[The American Funds Group(r)]
THE BOND FUND OF AMERICA
ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1999
TWENTY-FIVE YEARS
[cover: photos of various paper currencies with The Bond Fund of
America seal watermark and "25" overlay]
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.
The Bond Fund of America is one of the 29 mutual funds in The American Funds
Group,(r) the nation's third-largest mutual fund family. For nearly seven
decades, Capital Research and Management Company, the American Funds adviser,
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 December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Average annual compound returns
Lifetime
1 year 5 years 10 years (since 5/28/74)
The Bond Fund of America +2.3% +8.2% 0.084 0.099
Lehman Brothers
Aggregate Bond Index -0.8 +7.7 +7.7 +9.3/1/
Lipper Corporate A-Rated
Bond Funds Average/2/ -2.6 +6.9 +7.3 +9.0
Average savings institution/3/ +4.6 +4.6 +4.8 +6.6
Consumer Price Index (inflation)/4/ +2.7 +2.4 +2.9 +5.0
</TABLE>
/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. These indexes serve as a proxy for the broad U.S.
investment-grade bond market and are unmanaged.
/2/Source: Lipper, Inc. Lipper averages do not include the effects of sales
charges.
/3/Based on figures from the U.S. League of Savings Institutions and the
Federal Reserve Board, which reflect 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, 2000, calculated
in accordance with the Securities and Exchange Commission formula, was 7.24%.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF, OR GUARANTEED BY, A BANK OR ANY OTHER ENTITY.
FELLOW SHAREHOLDERS:
By almost any measure, 1999 proved to be a challenge for bonds. Investors
closed out the year troubled by rising interest rates and continuing concerns
about inflation on the horizon. In the process, bonds suffered their worst year
since 1994. U.S. Treasury securities were hit hardest, but the rout was
widespread, taking down most other sectors as well. The few bright spots tended
to be found among emerging-market bonds.
In this negative environment, The Bond Fund of America was able to achieve a
positive total return for 1999, as it has done for every complete calendar year
but one over its 25-year lifetime. For shareholders who reinvested monthly
dividends totaling 93 cents a share, a decline in the net asset value of your
shares was more than offset by the fund's 7.1% income return. The result was a
12-month total return (income minus the change in capital value) of 2.3%.
That was comfortably ahead of the fund's relevant benchmarks. The Lehman
Brothers Aggregate Bond Index, a proxy for the U.S. bond market, fell 0.8% for
the year on a reinvested basis. Meanwhile, the average total return for the 164
corporate A-rated bond funds tracked by Lipper, Inc. was -2.6%. The fund's
strong showing placed it third among those funds for the 12 months ended
December 31; it ranked second among the 17 A-rated corporate bond funds in
existence over its lifetime./1/
As the table at left shows, The Bond Fund of America has sustained a strong
record over longer, more meaningful periods as well. Since beginning operations
more than a quarter-century ago, the fund has achieved a cumulative total
return of 1,014.5% - an average compound return of 9.9% a year - and outpaced
both the Lehman index and the Lipper average. In that time, it has also
provided shareholders with an ample cushion against inflation.
[Begin Sidebar]
With close to $9.5 billion in assets, The Bond Fund of America is one of the
nation's largest corporate bond funds and, at 25 years, among the oldest.
[End Sidebar]
TOO MUCH OF A GOOD THING?
Bond investors began to grow wary early in 1999, when a string of strong
economic data rekindled fears of inflation. Although the rise in prices has yet
to materialize, some warning signs did emerge during the year: Wage pressures
intensified as unemployment touched record lows; the cost of crude oil and
other raw materials rose sharply; and many of the world's troubled economies
began to take their first steps toward recovery. The anticipation of preemptive
measures by the Federal Reserve Board - confirmed by quarter-point increases in
short-term interest rates in June, August and November - unsettled investors
and considerably dampened prices of intermediate- and long-term bonds. (The Fed
raised rates again in February of this year.)
[Begin Sidebar]
THE BENEFIT OF A LONG VIEW
Time can help mitigate volatility and increase the likelihood of success. The
tables below show the best, worst and median returns on a $10,000 investment in
the fund over one-, five- and 10-year rolling calendar-year periods. Notice
that the longer the time frame, the less divergent the rates of return have
been.
1-year periods
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total $10,000
return Year investment
Best +32.9% (1982) $13,290
Worst -5.0% (1994) $9,498
Median 0.095 (1983) $10,946
</TABLE>
5-year periods
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Value of
annual $10,000
return Years investment
Best +18.9% (1982-1986) $23,746
Worst 0.041 (1977-1981) $12,219
Median 0.092 (1987-1991) $15,338
</TABLE>
10-year periods
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Value of
annual $10,000
return Years investment
Best +13.9% (1982-1991) $36,896
Worst +8.4% (1990-1999) $22,374
Median +11.2% (1977-1986) $29,014
</TABLE>
[End Sidebar]
U.S. Treasury securities suffered the steepest declines, revealing the flip
side of last year's above-average gains. Yields on 30-year government bonds
rose to 6.5% from 5.1%, reflecting an 18% drop in price. (Bond yields and
prices move in opposite directions.) Corporate bonds also fell, although those
at the lower end of the credit spectrum generally declined less. Mortgage- and
asset-backed securities also fell. Emerging-market bonds proved to be the
notable exception to the broad market weakness; prices soared upward of 20%,
but they did so from a deeply depressed base.
A LOOK AT THE PORTFOLIO
Although a number of the holdings in the portfolio fell in price, we are
pleased to note that quite a few securities bucked the downward trend.
Regardless of market movements, however, bonds are primarily income-producing
instruments; throughout the year, the securities in the portfolio continued to
generate a healthy income stream, which compensated to varying degrees for the
loss in market value during the year. That steady flow of income added an
important silver lining for shareholders who reinvested their dividends: They
were able to acquire shares at lower prices as the year progressed.
The portfolio remains very well diversified, with investments in hundreds of
carefully selected securities. The lion's share - about half of net assets - is
invested in corporate bonds from a range of industries and countries. Mortgage-
and asset-backed securities represent about one quarter of net assets; roughly
10% is held in U.S. Treasury securities. A more detailed sector breakdown can
be found in the chart at the top of page 16. Overall, your fund maintains a
high-quality orientation, but it has the flexibility to invest, when
appropriate, in lower rated issues, which typically pay higher yields to
compensate for somewhat greater risk.
Your fund's portfolio is the product of intensive global research, which not
only helps us find attractive long-term holdings in an increasingly complex
marketplace, but has also helped mitigate some of the risks associated with
bond investing. You can read more about how research helps the fund's
investment professionals make decisions in the article that follows this
letter.
GROWING OPPORTUNITIES
The Bond Fund of America has experienced remarkable growth since it began life
in May of 1974. Today, at close to $9.5 billion in assets, it is one of the
nation's largest corporate bond funds and, at 25 years, among the oldest.
Shareholder accounts number close to 300,000, and include a diverse group of
individuals, foundations and corporate retirement plans. We are grateful for
the confidence so many of you have placed in us.
The Bond Fund of America's method of portfolio management is well-suited to
accommodating growth. The multiple portfolio counselor system, as it is called,
was developed 40 years ago by the fund's investment adviser, Capital Research
and Management Company, and is used for all American Funds stock and bond
funds. Because assets are divided among a number of portfolio counselors,
managers can be added as the fund expands. The system also encourages a
diversity of investment styles, a strategy we believe has helped us moderate
risk by smoothing out returns. Currently, The Bond Fund of America has six
portfolio counselors, with an average of 22 years of experience.
LOOKING FORWARD AND BACK
When we first introduced The Bond Fund of America in 1974, bond investing was
concentrated in the hands of large financial institutions, which often hewed to
a strict buy-and-hold strategy. We were convinced that an actively managed,
diversified portfolio of bonds could offer individual investors two important
benefits - the opportunity for high current income and relative stability of
principal.
Now, 25 years later, thanks to a great deal of hard work and good judgment on
the part of many people, we can look back and say that the fund has achieved
its goals. Over its lifetime, The Bond Fund of America's steady dividend stream
and strong total returns have distinguished it from its peers. More
importantly, they have provided long-term shareholders with a solid foundation
for their financial programs.
We are equally enthusiastic about the future. Businesses are thriving and
expanding; governments across the globe are increasingly committed to political
freedom and economic stability; technological advances have added new and
complex dimensions to fixed-income markets. These developments have laid the
groundwork for seemingly unlimited opportunities for investors with the
experience and resources to capitalize on them. As The Bond Fund of America
moves into its next quarter century, we are prepared to meet those challenges
and look forward to pursuing new endeavors on your behalf.
On the following pages, we invite you to look back at the last 25 years with
some of the people who have been responsible for the fund's success.
We look forward to reporting to you again 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 14, 2000
THE VALUE OF A LONG-TERM PERSPECTIVE
HOW A $10,000 INVESTMENT HAS GROWN
There have always been reasons not to invest. If you look beyond the negative
headlines, however, you will find that, despite occasional stumbles, financial
markets have tended to reward investors over the long term. Active management -
bolstered by experience and careful research - can add even more value: As the
chart at right shows, over its lifetime, The Bond Fund of America has done
demonstrably better than its relevant benchmarks.
The table beneath the chart breaks down BFA's year-by-year total returns into
their income and capital components.
[Begin chart]
President Nixon resigns - 1974
U.S. withdraws from Vietnam - 1975
New York City threatens bankruptcy - 1976
Energy crisis - 1977
Unemployment falls - 1978
U.S. dollar weakens - 1979
Inflation up worldwide - 1980
Federal funds rate peaks above 19% - 1981
Worst recession in 40 years - 1982
Economic recovery raises inflation fears - 1983
Iran/Iraq war escalates - 1984
U.S. becomes a debtor nation - 1985
Bombing of Libya - 1986
Record-setting stock market decline - 1987
Bank failures peak - 1988
Junk bond debacle - 1989
Iraq invades Kuwait - 1990
Recession in U.S. - 1991
Los Angeles riots - 1992
Bond prices surge - 1993
Sharpest bond decline in history - 1994
Orange County bankruptcy - 1995
Economic boom roils bonds - 1996
First signs of "Asian flu" - 1997
President Clinton impeached - 1998
Inflation fears resurface - 1999
AVERAGE ANNUAL COMPOUND RETURNS
(for periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C>
10 Years 5 Years 1 Year
+7.97% +7.38% -1.54%
</TABLE>
Calculated for a $1,000 investment at the maximum sales charge and assumes
reinvestment of all distributions.
<TABLE>
<CAPTION>
Year ended Dec. 31 BFA with Lehman Brothers Consumer Price
Dividends Aggregate Bond Index /3/ Index
Reinvested
/1//2/
<S> <C> <C> <C>
May 28, 1974 10,000 10,000
1974* 9,988 10,318 10,679
1975 11,254 11,587 11,420
1976 13,294 13,395 11,975
1977 13,977 13,802 12,778
1978 14,261 13,994 13,930
1979 14,710 14,264 15,782
1980 15,230 14,650 17,757
1981 16,242 15,565 19,342
1982 21,586 20,643 20,082
1983 23,628 22,368 20,844
1984 26,450 25,756 21,667
1985 33,488 31,449 22,490
1986 38,568 36,251 22,737
1987 39,324 37,248 23,745
1988 43,533 40,186 24,794
1989 47,942 46,026 25,946
1990 49,509 50,149 27,531
1991 59,927 58,174 28,374
1992 66,722 62,480 29,197
1993 76,155 68,571 30,000
1994 72,335 66,571 30,802
1995 85,536 78,870 31,584
1996 91,273 81,733 32,634
1997 99,708 89,624 33,189
1998 104,863 97,410 33,724
1999 107,265 96,609 34,630
</TABLE>
[end chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended 1974* 1975 1976 1977 1978 1979 1980 1981 1982 1983
December 31
TOTAL VALUE
Dividends $418 907 1,020 1,126 1,211 1,401 1,725 2,118 2,435 2,526
Reinvested
Value at $9,988 11,254 13,294 13,977 14,261 14,710 15,230 16,242 21,586 23,628
Year-End/1/
BFA's Total (0.1)% 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 2,869 3,227 3,604 3,787 3,954 4,472 4,698 4,908 5,274 5,326
Reinvested
Value at 26,450 33,488 38,568 39,324 43,533 47,942 49,509 59,927 66,722 76,155
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 1998 1999
December 31
TOTAL VALUE
Dividends 5,733 6,180 6,473 6,703 7,008 7,398
Reinvested
Value at 72,335 85,536 91,273 99,708 104,863 107,265
Year-End/1/
BFA's Total (5.0) 18.2 6.7 9.2 5.2 2.3
</TABLE>
Average annual compound return for 25-1/2 years: 9.71%/1//2/
*For the period May 28 through December 31, 1974.
/1/Results reflect payment of the maximum sales charge of 3.75% on the $10,000
investment. Thus, the net amount invested was $9,625. Prior to January 10,
2000, the maximum sales charge was 4.75%. As outlined in the prospectus, the
sales charge is reduced for larger investments.
/2/Includes reinvested dividends of $96,531 and reinvested capital gain
distributions of $4,571.
/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. These indexes are unmanaged.
/4/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
Past results are not predictive of future results.
CONSISTENCY AMID CHANGE
[watermark of various paper currencies]
The Bond Fund of America maintains a consistent approach even as bond markets
continue to evolve and reinvent themselves. Over the years, that strategy -
careful attention to risk, a search for value and a focus on the long term -
has served shareholders very well indeed. When the fund began in May of 1974,
it was one of some three dozen mutual funds that emphasized bonds. Today,
millions of investors make bonds and other fixed-income instruments a
cornerstone of their financial plans. Bond funds number in the thousands and
have assets in excess of $1 trillion.
A LOOK BACK AT BFA'S FIRST QUARTER CENTURY
The past quarter century has seen bond markets become increasingly complex. In
1974, the bond market consisted primarily of U.S. Treasury debt and high-grade
corporate securities. There was little market for foreign bonds and even
government-sponsored mortgage-backed securities, now part of the $plain
vanilla' market, were deemed too exotic for most investors' tastes.
