CAPITAL WORLD BOND FUND
Semi-Annual report
for the six months ended March 31, 1997
[The American Funds Group(r)]
[Photo: Various paper and coin currency on an atlas]
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.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended March 31, 1997,
assuming payment of the 4.75% maximum sales charge at the beginning of the
stated periods -
<TABLE>
<CAPTION>
<S> <C> <C>
LIFETIME (SINCE 8/4/87): +118.63% +8.44%
FIVE YEARS: +41.79 +7.23
ONE YEAR: -0.17 -
</TABLE>
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
yield as of April 30, 1997, calculated in accordance with the Securities and
Exchange Commission formula, was 4.91%. The fund's distribution rate as of that
date was 6.95%. 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 AND ARE NOT PREDICTIVE OF
FUTURE 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:
A sustained rise in the value of the U.S. dollar against the currencies of most
developed nations made overseas bond investing challenging for the fiscal
half-year ended March 31. The dollar rose 11.2% against the Japanese yen, 9.4%
against the German mark and 10.4% against the Spanish peseta, for example. The
dollar's surge wiped out most of the income and price gains from international
bonds held by U.S. dollar investors.
As a result, Capital World Bond Fund posted only a narrow gain for the
six-month period. The value of your investment in the fund rose 0.8% assuming
you reinvested income dividends totaling 74 cents a share.
The fund's total return for the first half of fiscal 1997 outpaced the
1.9% decline in the Salomon Brothers World Government Bond Index, which
measures major world bond markets. Most of the difference was because the fund
maintained a larger investment than the index in U.S. bonds and the bonds of
Canada, Australia and New Zealand. For the same period, the Salomon Brothers
Broad Investment-Grade Bond Index, a key measure of the U.S. bond market,
posted a gain of 2.5%.
Over the 12-month period ended March 31, Capital World Bond Fund provided
a total return of 4.8% with dividends reinvested. That compares with a total
return of 1.2% for the Salomon World Government Bond Index and 4.9% for the
Salomon Broad Investment-Grade Index. Both indexes are unmanaged.
As we have cautioned previously in these letters, there are bound to be
periods when currency fluctuations have a negative impact on the fund's
investment positions. In the long run, however, our currency hedging strategies
have made a positive contribution to the fund's total return.
Over the fund's lifetime, Capital World Bond Fund has demonstrated that it
can provide returns well above inflation. Since its inception in August 1987,
the fund has had a cumulative lifetime total return of 129.5%. The fund's
average annual compound return of 9.0% was more than twice the 4.0% rate of
inflation, as measured by the Consumer Price Index.
The six-month period just ended, however, was troublesome for dollar-based
bond investors. In the U.S., fears of an upsurge in inflation have led to
rising bond yields. February's economic data indicated continued low
unemployment, rising wages and strong consumer spending. On March 25, the
Federal Reserve Board reacted by raising the federal funds rate - the rate
banks charge each other for overnight loans - by one-quarter of a percentage
point, to 5.5%. This was the first increase by the Fed in more than two years,
and it led banks to raise prime lending rates. In response, the yield on
30-year bonds rose on March 27 to above 7%.
Yields for 10-year U.S. bonds rose to 6.9% from 6.7% during the past six
months. Since interest rate increases translate into lower bond prices, this
reduced the value of the fund's U.S. bond holdings.
In Europe, bond yields fell in most instances, leading to higher bond
prices. With currency hedging, we locked in some of those gains. But the strong
dollar reduced most of the returns for the fund's European bonds. The sole
exception was the United Kingdom, where yields fell and sterling rose against
the dollar. In Japan, yields fell to 2.3% from 2.8%, but the weakening yen
offset those gains as well.
In the dollar bloc, Canadian bond yields fell sharply relative to the
U.S., producing a higher return than U.S. bonds. Australian bonds nearly
matched U.S. bond results.
During the period, the fund made relatively few changes to its investment
positions. The fund decreased its currency exposure to the yen to 7.8% from
10.7% because low Japanese interest rates were likely to keep downward pressure
on the yen. The fund increased its exposure to the German mark to 14.8% from
7.8% because there appears to be a growing possibility that the U.S. dollar has
peaked against the mark.
