[The American Funds Group(R)]
CAPITAL WORLD BOND FUND
1997 ANNUAL REPORT
For the year ended September 30
[stack of international coins]
[1987-1997 timeline along report spine]
[large font: "87 to 97"]
ADAPTING TO A DECADE OF CHANGE
[Begin sidebar]
CAPITAL WORLD BOND FUND (R)
The fund seeks to maximize long-term 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.
RESULTS AT A GLANCE
Total return for
the fiscal year (10/1/96 - 9/30/97) +4.4%
Total return over
the fund's lifetime (8/4/87 - 9/30/97) +137.6%
Average annual
compound return (lifetime) +8.9%
Capital World Bond Fund is one of the 28 mutual funds in The American Funds
Group,(R) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
[End sidebar]
[begin chart]
HOW A $10,000 INVESTMENT HAS GROWN
$24,219/1/
Salomon Brothers World Government Bond Index
$22,634/1/
Capital World Bond Fund
$14,165
Consumer Price Index (Inflation)
<TABLE>
<CAPTION>
Year ended 9/30 Capital World Bond Salomon Brothers World Consumer Price Index
Fund/1/ Government Bond Index/1/ (Inflation)
<S> <C> <C> <C>
1987 /2/ 9,493 9,865 10,105
1988 10,743 11,280 10,527
1989 11,330 12,013 10,984
1990 12,231 12,918 11,661
1991 14,199 14,861 12,056
1992 15,542 17,581 12,417
1993 17,159 19,187 12,750
1994 17,053 19,535 13,128
1995 20,140 22,696 13,462
1996 21,684 23,649 13,866
1997 22,634 24,219 14,165
</TABLE>
/1/With dividends and capital gains reinvested or interest compounded
/2/For the period August 4 through September 30, 1987
The fund's results in this chart reflect payment of the maximum sales charge of
4.75%, so the net amount invested was $9,525 versus $10,000 in the Salomon
Brothers World Government Bond Index, which is unmanaged and has no sales
charges, commissions or expenses. Past results are not predictive of future
results.
[end chart]
Here are returns over various periods ended September 30, 1997 and a chart
showing the growth of an investment over the fund's lifetime, with all
distributions reinvested. These figures differ from those at left because they
assume payment of the 4.75% maximum sales charge at the beginning of the stated
periods.
Total Average Annual
Return Compound Return
Ten Years +127.10% +8.55%
Five Years +38.67 +6.76
One Year -0.57 -
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, 1997, calculated in accordance with
the Securities and Exchange Commission formula, was 4.44%. The fund's
distribution rate as of that date was 6.82%. The SEC yield reflects income the
fund expects to earn based on its current portfolio of securities, while the
distribution rate is based solely on the fund's past dividends. Accordingly,
the fund's SEC yield and distribution rate may differ.
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. INVESTING IN NON-U.S. BONDS
IS SUBJECT TO ADDITIONAL RISKS. THEY INCLUDE CURRENCY FLUCTUATIONS, POLITICAL
AND SOCIAL INSTABILITY, DIFFERING SECURITIES REGULATIONS AND ACCOUNTING
STANDARDS, AND HIGHER TRANSACTION COSTS.
FELLOW SHAREHOLDERS:
The fiscal year ended September 30, 1997 was a challenging one for global bond
investors. The year brought solid returns for local bond markets worldwide, but
a strengthening U.S. dollar created a powerful headwind that erased or
diminished returns for U.S. investors. In this environment, shareholders of
Capital World Bond Fund clearly benefited from the fund's flexibility to seek
out the best opportunities around the world.
Over the 12-month period, the value of an investment in Capital World Bond
Fund rose 4.4% if you reinvested your dividends, as most of our shareholders
do. Dividends were paid quarterly and totaled $1.18 a share. In light of
currency losses, which are deducted from the fund's net income, the
fourth-quarter dividend is likely to be lower than the fund's regular rate of
22 cents a share. The fund is also expected to pay a small capital gain
distribution in December. The actual amounts of these distributions will be
confirmed on your year-end account statement.
By comparison, the Salomon Brothers World Government Bond Index, which
measures major world bond markets, increased 2.4% for the 12 months ended
September 30. The Salomon Brothers Broad Investment-Grade Bond Index, a key
measure of the U.S. bond market, rose 9.7%. The returns for both of these
unmanaged indexes are with interest compounded.
These latest results bring Capital World Bond Fund's total return since
operations began in August 1987 to 137.6% with dividends reinvested. That works
out to an average of 8.9% annualized.
We continued to emphasize fixed-income securities primarily from
developed, industrialized nations. Most of the fund's investments were in
government bonds, 16% were in investment-grade corporate issues and 4% were in
cash and equivalents.
[Begin sidebar]
[begin pie chart]
CAPITAL WORLD BOND FUND NET ASSETS
North America 57.0%
Europe & Africa 26.9%
Pacific Basin 16.1%
[end chart]
[begin pie chart]
WORLD BOND MARKET
Europe 42.8%
North America 37.1%
Pacific Basin 20.1%
[end chart]
Percentages weighted by currency, based on the table on page 2.
[End sidebar]
The fund's gain over the past year was the result of worldwide bond yields
that generally ended the year lower than a year ago - in some cases,
significantly lower. The dollar's strength in fiscal 1997, however, reduced
returns to U.S. dollar-based investors in virtually all global bond markets. As
local currencies depreciated against the dollar, the dollar value of their
local-currency bonds declined as well.
German bonds, for example, produced a 12-month return of 7.2% in German
marks. Translated into U.S. dollars, German bonds showed a loss of 7.5%. We did
hedge some of the fund's German assets back into dollars, which limited the
impact of the mark's decline.
At the end of the fiscal year, the fund's largest concentration was in
U.S. dollar-denominated bonds, representing 41.0% of assets compared with 43.9%
one year ago. Total exposure to the U.S. dollar, including currency hedges,
amounted to 45% at fiscal year-end.
