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[LOGO THE AMERICAN FUNDS GROUP(R)]
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Capital World
Bond Fund(R)
Prospectus
FEBRUARY 1, 1997
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CAPITAL WORLD BOND FUND, INC.
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Investment Policies and Risks 5
Securities and Investment Techniques 6
Multiple Portfolio Counselor System 8
Investment Results 10
Dividends,.Distributions.and.Taxes 11
Fund.Organization.and.Management 12
Shareholder.Services 15
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The fund's investment objective is to seek, over the long term, as high a level
of total return as is consistent with prudent investment management. Total
return consists of a combination of interest income, capital price changes and
currency fluctuations. The fund seeks to meet this objective by investing
primarily in fixed-income obligations denominated in various currencies,
including U.S. dollars.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
31-010-0297
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CAPITAL WORLD BOND FUND / PROSPECTUS
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's earned
income.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
................................................................................
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.67%
12b-1 expenses 0.24%/1/
Other expenses 0.18%
Total fund operating expenses 1.09%
/1/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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One year $58
Three years $81
Five years $105
Ten years $174
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
3
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CAPITAL WORLD BOND FUND / PROSPECTUS
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FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche llp,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
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1996 1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $16.81 $15.33 $16.48 $15.95 $15.60 $14.46 $14.55 $15.18 $14.24 $14.29
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INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 1.09 1.09 1.05 .91 1.03 1.05 1.18 1.16 1.05 .13
Net realized and
unrealized gain (loss)
on investments .16 1.57 (1.14) .65 .40 1.19 (.08) (.36) .82 (.18)
Total income (loss)
from investment
operations 1.25 2.66 (.09) 1.56 1.43 2.24 1.10 .80 1.87 (.05)
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LESS DISTRIBUTIONS:
Dividends from net
investment income (1.20)/2/ (1.18) (.94)/2/ (.84)/2/ (1.01)/2/ (1.10) (1.19) (1.10) (.92) --
Distributions from net
realized gains -- -- (.12) (.19) (.07) -- -- (.33) (.01) --
Total distributions (1.20) (1.18) (1.06) (1.03) (1.08) (1.10) (1.19) (1.43) (.93) --
Net asset value, end of
year $16.86 $16.81 $15.33 $16.48 $15.95 $15.60 $14.46 $14.55 $15.18 $14.24
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Total return/3/ 7.67% 18.10% (.62%) 10.40% 9.46% 16.10% 7.95% 5.46% 13.16% .33%
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RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions) $811 $653 $576 $450 $224 $76 $41 $35 $35 $12
Ratio of expenses to
average net assets 1.09% 1.12% 1.11% 1.19% 1.38% 1.42% 1.52% 1.30% 1.38% .12%/4/
Ratio of net income to
average net assets 6.07% 6.83% 6.88% 6.25% 6.88% 7.54% 8.40% 7.69% 6.84% .91%/4/
Portfolio turnover rate 91.27% 104.96% 77.04% 27.95% 95.11% 81.44% 75.53% 61.57% 94.46% 6.13%/4/
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</TABLE>
/1/ Represents the initial period of operations from August 4, 1987 to September
30, 1987.
/2/ Amount includes realized non-U.S. currency gains of 12c, 4c, 3c, and 7c for
the years ended 1996, 1994, 1993 and 1992, respectively, treated as net
investment income for federal income tax purposes.
/3/ Excludes maximum sales charge of 4.75%.
/4/ Based on operations for the period shown and, accordingly, are not
representative of a full year's operations.
4
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CAPITAL WORLD BOND FUND / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The fund's investment objective is to seek, over the long term, as high a level
of total return as is consistent with prudent investment management.
The fund seeks to achieve its objective by investing primarily in debt
obligations denominated in various currencies, including U.S. dollars, or in
multinational currency units such as European Currency Units (ECU's).
Under normal market conditions, the fund will invest at least 65% of its assets
in bonds. The fund anticipates that it will hold substantially all of its
assets in bonds, although it may invest in short-term securities from time-to-
time. Issuers of these bonds will be located in at least three countries and
issuers located in any one country (other than the United States) will
represent no more than 40% of total assets. The fund will limit its purchases
of fixed-income securities to investment grade obligations (rated in
the top four quality categories by Standard & Poor's Corporation or Moody's
Investors Service, Inc. or unrated but determined to be of equivalent quality).
For defensive reasons, for example, during times of international political or
economic uncertainty, most or all of the fund's investments temporarily may
be made in the United States and denominated in U.S. dollars.
The fund may purchase debt obligations issued or guaranteed by the United
States or governments (including states, provinces or municipalities) of
countries other than the U.S., or by their agencies, authorities or
instrumentalities, or by supranational entities organized or supported by
several national governments, such as the International Bank for Reconstruction
and Development (the "World Bank"), the Inter-American Development Bank, the
Asian Development Bank and the European Investment Bank. It also may purchase
debt obligations of U.S. or non-U.S. corporations or financial institutions,
although it currently anticipates that its investments in issuers located
outside the United States will be concentrated in governmental or quasi-
governmental issues. The fund currently contemplates that it will invest
primarily in obligations denominated in the currencies of the United States,
Japan, Canada, the Western European nations, New Zealand and Australia, as well
as in multinational currency units.
The fund may hold a portion of its assets in U.S. dollars and other currencies
and in cash equivalents of either U.S. issuers or issuers outside the U.S. The
fund may also invest in fixed-income obligations convertible into equity
securities or having attached warrants or rights to purchase equity securities
(subject to certain limitations).
The fund is a non-diversified investment company and is therefore not subject
to any investment restriction on the percentage of its assets that may be
invested
5
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CAPITAL WORLD BOND FUND / PROSPECTUS
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at any time in the securities of any one issuer. However, the fund intends to
limit its investment in the securities of any single issuer, except for
securities issued or guaranteed as to payment of principal and interest by
governments or their agencies or instrumentalities or by supranational
agencies, to 5% of its total assets at the time of purchase. MORE INFORMATION
ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL
INFORMATION.
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval. All other investment practices may be changed by the fund's board of
directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
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SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality, and maturity. In general their prices decline when
interest rates rise and vice versa.
The fund may invest in debt securities rated BBB by S&P or Baa by Moody's or
determined to be of equivalent quality by Capital Research and Management
Company. These securities are described by the rating agencies as speculative.
INVESTING IN VARIOUS COUNTRIES
Investing outside the U.S. involves special risks, particularly in certain
developing countries, caused by, among other things: fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
However, in the opinion of Capital Research and Management Company, investing
outside the U.S. also can reduce certain portfolio risks due to greater
diversification opportunities.
6
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CAPITAL WORLD BOND FUND / PROSPECTUS
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Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS
The fund can purchase and sell currencies to facilitate securities
transactions. In addition, the fund may enter into forward currency contracts
either to hedge against changes in currency exchange rates or in lieu of
holding a security denominated in a particular currency. While entering
into forward currency transactions could minimize the risk of loss due to a
decline in the value of the hedged currency, it could also limit any potential
gain which might result from an increase in the value of the currency. The fund
will not generally attempt to protect against all potential changes in exchange
rates.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities beginning on the date of
the agreement. If the other party to such a transaction fails to deliver or pay
for the securities, the fund could miss a favorable price or yield opportunity,
or could experience a loss.
U.S. PRIVATE PLACEMENTS
Private placements may be either purchased from another institutional investor
that originally acquired the securities in a private placement or directly from
the issuers of the securities. Generally, securities acquired in such private
placements are subject to contractual restrictions on resale and may not be
resold except pursuant to a registration statement under the Securities Act of
1933 or in reliance upon an exemption from the registration requirements under
the Act (for example, private placements sold pursuant to Rule 144A).
Accordingly, all such private placements will be considered illiquid unless
they have been specifically determined to be liquid taking into account factors
such as the frequency and volume of trading and the commitment of dealers to
make markets under procedures adopted by the fund's board of directors.
Additionally, investing in private placement securities could have the effect
of increasing the level of illiquidity of the fund's portfolio to the extent
that "qualified" institutional investors become, for a period of time,
uninterested in purchasing these securities. The fund will not invest more than
10% of its total assets in illiquid securities.
7
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CAPITAL WORLD BOND FUND / PROSPECTUS
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PORTFOLIO TURNOVER
Portfolio changes will be made without regard to the length of time particular
investments may have been held. High portfolio turnover (100% or more)
involves correspondingly greater transaction costs in the form of dealer spreads
or brokerage commissions, and may result in the realization of net capital
gains, which are taxable when distributed to shareholders. Fixed-income
securities are generally traded on a net basis and usually neither brokerage
commissions nor transfer taxes are involved. The fund's portfolio turnover
rate would equal 100% if each security in the fund's portfolio were replaced
once per year.
MATURITY
There are no restrictions on the maturity composition of the portfolio,
although it is anticipated that the fund normally will be invested
substantially in securities with maturities in excess of three years.
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In
addition, Capital Research and Management Company's research professionals make
investment decisions with respect to a portion of the fund's portfolio.