That scenario has changed considerably. Today, the U.S. government debt is
shrinking; bond markets outside the U.S. have become increasingly liquid and
attractive; and high-yield bonds provide financing for some of the world's most
innovative businesses. Technology has probably been the greatest catalyst for
change by making information widely available; computers have created entire
sectors of sophisticated securities that we could scarcely have imagined back
in 1974.
Through the years, our research effort has expanded to accommodate the growing
scope of BFA's investment universe. Today, Capital Research and Management
Company, the fund's investment adviser, operates one of the industry's most
globally integrated research networks. Some 30 investment professionals are
devoted to fixed-income investment for BFA and the other American Funds. These
men and women conduct thousands of research visits a year, analyzing securities
and identifying their potential value as long-term investments for the fund.
They also work closely with stock analysts, giving them a perspective few other
investors can match.
A silver anniversary is an appropriate occasion to review past accomplishments
and look forward to new endeavors. On the next few pages, we'll highlight three
years in BFA's history: 1974, the year the fund was introduced; 1986, the
midpoint of our quarter century; and 1999, on the threshold of the future.
As you can see below, even though conditions changed over both of these
periods, the fund achieved consistent "real," or after-inflation, returns.
[photo 1974: photograph of cars lined up at gasoline station]
[photo 1986; President Reagan and Gorbachev signing document]
[photo 1999: child using personal computer]
[Begin Caption]
1974
1986
1999
[End Caption]
[Begin Sidebar]
BFA'S "REAL" RETURNS (ANNUALIZED)
[Begin Bar Chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1974-1986 1986-1999 1974-1999
Total Return 11.7% 8.2% 9.9%
"Real" Return 4.6% 4.7% 4.7%
</TABLE>
[End Chart]
[End Sidebar]
1974 COPING WITH TURBULENCE
[photographs of gas shortage]
[Begin Caption]
Oil prices quadrupled and helped send inflation soaring. At right, BFA's
investment professionals share ideas.
[End Caption]
Among the laundry list of difficulties that confronted investors in 1974 were:
an oil embargo that had quadrupled the cost of petroleum; a devastating drop in
business activity; persistent double-digit inflation; a steep, protracted stock
market decline; an assault on the U.S. dollar; and the trauma of Watergate,
which culminated in the only resignation of an American president.
We maintained a cautious stance that year; at BFA's first fiscal close, only
half of the portfolio was invested in the bond market, with the remainder in
highly liquid short-term securities. "We were dealing with an unusually
turbulent situation," remembers Bill Newton, the fund's first president. "Bond
yields were at 7 and 8 percent, but inflation was running 11 percent and
higher. Our cash position provided some stability at a very scary time."
Still, for investors with patience and resources, this was an environment that
had also given rise to exceptional opportunities. The convergence of severely
depressed bond prices and a record volume of debt issuance by companies anxious
to stockpile reserves had created some very attractive values. To uncover those
values, the fund's investment professionals relied on one of Capital's
strengths - intensive, fundamental research.
"As we began to build the portfolio, we realized that good credit research in
many ways would look a lot like good stock research," notes Abner Goldstine,
BFA's president and one of the fund's original portfolio counselors. "That
meant going beyond static balance sheet analysis and looking at industry
developments, management skills, future earnings and cash flow. We believed
that digging deeper could help us appreciate things that less-informed
investors might miss."
To help fill out the picture, Capital's investment professionals established a
number of avenues for exchanging ideas internally. In addition to meeting with
each other, fixed-income specialists also consult regularly with staff
economists and stock analysts who cover industries heavily impacted by changes
in interest rates - sectors such as finance, utilities, real estate and
insurance. That interchange helps put individual decisions in a broader
context.
Rising interest rates continued to vex U.S. bond markets, although the tide
began to shift as the decade progressed. The Federal Reserve Board eased
monetary policy in late 1974 in an effort to kickstart a recovery, but
short-term interest rates soon spiked upward again, peaking at 19% in 1981.
That was the year that Paul Volcker, then Chairman of the Federal Reserve
Board, famously "broke the back" of inflation with a series of sharp interest
rate hikes, laying the groundwork for a halcyon period for bonds.
[photo 1974: Federal Reserve Board]
[Begin Caption]
1974
[End Caption]
By the end of 1975, BFA's portfolio was nearly 95% invested in longer term
bonds; most carried A ratings or better and paid interest ranging from about 9%
to 11%. Electric and telephone utilities constituted the largest industry
concentrations, but other large holdings included GTE, American Airlines and
NCR, which had just pioneered scanning and ATM technology. As interest rates
fell during the next few years, the prices of many of these bonds soared,
providing shareholders with not only healthy income but significant capital
appreciation as well.
The turbulence of those early years illustrates the value of experience.
"Different environments require different emphases," Bill Newton stresses.
"When the environment is constructive, we concentrate on delivering higher
income, but when the outlook is questionable, we do more to protect the capital
base. That's what active management is all about - assessing and balancing
risk."
[Begin Sidebar]
25 YEARS OF BOND INVESTING:
William Skinker, a fund shareholder since 1974, appreciates the value of a long
view. In the past quarter century, Bill has seen bond markets and the fund's
share price fluctuate, often dramatically. But he has also seen how the
discipline of staying the course and reinvesting dividends has helped him
preserve the value of his principal and enjoy considerable growth besides.
[End Sidebar]
[Begin Sidebar]
A SHAREHOLDER'S VIEW 1974
[photograph of Mary and Bill and family]
As an insurance agent in Springfield, Illinois, Bill was well aware of the
importance of planning for the future. He and his wife, Mary, (pictured in 1974
with their children Carolyn and Steve) looked to The Bond Fund of America for
their retirement. The mid-1970s were a time of terrible turbulence in financial
markets, but Bill was encouraged by the fund's focus on high income and
preservation of principal. He also kept his eye on a longer horizon and used
market declines as opportunities to add to his investments. "I've been
investing long enough to know that what has gone down has usually gone up," he
says. In the years ahead, that proved to be true.
[End Sidebar]
1986 BOND FUNDS BOOM
[photographs of Berlin wall, and Reagan and Gorbachev signing document]
[Begin Caption]
With inflation trending downward, bonds enjoyed a period of growth - as did
Capital's research group, pictured at right.
[End Caption]
The mid-1980s proved to be a propitious era for bond investors. As interest
rates drifted lower, bond prices appreciated smartly, allowing investors to
chalk up impressive total returns. What's more, with inflation falling faster
than interest rates, Treasury and high-quality corporate bonds, some yielding
14% or more, provided shareholders with generous "real," or after-inflation,
income.
The superior returns on quality bonds attracted many new investors to bond
funds. According to the Investment Company Institute, new sales reached a
record $138 billion in 1986, exceeding the total net assets in bond funds at
the end of 1985. Bonds became even more attractive with the passage of the Tax
Reform Act of 1986, which, among other things, lowered the tax rate on interest
income.
There was no lack of fixed-income options to meet the demands of eager
investors. Economic recovery had sent corporations, homeowners and the
government on a borrowing spree. Declining interest rates had sparked attention
in high-yield bonds. Meanwhile, technological advances inspired the development
of new financial instruments; these were the salad days of such popular
securities as mortgage pass-throughs, but also of an array of arcane products
created by investment banks at the time.
These developments demanded new kinds of research, and by the mid-1980's,
Capital's fixed-income coverage had expanded to meet those challenges.
Mortgage-backed securities, for example, had become a major area of focus by
this time. These securities, which are made of pools of home loans, carry
little risk of default, but are subject to the risk that homeowners will prepay
their loans at a disadvantageous time. Trying to determine the likelihood and
causes of prepayments is a time-consuming and difficult job.
Careful research helps uncover facts that other investors may have overlooked.
"On the face of it, two securities may look the same," says John Smet, a
portfolio counselor who specialized in mortgage-backed issues as an analyst in
the 1980s. "What you often find after scratching the surface, though, is that
they have very different characteristics. Those differences will affect not
only their market price, but also their appropriateness for the fund."
The bond market's faster pace and explosive growth in the 1980s put a new spin
on traditional notions of risk. Richard Schotte, who retired two years ago
after 20 years as a portfolio counselor with the fund, notes that "as bond
investing became increasingly sophisticated, investment managers added value by
taking prudent risks they believed would benefit shareholders in the long run.
Then, as now, those judgments were based on information you gathered and the
experience you gained as a professional."
[photo 1986: trading room]
[Begin Caption]
1986
[End Caption]
Mirroring broader trends, The Bond Fund of America enjoyed tremendous growth in
the 1980s. In 1986, net assets stood at nearly $700 million, representing not
only appreciation of the securities in the portfolio, but a large inflow of new
shareholders. Accounts had risen to 26,000 - a tenfold increase since the end
of 1974. The portfolio was also more diversified, with bonds of media and
communications companies, such as Warner Communications, Tele-Communications,
Inc. and McCaw Cellular, and sizable positions in mortgage-backed securities
and U.S., Canadian and Australian government bonds.
[Begin Sidebar]
A SHAREHOLDER'S VIEW 1986
[photograph of Bill, Mary and Steve]
By 1986, Bill (pictured with Mary and Steve) had retired, having sold his
agency the year before. He continued to reinvest his dividends in The Bond Fund
of America, preferring to use income from other investments to meet daily
expenses. It was a wise decision. The fund enjoyed extremely strong returns
through a good part of the decade, and the value of Bill's holdings appreciated
considerably. Its relative stability also served another function. "With The
Bond Fund of America as an anchor to my overall portfolio, I felt more
comfortable investing a little more aggressively in riskier assets, like
individual stocks." When Mary became ill in 1991, Bill used dividends from the
fund to help offset some of her medical costs.
[End Sidebar]
1999 OUT OF DIVERSITY, OPPORTUNITY
[photographs of Internet screen and child using personal computer]
[Begin Caption]
Today, technology and globalization make research more important than ever.
[End Caption]
The intervening years have seen conditions for the bond market continue to
change. Interest rates have generally trended lower; thriving businesses are
turning to capital markets to meet their expansion needs; and global economies
have taken historic steps toward political and economic stability. At the same
time, a budget surplus is shrinking the supply of U.S. Treasury securities. All
of this increases the challenges - and opportunities - for bond investors.
International bonds have provided a particularly rich vein to mine. These
issues, worth some $13 trillion, offer the potential for diversification as
well as income. BFA first invested outside the U.S. in 1979, with holdings in
Canadian province obligations and "Gilts" issued by the British government.
Today, BFA holds bonds issued in countries such as Greece, Poland, New Zealand,
Argentina and South Africa.
If globalization has broadened the fund's investment possibilities, it has also
made the process more complicated. Non-U.S. bonds are subject to special risks,
such as currency fluctuations and accounting standards that differ from country
to country. Moreover, the sheer diversity of options can be daunting. "Issuers
today appeal to a global community," says portfolio counselor Mark Dalzell.
"That means we can choose to invest in securities issued in dollars inside the
U.S., in dollars or local currency outside the U.S., or even in bonds of U.S.
companies issued in euros, sterling or yen. Each of these carries different
risks and potential rewards." Fortunately, Capital's global research presence
has enabled us to take advantage of some of those opportunities. At the end of
1999, bonds of non-U.S. issuers accounted for just over 20% of BFA's net
assets.
Investments in lower rated bonds have also contributed to the fund's success.
"On the heels of the $junk' bond scandal of 1989 and the recession that
followed, the high-yield sector has experienced a $re-birth' in the 1990s,"
notes Susan Tolson, a portfolio counselor. "Today, new issuers are reasserting
what the sector is supposed to be all about: providing growth capital for
innovative companies around the world that don't have access to traditional
capital markets." High-yield bonds are traded in a vast, diverse marketplace
worth some $650 billion, providing ample opportunities for investors with the
global resources to find the best of them. Research also helps mitigate some of
the volatility and other risks associated with these bonds.
The multiple portfolio counselor system has made The Bond Fund of America's
growth process a relatively seamless one. As assets have increased, so has the
number of portfolio counselors. An additional portion of the portfolio,
currently about 15% of net assets, is the responsibility of more than a dozen
research analysts. By further encouraging a multiplicity of viewpoints, their
contributions have been an important factor in the fund's long-term record.
[photograph 1999: associates in conference]
[Begin Caption]
1999
[End Caption]
The multiple portfolio counselor system has another benefit: It helps ensure
the continuity of the fund's investment strategy even as market and economic
conditions change. Susan Tolson became a portfolio counselor two years ago
after serving as a research analyst for seven years. She notes that many of
BFA's pioneers are still on hand to pass on the legacy of their experience.
"They've taught me by example that sensible bond investors measure success in
years, not months. That perspective keeps me from heading for the bunker when
times get tough, and adds a ballast to the investment style of some of the
younger managers."
The fund's judicious approach has never varied, and it should give shareholders
some comfort to know it should be in place 25 years from now.
[Begin Sidebar]
A SHAREHOLDER'S VIEW 1999
[photograph of Bill, mary, Carolyn, and Glen Wetzel]
Today, Bill has moved to a comfortable retirement complex in Bloomington,
Illinois, not far from his daughter, Carolyn, son-in-law, Glen Wetzel and
grandson Calvin, pictured above. (Mary passed away in 1994.) For the time
being, he has chosen to leave his investment in the fund untouched, and is
meeting expenses with income from other sources. He has earmarked his BFA
assets to help finance college tuition for his three (soon to be four)
grandchildren. "Over the years, my original investment has compounded and
grown," Bill says. "Thanks to The Bond Fund of America - and plenty of time -
I've been able to build something for the future."
[End Sidebar]
WHAT MAKES THE AMERICAN FUNDS DIFFERENT
[photograph of globe, map and magnifying glass]
As a shareholder in The Bond Fund of America, you are also a member of The
American Funds Group,(r) the nation's third-largest mutual fund family. You
won't find us advertised, yet thousands of financial advisers recommend the
American Funds for their clients' serious money - money set aside for
education, a home, retirement and other important dreams.
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
A LONG-TERM, VALUE-ORIENTED APPROACH:
Rather than follow short-term fads, we rely on our own intensive research to
find well-managed companies with reasonably priced securities and solid,
long-term potential. Despite our size, we offer relatively few funds compared
with many large fund families, allowing us to maintain a careful focus on our
objectives and enabling you to benefit from economies of scale.
AN UNPARALLELED GLOBAL RESEARCH EFFORT
We opened our first overseas office in 1962, well before most mutual funds
began investing internationally. Today, the American Funds draw on one of the
industry's most globally integrated research networks. We spend substantial
resources getting to know companies and industries around the world.