In March, the Federal Reserve reacted to the low U.S. unemployment rate
and increasing business activity - generally perceived as precursors to
inflation - and pushed the federal funds rate (the rate for overnight loans
between banks) up from 5.25% to 5.5%. This rate increase caused U.S. bond
yields to rise and bond prices (which move inversely to interest rates) to
fall. Later in the year, the U.S. bond market rallied as inflation continued to
fall in spite of strong growth.
In Europe, the year began amid uncertainty over the creation of a single
currency. Later in the year, uncertainty gave way to optimism and the
expectation that some of the "peripheral" countries - Italy and Spain in
particular - would join in the European Monetary Union. The net result of this
convergence toward a single currency was quite positive for European bond
markets. Interestingly, the strongest showing of any major market during the
fiscal period came from the United Kingdom, one of the few European countries
that will not initially participate in the monetary union. The United Kingdom
produced a return of 14.7%; favorable exchange rate movement translated that
into a U.S. dollar return of 18.5%.
Elsewhere in Europe, currency depreciation had negative effects on most
countries' gains. In Ireland, one of our perennial favorites, the bond market
had a return of 11.6%; expressed in U.S. dollars, that return was reduced to
1.4%. Spain's 15.2% return sank to -0.8% in dollar terms, while a 12.2% return
in Sweden equaled -2.0% in dollars, according to Salomon Brothers.
In Japan, bond yields fell: The 10-year government bond yield declined
from an already low level of 2.8%. This decline was spurred by speculation that
the Bank of Japan would not raise rates anytime soon due to a domestic
financial crisis and a weak economy. Still, a sagging Japanese yen converted
the country's government bond return of 7.0% to -1.3% expressed in U.S.
dollars. Here - as elsewhere - hedging foreign currency exposure back into U.S.
dollars helped the fund capture some of the gains achieved in the local market.
Like the United States, the "dollar bloc" countries -Australia, Canada and
New Zealand - reaped the fruits of low inflation and modest growth. Canadian
bonds in particular have been a big success story. Our research has led us to
increase our position in Canadian bonds, which is now the fund's third-largest
country exposure. In the past year, Canadian government bonds produced a return
of 11.6% for U.S. investors.
We would like to point out that the fund now holds a small portion of its
net assets in bonds of some of the higher rated developing countries. As you
can see on pages 11 and 12, the fund currently has holdings in South African,
Chinese, Colombian, Polish and Slovenian government bonds, as well as bonds
issued by companies in Argentina, Hungary, South Korea and Mexico. Since most
of these securities are denominated in U.S. dollars, these countries (with the
exception of South Africa) do not appear in the currency table below. We
continue to rely on the expansive reach of our worldwide research to identify
opportunities originating in a variety of countries and companies.
We have been pleased to watch the fund's family of shareholders grow. This
year, as the fund celebrated its tenth anniversary, it had more than 39,000
shareholder accounts, up more than threefold from just five years ago. Our
feature article over the next few pages will give you a closer look at how the
fund has adapted to changes in the world's bond markets over the past decade.
Cordially,
[/s/ Paul G. Haaga, Jr.] [/s/ Abner D. Goldstine]
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
November 7, 1997
[Begin sidebar]
Shareholders of Capital World Bond Fund benefited from the fund's flexibility
to seek out the best opportunities around the world.
[End sidebar]
CURRENCIES IN WHICH THE FUND'S ASSETS ARE INVESTED
(as of September 30, 1997)
<TABLE>
<CAPTION>
CAPITAL WORLD SALOMON BROTHERS
BOND FUND WORLD GOVERNMENT
NET ASSETS BOND INDEX
AVERAGE AVERAGE
CURRENCY OF SECURITIES CURRENCY MATURITY BY MATURITY BY
DENOMINATION WEIGHTING# WEIGHTING# CURRENCY WEIGHTING CURRENCY
<S> <C> <C> <C> <C> <C>
United States 41.0% 43.5% 6.1yrs 32.9% 7.9yrs
Germany 11.2 7.9 4.8 8.8 5.7
Canada 7.5 11.9 11.6 3.4 8.3
Japan 7.1 7.8 6.8 19.2 6.7
New Zealand 7.1 4.4 8.4 * *
United Kingdom 5.7 4.9 6.3 6.3 10.2
Ireland 4.6 2.0 6.1 0.4 7.6
Spain 3.5 3.3 3.5 3.0 5.1
Australia 3.3 2.2 8.9 0.9 5.9
Sweden 2.7 2.2 2.1 1.6 5.6
Italy 2.4 3.5 2.3 6.6 5.8
South Africa 1.0 1.0 12.9 * *
Portugal 0.8 0.8 4.4 * *
Finland 0.7 0.8 1.5 0.6 5.5
Denmark 0.5 0.1 4.4 1.7 6.1
Switzerland 0.5 0.00 4.8 0.4 6.8
Netherlands 0.4 0.4 1.7 2.9 6.7
France - - - 7.3 7.5
Belgium - - - 2.3 6.4
Austria 0.1 0.1 4.8 0.9 5.2
----- ----- -----
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.
ADAPTING TO A DECADE OF CHANGE
[watermark: 87 to 97]
When we introduced Capital World Bond Fund 10 years ago, we were confident that
the fund's flexibility would enable it to adapt well to changes in the global
investment landscape.
[Begin sidebar]
Beginning below and continuing on the following pages is a look at the fund's
10-year history, including calendar year total returns with distributions
reinvested. We have also indicated the most significant factors - economic,
political or otherwise - that impacted the fund's results.
[End sidebar]
Looking back over the past 10 years, we can unequivocally say that the fund's
ability to invest in a range of world markets has been a distinct advantage. It
has helped the fund respond effectively to dramatic changes in interest rate
and currency relationships, political realignments and the expansion of both
free enterprise and the free flow of capital around the world.
