UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-02444
The Bond Fund of America
(Exact Name of Registrant as Specified in Charter)
333 South Hope Street
Los Angeles, California 90071
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (213) 486-9200
Date of fiscal year end: December 31
Date of reporting period: June 30, 2013
Courtney R. Taylor
The Bond Fund of America
333 South Hope Street
Los Angeles, California 90071
(Name and Address of Agent for Service)
Copies to:
Michael Glazer
Bingham McCutchen LLP
355 South Grand Avenue, Suite 4400
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 – Reports to Stockholders
The Bond Fund
of America®
Semi-annual report for the six months ended June 30, 2013
The Bond Fund of America 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.
This fund is one of more than 40 offered by one of the nation’s largest mutual fund families, American Funds, from Capital Group. For more than 80 years, Capital has invested with a long-term focus based on thorough research and attention to risk.
Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 3.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors 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, so they may lose value. For current information and month-end results, visit americanfunds.com.
Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2013:
Class A shares | 1 year | 5 years | 10 years | |||||||||
Reflecting 3.75% maximum sales charge | –3.99% | 2.98% | 3.38% |
For other share class results, visit americanfunds.com and americanfundsretirement.com.
The total annual fund operating expense ratio was 0.60% for Class A shares as of the prospectus dated March 1, 2013.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. When applicable, investment results reflect fee waivers, without which results would have been lower. Visit americanfunds.com for more information.
The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Bond ratings, which typically range from Aaa/AAA (highest) to D (lowest), are assigned by credit rating agencies such as Moody’s, Standard & Poor’s and/or Fitch as an indication of an issuer’s creditworthiness. High-yield bonds are subject to greater fluctuations in value and risk of loss of income and principal than investment-grade bonds. Investing in bonds issued outside the U.S. may be subject to additional risks. They include currency fluctuations, political and social instability, differing securities regulations and accounting standards, higher transaction costs, possible changes in taxation, illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries. Refer to the fund prospectus and the Risk Factors section of this report for more information on these and other risks associated with investing in the fund.
Fellow investors:
After a prolonged, multiyear period of low interest rates, bond yields began rising during the first half of The Bond Fund of America’s current fiscal year. With the resulting decline in bond prices, the fund returned –2.66% for the six-month period.
By way of comparison, the unmanaged Barclays U.S. Aggregate Index returned –2.44% for the period. The fund’s peer group, as measured by the Lipper Intermediate Investment Grade Debt Funds Average, returned –2.56%.
The fund’s dividend income helped mitigate the decline in bond prices. During the six-month period, the fund paid dividends totaling just under 14 cents a share. This amounted to an income return of 1.07% (2.14% annualized) for the fund’s investors, whether they reinvested returns or took income in cash.
Results at a glance
For periods ended June 30, 2013, with all dividends reinvested
Total returns | Average annual total returns | |||||||||||||||||||
1 year | 3 years | 5 years | 10 years | Lifetime (since 5/28/74) | ||||||||||||||||
The Bond Fund of America (Class A shares) | –0.24 | % | 3.83 | % | 3.77 | % | 3.77 | % | 8.12 | % | ||||||||||
Barclays U.S. Aggregate Index* | –0.69 | 3.51 | 5.19 | 4.52 | 8.08 | |||||||||||||||
Lipper Intermediate Investment Grade Debt Funds Average | 0.53 | 4.14 | 5.47 | 4.25 | 7.58 |
* | The Barclays U.S. Aggregate Index began on January 1, 1976. From May 28, 1974, through December 31, 1975, the Barclays U.S. Government/Credit Index was used. The index is unmanaged and, therefore, has no expenses. |
The Bond Fund of America | 1 |
Bond market overview
During the first half of the six-month period, bond yields remained relatively stable, but this changed in April as concerns about slowing economic growth drove yields to their lows for the calendar year.
Bond yields began their climb in May. This was prompted by stronger economic data, and signals from the Federal Reserve that it was considering reducing its bond purchases — known as quantitative easing — at some future point. While the timing of this reduction wasn’t specified, the bond markets reacted dramatically. The yield on the bellwether 10-year Treasury note rose nearly a full percentage point in less than two months.
In late June, a number of Federal Reserve officials sought to reassure the market that the Fed would not reduce bond purchases quickly, and not without evidence of further economic strengthening. While rates declined slightly immediately afterward, they resumed climbing modestly in early July, buoyed by strong gains in payrolls and other signs of economic growth.
Inside the portfolio
The fund was previously positioned for a rise in rates prior to the start of the fiscal year, and the portfolio managers maintained this positioning throughout the six-month period to prepare for what they believed will be a long-term trend toward marginally higher rates. By buying shorter duration bonds now, the managers can reinvest the money into longer duration, higher yielding bonds when the short-duration bonds mature.
The fund’s holdings in U.S. Treasury and agency bonds increased slightly during the period, representing 28% of the portfolio at the end of the six-month period, compared to 25% of the portfolio at the beginning of the fiscal year. Mortgage-backed securities made up 28% of the portfolio, down from 34% at the start of the period, while corporate bonds climbed to 34% of the fund, up from 30%.
The fund slightly increased its holdings in high-yield corporate bonds, from 5.2% of the portfolio at the start of the fiscal year to 5.4% at the midpoint. High-yield continued to be a positive contributor to the fund during the period.
2 | The Bond Fund of America |
Looking ahead
It is our belief that interest rates will continue to rise modestly through the remainder of the fund’s fiscal year and into calendar year 2014. This climb won’t be steep, and there may be periods in which bonds rally, but we feel confident that the bond market has begun a period of slowly rising rates.
Our investors often choose The Bond Fund of America to provide income, as well as a degree of capital preservation when compared with other assets they may own — especially as events such as college or retirement near. We remain confident that the fund can continue to serve our investors in these areas going forward. While rates rose sharply during the period, we believe future increases will be more moderate. In this environment, bonds can and do lose some value. However, when those bonds are sold or reach maturity, the proceeds can be reinvested in less expensive bonds that yield more, providing increased income and contributing to total return.
We take a long-term, research-driven approach to investing, and believe it is during periods like these that we as fixed-income portfolio managers can be most effective. We thank you for your continued interest and investment in the fund, and look forward to reporting to you again in six months.
Cordially,
John H. Smet
President
August 9, 2013
For current information about the fund, visit americanfunds.com.
The fund’s 30-day yield for Class A shares as of July 31, 2013, calculated in accordance with the U.S. Securities and Exchange Commission (SEC) formula, was 1.78%. The fund’s 12-month distribution rate for Class A shares as of that date was 2.25%. Both reflect the 3.75% maximum sales charge. The SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities while the distribution rate reflects the fund’s past dividends paid to shareholders. Accordingly, the fund’s SEC yield and distribution rate may differ.
The Bond Fund of America | 3 |
Summary investment portfolio June 30, 2013 | unaudited |
The following summary investment portfolio is designed to streamline the report and help investors better focus on the fund’s principal holdings. See the inside back cover for details on how to obtain a complete schedule of portfolio holdings.
Portfolio by type of security | (percent of net assets) |
Portfolio quality summary* | (percent of net assets) | |||
U.S. Treasury and agency† | 28.0 | % | ||
Aaa/AAA | 28.2 | |||
Aa/AA | 5.6 | |||
A | 14.2 | |||
Baa/BBB | 14.4 | |||
Ba/BB | 1.5 | |||
B | 2.9 | |||
Caa/CCC or less | 1.0 | |||
Unrated | 0.5 | |||
Other securities | 0.3 | |||
Short-term securities & other assets less liabilities | 3.4 |
* | Bond ratings, which typically range from Aaa/AAA (highest) to D (lowest), are assigned by credit rating agencies such as Moody’s, Standard & Poor’s and/or Fitch as an indication of an issuer’s creditworthiness. If agency ratings differ, the security will be considered to have received the highest of those ratings, consistent with the fund’s investment policies. Securities in the “unrated” category (above) have not been rated by a rating agency; however, the investment adviser performs its own credit analysis and assigns comparable ratings that are used for compliance with the fund’s investment policies. |
† | Guaranteed or sponsored by the U.S. government. |
4 | The Bond Fund of America |
Bonds, notes & other debt instruments — 96.28% | Value (000) | Percent of net assets | ||||||
Corporate bonds, notes & loans — 34.04% | ||||||||
Financials — 8.91% | ||||||||
Other securities | $ | 2,708,836 | 8.91 | % | ||||
Energy — 4.61% | ||||||||
Other securities | 1,401,755 | 4.61 | ||||||
Health care — 3.53% | ||||||||
Other securities | 1,074,193 | 3.53 | ||||||
