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: 811-2444
The Bond Fund of America, Inc.
(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, 2003
Date of reporting period: December 31, 2003
Julie F. Williams
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
THE BOND FUND OF AMERICA
Searching for yield and value
[photo of a stack of papers on a desk near a gentleman's hand with a pen
writing on paper]
Annual report for the year ended December 31, 2003
THE BOND FUND OF AMERICA(SM) seeks as high a level of current income as is
consistent with preservation of capital through a diversified portfolio of bonds
and other fixed-income obligations.
This fund is one of the 29 American Funds, the nation's third-largest mutual
fund family. For more than seven decades, Capital Research and Management
Company,SM the American Funds adviser, has invested with a long-term focus based
on thorough research and attention to risk.
Contents
Letter to shareholders 1
The value of a long-term perspective 2
Special report: Searching for yield and value 4
Investment portfolio 10
Financial statements 41
Directors and officers 52
What makes American Funds different? back cover
Please see page 2 for Class A share average annual total returns with relevant
sales charges deducted. Results for other share classes can be found on page 51.
Please see the inside back cover for important information about other share
classes.
THE FUND'S 30-DAY YIELD FOR CLASS A SHARES AS OF JANUARY 31, 2004, REFLECTING
THE 3.75% MAXIMUM SALES CHARGE AND CALCULATED IN ACCORDANCE WITH THE SECURITIES
AND EXCHANGE COMMISSION FORMULA, WAS 3.57%.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE PERIODS. CURRENT
AND FUTURE RESULTS MAY BE LOWER OR HIGHER THAN THOSE SHOWN. BECAUSE SHARE PRICES
MAY DECLINE, THE VALUE OF YOUR HOLDINGS MAY DECREASE. FOR THE MOST CURRENT
INFORMATION AND MONTH-END RESULTS, VISIT AMERICANFUNDS.COM.
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. Investing outside the United States is subject to additional risks, such
as currency fluctuations and differing securities regulations, which are
detailed in the fund's prospectus.
[photo of a gentleman's hands, one on a calculator the other holding a pen, an
open daily planner and a stack of papers on a desk]
FELLOW SHAREHOLDERS:
During 2003, corporate bonds strengthened in value even as Treasury and agency
debt produced only modest total returns. These trends were a stark reversal of
what the market experienced the previous year. The recovery in the corporate
sector lent strong support to the fund's 2003 results.
For the year ended December 31, 2003, The Bond Fund of America recorded a total
return of 12.2%, which was more than double the 5.0% average of its peers (199
A-rated corp. debt funds) as tallied by Lipper. For reference, the Lehman
Brothers Aggregate Bond Index, a broad measure of the U.S. bond market, posted a
4.1% return for the year. The index is unmanaged and does not include expenses.
During the year, shareholders received monthly dividends totaling 70.5 cents a
share. Those who reinvested dividends recorded an income return of 5.69%. Those
who elected to take dividends in cash recorded an income return of 5.55%. All
shareholders should note that a portion of the January 2004 dividend was paid in
December 2003; as a result, the December dividend was slightly larger, while the
January dividend was reduced by the same amount.
[Begin Sidebar]
RESULTS AT A GLANCE
(assuming distributions reinvested or interest compounded)
AVERAGE ANNUAL TOTAL RETURNS
(for periods ended December 31, 2003)
1 YEAR 5 YEARS 10 YEARS LIFETIME*
The Bond Fund of America +12.2% +6.7% +6.7% +9.6%
Lehman Brothers Aggregate
Bond Index1 +4.1% +6.6% +6.9% +9.2%
Lipper Corporate A-Rated
Bond Funds Average2 +5.0% +5.5% +6.2% +8.9%
*Since May 28, 1974
1 The Lehman Brothers Aggregate bond Index began on January 1, 1976. From May
31, 1974, through December 31, 1975, the Lehman Brothers Government/Credit
Bond Index was used. The indexes serve as proxies for the broad U.S.
investment-grade bond market and are unmanaged.
2 Source: Lipper. Lipper averages do not include the effects of sales charges.
[End Sidebar]
OVERVIEW: BONDS AND THE ECONOMY
At the start of 2003, the bond market grappled with concerns about the impending
war in Iraq and the sluggishness of the economy. Corporate bonds, especially
lower investment-grade credits and high-yield issuers, were beginning to rebound
from the distressed levels of the previous year. The mood was expectant, but
investors were still cautious, favoring Treasuries and other high-quality debt.
Spring brought an end to formal conflict in Iraq, but also increased
uncertainties about the economy and new worries regarding the possibility of
deflation. Interest rates -- already at 40-year lows -- moved lower, reaching
pivotal levels by mid-June. On June 25, the Federal Reserve Board lowered its
key lending rate to 1%, its thirteenth rate reduction since January 2001. By
that time, however, the outlook for the economy had brightened considerably, and
interest rates had begun to rise off their lows.
In the months that followed, the bond market experienced a major correction as
continued evidence of economic strength led to concerns about inflation. From
June 10 to September 2, for example, the yield on the benchmark 10-year Treasury
bond rose a point and a half, from 3.1% to 4.6%. Bond yields and prices move
inversely, so as yields rose, bond prices fell. By early September, however, the
sell-off flagged and the Treasury market began to recover some of its lost
ground. Importantly, inflation remained well contained, and the Federal Reserve
repeatedly vowed to keep rates low for "a considerable period." These factors
provided a relatively supportive background for the bond market through the end
of the year.
CORPORATES RALLY, BOOST RETURNS
What a difference a year makes! Only twelve months ago, corporate bonds proved
to be a drag on fund results, while investments in Treasuries and other
high-quality debt were the fund's pillars of strength. In 2003, that situation
largely reversed, fueled by stronger economic growth, ongoing improvements to
balance sheets and better corporate governance.
[Begin Sidebar]
Results shown are at net asset value. If the sales charge (maximum 3.75%) had
been deducted, results would have been lower.
[End Sidebar]
During 2003, corporate bonds recorded some of the top returns in the bond
market. In general, lower rated companies, particularly those in the high-yield
category, posted the best results as prices for these securities steadily
recovered from the distressed levels they fell to during the third quarter of
2002. Slightly more than half of the fund's portfolio is invested in corporate
debt, most of which is rated A or BBB; only 8.9% of portfolio assets are rated
below investment grade, and that includes some non-corporate debt. During the
past year, the fund continued to add to its significant corporate exposure with
investments in banks and financial services, utilities, and automotive
manufacturers and suppliers -- all of which made solid contributions to this
year's results.
The fund's high-quality holdings, which includes U.S. Treasuries (11.4% of fund
assets), federal agency debt (1.9%) and federal agency mortgage pass-throughs
(9.9%) generally posted modest results. Securities such as these are most
sensitive to interest rate moves. When interest rates started rising last
summer, these sectors of the market surrendered most of their gains. Of the
three sectors, returns on mortgages were marginally better than Treasury or
agency securities.
In addition to U.S. government debt, the fund has select holdings (about 5.8% of
assets) in non-U.S. government obligations. Some of these holdings are bonds of
developed countries, such as Germany or Canada, while others are from developing
countries, such as Mexico and Russia. In general, investments in developing
countries produced strong returns for the year. In addition, some of these
non-U.S. obligations are denominated in foreign currencies; the weakening of the
U.S. dollar against other currencies (notably the euro and the yen) over the
past year further bolstered returns on those particular investments.
BENEFITS FROM CHANGE AND A LONG-TERM VIEW
Since the recession of 2001, investors have experienced a significant decline in
the interest rate environment and major changes in the business climate. As
always, the bond market grapples with these changes, and as a result, prices for
various sectors of the market shift accordingly. The Bond Fund of America has
been able to benefit from these changes because it is able to invest wherever
opportunity appears, and the broad diversity of its holdings helps to insulate
the fund against market shocks that affect particular sectors or industries. We
invite you to read our special report on page 4, "Searching for yield and
value," to gain a better understanding of how the fund invests.
With interest rates still near 40-year lows and with corporate bonds no longer
in disfavor, it will be more difficult for the fund to find opportunities for
capital appreciation in the year ahead. Regardless of the direction of interest
rates, we believe the fund will continue to provide its shareholders with an
attractive income return. The mix of securities held by the fund -- the sheer
number and variety -- afford each shareholder a broad exposure to the bond
market and, more importantly, a solid foundation on which to build the
fixed-income portion of any investment portfolio. We welcome the many new
shareholders who have joined us in the past year. We look forward to helping you
reach your long-term investment goals.
Cordially,
/s/ Paul G. Haaga, Jr. /s/ Abner D. Goldstine
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
February 12, 2004
[Begin Sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE
HOW A $10,000 INVESTMENT HAS GROWN
There have always been reasons not to invest. You will find, however, that
despite occasional stumbles, financial markets have tended to reward investors
over the long term. Active management -- bolstered by experience and careful
research -- can add even more value: As the chart below shows, over its
lifetime, The Bond Fund of America has done demonstrably better than its
relevant benchmarks.
Dividends, particularly when reinvested, have accounted for virtually all of the
fund's overall results. The table beneath the chart breaks down The Bond Fund of
America's year-by-year total returns into their income and capital components.
Fund figures reflect deduction of the maximum sales charge of 3.75% on the
$10,000 investment. Thus, the net amount invested was $9,625.
AVERAGE ANNUAL TOTAL RETURNS
For periods ended December 31, 2003
CLASS A SHARES*
reflecting 3.75% maximum sales charge
1 year +8.05%
5 years +5.93
10 years +6.27
*Results for other share classes can be found on page 51.
BFA with dividends reinvested $145,335(1)
Lehman Brothers Aggregate Bond Index $134,232(2)
Consumer Price Index (inflation) $37,922(3)
original investment $10,000
[Begin Mountain Chart]
<table>
<s> <c> <c> <c>
Lehman Brothers Consumer Price
Year ended BFA with dividends Aggregate Index(3)
December 31,2003 reinvested(1) Bond Index(2) (inflation)
original investment $10,000 $10,000 $10,000
1974 9,988 10,318 10,679
1975 11,254 11,587 11,420
1976 13,293 13,395 11,975
1977 13,977 13,802 12,778
1978 14,261 13,994 13,930
1979 14,710 14,264 15,782
1980 15,230 14,650 17,757
1981 16,242 15,565 19,342
1982 21,586 20,643 20,082
1983 23,628 22,368 20,844
1984 26,450 25,756 21,667
1985 33,488 31,449 22,490
1986 38,568 36,251 22,737
1987 39,324 37,248 23,745
1988 43,533 40,186 24,794
1989 47,942 46,026 25,947
1990 49,509 50,149 27,531
1991 59,927 58,174 28,374
1992 66,722 62,480 29,198
1993 76,155 68,571 30,000
1994 72,335 66,571 30,802
1995 85,536 78,870 31,584
1996 91,274 81,733 32,634
1997 99,709 89,624 33,189
1998 104,863 97,410 33,724
1999 107,265 96,609 34,630
2000 113,906 107,840 35,802
2001 122,051 116,947 36,358
2002 129,514 128,940 37,222
2003 145,335 134,232 39,922
</table>
[End Mountain Chart]
Year ended December 31 1974 1975 1976 1977 1978 1979
Total value
Dividends reinvested $418 907 1,020 1,126 1,211 1,401
Value at year-end $9,988 11,254 13,293 13,977 14,261 14,710
BFA's total return (0.1)% 12.7 18.1 5.1 2.0 3.1
Year ended December 31 1980 1981 1982 1983 1984 1985
Total value
Dividends reinvested 1,724 2,118 2,434 2,556 2,869 3,227
Value at year-end 15,230 16,242 21,586 23,628 26,450 33,488
BFA's total return 3.5 6.6 32.9 9.5 11.9 26.6
Year ended December 31 1986 1987 1988 1989 1990 1991
Total value
Dividends reinvested 3,604 3,787 3,953 4,471 4,699 4,909
Value at year-end 38,568 39,324 43,533 47,942 49,509 59,927
BFA's total return 15.2 2.0 10.7 10.1 3.3 21.0
Year ended December 31 1992 1993 1994 1995 1996 1997
Total value
Dividends reinvested 5,275 5,325 5,733 6,178 6,473 6,704
Value at year-end 66,722 76,155 72,335 85,536 91,274 99,709
BFA's total return 11.3 14.1 (5.0) 18.3 6.7 9.2
Year ended December 31 1998 1999 2000 2001 2002 2003
Total value
Dividends reinvested 7,007 7,398 8,190 8,228 8,189 7,370
Value at year-end 104,863 107,265 113,906 122,051 129,514 145,335
BFA's total return 5.2 2.3 6.2 7.2 6.1 12.2
Average annual total return for 29-1/2 years: 9.47%(1)
(1) Includes reinvested dividends of $128,506 and reinvested capital gain
distributions of $4,573.
(2) From May 31, 1974, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Lehman Brothers
Aggregate Bond Index did not yet exist. Since January 1, 1976, the Lehman
Brothers Aggregate Bond Index has been used. These indexes are unmanaged.
(3) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
The results are shown before taxes on fund distributions and sale of fund
shares.
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For more current
information and month-end results, visit americanfunds.com.
SEARCHING FOR YIELD AND VALUE
[photo of a stack of papers on a desk near a gentleman's hand with a pen
writing on paper]
For the 10 years ended December 31, 2003, The Bond Fund of America has been
successful in providing shareholders with a better level of income than similar
funds--an average of 7.2% annually, compared to the 5.9% average for like funds,
as measured by Lipper. But current income is not the fund's only objective; it
also seeks to preserve shareholder principal throughout a variety of market
conditions. Although bonds are typically much less volatile than stocks, they
are nonetheless subject to various risks that can alter their underlying value.
To evaluate these risks and help limit their impact, the fund's portfolio
counselors draw on a wide pool of resources and expertise that has been
developed over many decades by the fund's adviser, Capital Research and
Management Company.
On the following pages, we'll take a look at some of the considerations that
help to shape the investment decisions made by the fund's portfolio counselors.
In the process, we'll discuss some of the ways in which the fund's investment
approach -- an approach based on extensive knowledge of market conditions,
fundamental research and the considerable diversity of the portfolio's holdings
- -- adds value for shareholders.
[Begin Sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For more current
information and month-end results, visit americanfunds.com.
[end Sidebar]
SIFTING THROUGH MARKETS AND SECTORS
The Bond Fund of America seeks to provide income for its shareholders and to
buffer them against bond market extremes. It does this by investing in a wide
variety of debt instruments -- bonds that run the gamut of credit quality, from
government-guaranteed debt to the bonds of highly leveraged companies. The
largest portion of portfolio holdings (about 43% currently) falls in the middle
of the credit spectrum: bonds rated A or BBB, both deemed suitable for most
investors by the rating agencies. These bonds generally offer somewhat more
income than is normally available from the highest quality debt, but with
significantly less risk than is attached to high-yield, lower rated bonds.
[Begin Sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For more current
information and month-end results, visit americanfunds.com. Results shown are at
net asset value. If the sales charge (maximum 3.75%) had been deducted, results
would have been lower.
[End Sidebar]
[Begin Pull Quote]
"This fund has the ability to move portions of the portfolio into a variety of
investments at any time, wherever and whenever we find value." Abner D.
Goldstine
[End Pull Quote]
[photo of line graph charts]
The search for attractive income sources has become particularly challenging
over the past year with interest rates declining to levels not seen in more than
40 years. Many investors have been reaching for bonds with higher and higher
yields, often indiscriminately. "Yet many of these securities also come with
correspondingly high risks," warns portfolio counselor David Barclay. "The key
is to find bonds of companies that can weather difficult environments and do
well when business conditions improve." Making that determination requires a
good understanding of the company's business and its prospects going forward.
That knowledge is essential not just for high-yield issuers, but for every debt
instrument that goes into the fund's portfolio. Moreover, the search for yield
and the perception of value must always be balanced by a thorough understanding
of an investment's risk.
In 2003, high-yield bonds were by far the strongest sector in the bond market, a
result of high income and significant appreciation. On the other hand, when the
economy was still in a slump the previous year, high-yield bonds posted
significant losses even as high-quality debt, such as U.S. Treasuries, rose in
value. It is not uncommon for different sectors of the market to produce
different returns from year to year, depending on market cycles and the
perceived strength of the economy. Such changes may be punishing or rewarding,
depending on an investor's ability to recognize value over longer time horizons.
CASTING OUR NETS WIDE, WITH CAUTION
One of the most common mistakes an investor can make is to chase after income
solely. There are no triple crowns in the world of investing, and as the chart
on page 6 illustrates, last year's winners seldom repeat their successes the
following year. Because different bond sectors and industries often respond
differently to economic and business conditions, diversification within the
fund's portfolio can help minimize overall risk and enhance returns. "Changing
relationships among parts of the bond market can create pockets of opportunity
for investors with the resources to find them," explains Abner Goldstine,
portfolio counselor and president of the fund. "This fund has the ability to
move portions of the portfolio into a variety of investments at any time," he
adds, "wherever and whenever we find value." This flexibility fosters a
diversity that not only helps the fund provide a more reliable stream of income,
but also helps mitigate the effect for shareholders of a significant weakness in
a particular industry or sector of the bond market.
[Begin Sidebar]
COVER YOURSELF FOR THE LONG TERM
The following two charts depict bond market returns from best (top) to worst
(bottom) over the past decade. The first chart sorts returns by major sectors of
the bond market, while the second sorts returns according to credit quality. As
is evident in both charts, bonds that do particularly well one year frequently
are bested the following year by other types of bonds. The obvious lesson: Don't
chase after returns. Instead, investors have been better off in the long run by
covering themselves with a full array of sectors and credits, as are represented
in The Bond Fund of America portfolio.
[begin tabular graphic]
BOND MARKET RETURNS BY SECTOR
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
BEST NON CORP HY HY NON HY GVT CORP NON HY
: HY NON MTG CORP GVT MTG MTG MTG GVT NON
: MTG GVT NON GVT CORP CORP CORP GVT CORP CORP
: GVT HY CORP MTG MTG GVT NON HY MTG MTG
WORST CORP MTG GVT NON HY NON HY NON HY GVT
o CORP = Investment-grade corporate bonds
o GVT = U.S. government (Treasury/agency) bonds
o HY = High-yield bonds
o MTG = Mortgage-backed pass-through securities
o NON = Non-U.S. dollar denominated bonds of foreign government entities
BOND MARKET RETURNS BY CREDIT QUALITY
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
BEST HY BBB HY HY AA HY AAA A AA HY
: AAA A BBB BBB A AAA AA AA A BBB
: BBB AA AAA AA AAA BBB A BBB AAA A
: AA AAA A A BBB AA BBB AAA BBB AA
WORST A HY AA AAA HY A HY HY HY AAA
o AAA = Highest rated bonds
o AA = High-quality bonds
o A = Medium-quality bonds
o BBB = Lowest tier of investment-grade bonds
o HY = Bonds rated below investment grade
Sources: Lehman Brothers Aggregate Bond Index, Credit Suisse First Boston
High-Yield Index and Citigroup World Government Bond Index
[end tabular graphic]
[End Sidebar]
[Begin Pull Quote]
"We look at bonds over full three- to four-year cycles. We devise stress tests
to see how well the bonds might hold up during several economic scenarios."
