[THE AMERICAN FUNDS GROUP(R)]
CAPITAL WORLD BOND FUND
[cover: illustration of various paper currencies entertwined in
architectural columns]
ANNUAL REPORT
FOR THE YEAR ENDED SEPTEMBER 30
1998
[Begin Sidebar]
CAPITAL WORLD BOND FUND(R)
The fund seeks to maximize long-term total return, consistent with prudent
management, by investing in quality fixed-income securities issued by major
governments and corporations all over the world, including the United States.
That total return is made up of three elements: interest income, any change in
the market value of the fund's investments and any change in the value of other
currencies against the U.S. dollar.
Capital World Bond Fund is one of the 28 mutual funds in The American Funds
Group,(r) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
INVESTMENT RESULTS AT A GLANCE
FISCAL YEAR TOTAL RETURN
(10/1/97 - 9/30/98) +6.42%
LIFETIME TOTAL RETURN
(8/4/87 - 9/30/98) +152.89
LIFETIME AVERAGE ANNUAL
compound return (8/4/87 - 9/30/98) +8.67
PREPARING FOR THE YEAR 2000
The fund's key service providers - Capital Research and Management Company, the
investment adviser, and American Funds Service Company, the transfer agent -
are updating their computer systems to process date-related information
properly following the turn of the century. Both are on track to complete
modifications of significant internal systems by the end of 1998. Testing with
business partners, vendors and other service providers is already under way. We
will continue to keep you up to date in our regular publications. If you'd like
more detailed information, call Shareholder Services at 800/421-0180, ext. 21,
or visit our Web site at www.americanfunds.com.
[End sidebar]
HOW A $10,000 INVESTMENT HAS GROWN
$27,023/1/
Salomon Smith Barney
World Government
Bond Index
$24,087/1/
Capital World
Bond Fund
$14,376
Consumer
Price Index
(Inflation)
[begin mountain chart]
<TABLE>
<CAPTION>
Year ended 9/30 Capital World Bond Salomon Smith Barney Consumer Price Index
Fund/1/ World Government Bond (Inflation)
Index/1/
<S> <C> <C> <C>
1987 /2/ 9,493 9,865 10,105
1988 10,743 11,280 10,527
1989 11,330 12,013 10,984
1990 12,231 12,918 11,661
1991 14,199 14,861 12,056
1992 15,542 17,581 12,417
1993 17,159 19,187 12,750
1994 17,053 19,535 13,128
1995 20,140 22,696 13,462
1996 21,684 23,649 13,866
1997 22,634 24,219 14,165
1998 24,087 27,023 14,376
</TABLE>
[end chart]
/1/With dividends and capital gains reinvested or interest compounded
/2/For the period August 4 through September 30, 1987
The fund's results in this chart reflect payment of the maximum sales charge of
4.75%, so the net amount invested was $9,525 versus $10,000 in the Salomon
Smith Barney World Government Bond Index, which is unmanaged and has no sales
charges, commissions or expenses. Past results are not predictive of future
results.
Here are returns over various periods ended September 30, 1998, as well as a
chart (above) showing the growth of an investment over the fund's lifetime,
with all distributions reinvested. These figures differ from those at left (and
in the letter) because they assume payment of the 4.75% maximum sales charge at
the beginning of the stated periods.
Total Average Annual
Return Compound Return
Ten Years +113.52% +7.88%
Five Years +33.72 +5.98
One Year +1.35 -
Fund results in this report were computed without a sales charge unless
otherwise indicated. Sales charges are lower for accounts of $25,000 or more.
The fund's 30-day yield as of October 31, 1998, calculated in accordance with
the Securities and Exchange Commission formula, was 4.54%. The fund's
distribution rate as of that date was 4.56%. The SEC yield reflects income the
fund expects to earn based on its current portfolio of securities, while the
distribution rate is based solely on the fund's past dividends. Accordingly,
the fund's SEC yield and distribution rate may differ.
FIGURES SHOWN ARE PAST RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY
LOSE MONEY. INVESTING FOR SHORT PERIODS MAKES LOSSES MORE LIKELY. INVESTMENTS
ARE NOT FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY
OTHER ENTITY. Investing in non-U.S. bonds is subject to additional risks. They
include currency fluctuations, political and social instability, differing
securities regulations and accounting standards, and higher transaction costs.
[Begin Sidebar]
This past year, unusual disparities between the performance of different
sectors of the bond market emphasized the importance of diversification.
[End Sidebar]
FELLOW SHAREHOLDERS:
IN A YEAR OF TREMENDOUS VOLATILITY IN WORLD FINANCIAL MARKETS, Capital World
Bond Fund had a bumpy ride but ultimately landed on solid ground. On the
positive side, shareholders benefited from a substantial decline in global bond
yields, which lifted prices. In contrast, unexpected currency movements and
lagging corporate and mortgage bond markets created some rough spots for the
fund.
For the 12 months ended September 30, 1998, the value of your holdings rose
6.4% if, like most shareholders, you reinvested dividends totaling 80 cents a
share. The fund's return was well ahead of the 3.4% average return of the 148
global income funds followed by Lipper Analytical Services, a leading mutual
fund tracking service.
Government bond markets worldwide increased 11.6% as measured by the Salomon
Smith Barney World Government Bond Index. The Salomon Smith Barney Broad
Investment-Grade Bond Index, which measures the U.S. bond market, rose 11.5%.
What these indexes don't show, however, is an unusual disparity between the
performance of different sectors of the bond market this past year. Government
bonds fared the best, while returns from corporate, mortgage- and asset-backed
sectors lagged behind. At the end of the fiscal year, government bonds made up
roughly 60% of the fund's portfolio, and about one-third of the fund's net
assets were invested in corporate and mortgage- and asset-backed securities. To
understand what triggered this imbalance in bond markets, we turn to Asia.