Industrials — 3.24% | ||||||||
Other securities | 984,582 | 3.24 | ||||||
Consumer discretionary — 3.14% | ||||||||
Other securities | 954,148 | 3.14 | ||||||
Utilities — 2.60% | ||||||||
Other securities | 791,988 | 2.60 | ||||||
Telecommunication services — 2.56% | ||||||||
Other securities | 778,054 | 2.56 | ||||||
Consumer staples — 2.55% | ||||||||
Other securities | 776,295 | 2.55 |
The Bond Fund of America | 5 |
Bonds, notes & other debt instruments | Principal amount (000) | Value (000) | Percent of net assets | |||||||||
Materials — 1.85% | ||||||||||||
Other securities | $ | 562,549 | 1.85 | % | ||||||||
Information technology — 1.05% | ||||||||||||
Other securities | 318,519 | 1.05 | ||||||||||
Total corporate bonds, notes & loans | 10,350,919 | 34.04 | ||||||||||
Mortgage-backed obligations — 28.23% | ||||||||||||
Federal agency mortgage-backed obligations1 — 24.16% | ||||||||||||
Fannie Mae: | ||||||||||||
3.00% 2028 | $ | 166,209 | 170,520 | |||||||||
3.00% 2043 | 142,400 | 139,129 | ||||||||||
3.50% 2043 | 926,378 | 940,274 | ||||||||||
4.00% 2043 | 632,489 | 658,876 | 17.21 | |||||||||
4.00% 2043 | 201,500 | 209,465 | ||||||||||
0%–11.064% 2017–20472,3 | 2,966,033 | 3,114,449 | ||||||||||
Government National Mortgage Assn.: | ||||||||||||
2.50% 2028 | 91,316 | 92,283 | ||||||||||
3.50% 2043 | 420,777 | 432,483 | ||||||||||
3.50% 2043 | 115,290 | 118,280 | 3.83 | |||||||||
4.00% 2043 | 107,026 | 112,327 | ||||||||||
2.50%–10.00% 2021–2043 | 391,767 | 409,815 | ||||||||||
Freddie Mac 0%–7.50% 2016–20472 | 902,925 | 944,243 | 3.10 | |||||||||
Other securities | 7,332 | .02 | ||||||||||
7,349,476 | 24.16 | |||||||||||
Other mortgage-backed securities — 4.07% | ||||||||||||
Other securities | 1,236,940 | 4.07 | ||||||||||
Total mortgage-backed obligations | 8,586,416 | 28.23 |
6 | The Bond Fund of America |
Bonds, notes & other debt instruments | Principal amount (000) | Value (000) | Percent of net assets | |||||||||
U.S. Treasury bonds & notes — 25.15% | ||||||||||||
U.S. Treasury — 19.91% | ||||||||||||
2.625% 2014 | $ | 149,260 | $ | 153,172 | ||||||||
0.25% 2015 | 209,200 | 208,821 | ||||||||||
4.00% 2015 | 97,300 | 103,141 | ||||||||||
1.00% 2016 | 211,010 | 212,386 | ||||||||||
1.50% 2016 | 156,675 | 160,427 | ||||||||||
2.00% 2016 | 95,000 | 98,634 | ||||||||||
2.375% 2016 | 100,000 | 104,876 | ||||||||||
0.875% 2017 | 503,500 | 501,063 | ||||||||||
1.00% 2017 | 616,656 | 617,063 | ||||||||||
3.25% 2017 | 93,480 | 101,353 | ||||||||||
0.625% 2018 | 215,676 | 208,447 | ||||||||||
1.00% 2018 | 119,225 | 117,115 | 19.91 | % | ||||||||
3.50% 2018 | 96,700 | 106,383 | ||||||||||
1.00% 2019 | 100,000 | 95,561 | ||||||||||
1.125% 2019 | 125,000 | 121,247 | ||||||||||
1.375% 2020 | 199,020 | 191,919 | ||||||||||
1.625% 2022 | 370,335 | 345,341 | ||||||||||
1.75% 2023 | 110,478 | 103,359 | ||||||||||
6.875% 2025 | 77,500 | 110,892 | ||||||||||
5.50% 2028 | 155,000 | 201,609 | ||||||||||
3.75% 2041 | 110,066 | 116,240 | ||||||||||
2.875% 2043 | 296,535 | 262,549 | ||||||||||
3.125% 2043 | 145,495 | 135,844 | ||||||||||
0.125%–8.75% 2013–20424 | 1,512,773 | 1,676,414 | ||||||||||
6,053,856 | 19.91 | |||||||||||
U.S. Treasury inflation-protected securities5 — 5.24% | ||||||||||||
2.00% 2014 | 385,655 | 391,220 | ||||||||||
0.50% 2015 | 89,061 | 91,333 | ||||||||||
2.50% 2016 | 82,905 | 91,688 | ||||||||||
0.125% 2018 | 219,226 | 224,886 | 5.24 | |||||||||
0.125% 2023 | 115,332 | 111,696 | ||||||||||
0.625% 2043 | 204,107 | 171,293 | ||||||||||
0.125%–2.375% 2013–2042 | 494,806 | 511,924 | ||||||||||
1,594,040 | 5.24 | |||||||||||
Total U.S. Treasury bonds & notes | 7,647,896 | 25.15 | ||||||||||
Bonds & notes of governments & government agencies outside the U.S. — 4.50% | ||||||||||||
Other securities | 1,369,222 | 4.50 |
The Bond Fund of America | 7 |
Bonds, notes & other debt instruments | Principal amount (000) | Value (000) | Percent of net assets | |||||||||
Federal agency bonds & notes — 2.88% | ||||||||||||
Federal Home Loan Bank: | ||||||||||||
Series 2753, 0.28% 2013 | $ | 100,000 | $ | 100,010 | ||||||||
1.00%–5.50% 2013–2036 | 150,260 | 152,894 | .83 | % | ||||||||
Freddie Mac: | ||||||||||||
1.25% 2019 | 96,640 | 91,908 | ||||||||||
0.50%–5.50% 2014–2018 | 143,620 | 153,156 | .81 | |||||||||
Fannie Mae: | ||||||||||||
0.75% 2013 | 99,300 | 99,552 | .60 | |||||||||
0.50%–7.125% 2013–2030 | 76,860 | 82,760 | ||||||||||
Other securities | 195,664 | .64 | ||||||||||
875,944 | 2.88 | |||||||||||
Other — 1.48% | ||||||||||||
Other securities | 449,590 | 1.48 | ||||||||||
Total bonds, notes & other debt instruments (cost: $28,861,362,000) | �� | 29,279,987 | 96.28 | |||||||||
Convertible securities — 0.08% | ||||||||||||
Other — 0.08% | ||||||||||||
Other securities | 25,611 | .08 | ||||||||||
Total convertible securities (cost: $23,915,000) | 25,611 | .08 | ||||||||||
Preferred securities — 0.02% | ||||||||||||
Financials — 0.02% | ||||||||||||
Other securities | 5,753 | .02 | ||||||||||
Total preferred securities (cost: $7,352,000) | 5,753 | .02 | ||||||||||
Common stocks — 0.18% | ||||||||||||
Other — 0.18% | ||||||||||||
Other securities | 55,173 | .18 | ||||||||||
Total common stocks (cost: $114,489,000) | 55,173 | .18 |
8 | The Bond Fund of America |
Warrants — 0.00% | Value (000) | Percent of net assets | ||||||||||
Energy — 0.00% | ||||||||||||
Other securities | $ | 19 | .00 | % | ||||||||
Total warrants (cost: $671,000) | 19 | .00 | ||||||||||
Short-term securities — 12.09% | Principal amount (000) | |||||||||||
Freddie Mac 0.085%–0.17% due 7/1/2013–5/13/2014 | $ | 1,233,700 | 1,232,875 | 4.05 | ||||||||
Fannie Mae 0.06%–0.18% due 7/1/2013–4/21/2014 | 990,165 | 989,685 | 3.25 | |||||||||
Federal Home Loan Bank 0.05%–0.18% due 7/17/2013–6/19/2014 | 333,220 | 333,031 | 1.10 | |||||||||
U.S. Treasury Bills 0.10%–0.158% due 7/11–11/14/2013 | 176,000 | 175,976 | .58 | |||||||||
Federal Farm Credit Banks 0.13%–0.22% due 7/10–12/2/2013 | 120,000 | 119,976 | .39 | |||||||||
Private Export Funding Corp. 0.17%–0.245% due 7/18/2013–2/13/20146 | 115,200 | 115,099 | .38 | |||||||||
Procter & Gamble Co. 0.10%–0.14% due 8/13–11/5/20136 | 112,100 | 112,082 | .37 | |||||||||
Merck & Co. Inc. 0.08%–0.13% due 7/16–10/28/20136 | 109,000 | 108,986 | .36 | |||||||||
Abbott Laboratories 0.10%–0.13% due 7/9–8/19/20136 | 91,200 | 91,194 | .30 | |||||||||
Other securities | 397,665 | 1.31 | ||||||||||
Total short-term securities (cost: $3,676,675,000) | 3,676,569 | 12.09 | ||||||||||
Total investment securities (cost: $32,684,464,000) | 33,043,112 | 108.65 | ||||||||||
Other assets less liabilities | (2,631,755 | ) | (8.65 | ) | ||||||||
Net assets | $ | 30,411,357 | 100.00 | % |
“Other securities” includes all issues that are not disclosed separately in the summary investment portfolio. Some of these securities (with an aggregate value of $45,135,000, an aggregate cost of $81,170,000, and which represented .15% of the net assets of the fund) were acquired from 12/16/2008 to 2/15/2013 through private placement transactions exempt from registration under the Securities Act of 1933, which may subject them to legal or contractual restrictions on resale.
The Bond Fund of America | 9 |
Forward currency contracts
The fund has entered into forward currency contracts to purchase or sell currencies as shown in the following table. The open forward currency contracts shown are generally indicative of the level of activity over the prior 12-month period.
Unrealized | ||||||||||||
(depreciation) | ||||||||||||
Contract amount | appreciation at | |||||||||||
Receive | Deliver | 6/30/2013 | ||||||||||
Settlement date | Counterparty | (000) | (000) | (000) | ||||||||
Purchases: | ||||||||||||
Japanese yen | 7/11/2013 | Citibank | ¥996,006 | $10,250 | $(207 | ) | ||||||
Sales: | ||||||||||||
Brazilian reais | 7/15/2013 | Citibank | $16,752 | BRL35,225 | 693 | |||||||
British pounds | 8/22/2013 | UBS AG | $9,369 | £6,150 | 19 | |||||||
Chilean pesos | 7/29/2013 | Citibank | $4,946 | CLP2,558,250 | (2 | ) | ||||||
Colombian pesos | 7/29/2013 | Citibank | $8,908 | COP17,250,200 | (28 | ) | ||||||
Euros | 7/10/2013 | HSBC Bank | $19,939 | €15,275 | 56 | |||||||
Euros | 7/10/2013 | Citibank | $20,204 | €15,600 | (103 | ) | ||||||
Euros | 7/10/2013 | Bank of New York Mellon | $18,493 | €13,950 | 307 | |||||||
Euros | 7/18/2013 | UBS AG | $33,277 | €24,975 | 765 | |||||||
Euros | 7/19/2013 | Citibank | $1,866 | €1,400 | 43 | |||||||
Euros | 7/31/2013 | UBS AG | $20,358 | €15,650 | (16 | ) | ||||||
Euros | 8/2/2013 | Bank of America, N.A. | $5,201 | €4,000 | (6 | ) | ||||||
Israeli shekels | 7/15/2013 | HSBC Bank | $5,430 | ILS19,668 | 16 | |||||||
Japanese yen | 8/1/2013 | UBS AG | $19,479 | ¥1,905,937 | 259 | |||||||
Mexican pesos | 7/15/2013 | Barclays Bank PLC | $23,630 | MXN303,595 | 72 | |||||||
Polish zloty | 7/15/2013 | Barclays Bank PLC | $4,302 | PLN13,240 | 132 | |||||||
Polish zloty | 7/22/2013 | Barclays Bank PLC | $4,455 | PLN14,195 | 190 | |||||||
Russian rubles | 7/11/2013 | Citibank | $908 | RUB27,850 | 20 | |||||||
Russian rubles | 7/22/2013 | JPMorgan Chase | $9,952 | RUB323,000 | 164 | |||||||
Turkish lira | 7/16/2013 | Bank of New York Mellon | $791 | TRY1,600 | (11 | ) | ||||||
Turkish lira | 7/29/2013 | Bank of New York Mellon | $1,945 | TRY3,800 | (16 | ) | ||||||
Turkish lira | 7/29/2013 | Citibank | $7,788 | TRY15,160 | (34 | ) | ||||||
2,520 | ||||||||||||
Forward currency contracts — net | $2,313 |
10 | The Bond Fund of America |
Interest rate swaps
The fund has entered into interest rate swaps as shown in the following table. The interest rate swaps shown are generally indicative of the volume of activity over the prior 12-month period.
Floating rate index | Fixed rate | Expiration date | Counterparty | Notional amount (000) | Unrealized depreciation at 6/30/2013 (000) | |||||||||||
Counterparty receives floating rate: | ||||||||||||||||
3-month USD-LIBOR | 1.74125 | % | 6/7/2022 | Citibank | $11,975 | $ | (775 | ) | ||||||||
3-month USD-LIBOR | 2.61 | 2/17/2032 | JPMorgan Chase | 41,000 | (4,057 | ) | ||||||||||
$ | (4,832 | ) |
The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.