A MULTIPLE PORTFOLIO COUNSELOR SYSTEM
More than 40 years ago, we developed a unique strategy for managing investments
that blends teamwork with individual accountability. Every American Fund is
divided among a number of portfolio counselors, each of whom manages his or her
portion independently, within each fund's objectives; in most cases, research
analysts manage a portion as well. Over time, this method has contributed to
consistency of results and continuity of management.
EXPERIENCED INVESTMENT PROFESSIONALS
More than 75% of the portfolio counselors who serve the American Funds were in
the investment business before the sharp stock market decline in October 1987.
Long tenure and experience through a variety of market conditions mean we
aren't "practicing" with your money.
A COMMITMENT TO LOW OPERATING EXPENSES
You can't control market returns, but you can control what you invest in and
how much you pay to own it. American Funds provide exceptional value for
shareholders, with operating expenses that are among the lowest in the mutual
fund industry. Our portfolio turnover rates are low as well, keeping
transaction costs and tax consequences contained.
A PORTFOLIO FOR EVERY INVESTOR
[photograph of American flag]
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things - including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(SM)
SMALLCAP World Fund(r)
GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(r)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(r)
Washington Mutual Investors Fund(SM)
EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(r)
The Income Fund of America(r)
BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(r)
INCOME FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(SM)
TAX-EXEMPT INCOME FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America
State-specific tax-exempt funds:
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
MONEY MARKET FUNDS
Emphasis on stable monthly income through money market instruments
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
We also offer a full line of retirement plans and variable annuities.
For more complete information about any of the funds, including charges and
expenses, please obtain a prospectus from your financial adviser, download one
from our Web site at www.americanfunds.com, or phone the funds' transfer agent,
American Funds Service Company, at 800/421-0180. Please read the prospectus
carefully before you invest or send money. For more information, ask your
financial adviser for a copy of A Portfolio for Every Investor.
<TABLE>
THE BOND FUND OF AMERICA
INVESTMENT PORTFOLIO DECEMBER 31, 1999
[pie chart]
<S> <C>
Stocks .6%
Corporate Bonds 50.3%
Mortgage-/Asset-Backed Securities 23.0%
U.S. Treasuries 9.4%
Non-U.S. Government Bonds and Governmental Authorities 7.0%
Federal Agency Notes & Bonds* 2.7%
Cash & Equivalents 7.0%
[end pie chart]
* Not including mortgage-backed securities issued by federal agencies.
</TABLE>
<TABLE>
THE BOND FUND OF AMERICA
INVESTMENT PORTFOLIO DECEMBER 31, 1999
Shares or
Principal Market
Amount Value Percent of
BONDS, NOTES & PREFERRED STOCKS (000) (000)Net Assets
- ---------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIALS, SERVICES & UTILITIES
WIRELESS TELECOMMUNICATION SERVICES - 6.60%
Nextel Communications, Inc.:
10.125% 2004 $12,750 13,196
0%/9.75% 2007(1) 66,450 47,346
0%/10.65% 2007(1) 12,750 9,531
0%/9.95% 2008(1) 92,725 65,139
12.00% 2008 5,000 5,600
Series E, 11.25% exchangeable preferred, redeemable 2010 (3) 710share 710
McCaw International, Ltd., units, 0%/13.00% 2007(1),(4),(5) $39,381 27,228
Nextel International, Inc. 0%/12.125% 2008(1) 15,500 9,145
Nextel Partners Inc. 0%/14.00% 2009(1) 16,850 11,037 1.99
Omnipoint Corp.:
14.00% 2003(2),(3),(5) 36,843 38,611
11.625% 2006 31,200 33,072
11.625% 2006 8,250 8,745
11.50% 2009(2) 4,000 4,320
7.00% convertible preferred 106 17,702
Omnipoint Midwest Holdings, LLC 9.608%-10.479% 2008 29,750 29,602 1.39
OMNIPOINT MWST HLD FRN PP OMHA03 9.8175% 12-31-06-2 5198 5172
OMPT FCLTY A-1 9.8175% 12-31-06-2 1865 1856
OMNIPOINT MWST HLD FRN PP OMHA04 9.8175% 3-31-08-2 9112 9066
OMNIPOINT MWST HLD FRN PP OMHA03 9.8175% 03-31-08-2 7488 7450
OMNIPOINT MWST HLD FRN PP OMHA05 9.8175% 03-31-08-2 2648 2635
OMNIPOINT MWST HLD FRN PP OMHA04 9.8175% 03-31-08-2 2314 2303
OMNIPOINT MWST HLD FRN PP OMHA03 9.8175% 03-31-08-2 843 839
OMNIPOINT MWST HLD FRN PP OMHA05 9.8175% 03-31-08-2 282 281
Clearnet Communications Inc.:(1)
0%/11.75% 2007 C$45,825 22,580
0%/10.40% 2008 53,500 23,402 .49
Crown Castle International Corp.:
0%/10.625% 2007(1) $17,000 12,835
12.75% senior exchangeable preferred 2010(3) 27,209share 28,162
0%/11.25% 2011(1) $7,500 4,688 .48
American Cellular Corp. 10.50% 2008 30,425 33,696 .36
Dobson Communications Corp.:
11.75% 2007 1,000 1,127
12.25% exchangeable preferred, redeemable 2008(3) 22,208share 22,208 .25
Esat Telecom Group PLC:
units, 0%/12.50% 2007(1),(4),(5) $4,900 4,559
0%/12.50% 2007(1) 4,000 3,400
11.875% 2008 13,750 15,297 .25
Comcast UK Cable Partners Ltd. 0%/11.20% 2007(1) 22,000 20,900 .22
PageMart Wireless, Inc.:(1)
0%/15.00% 2005 9,000 7,897
0%/11.25% 2008 34,250 11,645 .21
Centennial Cellular Corp. 10.75% 2008 16,000 17,200 .18
VoiceStream Wireless Corp.:(2)
10.375% 2009 5,000 5,150
0%/11.875% 2009(1) 17,000 10,285 .16
Cable & Wireless Communications PLC 6.75% 2008 12,500 12,315 .13
SpectraSite Holdings, Inc., Series B:(1)
0%/12.00% 2008 12,500 7,375
0%/11.25% 2009 4,750 2,541 .10
Cellco Finance NV:
12.75% 2005(2) 8,725 9,063
15.00% 2005 500 545 .10
PanAmSat Corp.:
6.00% 2003 2,400 2,226
6.125% 2005 5,250 4,652
6.375% 2008 3,000 2,558 .10
Comunicacion Celular SA, units, 0%/14.125% 2005(1),(2),(4),(5) 17,568 8,404 .09
Dobson/Sygnet Communications Co. 12.25% 2008 4,500 4,995 .05
Telesystem International Wireless Inc. 0%/13.25% 2007(1) 6,000 3,840 .04
Conecel Holdings Ltd., Series A, units, 14.00% 2000(2),(4),(5),(7) 6,053 605 .01
-------------------
625,134 6.60
-------------------
TRANSPORTATION - 3.88%
Continental Airlines, Inc., pass-through certificates:(8)
Series 1998-3, Class C-1, 7.08% 2004 3,000 2,932
Series C-2, 7.434% 2004 2,000 1,952
Series 1998-3, Class C-2, 7.25% 2005 12,000 11,487
Series 1997-1, Class C, 7.42% 2007(6) 2,350 2,297
Series 1998-3, Class A-2, 6.32% 2008 15,000 13,610
Series 1999-2, Class A-2, 7.056% 2009 2,000 1,901
Series 1997-1, Class B, 7.46% 2014 955 915
Series 1996-2, Class B, 8.56% 2014 1,860 1,886
Series 1999-1, 10.22% 2014 5,703 6,007
Series 1996, Class B, 7.82% 2015 12,304 12,016
Series 1996, Class C, 9.50% 2015 4,557 4,691
Series 1997-1 Class A, 7.461% 2016 12,464 12,002
Series 1996-2, Class D, 11.50% 2016 3,905 4,191
Series 1997-4, Class A, 6.90% 2018 29,758 27,549
Series 1998-1, Class A, 6.648% 2019 36,204 32,844
Series 1999-1, Class B, 6.795% 2020 17,000 15,451 1.60
Airplanes Pass Through Trust, pass-through certificates, 58,913 54,783 .58
Series 1, Class C, 8.15% 2019(8)
Jet Equipment Trust:(2)
Series 1994-A, Class B1, 10.91% 2006 6,364 6,841
Series 1994-A, Class B1,11.79% 2013 4,000 4,674
Series 1995-B, 10.91% 2014 5,000 5,469
Series 1995-D, 11.44% 2014 10,000 11,270
Series 1995-B, Class A, 7.63% 2015 4,051 3,964
Series 1995-B, Class C, 9.71% 2015 5,500 5,714
Series 1995-A, Class C, 10.69% 2015 10,500 11,581 .52
Atlas Air, Inc. Pass-Through Trusts, Series 1998-1, Class A, 7.38% 2019(8 40,295 36,545 .39
Delta Air Lines:
7.70% 2005(2) 2,000 1,976
7.90% 2009(2) 3,000 2,952
pass-through certificates, Series 1992-A2, 9.20% 2014(8) 11,500 11,919
1990 Equipment trust certificates:(2)
Series I, 10.00% 2014 5,000 5,430
Series J, 10.00% 2014 5,000 5,430
Series F, 10.79% 2014 1,700 1,946 .31
United Air Lines, Inc., pass-through certificates:(8)
Series 1995-A1, 9.02% 2012 10,126 10,168
Series 1995-A2, 9.56% 2018 8,000 8,307 .20
American Airlines, Inc., pass-through certificates, 6,000 6,387 .07
Series 1991-C2, 9.73% 2014(8)
AIR 2 US, Series A, 8.027% 2020 6,000 6,015 .06
Teekay Shipping Corp. 8.32% 2008 6,000 5,505 .06
Union Pacific Capital Trust 6.25% TIDES convertible preferred(2) 111 4,527 .05
USAir, Inc.:
1990 Equipment Trust Certificates:
Series A, 10.28% 2001 754 761
Series B, 10.28% 2001 754 761
Series C, 10.28% 2001 530 535
pass-through trust, Series 1993-A3, 10.375% 2013(8) 2,250 2,160 .04
-------------------
367,351 3.88
-------------------
DIVERSIFIED MEDIA & CABLE TELEVISION - 3.87%
NTL Inc.:
0%/12.75% 2005(1) 17,750 17,750
Series B, 10.00% 2007 10,000 10,250
0%/9.75% 2008(1) 12,500 8,719
11.50% 2008 11,000 11,880
0%/11.50% 2009(1),(2) P 15000 8,752 .60
Fox/Liberty Networks, LLC, FLN Finance, Inc.:
8.875% 2007 $24,250 24,674
0%/9.75% 2007(1) 36,325 29,060 .57
Charter Communications Holdings, LLC:
8.25% 2007(6) 5,000 4,650
0%/9.92% 2011(1) 61,500 35,978 .43
Liberty Media Corp.:(2)
7.875% 2009 37,400 37,228
8.50% 2029 1,000 1,019 .40
British Sky Broadcasting Group PLC 8.20% 2009 30,000 29,008 .31
Lenfest Communications, Inc.:
8.375% 2005 11,000 11,197
7.625% 2008 6,750 6,563 .19
TCI Communications, Inc.:
8.00% 2005 10,000 10,296
8.75% 2015 5,000 5,455 .17
Telemundo Holdings, Inc., Series A, 0%/11.50% 2008(1) 25,375 15,098 .16
TeleWest PLC:
9.625% 2006 4,700 4,782
0%/11.00% 2007(1) 8,000 7,460 .13
Cablevision Industries Corp.:
8.125% 2009 9,250 9,088
9.875% 2013 2,000 2,110 .12
Century Communications Corp. 8.75% 2007 6,200 5,906
Adelphia Communications Corp. 8.375% 2008 5,000 4,650 .11
Falcon Holding Group, LP, Falcon Funding Corp. 8.375% 2010 10,000 10,075 .11
Globo Comunicacoes E Partcipacoes Ltd.:
10.50% 2006(2) 9,480 8,224
10.50% 2006 2,000 1,735 .11
Multicanal Participacoes SA, Series B, 12.625% 2004 6,875 6,944 .07
Time Warner Companies Inc. 7.25% 2017 7,000 6,534 .07
Cox Communications, Inc.:
7.75% 2006 4,000 4,039
6.80% 2028 2,500 2,192 .07
V2 Music Holdings PLC:(1),(2),(4),(5)
units, 0%/14.00% 2008 L 7883 3,435
units, 0%/14.00% 2008 $9,259 2,498 .06
Viacom Inc. 7.75% 2005 5,000 5,033 .05
TVN Entertainment Corp., units, 14.50% 2008(2),(4),(5),(6) 13,263 3,710 .04
Avalon Cable Holdings LLC 0%/11.875% 2008(1) 3,625 2,365 .02
News America Holdings Inc. 8.625% 2014 A$ 3250 2,013 .02
Coaxial Communications of Central Ohio, Inc. 10.00% 2006 $2,000 1,980 .02
FrontierVision 11.00% 2006 1,750 1,846 .02
Sun Media Corp. 9.50% 2007 1,305 1,292 .01