Compared with the U.S., inflation seems to be a lesser concern in Europe
and Japan, where economic recoveries are proceeding more slowly. European
nations are experiencing high unemployment and excess manufacturing capacity.
In Japan, financial institutions are grappling with bad loans, and economic
growth has been slow.
At this stage, there is no sure sign that the dollar has ended its rise
against most other major currencies. The U.S. economy is strong and interest
rates are higher than in Japan and many European nations.
In December, shareholders received a calendar fourth-quarter dividend of
52 cents a share and then in March received a dividend of 22 cents a share. The
fund has historically paid a 22-cent dividend in the first three quarters of
the calendar year and then adjusted the fourth-quarter dividend - up or down -
to reflect currency gains or losses and any remaining interest income, which we
are required by tax laws to distribute. The large fourth-quarter dividend
reflected net currency gains from non-U.S. investments of 23 cents a share, in
addition to income of 29 cents.
While it is difficult to predict what will happen to currencies, bond
yields and interest rates over the remainder of the year, rest assured that we
will monitor developments closely. We look forward to reporting to you again in
the autumn, as the fund celebrates its tenth anniversary.
Cordially,
[/s/ Paul G. Haaga, Jr.]
Paul G. Haaga, Jr.
Chairman of the Board
[/s/ Abner D. Goldstine]
Abner D. Goldstine
President
May 13, 1997
[Pull Quote]
Over its lifetime, the fund has demonstrated that it can provide returns well
above inflation.
[End Pull Quote]
[chart]
INVESTMENT RESULTS AT A GLANCE
Total return over the fund's
lifetime +129.5%
(8/4/87 - 3/31/97)
Total return for the latest
12 months +4.8
(4/1/96 - 3/31/97)
Total return for the latest
six months +0.8
(10/1/96 - 3/31/97)
[end chart]
[Pull Quote]
In the long run, our currency hedging strategies have enhanced the fund's total
return.
[End Pull Quote]
CAPITAL WORLD BOND FUND NET ASSETS
(as of March 31, 1997)
Pacific Basin 16.0%
North America 51.4%
Europe, So. Africa 32.6%
WORLD BOND MARKET
Pacific Basin 19.8%
North America 37.1%
Europe 43.1%
Percentages weighted by currency, based on the table on page 4.
WHERE THE FUND'S ASSETS ARE INVESTED
as of March 31, 1997
<TABLE>
<CAPTION>
Capital World Bond Fund Salomon Brothers
Net Assets World Govt. Bond Index
Average Average
Maturity Maturity
Currency of Denomination Securities# Currency# by Currency Weighting by Currency
<S> <C> <C> <C> <C> <C>
United States 47.9% 42.4% 5.8 yrs 33.8% 7.9 yrs
Germany 16.4 14.8 5.6 9.4 5.6
Canada 6.4 9.0 11.5 3.3 8.4
United Kingdom 5.8 3.9 5.4 5.8 10.5
Ireland 4.4 5.9 6.3 0.4 7.4
Japan 4.3 7.8 6.1 18.8 6.7
Australia 3.7 5.1 9.6 1.0 5.9
New Zealand 3.1 3.1 10.3 * *
Spain 2.5 3.4 4.5 2.8 5.1
Italy 1.3 1.3 3.9 6.3 5.4
Portugal 1.3 1.3 5.5 * *
Sweden 1.0 0.5 6.7 1.6 6.0
Denmark 0.6 0.2 4.5 1.6 6.4
South Africa 0.6 0.6 13.4 * *
Netherlands 0.4 0.4 2.2 3.4 6.8
Finland 0.2 0.2 0.5 0.5 5.6
Poland 0.1 0.1 0.0 * *
France - - - 7.5 7.6
Belgium - - - 2.5 6.5
Austria - - - 0.9 5.0
Switzerland - - - 0.4 6.9
100.0% 100.0% 6.3 yrs 100.0% 7.2 yrs
</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.