THE ASIAN CRISIS: A CATALYST FOR GLOBAL VOLATILITY
While the fund holds little in Asia, the collapse of Asian economies and
currencies in the last half of 1997 sparked widespread concern among global
investors. The ongoing Asian crisis set the stage for increasing global market
volatility as 1998 progressed. Russia and Latin America were the next to
succumb to financial turmoil, and it became increasingly clear that there would
be no "quick fix" for the problems faced by the world's developing nations. In
what U.S. Federal Reserve Chairman Alan Greenspan called a "fear-induced,
psychological move," investors by late summer had largely redirected their
money from developing to developed markets and into high-quality government
bonds.
THE UNITED STATES: A "FLIGHT TO QUALITY"
Troubles in developing markets and global stock market declines caused worried
investors to pour money into U.S. Treasury bonds, usually considered the
world's "safest" securities. In the United States, increased demand coincided
with a shrinking supply of Treasury bonds, a slowing economy and little
inflationary pressure.
On September 29, the Federal Reserve cut the federal funds rate one-quarter
point, from 5.5% to 5.25%, because of concerns about the turmoil in global
markets and to head off a possible slowdown in the U.S. economy. There were two
additional quarter-point cuts on October 15 and November 17, after your fund's
fiscal year-end. As a result, 10-year U.S. Treasury yields ended the fiscal
year at 4.5%, down from 6.1% one year ago. Prices, which move inversely to bond
yields, jumped significantly, generating a healthy return of 13.9%. The fund's
U.S. Treasury bond holdings, which amounted to roughly 18% of net assets,
benefited from this trend.
[Sidebar]
Capital World Bond Fund Net Assets
Weighted by Bond Holdings
(before currency hedging)
[begin pie chart]
North America
45.2%
Europe
43.8%
Pacific Basin
11.0%
[end pie chart]
Weighted by Currency Exposure
(after currency hedging)
[begin pie chart]
North America
54.1%
Europe
37.6%
Pacific Basin
8.3%
[end pie chart]
World Bond Market
Weighted by Currency Exposure
[begin pie chart]
Europe
46.8%
North America
34.8%
Pacific Basin
18.4%
[end pie chart]
Source: Salomon Smith Barney World Government Bond Index
[End Sidebar]
EUROPE: DECLINING YIELDS
German government bond yields also benefited from the international flight to
quality. This rally was aided by the sudden strength of the German mark in
September, which increased the country's 12-month government bond return from
10.8% in marks to 17.0% expressed in U.S. dollars. On September 30, the fund
held more than 17% of net assets in German bonds.
Bond yields declined elsewhere in Europe, though to a lesser extent. These
markets were aided in part by the demand for quality and, in some countries,
the convergence toward a single European currency. Interestingly, the best
returns in Europe came from the British government bond market, even though
Great Britain is not yet entering the European Monetary Union; aided by a tight
fiscal policy, British government bonds rose 17.5% (23.6% in U.S. dollars).
Even one of Europe's less-developed markets, the Polish government bond market,
posted a return in excess of 20% (in U.S. dollar terms) since January. With a
total of 43.8% of the fund's bond portfolio invested in Europe on September 30,
declining European government bond yields had a positive effect on the fund's
return.
THE PACIFIC BASIN: CURRENCY WEAKNESS
In Japan, bonds posted gains in local currency terms as Japanese investors
seeking refuge from stocks pushed yields on 10-year bonds from 2.2% down to
0.8% over the fiscal year. The yen's weakness throughout most of the fiscal
year, however, converted the 12-month government bond return from 8.3% in yen
to -3.9% expressed in U.S. dollars. We held relatively few Japanese bonds and
were able to offset much of the currency loss by hedging a large part of our
yen bond exposure back into dollars.
Also suffering from currency weakness were the dollar bloc countries of
Australia, New Zealand and Canada, which together make up about 10% of the
fund's currency weighting. As we mentioned in our semi-annual report, these
countries suffered from falling commodity prices and reduced trade with Asia.
Their weakening currencies caused their government bond returns to be negative
when translated into U.S. dollars.
CORPORATE AND MORTGAGE BONDS MISSED OUT
In their stampede to snatch up U.S. government bonds, investors largely passed
over U.S. corporate and mortgage bonds. Yields on high-quality corporate bonds
declined - though not nearly as much as the yields on U.S. Treasury bonds -
while yields on lower quality corporate bonds generally rose. Similarly, late
in the year, many investors also left Europe's mortgage and corporate bond
markets for the safety of German government bonds. Holdings of corporate and
mortgage bonds - which together comprise about 34% of the fund's portfolio -
moderated the fund's returns.
THE DOLLAR'S DOWNWARD MOVE
Throughout most of the year, the U.S. dollar gained against most currencies, no
doubt due to the perceived strength and safety of the U.S. economy and
investment interest in U.S. Treasury bonds. The fund generally benefited from
hedging a portion of its non-U.S. holdings back into U.S. dollars for much of
the year.
Since late August, though, the dollar has experienced a sudden decline. On one
hand, the dollar's decline enhanced the value of the fund's unhedged non-U.S.
investments. On the other hand, the proportion of the fund denominated in U.S.
dollars was greater than that reflected in the Salomon Smith Barney World
Government Bond Index, and therefore helped explain why the fund lagged the
index.