Grupo Televisa, SA 0%/13.25% 2008(1) 1,000 910 .01
-------------------
366,398 3.87
-------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.29%
Bell Atlantic Financial Services, Inc., senior exchangeable notes:
5.75% 2003 30,000 30,300
4.25% 2005 30,350 37,331 .71
Viatel, Inc.:
11.15% 2008 DM 7000 3,610
11.25% 2008 $6,775 6,741
0%/12.40% 2008(1) DM 3500 1,170
0%/12.50% 2008(1) $35,875 22,512
11.50% 2009 1,750 1,750 .38
COLT Telecom Group PLC:
units, 0%/12.00% 2006(1),(4) 5,291 12,974
8.875% 2007 DM 9500 5,253
7.625% 2008 31,800 16,357 .37
NEXTLINK Communications, Inc.:
12.50% 2006 $3,000 3,240
9.625% 2007 3,000 2,948
9.00% 2008 8,250 7,817
0%/12.125% 2009(1),(2) 30,250 17,621
14.00% preferred 2009(3) 22,950share 1,228 .35
Time Warner Telecom Inc. 9.75% 2008 $26,650 27,316 .29
Global TeleSystems Group, Inc. 8.75% convertible debentures 2000(2) 7,500 24,750 .26
Allegiance Telecom, Inc.:
0%/11.75% 2008(1) 21,000 14,989
12.875% 2008 4,450 5,029 .21
Qwest Communications International Inc.:(1)
0%/9.47% 2007 15,000 12,170
0%/8.29% 2008 7,500 5,884 .19
Loral Orion Network Systems, Inc. 11.25% 2007 23,260 17,445 .18
US Xchange, LLC 15.00% 2008 16,750 13,065 .14
CEI Citicorp Holdings SA 11.25% 2007(2) ARP 9500 7,768 .08
PTC International Finance BV 0%/10.75% 2007(1) $9,450 6,355 .07
Versatel Telecom International NV 11.875% 2009 P 3875 4,171 .04
IMPSAT Corp. 12.375% 2008 $2,500 2,231 .02
-------------------
312,025 3.29
-------------------
ENERGY & RELATED COMPANIES - 2.10%
PDVSA Finance Ltd.:
8.75% 2004(2) 2,000 1,957
9.375% 2007(2) 20,000 18,991
9.75% 2010(2) 17,250 16,278
7.40% 2016 9,700 7,144
7.50% 2028 2,000 1,404 .48
Union Pacific Resources Group Inc. 7.30% 2009 19,500 18,726
Norcen Energy Resources Ltd. 7.375% 2006 17,500 17,036 .38
Petrozuata Finance, Inc.:(2)
Series A, 7.63% 2009 24,530 19,741
Series B, 8.22% 2017 12,000 8,940 .30
Pemex Finance Ltd.:
8.875% 2010 7,000 6,929
Series 1999-2, Class A3, 10.61% 2017 8,000 8,828 .17
McDermott Inc. 9.375% 2002 13,500 13,492 .14
Pogo Producing Co. 10.375% 2009 11,000 11,440 .12
Louis Dreyfus Natural Gas Corp. 6.875% 2007 12,000 10,864 .11
Conoco Inc. 6.35% 2009 10,000 9,265 .10
Cross Timbers Oil Co. 8.75% 2009 7,025 6,639 .07
OXYMAR 7.50% 2016(2) 8,500 5,649 .06
Husky Terra Nova Finance 8.45% 2012(2) 5,000 4,882 .05
Pioneer Natural Resources Co. 7.20% 2028 6,375 4,647 .05
Oil Co. Ltd. 8.90% 2000(2) 3,706 3,716 .04
Apache Finance Pty Ltd. 7.00% 2009 2,000 1,901 .02
Clark Refining & Marketing, Inc. 8.375% 2007 1,500 930 .01
-------------------
199,399 2.10
-------------------
BROADCASTING & PUBLISHING - 1.74%
Chancellor Media Corp. of Los Angeles:
9.375% 2004 7,500 7,744
8.125% 2007 21,000 21,053
Series B, 8.75% 2007 8,625 8,798
9.00% 2008 7,000 7,280
Capstar Broadcasting Corp. 12.00% preferred 2009(3) 75,419share 8,522 .56
Hearst-Argyle Television, Inc.:
7.00% 2018 $18,500 16,437
7.50% 2027 5,500 5,083 .23
Young Broadcasting Inc.:
10.125% 2005 3,500 3,561
Series B, 8.75% 2007 14,250 13,644 .18
Cox Radio, Inc. 6.375% 2005 18,000 16,788 .18
Ziff-Davis Inc. 8.50% 2008 9,500 9,892 .11
Antenna TV SA 9.00% 2007 9,750 8,970 .09
RBS Participacoes SA 11.00% 2007(2) 10,000 8,475 .09
Transwestern Publishing Co. LLC 9.625% 2007 7,250 7,196 .08
Cumulus Media Inc. 13.75% preferred 2009 (3) 4,563share 5,133 .05
Muzak LLC: 9.875% 2009
9.875% 2009 3,500 3,404
0%/13.00% 2010 (1) 2,000 1,190 .05
Sun Media Corp. 9.50% 2007 3,834 3,796 .04
STC Broadcasting, Inc. 11.00% 2007 3,250 3,226 .03
American Media Operation 10.25% 2009 3,000 3,038 .03
Gray Communication Systems, Inc. 10.625% 2006 2,000 2,065 .02
-------------------
165,295 1.74
-------------------
ELECTRICAL & GAS UTILITIES - 1.69%
Israel Electric Corp. Ltd.:(2)
7.25% 2006 7,165 6,775
7.75% 2009 44,500 42,960
8.25% 2009 3,600 3,589
7.70% 2018 8,500 7,549
7.875% 2026 13,000 11,411
7.75% 2027 20,000 17,283
8.10% 2096 14,405 11,848 1.07
Peco Energy Transition Trust, Series 1999-A, Class A6, 6.05% 2009 17,500 16,417 .17
Edison Mission Energy 7.73% 2009(2) 10,000 9,893 .10
The Williams Companies, Inc. 6.625% 2004 2,000 1,930
Williams Holdings of Delaware, Inc.:
6.125% 2003 2,000 1,897
6.25% 2006 5,000 4,651
6.50% 2008 1,000 916 .10
The Coastal Corp.:
6.50% 2006 2,500 2,351
6.375% 2009 3,550 3,230
6.95% 2028 2,675 2,331 .08
Energen Corp., Series B, 7.125% 2028 6,000 5,299 .06
Tennessee Gas Pipeline Co. 7.625% 2037 5,110 4,766 .05
Transener SA:
8.625% 2003 1,000 938
9.25% 2008(2) 4,250 3,708 .05
Columbia Gas System, Inc., Series C, 6.80% 2005 796 755 .01
-------------------
160,497 1.69
-------------------
LEISURE & TOURISM - 1.60%
William Hill Finance 10.625% 2008 L 11243 18,616 .20
Mirage Resorts, Inc.:
6.625% 2005 $7,500 6,858
6.75% 2007 6,500 5,729
6.75% 2008 6,750 5,930 .19
Boyd Gaming Corp.:
9.25% 2003 13,475 13,643
9.50% 2007 3,500 3,465 .18
FelCor Suites LP 7.375% 2004 13,650 12,416 .13
Premier Parks Inc.:
9.25% 2006 7,000 6,895
9.75% 2007 1,250 1,278
0%/10.00% 2008(1) 4,500 3,083 .12
Capstar Hotel Co. 8.75% 2007 12,020 10,818 .11
Carmike Cinemas, Inc., Series B, 9.375% 2009 11,375 9,953 .11
Friendly Ice Cream Corp. 10.50% 2007 10,125 8,606 .09
AMF Bowling Worldwide, Inc.:
10.875% 2006 8,339 3,502
0%/12.25% 2006(1) 13,050 4,176
0% convertible debentures 2018(2) 11,084 471 .09
Harrah's Operating Co., Inc. 7.875% 2005 6,000 5,775 .06
KSL Recreation Group, Inc. 10.25% 2007 5,600 5,600 .06
Six Flags Entertainment Corp. 8.875% 2006 5,000 4,888 .05
Horseshoe Gaming, LLC, Series B:
9.375% 2007 2,000 2,000
8.625% 2009 3,000 2,865 .05
Joseph E. Seagram & Sons, Inc. 6.80% 2008 5,000 4,685 .05
Jupiters Ltd. 8.50% 2006 3,000 2,910 .03
International Game Technology 7.875% 2004 3,000 2,895 .03
Sun International Hotels Ltd., Sun International North America, Inc. 9.00 3,000 2,895 .03
Royal Caribbean Cruises Ltd. 7.25% 2018 2,000 1,786 .02
-------------------
151,738 1.60
-------------------
HEALTH CARE - 1.47%
Columbia/HCA Healthcare Corp.:
6.125% 2000 8,500 8,276
6.41% 2000 1,000 992
7.60% 2001 1,750 1,717
7.15% 2004 1,500 1,410
6.91% 2005 16,410 15,015
7.00% 2007 12,750 11,379
8.85% 2007 24,105 23,563
8.70% 2010 4,250 4,038
9.00% 2014 5,650 5,452
7.69% 2025 5,000 4,100 .80
Lilly Del Mar Inc. 7.355% 2029 (2)(6) 18,000 18,017 .19
Concentra Operating Corp., Series A, 13.00% 2009(2) 15,500 13,950 .15
Paracelsus Healthcare Corp. 10.00% 2006 20,575 11,934 .13
McKesson Corp.:
6.30% 2005 3,050 2,632
6.40% 2008 6,500 5,328 .08
Nationwide Health Properties, Inc., Series A, 7.677% 100,000share 6,267 .07
preferred cumulative step-up premium rate(1)
Integrated Health Services, Inc.:(7)
5.75% convertible debentures 2001 $12,750 255
10.25% 2006(6) 9,350 771
Series A, 9.50% 2007 12,175 1,004
Series A, 9.25% 2008 32,657 2,694 .05
Mariner Health Group, Inc. 9.50% 2006(7) 7,300 73 .00
-------------------
138,867 1.47
-------------------
MULTI-INDUSTRY - 1.39%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 1,670,000share 33,818
perpetual capital securities(2)
Swire Pacific Offshore Financing Ltd. 9.33% cumulative 230,000 5,003 .41
guaranteed perpetual capital securities(2)
Wharf International Finance Ltd., Series A, 7.625% 2007 $25,000 23,213 .25
Federal-Mogul Corp.:
7.75% 2006 10,000 9,259
7.50% 2009 12,500 11,079 .21
Reliance Industries Ltd.:(2)
8.25% 2027 10,000 9,506
10.50% 2046 250 238
10.25% 2097 10,750 9,465 .20
Tyco International Group SA 6.875% 2002(2) 18,000 17,750 .19
Hutchison Whampoa Finance Ltd.:(2)
7.45% 2017 3,000 2,674
Series D, 6.988% 2037 10,000 9,381 .13
-------------------
131,386 1.39
-------------------
FOREST PRODUCTS & PAPER - 1.28%
Container Corp. of America:
10.75% 2002 4,800 4,968
9.75% 2003 18,815 19,191
Series A, 11.25% 2004 8,000 8,280 .34
Scotia Pacific Co. LLC, Series B:
Class A-1, 6.55% 2028 1,424 1,342
Class A-2, 7.11% 2028 31,400 27,455 .30
Kappa Beheer BV:(2)
10.625% 2009 P 5500 5,837
0%/12.50% 2009(1) 9,500 5,997 .12
Copamex Industrias, SA de CV, Series B, 11.375% 2004 $11,880 10,781 .11
Grupo Industrial Durango, SA de CV:
12.00% 2001 3,000 3,008
12.625% 2003 7,625 7,587 .11
Indah Kiat Finance Mauritius Ltd.:
11.875% 2002 300 266
10.00% 2007 12,075 8,996 .10
Pindo Deli Finance Mauritius Ltd.:
10.25% 2002 6,000 4,755
10.75% 2007 3,625 2,637 .08
Scotia Pacific Co. LLC, Series B, Class A-3, 7.71% 2014 10,143 7,303 .08
Paperboard Industries International Inc. 8.375% 2007 1,700 1,615 .02
Pacifica Papers 10.00% 2009 1,475 1,523 .02
APP International Finance Co. BV 11.75% 2005 275 232 .00
-------------------
121,773 1.28
-------------------
ELECTRICAL & ELECTRONICS - 1.05%
Hyundai Semiconductor America, Inc.:(2)
8.25% 2004 7,705 6,800
8.625% 2007 20,700 17,207 .25
Zilog, Inc. 9.50% 2005 22,750 20,930 .22
Advanced Micro Devices, Inc.:
11.00% 2003 13,265 13,066
6.00% convertible subordinated notes 2005 7,500 7,650 .22
EarthWatch Inc.:(2),(5)
0%/12.50% 2005(1) 17,280 11,548
Series B, 7.00% convertible preferred 2009(3) 942 3,250
Series C, 8.50% convertible preferred 2009(3) 80 137 .16
Samsung Electronics Co., Ltd. 7.45% 2002(2) 11,000 10,820 .11
Fairchild Semiconductor Corp.:
10.125% 2007 3,000 3,060
10.375% 2007 2,000 2,040 .05
First International Computer Corp. 1.00% convertible debentures 2004(2) 3,000 3,360 .04
-------------------
99,868 1.05
-------------------
CONSUMER & BUSINESS SERVICES - 1.01%
USA Waste Services, Inc.:
6.50% 2002 9,050 8,381
7.00% 2004 6,750 6,118
7.125% 2007 4,000 3,499
6.125% 2011(6) 8,078 7,688
Waste Management, Inc.:
6.00% 2001(2) 750 718
7.70% 2002 5,161 4,942
WMX Technologies, Inc.:
6.375% 2003 3,706 3,339
7.00% 2006 4,000 3,498 .40
Allied Waste North America, Inc. 10.00% 2009(2) 29,500 26,329 .28
Sotheby's Holdings, Inc. 6.875% 2009 20,000 17,865 .19
Kindercare Learning Centers, Inc., Series B, 9.50% 2009 5,000 4,813 .05
Protection One Alarm Monitoring, Inc.:
6.75% convertible debentures 2003 5,000 2,500
13.625% 2005(6) 3,560 2,207 .05
Stericycle, Inc. 12.375% 2009(2) 2,250 2,295 .02
Polestar Corp. PLC 10.50% 2008 L 900 1,394 .01
Teletrac Inc.:(5)
10.00% 2000 $195.00 195
units, 9.00% 2004(4),(12) 1351 737 .01
Safety-Kleen Services, Inc. 9.25% 2008 250 242 .00
-------------------
96,760 1.01
-------------------
GENERAL RETAILING & MERCHANDISING - 1.01%
J. C. Penney Co., Inc.:
7.60% 2007 15,000 13,943
7.625% 2007 5,880 4,577
7.65% 2016 4,000 3,451
7.95% 2017 36,500 32,453 .58
