CAPITALWORLD BOND FUND
ANNUAL REPORT
for the year ended September 30, 1995
[The American Funds Group(R)]
Capital World Bond Fund(R)
The fund seeks total return, consistent with prudent management, by investing
in quality fixed-income securities issued by major governments and corporations
all over the world, including the United States. That total return is made up
of three elements: interest income, any change in the market value of the
fund's investments and any change in the value of other currencies against the
U.S. dollar.
About our cover:
The currencies depicted in the illustration represent many nations in which
Capital World Bond Fund has made fixed-income investments.
Investment Results at a Glance
<TABLE>
<CAPTION>
<S> <C>
Total return for the fiscal year
(10/1/94 - 9/30/95) + 18.1%
Total return over the fund's lifetime
(8/4/87 - 9/30/95) +111.4%
Average annual compound return
(lifetime) + 9.6%
</TABLE>
Over the past 12 months ended September 30, Capital World Bond Fund's return
was the seventh-highest among the 127 world income funds tracked by Lipper
Analytical Services, putting the fund in the top 6% of this group. Rankings
over other periods vary -- see page 2.
Here are returns over various periods ended September 30, 1995 and a chart
showing the growth of an investment over the fund's lifetime, both with all
distributions reinvested and assuming payment of the 4.75% maximum sales charge
at the beginning of the stated periods.
<TABLE>
<CAPTION>
<S> <C> <C>
Total Average Annual
Return Compound Return
Lifetime (since 8/4/87) +101.40% +8.96%
Five Years + 56.86 +9.42
One Year + 12.53 --
</TABLE>
Fund results in this report were computed without a sales charge unless
otherwise indicated. Sales charges are lower for accounts of $25,000 or more.
The fund's 30-day yield as of October 31, 1995, calculated in accordance with
the Securities and Exchange Commission formula, was 5.79%. The fund's
distribution rate as of that date was 5.34%. The SEC yield reflects income
earned by the fund, while the distribution rate reflects dividends actually
paid by the fund.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
Fellow Shareholders:
Fiscal 1995 was a very satisfactory year for investors in Capital World Bond
Fund. With favorable trends in place for bond markets around the world, the
value of your investment rose 18.1% assuming you reinvested income dividends
totaling $1.18 a share.
By comparison, the Salomon Brothers World Government Bond Index, which measures
major world markets, increased 16.2% for the same 12 months ended September 30.
A value-oriented approach to bond market investing and selected currency
hedging of some investments back into the U.S. dollar enabled your fund to
outpace this unmanaged index.
Low inflation and slower economic growth were beneficial for bonds around the
world in the recent fiscal year. As a result, most markets turned in good
returns in sharp contrast with 1994, which was one of the worst bond markets in
history.
Capital World Bond Fund was well-positioned to capitalize on these favorable
trends. Our large holdings in the bonds of many European nations, the U.S. and
other dollar-bloc countries contributed to our results. The fund's investments
in Denmark, Sweden, Germany, New Zealand and Canada did especially well.
Japanese bonds and the yen were very strong early in 1995. The yen, however,
reversed sharply starting in April. During the fiscal year, we sold nearly half
of our Japanese bonds at attractive prices, feeling that the risk-return ratio
of these bonds was not as favorable as in the past. We also hedged a portion of
our remaining Japanese investments back into the U.S. dollar, which added to
our returns.
In the first part of the year, this hedging strategy detracted from our
investment returns as the dollar continued its 10-year slide against the yen
and other currencies. Then, when the dollar began to rally, our strategy
started to pay off. Investors who were not hedged gave up much of their gains
from their yen and other non-U.S. bond investments.
As we have explained in previous reports, the fund pays a relatively stable
dividend in the first three quarters of the calendar year, and then adjusts the
fourth quarter dividend (up or down) to reflect currency gains or losses, as
required by tax laws. This year, since the fund had net currency gains,
share-holders will receive a dividend in December that is considerably larger
than usual (about 52 cents a share).
Our recent favorable results underscore a key reason why investors have added
Capital World Bond Fund to their portfolios: It provides global diversification
of fixed-income assets. More than half of the world's fixed-income securities
are denominated in currencies other than the U.S. dollar and some of these
markets are bound to offer better opportunities than others at any given time.
During the past 12 months, for example, a global bond portfolio offered an
advantage over one invested exclusively in the U.S. market. The unmanaged
Salomon Brothers Broad Investment-Grade Bond Index, a key measure of the U.S.
market, posted a 12-month gain of 14.1%. As stated, the Salomon Brothers World
Government Bond Index had a total return of 16.2% over the same period.
Being able to adjust the fund's investment holdings to take advantage of
differing opportunities around the world is one of the benefits of managing a
global portfolio. During the year, the fund made a number of changes, including
adding to its position in U.S. bonds. We believe that both the legislative and
executive branches of the U.S. government are taking the budget deficit
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital World Bond Fund Net Assets World Bond Market
North America 50.2% Europe 40.4%
Europe 35.7% North America 37.7%
Pacific Basin 14.1% Pacific Basin 21.9%
</TABLE>
[END PIE CHART]
more seriously and that demographic shifts could well result in rising personal
savings rates among Americans.