OUTLOOK
Because U.S. Treasury and German bond yields have declined sharply over the
past year, other bonds now provide a healthy yield advantage. We have added to
many of those holdings, especially in Europe, and continue to comb the world in
search of new investments. In particular, we expect to see many new
opportunities unfolding in some European countries as a result of the monetary
union, scheduled to begin January 1, 1999. We plan to discuss this subject in
greater detail in the next several reports. On the following pages, you will
learn about the strength of our global research effort and how it has led us to
find value - often in the most unlikely places.
On a final note, we would like to point out that the fund expects to pay a
capital gain distribution of approximately 32 cents a share in December. The
actual amount of this distribution will be confirmed on your year-end
statement. Capital gain information is also available on our Web site at
www.americanfunds.com.
Cordially,
/s/Paul G. Haaga, Jr. /s/Abner D. Goldstine
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
November 17, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Currencies in which the Capital World Bond Salomon Smith
fund's assets are Fund Net Assets Barney World
invested Government Bond
as of September 30, 1998 Index
Currency of Denomination Securities Currency Weighting# Currency Weighting
Weighting# (Before (After Hedging
Hedging)
United States 41.2% 50.1% 31.9%
Germany 17.3 16.6 9.4
United Kingdom 9.8 6.9 6.6
New Zealand 5.7 5.1 *
Denmark 4.9 4.9 1.6
Greece 4.1 2.7 *
Canada 4.0 4.0 2.9
Japan 3.0 2.1 17.7
Sweden 2.3 1.8 1.4
Australia 2.3 1.1 0.7
Ireland 2.1 2.1 0.4
Norway 1.6 1.6 *
Poland 0.9 0.9 *
Netherlands 0.5 0.0 3.1
Switzerland 0.3 0.1 0.5
France - - 8.2
Italy - - 7.8
Spain - - 3.2
Belgium - - 2.6
Austria - - 0.9
Finland - - 0.7
Portugal - - 0.4
100.0% 100.0% 100.0%
</TABLE>
#Securities and currency weightings may differ due to the use of forward
foreign exchange contracts by the fund. Short-term investments, cash and
equivalents, receivables and payables are included in the securities weighting.
*This market is not included in the index.
HOW INTENSIVE GLOBAL RESEARCH HAS PAID OFF
With the flexibility to invest in a wide range of bond markets, the investment
analysts and portfolio counselors at Capital Research and Management Company,
Capital World Bond Fund's investment adviser, are responsible for keeping their
fingers on the pulse of financial markets around the world.
Their research covers broad economic, political and financial trends -
so-called "macro" analysis - plus careful study of many hundreds of individual
securities. The research is conducted chiefly by a team of global fixed-income
specialists - analysts and portfolio counselors who follow dozens of markets
and travel the globe frequently. This team of specialists draws regularly on
other resources within Capital Research, including the analysts and portfolio
counselors who follow stocks.
Time after time, our intensive research process and our global emphasis has
given us an edge in the worldwide bond environment. We delve deep to uncover
the true value of a security. We strive to discover new opportunities ahead of
the crowd. We are not afraid to look at securities other investors feel are too
complex.
Opportunities often exist in the most unlikely places. Our discipline, insight
and experience have allowed us to find under-researched and misunderstood
investments in a variety of markets around the globe. On the next three pages,
you will learn how several Capital Research investment professionals have added
value to the fund by finding overlooked opportunities.
TEAMWORK PUT US AHEAD OF THE CROWD
From the moment she first visited Copenhagen, Kirstie McAndrew could see that
Denmark had a healthy economy: The streets were clean, the buses were new, and
trendy bars and boutiques were popping up everywhere. What was not so clear,
however, was whether the country's mortgage bonds offered an attractive
investment opportunity. The Danish mortgage bond market is one of the few in
the world that is as complex as the U.S. mortgage bond market, and this has
created a barrier for many investors.
In an environment of dwindling yields throughout Europe, Kirstie was in search
of something new. Consulting with Thomas Hogh, one of the fund's portfolio
counselors and a native of Denmark, she was intrigued by the fact that Danish
mortgage bonds were offering a healthy yield advantage over both Danish and
German government bonds. Thomas, based in London, had been following the
centuries-old Danish mortgage market for years but had not found much value
until the spring of 1998. Denmark's robust economy, low interest rates and
booming housing market had created a strong demand for mortgages, which
triggered a wave of mortgage bond issuance. The increased supply pushed
mortgage bond prices lower and yields higher.
Kirstie assembled a team of Capital Research's U.S. mortgage analysts to help
her take a closer look at the structure of the Danish bonds. "Many of our
competitors did not have the expertise in this area to make a decision, but we
were in a perfect position to take advantage of what we thought was a great
opportunity," she notes.
Together, they were able to draw some parallels to the U.S. mortgage market -
and uncover some important differences. Kirstie also traveled twice to Denmark,
where she met with the Ministry of Finance, bankers, other government
officials, economists and corporate managers. She recommended - and others
agreed: Buy.
"Doing the proper research allowed us to get in at a great price," says
Kirstie. "These bonds quickly began to catch on for the extra yield they
offered, but we were clearly there ahead of the crowd." Even some recent
selling pressure has not dampened Kirstie's long-term view of these bonds, and
several of the fund's portfolio counselors have added to their holdings of
Danish mortgage bonds.
[illustration of Denmark Kroner and country flag]
[Begin Sidebar ]
DENMARK
"We were particularly well-suited to understanding this market.
Doing the proper research allowed us to get in at a great price."
- Kirstie McAndrew, Investment Analyst
[End Sidebar]
[Begin Sidebar]
GREECE
"Back then, few investors from developed markets
would even consider Greek bonds."