1 | Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date. |
2 | Coupon rate may change periodically. |
3 | Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities, including those in “Other securities,” was $138,030,000, which represented .45% of the net assets of the fund. |
4 | A security in this range was pledged as collateral for net losses on unsettled forward currency contracts and interest rate swaps. The total value of pledged collateral was $4,014,000, which represented .01% of the net assets of the fund. |
5 | Index-linked bond whose principal amount moves with a government price index. |
6 | Acquired in a transaction exempt from registration under Rule 144A or section 4(2) of the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in “Other securities,” was $3,842,111,000, which represented 12.63% of the net assets of the fund. |
Key to abbreviations and symbols
BRL = Brazilian reais
CLP = Chilean pesos
COP = Colombian pesos
€ = Euros
£ = British pounds
ILS = Israeli shekels
¥ = Japanese yen
LIBOR = London Interbank Offered Rate
MXN = Mexican pesos
PLN = Polish zloty
RUB = Russian rubles
TRY = Turkish lira
See Notes to Financial Statements
The Bond Fund of America | 11 |
Financial statements
Statement of assets and liabilities | unaudited | |||||||
at June 30, 2013 | (dollars in thousands) | |||||||
Assets: | ||||||||
Investment securities, at value (cost: $32,684,464) | $ | 33,043,112 | ||||||
Cash | 6,395 | |||||||
Unrealized appreciation on open forward currency contracts | 2,736 | |||||||
Receivables for: | ||||||||
Sales of investments | $ | 6,593,370 | ||||||
Sales of fund’s shares | 28,430 | |||||||
Closed forward currency contracts | 1,178 | |||||||
Interest rate swaps | 403 | |||||||
Dividends and interest | 217,358 | 6,840,739 | ||||||
39,892,982 | ||||||||
Liabilities: | ||||||||
Unrealized depreciation on open forward currency contracts | 423 | |||||||
Unrealized depreciation on interest rate swaps | 4,832 | |||||||
Payables for: | ||||||||
Purchases of investments | 9,361,365 | |||||||
Repurchases of fund’s shares | 92,063 | |||||||
Dividends on fund’s shares | 3,182 | |||||||
Closed forward currency contracts | 404 | |||||||
Interest rate swaps | 16 | |||||||
Investment advisory services | 4,854 | |||||||
Services provided by related parties | 13,165 | |||||||
Trustees’ deferred compensation | 639 | |||||||
Other | 682 | 9,476,370 | ||||||
Net assets at June 30, 2013 | $ | 30,411,357 | ||||||
Net assets consist of: | ||||||||
Capital paid in on shares of beneficial interest | $ | 32,364,670 | ||||||
Distributions in excess of net investment income | (32,695 | ) | ||||||
Accumulated net realized loss | (2,276,704 | ) | ||||||
Net unrealized appreciation | 356,086 | |||||||
Net assets at June 30, 2013 | $ | 30,411,357 |
(dollars and shares in thousands, except per-share amounts)
Shares of beneficial interest issued and outstanding (no stated par value) —
unlimited shares authorized (2,438,552 total shares outstanding)
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Class A | $ | 21,439,197 | 1,719,114 | $ | 12.47 | |||||||
Class B | 333,445 | 26,738 | 12.47 | |||||||||
Class C | 2,032,601 | 162,985 | 12.47 | |||||||||
Class F-1 | 1,236,084 | 99,116 | 12.47 | |||||||||
Class F-2 | 411,148 | 32,968 | 12.47 | |||||||||
Class 529-A | 1,043,745 | 83,693 | 12.47 | |||||||||
Class 529-B | 30,700 | 2,462 | 12.47 | |||||||||
Class 529-C | 443,896 | 35,594 | 12.47 | |||||||||
Class 529-E | 57,158 | 4,583 | 12.47 | |||||||||
Class 529-F-1 | 67,185 | 5,387 | 12.47 | |||||||||
Class R-1 | 66,784 | 5,355 | 12.47 | |||||||||
Class R-2 | 714,763 | 57,314 | 12.47 | |||||||||
Class R-3 | 846,575 | 67,883 | 12.47 | |||||||||
Class R-4 | 534,380 | 42,850 | 12.47 | |||||||||
Class R-5 | 300,976 | 24,134 | 12.47 | |||||||||
Class R-6 | 852,720 | 68,376 | 12.47 |
See Notes to Financial Statements
12 | The Bond Fund of America |
Statement of operations | unaudited | |||||||
for the six months ended June 30, 2013 | (dollars in thousands) | |||||||
Investment income: | ||||||||
Income: | ||||||||
Interest | $ | 407,649 | ||||||
Dividends | 62 | $ | 407,711 | |||||
Fees and expenses*: | ||||||||
Investment advisory services | 30,297 | |||||||
Distribution services | 52,330 | |||||||
Transfer agent services | 24,367 | |||||||
Administrative services | 3,422 | |||||||
Reports to shareholders | 1,084 | |||||||
Registration statement and prospectus | 403 | |||||||
Trustees’ compensation | 207 | |||||||
Auditing and legal | 12 | |||||||
Custodian | 156 | |||||||
State and local taxes | 69 | |||||||
Other | 965 | 113,312 | ||||||
Net investment income | 294,399 | |||||||
Net realized gain and unrealized depreciation on investments, forward currency contracts, interest rate swaps and currency: | ||||||||
Net realized gain (loss) on: | ||||||||
Investments | 16,022 | |||||||
Forward currency contracts | 9,627 | |||||||
Interest rate swaps | 951 | |||||||
Currency transactions | (390 | ) | 26,210 | |||||
Net unrealized (depreciation) appreciation on: | ||||||||
Investments | (1,178,141 | ) | ||||||
Forward currency contracts | 1,348 | |||||||
Interest rate swaps | (5,396 | ) | ||||||
Currency translations | (106 | ) | (1,182,295 | ) | ||||
Net realized gain and unrealized depreciation on investments, forward currency contracts, interest rate swaps and currency | (1,156,085 | ) | ||||||
Net decrease in net assets resulting from operations | $ | (861,686 | ) |
*Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.
See Notes to Financial Statements
The Bond Fund of America | 13 |
Statements of changes in net assets
(dollars in thousands)
Six months ended June 30, 2013* | Year ended December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 294,399 | $ | 747,875 | ||||
Net realized gain on investments, forward currency contracts, interest rate swaps and currency transactions | 26,210 | 869,149 | ||||||
Net unrealized (depreciation) appreciation on investments, forward currency contracts, interest rate swaps and currency translations | (1,182,295 | ) | 269,139 | |||||
Net (decrease) increase in net assets resulting from operations | (861,686 | ) | 1,886,163 | |||||
Dividends paid or accrued to shareholders from net investment income | (336,578 | ) | (837,630 | ) | ||||
Net capital share transactions | (2,374,464 | ) | (357,290 | ) | ||||
Total (decrease) increase in net assets | (3,572,728 | ) | 691,243 | |||||
Net assets: | ||||||||
Beginning of period | 33,984,085 | 33,292,842 | ||||||
End of period (including distributions in excess of and undistributed net investment income: $(32,695) and $9,484, respectively) | $ | 30,411,357 | $ | 33,984,085 |
*Unaudited.
See Notes to Financial Statements
14 | The Bond Fund of America |
Notes to financial statements | unaudited |
1. Organization
The Bond Fund of America (the “fund”) is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks as high a level of current income as is consistent with preservation of capital through a diversified portfolio of bonds and other fixed-income obligations.
The fund has 16 share classes consisting of five retail share classes (Classes A, B and C, as well as two F share classes, F-1 and F-2), five 529 college savings plan share classes (Classes 529-A, 529-B, 529-C, 529-E and 529-F-1) and six retirement plan share classes (Classes R-1, R-2, R-3, R-4, R-5 and R-6). The 529 college savings plan share classes can be used to save for college education. The retirement plan share classes are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are further described below:
Share class | Initial sales charge | Contingent deferred sales charge upon redemption | Conversion feature | ||||
Classes A and 529-A | Up to 3.75% | None (except 1% for certain redemptions within one year of purchase without an initial sales charge) | None | ||||
Classes B and 529-B* | None | Declines from 5% to 0% for redemptions within six years of purchase | Classes B and 529-B convert to Classes A and 529-A, respectively, after eight years | ||||
Class C | None | 1% for redemptions within one year of purchase | Class C converts to Class F-1 after 10 years | ||||
Class 529-C | None | 1% for redemptions within one year of purchase | None | ||||
Class 529-E | None | None | None | ||||
Classes F-1, F-2 and 529-F-1 | None | None | None | ||||
Classes R-1, R-2, R-3, R-4, R-5 and R-6 | None | None | None |
* Class B and 529-B shares of the fund are not available for purchase.
Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses (“class-specific fees and expenses”), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each share class.
The Bond Fund of America | 15 |
2. Significant accounting policies
The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The fund follows the significant accounting policies described below, as well as the valuation policies described in the next section on valuation.
Security transactions and related investment income — Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.
Class allocations — Income, fees and expenses (other than class-specific fees and expenses) are allocated daily among the various share classes based on the relative value of their settled shares. Realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class.
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 to shareholders are recorded on the ex-dividend date.
Currency translation — Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates supplied by one or more pricing vendors on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.
3. Valuation
Capital Research and Management Company (“CRMC”), the fund’s investment adviser, values the fund’s investments at fair value as defined by accounting principles generally
16 | The Bond Fund of America |
accepted in the United States of America. The net asset value of each share class of the fund is generally determined as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.
Methods and inputs — The fund’s investment adviser uses the following methods and inputs to establish the fair value of the fund’s assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.
Equity securities are generally valued at the official closing price of, or 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. Prices for each security are taken from the principal exchange or market on which the security trades.
Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are generally valued at prices obtained from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income security.
Fixed-income class | Examples of standard inputs |
All | Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard inputs”) |
Corporate bonds, notes & loans; convertible securities | Standard inputs and underlying equity of the issuer |
Bonds & notes of governments & government agencies | Standard inputs and interest rate volatilities |
Mortgage-backed; asset-backed obligations | Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information |
Municipal securities | Standard inputs and, for certain distressed securities, cash flows or liquidation values using a net present value calculation based on inputs that include, but are not limited to, financial statements and debt contracts |
When the fund’s investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to be representative), fixed-income securities will
The Bond Fund of America | 17 |
be valued in good faith at the mean quoted bid and ask prices that are reasonably and timely available (or bid prices, if ask prices are not available) or at prices for securities of comparable maturity, quality and type.
Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are generally valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the fund’s investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates fair value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days. Forward currency contracts are valued at the mean of representative quoted bid and ask prices, generally based on prices supplied by one or more pricing vendors. Interest rate swaps are generally valued by pricing vendors based on market inputs that include the index and term of index, reset frequency, payer/receiver, currency, and pay frequency.
Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the fund’s investment adviser are fair valued as determined in good faith under fair valuation guidelines adopted by authority of the fund’s board of trustees as further described below. The investment adviser follows fair valuation guidelines, consistent with U.S. Securities and Exchange Commission rules and guidance, to consider relevant principles and factors when making fair value determinations. The investment adviser considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.
Processes and structure — The fund’s board of trustees has delegated authority to the fund’s investment adviser to make fair value determinations, subject to board oversight. The investment adviser has established a Joint Fair Valuation Committee (the “Fair Valuation Committee”) to administer, implement and oversee the fair valuation process, and to make fair value decisions. The Fair Valuation Committee regularly reviews its own fair value decisions, as well as decisions made under its standing instructions to the investment adviser’s valuation teams. The Fair Valuation Committee reviews changes in
18 | The Bond Fund of America |
fair value measurements from period to period and may, as deemed appropriate, update the fair valuation guidelines to better reflect the results of back testing and address new or evolving issues. The Fair Valuation Committee reports any changes to the fair valuation guidelines to the board of trustees with supplemental information to support the changes. The fund’s board and audit committee also regularly review reports that describe fair value determinations and methods.
The fund’s investment adviser has also established a Fixed-Income Pricing Review Group to administer and oversee the fixed-income valuation process, including the use of fixed-income pricing vendors. This group regularly reviews pricing vendor information and market data. Pricing decisions, processes and controls over security valuation are also subject to additional internal reviews, including an annual control self-evaluation program facilitated by the investment adviser’s compliance group.
Classifications — The fund’s investment adviser classifies the fund’s assets and liabilities into three levels based on the inputs used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the investment adviser’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following tables present the fund’s valuation levels as of June 30, 2013 (dollars in thousands):
Investment securities | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Bonds & notes: | ||||||||||||||||
Corporate bonds & notes | $ | — | $ | 10,350,919 | $ | — | $ | 10,350,919 | ||||||||
Mortgage-backed obligations | — | 8,586,416 | — | 8,586,416 | ||||||||||||
U.S. Treasury bonds & notes | — | 7,647,896 | — | 7,647,896 | ||||||||||||
Bonds & notes of governments & government agencies outside the U.S. | — | 1,369,222 | — | 1,369,222 | ||||||||||||
Federal agency bonds & notes | — | 875,944 | — | 875,944 | ||||||||||||
Other | — | 449,590 | — | 449,590 | ||||||||||||
Convertible securities | — | 12,032 | 13,579 | 25,611 | ||||||||||||
Preferred securities | — | 5,753 | — | 5,753 | ||||||||||||
Common stocks | — | — | 55,173 | 55,173 | ||||||||||||
Warrants | — | — | 19 | 19 | ||||||||||||
Short-term securities | — | 3,676,569 | — | 3,676,569 | ||||||||||||
Total | $ | — | $ | 32,974,341 | $ | 68,771 | $ | 33,043,112 |
The Bond Fund of America | 19 |
Other investments* | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Unrealized appreciation on open forward currency contracts | $ | — | $ | 2,736 | $ | — | $ | 2,736 | ||||||||
Liabilities: | ||||||||||||||||
Unrealized depreciation on open forward currency contracts | — | (423 | ) | — | (423 | ) | ||||||||||
Unrealized depreciation on interest rate swaps | — | (4,832 | ) | — | (4,832 | ) | ||||||||||
Total | $ | — | $ | (2,519 | ) | $ | — | $ | (2,519 | ) |
* | Forward currency contracts and interest rate swaps are not included in the investment portfolio. |
4. Risk factors
Investing in the fund may involve certain risks including, but not limited to, those described below.