The primary individual portfolio counselors for the fund are listed below.
8
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CAPITAL WORLD BOND FUND / PROSPECTUS
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<TABLE>
<CAPTION>
YEARS OF EXPERIENCE
AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
--------------------
YEARS OF
EXPERIENCE
AS PORTFOLIO
COUNSELOR
(AND RESEARCH WITH CAPITAL
PROFESSIONAL, IF RESEARCH AND
APPLICABLE) FOR MANAGEMENT
PORTFOLIO COUNSELORS CAPITAL WORLD COMPANY OR
FOR CAPITAL WORLD BOND FUND, INC. ITS TOTAL
BOND FUND PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
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<S> <C> <C> <C> <C>
MARK H. Vice President 6 years 9 years 19 years
DALZELL --Investment
Management
Group, Capital
Research and
Management
Company
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LAURENTIUS Vice President, 3 years 3 years 8 years
HARRER Capital
Research
International*
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JAMES R. Vice President 9 years (since 17 21 years
MULALLY -- Fixed the fund began years
Income, Capital operations)
Research
Company*
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THOMAS H. Vice President, 1 year (in 7 years 10 years
HOGH Capital addition to
Research 2 years as
International* research
professional
for the fund
prior to
becoming a
portfolio
counselor for
the fund)
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RICHARD T. Senior Vice 2 years 19 30 years
SCHOTTE President, years
Capital
Research and
Management
Company
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</TABLE>
The fund began operations on August 4, 1987.
* Company affiliated with Capital Research and Management Company.
9
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CAPITAL WORLD BOND FUND / PROSPECTUS
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
- - TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
- - YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
- - DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
INVESTMENT RESULTS
(FOR PERIODS ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND SALOMON
TOTAL AT NET THE FUND AT MAXIMUM BROTHERS
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ INDEX/3/
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<S> <C> <C> <C>
One year 6.34% 1.31% 3.62%
........................................................
Five years 8.41% 7.37% 8.58%
........................................................
Lifetime/4/ 9.55% 8.99% 9.85%
</TABLE>
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Yield/1/,/2/: 4.62%
Distribution Rate/2/: 6.63%
/1/ These fund results were calculated according to a standard that is required
for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ Salomon Brothers World Government Bond Index represents an all-inclusive
universe of institutionally traded bonds. It includes all fixed-rate bonds
with a remaining maturity of one year or longer and with amounts outstanding
of at least the equivalent of $25 million.
/4/ The fund began investment operations on August 4, 1987.
10
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CAPITAL WORLD BOND FUND / PROSPECTUS
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Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
[GRAPH APPEARS HERE]
%
-5 0 5 10 15 20
1987 13.95
1988 2.72
1989 4.57
1990 11.65
1991 15.28
1992 0.82
1993 16.73
1994 -1.43
1995 21.41
1996 6.34
Past results are not an indication of future results.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund usually pays dividends, which may fluctuate, in March, June, October
and December. The first three dividends of each year are normally the same;
the December dividend may be greater or less than the first three reflecting
the impact of foreign currency transactions. Capital gains, if any, are also
usually distributed in December. When a dividend or capital gain is
distributed, the net asset value per share is reduced by the amount of the
payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax
11
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CAPITAL WORLD BOND FUND / PROSPECTUS
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deferral. Early each year, you will be notified as to the amount and federal
tax status of all income distributions paid during the prior year. Such
distributions may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from an
ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, non-diversified management investment company, was
organized as a Maryland corporation in 1987. All fund operations are supervised
by the fund's board of directors who meet periodically and perform duties
required by applicable state and federal laws. Members of the board who are not
employed by Capital Research and Management Company or its affiliates are paid
certain fees for services rendered to the fund as described in the statement of
additional information. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund does not
hold annual meetings of shareholders. However, significant corporate matters
which require shareholder approval, such as certain elections of board members
or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment
12
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CAPITAL WORLD BOND FUND / PROSPECTUS
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adviser to the fund and other funds, including those in The American Funds
Group. Capital Research and Management Company, a wholly owned subsidiary of
The Capital Group Companies, Inc., is headquartered at 333 South Hope Street,
Los Angeles, CA 90071. Capital Research and Management Company manages the
investment portfolio and business affairs of the fund. The management fee paid
by the fund to Capital Research and Management Company may not exceed 0.70% of
the fund's average net assets annually and declines at certain asset levels.
The total management fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is listed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is listed earlier under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
13
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CAPITAL WORLD BOND FUND / PROSPECTUS
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Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP APPEARS HERE]
CALL TOLL-FREE FROM ANYWHERE IN THE U.S
(8 A.M. TO 8 P.M. ET):
800/421-0180
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California
92822-2205
Fax: 714/671-7080
WESTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas
78265-9522
Fax: 210/530-4050
EASTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana
46206-6007
Fax: 317/735-6620
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia
23501-2280
Fax: 804/670-4773
14
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CAPITAL WORLD BOND FUND / PROSPECTUS
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS. IF
YOU ARE INVESTING THROUGH A RETIREMENT PLAN, YOU SHOULD CONTACT YOUR PLAN
ADMINISTRATOR/TRUSTEE ABOUT WHAT SERVICES ARE AVAILABLE AND WITH QUESTIONS
ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
- - Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
- - Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
15
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CAPITAL WORLD BOND FUND / PROSPECTUS
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- - Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
- - Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
- - Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<TABLE>
- ----------------------------------------------------------------
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
-----------------
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
$25,000 but less than $50,000 4.50% 4.71% 3.75%
$50,000 but less than $100,000 4.00% 4.17% 3.25%
$100,000 but less than $250,000 3.50% 3.63% 2.75%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1 million 2.00% 2.04% 1.60%
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
17
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
- - Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
- - Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
- - Right of Accumulation
You may take into account the current value of your existing holdings in
The American Funds Group to determine your sales charge. Direct purchases
of the money market funds are excluded.
18
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
- - Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which, at your request, may include purchases made during the previous 90
days) in non-money market fund shares over a 13-month period. A portion of
your account may be held in escrow to cover additional sales charges which
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 10 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made
19
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
payable to the registered shareholder(s) and is mailed to the address of record
on the account, and provided the address has been used with the account for at
least 10 days. Additional documentation may be required for sales of shares held
in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
20
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
21
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
22
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
23
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL WORLD BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
American Funds American Funds American
Service Company Distributors FundsLine(R)
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
--------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects of
performance information, the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the auditor's
report.
CODE OF ETHICS A current SAI has been filed
with the Securities and
Includes a description of the Exchange Commission and is
fund's personal investing incorporated by reference (is
policy. legally part of the
prospectus).
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the
Service Company fund 333 South Hope Street
800/421-0180 ext. 1 Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[RECYCLE LOGO]
24
<PAGE>
CAPITAL WORLD BOND FUND, INC.
Part B
Statement of Additional Information
FEBRUARY 1, 1997
This document is not a prospectus but should be read in conjunction with the
current prospectus dated February 1, 1997 of Capital World Bond Fund, Inc. (the
"fund"). The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
Capital World Bond Fund, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through
employer-sponsored defined contribution plans should note that not all of the
services or features described below may be available to them, and they should
contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ITEM PAGE NO.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES 1
INVESTMENT RESTRICTIONS 5
FUND OFFICERS AND DIRECTORS 7
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 12
PURCHASE OF SHARES 16
REDEEMING SHARES 22
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23
EXECUTION OF PORTFOLIO TRANSACTIONS 25
GENERAL INFORMATION 25
INVESTMENT RESULTS 27
APPENDIX 31
FINANCIAL STATEMENTS ATTACHED
</TABLE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Objective and Policies."
INVESTMENT POLICY - The fund currently purchases only investment grade
obligations (rated Baa or better by Moody's Investors Service, Inc. or BBB or
better by Standard & Poor's Corporation or determined to be of equivalent
quality by Capital Research and Management Company). Although the fund is not
normally required to dispose of a security in the event its rating is reduced
below the current minimum rating for its purchase (or it is not rated and its
quality becomes equivalent to such a security), if, as a result of a downgrade
or otherwise, the fund holds more than 5% of its net assets in these securities
(also known as "high-yield, high-risk securities"), the fund will dispose of
the excess as expeditiously as possible.
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when
Capital Research and Management Company (the "Investment Adviser") believes
that the sale of a security owned by the fund and the purchase of another
security of better value can enhance principal and/or increase income. A
security may be sold to avoid any prospective decline in market value in light
of what is evaluated as an expected rise in prevailing yields, or a security
may be purchased in anticipation of a market rise (a decline in prevailing
yields). A security also may be sold and a comparable security purchased
coincidentally in order to take advantage of what is believed to be a disparity
in the normal yield and price relationship between the two securities, or in
connection with a "roll" transaction as described below.