- Suki Chawla, Investment Analyst
[End Sidebar]
[illustration of Greek ruins and country flag]
FINDING A DIAMOND IN THE ROUGH
When evaluating a possible investment, many fixed-income analysts stay glued to
their computer screens. Suki Chawla and her colleagues also make airline
reservations.
For Suki and other Capital Research analysts and portfolio counselors,
analyzing numbers is just one phase of the exhaustive research behind every
investment. The numbers do not reveal the most important thing - how a
country's business people, bankers and government officials feel about the
state of their own economy.
When Suki started visiting Greece three years ago, "few investors from
developed markets would even consider Greek bonds," she says. But she was
encouraged by what she saw, so she decided to investigate further and weigh the
risks. "I found there was enough momentum in Greece's changing political
structure to make their bond market a good place for investors - if and when
Greece devalued its currency," she explains.
Still not completely comfortable, however, Suki kept on digging. Traveling to
Greece four times in one year from her base in London, she met with everyone
from the minister of finance to economists and journalists. To get a different
perspective, she traveled with one of Capital Research's equity analysts and
met with companies and banks to get their take on the government's new reforms
and the currency situation. They all felt good about the changes but agreed
that the currency was still overvalued.
Suki had done her homework, so when the currency was finally devalued in March
1998, the fund's portfolio counselors were ready to act. "We knocked on their
door first, and we helped the fund's return by being well-prepared and
informed," she says.
After the devaluation, other investors began to realize that Greece's economy
would benefit as it adhered to stringent Maastricht Treaty requirements in
preparation for acceptance into the European Monetary Union. Suddenly, Greek
bonds became a hot market, just as Spanish and Italian bonds had been several
years before. As an excellent candidate for inclusion in the European Monetary
Union, we believe that Greece remains an attractive long-term investment
opportunity.
LOOKING BEYOND THE OBVIOUS
The yield on Japanese government bonds was so low in early 1998 - just 2% -
that many investors were wary. The country was in the midst of an economic
crisis and its currency was depreciating. According to many bond strategists
and economists, Japanese bonds did not offer much opportunity. But to Mark
Dalzell, one of the fund's five portfolio counselors, there was some good news.
He believed that despite the low yields, quality-seeking investors might push
them lower still.
To get a better picture of Japan and its relationship with other troubled Asian
economies, Mark planned a research trip in the spring of 1997 with several
members of Capital Research's fixed-income group. "This kind of fieldwork is
invaluable for understanding the economy, corporate behavior and everyday life
in Japan," comments Rob Neithart, who worked in Capital Research's Tokyo office
at the time and organized the meetings.
After a week of intensive research, everyone involved agreed that it was not a
good time to be exposed to Japanese yen. On the subject of the Japanese bond
market, however, opinions differed. Some portfolio counselors bought the bonds
and hedged the currency exposure back into U.S. dollars. Others steered clear
of Japan, seeing no opportunity there.
Mark returned to Tokyo in November. At that time, the collapse of several
Japanese financial institutions reconfirmed to him that the government would
lower interest rates and provide new momentum for bond yields to fall lower.
Eventually, this view paid off as bond yields fell from 2% to less than 1%.
During most of the fiscal year, the fund benefited from owning Japanese bonds
with most of its yen bond exposure hedged back into U.S. dollars. The fund's
hedging of yen also provided an increase in current yield, resulting from the
difference between U.S. and Japanese short-term interest rates. In this case,
it resulted in an additional 5% annualized return in U.S. dollar terms.
Looking forward, the fund's portfolio counselors and analysts agree that this
market is losing its attractiveness, and they have been adjusting their
positions accordingly. With government bond yields ranging from 0.5% to 0.9%,
they have little room to move lower. This does not mean that our research
effort in Japan is over. On the contrary, we will refocus our attention to
corporate bond opportunities in Japan. In addition, we will continue to monitor
changes and improvements throughout Asia and their impact on global financial
markets.
[illustration of Japanese geisha, temple and country flag]
[Begin Sidebar]
JAPAN
"Bad events can actually be positive for bonds -
as long as you are careful about the currency."