Market conditions — The prices of, and the income generated by, the securities held by the fund may decline due to market conditions and other factors, including those directly involving the issuers of securities held by the fund.
Investing in bonds — Rising interest rates will generally cause the prices of bonds and other debt securities to fall. Longer maturity debt securities may be subject to greater price fluctuations than shorter maturity debt securities. In addition, falling interest rates may cause an issuer to redeem, call or refinance a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities.
Bonds and other debt securities are subject to credit risk, which is the possibility that the credit strength of an issuer will weaken and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. Lower quality debt securities generally have higher rates of interest and may be subject to greater price fluctuations than higher quality debt securities. Credit risk is gauged, in part, by the credit ratings of the securities in which the fund invests. However, ratings are only the opinions of the rating agencies issuing them and are not guarantees as to credit quality or an evaluation of market risk. The fund’s investment adviser relies on its own credit analysts to research issuers and issues in seeking to mitigate the risks of an issuer defaulting on its obligations.
Investing in mortgage-backed and asset-backed securities — Many types of bonds and other debt securities, including mortgage-backed securities, are subject to prepayment risk as well as the risks associated with investing in debt securities in general. If interest rates fall and the loans underlying these securities are prepaid faster than expected, the fund may have to reinvest the prepaid principal in lower yielding securities, thus reducing the fund’s income. Conversely, if interest rates increase and the loans
20 | The Bond Fund of America |
underlying the securities are prepaid more slowly than expected, the time in which the securities are expected to be paid off could be extended. This may reduce the fund’s cash for potential reinvestment in higher yielding securities.
Investing in securities backed by the U.S. government — Securities backed by the U.S. Treasury or the full faith and credit of the U.S. government are guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market values for these securities will fluctuate with changes in interest rates. Securities issued by government-sponsored entities and federal agencies and instrumentalities that are not backed by the full faith and credit of the U.S. government are neither issued nor guaranteed by the U.S. government.
Thinly traded securities — There may be little trading in the secondary market for particular bonds or other debt securities, which may make them more difficult to value, acquire or sell.
Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may lose value because of adverse political, social, economic or market developments in the countries or regions in which the issuers operate. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different settlement and accounting practices and different regulatory, legal and reporting standards, and may be more difficult to value, than those in the U.S. The risks of investing outside the U.S. may be heightened in connection with investments in emerging markets.
Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to the risk that the methods and analyses employed by the investment adviser in this process may not produce the desired results. This could cause the fund to lose value or its investment results to lag relevant benchmarks or other funds with similar objectives.
5. Certain investment techniques
Mortgage dollar rolls — The fund has entered into mortgage dollar roll transactions in which the fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Risks may arise due to the delayed payment date and the potential inability of counterparties to complete the transaction. Mortgage dollar rolls are accounted for as purchase and sale transactions, which may increase the fund’s portfolio turnover rate.
The Bond Fund of America | 21 |
Loan transactions — The fund has entered into loan transactions in which the fund acquires a loan either through an agent, by assignment from another holder, or as a participation interest in another holder’s portion of a loan. The loan is often administered by a financial institution that acts as agent for the holders of the loan, and the fund may be required to receive approval from the agent and/or borrower prior to the sale of the investment. The loan’s interest rate and maturity date may change based on the terms of the loan, including potential early payments of principal.
Forward currency contracts — The fund has entered into forward currency contracts, which represent agreements to exchange currencies on specific future dates at predetermined rates. The fund’s investment adviser uses forward currency contracts to manage the fund’s exposure to changes in exchange rates. Upon entering into these contracts, risks may arise from the potential inability of counterparties to meet the terms of their contracts and from possible movements in exchange rates.
On a daily basis, the fund’s investment adviser values forward currency contracts based on the applicable exchange rates and records unrealized appreciation or depreciation for open forward currency contracts in the fund’s statement of assets and liabilities. Realized gains or losses are recorded at the time the forward currency contract is closed or offset by another contract with the same broker for the same settlement date and currency.
Interest rate swaps — The fund has entered into interest rate swaps, which are agreements to exchange one stream of future interest payments for another based on a specified notional amount. Typically, interest rate swaps exchange a fixed-interest rate for a payment that floats relative to a benchmark or vice versa. The fund’s investment adviser uses interest rate swaps to manage the interest rate sensitivity of the fund by increasing or decreasing the duration of the fund or a portion of the fund’s portfolio. Upon entering into interest rate swaps, risks may arise as a result of the fund’s investment adviser incorrectly anticipating changes in interest rates, increased volatility, reduced liquidity and the potential inability of counterparties to meet the terms of their agreements.
On a daily basis, the fund’s investment adviser records interest accruals related to the exchange of future payments as a receivable and payable in the fund’s statement of assets and liabilities. Unrealized appreciation or depreciation as a result of market fluctuation is recorded as an asset or liability. Periodic payments received or made by the fund are recorded in the fund’s statement of operations as realized gains or losses, respectively. Gains or losses are realized upon early termination or expiration of the interest rate swap agreement.
22 | The Bond Fund of America |
The following tables present the financial statement impacts resulting from the fund’s use of forward currency contracts and interest rate swaps as of June 30, 2013 (dollars in thousands):
Asset | Liability | |||||||||||
Contract | Location on statement of assets and liabilities | Value | Location on statement of assets and liabilities | Value | ||||||||
Forward currency | Unrealized appreciation on open forward currency contracts | $ | 2,736 | Unrealized depreciation on open forward currency contracts | $ | 423 | ||||||
Forward currency | Receivables for closed forward currency contracts | 1,178 | Payables for closed forward currency contracts | 404 | ||||||||
Interest rate swaps | Unrealized appreciation on interest rate swaps | — | Unrealized depreciation on interest rate swaps | 4,832 | ||||||||
Interest rate swaps | Receivables for interest rate swaps | 403 | Payables for interest rate swaps | 16 | ||||||||
$ | 4,317 | $ | 5,675 |
Net realized gain | Net unrealized appreciation (depreciation) | |||||||||||
Contract | Location on statement of operations | Value | Location on statement of operations | Value | ||||||||
Forward currency | Net realized gain on forward currency contracts | $ | 9,627 | Net unrealized appreciation on forward currency contracts | $ | 1,348 | ||||||
Interest rate swaps | Net realized gain on interest rate swaps | 951 | Net unrealized depreciation on interest rate swaps | (5,396 | ) | |||||||
$ | 10,578 | $ | (4,048 | ) |
Collateral — To reduce the risk to counterparties of forward currency contracts and interest rate swaps, the fund has entered into a collateral program with certain counterparties. The program calls for the fund to either receive or pledge collateral based on the net gain or loss on unsettled forward currency contracts and open interest rate swaps by counterparty. The purpose of the collateral is to cover potential losses that could occur in the event that either party cannot meet its contractual obligations.
6. Taxation and distributions
Federal income taxation — The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required.
The Bond Fund of America | 23 |
As of and during the period ended June 30, 2013, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.
The fund is not subject to examination by U.S. federal tax authorities for tax years before 2009 and by state tax authorities and tax authorities outside the U.S. for tax years before 2008.
Non-U.S. taxation — Interest income is recorded net of non-U.S. taxes paid.
Distributions — Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to different treatment for items such as currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; cost of investments sold; paydowns on fixed-income securities; and net capital losses. 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 for financial reporting purposes.
The components of distributable earnings on a tax basis are reported as of the fund’s most recent year-end. As of December 31, 2012, the components of distributable earnings on a tax basis were as follows (dollars in thousands):
Undistributed ordinary income | $ | 20,766 | ||
Capital loss carryforward expiring 2017* | (2,282,849 | ) |
* | The capital loss carryforward will be used to offset any capital gains realized by the fund in the current year or in subsequent years through the expiration date. The fund will not make distributions from capital gains while a capital loss carryforward remains. |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
24 | The Bond Fund of America |
As of June 30, 2013, the tax basis unrealized appreciation (depreciation) and cost of investment securities were as follows (dollars in thousands):
Gross unrealized appreciation on investment securities | $ | 749,714 | ||
Gross unrealized depreciation on investment securities | (477,246 | ) | ||
Net unrealized appreciation on investment securities | 272,468 | |||
Cost of investment securities | 32,770,644 |
Tax-basis distributions paid or accrued to shareholders from ordinary income were as follows (dollars in thousands):
Share class | Six months ended June 30, 2013 | Year ended December 31, 2012 | ||||||
Class A | $ | 249,385 | $ | 621,073 | ||||
Class B | 2,700 | 9,658 | ||||||
Class C | 15,234 | 44,097 | ||||||
Class F-1 | 14,565 | 40,349 | ||||||
Class F-2 | 5,524 | 10,022 | ||||||
Class 529-A | 11,128 | 26,493 | ||||||
Class 529-B | 221 | 800 | ||||||
Class 529-C | 2,975 | 8,100 | ||||||
Class 529-E | 545 | 1,310 | ||||||
Class 529-F-1 | 809 | 1,853 | ||||||
Class R-1 | 508 | 1,629 | ||||||
Class R-2 | 5,441 | 14,657 | ||||||
Class R-3 | 8,394 | 22,069 | ||||||
Class R-4 | 6,215 | 17,023 | ||||||
Class R-5 | 3,818 | 9,015 | ||||||
Class R-6 | 9,116 | 9,482 | ||||||
Total | $ | 336,578 | $ | 837,630 |
7. Fees and transactions with related parties
CRMC, the fund’s investment adviser, is the parent company of American Funds Distributors,® Inc. (“AFD”), the principal underwriter of the fund’s shares, and American Funds Service Company® (“AFS”), the fund’s transfer agent. CRMC, AFD and AFS are considered related parties to the fund.
Investment advisory services — The fund has an investment advisory and service agreement with CRMC that provides for monthly fees accrued daily. These fees are based on a series of decreasing annual rates beginning with 0.30% on the first $60 million of daily net assets and decreasing to 0.11% on such assets in excess of $36 billion. The
The Bond Fund of America | 25 |
agreement also provides for monthly fees, accrued daily, based on a series of decreasing rates beginning with 2.25% on the first $8,333,333 of the fund’s monthly gross income and decreasing to 1.75% on such income in excess of $41,666,667. For the six months ended June 30, 2013, the investment advisory services fee was $30,297,000, which was equivalent to an annualized rate of 0.187% of average daily net assets.