The fund sold most of its French bonds because of our concerns that the French
government would find it difficult to deliver on promises of a dramatically
reduced budget deficit.
We continue to maintain our strong position in Europe, with major holdings in
Denmark, Germany, the Netherlands, Spain and Sweden. We favor bonds issued by
these governments because these countries are experiencing slower economic
growth and falling inflation rates. In addition, the fund has maintained its
sizable investments in the bonds of the dollar-bloc countries of Australia, New
Zealand and Canada.
Your fund's gain over the recent 12-month period was the seventh-highest among
the 127 world income funds tracked by Lipper Analytical Services, putting the
fund in the top 6% of this group. Over the past five years, the fund ranked
third of the 25 similar funds in operation. Over its lifetime of slightly more
than eight years, the fund ranked sixth of 14 world income funds in existence.
Lipper rankings do not reflect the effects of sales charges.
Among the reasons for the fund's strong results compared with similar funds is
that it has only a small exposure to what some people call emerging markets
debt. All our holdings carry an investment-grade rating. This is in sharp
contrast to what others have done both in the small size of our position and
our high quality. We expect in the future, however, to identify some additional
investment-grade emerging markets bonds that provide long-term value to
investors.
On the heels of strong results, it is always worth mentioning that exceptional
returns do not happen every year. We think there is still good value to be
found in selected bond markets around the world, but interest rates could be
approaching a near-term low. Therefore, we are following a cautious strategy.
It is gratifying that the fund continues to gain more shareholders each year.
At the fiscal year-end, the fund had a total of 45,534 shareholders, 2,000 more
than a year ago. We invite you to meet several of them in the pages ahead and
find out why they invested in Capital World Bond Fund.
Cordially,
Paul G. Haaga, Jr.
Chairman of the Board
Abner D. Goldstine
President
November 8, 1995
Where the Fund's Assets Are Invested
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Capital World Salomon Bros.
Bond Fund World Govt.
Net Assets Bond Index
Average Average
Currency of Maturity Maturity
Denomination Securities Currency by by
as of 9/30/95 Weighting# Weighting# Currency# Weighting Currency
United States 32.1% 43.4% 6.8 yrs 34.8% 8.0 yrs
Denmark 8.4 6.2 11.5 1.6 6.2
Canada 7.5 6.8 11.5 2.9 8.8
Germany 7.1 4.7 13.6 10.4 5.9
Japan 6.4 4.8 6.5 20.9 6.9
Netherlands 6.1 2.0 25.3 3.3 8.0
New Zealand 6.1 6.1 8.3 * *
Spain 5.9 5.9 5.1 2.2 5.0
Sweden 4.7 4.7 4.3 1.5 5.8
Italy 4.2 4.2 6.3 5.9 5.0
United Kingdom 3.8 3.8 6.2 5.2 10.0
Australia 3.3 3.2 11.0 1.0 6.3
Ireland 1.9 1.9 6.0 * *
ECU^ 1.5 1.5 5.8 * *
France 0.6 0.4 14.7 6.8 8.2
Finland 0.2 0.2 7.0 * *
Austria 0.2 0.2 4.4 0.8 5.5
Belgium -- -- -- 2.7 6.6
100.0% 100.0% 100.0%
</TABLE>
# Securities and currency weightings may differ due to the fund's use of
hedging techniques designed to control its exposure to fluctuations in
exchange rates. Short-term investments, cash equivalents, receivables and
payables are included in the securities weighting.
* This market is not included in the index.
^European Currency Unit
10-Year Government Bond Yields Around The World: A Comparison
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
United States Canada Ireland United Kingdom Denmark Sweden Finland Japan
6.2% 7.8% 8.3% 8.1% 7.9% 9.4% 8.1%* 2.8%
#7.6% #8.9% #9.1% #8.8% #9.0% #11.2% #10.3%* #4.5%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Spain France Netherlands Germany Austria Italy Australia New Zealand
10.9% 7.5% 6.7% 6.6% 7.1% 11.8% 8.6% 7.8%
#11.2% #8.1% #7.5% #7.6% #7.5% #11.3% #10.3% #9.3%
</TABLE>
Yield as of 9/30/95
# Yield as of 9/30/94
* 7-year government bonds
Source: Morgan Stanley Capital International Perspective
Who Owns Capital World Bond Fund With You?
What do a rhubarb farmer in Sumner, Washington, an early retiree in Grand
Rapids, Michigan, and the owner of a chain of auto parts stores near Los
Angeles have in common? They are all investors in Capital World Bond Fund.
Since Capital World Bond Fund was introduced in August 1987, it has gained a
steady stream of new investors. Today, the fund has 45,534 shareholders whose
investments were valued at fiscal year-end at more than $650 million.
