Annual Report for the year ended December 31, 1996
THE BOND FUND OF AMERICA
[photo and background watermark of various forms of currency]
[The American Funds Group(r)]
THE BOND FUND OF AMERICA(SM)
[background watermark of various forms of currency]
Seeks as high a level of current income as is consistent with preservation of
capital through a diversified portfolio of bonds and other fixed-income
obligations.
RESULTS AT A GLANCE
assuming distributions reinvested
or interest compounded
<TABLE>
<CAPTION>
Average Annual Compound Returns
5 years 10 years 15 years
1996 (1/1/92- (1/1/87- (5/28/74-
<S> <C> <C> <C> <C>
12/31/96) 12/31/96) 12/31/96)
The Bond Fund of America +6.7% +8.8% +9.0% +10.5%
Lehman Brothers Aggregate Bond +3.6 +7.0 +8.5 +9.7 /1/
Index
Salomon Brothers Broad Investment- +3.6 +7.1 +8.5 n/a /2/
Grade (BIG) Bond Index
Rank versus comparable funds /3/ 1st of 2nd of 51 3rd of 26 2nd of 16
110
Average savings institution /4/ +4.2 +3.8 +5.2 +6.8
Consumer Price Index /5/ +3.3 +2.8 +3.7 +5.4
</TABLE>
The bond market indexes are unmanaged.
/1/ From May 31, 1974 through December 31, 1975, the Lehman Brothers Corporate
Bond Index was used because the Lehman Brothers Aggregate Bond Index did not
yet exist. Since January 1, 1976, the Lehman Brothers Aggregate Bond Index has
been used.
/2/ This index was first introduced in 1980.
/3/ BFA's rank based on total return versus comparable corporate A-rated bond
funds, according to Lipper Analytical Services. Lipper rankings do not include
the effects of sales charges.
/4/ Based on figures from U.S. League of Savings Institutions and the Federal
Reserve Board, reflecting all kinds of savings deposits (maximum allowable
interest rates imposed by law until 1983). Savings accounts are guaranteed; the
fund is not.
/5/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
Fund results in this report were computed without a sales charge unless
otherwise indicated. The fund's 30-day yield as of January 11, 1997,
calculated in accordance with the Securities and Exchange Commission formula,
was 6.39%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
FELLOW SHAREHOLDERS:
We are pleased to report that your fund's investment return in 1996
outpaced the relevant bond market indexes as well as comparable bond funds.
The value of your holdings in The Bond Fund of America increased 6.7% in
1996 if, like most shareholders, you reinvested monthly dividends which totaled
$1.015 a share. If you took dividends in cash, your income return was 7.3% and
the value of your shares declined 0.9%.
By comparison, the Salomon Brothers Broad Investment-Grade (BIG) Bond Index
and the Lehman Brothers Aggregate Bond Index both rose 3.6% on a reinvested
basis (the indexes are unmanaged and have no expenses). Meanwhile, the 110
corporate A-rated bond funds tracked by Lipper Analytical Services gained 2.5%
on average. According to Lipper, BFA's 6.7% total return in 1996 ranked first
among these funds for the year.
During much of the first half of the year, indications that the economy
was growing faster than anticipated caused longer term interest rates to rise
and bond prices to fall. In the second half, longer term rates fell and bond
prices recovered as the pace of economic growth slowed. All in all, inflation
remained relatively benign and bond yields, despite the interim fluctuations,
ended the year only slightly above where they were when it began.
The Bond Fund of America's strong showing compared with the relevant bond
indexes and other funds was due largely to its research-driven, value-oriented
investment approach and its flexibility to seek out attractive opportunities
throughout the fixed-income marketplace.
The fund's holdings are very broadly diversified, much more so than most
bond funds. (For more about BFA's investments, please see the feature that
begins on page 4.) In keeping with its quality standards, the fund had about
36% of its assets invested in U.S. Treasury and federal agency securities at
the end of 1996. During the year, BFA's investments in mortgage-backed
securities (both government agency and non-government agency) and asset-backed
securities increased slightly to about one-quarter of net assets. These
investments provided the fund with a yield advantage and good relative total
returns. In 1996, the fund again benefited from an improvement in the credit
quality of many of the corporate bonds in the portfolio, especially those rated
below investment-grade, due in part to healthy corporate earnings. And our
global research effort enabled us to take advantage of selected opportunities
in bonds issued by entities outside the United States, some denominated in U.S.
dollars and some in other currencies. These bonds also generally made a
positive contribution to BFA's results.
The Bond Fund of America's latest 12-month advance brings its lifetime
total return since its inception in 1974 to 848.3%, or an average compound
return of 10.5% a year. As you can see in the table to the left, over other
periods it has also outpaced the indexes as well as most comparable funds. In
addition, the fund has provided a higher return than the average savings
account and helped investors stay well ahead of inflation.
In the coming months, we expect to see continued fluctuations in interest
rates and bond prices. We believe that for those shareholders willing to
maintain a long-term perspective, the fund's emphasis on attractive income with
preservation of capital will continue to make it a sensible and valuable
addition to their investment portfolios.
Assets in The Bond Fund of America rose $710 million to $7.0 billion
during the year and the number of shareholders increased to more than 260,000.
They include institutional investors, both large and small, and individuals
with custodial accounts for children or grandchildren. A large number of them
are investing in the fund through IRAs or 401(k)s. We look forward to reporting
to all of you again in six months.
Cordially,
[signature]
Paul G. Haaga, Jr.
Chairman of the Board
[signature]
Abner D. Goldstine
President
February 14, 1997
[watermark: various forms of currency]
HOW A $10,000 INVESTMENT HAS GROWN
OVER THE FUND'S 22-YEAR LIFETIME
FROM MAY 28, 1974, WHEN THE FUND BEGAN OPERATIONS, THROUGH DECEMBER 31, 1996
Here's how a $10,000 investment grew between May 28, 1974 - when The Bond Fund
of America began operations - and December 31, 1996, the end of its latest
fiscal year.
Unlike figures presented earlier in the report, the fund's results in this
chart reflect payment of the maximum sales charge of 4.75%, so the net amount
invested was $9,525 versus $10,000 in the Lehman Brothers Aggregate Bond Index,
which is unmanaged and has no sales charges, commissions or expenses.
As you can see, the investment in The Bond Fund of America would have
grown to $90,323 versus $81,550 in the Lehman index.
Average Annual Compound Returns
(for periods ended December 31, 1996)
Lifetime +10.23%
10 Years +8.47%
5 Years +7.73%
1 Year +1.66%
Assumes reinvestment of all distributions and payment of the maximum 4.75%
sales charge at the beginning of the stated periods.
[chart]
<TABLE>
<CAPTION>
Year ended 1974* 1975 1976 1977 1978 1979 1980 1981 1982 1983
December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL VALUE
Dividends $413 897 1,010 1,114 1,198 1,387 1,706 2,096 2,408 2,529
Reinvested
Value at $9,884 11,137 13,154 13,831 14,112 14,556 15,072 16,073 21,361 23,382
Year-End/1/
BFA's Total (1.2)% 12.7 18.1 5.1 2.0 3.1 3.5 6.6 32.9 9.5
Return
Year ended 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
December 31
TOTAL VALUE
Dividends 2,838 3,193 3,566 3,746 3,912 4,425 4,650 4,859 5,221 5,269
Reinvested
Value at 26,175 33,140 38,166 38,915 43,080 47,443 48,993 59,303 66,028 75,362
Year-End/1/
BFA's Total 11.9 26.6 15.2 2.0 10.7 10.1 3.3 21.0 11.3 14.1
Return
Year ended 1994 1995 1996
December 31
TOTAL VALUE
Dividends 5,673 6,112 6,405
Reinvested
Value at 71,582 84,645 90,323
Year-End/1/ /2/
BFA's Total (5.0) 18.2 6.7
Return
</TABLE>
- -----
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended 5/28/74 1974 1975 1976 1977 1978 1979 1980
December 31
Lehman Brothers
Aggregate
Bond Index/3/ 10,000 9,907 11,561 13,365 13,771 13,963 14,232 14,617
Consumer Price Index/4/ 10,000 10,679 11,420 11,975 12,778 13,930 15,782 17,757
Year ended 1981 1982 1983 1984 1985 1986 1987 1988
December 31
Lehman Brothers
Aggregate
Bond Index/3/ 15,530 20,596 22,318 25,698 31,378 36,169 37,165 40,096
Consumer Price Index/4/ 19,342 20,082 20,844 21,667 22,490 22,737 23,745 24,794
Year ended 1989 1990 1991 1992 1993 1994 1995 1996
December 31
Lehman Brothers
Aggregate
Bond Index/3/ 45,923 50,036 58,043 62,340 68,417 66,422 78,693 81,550
Consumer Price Index/4/ 25,946 27,531 28,374 29,197 30,000 30,802 31,584 32,634
</TABLE>
$10,000 /1/ original investment
Average annual compound return for 22-1/2 years: 10.23% /1/
*For the period May 28 through December 31, 1974.
/1/ Results reflect payment of the maximum sales charge of 4.75% on the $10,000
investment. As outlined in the prospectus, the sales charge is reduced for
investments of $25,000 or more. The maximum initial sales charge was 8.5% prior
to December 15, 1986. There is no sales charge on dividends or capital gain
distributions that are reinvested in additional shares. Results shown do not
take into account income or capital gains taxes.
/2/ Includes reinvested dividends of $74,627 and reinvested capital gain
distributions of $3,490.
/3/ From May 31, 1974 through December 31, 1975, the Lehman Brothers Corporate
Bond Index was used because the Lehman Brothers Aggregate Bond Index did not
yet exist. As of January 1, 1976, the Lehman Brothers Aggregate Bond Index has
been used.
/4/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
Past results are not predictive of future results.
[end chart]
THE BOND FUND OF AMERICA
A FEW OBSERVATIONS ABOUT THE PORTFOLIO AND THE CREDIT RESEARCH BEHIND FOUR
PORTFOLIO HOLDINGS
[background photo of various forms of currency]
If you were to quickly thumb through the investment portfolio that begins on
page 10, what would perhaps be most evident is The Bond Fund of America's broad
diversification. There are bonds issued by companies in various industries, by
the U.S. Treasury, by governments abroad, and mortgage-backed and asset-backed
securities such as those made up of credit card, boat or auto loans. At the end
of 1996, the fund held securities from more than 500 issuers worth $7 billion.
Something else that will be immediately evident is that the portfolio listings
differ from what you will find in a stock fund report. Following the name of
each issuer, you will find a series of numbers like those shown in the example
below.