Class-specific fees and expenses — Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below:
Distribution services — The fund has plans of distribution for all share classes, except Class F-2, R-5 and R-6 shares. Under the plans, the board of trustees approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted below. In some cases, the board of trustees has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes with a plan may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities. | |
For Class A and 529-A shares, distribution-related expenses include the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These share classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of June 30, 2013, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A shares. |
Share class | Currently approved limits | Plan limits | |||||||
Class A | 0.25 | % | 0.25 | % | |||||
Class 529-A | 0.25 | 0.50 | |||||||
Classes B and 529-B | 1.00 | 1.00 | |||||||
Classes C, 529-C and R-1 | 1.00 | 1.00 | |||||||
Class R-2 | 0.75 | 1.00 | |||||||
Classes 529-E and R-3 | 0.50 | 0.75 | |||||||
Classes F-1, 529-F-1 and R-4 | 0.25 | 0.50 |
Transfer agent services — The fund has a shareholder services agreement with AFS under which the fund compensates AFS for providing transfer agent services to each of the fund’s share classes. These services include recordkeeping, shareholder communications and transaction processing. In addition, the fund reimburses AFS |
26 | The Bond Fund of America |
for amounts paid to third parties for performing transfer agent services on behalf of fund shareholders. | |
Administrative services — The fund has an administrative services agreement with CRMC under which the fund compensates CRMC for providing administrative services to Class A, C, F, 529 and R shares. These services include, but are not limited to, coordinating, monitoring, assisting and overseeing third parties that provide services to fund shareholders. Under the agreement, Class A shares pay an annual fee of 0.01% and Class C, F, 529 and R shares pay an annual fee of 0.05% of their respective average daily net assets. | |
529 plan services — Each 529 share class is subject to service fees to compensate the Commonwealth of Virginia for the maintenance of the 529 college savings plan. The quarterly fee is based on a series of decreasing annual rates beginning with 0.10% on the first $30 billion of the net assets invested in Class 529 shares of the American Funds and decreasing to 0.06% on such assets between $120 billion and $150 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 shares of the American Funds for the last month of the prior calendar quarter. The fee is included in other expenses on the accompanying financial statements. The Commonwealth of Virginia is not considered a related party. | |
For the six months ended June 30, 2013, class-specific expenses under the agreements were as follows (dollars in thousands): |
Share class | Distribution services | Transfer agent services | Administrative services | 529 plan services | |||||||||||
Class A | $27,599 | $17,650 | $1,149 | Not applicable | |||||||||||
Class B | 1,923 | 314 | Not applicable | Not applicable | |||||||||||
Class C | 11,168 | 1,734 | 560 | Not applicable | |||||||||||
Class F-1 | 1,683 | 833 | 338 | Not applicable | |||||||||||
Class F-2 | Not applicable | 232 | 114 | Not applicable | |||||||||||
Class 529-A | 1,233 | 648 | 268 | $527 | |||||||||||
Class 529-B | 171 | 24 | 9 | 17 | |||||||||||
Class 529-C | 2,282 | 293 | 115 | 226 | |||||||||||
Class 529-E | 147 | 22 | 15 | 29 | |||||||||||
Class 529-F-1 | — | 43 | 18 | 34 | |||||||||||
Class R-1 | 363 | 46 | 18 | Not applicable | |||||||||||
Class R-2 | 2,823 | 1,338 | 191 | Not applicable | |||||||||||
Class R-3 | 2,231 | 816 | 227 | Not applicable | |||||||||||
Class R-4 | 707 | 292 | 143 | Not applicable | |||||||||||
Class R-5 | Not applicable | 80 | 77 | Not applicable | |||||||||||
Class R-6 | Not applicable | 2 | 180 | Not applicable | |||||||||||
Total class-specific expenses | $52,330 | $24,367 | $3,422 | $833 |
The Bond Fund of America | 27 |
Trustees’ deferred compensation — Trustees who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Trustees’ compensation of $207,000, shown on the accompanying financial statements, includes $117,000 in current fees (either paid in cash or deferred) and a net increase of $90,000 in the value of the deferred amounts.
Affiliated officers and trustees — Officers and certain trustees of the fund are or may be considered to be affiliated with CRMC, AFD and AFS. No affiliated officers or trustees received any compensation directly from the fund.
8. Capital share transactions
Capital share transactions in the fund were as follows (dollars and shares in thousands):
Sales* | Reinvestments of dividends | Repurchases* | Net (decrease) increase | |||||||||||||||||||||||||||||
Share class | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | ||||||||||||||||||||||||
Six months ended June 30, 2013 | ||||||||||||||||||||||||||||||||
Class A | $ | 1,340,563 | 104,247 | $ | 238,309 | 18,623 | $ | (3,435,249 | ) | (268,151 | ) | $ | (1,856,377 | ) | (145,281 | ) | ||||||||||||||||
Class B | 6,258 | 486 | 2,585 | 202 | (102,886 | ) | (8,013 | ) | (94,043 | ) | (7,325 | ) | ||||||||||||||||||||
Class C | 133,076 | 10,347 | 14,180 | 1,108 | (433,441 | ) | (33,817 | ) | (286,185 | ) | (22,362 | ) | ||||||||||||||||||||
Class F-1 | 165,945 | 12,918 | 14,201 | 1,110 | (347,167 | ) | (27,061 | ) | (167,021 | ) | (13,033 | ) | ||||||||||||||||||||
Class F-2 | 85,304 | 6,638 | 4,873 | 381 | (145,208 | ) | (11,366 | ) | (55,031 | ) | (4,347 | ) | ||||||||||||||||||||
Class 529-A | 76,266 | 5,933 | 11,077 | 866 | (104,135 | ) | (8,112 | ) | (16,792 | ) | (1,313 | ) | ||||||||||||||||||||
Class 529-B | 963 | 75 | 219 | 17 | (8,414 | ) | (654 | ) | (7,232 | ) | (562 | ) | ||||||||||||||||||||
Class 529-C | 34,657 | 2,696 | 2,957 | 231 | (53,145 | ) | (4,138 | ) | (15,531 | ) | (1,211 | ) | ||||||||||||||||||||
Class 529-E | 3,894 | 303 | 542 | 42 | (5,665 | ) | (442 | ) | (1,229 | ) | (97 | ) | ||||||||||||||||||||
Class 529-F-1 | 9,287 | 722 | 802 | 63 | (12,892 | ) | (1,006 | ) | (2,803 | ) | (221 | ) | ||||||||||||||||||||
Class R-1 | 7,359 | 573 | 503 | 39 | (19,023 | ) | (1,481 | ) | (11,161 | ) | (869 | ) | ||||||||||||||||||||
Class R-2 | 99,408 | 7,731 | 5,366 | 420 | (169,220 | ) | (13,184 | ) | (64,446 | ) | (5,033 | ) | ||||||||||||||||||||
Class R-3 | 119,396 | 9,286 | 8,239 | 644 | (202,672 | ) | (15,791 | ) | (75,037 | ) | (5,861 | ) | ||||||||||||||||||||
Class R-4 | 85,739 | 6,673 | 6,159 | 482 | (138,235 | ) | (10,766 | ) | (46,337 | ) | (3,611 | ) | ||||||||||||||||||||
Class R-5 | 52,417 | 4,085 | 3,690 | 288 | (55,060 | ) | (4,293 | ) | 1,047 | 80 | ||||||||||||||||||||||
Class R-6 | 344,523 | 26,802 | 9,118 | 713 | (29,927 | ) | (2,333 | ) | 323,714 | 25,182 | ||||||||||||||||||||||
Total net increase (decrease) | $ | 2,565,055 | 199,515 | $ | 322,820 | 25,229 | $ | (5,262,339 | ) | (410,608 | ) | $ | (2,374,464 | ) | (185,864 | ) |
28 | The Bond Fund of America |
Sales* | Reinvestments of dividends | Repurchases* | Net (decrease) increase | |||||||||||||||||||||||||||||
Share class | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | ||||||||||||||||||||||||
Year ended December 31, 2012 | ||||||||||||||||||||||||||||||||
Class A | $ | 3,729,354 | 290,912 | $ | 593,959 | 46,325 | $ | (4,579,516 | ) | (357,570 | ) | $ | (256,203 | ) | (20,333 | ) | ||||||||||||||||
Class B | 38,430 | 2,999 | 9,314 | 727 | (236,173 | ) | (18,455 | ) | (188,429 | ) | (14,729 | ) | ||||||||||||||||||||
Class C | 392,273 | 30,625 | 41,699 | 3,253 | (631,582 | ) | (49,349 | ) | (197,610 | ) | (15,471 | ) | ||||||||||||||||||||
Class F-1 | 406,021 | 31,737 | 39,661 | 3,093 | (562,716 | ) | (43,828 | ) | (117,034 | ) | (8,998 | ) | ||||||||||||||||||||
Class F-2 | 260,938 | 20,263 | 8,947 | 697 | (116,773 | ) | (9,106 | ) | 153,112 | 11,854 | ||||||||||||||||||||||
Class 529-A | 227,520 | 17,770 | 26,403 | 2,059 | (166,598 | ) | (12,978 | ) | 87,325 | 6,851 | ||||||||||||||||||||||
Class 529-B | 5,707 | 446 | 792 | 61 | (22,536 | ) | (1,760 | ) | (16,037 | ) | (1,253 | ) | ||||||||||||||||||||
Class 529-C | 104,138 | 8,136 | 8,067 | 630 | (94,110 | ) | (7,328 | ) | 18,095 | 1,438 | ||||||||||||||||||||||
Class 529-E | 13,306 | 1,040 | 1,305 | 102 | (9,387 | ) | (732 | ) | 5,224 | 410 | ||||||||||||||||||||||
Class 529-F-1 | 22,664 | 1,770 | 1,845 | 144 | (13,221 | ) | (1,027 | ) | 11,288 | 887 | ||||||||||||||||||||||
Class R-1 | 23,307 | 1,822 | 1,619 | 127 | (37,715 | ) | (2,939 | ) | (12,789 | ) | (990 | ) | ||||||||||||||||||||
Class R-2 | 259,787 | 20,277 | 14,507 | 1,132 | (297,837 | ) | (23,268 | ) | (23,543 | ) | (1,859 | ) | ||||||||||||||||||||
Class R-3 | 309,892 | 24,210 | 21,892 | 1,708 | (370,227 | ) | (28,898 | ) | (38,443 | ) | (2,980 | ) | ||||||||||||||||||||
Class R-4 | 237,147 | 18,520 | 16,943 | 1,322 | (342,496 | ) | (26,679 | ) | (88,406 | ) | (6,837 | ) | ||||||||||||||||||||
Class R-5 | 113,342 | 8,855 | 8,905 | 695 | (130,124 | ) | (10,173 | ) | (7,877 | ) | (623 | ) | ||||||||||||||||||||
Class R-6 | 358,279 | 27,779 | 9,477 | 737 | (53,719 | ) | (4,184 | ) | 314,037 | 24,332 | ||||||||||||||||||||||
Total net increase (decrease) | $ | 6,502,105 | 507,161 | $ | 805,335 | 62,812 | $ | (7,664,730 | ) | (598,274 | ) | $ | (357,290 | ) | (28,301 | ) |
*Includes exchanges between share classes of the fund.
9. Investment transactions
The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $54,582,808,000 and $56,275,262,000, respectively, during the six months ended June 30, 2013.