CASH AND CASH EQUIVALENTS - Subject to the requirement that under normal market
conditions it maintain at least 65% of its assets in bonds, the fund may
maintain assets in cash or cash equivalents. Cash equivalents include: (1)
commercial paper (short-term notes up to 9 months in maturity issued by
corporations or governmental bodies); (2) commercial bank obligations such as
certificates of deposit (interest-bearing time deposits), bankers' acceptances
(time drafts on a commercial bank where the bank accepts an irrevocable
obligation to pay at maturity); (3) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations); (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less; and (5)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less. Cash and cash equivalents may be denominated in U.S. dollars, non-U.S.
currencies or multinational currency units.
STOCK, WARRANTS AND RIGHTS - The fund may not make direct purchases of common
or preferred stocks, and common or preferred stocks acquired through
conversions, exchanges or the exercise of warrants or rights will be disposed
of by the fund within a reasonable period of time after acquisition. As a
condition of its continuing registration in a state, the fund has undertaken
that its investments in warrants or rights, valued at the lower of cost or
market, will not exceed 5% of the value of its net assets. Included within
that amount, but not to exceed 2% of the fund's net assets, may be warrants or
rights that are not listed on either the New York Stock Exchange or the
American Stock Exchange. Warrants or rights acquired by the fund in units or
attached to securities will be deemed to be without value for purposes of this
restriction. These limits are not fundamental policies of the fund and may be
changed by the Board of Directors without shareholder approval.
OTHER INVESTMENT COMPANIES - Although it intends to do so only infrequently,
if at all, the fund has the authority to invest up to 10% of its total assets
in shares of other investment companies. (Any such shares would be included in
the fund's average net assets for purposes of calculating the investment
adviser's fee, as described under "Investment Advisory and Service Agreement"
below). The fund may not invest more than 5% of its total assets in any one
investment company nor acquire more than 3% of the outstanding voting
securities of any one investment company.
REPURCHASE AGREEMENTS - Although the fund has no current intention to do so
during the next 12 months, the fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. The seller must
maintain with the fund's custodian collateral equal to at least 100% of the
repurchase price including accrued interest, as monitored daily by the
Investment Adviser. If the seller under the repurchase agreement defaults, the
fund may incur a loss if the value of the collateral security under or subject
to the repurchase agreement has declined and may incur disposition costs in
connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, liquidation of the collateral by the fund
may be delayed or limited.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities . When the fund agrees to purchase such securities it assumes the
risk of any decline in the value of the security beginning on the date of the
agreement. When the fund agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities. If the
other party to such a transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could experience
a loss beginning on the date of the agreement.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it may have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
Although the fund has no current intention to do so during the next 12 months,
the fund is authorized to enter into reverse repurchase agreements and "roll"
transactions. A reverse repurchase agreement is the sale of a security by a
fund and its agreement to repurchase the security at a specified time and
price. A "roll" transaction is the sale of GNMA certificates or other
securities together with a commitment to purchase similar, but not identical,
securities at a future date. The fund will segregate liquid assets which will
be marked to market daily in an amount sufficient to cover its obligations
under "roll" transactions and reverse repurchase agreements with broker-dealers
(but no collateral is required on reverse repurchase agreements with banks).
Under the Investment Company Act of 1940 (the "1940 Act"), these transactions
may be considered borrowings by the fund; accordingly, the fund will limit
these transactions, together with any other borrowings, to no more than
one-third of its total assets. Although these transactions will not be entered
into for the purpose of leveraging, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily will be in a leveraged position (I.E., it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. As the fund's aggregate commitments under these
transactions increase, the opportunity for leverage similarly increases. If
the income and gains on securities purchased with the proceeds of reverse
repurchase or roll agreements exceed the costs of the agreements, the fund's
earnings or net asset value will increase faster than otherwise would be the
case; conversely, if the income and gains fail to exceed the costs, earnings or
net asset value would decline faster than otherwise would be the case.
CURRENCY TRANSACTIONS - The fund has the ability to enter into forward currency
contracts to either protect against changes in currency exchange rates or in
lieu of holding a security denominated in a particular currency. A forward
currency contract is an obligation to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The fund will segregate liquid assets which will be marked to market
daily to meet its forward contract commitments to the extent required by the
Securities and Exchange Commission. Although forward contracts entered into by
the fund will typically involve the purchase or sale of a currency against the
U.S. dollar, the fund also may purchase or sell one currency against another
currency (other than the U.S. dollar).
Although the fund has no current intention of doing so (at least for the next
12 months), the fund may attempt to accomplish objectives similar to those
involved in its use of forward currency contracts by purchasing put or call
options on currencies. A put option gives the fund as purchaser the right (but
not the obligation) to sell a specified amount of currency at the exercise
price until the expiration of the option. A call option gives the fund as
purchaser the right (but not the obligation) to purchase a specified amount of
currency at the exercise price until its expiration. The fund might purchase a
currency put option, for example, to protect itself during the contract period
against a decline in the dollar value of a currency in which it holds or
anticipates holding securities. If the currency's value should decline against
the dollar, the loss in currency value should be offset, in whole or in part,
by an increase in the value of the put. If the value of the currency instead
should rise against the dollar, any gain to the fund would be reduced by the
premium it had paid for the put option. A currency call option might be
purchased, for example, in anticipation of, or to protect against, a rise in
the value against the dollar of a currency in which the fund anticipates
purchasing securities. Currency options may be either listed on an exchange or
traded over-the-counter ("OTC options"). Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation), and have standardized
strike prices and expiration dates. OTC options are two-party contracts with
negotiated strike prices and expiration dates. The fund will not purchase an
OTC option unless it believes that daily valuations for such options are
readily obtainable. OTC options differ from exchange-traded options in that
OTC options are transacted with dealers directly and not through a clearing
corporation (which guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC options are
valued on the basis of a quote provided by the dealer. In the case of OTC
options, there can be no assurance that a liquid secondary market will exist
for any particular option at any specific time.
Certain provisions of the Internal Revenue Code may limit the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
LOANS OF PORTFOLIO SECURITIES - The fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors
whose financial condition is monitored by the Investment Adviser. The borrower
must maintain with the fund's custodian collateral consisting of cash, cash
equivalents or U.S. Government securities equal to at least 100% of the value
of the borrowed securities, plus any accrued interest. The Investment Adviser
will monitor the adequacy of the collateral on a daily basis. The fund may at
any time call a loan of its portfolio securities and obtain the return of the
loaned securities. The fund will receive any interest paid on the loaned
securities and a fee or a portion of the interest earned on the collateral.
The fund will limit its loans of portfolio securities to an aggregate of 10% of
the value of its total assets, measured at the time any such loan is made.
DIVERSIFICATION - For the fund to be considered a "diversified" investment
company under federal and state laws, it would be required to limit its
investment in any one issuer (other than the U.S. Government) to 5% of its
total assets. However, such a limitation would reduce the extent to which the
fund could concentrate its non-U.S. investments in securities of governmental
issuers, which are generally considered to be of higher credit quality than are
non-U.S. private issuers, and accordingly might increase the fund's investment
risk. The fund intends to comply with the diversification and other
requirements of the U.S. Internal Revenue Code of 1986, as amended, applicable
to regulated investment companies so that the fund will not be subject to U.S.
taxes on the net investment income and net capital gains that it distributes to
its shareholders.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions which may not be changed
without a majority vote of its outstanding shares. Such majority is defined by
the 1940 Act as the vote of the lesser of (i) 67% or more of the outstanding
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (ii) more
than 50% of the outstanding voting securities. These restrictions provide that
the fund may not:
1. Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the
same industry;
2. Invest in companies for the purpose of exercising control or
management;
3. Buy or sell real estate or commodities or commodity contracts;
however, the fund may invest in debt securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein, including real estate investment trusts, and may purchase or
sell currencies (including forward currency contracts) or options on
currencies;
4. Acquire securities subject to restrictions on disposition or
securities for which there is no readily available market or OTC options for
which there is no secondary market, or enter into repurchase agreements or
purchase time deposits maturing in more than seven days, if, immediately after
and as a result, the value of such securities would exceed, in the aggregate,
10% of the fund's total assets;
5. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the Securities Act of 1933;
6. Make loans, except that the fund may purchase debt securities and
enter into repurchase agreements and make loans of portfolio securities;
7. Sell securities short, except to the extent that the fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
8. Purchase securities on margin, provided that the fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
9. Borrow money, except from banks for temporary or emergency purposes
not in excess of 5% of the value of the fund's total assets (in the event that
the asset coverage for such borrowings falls below 300%, the fund will reduce,
within three days, the amount of its borrowings in order to provide for 300%
asset coverage), and except that the fund may enter into reverse repurchase
agreements and engage in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the fund may not exceed one-third of the fund's total assets;
10. Mortgage, pledge, or hypothecate any of its assets, provided that
this restriction shall not apply to the transfer of securities in connection
with any permissible borrowing;
11. Invest in interests in oil, gas, or other mineral exploration or
development programs;
12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three years of
continuous operation;
13. Write, purchase or sell put options, call options or combinations
thereof, except that this shall not prevent the purchase of put or call options
on currencies;
14. Purchase or retain the securities of any issuer, if those
individual officers and Directors of the fund, its investment adviser, or
distributor, each owning beneficially more than 1/2 of 1% of the securities of
such issuer, together own more than 5% of the securities of such issuer.