Today, the fund's broad portfolio makes it a strong diversification tool
for almost any investor - whether as a counterbalance to a portfolio of U.S.
bonds or a complement to a portfolio with a full range of U.S. and non-U.S.
stocks and bonds.
In the next few pages, we'll look at some of the developments that have
affected the fund over the past 10 years and some of the opportunities that may
lie ahead.
A WORLD OF LOWER INTEREST RATES AND INFLATION
Bond yields around the world have declined over the past 10 years, as the table
below shows. Lower yields have largely been the result of declining rates of
inflation, which are due partly to increased worldwide competition and free
trade. Low inflation has helped make these lower yields more palatable to
investors, enabling them to maintain more of their purchasing power. Declining
interest rates generally translate into rising bond prices.
10-YEAR GOVERNMENT BOND YIELDS
September 30 1987 1992 1997
Australia 12.7% 9.0% 6.2%
Canada 11.0 8.0 5.8
France 10.3 8.7 5.5
Germany 6.5 7.6 5.5
Japan 6.7 4.9 2.2
United Kingdom 10.0 9.0 6.4
United States 9.6 6.4 6.1
Source: Morgan Stanley Capital International Perspective
[Begin sidebar]
[watermark: 1987]
[timeline: Dec, Mar, Jun, Sept]
+14.0%
Capital World Bond Fund commenced operations on 8/4/87. In the fourth quarter,
sweeping worldwide declines in stocks - triggered by "Black Monday" in the U.S.
stock market - were followed by strengthening bond prices.
[watermark: 1988]
[timeline: Dec, Mar, Jun, Sept]
+2.7%
Faced with continued strong economic growth, the central banks of a number of
major developed nations demonstrated their resolve to restrain inflationary
forces by raising interest rates.
[watermark: 1989]
[timeline: Dec, Mar, Jun, Sept]
+4.6%
The economic integration of Western Europe, the opening of Eastern Europe and
continued rapid growth in the Far East exerted a strong influence on the
world's bond markets. Interest rates continued to rise, and German bond yields
exceeded their U.S. counterparts for the first time since the 1970s.
[watermark: 1990]
[timeline: Dec, Mar, Jun, Sept, Dec]
+11.7%
Interest rates moved up immediately after Iraq's invasion of Kuwait, then began
falling in most markets as it became clear that war-depressed consumer
attitudes and higher oil prices were taking their toll on the major
industrialized economies.
[End sidebar]
[photo: various international paper currency]
Of course, lower rates make it a challenge to maintain a steady level of
income. As bond yields have declined, we have responded by prudently expanding
the number of countries in which the fund invests and relying on thorough
research to uncover the best values.
[Begin sidebar]
Largest percentage of net assets invested in the United States:
49.3% in May 1989
Smallest percentage of net assets invested in the United States:
9.6% in October 1994
[End sidebar]
A BROADENING GLOBAL BOND MARKET
In the early 1980s, only five or six global bond markets offered investors a
combination of high credit quality, high yields and liquidity. In the mid- to
late-1980s, other countries' bonds began to make the transition toward
achieving investment-grade status. Despite that status, not all "transitional"
countries offered desirable fixed-income investments due to factors such as
high inflation, a weak currency, illiquid securities or political instability.
When we first reported to our shareholders in September 1987, two months
after the fund's inception, seven countries were represented in the portfolio:
the United States, Japan, Germany, the United Kingdom, Canada, Australia and
Sweden (through Swedish bonds denominated in Japanese yen). At that time,
several European countries - some of which are now mainstays in the fund's
portfolio - were considered unattractive to most investors: Italy, Spain,
Portugal, Ireland and France.
By 1988, we had added French bonds to the portfolio. We reported: "In our
view, investment prospects in France are becoming increasingly attractive. We
look for further growth there with low inflation and a greater measure of
stability than the French market has displayed in the past."
Over the next nine years, we continued to expand the fund's portfolio as
opportunities emerged in various markets.
FIRST APPEARANCE IN PORTFOLIO
1988 France, New Zealand
1989 Netherlands
1991 Denmark, Finland
1993 Belgium, Ireland, Italy, Spain
1995 Austria, South Africa
1996 Mexico, Poland, Portugal, Switzerland
1997 Greece
Clearly, we believe that it makes sense to diversify and spread both
opportunities and risks by investing in the bonds of many countries. The fund's
portfolio now includes securities from more than 20 countries in 17 currencies,
up from seven countries at the end of fiscal 1987.
Over the past decade, the smorgasbord of global fixed-income opportunities
has increased dramatically. Today, investment-grade bonds can be found in
Argentina, China, Colombia, the Czech Republic, Greece, India, Mexico, Panama,
Poland, Slovenia, South Africa and South Korea. Bonds from other countries in
Latin America and Asia have become increasingly popular with investors. As an
organization that relies heavily on its global research network, we have been
monitoring and will continue to monitor new developments and opportunities in
markets worldwide.
The chart at left demonstrates the case for diversification. At any given
time over the past decade, some of the world's bond markets offered better
opportunities than others. While one nation's economy was expanding, another's
may have been contracting or expanding more slowly. Meanwhile, as bond prices
were declining in some countries, they were rising in others, and currency
relationships were continually changing. Each bar in the chart shows the best-
and worst-performing market in U.S. dollar terms for each calendar year, as
well as what the U.S. market did.
[Begin sidebar]
THE CASE FOR DIVERSIFICATION: OPPORTUNITIES IN WORLD BOND MARKETS
One-year total returns (%) in U.S. dollars
Source: Salomon Brothers World Government Bond Index
[begin bar chart]
<TABLE>
<CAPTION>
Year Best Total Worst Total U.S.