The Bond Fund of America | 29 |
Financial highlights
(Loss) income from investment operations1 | ||||||||||||||||||
Net asset value, beginning of period | Net investment income | Net (losses) gains on securities (both realized and unrealized) | Total from investment operations | |||||||||||||||
Class A: | Six months ended 6/30/20134,5 | $ | 12.95 | $ | .12 | $ | (.46 | ) | $ | (.34 | ) | |||||||
Year ended 12/31/2012 | 12.55 | .30 | .43 | .73 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .40 | .38 | .78 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .44 | .41 | .85 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .53 | 1.03 | 1.56 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .70 | (2.25 | ) | (1.55 | ) | ||||||||||||
Class B: | Six months ended 6/30/20134,5 | 12.95 | .07 | (.46 | ) | (.39 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .21 | .43 | .64 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .31 | .38 | .69 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .35 | .41 | .76 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .45 | 1.03 | 1.48 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .61 | (2.25 | ) | (1.64 | ) | ||||||||||||
Class C: | Six months ended 6/30/20134,5 | 12.95 | .07 | (.46 | ) | (.39 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .20 | .43 | .63 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .30 | .38 | .68 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .35 | .41 | .76 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .44 | 1.03 | 1.47 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .60 | (2.25 | ) | (1.65 | ) | ||||||||||||
Class F-1: | Six months ended 6/30/20134,5 | 12.95 | .12 | (.46 | ) | (.34 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .30 | .43 | .73 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .40 | .38 | .78 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .44 | .41 | .85 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .53 | 1.03 | 1.56 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .70 | (2.25 | ) | (1.55 | ) | ||||||||||||
Class F-2: | Six months ended 6/30/20134,5 | 12.95 | .13 | (.46 | ) | (.33 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .33 | .43 | .76 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .43 | .38 | .81 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .47 | .41 | .88 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .56 | 1.03 | 1.59 | ||||||||||||||
Period from 8/4/2008 to 12/31/20084 | 12.31 | .29 | (1.47 | ) | (1.18 | ) | ||||||||||||
Class 529-A: | Six months ended 6/30/20134,5 | 12.95 | .11 | (.46 | ) | (.35 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .29 | .43 | .72 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .39 | .38 | .77 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .44 | .41 | .85 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .53 | 1.03 | 1.56 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .69 | (2.25 | ) | (1.56 | ) |
30 | The Bond Fund of America |
Dividends (from net investment income) | Net asset value, end of period | Total return2,3 | Net assets, end of period (in millions) | Ratio of expenses to average net assets before waivers | Ratio of expenses to average net assets after waivers3 | Ratio of net income to average net assets3 | ||||||||||||||||||||
$ | (.14 | ) | $ | 12.47 | (2.66 | )% | $ | 21,439 | .60 | %6 | .60 | %6 | 1.91 | %6 | ||||||||||||
(.33 | ) | 12.95 | 5.90 | 24,142 | .60 | .60 | 2.33 | |||||||||||||||||||
(.42 | ) | 12.55 | 6.51 | 23,654 | .60 | .60 | 3.23 | |||||||||||||||||||
(.46 | ) | 12.19 | 7.30 | 25,627 | .59 | .59 | 3.61 | |||||||||||||||||||
(.52 | ) | 11.80 | 14.91 | 27,349 | .65 | .65 | 4.74 | |||||||||||||||||||
(.75 | ) | 10.76 | (12.24 | ) | 21,987 | .65 | .63 | 5.76 | ||||||||||||||||||
(.09 | ) | 12.47 | (3.03 | ) | 333 | 1.36 | 6 | 1.36 | 6 | 1.15 | 6 | |||||||||||||||
(.24 | ) | 12.95 | 5.10 | 441 | 1.35 | 1.35 | 1.60 | |||||||||||||||||||
(.33 | ) | 12.55 | 5.70 | 612 | 1.36 | 1.36 | 2.49 | |||||||||||||||||||
(.37 | ) | 12.19 | 6.50 | 891 | 1.35 | 1.35 | 2.88 | |||||||||||||||||||
(.44 | ) | 11.80 | 14.06 | 1,212 | 1.40 | 1.40 | 4.05 | |||||||||||||||||||
(.66 | ) | 10.76 | (12.88 | ) | 1,227 | 1.40 | 1.37 | 5.02 | ||||||||||||||||||
(.09 | ) | 12.47 | (3.05 | ) | 2,033 | 1.40 | 6 | 1.40 | 6 | 1.11 | 6 | |||||||||||||||
(.23 | ) | 12.95 | 5.05 | 2,400 | 1.39 | 1.39 | 1.54 | |||||||||||||||||||
(.32 | ) | 12.55 | 5.66 | 2,520 | 1.40 | 1.40 | 2.43 | |||||||||||||||||||
(.37 | ) | 12.19 | 6.45 | 2,931 | 1.39 | 1.39 | 2.81 | |||||||||||||||||||
(.43 | ) | 11.80 | 14.00 | 3,189 | 1.44 | 1.44 | 3.91 | |||||||||||||||||||
(.65 | ) | 10.76 | (12.92 | ) | 2,274 | 1.44 | 1.41 | 4.98 | ||||||||||||||||||
(.14 | ) | 12.47 | (2.67 | ) | 1,236 | .62 | 6 | .62 | 6 | 1.89 | 6 | |||||||||||||||
(.33 | ) | 12.95 | 5.88 | 1,452 | .61 | .61 | 2.32 | |||||||||||||||||||
(.42 | ) | 12.55 | 6.48 | 1,520 | .63 | .63 | 3.21 | |||||||||||||||||||
(.46 | ) | 12.19 | 7.27 | 1,866 | .62 | .62 | 3.59 | |||||||||||||||||||
(.52 | ) | 11.80 | 14.91 | 2,329 | .65 | .65 | 4.80 | |||||||||||||||||||
(.75 | ) | 10.76 | (12.23 | ) | 2,653 | .64 | .62 | 5.78 | ||||||||||||||||||
(.15 | ) | 12.47 | (2.54 | ) | 411 | .35 | 6 | .35 | 6 | 2.17 | 6 | |||||||||||||||
(.36 | ) | 12.95 | 6.16 | 483 | .35 | .35 | 2.56 | |||||||||||||||||||
(.45 | ) | 12.55 | 6.76 | 319 | .36 | .36 | 3.48 | |||||||||||||||||||
(.49 | ) | 12.19 | 7.55 | 402 | .36 | .36 | 3.89 | |||||||||||||||||||
(.55 | ) | 11.80 | 15.19 | 737 | .39 | .39 | 4.66 | |||||||||||||||||||
(.37 | ) | 10.76 | (9.62 | ) | 99 | .18 | .17 | 2.69 | ||||||||||||||||||
(.13 | ) | 12.47 | (2.71 | ) | 1,044 | .70 | 6 | .70 | 6 | 1.81 | 6 | |||||||||||||||
(.32 | ) | 12.95 | 5.80 | 1,101 | .68 | .68 | 2.24 | |||||||||||||||||||
(.41 | ) | 12.55 | 6.42 | 981 | .68 | .68 | 3.13 | |||||||||||||||||||
(.46 | ) | 12.19 | 7.24 | 898 | .65 | .65 | 3.53 | |||||||||||||||||||
(.52 | ) | 11.80 | 14.86 | 758 | .70 | .70 | 4.67 | |||||||||||||||||||
(.74 | ) | 10.76 | (12.28 | ) | 547 | .69 | .67 | 5.74 |
See page 35 for footnotes.
The Bond Fund of America | 31 |
Financial highlights (continued)
(Loss) income from investment operations1 | ||||||||||||||||||
Net asset value, beginning of period | Net investment income | Net (losses) gains on securities (both realized and unrealized) | Total from investment operations | |||||||||||||||
Class 529-B: | Six months ended 6/30/20134,5 | $ | 12.95 | $ | .06 | $ | (.46 | ) | $ | (.40 | ) | |||||||
Year ended 12/31/2012 | 12.55 | .19 | .43 | .62 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .29 | .38 | .67 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .34 | .41 | .75 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .44 | 1.03 | 1.47 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .60 | (2.25 | ) | (1.65 | ) | ||||||||||||
Class 529-C: | Six months ended 6/30/20134,5 | 12.95 | .06 | (.46 | ) | (.40 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .19 | .43 | .62 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .29 | .38 | .67 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .34 | .41 | .75 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .44 | 1.03 | 1.47 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .60 | (2.25 | ) | (1.65 | ) | ||||||||||||
Class 529-E: | Six months ended 6/30/20134,5 | 12.95 | .10 | (.46 | ) | (.36 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .26 | .43 | .69 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .36 | .38 | .74 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .40 | .41 | .81 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .49 | 1.03 | 1.52 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .66 | (2.25 | ) | (1.59 | ) | ||||||||||||
Class 529-F-1: | Six months ended 6/30/20134,5 | 12.95 | .13 | (.46 | ) | (.33 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .32 | .43 | .75 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .42 | .38 | .80 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .46 | .41 | .87 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .55 | 1.03 | 1.58 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .72 | (2.25 | ) | (1.53 | ) | ||||||||||||
Class R-1: | Six months ended 6/30/20134,5 | 12.95 | .07 | (.46 | ) | (.39 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .20 | .43 | .63 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .30 | .38 | .68 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .35 | .41 | .76 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .44 | 1.03 | 1.47 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .60 | (2.25 | ) | (1.65 | ) | ||||||||||||
Class R-2: | Six months ended 6/30/20134,5 | 12.95 | .07 | (.46 | ) | (.39 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .20 | .43 | .63 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .30 | .38 | .68 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .34 | .41 | .75 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .44 | 1.03 | 1.47 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .59 | (2.25 | ) | (1.66 | ) |
32 | The Bond Fund of America |
Dividends (from net investment income) | Net asset value, end of period | Total return2,3 | Net assets, end of period (in millions) | Ratio of expenses to average net assets before waivers | Ratio of expenses to average net assets after waivers3 | Ratio of net income to average net assets3 | ||||||||||||||||||||
$ | (.08 | ) | $ | 12.47 | (3.09 | )% | $ | 31 | 1.48 | %6 | 1.48 | %6 | 1.03 | %6 | ||||||||||||
(.22 | ) | 12.95 | 4.96 | 39 | 1.48 | 1.48 | 1.47 | |||||||||||||||||||
(.31 | ) | 12.55 | 5.58 | 54 | 1.47 | 1.47 | 2.36 | |||||||||||||||||||
(.36 | ) | 12.19 | 6.39 | 73 | 1.45 | 1.45 | 2.76 | |||||||||||||||||||
(.43 | ) | 11.80 | 13.94 | 86 | 1.50 | 1.50 | 3.89 | |||||||||||||||||||
(.65 | ) | 10.76 | (12.98 | ) | 71 | 1.51 | 1.48 | 4.92 | ||||||||||||||||||
(.08 | ) | 12.47 | (3.08 | ) | 444 | 1.47 | 6 | 1.47 | 6 | 1.04 | 6 | |||||||||||||||
(.22 | ) | 12.95 | 4.97 | 477 | 1.46 | 1.46 | 1.46 | |||||||||||||||||||
(.31 | ) | 12.55 | 5.59 | 444 | 1.46 | 1.46 | 2.35 | |||||||||||||||||||
(.36 | ) | 12.19 | 6.40 | 428 | 1.44 | 1.44 | 2.74 | |||||||||||||||||||
(.43 | ) | 11.80 | 13.95 | 370 | 1.49 | 1.49 | 3.87 | |||||||||||||||||||
(.65 | ) | 10.76 | (12.97 | ) | 258 | 1.50 | 1.47 | 4.94 | ||||||||||||||||||
(.12 | ) | 12.47 | (2.82 | ) | 57 | .92 | 6 | .92 | 6 | 1.59 | 6 | |||||||||||||||
(.29 | ) | 12.95 | 5.55 | 61 | .93 | .93 | 1.99 | |||||||||||||||||||
(.38 | ) | 12.55 | 6.14 | 54 | .94 | .94 | 2.87 | |||||||||||||||||||
(.42 | ) | 12.19 | 6.93 | 49 | .93 | .93 | 3.24 | |||||||||||||||||||
(.48 | ) | 11.80 | 14.52 | 40 | .99 | .99 | 4.38 | |||||||||||||||||||
(.71 | ) | 10.76 | (12.53 | ) | 29 | .99 | .96 | 5.45 | ||||||||||||||||||
(.15 | ) | 12.47 | (2.60 | ) | 67 | .47 | 6 | .47 | 6 | 2.04 | 6 | |||||||||||||||
(.35 | ) | 12.95 | 6.04 | 73 | .46 | .46 | 2.45 | |||||||||||||||||||
(.44 | ) | 12.55 | 6.65 | 59 | .46 | .46 | 3.36 | |||||||||||||||||||
(.48 | ) | 12.19 | 7.47 | 54 | .44 | .44 | 3.74 | |||||||||||||||||||
(.54 | ) | 11.80 | 15.09 | 44 | .49 | .49 | 4.84 | |||||||||||||||||||
(.77 | ) | 10.76 | (12.10 | ) | 26 | .49 | .46 | 5.96 | ||||||||||||||||||
(.09 | ) | 12.47 | (3.04 | ) | 67 | 1.37 | 6 | 1.37 | 6 | 1.14 | 6 | |||||||||||||||
(.23 | ) | 12.95 | 5.08 | 81 | 1.36 | 1.36 | 1.57 | |||||||||||||||||||
(.32 | ) | 12.55 | 5.68 | 91 | 1.38 | 1.38 | 2.45 | |||||||||||||||||||
(.37 | ) | 12.19 | 6.47 | 99 | 1.38 | 1.38 | 2.82 | |||||||||||||||||||
(.43 | ) | 11.80 | 14.02 | 103 | 1.43 | 1.43 | 3.96 | |||||||||||||||||||
(.65 | ) | 10.76 | (12.92 | ) | 88 | 1.44 | 1.42 | 5.01 | ||||||||||||||||||
(.09 | ) | 12.47 | (3.02 | ) | 715 | 1.34 | 6 | 1.34 | 6 | 1.17 | 6 | |||||||||||||||
(.23 | ) | 12.95 | 5.09 | 807 | 1.36 | 1.36 | 1.57 | |||||||||||||||||||
(.32 | ) | 12.55 | 5.67 | 806 | 1.39 | 1.39 | 2.43 | |||||||||||||||||||
(.36 | ) | 12.19 | 6.44 | 832 | 1.39 | 1.39 | 2.79 | |||||||||||||||||||
(.43 | ) | 11.80 | 13.95 | 795 | 1.49 | 1.49 | 3.89 | |||||||||||||||||||
(.64 | ) | 10.76 | (12.99 | ) | 616 | 1.53 | 1.50 | 4.90 |
See page 35 for footnotes.