Some are individuals or couples investing for retirement.
Others are corporate officers investing money for company retirement plans.
All have taken the advice of financial advisers to diversify their fixed-income
investments to spread their returns and risks around the world. These
shareholders have become convinced that investors who limit themselves to the
bonds of only one country are cutting themselves off from a huge segment of the
global investment spectrum.
Studies show that over the past 20 years investors who put one-third of their
fixed-income portfolios in non-U.S. bonds received a higher return with lower
volatility than with an all-U.S. portfolio. The reason that a global portfolio
can reduce risk is that non-U.S. bond and currency markets can move in
different rhythms from U.S. markets.
While one nation's economy may be expanding, another's may be contracting or
expanding more slowly. Bond prices may be declining in one country while rising
in another. And, as you can see by the chart on page 3, bond yields can vary
significantly.
It takes skilled investment managers to capitalize on the changing world bond
markets. The fund's shareholders have the advantage of being able to rely on
the expertise of seasoned investment professionals who manage bonds around the
globe and who monitor the complicated currency trends and economic and
political developments that affect bond prices. The investment professionals at
Capital Research and Management Company, who manage the assets in your fund, do
extensive research before they select their bonds.
Let's meet a few of the investors who, like you, have benefited from this
research effort.
The Kings: Competing Against Giants
A father-and-son business in the San Fernando Valley
[Photo Caption]
Daniel and Carroll King like to talk with customers and employees in the
headquarters of their auto parts chain near Los Angeles.
[End Photo Caption]
Carroll King and his son, Daniel, realize that their 75 employees are the key
to the success of King Auto Supply, a small chain of eight auto parts stores in
the San Fernando Valley, near Los Angeles. With their help, the Kings have been
able to hold their own against giant national auto parts chains which sell in
greater volume. Many other independent auto parts stores have long since closed
their doors. "To survive in this business, you have to be competitive and
efficient and keep the customer in mind," Carroll says.
After 35 years in the auto parts business, Carroll says it all boils down to
hiring and keeping excellent employees "who need their jobs and who understand
our customers. You can't use automatons in this business," he says. "People
have to be able to think."
For example, a do-it-yourself auto repair customer comes in and asks for a part
but doesn't have the foggiest notion what it's called. "Our people have to
figure out what part the customer wants," Carroll says. "Our employees are
pretty sharp. They can pick up on the needs of customers pretty quickly." The
result: Many customers come into the Kings' stores and ask for specific
employees they know and trust.
The company also sells parts directly to auto repair shops on a wholesale basis
and speed is of the essence. "When a repair shop calls in to order a part, they
expect it in 30 minutes," says Daniel, who started in the business when he was
12. "So we have 25 trucks pounding the road all day delivering parts. All
orders are rush."
Carroll says his employees need some help in saving and investing their money.
That's why he set up a profit-sharing plan and selected The American Funds
Group. He thinks the plan is an important tool to help keep good people.
But he doesn't want to pick the plan's investments himself. "I'm in the auto
parts business -- not the stock and bond business. I'm interested in the
market, but I don't have the time to do the research, or the expertise. And I
couldn't sleep at night if I picked the stocks and bonds for the plan. The
American Funds investing style doesn't have an inordinate amount of risk. So if
an employee retires, changes jobs or remains, we know that the money has been
well invested."
King Auto Supply's profitsharing plan has eight American Funds. Carroll's
broker advised him to invest in Capital World Bond Fund as part of the
fixed-income portion of the portfolio. Carroll says: "We like to spread our
risks and opportunities across as wide an area as possible. And Capital World
Bond Fund has done well for us."
Virginia's World: Retiring Early and Having a Ball
Dune buggies and sunsets in Michigan's woods
Virginia Heemstra, formerly a billing supervisor in the financial department at
Steelcase Corp., a large office furniture company in Grand Rapids, Michigan,
received an early retirement offer eight years ago. After 33 years at the
company, she took the offer and never looked back. "I had enough money," she
says. "I thought: $why wait?' I decided to go for it."
Now she divides her time among three locations. She spends weekdays during the
summer and fall at her condominium just south of Grand Rapids. She is active in
church and volunteers for the Grand Valley Blood Center. She plays softball,
golfs and bowls.
Most weekends Virginia heads 50 miles north to her second home -- a woodsy
retreat near Lake Michigan. There she hops aboard her yellow Volkswagen dune
buggy and drives through the sand dunes and forests of western Michigan. "My
friends and I go out at night looking for deer in the forests,'' she says.
She and a friend recently purchased a double-wide mobile home in Florida. She
plans to spend five months there in the winter. It's like "old home week down
there because lots of Michigan folks are winter residents," she says.
How does she finance this lifestyle? She's been a saver all her life and a
sharp buyer of homes. "When I retired, I decided to take my money out of my
company profit-sharing plan in a lump sum instead of an annuity," she says. "A
lot of my friends put their money in CDs. They said they wanted to keep their
money safe. I realized I would have to live on this money for the rest of my
life, and I couldn't survive on the money that CDs were returning."