Kmart Corp. 9.78% 2020 12,250 12,572 .13
Sunglass Hut International Ltd. 5.25% convertible debentures 2003 11,150 8,976 .10
DR Securitized Lease Trust, pass-through certificates, 8,000 7,860 .08
Series 1994 K-2, 9.35% 2019(8)
Federated Department Stores, Inc.:
8.125% 2002 5,000 5,080
6.30% 2009 3,000 2,728 .08
Dillard's, Inc. 7.13% 2018 2,750 2,357 .02
The Boyds Collection, Ltd.,Series B, 9.00% 2008 1,806 1,716 .02
-------------------
95,713 1.01
-------------------
METALS - .82%
Freeport-McMoRan Copper & Gold Inc.:
7.50% 2006 34,000 24,942
7.20% 2026 18,000 13,597 .41
Doe Run Resources Corp., Series B:
12.231% 2003(6) 3,000 2,760
11.25% 2005 16,000 15,160 .19
Inco Ltd. 9.60% 2022 16,000 15,502 .16
Pohang Iron & Steel Co., Ltd.:
7.50% 2002 1,000 989
6.625% 2003 2,500 2,386 .04
Kaiser Aluminum and Chemical Corp. 12.75% 2003 2,000 2,000 .02
-------------------
77,336 .82
-------------------
FOOD & FOOD PRODUCTS - .64%
Nabisco, Inc.:
7.05% 2007 8,500 7,863
7.55% 2015 9,000 8,312
6.125% 2033(6) 2,500 2,386
6.375% 2035(6) 19,900 18,482 .39
Fage Dairy Industry SA 9.00% 2007 8,250 7,260 .08
Gruma, SA de CV 7.625% 2007 8,000 6,960 .07
Home Products International, Inc. 9.625% 2008 6,250 5,703 .06
New World Pasta Co. 9.25% 2009 4,000 3,700 .04
-------------------
60,666 .64
-------------------
MISCELLANEOUS MATERIALS & COMMODITIES - .46%
Equistar Chemicals LP:
6.50% 2006 7,800 6,917
8.75% 2009 7,500 7,412 .15
Printpack, Inc.:
Series B, 9.875% 2004 4,075 4,075
10.625% 2006 9,465 9,134 .14
Graham Packaging Co.:
8.75% 2008 3,625 3,480
0%/10.75% 2009(1) 7,975 5,423 .10
Anchor Glass Container Corp. 11.25% 2005 4,000 3,600 .04
Impress Metal Packaging Holdings BV 9.875% 2007 DM C5596500 3,243 .03
-------------------
43,284 .46
-------------------
INDUSTRIAL COMPONENTS - .31%
TRW Inc. 7.125% 2009 $12,375 11,717 .12
Tekni-Plex, Inc. 9.25% 2008 8,250 8,456 .09
Hayes Wheels International, Inc. 9.125% 2007 4,500 4,354 .05
Cooper Tire & Rubber Co. 7.25% 2002 4,000 3,956 .04
BREED Technologies, Inc. 9.25% 2008(7) 32,000 480 .01
-------------------
28,963 .31
-------------------
BEVERAGES & TOBACCO - .20%
Canandaigua Wine Co., Inc.:
Series C, 8.75% 2003 7,500 7,481
8.75% 2003 6,650 6,500 .15
Delta Beverage Group, Inc. 9.75% 2003 4,750 4,750 .05
-------------------
18,731 .20
-------------------
MACHINERY & ENGINEERING - .18%
John Deere Capital Corp. 8.625% 2019 16,850 17,427 .18
-------------------
17,427 .18
-------------------
OTHER - .09%
Salton/Maxim Housewares, Inc. 10.75% 2005 8,250 8,498 .09
-------------------
8,498 .09
-------------------
FINANCE
BANKS & THRIFTS - 9.27%
SocGen Real Estate Co. LLC, Series A, 7.64%/8.406% (undated)(2),(6) 100,000 90,241 .95
Fuji International Finance (Bermuda) Trust, Fuji Bank, 7,500 7,266
Ltd. 7.30% Eurodollar Note (undated)
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred(2),(6) 65,750 65,750 .77
Banque Nationale de Paris 6.765% (undated)(6) 12,500 12,109
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred(2) 64,000 59,583 .76
Bankers Trust New York Corp.:
6.70% 2007 20,000 18,804
7.50% 2015 18,500 17,533
Deutsche Bank Capital Funding Trust I, 7.872% (undated)(2),(6) 19,500 18,499 .58
Tokai Preferred Capital Co. LLC, Series A, 9.98%/ 50,500 50,313 .53
11.091% noncumulative preferred(2)
MBNA Corp., MBNA Capital:
A, Series A, 8.278% 2026 24,000 20,886
B, Series B, 7.005% 2027(6) 32,800 27,035 .51
Advanta Corp.:
Series D, 6.54% 2000 10,600 10,588
Series D, 6.60% 2000 6,000 5,995
Series B, 7.00% 2001 4,000 3,750
Series D, 6.925% 2002 2,500 2,280
6.925% 2002 2,000 1,824
Advanta Capital Trust I 8.99% 2026 11,000 7,590 .34
NB Capital Corp. 8.35% exchangeable depositary shares 1,200,000share 25,800
National Bank of Canada 5.456% (undated)(6) $5,000 3,836 .31
Bank of Scotland 7.00% (undated)(2),(6) 30,000 27,755 .29
Ahmanson Capital Trust I Capital Securities, Series A, 8.36% 2026(2) 2,030 1,930
Great Western Financial Trust II, Series A, 8.206% 2027 2,055 1,921
Washington Mutual Capital I Subordinated Capital Income Securities 8.375% 22,000 20,939 .26
Capital One Bank:
6.375% 2003 5,000 4,795
6.40% 2003 2,000 1,914
6.70% 2008 5,000 4,573
Capital One Financial Corp. 7.25% 2006 2,500 2,360
Capital One Capital I 7.755% 2027(2),(6) 10,000 8,634 .24
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred(2) 23,450 22,160 .23
National Westminster Bank PLC 7.75% (undated)(6) 23,000 22,101 .23
Paribas, New York Branch 6.95% 2013 24,000 21,682 .23
Skandinaviska Enskilda Banken 7.50% (undated)(6) 23,000 20,384 .22
Canadian Imperial Bank of Commerce 6.063% Eurodollar Note (undated)(6) 25,000 19,933 .21
HSBC America Capital 8.38% 2027(2) 19,375 18,455 .20
Standard Chartered Bank:(6)
6.25% Eurodollar Note (undated) 15,000 10,096
6.275% (undated) 5,000 3,527 .14
Imperial Capital Trust I, Imperial Bancorp 9.98% 2026 15,000 13,326 .14
Bayerische Vereinsbank 5.50% 2008 P 13271 13,278 .14
Chevy Chase Preferred Capital Corp. 10.375% 242,900share 11,811 .12
Riggs National Corp. 8.625% 2026 $5,400 4,668
Riggs Capital Trust II 8.875% 2027 7,500 6,687 .12
Chase Capital III, floating rate capital securities, Series C, 6.66% 2027 8,500 7,987
Chase Capital II, global floating rate capital securities, Series B, 6.70 3,500 3,308 .12
Abbey National PLC 6.70% (undated)(6) 12,500 11,273 .12
Allegemeine Hypotheken Bank AG 5.00% 2009 (2) P 11000 10,492 .11
J.P. Morgan & Co. Inc., Series A.:
6.00% 2009 $1,650 1,477
6.783% 2012(6) 10,000 8,644 .11
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 10,500 10,037 .11
Allfirst Preferred Capital Trust 7.678% SKATES 2029 (6) 10,000 9,900 .10
Fleet Capital Trust 7.14% 2028(6) 10,000 9,880 .10
Royal Bank of Scotland 8.375% 2007 L 4900 8,403 .09
Bank of Nova Scotia 6.063% Eurodollar note (undated)(6) $10,000 8,053 .09
Hongkong and Shanghai Banking Corp. 6.188% (undated)(6) 10,000 8,051 .08
Bank One Corp., Series A, 6.00% 2009 8,500 7,560 .08
Lloyds Bank (#2) 6.313% (undated)(6) 8,000 6,856 .07
Allied Irish Banks Ltd. 6.75% (undated)(6) 7,000 6,070 .06
Hypothekenbank in Essen AG 5.25% 2008 P 6000 5,924 .06
BCI U.S. Funding Trust I 8.01% (undated)(2),(6) $6,000 5,474 .06
Halifax Building Society 8.75% 2006 L 3000 5,256 .06
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred(2) $5,000 4,975 .05
Bay View Capital 9.125% 2007 5,500 4,675 .05
Rheinische Hypothekenbank Eurobond 4.25% 2008 P 5000 4,565 .05
Midland Bank 6.438% Eurodollar note (undated)(6) $5,000 4,213 .04
Bergen Bank 6.00% (undated)(6) 5,000 3,857 .04
Christiana Bank Og Kreditkasse 6.25%(6) 4,000 3,080 .03
Sovereign Bancorp, Inc. 10.50% 2006 2,500 2,550 .03
Komercni Finance BV 9.00%/10.75% 2008(2),(6) 2,000 1,865 .02
Korea Development Bank 6.625% 2003 750 722 .01
Banco General, SA 7.70% 2002(2) 500 475 .01
-------------------
878,233 9.27
-------------------
FINANCIAL SERVICES - 3.27%
Ford Motor Credit Co.:
5.25% 2008 DM 32000 15,640
5.80% 2009 $30,000 26,588
7.375% 2009 42,250 41,711 .89
BHP Finance Ltd.:
6.69% 2006 21,800 20,673
8.50% 2012 20,000 20,760
6.75% 2013 10,000 8,924 .53
General Motors Acceptance Corp.:
0.34% 2002(6) Y 3600000 35,204
5.85% 2009 $10,000 8,835 .46
Household Finance Corp.:
6.00% 2004 10,000 9,423
6.44% 2005(6) 6,000 5,978
7.20% 2006 5,000 4,911
6.40% 2008 11,000 10,169 .32
Providian National Bank 6.65% 2004 10,000 9,441
Providian Financial Corp. 9.525% 2027(2) 16,750 14,195 .25
AB Spintab:
6.00% 2009 SKR 23000 2,637
6.80% (undated)(2),(6) $6,500 6,287
7.50% (undated)(2),(6) 11,000 10,532 .20
Nykredit 6.00% 2029(8) DKR 105954 13,350 .14
Bankunited Capital Trust, Bankunited Financial Corp., 10.25% 2026 $10,000 8,700 .09
AT&T Capital Corp. 6.60% 2005 9,000 8,655 .09
Wharf Capital International, Ltd. 8.875% 2004 7,457 7,478 .08
Heller Financial, Inc. 6.00% 2004 7,500 7,121 .08
Wilshire Real Estate Investment Trust 24.00% 2000(6) 6,496 5,197 .05
Green Tree Financial Corp. 6.50% 2002 4,000 3,783 .04
Associates Corp. of North America 5.85% 2001 2,500 2,478 .03
Lend Lease (US) Finance Inc. 6.75% 2005 1,500 1,442 .02
-------------------
310,112 3.27
-------------------
REAL ESTATE - 1.29%
Irvine Co. 7.46% 2006(2),(5) 15,000 13,759
Irvine Apartment Communities, LP 7.00% 2007 5,875 5,216 .20
CarrAmerica Realty Corp:
Series B, 8.57% cumulative redeemable preferred 710,100share 11,450
Series C, 8.55% cumulative redeemable preferred 413,100 6,610 .19
ProLogis Trust:
7.25% 2002 $750 741
7.05% 2006 8,000 7,538
Series D, 7.92% preferred 380,000share 6,935 .16
EOP Operating LP:
6.763% 2007 $5,000 4,629
6.75% 2008 11,500 10,576 .16
Archstone Communities Trust:
7.20% 2013 9,000 7,990
Series C, 8.625% convertible preferred 200,000share 3,950 .13
ERP Operating LP:
7.95% 2002 $3,750 3,766
7.57% 2026 8,000 7,829 .12
Beverly Finance Corp. 8.36% 2004(2) 7,500 7,591 .08
Duke-Weeks Realty Corp., Series B, 7.99% preferred 150,000share 6,563 .07
cumulative step-up premium rate(1)
Simon DeBartolo Group, Inc., Series C, 7.89% preferred 150,000 6,300 .07
cumulative step-up premium rate(1)
New Plan Realty Trust, Series D, 7.80% preferred 112,500 4,922 .05
cumulative step-up premium rate(1)
IAC Capital Trust, Series A, 8.25% TOPRS preferred 220,000 4,070 .04
Wellsford Residential Property Trust:
7.25% 2000 $1,000 997
7.75% 2005 1,000 989 .02
-------------------
122,421 1.29
-------------------
INSURANCE - 1.06%
Royal and Sun Alliance Insurance Group PLC 8.95% 2029(2) 33,000 33,700 .36
ReliaStar Financial Corp.:
8.625% 2005 5,000 5,172
8.00% 2006 23,250 23,380 .30
Jefferson-Pilot Corp. 8.14% 2046(2) 6,000 5,529
Jefferson-Pilot Capital Trust 8.285% 2046(2) 8,500 7,968 .14
Conseco, Inc. 9.00% 2006 10,000 10,305 .11
Lindsey Morden Group Inc., Series B, 7.00% 2008(2) C$ 16000 9,901 .10
Aflac Inc. 6.50% 2009 $5,000 4,588 .05
-------------------
100,543 1.06
-------------------
COLLATERALIZED MORTGAGE/ASSET-BACKED OBLIGATIONS
(EXCLUDING THOSE ISSUED BY FEDERAL AGENCIES) - 7.64%(8)
Green Tree Financial Corp., pass-through certificates:
Series 1994-A, Class NIM, 6.90% 2004 1,158 1,150
Series 1995-A, Class NIM, 7.25% 2005 8,362 7,847
Series 1993-2, Class B, 8.00% 2018 2,250 1,979
Series 1997-A, Class HI-M1, 7.47% 2023 1,000 979
Series 1995-3, Class B-2, 8.10% 2025 5,000 4,058
Series 1995-8, Class B2, 7.65% 2026 4,000 3,128
Series 1995-6, Class B2, 8.00% 2026 2,450 1,939
Series 1995-9, Class A-5, 6.80% 2027 8,000 7,957