The Bond Fund of America | 33 |
Financial highlights (continued)
(Loss) income from investment operations1 | ||||||||||||||||||
Net asset value, beginning of period | Net investment income | Net (losses) gains on securities (both realized and unrealized) | Total from investment operations | |||||||||||||||
Class R-3: | Six months ended 6/30/20134,5 | $ | 12.95 | $ | .10 | $ | (.46 | ) | $ | (.36 | ) | |||||||
Year ended 12/31/2012 | 12.55 | .26 | .43 | .69 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .36 | .38 | .74 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .40 | .41 | .81 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .50 | 1.03 | 1.53 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .66 | (2.25 | ) | (1.59 | ) | ||||||||||||
Class R-4: | Six months ended 6/30/20134,5 | 12.95 | .12 | (.46 | ) | (.34 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .30 | .43 | .73 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .40 | .38 | .78 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .44 | .41 | .85 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .53 | 1.03 | 1.56 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .70 | (2.25 | ) | (1.55 | ) | ||||||||||||
Class R-5: | Six months ended 6/30/20134,5 | 12.95 | .14 | (.46 | ) | (.32 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .34 | .43 | .77 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .43 | .38 | .81 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .48 | .41 | .89 | ||||||||||||||
Year ended 12/31/2009 | 10.76 | .56 | 1.03 | 1.59 | ||||||||||||||
Year ended 12/31/2008 | 13.06 | .73 | (2.25 | ) | (1.52 | ) | ||||||||||||
Class R-6: | Six months ended 6/30/20134,5 | 12.95 | .14 | (.46 | ) | (.32 | ) | |||||||||||
Year ended 12/31/2012 | 12.55 | .35 | .43 | .78 | ||||||||||||||
Year ended 12/31/2011 | 12.19 | .44 | .38 | .82 | ||||||||||||||
Year ended 12/31/2010 | 11.80 | .48 | .41 | .89 | ||||||||||||||
Period from 5/1/2009 to 12/31/20094 | 10.78 | .35 | 1.01 | 1.36 |
Six months ended | Year ended December 31 | |||||||||||||||||||||||
June 30, 20134,5 | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||||||
Portfolio turnover rate for all share classes | 218 | % | 264 | % | 154 | % | 99 | % | 84 | % | 57 | % |
34 | The Bond Fund of America |
Dividends (from net investment income) | Net asset value, end of period | Total return3 | Net assets, end of period (in millions) | Ratio of expenses to average net assets before waivers | Ratio of expenses to average net assets after waivers3 | Ratio of net income to average net assets3 | ||||||||||||||||||||
$ | (.12 | ) | $ | 12.47 | (2.82 | )% | $ | 846 | .92 | %6 | .92 | %6 | 1.59 | %6 | ||||||||||||
(.29 | ) | 12.95 | 5.55 | 955 | .92 | .92 | 2.00 | |||||||||||||||||||
(.38 | ) | 12.55 | 6.15 | 963 | .94 | .94 | 2.89 | |||||||||||||||||||
(.42 | ) | 12.19 | 6.94 | 1,053 | .93 | .93 | 3.26 | |||||||||||||||||||
(.49 | ) | 11.80 | 14.54 | 1,091 | .97 | .97 | 4.43 | |||||||||||||||||||
(.71 | ) | 10.76 | (12.52 | ) | 939 | .98 | .95 | 5.45 | ||||||||||||||||||
(.14 | ) | 12.47 | (2.66 | ) | 534 | .60 | 6 | .60 | 6 | 1.91 | 6 | |||||||||||||||
(.33 | ) | 12.95 | 5.89 | 602 | .60 | .60 | 2.33 | |||||||||||||||||||
(.42 | ) | 12.55 | 6.48 | 669 | .62 | .62 | 3.21 | |||||||||||||||||||
(.46 | ) | 12.19 | 7.27 | 768 | .62 | .62 | 3.57 | |||||||||||||||||||
(.52 | ) | 11.80 | 14.90 | 788 | .66 | .66 | 4.75 | |||||||||||||||||||
(.75 | ) | 10.76 | (12.25 | ) | 707 | .67 | .64 | 5.77 | ||||||||||||||||||
(.16 | ) | 12.47 | (2.51 | ) | 301 | .30 | 6 | .30 | 6 | 2.21 | 6 | |||||||||||||||
(.37 | ) | 12.95 | 6.20 | 311 | .31 | .31 | 2.63 | |||||||||||||||||||
(.45 | ) | 12.55 | 6.80 | 310 | .32 | .32 | 3.51 | |||||||||||||||||||
(.50 | ) | 12.19 | 7.59 | 370 | .32 | .32 | 3.88 | |||||||||||||||||||
(.55 | ) | 11.80 | 15.24 | 451 | .37 | .37 | 5.20 | |||||||||||||||||||
(.78 | ) | 10.76 | (12.00 | ) | 667 | .37 | .34 | 6.06 | ||||||||||||||||||
(.16 | ) | 12.47 | (2.49 | ) | 853 | .25 | 6 | .25 | 6 | 2.27 | 6 | |||||||||||||||
(.38 | ) | 12.95 | 6.26 | 559 | .25 | .25 | 2.61 | |||||||||||||||||||
(.46 | ) | 12.55 | 6.85 | 237 | .27 | .27 | 3.55 | |||||||||||||||||||
(.50 | ) | 12.19 | 7.64 | 280 | .27 | .27 | 3.90 | |||||||||||||||||||
(.34 | ) | 11.80 | 12.75 | 252 | .31 | 6 | .31 | 6 | 4.59 | 6 |
1 | Based on average shares outstanding. |
2 | Total returns exclude any applicable sales charges, including contingent deferred sales charges. |
3 | This column reflects the impact, if any, of certain waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services. |
4 | Based on operations for the period shown and, accordingly, is not representative of a full year. |
5 | Unaudited. |
6 | Annualized. |
See Notes to Financial Statements
The Bond Fund of America | 35 |
Expense example | unaudited |
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads), and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period (January 1, 2013, through June 30, 2013).
Actual expenses:
The first line of each share class in the table on page 38 provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses paid during period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes:
The second line of each share class in the table on page 38 provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Notes:
There are some account fees that are charged to certain types of accounts, such as individual retirement accounts and 529 college savings plan accounts (generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually), that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F-1, F-2 and 529-F-1 shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending
36 | The Bond Fund of America |
on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated on the previous page. In addition, your ending account value would be lower by the amount of these fees.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
The Bond Fund of America | 37 |
Beginning account value 1/1/2013 | Ending account value 6/30/2013 | Expenses paid during period* | Annualized expense ratio | |||||||||||||
Class A — actual return | $ | 1,000.00 | $ | 973.38 | $ | 2.94 | .60 | % | ||||||||
Class A — assumed 5% return | 1,000.00 | 1,021.82 | 3.01 | .60 | ||||||||||||
Class B — actual return | 1,000.00 | 969.69 | 6.64 | 1.36 | ||||||||||||
Class B — assumed 5% return | 1,000.00 | 1,018.05 | 6.80 | 1.36 | ||||||||||||
Class C — actual return | 1,000.00 | 969.48 | 6.84 | 1.40 | ||||||||||||
Class C — assumed 5% return | 1,000.00 | 1,017.85 | 7.00 | 1.40 | ||||||||||||
Class F-1 — actual return | 1,000.00 | 973.30 | 3.03 | .62 | ||||||||||||
Class F-1 — assumed 5% return | 1,000.00 | 1,021.72 | 3.11 | .62 | ||||||||||||
Class F-2 — actual return | 1,000.00 | 974.62 | 1.71 | .35 | ||||||||||||
Class F-2 — assumed 5% return | 1,000.00 | 1,023.06 | 1.76 | .35 | ||||||||||||
Class 529-A — actual return | 1,000.00 | 972.92 | 3.42 | .70 | ||||||||||||
Class 529-A — assumed 5% return | 1,000.00 | 1,021.32 | 3.51 | .70 | ||||||||||||
Class 529-B — actual return | 1,000.00 | 969.12 | 7.23 | 1.48 | ||||||||||||
Class 529-B — assumed 5% return | 1,000.00 | 1,017.46 | 7.40 | 1.48 | ||||||||||||
Class 529-C — actual return | 1,000.00 | 969.18 | 7.18 | 1.47 | ||||||||||||
Class 529-C — assumed 5% return | 1,000.00 | 1,017.50 | 7.35 | 1.47 | ||||||||||||
Class 529-E — actual return | 1,000.00 | 971.84 | 4.50 | .92 | ||||||||||||
Class 529-E — assumed 5% return | 1,000.00 | 1,020.23 | 4.61 | .92 | ||||||||||||
Class 529-F-1 — actual return | 1,000.00 | 974.03 | 2.30 | .47 | ||||||||||||
Class 529-F-1 — assumed 5% return | 1,000.00 | 1,022.46 | 2.36 | .47 | ||||||||||||
Class R-1 — actual return | 1,000.00 | 969.64 | 6.69 | 1.37 | ||||||||||||
Class R-1 — assumed 5% return | 1,000.00 | 1,018.00 | 6.85 | 1.37 | ||||||||||||
Class R-2 — actual return | 1,000.00 | 969.80 | 6.54 | 1.34 | ||||||||||||
Class R-2 — assumed 5% return | 1,000.00 | 1,018.15 | 6.71 | 1.34 | ||||||||||||
Class R-3 — actual return | 1,000.00 | 971.84 | 4.50 | .92 | ||||||||||||
Class R-3 — assumed 5% return | 1,000.00 | 1,020.23 | 4.61 | .92 | ||||||||||||
Class R-4 — actual return | 1,000.00 | 973.40 | 2.94 | .60 | ||||||||||||
Class R-4 — assumed 5% return | 1,000.00 | 1,021.82 | 3.01 | .60 | ||||||||||||
Class R-5 — actual return | 1,000.00 | 974.87 | 1.47 | .30 | ||||||||||||
Class R-5 — assumed 5% return | 1,000.00 | 1,023.31 | 1.51 | .30 | ||||||||||||
Class R-6 — actual return | 1,000.00 | 975.10 | 1.22 | .25 | ||||||||||||
Class R-6 — assumed 5% return | 1,000.00 | 1,023.55 | 1.25 | .25 |
* | The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period, and divided by 365 (to reflect the one-half year period). |
38 | The Bond Fund of America |
Approval of Investment Advisory and Service Agreement
The fund’s board has approved the fund’s Investment Advisory and Service Agreement (the “agreement”) with Capital Research and Management Company (“CRMC”) for an additional one-year term through March 31, 2014. The board approved the agreement following the recommendation of the fund’s Contracts Committee (the “committee”), which is composed of all of the fund’s independent board members. The board and the committee determined that the fund’s advisory fee structure was fair and reasonable in relation to the services provided and that approving the agreement was in the best interests of the fund and its shareholders.
In reaching this decision, the board and the committee took into account information furnished to them throughout the year, as well as information prepared specifically in connection with their review of the agreement and were advised by their independent counsel. They considered the factors discussed below, among others, but did not identify any single issue or particular piece of information that, in isolation, was the controlling factor, and each board and committee member did not necessarily attribute the same weight to each factor.
1. Nature, extent and quality of services
The board and the committee considered the depth and quality of CRMC’s investment management process, including its global research capabilities; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel; the overall financial strength and stability of its organization; and the ongoing evolution of CRMC’s organizational structure designed to maintain and strengthen these qualities. The board and the committee also considered the nature, extent and quality of administrative, compliance and shareholder services provided by CRMC to the fund under the agreement and other agreements, as well as the benefits to fund shareholders from investing in a fund that is part of a large family of funds. The board and the committee concluded that the nature, extent and quality of the services provided by CRMC have benefited and should continue to benefit the fund and its shareholders.