A further investment policy of the fund, which may be changed by action of the
Board of Directors without shareholder approval, is that the fund will not
invest in securities of an issuer if the investment would cause the fund to own
more than 10% of any class of securities of any one issuer.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL TOTAL
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION COMPENSATION NUMBER
ORGANIZATIONS LISTED MAY HAVE (INCLUDING INCLUDING OF FUND
CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED VOLUNTARILY BOARDS ON
COMPENSATION/1/) FROM DEFERRED WHICH
THE FUND DURING COMPENSATION DIRECTOR
FISCAL YEAR ENDED FROM ALL FUNDS SERVES/2/
SEPTEMBER 30, 1996 MANAGED BY
CAPITAL RESEARCH
AND MANAGEMENT
COMPANY/2/ FOR
THE YEAR ENDED
9/30/96
<S> <C> <C> <C> <C> <C>
++ H. Frederick Christie Private Investor. Former President and $2,800/3/ $145,750 18
Age: 63 Director Chief Executive Officer, The Mission
P.O. Box 144 Group (non-utility holding company,
Palos Verdes Estates, CA 90274 subsidiary of Southern California Edison
Company)
+ Don R. Conlan Director President Emeritus, The Capital Group none/4/ none/4/ 12
Age: 61 Companies, Inc.
1630 Milan Avenue
South Pasadena, CA 91030
Diane C. Creel Director CEO and President, $2,000 $37,300 12
Age: 48 The Earth Technology Corporation
100 W. Broadway
Suite 5000
Long Beach, CA 90802
Martin Fenton, Jr. Director Chairman, Senior Resource Group $2,200/3/ $116,300 16
Age: 60 (management of senior living centers)
4350 Executive Drive
Suite 101
San Diego, CA 92121-2116
Leonard R. Fuller Director President, Fuller & Company, Inc. $2,600 $40,300 12
Age: 50 (financial management consulting firm)
4337 Marina City Drive
Suite 841 ETN
Marina del Rey, CA 90292
+* Abner D. Goldstine Capital Research and Management none/4/ none/4/ 12
Age: 67 President, PEO Company, Senior Vice President
and Director and Director
+** Paul G. Haaga, Jr. Capital Research and Management none/4/ none/4/
Age: 48 Chairman of Company, Executive Vice President and 14
the Board Director
Herbert Hoover III Director Private Investor $2,200 $61,400
Age: 69 14
1520 Circle Drive
San Marino, CA 91108
Richard G. Newman Director Chairman, President and CEO, $2,200/3/ $65,300
Age: 62 AECOM Technology Corporation 13
3250 Wilshire Boulevard (architectural engineering)
Los Angeles, CA 90010-1599
Peter C. Valli Director Chairman , BW/IP $2,200/3/ $37,950
Age: 69 International Inc. (industrial 12
45 Sea Isle Drive manufacturing)
Long Beach, CA 90803
</TABLE>
+ Directors who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible Directors under a non-qualified
deferred compensation plan adopted by the fund in 1994. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: H. Frederick Christie ($5,070), Martin Fenton, Jr. ($4,023), Richard
G. Newman ($8,054), and Peter C. Valli ($7,439). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/4/ Don R. Conlan, Abner D. Goldstine and Paul G. Haaga, Jr. are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
(with their principal occupations during the past five years)#
* MICHAEL J. DOWNER, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
** MARY C. HALL, VICE PRESIDENT . Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
* JULIE F. WILLIAMS, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
** ANTHONY W. HYNES, JR., TREASURER. Capital Research and Management Company,
Vice President - Fund Business Management Group
* KIMBERLY S. VERDICK, ASSISTANT SECRETARY. Capital Research and Management
Company,
Assistant Vice President - Fund Business Management Group
** TODD L. MILLER, ASSISTANT TREASURER. Capital Research and Management
Company, Assistant Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92821.
*** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
No compensation is paid by the fund to any officer or Director who is a
director or officer of the Investment Adviser. The fund pays annual fees of
$1,500 to Directors who are not affiliated with the Investment Adviser, plus
$200 for each Board of Directors meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Directors. The Directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the Directors who are not affiliated with the
Investment Adviser. As of January 1, 1997, the officers and Directors and
their families as a group, owned beneficially or of record fewer than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have years of investment experience. The
Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071,
and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types throughout the world. These investors include privately owned
businesses and large corporations, as well as schools, colleges, foundations
and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement"), between the fund and the Investment Adviser, will
continue in effect until October 31, 1997 unless sooner terminated, and may be
renewed from year to year thereafter provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Directors who are
not parties to the Agreement or interested persons (as defined in the 1940 Act)
of any such party, cast in person, at a meeting called for the purpose of
voting on such approval. The Agreement provides that either party has the
right to terminate it without penalty, upon 60 days' written notice to the
other party and that the Agreement automatically terminates in the event of its
assignment (as defined in the 1940 Act).
The Agreement provides for an advisory fee reduction by any amount necessary
to assure that the fund's annual ordinary net operating expenses do not exceed
applicable expense limitations in any state in which the fund's shares are
being offered for sale. Other expenses which are not subject to these
limitations include interest, taxes, brokerage commissions, transaction costs,
and extraordinary items such as litigation, as well as, for purposes of the
state expense limitations, any amounts excludable under the applicable
regulation. Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, are accounted for as capital items and not as expenses.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space and utilities, necessary small
office equipment and general purpose accounting forms, supplies, and postage
used at the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer
and dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares
(including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; compensation, fees, and expenses paid
to directors unaffiliated with the Investment Adviser; association dues; costs
of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.
The management fee is based upon the annual rates of 0.70% of the first $500
million of the fund's average net assets, plus 0.60% on average net assets in
excess of $500 million but not exceeding $1 billion, plus 0.50% on average net
assets in excess of $1 billion.
During the fiscal years ended September 30, 1996, 1995, and 1994, the
Investment Adviser's total fees amounted to $4,847,000, $4,073,000, and
$3,801,000, respectively.
The fund pays all expenses not specifically assumed by the Investment Adviser,
including, but not limited to, registration and filing fees with federal and
state agencies, blue sky expenses, expenses of shareholders meetings, the
expense of reports to existing shareholders, expenses of printing proxies and
prospectuses, insurance premiums, legal and auditing fees, dividend
disbursement expenses, the expense of the issuance, transfer and redemption of
its shares, expenses pursuant to the fund's Plan of Distribution, custodian
fees, costs of printing and preparation of registration statements, taxes and
compensation and expenses of Directors who are not affiliated with the
Investment Adviser.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the
1940 Act (see "Principal Underwriter" in the Prospectus). The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended
September 30, 1996 amounted to $707,000 after allowance of $3,011,000 to
dealers. During the fiscal years ended September 30, 1995, 1994, and 1993, the
Principal Underwriter retained $838,000, $1,293,000, and $807,000,
respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors and separately by a
majority of the Directors who are not "interested persons" of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by a
majority of the outstanding voting securities of the fund. The officers and
Directors who are "interested persons" of the fund may be considered to have a
direct or indirect financial interest in the operation of the Plan due to
present or past affiliations with the Investment Adviser and related companies.
Potential benefits of the Plan to the fund include improved shareholder
services, savings to the fund in transfer agency costs, savings to the fund in
advisory fees and other expenses, and benefits to the investment process from
growth or stability of assets and maintenance of a financially healthy
management organization. The selection and nomination of Directors who are not
"interested persons" of the fund is committed to the discretion of the
Directors who are not interested persons during the existence of the Plan.
Plan expenditures are reviewed quarterly and must be renewed annually by the
Board of Directors.
Under the Plan the fund may expend up to 0.30% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the Board of Directors has approved the category
of expenses for which payment is being made. These include service fees for
qualified dealers and dealers commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees). During the fund's fiscal year ended September 30,
1996, the Fund paid $1,746,000 to the Principal Underwriter under the Plan as
compensation to dealers. As of September 30, 1996, accrued and unpaid
distribution expenses to the Principal Underwriter were $111,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and to elect the tax status of a
"regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Under Subchapter M, if
the fund distributes within specified times at least 90% of the sum of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses), it will be taxed
only on that portion (if any) of the investment company taxable income and net
capital gain which it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or currencies or other
income derived with respect to its business of investing in such stock,
securities, or currencies; (b) derive less than 30% of its gross income from
the sale or other disposition of stock or securities held less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer), and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and capital
gain net income and (ii) any amount on which the fund pays income tax for the
year. The fund intends to distribute net investment income and net capital
gains so as to minimize or meet these distribution requirements to avoid the
excise tax liability.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
It is anticipated that any net gain realized from the closing out of forward
currency contracts will be considered a gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above. In order to
avoid realizing excessive gains on securities or currencies held less than
three months, the fund may be required to defer the closing out of a forward
currency contract beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains on forward currency contracts,
which have been open for less than three months as of the end of the fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test, as discussed above.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of non-U.S.
