[THE AMERICAN FUNDS GROUP(R)]
THE BOND FUND OF AMERICA
Annual Report for the year ended December 31, 1997
[photo: rolled-up stock certificate for The Bond Fund of America]
THE BOND FUND OF AMERICA (SM)
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.
BFA is one of the 28 mutual funds in The American Funds Group,(r) managed by
Capital Research and Management Company. Since 1931, Capital has invested with
a long-term focus based on thorough research and attention to risk.
RESULTS AT A GLANCE
assuming distributions reinvested or interest
compounded for periods ended 12/31/97
<TABLE>
<CAPTION>
Average Annual Compound Returns
Lifetime
12 months 5 years 10 years (since
5/28/74)
<S> <C> <C> <C> <C>
The Bond Fund
of America +9.2% +8.4% +9.8% +10.4%
Lehman Brothers
Aggregate
Bond Index 9.7 7.5 9.2 9.7 /1/
Rank versus
comparable
funds/2/ 51st of 137 4th of 59 5th of 35 2nd of 18
Average savings
institution /3/ 3.8 3.3 4.5 6.4
Consumer
Price Index/4/ 1.7 2.6 3.4 4.8
</TABLE>
The bond market indexes are unmanaged.
/1/The Lehman Brothers Aggregate Bond Index began on January 1, 1976. From May
31, 1974 through December 31, 1975, the Lehman Brothers Government/Corporate
Bond Index was used.
/2/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.
/3/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.
/4/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 31, 1998, calculated
in accordance with the Securities and Exchange Commission formula, was 6.06%.
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:
The 1997 calendar year coincided with an auspicious environment for U.S. bonds.
With inflation a mere blip on the nation's radar screen, enthusiastic investors
nudged yields on 30-year Treasury bonds below 6% for the first time in more
than four years. As a result, bond prices advanced strongly. (Bond prices and
interest rateds tend to move in opposite directions.)
The rally at home was bolstered by worldwide events. The currency crisis in
Southeast Asia helped keep inflationary pressures in check and U.S. interest
rates low. Meanwhile, concerns about stock markets sent many investors to
bonds. According to the Investment Company Institute, U.S. bond funds saw net
inflows of $45 billion last year, a more than threefold increase from 1996.
In this environment, the value of your holdings in The Bond Fund of America
increased 9.2% for the year if, like most shareholders, you reinvested monthly
dividends totaling 97.75 cents a share. If you took dividends in cash, your
income return was 7.1% and the value of your shares rose 1.8%.
On a relative basis, the fund's 9.2% return matched the average for the 137
corporate A-rated bond funds tracked by Lipper Analytical Services. The Lehman
Brothers Aggregate Bond Index rose 9.7% for the year.
BFA's latest 12-month advance brings its total return since its inception in
1974 to 936.0%, or an average compound return of 10.4% a year. As the table to
the left makes clear, while the fund slightly lagged the broad market index
last year, it has consistently outpaced the overall bond market as well as most
comparable funds over longer, more meaningful periods. BFA has also provided a
considerably higher return than the average savings account and helped
investors stay well ahead of inflation.
BFA is broadly diversified. The fund's corporate holdings represent about 250
companies in more than 25 industries. Issues range from high-quality debt
obligations of established firms to lower rated, higher risk bonds. The latter
in particular made solid contributions to the fund's results by offering both
higher yields and in many cases a measure of capital appreciation. BFA's
investments in mortgage- and asset-backed securities also helped provide a
yield advantage in the current low-interest-rate environment.
The fund benefited from its holdings in U.S. Treasury securities, thanks to
increased demand from foreign buyers for dollar-denominated investments and a
reduced federal budget deficit, which should lower government borrowing and
shrink the supply of Treasuries in the marketplace.
During the year, we lengthened the fund's average effective maturity to 7.4
years from 6.4 years to take advantage of the drop in interest rates. (The
longer a bond's maturity, the more sensitive its price tends to be to changes
in interest rates.) Low interest rates were also responsible for the flood of
new issues on the market. We used the opportunity to add many new holdings to
the fund.
Looking forward, we believe the U.S. economy remains on solid footing, with
growth steady and inflation exceptionally benign. While we are cautiously
optimistic, it is difficult to predict how long inflation can stay at
controllable levels in the face of rising economic activity. The recent turmoil
in Asia has also injected a degree of uncertainty into the economic outlook -
and the prospects for bonds. It remains to be seen to what extent the Asian
"flu" will become contagious and how Japan, the world's second-largest economy
and a major holder of U.S. bonds, will cope with its growing difficulties. As
always, we will continue to monitor global events that may affect your holdings
in the fund.
We also wish to report that, to comply with federal tax laws, we anticipate the
fund will pay a capital gain distribution in March of approximately 7 cents a
share.
We look forward to reporting to you in six months.
Cordially,
/s/Paul G. Haaga, Jr.
Paul G. Haaga, Jr.
Chairman of the Board
/s/Abner D. Goldstine
Abner D. Goldstine
President
February 12, 1998
HOW A $10,000 INVESTMENT HAS GROWN OVER THE FUND'S 23-YEAR LIFETIME
from May 28, 1974, when the fund began operations, through December 31, 1997
Here's how a $10,000 investment grew between May 28, 1974 - when The Bond Fund
of America began operations - and December 31, 1997, 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
$98,670 versus $89,624 in the Lehman index.
[watermark: rolled-up stock certificate of The Bond Fund of America]
[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 1997
December 31
TOTAL VALUE
Dividends 5,673 6,112 6,405 6,635
Reinvested
Value at 71,582 84,645 90,323 98,670
Year-End/1/
BFA's Total (5.0) 18.2 6.7 9.2
Return
</TABLE>
<TABLE>
<CAPTION>
Year ended Dec. 31 Lehman Brothers Consumer Price
Aggregate Bond Index /3/ Index
<S> <C> <C>
May 28, 1974 10,000 10,000
1974* 10,318 10,679
1975 11,587 11,420
1976 13,395 11,975
1977 13,802 12,778
1978 13,994 13,930
1979 14,264 15,782
1980 14,650 17,757
1981 15,565 19,342
1982 20,643 20,082
1983 22,368 20,844
1984 25,756 21,667
1985 31,449 22,490
1986 36,251 22,737
1987 37,248 23,745
1988 40,186 24,794
1989 46,026 25,946
1990 50,149 27,531
1991 58,174 28,374
1992 62,480 29,197
1993 68,571 30,000
1994 66,571 30,802
1995 78,870 31,584
1996 81,733 32,634
1997 89,624 33,189
</TABLE>
Average annual compound return for 23 1/2 years:
10.19%/1/
$98,670/1,2/ BFA with dividends reinvested
$89,624/3/ Lehman Brothers Aggregate Bond Index
$33,189/4/ Consumer Price Index
$10,000/1/ original investment
AVERAGE ANNUAL COMPOUND RETURNS
(for periods ended December 31, 1997)
Lifetime + 10.19%
10 Years + 9.21%
5 Years + 7.31%
1 Year + 4.02%
Assumes reinvestment of all distributions and payment of the maximum 4.75%
sales charge at the beginning of the stated periods.
*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 $81,262 and reinvested capital gain
distributions of $3,490.
/3/From May 31, 1974 through December 31, 1975, the Lehman Brothers
Government/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.
/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]
UNDERSTANDING THE BOND MARKET/INFLATION CONNECTION
[watermark: rolled-up stock certificate of The Bond Fund of America]
In recent years, the economic climate has been relatively hospitable to bond
investors. Inflation is near its lowest level in three decades and interest
rates have fallen, causing bond prices to rise. Despite lower interest rates,
"real" yields remain high. In recent months, attractive fixed-income
opportunities have enticed an increasing number of investors to bonds and to
bond funds.
If long-term investors have learned anything, though, it is that conditions
affecting the bond market, much like hemlines and the weather, can change
dramatically.
Some may remember that the economic landscape was quite different in 1974, when
The Bond Fund of America was launched. Back then, Americans were struggling
with "stagflation" - a painful combination of rising prices and very little
economic growth. With inflation approaching 12%, interest rates soared and bond
prices spiraled downward.
These two scenarios could not be more different. The first describes a "strong"
bond market, the second a "weak" one. Yet both periods provided BFA with
opportunities to meet its objectives and presumably yours by providing
long-term returns consistently ahead of the rising cost of living. How this
could happen says a good deal about the relationship between bonds and
inflation, about the significance of "real" returns - the difference between
stated returns and the inflation rate - and about the value of an actively
managed bond portfolio focused on the long term.
On the following pages, we'll look back at the history of the bond
market/inflation connection and BFA's approach to dealing with it.
[Begin bar chart]
BFA'S TOTAL RETURN VERSUS INFLATION
The best way to look at how an investment has done is to examine results over
meaningful time periods - through economic cycles that have seen fluctuating
interest rates, steep and low inflation, times of prosperity and recession.
Since BFA began in 1974, its total returns have comfortably outpaced inflation
over every 10-year period in its lifetime.
<TABLE>
<CAPTION>
10-year period The Bond Fund of America Consumer Price Index (CPI)
<S> <C> <C>
1975-1984 10.23% 7.33%
1976-1985 11.52% 7.01%
1977-1986 11.24% 6.62%
1978-1987 10.90% 6.39%
1979-1988 11.81% 5.94%
1980-1989 12.54% 5.10%
1981-1990 12.51% 4.48%
1982-1991 13.95% 3.91%
1983-1992 11.95% 3.81%
1984-1993 12.42% 3.71%
1985-1994 10.58% 3.58%
1986-1995 9.83% 3.45%
1987-1996 9.00% 3.68%
1988-1997 9.75% 3.41%
</TABLE>
Results are shown on an annualized basis at net asset value (without sales
charges) and assume dividends were reinvested.
CPI computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
[End chart]
WHY IS INFLATION A PROBLEM?
Your birthday dinner at your favorite restaurant gets a little more expensive
every year. Sending your child to college costs more than six times what it
cost your parents to send you. The monthly grocery bill when you got married
covers only a week's worth of food today. The effects of price inflation may
creep up on you, but they take a considerable toll on the purchasing power of
your money over time.
During the past 20 years, inflation, as measured by the Consumer Price Index
(CPI), has averaged about 5% a year. That might not sound like much, but it
adds up to a cumulative 160% rise in the cost of living.
[Begin sidebar]
INFLATION
A TIMELINE
Inflation has been a feature of human history as long as money has been used as
a medium of exchange. Rampant inflation existed around the time of Alexander
the Great's conquest of Persia in 330 B.C.; the Roman Empire struggled with
rapid price increases under Diocletian at the end of the third century A.D.
Since 1926, inflation in the U.S. has averaged about 3% a year. Although today
the Federal Reserve Board keeps a close watch on our nation's money supply, it
was not until relatively recently that the government began using discretionary
monetary policy - i.e., raising and lowering short-term interest rates - as a
way to help stave off inflation and keep the economy on an even keel. As you
can see on the following pages, those attempts have not always been successful.