Susan Tolson
[End Pull Quote]
Approaching the market with a long-term perspective helps the fund's portfolio
counselors better assess the value of each investment. "We look at bonds over
full three- to four-year cycles," explains portfolio counselor, Susan Tolson.
"We devise stress tests to see how well the bonds might hold up during several
economic scenarios. At the same time, we also consider, what if we're wrong?
What if the market does not improve?" By taking a long-term perspective on the
economy, the market and on each investment, the fund's portfolio counselors are
better able to manage the mix and maturities of securities held in the portfolio
and sustain attractive income for shareholders, while guarding against events
that could adversely affect principal.
VALUE FROM SHARED EXPERIENCE
Identifying value and protecting principal may be regarded as two sides of the
same coin. Both rely on the ability to appropriately evaluate an investment's
risks. That ability is well served by the broad and varied investment experience
of the fund's portfolio counselors. Combined, the fund's six counselors bring
more than 110 years of professional experience to the investment process.
Individually, they contribute credit and market specialization that helps to
shed light on particular segments of the market; that expertise is enhanced by
the pooling of ideas and sharing of opinions that are daily practice for the
investment professionals of Capital Research. This ongoing exchange helps the
fund's counselors more confidently identify opportunities and risks that emerge
from the shifting cycles of the bond market.
The fixed-income analysts of Capital Research, who specialize in various sectors
of the bond market, are vital participants in these daily dialogues and integral
to honing investment decisions. The fundamental research conducted by these
analysts helps the portfolio counselors make judgements about which bond or
which company is best suited for the fund from among the broader field of
choices that an industry or sector might present. In other words, research helps
uncover bonds that offer reliable income at an attractive price, but with an
acceptable level of risk.
In recent market cycles, research made important contributions to the fund's
returns by helping to identify opportunities among various industries out of
favor with the market and by carefully evaluating companies to determine those
best positioned to recover once the economy improved. Our close-up on the
utility industry (see story on page 8) affords one example of how changing
markets and research came together to create attractive investments for the
fund.
Bond by bond, over time the portfolio has grown out of a collaboration of ideas
informed by experience and formulated by careful research. There is no magic to
this process, only rigorous analysis, a solid understanding of the market and
its cycles, a prudent acceptance of risk and, above all, a diversity that would
be impossible for most investors to attain on their own.
[Begin Photo Caption]
[photo of Jennifer Hinman]
Jennifer Hinman
[End Photo Caption]
[photograph of telecommunications tower, vantage point from the ground up]
CLOSE-UP: UPHEAVAL IN UTILITIES
Industry upheavals can create opportunities for investors with the resources and
patience to analyze the situation. In recent years, deregulation converged with
excess capacity, limited transmission capability and mounting debt loads to
create a challenging environment for many traditional utilities.
Consumers have felt the effects of this in various blackouts on both the east
and west coasts and in higher electric bills. Weaknesses on corporate balance
sheets and throughout the industry became pronounced during the recession of
2001. In that strained environment, high-profile instances of corporate
malfeasance came to light. The troubles of companies such as Enron (an energy
marketer) helped to foster suspicion and distaste among investors, creating a
ripple effect that tarnished many players in the electric and gas industry.
"By the spring of 2002, utilities were facing a huge credibility crisis,"
explains Jennifer Hinman, a fixed-income analyst who covers both high-yield and
investment-grade utilities. "Several of the major players were facing liquidity
problems, and the capital markets were beginning to dry up for these companies."
The effect was similar to a violent storm that shakes both ripe and rotten fruit
from the tree. Jennifer adds, "In all my years of utility research, I've never
seen so many fallen angels -- investment-grade companies that trade at or are
downgraded to high-yield levels."
As dire as these conditions were --investors lost billions as several companies
filed for bankruptcy -- it was also apparent to Jennifer and her colleagues that
some of these battered utilities would undoubtedly survive and emerge, over the
long run, as stronger and more attractive entities. But which ones?
Jennifer carefully scrutinized the field of wounded companies in close concert
with other utility analysts at Capital Research. "We focused our efforts on
those companies that we believed could best improve their balance sheets, their
liquidity in the market and their management skills," explains Jennifer. "Our
equity analysts were extremely helpful," she adds, "because of their
long-standing relationships with the managements of these companies and their
ability to read management. We kept asking: Are they willing to make the tough
decisions? A good operating manager is not necessarily a good turnaround
manager. It's a different skill set."
Over the past year or so, The Bond Fund of America has selectively added to its
utility holdings, based upon Jennifer's recommendations. In many cases, these
additions have already increased significantly in value with the economy on the
mend and with companies making concerted efforts to repair balance sheets and
strengthen operations.
ABOUT YOUR FUND
The Bond Fund of America is the oldest and largest bond fund in the American
Funds family. Because it invests in such a wide variety of bonds, including
corporate debt, government debt and mortgage-related securities, the fund is a
suitable core holding for many investors. The majority of the fund's holdings
are debt securities with a credit rating of A or better. While the fund is
permitted to hold bonds rated below investment grade (high yield), it currently
targets that exposure to not more than 15% of fund assets. Up to 25% of fund
assets may be invested in the debt of corporations and government entities
outside the United States.
FUND FACTS & FIGURES
as of December 31, 2003
Shareholder accounts: 892,416
Net assets: $17 billion
Fund inception: May 28, 1974
Dividends paid: Monthly
PORTFOLIO QUALITY SUMMARY
as of December 31, 2003
[begin pie chart]
U.S. government obligations* 12.9%
Federal agencies 10.3
AAA 15.8
AA 6.4
A 24.1
BBB 18.9
High yield 8.9
Equity-related securities 0.7
Cash & equivalents 2.0%
*Securities guaranteed by the full faith and credit of the U.S. government.
[end pie chart]
ASSETS AND PORTFOLIO TURNOVER
(fiscal years) Fund assets at year end (billions) Portfolio turnover
2003 $17.0 60%
2002 14.5 50
2001 12.0 64
2000 9.5 62
1999 9.5 47
EXPENSE RATIOS
The Bond Fund of America (Class A shares) 0.67%
Lipper average of A-rated corporate debt funds 0.99
A WEALTH OF EXPERIENCE
Experience helps the fund's portfolio counselors put wisdom to work and market
events in perspective. The six portfolio counselors who manage The Bond Fund of
America bring more than 110 years of experience to this task.
Years with Capital
David C. Barclay 16
Mark H. Dalzell 16
Abner D. Goldstine 37
Mark R. Macdonald 10
John H. Smet 21
Susan M. Tolson 14
WHO OWNS YOUR FUND?
This fund, like every mutual fund, is collectively owned by the shareholders who
invest in the fund. The fund's Board of Directors (see page 52 for details) is
elected by the shareholders to represent and protect shareholder interests. To
this end, they hire Capital Research and Management Company as the investment
adviser and manager of the fund's portfolio holdings.
INVESTMENT PORTFOLIO, December 31, 2003
[begin pie chart]
Corporate bonds 51.2%
U.S. Treasury notes & bonds 11.4
Cash & equivalents 2.0
Federal agency mortgage pass-through securities 9.9
Asset-backed securities 6.6
Governments & governmental bodies (Non-U.S.) 5.8
Commercial & other mortgage-backed securities 9.0
Federal agency notes & bonds 1.9
Municipal obligations 1.5
Equity-related securities 0.7%
[end pie chart]
Principal Market
amount (000) value
BONDS, NOTES & PREFERRED STOCKS - 97.31% or shares (000)
COMMERCIAL BANKS - 8.53%
Household Finance Corp.:
5.75% 2007 $ 10,000 $ 10,819
7.875% 2007 35,500 40,597
4.125% 2008 1,000 1,010
6.40% 2008 10,000 11,098
6.375% 2011 38,750 42,737
6.75% 2011 31,500 35,513
6.375% 2012 9,250 10,165
7.00% 2012 14,000 15,991
HSBC Capital Funding LP: (1)
8.03% noncumulative preferred (undated) Euro 20,000 30,479
Series 1, 9.547% noncumulative step-up perpetual preferred (undated) (2) $ 26,000 33,091
Series 2, 10.176% noncumulative step-up perpetual preferred (undated) (2) 32,000 47,033
Midland Bank 1.50% Eurodollar note (undated) (1) 15,000 12,896
HSBC Holdings PLC 5.25% 2012 10,000 10,259
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred (undated)(1)(2) 71,025 80,366
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred
(undated) (1) (2) 39,700 43,471
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (1) (2) 79,250 89,622
Societe Generale 7.85% (undated) (1) (2) 17,705 19,833
HBOS PLC 5.375% (undated) (2) 37,000 37,075
HBOS Treasury Services PLC 3.75% 2008 (2) 32,500 32,562
Bank of Scotland 7.00% (undated) (1) (2) 25,000 27,688
HBOS Capital Funding LP, Series A, 6.461% non-cumulative preferred (undated) (1) Pound 3,000 5,817
Halifax Building Society 8.75% 2006 2,500 4,847
Royal Bank of Scotland Group PLC:
8.375% 2007 4,900 9,550
5.00% 2014 $ 3,000 2,979
7.648% (undated) (1) 24,000 28,746
Series 3, 7.816% (undated) 18,000 19,794
National Westminster Bank PLC: (1)
6.625% (undated) Euro 4,700 6,591
7.75% (undated) $ 17,000 19,448
RBS Capital Trust I noncumulative trust preferred 4.709% (undated) 20,910 20,038
J.P. Morgan Chase & Co.:
5.35% 2007 3,285 3,518
4.00% 2008 12,500 12,730
4.50% 2010 12,000 12,113
5.75% 2013 31,000 32,747
J.P. Morgan & Co. Inc., Series A, 6.00% 2009 2,500 2,733
UFJ Finance Aruba AEC 6.75% 2013 30,655 32,751
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred
(undated) (1) (2) 22,750 25,980
Abbey National PLC:
Series 1-B, 6.69% 2005 5,000 5,410
6.70% (undated) (1) 15,000 16,604
7.35% (undated) (1) (3) 28,000 30,922
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (undated) (1) (2) 19,000 21,733
BNP Paribas Capital Trust 9.003% noncumulative trust preferred (undated) (2) 15,000 18,805
BNP Paribas 5.125% 2015 (2) 9,460 9,444
HVB Funding Trust III 9.00% 2031 (2) 16,490 19,959
Bayer Hypo-Vereinsbank:
6.00% 2014 Euro 10,500 14,157
8.741% 2031 (2) $ 1,500 1,775
HVB Funding Trust VIII 7.055% (undated) Euro 8,000 10,897
NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 1,200,000 shares 33,720
National Bank of Canada 1.375% (undated) (1) $ 5,000 3,309
Standard Chartered Bank:
8.00% 2031 (2) 5,000 6,061
1.25% Eurodollar note (undated) (1) 15,000 10,955
1.40% (undated) (1) 5,000 3,756
Standard Chartered Capital Trust I 8.16% (undated) (1) Euro 10,000 14,789
Barclays Bank PLC: (1) (2)
6.86% callable perpetual core tier one notes (undated) $ 18,790 20,457
7.375% (undated) 5,375 6,263
8.55% (undated) 3,500 4,307
Development Bank of Singapore Ltd.: (2)
7.875% 2009 10,000 11,870
7.125% 2011 3,500 4,025
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference
shares (undated) (1) (2) 11,250 12,976
Bank of America Corp.:
3.625% 2008 Euro 7,500 9,408
3.875% 2008 $ 2,000 2,041
4.375% 2010 10,000 10,040
4.875% 2012 2,000 2,014
BankAmerica Corp.:
Series I, 7.125% 2005 1,500 1,607
7.125% 2011 1,750 2,051
Wells Fargo & Co. 3.50% 2008 21,310 21,399
Wells Fargo Financial, Inc. 6.125% 2012 5,000 5,484
Bayerische Landesbank, Series F, 2.50% 2006 26,000 26,338
AB Spintab:
6.00% 2009 SKr 73,000 10,813
7.50% (undated) (1) (2) $ 11,000 12,218
Canadian Imperial Bank of Commerce 1.375% Eurodollar note 2085 (1) 25,000 20,000
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred (undated) (1) (2) 15,821 18,257
BANK ONE CORP.:
2.625% 2008 6,000 5,776
4.90% 2015 4,000 3,924
BANK ONE, Texas, NA 6.25% 2008 7,250 8,009
Credit Suisse First Boston (USA), Inc. 6.50% 2012 15,000 16,722
Skandinaviska Enskilda Banken AB, 7.50% (undated) (1) 12,500 14,223
Comerica, Inc., Imperial Capital Trust I, Imperial Bancorp, Series B, 9.98% 2026 10,200 12,557
Unicredito Italiano SpA, Series B, 8.048% (undated) (1) Euro 7,000 10,486
United Overseas Bank Ltd. 4.50% 2013 (2) $ 10,000 9,568
State Street Capital Trust II 1.68% 2008 (1) 9,250 9,285
Bank of Nova Scotia 1.375% Eurodollar note (undated) (1) 10,000 8,076
Allfirst Preferred Capital Trust 2.65% 2029 (1) 8,000 8,015
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated) (1) (2) 6,500 7,484
Lloyds Bank, Series 2, 1.375% (undated) (1) 8,000 6,744
Allied Irish Banks Ltd. 1.688% (undated) (1) 7,000 5,809
Commerzbank AG, Series 360, 6.125% 2011 Euro 4,000 5,451
Wachovia Corp. 3.50% 2008 $ 5,000 4,984
Bergen Bank 1.313% (undated) (1) 5,000 4,035
Christiana Bank Og Kreditkasse 1.50% (undated) (1) 4,000 3,140
Zions Bancorp. 6.00% 2015 2,675 2,812
UnionBanCal Corp. 5.25% 2013 2,000 2,024
1,445,675
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.57%
Sprint Capital Corp.:
7.90% 2005 12,000 12,788
7.125% 2006 1,750 1,894
6.00% 2007 35,315 37,749
7.625% 2011 73,420 82,436
8.375% 2012 19,018 22,254
6.90% 2019 56,846 58,235
6.875% 2028 5,000 4,896
British Telecommunications PLC: (1)
8.375% 2010 43,590 53,130
8.875% 2030 22,500 29,527
France Telecom: (1)
8.45% 2006 6,050 6,762
9.00% 2011 50,000 60,152
Orange PLC 8.75% 2006 8,000 9,020
AT&T Corp.: (1)
7.00% 2006 (3) 25,000 27,667
7.80% 2011 39,750 45,833
Verizon Global Funding Corp.:
7.25% 2010 34,250 39,500
7.375% 2012 7,835 9,097
Verizon Virginia Inc., Series A, 4.625% 2013 18,000 17,387