Returns Returns
<S> <C> <C> <C> <C> <C>
1987 U.K. 46.6% U.S. 1.9% 1.9%
1988 Australia 28.8 Switzerland -12.7 7.1
1989 Canada 16.2 Japan -14.3 14.4
1990 U.K. 30.9 Canada 7.7 8.6
1991 Australia 23.5 Switzerland 0.7 15.3
1992 Japan 10.8 Italy -13.9 7.2
1993 Japan 27.6 Sweden 2.9 10.7
1994 Belgium 12.2 Canada -9.9 -3.4
1995 Sweden 34.8 Japan 9.6 2.7
1996 Italy 27.2 Switzerland -10.0
</TABLE>
Average difference between
best and worst returns - 29.7%
[end chart]
[End sidebar]
THE UNIFICATION OF EUROPE: OPPORTUNITY ON THE HORIZON
In the fund's early years, some historic developments <UNDEF> the economic
integration in Western Europe and the opening of Eastern Europe - exerted a
strong influence on the world's bond markets. Increasing economic activity and
strong demand for credit kept European interest rates high. Despite these
setbacks, we maintained a positive outlook in our 1990 semi-annual report:
"In the long run, many of the developments should produce substantial
benefits for fixed-income investors....the spread of free enterprise and the
removal of trade barriers should help revitalize the world's economies,
increase business competition and productivity and, in time, restrain
inflation."
Today, in an environment of free trade and low inflation, the prospect of
many European countries moving toward a unified currency beginning in 1999
presents exciting opportunities for global bond investors. The creation of a
single currency, the euro, is an attempt to eliminate the monetary obstacles to
commercial and financial transactions in Europe while putting the European
currency on a more equal footing with the U.S. dollar and the Japanese yen. The
European Union, an alliance of 15 countries, has already established a
continentwide area allowing the free flow of products, services and people
across national borders. If all goes well, the euro should be in effect by the
start of 1999, with euro notes and coins in circulation no later than 2002.
As another benefit to European economies, monetary union is expected to
vastly increase the size of Europe's corporate, mortgage-backed and
asset-backed bond markets. Being able to invest in the securities of different
countries with fewer currency considerations is likely to bring new investors -
primarily large institutional investors from around the world - to European
markets.
The advent of change in Europe leads us to rely heavily on the strength of
our global research effort. Our global fixed-income and equity analysts will be
working as an integrated group to monitor the changes in Europe's corporate and
government bond markets and to capitalize on the growth that may follow.
[photo: globe]
[Begin sidebar]
[watermark: 1991]
[timeline: Mar, Jun, Sept, Dec]
+15.3%
Japanese bonds became the second-largest holding in the fund as the Bank of
Japan attempted to lower inflation and interest rates declined. Recessions
reduced inflation in many English-speaking countries, and high interest rates
caused continuing economic weakness in Europe.
[watermark: 1992]
[timeline: Mar, Jun, Sept, Dec]
+0.8%
The fund benefited from declining U.S. and Japanese interest rates, while
Europe experienced sharp gyrations in European currency markets and great
uncertainty over a timetable for the creation of a single currency.
[watermark: 1993]
[timeline: Mar, Jun, Sept, Dec]
+16.7%
Virtually the entire European continent was in recession. Yields fell as budget
deficits worsened. By hedging some of our European holdings back into U.S.
dollars, the fund was able to participate in these markets' gains.
[watermark: 1994]
[timeline: Mar, Jun, Sept, Dec, Mar]
- -1.4%
This was arguably the most trying year for bond investors in well over a
decade. In an unusual move, world bond prices tumbled in concert and yields
rose sharply amid fears of future inflation. The U.S. Federal Reserve increased
interest rates six times.
[watermark: 1995]
[timeline: Jun, Sept, Dec, Mar]
+21.4%
Lower inflation and slower economic growth were beneficial for bonds around the
world. After the Japanese yen rose and then fell sharply, we halved our
position in Japanese bonds and benefited from hedging a portion of our yen
exposure back into U.S. dollars.
[watermark: 1996]
[timeline: Jun, Sept, Dec, Mar]
+6.3%
Limiting our exposure to Japanese yen paid off. In addition, our holdings of
European bonds significantly added to the fund's total return as yields fell
throughout Europe.
[watermark: 1997]
[timeline: Jun, Sept, Dec, Mar, Jun]
+0.7% through 9/30/97
A strengthening U.S. dollar dampened or eliminated gains in most global bond
markets, many of which posted solid gains in local currency terms.
[End sidebar]
ADAPTING TO CHANGE WITH GLOBAL RESEARCH
In evaluating risks and opportunities in the world's expanding bond markets,
the fund relies on the expertise of its investment adviser, Capital Research
and Management Company (CRMC). With more than 65 years of experience in the
equity and fixed-income markets, CRMC is well-equipped to find the best values
worldwide.
Research is conducted by CRMC's own fixed-income specialists <UNDEF>
analysts and portfolio counselors who travel the globe regularly, interviewing
government officials, labor union leaders, economists and business people.
These specialists draw on the expertise of economists and equity-oriented
analysts and portfolio counselors throughout the Capital organization - an
unparalleled network consisting of investment professionals based in nine
offices around the globe. In 1996, this group made more than 7,500 research
visits in 54 countries.
REFLECTING ON TEN YEARS
In a letter to our new shareholders in 1987, we wrote:
"We hope this is the beginning of a long and satisfying relationship.
Certainly we will do all that we can to make it so."
Today, after 10 years of significant changes in global bond markets - and
the prospect of many more to come - we remain committed to providing quality,
flexibility and solid research for our shareholders. Moreover, we believe that
Capital World Bond Fund can have a permanent place in our shareholders'
financial programs: It is not a sector fund, it transcends investment fads and
it invests with the goal of finding long-term values.
It has been satisfying to watch our shareholder family grow over the past
10 years, and we hope this relationship will continue in the years to come.
<TABLE>
<S> <C> <C> <C>
Capital World Bond Fund Principal Market Percent
Investment Portfolio September 30, 1997 Amount Value of Net
(000) (000) Assets
Bonds & Notes
Australian Dollars
Australian Government, 10.00% 2002 A$4,600 US$ 3,956 0.52%
Federal National Mortgage Assn.