These numbers highlight a crucial difference between bonds and stocks. When you
invest in a bond, the issuer has an obligation to pay you a certain interest
rate and to return the principal amount by a certain date. That is why bonds
are often referred to as fixed-income obligations or promissory notes.
In their quest to add value and improve investment returns, the fund's
portfolio counselors and analysts consider a myriad of factors. They look at
the specific "indenture" provisions of individual securities that, for example,
spell out the terms under which all or part of the issue can be redeemed or
refunded before maturity. On an ongoing basis, they carefully evaluate the
creditworthiness of issuers and whether it is likely to improve or deteriorate
over time. And they adjust the maturity mix of the bonds in the portfolio to
try to protect principal and enhance results.
In this year's report, the fund's four portfolio counselors talk about credit
research - and offer recent examples of how credit analysis has added value on
your behalf. Together, these four investment professionals have more than 109
years of investment experience - 72 of them with Capital Research and
Management Company (CRMC), the fund's investment adviser. With roots that date
back to 1931, CRMC currently oversees assets totaling more than $150 billion in
stocks and fixed-income securities for the 28 funds in The American Funds
Group.
[watermark: various forms of currency]
[Pull quote]
In their quest to add value and improve investment returns, the fund's
portfolio counselors and analysts consider a myriad of factors - including the
credit quality of each issuer.
[End Pull quote]
[visual description]
BONDS & NOTES
U.S. Treasury Obligations
7.25% May 2004
[This is the interest rate paid on the principal amount.]
[The date the bond "matures" - that is, the date it stops paying interest and
returns the principal amount.]
Principal Amount (000)
$135,875
[This is the amount of money scheduled to be returned to the lender when the
bond "matures." The principal amount often differs from what the fund paid for
the security, particularly if the bond was purchased some time after it was
originally issued.]
Market Value (000)
[The market value of the security - i.e., what it was worth, based on its
market price - at year-end.]
$142,966
Percent of Net Assets
[Percentage of the portfolio made up by this particular issue or issuer.]
2.04%
[end visual description]
A HIGH-GRADE CORPORATE BOND
Determining an issuer's creditworthiness is vital in bond investing. The
challenge is to spot changes before they are recognized in the market . . . to
discover early that a bond's rating deserves to be upgraded, which spells
opportunity, or downgraded, which signals caution.
"Early in the 1990s, when competition from Japanese car manufacturers was at
its peak, many investors became concerned about the financial stability of U.S.
auto makers. This had a negative impact on the prices of General Motors' bonds.
As GM brought new bonds to market, it had to offer higher and higher yields in
relation to other types of securities.
"After discussions with GM's management, a close examination of the company's
balance sheet, and input about its business and financial outlook from CRMC
equity analysts who also follow the company, we became convinced that the steps
the company was taking to improve its efficiency and competitiveness were going
to pay off.
"We began adding GM corporate bonds to the portfolio in 1992. We also invested
in bonds issued by General Motors Acceptance Corp., the subsidiary that offers
financing to car purchasers. The General Motors corporate bonds were "put"
bonds - meaning we could elect to get the principal amount back early from
General Motors on certain dates. That provided some protection for shareholders
if rates rose substantially.
"As it turns out, the decision to invest proved to be a good one. By the middle
of 1994, the obligations of GM and its finance arm amounted to about 2.4% of
BFA's portfolio. As the financial condition of GM and the other U.S. auto
makers improved, the prices of our holdings rose in relation to the overall
market - to the point where we have been gradually reducing them in favor of
what we feel are better opportunities for our shareholders."
[Photo Caption]
Abner D. Goldstine
Goldstine is President of The Bond Fund of America and one of the fund's
portfolio counselors. He joined Capital Research and Management Company (CRMC),
the fund's investment adviser, in 1967 and has 45 years of experience as a fund
executive, economist and investment manager.
[End Photo Caption]
[watermark: various forms of currency]
[visual description]
<TABLE>
<CAPTION>
Principal Market
Amount Value Percent of
BONDS & NOTES (000) (000) Net Assets
<S> <C> <C> <C> <C>
Automobiles
General Motors Corp.:
9.45% 2011 $20,000 $23,724 .99%
8.80% 2021 40,000 45,592
Financial Services
General Motors Acceptance Corp.:
7.00% 2000 5,000 5,063 .15
8.75% 2005 5,000 5,530
</TABLE>
[end visual description]
Please note that because the fund is actively managed, its portfolio holdings
change from time to time.
[visual description]
<TABLE>
<CAPTION>
Principal Market
Amount Value Percent of
BONDS & NOTES (000) (000) Net Assets
<S> <C> <C> <C> <C>
Collateralized Mortgage/Asset-Backed
Obligations
Resolution Trust Corp.:
Series 1993-C1, Class D, 9.45% 2024 $9,352 $9,562 .14%
</TABLE>
[end visual description]
A MORTGAGE-BACKED SECURITY
THE RESOLUTION TRUST CORPORATION SERIES 1993-C1 IS A COLLATERALIZED MORTGAGE
OBLIGATION, OR CMO FOR SHORT. THESE ARE POOLS OF MORTGAGES STRUCTURED TO PAY
PRINCIPAL AND/OR INTEREST IN A PREDETERMINED MANNER. THE RESOLUTION TRUST
CORPORATION WAS THE GOVERNMENT AGENCY CREATED SEVEN YEARS AGO TO DISPOSE OF THE
ASSETS FROM TROUBLED THRIFT INSTITUTIONS.
"With mortgage-backed and asset-backed securities, you need to examine such
factors as yield, maturity, and attached credit enhancements.
"One of the things that I liked about this particular pool was that it was made
up of different types of mortgages - multifamily buildings, retail stores,
office buildings - with the biggest chunk in mortgages on multifamily homes,
which are considered to be one of the safest and least volatile types. The fact
that the mortgages were spread across the country was another plus.
"When we purchased this security in 1993, the market had very negative feelings
about real estate and savings and loans. What the market had overlooked in the
case of this security was that the government had provided credit enhancements
in the form of millions of dollars to pay off investors if, as was bound to
happen, some of the mortgages in the pool went into default.
"Our analysis showed that to lose money from this investment, a substantial
percentage of the mortgages in the pool would have to default and then the
properties themselves would have to be worth just a fraction of their original
value.
"We thought that was extremely unlikely. In short, what the market felt was
relatively risky, we felt was relatively safe because there was a lot of credit
support. Although there was some risk, we felt we were being adequately
compensated for that risk.
"Since 1993 there has been a recovery in real estate prices, defaults have been
much lower than expected, and the credit quality of this security has improved
- - along with its price."
[Photo Caption]
John H. Smet
Smet is a portfolio counselor for BFA and a Vice President of the fund. His
primary research responsibility has been in mortgage securities. He joined CRMC
in 1983 and has 15 years of investment experience.
[End Photo Caption]
[watermark: various forms of currency]
A HIGH-YIELD BOND
Although the majority of BFA's assets are invested in securities with the three
highest investment-grade ratings (A or better), the fund's investments in
higher yield, higher risk bonds have played an important role in its investment
returns over time.
"Many high-yield bonds are issued by companies in new high-growth areas. A fair
number are in communications. Typically, these companies need a lot of cash,
but also have a lot of potential. They often find it more desirable to borrow
money by issuing high-yield bonds than issuing stock, which dilutes the
existing equity holders. If these companies grow as expected and their credit
quality improves, the bonds will tend to trade at a higher price, providing
bondholders with capital appreciation in addition to high income. So, despite
their risks, high-yield bonds can provide good returns if, after thorough
research, we select good values.
"We invested in bonds issued by MFS Communications three years ago. The company
provides businesses with phone and data services, including high-speed links to
the Internet.
"When we talked with the company's senior management, we were impressed by
their vision for the company and how they were attempting to build the
business. Since our first meeting, we've had face-to-face discussions on
numerous occasions. We also exchanged insights with our CRMC colleagues on the
equity side, who eventually purchased the company's common stock.
"Last December, MFS Communications was bought out for $14 billion by WorldCom,
which is the fourth-largest long-distance carrier in the United States. Because
WorldCom is stronger financially, the credit quality of the bonds improved.
"Both MFS bonds, by the way, are currently zero coupon bonds and therefore were
issued and continue to trade at a significant discount to their principal
amount. Fortunately, the present market value is considerably above the
original issue value and the prices at which the fund acquired the issues."
[Photo Caption]
Richard T. Schotte
A specialist in high-yield bonds and fixed-income investing, Schotte is a
portfolio counselor and Senior Vice President of BFA. He joined CRMC in 1977
and has 30 years of investment experience.
[End Photo Caption]
[watermark: various forms of currency]
[visual description]
<TABLE>
<CAPTION>
Principal Market
Amount Value Percent of
BONDS & NOTES (000) (000) Net Assets
<S> <C> <C> <C>
Telecommunications
MFS Communications Co., Inc.
0%/9.375% 2004 $58,500 $50,749 1.01%
0%/8.875% 2006 27,500 20,006
</TABLE>
[end visual description]
Please note that because the fund is actively managed, its portfolio holdings
change from time to time.
[visual description]
<TABLE>
<CAPTION>
Principal Market
Amount Value Percent of
BONDS & NOTES (000) (000) Net Assets
<S> <C> <C> <C>
Financial Services
Credit Foncier de France 8.00% 2002 $16,435 $17,390 .25%
</TABLE>
[end visual description]
A NON-U.S. ISSUER
IN ADDITION TO ITS INVESTMENTS IN BONDS ISSUED BY U.S. CORPORATIONS AND THE
U.S. GOVERNMENT, BFA ALSO HAS SELECTED INVESTMENTS IN BONDS ISSUED BY
CORPORATIONS AND GOVERNMENTS ABROAD. SOME OF THESE BONDS ARE DENOMINATED IN
U.S. DOLLARS AND SOME IN OTHER CURRENCIES.
"Late in 1995, I was on a plane reading the Financial Times when I came across
an article about Credit Foncier de France, one of France's state-affiliated but
privately owned financial institutions and, until recently, a blue chip
borrower. While it had private shareholders, its management was appointed by
the French government. Credit Foncier issued bonds mainly to finance
state-subsidized mortgages for low-income housing - something that the bank had
been profitable at for years.
"The French government had recently altered its subsidized loan program and
opened up this business to other banks. Credit Foncier was losing market share
and its income stream from the subsidized mortgages was falling. It was also
suffering big losses on commercial loans it made in the late 1980s and early
1990s. Its equity had almost disappeared and there was widespread concern that
repayment of the bonds would be impaired.