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Except for transactions in forward currency contracts which are classified as
part of a "mixed straddle," any gain or loss recognized with respect to forward
currency contracts is considered to be 60% long-term capital gain or loss, and
40% short-term capital gain or loss, without regard to the holding period of
the contract. In the case of a transaction classified as a "mixed straddle,"
the recognition of losses may be deferred to a later taxable year. Code
Section 988 may also apply to forward currency contracts. Under Section 988,
each non-U.S. currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
The fund will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions
of capital gains realized on the fund's other investments.
Dividends and distributions generally are taxable to shareholders at the time
they are paid. However, dividends and distributions declared in October,
November and December and made payable to shareholders of record in such a
month are treated as paid and are thereby taxable as of December 31, provided
that the fund pays the dividend no later than the end of January of the
following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, a fund's taxable income for each year will be computed without
regard to any net non-U.S. currency loss attributable to transactions after
October 31, and any such net non-U.S. currency loss will be treated as arising
on the first day of the following taxable year.
The fund may be required to pay withholding and other taxes imposed by
countries outside the United States which would reduce the fund's investment
income, generally at rates from 10% to 40%. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If more
than 50% in value of the fund's total assets at the close of its taxable year
consist of securities of non-U.S. corporations, the fund will be eligible to
file elections with the Internal Revenue Service pursuant to which shareholders
of the fund will be required to include their respective pro rata portions of
such withholding taxes in their federal income tax returns as gross income,
treat such amounts as foreign taxes paid by them, and deduct such amounts in
computing their taxable income or, alternatively, use them as foreign tax
credits against their federal income taxes.
As of the date of this statement of additional information, the maximum
individual tax rate applicable to ordinary income is 39.6% (effective tax rates
may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gains is 35%. However, to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have taxable
income in excess of $100,000 in a taxable year will be required to pay an
additional amount of tax of up to $11,750, and corporations which have taxable
income in excess of $15,000,000 for a taxable year will be required to pay an
additional amount of income tax up to $100,000. Naturally, the amount of tax
payable by a taxpayer will be affected by a combination of tax law rules
covering deductions, credits, deferrals, exemptions, sources of income and
other matters. Under the Code, an individual is entitled to establish an IRA
each year (prior to the tax return filing deadline for that year) whereby
earnings on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
The foregoing is limited to a summary discussion of federal taxation and
should not be viewed as a comprehensive discussion of all provisions of the
Code relevant to investors. Dividends and distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the dealer's address printed on your
investment purchase is made and who has a account statement.
dealer sales agreement with American
Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at
fund and mail to the address the bottom of a recent account
indicated on the account application. statement, make your check payable
Please indicate an investment to the fund, write your account number
dealer on the account application. on your check, and mail the check and
form in the envelope provided with
your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then follow section on the account application or
the procedures for additional American FundsLink Authorization
investments. Form. Once you establish the
privilege, you, your financial advisor or
any person with your account
information can call American
FundsLine(R) and make investments
by telephone (subject to conditions
noted in "Telephone Purchases, Sales
and Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
investment dealer on the
account. Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income Fund(SM) 33
1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(SM) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(R) 35
1,000
Washington Mutual Investors Fund(SM) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(R) 40
1,000
American High-Income Trust(SM) 21
1,000
The Bond Fund of America(SM) 08
1,000
Capital World Bond Fund(R) 31
1,000
Intermediate Bond Fund of America(SM) 23
1,000
Limited Term Tax-Exempt Bond Fund of 43
America(SM) 1,000
The Tax-Exempt Bond Fund of America(R) 19
1,000
The Tax-Exempt Fund of California(R)* 20
1,000
The Tax-Exempt Fund of Maryland(R)* 24
1,000
The Tax-Exempt Fund of Virginia(R)* 25
1,000
U.S. Government Securities Fund(SM) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 09
2,500
The Tax-Exempt Money Fund of America(SM) 39
2,500
The U.S. Treasury Money Fund of America(SM) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
none none
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $25,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and capital gain distributions on these shares held in escrow
will be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total purchases had been made at a single time. If
the difference is not paid within 45 days after written request by the
Principal Underwriter or the securities dealer, the appropriate number of
escrowed shares will be redeemed to pay such difference. If the proceeds from
this redemption are inadequate, the purchaser will be liable to the Principal
Underwriter for the balance still outstanding. The Statement may be revised
upward at any time during the 13-month period, and such a revision will be
treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the statement of intention, a sales charge will be assessed
according to the sales charge breakpoint thus determined. There will be no
retroactive adjustments in sales charges on investments previously made during
the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for fund shares, the public offering price, is based on the
net asset value per share which is calculated once daily at the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open as set forth below. The New York Stock Exchange is currently
closed on weekends and on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. The net asset value per share is determined as follows:
1. Stocks and convertible bonds will be valued at closing sales prices
reported on recognized securities exchanges on the day of valuation or, for
listed stocks and convertible bonds having no sales reported and for unlisted
stocks and convertible bonds, upon last-reported bid prices on that date.
Long-term fixed-income obligations denominated in U.S. dollars generally are
valued at prices obtained for the day of valuation from a bond pricing service;
however, in circumstances where the Investment Adviser deems it appropriate to
do so, such securities are valued at the mean of representative quoted bid or
asked prices for such securities or, if such prices are not available, at
prices for securities of comparable maturity, quality and type. Short-term
securities with more than 60 days remaining to maturity are valued at the mean
of representative quoted bid and asked prices. Short-term securities with 60
days or less remaining to maturity are amortized to maturity based on their
cost to the fund, if acquired within 60 days of maturity or, if already held by
the fund on the 60th day, based on the value determined on the 61st day.
Securities denominated in currencies other than U.S. dollars generally are
valued on the basis of bid quotations. Options on currencies purchased by the
fund are valued at their bid price on the exchange in the case of listed
options or at the average of the bid prices obtained from dealers in the case
of OTC options. Where market quotations are not readily available, securities
are valued at fair value by the Board of Directors or a committee thereof. The
fair value of any other assets is added to the value of securities to arrive at
total assets;
2. 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 as
determined by the fund's officers.
3. The fund's liabilities, including proper accruals of expense items,
are deducted from total assets; and
4. The net assets so obtained are then divided by the total number of
shares outstanding, and the result, rounded to the nearer cent, is the net
asset value per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other investment company, person or
entity, where, after the sale, such investment company, person, or entity would
own beneficially directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Directors.
REDEEMING SHARES
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<CAPTION>
<S> <C>
By writing to Send a letter of instruction specifying
American Funds the name of the fund, the number of shares
Service Company (at or dollar amount to be sold, your name and
the appropriate account number. You should also enclose
address indicated any share certificates you wish to redeem.
under "Principal For redemptions over $50,000 and for
Underwriter and certain redemptions of $50,000 or less
Transfer Agent" in (see below), your signature must be
the Prospectus) guaranteed by a bank, savings association,
credit union, or member firm of a domestic
stock exchange or the National Association
of Securities Dealers, Inc. that is an
eligible guarantor institution. You
should verify with the institution that it
is an eligible guarantor prior to signing.
Additional documentation may be required
for redemption of shares held in
corporate, partnership or fiduciary
accounts. Notarization by a Notary Public
is not an acceptable signature guarantee.
By contacting your If you redeem shares through your
investment dealer investment dealer, you may be charged for
this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE
REDEEMED THROUGH THE DEALER.
You may have a You may use this option, provided the
redemption check account is registered in the name of an
sent to you by individual(s), a UGMA/UTMA custodian, or a
using American non-retirement plan trust. These
FundsLine(R) or by redemptions may not exceed $10,000 per
telephoning, day, per fund account and the check must
faxing, or be made payable to the shareholder(s) of
telegraphing record and be sent to the address of
American Funds record provided the address has been used
Service Company with the account for at least 10 days.
(subject to the See "Principal Underwriter and Transfer
conditions noted in Agent" in the Prospectus and "Exchange
this section and in Privilege" below for the appropriate
"Telephone telephone or fax number.
Purchases, Sales
and Exchanges"
below)
In the case of the Upon request (use the account application
money market funds, for the money market funds) you may
you may have establish telephone redemption privileges
redemptions wired (which will enable you to have a
to your bank by redemption sent to your bank account)
telephoning and/or check writing privileges. If you
American Funds request check writing privileges, you will
Service Company be provided with checks that you may use
($1,000 or more) or to draw against your account. These
by writing a check checks may be made payable to anyone you
($250 or more) designate and must be signed by the
authorized number of registered
shareholders exactly as indicated on your
checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 15 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) (see "American FundsLine(R)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent"
in the Prospectus for the appropriate fax numbers) or telegraphing American
Funds Service Company. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American
FundsLine(R) are subject to the conditions noted above and in "Redeeming
Shares--Telephone Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(R)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.