[begin time line]
<TABLE>
<CAPTION>
Year Inflation %
<S> <C>
1932 -5.41%
1937 1.91%
1942 3.25%
1947 6.72%
1952 2.67%
1957 1.24%
1962 1.37%
1967 2.20%
1968 4.72%
1969 6.20%
1970 5.57%
1971 3.27%
1972 3.41%
1973 8.71%
1974 12.34%
1975 6.94%
1976 4.86%
1977 6.70%
1978 9.02%
1979 13.29%
1980 12.52%
1981 8.92%
1982 3.83%
1983 3.79%
1984 3.95%
1985 3.80%
1986 1.10%
1987 4.43%
1988 4.42%
1989 4.65%
1990 6.11%
1991 3.06%
1992 2.90%
1993 2.75%
1994 2.67%
1995 2.54%
1996 3.32%
1997 1.70%
</TABLE>
1930S
[photo: boy selling produce]
The stock market crash on October 29, 1929 ushers in the Great Depression. Bank
failures wipe out millions of savings accounts, one of four Americans is out of
work and the U.S. experiences deflation (falling prices).
1940S
Wartime spending and postwar reconstruction push inflation higher. Economic
recovery is briefly halted as a strike wave idles 4.6 million workers.
1950S
Congress appropriates billions for construction of a vast national highway
system. As the country builds and consumers spend more, unemployment rates drop
below 3%. Inflation remains relatively flat.
1960S
[photo: Neil Armstrong on the moon]
The U.S. economy booms, fueled in part by Vietnam War-related budget deficits.
With unemployment averaging about 4% toward the end of the decade, inflation
begins to climb.
EARLY 1970S
Wage and price controls are introduced in an attempt to control inflation.
1974
[photo: "no gas" sign]
The Bond Fund of America is launched. Inflation escalates, aggravated by an oil
embargo that drives up fuel prices. The economy experiences severe stagflation
as output falls and prices continue to rise.
1979
Inflation climbs to its highest level in over 30 years.
1980
[photo: people in unemployment line]
Runaway inflation forces the Federal Reserve Board to tighten the money supply
by raising short-term interest rates. Yields climb, driving bond prices lower.
1982
On the heels of a sharp interest rate hike, the economy slips into a recession.
Unemployment exceeds 10% for the first time since the Depression. Bonds rally
as yields collapse.
1986
The national debt mounts as the economy booms. The Tax Reform Act lowers the
tax rate on interest income, but raises it on capital gains.
1987
[photo: stock exchange floor scene]
Inflation fears lead to a sharp drop in bond values. The U.S. stock market
tumbles.
1990
A brief recession drives up unemployment. The Fed responds quickly by cutting
short-term interest rates to help stimulate growth.
1994
A series of pre-emptive rate hikes sends the bond market into a 13-month slump,
one of its worst ever.
1997
[photo: computer chip]
Inflation dips below 2%, despite a steadily expanding economy and low
unemployment levels. Global competition and technological efficiency are
contributing factors.
Source for inflation: Consumer Price Index. Figures from 1932 through 1967 are
shown as five-year annualized averages.
[end timeline]
[End sidebar]
The long-term incremental effects of even tiny price increases can lead to a
big reduction in the purchasing power of your income. Should the annual rate of
inflation continue at just 3% (the average for the past five years), and if you
are earning $50,000 a year today, your income would buy only $23,880 of today's
goods and services 25 years from now. You would need $104,689 a year just to
maintain your standard of living.
The loss of purchasing power can create difficulties for people who are trying
to plan ahead. Those who want to maintain - or improve - their standard of
living over the long term must invest their money in something that provides a
better return than the rate of inflation. Since inflation is impossible to
predict accurately, however, keeping pace can be a challenge for individual
investors.
That's why many investors turn to a professionally managed bond fund such as
The Bond Fund of America. Your fund's three portfolio counselors share a
tremendous amount of investment experience - ranging from 16 to 46 years. In
that time, they have developed a broad perspective on business and financial
conditions that can affect your investment.
INFLATION AND BONDS
While many things can influence a bond's return, investors must pay particular
attention to inflation and inflationary expectations. If bond investors believe
that inflation is headed upward - in other words, that it will reduce the value
of the money they are "lending" - they will demand a higher interest rate in
return for the loan of that money. Should the expected rise in inflation and
interest rates fail to materialize, these investors will enjoy higher income
than those buying new bonds at lower interest rates.
For example, in 1981, interest rates on 30-year Treasury securities rose above
14%. With inflation averaging about 10% that year, investors received interest
rates that would more than offset an anticipated 10% decline in the value of
their dollar each year.
As it happened, however, inflation and interest rates actually declined
steeply. Because those bonds continued to pay 14%, investors holding them were
earning significantly higher income than those who bought newly issued bonds.
The value of that higher current income is reflected in the bond's market
price: Today those bonds could be sold for roughly 56% above their issue price.
At times, of course, changes in inflationary expectations can also hurt bond
investors. If inflation rises faster than anticipated, bondholders could see
the value of their bond income fall behind. Over the long term, however, active
management and broad diversification have helped offset many of the detrimental
effects of rising inflation.
While adjusting to short-term changes can be difficult, over longer time frames
BFA has been able to provide solid returns to investors through periods of both
rising and falling inflation. As the chart on page 5 shows, BFA has
consistently outpaced inflation by a substantial margin over every 10-year
period in its lifetime. The fund's 10-year annualized total returns have ranged
from about 9% to 14%.
KNOWING YOUR REAL RETURNS
Your fund's real rate of return reflects the bite that inflation takes out of
its nominal rate - the rate quoted in newspapers and annual reports. At times,
the difference between the two can be considerable. Shareholders who are
relying on dividend income to help meet current expenses have to be
particularly mindful of their real returns. Those who neglect to do so may find
themselves disappointed.
Let's look at an example of how inflation can erode investment income, the
major component of a bond's total return. The chart below shows yields on
10-year Treasury securities before and after inflation. In 1980, nominal
yields on these instruments averaged about 11%. Investors may have been quite
pleased by these yields. But with inflation averaging 13% that year, these
investments actually had a negative real yield - about -2%. Because the income
lagged the rate of inflation, what many investors had perceived as hefty
earnings were in fact losses in the amount their money could buy. By contrast,
with inflation below 2% today, a 6% nominal yield translates into an attractive
real yield of more than 4%.
Real returns are an essential measure of how well your investments are keeping
pace with your long-term goals. Over the years, shareholders in BFA have seen
their returns handily outpace inflation.
[Begin chart]
REAL VERSUS NOMINAL YIELDS
10-Year Treasury Bonds
<TABLE>
<CAPTION>
Date Nominal Yield Real Yield
<S> <C> <C>
12/72 6.36 3.07
6/73 6.9 1.24
12/73 6.74 -1.47
6/74 7.54 -2.26
12/74 7.43 -3.36
6/75 7.86 -.55
12/75 8.00 1.35
6/76 7.86 2.22
12/76 6.87 2.08
6/77 7.28 1.00
12/77 7.69 1.43
6/78 8.46 1.54
12/78 9.01 .76
6/79 8.91 -1.06
12/79 10.39 -1.31
6/80 9.78 -2.70
12/80 12.84 1.84
6/81 13.47 4.63
12/81 13.72 5.54
6/82 14.30 7.60
12/82 10.54 6.86
6/83 10.85 8.44
12/83 11.83 8.18
6/84 13.56 9.41
12/84 11.50 7.61
6/85 10.16 6.63
12/85 9.26 5.61
6/86 7.80 6.06
12/86 7.11 5.94
6/87 8.40 4.70
12/87 8.99 4.75
6/88 8.92 5.11
12/88 9.11 4.89
6/89 8.28 3.45
12/89 7.84 3.41
6/90 8.48 3.94
12/90 8.08 2.20
6/91 8.28 3.80
12/91 7.09 4.20
6/92 7.26 4.34
12/92 6.77 3.89
6/93 5.96 3.05
12/93 5.77 3.04
6/94 7.10 4.67
12/94 7.81 5.22
6/95 6.17 3.22
12/95 5.71 3.24
6/96 6.91 4.23
12/96 6.30 3.10
6/97 6.49 4.24
12/97 5.81 4.14
</TABLE>
Source: Federal Reserve Board
[End chart]
A WORD ABOUT DEFLATION
Today, with scant evidence of inflation on the horizon, some say that the U.S.
economy may be headed for deflation - a widespread downturn in prices.
Wholesale prices in the U.S. have fallen modestly, and world prices for certain
basic goods are dropping. As a result of the financial crisis in Southeast
Asia, companies there have flooded world markets with cheap exports. Meanwhile,
imports back into the region have been constricted, putting additional pressure
on U.S. manufacturers to keep prices low.
Nonetheless, we believe that the likelihood of deflation is small. The U.S.
economy is quite robust and there is little evidence of a contraction in the
near future. Although inflation is extremely subdued and productivity is
rising, a tight U.S. labor market has already caused wages to increase slightly
- - an important factor in boosting costs. Because of that, in our view, prices
are more likely to go up than down.
THE BENEFITS OF ACTIVE MANAGEMENT
Managing a portfolio of bonds in an environment of continually changing
interest rates and inflationary expectations can be challenging. Based on BFA's
record, the investment professionals who oversee the fund have proved to be up
to the task.
They accomplish this by keeping a close watch on every facet of the economy -
such as industrial output, capital spending, unemployment levels and retail
sales - that could signal a change in interest rates. They monitor changes in
monetary policy, tax legislation and global markets. Finally, they thoroughly
research the fundamentals of every security they consider for the fund. This
vast encyclopedia of information helps BFA's portfolio counselors act on what
they believe will be the most advantageous investment opportunities for
shareholders over the long term.
An important step BFA's managers must take is adjusting the maturity mix of the
bonds in the portfolio. The longer a bond's maturity - that is, the years until
its principal comes due - the more its price tends to rise or fall in response
to interest rate fluctuations. So, if inflation and interest rates are expected
to rise in the coming years, the fund's investment professionals will try to
cushion the impact of potential price declines by shortening the portfolio's
average maturity. Conversely, if they anticipate falling inflation, they may
lengthen the average maturity to take advantage of the probable rise in bond
prices. Currently, BFA has an average maturity of about 7.4 years.
BFA's investment professionals also have the advantage of the fund's broad
diversification. The fund's portfolio counselors carefully sift through
different sectors of the bond market to try to find investments with the
greatest potential for higher yields and total return. These encompass
virtually every type of bond, such as U.S. government securities; corporate
bonds, including lower rated issues; mortgage-backed securities; or bonds
issued outside the United States.
A LONG HISTORY OF POSITIVE AFTER-INFLATION INCOME
Of course, "the proof of the pudding," as Don Quixote observed, "is in the
eating." As the chart below shows, BFA has been able to achieve positive real
income returns in every year but three over its lifetime. That's a remarkable
accomplishment, considering the high levels of inflation that occurred at
various times over the fund's 23 years.
For shareholders who reinvested their earnings, as most do, the fund's income
returns have compounded to create impressive overall returns. As shown on the
chart on pages 2 and 3, a $10,000 investment in BFA at the fund's inception
would have grown to nearly $100,000 today, well ahead of inflation's toll.