"The question came down to whether or not the French government would stand
behind the bank's obligations. After all, the debt was used to finance an
activity sponsored by the government and Credit Foncier was the second-largest
issuer of bonds after the State itself. We talked to a number of large French
institutions that held the bonds, as well as our equity analysts who study
banks around the world. Then, last spring, in a meeting with the second-
highest ranking minister in the French Treasury, I had a chance to ask him
specifically about Credit Foncier. He was clearly exasperated by the
controversy and indicated his belief that the performance of the bonds would
not be impaired.
"We purchased the Credit Foncier bonds denominated in U.S. dollars in early
1996. The French government in the fall agreed to a state takeover of Credit
Foncier, in effect guaranteeing the bonds. In addition to an attractive yield,
BFA's shareholders have enjoyed a measure of capital appreciation as well."
[Photo Caption]
Mark H. Dalzell
Dalzell is a global bond specialist and a portfolio counselor of the fund. He
joined CRMC in 1988 and has 19 years of investment experience.
[End Photo Caption]
[watermark: various forms of currency]
<TABLE>
THE BOND FUND OF AMERICA Principal Market Percent of
INVESTMENT PORTFOLIO DECEMBER 31, 1996 Amount Value Net Assets
(000) (000)
<S> <C> <C> <C>
Corporate Bonds 34%
Mortgage and Asset-Backed Securities 25%
U.S. Treasury Securities 20%
Non-U.S. Government Bonds and Governmental Authorities 5%
Federal Agency Notes & Bonds* 4%
Cash & Equivalents 12%
ELECTRICAL & GAS UTILITIES
Utilities: Electrical & Gas
Big Rivers Electric Corp. 10.70% 2017 $17,000 $18,405 .00
CEZ Finance BV 8.875% 1999 /1/ 7,000 7,441 .11
CMS Energy 9.50% 1997 2,000 2,043 .03
Columbis Gas System, Inc.:
Series A, 6.39% 2000 10,000 9,935 .20
Series E, 7.32% 2010 4,000 3,934
Israel Electric Corp. Ltd. 7.25% 2006 /1/ 10,000 9,975 .14
Long Island Lighting Co.:
8.90% 2019 5,000 5,101 .25
8.20% 2023 12,500 12,374
-------- ------
69,208 .99
-------- ------
INDUSTRIAL & SERVICE
Appliances & Household Goods
Knoll Group, Inc. 10.875% 2006 2,250 2,486 .04
Lifestyle Furnishings International Ltd. 10.875% 2006 5,500 5,899 .08
-------- ------
8,385 .12
-------- ------
Automobiles
General Motors Corp.:
9.45% 2011 20,000 23,724 .99
8.80% 2021 40,000 45,592
-------- ------
69,316 .99
-------- ------
Beverages & Tobacco
Canandaigua Wine Co., Inc.:
8.75% 2003 3,000 2,962 .10
Series B, 8.75% 2003 /1/ 4,000 3,950
Dr Pepper Bottling Co. of Texas 10.25% 2000 6,500 6,793 .10
-------- ------
13,705 .20
-------- ------
Broadcasting & Publishing
American Media Operations, Inc. 11.625% 2004 14,500 15,588 .22
American Radio System Corp. 9.00% 2006 4,050 3,969 .06
Chancellor Broadcasting Co.:
9.375% 2004 12,500 12,625 .21
12.50% 2004 2,000 2,270
Grupo Televisa, S.A. :
11.375% 2003 5,000 5,362 .19
0%/13.25% 2008 /2/ 12,000 7,980
Infinity Broadcasting Corp. 10.375% 2002 4,500 4,747 .07
Jacor Communications, Inc., convertible debenture 0% 2011 18,000 8,078 .12
Newsquest Capital PLC 11.00% 2006 4,750 4,881 .07
Univision Televistion Group, Inc. 11.75% 2001 5,500 5,682 .08
Young Broadcasting Inc. 10.125% 2005 3,500 3,588 .05
-------- ------
74,770 1.07
-------- ------
Construction & Housing
Continental Homes Holding Corp. 10.0% 2006 6,500 6,695 .10
Del Webb Corp.:
9.75% 2003 8,000 8,160 .14
9.00% 2006 2,000 1,950
Kaufman and Broad Home Corp. 10.375% 1999 7,500 7,706 .11
M.D.C. Holdings, Inc. 11.125% 2003 17,250 17,595 .25
-------- ------
42,106 .60
-------- ------
Data Processing & Reproduction
Apple Computer, Inc. 6.50% 2004 19,000 16,530 .24
AST Research, Inc. convertible notes 0% 2013 31,500 10,080 .14
Data General Corp.:
7.75% convertible debentures 2001 7,000 7,210 .12
8.375% 2002 1,250 1,190
Maxtor Corp. 5.75% convertible debentures 2012 2,000 1,340 .02
Neodata Services, Inc. 12.00% 2003 2,300 2,415 .03
Unisys Corp.:
10.625% 1999 2,500 2,591
8.25% convertible debentures 2000 20,000 19,400 .41
11.75% 2004 6,000 6,405
-------- ------
67,161 .96
-------- ------
Diversified Media & Cable Television
Bell Cablemedia PLC 0%/11.95% 2004 /2/ 43,500 37,954 .54
Cablevision Industries Corp.:
10.75% 2004 1,000 1,040 .08
9.875% 2013 5,000 4,925
Comcast Corp.:
10.25% 2001 13,000 13,975 .38
1.125% convertible debentures 2007 25,000 12,750
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 /2/ 26,000 18,070 .26
Globo Comunicacoes E Partcipacoes LTDA. 10.50% 2006 /1/ 13,100 13,182 .19
Heartland Wireless Communications, Inc.
Units, 13.00% 2003 /1/ /3/ 28,000 4,008 .06
Insight Communications Co., LP 11.25% 2000 /4/ 11,250 11,362 .16
International CableTel Inc.:
0%/10.875% 2003 /2/ 9,500 7,980 .30
0%/12.75% 2005 /2/ 17,750 13,313
0% convertible debentures 2011
Multicanal Participacoes S.A., 12.625% 2004 /1/ 9,250 9,978 .14
News America Holdings Inc.:
10.125% 2012 15,000 17,202
8.625% 2014 3,250 2,401 .59
7.43% 2026 8,000 8,080
8.45% 2034 12,500 13,591
Rogers Communications Inc.:
10.875% 2004 3,500 3,675 .22
0% convertible debentures 2004 30,000 11,700
Storer Communications, Inc. 10.00% 2003 11,087 11,309 .16
TCI Communications, Inc., 8.75% 2015 7,500 7,409 .11
Tele-Communications, Inc. 9.25% 2023 3,500 3,402 .05
Tele West PLC:
9.625% 2006 4,700 4,794 .23
0%/11.00% 2007 /2/ 16,000 11,160
Time Warner Inc.:
0% convertible debentures 1997 10,000 3,763
9.625% 2002 12,000 13,388
7.75% 2005 10,000 10,059 1.32
10.15% 2012 7,500 8,995
0% convertible debentures 2013 67,500 29,278
9.125% 2013 25,000 27,293
TKR Cable I, Inc. 10.50% 2007 27,500 28,904 .41
Turner Broadcasting System, Inc. 0% convertible
debentures 2007 /1/ 15,000 7,331 .11
U S WEST, Inc. 0% convertible debentures 2011 80,000 29,000 .41
Vanguard Cellular Systems, Inc. 9.375% 2006 6,000 6,090 .09
Viacom International Inc.:
9.125% 1999 5,000 5,113 .17
10.25% 2001 6,100 6,649
Videotron Holdings PLC 0%/11.125% 2004 /2/ 20,500 17,835 .25
-------- ------
436,958 6.23
-------- ------
Electrical & Electronics
MagneTek, Inc. 10.75% 1998 7,500 7,781 .11
Phillips Electronics N.V. 7.20% 2026 25,000 25,344 .36
VLSI Technology, Inc. 8.25% convertible debentures 2005 4,000 3,965 .06
-------- ------
37,090 .53
-------- ------
Energy & Related Companies
Benton Oil & Gas Co. 11.625% 2003 /1/ 4,000 4,430 .06
BP America Inc. 10.00% 2018 4,000 4,363 .06
California Energy Co., Inc.:
9.875% 2003 14,000 14,700 .69
0%/10.25% 2004 /2/ 32,100 33,825
Chesapeake Energy Corp. 9.125% 2006 3,760 3,920 .06
Cliffs Drilling Co. 10.25% 2003 15,750 16,754 .24
Falcon Drilling Co., Inc.:
9.75% 2001 1,000 1,050 .08
8.875% 2003 4,500 4,590
Flores & Rucks, 13.50% 2004 2,300 2,748 .04
Forcenergy Inc. 9.5% 2006 1,000 1,043 .01
Global Marine, Inc. 12.75% 1999 4,250 4,563 .07
Kelley Oil & Gas Corp. 10.375% 2006 /1/ 7,500 7,819 .11
Mariner Energy, Inc. 10.50% 2006 /1/ 3,500 3,719 .05
McDermott Inc.:
9.375% 2002 13,250 13,770 .31
9.375% 2006 7,500 7,875
Occidental Petroleum Corp. 9.25% 2019 4,000 4,794 .07