<TABLE>
<S> <C> <C> <C>
Unaudited
Capital World Bond Fund Principal Market Percent
Investment Portfolio March 31, 1997 Amount Value of Net
Bonds & Notes (000) (000) Assets
Australian Dollars
Australian Government:
12.50% 1998 A$ 1,000 US$ 823 .10%
10.00% 2002 8,350 7,228 .92
9.00% 2004 5,000 4,165 .53
4.00% 2010 /1/ 4,000 3,270 .41
New South Wales Treasury:
11.50% 1999 1,000 856 .11
7.00% 2004 5,500 4,078 .52
News America Holdings Inc. 8.625% 2014 11,000 7,655 .97
Southern Australia Finance Authority
11.25% 2001 1,500 1,323 .17
----- -----
29,398 3.73
----- -----
British Pounds
Bank of Ireland 9.75% 2005 Pounds 735 1,298 .16
European Investment Bank 6.00% 2004 250 371 .05
Lloyds Trustee Savings Banking Group
8.50% 2006 3,000 4,978 .63
United Kingdom:
9.50% 1999 2,000 3,427 .43
8.00% 2000 7,000 11,772 1.49
7.00% 2001 9,250 14,990 1.90
4.375% 2004 /1/ 3,000 5,809 .74
8.50% 2005 1,850 3,207 .41
----- -----
45,852 5.81
----- -----
Canadian Dollars
Canadian Government:
6.25% 1998 C$ 2,000 1,470 .19
10.75% 1998 3,500 2,689 .34
9.75% 2001 8,000 6,645 .85
7.50% 2003 5,900 4,506 .57
9.00% 2004 6,500 5,382 .68
0% 2005 5,685 2,309 .29
7.00% 2006 9,500 6,997 .89
10.75% 2009 10,000 9,476 1.20
4.25% 2021 /1/ 14,000 10,867 1.38
----- -----
50,341 6.39
----- -----
Danish Kroner
Danish Government:
9.00% 1998 DKr 6,000 1,012 .13
8.00% 2001 10,000 1,734 .22
8.00% 2003 10,000 1,731 .22
----- -----
4,477 .57
----- -----
Finnish Markkaa
Finland (Republic of) Treasury Bill
0% 1997 FM7,700 1,523 .19
----- -----
German Marks
Bayerische Vereinsbank AG
6.50% 2005 DM 6,000 3,751 .48
Bundesobligation 5.875% 2000 35,550 22,334 2.83
Bundesschatzanweisung 5.75% 1999 11,000 6,858 .87
Deutschland Republic:
8.00% 2002 31,500 21,464 2.72
6.75% 2003 31,500 20,342 2.58
6.50% 2005 11,000 6,920 .88
6.875% 2005 10,000 6,450 .82
6.25% 2024 1,000 569 .07
German Unity Fund 8.00% 2002 8,500 5,761 .73
Norddeutsche Landesbank Girozentrale
6.75% 2005 3,500 2,219 .28
Treuhandanstalt:
7.375% 2002 2,700 1,794 .23
7.125% 2003 43,000 28,241 3.58
7.50% 2004 4,500 3,011 .38
----- -----
129,714 16.45
----- -----
Irish Pounds
Ireland (Republic of):
6.25% 1999 IRPounds4,500 7,163 .91
8.00% 2000 2,400 4,024 .51
6.50% 2001 1,800 2,885 .37
6.25% 2004 2,030 3,154 .40
8.00% 2006 9,400 16,014 2.03
Irish Permanent Treasury
6.75% 2000 1,100 1,754 .22
----- -----
34,994 4.44
----- -----
Italian Lire
Italian Government National:
9.50% 1999 Lr3,200,000 1,987 .25
9.50% 2001 5,000,000 3,192 .41
10.50% 2005 3,500,000 2,412 .31
KfW International Finance Inc.