Series 1996-7, Class A6, 7.65% 2027 2,100 2,099
Series 1996-6, Class B2, 8.35% 2027 10,540 8,752
Series 1996-5, Class B-2, 8.45% 2027 1,246 1,036
Series 1997-1, Class A-5, 6.86% 2028 1,500 1,480
Series 1996-10, Class A-6, 7.30% 2028 8,500 8,167
Series 1998-4, Class B2, 8.11% 2028 13,350 10,734
Series 1997-6, Class A7, 7.14% 2029 15,700 15,489
Green Tree Recreational, Equipment and Consumer Trust:
Series 1999-A, Class A-6, 6.84% 2029 5,000 4,919
Series 1997-D, Class CTFS, 7.25% 2029 8,500 7,004 .94
PP&L Transition Bond Co. LLC:
Series 1999-1, Class A-5, 6.83% 2007 22,000 21,882
Series 1999-1, Class A-7, 7.05% 2009 27,500 27,473
Series 1999-1, Class A-8, 7.05% 2009 17,225 17,146 .70
First Consumer Master Trust, Series 1999-A, Class A, 5.80% 2005(2) 51,000 48,940 .52
Residential Funding Mortgage Securities I, Inc.:
pass-through certificates, Series 1999-S17, Class A-1, 6.50% 2014 41,687 39,602
Series 1998-S17, Class M-1, 6.75% 2028 3,948 3,598 .46
Metris Master Trust:(2),(6)
Series 1998-1A, Class C, 6.443% 2005 23,645 23,281
Series 1997-2, Class C, 7.511% 2006 14,400 14,080 .39
CSFB Finance Co. Ltd., Series 1995-A, 5.977% 2005(2),(6) 42,400 36,464 .38
Structured Asset Securities Corp.:(2),(6),(8)
Series 1998-RF2, Class A, 8.549% 2022 31,764 32,488
Series 1998-RF1, Class A, 8.676% 2027 3,179 3,267 .38
Garanti Trade Payment Rights Master Trust, Series 35,000 34,892 .37
1999-B, Class 1, 10.81% 2004(2)
First USA Credit Card Master Trust, Class A, floating
rate asset-backed certificates:(2)
Series 1998-7 7.061% 2004(6) 4,000 3,973
Series 1999-1, Class C, 6.42% 2006 2,500 2,382
Series 1998-4, 6.961% 2008(6) 15,000 14,720
Series 1998-8, 7.361% 2008(6) 5,626 5,599
Series 1997-4, 7.46% 2010(6) 6,630 6,465 .35
H. S. Receivables Corp.:(2)
Series 1999-1, Class A, 8.13% 2004 22,500 22,275
Series 1999-3, Class A, 9.60% 2006 2,000 2,000 .26
Puerto Rico Public Financing Corp., Series 1, Class A, 6.15% 2008 20,768 20,145 .21
GE Capital Mortgage Services Inc.:
Series 1994-15, Class A10, 6.00% 2009 16,376 14,743
Series 1994-9, Class A9, 6.50% 2024 4,935 4,368 .20
Structured Asset Notes Transaction, Ltd., Series 1996-A, 15,940 15,706 .16
Class A1, 7.156% 2003(2)
NPF XII, Inc., Series 1999-2, Class A, 7.05% 2003(2) 15,000 14,745 .15
Boston Edison Co., Series 1999-1, Class A-5, 7.03% 2012 14,800 14,451 .15
Ocwen Residential MBS Corp., Series 1998-R1, 15,063 14,242 .15
Class AWAC, 3.985% 2027(2),(6)
FIRSTPLUS Home Loan Owner Trust:
Series 1997-1, Class A-7, 7.16% 2018 10,000 9,850
Series 1997-3, Class B-1, 7.79% 2023 5,000 4,135 .15
Sears Credit Account Master Trust:
II, Series 1998-2, Class A, 5.25% 2008 9,000 8,435
Series 1999-1, Class A, 5.65% 2009 5,000 4,733 .14
MBNA Master Credit Card Trust:(2)
Series 1999-D, Class B, 6.95% 2008 4,700 4,469
Series 1998-E, Class C, 6.60% 2010 5,000 4,501 .09
ComEd Transitional Funding Trust, Transitional Funding Trust Note:
Series 1998, Class A-4, 5.39%, 2005 3,500 3,358
Series 1998, Class A-6, 5.63% 2009 6,000 5,563 .09
Residential Asset Securitization Trust, Series 1997-A3, Class B1, 7.75% 2 9,134 8,905 .09
Ditech Home Loan Owner Trust, Series 1998-1, Class B1, 9.50% 2029 10,500 8,768 .09
Capital One:(2)
Secured Note Trust, Series 1999-2, 6.028% 2005(6) 6,250 6,209
Master Trust, Series 1999-1, Class C, 6.60% 2007 2,500 2,390 .09
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6.50% 2028(2) 9,488 8,468 .09
Norwest Asset Securities Corp., Series 1998-31, Class A-1, 6.25% 2014 8,595 8,149 .09
NPF VI, Inc., Series 1999-1, Class A, 6.25% 2003(2) 5,000 4,888
NPF XII, Inc., Series 1999-3, Class B, 6.54% 2003(2),(6) 3,000 2,999 .08
Grupo Financiero Banamex Accival, SA de CV 0% 2002(2) 8,694 7,828 .08
Providian Master Trust, Series 1999-2, Class A, 6.60% 2007 7,500 7,446 .08
The Money Store Trust:
Series 1997-1, Class A-2, 6.81% 2011 2,654 2,651
Series 1996-D, Class A-14, 6.985% 2016 4,000 3,949 .07
GS Escrow Corp. 7.125% 2005 5,000 4,494
GS Mortgage Securities Corp., Series 1998-2, Class M, 7.75% 2027(2) 1,162 1,125 .06
First Nationwide, Series 1999-2, Class 1PA1, 6.50% 2029 5,585 5,231 .06
EquiCredit Funding asset-backed certificates, Series 1996-A, Class A2, 6. 253 253
EQCC Home Equity Loan Trust, asset-backed certificates, 5,000 4,948 .05
Series 1999-3, Class A-3F, 7.067% 2024
Standard Credit Card Master Trust I, Series 1994-2A, Class A, 7.25% 2008 5,000 4,945 .05
Collateralized Mortgage Obligation Trust, Series 63, Class Z, 9.00% 2020 4,555 4,671 .05
Travelers Mortgage Securities Corp., Series 1, Class Z2, 12.00% 2014 4,116 4,491 .05
Ryland Acceptance Corp. Four, Series 88, Class E, 7.95% 2019 4,424 4,420 .05
Prudential Home Mortgage Securities Co., Inc., Series 1993-48, 4,466 4,354 .05
Class A-6, 6.25% 2008
Merrill Lynch Mortgage Investors, Inc., Seller Manufactured Housing 3,973 3,955 .04
Contracts, Series 1995-C2, Class A-1, 6.911% 2021(6)
Triad Auto Receivables Owner Trust, Series 1999-1, Class A2, 6.09% 2005 3,000 2,930 .03
Bear Stearns Structured Securities Inc., Series 1997-2, 2,665 2,644 .03
Class AWAC, 4.521% 2036(2),(6)
Nationsbanc Montgomery Funding Corp., Series 1998-5, Class A-1, 6.00% 201 2,697 2,533 .03
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B1, 7.75% 2 2,538 2,473 .03
UCFC Acceptance Corp., Series 1996-D1, Class A-4, 6.776% 2016 2,400 2,396 .03
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5, 7.25% 2024 2,093 2,082 .02
Citicorp Mortgage Securities, Inc., Series 1988-16, Class A1, 10.00% 2018 548 550 .01
-------------------
723,833 7.64
-------------------
COMMERCIAL MORTGAGE-BACKED OBLIGATIONS - 6.32%(8)
DLJ Commercial Mortgage Corp.:
Series 1997-CF1, Class A1A, 7.40% 2006(2) 5,861 5,865
Series 1996-CF2, Class A1B, 7.29% 2021(2) 11,200 11,098
Series 1995-CF2, Class A1B, 6.85% 2027(2) 35,845 35,428
Series 1996-CF1, Class A1A, 7.28% 2028(2) 7,892 7,864
Series 1998-CF1, Class A-1A, 6.14% 2031(6) 21,036 20,268
Series 1998-CF2, Class A-1B, 6.24% 2031 10,000 9,229 .95
GMAC Commercial Mortgage Securities, Inc.:
Series 1997-C1, Class A1, 6.83% 2003 17,536 17,461
Series 1997-C1, Class A3, 6.869% 2007 20,000 18,959
Series 1997-C2, Class E, 7.624% 2011 27,703 23,390
Series 1996-C1, Class A2A, 6.79% 2028 740 735
Series 1999-C1, Class D, 6.866% 2033(6) 17,500 15,785
Series 1999-C1, Class E, 6.866% 2033(6) 8,500 7,228 .88
Morgan Stanley Capital I Inc.:
Series 1995-GA1, Class A-1, 7.00% 2002(2) 2,707 2,700
Series 1998-HF1, Class A-1, 6.19% 2007(6) 28,353 27,341
Series 1996-WF1, Class A-1, 6.601% 2028(2),(6) 6,027 5,983
Series 1998-WF2, Class A-1, 6.34% 2030(6) 9,046 8,751
Series 1998-HF2, Class A-2, 6.48% 2030 17,000 15,985
Series 1999-FNV1, Class A-1, 6.12% 2031 9,560 9,112 .74
Chase Commercial Mortgage Securities Corp.:
Series 1996-1, Class A1, 7.60% 2005 3,727 3,770
Series 1997-I, Class A1, 7.27% 2029 6,161 6,175
Series 1998-1, Class A1, 6.34% 2030 29,048 28,228
Series 1998-2, Class A-2, 6.39% 2030 8,000 7,451
Series 1998-2, Class E, 6.39% 2030 10,000 8,266 .57
Asset Securitization Corp.:
Series 1996-D3, Class A-1B, 7.21% 2026 3,000 2,974
Series 1997-D4, Class A-1A, 7.35% 2029 7,411 7,459
Series 1997-D5, Class A-PS1, interest only, 1.404% 2043(6) 273,785 24,146 .35
GS Mortgage Securities Corp. II, Mortgage pass-through certificates:(6)
Series 1998-C1, Class D, 7.243% 2030 3,750 3,370
Series 1998-C1, Class E, 7.243% 2030 31,076 26,694 .32
Merrill Lynch Mortgage Investors, Inc., Mortgage pass-through certificates:
Series 1995-C2, Class D, 7.681% 2021(6) 472 467
Series 1995-C3, Class A-1, 6.695% 2025(6) 1,145 1,136
Series 1995-C3, Class A-3, 7.189% 2025(6) 15,855 15,600
Series 1996-C2, Class A-1, 6.933% 2028(6) 10,191 10,074
Series 1998-C3, Class A1, 5.65% 2030 2,816 2,656 .32
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026(2) 32,625 29,085 .31
CS First Boston Mortgage Securities Corp.:
Series 1998-FL1, Class E, 6.260% 2013(2),(6) 12,080 11,970
Series 1998-C1, Class A-1A, 6.26% 2040 14,914 14,388 .27
Nationslink Funding Corp., Series 1999-1, Class D, 7.10% 2031 27,718 25,335 .27
Bear Stearns Commercial Mortgage Securities Inc.:
Series 1998-C1, Class A-1, 6.34% 2030 8,160 7,862
Series 1999-C1, Class X, 1.054% 2031(6) 172,052 11,262 .20
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, 18,223 17,518 .18
Class A-1, 6.22% 2031
Prudential Securities Secured Financing Corp., Commercial 18,000 16,627 .18
Mortgage pass-through certificates, Series 1999-NRF1, Class C, 6.746% 2009
Commercial Mortgage Acceptance Corp.:
Series 1998-C1, Class A-1, 6.23% 2007 11,226 10,805
Series 1998-C2, Class A-1, 5.80% 2030 4,509 4,287 .16
Nomura Asset Securities Corp., Series 1998-D6, Class A-A1, 6.28% 2030(6) 14,642 14,071 .15
LB Commercial Mortgage Trust, Series 1998-C1, Class A1, 6.33% 2030 10,266 10,031 .11
Government Lease Trust:(2)
Series 1999-GSA1, Class A1, 5.86% 2003 4,230 4,165
Series 1999-C1A, Class B3, 4.00% 2011 6,500 4,294 .09
Resolution Trust Corp.:
Series 1993-C1, Class D, 9.45% 2024 5,939 5,918
Series 1993-C2, Class D, 8.50% 2025 1,534 1,528 .08
Mortgage Capital Funding, Inc., Series 1998-MC1, Class A-1, 6.417% 2030 7,561 7,328 .08
First Union Commercial Mortgage Trust, Series 1999-C1, Class E, 6.973% 20 7,000 5,714 .06
Structured Asset Securities Corp., pass-through certificates, 2,950 2,892 .03
Series 1996-CFL, Class D, 7.034% 2028
J.P. Morgan Commercial Finance Corp.:
Series 1995-C1, Class A-2, 7.373% 2010(6) 1,000 992
Series 1996-C3, Class A-1, 7.33% 2028 1,197 1,192 .02
-------------------
598,912 6.32
-------------------
GOVERNMENT
U.S. TREASURY OBLIGATIONS - 9.34%
13.125% May 2001 21,500 23,395
5.875% November 2001 16,565 16,459
3.772% July 2002(10) 3,676 3,639
11.625% November 2002 92,000 104,377
10.75% May 2003 7,500 8,476
5.75% August 2003 9,505 9,310
11.875% November 2003 39,350 46,445
7.25% May 2004 124,885 128,652
7.25% August 2004 7,500 7,734
7.875% November 2004 31,250 33,042
11.625% November 2004 106,175 128,239
7.50% February 2005 20,000 20,859
6.50% May 2005 4,750 4,751
6.50% October 2006 15,000 14,960
3.570% January 2007(10) 47,773 45,016
6.125% August 2007 6,815 6,645
4.75% November 2008 11,500 10,143
9.125% May 2009 18,000 19,651
10.375% November 2009 12,500 14,379
10.00% May 2010 12,500 14,332
10.375% November 2012 24,500 29,783
12.00% August 2013 10,000 13,353
8.875% August 2017 116,600 140,922
7.875% February 2021 4,250 4,751
8.125% May 2021 19,250 22,065