Oil Co. Ltd. 8.90% 2000 /1/ 20,000 20,460 .29
OXYMAR 7.50% 2016 8,500 8,160 .12
Subic Power Corp. 9.50% 2008 /1/ 1,572 1,667 .02
-------- ------
160,250 2.28
-------- ------
Food Retailing
Allied Supermarkets Inc. 6.625% 1998 2,872 2,843 .04
Bruno's Inc. 10.50% 2005 7,250 7,685 .11
Carr-Gottstein Foods Co. 12.00% 2005 10,000 10,675 .15
The Penn Traffic Co. 9.625% 2005 3,000 1,680 .02
Smith's Food & Drug Centers, Inc., 0%/8.64% 2012 /2/ 11,000 9,790 .14
Stater Bros. Holdings Inc. 11.00% 2001 9,500 10,308 .15
-------- ------
42,981 .61
-------- ------
Forest Products & Paper
Container Corp. of America:
10.75% 2002 4,800 5,184
9.75% 2003 23,500 24,675 .52
11.25% 2004 6,000 6,510
Fort Howard Corp.:
9.25% 2001 7,000 7,297 .16
11.00% 2002 3,626 3,812
Fort Howard Paper Co. 8.25% 2002 3,000 3,007 .04
Grupo Industrial Durango:
12.00% convertible debentures 2001 8,000 8,560
12.625% 2003 2,625 2,861 .16
Pacific Lumber Co. 10.50% 2003 500 508 .01
-------- ------
62,414 .89
-------- ------
General Retailing & Merchandising
Ann Taylor, Inc. 8.75% 2000 4,500 4,410 .06
Barnes & Noble, Inc. 11.875% 2003 6,000 6,600 .09
Dayton Hudson Corp. 10.00% 2010 10,000 10,326 .15
Loehmann's Inc. 11.875% 2003 5,250 5,657 .08
Thrifty PayLess, Inc. 12.25% 2004 6,199 7,299 .11
Woolworth Corp.:
6.98% 2001 12,000 11,905
7.00% 2002 6,865 6,773 .29
8.50% 2022 1,000 1,054
-------- ------
54,024 .78
-------- ------
Health & Personal Care
Allegiance Corp. 7.00% 2026 /1/ 5,000 5,073 .07
Integrated Health Services, Inc.:
9.625% 2004 5,500 5,679
10.75% 2004 2,925 3,100 .26
10.25% 2006 /1/ 9,350 9,817
Mariner Health Group, Inc. 9.50% 2006 5,500 5,376 .08
Merit Behaviorial Care Corp. 11.50% 2005 3,000 3,210 .05
Paracelsus Healthcare Corp. 10.00% 2006 10,250 9,635 .14
Regency Health Services, Inc. 9.875% 2002 2,000 2,030 .03
Universal Health Services, Inc. 8.75% 2005 2,300 2,346 .03
-------- ------
46,266 .66
-------- ------
Leisure & Tourism
AMF Group Inc.:
10.875% 2006 4,750 5,035 .13
0%/12.25% 2006 /2/ 6,500 4,290
Boyd Gaming Corp. 9.25% 2003 1,000 980 .01
California Hotel Finance Corp. 11.00% 2002 13,250 13,846 .20
Casino America Inc. 12.50% 2003 2,500 2,369 .03
Discovery Zone 0% convertible debentures 2013 28,500 285 .01
Euro Disney SCA 6.75% convertible debentures 2001 FF108,780 22,197 .32
Foodmaker, Inc.:
9.25% 1999 $5,250 $5,368 .22
9.75% 2002 9,780 9,976
Four Seasons Hotels Inc. 9.125% 2000 6,000 6,150 .09
Station Casinos, Inc. 9.625% 2003 8,000 7,960 .11
Trump Atlantic City Associates,
Trump Atlantic City Funding, Inc. 11.25% 2006 4,250 4,208 .06
Wyndham Hotel Corp. 10.50% 2006 4,000 4,260 .06
-------- ------
86,924 1.24
-------- ------
Machinery & Engineering
Agco Corp. 8.50% 2006 5,750 5,901 .08
John Deere Capital Corp. 8.625% 2019 16,850 18,208 .26
Newport News Shipbuilding Inc. 9.25% 2006 /1/ 2,050 2,050 .03
Westinghouse Air Brake Co. 9.375% 2005 3,750 3,825 .06
-------- ------
29,984 .43
-------- ------
Metals
Acme Metals Inc.:
12.50% 2002 4,500 4,883 .20
0%/13.50% 2004 /2/ 9,000 9,315
AK Steel Corp.:
10.75% 2004 6,125 6,692 .23
9.125% 2006 /1/ 9,500 9,749
INCO Ltd.:
9.875% 2019 7,500 8,036 .36
9.60% 2022 16,000 17,434
ISPAT Mexicana:
(Euro) 10.375% 2001 4,650 4,743 .11
10.375% 2001 /1/ 2,000 2,040
Kaiser Aluminum and Chemical Corp.:
9.875% 2002 8,000 8,200
12.75% 2003 18,000 19,350
10.875% 2006 /1/ 9,000 9,510 .52
UCAR Global Enterprises Inc. 12.00% 2005 3,430 3,953 .06
-------- ------
103,905 1.48
-------- ------
Miscellaneous Materials & Commodities
Freeport-McMoran Copper & Gold 7.20% 2026 12,000 11,940 .17
Owens-Illinois, Inc. 11.00% 2003 5,000 5,562 .08
Printpack Inc. 10.625% 2006 /1/ 2,250 2,340 .03
Sterling Chemicals, Inc.:
11.75% 2006 2,750 2,915 .09
0%/13.5% 2008 /2/ 5,000 3,100
Texas Petrochemicals Corp. 11.125% 2006 8,500 9,138 .13
-------- ------
34,995 .50
-------- ------
Multi-Industry
New Tenneco Inc. 8.075% 2002 3,000 3,182 .05
Swire Pacific Ltd. 8.50% 2004 /1/ 10,000 10,715 .15
-------- ------
13,897 .20
-------- ------
Other
Allied Waste North America, Inc. 10.25% 2006 /1/ 3,000 3,150 .04
-------- ------
Protection Services
ADT Operations 9.25% 2003 2,000 2,145 .03
ASH Capital Finance, Ltd. 9.50% 2006 Pound 4,500 7,505 .11
Protection One Alarm Monitoring, Inc.
Units, 0%/13.625% 2005 /1/ /2/ /3/ $71,400 16,388 .23
-------- ------
26,038 .37
-------- ------
Telecommunications
360/0/ Communications Co.:
7.125% 2003 10,000 9,879 .24
7.50% 2006 7,000 6,943
Brooks Fiber Properties, Inc. 0%/10.875% 2006 /2/ 8,500 5,674 .08
CellNet Data Systems, Inc. Units, 0%/13.00% 2005 /1/ /2/ /5/ 49,750 38,059 .54
Cellular Communications International, Inc. Units, 0% 2000 15,071 10,700 .15
Cellular, Inc. 0%/11.75% 2003 /2/ 10,500 9,345 .13
CenCall Communications Corp. 0%/10.125% 2004 /2/ 32,000 21,880 .31
Centennial Cellular Corp.:
Series A, 0% 2000 19,000 13,680
Series B, 0% 2000 10,150 7,308
8.875% 2001 19,000 18,335
10.125% 2005 5,000 5,037 .63
COLT Telecom Group PLC 0%/12.00% 2006 /2/ 3,000 1,815 .03
Commnet Cellular Inc. 11.25% 2005 4,500 4,781 .07
Comunicacion Celular S.A. Units, 0%/13.125% 2003 /1/ /2/ 17,550 12,987 .19
Dial Call Communications, Inc. 0%/12.25% 2004 /2/ 8,000 5,760 .08
Geotek Communications, Inc., Units, 0%/15.00% 2005 /2/ /3/ 271,250 6,081 .09
IntelCom Group Inc. 0%/13.50% 2005 /2/ 7,500 5,288 .08
Ionica PLC Units, 13.50% 2006 9,000 10,485 .15
MFS Communications Co., Inc.
0%/9.375% 2004 /2/ 58,500 50,749 1.01
0%/8.875% 2006 /2/ 27,500 20,006
MobileMedia Communications, Inc.
0%/10.50% 2003 /2/ 6,600 1,386 .05
9.375% 2007 7,800 2,106
Mobile Telecomm 13.50% 2002 5,030 5,030 .07
New York Telephone Co. 9.375% 2031 /1/ 5,000 5,660 .08
NEXTEL Communications, Inc.:
0%/11.50% 2003 /2/ 29,000 22,620 .47
0%/9.75% 2004 /2/ 15,000 10,238
Northern Telecom Ltd. 8.75% 2001 3,500 3,782 .05
OMNIPOINT:
12.00% 2000 /5/ 12,500 16,774
11.625% 2006 9,500 9,951 .38
Paging Network, Inc. 11.75% 2002 10,275 11,071 .16
PanAmSat, LP PanAmSat Capital Corp. 9.75% 2000 9,800 10,314 .15
PriCellular Wireless Corp.:
0%/14.00% 2001 /2/ 9,000 8,820
0%/12.25% 2003 /2/ 17,750 15,176 .39
10.75% 2004 /1/ 2,500 2,600
Rogers Cantel Communications Inc. 9.375% 2008 3,000 3,150 .04
Sprint Spectrum LP, Sprint Spectrum Finance Corp.
11.00% 2006 6,000 6,495 .09
Telecom Argentina STET - France Telecom S. A. 12.00% 1999 2,500 2,803 .04
Teleport Communications 9.875% 2006 6,500 6,939 .10
-------- ------
409,707 5.85
-------- ------
Textiles & Apparel
Tultex Corp. 10.625% 2005 2,750 2,998 .04
WestPoint Stevens Inc. 8.75% 2001 2,500 2,569 .04
-------- ------
5,567 .08
-------- ------
Transportation
Airplanes Pass Through Trust, pass-through certificates:
Series 1, Class B, 6.59609% 2019 /6/ 7,284 7,321
Series 1, Class C, 8.15% 2019 /6/ 50,000 51,812 1.06
Series 1, Class D, 10.875% 2019 /6/ 14,250 15,782
Alaska Airlines:
Series A, 9.50% 2010 2,328 2,401
Series B, 9.50% 2010 2,950 3,046 .18
Series C, 9.50% 2010 2,846 2,944
Series D, 9.50% 2012 4,778 4,947
American Airlines, Inc.