Virginia went to a financial planner who recommended she invest her money in a
number of American Funds. One of those was Capital World Bond Fund. She likes
the idea of investing in bonds all over the globe. "These investments have met
my retirement goals," she says. "I get regular checks. I know there are ups and
downs in the market but I don't worry about it. I'm investing for the long
term."
[Photo Caption]
Virginia Heemstra enjoys driving her dune buggy in Michigan's woods
as a weekend escape.
[End Photo Caption]
[Photo Caption]
On their farm in Sumner, Washington, Jim and Karen Shigio have learned to rely
on more than rhubarb for income.
[End Photo Caption]
The Shigios: Diversifying Their Crops -- and Their Investments
A Washington couple's biggest gamble is rhubarb farming
The damp Puyallup Valley near Tacoma, Washington, is one of the best
rhubarb-growing areas in North America. "There's lots of rain and water here,
and rhubarb is 90% water," says Karen Shigio. So it sounds like it should be a
snap raising rhubarb on the 30 acres she and her husband farm.
Not to hear Jim and Karen tell it. "Farming is a big gamble here," says Jim.
"We put all our money out in the winter to buy plants. And it comes back when
we harvest our rhubarb later and take the crop to the farm cooperative. A late
frost can damage the entire rhubarb crop."
To spread their risks, the Shigios grow other crops on their farm, including
strawberries and raspberries and apple and Asian pear trees for nurseries. Jim
has even devised a hothouse system to grow rhubarb during the winter months. He
uses wood-burning stoves to keep the temperature in the hothouses at an even 50
to 55 degrees, even when nighttime temperatures drop into the teens. "We
finally have a crop for the winter season," he says. "It makes agriculture
viable here and spreads out our income."
But even growing winter rhubarb in hothouses can be dicey. Jim has to get up
every four hours on many winter nights to make sure his rhubarb is warm enough.
Karen has an entirely different type of job. As an employment specialist for
the state of Washington, she counsels people from all walks of life, including
a number of executives, laid off in the wave of corporate downsizings rippling
through the Seattle-Tacoma area. The job is emotionally demanding, she says.
"They come in needing a quick fix, and it's not always fixable. Many people are
so devastated that they can't even write a resume. It's a heart-wrenching job."
What investment lessons does her job as an employment counselor provide?
"People don't think about tomorrow," Karen says. "They think their job will
always be there. They think that Social Security will always be there. They
don't put enough of their own money away to invest for their future. I've
always been a saver -- saving for that rainy day."
The couple's jobs have turned them into very cautious investors, Karen says.
But both see a parallel between farming and investing. "Just like in farming,
there are good years and bad years in investing," Karen says, "and you want to
diversify, to balance off one part of your portfolio with another." That's why
she and Jim understood when their financial planner recommended Capital World
Bond Fund as one of their investments. "We like the idea of diversifying around
the world," Jim says. "We hedge our risks in investing just like we diversify
our crops and hedge our risks in farming."
A Statistical Profile of Capital World Bond Fund Shareholders
More than 45,000 investors own shares in Capital World Bond Fund. About
two-thirds of them are individuals, spread through all 50 states. All told,
shareholders own more than $650 million. Here is a statistical snapshot of your
fellow investors.
<TABLE>
<CAPTION>
<S> <C>
Individuals
Individual accounts 3,634
Joint accounts 2,854
Personal tax-deferred
retirement accounts 17,012
Trustees, guardians
and custodians 2,275
Total Individuals 25,775
(representing $374.0 million)
Institutions
Pension, profit-sharing
and other employee
benefit plans 6,188
Business organizations 168
Educational, religious and
charitable organizations 84
Total Institutions 6,440
(representing $136.2 million)