Although inflation is likely to remain subdued for the foreseeable future, we
would hasten to remind shareholders not to forget the lessons of history. As
the time line on the preceding pages makes clear, economic activity - and
inflation - tend to be cyclical. No matter what the future holds, however, it
can be reassuring to know that The Bond Fund of America has helped income
investors meet their long-term financial goals through a range of economic
cycles.
[Begin bar chart]
BFA'S INCOME RETURNS
The Bond Fund of America has produced a steady income stream that has helped
shareholders stay well ahead of the rising cost of living. The fund has
achieved positive after-inflation income returns in nearly every calendar year.
The exceptions were 1978 through 1980, when inflation outran interest rates, as
the chart on page 9 shows. In the 17 years since, BFA's real income return has
averaged 6.2% a year.
<TABLE>
<CAPTION>
Year Ended Real Income Returns Nominal Income Returns
<S> <C> <C>
1975 9.1% 2.0%
1976 9.1% 4.0%
1977 8.5% 1.7%
1978 8.7% -0.3%
1979 9.8% -3.1%
1980 11.7% -0.7%
1981 13.9% 4.6%
1982 15.0% 10.7%
1983 11.8% 7.8%
1984 12.1% 7.9%
1985 12.2% 8.1%
1986 10.8% 9.6%
1987 9.8% 5.2%
1988 10.1% 5.4%
1989 10.3% 5.4%
1990 9.8% 3.5%
1991 9.9% 6.7%
1992 8.8% 5.7%
1993 8.0% 5.1%
1994 7.5% 4.7%
1995 8.5% 5.9%
1996 7.6% 4.1%
1997 7.4% 5.6%
</TABLE>
Income returns are calculated at net asset value with dividends reinvested.
[End chart]
<TABLE>
<S> <C> <C> <C> <C>
THE BOND FUND OF AMERICA Principal Market Percent of
INVESTMENT PORTFOLIO DECEMBER 31, 1997 Amount Value Net Assets
(000) (000)
ELECTRICAL & GAS UTILITIES
Utilities: Electrical & Gas
Big Rivers Electric Corp. 10.70% 2017 $17,000 $17,948 .22%
Columbia Gas System, Inc.:
Series A, 6.39% 2000 10,000 10,086 .14
Series C, 6.80% 2005 1,000 1,019
Tennessee Gas Pipeline Co. 7.625% 2037 5,000 5,397 .07
-------------------
34,450 .43
-------------------
INDUSTRIAL & SERVICE
Appliances & Household Goods
Friendly Ice Cream Corp. 10.50% 2007 13,000 13,097 .16
Gruma, SA de CV 7.625% 2007 (1) 2,000 1,970 .02
Lifestyle Furnishings International Ltd. 10.875% 2006 7,000 7,805 .10
Samsung Electronics Co., Ltd. 7.45% 2002 (1) 13,500 11,340 .14
-------------------
34,212 .42
-------------------
Beverages & Tobacco
Canandaigua Wine Co., Inc.:
8.75% 2003 3,000 3,060 .10
Series C, 8.75% 2003 5,000 5,100
Delta Beverage Group, Inc., 9.75% 2003 2,000 2,100 .02
Sparkling Spring Water Group Ltd 11.50% 2007 (1) 2,250 2,301 .03
Standard Commercial Tobacco Co., Inc. 8.875% 2005 (1) 7,000 7,140 .09
-------------------
19,701 .24
-------------------
Broadcasting & Publishing
Adelphia Communications Corp. 9.25% 2002 6,000 6,120 .07
American Media Operations, Inc. 11.625% 2004 6,000 6,510 .08
American Radio Systems Corp. 9.00% 2006 10,080 10,685 .13
Century Communications Corp. 8.75% 2007 4,000 4,080 .05
Chancellor Media Corp. of Los Angeles:
9.375% 2004 12,500 13,000 .65
8.125% 2007 (1) 21,000 20,475
8.75% 2007 15,125 15,390
Chancellor Radio Broadcasting Co., 12.00% exchangable preferred 35,000 share 3,955
2009 (1)
EZ Communications, Inc. 9.75% 2005 1,250 1,381 .02
Fox Kids Worldwide, Inc.:
9.25% 2007 (1) 1,750 1,697 .03
0%/10.25% 2007 (1),(2) 1,250 741
Fox/Liberty Networks, LLC:
8.875% 2007 (1) 10,250 10,224 .20
0%/9.75% 2007 (1),(2) 9,500 6,080
Grupo Televisa, SA:
11.375% 2003 1,250 1,369 .07
0%/13.25% 2008 (2) 5,500 4,111
ITT Promedia BV 9.125% 2007 (1) DM3,250 1,896 .02
Lenfest Communications, Inc. 8.375% 2005 8,000 8,220 .10
Newsquest Capital PLC 11.00% 2006 2,850 3,206 .04
RBS Participacoes SA 11.00% 2007 (1) 10,000 9,350 .12
STC Broadcasting, Inc. 11.00% 2007 3,250 3,534 .04
Sun Media Corp.:
9.50% 2007 3,000 3,240 .09
9.50% 2007 4,000 4,300
Young Broadcasting Inc. 10.125% 2005 2,500 2,625 .03
-------------------
142,189 1.74
-------------------
Construction & Housing
Geberit International SA 10.125% 2007 DM2,750 1,656 .02
-------------------
Data Processing & Reproductions
First International Computer Corp. 1.00% convertible debentures 3,000 3,240 .04
2004 (1)
Maxtor Corp. 5.75% convertible debentures 2012 3,000 2,100 .03
Unisys Corp. 11.75% 2004 4,000 4,580 .05
-------------------
9,920 .12
-------------------
Diversified Media & Cable Television
Bell Cablemedia PLC 0%/11.95% 2004 (2) 23,000 21,633 .26
Cablevision Industries Corp.:
8.125% 2009 17,250 17,854 .29
9.875% 2013 5,000 5,512
Comcast Cable Communications, Inc. 8.375% 2007 5,000 5,564 .07
Comcast Corp.:
10.25% 2001 13,000 14,377 .38
1.125% convertible debentures 2007 25,000 16,125
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (2) 21,000 17,062 .21
FrontierVision 11.00% 2006 2,500 2,778 .03
Globo Comunicacoes E Partcipacoes Ltd.:
10.50% 2006 (1) 13,100 12,609 .17
10.50% 2006 2,000 1,925
Heartland Wireless Communications, Inc. 13.00% 2003 4,500 1,350 .02
Hermes Euro Railtel BV 11.50% 2007 (1) 5,000 5,550 .07
Intermedia Communications Inc. 0%/11.25% 2007 (2) 6,000 4,365 .05
Multicanal Participacoes SA, 12.625% 2004 9,250 9,528 .12
News America Holdings Inc.:
8.625% 2014 A$3,250 2,221 .30
7.43% 2026 $20,500 21,846
NTL Inc.:
Series B, 10.00% 2007 10,000 10,550 .42
0%/10.875% 2003 (2)(formerly International CableTel Inc.) 9,500 9,096
0%/12.75% 2005 (2) (formerly International CableTel Inc.) 17,750 14,910
Rogers Communications Inc. 0% convertible debentures 2013 30,000 12,863 .16
TCI Communications, Inc.:
8.00% 2005 10,000 10,716 .83
6.875% 2006 5,000 5,018
8.75% 2015 7,500 8,692
Tele-Communications, Inc.:
9.25% 2002 5,000 5,488
8.25% 2003 2,000 2,136
7.25% 2005 3,500 3,608
9.80% 2012 10,000 12,432
8.75% 2023 8,000 8,485
9.25% 2023 10,000 11,079
Tele West PLC:
9.625% 2006 4,700 4,959 .30
0%/11.00% 2007 (2) 25,000 19,438
Time Warner Inc.:
6.10% 2001 (1),(3) 24,000 23,516 1.11
10.15% 2012 7,500 9,593
9.125% 2013 15,000 17,862
7.25% 2017 6,000 6,109
0% convertible debentures 2013 67,500 33,919
TKR Cable I, Inc. 10.50% 2007 36,500 41,146 .50
Vanguard Cellular Systems, Inc. 9.375% 2006 6,000 6,240 .08
Viacom International Inc.:
9.125% 1999 5,000 5,070 .14
10.25% 2001 6,100 6,716
Videotron Holdings PLC 0%/11.125% 2004 (2) 8,500 8,096 .10
-------------------
458,036 5.61
-------------------
Electrical & Electronics
Hyundai Semiconductor America, Inc.:
8.25% 2004 (1) 7,705 5,784 .25
8.625% 2007 (1) 20,700 15,075
Micron Technology, Inc. 7.00% convertible debentures 2004 24,000 22,080 .27
Pan Pacific Industrial Investments PLC 0% 2007 (1) 33,500 10,254 .13
-------------------
53,193 .65
-------------------
Energy & Related Companies
Benton Oil and Gas Co.:
11.625% 2003 7,750 8,544 .17
9.375% 2007 (1) 5,250 5,381
BP America Inc. 10.00% 2018 4,000 4,252 .05
California Energy Co., Inc.:
9.875% 2003 14,000 15,184 .42
10.25% 2004 17,500 19,082
Clark Refining & Marketing, Inc. 8.375% 2007 (1) 1,500 1,519 .02
Falcon Drilling Co., Inc. 9.75% 2001 1,000 1,046 .01
Forcenergy Inc.:
9.50% 2006 2,500 2,625 .09
8.50% 2007 5,000 5,050
Gulf Canada Resources Ltd. 9.25% 2004 5,000 5,273 .06
Kelley Oil & Gas 10.375% 2006 8,750 9,341 .11
Lukinter Finance BV 3.50% convertible debentures 2002 (1) 6,400 9,088 .11
Mariner Energy, Inc. 10.50% 2006 3,500 3,658 .04
McDermott Inc.:
9.375% 2002 14,250 15,279 .32
9.375% 2006 9,500 10,213
Ocean Energy 8.875% 2007 11,000 11,688 .14
Oil Co. Ltd. 8.90% 2000 (1) 17,019 17,278 .21
OXYMAR 7.50% 2016 (1) 8,500 8,722 .11
Petrozuata Finance Inc. 7.63% 2009 (1) 11,280 11,921 .15
Pogo Producing Co. 8.75% 2007 2,250 2,306 .03
Williams Companies Inc. 6.25% 2006 5,000 4,943 .06
YPF SA:
8.00% 2004 2,350 2,427 .07
7.75% 2007 3,000 3,035
-------------------
177,855 2.17
-------------------
Food Retailing
Bruno's Inc. 10.50% 2005 7,800 2,652 .03
Carr-Gottstein Co. 12.00% 2005 7,500 8,325 .10
Quality Food Centers, Inc. 8.70% 2007 7,500 8,044 .10
Randall's Food Markets, Inc. 9.375% 2007 (1) 3,500 3,623 .05