1991-C2, mortgage pass-through certificates, 9.73% 2014 6,000 6,998 .10
Continental Airlines, Inc.:
9.50% 2001 /1/ 18,125 18,397
6.75% convertible debentures 2006 /1/ 10,451 11,705
pass-through certificates:
Series 1996-A, 6.94% 2015 /6/ 4,000 3,960 .87
Series 1996-B, 7.82% 2015 /6/ 13,500 13,993
Series 1996-2B, 8.56% 2014 /6/ 2,000 2,175
Series 1996, 9.50% 2015 /6/ 5,000 5,600
Series 1996-2D, 11.50% 2016 /6/ 4,471 4,901
Delta Air Lines, Inc.:
9.875% 2000 2,000 2,166
pass-through certificates:
Series 1992-A2, 9.20% 2014 /6/ 11,750 13,004
Series 1992-B1, 9.375% 2007 /6/ 8,874 9,692 .63
1990 Equipment trust certificates:
Series J, 10.00% 2014 /1/ 10,000 11,618
Series I, 10.00% 2014 /1/ 5,000 5,809
Series F, 10.79% 2014 /1/ 1,700 2,115
Federal Express Corp. 1996 pass through certificates,
Series A1, 7.85% 2015 /6/ 5,000 5,191 .07
Jet Equipment Trust:
Series 1994-A, 10.91% 2006 /1/ 6,842 7,975
Series 1994-A, 11.79% 2006 /1/ 4,000 4,857
Series 1995-A, 11.44% 2014 /1/ 10,000 11,781 1.04
Series 1995-B, 10.91% 2014 /1/ 5,000 5,693
Series 1995-A, 10.69% 2015 /1/ 10,500 12,676
Series 1995B-A, 7.63% 2015 /1/ 22,856 23,527
Series 1995B-C, 9.71% 2015 /1/ 5,500 6,289
MC-Cuernavaca Trust 9.25% 2001 /1/ 4,674 4,137 .06
Teekay Shipping Corp. 8.32% 2008 6,000 6,060 .09
United Air Lines, Inc., pass-through certificates:
Series 1993-A3, 8.39% 2011 /6/ 7,500 7,780
Series 1995-A1, 9.02% 2012 /6/ 10,863 11,757
Series 1995-A2, 9.56% 2018 /6/ 8,000 9,058 .55
Series 1996-A1, 7.27% 2013 /6/ 5,000 4,842
Series 1996-A2, 7.87% 2019 /6/ 5,000 4,916
USAir, Inc.:
1990 Equipment Trust Certificates:
Series A, 10.28% 2001 754 742
Series B, 10.28% 2001 754 742
Series C, 10.28% 2001 530 522
9.625% 2003 3,996 4,046
10.00% 2003 11,500 11,644 .75
pass-through trust:
Series 1989-A1, 9.33% 2006 /6/ 4,463 4,407
Series 1993-A2, 9.625% 2003 /6/ 8,125 8,288
Series 1993-A3, 10.375% 2013 /6/ 7,250 7,576
Class B, 7.50% 2008 /6/ 8,279 8,393
Class C, 8.93% 2008 /6/ 4,870 5,284
ValuJet Inc. 10.25% 2001 4,000 3,330 .05
-------- ------
381,899 5.45
-------- ------
FINANCE
Banking & Thrifts
Banco Nacional de Mexico, 11.00% convertible debentures 2003 /1/ 4,425 4,519 .06
Berkeley Federal Bank & Trust FSB, 12.00% 2005 6,000 6,600 .09
Chevy Chase Bank, F.S.B. 9.25% 2008 2,000 2,040 .03
Credit Foncier de France 8.00% 2002 16,435 17,390 .25
Den Danske Bank Aktieselskab 7.25% 2005 /1/ 3,000 3,020 .04
First Nationwide 12.25% 2001 9,000 10,170 .15
First Nationwide Holdings Inc.:
9.125% 2003 6,000 6,120
10.625% 2003 /1/ 12,750 13,770 .39
12.50% 2003 6,000 6,720
First Union Corp. 6.82%/7.57% 2026 /2/ 10,000 10,028 .14
Kansallis-Osake-Pankki:
9.75% 1998 5,000 5,307 .10
10.00% 2002 1,000 1,135
Midland American Capital 12.75% 2003 12,150 13,484 .19
New American Capital, Inc. 9.60% 1999 /1/ /4/ 15,000 15,663 .22
Skandinaviska Enskilda Banken (N.Y. City) 6.875% 2009 8,250 7,969 .11
-------- ------
123,935 1.77
-------- ------
Financial Services
Aames Financial Corp. 9.125% 2003 5,000 5,087 .07
Beneficial Corp. 12.875% 2013 3,800 4,334 .06
Capital One Bank 7.35% 2000 5,000 5,077 .07
Ford Motor Credit Co. 9.50% 2000 7,350 7,982 .12
General Motors Acceptance Corp.:
7.00% 2000 5,000 5,063 .15
8.75% 2005 5,000 5,530
-------- ------
33,073 .47
-------- ------
Insurance
Aetna Services, Inc. 6.97% 2036 12,500 12,729 .18
American Re Corp. 10.875% 2004 10,000 10,773 .15
Fairfax Financial Holdings Ltd., 8.25% 2015 5,750 5,980 .09
Fidelity National Financial 0% 2009 20,000 9,300 .13
Metropolitan Life Insurance Co. 7.45% 2023 /1/ 10,000 9,309 .13
Terra Nova Insurance (UK) Holdings PLC 10.75% 2005 3,000 3,398 .05
-------- ------
51,489 .73
-------- ------
Real Estate
Beverly Finance Corp. 8.36% 2004 /1/ 15,000 15,737 .22
B.F. Saul REIT 11.625% 2002 20,000 21,600 .31
Corporate Property Investors:
9.00% 2002 /1/ 2,000 2,165 .09
7.75% 2004 /1/ 4,250 4,402
ERP Operating Limited Partnership:
7.57% 2026 11,000 11,222 .22
7.95% 2002 3,750 3,889
Irvine Co. 7.46% 2006 /1/ /5/ 17,000 16,247 .23
New World China Finance Ltd. 4.00% 1999 /1/ 4,000 4,000 .06
Security Capital Industrial Trust:
7.25% 2002 1,000 1,014
7.95% 2008 5,000 5,141 .15
7.875% 2009 5,000 5,142
Security Capital Pacific Trust:
7.15% 2010 2,000 1,982 .06
7.90% 2016 2,100 2,101
Shopping Center Associates 6.75% 2004 /1/ 12,000 11,665 .17
Taubman Realty Group 7.00% 2003 2,000 1,932 .03
Wellsford Residential Property Trust:
7.75% 2005 1,000 1,011 .03
7.25% 2000 1,000 1,014
-------- ------
110,264 1.57
-------- ------
COLLATERALIZED MORTGAGE/ASSET-BACKED OBLIGATIONS /6/
(Excluding Those Issued by Federal Agencies)
Aames Mortgage Trust:
1996 Series D, Class A-1B, 6.34% 2012 22,000 21,956
1996 Series D, Class A-1B, 6.52% 2020 9,000 8,968 .78
1996 Series D, Class A-1B, 6.87% 2024 19,500 19,407
1996 Series D, Class A-1B, 7.17% 2025 4,000 3,980
AFC Home Equity Loan Trust, Series 1995-5, Class 1A4,
6.87% 2027 9,000 8,839 .13
Asset Securitization Corp. 7.21% 2026 3,000 3,064 .04
Banco Nacional de Mexico 0% 2002 /1/ 18,178 14,384 .21
BCF L.L.C :
Series 1996-C2, Class A, 7.641% 2026 /1/ 4,496 4,550 .08
Series 1996-C2, Class C, 7.901% 2026 /1/ 1,000 1,019
Capstead Securities Corp. IV, collateralized mortgage
obligations, Series 1992-4, Class J, 19.6067% 2022 /7/ 8,750 9,297 .13
Chase Manhattan Bank, N.A.:
Series 96-1, Class A1, 7.60% 2005 4,947 5,108 .21
Series 93-I, Class 2A5, 7.25% 2024 10,000 9,990
Collateralized Mortgage Obligation Trust, 6,182 6,648 .10
Series 63, Class Z, 9.00% 2020
ContiMortgage Home Equity Loan Trust 6.37% 2011 1,500 1,487 .02
CSFB Finance Co. Ltd., Series 1995-A, 5.00%/7.00% 2005 30,000 29,767 .43
CS First Boston Mortgage Securities Corp., mortgage
pass-through certificates:
Series 1995-AEW1, 6.665% 2027 444 444 .18
Series 1995-MBL1, 6.425% 2030 12,233 12,227
Electronic Transfer Master Trust 9.35% 2002 /1/ 21,750 21,995 .31
EquiCredit Funding Asset Backed Certificates:
Series 1996 A, Class A3, 7.35% 2019 1,000 1,018 .31
Series 1996 A, Class A2, 6.95% 2012 21,000 21,210
FIRSTPLUS Home Loan Owner Trust,
Series 1996-4, Class A3, 6.28% 2009 1,000 991 .01
GCC Home Equity Trust, asset-backed certificates, Series:
1990-1, 10.00% 2005 2,637 2,705 .04
G E Capital Mortgage Services Inc.:
Series 1994-9, Class A9, 6.50% 2024 4,068 3,453
Series 1994-15, Class A10, 6.00% 2009 16,376 14,788 .58
Series 1995-1, Class A8, 8.40% 2025 21,785 22,248
GMAC Commercial Mortgage Securities Inc., 998 1,001 .01
Series 1996-C1, Class A2A, 6.79% 2028
Green Tree Financial Corp., pass-through certificates:
Series 1994-A, Class NIM, 6.90% 2004 6,473 6,457
Series 1995-A, Class NIM, 7.25% 2005 42,309 42,258
Series 1993-2, Class B, 8.00% 2018 2,250 2,280 .96
Series 1995-9, Class A-5, 6.80% 2027 8,000 7,880
Series 1995-9, Class A-5, 7.30% 2028 8,500 8,287
IMC Home Equity Loan Trust:
1996 Series 4, Class A1, 6.59% 2011 9,226 9,226 .40
1996 Series 4, Class A1, 6.81% 2011 18,972 18,991
J.P. Morgan Commercial Mortgage Finance Corp.,pass-
through certificates:
Series 1995-C1, Class A-2, 7.3985% 2010 /4/ 1,000 1,025 .03
Series 1996-C3, Class A-1, 7.33% 2028 /4/ 985 1,006
Merrill Lynch Mortgage Investors, Inc.:
Series 1995-C2, Class D, 8.2657% 2021 /4/ 899 919
Series 1995-C3, Class A1, 6.7885% 2025 /4/ 2,844 2,851
Series 1996-C2, CLASS A1, 6.69% 2028 14,452 14,452 .50
Series 1996-WF1, Class A1 WAC, 6.586% 2028 /1/ 14,720 14,764
Series 1996-WF1 Class D, 6.5862199% 2028 2,000 1,880
The Money Store Trust:
Series 1996-D, Class A-12, 6.37% 2011 20,000 20,275
Series 1996-D, Class A-14, 6.985% 2016 4,000 4,075 .39
Series 1996-C, Class A3, 7.07% 2017 3,000 3,030
Morgan Stanley Capital Inc., Series 1995-GA1, Class A1,
7.00% 2002 /1/ 15,109 15,260 .22
Prudential-Bache CMO Trust, Series 3, Class F, 9.44% 2018 1,000 1,068 .02
Prudential Home Mortgage Securities Co., Inc.:
Series 1993-7, Class A-4, 8.00% 2003 9,323 9,396
Series 1993-7, Class A-5, 8.00% 2003 1,432 1,429
Series 1993-48, Class A-6, 6.25% 2008 4,466 4,153 .44
Series 1992-37, Class A-6, 7.00% 2022 1,408 1,408
Series 1993-34, Class A-1, 7.00% 2023 14,702 14,702
Residential Funding Mortgage Securities I, Inc., Series
1992-S6, Class A-10, 12.102% 2022 /7/ 10,124 9,441 .13
Resolution Trust Corp.:
Series 1991-M5, Class B, 9.00% 2017 2,403 2,469
Series 1992-6, Class A-2B, 8.40% 2024 6,159 6,193
Series 1993-C1, Class D, 9.45% 2024 9,352 9,562
Series 1993-C1, Class E, 9.50% 2024 500 498 .37
Series 1993-C2, Class C, 8.00% 2025 3,000 3,044
Series 1993-C2, Class D, 8.50% 2025 3,290 3,344
Series 1993-C2, Class E, 8.50% 2025 341 339
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 5,112 .07
Standard Credit Card Trust, credit card participation