Verizon New York Inc., Series A, 6.875% 2012 5,250 5,820
Telecom Italia SpA:
Series A, 4.00% 2008 (2) 1,270 1,280
6.25% 2012 Euro 15,000 20,532
Series B, 5.25% 2013 (2) $ 34,000 34,146
Sogerim SA 7.00% 2011 Euro 1,400 1,995
Deutsche Telekom International Finance BV:
8.25% 2005 (1) $ 5,000 5,426
7.50% 2007 (1) Euro 3,500 4,918
3.875% 2008 $ 1,100 1,105
8.50% 2010 (1) 1,000 1,211
8.125% 2012 (1) Euro 3,910 6,032
9.25% 2032 (1) $ 12,750 17,559
VoiceStream Wireless Corp. 10.375% 2009 1 1
Hellenic Exchangeable Finance SCA 2.00% exchangeable bonds 2005 Euro 22,000 30,031
Qwest Services Corp.: (2)
13.00% 2007 $ 11,209 13,227
13.50% 2010 2,666 3,253
14.00% 2014 5,451 6,964
Koninklijke KPN NV 8.00% 2010 17,125 20,519
Singapore Telecommunications Ltd.:
6.375% 2011 4,575 5,066
6.375% 2011 (2) 225 249
7.375% 2031 (2) 10,000 11,850
TELUS Corp.:
7.50% 2007 8,250 9,241
8.00% 2011 5,250 6,149
PCCW-HKT Capital Ltd. 7.75% 2011 (2) 12,375 14,550
Comcast UK Cable Partners Ltd. 11.20% 2007 12,790 12,982
NTELOS, Inc. 9.00% convertible notes 2013 (2) (4) 11,915 12,136
Telefonica Europe BV 5.125% 2013 Euro 7,600 9,823
GT Group Telecom Inc., units, 0%/13.25% 2010 (2) (4) (5) (6) (7) $ 2,753 6
NTL Europe, Inc., Series A, 10.00% preferred 2023 100 shares 1
XO Communications, Inc. 14.00% preferred 2009 (8) (9) 24 -
774,399
AUTOMOBILES - 4.37%
General Motors Acceptance Corp.:
7.50% 2005 $ 40,000 43,004
6.125% 2007 5,000 5,375
6.15% 2007 7,500 8,044
5.85% 2009 15,000 15,902
5.75% 2010 (2) Euro 7,000 9,043
7.75% 2010 $ 26,386 29,947
6.875% 2011 83,350 89,913
7.25% 2011 17,000 18,677
6.875% 2012 52,100 56,142
7.00% 2012 14,500 15,614
8.00% 2031 35,750 40,266
General Motors Corp.:
7.25% 2013 Euro 9,000 12,547
Series B, 5.25% convertible debentures 2032 $ 525 14,107
Ford Motor Credit Co.:
6.875% 2006 46,000 49,120
6.50% 2007 2,000 2,132
5.625% 2008 10,000 10,277
5.80% 2009 17,000 17,526
7.375% 2009 20,000 21,989
7.875% 2010 7,350 8,223
7.25% 2011 28,500 30,956
7.375% 2011 78,625 85,815
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust
preferred 2032 351,600 shares 19,637
Ford Motor Co. 7.45% 2031 $ 7,100 7,196
DaimlerChrysler North America Holding Corp.:
7.75% 2005 18,462 19,875
6.40% 2006 19,000 20,368
4.05% 2008 40,400 40,165
4.75% 2008 4,800 4,916
7.75% 2011 4,000 4,581
7.30% 2012 19,750 22,024
6.50% 2013 16,750 17,677
741,058
INSURANCE - 4.08%
International Lease Finance Corp.:
3.75% 2007 15,000 15,310
4.35% 2008 21,000 21,454
4.50% 2008 29,500 30,494
Series O, 4.55% 2009 18,600 18,583
5.875% 2013 9,700 10,238
AIG SunAmerica Global Financing VII 5.85% 2008 (2) 16,750 18,270
Prudential Holdings, LLC, Series C, 8.695% 2023 (2) (10) 76,875 95,172
PRICOA Global Funding I, Series 2003-2, 3.90% 2008 (2) 5,000 5,008
Prudential Insurance Co. of America 6.375% 2006 (2) 4,000 4,360
Prudential Funding LLC 6.60% 2008 (2) 3,000 3,343
ReliaStar Financial Corp.:
8.625% 2005 5,000 5,343
8.00% 2006 23,160 26,198
6.50% 2008 6,016 6,651
ING Capital Funding Trust III 8.439% noncumulative preferred (undated) (1) 19,750 23,947
Ing Verzekeringen NV 6.25% 2021 (1) Euro 3,750 5,092
ING Bank NV 5.50% 2012 3,750 5,009
International Nederland Bank NV 5.125% 2015 (2) $ 2,500 2,497
Allstate Financial Global Funding LLC: (2)
5.25% 2007 26,500 28,505
4.25% 2008 7,500 7,679
Allstate Corp. 6.75% 2018 15,000 17,105
Allstate Financing II 7.83% 2045 6,940 7,797
Monumental Global Funding Trust II: (2)
2001-B, Series B, 6.05% 2006 11,025 11,849
2002-A, Series A, 5.20% 2007 17,500 18,685
AEGON NV:
4.625% 2008 Euro 7,750 9,989
6.125% 2031 Pound 1,600 3,121
Transamerica Corp. 9.375% 2008 $ 7,500 8,922
Monumental Global Funding Ltd., Series 2001-N, 5.75% 2007 Pound 1,840 3,320
Mangrove Bay Pass Through Trust 6.102% 2033 (1) (2) $ 48,670 48,271
XL Capital Finance (Europe) PLC 6.50% 2012 6,455 7,076
Nationwide Mutual Insurance Co. 7.875% 2033 (2) 26,750 31,042
Nationwide Life Insurance Co. 5.35% 2007 (2) 4,250 4,579
MetLife, Inc. 3.911% 2005 31,730 32,641
Principal Life Global Funding I 4.40% 2010 (2) 26,600 26,817
ACE Ltd., Series C, preferred depositary shares 680,000 shares 18,741
ACE Capital Trust II 9.70% 2030 $ 2,413 3,157
ACE INA Holdings Inc. 8.875% 2029 2,450 3,068
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007 (2) 23,125 24,820
Hartford Financial Services Group, Inc.:
2.375% 2006 2,000 1,991
4.70% 2007 14,250 14,983
Travelers Property Casualty Corp.:
3.75% 2008 5,500 5,529
5.00% 2013 10,000 10,025
CNA Financial Corp.:
6.75% 2006 3,000 3,200
6.60% 2008 3,458 3,645
7.25% 2023 5,850 5,871
United Energy Distribution Pty Ltd., AMBAC insured, 4.70% 2011 (2) 10,000 10,160
Lincoln National Corp.:
6.20% 2011 1,270 1,388
7.00% 2018 6,275 7,265
Munich Re Finance BV 6.75% 2023 Euro 5,850 8,164
John Hancock Global Funding II, Series 2002-G, 5.00% 2007 (2) $ 5,000 5,316
691,690
WIRELESS TELECOMMUNICATION SERVICES - 3.77%
AT&T Wireless Services, Inc.:
7.875% 2011 32,775 37,989
8.125% 2012 74,590 87,878
8.75% 2031 7,025 8,698
Tritel PCS, Inc. 10.375% 2011 26,278 31,458
TeleCorp PCS, Inc. 10.625% 2010 6,046 7,070
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 (3) 120,815 129,027
Vodafone Group PLC:
4.25% 2009 Euro 7,000 8,872
7.75% 2010 $ 56,410 66,957
5.375% 2015 8,215 8,312
American Tower Corp.:
9.375% 2009 49,925 53,420
5.00% convertible debentures 2010 21,000 20,107
Nextel Communications, Inc.:
6.875% 2013 9,675 10,280
7.375% 2015 16,325 17,631
Dobson Communications Corp.:
Series F, 6.00% convertible preferred (2) 15,400 shares 2,618
13.00% senior exchangeable preferred 2009 (8) 11,335 12,128
8.875% 2013 (2) $ 11,320 11,518
Nextel Partners, Inc.:
12.50% 2009 2,051 2,389
11.00% 2010 13,066 14,503
8.125% 2011 8,375 8,961
Cricket Communications, Inc.: (1) (6)
6.188% 2007 16,535 10,582
6.375% 2007 5,725 3,664
6.625% 2007 6,850 4,384
9.50% 2007 10,500 6,720
Centennial Cellular Corp. 10.75% 2008 18,300 19,398
Crown Castle International Corp.:
10.75% 2011 5,000 5,650
7.50% 2013 (2) 3,225 3,257
Series B, 7.50% 2013 (2) 6,200 6,262
AirGate PCS, Inc. 0%/13.50% 2009 (5) 21,000 14,910
Triton PCS, Inc.:
8.75% 2011 2,500 2,475
9.375% 2011 4,000 4,100
8.50% 2013 2,500 2,700
mmO2 6.375% 2007 Euro 6,500 8,805
Cellco Finance NV 12.75% 2005 $ 3,500 3,902
Millicom International Cellular SA 10.00% 2013 (2) 1,500 1,590
Rogers Cantel Inc. 9.75% 2016 1,250 1,512
639,727
MEDIA - 3.34%
Liberty Media Corp.:
7.75% 2009 8,250 9,472
7.875% 2009 43,520 50,482
5.70% 2013 750 760
8.50% 2029 17,500 21,272
8.25% 2030 32,125 38,575
Tele-Communications, Inc.:
9.80% 2012 17,500 22,862
7.875% 2013 10,750 12,747
Comcast Cable Communications, Inc.:
8.375% 2007 7,000 8,123
6.875% 2009 7,194 8,121
Comcast Corp. 6.50% 2015 8,000 8,701
Lenfest Communications, Inc. 7.625% 2008 6,750 7,601
AOL Time Warner Inc. 6.875% 2012 40,000 45,099
Clear Channel Communications, Inc.:
6.00% 2006 7,050 7,626
6.625% 2008 5,375 5,977
7.65% 2010 10,000 11,724
Chancellor Media Corp. of Los Angeles 8.00% 2008 16,000 18,600
Viacom Inc.:
6.40% 2006 5,000 5,402
5.625% 2007 6,600 7,141
7.70% 2010 13,000 15,558
6.625% 2011 13,000 14,780
Univision Communications Inc. 7.85% 2011 30,305 36,080
Young Broadcasting Inc.:
Series B, 9.00% 2006 1,528 1,534
Series B, 8.75% 2007 14,102 14,525
8.50% 2008 (2) 3,500 3,780
10.00% 2011 12,317 13,333
Antenna TV SA:
9.00% 2007 6,750 6,792
9.75% 2008 Euro 15,000 19,393
Emmis Communications Corp. 0%/12.50% 2011 (5) $ 24,213 22,548
News America Holdings Inc.:
6.625% 2008 12,900 14,361
8.625% 2014 A$ 5,150 3,912
Cinemark USA, Inc. 9.00% 2013 $ 9,925 11,215
Hollinger Participation Trust 12.125% 2010 (1) (2) (8) 8,907 10,622
Cox Radio, Inc.:
6.375% 2005 8,000 8,418
6.625% 2006 1,965 2,126
Century Communications Corp. 0% 2003 (11) 5,000 4,450
Adelphia Communications Corp.:
10.25% 2006 (6) 3,500 3,273
Series B, 13.00% preferred 2009 (9) 50,565 shares 771
FrontierVision 11.00% 2006 (6) $ 700 752
AMC Entertainment Inc. 9.50% 2009 8,250 8,539
Gannett Co., Inc. 4.95% 2005 8,000 8,321
Regal Cinemas Corp., Series B, 9.375% 2012 7,250 8,229
Carmike Cinemas, Inc., Series B, 10.375% 2009 7,675 8,097
TransWestern Publishing Co. LLC, Series F, 9.625% 2007 7,510 7,810
Telenet Group Holding NV 0%/11.50% 2014 (2) (5) 11,250 7,144
Charter Communications Holdings, LLC 0%/9.92% 2011 (5) 1,700 1,462
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 (2) 4,000 4,090
RBS Participacoes SA 11.00% 2007 (2) 7,250 5,474
Radio One, Inc., Series B, 8.875% 2011 4,000 4,430
EchoStar DBS Corp. 9.125% 2009 2,750 3,090
Globo Comunicacoes e Participacoes Ltda., Series B: (6)
10.50% 2006 (2) 1,990 896
10.50% 2006 690 311
566,401
ELECTRIC UTILITIES - 2.52%
Israel Electric Corp. Ltd.: (2)
7.75% 2009 17,000 19,227
7.95% 2011 3,250 3,679
7.70% 2018 8,500 9,337
7.875% 2026 15,000 16,124
7.75% 2027 15,545 16,236
8.10% 2096 12,000 11,923
Edison Mission Energy:
10.00% 2008 5,200 5,421
7.73% 2009 9,375 8,977
9.875% 2011 29,410 30,733
Homer City Funding LLC 8.734% 2026 (10) 20,200 21,816
Midwest Generation, LLC, Series B, 8.56% 2016 (10) 8,000 8,349
Exelon Generation Co., LLC 6.95% 2011 22,975 25,847
Commonwealth Edison Co.:
Series 99, 3.70% 2008 7,125 7,161
First Mortgage Bonds, Series 102, 4.74% 2010 12,500 12,797
Series 101, 4.70% 2015 3,000 2,927
PECO Energy Co., First and Refunding Mortgage Bonds:
3.50% 2008 5,000 4,992
4.75% 2012 3,900 3,896
Exelon Corp. 6.75% 2011 6,200 6,937
Virginia Electric and Power Co.:
Series 2002-A, 5.375% 2007 14,140 15,092
Series 2003-D, 4.75% 2013 22,000 21,787
Dominion Resources, Inc., Series 2002-C, 5.70% 2012 (1) 1,000 1,056
Cilcorp Inc.:
8.70% 2009 1,000 1,208
9.375% 2029 21,830 29,446
Alabama Power Co.:
Series U, 2.65% 2006 20,500 20,644
4.70% 2010 2,250 2,302
Southern Power Co., Series B, 6.25% 2012 2,500 2,706
Progress Energy, Inc.:
5.85% 2008 2,500 2,684
7.10% 2011 5,000 5,643
6.85% 2012 4,000 4,466
7.00% 2031 2,500 2,686
Progress Energy Florida, Inc., First Mortgage Bonds 4.80% 2013 7,000 6,966
SP PowerAssets Ltd.: (2)
3.80% 2008 10,000 10,052
5.00% 2013 8,000 8,061
Niagara Mohawk Power Corp., Series G, 7.75% 2008 14,460 16,801
Consolidated Edison Co. of New York, Inc.:
Series 2003-A, 3.625% 2008 6,000 6,007
Series B, 3.85% 2013 5,000 4,648
Series 2003-C, 5.10% 2033 1,000 908
Series 2003-A, 5.875% 2033 1,000 1,017
Oncor Electric Delivery Co. 6.375% 2012 10,700 11,778
PacifiCorp, First Mortgage Bonds:
4.30% 2008 2,500 2,556
5.45% 2013 7,500 7,796
Tri-State Generation and Transmission Association, Inc., Series 2003-A,
6.04% 2018 (2) 8,700 8,942
MidAmerican Energy Co. 5.125% 2013 7,500 7,644
E.ON International Finance BV 5.75% 2009 Euro 5,000 6,809
Wisconsin Gas Co. 5.20% 2015 $ 1,000 1,013
427,097
INDUSTRIAL CONGLOMERATES - 2.08%
General Electric Capital Corp., Series A:
5.00% 2007 21,500 22,919
5.375% 2007 13,250 14,262
3.50% 2008 29,000 29,058
6.00% 2012 15,000 16,294
General Electric Co. 5.00% 2013 32,750 33,181
Hutchison Whampoa International Ltd.: (2)
7.00% 2011 33,125 36,458
6.50% 2013 47,200 49,260
6.25% 2014 20,000 20,353
Tyco International Group SA:
6.125% 2008 14,500 15,588
6.125% 2009 11,750 12,631
6.375% 2011 46,265 49,677
6.00% 2013 (2) 2,500 2,588
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital
securities (2) 1,670,000 shares 44,255
Swire Pacific Offshore Financing Ltd. 9.33% cumulative guaranteed perpetual 230,000 6,095
preferred capital securities (2)
352,619
CONSUMER FINANCE - 1.61%
SLM Corp., Series A:
3.625% 2008 $ 5,500 5,482
3.95% 2008 27,500 27,801
4.00% 2009 5,000 5,040
5.375% 2013 5,450 5,602
5.00% 2015 13,000 12,853
USA Education, Inc. 5.625% 2007 45,150 48,964
Capital One Financial Corp.:
7.25% 2006 12,250 13,263
8.75% 2007 18,410 20,753
7.125% 2008 4,250 4,596
6.25% 2013 10,000 10,271
Capital One Bank:
8.25% 2005 2,000 2,164
6.875% 2006 2,000 2,165
5.75% 2010 11,500 12,182
6.50% 2013 6,000 6,302
MBNA Corp.:
Series F, 7.50% 2012 8,700 10,124
5.00% 2015 7,450 7,243
MBNA Capital A, Series A, 8.278% 2026 7,500 8,175
Series B, 1.963% 2027 (1) 32,800 28,537
MBNA Europe Funding PLC 6.50% 2007 Euro 5,000 6,788
Providian Financial Corp., Series A, 9.525% 2027 (2) $ 16,750 15,787
Advanta Capital Trust I, Series B, 8.99% 2026 12,500 9,813
American Express Credit Corp. 3.00% 2008 9,060 8,876
272,781
PAPER & FOREST PRODUCTS - 1.26%
Weyerhaeuser Co.:
5.95% 2008 16,125 17,351
5.25% 2009 11,875 12,348
6.75% 2012 21,250 23,219
Scotia Pacific Co. LLC, Series B:
Class A-1, 6.55% 2028 (10) 783 736
Class A-2, 7.11% 2028 (10) 31,400 24,297
Class A-3, 7.71% 2028 19,143 12,252
SCA Coordination Center NV 4.50% 2015 (2) 39,500 37,017
Georgia-Pacific Corp.:
7.50% 2006 4,800 5,100
8.125% 2011 7,000 7,735
9.50% 2022 13,115 13,705
Potlatch Corp. 10.00% 2011 11,450 12,824
UPM-Kymmene Corp. 6.125% 2012 Euro 7,500 10,208
Kappa Beheer BV 0%/12.50% 2009 (5) 6,000 7,795
Packaging Corp. of America:
4.375% 2008 $ 3,500 3,507
5.75% 2013 4,000 4,048
MeadWestvaco Corp. 2.75% 2005 7,180 7,123
Norske Skogindustrier ASA 6.125% 2015 (2) 6,500 6,598
International Paper Co. 5.375% 2006 Euro 4,500 5,887
Pindo Deli Finance Mauritius Ltd. 10.25% 2002 (11) $ 6,000 1,260
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 (6) 2,250 923
APP International Finance Co. BV 11.75% 2005 (6) 275 105
214,038
REAL ESTATE - 1.08%
EOP Operating LP:
7.75% 2007 2,000 2,295
6.75% 2008 24,500 27,277
6.75% 2012 8,250 9,127
7.50% 2029 3,420 3,839
Equity Office Properties Trust, Series B, 5.25% convertible preferred 2008 70,400 shares 3,521
Kimco Realty Corp.:
Series B, 7.68% 2005 $ 4,250 4,664
Series C, 3.95% 2008 5,000 5,014
6.00% 2012 13,500 14,358
Price REIT, Inc. 7.50% 2006 2,760 3,128
Rouse Co.:
7.20% 2012 18,450 20,831
5.375% 2013 1,000 997
Irvine Co., Class A, 7.46% 2006 (2) (4) 15,000 16,305
Irvine Apartment Communities, LP 7.00% 2007 5,000 5,446
Hospitality Properties Trust:
7.00% 2008 1,000 1,068
6.75% 2013 19,370 20,329
United Dominion Realty Trust, Inc., Series E, 4.50% 2008 19,000 19,350
Simon Property Group, LP 4.875% 2010 12,000 12,248
New Plan Realty Trust, Series D, 7.80% preferred cumulative step-up premium rate 112,500 shares 6,047
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative 50,000 4,650
step-up premium rate
ERP Operating LP 6.625% 2012 $ 2,000 2,225
182,719
DIVERSIFIED FINANCIAL SERVICES - 1.07%