Stater Bros. Holdings Inc. 11.00% 2001 1,500 1,650 .02
-------------------
24,294 .30
-------------------
Forest Products & Paper
Container Corp. of America:
10.75% 2002 4,800 5,256 .51
9.75% 2003 25,000 26,875
11.25% 2004 8,000 8,720
Copamex Industrias, SA de CV 11.375% 2004 11,880 13,157 .16
Domtar Inc.:
8.75% 2006 3,000 3,090 .06
9.50% 2016 2,000 2,158
Fort James Corp. 6.625% 2004 11,000 11,035 .13
Grupo Industrial Durango, SA de CV:
12.00% 2001 3,000 3,234 .15
12.625% 2003 7,625 8,521
Pacific Lumber Co. 10.50% 2003 500 518 .01
Paperboard Industries International Inc. 8.375% 2007 (1) 4,750 4,833 .06
Pindo Deli Finance Mauritius Ltd.:(1)
10.25% 2002 6,000 5,160 .11
10.75% 2007 4,925 4,236
U.S. Timberlands Klamath Falls, LLC and U.S. Timberlands
Finance Corp. 9.625% 2007 4,500 4,669 .06
-------------------
101,462 1.25
-------------------
General Retailing & Merchandising
Barnes & Noble, Inc. 11.875% 2003 1,000 1,060 .01
Federated Department Stores, Inc.:
8.125% 2002 5,000 5,334 .10
7.45% 2017 2,000 2,091
Loehmann's Inc. 11.875% 2003 4,250 4,378 .05
Woolworth Corp.:
6.98% 2001 9,000 9,150 .17
7.00% 2002 4,000 4,080
8.50% 2022 1,000 1,126
-------------------
27,219 .33
-------------------
Health & Personal Care
Columbia HCA Healthcare Corp.:
6.50% 1999 7,000 6,960
6.125% 2000 8,500 8,306
6.41% 2000 1,000 985 .20
Integrated Health Services, Inc.:
5.75% conventible debentures 2001 3,500 3,697 .51
10.25% 2006 9,350 9,817
9.50% 2007 (1) 8,675 8,935
9.25% 2008 (1) 18,500 18,870
Mariner Health Group, Inc. 9.50% 2006 6,500 6,711 .08
Nationwide Health Properties Inc., preferred, 7.677% step-up 100,000 share 9,638 .12
Paracelsus Healthcare Corp. 10.00% 2006 22,575 23,027 .28
Sun Healthcare Group, Inc. 9.50% 2007 (1) 6,500 6,646 .08
Tenet Healthcare Corp. 8.00% 2005 2,500 2,544 .03
Unison Health 13.00% 2006 (1) 5,000 4,450 .05
Universal Health Services, Inc. 8.75% 2005 1,500 1,583 .02
Vencor 8.625% 2007 7,750 7,750 .09
-------------------
119,919 1.46
-------------------
Leisure & Tourism
AMF Group Inc.:
10.875% 2006 4,750 5,154 .11
0%/12.25% 2006 (2) 5,750 4,485
Boyd Gaming Corp.:
9.25% 2003 10,000 10,475 .20
9.50% 2007 (1) 5,500 5,761
Capstar Hotel Co. 8.75% 2007 7,000 7,262 .09
CLN Holdings Inc., 0% 2001 10,750 7,149 .09
Discovery Zone 0% convertible debentures 2013 28,500 71 .00
Foodmaker, Inc. 9.25% 1999 1,428 1,449 .02
Rio Hotel & Casino, Inc. 9.50% 2007 10,500 11,130 .14
Station Casinos, Inc.:
Series A, 9.625% 2003 10,750 11,153 .16
Series B, 9.625% 2003 1,325 1,368
Sun International Hotels Ltd., Sun International
North America, Inc. 9.00% 2007 5,250 5,421 .06
Wyndham Hotel Corp. 10.50% 2006 4,000 4,640 .05
-------------------
75,518 .92
-------------------
Machinery & Engineering
John Deere Capital Corp. 8.625% 2019 16,850 18,462 .23
Newport News Shipping Inc. 9.25% 2006 2,500 2,644 .03
United Defense 8.75% 2007 1,750 1,768 .02
Westinghouse Air Brake Co. 9.375% 2005 3,750 3,909 .05
-------------------
26,783 .33
-------------------
Metals
AK Steel Corp.:
10.75% 2004 4,750 5,059 .18
9.125% 2006 9,500 9,714
Altos Hornos De Mexico:
Series A, 11.375% 2002 1,000 1,035 .04
Series B, 11.875% 2004 2,000 2,075
Impress Metal Packaging Holdings BV 9.875% 2007 4,000 2,314 .03
Inco Ltd.:
9.875% 2019 7,500 8,033 .32
9.60% 2022 16,000 18,315
Kaiser Aluminum and Chemical Corp.:
9.875% 2002 6,500 6,727 .15
12.75% 2003 2,000 2,128
Series C, 10.875% 2006 3,000 3,247
LTV Corporation 8.20% 2007 (1) 5,000 4,850 .06
Pohang Iron & Steel Co., Ltd. 6.625% 2003 4,695 3,625 .04
UCAR Global Enterprises Inc. 12.00% 2005 3,430 3,842 .05
-------------------
70,964 .87
-------------------
Miscellaneous Materials & Commodities
Anchor Glass Container Corp. 11.25% 2005 (1) 7,000 7,560 .09
Consumers International Inc. 10.25% 2005 (1) 4,000 4,380 .05
Freeport-McMoRan Copper & Gold Inc.:
7.50% 2006 30,000 25,818 .54
7.20% 2026 18,000 17,736
Hutchison Whampoa Finance Ltd. Series D, 6.988% 2037 (1) 15,000 14,297 .18
Key Plastics, Inc. 10.25% 2007 1,000 1,060 .01
Printpack Inc.:
Series B, 9.875% 2004 2,775 2,935 .10
10.625% 2006 4,500 4,815
Texas Petrochemicals Corp. 11.125% 2006 11,500 12,420 .15
-------------------
91,021 1.12
-------------------
Multi-Industry
Antenna TV SA 9.00% 2007 (1) 5,250 5,237 .06
New Tenneco Inc. 8.075% 2002 3,000 3,209 .04
Perez Companc SA 9.00% 2004 2,000 2,030 .02
Reliance Industries Ltd.: (1)
8.25% 2027 10,000 9,371 .24
10.25% 2097 10,750 10,895
Royal Caribbean Cruises Ltd. 7.50% 2027 2,000 2,037 .03
Wharf International Finance Ltd., Series A, 7.625% 2007 15,000 12,891 .16
-------------------
45,670 .55
-------------------
Other
Allied Waste North America, Inc. 10.25% 2006 9,750 10,701 .13
Chrysler Corp. 7.40% 2097 1,500 1,573 .02
EarthWatch Inc. Units, 12.50% 2001 (1),(4) 12,000 12,000 .14
Fage Dairy Industry SA 9.00% 2007 10,000 9,700 .12
Verio Inc. Units, 13.50% 2004 (1) 11,500 13,685 .17
Waste Management Inc. 7.10% 2026 10,000 10,342 .13
-------------------
58,001 .71
-------------------
Protection Services
Borg-Warner Security Corp. 9.625% 2007 2,250 2,351 .03
Protection One Alarm Monitoring, Inc.:
6.75% convertible debentures 2003 5,000 6,000 .30
0%/13.625% 2005 (2) 17,000 18,530
-------------------
26,881 .33
-------------------
Telecommunications
Brooks Fiber Properties, Inc.:
0/10.875% 2006 (2) 3,500 2,905 .10
10.00% 2007 4,000 4,580
CCPR Services, Inc. 10.00% 2007 13,750 13,200 .16
CEI Citicorp Holdings 11.25% 2007 (1) 10,500 8,402 .10
CellNet Data Systems, Inc. Units, 0%/14.00% 2007 (1),(2) 75,711 38,991 .48
Cellular Communications International, Inc.:
0% 2000 1,000 802 .16
Units 0% 2000 15,071 12,094
Cellular, Inc. 0%/11.75% 2003 (2) 1,000 991 .01
Centennial Cellular Corp.:
8.875% 2001 19,000 19,332 .31
10.125% 2005 5,000 5,425
Clearnet Communications Inc. 0%/11.75% 2007 (2) C$20,125 8,969 .11
COLT Telecom Group PLC:
Units, 0%/12.0% 2006 (2) $5,250 4,121 .20
8.875% 2007 DM9,500 5,424
10.125% 2007 L4,000 6,733
Comcast Cellular 9.50% 2007 $21,000 21,840 .27
Comunicacion Celular SA Units, 0%/13.125% 2003 (2),(5) 17,550 14,501 .18
Conecel Holdings Ltd., Series A, Units 14.00% 2000 (1) 5,900 5,959 .07
Crown Castle International Corp. 0%/10.625% 2007 (1),(2) 11,000 6,930 .08
Esat Holdings Ltd. Units 0%/12.50% 2007 (1),(2),(5) 4,000 3,030 .04
Esat Telecom Group PLC 0%/12.5% 2007 (2) 4,500 3,251 .04
Geotek Communications, Inc. 0%/15.00% 2005 (2) 7,750 3,875 .05
Globalstar LP Units 11.375% 2004 (5) 4,500 5,046 .06
Global Telesystems Group 8.75% convertible debentures
2000 (1) 7,500 7,350 .09
McCaw International, Ltd., Units, 0%/13.00% 2007 (2),(5) 36,000 20,949 .26
MobileMedia Communications, Inc.(10):
0%/10.50% 2003 (2) 6,600 726 .02
9.375% 2007 5,300 610
Mobile Telecomm 13.50% 2002 8,530 9,895 .12
NEXTEL Communications, Inc.:
0%/9.75% 2004 (2) 14,000 12,460 1.28
0%/10.125% 2004 (2) (formerly CenCall Communications Corp.) 32,000 28,800
0%/12.25% 2004 (2) (formerly Dial Call Communications, Inc.) 8,000 7,640
0%/9.75% 2007 (1),(2) 66,000 40,508
Series D, 13.00% exchangeable preferred, redeemable 2009(1) 13,872 share 15,848
Nextlink Capital, Inc.:
12.50% 2006 3,000 3,420 .09
9.625% 2007 4,000 4,130
Northern Telecom Ltd. 8.75% 2001 3,500 3,762 .05
Omnipoint Corp.:
Units 12.00% 2000 (4),(5) 12,500 17,671 .52
11.625% 2006 21,200 22,552
11.625% 2006 1,250 1,330
Orion Network Systems, Inc., Units, 11.25% 2007 29,500 33,908 .41
Powertel, Inc. 11.125% 2007 2,250 2,453 .03
PriCellular Wireless Corp.:
14.00% 2001 9,000 9,900 .43
12.25% 2003 17,750 18,016
10.75% 2004 6,700 7,345
PTC International Finance BV 0%/10.75% 2007 (1),(2) 4,200 2,762 .03
Qwest Communications International:
10.875% 2007 8,500 9,669
0%/9.47% 2007 (1),(2) 26,000 17,745 .34
RCN Corporation:
10.00% 2007 (1) 750 778 .03
0%/11.125% 2007 (1),(2) 2,750 1,726
Rogers Cantel Communications Inc. 9.375% 2008 3,000 3,165 .04
Sprint Spectrum LP, Sprint Spectrum Finance Corp.