certificates:
Series 1990-3A, 9.50% 1998 2,000 2,024 .11
Series 1991-3A, 8.875% 1999 5,500 5,720
Structured Asset Securities Corp., pass-through certificates:
Series 1995-C1, Class A1A, 7.375% 2024 735 742
Series 1996-CFL, Class D, 7.034% 2028 2,950 2,932 .08
Series 1996-CFL, Class E, 7.034% 2028 1,763 1,789
UCFC Acceptance Corp. pass-through certificates:
Series 1995-B1, Class A3, 6.75% 2017 2,000 2,007 .03
Series 1996-B1, Class A3, 7.30% 2013 500 506 .01
Series 1996-C1, Class A4, 7.7475% 2020 9,500 9,642 .14
Series 1996-D, Class A4, 6.776% 2016 2,400 2,398 .04
Series 1996-B1, Class A2, 7.075% 2010 10,000 10,062 .14
-------- ------
535,440 7.65
-------- ------
GOVERNMENTAL
Governments (Excluding U.S. Government)
Argentina (Republic of):
8.375% 2003 10,000 9,413 .16
11.00% 2006 1,000 1,048
Eurobond 6.8125% 2005 /4/ 22,251 19,392 .28
Banco Nacional de Comercio Exterior, S.N.C., 7.25% 2004 750 662 .01
British Columbia Hydro & Power Authority:
12.50% 2013 4,000 4,532
12.50% 2014 7,000 8,085 .19
Canadian Government:
10.50% 2001 C$5,000 4,337
6.50% 2004 25,000 18,617
9.00% 2004 87,750 75,108 1.68
8.75% 2005 15,000 12,726
4.524% 2021 9,000 7,268
Deutschland Republic:
6.25% 2024 DM6,000 3,703
8.00% 2002 34,050 25,309 .41
Ecuador Bear PDI /3/:
6.50% 2015 $1,029 632
6.50% 2015 500 347
Ecuador (Republic of) Past Due Interest Bond 6.5% 2015 /5/ 29 18 .00
Ireland (Republic of) 8.00% 2006 6,700 12,385 .18
Italian Government National:
10.50% 2005 ITL15000000 11,808 .17
Italy (Republic of) 6.875% 2023 5,000 4,755 .07
The Russian Federation 9.25% 2001 /1/ $5,000 4,875 .07
New Zealand Government 4.50% 2016 /8/ NZ$19,000 13,157 .19
Ontario (Province of):
7.75% 2002 $3,500 3,696
7.625% 2004 5,000 5,273 .37
7.00% 2005 8,750 8,866
15.25% 2012 6,985 7,794
Panama Interest Reduction Bond: 3.50% 2014 8,000 5,560 .10
6.75% 2006 /1/ /4/ 1,500 1,174
Philippine Front-Loaded Interest Reduction Bond, 250 236 .00
Series B, 5.00% 2008 /6/
Poland (Republic of):
Past Due Interest Bond 3.75% 2014 20,000 16,925 .32
Past Due Interest Bond 3.75% 2014 7,000 5,924
Treasury Bill 1997 16,200 5,344 .08
Quebec (Province of):
8.625% 2005 6,750 7,419 .20
13.25% 2014 5,500 6,599
Republic of Solvenia, 7.0% 2001 /1/ 7,000 7,096 .10
South Africa (Republic of) 13.00% 2010 ZAR81,000 14,248 .20
United Mexican States Government Eurobonds:
Global 11.375% 2016 $2,015 2,108
Global 7.5625% 2001 /1/ /4/ 19,000 19,042
Series A, 6.25% 2019 1,000 733 .34
Series B, 6.39844% 2019 /6/ 1,250 1,078
Series B, 6.39062% 2019 /6/ 500 431
Venezuela (Republic of):
6.625% 2007 /4/ 11,250 9,928 .14
Front Loaded Interest Reduction Bond 6.375% 2007 /4/ 1,000 894 .01
Front Loaded Interest Reduction Bond 6.50% 2007 /4/ 250 223 .00
-------- ------
368,768 5.27
-------- ------
Development Authorities
Inter-American Development Bank 8.875% 2009 10,000 11,653 .17
-------- ------
Federal Agency Obligations - Mortgage Pass-Throughs /6/
Federal Home Loan Mortgage Corp.:
7.50% 2025 11,731 11,742
8.00% 2003-2010 5,537 5,675
8.25% 2007 2,841 2,944
8.50% 2002-2020 34,665 36,106
8.75% 2008 3,644 3,835
9.00% 2021 1,063 1,133
10.00% 2011-2019 411 451 1.00
10.50% 2020 2,832 3,135
10.75% 2010 131 145
11.50% 2000 40 42
12.00% 2010-2015 1,591 1,799
12.50% 2009-2019 1,883 2,142
12.75% 2015-2019 703 809
13.00% 2014 76 89
13.50% 2018 13 16
13.75% 2014 21 25
Federal National Mortgage Assn.:
6.50% 2025 1,271 1,212
7.00% 2009-2010 4,521 4,516
7.50% 2009-2024 16,921 17,112
7.50% 2025 /4/ 11,127 11,421
8.00% 2023 3,221 3,315
8.50% 2009 6,620 6,905
8.50% 2020-2023 6,705 7,016
9.00% 2025 6,950 7,368
9.50% 2009-2025 6,777 7,360 1.39
10.00% 2019-2025 18,457 20,323
10.50% 2012 4,971 5,510
11.00% 2020-2015 3,383 3,798
11.25% 2014 61 69
11.50% 2010-2014 324 370
12.00% 2015-2019 143 165
12.50% 2015 329 387
13.00% 2014 56 66
15.00% 2013 71 86
Government National Mortgage Assn.:
5.00% 2026 /4/ 8,519 8,340
5.00% 2025-2026 8,107 7,923
5.50% 2023-2025 /4/ 134,013 136,180
6.00% 2024 /4/ 58,582 59,664
6.125% 2022 /4/ 8,366 8,553
6.50% 2008-2026 /4/ 46,869 45,616
7.00% 2008-2026 /4/ 115,530 114,851 8.94
7.50% 2008-2026 83,036 83,693
8.00% 2017-2023 19,818 20,410
8.50% 2020-2026 64,947 67,645
9.00% 2016-2025 31,802 33,913
9.50% 2009-2025 21,056 22,860
10.00% 2017-2019 11,438 12,582
10.50% 2015-2019 671 753
11.00% 2013-2016 1,460 1,663
11.50% 2015 61 71
12.00% 2014 144 169
12.50% 2010-2015 910 1,070
13.25% 2014 84 99
-------- ------
793,142 11.33
-------- ------
FEDERAL AGENCY OBLIGATIONS - OTHER
Federal Home Loan Bank Bonds:
6.16% 2004 24,000 23,021
6.27% 2004 5,000 4,826
6.38% 2003 3,000 2,919 1.19
6.41% 2003 18,580 18,075
7.00% 2005 35,000 34,338
Federal Home Loan Mortgage Notes:
5.74% 2003 6,500 6,169
5.78% 2003 14,520 13,739
6.185% 2003 19,845 19,119
6.19% 2004 11,000 10,543
6.24% 2003 2,900 2,804
6.27% 2004 3,500 3,381
6.28% 2003 3,000 2,913
6.30% 2003 2,000 1,952 1.72
6.375% 2003 5,820 5,657
6.39% 2003 10,330 10,056
6.50% 2003 6,200 6,020
6.555% 2006 7,500 7,239
7.00% 2002 25,000 24,785
7.29% 2004 6,000 5,969
Federal National Mortgage Association Notes:
7.70% 2004 12,500 12,754
medium-term notes:
5.54% 1997 30,000 29,987 1.22
6.14% 2004 13,000 12,437
7.43% 2005 30,000 29,794
FNSM Callable Principal STRIPS 0%/8.25% 2022 /2/ 4,500 3,855 .06
-------- ------
292,352 4.19
-------- ------
Collateralized Mortgage Obligations - Federal Agencies /6/
Federal Home Loan Mortgage Corp.:
Series 1716, Class A, 6.50% 2009 4,750 4,536
Series 1657, Class SA, 6.7659% 2023 /7/ 7,520 4,874 .20
Series 1673, Class SA, 5.0784% 2024 /7/ 7,879 4,553
Federal National Mortgage Assn.:
Series 91-146, Class Z, 8.00% 2006 6,794 6,955
Series 90-93, Class G, 5.50% 2020 1,500 1,408 .17
Series 93-247, Class Z, 7.00% 2023 3,679 3,371
-------- ------
25,697 .37
-------- ------
U.S. Treasury Obligations
8.125% February 1998 52,000 53,349 .76
5.875% April 1998 6,500 6,510 .09
9.25% August 1998 164,250 172,796 2.47
8.875% November 1998 1,000 1,052 .02
8.875% February 1999 35,000 37,029 .53
9.125% May 1999 13,250 14,159 .20
6.875% July 1999 80,000 81,625 1.17
8.875% May 2000 30,000 32,503 .46
8.750% August 2000 28,000 30,345 .43
8.50% November 2000 36,000 38,880 .56
7.75% February 2001 26,000 27,475 .39
8.00% May 2001 15,000 16,029 .23
13.125% May 2001 21,500 27,107 .39
14.25% February 2002 7,000 9,442 .13
11.625% November 2002 92,000 116,020 1.66
7.25% May 2004 135,875 142,966 2.04
7.875% November 2004 6,000 6,548 .09
11.625% November 2004 93,500 123,449 1.76
6.50% May 2005 30,000 30,202 .43
10.375% November 2009 42,000 51,890 .74
10.00% May 2010 7,500 9,171 .13
12.75% November 2010 10,500 14,862 .21
10.375% November 2012 29,000 37,346 .53
12.00% August 2013 10,000 14,305 .21
8.875% August 2017 211,000 260,619 3.72
8.125% May 2021 27,000 31,328 .45
-------- ------
1,387,007 19.80
-------- ------
Floating Rate Eurodollar Notes (Undated) /4/
Allied Irish Banks Ltd. 6.4375% 7,000 6,440 .09
Bank of Nova Scotia 6.00% 10,000 8,650 .12
Bergen Bank 6.00% 5,000 4,244 .06
Canadian Imperial Bank of Commerce 6.125% 25,000 21,344 .31
Christiana Bank Og Kreditkasse 6.0625% 6,000 5,175 .07
Hongkong and Shanghai Banking Corp. 6.25% 10,000 8,718 .13
Lloyds Bank (#2) 6.062% 8,000 7,075 .10
Midland Bank 5.8125% 5,000 4,398 .06
National Bank of Canada 3.0313% 5,000 3,975 .06
Standard Chartered Bank:
5.775% 5,000 4,163
5.8125% 15,000 12,445 .24
-------- ------
86,627 1.24
-------- ------
EQUITY-TYPE SECURITIES & MISCELLANEOUS
Equity-Type Securities
Nextel Corp. warrants /5/ /9/ 38,750 0 .00
IntelCom Group Inc., warrants /5/ /9/ 47,850 502 .01
-------- ------
502 .01
-------- ------
MISCELLANEOUS
Investment securities in the initial period of acquisition 8,060 .12
-------- ------
TOTAL BONDS, NOTES AND EQUITY-TYPE SECURITIES -------- ------
(cost: $5,996,788,000) 6,108,709 87.24
-------- ------
SHORT-TERM SECURITIES
Commercial Paper
A.I. Credit Corp.:
5.35% due 01/09/97 20,000 19,973 .72
5.35% due 02/18/97 30,000 29,779
Alberta (Province of) 5.34% due 01/21/97 20,000 19,938 .29
American Brands, Inc.:
5.34% due 01/07/97 24,000 23,976 .48
5.41% due 01/24/97 10,000 9,965
Beneficial Corp.:
5.41% due 01/16/97 3,000 2,993
5.37% due 01/22/97 21,400 21,331 .70
5.53% due 01/29/97 15,000 14,933
5.51% due 02/27/97 10,000 9,912
Commercial Credit Co.:
5.36% due 01/16/97 22,200 22,148 .60
5.50% due 02/03/97 20,000 19,897
E.I. du Pont de Nemours and Co.:
5.34% due 01/27/97 25,000 24,901 .68
5.37% due 01/29/97 22,400 22,309
Ford Motor Credit Co.:
5.38% due 01/13/97 30,500 30,441
5.36% due 01/15/97 20,000 19,955 1.08
5.41% due 02/28/97 25,500 25,276
General Electric Capital Corp.:
5.36% due 01/23/97 30,700 30,595 .80