Brokerage Accounts 13,319
(representing $142.6 million
for both individuals and
institutions)
Total Accounts 45,534
</TABLE>
Capital World Bond Fund Principal Market Percent
Investment Portfolio September 30, 1995
<TABLE>
<CAPTION>
Principal Market Percent of
Amount Value Net Assets
(000) (000)
<S> <C> <C> <C>
Bonds & Notes
Australian Dollars
Australian Government 9.00% 2004 A$ 1,000 US$776 .12%
New South Wales Treasury 11.50% 1999 1,000 839 .13
New South Wales Treasury 7.00% 2004 12,000 8,109 1.24
News America Holdings Inc. 8.625% 2014 11,000 6,981 1.07
Southern Australia Finance Authority
11.25% 2001 5,500 4,631 .71
-------- --------
21,336 3.27
-------- --------
Austrian Schillings
Austria Government 7.00% 2000 ATS14,000 1,456 .22
- -
British Pounds
Bank of Ireland 9.75% 2005 Pound 250 411 .06
European Investment Bank 6.00% 2004 250 333 .05
United Kingdom:
9.50% 1999 3,000 5,031 .77
8.00% 2000 400 643 .10
7.00% 2001 8,500 12,868 1.97
4.375% 2004/1/ 3,000 5,406 .83
-------- --------
24,692 3.78
-------- --------
Canadian Dollars
Canadian Government:
7.75% 1996 C$ 2,000 1,504 .23
6.25% 1998 2,000 1,468 .23
10.75% 1998 3,000 2,426 .37
9.75% 2001 14,250 11,796 1.81
0% 2003 6,000 2,358 .36
7.50% 2003 5,000 3,680 .56
0% 2005 12,685 4,321 .66
8.75% 2005 6,550 5,213 .80
10.75% 2009 9,500 8,717 1.34
4.25% 2021/1/ 4,000 2,925 .45
9.00% 2025 5,500 4,468 .68
-------- --------
48,876 7.49
-------- --------
Danish Kroner
Danish Government:
9.00% 1998 DKr124,000 23,730 3.63
9.00% 2000 36,000 6,964 1.07
8.00% 2003 46,500 8,467 1.30
7.00% 2024 104,000 15,547 2.38
-------- --------
54,708 8.38
-------- --------
Deutsche Marks
Deutschland Republic:
6.75% 2003 DM15,500 10,995 1.68
6.875% 2005 16,200 11,540 1.77
6.25% 2024 20,500 12,403 1.90
Treuhandanstalt:
7.375% 2002 11,000 8,091 1.24
7.50% 2004 4,100 3,019 .46
-------- --------
46,048 7.05
-------- --------
European Currency Units
France O.A.T.:
6.75% 2002 ECU3,000 3,722 .57
8.50% 2002 2,000 2,715 .41
Italy (Republic of) 10.75% 2000 2,500 3,630 .56
-------- --------
10,067 1.54
-------- --------
Finnish Markkaa
Finnish Government:
11.75% 1996 FM1,000 239 .03
9.50% 2004 4,000 1,028 .16
-------- --------
1,267 .19
-------- --------
French Francs
France O.A.T.:
6.75% 2004 Fr15,000 2,912 .45
8.50% 2023 6,000 1,275 .19
-------- --------
4,187 .64
-------- --------
Irish Pounds
Ireland (Republic of):
6.25% 1999 IR POUND3,450 5,332 .82
9.25% 2003 3,800 6,505 1.00
6.25% 2004 530 746 .11
-------- --------
12,583 1.93
-------- --------
Italian Lire
Credit Local de France 7.50% 1999 Lr 2,000,000 1,122 .17
Deutsche Bank Finance NV 11.00% 1996 3,700,000 2,305 .35
Italian Government:
8.50% 1999 4,400,000 2,541 .39
8.50% 1999 2,900,000 1,641 .25
11.50% 2003 1,000,000 618 .10
8.50% 2004 4,500,000 2,315 .36
8.50% 2004 25,700,000 13,148 2.01
KfW International Finance Inc.
11.625% 1998 5,500,000 3,474 .53
- --------
27,164 4.16
-------- --------
Japanese Yen
Austria Government 5.00% 2001 Yen 50,000 574 .09
European Investment Bank 6.75% 2001 1,500,000 18,637 2.85
Export-Import Bank of Japan:
4.375% 2003 325,000 3,649 .56
2.875% 2005 990,000 9,893 1.52
GMAC International Finance 3.75% 1999 300,000 3,205 .49
Japan Development Bank:
5.00% 1999 340,000 3,871 .59
6.50% 2001 130,000 1,609 .25
-------- --------
41,438 6.35
-------- --------
Netherlands Guilders
Netherlands Government:
7.50% 1999 NLG 5,000 3,342 .51
7.50% 2023 57,300 36,630 5.61
-------- --------
39,972 6.12
-------- --------
New Zealand Dollars
New Zealand Government:
6.50% 2000 NZ$15,550 9,663 1.48
8.00% 2004 27,000 17,953 2.75
8.00% 2006 18,500 12,372 1.90
-------- --------
39,988 6.13
-------- --------
Spanish Pesetas
Spain (Kingdom of):
8.30% 1998 Pta 755,000 5,831 .89
11.45% 1998 2,020,000 16,751 2.57
10.50% 2003 2,000,000 16,116 2.47
-------- --------
38,698 5.93
-------- --------
Swedish Kronor
Swedish Government:
10.75% 1997 SKr 20,000 2,939 .45
11.00% 1999 149,000 22,420 3.43
6.00% 2005 46,000 5,278 .81
-------- --------
30,637 4.69
-------- --------
United States Dollars
Banamex 1995 Receivables Trust
0% 2002 US$ 6,665 5,009 .77
Bayerische Landesbank Girozentrale
7.375% 2002 1,000 1,050 .16
Caterpillar Financial Services Corp.