- Rob Neithart, Investment Analyst
[End Sidebar]
<TABLE>
Capital World Bond Fund Principal Market Percent
Investment Portfolio September 30, 1998 Amount Value of Net
(000) (000) Assets
<S> <C> <C> <C>
Bonds & Notes
German Marks
Deutschland Republic:
8.00% 2002 DM13,250 US$ 9,180 10.17%
6.75% 2003 17,250 11,644
6.50% 2005 12,900 8,918
6.875% 2005 22,500 15,759
6.00% 2007 2,000 1,370
6.00% 2007 1,000 683
5.25% 2008 22,500 14,807
5.625% 2028 4,800 3,204
Treuhandanstalt:
7.125% 2003 10,000 6,798 2.91
7.50% 2004 16,750 11,944
Ford Motor Credit Co. 5.25% 2008 22,900 14,035 2.18
Bayerische Vereinsbank 5.50% 2008 2,000 12,994 2.01
-------- --------
111,336 17.27
-------- --------
British Pounds
United Kingdom:
8.00% 2000 pound3,000 5,333 3.18
7.00% 2001 1,000 1,771
8.50% 2005 2,750 5,631
7.50% 2006 1,000 1,980
8.00% 2015 2,500 5,812
Punch Taverns:
7.274% 2022 2,700 5,047 1.65
7.567% 2026 3,000 5,576
Bank of Ireland 9.75% 2005 3,885 7,660 1.19
Lloyds Trustee Savings Banking Group
8.50% 2006 3,000 5,696 .88
Royal Bank of Scotland 8.375% 2007 3,000 5,610 .87
Scott Life 9.00% 2049(1) 2,750 5,057 .79
Halifax Building Society:
8.75% 2006 1,000 1,910 .72
11.00% 2014 1,100 2,707
Land Securities PLC 9.00% 2000 750 1,690 .26
NPI Finance 9.625% 2049 750 1,431 .22
European Investment Bank 6.00% 2004 250 426 .07
-------- --------
63,337 9.83
-------- --------
New Zealand Dollars
New Zealand Government:
8.00% 2001 NZ$7,000 3,678 4.05
8.00% 2004 6,500 3,603
8.00% 2006 3,000 1,721
7.00% 2009 12,300 6,794
4.50% 2016(2) 20,698 10,288
Fannie Mae 7.25% 2002 12,250 6,322 .98
Canadian Government 6.625% 2007 8,500 4,323 .67
-------- --------
36,729 5.70
-------- --------
Danish Kroner
Danish Government:
7.00% 2000 DKr9,500 1,818 2.51
8.00% 2003 10,000 1,809
7.00% 2004 7,000 1,249
7.00% 2007 23,000 4,258
6.00% 2009 40,300 7,067
Nykredit 6.00% 2029 102,729 15,535 2.41
-------- --------
31,736 4.92
-------- --------
Greek Drachmas
Hellenic Republic:
8.90% 2004 GRD600,000 2,047 4.12
8.80% 2007 5,005,000 17,754
8.60% 2008 1,650,000 5,840
7.50% 2013 270,000 917
-------- --------
26,558 4.12
-------- --------
Canadian Dollars
Canadian Government:
9.75% 2001 C$8,000 5,988 3.12
7.25% 2003 5,750 4,144
7.50% 2003 250 184
9.00% 2004 2,000 1,596
7.25% 2007 5,600 4,258
4.25% 2021(2) 1,100 749
4.25% 2026(2) 4,684 3,194
Lyndsey Morden Group Inc., Series B, 7.00% 2008 (4) 7,000 4,444 .69
Canada Trust 6.75% 2001 1,677 1,117 .17
-------- --------
25,674 3.98
-------- --------
Japanese Yen
International Bank for Reconstruction and Development
4.50% 2003 Y28,500 244 .71
4.75% 2004 475,000 4,316
Fannie Mae 2.125% 2007 460,000 3,768 .58
GMAC International Finance 3.75% 1999 300,000 2,227 .35
Spain (Kingdom of) 3.11% 2006 250,000 2,138 .33
Hellenic Republic 2.90% 2007 230,000 1,833 .28
Japanese Government 1.50% 2008 220,000 1,715 .27
European Investment Bank 6.75% 2001 200,000 1,703 .26
Nippon Telegraph & Telephone Corp. 2.50% 2007 60,000 484 .08
Austria (Republic of) 4.50% 2005 50,000 457 .07
Japan Development Bank 6.50% 2001 40,000 344 .05
-------- --------
19,229 2.98
-------- --------
Swedish Kronor
Spintab AB:
6.25% 2002 SKr47,500 6,314 1.29
6.00% 2009 15,500 2,030
Stadshypotek AB 5.75% 2003 31,000 4,042 .63
Swedish Government:
10.25% 2000 5,000 694 .38
6.50% 2008 12,000 1,725
-------- --------
14,805 2.30
-------- --------
Australian Dollars
News America Holdings Inc. 8.625% 2014 A$9,000 5,951 .92
New South Wales Treasury:
7.00% 2004 3,000 1,919 .59
8.00% 2008 2,700 1,888
Australian Government:
10.00% 2002 1,550 1,096 .35
10.00% 2006 1,500 1,160
Statens Bostadfinansier 6.50% 2000 2,800 1,707 .27
Southern Australia Finance Authority 11.25% 2001 1,500 1,040 .16
-------- --------
14,761 2.29
-------- --------
Irish Pounds
Ireland (Republic of):
6.25% 1999 IR pound1,500 2,262 2.10
6.50% 2001 1,000 1,609
6.00% 2004 4,500 7,517
6.00% 2008 1,250 2,125
-------- --------
13,513 2.10
-------- --------
Norwegian Kroner
Norwegian Government:
6.75% 2007 NOK58,000 8,550 1.63
5.50% 2009 14,500 1,970
-------- --------
10,520 1.63
-------- --------
Polish Zloty
Polish Government 13.00% 2001 PLZ22250 5,900 .92
-------- --------
Netherlands Guilders
Netherlands Government 5.50% 2028 NLG6,000 3,451 .54
-------- --------
Swiss Francs
Swiss Government 4.25% 2008 CHF2,000 1,629 .25
-------- --------
U.S. Dollars
U.S. Treasury Obligations:
6.375% 1999-2027 US$32,250 35,323 17.72
6.75% 2000 3,200 3,309
8.50% 2000 1,000 1,083
6.625% 2001-2002 950 1,014
7.75% 2001 3,000 3,225
5.875% 2002 4,250 4,484