CIT Group Inc.:
4.125% 2006 25,000 25,883
5.75% 2007 20,500 22,138
7.375% 2007 12,500 14,129
4.00% 2008 14,000 14,173
6.875% 2009 31,000 34,873
7.75% 2012 26,875 31,801
AT&T Capital Corp., Series F, 6.60% 2005 11,750 12,364
Citigroup Inc.:
3.50% 2008 20,000 20,094
5.625% 2012 5,675 6,001
181,456
HEALTH CARE PROVIDERS & SERVICES - 0.97%
HCA Inc.:
7.125% 2006 9,565 10,369
5.25% 2008 4,700 4,795
6.95% 2012 3,000 3,222
6.25% 2013 24,860 25,491
6.75% 2013 7,000 7,437
Columbia/HCA Healthcare Corp.:
6.91% 2005 14,410 15,184
7.00% 2007 5,260 5,763
8.85% 2007 5,990 6,777
7.25% 2008 5,000 5,495
8.70% 2010 1,750 2,074
7.69% 2025 5,000 5,291
HCA - The Healthcare Co. 8.75% 2010 2,725 3,249
Humana Inc.:
7.25% 2006 5,000 5,466
6.30% 2018 18,300 19,311
UnitedHealth Group Inc.:
7.50% 2005 13,000 14,278
5.20% 2007 8,000 8,567
Aetna Inc.:
7.375% 2006 14,430 15,884
7.875% 2011 4,635 5,487
164,140
OIL & GAS - 0.94%
ConocoPhillips:
3.625% 2007 14,500 14,630
4.75% 2012 32,500 32,695
Pemex Finance Ltd.:
8.875% 2010 (10) 24,000 28,810
Series 1999-2, Class A-3, 10.61% 2017 (10) 11,700 15,366
Pemex Project Funding Master Trust 8.625% 2022 750 834
Western Oil Sands Inc. 8.375% 2012 9,550 10,923
Reliance Industries Ltd. 10.25% 2097 (2) 8,750 9,561
ChevronTexaco Capital Co. 3.50% 2007 7,000 7,135
Pogo Producing Co. 10.375% 2009 6,500 6,923
OXYMAR 7.50% 2016 (2) 5,500 5,940
Devon Financing Corp., ULC 6.875% 2011 4,750 5,394
Newfield Exploration Co.:
7.625% 2011 2,500 2,800
8.375% 2012 2,150 2,419
Teekay Shipping Corp. 8.875% 2011 4,250 4,845
Premcor Refining Group Inc. 7.75% 2012 (2) 2,000 2,070
Port Arthur Finance Corp. 12.50% 2009 (10) 1,388 1,655
PETRONAS Capital Ltd. 7.00% 2012 (2) 2,250 2,568
PDVSA Finance Ltd., Series 1998-1B, 6.65% 2006 (10) 2,250 2,289
Petrozuata Finance, Inc., Series B, 8.22% 2017 (2) (10) 1,850 1,711
158,568
HOTELS, RESTAURANTS & LEISURE - 0.93%
Six Flags, Inc.:
9.50% 2009 3,375 3,552
8.875% 2010 11,850 12,220
9.75% 2013 10,250 10,839
Premier Parks Inc. 9.75% 2007 2,000 2,098
Carnival Corp.:
3.75% 2007 (2) 8,500 8,523
6.15% 2008 15,913 17,345
MGM Mirage, Inc. 8.50% 2010 6,850 7,895
MGM Grand, Inc. 6.95% 2005 5,000 5,225
Circus and Eldorado Joint Venture and Silver Legacy Resort Casino 10.125% 2012 12,025 12,536
International Game Technology:
7.875% 2004 8,000 8,168
8.375% 2009 2,000 2,397
Buffets, Inc. 11.25% 2010 7,500 8,081
Station Casinos, Inc. 8.375% 2008 7,000 7,534
Mandalay Resort Group, Series B, 10.25% 2007 6,175 7,163
Eldorado Resorts LLC 10.50% 2006 7,033 7,138
YUM Brands, Inc. 7.70% 2012 5,000 5,781
Perkins Family Restaurants, LP, Perkins Finance Corp., Series B, 10.125% 2007 4,793 4,913
Hilton Hotels Corp.:
7.625% 2008 1,000 1,118
7.625% 2012 2,750 3,104
Boyd Gaming Corp. 9.25% 2009 3,500 3,929
Hyatt Equities, LLC 6.875% 2007 (2) 3,185 3,424
Royal Caribbean Cruises Ltd.:
7.00% 2007 1,400 1,491
8.75% 2011 1,625 1,844
Jupiters Ltd. 8.50% 2006 3,000 3,285
Sbarro, Inc. 11.00% 2009 3,015 2,397
Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 2,000 2,123
Argosy Gaming Co. 9.00% 2011 1,250 1,391
Coast Hotels and Casinos, Inc. 9.50% 2009 1,000 1,063
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007 250 271
AMF Bowling Worldwide, Inc. 0% convertible debentures 2018 (2) (4) (6) 11,084 1
156,849
MULTILINE RETAIL - 0.87%
J.C. Penney Co., Inc.:
Series A, 6.50% 2007 4,000 4,265
7.60% 2007 5,350 5,932
7.375% 2008 2,000 2,233
6.875% 2015 1,425 1,505
7.65% 2016 13,300 14,647
7.95% 2017 38,575 44,024
8.25% 2022 (10) 4,547 4,723
7.40% 2037 1,625 1,773
7.625% 2097 18,055 18,619
Target Corp.:
5.95% 2006 10,000 10,815
3.375% 2008 20,830 20,841
Kmart Corp. Pass Through Trust, Series 1995 K-2, 9.78% 2020 (10) (12) 10,604 4,884
DR Securitized Lease Trust, Series 1994 K-2, 9.35% 2019 (10) (12) 7,382 4,138
Sears Roebuck Acceptance Corp. 6.70% 2012 5,000 5,522
Kohl's Corp. 7.375% 2011 1,500 1,799
Dillard's, Inc.:
6.43% 2004 150 153
6.625% 2018 1,000 960
146,833
MULTI-UTILITIES & UNREGULATED POWER - 0.75%
Drax Group Ltd.: (1) (2)
Class A-1, 6.066% 2015 Pound 4,603 7,655
Class B, 5.566% 2025 3,894 5,764
Drax Group Ltd., Class A-2, unit, 7.566% 2015 (1) (2) (13) 5,293 9,912
AES Trust VII 6.00% convertible preferred 2008 318,500 shares 14,651
AES Corp.:
9.50% 2009 $ 927 1,032
9.375% 2010 803 894
El Paso Corp. 7.75% 2032 18,000 15,435
Constellation Energy Group, Inc. 6.125% 2009 10,500 11,546
Baltimore Gas and Electric Co. 5.20% 2033 3,000 2,736
Old Dominion Electric Cooperative, Series 2003-A, 5.676% 2028 (10) 13,500 13,885
Duke Energy Corp.:
First and Refunding Mortgage Bonds 4.50% 2010 4,500 4,597
Series D, 7.375% 2010 6,750 7,789
Veolia Environnement 4.875% 2013 Euro 8,000 9,932
NGG Finance PLC 6.125% 2011 6,980 9,545
Equitable Resources, Inc.:
5.15% 2012 $ 4,250 4,377
5.15% 2018 2,500 2,454
RWE Finance BV 5.50% 2007 Euro 4,000 5,351
127,555
COMMERCIAL SERVICES & SUPPLIES - 0.67%
Cendant Corp.:
6.875% 2006 $ 16,505 18,121
6.25% 2008 7,500 8,190
7.375% 2013 26,660 30,622
PHH Corp.:
6.00% 2008 1,000 1,077
7.125% 2013 750 842
Allied Waste North America, Inc.:
Series B, 7.625% 2006 3,000 3,173
8.50% 2008 8,750 9,778
Series B, 8.875% 2008 6,250 7,031
10.00% 2009 17,850 19,367
6.50% 2010 (2) 4,000 4,120
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 8,000 8,160
Stericycle, Inc., Series B, 12.375% 2009 1,461 1,687
Waste Management, Inc. 7.375% 2010 1,000 1,157
113,325
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.65%
Solectron Corp.:
Series B, 7.375% 2006 4,775 4,966
9.625% 2009 27,875 31,220
0% LYON convertible notes 2020 85,400 48,892
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 12,000 11,400
Celestica Inc. 0% convertible debentures 2020 14,000 7,473
Flextronics International Ltd. 9.75% 2010 Euro 2,750 3,797
Jabil Circuit, Inc. 5.875% 2010 $ 2,750 2,872
110,620
METALS & MINING - 0.58%
BHP Finance (USA) Ltd.:
6.69% 2006 10,000 10,985
8.50% 2012 20,000 25,555
Corporacion Nacional del Cobre de Chile:
6.375% 2012 (2) 7,625 8,266
6.375% 2012 300 325
5.50% 2013 (2) 12,000 12,205
Alcan, Inc. 5.20% 2014 13,325 13,495
Inco Ltd.:
7.75% 2012 1,700 1,986
7.20% 2032 7,750 8,499
AK Steel Corp. 7.75% 2012 6,650 5,719
Luscar Coal Ltd. 9.75% 2011 4,000 4,550
Earle M. Jorgensen Co. 9.75% 2012 3,600 4,014
Kaiser Aluminum & Chemical Corp. 12.75% 2003 (11) 7,250 1,595
Steel Dynamics, Inc. 9.50% 2009 1,250 1,394
98,588
CHEMICALS - 0.56%
Dow Chemical Co.:
5.75% 2008 11,100 11,914
5.75% 2009 6,250 6,700
6.00% 2012 33,500 35,323
Equistar Chemicals, LP:
6.50% 2006 7,800 7,917
8.75% 2009 5,000 5,250
Lyondell Chemical Co.:
Series A, 9.625% 2007 5,500 5,858
11.125% 2012 2,500 2,788
ICI Wilmington, Inc.:
4.375% 2008 2,185 2,179
5.625% 2013 16,965 17,079
95,008
COMMUNICATIONS EQUIPMENT - 0.56%
Motorola, Inc.:
8.00% 2011 58,530 69,344
7.50% 2025 14,500 15,802
6.50% 2028 3,695 3,671
5.22% 2097 6,250 4,722
Juniper Networks, Inc. 4.75% convertible subordinated notes 2007 1,037 1,063
94,602
MACHINERY - 0.52%
John Deere Capital Corp.:
3.90% 2008 30,000 30,516
5.10% 2013 15,000 15,395
Deere & Co. 8.95% 2019 5,000 6,175
Terex Corp.:
9.25% 2011 7,250 8,011
Class B, 10.375% 2011 5,725 6,441
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 (2) 180,000 shares 11,385
Caterpillar Financial Services Corp.:
Series F, 2.35% 2006 $ 5,000 4,977
2.70% 2008 6,345 6,137
89,037
FOOD & STAPLES RETAILING - 0.49%
CVS Corp.: (2)
6.117% 2013 (10) 31,959 34,405
5.789% 2026 15,500 15,489
SUPERVALU INC 7.50% 2012 11,510 13,096
Wal-Mart Stores, Inc. 3.375% 2008 12,000 11,903
Delhaize America, Inc.:
7.375% 2006 1,500 1,620
9.00% 2031 3,000 3,660
Pathmark Stores, Inc. 8.75% 2012 1,850 1,943
Great Atlantic & Pacific Tea Co., Inc.
9.125% 2011 300 276
9.375% QUIBS preferred 2039 18,500 shares 436
82,828
SPECIALTY RETAIL - 0.48%
Toys "R" Us, Inc.:
7.875% 2013 $ 19,410 20,915
7.375% 2018 28,195 28,238
Office Depot, Inc.:
10.00% 2008 6,500 7,768
6.25% 2013 5,445 5,728
Lowe's Companies, Inc. 8.25% 2010 8,450 10,309
PETCO Animal Supplies, Inc. 10.75% 2011 5,375 6,316
Gap, Inc. 6.90% 2007 1,300 1,441
80,715
AEROSPACE & DEFENSE - 0.47%
BAE SYSTEMS 2001 Asset Trust, Series 2001: (2) (10)
Class B, 7.156% 2011 34,596 37,785
Class G, MBIA insured, 6.664% 2013 32,693 36,153
General Dynamics Corp. 4.50% 2010 5,000 5,118
79,056
IT SERVICES - 0.46%
Electronic Data Systems Corp.:
7.125% 2005 (2) 9,500 9,979
7.125% 2009 15,395 16,458
Series B, 6.00% 2013 (1) 52,800 51,995
78,432
ROAD & RAIL - 0.43%
Union Pacific Railroad Co. Pass Through Trust: (10)
Series 2001-1, 6.63% 2022 8,000 9,044
Series 2002-1, 6.061% 2023 17,500 18,929
Series 2003-1, 4.698% 2024 5,378 5,182
Burlington Northern and Santa Fe Railway Co. Pass-Through Trust: (10)
Series 1996-B, 6.96% 2009 2,745 2,855
Series 2002-2, 5.14% 2021 12,500 12,352
Series 2002-1, 5.943% 2022 10,500 11,031
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 9,473 9,882
5.70% 2023 (2) (10)
TFM, SA de CV:
11.75% 2009 1,855 1,915
12.50% 2012 2,145 2,456
73,646
THRIFTS & MORTGAGE FINANCE - 0.39%
Washington Mutual, Inc.:
7.50% 2006 12,000 13,414
5.625% 2007 11,000 11,864
4.375% 2008 12,500 12,862
4.00% 2009 5,000 5,014
Washington Mutual Bank, FA 6.875% 2011 10,000 11,357
Washington Mutual Finance 8.25% 2005 10,000 10,912
65,423
AUTO COMPONENTS - 0.38%
ArvinMeritor, Inc. 8.75% 2012 11,685 13,438
Meritor Automotive, Inc. 6.80% 2009 6,500 6,858
Visteon Corp. 8.25% 2010 15,440 17,136
Delphi Trust II, trust preferred securities, 6.197% 2033 (1) 8,750 8,842
Delphi Corp. 6.50% 2013 4,000 4,208
Tenneco Automotive Inc., Series B, 11.625% 2009 7,000 7,595
Lear Corp., Series B, 8.11% 2009 3,580 4,229
Dura Operating Corp., Series B, 8.625% 2012 1,500 1,605
63,911
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.34%
Conexant Systems, Inc. 4.00% convertible subordinated notes 2007 14,700 14,075
Micron Technology, Inc. 6.50% 2005 (2) 11,000 10,945
Hyundai Semiconductor America, Inc. 8.625% 2007 (2) 10,150 9,340
ON Semiconductor Corp. 13.00% 2008 (1) 5,750 6,713
Fairchild Semiconductor Corp. 10.50% 2009 4,675 5,236
Amkor Technology, Inc.:
9.25% 2008 500 570
7.75% 2013 3,750 4,041
TriQuint Semiconductor, Inc. 4.00% convertible subordinated notes 2007 3,650 3,522
Cypress Semiconductor Corp. 3.75% convertible subordinated notes 2005 2,994 2,994
57,436
FOOD PRODUCTS - 0.32%
Nabisco, Inc.:
7.05% 2007 6,500 7,317
7.55% 2015 5,105 6,122
6.375% 2035 (1) 12,300 12,840
Kraft Foods Inc. 6.25% 2012 945 1,032
Burns Philp Capital Pty Ltd.: (2)
10.75% 2011 1,500 1,643
9.75% 2012 17,125 18,409
Cadbury Schweppes US Finance LLC 5.125% 2013 (2) 4,750 4,728
Fage Dairy Industry SA 9.00% 2007 2,500 2,566
54,657
CONTAINERS & PACKAGING - 0.24%
Owens-Illinois, Inc.:
8.10% 2007 5,750 6,088
7.35% 2008 5,250 5,414
7.50% 2010 2,250 2,320
Owens-Brockway Glass Container Inc. 8.875% 2009 3,000 3,304
Jefferson Smurfit Corp. (US) 8.25% 2012 10,375 11,309
Stone Container Corp. 9.75% 2011 3,250 3,608
Longview Fibre Co. 10.00% 2009 5,500 6,064
Smurfit Capital Funding PLC 6.75% 2005 2,000 2,080
Temple-Inland Inc. 7.875% 2012 400 465
40,652
HOUSEHOLD DURABLES - 0.22%
Toll Brothers, Inc. 6.875% 2012 9,875 10,907
Pulte Homes, Inc. 7.625% 2017 7,500 8,775
Centex Corp. 4.75% 2008 8,000 8,261
MDC Holdings, Inc. 5.50% 2013 3,000 3,012
Lennar Corp. 7.625% 2009 2,000 2,310
Ryland Group, Inc. 9.75% 2010 2,000 2,280
Boyds Collection, Ltd., Series B, 9.00% 2008 1,501 1,524
37,069
PHARMACEUTICALS - 0.20%
Schering-Plough Corp. 5.30% 2013 16,750 17,081
Bristol-Myers Squibb Co.: (2)
4.00% 2008 12,695 12,911
5.25% 2013 2,000 2,066
Wyeth 5.50% 2014 1,750 1,773
33,831
INTERNET & CATALOG RETAIL - 0.19%
Amazon.com, Inc. 6.875% PEACS convertible subordinated notes 2010 Euro 25,975 32,563
GAS PRODUCTION & DISTRIBUTION - 0.14%
Kern River Funding Corp. 4.893% 2018 (2) (10) $ 10,687 10,668
NiSource Finance Corp. 7.625% 2005 7,000 7,651
TGT Pipeline, LLC 5.20% 2018 4,250 3,989
Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% 2011 1,500 1,502
23,810
AIRLINES - 0.14%
Northwest Airlines, Inc.:
7.625% 2005 1,100 1,078
8.875% 2006 875 798
9.875% 2007 10,000 9,150
American Airlines, Inc., Series 2001-2, Class B, 8.608% 2012 9,000 8,201
Continental Airlines, Inc., MBIA insured, 2.08% 2009 (1) 2,000 2,010
Delta Air Lines, Inc. 10.375% 2022 2,577 1,872
United Air Lines, Inc. 9.00% 2003 (11) 2,000 250
Jet Equipment Trust: (2) (6)
Series 1994-A, 11.79% 2013 4,000 120
Series 1995-B, 10.91% 2014 5,000 50
Series 1995-D, 11.44% 2014 10,000 50
23,579
WATER UTILITIES - 0.06%
Anglian Water Services Financing PLC 4.625% 2013 Euro 8,250 10,140
OFFICE ELECTRONICS - 0.01%
Xerox Capital (Europe) PLC 5.875% 2004 $ 1,000 1,015
INTERNET SOFTWARE & SERVICES - 0.00%
Exodus Communications, Inc. 11.625% 2010 (6) (10) 1,172 18
MORTGAGE-BACKED OBLIGATIONS
PRIVATE ISSUE
COMMERCIAL MORTGAGE-BACKED SECURITIES - 4.04% (10)
Chase Commercial Mortgage Securities Corp.:
Series 1998-1, Class A-1, 6.34% 2030 1,515 1,542
Series 1998-2, Class A-2, 6.39% 2030 44,550 49,529
Series 1998-1, Class A-2, 6.56% 2030 16,565 18,414
Series 2000-2, Class A-1, 7.543% 2032 (3) 18,951 21,049
Series 2000-1, Class A-1, 7.656% 2032 10,807 11,207
Morgan Stanley Capital I, Inc.:
Series 2003-KIDS, Class A, 1.843% 2016 (1) (2) 26,754 26,754
Series 1998-HF1, Class A-1, 6.19% 2030 3,347 3,402
Series 1998-WF2, Class A-1, 6.34% 2030 3,835 4,045
Series 1998-HF2, Class A-2, 6.48% 2030 17,000 18,942
Series 1999-FNV1, Class A-1 6.12% 2031 7,218 7,695
Series 1999-FNV1, Class A-2, 6.53% 2031 10,000 11,165
CS First Boston Mortgage Securities Corp.:
Series 2001-CK6, Class A-1, 4.393% 2006 3,525 3,619
Series 2002-FL2, Class A-2, 1.50% 2010 (1) (2) 12,045 12,039
Series 2001-CF2, Class A-2, 5.935% 2034 13,000 13,814
Series 2001-CF2, Class A-3, 6.238% 2034 9,000 9,887
Series 2001-CK6, Class A-2, 6.103% 2036 20,000 21,888
Series 2002-CKN2, Class A-1, 4.637% 2037 4,617 4,800
Bear Stearns Commercial Mortgage Securities Inc.:
Series 2002-HOME, Class A, 1.77% 2013 (1) (2) 7,365 7,349
Series 2002-HOME, Class C, 2.57% 2013 (1) (2) 10,000 9,931
Series 1999-WF2, Class X, interest only, 0.258% 2019 (1) 285,932 4,991
Series 1998-C1, Class A-1, 6.34% 2030 4,830 5,183
Series 1999-C1, Class X, interest only, 1.036% 2031 (1) (2) 159,356 7,978
Series 2000-WF2, Class A-2, 7.32% 2032 16,480 19,203