11.00% 2006 6,000 6,735 .08
Telecom Argentina STET - France Telecom SA
12.00% 2002 2,500 2,900 .03
Teleport Communications 9.875% 2006 6,500 7,337 .09
Teletrac Inc., Teletrac Holdings, Inc. Units, 14.00% 2007 (1),(3) 4,500 4,590 .05
WorldCom, Inc.:
9.375% 2004 25,058 26,531 .56
8.875% 2006 4,796 5,160
7.75% 2007 14,000 15,034
-------------------
569,806 6.97
-------------------
Textiles & Apparel
Tultex Corp.:
10.625% 2005 2,750 2,860 .15
9.625% 2007 9,500 9,453
WestPoint Stevens Inc. 8.75% 2001 2,500 2,606 .03
-------------------
14,919 .18
-------------------
Transportation
Airplanes Pass Through Trust, pass-through certificates (3):
Series 1, Class B, 7.08% 2019 (6) 6,954 6,968 .62
Series 1, Class C, 8.15% 2019 42,000 44,247
Alaska Airlines:(3)
Series A, 9.50% 2010 2,252 2,548 .17
Series B, 9.50% 2010 2,869 3,243
Series C, 9.50% 2010 2,757 3,142
Series D, 9.50% 2012 4,657 5,335
American Airlines, Inc., Series 1991-C2, pass-through certificates,
9.73% 2014 (3) 6,000 7,450 .09
Continental Airlines, Inc.,
pass-through certificates (3):
Series 1997-1C, 7.42% 2007 2,500 2,593 .80
Series 1997-1B, 7.46% 2014 1,000 1,070
Series 1996-2B, 8.56% 2014 1,944 2,174
Series 1996-A, 6.94% 2015 3,922 4,034
Series 1996-B, 7.82% 2015 13,235 14,155
Series 1996-C, 9.50% 2015 4,902 5,695
Series 1996-2D, 11.50% 2016 4,408 4,860
Series 1997-4A, 6.90% 2018 30,000 30,750
Delta Air Lines, Inc.:
9.875% 2000 2,000 2,155 .60
10.375% 2022 1,700 2,310
1990 Equipment trust certificates (1):
Series I, 10.00% 2014 5,000 6,295
Series J, 10.00% 2014 10,000 12,590
Series F, 10.79% 2014 1,700 2,260
pass-through certificates (3):
Series 1992-B1, 9.375% 2007 8,379 9,417
Series 1992-A2, 9.20% 2014 11,500 13,640
Jet Equipment Trust (1):
Series B1, 10.91% 2006 (3) 6,535 7,736 .70
Series C1, 11.79% 2013 4,000 5,377
Series 1995B-2, 10.91% 2014 5,000 6,459
Series 1995-D, 11.44% 2014 10,000 13,372
Series CL-A, 7.63% 2015 (3) 4,270 4,589
Series CL-C, 9.71% 2015 (3) 5,500 6,697
Series 1995-C, 10.69% 2015 (3) 10,500 13,804
Kitty Hawk, Inc. 9.95% 2004 (1) 4,000 4,120 .05
MC-Cuernavaca Trust 9.25% 2001 (1) 3,975 3,836 .05
Teekay Shipping Corp. 8.32% 2008 6,000 6,120 .07
United Air Lines, Inc., pass-through certificates (3):
Series 1995-A1, 9.02% 2012 10,638 12,144 .27
Series 1995-A2, 9.56% 2018 8,000 9,975
USAir, Inc.:
9.625% 2001 3,996 4,116 .89
10.00% 2003 19,000 19,570
Enhanced Equipment Notes:
Class B, 7.50% 2009 9,265 9,650
Class C, 8.93% 2009 8,505 9,523
1990 Equipment Trust Certificates:
Series A, 10.28% 2001 754 805
Series B, 10.28% 2001 754 805
Series C, 10.28% 2001 530 566
Series 1993-A1, pass-through certificate, 8.625% 1998(3) 5,000 5,050
Series 1993-A2, pass-through trust, 9.625% 2003 (3) 8,125 8,714
Series 1989-A1, pass-through trust, 9.33% 2006 (3) 4,609 4,759
Series 1993-A3, pass-through trust, 10.375% 2013 (3) 7,250 8,114
-------------------
352,832 4.31
-------------------
FINANCE
Banking & Thrifts
Banco General, SA 7.70% 2002 (1) 4,500 4,185 .05
Banco Nacional de Mexico 11.00% convertible debentures
2003(1) 4,425 4,668 .06
BankAmerica Capital III, BankAmerica Corp., Series 3,
6.328% 2027(6) 22,500 21,904 .27
Barnett Capital I 8.06% 2026 20,000 21,298 .26
Bay View Capital 9.125% 2007 5,500 5,665 .07
BNP U.S. Funding LLC, Series A 7.738% 2049 (1) 12,500 12,623 .15
BT Capital Trust I 6.656% 2026 (6) 17,500 17,211 .21
Central Fidelity Capital Trust I, Central Fidelity Banks,
Inc. 6.758% 2027 (6) 14,500 14,715 .18
Chase Capital II, Global Floating Rate Capital
Securities, Series B, 6.25% 2027 (6) 15,000 14,362 .18
Chevy Chase Bank, FSB 9.25% 2008 2,000 2,060 .03
Den Danske Bank 7.40% 2010 (1),(6) 6,000 6,216 .08
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 10,000 11,312 .14
First Nationwide Holdings Inc.:
12.25% 2001 9,000 9,945 .49
9.125% 2003 6,000 6,240
10.625% 2003 12,750 14,248
12.50% 2003 9,000 10,215
Imperial Capital Trust I, Imperial Bancorp 9.98% 2026 15,000 17,120 .21
Kansallis-Osake-Pankki:
9.75% 1998 5,000 5,154 .07
10.00% 2002 1,000 1,136
The Korea Development Bank:
6.25% 2000 5,500 4,782 .14
7.125% 2001 1,000 856
7.375% 2004 7,250 5,801
MBNA Corp.:
MBNA Capital A, Series A, 8.278% 2026 22,000 23,013 .61
MBNA Capital B, Series B, 6.55% 2027 (6) 30,000 27,276
Merita Bank Ltd., Undated 7.15% (1) 5,500 5,587 .07
Midland American Capital 12.75% 2003 12,150 12,795 .16
NB Capital Corp., Series A, 8.35% noncumulative exchangeable
preferred (1) 10,000 share 10,503 .13
PNC Institutional Capital B, PNC Financial Corp. 8.315% 2027 (1) 1,000 1,084 .01
Riggs National Corp.:
8.625% 2026 (1) 1,500 1,592 .06
8.875% 2027 (1) 2,000 2,201
8.875% 2027 500 546
Skandinaviska Enskilda Banken 6.875% 2009 8,250 8,301 .10
-------------------
304,614 3.73
-------------------
Financial Services
Advanta Capital Trust I 8.99% 2026 10,000 10,013 .31
Advanta Corp.:
Series D, 6.54% 2000 5,500 5,282
6.60% 2000 6,000 5,770
Advanta National Bank 6.45% 2000 5,000 4,985
Bankunited Capital Trust, Bankunited Financial Corp. 10.25% 2026 3,000 3,135 .04
Beneficial Corp. 12.875% 2013 3,800 4,130 .05
Capital One Bank:
8.125% 2000 6,500 6,737 .42
6.97% 2002 5,000 5,072
7.15% 2006 12,500 12,679
7.30% 2027 (1),(6) 10,000 9,660
Ford Motor Credit Co. 9.50% 2000 7,350 7,858 .10
General Motors Acceptance Corp. 7.00% 2000 5,000 5,078 .06
Indah Kiat Finance Mauritius Ltd.:
10.00% 2007 2,000 1,660 .18
10.00% 2007 (1) 15,750 13,072
Ocwen Capital Trust I 10.875% 2027 6,500 7,036 .17
Ocwen Federal Bank FSB 12.00% 2005 6,000 6,645
SocGen Real Estate Co. LLC, Series A, 7.64% 2049 (1) 12,500 12,810 .16
Swire Pacific Capital Ltd. 8.84% preferred (1) 780,000 share 19,835 .30
Swire Pacific Offshore Financing Ltd. 9.33% preferred (1) 180,000 share 4,523
Wharf Capital International, Ltd. 8.875% 2004 2,080 1,987 .03
Wilshire Financial Services Group 13.00% 2004 (1) 5,000 5,150 .06
-------------------
153,117 1.88
-------------------
Insurance
Aetna Servies, Inc. 6.97% 2036 7,500 7,742 .09
Fidelity National Financial 0% convertible debentures 2009 12,500 9,984 .12
Terra Nova Insurance (UK) Holdings PLC:
10.75% 2005 3,000 3,342 .17
7.20% 2007 10,000 10,233
-------------------
31,301 .38
-------------------
Real Estate
Beverly Finance Corp. 8.36% 2004 (1) 10,000 10,795 .13
B.F. Saul REIT 11.625% 2002 14,000 14,910 .18
CarrAmerica Realty Corp.:
Series B, 8.57% cumulative redeemable preferred 700,000 share 17,587 .35
Series C, 8.55% cumulative redeemable preferred 400,000 share 10,084
Corporate Property Investors (1):
9.00% 2002 2,000 2,174 .09
7.75% 2004 4,250 4,542
Duke Realty Investments, Inc., preferred, Series B, 7.99%
cumulative step-up premium rate 150,000 share 7,580 .09
ERP Operating LP:
7.95% 2002 3,750 3,934 .22
7.57% 2026 13,000 13,822
Irvine Apartment Communities, LP 7.00% 2007 11,000 11,003 .13
Irvine Co. 7.46% 2006 (1),(4) 17,000 17,220 .21
Land Securities PLC 9.00% 2020 9,000 18,031 .22
New Plan Realty Trust, Series A, preferred, 7.80%
cumulative step-up premium rate 112,500 share 5,775 .07
New World China Finance Ltd. 4.00% 1999 (1) 4,000 3,965 .05
Security Capital Atlantic preferred, Class A, 8.625% 200,000 share 4,987 .17
Security Capital Industrial Trust:
7.25% 2002 1,000 1,024
7.875% 2009 7,500 8,048
Shopping Center Associates (1):
6.75% 2004 12,000 12,111 .16
7.625% 2005 500 522
Simon DeBartolo Group, Inc., Series C, preferred, 7.89%
cumulative step-up premium rate 150,000 share 7,660 .09
Wellsford Residential Property Trust:
7.25% 2000 1,000 1,020 .02
7.75% 2005 1,000 1,065
-------------------
177,859 2.18
-------------------
COLLATERALIZED MORTGAGE/ASSET-BACKED OBLIGATIONS (3)
(Excluding Those Issued by Federal Agencies)
Aames Mortgage Trust 1996 Series D, Class A-1B, 6.34% 2012 22,000 21,969 .27
Asset-Backed Securities Investment Trust, Series 1997-D,
6.79% 2003 51,000 51,163 .63
Asset Securitization Corp.:
Series 1996-D3, Class A-1B, 7.21% 2026 3,000 3,133 .74
Series 1997-D4, Class A-1A, 7.35% 2029 10,994 11,318
Series 1997-D5, Class A-PS1, Interest Only, 1.367% 2043 280,657 30,395
Series 1997-D5, Class A-1A, 6.50% 2043 15,692 15,799
Bear Asset Trust 1997-1 6.686% 2006 20,000 20,082 .25
Bear Stearns Structured Securities Inc., Series 1997-2,
Class AWAC, 3.786% 2036 (1) 4,919 4,936 .06
Blackrock Capital Finance LP (1),(6):
Series 1996-C2, Class A, 7.522% 2026 2,930 2,936 .05
Series 1996-C2, Class C, 7.782% 2026 1,000 1,009
California Infrastructure and Economic Development