6.50% 2002 8,500 6,368 .84
New South Wales Treasury:
11.50% 1999 1,000 804 .11
7.00% 2004 5,500 4,177 .55
News America Holdings Inc. 8.625% 2014 11,000 8,440 1.12
Southern Australia Finance Authority
11.25% 2001 1,500 1,294 .17
-------- --------
25,039 3.31
-------- --------
British Pounds
Bank of Ireland 9.75% 2005 pounds2,485 4,572 .60
European Investment Bank 6.00% 2004 250 390 .05
FP Finance 9.125% 2049 2,000 3,554 .47
Land Securities 9.00% 2020 1,000 1,904 .25
Lloyds Trustee Savings Banking Group
8.50% 2006 3,000 5,235 .69
Scott Life 9.00% 2049 2,000 3,535 .47
United Kingdom:
9.50% 1999 2,000 3,319 .44
8.00% 2000 5,500 9,193 1.21
7.00% 2001 1,000 1,638 .22
8.50% 2005 5,600 10,191 1.35
-------- --------
43,531 5.75
-------- --------
Canadian Dollars
Canadian Government:
6.25% 1998 C$2,000 1,460 .19
10.75% 1998 1,500 1,122 .15
8.50% 2000 2,250 1,762 .23
9.75% 2001 13,000 10,995 1.46
9.00% 2004 5,000 4,345 .57
10.75% 2009 10,500 10,716 1.41
4.63% 2021(2) 22,000 18,014 2.38
4.38% 2026(2) 7,500 5,805 .77
Canadian Trust 6.75% 2001 1,866 1,396 .18
Ontario Hydro (Province of Ontario)
3.61% 1999(2) 2,000 1,448 .19
-------- --------
57,063 7.53
-------- --------
Danish Kroner
Danish Government:
9.00% 1998 DKr3,000 469 .06
8.00% 2001 10,000 1,651 .22
8.00% 2003 10,000 1,676 .22
-------- --------
3,796 .50
-------- --------
Finnish Markkaa
Finnish Government:
11.00% 1999 FM12,000 2,463 .33
10.00% 2001 5,000 1,116 .15
Finland (Republic of) Treasury Bill
0% 1997 7,700 1,455 .19
-------- --------
5,034 .67
-------- --------
German Marks
Bayerische Vereinsbank AG
6.50% 2005 DM6,000 3,616 .48
Bundesobligation 5.875% 2000 15,250 8,984 1.18
Bundesrepublik 7.00% 1999 12,000 7,092 .94
Bundesschatzanweisung 5.75% 1999 11,000 6,415 .85
Deutschland Republic:
8.00% 2002 23,000 14,777 1.95
6.75% 2003 23,500 14,441 1.90
6.50% 2005 8,000 4,862 .64
6.875% 2005 10,000 6,209 .82
Treuhandanstalt 7.125% 2003 30,000 18,699 2.47
-------- --------
85,095 11.23
-------- --------
Irish Pounds
Ireland (Republic of):
6.25% 1999 IRpounds4,500 6,619 .87
8.00% 2000 2,400 3,738 .50
6.50% 2001 1,800 2,718 .36
6.25% 2004 2,030 3,039 .40
8.00% 2006 10,400 17,172 2.26
Irish Permanent Treasury
6.75% 2000 1,100 1,652 .22
-------- --------
34,938 4.61
-------- --------
Italian Lire
Italian Government National:
9.50% 1999 Lr10,900,000 6,637 .87
9.50% 2001 13,900,000 9,024 1.19
KfW International Finance Inc.
11.625% 1998 4,000,000 2,472 .33
- --------
18,133 2.39
-------- --------
Japanese Yen
European Investment Bank 6.75% 2001 yen250,000 2,495 .33
Export-Import Bank of Japan:
4.375% 2003 225,000 2,166 .29
2.875% 2005 1,730,000 15,416 2.04
GMAC International Finance 3.75% 1999 300,000 2,600 .34
International Bank for Reconstruction
and Development:
4.50% 2003 1,004,000 9,670 1.27
4.75% 2004 575,000 5,765 .76
Japan Development Bank:
5.00% 1999 40,000 361 .05
6.50% 2001 87,000 873 .12
Spain (Kingdom of):
4.625% 2004 330,000 3,238 .43
3.10% 2006 1,280,000 11,456 1.51
-------- --------
54,040 7.14
-------- --------
Netherlands Guilders
Netherlands Government
7.50% 1999 NLG5,000 2,655 .35
-------- --------
New Zealand Dollars
New Zealand Government:
8.00% 2001 NZ$11,000 7,295 .96
10.00% 2002 19,400 13,961 1.84
8.00% 2004 10,000 6,843 .90
8.00% 2006 12,350 8,624 1.14
4.50% 2016(1) 28,100 16,782 2.22
-------- --------
53,505 7.06
-------- --------
Portuguese Escudos
Portugal (Republic of):
11.875% 2000 PTE100,000 642 .09
11.875% 2000 400,000 2,594 .34
8.75% 2001 140,000 867 .11
11.875% 2005 300,000 2,283 .30
- -
6,386 .84
- -
South African Rand
South Africa (Republic of) 13.00% 2010(3) ZAR38,000 7,689 1.02
- -
Spanish Pesetas
Spain (Kingdom of):
9.90% 1998 Pta700,000 4,990 .66
11.45% 1998 570,000 4,049 .53
6.75% 2000 250,000 1,756 .23
8.40% 2001 1,000,000 7,455 .98
10.50% 2003 800,000 6,758 .89
8.00% 2004 200,000 1,529 .21
-------- --------
26,537 3.50
-------- --------
Swedish Kronor
Swedish Government:
11.00% 1999 SKr 119,000 16,924 2.23
10.25% 2003 24,000 3,852 .51
-------- --------
20,776 2.74
-------- --------
Swiss Francs
Swiss Government 4.50% 2002 CHF5,250 3,909 .52
-------- --------
United States Dollars
Aames Mortgage Trust, Series 1996-D,
Class A-1C, pass-through certificates,
6.52% 2020(4) US$3,000 3,004 .40
Asset-Backed Securities Investment
Trust, Series 1997-D, 6.79% 2003(5) 5,000 5,000 .66
Airplanes Pass Through Trust, pass-through
certificates, Class C, 8.15% 2019(4) 6,000 6,317 .83
Banco General, SA 7.70% 2002(5) 1,500 1,498 .20
Banco Nacional de Mexico, SA 1995 Trust
Certificates, 0% 2002(4),(5) 4,753 4,001 .53
China (People's Republic of)
9.00% 2096 500 586 .08
Colombia (Republic of):
8.70% 2016 1,000 1,057 .14
8.375% 2027 3,000 2,969 .39
Continental Airlines, Inc., Series 1996A,
6.94% 2015(4),(5) 1,961 1,972 .26
DLJ Mortgage Acceptance Corp., Series
1997-CF1, Class A1A, 7.40% 2006(5) 2,207 2,288 .30
Federal Home Loan Mortgage Corp.:
5.78% 2003(4) 4,000 3,859 .51
6.19% 2004(4) 9,000 8,750 1.16
Federal National Mortgage Assn.