Strip Principal 0% 2027(9) 76,950 12,910
5.25% November 2028 1,350 1,112 9.34
-------------------
885,400 9.34
-------------------
FEDERAL AGENCY OBLIGATIONS
Mortgage Pass-Throughs - 8.05%(8)
Government National Mortgage Assn.:
6.00% 2014 - 2029 128,042 117,224
6.50% 2008 - 2029 51,222 48,279
7.00% 2008 - 2029 172,683 167,087
7.50% 2007 - 2029 63,859 63,490
8.00% 2017 - 2026 30,756 31,104
8.50% 2020 - 2029 15,975 16,483
9.00% 2009 - 2022 12,149 12,801
9.50% 2009 - 2021 8,731 9,289
10.00% 2017 - 2022 34,476 36,993
10.50% 2015 - 2019 184 199
12.00% 2015 1,968 2,207 5.33
Fannie Mae:
6.00% 2013 - 2029 41,729 39,220
6.50% 2013 - 2029 35,743 34,274
7.00% 2009 - 2029 57,681 56,230
7.255% 2026(6) 6,473 6,710
7.50% 2009 - 2029 10,649 10,598
7.50% 2029
8.00% 2023 - 2028 2,481 2,518
8.318% 2002(6) 5,301 5,278
8.50% 2009 - 2027 4,548 4,663
9.00% 2018 - 2025 2,318 2,415
9.50% 2009 - 2025 2,205 2,329
10.00% 2018 - 2025 6,687 7,161
10.50% 2012 - 2019 2,017 2,179
11.00% 2015 - 2020 2,272 2,480
11.00% 2020
11.25% 2014 21 23
11.50% 2010 - 2014 140 155
12.00% 2015 - 2029 4,580 5,101
12.00% 2019
12.50% 2015 - 2019 3,199 3,607
13.00% 2015 - 2028 7,015 7,907
15.00% 2013 31 36
Federal Housing Administration/Veterans Affairs 12.50% 2029 1,002 1,125 2.04
Freddie Mac:
6.00% 2014 - 2029 14,082 13,336
6.50% 2029 14,643 13,806
8.00% 2003 - 2026 4,489 4,524
8.25% 2007 1,295 1,311
8.50% 2002 - 2027 12,822 13,157
8.75% 2008 1,681 1,724
9.00% 2021 396 413
10.00% 2011 - 2019 127 134
10.50% 2020 1,642 1,755
10.75% 2010 54 57
11.00% 2018-2020 3,000 3,238
11.50% 2000 7 7
12.00% 2016 - 2020 5,944 6,564
12.50% 2015 - 2019 1,396 1,550
12.75% 2019 274 305
13.00% 2014 - 2015 2,040 2,291
13.50% 2018 6 7
13.75% 2014 10 11 .68
-------------------
763,355 8.05
-------------------
Other - 2.73%
Fannie Mae:
5.625% 2004 10,000 9,556
5.75% 2005 10,000 9,506
5.25% 2009 127,750 112,679
Medium Term Note, 6.75% 2028 15,000 12,884 1.53
Freddie Mac:
5.125% 2008 70,350 61,644
5.75% 2009 12,000 10,961
6.60% 2009 5,000 4,649
6.60% 2009 3,000 2,790 .84
Federal Home Loan Bank Bonds:
5.625% 2001 25,000 24,730
7.013% 2007 10,000 9,600 .36
-------------------
258,999 2.73
-------------------
Collateralized Mortgage Obligations - 0.61%(8)
Fannie Mae:
Series 91-146, Class Z, 8.00% 2006 3,225 3,265
Series 90-93, Class G, 5.50% 2020 585 556
Series 1991-2, Class Z, 6.50% 2021 10,509 10,057
Series 93-247, Class Z, 7.00% 2023 4,536 4,290
Series 1994-4, Class ZA, 6.50% 2024 4,036 3,530
Series 1997-28, Class C, 7.00% 2027 7,000 6,654
Series 1998-W5, Class B3, 6.50% 2028(2) 4,842 3,957 .34
Freddie Mac:
Series 1849, Class Z, 6.00% 2008 6,196 5,646
Series 1716, Class A, 6.50% 2009 4,750 4,538
Series 41, Class F, 10.00% 2020 2,109 2,230
Series 178, Class Z, 9.25% 2021 1,596 1,641
Series 1657, Class SA, 7.257% 2023(6) (11) 7,520 5,482
Series 1673, Class SA, 5.447% 2024(6) (11) 7,879 4,964
Series 2030, Class F, 6.963% 2028(6) 1,470 1,481 .27
-------------------
58,291 .61
-------------------
TAXABLE MUNICIPAL BONDS - 0.05%
California Maritime Infrastructure Authority, Taxable Lease Revenue 4,820 4,527 .05
Bonds (San Diego Unified Port District-South Bay Plant Acquisition),
Series 1999, 6.63% 2009(2)
-------------------
4,527 .05
-------------------
GOVERNMENT & GOVERNMENTAL BODIES (EXCLUDING
U.S. GOVERNMENT) - 7.72%
Hellenic Republic:
8.90% 2004 GRD 4900000 16,322
2.90% 2007 Y 1270000 13,091
6.95% 2008 $4,500 4,333
8.60% 2008 GRD 18295000 63,303
7.50% 2013 620,000 2,042 1.05
Bundesobligation Eurobond 5.00% 2002 P 48000 48,821
Bundesrepublik:
7.125% 2002 $12,271 13,192
6.00% 2007 5,827 6,127
Treuhandanstalt:
7.125% 2003 22,376 24,067
7.50% 2004 0 0 .97
Canadian Government:
9.00% 2004 C$ 20000 15,403
4.797% 2021(10) 10,000 8,059
4.538% 2026(10) 85,400 61,327 .89
The Japan Development Bank 6.50% 2001 Y C13664300000 46,500
Japanese Government 1.50% 2008 927,250 8,930 .59
KfW International Finance Inc. 1.00% 2004 4,750,000 46,600 .49
United Kingdom:
6.50% 2003 L 11750 19,185
8.50% 2005 12,000 21,790 .43
Polish Government:
12.00% 2001 PLZ 20000 4,649
13.00% 2001 25,000 5,871
12.00% 2002 8,375 1,947
12.00% 2003 81,000 19,220
8.50% 2004 40,000 8,552 .42
Spanish Government 6.00% 2008 P 36061 37,473 .40
French Treasury Note 4.50% 2003 28,000 27,972 .30
Norwegian Government:
6.75% 2007 NOK 90000 11,605
5.50% 2009 124,500 14,817 .28
Kingdom of Denmark 6.00% 2009 DKR 190000 26,385 .28
Hungary Government:
15.00% 2001 HUF 1440000 5,965
12.50% 2002 1,860,000 7,542
13.00% 2003 2,200,000 9,529
10.50% 2004 500,000 2,015 .26
Netherlands Government Eurobond 5.75% 2002 P C138923000 23,790 .25
Argentina (Republic of):
Series C, 0% 2001 $ 9,45 7,938
Series E, 0% 2003 5,500 3,685
Series L, 6.8125% Eurobonds 2005(6) 220 199
11.00% 2005 3,000 2,934
11.75% 2007(2) ARP 2650 2,399
11.75% 2009 $830 828
11.375% 2017 2,000 1,995
9.75% 2027 1,050 948 .22
New South Wales Treasury Corp. 8.00% 2008 A$ 26000 17,823 .19
Italian Government BTPS 6.00% Eurobond 2007 P 16204 16,768 .18
United Mexican States Government Eurobonds:
Global, 11.375% 2016 $9,015 10,224
Series A, 6.25% 2019 1,000 793
Global, 11.50% 2026 2,625 3,124 .15
Philippines (Republic of):
8.875% 2008 1,750 1,715
9.875% 2019 6,400 6,344 .09
Panama (Republic of):(6)
Interest Reduction Bond 4.25% 2014(2) 6,500 5,103
Past Due Interest Bond, 6.50% 2016(2),(3) 1,620 1,282
Past Due Interest Eurobond 6.50% 2016 270 214 .07
Mendoza (Province of) 10.00% 2007(2) 4,150 3,247 .03
Croatian Government, Series B, 6.456% 2006(6) 3,462 3,206 .03
Columbia (Republic of) 7.625% 2007 3,600 3,033 .03
Brazil (Federal Republic of), Bearer 8.00% 2014(3) 2,713 2,038 .02
Venezuela (Republic of):(6)
Front Loaded Interest Reduction Bond:
Series A, 6.875% 2007 714 561
Series B, 6.875% 2007 179 140
Eurobond 7.00% 2007 1,333 1,053 .02
MC-Cuernavaca Trust 9.25% 2001(2) 2,015 1,728 .02
New Zealand Government 4.739% 2016(10) NZ$ 3159 1,552 .02
Malaysia 8.75% 2009 $1,250 1,318 .01
Bulgaria (Republic of) Front Loaded Interest Reduction Bond, 2.75% 2012(6 1,770 1,281 .01
South Africa (Republic of) 12.00% 2005 ZAR 5100 795 .01
Peru (Republic of) Past Due Interest Eurobond 4.50% 2017(6) $750 518 .01
-------------------
731,210 7.72
-------------------
Market Percent
Value Of Net
EQUITY RELATED SECURITIES Shares (000) Assets
- ---------------------------------------------- -------- --------
STOCKS & WARRANTS - 0.61%
Omnipoint Corp. (9) 280,391 33,822 .36
Price Communications Corp. (9) 313,053 8,707 .09
Verio Inc., warrants, expire 2004 (2) (9) 48,550 7,893 .08
NTL Inc., warrants, expire 2008 (2),(5), (9) 26,362 3,478 .04
Wilshire Financial Services Group Inc. (12) 1,601,967 2,203 .02
Viatel, Inc. (9) 32,363 1,735 .02
ICG Holdings, Inc., warrants, expire 2005 (2),(5),(9) 19,800 204 .00
Globalstar Telecommunications Ltd., warrants, expire 2004 (9) 2,500 125 .00
Teletrac Holdings, Inc. warrants, expire 2004(5)(9) 194,624 19 .00
Raintree Healthcare Corp. (5)(9) 348,886 17 .00
Protection One Alarm Monitoring, Inc., warrants, expire 2005 (2),(5),(9) 54,400 14 .00
Tultex Corp., warrants, expire 2007 (5)(9) 1,867,700 0 .00
-------------------
58,217 .61
-------------------
MISCELLANEOUS
Investment securities in initial period of acquisition 33,400 .36
-------------------
TOTAL BONDS, NOTES AND EQUITY SECURITIES (cost: $9,299,058,000) 8,814,562 93.00
-------------------
Shares or Market Percent
Principle Amount Value Of Net
SHORT-TERM SECURITIES (000) (000) Assets
- ---------------------------------------------- -------- -------- --------
COMMERCIAL PAPER - 5.76%
BellSouth Telecommunications Inc.:
5.80% due 1/20/2000 $25,000 24,919
5.90% due 2/4/2000 25,000 24,857
5.90% due 2/11/2000 20,000 19,862
6.00% due 2/25/2000 24,750 24,520 .99
Citigroup Inc. (The)
4.75% due 1/3/2000 43,000 42,983
6.14% due 1/31/2000 10,000 9,947
5.95% due 2/4/2000 15,000 14,913
5.85% due 2/9/2000 25,000 24,836 .98
Bell Atlantic Network Funding Corp.:
6.35% due 1/11/2000 7,300 7,286
5.81% due 1/13/2000 25,000 24,948
5.86% due 1/24/2000 30,000 29,883
6.10% due 2/02/2000 20,000 19,888 .87
General Electric Capital Services Inc. :
6.40% due 1/21/2000 25,000 24,907
5.82% due 2/10/2000 25,000 24,832 .53
Park Avenue Receivables Corp. 5.95%-6.15% due 1/10/2000(2) 42,100 42,030 .44
Household Finance Corp.:
5.95% due 1/26/2000 25,000 24,894
6.05% due 2/3/2000 15,000 14,914 .42
Preferred Receivables Funding Corp.:(2)
6.12% due 1/12/2000 25,000 24,951
6.70% due 1/21/2000 4,054 4,038
6.25% due 1/24/2000 9,000 8,962 .40
Corporate Asset Funding Co. Inc. 6.20% due 2/16/2000(2) 37,500 37,196 .39
Gannett Co.:(2)
5.87% due 1/5/2000 10,000 9,992
5.95% due 1/24/2000 25,000 24,903 .37
Sara Lee Corp. 5.80% due 1/18/2000 25,000 24,927 .26
Procter & Gamble Co. 5.15%-5.88% due 1/28/2000 10,000 9,955 .11
-------------------
TOTAL SHORT-TERM SECURITIES (cost: $545,340,000) 545,343 5.76
-------------------
TOTAL INVESTMENT SECURITIES (cost: $9,844,398,000) 9,359,905 98.76
Excess of cash and receivables over payables 117,429 1.24
-------------------
NET ASSETS 9,477,334 100.00
======== =======
1 Step-up security; rate will increase at a later date.
2 Purchased in a private placement transaction; resale may be
limited to qualified institutional buyers, resale to the public
may require registration.
3 Payment in kind; the issuer has the option of paying additional
securities in lieu of cash.
4 Purchased as a unit; issue was separated but reattached for
reporting purposes.
5 Valued under procedures established by the Board of Directors.
6 Coupon rate may change periodically.
7 Company not making interest or dividend payments; bankruptcy
proceedings pending.
8 Pass-through securities backed by a pool of mortgages or other
assets on which principal payments are periodically made.
Therefore, the effective maturities are shorter than the stated
maturities.
9 Non-income-producing security.
10 Index-linked bond whose principal amount moves with a
government retail price index.
11 Inverse floater, which is a floating-rate note whose interest
rate note whose interest rate moves in the opposite direction of
prevailing interest rates.
12 The fund owns 8.00% and 5.29% of the outstanding
voting securities
of Wilshire Financial Services Group Inc., and
Teletrac Inc., respectively, which are investments in
affiliates as defined in the Investment Act of 1940.