11.625% 1998 4,000,000 2,552 .32
----- -----
10,143 1.29
----- -----
Japanese Yen
European Investment Bank 6.75% 2001 Y 450,000 4,408 .56
Export-Import Bank of Japan:
4.375% 2003 325,000 3,000 .38
2.875% 2005 240,000 2,016 .25
GMAC International Finance 3.75% 1999 300,000 2,548 .32
International Bank for Reconstruction
and Development:
4.50% 2003 714,000 6,627 .84
4.75% 2004 400,000 3,811 .48
Japan Development Bank:
5.00% 1999 40,000 355 .05
6.50% 2001 87,000 854 .11
Spain (Kingdom of) 4.625% 2004 1,080,000 10,144 1.29
----- -----
33,763 4.28
----- -----
Netherlands Guilders
Netherlands Government
7.50% 1999 NLG5,000 2,865 .36
----- -----
New Zealand Dollars
New Zealand Government:
6.50% 2000 NZ$10,050 6,741 .86
8.00% 2004 10,000 6,949 .88
8.00% 2006 3,000 2,088 .26
4.50% 2016 /1/ 13,000 8,710 1.12
----- -----
24,488 3.11
----- -----
Polish Zloty
Poland (Republic of) Treasury Bill 1997 PLZ1,830 593 .08
----- -----
Portuguese Escudos
Portugal (Republic of):
11.875% 2000 PTE100,000 679 .09
11.875% 2000 595,000 4,078 .52
8.75% 2001 140,000 898 .11
11.875% 2005 300,000 2,306 .29
9.50% 2006 300,000 2,107 .27
----- -----
10,068 1.28
----- -----
South African Rand
South Africa (Republic of) 13.00% 2010 ZAR25,000 4,917 .62
----- -----
Spanish Pesetas
Spain (Kingdom of):
9.90% 1998 Pta325,000 2,433 .31
11.45% 1998 570,000 4,331 .55
8.40% 2001 450,000 3,412 .43
10.50% 2003 600,000 5,054 .64
8.00% 2004 550,000 4,123 .53
----- -----
19,353 2.46
----- -----
Swedish Kronor
Swedish Government:
11.00% 1999 SKr 3,000 438 .06
10.25% 2003 24,000 3,753 .48
6.00% 2005 30,000 3,744 .47
----- -----
7,935 1.01
----- -----
United States Dollars
Aames Mortgage Trust, Series 1996-D,
Class A-1C, pass-through certificates,
6.52% 2020 /2/ US$ 3,000 2,962 .38
Airplanes Pass Through Trust, pass - through
certificates, Class C, 8.15% 2019 /2/ 8,000 8,090 1.03
Banco Nacional de Mexico, SA 1995 Trust
Certificates, 0% 2002 /2/,/3/ 5,228 4,127 .52
British Sky Broadcasting Group PLC
7.30% 2006 1,000 974 .12
China (People's Republic of)
9.00% 2096 500 522 .07
Colombia (Republic of):
7.25% 2004 2,000 1,888 .24
8.70% 2016 1,000 987 .13
Continental Airlines, Inc., Series 1996A,
6.94% 2015 /2/,/3/ 1,961 1,866 .24
EquiCredit Funding Trust, pass-through
certificates, Series 1996-A,
Class A3, 7.35% 2019 /2/ 3,000 2,966 .38
Federal Home Loan Mortgage Corp.:
5.78% 2003 /2/ 4,000 3,717 .47
6.19% 2004 /2/ 9,000 8,459 1.07
Federal National Mortgage Assn.
7.50% 2025 /2/ 1,414 1,387 .18
Freeport-McMoRan Copper & Gold, Inc.:
7.50% 2006 1,000 966 .12
7.20% 2026 3,000 2,898 .37
Government National Mortgage Assn.:
9.00% 2017-2024 /2/ 6,789 7,170 .91
8.50% 2021 /2/ 758 790 .10
7.125% 2022 /2/ 2,094 2,144 .27
6.50% 2024 /2/ 5,235 5,125 .65
7.125% 2024 /2/ 2,730 2,800 .36
6.50% 2025 /2/ 2,767 2,802 .36
5.00% 2026 /2/ 3,480 3,388 .43
7.00% 2026 /2/ 1,924 1,835 .23
Green Tree Financial Corp.:
Net Interest Margin Trust, Series 1995-A,
7.25% 2005 /2/ 2,112 2,071 .26
Home Improvement Loan Certificates,
Series 1996-C, Class A-1, 6.45% 2021 /2/ 1,816 1,818 .23
Hydro-Quebec, Series HKF, 9.375% 2030 1,000 1,152 .15
Inter America Development Bank
8.875% 2001 3,000 3,210 .41
J.P. Morgan & Co., Inc. 4.00% 2012 /1/,/4/ 1,000 976 .12
McDermott Inc. 9.375% 2002 2,000 2,067 .26
Merita Bank Ltd. 6.50% 2006 1,000 927 .12
National Bank of Hungary 8.875% 2013 250 262 .03
Parker & Parsley Petroleum Co.