5.75% 2003 660 700
7.25% 2004 2,700 3,088
11.625% 2004 7,250 10,005
6.50% 2005 10,500 11,768
5.625% 2006 5,500 5,931
7.00% 2006 2,000 2,330
3.375% 2007(2) 1,010 1,014
6.125% 2007 5,425 6,081
7.25% 2007 5,450 6,121
5.50% 2008 750 811
10.375% 2009 840 1,097
7.50% 2016 3,750 4,774
7.125% 2023 5,225 6,596
3.625% 2028(2) 5,499 5,485
Government National Mortgage Assn.:(3)
9.00% 2017-2024 1,872 2,010 1.03
8.50% 2021 419 446
6.50% 2024 2,372 2,429
7.00% 2026 1,731 1,786
Airplanes Pass Through Trust, pass-through
certificates, Class C, 8.15% 2019(3) 5,927 6,431 1.00
Woolworth Corp., Series A:
6.98% 2001 3,000 2,922 .90
7.00% 2002 2,000 1,926
8.50% 2022 1,000 940
Columbia HCA Healthcare Corp.:
6.50% 1999 1,000 1,000 .89
6.125% 2000 2,000 1,993
7.00% 2007 900 877
8.85% 2007 1,000 1,087
8.70% 2010 750 791
Komercni Finance BV 9.00% 2008(4) 7,075 5,695 .88
Poland (Republic of)Past Due Interest Bonds:(1)
Bearer shares 4.00% 2014 3,900 3,373 .86
Registered shares 4.00% 2014 2,500 2,163
Time Warner Inc.:
Pass-through certificates, Series 1997-1 ,
6.10% 2001(3),(4) 2,500 2,544 .72
6.95% 2028 2,000 2,079
DLJ Mortgage Acceptance Corp.:(3)
Series 1997-CF1, Class A1A, 7.40% 2006(4) 2,071 2,218 .69
Series 1996-CF1, Class A1A, 7.40% 2028 2,098 2,206
Korea Development Bank:
7.125% 2001 2,000 1,734 .66
7.375% 2001 3,250 2,535
Continental Airlines, Inc.:(3)
Series 1997-1A, 7.461% 2005 1,982 2,192 .66
Series 1996A, 6.94% 2015 1,922 2,032
PDVSA Finance Ltd.:(4)
7.40% 2016 1,000 829 .63
7.50% 2028 4,000 3,216
Freddie Mac 5.78% 2003(3) 4,000 4,002 .62
Worldcom Inc. 7.75% 2007 3,000 3,428 .53
Household Finance Corp. 6.40% 2008 3,250 3,393 .53
Grupo Financiero Banamex Accival
SA de CV 0% 2002 3,802 3,359 .52
Transener SA 9.25% 2008(4) 4,500 3,218 .50
Associates Corporation of North America 5.85% 2001 3,000 3,042 .47
Pioneer Natural Resources Co.:
6.50% 2008 1,700 1,603 .45
7.20% 2028 1,500 1,309
Reliance Industries Ltd.
8.125% 2005 1,000 910 .44
10.25% 2097(4) 2,500 1,931
Cable & Wireless Communications PLC 6.375% 2003 2,750 2,812 .44
McDermott Inc. 9.375% 2002 2,000 2,159 .34
Columbia (Republic of):
8.70% 2016 500 320 .33
8.375% 2027 3,000 1,830
Parker & Parsley Petroleum Co. 8.25% 2007 2,000 2,134 .33
Skandinaviska Enskilda Banken 6.875% 2009 2,000 2,107 .33
United Utilities 6.25% 2005 2,000 2,079 .32
Freeport Terminal (Malta) PLC 7.25% 2028(4) 2,000 2,055 .32
Samsung Electronics Co., Ltd. 7.45% 2002(4) 2,000 1,635 .25
Chase Manhattan Bank 7.25% 2007 1,500 1,624 .25
Asset-Backed Securities Investment
Trust, Series 1997-D, 6.79% 2003(3),(4) 1,596 1,597 .25
Hyundai Semiconductor America, Inc.
Tranche A, 8.25% 2004(4) 2,000 1,450 .23
Svenska Handelsbanken 8.125% 2007 1,075 1,213 .19
Mirage Resorts, Inc. 6.75% 2008 1,200 1,155 .18
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 2,000 1,120 .17
Inter America Development Bank 8.875% 2001 1,000 1,103 .17
Abbey National PLC 6.69% 2005 1,000 1,057 .16
Structured Asset Securities Corp.,
pass-through certificates Series 1998
RF2, Class A, 8.582% 2022(1),(3),(4) 964 1,051 .16
The Price Reit Inc. 7.50% 2006 1,000 1,041 .16
Merita Bank Ltd. 6.5% 2006 1,000 1,013 .16
Ontario (Province of) 5.5% 2008 1,000 1,012 .16
CarrAmerica Realty Corp. 6.875% 2008 1,000 980 .15
Merrill Lynch Mortgage Investors Inc.,
Seller Manufactured Housing Contract,
Series 1995-C2, Class A-1, 7.325% 2021(1),(3) 904 927 .14
J.P. Morgan & Co. Inc., Series A, 5.861% 2012(1) 1,000 907 .14
Banco General, SA 7.70% 2002(4) 1,000 885 .14
Hellenic Republic 6.95% 2008 500 539 .08
Telefonica de Argentina 9.125% 2008(4) 500 418 .07
-------- --------
234,111 36.32
-------- --------
Total Bonds and Notes (cost:
$602,888,000) 613,289 95.16
-------- --------
Short-Term Securities
Corporate Short-Term Notes
General Electric Capital Corp.,
5.66% due 10/01/1998 13,790 13,788 2.14
Sony Europe Finance PLC(4):
5.55% 10/15/1998 5,000 4,989 1.47
5.50% 10/30/1998 4,500 4,479
Total Short-Term Securities (cost: -------- --------
$23,256,000) 23,256 3.61
-------- --------
Total Investment Securities (cost:
$626,144,000) 636,545 98.76
Excess of cash and receivables over
payables 8,023 1.24
-------- --------
Net Assets $644,568 100.00%
======== ========
(1)Coupon rate may change periodically.
(2)Index-linked bond whose principal amount moves
with a government retail price index.
(3)Pass-through securities backed by a pool
of mortgages or other loans on which
principal payments are periodically made. Therefore,
the effective maturites are shorter
than the stated maturities.