Bank Special Purpose Trust:
PG&E-1, Series 1997-1 Class A-6, 6.32% 2005 8,000 8,065 .93
PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 19,050 19,223
PG&E-1, Series 1997-1, Class A-8, 6.48% 2009 15,000 15,156
SCE-1, Class A-6, 6.38% 2008 32,750 32,969
Capstead Securities Corp. IV, collateralized mortgage
obligations, Series 1992-4, Class J, 20.362% 2022 (7) 8,750 10,413 .13
Chase Commercial Mortgage Securities Corp.,
Series 1997-I, Class A1, 7.27% 2029 9,692 10,013 .12
Chase Manhattan Bank, N.A.:
Series 96-1, Class A1, 7.60% 2005 4,813 5,084 .18
Series 93-I, Class 2A5, 7.25% 2024 10,000 10,050
Chase Manhattan Credit Card Master Trust, Series 1996-4,
Class A, 6.73% 2003 15,000 15,150 .19
Collateralized Mortgage Obligation Trust, Series 63,
Class Z, 9.00% 2020 6,762 7,489 .09
ContiMortgage Home Equity Loan Trust, Series
1996-4A, Class A4, 6.37% 2011 1,500 1,497 .02
CSFB Finance Co. Ltd., Series 1995-A,
5.00%/10.00% 2005 (6) 20,500 19,987 .24
CS First Boston Mortgage Securities Corp., mortgage
pass-through certificates Series 1995-MBL1, 6.425% 2030 3,894 3,890 .05
DLJ Mortgage Acceptance Corp.:
Series 1997-CF1, Class A1A, 7.40% 2006 (1) 6,765 7,051 .67
Series 1996-CF2, Class A2, 7.28% 2021 (1) 5,000 5,189
Series 1996-CF2, Class A1, 7.29% 2021 (1) 1,200 1,253
Series 1995-CF2, Class A1, 6.85% 2027 (1) 30,000 30,552
Series 1996-CF1, Class A1A, 7.28% 2028 10,284 10,622
EquiCredit Funding Asset Backed Certificates Series
1996-A, Class A2, 6.95% 2012 21,000 21,189 .26
FIRSTPLUS Home Loan Owner Trust:
Series 1996-4, Class A3, 6.28% 2009 1,000 998 .19
Series 1997-1, Class A7, 7.16% 2018 10,000 10,150
Series 1997-3, Class B1, 7.79% 2023 5,000 5,057
GCC Home Equity Trust, asset-backed certificates,
Series 1990-1, 10.00% 2005 1,603 1,629 .02
G E Capital Mortgage Services:
Series 1994-15, Class A10, 6.00% 2009 16,376 15,608 .24
Series 1994-9, Class A9, 6.50% 2024 4,339 3,908
GMAC Commercial Mortgage Securities Inc.:
Series 1997-C1, Class A1, 6.83% 2003 28,906 29,438 .37
Series 1996-C1, Class A2A, 6.79% 2028 957 973
Green Tree Financial Corp., pass-through certificates:
Series 1994-A, Class NIM, 6.90% 2004 5,275 5,328 .57
Series 1995-A, Class NIM, 7.25% 2005 19,405 18,823
Series 1993-2, Class B, 8.00% 2018 2,250 2,296
Series 1997-A, Class HI-M1, 7.47% 2023 1,000 1,021
Series 1995-9, Class A-5, 6.80% 2027 8,000 8,095
Series 1997-1, Class A5, 6.86% 2028 1,500 1,518
Series 1996-10, Class A-6, 7.30% 2028 8,500 8,667
Grupo Financiero Banamex Accival, SA de CV 0.00% 2002 (1) 15,017 12,625 .15
IMC Home Equity Loan Trust:
Series 1996-4, Class A1, 6.59% 2011 1,625 1,619 .34
Series 1996-2, Class A2, 6.78% 2011 8,136 8,122
Series 1996-4, Class A3, 6.81% 2011 17,972 18,021
J.P. Morgan & Co. Inc., Series A, 5.994% 2012 (6) 10,000 9,245 .11
J.P. Morgan Commercial Mortgage Finance Corp.,pass-
through certificates:
Series 1995-C1, Class A-2, 7.403% 2010 (6) 1,000 1,050 .04
Series 1997-C4, Class A-1, 6.939% 2028 1,340 1,359
Series 1996-C3, Class A-1, 7.33% 2028 953 991
Merrill Lynch Mortgage Investors, Inc.:
Series 1995-C2, Class A-1, 7.344% 2021 (6) 2,058 2,098 .24
Series 1995-C2, Class D, 8.114% 2021 (6) 735 753
Series 1995-C3, Class A1, 6.788% 2025 (6) 2,685 2,722
Series 1996-C2, Class A1, 6.69% 2028 13,740 13,926
Money Store Trust:
Series 1996-D, Class A-12, 6.37% 2011 20,000 19,975 .56
Series 1997-1, Class A-2, 6.81% 2011 17,000 17,150
Series 1996-B, Class A-5, 7.18% 2014 2,000 2,017
Series 1996-D, Class A-14, 6.985% 2016 4,000 4,055
Series 1996-C, Class A-3, 7.07% 2016 3,000 3,024
Morgan Stanley Capital Inc., Series 1995-GA1,
Class A-1, 7.00% 2002 (1) 9,728 9,827 .12
Morgan Stanley Capital I Inc.:
Series 1996-WF1, Class A-1, 6.588% 2002 (1),(6) 12,840 12,930 .30
Series 1996-WF1, Class D, 6.588% 2028 (6) 2,000 1,941
Series 1997-WF1, Class A-1, 6.83% 2029 (1) 9,818 9,991
Prudential-Bache CMO Trust, Series 3, Class F,
9.44% 2018 1,000 1,038 .01
Prudential Home Mortgage Securities Co., Inc.:
Series 1993-48, Class A-6, 6.25% 2008 4,466 4,314 .27
Series 1992-37, Class A-6, 7.00% 2022 520 518
Series 1993-34, Class A-1, 7.00% 2023 11,776 11,809
Series 1993-7, Class A-5, 8.00% 2023 5,588 5,592
Residential Funding Mortgage Securities I, Inc.,
Series 1992-S6, Class A-10, 12.579% 2022 (7) 8,138 8,352 .10
Resolution Trust Corp.:
Series 1991-M5, Class B, 9.00% 2017 2,238 2,241 .26
Series 1992-6, Class A-2B, 8.40% 2024 2,124 2,117
Series 1993-C1, Class D, 9.45% 2024 9,352 9,476
Series 1993-C1, Class E, 9.50% 2024 313 317
Series 1993-C2, Class C, 8.00% 2025 3,000 3,008
Series 1993-C2, Class D, 8.50% 2025 3,243 3,255
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 5,289 .06
Standard Credit Card Trust, credit card participation
certificates, Series 1991-3A, 8.875% 1999 5,500 5,577 .07
Structured Asset Notes Transaction, Ltd.
Series 1996-A, Class A1, 7.156% 2003(1) 7,435 7,470 .09
Structured Asset Securities Corp.,
pass-through certificates:
Series 1995-C1, Class A1A, 7.375% 2024 230 230 .13
Series 1996-CFL, Class A1C, 5.944% 2028 5,955 5,922
Series 1996-CFL, Class D, 7.034% 2028 2,950 2,973
Series 1996-CFL, Class A2A, 7.75% 2028 1,434 1,447
Travelers Mortgage Securities Corp., Series 1, Class Z2, 12.00% 7,408 8,380 .10
2014
UCFC Acceptance Corp. pass-through certificates:
Series 1996-B1, Class A2, 7.075% 2010 10,000 10,025 .15
Series 1996-D, Class A4, 6.776% 2016 2,400 2,415
-------------------
766,297 9.37
-------------------
GOVERNMENTAL
Governments (Excluding U.S. Government)
Argentina (Republic of):
8.75% 2002 (1) 5,000 4,351 .37
11.00% 2006 1,000 1,074
11.75% 2007 (1) ARP16,000 15,123
11.375% 2017 6,500 7,124
Eurobond 6.688% 2005 (6) $3,696 3,308
Australian Government:
8.75% 2001 A$11,000 7,809 .10
Brazil (Federal Republic of):
Debt Conversion Bond, Series L, 6.75% 2012 (6) $500 380 .00
Bearer, 8.00% 2014 285 224
British Columbia Hydro & Power Authority 12.50% 2013 4,000 4,317 .05
Bundesrepublik:
7.125% 2002 DM24,000 14,679 .64
6.00% 2007 65,000 37,984
Canadian Government:
9.00% 2004 C$36,000 30,001 1.65
4.25% 2021 (8) 22,935 16,276
4.25% 2026 (8) 106,924 75,696
8.00% 2027 13,500 12,040
Deutschland Republic 8.00% 2002 DM34050 21,389 .26
Ecuador (Republic of) Past Due Interest Bonds: (6)
Bearer, 6.688% 2015 $410 269 .00
Registered, 6.688% 2015 273 179
Discount, 6.438% 2025 250 189
Export-Import Bank of Japan 2.875% 2005 Y3,210,000 26,531 .32
Hydro-Quebec, Series HKF, 9.375% 2030 $3,250 4,271 .05
International Bank for Reconstruction and Development:
4.50% 2003 Y1,800,000 15,989 .20
Irish Government IEP:
8.00% 2000 IRL10,000 15,402 .33
8.00% 2006 6,700 11,146
Italian Government National 10.50% 2005 Lr15,000,000 11,066 .14
Manitoba (Province of) 9.625% 1999 2,000 2,082 .03
Mendoza (Province of) 10.00% 2007 (1) 4,250 4,069 .05
New Zealand Government:
8.00% 2004 NZ$13,500 8,133 .44
8.00% 2006 12,000 7,377
4.50% 2016 (8) 38,176 20,402
Ontario Hydro (Province of Ontario) 4.61% 1999 (6) C$3,000 2,099 .03
Ontario (Province of) 7.75% 2002 $3,500 3,720 .05
Panama (Republic of): (6)
Interest Reduction Bond, 3.75% 2014 (1) 6,500 4,981 .08
Past Due Interest Bond, 6.688% 2016 (1) 1,541 1,259
Past Due Interest Bond, 6.688% 2016 257 210
Peru (Republic of) Past Due Interest Bond 4.00% 2017 (6) 750 494 .01
Poland (Republic of) Past Due Interest Bond (6):
Bearer, 4.00% 2014 15,750 13,643 .29
Registered, 4.00% 2014 11,000 9,529
Poland (Republic of) Treasury Bill 1998 PLZ11,000 2,685 .03
Quebec (Province of):
8.625% 2005 $4,250 4,755 .14
13.25% 2014 5,500 6,350
South Africa (Republic of) 13.00% 2010 ZAR148,000 28,986 .35
Spain (Kingdom of):
6.75% 2000 Pta1,000,000 6,866 .52
8.40% 2001 3,225,000 23,488
3.10% 2006 Y1,515,000 12,710
Swedish Government 10.250% 2003 SKr58,000 8,811 .11
Treuhandanstalt:
7.125% 2003 DM22,250 13,614 .42
7.50% 2004 32,000 20,174
United Kingdom 8.50% 2005 L23,500 43,877 .54
United Mexican States Government Eurobonds:
Global, 11.375% 2016 $2,515 2,892 .06
Global, 11.50% 2026 825 980
Series A, 6.25% 2019 1,000 835
Series B, Units, 6.617% 2019 (6) 500 464
Series A, Units, 6.693% 2019 (6) 1,250 1,159
Venezuela (Republic of)
6.813% 2007 (6) 1,190 1,068 .02
Front Loaded Interest Reduction Bond:
Series A, 6.75% 2007 905 812
Series B, 6.75% 2007 226 203
-------------------
595,544 7.28
-------------------
Federal Agency Obligations - Mortgage Pass-Throughs (3)
Fannie Mae (formerly Federal National Mortgage Assn.)