GMAC Commercial Mortgage Securities, Inc.:
Series 1997-C1, Class A-3, 6.869% 2029 20,000 22,132
Series 1997-C1, Class D, 6.997% 2029 8,300 9,186
Series 1997-C2, Class E, 7.624% 2029 (1) 10,000 9,869
Series 1998-C2, Class C, 6.50% 2035 9,000 10,012
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (2) 43,470 45,767
Morgan Stanley Dean Witter Capital I Trust:
Series 2002-HQ, Class A-1, 4.59% 2034 9,077 9,401
Series 2001-TOP5, Class A-3, 6.16% 2035 17,468 19,208
Series 2003-TOP9, Class A-1, 3.98% 2036 9,659 9,714
GS Mortgage Securities Corp. II, Series 1998-C1: (1)
Class D, 7.208% 2030 3,750 4,123
Class E, 7.208% 2030 31,076 32,249
Chase Manhattan Bank - First Union National Bank, Commercial Mortgage Trust,
Series 1999-1:
Class A-2, 7.439% 2031 5,000 5,821
Class B, 7.619% 2031 17,125 20,016
Class C, 7.625% 2031 5,000 5,838
First Union National Bank Commercial Mortgage Trust:
Series 2000-C1, Class A-1, 7.739% 2032 17,645 19,742
Series 2001-C4, Class A-1, 5.673% 2033 4,495 4,825
DLJ Commercial Mortgage Corp.:
Series 1998-CF1, Class A-1A, 6.14% 2031 9,118 9,487
Series 1999-CG1, Class A-1B, 6.46% 2032 10,000 11,122
Prudential Securities Secured Financing Corp., Series 1999-NRF1, Class C,
6.746% 2031 18,000 20,219
DLJ Mortgage Acceptance Corp.:
Series 1996-CF2, Class A-1B, 7.29% 2021 (2) 2,524 2,594
Series 1996-CF1, Class A-2, 7.89% 2028 (1) (2) 5,620 5,712
Series 1998-CF1, Class A-1B, 6.41% 2031 10,000 11,058
GGP Mall Properties Trust, Series 2001-C1A, Class A-2, 5.007% 2011 (2) 15,475 16,284
Banc of America Commercial Mortgage Trust, Series 2001-1, Class A-2, 6.503% 2036 14,450 16,133
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2010 10,000 11,935
Commercial Mortgage, Series 2000-FL3A, Class D, 2.493% 2012 (1) (2) 13,776 11,850
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-2,
6.592% 2033 8,750 9,820
First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust,
Series 1998-C2, 6,024 6,326
Class A-1, 6.28% 2035
Nomura Asset Securities Corp., Series 1998-D6, Class A-1A, 6.28% 2030 5,565 5,937
Commercial Mortgage Acceptance Corp.:
Series 1998-C2, Class A-1, 5.80% 2030 1,653 1,713
Series 1998-C1, Class A-1, 6.23% 2031 3,937 4,154
Opryland Hotel Trust, Series 2001-OPRA, Class C, 2.11% 2011 (1) (2) 5,000 4,889
GE Capital Commercial Mortgage Corp.:
Series 2001-1, Class A-1, 6.079% 2033 471 509
Series 2001-3, Class A-1, 5.56% 2038 4,078 4,344
Merrill Lynch Mortgage Investors, Inc.: (1)
Series 1995-C2, Class D, 7.511% 2021 243 262
Series 1995-C3, Class A-3, 7.117% 2025 3,742 3,824
Mortgage Capital Funding, Inc., Series 1998-MC1, Class A-1, 6.417% 2030 3,803 3,996
684,497
COLLATERALIZED MORTGAGE OBLIGATIONS - 3.82% (10)
WaMu Mortgage Pass-Through Certificates Trust: (1)
Series 2003-AR3, Class A-2, 2.828% 2033 769 769
Series 2003-AR3, Class A-3, 3.567% 2033 11,500 11,534
Series 2003-AR7, Class A-7, 3.842% 2033 76,377 74,984
Series 2003-AR8, Class A, 4.03% 2033 13,959 14,086
Series 2003-AR5, Class A-7, 4.21% 2033 15,398 15,439
Series 2003-AR6, Class A-1, 4.38% 2033 56,754 56,709
Bear Stearns ARM Trust: (1)
Series 2003-2, Class A-3, 3.703% 2033 (2) 10,433 10,486
Series 2003-6, Class A-2, 4.074% 2033 71,267 72,028
Series 2003-3, Class II-A-2, 4.211% 2033 37,076 37,335
Series 2003-3, Class III-A-1, 5.185% 2033 16,933 17,134
Series 2003-9, Class III-A-2, 5.082% 2034 9,794 9,968
Series 2003-8, Class III-A-1, 5.245% 2034 10,993 11,103
Banc of America Mortgage Securities Trust: (1)
Series 2003-F, Class 2-A-1, 3.734% 2033 65,330 66,047
Series 2003-G, Class 2-A-1, 4.088% 2033 18,161 18,237
Series 2003-D, Class 2-A-1, 4.183% 2033 15,105 15,180
Series 2003-I, Class 3-A-1, 4.573% 2033 19,538 19,553
Merrill Lynch Mortgage Investors, Inc.: (1)
Series 2003-A6, Class II-A, 4.31% 2033 9,910 9,943
Series 2003-A4, Class II-A, 4.61% 2033 40,754 41,272
CHL Mortgage Pass-Through Trust: (1)
Series 2003-HYB3, Class 4-A-1, 3.551% 2033 11,878 11,863
Series 2003-27, Class A-1, 3.842% 2033 32,793 32,613
CS First Boston Mortgage Securities Corp.: (1)
Series 2003-AR20, Class II-A-2, 4.026% 2033 13,114 13,184
Series 2003-AR12, Class II-A-2, 4.378% 2033 5,803 5,808
Series 2003-AR28, Class II-A-1, 4.628% 2033 9,570 9,678
Wells Fargo Mortgage Backed Securities Trust, Series 2003-K, Class I-A-1,
4.522% 2033 (1) 22,378 22,037
Citigroup Mortgage Loan Trust, Inc., Series 2004-HYB1, Class II-A-1,
4.55% 2014 (1) 17,500 17,680
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6.50% 2028 8,493 8,656
Structured Asset Securities Corp., Series 2003-17A, Class 3-A1, 4.01% 2033 (1) 7,098 7,164
Security National Mortgage Loan Trust: (2)
Series 2001-3A, Class A-2, 5.37% 2014 1,670 1,694
Series 2000-1, Class A-2, 8.75% 2024 4,336 4,610
Ocwen Residential MBS Corp., Series 1998-R1, Class AWAC, 4.969% 2040 (2) (1) 5,416 5,145
First Nationwide Trust, Series 1999-2, Class 1PA-1, 6.50% 2029 1,716 1,782
Travelers Mortgage Securities Corp., Series 1, Class Z-2, 12.00% 2014 1,360 1,380
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 1,282 1,281
GS Mortgage Securities Corp., Series 1998-2, Class M, 7.75% 2027 (2) 980 1,083
Nationsbanc Montgomery Funding Corp., Series 1998-5, Class A-1, 6.00% 2013 224 226
Bear Stearns Structured Securities Inc., Series 1997-2, Class AWAC,
20.612% 2036 (1) (2) 170 204
647,895
OTHER - 1.11%
Realkredit Danmark AS, Class 23-D, 5.00% 2035 (10) DKr 511,434 83,258
Structured Asset Securities Corp., Class A: (1) (2) (10)
Series 1998-RF2, 8.541% 2027 $ 15,959 17,632
Series 1998-RF1, 8.712% 2027 5,638 6,232
Series 1999-RF1, 7.897% 2028 3,749 4,059
Arena BV, Series 2000-I, Class A, 6.133% 2062 (1) (10) Euro 15,500 21,419
CHL Mortgage Pass-Through Trust, Series 2003-J6, Class 2-A-1, 4.75% 2018 (10) $ 20,783 20,627
Wells Fargo Mortgage Backed Securities Trust, Series 2003-13, Class A-1,
4.5% 2018 (10) 19,766 19,790
Hypothekenbank in Essen AG 5.25% 2008 Euro 6,000 8,032
Rheinische Hypothekenbank Eurobond 4.25% 2008 5,000 6,445
First Boston Mortgage Securities Corp., Series D: (10)
principal only, 0% 2017 $ 235 218
interest only, 10.965% 2017 235 52
187,764
AGENCY PASS-THROUGHS (10)
FREDDIE MAC - 3.92%
4.50% 2019 86,500 86,514
5.00% 2019 - 2034 84,000 85,083
6.00% 2017 - 2034 473,019 488,697
8.00% 2008 - 2026 495 536
8.25% 2007 278 295
8.50% 2007 - 2027 2,469 2,675
8.75% 2008 384 411
11.00% 2018 298 347
664,558
FANNIE MAE - 3.52%
3.82% 2033 (1) 6,985 6,999
4.50% 2019 20,000 20,022
5.00% 2018 - 2033 70,794 72,073
5.50% 2016 - 2034 273,473 279,633
5.533% 2026 (1) 2,185 2,270
6.00% 2016 - 2034 99,197 103,183
6.50% 2016 - 2032 85,291 90,050
7.00% 2009 - 2032 10,182 10,834
7.50% 2009 - 2031 5,870 6,297
8.00% 2023 - 2031 955 1,034
8.50% 2009 - 2027 413 439
9.00% 2018 - 2022 551 607
9.50% 2009 65 71
10.00% 2018 1,147 1,327
11.268% 2020 (1) 1,120 1,325
12.00% 2019 1,123 1,344
597,508
GOVERNMENT NATIONAL MORTGAGE ASSN. - 1.45%
5.50% 2034 26,025 26,379
6.00% 2034 111,975 115,999
6.50% 2008 - 2031 1,940 2,058
7.00% 2008 - 2031 44,373 47,563
7.50% 2007 - 2032 17,578 18,969
8.00% 2017 - 2030 18,343 19,987
8.50% 2020 - 2029 2,057 2,267
9.00% 2009 - 2022 2,729 3,008
9.50% 2009 - 2020 2,163 2,395
10.00% 2020 - 2021 5,694 6,617
245,242
AGENCY (10)
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.97%
Fannie Mae:
Series 90-93, Class G, 5.50% 2020 110 113
Series 93-247, Class Z, 7.00% 2023 224 224
Series 2001-4, Class GA, 10.198% 2025 (1) 1,987 2,280
Series 2001-4, Class NA, 11.79% 2025 (1) 10,347 11,987
Series 1998-W5, Class B3, 6.50% 2028 (2) 4,235 4,151
Series 2002-W3, Class A-5, 7.50% 2028 17,465 19,081
Series 2003-T3, Class 2A-3, 2.869% 2029 6,650 6,663
Series 2002-W7, Class A-5, 7.50% 2029 2,395 2,616
Series 2001-20, Class E, 9.587% 2031 (1) 400 450
Series 2001-20, Class C, 11.884% 2031 (1) 461 544
Series 2003-W10, Class 1A-2B, 3.112% 2037 19,200 19,206
Series 2001-T10, Class A-1, 7.00% 2041 24,713 26,682
Series 2001-50, Class BA, 7.00% 2041 8,449 9,004
Series 2002-W1, Class 2-A, 7.50% 2042 19,570 21,381
Freddie Mac:
Series H009, Class A-2, 1.876% 2008 (1) 9,492 9,400
Series 2310, Class A, 10.568% 2017 (1) 2,544 2,854
Series 41, Class F, 10.00% 2020 429 430
Series 178, Class Z, 9.25% 2021 371 372
Series T-056, Class A-2A, 2.842% 2036 19,750 19,794
Series T-042, Class A-2, 5.50% 2042 7,878 7,997
165,229
ASSET-BACKED OBLIGATIONS (10)
AUTO LOAN - 2.06%
MMCA Auto Owner Trust:
Series 2000-2, Class B, 7.42% 2005 7,000 7,153
Series 2000-1, Class B, 7.55% 2005 14,750 15,048
Series 2001-3, Class A-3, 1.413% 2006 (1) 2,767 2,759
Series 2002-1, Class A-3, 4.15% 2006 970 972
Series 2001-2, Class B, 5.75% 2007 4,061 4,124
Series 2001-3, Class B, 2.113% 2008 (1) 10,114 10,043
Series 2002-4, Class B, 3.82% 2009 7,289 7,240
Series 2002-2, Class A-4, 4.30% 2010 24,600 24,890
Series 2002-2, Class B, 4.67% 2010 1,509 1,307
CPS Auto Receivables Trust, XLCA insured: (2)
Series 2003-A, Class A-2, 2.89% 2009 42,515 42,449
Series 2002-B, Class A-2, 3.50% 2009 3,812 3,883
Series 2002-C, Class A-2, 3.52% 2009 1,960 1,976
AmeriCredit Automobile Receivables Trust:
Series 2003-A-M, Class A-3-A, MBIA insured, 2.37% 2007 17,000 17,029
Series 2003-A-M, Class A-4-A, MBIA insured, 3.10% 2009 2,000 2,003
Series 2002-C, Class A-4, FSA insured, 3.55% 2009 4,000 4,074
Series 2003-CF, Class A-4, FSA insured, 3.48% 2010 15,500 15,805
First Investors Auto Owner Trust, MBIA insured: (2)
Series 2002-A, Class A, 3.46% 2008 4,307 4,358
Series 2003-A, Class A, 2.58% 2011 33,321 33,571
Prestige Auto Receivables Trust, FSA insured: (2)
Series 2001-1A, Class A, 5.26% 2009 2,651 2,713
Series 2003-1, Class A-2, 2.41% 2010 18,557 18,678
Triad Automobile Receivables Owner Trust, AMBAC insured:
Series 2002-A, Class A-3, 2.62% 2007 10,000 10,109
Series 2002-1, Class A-3, 3.00% 2009 (2) 10,595 10,751
Household Automotive Trust, Series 2001-3, Class A-4, 4.37% 2008 16,000 16,516
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 15,000 15,351
AESOP Funding II LLC, Series 2003-2, Class A-1, MBIA insured, 2.74% 2007 (2) 12,000 12,004
Drive Auto Receivables Trust, MBIA insured: (2)
Series 2000-1, Class A, 6.672% 2006 1,129 1,143
Series 2003-1, Class A-3, 2.41% 2007 5,000 5,034
Series 2001-2, Class A, 3.91% 2007 4,275 4,361
Chase Manhattan Auto Owner Trust, Series 2002-B, 4.24% 2009 9,210 9,443
Harley-Davidson Motorcycle Trust:
Series 2001-3, Class B, 3.72% 2009 1,010 1,026
Series 2001-3, Class A-2, 4.04% 2009 5,000 5,108
Series 2002-2, Class B, 2.84% 2010 2,974 2,988
Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured,
2.524% 2008 (2) 8,000 8,064
New South Motor Vehicle Trust, Series 2002-A, Class A-3, AMBAC insured,
3.03% 2010 7,000 7,112
SeaWest Securitization, LLC, XLCA insured: (2)
Series 2002-A, Class A-2, 2.58% 2008 1,009 1,011
Series 2002-A, Class A-3, 3.58% 2008 3,000 3,045
Series 2003-A, Class A-2, 2.84% 2009 1,487 1,505
Continental Auto Receivables Owner Trust, Series 2000-B, Class CTFS,
MBIA insured, 7.11% 2007 (2) 5,261 5,378
Hyundai Auto Receivables Trust: (2)
Series 2001-A, Class C, 5.57% 2006 2,380 2,474
Series 2002-A, Class C, 3.91% 2009 2,000 2,030
Chevy Chase Auto Receivables Trust, Series 2001-2, Class A-4, 4.44% 2007 4,000 4,096
World Omni Auto Receivables Trust, Series 2001-B, Class B, 4.14% 2008 1,410 1,439
350,063
AIRPLANE EQUIPMENT TRUST CERTIFICATES-SINGLE LESSEE - 1.16%
Continental Airlines, Inc.:
Series 1998-3, Class C-2, 7.25% 2005 12,000 11,452
Series 1997-1, Class A, 7.461% 2016 10,949 10,707
Series 1996-2, Class D, 11.50% 2016 1,981 1,584
Series 2001-1, Class B, 7.373% 2017 2,916 2,535
Series 1998-1, Class A, 6.648% 2019 23,405 22,881
Series 1997-4, Class A, 6.90% 2019 28,980 28,623
Series 1999-1, Class B, 6.795% 2020 16,473 13,918
Series 1999-2, Class A-1, 7.256% 2021 1,604 1,631
Series 2000-1, Class A-1, 8.048% 2022 4,399 4,509
Delta Air Lines, Inc.:
Series 2003-1, Class G, AMBAC insured, 1.911% 2008 (1) 15,745 15,843
Series 2001-1, Class A-2, 7.111% 2013 5,000 5,045
Series 2002-1, Class C, 7.779% 2013 12,446 10,641
Series 1992-A2, 9.20% 2014 11,500 8,510
1991 Equipment trust certificates, Series J, 10.00% 2014 (2) 5,000 3,600
1990 Equipment trust certificates, Series F, 10.79% 2014 (2) 1,700 1,224
American Airlines, Inc.:
Series 2001-2, Class A-1, 6.978% 2012 3,547 3,587
Series 1991-C2, 9.73% 2014 6,410 4,654
Series 2001-1, Class B, 7.377% 2019 8,346 6,027
Southwest Airlines Co., Series 2001-1:
Class A-2, 5.496% 2006 5,000 5,333
Class B, 6.126% 2006 7,500 7,988
AIR 2 US, Series A, 8.027% 2020 (2) 9,805 8,346
Northwest Airlines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.264% 2021 8,000 8,342
United Air Lines, Inc., Series 2000-1, Class A-2, 7.73% 2012 9,000 7,452
Jet Equipment Trust: (2)
Series 1995-B, Class A, 7.63% 2015 (6) 3,625 1,269
Series 1995-B, Class C, 9.71% 2015 5,500 323
Series 1995-A, Class C, 10.69% 2015 2,750 275
USAir, Inc. Pass Through Trust, Series 1993-A3, 10.375% 2013 (6) 2,126 680
196,979
HOME EQUITY - 1.13%
Residential Asset Securities Corp. Trust:
Series 2003-KS2, Class A-I-2, 2.15% 2024 5,200 5,199
Series 2002-KS4, Class A-1-3, AMBAC insured, 4.59% 2026 4,000 4,051
Series 2003-KS2, Class A-I-3, 2.66% 2028 16,750 16,685
Series 1999-KS3, Class A-I-7, 7.505% 2030 3,816 4,033
Series 2001-KS3, Class A-I-6, 5.96% 2031 24,400 25,807
Residential Asset Mortgage Products Trust:
Series 2003-RS1, Class A-I-2, 2.871% 2023 8,750 8,777
Series 2003-RS1, Class A-I-3, 3.495% 2028 4,000 4,039
Series 2003-RZ4, Class A-7, 4.79% 2033 10,000 9,967
Series 2003-RS11, A-I-7, 4.828% 2033 9,000 8,968
Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 22,400 22,396
Chase Funding Trust:
Series 2003-5, Class IA-6, 4.597% 2015 4,300 4,190
Series 2003-5, Class IA-2, 2.451% 2018 10,325 10,296
Series 2003-1, Class IA-3, 3.14% 2023 3,500 3,528
Series 1999-1, Class IIM-2, 1.721% 2028 (1) 2,013 2,014
Series 1999-3, Class IIM-1, 1.791% 2029 (1) 1,741 1,745
Long Beach Mortgage Loan Trust, Series 2000-1, Class M-2, 2.249% 2031 (1) 20,000 19,973
CitiFinancial Mortgage Securities Inc., Series 2003-1, Class AF-2, 2.948% 2033 11,000 11,091
New Century Home Equity Loan Trust, Series 2001-NC2, Class M-1, 1.969% 2031 (1) 9,000 9,035
Residential Funding Mortgage Securities II, Inc., AMBAC insured:
Series 2001-HS2, Class A-4, 5.135% 2016 (1) 2,110 2,135