Dealer concessions on underwritings, for the fiscal years ended September 30,
1996, 1995, and 1994 amounted to $151,000, $22,000, and $110,000 ,
respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, , One Chase Manhattan Plaza, New York, NY
10081, as Custodian. Non-U.S. securities may be held by the Custodian pursuant
to sub-custodial agreements in non-U.S. banks or non-U.S. branches of U.S.
banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $608,000 for the fiscal year ended September 30, 1996.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent auditors
since inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements included in this Statement of Additional
Information have been so included in reliance on the report of the independent
auditors given on the authority of said firm as experts in accounting and
auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors, as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on September 30.
Shareholders are provided, at least semiannually, with reports showing the
investment portfolio, financial statements and other information. The fund's
financial statements are audited annually by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined annually by the Directors.
PERSONAL INVESTING POLICY - The Investment Adviser and its affiliated companies
have adopted a personal investing policy consistent with Investment Company
Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; disclosure of personal holdings by certain
investment personnel prior to recommendation for purchase for the fund;
blackout periods on personal investing for certain investment personnel; ban on
short-term trading profits for investment personnel; limitations on service as
a director of publicly traded companies; and disclosure of personal securities
transactions. You may obtain a summary of the personal investing policy by
contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
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DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE -- SEPTEMBER 30, 1996
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $16.86
Offering price per share (100/95.25 of per share
net asset value, which takes into account the
fund's current maximum sales charge) $17.70
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SHAREHOLDER VOTING RIGHTS - The fund currently issues shares in one class and
series, but the Board of Directors may establish additional classes or series
of shares in the future. When more than one class or series of shares is
outstanding, shares of all classes and series will vote together for a single
set of Directors, and on other matters affecting the entire fund, with each
share entitled to a single vote. On matters affecting only one class or
series, only the shareholders of that class or series shall be entitled to
vote. On matters relating to more than one class or series but affecting the
classes and series differently, separate votes by class and series are
required.
INVESTMENT RESULTS
The fund's yield is 5.55% based on a 30-day (or one month) period ended
September 30, 1996, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
In addition, investments in certain currency contracts may affect the fund's
distribution rate. The Internal Revenue Service requires funds to recognize as
ordinary income certain realized currency gains on non-U.S. currency
transactions and to distribute such amounts as dividends to shareholders.
Conversely, realized currency losses must be recognized as ordinary losses and
reflected by reductions in dividends. Because such adjustments affect a fund's
distribution rate calculations, a fund's distribution rate may be greater (if
there is a net currency gain) or lesser (if there is a net currency loss) than
its SEC yield. In addition, because of special tax treatment, certain other
transactions may result in differences between the SEC yield and distribution
rate. For example, unrealized gains on certain open forward currency contracts
are required to be recognized as income and distributed as dividends (and are
therefore included in the distribution rate but are not included in the SEC
yield).
The fund's total return over the past 12 months and average annual total
return for the five-year and lifetime periods ending on September 30, 1996 was
2.55%, 7.78% and 8.82%, respectively. The average annual total return ("T") is
computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. The
fund will calculate total return for five and ten-year periods after such
periods have elapsed. In addition, the fund will provide lifetime average
annual total return figures.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages eight common stock funds that are at least 10 years old. In the
rolling 10-year periods since January 1, 1996 (121 in all), those funds have
had better total returns than the Standard and Poor's 500 Stock Composite Index
in 94 of the 121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The fund may from time to time compare its investment results with the
following:
(1) The Salomon Brothers non-U.S. Dollar Indexes, which measure the total
return of high-quality non-U.S. dollar denominated securities in major sectors
of the bond market.
(2) The Lehman Brothers Government/Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign-targeted issues), all publicly issued debt of agencies
of the U.S.Government (excluding mortgage-backed securities), and all public,
fixed-rate, non-convertible investment grade domestic corporate debt.
(3) The Salomon Brothers Broad Investment-Grade Bond Index, which represents
over 5,000 individually priced securities and is a market capitalization
weighted index and includes Treasury, Government-sponsored, mortgage, and
investment-grade fixed-rate corporates (BBB/Baa3) with a maturity of one year
or longer and a minimum of $50 million outstanding at entry, and which remain
in the Index until their amount falls below $25 million.
(4) The Salomon Brothers World Bond Index, which is a sub-component of the
International Bond Index and provides a comprehensive measure of the total
return of high-quality securities in major sectors of the bond market.
Included in the index are U.S. and non-U.S. Government bonds.
(5) The Salomon Brothers World Government Bond Index, which is designed to
provide a comprehensive measure of the total return performance of the domestic
Government bond markets in each of nine countries (United States, Japan, United
Kingdom, Germany, France, Canada, the Netherlands, Australia and Switzerland)
and in the nine countries combined.
(6) Average of Savings Accounts, which is a measure of all kinds of savings
deposits, including longer-term certificates (based on figures supplied by the
U.S. League of Savings Institutions). Savings accounts offer a guaranteed rate
of return on principal, but no opportunity for capital growth.
(7) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g. food,
clothing, shelter, and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
The fund may also refer to results compiled by organizations such as Lipper
Analytical Services, Morningstar, Inc. and Wiesenberger Investment Companies
Services. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
In addition, the fund may also from time to time illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans.
<TABLE>
<CAPTION>
If you are considering the fund for an Individual Retirement Account
Here's how much you would have if you invested $2,000 a year in the Fund:
<S> <C> <C>
1 Year 3 Years Lifetime
(10/1/95 - 9/30/96) (10/1/93 - 9/30/96) (8/4/87 - 9/30/96)
2,051 $6,882 $29,816
</TABLE>
See the difference time can make in an investment program
<TABLE>
<CAPTION>
... and taken all
distributions in shares,
If you had invested your investment would
$10,000 in the Fund have been worth this
this many years ago... much at September 30, 1996
<S> <C> <C>
| |
Periods
Number of Years 10/1-9/30 Value**
1 1995 - 1996 $10,255
2 1994 - 1996 12,115
3 1993 - 1996 12,038
4 1992 - 1996 13,285
5 1991 - 1996 14,544
6 1990 - 1996 16,889
7 1989 - 1996 18,225
8 1988 - 1996 19,222
9 1987 - 1996 21,757
Lifetime 1987 - 1996* 21,684
</TABLE>
Illustration of a $10,000 investment in the Fund
WITH DIVIDENDS AND CAPITAL GAINS REINVESTED
(For the lifetime of the Fund August 4, 1987 - September 30, 1996)
COST OF SHARES VALUE OF SHARES**
<TABLE>
<CAPTION>
Fiscal Total From From From
Year End Annual Dividends Investment Initial Capital Gains Dividends Total
September 30 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1987* --- --- $10,000 $9,493 --- --- $ 9,493
1988 $ 621 $ 621 10,621 10,120 $ 8 615 10,743
1989 801 1,422 11,422 9,700 237 1,393 11,330
1990 945 2,367 12,367 9,640 236 2,355 12,231
1991 948 3,315 13,315 10,400 254 3,545 14,199
1992 1,000 4,315 14,315 10,633 260 4,649 15,542
1993 871 5,186 15,186 10,987 443 5,729 17,159
1994 1,046 6,232 16,232 10,220 491 6,342 17,053
1995 1,354 7,586 17,586 11,207 539 8,394 20,140
1996 1,474 9,060 19,060 11,240 540 9,904 21,684
</TABLE>
The dollar amount of capital gain distributions during the period was $485.
* From inception on August 4, 1987.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc. employs the designations "Prime-1"and
"Prime-2" to indicate the two highest grades of commercial paper.
"ISSUERS RATED PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured sources
of alternate liquidity."
"ISSUERS RATED PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained."
Standard & Poor's Corporation's two highest ratings of commercial paper are
"A-1" and "A-2."
"A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category in which the fund invests
may be delineated with the numbers 1 or 2 to indicate the relative degree of
safety."
"A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong."
"A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
'A-1'."