6.137% 2033 (6) 33,527 33,517 1.24
6.50% 2025 1,179 1,164
7.00% 2009-2010 3,863 3,932
7.50% 2009-2024 7,905 8,119
8.00% 2023 2,834 2,961
8.310% 2002 (6) 6,385 6,622
8.50% 2009-2027 11,517 12,062
9.00% 2018-2025 4,656 4,971
9.50% 2009-2025 4,461 4,814
10.00% 2018-2025 14,462 15,895
10.50% 2012-2019 3,745 4,181
11.00% 2015-2020 2,556 2,872
11.25% 2014 44 50
11.50% 2010-2014 243 278
12.00% 2015-2019 73 84
12.50% 2015 191 227
13.00% 2014 53 63
15.00% 2013 62 75
Freddie Mac (formerly Federal Home Loan Mortgage Corp.)
8.00% 2003-2010 4,067 4,145 .57
8.25% 2007 2,286 2,371
8.50% 2002-2020 27,030 28,206
8.75% 2008 2,894 3,044
9.00% 2021 845 912
10.00% 2011-2019 261 280
10.50% 2020 2,383 2,665
10.75% 2010 94 104
11.50% 2000 30 32
12.00% 2010-2015 1,219 1,392
12.50% 2009-2019 2,869 3,369
12.75% 2015-2019 493 574
13.00% 2014 73 87
13.50% 2018 12 14
13.75% 2014 18 21
Government National Mortgage Assn.:
5.00% 2026 (6) 10,369 10,479 5.91
6.00% 2026 (6) 3,832 3,884
6.50% 2008-2027 40,203 39,906
6.875% 2022-2023 (6) 43,729 44,922
7.00% 2008-2027 64,664 65,389
7.00% 2022-2024 (6) 127,213 130,194
7.375% 2022-2024 (6) 14,555 14,975
7.50% 2007-2026 65,712 67,610
8.00% 2017-2025 17,199 18,018
8.50% 2020-2026 34,406 36,398
9.00% 2016-2022 17,794 19,352
9.50% 2009-2021 16,778 18,217
10.00% 2017-2019 9,004 10,051
10.50% 2015-2019 564 636
11.00% 2013-2016 1,177 1,353
11.50% 2015 38 44
12.00% 2014 120 141
12.50% 2010-2015 685 812
13.25% 2014 80 92
-------------------
631,576 7.72
-------------------
FEDERAL AGENCY OBLIGATION - OTHER
Fannie Mae Notes:
6.50% 2002 A$5,000 3,341 .58
7.70% 2004 $12,500 12,799
2.125% 2007 Y2,300,000 17,935
medium-term notes:
6.14% 2004 $13,000 12,766
Federal Home Loan Bank Bonds:
6.38% 2003 3,000 2,969 1.17
6.41% 2003 18,580 18,409
6.16% 2004 24,000 23,546
6.27% 2004 5,000 4,931
7.00% 2005 35,000 34,940
7.013% 2007 10,000 10,020
FNSM Callable Principal STRIPS 0%/8.25% 2022 (2) 4,500 4,266 .05
Freddie Mac Notes:
7.00% 2002 25,000 24,973 1.39
5.74% 2003 6,500 6,328
5.78% 2003 14,520 14,155
6.185% 2003 19,845 19,560
6.24% 2003 2,900 2,862
6.28% 2003 3,000 2,967
6.30% 2003 2,000 1,981
6.375% 2003 5,820 5,774
6.39% 2003 10,330 10,240
6.50% 2003 6,200 6,160
6.19% 2004 11,000 10,783
6.27% 2004 3,500 3,454
7.25% 2007 5,000 5,000
-------------------
260,159 3.19
-------------------
Collateralized Mortgage Obligations - Federal Agencies (3)
Fannie Mae:
Series 91-146, Class Z, 8.00% 2006 7,078 7,330 .38
Series 90-93, Class G, 5.50% 2020 1,350 1,298
Series 91-2, Class Z, 6.50% 2021 15,658 15,442
Series 93-247, Class Z, 7.00% 2023 3,945 3,941
Series 94-4, Class ZA, 6.50% 2024 3,545 3,343
Freddie Mac:
Series 1849, Class Z, 6.00% 2008 5,497 5,186 .49
Series 1716, Class A, 6.50% 2009 4,750 4,602
Series 178, Class Z, 9.25% 2021 3,754 4,029
Series 1657, Class SA, 6.44% 2023 (7) 7,520 5,889
Series 1673, Class SA, 4.834% 2024 (7) 7,879 5,650
Series 1983, Class FB, 6.625% 2026 (6) 11,336 11,358
Series 1948, Class PJ, 6.65% 2027 3,000 2,932
-------------------
71,000 .87
-------------------
U.S. Treasury Obligations
9.25% August 1998 117,200 119,746 1.46
9.125% May 1999 15,250 15,934 .19
6.875% July 1999 49,750 50,636 .62
8.875% May 2000 30,000 32,109 .39
6.00% August 2000 11,000 11,079 .14
8.750% August 2000 28,000 30,047 .37
8.50% November 2000 30,000 32,194 .39
7.75% February 2001 26,000 27,491 .34
8.00% May 2001 14,500 15,490 .19
13.125% May 2001 21,500 26,344 .32
6.25% October 2001 3,500 3,560 .04
14.25% February 2002 7,000 9,163 .11
3.625% July 2002 (8) 55,492 55,232 .68
11.625% November 2002 92,000 114,640 1.40
10.750% May 2003 12,500 15,342 .19
11.875% November 2003 10,000 13,008 .16
7.25% May 2004 212,000 228,795 2.80
7.25% August 2004 23,000 24,858 .30
7.875% November 2004 11,000 12,298 .15
11.625% November 2004 125,500 166,581 2.04
6.50% May 2005 19,000 19,807 .24
3.375% January 2007 (8) 40,796 39,738 .49
10.375% November 2009 12,500 15,629 .19
10.00% May 2010 7,500 9,320 .11
10.375% November 2012 15,000 19,931 .24
12.00% August 2013 10,000 14,734 .18
7.25% May 2016 15,000 17,086 .21
7.50% November 2016 85,000 99,211 1.21
8.875% August 2017 235,500 312,588 3.82
8.125% May 2021 98,000 123,496 1.51
7.125% February 2023 7,750 8,847 .11
6.375% August 2027 22,500 23,730 .29
-------------------
1,708,664 20.88
-------------------
FLOATING RATE EURODOLLAR NOTES (UNDATED) (6)
Allied Irish Banks Ltd. 6.313% 7,000 6,370 .08
Bank of Nova Scotia 6.00% 10,000 8,750 .11
Bergen Bank 5.75% 5,000 4,298 .05
Canadian Imperial Bank of Commerce 5.688% 25,000 22,062 .27
Christiana Bank Og Kreditkasse 6.063% 4,000 3,510 .04
Fuji International Finance (Bermuda) Trust, The Fuji Bank,
Ltd., 7.30% 19,500 18,020 .22
Hongkong and Shanghai Banking Corp. 6.125% 10,000 7,868 .10
Lloyds Bank (#2) 6.062% 8,000 7,186 .09
Midland Bank 6.188% 5,000 4,271 .05
National Bank of Canada 4.50% 5,000 4,125 .05
Skandinaviska Enskilda Banken 7.50% 1,000 1,019 .01
Standard Chartered Bank:
6.15% 5,000 3,550 .17
6.013% 15,000 10,500
-------------------
101,529 1.24
-------------------
OTHER SECURITIES & MISCELLANEOUS
Stocks and Warrants
CellNet Data Systems, Inc. (4), (9) 398,000 2,468 .03
Heartland Wireless Communications, Inc. warrants,
expire 2000 (1),(9) 24,000 0 .00
IntelCom Group Inc., warrants expire 8/8/05 (9) 19,800 208 .00
NEXTEL Communications, Inc. warrants expire 1999 (4), (9) 38,750 0
Protection One warrants (9) 54,400 571 .01
-------------------
3,247 .04
-------------------
Miscellaneous
Investment securities in the initial period
of acquisition 13,453 .16
-------------------
TOTAL BONDS, NOTES AND EQUITY-TYPE SECURITIES
(cost: $7,207,792,000) 7,354,861 89.95
----------
SHORT-TERM SECURITIES
Commercial Paper
A.I. Credit Corp.:
5.54% due 01/21/98 10,000 9,967 .49
5.76% due 01/23/98 30,000 29,899
American General Finance Corp. 5.69% due 02/12/98 25,000 24,829 .30
Avco Financial Services, Inc.:
5.57% due 01/30/98 15,000 14,928 .47
5.71% due 03/17/98 10,000 9,880
5.68% due 03/18/98 14,000 13,829
Bell Atlantic Financial Services, Inc.
5.75% due 01/13/98 22,000 21,954 .64
5.70% due 01/15/98 30,000 29,929
Beneficial Corp.:
5.83% due 01/30/98 16,000 15,922 .37
5.58% due 02/02/98 15,000 14,922
Commercial Credit Co.