Series 2001-HI4, Class A-4, 5.64% 2016 6,081 6,104
IndyMac Home Equity Mortgage Loan Asset-backed Trust, Series SPMD 2001-A, Class 5,000 5,227
AF-6, 6.537% 2030
Advanta Mortgage Loan Trust, Series 1999-2, Class A-6, AMBAC insured, 6.82% 2029 3,750 3,916
Option One Mortgage Loan Trust, Series 2002-1, Class M-1, 1.891% 2032 (1) 2,000 1,986
CS First Boston Mortgage Securities Corp., Series 2001-HE16, Class A, interest
only, 5.64% 2004 4,801 103
Asset Backed Securities Corp. Home Equity Loan Trust, Series 2001-HE3, 14,785 81
Class A-IO, interest only, 3.60% 2031 (1)
191,346
CREDIT CARD - 0.71%
Pass-through Amortizing Credit Card Trusts, Series 2002-1A: (2)
Class A-2FX, 4.685% 2012 7,291 7,363
Class A-3FX, 6.298% 2012 23,205 23,518
MBNA Credit Card Master Note Trust, Series 2002-1, Class B-1, 5.15% 2009 17,000 17,967
MBNA Master Credit Card Trust II, Series 1999-B:
Class A, 5.90% 2011 3,000 3,310
Class B, 6.20% 2011 3,750 4,108
Metris Master Trust: (1)
Series 2000-1, Class A, 1.449% 2008 5,000 4,892
Series 2000-3, Class A, 1.409% 2009 3,500 3,376
Series 2001-2, Class A, 1.469% 2009 13,000 12,351
NextCard Credit Card Master Note Trust: (1) (2)
Series 2000-1, Class B, 1.963% 2006 14,125 11,583
Series 2001-1A, Class A, 1.42% 2007 27 27
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, 8,250 8,685
Class FX, 10.421% 2007 (2)
Nordstrom Credit Card Master Note Trust, Series 2002-1A, Class B,
1.863% 2010 (1) (2) 8,000 8,049
First USA Credit Card Master Trust, Series 1997-4, Class C, 2.12% 2010 (1) (2) 6,630 6,596
Capital One Multi-asset Execution Trust, Series 2003-1, Class A, 1.553% 2009 (1) 6,000 6,030
CompuCredit Credit Card Master Note Business Trust, Series 2001-One, Class B, 1,500 1,473
2.643% 2008 (1) (2)
Capital One Master Trust, Series 2002-1A, Class B, 1.763% 2011 (1) 1,000 1,005
120,333
ASSET BACKED SECURITIES - 0.53%
Educational Enhancement Funding Corp. Tobacco Settlement Bonds, Series 2002-A,
6.72% 2025 30,414 29,015
Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, 27,146 26,564
Class A, 6.36% 2025
Banco Itau SA, Series 2002, XLCA insured, 1.878% 2007 (1) (2) 14,900 14,826
PF Export Receivables Master Trust, Series 2001-B, MBIA insured, 6.60% 2011 (2) 10,000 10,864
Garanti Trade Payment Rights Master Trust, Series 1999-B, Class 1,
10.81% 2004 (2) 4,987 5,038
NPF XII, Inc.: (2) (4)
Series 1999-3, Class B, 2.389% 2003 (1) (11) 3,000 30
Series 2001-1A, Class A, 1.989% 2004 (1) (6) 7,000 840
Series 2001-3, Class A, 5.52% 2007 (6) 16,000 1,920
89,097
MANUFACTURED HOUSING - 0.42%
Green Tree Financial Corp.:
Series 1993-2, Class B, 8.00% 2018 2,250 2,204
Series 1995-3, Class B-2, 8.10% 2025 (6) 5,000 2,300
Series 1995-8, Class B-2, 7.65% 2026 (6) 8,197 1,639
Series 1995-6, Class B-2, 8.00% 2026 (6) 2,785 836
Series 1996-6, Class B-2, 8.35% 2027 (6) 10,174 2,137
Series 1996-5, Class B-2, 8.45% 2027 (6) 6,567 1,379
Series 1996-10, Class A-6, 7.30% 2028 6,962 7,326
Series 1997-8, Class B-2, 7.75% 2028 (6) 3,074 615
Series 1997-6, Class A-7, 7.14% 2029 13,228 13,726
Series 1997-6, Class B-2, 7.75% 2029 (6) 4,958 992
Series 1998-4, Class B-2, 8.11% 2030 (6) 12,988 2,598
Conseco Finance Manufactured Housing Contract Trust, Series 2001-3:
Class A-2, 5.16% 2033 6,311 6,387
Class A-3, 5.79% 2033 5,000 5,015
Conseco Finance Home Equity Loan Trust, Series 2002-B:
Class M-1, 2.913% 2033 (1) 4,500 4,580
Class A-2, 5.31% 2033 6,527 6,581
Madison Avenue Manufactured Housing Contract Trust, Series 2002-A: (1)
Class M-1, 2.591% 2032 4,000 3,840
Class M-2, 3.391% 2032 11,000 9,750
71,905
STRANDED ASSET - 0.31%
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05% 2009 15,000 16,774
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 14,250 15,746
California Infrastructure and Economic Development Bank, Special Purpose Trust,
Series 1997-1:
SCE-1, Class A-6, 6.38% 2008 3,623 3,861
PG&E-1, Class A-7, 6.42% 2008 10,975 11,680
West Penn Funding LLC, Series 1999-A, Class A-4, 6.98% 2008 4,500 5,097
53,158
FRANCHISE EQUIPMENT - 0.26%
CNL Funding, Series 2000-AA, Class A-2, MBIA insured, 8.044% 2017 (2) 13,800 14,772
GRCT Consumer Loan Trust, Series 2001-1A, Class 2BRV, 6.251% 2020 (2) 9,945 10,206
ACLC Business Loan Receivables Trust, Series 2002-1, Class A-2, 7.462% 2022 (2) 8,988 9,074
Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured,
2.29% 2009 (2) 6,398 6,398
CIT Equipment Collateral, Series 2002-VT1, Class B, 3.97% 2009 1,843 1,861
Green Tree Recreational, Equipment & Consumer Trust, Series 1997-D, 7.25% 2029 8,500 1,705
44,016
GOVERNMENT OBLIGATIONS
U.S. GOVERNMENT
U.S. TREASURY NOTES & BONDS - 11.42%
6.00% August 2004 106,000 109,213
11.625% November 2004 (3) 30,000 32,686
6.75% May 2005 101,775 109,074
5.75% November 2005 111,000 119,168
5.875% November 2005 20,000 21,522
6.875% May 2006 (3) 194,000 215,674
3.375% January 2007 (3) (14) 228,871 247,920
6.25% February 2007 110,225 122,919
4.375% May 2007 32,500 34,425
6.625% May 2007 40,000 45,269
6.125% August 2007 25,000 27,988
3.00% November 2007 70,500 71,106
3.625% January 2008 (14) 108,790 120,337
2.625% May 2008 20,000 19,700
5.625% May 2008 40,000 44,312
4.75% November 2008 40,000 42,825
9.125% May 2009 18,000 18,529
6.00% August 2009 (3) 72,920 82,616
10.375% November 2009 12,500 13,467
10.00% May 2010 5,000 5,567
5.75% August 2010 20,000 22,431
3.50% January 2011 (14) 74,409 83,685
5.00% February 2011 25,000 26,856
Principal Strip 0% August 2011 11,320 8,293
5.00% August 2011 3,250 3,479
10.375% November 2012 (3) 24,500 31,295
12.00% August 2013 (3) 10,000 13,819
Principal Strip 0% November 2013 18,200 11,623
9.875% November 2015 18,000 26,854
7.50% November 2016 87,000 110,802
8.875% August 2017 10,000 14,172
6.875% August 2025 63,500 77,708
1,935,334
NON-PASS-THROUGH AGENCY SECURITIES
FANNIE MAE BONDS & NOTES - 0.90%
7.00% 2005 90,000 97,189
6.00% 2012 25,000 25,813
7.25% 2030 23,750 29,020
152,022
FREDDIE MAC BONDS & NOTES - 0.63%
4.25% 2005 27,250 28,280
5.75% 2010 Euro 12,000 16,514
4.75% 2012 $ 20,000 19,744
6.25% 2012 15,000 15,823
6.75% 2031 22,650 26,176
106,537
FEDERAL HOME LOAN BANKS BONDS & NOTES - 0.37%
4.875% 2004 10,250 10,360
4.50% 2012 31,500 31,352
5.50% 2018 21,750 21,690
63,402
GOVERNMENTS & GOVERNMENTAL BODIES (NON U.S.)
NON-U.S. GOVERNMENT OBLIGATIONS - 5.75%
Japanese Government:
0.10% 2004 Yen 1,220,000 11,369
0.90% 2008 11,030,000 104,365
0.50% 2013 10,330,000 89,382
Bundesobligation Eurobond:
5.00% 2005 Euro 4,000 5,217
4.50% 2006 21,300 27,872
Deutschland Republic 4.50% 2009 55,000 71,786
Bundesrepublik 5.25% 2010 64,340 86,883
Canadian Government:
9.00% 2004 C$ 10,000 8,177
4.25% 2026 (14) 65,345 63,300
United Mexican States Government Eurobonds, Global:
4.625% 2008 $ 11,000 11,165
8.375% 2011 1,800 2,142
11.375% 2016 18,658 26,494
8.30% 2031 8,220 9,289
7.50% 2033 9,000 9,338
French Government O.A.T. Eurobond:
4.00% 2009 Euro 15,900 20,326
5.00% 2011 5,050 6,712
Principal Strip 0% 2019 14,000 8,264
5.50% 2029 14,610 19,868
Hungarian Government:
8.50% 2006 HUF 4,500,000 20,786
6.25% 2007 5,305,000 22,856
6.25% 2008 300,000 1,278
6.75% 2013 2,270,000 9,851
Polish Government:
8.50% 2006 PLZ 54,000 15,112
6.00% 2010 80,750 20,834
5.25% 2014 $ 11,760 11,789
Norwegian Government:
6.75% 2007 NOK 75,000 12,316
5.50% 2009 115,500 18,468
6.00% 2011 100,000 16,368
Kingdom of Denmark 6.00% 2009 DKr 190,000 35,479
United Kingdom:
5.00% 2008 Pound 6,960 12,612
5.00% 2012 8,220 14,904
6.00% 2028 1,800 3,824
Swedish Government:
6.00% 2005 SKr 107,000 15,336
5.25% 2011 110,000 15,997
Russian Federation:
8.25% 2010 (2) $ 3,300 3,697
8.25% 2010 1,080 1,210
5.00% 2030 (1) 20,550 19,882
5.00% 2030 (1) (2) 145 140
Italian Government BTPS Eurobond 6.00% 2007 Euro 16,204 22,304
New South Wales Treasury Corp. 8.00% 2008 A$ 26,000 21,208
State of Qatar 9.75% 2030 $ 14,720 20,829
Hellenic Republic:
8.60% 2008 Euro 6,510 9,803
7.50% 2013 1,820 2,831
Netherlands Government Eurobond 5.00% 2012 6,320 8,407
Banque Centrale de Tunisie 7.375% 2012 $ 6,250 7,047
Panama (Republic of):
Interest Reduction Bond 1.938% 2014 (1) 3,700 3,497
10.75% 2020 210 253
9.375% 2023 713 781
8.875% 2027 250 264
9.375% 2029 675 763
Spanish Government 6.15% 2013 Euro 2,800 4,023
Chile (Republic of) 7.125% 2012 $ 3,000 3,432
Brazil (Federal Republic of):
Bearer 8.00% 2014 (8) 752 744
8.875% 2024 1,375 1,348
12.25% 2030 425 531
11.00% 2040 610 674
Bulgaria (Republic of) 8.25% 2015 2,065 2,446
New Zealand Government 4.50% 2016 (14) NZ$ 3,468 2,444
Dominican Republic 9.50% 2006 (2) $ 2,135 1,804
Guatemala (Republic of) 10.25% 2011 (2) 1,000 1,168
Peru (Republic of):
9.125% 2012 432 484
Past Due Interest Eurobond 5.00% 2017 (1) 409 380
Venezuela (Republic of) 9.25% 2027 915 837
Turkey (Republic of) 12.375% 2009 500 643
Argentina (Republic of): (12)
Series E, 0% 2003 1,000 240
7.00%/15.50% 2008 (5) 725 199
11.75% 2009 60 17
12.25% 2018 (8) 80 20
12.00% 2031 (8) 53 13
974,122
DEVELOPMENT AUTHORITIES - 0.09%
International Bank for Reconstruction & Development, Series C, 0% 2031 40,000 8,743
Corporacion Andina de Fomento 6.875% 2012 5,895 6,553
15,296
MUNICIPAL OBLIGATIONS
MUNICIPAL OBLIGATIONS - 1.50%
Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed
Bonds, Series 2003-A1:
5.00% 2021 10,000 9,969
6.25% 2033 64,975 62,238
Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds:
Series 2003, 4.375% 2019 6,000 5,688
Series 2003, 6.125% 2024 27,290 26,120
Series 2002, 5.75% 2032 32,310 29,705
Badger Tobacco Asset Securitization Corp., Tobacco Settlement Asset-backed
Bonds, 6.125% 2027 43,095 42,201
State of California Dept. of Water Resources, Power Supply Revenue Bonds,
Series 2002-E:
3.975% 2005 10,000 10,196
4.33% 2006 12,500 12,852
California Maritime Infrastructure Authority, Taxable Lease Revenue Bonds
(San Diego Unified Port District-South Bay Plant Acquisition), Series 1999,
6.63% 2009 (2) (10) 12,509 13,477
Los Angeles County Metropolitan Transportation Auth., General Rev. Ref. Bonds
(Workers' Compensation Funding Program), Series 2003, AMBAC insured:
3.83% 2008 5,000 5,046
4.56% 2010 5,000 5,082
Tobacco Settlement Auth., Asset-backed Bonds, Series 2001-B, 5.50% 2030 10,000 8,715
Chugach Electric Association, Inc., Series 2001-A, MBIA insured, 6.55% 2011 7,500 8,438
Tobacco Settlement Rev. Management Auth., Tobacco Settlement Asset-backed Bonds,
Series 2001-B, 6.00% 2022 6,410 6,077
Dormitory Auth., City University System Consolidated Third General Resolution
Rev. Bonds, Series 2003-2, 2.38% 2005 4,500 4,523
Housing Fin. Agcy., State Personal Income Tax Rev. Bonds (Econ. Dev. and
Housing), Series B:
2.88% 2007 2,000 1,995
3.09% 2007 2,200 2,189
254,511
Principal Market
amount (000) value
EQUITY-RELATED SECURITIES - 0.67% or shares (000)
STOCKS & WARRANTS - 0.67% (9)
SpectraSite, Inc. (2) (4) 1,530,688 shares $45,213
NTELOS, Inc. (2) (4) (14) 1,020,970 20,562
Dobson Communications Corp., Class A (2) 2,432,959 15,985
ZiLOG, Inc. (15) 2,555,000 13,286
ZiLOG, Inc. - MOD III Inc., units (4) (15) 2,555 1,369
Wilshire Financial Services Group, Inc. (15) 1,601,967 9,596
DigitalGlobe, Inc. (2) (4) 3,984,039 3,984
VersaTel Telecom International NV 779,280 1,692
NTL Inc. (2) (4) 15,500 973
Clarent Hospital Corp. (15) 331,291 538
Protection One, Inc., warrants, expire 2005 (2) (4) 54,400 7
113,205
MISCELLANEOUS - 0.00%
Other equity-related securities in initial period of acquisition 78
TOTAL BONDS, NOTES, PREFERRED STOCKS & equity-related securities
(cost: $15,683,247,000) 16,607,663
Principal Market
amount value
SHORT-TERM SECURITIES - 6.76% (000) (000)
CORPORATE SHORT-TERM NOTES - 5.29%
Procter & Gamble Co.: (2)
1.01% due 1/13/2004 55,200 55,180
1.01% due 1/15/2004 25,000 24,989
1.01% due 1/20/2004 25,000 24,986
Pfizer Inc: (2)
1.02% due 1/23/2004 (3) 11,000 10,993
1.03% due 2/3/2004 (3) 50,000 49,951
1.04% due 2/6/2004 18,000 17,981
1.04% due 2/18/2004 18,000 17,974
Preferred Receivables Funding Corp.: (2)
1.09% due 1/15/2004 8,000 7,996
1.08% due 1/20/2004 12,000 11,993
1.08% due 1/22/2004 (3) 33,800 33,778
1.07% due 1/28/2004 23,300 23,281
Park Avenue Receivables Corp.: (2) (3)
1.09% due 1/6/2004 50,000 49,991
1.09% due 1/13/2004 25,087 25,077
E.I. DuPont de Nemours & Co.:
1.05% due 1/8/2004 9,200 9,198
1.03% due 1/14/2004 (3) 21,000 20,991
1.05% due 2/23/2004 (3) 26,637 26,595
1.06% due 3/2/2004 (3) 16,300 16,270
Receivables Capital Corp.: (2)
1.07% due 1/12/2004 26,925 26,915
1.10% due 3/1/2004 40,000 39,927
FCAR Owner Trust I 1.08% due 1/27/2004 (3) 59,700 59,652
CAFCO, LLC: (2)
1.09% due 1/15/2004 (3) 24,500 24,489
1.09% due 1/23/2004 7,800 7,795
Gannett Co. 1.06% due 1/16/2004 (2) 31,000 30,985
SBC International Inc. 1.05% due 1/14/2004 (2) 30,000 29,988
New Center Asset Trust 1.07% due 1/16/2004 (3) 30,000 29,985
Medtronic Inc. 1.02% due 1/20/2004 (2) 30,000 29,983
Private Export Funding Corp. 1.08% due 5/4/2004 (2) 28,000 27,897
Variable Funding Capital Corp. 0.97% due 1/2/2004 (2) 25,000 24,999
Motiva Enterprises LLC 1.01% due 1/26/2004 25,000 24,982
Verizon Network Funding Corp. 1.03% due 2/12/2004 25,000 24,968
Netjets Inc. 1.06% due 2/20/2004 (2) (3) 25,000 24,962
USAA Capital Corp. 1.02% due 1/21/2004 18,000 17,989
Caterpillar Financial Serivces Corp. 1.03% due 2/17/2004 16,000 15,978
Harvard University 1.02% due 1/7/2004 (3) 15,000 14,997
Abbott Laboratories Inc. 0.98% due 1/13/2004 (2) 13,000 12,995
896,710
U.S. TREASURIES - 0.61%
U.S. Treasury Bills:
0.855% - 0.945% due 1/22/2004 39,500 39,479
0.92% - 0.96% due 3/18/2004 42,800 42,723
0.97% due 6/24/2004 22,000 21,896
104,098
CERTIFICATES OF DEPOSIT - 0.44%
Wells Fargo & Co.:
1.05% due 1/21/2004 50,000 50,000
1.05% due 1/30/2004 25,000 25,000
75,000
FEDERAL AGENCY DISCOUNT NOTES - 0.42%
Federal Farm Credit Banks:
1.00% due 2/9/2004 10,000 9,989
1.01% due 3/10/2004 (3) 20,000 19,960
1.07% due 6/11/2004 (3) 13,000 12,937
International Bank for Reconstruction and Development 1.00% due 2/13/2004 22,900 22,872
Federal Home Loan Bank 0.95% due 1/28/2004 4,700 4,697
70,455
TOTAL SHORT-TERM SECURITIES (cost: $1,146,251,000) 1,146,263
TOTAL INVESTMENT SECURITIES (cost: $16,829,498,000) 17,753,926
Other assets less liabilities (803,472)
NET ASSETS $16,950,454
(1) Coupon rate may change periodically.
