its shareholders of any federal income tax liability with
respect to capital gains that are so offset. It is the intention of the fund
not to make distributions from capital gains while there is a capital loss
carryforward. The cost of portfolio securities, excluding foreign currency
contracts, for book and federal income tax purposes was $5,210,323,000 at
December 31, 1994.
3. The fee of $18,755,0000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million but not exceeding $1 billion;
0.18% of such assets in excess of $1 billion but not exceeding $3 billion; and
0.16% of such assets in excess of $3 billion ("asset-based fee"); plus 3.00% on
the first $450,000 of the fund's monthly gross investment income, plus 2.25% of
such income in excess of $450,000 ("income-based fee").
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended December 31, 1994,
distribution expenses under the Plan were $11,347,000. As of December 31,
1994, accrued and unpaid distribution expenses were $829,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $3,751,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $4,562,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
CRMC is owned by The Capital Group, Inc. AFS and AFD are both wholly owned
subsidiaries of CRMC. Certain of the Directors and officers of the fund are or
may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers, directors or employees of CRMC, AFS and AFD received any remuneration
directly from the fund.
4. As of December 31, 1994, accumulated undistributed net realized loss on
investments was $35,644,000 and paid-in capital was $4,926,606,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $2,822,901,000 and $2,634,896,000, respectively,
during the year ended December 31, 1994.
The fund purchases forward currency contracts in anticipation of, or to
protect itself against, fluctuations in exchange rates. The contracts are
recorded at market value and reflect the extent of the fund's involvement in
these financial instruments. Risks may arise upon entering these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from the possible movements in foreign exchange rates and
securities values underlying these instruments. The fund reclassified
$7,850,000 from undistributed net realized gains to undistributed net
investment income for the year ended December 31, 1994. At December 31, 1994,
the fund had outstanding forward currency contracts to sell non-U.S. currencies
as follows:
*****
<TABLE>
<CAPTION>
Contract Amount U.S. at 12/31/94
Valuations
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unrealized
Appreciation
Non-U.S. currency contracts Non-U.S. U.S. Amount (Depreciation
)
French Francs expiring 11/27/95 to 9/9/98 FF 70,000,000 $11,811,000 $13,051,000 ($1,240,000)
Great Britain Pounds expiring 5/19/95 GB 3,325,000 4,996,000 5,205,000 (209,000)
P
Japanese Yen expiring 11/22/95 (yen) 1,000,000,000 10,582,000 10,492,000 90,000
Netherland Guilders expiring 6/8/95 FL 4,820,000 2,753,000 2,797,000 (44,000)
----------- ----------- ----------
$30,142,000 $31,545,000 ($1,403,000)
============ ============ ==========
</TABLE>
*****
Per-Share Data and Ratios
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of years $14.45 $13.99 $13.70 $12.39 $13.23
------- ------- ------- ------ -----
Income from investment operations:
Net investment income 1.05 1.09 1.15 1.21 1.24
Net realized and unrealized gain(loss) on investments (1.76) 0.84 0.34 1.28 (0.84)
------- ------- ------- ------ -----
Total from investment operations (0.71) 1.93 1.49 2.49 0.40
------- ------- ------- ------ -----
Less distributions:
Dividends from net investment income (1.05) (1.08) (1.16) (1.18) (1.24)
Distributions from capital gains -- (0.39) (0.04) -- --
------- ------- ------- ------ -----
Total distributions (1.05) (1.47) (1.20) (1.18) (1.24)
------- ------- ------ ------ -----
Net asset value, end of year $12.69 $14.45 $13.99 $13.70 $12.39
======== ======== ======= ====== =====
Total Return* (5.02%) 14.14% 11.34% 21.04% 3.27%
Ratios/supplemental data:
Net assets, end of period (in millions) $4,941 $5,285 $3,917 $2,859 $1,945
Ratio of expenses to average net assets .69% .71% .73% .77% .76%
Ratio of net income to average net assets 7.77% 7.53% 8.36% 9.28% 9.70%
Portfolio turnover rate 57.0% 44.7% 49.7% 56.5% 59.9%
</TABLE>
*This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The Bond Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of The Bond Fund of America, Inc., as of
December 31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for the two years then ended, and
the per-share data and ratios for each of the five years in the period then
ended. These financial statements and the per-share data and ratios are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the per-share data and ratios based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at December 31, 1994 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The Bond Fund of America, Inc., at December 31, 1994, the results
of its operations, the changes in its net assets and the per-share data and
ratios for the respective stated years, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
January 27, 1995