5.46% due 01/28/97 25,000 24,895
H.J. Heinz Co.:
5.31% due 01/02/97 30,000 29,991
5.48% due 02/06/97 9,005 8,954 .63
5.42% due 03/04/97 6,900 6,835
Hershey Foods Corp.:
5.37% due 01/23/97 19,500 19,434 .35
5.34% due 01/30/97 5,000 4,978
IBM Credit Corp.:
5.38% due 01/14/97 28,900 28,840 .71
5.36% due 01/17/97 21,000 20,947
National Australia Funding Inc.:
5.34% due 01/06/97 32,000 31,972 .74
5.37% due 01/21/97 20,000 19,938
National Rural Utilities Cooperative Finance Corp.:
5.38% due 01/10/97 15,000 14,978
5.35% due 02/04/97 15,000 14,924
5.36% due 02/05/97 5,000 4,973 .77
5.62% due 02/14/97 19,800 19,662
New Center Asset Trust 7.20% due 01/02/97 43,100 43,083 .62
Norfolk Southern Corp. 5.38% due 01/08/1997 15,000 14,982 .21
Raytheon Co.:
5.37% due 01/17/97 20,000 19,951
5.34% due 01/21/97 10,000 9,969 .64
5.38% due 01/24/97 15,000 14,947
Safeco Credit Co. Inc.:
5.37% due 01/06/97 4,900 4,896
5.35% due 02/03/97 12,000 11,940 .41
5.37% due 02/05/97 12,000 11,936
Warner Lambert Co.
5.34% due 02/20/97 15,000 14,885 .47
5.36% due 03/05/97 18,000 17,828
-------- ------
764,060 10.90
-------- ------
Certificates of Deposit
Canadian Imperial Holdings Inc.:
5.40% due 02/18/97 15,000 14,999
5.37% due 01/03/97 10,000 10,000 .68
5.38% due 01/31/97 22,000 22,000
-------- ------
46,999 .68
-------- ------
--------
TOTAL SHORT-TERM SECURITIES (Cost $811,071,000) 811,059 11.58
-------- ------
TOTAL INVESTMENT SECURITIES (cost $6,807,859,000) 6,919,768 98.82
Excess of cash and receivables over payables 82,621 1.18
-------- ------
NET ASSETS 7,002,389 1.00
======== ======
/1/ Purchased in a private placement transaction; resale
to the public may require registration.
/2/ Step bond; coupon rate will increase at a later date.
/3/ Security was purchased as a unit; issue
was separated but reattached for reporting purposes.
/4/ Coupon rate may change periodically.
/5/ Valued under procedures established by the Board of
Directors.
/6/ Pass-through securities backed by a pool of mortgages
or other loans on which principal paymwnts are periodically
made. Therefore, the effective maturity is shorter
than the stated maturity.
/7/ Inverse floater, which is a floating
rate note whose interest rate moves in the opposite
direction of prevailing interest rates.
/8/ Index-linked bond, which is a floating rate whose
principal amount moves with a government retail price index.
/9/ Non-income-producing security.
See Notes to Financial Statements
</TABLE>
<TABLE>
The Bond Fund of America
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 (dollars in thousands)
<S> <C> <C>
Assets:
Investment securities at market
(cost: $6,807,859) $6,919,768
Cash 3,781
Prepaid expense
Receivables for--
Sales of investments $11,195
Sales of Fund's shares 14,509
Dividends and accrued interest 94,231 119,935
--------- -----------
7,043,484
Liabilities:
Payables for--
Purchases of investments 23,556
Repurchases of fund's shares 13,553
Forward currency contracts 727
Dividends on Fund's shares 24
Management services 1,970
Accrued expenses 1,265 41,095
1,304 $42,399
--------- -----------
Net Assets at January 31, 1997--
Equivalent to $13.75 per share on
509,125,119 shares of $1 par value
capital stock outstanding (authorized
capital stock - 1,000,000,000 shares) $7,002,389
===========
STATEMENT OF OPERATIONS
for the year ended December 31, 1997 (dollars in thousands)
Investment Income:
Income:
Interest $537,844
Dividends from investment in stocks 0 $0
Expenses:
Management services fee $22,728
Distribution expenses 16,348
Transfer agent fee 4,788
Reports to shareholders 420
Registration statement and prospectus 649
Postage, stationery and supplies 1,156
Directors' fees 49
Auditing and legal fees 45
Custodian fee 293
Taxes other than federal income tax 79
Other expenses 80 46,635
--------- -----------
Net investment income 491,209
===============
Realized Loss and Unrealized
Depreciation on Investments:
Net realized loss (7,778)
Net change in unrealized appreciation
(depreciation) on:
Investments (46,463)
Open forward currency contracts 1,137
------------
Net unrealized depreciation (45,326)
---------------
Net realized loss and
unrealized depreciation
on investments (53,104)
---------------
Net Increase in Net Assets Resulting $438,105
from Operations ===============
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended December 31,
1996 1995
Operations:
Net investment income $491,209 $442,418
Net realized loss on investments (7,778) (13,362)
Net unrealized change in (depreciation)
appreciation on investments (45,326) 506,227
--------- -----------
Net increase in net assets
resulting from operations 438,105 935,283
--------- -----------
Dividends and Distributions Paid to
Shareholders:
Dividends from net
investment income (488,959) (438,147)
--------- -----------
Capital Share Transactions:
Proceeds from shares sold:
130,706,510 and 119,215,625
shares, respectively 1,780,596 1,591,640
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
26,267,382 and 23,407,092 shares,
respectively 357,426 312,925
Cost of shares repurchased:
101,063,959 and 78,844,004
shares, respectively (1,374,955) (1,052,675)
--------- -----------
Net increase in net assets
resulting from capital share
transactions 763,067 851,890
--------- -----------
Total Increase in Net Assets 712,213 1,349,026
Net Assets:
Beginning of year 6,290,176 4,941,150
--------- -----------
End of year (including
undistributed net investment
income: $10,007 and $14,704
respectively) $7,002,389 $6,290,176
========= ===========
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. The Bond Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks as high a level of current income as is
consistent with preservation of capital through a diversified portfolio of
bonds and other fixed-income obligations. The following paragraphs summarize
the significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Equity-type securities traded on a national securities exchange (or
reported on the NASDAQ national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available. However,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality and type. The value of each security
denominated in a currency other than U.S. dollars will be translated into U.S.
dollars at the prevailing market rate provided by a pricing service in
accordance with procedures established by the fund's officers. Short-term
securities with more than 60 days remaining to maturity, including forward
currency contracts, are valued at the mean of their representative quoted bid
and asked prices. Where pricing service or market quotations are not readily
available, securities will be valued at fair value by the Board of Directors or
a committee thereof. Short-term securities with 60 days or less remaining to
maturity are valued at amortized cost, which approximates market value.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed-delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities. Dividends
to shareholders are declared daily after determination of the fund's net asset
value and paid to shareholders monthly.
Investment securities and other assets and liabilities, 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. Purchases and sales of
investment securities and income are calculated using the prevailing exchange
rate. The effects of changes in foreign currency exchange rates on investment
securities are included with the net realized and unrealized gain or loss on
investment securities.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $293,000 includes $241,000 that was paid by these 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, 1996, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $111,909,000, of which $193,356,000 related to appreciated
securities and $81,447,000 related to depreciated securities. During the year
ended December 31, 1996, the fund realized, on a tax basis, a net capital loss
of $8,472,000 on securities transactions. Net losses related to non-U.S.
currency transactions of $694,000 are reported as ordinary income for tax
purposes. Dividends paid to shareholders have been reduced by $6,254,000 of
non-U.S. currency losses for tax purposes. The fund has available at December
31, 1996 a net capital loss carryforward totaling $50,492,000 which may be used
to offset capital gains realized during subsequent years through 2003 and
thereby relieve the fund and its shareholders of any federal income tax
liability with respect to the 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
$6,807,859,000 at December 31, 1996.