5.72% due 01/15/98 13,500 13,468 .71
5.57% due 01/16/98 25,000 24,937
5.73% due 02/05/98 20,000 19,886
Ford Motor Credit Co,:
5.54% due 01/13/98 40,500 40,417 1.17
5.68% due 01/26/98 21,000 20,914
5.68% due 01/30/98 20,000 19,904
5.74% due 02/06/98 14,000 13,917
Gannett Co., Inc. (1):
5.67% due 01/15/98 11,000 10,974 .49
5.65% due 01/20/98 29,000 28,908
General Electric Capital Corp.:
6.75% due 01/02/98 32,000 31,988 .70
5.70% due 01/27/98 25,000 24,893
IBM Credit Corp.:
5.70% due 01/14/98 40,000 39,911 .72
5.70% due 01/16/98 19,000 18,952
International Lease Finance Corp. 5.57% due 01/06/98 31,300 31,271 .38
Kimberly-Clark Corp. (1):
6.20% due 01/09/98 25,000 24,965 .36
5.65% due 01/30/98 4,000 3,981
J.C. Penney Funding Corp. 5.59% due 01/20/98 (1) 14,000 13,956 .17
Pitney Bowes Credit Corp.:
5.80% due 01/21/98 22,000 21,926 .49
5.53% due 02/09/98 17,900 17,786
Procter & Gamble Co.:
5.75% due 01/29/98 10,000 9,954 .49
5.70% due 02/12/98 10,600 10,528
5.55% due 02/19/98 20,000 19,841
SBC Communications (1):
5.74% due 01/07/98 10,000 9,989 .30
5.77% due 01/20/98 15,025 14,977
-------------------
674,302 8.25
-------------------
Certificates of Deposit
Morgan Guaranty Trust Co. of New York 5.60% 1/21/98 50,000 49,995 .61
-------------------
TOTAL SHORT-TERM SECURITIES (Cost $724,322,000) 724,297 8.86
-------------------
TOTAL INVESTMENT SECURITIES (cost $7,932,114,000) 8,079,158 98.81
Excess of cash and receivables over payables 96,973 1.19
-------------------
NET ASSETS 8,176,131 100.00
===================
1 Purchased in a private placement transaction; resale may be
limited to qualified institutional buyers; resale to the
public may require registration.
2 Step bond; coupon rate will increase at a later date.
3 Pass-through security backed by a pool of mortgages or other
loans on which principal payments are periodically made.
Therefore, the effective maturity is shorter than the stated
maturity.
4 Valued under procedures established by the Board of Directors.
5 Purchased as a unit; issue was separated but reattached for
reporting purposes.
6 Coupon rate changes periodically.
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 whose principal amount moves with a government
retail price index.
9 Non-income-producing security.
10 Company filed for bankruptcy and is not making interest payments.
See Notes to Financial Statements
</TABLE>
<TABLE>
The Bond Fund of America
FINANCIAL STATEMENTS
<S> <C> <C>
Statement of Assets and Liabilities
at January 31, 1998 (dollars in thousands)
Assets:
Investment securities at market
(cost: $7,932,114) $8,079,158
Cash 2,080
Prepaid expense ....................
Receivables for--
Sales of investments $10,861
Forward currency contracts 7,801
Sales of fund's shares 31,327
Dividends and accrued interest 113,885 163,874
------------ ---------------
8,246,592
Liabilities:
Payables for--
Purchases of investments 54,765
Repurchases of fund's shares 11,492
0
Management services 2,211
Accrued expenses 1,993 70,461
87 $70,548
------------ ---------------
Net Assets at at December 31, 1997--
Equivalent to $14.00 per share
583,828,403 shares of $1 par value
capital stock outstanding (authorized
capital stock - 1,000,000,000 shares) $8,176,131
===============
Statement of Operations
for the year ended December 31, 1997 (dollars in thousands)
Investment Income:
Income:
Interest $567,710
Dividends from investment in stocks 3,373 $571,083
Expenses:
Management services fee $24,460
Distribution expenses 18,641
Transfer agent fee 4,685
Reports to shareholders 499
Registration statement and prospectus 639
Postage, stationery and supplies 1,267
Directors' fees 63
Auditing and legal fees 52
Custodian fee 373
Taxes other than federal income tax 87
Other expenses 163 50,929
------------ ---------------
Net investment income 520,154
===============
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 99,025
Net increase in unrealized
appreciation on:
Investments 34,919
Open forward currency contracts 9,125
------------
Net unrealized appreciation 44,044
---------------
Net realized gain and
unrealized appreciation
on investments 143,069
---------------
Net Increase in Net Assets Resulting $663,223
from Operations ===============
Statement of Changes in Net Assets (dollars in thousands)
Year ended December 31
1997 1996
Operations:
Net investment income $520,154 $491,209
Net realized gain (loss)on investments 99,025 (7,778)
Net unrealized appreciation
(depreciation) on investments 44,044 (45,326)
------------ ---------------
Net increase in net assets
resulting from operations 663,223 438,105
------------ ---------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net
investment income (526,643) (488,959)
------------ ---------------
Capital Share Transactions:
Proceeds from shares sold:
159,869,358 and 130,706,510
shares, respectively 2,214,949 1,780,596
Proceeds from shares issued in
reinvestment of net investment
income dividends: 28,414,675
and 26,267,382 shares,
respectively 393,612 357,426
Cost of shares repurchased:
113,580,749 and 101,063,959
shares, respectively (1,571,399) (1,374,955)
------------ ---------------
Net increase in net assets
resulting from capital share
transactions 1,037,162 763,067
------------ ---------------
Total Increase in Net Assets 1,173,742 712,213
Net Assets:
Beginning of year 7,002,389 6,290,176
------------ ---------------
End of year (including
undistributed net investment
income: $11,969 and $10,700
respectively) $8,176,131 $7,002,389
============ ===============
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 a 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 securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of their representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies
are translated into U.S. dollars at the prevailing market rates at the end of
the reporting period. Purchases and sales of securities and income and
expenses are translated into U.S. dollars at the prevailing market rates on the
dates of such transactions. The effects of changes in foreign currency
exchange rates on investment securities are included with the net realized and
unrealized gain or loss on investment securities.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committe appointed by 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. 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 and
dividend income is reported on the accrual basis. Discounts and premiums on
securities purchased are amortized. Dividends to shareholders are declared
daily after the determination of the fund's net investment income and are paid
to shareholders monthly. Distributions paid to shareholders are recorded on
the ex-dividend date.
The fund may enter into forward currency contracts, which represents
agreements to exchange currencies of different countries at a specified future
date at a specified rate. The fund enters into these contracts to reduce its
exposure to fluctuations in foreign exchange rates arising from investments
denominated in non-U.S. currencies. The fund's use of forward currency
contracts involves market risk in excess of the amount recognized in the
statement of assets and liabilities. The contracts are recorded in the
statement of assets and liabilities at their net unrealized value. The fund
records realized gains or losses at the time the forward contract is closed or
offset by a matching contract. The face or contract amount in U.S. dollars
reflects the total exposure the fund has in the particular contract. Risks may
arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from possible movements
in non-U.S. exchange rates and securities values underlying these instruments.
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, 1997, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $147,044,000, of which $274,300,000 related to appreciated
securities and $127,256,000 related to depreciated securities. During the year
ended December 31, 1997, the fund realized, on a tax basis, a net capital gain
of $91,267,000 on securities transactions. Net gains related to non-U.S.
currency transactions of $7,758,000 were treated as ordinary income for federal
income tax purposes. During the year ended December 31, 1997, the fund
utilized the remaining capital loss carryforward totaling $50,492,000 to
offset, for tax purposes, capital gains realized during the year up to such
amount. The cost of portfolio securities, excluding foreign currency contracts,
for book and federal income tax purposes was $7,932,114,000 at December 31,
1997.
3. The fee of $24,460,0000 for management services was incurred 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;
0.15% of such assets in excess of $6 billion; plus 3.00% on the first $450,000
of the fund's monthly gross investment income; 2.25% of such income in excess
of $450,000 but not exceeding $8,333,333 million; and 2.00% of such 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, 1997,
distribution expenses under the Plan were $18,641,000. As of December 31, 1997,
accrued and unpaid distribution expenses were $1,279,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,685,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $5,397,000 (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,
1997, aggregate amounts deferred and earnings thereon were $113,000.
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, 1997, accumulated undistributed net realized gain on
investments was $40,776,000 and additional paid-in capital was $7,384,333,000.
The fund reclassified $7,758,000 of realized currency gains from undistributed
net realized gain to undistributed net investment income for the year ended
December 31, 1997.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $4,473,244,000 and $3,409,281,000, respectively,
during the year ended December 31, 1997.
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 $373,000 includes $234,000 that was paid by these credits
rather than in cash.
Net realized currency gains on interest and sales of non-U.S. bonds and
notes, on a book basis, were $14,900,000 for the year ended December 31,1997.
At December 31, 1997 the fund had outstanding forward currency contracts
to sell non-U.S. currency as follows:
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year ended December 31
1997 1996 1995 1994 1993
Net Asset Value, Beginning of Year $13.75 $13.88 $12.69 $14.45 $13.99
----------------------------------------------
Income from Investment Operations:
Net investment income 0.98 1.02 1.05 1.05 1.09
Net realized and unrealized gain(loss) on inve 0.25 (0.13) 1.18 (1.76) 0.84
----------------------------------------------
Total income (loss) from investment operation 1.23 0.89 2.23 (0.71) 1.93
----------------------------------------------
Less Distributions:
Dividends from net investment income (0.98) (1.02) (1.04) (1.05) (1.08)
Distributions from net realized gains -- -- -- -- (0.39)
-- -- -- -- --
----------------------------------------------
Total distributions (0.98) (1.02) (1.04) (1.05) (1.47)
----------------------------------------------
Net Asset Value, End of Year $14.00 $13.75 $13.88 $12.69 $14.45
==============================================
Total Return* 9.24% 6.71% 18.25% (5.02%) 14.14%
Ratios/Supplemental data:
Net assets, end of year (in millions) $8,176.00$7,002.00$6,290.00$4,941.00$5,285.00
Ratio of expenses to average net assets 68.00% .71% .74% .69% .71%
Ratio of net income to average net assets 6.95% 7.47% 7.87% 7.77% 7.53%
Portfolio turnover rate 51.96% 43.43% 43.80% 56.98% 44.68%
*Excludes maximum sales charge of 4.75%.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Bond Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of
The Bond Fund of America, Inc. (the "Fund"), including the schedule of
portfolio investments as of December 31,1997, 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 per-share data and ratios
for each of the five years in the period then ended. These financial
statements and per-share data and ratios are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and per-share data and ratios based on our audits.
We conducted our audits in accordance with 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, 1997 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The Bond Fund of America, Inc. at December 31, 1997, 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 per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/Deloitte & Touche LLP
Los Angeles, California
January 29, 1998
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 (retired), The Capital Group
Companies, Inc.
DIANE C. CREEL
Long Beach, California
President and Chief Executive Officer,
The Earth Technology Corporation
(international consulting 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 Consulting
(management consultants)
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
Retired; former Chairman of the Board,
BW/IP International, Inc.
(industrial manufacturing)
OTHER OFFICERS
David C. Barclay
Los Angeles, California
Vice President of the fund
Executive Vice President,
Capital Research Company;
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
American Funds Service Company
(Please write to the address nearest you.)
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
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
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, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA CD/AL/3203
Lit. No. BFA-011-0298
Printed on recycled paper
[The American Funds Group(r)]