8.25% 2007 2,000 2,076 .26
Poland (Republic of) Past Due Interest Bonds:
Bearer shares 4.00% 2014 /4/ 15,500 12,381 1.57
Registered shares 4.00% 2014 /4/ 2,000 1,597 .20
Quebec (Province of):
8.625% 2005 1,250 1,333 .17
Reliance Industries Ltd.:
8.125% 2005 500 492 .06
10.25% 2097 /3/ 2,000 2,023 .26
Skandinaviska Enskilda Banken
6.875% 2009 500 465 .06
Slovenia (Republic of) 7.00% 2001 /3/ 7,000 6,930 .88
Time Warner Inc., pass-through certificates,
Series 1997-1, 6.10% 2001 /2/,/3/ 5,000 4,695 .60
UCFC Acceptance Corp. pass-through
certificates, Series 1996-B1, Class A3,
7.30% 2013/2/ 3,000 3,017 .38
United Mexican States Government
7.625% 2001 /3/,/4/ 4,250 4,292 .54
United States Treasury:
5.375% 1998 3,000 2,972 .38
5.875% 1998 12,250 12,216 1.55
8.25% 1998 1,250 1,280 .16
8.875% 1998 6,500 6,746 .86
6.375% 1999 26,000 25,935 3.29
8.875% 1999 11,000 11,469 1.46
6.75% 2000 6,675 6,696 .85
8.50% 2000 1,250 1,322 .17
6.50% 2001 250 248 .03
6.625% 2001 1,450 1,443 .18
7.50% 2001 4,500 4,627 .59
7.75% 2001 2,000 2,070 .26
8.00% 2001 18,500 19,330 2.45
6.375% 2002 31,600 31,022 3.93
5.75% 2003 660 623 .08
6.25% 2003 4,250 4,134 .52
7.25% 2004 14,000 14,278 1.81
11.625% 2004 17,750 22,628 2.87
6.50% 2005 3,800 3,697 .47
10.375% 2009 840 1,002 .13
US WEST Capital Funding, Inc.:
Note 7.30% 2007 5,750 5,596 .71
Debenture 6.95% 2037 1,000 976 .12
Woolworth Corp., Series A:
7.00% 2000 1,000 984 .12
6.98% 2001 5,000 4,898 .62
7.00% 2002 2,000 1,946 .25
8.50% 2022 1,000 995 .13
----- -----
308,780 39.17
----- -----
Total Bonds & Notes (cost:
$730,219,000) 719,204 91.24
----- -----
Short-Term Securities
Corporate Short-Term Notes
ANZ (Delaware) Inc.
5.31% due 4/7/97 US$ 7000 6,993 .89
CIT Group Holdings, Inc.
6.72% due 4/1/97 11,230 11,228 1.42
Daimler-Benz North America Corp.
5.40% due 4/21/97 10,000 9,970 1.27
Lucent Technologies Inc.
5.38% due 5/5/97 11,600 11,539 1.46
RTZ American Holdings Inc.
5.29% 4/14/97 12,200 12,175 1.54
----- -----
51,905 6.58
----- -----
Non-U.S. Currency Deposits:
British Pound Pounds49 80 .01
German Mark DM185 111 .02
Italian Lira Lr570,928 342 .04
----- -----
533 .07
----- -----
Total Short-Term Securities (cost:
$52,459,000) 52,438 6.65
----- -----
Total Investment Securities (cost:
$782,678,000) 771,642 97.89
Excess of cash and receivables over
payables 16,581 2.11
----- -----
Net Assets $788,223 100.00%
===== =====
/1/ 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.
/3/ Purchased in a private placement
transaction; resale to the public may
require registration or sale only to
qualified institutional buyers.