3. The fee of $22,728,0000 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;
0.16% of such assets in excess of $3 billion but not exceeding $6 billion; and
plus 3.00% on the first $450,000 of the fund's monthly gross investment income,
and 2.25% of such income in excess of $450,000 but not exceeding $8,333,333.
The Board of Directors of the fund approved a new agreement effective April 1,
1996 reducing the fee to 0.15% of average net assets in excess of $6 billion
and 2.00% of monthly gross investment income in excess of $8,333,333.
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, 1996,
distribution expenses under the Plan were $16,348,000. As of December 31, 1996,
accrued and unpaid distribution expenses were $1,062,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,788,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $5,534,000 (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.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of December 31,
1996, aggregate amounts deferred and earnings thereon were $68,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of December 31, 1996, accumulated net realized loss on investments was
$50,492,000 and additional paid-in capital was $6,421,875,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $2,993,510,000 and $2,606,061,000, respectively,
during the year ended December 31, 1996.
The fund purchases and sells forward currency contracts in anticipation
of, or to protect itself against, fluctuations in exchange rates. The contracts
are recorded in the statement of assets and liabilities at their net unrealized
value; the fund's maximum potential liability in these contracts is equal to
the full contract amounts. 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. At December 31, 1996 the fund had an outstanding
forward currency contract to sell non-U.S. currency as follows:
<TABLE>
Contract Amount U.S. Valuations at 12/31/96
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unrealized
Appreciation
Non-U.S. Currency Sales Contracts Non-U.S. U.S. Amount (Depreciation)
Deutsche Marks expiring 1/8/97 to 2/4/97 DM 49,370,000 $33,774,074 $32,115,891 $1,658,183
French Francs expiring 1/28/97 to 9/9/98 FRF 71,260,000 12,256,066 14,238,140
(1,982,074)
Great Britain Pounds expiring 1/28/97 to 3/19/97 Pound 2,251,000 3,434,741 3,854,954
(420,213)
Swiss Francs expiring 1/28/97 CHF 312,000 250,804 233,702 17,102
---------- ---------- ----------
$49,715,685 $50,442,687 ($727,002)
========= ========== =========
</TABLE>
<TABLE>
Per-Share Data and Ratios
Year Ended December 31
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Net asset value, beginning of year $13.88 $12.69 $14.45 $13.99 $13.70
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 1.02 1.05 1.05 1.09 1.15
Net realized and unrealized gain(loss) on investments (0.13) 1.18 (1.76) 0.84 0.34
------- ------- ------- ------- -------
Total from investment operations 0.89 2.23 (0.71) 1.93 1.49
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (1.02) (1.04) (1.05) (1.08) (1.16)
Distributions from net realized -- -- -- (0.39) (0.04)
-- -- -- -- --
------- ------- ------- ------- -------
Total distributions (1.02) (1.04) (1.05) (1.47) (1.20)
------- ------- ------- ------- -------
Net asset value, end of year $13.75 $13.88 $12.69 $14.45 $13.99
======= ======= ======= ======= =======
Total Return* 6.71% 18.25% (5.02%) 14.14% 11.34%
Ratios/supplemental data:
Net assets, end of year (in millions) $7,002 $6,290 $4,941 $5,285 $3,917
Ratio of expenses to average net assets .71% .74% .69% .71% .73%
Ratio of net income to average net assets 7.47% 7.87% 7.77% 7.53% 8.36%
Portfolio turnover rate 43.43% 43.80% 56.98% 44.68% 49.70%
* Calculated without deducting a sales
charge. The maximum sales charge is 4.75% of
the fund's offering price.
</TABLE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
The Bond Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of
The Bond Fund of America, Inc., including the schedule of portfolio investments
as of December 31,1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the per-share data and ratios for each of the five
years in the period then ended. 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
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, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The Bond Fund of America, Inc. as of December 31, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
January 29, 1997
THE AMERICAN FUNDS GROUP(R)
SHAREHOLDER SERVICES
ARE YOU AWARE OF YOUR RIGHTS?
Did you know you may be eligible for a sales charge discount when you buy
shares of most American Funds? The discounts begin when your investments total
$25,000 for bond funds or $50,000 for stock and stock/bond funds - and the good
news is you don't have to invest the whole amount at one time.
Through your RIGHT OF ACCUMULATION, when you purchase additional shares
you can add the purchase amount to the value of shares you already own - in any
of our eligible funds* - in order to qualify for a sales charge discount on the
new investment.
Sales charges are reduced on a sliding scale as your investments increase.
You'll find a detailed breakdown of all discounts in your fund's prospectus,
which you can obtain from your financial adviser or by calling a Shareholder
Services Representative.
OTHER WAYS TO REDUCE SALES CHARGES
You can establish a STATEMENT OF INTENTION that allows you to invest at a
reduced sales charge immediately, based on purchases you intend to make over a
13-month period.* Or you can AGGREGATE ACCOUNTS by adding your purchase amount
to the total value of accounts you, your spouse and your minor children have
with The American Funds Group. Call a Shareholder Services Representative for
details and restrictions.
Whether you accumulate, aggregate or sign a statement of intention, it all
adds up - to more purchasing power for you.
INVESTING WITH STYLE
Our many free services are designed to accommodate your needs quickly,
effortlessly and efficiently.
AMERICAN FUNDSLINE(R) - Handle transactions over the phone 24 hours a day.
Obtain current prices and investment returns, exchange shares between funds,
redeem shares, check your share balances and confirm your most recent
transaction. Request duplicate statements and order checks. All on YOUR
timetable. Just call 800/325-3590.
AMERICAN FUNDSLINK (SM) - Link your American Funds accounts with your bank
account. You can have fund dividends or automatic fund withdrawals deposited
directly into your bank account for fast, convenient, worry-free banking. Or
you can invest money directly from your bank account into your fund account on
either a systematic or on-demand basis.
OTHER AUTOMATIC TRANSACTIONS - You can reinvest dividends into the same fund or
another fund, make withdrawals, and exchange shares between funds - quarterly,
monthly or during the months you specify.
DIVIDEND AND CAPITAL GAIN OPTIONS - Use your dividend and capital gain
distributions to meet your changing needs.
You may:
- - Automatically reinvest distributions back into the fund at no sales charge.
- - Cross-reinvest dividends into another fund at no sales charge (Certain
restrictions apply.)
- - Have dividends mailed or sent electronically to you or to someone else.
EXCHANGE PRIVILEGES - When you and your investment adviser feel it's time to
adjust your portfolio to meet your changing investment goals, you can easily
exchange shares from one American Fund to another - without paying a sales
charge.* If you are opening an account in a different fund, you must meet that
fund's minimum investment requirement. An exchange generally constitutes a
sales and purchase for tax purposes.
OTHER SERVICES - Stay on top of your investments with ACCOUNT STATEMENTS that
keep you abreast of the activity in your account, CONSOLIDATED QUARTERLY
STATEMENTS to reduce paperwork if you have multiple accounts and YEAR-END TAX
REPORTS that show the dividends and capital gain distributions paid to you
during the year.
*INVESTMENTS IN OUR MONEY MARKET FUNDS - THE CASH MANAGEMENT TRUST OF AMERICA,
THE TAX-EXEMPT MONEY FUND OF AMERICA AND THE U.S. TREASURY MONEY FUND OF
AMERICA - WHICH ARE PURCHASED WITHOUT A SALES CHARGE, GENERALLY DO NOT APPLY
WHEN DETERMINING YOUR SALES CHARGES. IF, HOWEVER, THE SHARES WERE ORIGINALLY
PURCHASED IN ANOTHER AMERICAN FUND THAT REQUIRED A SALES CHARGE, THEN LATER
EXCHANGED INTO OUR MONEY MARKET FUNDS, THE VALUE OF THE SHARES WOULD APPLY
TOWARD REDUCING SALES CHARGES.
For more complete information about these services or about any of the American
Funds, including charges and expenses, please obtain a prospectus from your
financial adviser or phone American Funds Service Company. Please read the
prospectus carefully before you invest or send money. These services are
subject to change or termination.
TO TALK TO A SHAREHOLDER SERVICES REPRESENTATIVE, CALL TOLL-FREE (8 AM TO 8 PM
ET) FROM ANYWHERE IN THE U.S.: 800-421-0180. VISIT OUR WEB SITE AT
WWW.AMERICANFUNDS.COM
[illustration: map of the United States of America]
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
WEST CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas 78265-9522
EAST CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana 46206-6007
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia 23501-2280
BOARD OF DIRECTORS
H. Frederick Christie
Rolling Hills Estates, California
Private investor; former President and Chief Executive Officer, The Mission
Group; former President, Southern California Edison Company
Don R. Conlan
South Pasadena, California
President Emeritus, The Capital Group Companies, Inc.
Diane C. Creel
Long Beach, California
Chief Executive Officer and President,
The Earth Technology Corporation
(environmental engineering)
Martin Fenton, Jr.
San Diego, California
Chairman of the Board,
Senior Resource Group, Inc.
(senior living centers management)
Leonard R. Fuller
Marina del Rey, California
President, Fuller & Company, Inc.
(financial management consulting)
Abner D. Goldstine
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and
Management Company
Paul G. Haaga, Jr.
Los Angeles, California
Chairman of the Board of the fund
Executive Vice President and Director, Capital Research and
Management Company
Herbert Hoover III
San Marino, California
Private investor
Richard G. Newman
Los Angeles, California
Chairman of the Board, President and Chief Executive Officer, AECOM Technology
Corporation (architectural engineering)
Peter C. Valli
Long Beach, California
Chairman of the Board,
BW/IP International, Inc.
(industrial manufacturing)
OTHER OFFICERS
Richard T. Schotte
Los Angeles, California
Senior Vice President of the fund
Senior Vice President,
Capital Research and
Management Company
Michael J. Downer
Los Angeles, California
Vice President of the fund
Senior Vice President - Fund Business Management Group,
Capital Research and
Management Company
Mary C. Hall
Brea, California
Vice President of the fund
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company
John H. Smet
Los Angeles, California
Vice President of the fund
Vice President,
Capital Research and
Management Company
Julie F. Williams
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and
Management Company
Anthony W. Hynes, Jr.
Brea, California
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and
Management Company
Kimberly S. Verdick
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President - Fund Business Management Group,
Capital Research and
Management Company
Todd L. Miller
Brea, California
Assistant Treasurer of the fund
Assistant Vice President - Fund Business Management Group,
Capital Research and
Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
(Please write to the address nearest you.)
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of The Bond Fund of America,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA AL/CD/3196
Lit. No. BFA-011-0297
Printed on recycled paper
[The American Funds Group(r)]