</TABLE>
<TABLE>
The Bond Fund of America
FINANCIAL STATEMENTS
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
at December 31,1999 (dollars in thousands)
Assets:
Investment securities at market
(Cost: $9,844,398) $9,359,905
Cash 20
Receivables for--
Sales of investments $1,517
Sales of fund's shares 14,796
Forward currency contracts-net 4,323
Dividends and accrued interest 132,324
Other 4 152,964
-------- --------
9,512,889
Liabilities:
Payables for--
Purchases of investments 4,652
Repurchases of fund's shares 24,668
Forward currency contracts-net 258
Dividends on fund's shares 123
Management services 2,658
Accrued expenses 3,196 35,555
-------- --------
Net Assets at December 31, 1999--
Equivalent to $12.98 per share
on 730,088,880 shares of $.001 par
value capital stock outstanding
(authorized capital stock--
2,500,000,000 shares) $9,477,334
==========
STATEMENT OF OPERATIONS
for the year ended December 31,1999 (dollars in thousands)
Investment Income:
Income:
Interest $717,055
Dividends 16,126 $733,181
-------- --------
Expenses:
Management services fee 30,826
Distribution expenses 23,847
Transfer agent fee 7,361
Reports to shareholders 337
Registration statement and prospectus 738
Postage, stationery and supplies 1,549
Directors' fees 67
Auditing and legal fees 64
Custodian fee 747
Taxes other than federal income tax 98
Other expenses 315 65,949
-------- --------
Net investment income 667,232
--------
Realized Loss and Unrealized
Depreciation on Investments:
Net realized loss (38,387)
Net change in unrealized (depreciation)
appreciation on:
Investments (414,726)
Open forward currency contracts 3,433
--------
Net unrealized depreciation (411,293)
--------
Net realized loss and
unrealized depreciation
on investments (449,680)
--------
Net Increase in Net Assets Resulting
from Operations $217,552
===============
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended
December 31,
1999 1998
-------- --------
Operations:
Net investment income $667,232 $621,853
Net realized loss on investments (38,387) 45,203
Net unrealized depreciation
on investments (411,293) (225,567)
-------- --------
Net increase in net assets
resulting from operations 217,552 441,489
-------- --------
Dividends and Distributions Paid to
Shareholders:
Dividends from net
investment income (671,007) (612,126)
Distributions from net realized gains
on investments - (92,338)
-------- --------
Total Dividends and Distributions (671,007) (704,464)
------------ ---------------
Capital Share Transactions:
Proceeds from shares sold:
186,154,681 and 219,927,964 2,473,751 3,045,786
shares, respectively
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
40,561,069 and 40,515,125 shares,
respectively 536,631 559,111
Cost of shares repurchased:
197,706,146 and 143,192,216
shares, respectively (2,620,186) (1,977,460)
-------- --------
Net increase in net assets
resulting from capital share
transactions 390,196 1,627,437
-------- --------
Total Decrease in Net Assets (63,259) 1,364,462
Net Assets:
Beginning of year 9,540,593 8,176,131
-------- --------
End of year (including
undistributed net investment
income: $3,354 and $(1,158)
respectively) $9,477,334 $9,540,593
======== ===========
See Notes to Financial Statements
</TABLE>
The Bond Fund of America
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Bond Fund of America, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks as high a level of current income as is
consistent with preservation of capital through a diversified portfolio of
bonds and other fixed-income obligations. In order to reduce administrative
costs the fund's par value was reduced on December 23, 1999.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
in conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies consistently followed by the fund in the preparation of its financial
statements:
SECURITY VALUATION - Equity securities, including depositary receipts, are
valued at the last reported sale price on the exchange or market on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price. In
cases where equity securities are traded on more than one exchange, the
securities are valued on the exchange or market determined by the investment
adviser to be the broadest and most representative market, which may be either
a securities exchange or the over-the-counter market. Fixed-income securities
are valued at prices obtained from a pricing service, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued at the mean quoted bid and
asked prices or at prices for securities of comparable maturity, quality and
type. The ability of the issuers of the debt securities held by the fund to
meet their obligations may be affected by economic developments in a specific
industry, state or region. Short-term securities maturing within 60 days are
valued at amortized cost, which approximates market value. Forward currency
contracts are valued at the mean of their representative quoted bid and asked
prices. Securities and assets for which representative market quotations are
not readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Directors.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are
accounted for as of the trade date. Realized gains and losses from securities
transactions are determined based on specific identified cost. In the event
securities are purchased on a delayed delivery or when-issued basis, the fund
will instruct the custodian to segregate liquid assets sufficient to meet its
payment obligations in these transactions. Dividend income is recognized on
the ex-dividend date, and interest income is recognized on an accrual basis.
Market discounts, premiums, and original issue discounts on securities
purchased are amortized daily over the expected life of the security.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are
declared daily after the determination of the fund's net investment income and
are paid to shareholders monthly. Distributions paid to shareholders are
recorded on the ex-dividend date.
Forward Currency Contracts - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to manage its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. The fund's
use of forward currency contracts involves market risk in excess of the amount
recognized in the statement of assets and liabilities. The contracts are
recorded in the statement of assets and liabilities at their net unrealized
value. The fund records realized gains or losses at the time the forward
contract is closed or offset by a matching contract. The face or contract
amount in U.S. dollars reflects the total exposure the fund has in that
particular contract. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from possible movements in non-U.S. exchange rates and securities values
underlying these instruments. Purchases and sales of forward currency exchange
contracts having the same settlement date and broker are offset and presented
net in the statement of assets and liabilities.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends,
interest, sales of non-U.S. bonds and notes, forward contracts, and other
receivables and payables, on a book basis, were $2,673,000 for the year ended
December 31, 1999.
3. FEDERAL INCOME TAXATION
The fund complies with the requirements of the Internal Revenue Code applicable
to regulated investment companies and intends to distribute all of its net
taxable income and net capital gains for the fiscal year. As a regulated
investment company, the fund is not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund.
As of December 31, 1999, net unrealized depreciation on investments, excluding
forward currency contracts, for book and federal income tax purposes aggregated
$484,493,000, $214,554,000 related to appreciated securities and $699,047,000
related to depreciated securities. During the year ended December 31, 1999, the
fund realized, on a tax basis, a net capital loss of $46,674,000 on securities
transactions, of which the fund has deferred, for tax purposes, to fiscal year
ending December 31, 2000, the recognition of capital losses of $22,135,000
which were realized during the period November 1, 1999 through December 31,
1999. The fund had available at December 31, 1999 a net capital loss
carryforward totalling $24,539,000 which may be used to offset gains realized
during subsequent years through 2007 and thereby relieve the fund and its
shareholders of any federal income tax liability with respect to the capital
gains that are so offset. The fund will not make distributions for capital
gains while a capital loss carryforward remains. Net gains related to non-U.S.
currency transactions of $11,720,000 were treated as an adjustment to ordinary
income for federal income tax purposes. The cost of portfolio securities,
excluding forward currency contracts, for book and federal income tax purposes
was $9,844,398,000 at December 31, 1999.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $30,826,000 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 provided 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 but not
exceeding $10 billion; and 0.14% of such assets in excess of $10 billion; plus
2.25% on the first $8,333,333 of the fund's monthly gross investment income;
and 2.00% of such income in excess of $8,333,333.
DISTRIBUTION EXPENSES - 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, 1999,
distribution expenses under the Plan were limited to $23,847,000. Had no
limitation been in effect, the fund would have paid $28,360,000 in distribution
expenses under the Plan. As of December 31, 1999, accrued and unpaid
distribution expenses were $1,588,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $6,279,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $7,361,000.
DEFERRED DIRECTORS' FEES - 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, 1999, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Directors, were $195,000.
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.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $4,501,818,000 and $4,190,420,000, respectively,
during the year ended
December 31, 1999.
As of December 31, 1999, accumulated net realized loss on investments was
$46,674,000 and additional paid-in capital was $10,001,559,000. The fund
reclassified $8,287,000 of realized currency gains to undistributed net
investment income for the year ended December 31, 1999 as a result of permanent
differences between book and tax.
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 $747,000 includes $288,000 that was paid by these credits
rather than in cash.
At December 31, 1999, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
<TABLE>
U.S. at
Contract Amount Valuations 12/31/1999
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unrealized
Appreciation
Non-U.S. Currency Contracts Non-U.S. U.S. Amount (Depreciation)
Sales:
Euros expiring 1/12-6/01/2000 P 180612000 $187,361,000 $183,051,000 $4,310,000
British Pounds expiring 2/10-3/22/2 L 20889000 33,511,000 33,756,000 (245,000)
--------- --------- ---------
220,872,000 216,807,000 4,065,000
--------- --------- ---------
Buys:
Euros expiring 1/12/2000 P 18000000 18,333,333 18,333,000 0
--------- --------- ---------
18,333,333 18,333,000 0
--------- --------- ---------
$4,065,000
========
</TABLE>
<TABLE>
PER-SHARE DATA AND RATIOS
Year ended December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.61 $14.00 $13.75 $13.88 $12.69
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income 0.93 0.94 0.98 1.02 1.05
Net gains or losses on securities (bo (0.63) (0.24) 0.25 (0.13) 1.18
realized and unrealized) ---------- ---------- ---------- ---------- ----------
Total from investment operations 0.30 0.70 1.23 0.89 2.23
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends (from net investment income) (0.93) (0.95) (0.98) (1.02) (1.04)
-- -- -- -- --
Distributions (from capital gains) - (0.14) - - -
---------- ---------- ---------- ---------- ----------
Total distributions (0.93) (1.09) (0.98) (1.02) (1.04)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year $12.98 $13.61 $14.00 $13.75 $13.88
====================== ===============================
Total Return* 2.29% 5.17% 9.24% 6.71% 18.25%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $9,585 $9,541 $8,176 $7,002 $6,290
Ratio of expenses to average net asset 0.69% .66% .68% .71% .74%
Ratio of net income to average net ass 6.96 6.94% 6.95% 7.47% 7.87%
Portfolio turnover rate 46.71% 66.25% 51.96% 43.43% 43.80%
*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 investment
portfolio, as of December 31, 1999, 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
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, 1999, 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, 1999, 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 28, 2000
Tax Information
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year.
CORPORATE SHAREHOLDERS MAY EXCLUDE UP TO 70% OF QUALIFYING DIVIDENDS RECEIVED
DURING THE YEAR. FOR PURPOSES OF COMPUTING THIS EXCLUSION, 1% OF THE DIVIDENDS
PAID BY THE FUND FROM NET INVESTMENT INCOME REPRESENT QUALIFYING DIVIDENDS.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 9% of the dividends paid
by the fund from net investment income were derived from interest on direct
U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
The fund designates as a capital gain distribution a portion of earnings and
profits paid to shareholders in redemption of their shares.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
RESULT OF MEETING OF SHAREHOLDERS HELD NOVEMBER 22, 1999 (adjourned session
December 13, 1999)
(unaudited)
Shares Outstanding on September 7, 1999 729,293,860
Shares Voting on November 22, 1999
(proposals 1, 4 & 5) 478,661,430 (65.6%)
Shares Voting on December 13, 1999
(adjourned session - proposals 2 & 3) 489,760,357 (67.2%)
PROPOSAL 1: Election of Directors
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent of Percent of
Votes Shares Votes Shares
Director For Voting For Withheld Withheld
Richard G. Capen, Jr. 471,613,229 98.5% 7,048,201 1.5%
H. Frederick Christie 471,448,821 98.5 7,212,609 1.5
Don R. Conlan 471,685,494 98.5 6,975,936 1.5
Diane C. Creel 471,468,142 98.5 7,193,289 1.5
Martin Fenton 471,610,809 98.5 7,050,621 1.5
Leonard R. Fuller 471,638,085 98.5 7,023,345 1.5
Abner D. Goldstine 471,450,215 98.5 7,211,216 1.5
Paul G. Haaga, Jr. 471,666,998 98.5 6,994,432 1.5
Richard G. Newman 471,609,956 98.5 7,051,474 1.5
Frank M. Sanchez 471,428,092 98.5 7,233,338 1.5
</TABLE>
PROPOSAL 2: Amendments to Certificate of Incorporation (i) increasing the
authorized shares of capital stock, (ii) establishing a new class of common
stock and (iii) authorizing the Board to create additional series of shares
within the new class of common stock
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percent of
Percent of Shares Percent of
Votes Shares Votes Voting Shares
For Voting For Against Against Abstentions Abstaining
(Broker Non-Votes = 78,678,468)
378,541,004 77.3% 14,622,216 3.0% 17,918,669 3.7%
</TABLE>
PROPOSAL 3: Amendment to Certificate of Incorporation reducing the par value
per share of capital stock
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percent of
Percent of Shares Percent of
Votes Shares Votes Voting Shares
For Voting For Against Against Abstentions Abstaining
444,225,264 90.7% 22,933,856 4.7% 22,601,237 4.6%
</TABLE>
PROPOSAL 4: Changes to investment restrictions
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Percent Percent of
of Shares of Shares Percent of
Votes Voting Votes Voting Shares
For For Against Against Abstentions Abstaining
(Broker Non-Votes = 97,692,963;
same for all restrictions)
4(A) Amend the restriction
regarding diversification
and industry concentration
342,560,426 71.6% 19,046,721 4.0% 19,361,320 4.0%
4(B) Eliminate the restriction
on pledging assets
334,137,335 69.8% 25,915,386 5.4% 20,915,747 4.4%
4(C) Eliminate the restriction
regarding affiliated ownership
335,844,720 70.2% 23,248,084 4.9% 21,875,662 4.6%
4(D) Reclassify the restriction
regarding purchasing securities
of other investment companies
339,689,739 70.9% 20,025,531 4.2% 21,253,197 4.4%
</TABLE>
PROPOSAL 5: Ratification of Accountants
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percent of
Percent of Shares Percent of
Votes Shares Votes Voting Shares
For Voting For Against Against Abstentions Abstaining
462,036,732 96.5% 4,330,532 0.9% 12,294,167 2.6%
</TABLE>
[The American Funds Group(r)]
THE BOND FUND OF AMERICA
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
San Diego, California
Managing Director,
Senior Resource Group, LLC
(senior living center management)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller Consulting
(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
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President
and Chief Executive Officer,
AECOM Technology Corporation
(architectural engineering)
HERBERT HOOVER III, a Director
since 1977, has retired from the
Board. The Directors thank him for
his many contributions to the fund.
OTHER OFFICERS
DAVID C. BARCLAY
Los Angeles, California
Vice President of the fund
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
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 92821-5823
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
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, 2000, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
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.
Printed on recycled paper
Litho in USA CD/L/4451
Lit. No. BFA-011-0200