2. Investment results
The board and the committee considered the investment results of the fund in light of its objective of providing as high a level of current income as is consistent with the preservation of capital. They compared the fund’s investment results with those of other relevant funds (including funds that form the basis of the Lipper index for the category in which the fund is included), and market data such as relevant market indexes, over various periods
The Bond Fund of America | 39 |
through October 31, 2012. This report, including the letter to shareholders and related disclosures, contains certain information about the fund’s investment results. The board and the committee reviewed the fund’s investment results measured against the Lipper Intermediate Investment Grade Average (the Lipper category that includes the fund) and the Barclays U.S. Aggregate Index. They noted that the investment results of the fund generally compared favorably to the Barclays Index for all such periods other than the five-year period, and also generally compared favorably to the Lipper Average for the ten-year and lifetime periods. The board and the committee concluded that the fund’s investment results have been satisfactory and that CRMC’s record in managing the fund indicated that its continued management should benefit the fund and its shareholders.
3. Advisory fees and total expenses
The board and the committee compared the advisory fees and total expense levels of the fund to those of other relevant funds. They observed that the fund’s advisory fees were below that of the other funds in the Lipper Intermediate Investment Grade category and that although its total expenses were slightly higher than the median of such funds, such expenses less distribution expenses were significantly below the median. The board and the committee also noted the breakpoint discounts in the fund’s advisory fee structure that reduce the level of fees charged by CRMC to the fund as fund assets increase. In addition, they reviewed information regarding effective advisory fees charged to non-mutual fund clients by CRMC and its affiliates. They noted that, to the extent there were differences between the advisory fees paid by the fund and the advisory fees paid by those clients, the differences appropriately reflected the investment, operational and regulatory differences between advising the fund and the other clients. The board and the committee concluded that the fund’s cost structure was fair and reasonable in relation to the services provided, and that the fund’s shareholders receive reasonable value in return for the advisory fees and other amounts paid to CRMC by the fund.
4. Ancillary benefits
The board and the committee considered a variety of other benefits that CRMC and its affiliates receive as a result of CRMC’s relationship with the fund and the other American Funds, including fees for administrative services provided to certain share classes; fees paid to CRMC’s affiliated transfer agent; sales charges and distribution fees received and retained by the fund’s principal underwriter, an affiliate of CRMC; and possible ancillary
40 | The Bond Fund of America |
benefits to CRMC’s institutional management affiliates. The board and the committee reviewed CRMC’s portfolio trading practices, noting that while CRMC receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the fund, it does not obtain third-party research or other services in return for allocating brokerage to such broker-dealers. The board and the committee took these ancillary benefits into account in evaluating the reasonableness of the advisory fees and other amounts paid to CRMC by the fund.
5. Adviser financial information
The board and the committee reviewed information regarding CRMC’s costs of providing services to the American Funds, including personnel, systems and resources of investment, compliance, trading, accounting and other administrative operations. They considered CRMC’s costs and willingness to invest in technology, infrastructure and staff to maintain and expand services and capabilities, respond to industry and regulatory developments, and attract and retain qualified personnel. They noted information regarding the compensation structure for CRMC’s investment professionals. The board and the committee also compared CRMC’s profitability to the reported results of several large, publicly-held investment management companies. The board and the committee noted the competitiveness and cyclicality of both the mutual fund industry and the capital markets, and the importance in that environment of CRMC’s long-term profitability for maintaining its independence, company culture and management continuity. They further considered the breakpoint discounts in the fund’s advisory fee structure. The board and the committee concluded that the fund’s advisory fee structure reflected a reasonable sharing of benefits between CRMC and the fund’s shareholders.
The Bond Fund of America | 41 |
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42 | The Bond Fund of America |
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The Bond Fund of America | 43 |
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44 | The Bond Fund of America |
Offices of the fund and of the investment adviser
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
6455 Irvine Center Drive
Irvine, CA 92618
Transfer agent for shareholder accounts
American Funds Service Company
(Write to the address near you.)
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
Custodian of assets
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
Counsel
Bingham McCutchen LLP
355 South Grand Avenue, Suite 4400
Los Angeles, CA 90071-3106
Independent registered public accounting firm
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at (800) 421-4225 or visit the American Funds website at americanfunds.com.
“American Funds Proxy Voting Procedures and Principles” — which describes how we vote proxies relating to portfolio securities — is available on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the U.S. Securities and Exchange Commission (SEC) for the 12 months ended June 30 by August 31. The proxy voting record is available free of charge on the SEC website at sec.gov and on the American Funds website.
A complete June 30, 2013, portfolio of The Bond Fund of America’s investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).
The Bond Fund of America files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. Additional information regarding the operation of the Public Reference Room may be obtained by calling the SEC’s Office of Investor Education and Advocacy at (800) SEC-0330. Additionally, the list of portfolio holdings is available by calling AFS.
This report is for the information of shareholders of The Bond Fund of America, but it also may be used as sales literature when preceded or accompanied by the current prospectus or summary prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after September 30, 2013, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.
The American Funds Advantage
Since 1931, American Funds, part of Capital Group, has helped investors pursue long-term investment success. Our consistent approach — in combination with The Capital SystemSM — has resulted in a superior long-term track record.
Aligned with investor success | |
We base our decisions on a long-term perspective, which we believe aligns our goals with the interests of our clients. Our portfolio managers average 25 years of investment experience, including 20 years at our company, reflecting a career commitment to our long-term approach.1 | |
The Capital SystemSM | |
Our investment process, The Capital System, combines individual accountability with teamwork. Each fund is divided into portions that are managed independently by investment professionals with diverse backgrounds, ages and investment approaches. An extensive global research effort is the backbone of our system. | |
Superior long-term track record | |
Our equity funds have beaten their Lipper peer indexes in 90% of 10-year periods and 96% of 20-year periods. Our fixed-income funds have beaten their Lipper indexes in 58% of 10-year periods and 63% of 20-year periods.2 Our fund management fees have been among the lowest in the industry.3 |
1 | Portfolio manager experience as of December 31, 2012. | |
2 | Based on Class A share results for rolling periods through December 31, 2012. Periods covered are the shorter of the fund’s lifetime or since the comparable Lipper index inception date. | |
3 | Based on management fees for the 20-year period ended December 31, 2012, versus comparable Lipper categories, excluding funds of funds. |
American Funds span a range of investment objectives | |
¢ | Growth funds |
AMCAP Fund® | |
EuroPacific Growth Fund® | |
The Growth Fund of America® | |
The New Economy Fund® | |
New Perspective Fund® | |
New World Fund® | |
SMALLCAP World Fund® | |
¢ | Growth-and-income funds |
American Mutual Fund® | |
Capital World Growth and Income Fund® | |
Fundamental Investors® | |
International Growth and Income FundSM | |
The Investment Company of America® | |
Washington Mutual Investors FundSM | |
¢ | Equity-income funds |
Capital Income Builder® | |
The Income Fund of America® | |
¢ | Balanced funds |
American Balanced Fund® | |
American Funds Global Balanced FundSM | |
¢ | Bond funds |
American Funds Mortgage Fund® | |
American High-Income Trust® | |
The Bond Fund of America® | |
Capital World Bond Fund® | |
Intermediate Bond Fund of America® | |
Short-Term Bond Fund of America® | |
U.S. Government Securities Fund® | |
¢ | Tax-exempt bond funds |
American Funds Short-Term Tax-Exempt Bond Fund® | |
American High-Income Municipal Bond Fund® | |
Limited Term Tax-Exempt Bond Fund of America® | |
The Tax-Exempt Bond Fund of America® | |
State-specific tax-exempt funds | |
American Funds Tax-Exempt Fund of New York® | |
The Tax-Exempt Fund of California® | |
The Tax-Exempt Fund of Maryland® | |
The Tax-Exempt Fund of Virginia® | |
¢ | Money market fund |
American Funds Money Market Fund® | |
¢ | American Funds Portfolio SeriesSM |
American Funds Global Growth PortfolioSM | |
American Funds Growth PortfolioSM | |
American Funds Growth and Income PortfolioSM | |
American Funds Balanced PortfolioSM | |
American Funds Income PortfolioSM | |
American Funds Tax-Advantaged Income PortfolioSM | |
American Funds Preservation PortfolioSM | |
American Funds Tax-Exempt Preservation PortfolioSM | |
¢ | American Funds Target Date Retirement Series® |
¢ | American Funds College Target Date SeriesSM |
ITEM 2 – Code of Ethics
Not applicable for filing of semi-annual reports to shareholders.
ITEM 3 – Audit Committee Financial Expert
Not applicable for filing of semi-annual reports to shareholders.
ITEM 4 – Principal Accountant Fees and Services
Not applicable for filing of semi-annual reports to shareholders.
ITEM 5 – Audit Committee of Listed Registrants
Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 – Schedule of Investments
The Bond Fund of America® Investment portfolio June 30, 2013 |
1Coupon rate may change periodically.
2Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.
3Loan participations and assignments; may be subject to legal or contractual restrictions on resale. The total value of all such loans was $223,226,000, which represented .73% of the net assets of the fund.
4Acquired in a transaction exempt from registration under Rule 144A or section 4(2) of the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $3,842,111,000, which represented 12.63% of the net assets of the fund.
5Scheduled interest and/or principal payment was not received.
6Payment in kind; the issuer has the option of paying additional securities in lieu of cash.
7Step bond; coupon rate will increase at a later date.
8Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities was $138,030,000, which represented .45% of the net assets of the fund.
9A portion of this security was pledged as collateral for net losses on unsettled forward currency contracts and interest rate swaps. The total value of pledged collateral was $4,014,000, which represented .01% of the net assets of the fund.
10Index-linked bond whose principal amount moves with a government price index.
11Acquired through a private placement transaction exempt from registration under the Securities Act of 1933. May be subject to legal or contractual restrictions on resale. Further details on these holdings appear below.
Percent | ||||
Acquisition | Cost | Value | of net | |
dates | (000) | (000) | assets | |
Beech Holdings, LLC | 12/16/2008–2/15/2013 | $44,989 | $27,037 | .09% |
Revel AC Inc | 2/14/2011–10/25/2012 | 23,124 | 11,073 | .04 |
NewPage Holdings Inc. | 7/11/2011–9/9/2011 | 9,354 | 4,688 | .01 |
CEVA Group PLC, Series A-2, 2.268% | ||||
convertible preferred | 3/10/2010–1/23/2012 | 3,703 | 2,337 | .01 |
Total restricted securities | $81,170 | $45,135 | .15% |
12Security did not produce income during the last 12 months.
Key to abbreviations and symbols
BRL = Brazilian reais
CLP = Chilean pesos
COP = Colombian pesos
€ = Euros
£ = British pounds
ILS = Israeli shekels
¥ = Japanese yen
MXN = Mexican pesos
NGN = Nigeria naira
PHP = Philippine pesos
PLN = Polish zloty
RUB = Russian rubles
TRY = Turkish lira
UYU = Uruguayan pesos
ZAR = South African rand
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at (800) 421-4225 or visit the American Funds website at americanfunds.com.
MFGEFPX-008-0813O-S37733
ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a nominating and governance committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The committee periodically reviews such issues as the board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full board of trustees. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the board. Such suggestions must be sent in writing to the nominating and governance committee of the Registrant, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the nominating and governance committee.
ITEM 11 – Controls and Procedures
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. |
(b) | There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12 – Exhibits
(a)(1) | Not applicable for filing of semi-annual reports to shareholders. |
(a)(2) | The certifications required by Rule 30a-2 of the Investment Company Act of 1940 and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE BOND FUND OF AMERICA | |
By /s/ John H. Smet | |
John H. Smet, President and Principal Executive Officer | |
Date: August 30, 2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By /s/ John H. Smet |
John H. Smet, President and Principal Executive Officer |
Date: August 30, 2013 |
By /s/ Brian C. Janssen |
Brian C. Janssen, Treasurer and Principal Financial Officer |
Date: August 30, 2013 |