7.50% 2025(4) 1,353 1,375 .18
Freeport-McMoRan Copper & Gold, Inc.:
7.50% 2006 1,000 1,019 .13
7.20% 2026 3,000 3,018 .40
Fuji Bank 7.301% 2049 2,000 2,019 .26
Government National Mortgage Assn.:
9.00% 2017-2024(4) 6,115 6,572 .87
8.50% 2021(4) 559 593 .08
7.375% 2022-2024(2),(4) 4,351 4,488 .59
6.50% 2024(2),(4) 2,632 2,591 .34
7.00% 2024-2026(2),(4) 4,168 4,226 .56
6.50% 2025(4) 2,568 2,634 .35
5.00% 2026(2),(4) 3,417 3,431 .45
Green Tree Financial Corp.:
Net Interest Margin Trust, Series 1995-A,
7.25% 2005(4) 1,036 1,034 .13
Home Improvement Loan Certificates,
Series 1996-C, Class A-1, 6.45% 2021(4) 823 824 .11
Inter America Development Bank
8.875% 2001 3,000 3,270 .43
J.P. Morgan & Co., Inc. 5.994% 2012(2) 1,000 964 .13
Korea Development Bank 7.375% 2004 1,000 1,007 .13
McDermott Inc. 9.375% 2002 2,000 2,136 .28
Merita Bank Ltd. 6.50% 2006 1,000 974 .13
Morgan Stanley Capital Inc.:
1997-HF1, Class A-2, 7.27% 2007(5) 2,000 2,069 .27
1997-WF1, Class A-1, 6.83% 2029(5) 2,978 3,017 .40
National Bank of Hungary 8.875% 2013 250 285 .04
Parker & Parsley Petroleum Co.
8.25% 2007 2,000 2,176 .29
Petrozuata Finance Inc. 7.63% 2009(5) 1,000 1,032 .13
Poland (Republic of) Past Due Interest Bonds:
Bearer shares 4.00% 2014(2) 18,000 15,795 2.08
Registered shares 4.00% 2014(2) 3,000 2,633 .35
Quebec (Province of):
8.625% 2005 1,250 1,388 .18
Reliance Industries Ltd.:
8.125% 2005 1,000 1,004 .13
10.25% 2097(5) 2,500 2,744 .36
Skandinaviska Enskilda Banken 6.875% 2009 500 495 .07
Slovenia (Republic of) 7.00% 2001(5) 500 510 .07
TCI Communications Inc. 6.875% 2006 7,000 6,813 .90
Time Warner Inc., pass-through certificates,
Series 1997-1, 6.10% 2001(4),(5) 5,000 4,878 .64
UCFC Acceptance Corp. pass-through
certificates, Series 1996-B1, Class A3,
7.30% 2014(4) 3,000 3,049 .40
United States Treasury:
5.375% 1998 3,000 2,996 .40
5.875% 1998 8,675 8,694 1.15
8.25% 1998 1,250 1,275 .17
8.875% 1998 6,500 6,719 .89
6.375% 1999 26,000 26,244 3.46
6.875% 1999 2,000 2,036 .27
8.875% 1999 6,500 6,763 .89
6.75% 2000 2,675 2,731 .36
8.50% 2000 2,000 2,145 .28
6.50% 2001 250 254 .03
6.625% 2001 1,450 1,482 .20
7.50% 2001 2,000 2,108 .28
7.75% 2001 2,000 2,109 .28
6.375% 2002 25,000 25,383 3.34
6.625% 2002 2,350 2,406 .32
5.75% 2003 660 650 .09
7.25% 2004 8,600 9,141 1.21
11.625% 2004 14,750 19,366 2.56
6.50% 2005 3,750 3,830 .51
3.375% 2007(1) 3,545 3,477 .46
6.25% 2007 700 704 .09
10.375% 2009 840 1,037 .14
US WEST Capital Funding, Inc.:
Note 7.30% 2007 1,000 1,023 .14
Debenture 6.95% 2037 1,000 1,020 .13
Woolworth Corp., Series A:
7.00% 2000 1,000 1,014 .13
6.98% 2001 3,000 3,025 .40
7.00% 2002 2,000 2,016 .27
8.50% 2022 1,000 1,091 .14
Worldcom Inc. 7.75% 2007 3,000 3,145 .42
YPF SA:
8.00% 2004 2,350 2,394 .32
7.75% 2007 4,500 4,544 .60
-------- --------
282,186 37.25
-------- --------
Total Bonds & Notes (cost:
$731,627,000) 730,312 96.41
-------- --------
Short-Term Securities
Corporate Short-Term Notes
General Electric Capital Corp.,
6.50% due 10/1/97 11,870 11,868 1.57
Sony Capital Corp.,
5.50% due 10/2/97 6,000 5,998 .79
Total Short-Term Securities (cost: -------- --------
$17,866,000) 17,866 2.36
-------- --------
Total Investment Securities (cost:
$749,493,000) 748,178 98.77
Excess of cash and receivables over
payables 9,331 1.23
-------- --------
Net Assets $757,509 100.00%
======== ========
(1)Index-linked bond whose principal
amount moves with a government retail
price index.