9.39% 12/5/95 500 503 .08
ConAgra, Inc. 9.75% 2021 8,500 10,459 1.60
Czech National Bank 7.00% 1996 2,000 2,003 .31
Den Danske Bank 144A 6.55% 2003 1,000 969 .15
Federal Home Loan Mortgage Corp.:
5.78% 2003/2/ 3,000 2,840 .44
6.19% 2004/2/ 3,000 2,882 .44
Government National Mortgage Assn.:
9.00% 2017-2004/2/ 8,893 9,362 1.43
7.00% 2020/2/ 2,838 2,877 .44
8.50% 2021/2/ 975 1,015 .16
6.00% 2024/2/ 3,033 3,055 .47
6.50% 2024/2/ 3,466 3,514 .54
Parker & Parsley Petroleum Co.
8.25% 2007 2,000 2069 .32
Poland Government 7.75% 2000 9,750 9779 1.50
Province of Ontario 5.70% 1997 500 497 .08
Skandinaviska Enskilda Banken 6.875%
2009 4,000 3,819 .59
Standard Credit Card Trust, credit card
participation certificates, Series
1990-6A, 9.375% 1998 2,200 2,309 .35
Svenska Handelsbanken, Inc. 8.125% 2007 500 541 .08
United States Treasury:
4.75% 1998 2,500 2,423 .37
5.375% 1998 3,000 2,961 .45
6.375% 1999 22,000 22,292 3.41
8.00% 2001 6,000 6,547 1.00
6.375% 2002 13,500 13,700 2.10
11.625% 2004 11,000 15,060 2.31
7.50% 2005 5,000 5,446 .83
10.375% 2009 9,000 11,479 1.76
6.25% 2023 1,000 952 .15
7.625% 2025 4,000 4,529 .69
-------- --------
149,941 22.98
-------- --------
Total bonds & notes (cost:
$567,958,000) 593,058 90.85
-------- --------
Short-Term Securities
Corporate Short-Term Notes
Daimler-Benz North America Corp.
5.73% due 10/6/95 3,900 3,896 .60
PepsiCo Inc.:
5.69% due 10/20/95 6,700 6,679 1.02
5.68% due 11/6/95 3,300 3,280 .50
UBS Finance (Delaware) Inc.
6.50% due 10/2/95 17,700 17,694 2.71
-------- --------
31,549 4.83
-------- --------
Federal Agency Discount Notes
Federal Home Loan Mortgage Corp.
5.62% due 11/10/95 5,700 5,664 .87
- -
Non-U.S. Currency
British Pound Deposit Pound 41 64 .01
Deutsche Mark Deposit DM167 117 .02
Japanese Yen Deposit Yen 25,217 254 .04
-------- --------
435 .07
-------- --------
Total Short-Term Securities (cost:
$37,636,000) 37,648 5.77
-------- --------
Total Investment Securities (cost:
$605,594,000) 630,706 96.62
Excess of cash and receivables over
payables 22,081 3.38
-------- --------
Net Assets $652,787 100.00%
======== ========
</TABLE>
/1/ Represents an index-linked bond, which is a floating rate bond whose
principal amount moves with a government retail price index.
/2/ Pass-through security backed by a pool of mortgages or other loans on which
principal payments are periodically made. Therefore, the effective maturity of
this security is shorter than the stated maturity.
See Notes to Financial Statements
Capital World Bond Fund
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
at September 30, 1995
<TABLE>
<CAPTION>
(dollars in thousands)
ASSETS:
<S> <C> <C>
Investment securities at market
(cost: $605,594) $630,706
Cash 55
Receivables for-
Sales of investments $3,581
Sales of fund's shares 1,589
Accrued interest 20,178 25,348
--------- ---------
656,109
LIABILITIES:
Payables for-
Purchases of investments 1,837
Repurchases of fund's shares 667
Open forward currency contracts 311
Management services 358
Accrued Expenses 149 3,322
--------- ---------
NET ASSETS AT SEPTEMBER 30, 1995-
Equivalent to $16.81 per share on
38,837,677 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $652,787
=========
STATEMENT OF OPERATIONS
for the year ended September 30, 1995
(dollars in thousands)
INVESTMENT INCOME:
Income:
Interest $47,517
Expenses:
Management services fee $4,073
Distribution expenses 1,364
Transfer agent fee 521
Reports to shareholders 109
Registration statement and prospectus 110
Postage, stationery and supplies 179
Directors' fees 17
Auditing and legal fees 43
Custodian fee 236
Taxes other than federal income tax 16
Other expenses 9 6,677
--------- ---------
Net investment income 40,840
---------
REALIZED GAIN AND UNREALIZED APPRECIATION:
Net realized gain 3,523
Net unrealized appreciation on
investments 49,945
Open forward currency contracts 2,654
---------
Net unrealized appreciation 52,599
---------
Net realized gain and change in
unrealized appreciation on investments 56,122
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $96,962
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year ended September 30
1995 1994
--------- ---------
OPERATIONS:
Net investment income $40,840 $37,771
Net realized gain (loss) on investments 3,523 (4,212)
Net unrealized appreciation (depreciation)
on investments 52,599 (40,576)
--------- ---------
Net increase (decrease) in net
assets resulting from operations 96,962 (7,017)
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net
investment income (43,886) (30,899)
Distributions from net realized
gain on investments - (3,706)
--------- ---------
Total dividends and distributions (43,886) (34,605)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
12,188,125 and 18,607,545
shares, respectively 198,146 298,788
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
2,348,338 and 1,828,168 shares, respectively 37,011 28,937
Cost of shares repurchased:
13,243,810 and 10,172,029
shares, respectively (211,052) (160,190)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 24,105 167,535
--------- ---------
TOTAL INCREASE IN NET ASSETS 77,181 125,913
NET ASSETS:
Beginning of year 575,606 449,693
--------- ---------
End of year (including undistributed
net investment income: $11,346 and
$14,392, respectively) $652,787 $575,606
========= =========
</TABLE>
See Notes to Financial Statements
Notes to Financial Statements
1. Capital World Bond Fund, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, nondiversified management
investment company. The following paragraphs summarize the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at the mean of such
prices for securities of comparable maturity, quality and type. Securities
denominated in non-U.S. currencies are generally valued on the basis of bid
quotations. Short-term securities with original or remaining maturities in
excess of 60 days, including forward currency contracts, are valued at the mean
of their quoted bid and asked prices. Short-term securities with 60 days or
less to maturity are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Valuation Committee of the Board
of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Discounts on
securities purchased are amortized over the life of the respective securities.