(2) Purchased in a private placement transaction; resale may be
limited to qualified institutional buyers; resale to the public
may require registration.
(3) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(4) Valued under fair value procedures adopted by authority of the Board of
Directors.
(5) Step bond; coupon rate will increase at a later date.
(6) Company not making scheduled interest payments;
bankruptcy proceedings pending.
(7) Purchased as a unit; issue was separated but reattached for reporting
purposes.
(8) Payment in kind; the issuer has the option of paying additional
securities in lieu of cash.
(9) Security did not produce income during the last 12 months.
(10) Pass-through securities backed by a pool of mortgages or other loans on
which principal payments are periodically made. Therefore, the effective
maturities are shorter than the stated maturities.
(11) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(12) Scheduled interest or principal payments not made; reorganization pending.
(13) This unit also contains 999,000 par of Drax Group Ltd., Class A-3,
8.566% 2020 and 999,00 shares of Drax Group Ltd. common stock.
(14) Index-linked bond whose principal amount moves with a government
retail price index.
(15) The fund owns 5.43%, 8.60%, 8.78% and 11.77% of the outstanding voting
securities of Clarent Hospital Corp., Wilshire Financial Services Group
Inc., ZiLOG, Inc. and NTELOS, Inc., respectively, and thus is considered
an affiliate of these companies under the Investment Company Act of 1940.
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (dollars and shares in thousands,
at December 31, 2003 except per-share amounts)
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $16,757,530) $17,708,575
Affiliated issuers (cost: $71,968) 45,351 $17,753,926
Cash 10,652
Receivables for:
Sales of investments 28,551
Sales of fund's shares 36,870
Dividends and interest 207,508 272,929
18,037,507
LIABILITIES:
Payables for:
Purchases of investments 1,038,616
Repurchases of fund's shares 30,640
Open forward currency contracts 4,718
Closed forward currency contracts 2,749
Investment advisory services 3,611
Services provided by affiliates 6,262
Deferred Directors' compensation 258
Other fees and expenses 199 1,087,053
NET ASSETS AT DECEMBER 31, 2003 $16,950,454
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $16,738,710
Distributions in excess of net investment income (2,806)
Accumulated net realized loss (707,368)
Net unrealized appreciation 921,918
NET ASSETS AT DECEMBER 31, 2003 $16,950,454
TOTAL AUTHORIZED CAPITAL STOCK - 2,500,000 SHARES, $.001 PAR VALUE
Net assets Shares outstanding Net asset value per share
(1)
Class A $13,991,480 1,036,019 $13.51
Class B 1,274,074 94,341 13.51
Class C 847,749 62,773 13.51
Class F 291,739 21,602 13.51
Class 529-A 109,609 8,116 13.51
Class 529-B 35,259 2,611 13.51
Class 529-C 56,148 4,157 13.51
Class 529-E 7,073 524 13.51
Class 529-F 2,138 158 13.51
Class R-1 4,665 345 13.51
Class R-2 110,920 8,213 13.51
Class R-3 95,140 7,045 13.51
Class R-4 18,438 1,365 13.51
Class R-5 106,022 7,851 13.51
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and 529-A,
for which the maximum offering prices per share were $14.04 for each.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
for the year ended December 31, 2003
INVESTMENT INCOME:
Income: (dollars in thousands)
Interest (net of non-U.S. withholding
tax of $729) $909,660
Dividends 17,383 $927,043
Fees and expenses:
Investment advisory services 43,518
Distribution services 54,604
Transfer agent services 16,743
Administrative services 3,205
Reports to shareholders 901
Registration statement and prospectus 655
Postage, stationery and supplies 1,802
Directors' compensation 124
Auditing and legal 91
Custodian 746
State and local taxes 145
Other 143
Total expenses before reimbursement 122,677
Reimbursement of expenses 386 122,291
Net investment income 804,752
NET REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments 39,772
Non-U.S. currency transactions (29,460) 10,312
Net unrealized appreciation (depreciation) on:
Investments 988,151
Non-U.S. currency translations (4,246) 983,905
Net realized gain and
unrealized appreciation
on investments and non-U.S. currency 994,217
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,798,969
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended December 31
2003 2002
OPERATIONS:
Net investment income $804,752 $858,834
Net realized gain (loss) on investments and
non-U.S. currency transactions 10,312 (460,341)
Net unrealized appreciation
on investments and non-U.S. currency translations 983,905 403,703
Net increase in net assets
resulting from operations 1,798,969 802,196
DIVIDENDS PAID TO SHAREHOLDERS FROM NET INVESTMENT INCOME (836,446) (863,912)
CAPITAL SHARE TRANSACTIONS 1,487,583 2,604,167
TOTAL INCREASE IN NET ASSETS 2,450,106 2,542,451
NET ASSETS:
Beginning of year 14,500,348 11,957,897
End of year (including
distributions in excess of
net investment income: $2,806 and $23,316,
respectively) $16,950,454 $14,500,348
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Bond Fund of America, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks as high a level of current income as is
consistent with preservation of capital through a diversified portfolio of bonds
and other fixed-income obligations.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
- ---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 3.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. 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 class.
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 following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are 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 in which the security
trades. Fixed-income securities are valued at prices obtained from an
independent pricing service, when such prices are available. However,
where the investment adviser deems it appropriate, such securities
will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Short-term
securities maturing within 60 days are valued at amortized cost, which
approximates market value. The ability of the issuers of the debt
securities held by the fund to meet their obligations may be affected
by economic developments in a specific industry, state or region.
Forward currency contracts are valued at the mean of their
representative quoted bid and asked prices. Securities and other
assets for which representative market quotations are not readily
available are fair valued as determined in good faith by authority of
the fund's Board of Directors. Various factors may be reviewed in
order to make a good faith determination of a security's fair value.
These factors include, but are not limited to, 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.
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. Dividend income is recognized on the
ex-dividend date and interest income is recognized on an accrual
basis. Market discounts, premiums and original issue discounts on
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) and 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 paid to
shareholders are declared daily from net investment income and are
paid to shareholders monthly. Distributions paid to shareholders are
recorded on the ex-dividend date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the
end of the reporting period. 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. In the
accompanying financial statements, the effects of changes in non-U.S.
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
non-U.S. currencies are disclosed separately.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange non-U.S. currencies
on specific future dates at predetermined rates. The fund enters into
these contracts to manage its exposure to changes in non-U.S. exchange
rates arising from investments denominated in non-U.S. currencies.
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 non-U.S. exchange rates. Due to these
risks, the fund could incur losses up to the entire contract amount,
which may exceed the net unrealized value shown in the accompanying
financial statements. On a daily basis, the fund values forward
currency contracts based on the applicable exchange rates and records
unrealized gains or losses. The fund records realized gains or losses
at the time the forward contract is closed or offset by another
contract with the same broker for the same settlement date and
currency.
MORTGAGE DOLLAR ROLLS - The fund may enter 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. Each mortgage dollar roll is treated as a
financing transaction, therefore, any realized gain or loss is
deferred until the roll reaches completion. Risks may arise due to the
delayed payment date and the potential inability of counterparties to
complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income in
the accompanying financial statements.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions;
revaluation of currencies; adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable investor
information; lack of liquidity; certain local tax law considerations; and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
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.
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 differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses; capital
losses related to sales of securities within 30 days of purchase; unrealized
appreciation of certain investments in non-U.S. securities; cost of investments
sold; paydown on investments; 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. As of December 31, 2003,
the cost of investment securities, excluding forward currency contracts, for
federal income tax purposes was $16,896,375,000.
During the year ended December 31, 2003, the fund reclassified $52,204,000 from
undistributed net realized gains to undistributed net investment income to align
financial reporting with tax reporting.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $11,662
Loss deferrals related to non-U.S. currency that were realized during the
period November 1, 2003 through December 31, 2003 (7,763)
Short-term and long-term capital loss deferrals (649,116)
Gross unrealized appreciation on investment securities 1,105,309
Gross unrealized depreciation on investment securities (247,758)
Short-term and long-term capital loss deferrals above include capital loss
carryforwards of $243,982,000, $254,538,000, $57,575,000, $42,420,000 and
$24,538,000 expiring in 2011, 2010, 2009, 2008 and 2007, respectively. The
capital loss carryforwards will be used to offset any capital gains realized by
the fund in the current year or in subsequent years through the expiration
dates. The fund will not make distributions from capital gains while capital
loss carryforwards remain. Also included are capital losses of $26,063,000, that
were realized during the period November 1, 2003 through December 31, 2003.
Distributions paid to shareholders from net investment income and currency gains
were as follows (dollars in thousands):
Year ended December 31,
Share class 2003 2002(1)
Class A $ 720,504 $ 786,683
Class B 52,350 40,937
Class C 32,059 22,056
Class F 11,977 8,650
Class 529-A 4,034 1,373
Class 529-B 1,127 390
Class 529-C 1,805 660
Class 529-E 249 70
Class 529-F 48 1
Class R-1 122 9
Class R-2 3,030 214
Class R-3 2,906 191
Class R-4 605 97
Class R-5 5,630 2,581
Total $ 836,446 $ 863,912
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.30% on the first $60 million
of daily net assets and decreasing to 0.14% on such assets in excess of $10
billion. The agreement also provides for monthly fees, accrued daily, based on
an annual rate of 2.25% on the first $8,333,333 of the fund's monthly gross
investment income and 2.00% on such income in excess of $8,333,333. The Board of
Directors approved an amended agreement effective November 1, 2003, continuing
the series of rates to include additional annual rates of 0.13% on daily net
assets in excess of $16 billion and 1.75% of the fund's monthly gross investment
income in excess of $41,666,667. During the year ended December 31, 2003, CRMC
voluntarily reduced investment advisory services fees to the rates based on
daily net assets provided by the amended agreement. As a result, for the year
ended December 31, 2003, the fee shown on the accompanying financial statements
of $43,518,000, which was equivalent to an annualized rate of 0.273%, was
voluntarily reduced by $17,000 to $43,501,000. The annualized rate was not
affected by this voluntary reduction of fees.
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 adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Directors approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares. The plans
provide for annual expenses, based on a percentage of average daily
net assets, ranging from 0.25% to 1.00% as noted below. In some cases,
the Board of Directors has approved expense amounts lower than plan
limits.
------------------------------------------------ ----------------------------- -----------------------------
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, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
All share classes 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 for providing certain
shareholder services. Expenses in excess of these amounts, up to
approved limits, may be used to compensate dealers and wholesalers for
shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses 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
December 31, 2003, unreimbursed expenses subject to reimbursement
totaled $9,365,000 for Class A. There were no unreimbursed expenses
subject to reimbursement for Class 529-A.
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A
and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant class also pays AFS additional amounts for certain transfer
agent services. CRMC and AFS may use these fees to compensate third
parties for performing these services. During the start-up period for
classes R-1, R-2, R-3 and R-4, CRMC has voluntarily agreed to pay a
portion of these fees. For the year ended December 31, 2003, the total
fees paid by CRMC were $369,000. Each 529 share class is subject to an
additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services
fees in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party. Administrative services
fees are presented gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended
December 31, 2003, were as follows (dollars in thousands):
--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $33,654 $15,436 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 11,493 1,307 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 7,213 Included $1,082 $324 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 575 Included 345 67 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 82 Included 115 15 $77
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 262 Included 39 14 26
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 415 Included 62 18 42
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 25 Included 8 1 5
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 2 Included 2 -* 1
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 28 Included 4 6 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 521 Included 104 521 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 305 Included 92 111 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 29 Included 17 3 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 101 3 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $54,604 $16,743 $1,971 $1,083 $151
--------------------------------------------------------------------------------------------------------------
* Amount less than one thousand.
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Directors 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. Directors' compensation in the accompanying financial statements
includes $90,000 in current fees (either paid in cash or deferred) and a net
increase of $34,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
Share class Sales(1) Reinvestments of dividends
Amount Shares Amount Shares
Year ended December 31, 2003
Class A $ 3,914,006 298,503 $ 606,086 46,021
Class B 447,795 34,182 41,587 3,155
Class C 439,411 33,447 25,135 1,906
Class F 247,799 18,925 9,380 711
Class 529-A 58,345 4,428 4,025 305
Class 529-B 17,719 1,348 1,125 85
Class 529-C 29,195 2,219 1,798 136
Class 529-E 4,019 306 247 19
Class 529-F 1,906 145 48 3
Class R-1 5,828 442 121 9
Class R-2 113,952 8,680 3,007 227
Class R-3 99,210 7,575 2,884 218
Class R-4 19,077 1,446 604 46
Class R-5 49,613 3,802 3,594 272
Total net increase
(decrease) $ 5,447,875 415,448 $ 699,641 53,113
Year ended December 31, 2002(2)
Class A $ 4,275,824 342,033 $ 651,356 52,134
Class B 549,413 43,871 31,518 2,528
Class C 458,783 36,606 16,938 1,360
Class F 229,900 18,412 6,607 530
Class 529-A 49,464 3,961 1,370 110
Class 529-B 16,313 1,307 389 32
Class 529-C 27,376 2,192 659 53
Class 529-E 3,348 269 70 5
Class 529-F 160 13 1 -*
Class R-1 829 67 9 1
Class R-2 22,198 1,802 212 17
Class R-3 20,692 1,675 191 15
Class R-4 10,791 883 97 8
Class R-5 85,786 6,891 1,500 122
Total net increase
(decrease) $ 5,750,877 459,982 $ 710,917 56,915
Share class Repurchases(1) Net increase
Amount Shares Amount Shares
Year ended December 31, 2003
Class A $ (3,944,314) (300,701) $ 575,778 43,823
Class B (222,252) (16,906) 267,130 20,431
Class C (213,329) (16,240) 251,217 19,113
Class F (159,243) (12,222) 97,936 7,414
Class 529-A (7,496) (567) 54,874 4,166
Class 529-B (1,780) (134) 17,064 1,299
Class 529-C (5,184) (392) 25,809 1,963
Class 529-E (969) (74) 3,297 251
Class 529-F (38) (3) 1,916 145
Class R-1 (2,261) (172) 3,688 279
Class R-2 (30,794) (2,338) 86,165 6,569
Class R-3 (28,674) (2,178) 73,420 5,615
Class R-4 (12,668) (971) 7,013 521
Class R-5 (30,931) (2,348) 22,276 1,726
Total net increase
(decrease) $ (4,659,933) (355,246) $ 1,487,583 113,315
Year ended December 31, 2002(2)
Class A $ (3,478,409) (279,194) $ 1,448,771 114,973
Class B (115,299) (9,277) 465,632 37,122
Class C (111,519) (8,994) 364,202 28,972
Class F (132,996) (10,729) 103,511 8,213
Class 529-A (1,501) (121) 49,333 3,950
Class 529-B (330) (27) 16,372 1,312
Class 529-C (638) (51) 27,397 2,194
Class 529-E (16) (1) 3,402 273
Class 529-F (1) -* 160 13
Class R-1 (25) (2) 813 66
Class R-2 (2,162) (175) 20,248 1,644
Class R-3 (3,212) (260) 17,671 1,430
Class R-4 (585) (47) 10,303 844
Class R-5 (10,934) (888) 76,352 6,125
Total net increase
(decrease) $ (3,857,627) (309,766) $ 2,604,167 207,131
* Amount less than one thousand.
(1) Includes exchanges between share classes of the fund.
(2) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
6. FORWARD CURRENCY CONTRACTS
As of December 31, 2003, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
NON-U.S. CURRENCY CONTRACTS CONTRACT AMOUNT U.S. VALUATIONS AT DECEMBER 31, 2003
Unrealized
Non-U.S. U.S. Amount depreciation
(000) (000) (000) (000)
Sales:
Euros
expiring 1/20 to 3/23/2004 Euro 64,458 $78,562 $80,774 $(2,212)
Hungarian Forint
expiring 2/27 to 5/28/2004 HUF 10,439,374 45,311 47,817 (2,506)
Forward currency contracts - net $123,873 $128,591 $(4,718)
7. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of December 31, 2003, the total value
of restricted securities was $3,047,561,000, which represented 17.98% of the net
assets of the fund.
8. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $11,309,553,000 and $8,816,998,000, respectively, during the year
ended December 31, 2003.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended December 31, 2003, the custodian fee of $746,000 included $71,000
that was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
Income from investment operations(2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class A:
Year ended 12/31/2003 $12.70 $.68 $.84 $1.52
Year ended 12/31/2002 12.79 .82 (.08) .74
Year ended 12/31/2001 12.79 .93 (.03) .90
Year ended 12/31/2000 12.98 .94 (.17) .77
Year ended 12/31/1999 13.61 .93 (.63) .30
Class B:
Year ended 12/31/2003 12.70 .58 .84 1.42
Year ended 12/31/2002 12.79 .72 (.08) .64
Year ended 12/31/2001 12.79 .83 (.03) .80
Period from 3/15/2000 to 12/31/2000 12.92 .62 (.08) .54
Class C:
Year ended 12/31/2003 12.70 .57 .84 1.41
Year ended 12/31/2002 12.79 .71 (.08) .63
Period from 3/15/2001 to 12/31/2001 13.05 .63 (.27) .36
Class F:
Year ended 12/31/2003 12.70 .67 .84 1.51
Year ended 12/31/2002 12.79 .81 (.08) .73
Period from 3/15/2001 to 12/31/2001 13.05 .70 (.27) .43
Class 529-A:
Year ended 12/31/2003 12.70 .67 .84 1.51
Period from 2/15/2002 to 12/31/2002 12.76 .69 (.04) .65
Class 529-B:
Year ended 12/31/2003 12.70 .55 .84 1.39
Period from 2/15/2002 to 12/31/2002 12.76 .60 (.04) .56
Class 529-C:
Year ended 12/31/2003 12.70 .55 .84 1.39
Period from 2/19/2002 to 12/31/2002 12.73 .60 (.02) .58
Class 529-E:
Year ended 12/31/2003 12.70 .62 .84 1.46
Period from 3/7/2002 to 12/31/2002 12.70 .61 .02 .63
Class 529-F:
Year ended 12/31/2003 12.70 .64 .84 1.48
Period from 9/26/2002 to 12/31/2002 12.31 .19 .40 .59
Class R-1:
Year ended 12/31/2003 12.70 .57 .84 1.41
Period from 6/11/2002 to 12/31/2002 12.65 .38 .06 .44
Class R-2:
Year ended 12/31/2003 12.70 .57 .84 1.41
Period from 5/31/2002 to 12/31/2002 12.72 .40 (.01) .39
Class R-3:
Year ended 12/31/2003 12.70 .62 .84 1.46
Period from 6/4/2002 to 12/31/2002 12.73 .42 (.02) .40
Class R-4:
Year ended 12/31/2003 12.70 .67 .84 1.51
Period from 5/20/2002 to 12/31/2002 12.67 .47 .04 .51
Class R-5:
Year ended 12/31/2003 12.70 .71 .84 1.55
Period from 5/15/2002 to 12/31/2002 12.66 .52 .05 .57
Dividends Ratio of Ratio of
(from net Net asset Net assets, expenses net income
investment value, end Total end of period to average to average
income) of period return(3) (in millions) net assets net assets
Class A:
Year ended 12/31/2003 $(.71) $13.51 12.22% $13,991 .67% (5) 5.15%
Year ended 12/31/2002 (.83) 12.70 6.11 12,600 .71 6.59
Year ended 12/31/2001 (.90) 12.79 7.15 11,223 .71 7.17
Year ended 12/31/2000 (.96) 12.79 6.19 9,366 .72 7.35
Year ended 12/31/1999 (.93) 12.98 2.29 9,477 .69 6.96
Class B:
Year ended 12/31/2003 (.61) 13.51 11.38 1,274 1.41 (5) 4.37
Year ended 12/31/2002 (.73) 12.70 5.28 939 1.47 5.77
Year ended 12/31/2001 (.80) 12.79 6.37 471 1.45 6.30
Period from 3/15/2000 to 12/31/2000 (.67) 12.79 4.33 88 1.42 (6) 6.65 (6)
Class C:
Year ended 12/31/2003 (.60) 13.51 11.29 848 1.49 (5) 4.26
Year ended 12/31/2002 (.72) 12.70 5.20 554 1.55 5.66
Period from 3/15/2001 to 12/31/2001 (.62) 12.79 2.83 188 1.57 (6) 6.25 (6)
Class F:
Year ended 12/31/2003 (.70) 13.51 12.15 292 .72 (5) 5.02
Year ended 12/31/2002 (.82) 12.70 6.04 180 .77 6.44
Period from 3/15/2001 to 12/31/2001 (.69) 12.79 3.35 76 .79 (6) 7.03 (6)
Class 529-A:
Year ended 12/31/2003 (.70) 13.51 12.21 110 .68 (5) 5.05
Period from 2/15/2002 to 12/31/2002 (.71) 12.70 5.33 50 .75 (6) 6.46 (6)
Class 529-B:
Year ended 12/31/2003 (.58) 13.51 11.18 35 1.61 (5) 4.13
Period from 2/15/2002 to 12/31/2002 (.62) 12.70 4.55 17 1.64 (6) 5.57 (6)
Class 529-C:
Year ended 12/31/2003 (.58) 13.51 11.19 56 1.59 (5) 4.15
Period from 2/19/2002 to 12/31/2002 (.61) 12.70 4.75 28 1.63 (6) 5.58 (6)
Class 529-E:
Year ended 12/31/2003 (.65) 13.51 11.77 7 1.06 (5) 4.68
Period from 3/7/2002 to 12/31/2002 (.63) 12.70 5.14 3 1.13 (6) 6.06 (6)
Class 529-F:
Year ended 12/31/2003 (.67) 13.51 11.96 2 .82 (5) 4.72
Period from 9/26/2002 to 12/31/2002 (.20) 12.70 4.81 - (4) .30 1.51
Class R-1:
Year ended 12/31/2003 (.60) 13.51 11.29 5 1.49 (5)(7) 4.13
Period from 6/11/2002 to 12/31/2002 (.39) 12.70 3.59 1 1.52 (6)(7) 5.55 (6)
Class R-2:
Year ended 12/31/2003 (.60) 13.51 11.33 111 1.46 (5)(7) 4.20
Period from 5/31/2002 to 12/31/2002 (.41) 12.70 3.23 21 1.48 (6)(7) 5.56 (6)
Class R-3:
Year ended 12/31/2003 (.65) 13.51 11.76 95 1.07 (5)(7) 4.59
Period from 6/4/2002 to 12/31/2002 (.43) 12.70 3.31 18 1.10 (6)(7) 5.95 (6)
Class R-4:
Year ended 12/31/2003 (.70) 13.51 12.15 18 .72 (5)(7) 5.05
Period from 5/20/2002 to 12/31/2002 (.48) 12.70 4.21 11 .74 (6)(7) 6.20 (6)
Class R-5:
Year ended 12/31/2003 (.74) 13.51 12.52 106 .40 (5) 5.39
Period from 5/15/2002 to 12/31/2002 (.53) 12.70 4.66 78 .42 (6) 6.75 (6)
Year ended December 31
2003 2002 2001 2000 1999
Portfolio turnover rate for all classes of shares 60% 50% 64% 62% 47%
(1) Based on operations for the period shown (unless otherwise
noted) and, accordingly, may not be representative of a full
year.
(2) Year ended 1999 is based on shares outstanding on the last day
of the year; all other periods are based on average shares
outstanding.
(3) Total returns exclude all sales charges, including contingent
deferred sales charges.
(4) Amount less than 1 million.
(5) During the year ended December 31, 2003, CRMC voluntarily reduced
fees for investment advisory services. The expense ratios for all
share classes were not affected by the reduction of fees.
(6) Annualized.
(7) During the start-up period for this class, CRMC voluntarily agreed
to pay a portion of the fees relating to transfer agent services.
Had CRMC not paid such fees, expense ratios would have been 1.65%,
1.94% and 1.12% for classes R-1, R-2 and R-3,respectively, during
the year ended December 31, 2003,and 2.53%, 1.67%, 1.20% and .77% for
classes R-1, R-2, R-3 and R-4,respectively, during the period ended
December 31, 2002. The expense ratio for Class R-4 was not affected
by any payments made by CRMC during the year ended December 31, 2003.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE BOND FUND OF AMERICA, INC.:
We have audited the accompanying statement of assets and liabilities of The Bond
Fund of America, Inc. (the "Fund"), including the investment portfolio, as of
December 31, 2003, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Bond Fund of America, Inc. as of December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 9, 2004
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year.
As a result of recent tax legislation, individual shareholders are now eligible
for reduced tax rates on qualified dividend income received during the year. For
purposes of computing the dividends eligible for reduced tax rates, 1% of the
dividends paid by the fund from net investment income are considered qualified
dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 1% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. government
obligations. For purposes of computing this exclusion, 8% of the dividends paid
by the fund from net investment income were derived from interest on direct U.S.
government obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH
WAS MAILED IN JANUARY 2004 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 2003
TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
OTHER SHARE CLASS RESULTS (UNAUDITED)
CLASS B, CLASS C, CLASS F AND CLASS 529
Returns for periods ended December 31, 2003:
1 year Life of class
CLASS B SHARES
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares
are sold within six years of purchase +6.38% +6.53%(1)
Not reflecting CDSC +11.38% +7.18%(1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +10.29% +6.86%(2)
Not reflecting CDSC +11.29% +6.86%(2)
CLASS F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +12.15% +7.65%(2)
CLASS 529-A SHARES
Reflecting 3.75% maximum sales charge +8.04% +7.11%(4)
Not reflecting maximum sales charge +12.21% +9.33%(4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 1%, payable
only if shares are sold within six years of purchase +6.18% +6.35%(4)
Not reflecting CDSC +11.18% +8.36%(4)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +10.19% +8.52%(5)
Not reflecting CDSC +11.19% +8.52%(5)
CLASS 529-E SHARES(3) +11.77% +9.28%(6)
CLASS 529-F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +11.96% +13.50%(7)
Figures shown are past results and not predictive of future periods. Current and
future results may be lower or higher than those shown. Because share prices may
decline, the value of your holdings may decrease. For more current information
and month-end results, visit americanfunds.com.
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from February 15, 2002, when Class 529-A and
Class 529-B shares were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-C shares
were first sold.
(6) Average annual total return from March 7, 2002, when Class 529-E shares
were first sold.
(7) Average annual total return from September 26, 2002, when Class 529-F shares
were first sold.
BOARD OF DIRECTORS AND OFFICERS
"NON-INTERESTED" DIRECTORS
YEAR FIRST
ELECTED
A DIRECTOR
NAME AND AGE OF THE FUND(1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
AMBASSADOR
RICHARD G. CAPEN, JR., 69 1999 Corporate director and author; former U.S. Ambassador to Spain; former
Vice Chairman, Knight-Ridder, Inc. (communications company); former
Chairman and Publisher, The Miami Herald
H. FREDERICK CHRISTIE, 70 1974 Private investor; former President and CEO, The Mission Group
(non-utility holding company, subsidiary of Southern California Edison
Company)
DIANE C. CREEL, 55 1994 Chairman of the Board and CEO, Evocation, Inc. (organic waste
management)
MARTIN FENTON, 68 1989 Chairman of the Board and CEO, Senior Resource Group LLC (development
and management of senior living communities)
LEONARD R. FULLER, 57 1994 President and CEO, Fuller Consulting (financial management consulting
firm)
RICHARD G. NEWMAN, 69 1991 Chairman of the Board and CEO, AECOM Technology Corporation
(engineering, consulting and professional services)
FRANK M. SANCHEZ, 60 1999 Principal, The Sanchez Family Corporation dba McDonald's Restaurants
(McDonald's licensee)
"NON-INTERESTED" DIRECTORS
NUMBER OF
BOARDS WITHIN
THE FUND
COMPLEX(2)
ON WHICH
NAME AND AGE DIRECTOR SERVES OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
AMBASSADOR
RICHARD G. CAPEN, JR., 69 14 Carnival Corporation
H. FREDERICK CHRISTIE, 70 19 Ducommun Incorporated; IHOP Corporation; Southwest Water Company;
Valero L.P.
DIANE C. CREEL, 55 12 Allegheny Technologies; BF Goodrich; Teledyne Technologies
MARTIN FENTON, 68 16 None
LEONARD R. FULLER, 57 14 None
RICHARD G. NEWMAN, 69 13 Sempra Energy; Southwest Water Company
Frank M. Sanchez, 60 12 None
"INTERESTED" DIRECTORS(4)
YEAR FIRST
ELECTED A
DIRECTOR OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR THE
POSITION WITH FUND OF THE FUND(1) PRINCIPAL UNDERWRITER OF THE FUND
PAUL G. HAAGA, JR., 55 1985 Executive Vice President and Director,
Chairman of the Board Capital Research and Management Company; Director, The Capital Group
Companies, Inc.;(5) Director, American Funds Distributors, Inc.(5)
ABNER D. GOLDSTINE, 74 1974 Senior Vice President and Director, Capital
President and Research and Management Company
Principal Executive Officer
DON R. CONLAN, 68 1996 President (retired), The Capital Group Companies, Inc.(5)
"INTERESTED" DIRECTORS(4)
NUMBER OF
BOARDS
WITHIN THE
FUND COMPLEX(2)
NAME, AGE AND ON WHICH
POSITION WITH FUND DIRECTOR SERVES OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
PAUL G. HAAGA, JR., 55 17 None
Chairman of the Board
ABNER D. GOLDSTINE, 74 12 None
President and
Principal Executive Officer
DON R. CONLAN, 68 6 None
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series,(R) which serves as the underlying
investment vehicle for certain variable insurance contracts; and
Endowments, whose shareholders are limited to certain nonprofit
organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company.
OTHER OFFICERS
YEAR FIRST
ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND AN OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR
POSITION WITH FUND OF THE FUND(1) THE PRINCIPAL UNDERWRITER OF THE FUND
DAVID C. BARCLAY, 47 1997 Senior Vice President and Director, Capital
Senior Vice President Research and Management Company; Director, Capital Research Company(5)
MARK R. MACDONALD, 44 2001 Senior Vice President, Capital Research and
Senior Vice President Management Company
JOHN H. SMET, 47 1994 Senior Vice President, Capital Research and
Senior Vice President Management Company
KRISTINE M. NISHIYAMA, 33 2003 Vice President and Counsel--Fund Business
Vice President Management Group, Capital Research and Management Company
JULIE F. WILLIAMS, 55 1982 Vice President--Fund Business Management Group,
Secretary Capital Research and Management Company
SUSI M. SILVERMAN, 33 2001 Vice President--Fund Business Management Group,
Treasurer Capital Research and Management Company
KIMBERLY S. VERDICK, 39 1994 Assistant Vice President--Fund Business
Assistant Secretary Management Group, Capital Research and Management Company
SHARON G. MOSELEY, 36 2003 Vice President--Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
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
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in The Bond Fund of America. Class A shares are
subject to a 3.75% maximum up-front sales charge that declines for accounts (and
aggregated investments) of $100,000 or more. Other share classes, which are
generally not available for certain employer-sponsored retirement plans, have no
up-front sales charges but are subject to additional annual expenses and fees.
Annual expenses for Class B shares were 0.74 percentage points higher than for
Class A shares; Class B shares convert to Class A shares after eight years of
ownership. If redeemed within six years, Class B shares may also be subject to a
contingent deferred sales charge ("CDSC") of up to 5% that declines over time.
Class C shares were subject to annual expenses 0.82 percentage points higher
than those for Class A shares and a 1% CDSC if redeemed within the first year
after purchase. Class C shares convert to Class F shares after 10 years. Class F
shares, which are available only through certain fee-based programs offered by
broker-dealer firms and registered investment advisers, had higher annual
expenses (by 0.05 percentage points) than did Class A shares, and an annual
asset-based fee charged by the sponsoring firm. Expenses are deducted from
income earned by the fund. As a result, dividends and investment results will
differ for each share class.
INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
OF THE BOND FUND OF AMERICA AND COLLEGEAMERICA CAREFULLY. THIS AND OTHER
IMPORTANT INFORMATION IS CONTAINED IN THE PROSPECTUS, WHICH CAN BE OBTAINED FROM
YOUR FINANCIAL ADVISER AND SHOULD BE READ CAREFULLY BEFORE INVESTING. YOU MAY
ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT THE AMERICAN
FUNDS WEBSITE AT AMERICANFUNDS.COM.
"AMERICAN FUNDS PROXY VOTING GUIDELINES" -- WHICH DESCRIBES HOW WE VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES -- IS AVAILABLE UPON REQUEST, FREE OF CHARGE,
BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS WEBSITE
OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT WWW.SEC.GOV.
This report is for the information of shareholders of The Bond Fund of America,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 2004, this report must be accompanied by an American Funds statistical
update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 25 million shareholder accounts.
OUR UNIQUE COMBINATION OF STRENGTHS INCLUDES THESE FIVE FACTORS:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors.
Each takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
> The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities Fund(SM)
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-908-0204
Litho in USA BG/LPT/8053
Printed on recycled paper
ITEM 2 - Code of Ethics
This Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, 333 South Hope Street, Los
Angeles, California 90071.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that Leonard R. Fuller, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Fees paid to the registrant's auditors for each of the last two fiscal years,
including fees for non-audit services billed to the adviser and affiliates for
engagements that relate directly to the operations and financial reporting of
the registrant, and a description of the nature of the services comprising the
fees, are listed below:
Registrant:
a) Audit Fees:
2002 $76,000
2003 $78,000
b) Audit- Related Fees:
2002 none
2003 none
c) Tax Fees:
2002 $5,000
2003 $5,000
The tax fees consist of professional
services relating to the preparation of
the fund's tax returns.
d) All Other Fees:
2002 none
2003 none
Adviser and affiliates (includes only fees for non-audit services
billed to the adviser and affiliates for engagements that relate
directly to the operations and financial reporting of the registrant
and were subject to the pre-approval policies described below):
b) Audit- Related Fees:
2002 $318,000
2003 $305,000
The audit-related fees consist of assurance and
related services relating to the examination of
the fund's transfer agency conducted in accordance
with Statement on Auditing Standards Number 70
issued by the American Institute of Certified Public
Accountants.
c) Tax Fees:
2002 none
2003 none
d) All Other Fees:
2002 none
2003 none
The registrant's Audit Committee will pre-approve all audit and permissible
non-audit services that the Committee considers compatible with maintaining the
auditors' independence. The pre-approval requirement will extend to all
non-audit services provided to the registrant, the investment adviser, and any
entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the registrant, if the engagement
relates directly to the operations and financial reporting of the registrant.
The Committee will not delegate its responsibility to pre-approve these services
to the investment adviser. The Committee may delegate to one or more Committee
members the authority to review and pre-approve audit and permissible non-audit
services. Actions taken under any such delegation will be reported to the full
Committee at its next meeting. The pre-approval requirement is waived with
respect to non-audit services if certain conditions are met. The pre-approval
requirement was not waived for any of the services listed above under paragraphs
b, c and d.
Aggregate non-audit fees paid to the registrant's auditors, including fees for
all services billed to the adviser and affiliates were $360,000 for fiscal year
2002 and $315,000 for fiscal year 2003. The non-audit services represented by
these amounts were brought to the attention of the Committee and considered to
be compatible with maintaining the auditors' independence.
ITEM 5 - Audit Committee Disclosure for Listed Companies
Not applicable.
ITEM 6 - Reserved
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 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance
with rule 30a-2 under the Investment Company Act of 1940 have concluded,
based on their evaluation of the Registrant's disclosure controls and
procedures (as such term is defined in such rule), 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 last fiscal
half-year (the Registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by
Item 2 is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company
Act of 1940, as amended, 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, INC.
By /s/ Abner D. Goldstine
Abner D. Goldstine, President and PEO
Date: March 8, 2004
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/ Abner D. Goldstine
Abner D. Goldstine, President and PEO
Date: March 8, 2004
By /s/ Susi M. Silverman
Susi M. Silverman, Treasurer
Date: March 8, 2004