(2)Coupon rate may change periodically.
(3)Represents a delayed-delivery security.
(4)Pass-through securities backed by a pool
of mortgages or other loans on which
principal payments are periodically
made. Therefore, the effective maturity
is shorter than the stated maturity.
(5)Purchased in a private placement
transaction; resale may be limited to
qualified institutional buyers; resale to
the public may require registration.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Capital World Bond Fund
Financial Statements
Statement of Assets and Liabilities
at September 30, 1997 (dollars in thousands)
Assets:
Investment securities at market
(cost: $749,493) $748,178
Cash 3
Receivables for--
Sales of investments $ 1,796
Sales of fund's shares 1,201
Accrued interest 15,764 18,761
--------- ---------
766,942
Liabilities:
Payables for--
Purchases of investments 6,396
Repurchases of fund's shares 1,299
Forward currency contracts - net 1,125
Management services 415
Accrued expenses 198 9,433
--------- ---------
Net Assets at September 30, 1997--
Equivalent to $16.40 per share on
46,186,401 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $757,509
=========
Statement of Operations
for the year ended September 30, 1997
(dollars in thousands)
Investment Income:
Income:
Interest $49,840
Expenses:
Management services fee $ 5,266
Distribution expenses 1,965
Transfer agent fee 579
Reports to shareholders 131
Registration statement and prospectus 178
Postage, stationery and supplies 107
Directors' fees 22
Auditing and legal fees 42
Custodian fee 194
Taxes other than federal income tax 19
Other expenses 17 8,520
--------- ---------
Net investment income 41,320
---------
Realized Gain and Unrealized Depreciation
on Investments:
Net realized gain 8,579
Net unrealized depreciation on:
Investments (14,945)
Open forward currency contracts (821)
---------
Net unrealized depreciation (15,766)
---------
Net realized gain and unrealized
depreciation on investments (7,187)
---------
Net Increase in Net Assets Resulting
from Operations $34,133
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year Year
ended ended
9/30/97 9/30/96
--------- ---------
Operations:
Net investment income $41,320 $43,922
Net realized gain on investments 8,579 20,877
Net unrealized depreciation on investments (15,766) (11,445)
--------- ---------
Net increase in net
assets resulting from operations 34,133 53,354
--------- ---------
Dividends Paid to Shareholders (55,642) (51,067)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
11,728,432 and 17,575,138
shares, respectively 195,677 296,074
Proceeds from shares issued in
reinvestment of net investment
income dividends:
2,810,625 and 2,527,117 shares, respectivel 46,526 42,286
Cost of shares repurchased:
16,458,455 and 10,834,133
shares, respectively (274,024) (182,595)
--------- ---------
Net increase (decrease) in net assets
resulting from capital share
transactions (31,821) 155,765
--------- ---------
Total Increase (Decrease) in Net Assets (53,330) 158,052
Net Assets:
Beginning of year 810,839 652,787
--------- ---------
End of year (including undistributed
net investment income: $5,386 and
$8,786, respectively) $757,509 $810,839
========= =========
See Notes to Financial Statements
</TABLE>
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 fund seeks long-term 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. The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Fixed-income securities are valued at prices obtained from a pricing service,
when such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean quoted bid and asked prices or at prices for securities of comparable
maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates. The effects of changes
in foreign currency exchange rates on investment securities are included in
with the net realized and unrealized gain or loss on investment securities.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed-delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Discounts and premiums on securities
purchased are amortized. Dividends and distributions paid to shareholders are
recorded on the ex-dividend date.
The fund may enter into forward currency contracts, which represent an
agreement to exchange currencies of different countries at a specified future
date at a specified rate. The fund enters into these contracts to reduce its
exposure to fluctuations in foreign exchange rates arising from investments
denominated in non-U.S. currencies. The fund's use of forward currency
contracts involves market risk in excess of the amount recognized in the
statement of assets and liabilities. The contracts are recorded in the
statement of assets and liabilities at their net unrealized value. The fund
records realized gains or losses at the time the forward contract is closed or
offset by a matching contract. The face or contract amount in U.S. dollars
reflects the total exposure the fund has in that particular contract. Risks may
arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from possible movements
in non-U.S. exchange rates and securities values underlying these instruments.
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 investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of September 30, 1997, net unrealized depreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $1,315,000, of which $13,832,000 related to appreciated securities
and $15,147,000 related to depreciated securities. During the year ended
September 30, 1997, the fund realized, on a tax basis, a net capital gain of
$11,587,000 on security transactions. Net losses related to non-U.S. currency
transactions of $3,008,000 are reported as an adjustment to ordinary income for
federal income tax purposes. Dividends paid to shareholders included
$10,922,000 of non-U.S. currency gains treated as income dividends for tax
purposes. The cost of portfolio securities, excluding forward currency
contracts, for book and federal income tax purposes was $749,493,000 at
September 30, 1997.
3. The fee of $5,266,000 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, 1997,
distribution expenses under the Plan were $1,965,000. As of September 30,
1997, accrued and unpaid distribution expenses were $129,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $579,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $480,000 (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,
1997, aggregate amounts deferred and earnings thereon were $38,000.
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, 1997, accumulated undistributed net realized gain on
investments, on a book basis, was $11,270,000 and additional paid-in capital
was $742,926,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $588,268,000 and $574,367,000, respectively, during
the year ended September 30, 1997.
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 $194,000 includes $18,000 that was paid by these credits
rather than in cash.