/4/ Coupon rates may change periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Capital World Bond Fund UNAUDITED
Financial Statements
Statement of Assets and Liabilities
at March 31, 1997 (dollars in thousands)
Assets:
Investment securities at market
(cost: $782,678) $771,642
Cash 84
Receivables for-
Sales of investments $ 8
Sales of fund's shares 1,730
Accrued interest 17,963 19,701
--------- ---------
791,427
Liabilities:
Payables for-
Repurchases of fund's shares 1,705
Forward currency contracts - net 860
Management services 447
Accrued expenses 192 3,204
--------- ---------
Net Assets at March 31, 1997-
Equivalent to $16.27 per share on
48,454,084 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $788,223
======
Statement of Operations
for the six months ended March 31, 1997
(dollars in thousands)
Investment Income:
Income:
Interest $25,670
Expenses:
Management services fee $ 2,670
Distribution expenses 986
Transfer agent fee 305
Reports to shareholders 94
Registration statement and prospectus 135
Postage, stationery and supplies 56
Directors' fees 15
Auditing and legal fees 41
Custodian fee 94
Taxes other than federal income tax 19
Other expenses 4 4,419
--------- ---------
Net investment income 21,251
---------
Realized Gain and Unrealized Depreciation
on Investments:
Net realized gain 11,417
Net unrealized depreciation on:
Investments (25,061)
Open forward currency contracts (556)
---------
Net unrealized depreciation (25,617)
---------
Net realized gain and unrealized
depreciation on investments (14,200)
---------
Net Increase in Net Assets Resulting
from Operations $7,051
=====
Statement of Changes in Net Assets
(dollars in thousands)
Six months Year
ended ended
3/31/97* 9/30/96
--------- ---------
Operations:
Net investment income $21,251 $43,922
Net realized gain on investments 11,417 20,877
Net unrealized depreciation on investm (25,617) (11,445)
--------- ---------
Net increase in net
assets resulting from operations 7,051 53,354
--------- ---------
Dividends Paid to Shareholders (35,038) (51,067)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
6,748,722 and 17,575,138
shares, respectively 114,287 296,074
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
1,760,263 and 2,527,117 shares, respe 29,338 42,286
Cost of shares repurchased:
8,160,700 and 10,834,133
shares, respectively (138,254) (182,595)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 5,371 155,765
--------- ---------
Total Increase (Decrease) in Net Asset (22,616) 158,052
Net Assets:
Beginning of period 810,839 652,787
--------- ---------
End of period (including undistributed
net investment income: $5,921 and
$8,786, respectively) $788,223 $810,839
========= =========
* Unaudited
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:
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 prices for securities
of comparable maturity, quality and type. The value of each security
denominated in a currency other than U.S. dollars will be translated into U.S.
dollars at the prevailing market rate provided by a pricing service in
accordance with procedures established by the fund's officers. Short-term
securities with more than 60 days remaining to maturity, including forward
currency contracts, are valued at the mean of their representative quoted bid
and asked prices. Where pricing service or market quotations are not readily
available, securities will be valued at fair value by the Board of Directors or
a committee thereof. Short-term securities with 60 days or less remaining to
maturity are valued at amortized cost, which approximates market value.
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 over the life of the respective securities.
Distributions to shareholders are recorded on the ex-dividend date.
Investment securities, 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 period. Purchases and sales of
investment securities and income are calculated using the prevailing exchange
rate. The effect of changes in foreign currency exchange rates on investment
securities are included with the net realized and unrealized gain or loss on
investment securities.
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 $94,000 includes $12,000 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 investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of March 31, 1997, net unrealized depreciation on investments, excluding
forward currency contracts, for book and federal income tax purposes aggregated
$11,036,000, of which $8,628,000 related to appreciated securities and
$19,664,000 related to depreciated securities. During the six months ended
March 31, 1997, the fund realized, on a tax basis, a net capital gain of
$10,926,000 on security transactions. Net losses related to non-U.S. currency
transactions of $6,012,000 are reported as 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 fund had
available at September 30, 1996 a net capital loss carryforward totaling
$5,687,000 which may be used to offset capital gains realized during subsequent
years through 2004 and thereby relieve the fund and its shareholders of any
federal income tax liability with respect to the capital gains that are so
offset. It is the intention of the fund not to make distributions from capital
gains while there is a capital loss carryforward. The cost of portfolio
securities, excluding forward currency contracts, for book and federal income
tax purposes was $782,678,000 at March 31, 1997.
3. The fee of $2,670,000 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 six months ended March 31,
1997, distribution expenses under the Plan were $986,000. As of March 31,
1997, accrued and unpaid distribution expenses were $137,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $305,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $266,000 (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 March 31, 1997,
aggregate amounts deferred and earnings thereon were $29,000.
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 March 31, 1997, accumulated undistributed net realized gain on
investments was $7,695,000 and paid-in capital was $780,095,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $307,795,000 and $301,536,000, respectively, during
the six months ended March 31, 1997.