(4)Purchased in a private placement transaction;
resale may limited to qualified
institutional buyers; resale to the public may
require registration.
See Notes to Financial Statements
</TABLE>
<TABLE>
Capital World Bond Fund
Financial Statements
Statement of Assets and Liabilities
at September 30, 1998 (dollars in thousands)
<S> <C> <C>
Assets:
Investment securities at market
(cost: $626,144) $636,545
Cash 1,685
Receivables for--
Sales of investments $ 1,168
Sales of fund's shares 267
Accrued interest 14,009 15,444
--------- ---------
653,674
Liabilities:
Payables for--
Purchases of investments 2,869
Repurchases of fund's shares 542
Forward currency contracts - net 5,170
Management services 330
Accrued expenses 195 9,106
--------- ---------
Net Assets at September 30, 1998--
Equivalent to $16.32 per share on
39,491,432 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $644,568
=========
Statement of Operations
for the year ended September 30, 1998
(dollars in thousands)
Investment Income:
Income:
Interest $42,079
Expenses:
Management services fee $ 4,538
Distribution expenses 1,595
Transfer agent fee 544
Reports to shareholders 92
Registration statement and prospectus 21
Postage, stationery and supplies 118
Directors' fees 20
Auditing and legal fees 47
Custodian fee 177
Taxes other than federal income tax 21
Other expenses 13 7,186
--------- ---------
Net investment income 34,893
---------
Realized Loss and Unrealized Appreciation
on Investments:
Net realized loss (6,184)
Net unrealized appreciation (depreciation) on:
Investments 12,074
Open forward currency contracts (1,023)
---------
Net unrealized apppreciation 11,051
---------
Net realized loss and unrealized
appreciation on investments 4,867
---------
Net Increase in Net Assets Resulting
from Operations $39,760
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year Year
ended ended
9/30/98 9/30/97
--------- ---------
Operations:
Net investment income $34,893 $41,320
Net realized (loss) gain on investments (6,184) 8,579
Net unrealized appreciation (depreciation)
on investments 11,051 (15,766)
--------- ---------
Net increase in net
assets resulting from operations 39,760 34,133
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends from net
investment income (32,995) (55,642)
Distributions from net realized gain
on investments (12,122) -
------------ -----------
Total dividends and distributions (45,117) (55,642)
------------ -----------
Capital Share Transactions:
Proceeds from shares sold:
7,109,572 and 11,728,432
shares, respectively 114,147 195,677
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
2,433,725 and 2,810,625 shares, respectively 38,620 46,526
Cost of shares repurchased:
16,238,266 and 16,458,455
shares, respectively (260,351) (274,024)
--------- ---------
Net decrease in net assets
resulting from capital share
transactions (107,584) (31,821)
--------- ---------
Total Decrease in Net Assets (112,941) (53,330)
Net Assets:
Beginning of year 757,509 810,839
--------- ---------
End of year (including undistributed
net investment income: $(10,359) and
$5,386, respectively) $644,568 $757,509
========= =========
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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 to maximize long-term total return,
consistent with prudent management, by investing in quality fixed-income
securities issued by major governments and corporations all over the world,
including the United States.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - Fixed-income securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day. Forward currency contracts are valued at the mean of their
representative quoted bid and asked prices. Securities and assets for which
representative market quotations are not readily available are valued at fair
value as determined in good faith by a committee appointed by the Board of
Directors.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - As is customary in the
mutual fund industry, securities transactions are accounted for on the date the
securities are purchased or sold. In the event the fund purchases securities on
a delayed delivery or "when-issued" basis, it will segregate with its custodian
liquid assets in an amount sufficient to meet its payment obligations in these
transactions. Realized gains and losses from securities transactions are
reported on an identified cost basis. Interest income is reported on the
accrual basis. Discounts and premiums on securities purchased are amortized.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to reduce its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. The fund's
use of forward currency contracts involves market risk in excess of the amount
recognized in the statement of assets and liabilities. The contracts are
recorded in the statement of assets and liabilities at their net unrealized
value. The fund records realized gains or losses at the time the forward
contract is closed or offset by a matching contract. The face or contract
amount in U.S. dollars reflects the total exposure the fund has in that
particular contract. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from possible movements in non-U.S. exchange rates and securities values
underlying these instruments.
2. FEDERAL INCOME TAXATION
It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of September 30, 1998, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $10,401,000, of which $30,138,000 related to appreciated securities
and $19,737,000 related to depreciated securities. During the year ended
September 30, 1998, the fund realized, on a tax basis, a net capital gain of
$11,143,000 on securities transactions. Net losses related to non-U.S. currency
transactions of $7,846,000 are treated as an adjustment to ordinary income for
federal income tax purposes. IN ADDITION, THE FUND HAS DEFERRED, FOR TAX
PURPOSES, TO FISCAL YEAR ENDING SEPTEMBER 30, 1999, THE RECOGNITION OF LOSSES
RELATED TO NON-U.S. CURRENCY TRANSACTIONS TOTALING $13,476,000 WHICH WERE
REALIZED DURING THE PERIOD NOVEMBER 1, 1997 THROUGH SEPTEMBER 30, 1998. The
cost of portfolio securities, excluding forward currency contracts, for book
and federal income tax purposes was $626,144,000 at September 30, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEES - The fee of $4,538,000 for management services was
incurred 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 provided 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. The
Board of Directors approved an amended agreement effective November 1, 1998
reducing the fees to 0.65% of the first $500 million of average net assets;
0.57% of such assets in excess of $500 million but not exceeding $1 billion;
and 0.50% of such assets in excess of $1 billion. In addition, CRMC has
agreed, effective September 1, 1998, to waive any fees in excess of what it
would have received under the new fee schedule. Had such a waiver not taken
place, the fee for management services would have been $4,562,000.