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. rates "investment grade" long-term debt
obligations issued by various entities from "Aaa" to "Baa." These ratings are
described below:
"Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
Standard & Poor's Corporation rates the investment grade long-term debt
obligations of various entities in categories ranging from "AAA" to "BBB"
according to quality. These ratings are described below:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital World Bond Fund Principal Market Percent
Investment Portfolio September 30, 1996 Amount Value of Net
Bonds & Notes (000) (000) Assets
Australian Dollars
Australian Government:
12.50 1998 A$ 4,000 US$3,389 .42%
4.00% 2010 /1/ 1,000 810 .10
New South Wales Treasury:
11.50% 1999 1,000 878 .11
7.00% 2004 5,500 4,151 .51
News America Holdings Inc. 8.625% 2014 11,000 7,965 .98
Southern Australia Finance Authority
11.25% 2001 1,500 1,358 .17
-------- --------
18,551 2.29
-------- --------
Austrian Schillings
Austrian Government 5.50% 2001 ATS5,000 473 .06
-------- --------
British Pounds
Bank of Ireland 9.75% 2005 735 Pounds 1,239 .15
European Investment Bank 6.00% 2004 250 352 .04
United Kingdom:
9.50% 1999 2,000 3,324 .41
7.00% 2001 12,750 19,850 2.45
4.375% 2004/1/ 3,000 5,498 .68
8.50% 2005 1,850 3,063 .38
-------- --------
33,326 4.11
-------- --------
Canadian Dollars
Canadian Government:
6.25% 1998 C$ 2,000 1,497 .19
10.75% 1998 3,500 2,790 .34
9.75% 2001 17,500 14,750 1.82
0% 2003 1,500 669 .08
7.50% 2003 10,250 7,822 .96
0% 2005 12,685 4,915 .61
7.00% 2006 3,000 2,181 .27
10.75% 2009 10,000 9,415 1.16
4.25% 2021/1/ 12,000 9,079 1.12
-------- --------
53,118 6.55
-------- --------
Danish Kroner
Danish Government:
9.00% 1998 DKr88,000 16,392 2.02
9.00% 2000 16,000 3,085 .38
8.00% 2001 10,000 1,869 .23
8.00% 2003 10,000 1,854 .23
7.00% 2024 12,000 1,860 .23
-------- --------
25,060 3.09
-------- --------
German Marks
Bayerische Vereinsbank AG
6.50% 2005 DM11,000 7,356 .91
Bundesobligation 5.875% 2000 8,250 5,638 .70
Deutschland Republic:
8.25% 2001 8,500 6,329 .78
8.00% 2002 32,000 23,654 2.92
6.75% 2003 17,500 12,162 1.50
6.50% 2005 11,000 7,417 .91
6.875% 2005 10,000 6,913 .85
6.25% 2024 10,000 6,037 .74
German Unity Fund 8.00% 2002 3,500 2,584 .32
Norddeutsche Landesbank Girozentrale
6.75% 2005 3,500 2,378 .29
Rheinische Hypothekenbank 5.50% 2001 13,000 8,598 1.06
Treuhandanstalt:
7.375% 2002 2,700 1,937 .24
7.125% 2003 45,600 32,314 3.99
7.50% 2004 4,500 3,237 .40
-------- --------
126,554 15.61
-------- --------
Finnish Markkaa
Finnish Government:
9.50% 2004 FM4,000 1,041 .13
-------- --------
Irish Pounds
Ireland (Republic of):
6.25% 1999 8,850 IRPounds 14,198 1.75
8.00% 2000 4,250 7,216 .89
6.50% 2001 1,800 2,898 .36
6.25% 2004 8,030 12,445 1.53
8.00% 2006 2,000 3,428 .42
Irish Permanent Treasury
6.75% 2000 1,100 1,769 .22
-------- --------
41,954 5.17
-------- --------
Italian Lire
Deutsche Bank Finance NV 11.00% 1996 Lr1,550,000 1,022 .13
Italian Government National:
8.50% 1999 2,000,000 1,340 .16
8.50% 1999 3,500,000 2,342 .29
9.50% 2001 5,000,000 3,471 .43
8.50% 2004 500,000 331 .04
10.50% 2005 3,500,000 2,585 .32
KfW International Finance Inc.
11.625% 1998 5,500,000 3,885 .48
- --------
14,976 1.85
-------- --------
Japanese Yen
European Investment Bank 6.75% 2001 1,150,000Yen 12,462 1.53
Export-Import Bank of Japan:
4.375% 2003 325,000 3,231 .40
2.875% 2005 230,000 2,057 .25
GMAC International Finance 3.75% 1999 300,000 2,827 .35
International Bank for Reconstruction
and Development 4.50% 2003 74,000 743 .09
Japan Development Bank:
5.00% 1999 590,000 5,838 .72
6.50% 2001 87,000 943 .12
-------- --------
28,101 3.46
-------- --------
Mexican Pesos
CETES B 970731 MXP434 467 .06
Netherlands Guilders
Netherlands Government:
7.50% 1999 NLG5,000 3,176 .39
8.50% 2001 1,400 935 .12
8.75% 2001 6,000 4,077 .50
7.00% 2005 1,500 942 .12
-------- --------
9,130 1.13
-------- --------
New Zealand Dollars
New Zealand Government:
6.50% 2000 NZ$13,050 8,690 1.07
8.00% 2004 17,000 11,816 1.45
8.00% 2006 11,000 7,667 .95
4.5945% 2016/1/ 18,500 11,266 1.39
-------- --------
39,439 4.86
-------- --------
Polish Zloty
Poland (Republic of) Treasury Bill 1997 PLZ1,830 590 .07
-------- --------
Portugese Escudos
Portugal (Republic of):
11.875% 2000 PTE100,000 730 .09
11.875% 2000 595,000 4,393 .54
8.75% 2001 140,000 949 .12
11.875% 2005 300,000 2,395 .30
9.50% 2006 770,000 5,468 .67
- -
13,935 1.72
- -
Spanish Pesetas
Spain (Kingdom of):
11.45% 1998 Pta 770,000 6,461 .80
12.25% 2000 210,000 1,868 .23
10.50% 2003 2,154,000 19,262 2.37
8.00% 2004 400,000 3,157 .39
-------- --------
30,748 3.79
-------- --------
Swedish Kronor
Swedish Government:
10.75% 1997 SKR10,000 1,532 .19
11.00% 1999 17,000 2,844 .35
10.25% 2003 35,000 6,144 .76
6.00% 2005 26,000 3,592 .44
-------- --------
14,112 1.74
-------- --------
Swiss Francs
Swiss Government 4.50% 2002 CHF4000 3,373 .42
-------- --------
United States Dollars
Airplanes Pass Through Trust, pass - through
certificates, Class C 8.15% 2019/2/ $ 8,000 8,130 1.00
Banco Nacional de Mexico, SA 1995 Trust
Certificates 0% 2002/3/ 5,704 4,443 .55
China (People's Republic of)
9.00% 2096 500 488 .06
Colombia (Republic of):
7.25% 2004 2,000 1,855 .23
8.70% 2016 1,000 912 .11
ConAgra, Inc. 9.75% 2021 8,500 10,127 1.25
Continental Airlines, Inc., Series 1996A
6.94% 2015/3/ 2,000 1,942 .24
Credit Foncier de France 8.00% 2002 3,240 3,378 .42
Den Danske Bank 6.55% 2003/3/ 1,000 960 .12
EquiCredit Funding Trust, pass-through
certificates, Series 1996-A,
Class A3 7.35% 2019 3,000 3,007 .37
Federal Home Loan Mortgage Corp.:
5.78% 2003 4,000 3,726 .46
6.19% 2004 9,000 8,511 1.05
Federal National Mortgage Assn.
7.50% 2025/2/ 1,452 1,435 .18
Government National Mortgage Assn.:
9.00% 2017-2024/2/ 7,533 7,965 .98
8.50% 2021/2/ 797 830 .10
7.00% 2022-2026/2/ 5,241 5,313 .66
6.00% 2024/2/ 2,664 2,687 .33
6.50% 2024/2/ 2,828 2,645 .33
5.50% 2025/2/ 2,868 2,865 .35
7.00% 2026/2/ 1,950 1,876 .23
Green Tree Financial Corp., Net Interest
Margin Trust, Series 1995-A
7.25% 2005 1,513 1,507 .19
Inter America Development Bank
8.875% 2001 3,000 3,266 .40
Italy (Republic of) 6.875% 2023 1,250 1,138 .14
McDermott Inc. 9.375% 2002 2,000 2,103 .26
Merita Bank Ltd. 6.50% 2006 3,000 2,801 .35
Ontario (Province of):
7.75% 2002 2,000 2,087 .26
7.375% 2003 5,000 5,112 .63
7.00% 2005 3,750 3,722 .46
Parker & Parsley Petroleum Co.
8.25% 2007 2,000 2,094 .26
Philips Electronics NV 7.20% 2026 3,500 3,480 .43
Poland (Republic of) Past Due Interest Bonds:
Bearer shares 3.75% 2014/4/ 17,000 13,473 1.66
Registered shares 3.75% 2014/4/ 2,000 1,585 .20
Quebec (Province of):
8.625% 2005 1,250 1,347 .17
7.50% 2023 3,500 3,353 .41
Reliance Industries Ltd.8.125% 2005 500 485 .06
Skandinaviska Enskilda Banken
6.875% 2009 1,000 940 .12
Slovenia (Republic of) 7.00% 2001/3/ 7,000 7,000 .86
UCFC Acceptance Corp. pass-through
certificates, Series 1996-B1, Class A3
7.30% 2013 3,000 3,026 .37
United Mexican States Government
7.6875% 20013,4 4,000 4,006 .49
United States Treasury:
5.375% 1998 3,000 2,968 .37
5.875% 1998 14,250 14,219 1.75
8.25% 1998 1,250 1,295 .16
6.375% 1999 26,000 26,089 3.22
8.875% 1999 11,000 11,639 1.43
6.75% 2000 6,675 6,752 .83
8.50% 2000 1,250 1,343 .17
6.50% 2001 250 250 .03
6.625% 2001 1,000 1,006 .12
7.50% 2001 8,000 8,346 1.03
7.75% 2001 2,250 2,361 .29
8.00% 2001 11,000 11,670 1.44
6.375% 2002 18,600 18,472 2.28
5.75% 2003 510 487 .06
6.25% 2003 2,250 2,214 .27
7.25% 2004 5,750 5,957 .73
11.625% 2004 14,750 19,258 2.38
6.50% 2005 250 247 .03
10.375% 2009 1,000 1,220 .15
Woolworth Corp., Series A:
7.00% 2000 1,000 989 .12
6.98% 2001 3,000 2,940 .36
-------- --------
275,342 33.96
-------- --------
Total Bonds & Notes (cost:
$716,630,000) 730,290 90.07
-------- --------
Short-Term Securities
Corporate Short-Term Notes
Daimler-Benz North America Corp.