The fund purchases and sells forward currency contracts in anticipation of,
or to protect itself against, fluctuations in exchange rates. The contracts are
recorded in the statement of assets and liabilities at their net unrealized
value; the fund's maximum potential liability in these contracts is equal to
the full contract amounts. 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 March 31, 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:
British Pounds
expiring 4/7 to
5/12/97 16,131,000Pounds $26,319,000 $26,515,000 $ (196,000)
Danish Kroner
expiring 5/5/97 DKr18,440,000 2,926,000 2,906,000 20,000
German Marks
expiring 4/7 to
7/10/97 DM47,470,000 28,453,000 27,930,000 523,000
Japanese Yen
expiring 8/4 to
11/12/97 Y1,973,000,000 16,652,000 16,322,000 330,000
Swedish Kronor
expiring 4/28/97 SKr18,900,000 3,996,000 3,834,000 162,000
-------------------
839,000
-------------------
Purchases:
Australian Dollars
expiring 5/27/97 A$13,650,000 10,512,000 10,699,000 187,000
Canadian Dollars
expiring 5/6 to
9/8/97 C$28,688,000 21,453,000 20,843,000 (610,000)
German Marks
expiring 4/7/97 DM43,315,000 25,671,000 25,966,000 295,000
Irish Pounds
expiring 4/29/97 IRPounds7,279,000 11,649,000 11,549,000 (100,000)
Italian Lire
expiring 7/10/97 Lr502,000,000 294,000 300,000 6,000
Japanese Yen
expiring 4/25 to
10/2/97 Y5,369,193,000 44,910,000 43,864,000 (1,046,000)
Spanish Pesetas
expiring 5/7 to
6/10/97 Pta1,021,421,000 7,666,000 7,235,000 (431,000)
-------------------
(1,699,000)
-------------------
Forward currency contracts - net $ (860,000)
===============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six months
Per-Share Data and Ratios ended
March 31, Year Ended September 30
1997 /1/ 1996 1995 1994 1993 1992
Net Asset Value, Beginning of Period $16.86 $16.81 $15.33 $16.48 $15.95 $15.60
----- ----- ----- ----- ----- -----
Income From Investment Operations:
Net investment income .68 1.09 1.09 1.05 .91 1.03
Net realized and unrealized (loss)gain
on investments (.53) .16 1.57 (1.14) .65 .40
----- ----- ----- ----- ----- -----
Total income from investment operations .15 1.25 2.66 (.09) 1.56 1.43
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income (.74)/2/ (1.20)/2/ (1.18) (.94)/2/ (.84)/2/ (1.01)/2/
Distributions from net realized gains - - - (.12) (.19) (.07)
----- ----- ----- ----- ----- -----
Total distributions (.74) (1.20) (1.18) (1.06) (1.03) (1.08)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period $16.27 $16.86 $16.81 $14.27 $15.45 $15.95
====== ====== ====== ====== ====== ======
Total Return /3/ .82%/4/ 7.67% 18.10% (.62)% 10.40% 9.46%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $788 $811 $653 $576 $450 $224
Ratio of expenses to average net assets .55%/4/ 1.09% 1.12% 1.11% 1.19% 1.38%
Ratio of net income to average net assets 2.63%/4/ 6.07% 6.83% 6.88% 6.25% 6.88%
Portfolio turnover rate 41.21%/4/ 91.27% 104.96% 77.04% 27.95% 95.11%
/1/ Unaudited
/2/ Amount includes realized non-U.S.
currency gains of 23 cents, 12 cents,
4cents, 3cents and 7cents for the period
ended March 31, 1997, and the years ended
September 30, 1996, 1994, 1993 and 1992,
respectively, treated as net investment
income for federal income tax purposes.
/3/ Calculated without deducting a sales
charge. The maximum sales charge is
4.75% of the fund's offering price.
/4/ Based on operations for the period
shown and, accordingly, not representative
of a full year's operations.
</TABLE>
CAPITAL WORLD BOND FUND
DIRECTORS AND OFFICERS
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 Emeritus, 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 & 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
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
(Please write to the address nearest you.)
American Funds Service Company
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
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
June 30, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
[The American Funds Group(r)]
Printed on recycled paper
Litho in USA WG/ALI/3417
Lit. No. WBF-013-0597