The fund does not amortize premiums on securities purchased. Distributions to
shareholders are recorded on the ex-dividend date.
Investment securities, cash balances, and other assets and liabilities,
including forward currency contracts, denominated in non-U.S. currencies are
recorded in the financial statements after translation into U.S. dollars
utilizing rates of exchange on the last business day of the year. Interest
income from such investments is calculated using the prevailing exchange rate
as accrued or when received. Purchases and sales of investment securities and
interest income are calculated at the rates of exchange prevailing on the
respective dates of such transactions. The fund does not identify the portion
of each amount shown in the fund$s statement of operations under the caption
"Realized Gain and Unrealized Appreciation" that arises from changes in
non-U.S. currency exchange rates.
Pursuant to the custodian agreement, the fund receives credit against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $236,000 includes $5,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of September 30, 1995, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $25,112,000, of which $27,382,000 related to appreciated securities
and $2,270,000 related to depreciated securities. There was no difference
between book and tax realized gains on securities transactions for the year
ended September 30, 1995. The cost of portfolio securities, excluding forward
currency contracts, for book and federal income tax purposes was $605,594,000
at Septeber 30, 1995.
3. The fee of $4,073,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.70% of the first $500 million of average net assets;
0.60% of such assets in excess of $500 million but not exceeding $1 billion;
and 0.50% of such assets in excess of $1 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended September 30, 1995,
distribution expenses under the Plan were $1,364,000. As of September 30,
1995, accrued and unpaid distribution expenses were $103,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $521,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $838,000 (after allowances
to dealers) as its portion of the sales charges paid by purchasers of the
fund's shares. Such sales charges are not an expense of the fund and, hence,
are not reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of the
fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of September 30,
1995, aggregate amounts deferred were $13,000.
CRMC is owned by the Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of September 30, 1995, accumulated undistributed net realized loss on
investments was $2,804,000 and paid-in capital was $619,056,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $580,682,000 and $586,087,000, respectively, during
the year ended September 30, 1995.
The fund purchases and sells forward currency contracts in anticipation of,
or to protect itself against, fluctuations in exchange rates. The contracts are
recorded at market value and reflect the extent of the fund$s involvement in
these financial instruments. Risks may arise upon entering these contracts from
the potential inability of counterparties to meet the terms of their contracts
and from possible movements in foreign exchange rates and securities values
underlying these instruments. At September 30, 1995, the fund had outstanding
forward currency contracts to purchase and sell non-U.S. currencies as follows:
NON-U.S. CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. Valuation
Contract Amount at 9/30/95
------------ Unrealized
(Depreciation)
Non-U.S. U.S. Amount Appreciation
- -------------------------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C>
Sales:
Australian Dollars
expiring 11/20/95 A$995,000 735,000 751,000 (16,000)
Canadian Dollars
expiring 2/9/96 C$5,650,000 4,159,000 4,200,000 (41,000)
Danish Kroner
expiring10/5/95 to
2/8/96 DKr80,000,000 14,672,000 14,434,000 238,000
Deutsche Mark
expiring 11/20/95 to
3/19/96 DM21,862,000 15,180,000 15,418,000 (238,000)
French Francs
expiring 2/8/96 Fr6,000,000 1,249,000 1,216,000 33,000
Japanese Yen
expiring 2/8 to
3/11/96 Yen 12,981,000 12,551,000 430,000
1,218,470,500
Netherlands
Guilders
expiring 2/9 to
3/11/96 NLG43,090,948 26,352,000 27,160,000 (808,000)
------------
$(402,000)
============
Purchases:
Japanese Yen
expiring 11/21/95 JPY200,000,000 1,939,000 2,030,000 $91,000
===========
</TABLE>
- -------------
Per-Share Data and Ratios
<TABLE>
<CAPTION>
Year Ended September 30
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.33 $16.48 $15.95 $15.60 $14.46
------ ------- ----- ------- -------
Income From Investment Operations:
Net investment income 1.09 1.05 .91 1.03 1.05
Net realized and unrealized gain (loss)
on investments 1.57 (1.14) .65 .40 1.19
------ ------- ----- ------- -------
Total income from investment operations 2.66 (.09) 1.56 1.43 2.24
------ ------- ----- ------- -------
Less Distributions:
Dividends from net investment income (1.18)/1/ (.94)/1/ (.84)/1/ (1.01)/1/ (1.10)
Distributions from net realized gains - (.12) (.19) (.07) -
------ ------- ----- ------- -------
Total distributions (1.18) (1.06) (1.03) (1.08) (1.10)
------ ------- ----- ------- -------
Net Asset Value, End of Year $16.81 $15.33 $16.48 $15.95 $15.60
====== ==== ===== ===== =====
Total Return/2/ 18.10% (.62)% 10.40% 9.46% 16.10%
Ratios/Supplemental Data:
Net assets end of year (in millions) $653 $576 $450 $224 $76
Ratio of expenses to average net assets 1.12% 1.11% 1.19% 1.38% 1.42%
Ratio of net income to average net assets 6.83% 6.88% 6.25% 6.88% 7.54%
Portfolio turnover rate 104.96% 77.04% 27.95% 95.11% 81.44%
</TABLE>
/1/Amount includes realized non-U.S. currency gains of $.12, $.04, $.03 and
$.07 for the years ended 1995, 1994, 1993 and 1992, respectively, treated as
net investment
income for federal income tax purposes.
/2/ This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CAPITAL WORLD BOND FUND, INC.:
We have audited the accompanying statement of assets and liabilities of
Capital World Bond Fund, Inc., including the schedule of portfolio investments,
as of September 30, 1995, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and the per-share data and ratios for each of the
five years in the period then ended. These financial statements and the
per-share data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1995 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Capital World Bond Fund, Inc. at September 30, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the per-share data and ratios
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 23, 1995
1995 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 distributions.
Certain states may exempt from income taxation a portion of the dividends
paid from net investment income if derived from direct U.S. Treasury
obligations. For purposes of computing this
exclusion, 7% of the dividends paid by the fund from net investment income was
derived from interest on direct U.S.Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FISCAL YEAR AND NOT THE CALENDAR
YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION
WHICH WILL BE MAILED IN JANUARY 1996 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO
BE INCLUDED ON THEIR 1995 TAX RETURNS. SHAREHOLDER SHOULD CONSULT THEIR TAX
ADVISERS.
Board of Directors
H. Frederick Christie, Palos Verdes Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group;
former President, Southern California Edison Company
Diane C. Creel, Long Beach, California
Chairwoman, Chief Executive Officer and
President, The Earth Technology Corporation
(environmental engineering)
Martin Fenton, Jr., San Diego, California
Chairman of the Board, Senior Resource Group, Inc.
(senior living centers management)
Leonard R. Fuller, Los Angeles, California
President, Fuller & Company, Inc.
(financial management consulting)
Abner D. Goldstine, Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
Paul G. Haaga, Jr., Los Angeles, California
Chairman of the Board of the fund
Senior Vice President and Director,
Capital Research and Management Company
Herbert Hoover III, Pasadena, California
Private investor
Richard G. Newman, Los Angeles, California
Chairman of the Board, President and
Chief Executive Officer, AECOM Technology Corporation
(architectural engineering)
Peter C. Valli, Long Beach, California
Chairman of the Board and Chief Executive Officer,
BW/IP International, Inc.
(industrial manufacturing)
Other Officers
Mary C. Cremin, Brea, California
Vice President and Treasurer of the fund
Senior Vice President --
Fund Business Management Group,
Capital Research and Management Company
Michael J. Downer, Los Angeles, California
Vice President of the fund
Senior Vice President --
Fund Business Management Group,
Capital Research and Management Company
Julie F. Williams, Los Angeles, California
Secretary of the fund
Vice President -- Fund Business Management Group,
Capital Research and Management Company
Kimberly S. Verdick, Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President --
Fund Business Management Group,
Capital Research and Management Company
Anthony W. Hynes, Jr., Brea, California
Assistant Treasurer of the fund
Vice President -- Fund Business Management Group,
Capital Research and Management Company
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR SECURITIES DEALER OR FINANCIAL PLANNER, OR CALL THE FUND'S
TRANSFER AGENT, TOLL-FREE, AT 800/421-0180.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92621-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 2205
Brea, California 92622-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Morrison & Foerster
345 California Street
San Francisco, California 94104-2675
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of Capital World Bond Fund,
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
December 31, 1995, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA TAG/AL/2767
Lit. No. WBF-011-1195
[The American Funds Group(R)]