5.39% due 11/15/96 10,000 9,931 1.22
Ford Credit Europe PLC
5.33% due 10/22/96 11,300 11,263 1.39
Halifax Building Society
5.34% due 11/14/96 11,500 11,423 1.41
Sandoz Corp.:
5.34% due 10/31/96 8,700 8,660 1.07
5.38% due 11/7/96 10,200 10,142 1.25
Toyota Motor Credit Corp.:
5.28% due 10/15/96 6,200 6,186 .76
5.35% due 12/16/96 5,800 5,734 .71
-------- --------
63,339 7.81
-------- --------
Non-U.S. Currency Deposits:
British Pound Sterling 47Pounds 74 .01
Deutsche Mark DM184 121 .02
Italian Lira Lr551,983 362 .04
-------- --------
557 .07
-------- --------
Total Short-Term Securities (cost:
$63,881,000) 63,896 7.88
-------- --------
Total Investment Securities (cost:
$780,511,000) 794,186 97.95
Excess of cash and receivables over
payables 16,653 2.05
-------- --------
Net Assets $810,839 100.00%
======== ========
/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
Financial Statements
Statement of Assets and Liabilities
at September 30, 1996 (dollars in thousands)
Assets:
Investment securities at market
(cost: $780,511) $794,186
Cash 228
Receivables for-
Sales of investments $6,052
Sales of fund's shares 2,016
Accrued interest 19,797 27,865
--------- ---------
822,279
Liabilities:
Payables for-
Purchases of investments 9,068
Repurchases of fund's shares 1,447
Forward currency contracts - net 320
Management services 435
Accrued Expenses 170 11,440
--------- ---------
Net Assets at September 30, 1996-
Equivalent to $16.86 per share on
48,105,799 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $810,839
=========
Statement of Operations
for the year ended September 30, 1996
(dollars in thousands)
Investment Income:
Income:
Interest $51,770
Expenses:
Management services fee $4,847
Distribution expenses 1,746
Transfer agent fee 608
Reports to shareholders 114
Registration statement and prospectus 106
Postage, stationery and supplies 121
Directors' fees 16
Auditing and legal fees 44
Custodian fee 217
Taxes other than federal income tax 18
Other expenses 11 7,848
--------- ---------
Net investment income 43,922
---------
Realized Gain and Unrealized Depreciation on Investments:
Net realized gain 20,877
Net unrealized (depreciation)
appreciation on:
investments (11,452)
Open forward currency contracts 7
---------
Net unrealized depreciation (11,445)
---------
Net realized gain and unrealized
depreciation on investments 9,432
---------
Net Increase in Net Assets Resulting
from Operations $53,354
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year endedSeptember 30
1996 1995
--------- ---------
Operations:
Net investment income $43,922 $40,840
Net realized gain on investments 20,877 3,523
Net unrealized (depreciation) appreciation
on investments (11,445) 52,599
--------- ---------
Net increase in net
assets resulting from operations 53,354 96,962
--------- ---------
Dividends Paid to Shareholders (51,067) (43,886)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
17,575,138 and 12,188,125
shares, respectively 296,074 198,146
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
2,527,117 and 2,348,338 shares, respectively 42,286 37,011
Cost of shares repurchased:
10,834,133 and 13,243,810
shares, respectively (182,595) (211,052)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 155,765 24,105
--------- ---------
Total Increase in Net Assets 158,052 77,181
Net Assets:
Beginning of year 652,787 575,606
--------- ---------
End of year (including undistributed
net investment income: $8,786 and
$11,346, respectively) $810,839 $652,787
========= =========
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 currencey 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 year. 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 $217,000 includes $13,000 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 September 30, 1996, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $13,675,000, of which $19,001,000 related to appreciated securities
and $5,326,000 related to depreciated securities. During the year ended
September 30, 1996, the fund realized, on a tax basis, a net capital gain of
$11,828,000 on security transactions. Net gains related to non-U.S. currency
transactions of $9,049,000 are reported as ordinary income for federal income
tax purposes. Dividends paid to shareholders included $4,585,000 of non-U.S.
currency gains treated as income dividends for tax purposes. The fund has
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 $780,511,000 at September 30, 1996.
3. The fee of $4,847,000 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, 1996,
distribution expenses under the Plan were $1,746,000. As of September 30,
1996, accrued and unpaid distribution expenses were $111,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $608,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $707,000 (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,
1996, aggregate amounts deferred and earnings thereon were $25,000.
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, 1996, accumulated undistributed net realized loss on
investments was $5,687,000 and paid-in capital was $774,729,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $729,188,000 and $598,413,000, respectively, during
the year ended September 30, 1996.
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 September 30, 1996, the fund had outstanding
forward currency contracts to purchase and sell non-U.S. currencies as follows:
<TABLE>
U.S. Valuation
Non-U.S. Contract Amount
Currency ------------------- ------------- Unrealized
Contracts Non-U.S. U.S. Amount (Depreciation)
Appreciation
- -------------------------- --------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Sales:
British Pounds
expiring 11/5/96 1,930,000Pound $3,000,000 $3,018,000 $(18,000)
Danish Kroner
expiring 11/5/96 to
1/10/97 DKr62,243,000 10,928,000 10,662,000 266,000
German Marks
expiring 10/15/96 to
3/19/97 DM95,482,000 63,892,000 62,663,000 1,229,000
Netherlands
Guilders
expiring 11/5/96 NLG6,855,000 4,146,000 4,016,000 130,000
New Zealand Dollars
expiring 11/13/96 NZ$2,522,000 1,700,000 1,754,000 (54,000)
Portugese Escudos
expiring 12/19/96 PTE317,595,000 2,051,000 2,040,000 11,000
Swiss Francs
expiring 11/7/96 CHF4,130,000 3,437,000 3,305,000 132,000
-------------------
1,696,000
-------------------
Purchases:
Australian Dollars
expiring 11/13 to
2/24/97 A$19,978,000 $15,689,000 $ 15,764,000 75,000
Canadian Dollars
expiring 11/7/96 to
3/10/97 C$19,038,000 13,994,000 14,054,000 60,000
Italian Lire
expiring 11/08/96 to
12/19/96 Lr2,129,101,000 2,389,000 2,384,000 (5,000)
Japanese Yen
expiring 10/22/96 to
4/2/97 5,819,008,000Yen 60,437,000 58,291,000 (2,146,000)
-------------------
(2,016,000)
-------------------
Forward currency contracts - net $ (320,000)
============
</TABLE>
<TABLE>
Per-Share Data and Ratios
Year Ended Septem ber 30
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $16.81 $15.33 $16.48 $15.95 $15.60
------ ----- ----- ---- -----
Income From Investment Operations:
Net investment income 1.09 1.09 1.05 .91 1.03
Net realized and unrealized gain(loss)
on investments .16 1.57 (1.14) .65 .40
------ ---- ----- ---- ----
Total income from investment operations 1.25 2.66 (.09) 1.56 1.43
------ ----- ----- ---- ---
Less Distributions:
Dividends from net investment income (1.20)/1/ (1.18) (.94)/1/ (.84)/1/ (1.01)/1/
Distributions from net realized gains - - (.12) (.19) (.07)
------- ----- ----- ---- ----
Total distributions (1.20) (1.18) (1.06) (1.03) (1.08)
------ ----- ----- ---- -----
Net Asset Value, End of Year $16.86 $16.81 $14.27 $15.45 $15.95
====== ====== ===== ===== =====
Total Return/2/ 7.67% 18.10% (.62)% 10.40% 9.46%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $811 $653 $576 $450 $224
Ratio of expenses to average net assets 1.09% 1.12% 1.11% 1.19% 1.38%
Ratio of net income to average net assets 6.07% 6.83% 6.88% 6.25% 6.88%
Portfolio turnover rate 91.27% 104.96% 77.04% 27.95% 95.11%
/1/Amount includes realized non-U.S.currency gains of 12 cents, 4 cents, 3 cents
and 7 cents for the years ended 1996, 1994, 1993 and 1992, respectively, treated
as net investment 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>
<PAGE>
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended. These financial statements
and the per-share data and ratios are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 1996, 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, 1996, 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 29, 1996
1996 TAX INFORMATION (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax statuse of distributions.
Certain states may exempt from income taxation a portion of the dividends
paid from net investment income if derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 7% of the dividends paid
by the fund from net investment income was derived from interest on direct
U.S.Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FISCAL YEAR AND NOT A
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1997 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1996 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