At September 30, 1997, the fund had outstanding forward currency contracts
to purchase and sell non-U.S. currencies as follows:
<TABLE>
<S> <C> <C> <C> <C>
U.S. Valuation
Non-U.S. Contract Amount
Currency --------- --------- Unrealized
Contracts Non-U.S. U.S. Amount (Depreciation)
Appreciation
- -------------------------- --------- --------- --------- ---------
Sales:
Australian Dollars
expiring 5/27/97 A$10,745,000 $7,750,000 $7,798,000 $ ( 48,000)
British Pounds
expiring 10/3 to
10/14/97 pounds4,200,000 6,990,000 6,777,000 213,000
Danish Kroner
expiring 11/4/97 DKr18,435,000 2,641,000 2,754,000 (113,000)
German Marks
expiring 10/10 to
12/2/97 DM44,452,000 24,895,000 25,263,000 (368,000)
Irish Pounds
expiring 11/28/97 to
1/20/98 IRL13,670,000 20,209,000 19,862,000 347,000
Japanese Yen
expiring 10/14/97 to
3/30/98 yen3,713,573,000 31,119,000 31,294,000 (175,000)
New Zealand Dollars
expiring 10/6/97 to
11/24/97 NZ$32,049,000 20,359,000 20,515,000 (156,000)
Swedish Kronor
expiring 10/28/97 SKr28,900,000 3,673,000 3,822,000 (149,000)
Swiss Francs
expiring 10/29/97 CHF5,450,000 3,629,000 3,770,000 (141,000)
Spanish Pesetas
expiring 12/19/97 Pta264,195,000 1,769,000 1,778,000 (9,000)
------------
(599,000)
Purchases: ------------
Australian Dollars
expiring 11/28/97 A$13,650,000 10,605,000 9,907,000 (698,000)
Canadian Dollars
expiring 11/3 to
12/5/97 C$45,752,000 33,201,000 33,236,000 35,000
Italian Lire
expiring 11/28/97 Lr8,336,000 4,684,000 4,835,000 151,000
Japanese Yen
expiring 10/23 to
12/5/97 yen4,359,743,000 36,716,000 36,702,000 (14,000)
------------
(526,000)
------------
Forward currency contracts - net $(1,125,000)
============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Year Ended September 30
1997 1996 1995 1994 1993
Net Asset Value, Beginning of Year $16.86 $16.81 $15.33 $16.48 $15.95
------------ ------------ ---------- ---------- ---------
Income From Investment Operations:
Net investment income .88 1.09 1.09 1.05 .91
Net realized and unrealized (loss)gain
on investments (.16) .16 1.57 (1.14) .65
----------- ----------- --------- ----------- ---------
Total income from investment operations .72 1.25 2.66 (.09) 1.56
----------- ----------- --------- ----------- ---------
Less Distributions:
Dividends from net investment income (.95) (1.08) (1.18) (.90) (.81)
Dividneds from net realized non-U.S. currency gains(1) (.23) (.12) - (.04) (.03)
Distributions from net realized gains - - - (.12) (.19)
----------- ----------- --------- ----------- ---------
Total distributions (1.18) (1.20) (1.18) (1.06) (1.03)
----------- ----------- --------- ---------- ---------
Net Asset Value, End of Year $16.40 $16.86 $16.81 $15.33 $16.48
========== ========== ======== ======== =======
Total Return(2) 4.38% 7.67% 18.10% (.62)% 10.40%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $758 $811 $653 $576 $450
Ratio of expenses to average net assets 1.07% 1.09% 1.12% 1.11% 1.19%
Ratio of net income to average net assets 5.21% 6.07% 6.83% 6.88% 6.25%
Portfolio turnover rate 79.00% 91.27% 104.96% 77.04% 27.95%
(1) Realized non-U.S. currency gains are treated as
ordinary income for federal income tax purposes.
(2) Calculated without deducting a sales charge.
The maximum sales charge is 4.75% of the
fund's offering price.
</TABLE>
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. (the "fund"), including the schedule of portfolio
investments as of September 30, 1997, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended. These financial statements and
per-share data and ratios are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1997, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Capital World Bond Fund, Inc. at September 30, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and 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 31, 1997
1997 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, 19% 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 A
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1998 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1997 TAX RETURNS.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
[The American Funds Group (R)]
CAPITAL WORLD BOND FUND
BOARD OF DIRECTORS
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and Chief Executive Officer, The Mission
Group; former President, Southern California Edison Company
DON R. CONLAN
South Pasadena, California
President (retired),
The Capital Group Companies, Inc.
DIANE C. CREEL
Long Beach, California
Chief Executive Officer and President,
The Earth Technology Corporation
(international engineering consulting)
MARTIN FENTON, JR.
San Diego, California
Chairman of the Board,
Senior Resource Group, Inc.
(senior living centers management)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller Consulting
(management consultants)
ABNER D. GOLDSTINE
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Chairman of the Board of the fund
Executive Vice President and Director,
Capital Research and Management Company
HERBERT HOOVER III
San Marino, California
Private investor
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President and
Chief Executive Officer, AECOM Technology Corporation (architectural
engineering)
PETER C. VALLI
Long Beach, California
Retired; former Chairman of the Board, BW/IP International, Inc. (industrial
manufacturing)
OTHER OFFICERS
MICHAEL J. DOWNER
Los Angeles, California
Vice President of the fund
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company
MARY C. HALL
Brea, California
Vice President of the fund
Senior Vice President - Fund Business
Management Group, Capital Research and
Management Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President - Fund Business
Management Group, Capital Research
and Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the fund
Vice President - Fund Business
Management Group, Capital Research
and Management Company
KIMBERLY S. VERDICK
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President - Fund Business
Management Group, Capital Research and
Management Company
TODD L. MILLER
Brea, California
Assistant Treasurer of the fund
Assistant Vice President - Fund Business
Management Group, Capital Research and
Management Company
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of 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, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA WG/ISM/3220
Lit. No. WBF-011-1197