DISTRIBUTION EXPENSES - 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, 1998, distribution expenses under the Plan were $1,595,000. As of
September 30, 1998, accrued and unpaid distribution expenses were $114,000.
TRANSFER AGENT FEES - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $544,000. American Funds Distributors, Inc.
(AFD), the principal underwriter of the fund's shares, received $245,000 (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.
DEFERRED DIRECTORS' FEES - 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, 1998, aggregate amounts deferred and earnings
thereon were $31,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $653,886,000 and $773,262,000, respectively, during
the year ended September 30, 1998.
As of September 30, 1998, accumulated undistributed net realized gain on
investments was $10,607,000 and additional paid-in capital was $635,409,000.
The fund reclassified $17,643,000 of realized currency losses from accumulated
net realized losses to undistributed net investment income in the year ended
September 30, 1998.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $177,000 includes $31,000 that was paid by these credits
rather than in cash.
Net realized currency losses on interest, and sales of non-U.S. bonds and
notes, on a book basis, were $31,805,000 for the year ended September 30, 1998.
At September 30, 1998, 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>
Purchases:
German Marks
expiring 10/30/98 to
3/1/99 DM10,789,000 $6,359,000 $6,486,000 $ 127,000
Japanese Yen
expiring 12/8/98 to
3/1/99 Y672,385,000 5,039,000 5,016,000 (23,000)
-------------------------------------------------------
11,398,000 11,502,000 104,000
-------------------------------------------------------
Sales:
Australian Dollars
expiring 10/26 to
11/19/98 A$13,119,000 7,703,000 7,784,000 (81,000)
British Pounds
expiring 10/19/98 to
1/15/99 10,945,000 POUNDS 18,026,000 18,536,000 (510,000)
German Marks
expiring 10/5/98 to
2/16/99 DM18,522,000 10,549,000 11,114,000 (565,000)
Greek Drachma
expiring 10/30 to
11/2/98 GRD2,652,973,000 8,649,000 9,163,000 (514,000)
Japanese Yen
expiring 10/20/98 to
3/8/99 Y1,453,263,000 10,438,000 10,691,000 (253,000)
Netherlands Guilders
expiring 1/28/99 NLG6,210,000 3,314,000 3,316,000 (2,000)
New Zealand Dollars
expiring 10/21 to
10/27/98 NZ$7,816,000 3,878,000 3,912,000 (34,000)
Swedish Kronor
expiring 11/25/98 SKr23,330,000 2,782,000 2,979,000 (197,000)
Swiss Francs
expiring 10/14/98 CHF2,000,000 1,355,000 1,451,000 (96,000)
-------------------------------------------------------
66,694,000 68,946,000 (2,252,000)
-------------------------------------------------------
Forward currency contracts - net $55,296,000 $57,444,000 $(2,148,000)
================ ================ ================
</TABLE>
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year Ended Septem ber 30
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Year $16.40 $16.86 $16.81 $15.33 $16.48
-------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income .43 .88 1.09 1.09 1.05
Net realized and unrealized gain(loss)
on investments .57 (.16) .16 1.57 (1.14)
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.00 .72 1.25 2.66 (.09)
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income (.80) (.95) (1.08) (1.18) (.90)
Dividneds from net realized non-U.S. currency gains (1) - (.23) (.12) - (.04)
Distributions from net realized gains (.28) - - - (.12)
-------- -------- -------- -------- --------
Total distributions (1.08) (1.18) (1.20) (1.18) (1.06)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $16.32 $16.40 $16.86 $16.81 $15.33
======== ======== ======== ======== ========
Total Return (2) 6.42% 4.38% 7.67% 18.10% (.62)%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $645 $758 $811 $653 $576
Ratio of expenses to average net assets 1.06% 1.07% 1.09% 1.12% 1.11%
Ratio of net income to average net assets 5.15% 5.21% 6.07% 6.83% 6.88%
Portfolio turnover rate 100.92% 79.00% 91.27% 104.96% 77.04%
(1) Realized non-U.S. currency gains are treated as
ordinary income for federal income tax purposes.
(2) Excludes maximum sales charge of 4.75%
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Capital World Bond Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Capital World Bond Fund, Inc. (the "fund"), including the investment portfolio
investments, as of September 30, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended. These financial statements
and per-share data and ratios are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1998, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other 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, 1998, 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
November 6, 1998
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 16% of the dividends
paid by the fund from net investment income were 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 plan retirement trusts may need this information for their annual
information reporting.
The fund designates as a capital gain distribution a portion of earnings and
profits paid to shareholders in redemption of their shares.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
SHAREHOLDER SERVICES
AMERICAN FUNDSLINE(R)
Use our 24-hour automated phone service for fund information and transactions.
FUNDSLINE ONLINE(R)
Visit our Web site when you want to access your account, download a prospectus
or find fund information.
REDUCED SALES CHARGE
Larger purchases may qualify for a reduced sales charge. To help reach a
breakpoint, you may -
* Add your present purchase to the value of all eligible household accounts
and/or
* Add your present purchase to purchases you intend to make over 13 months
Assets in money market funds generally do not apply when determining sales
charges.
RETIREMENT PLANS
A wide range of fund choices for individual and company-sponsored retirement
plans.
AMERICAN FUNDSLINK(SM)
Link your fund account to your bank account for direct transfers between the
two and to purchase shares using American FundsLine or FundsLine OnLine.
AUTOMATIC TRANSACTIONS
Use this service when you want to purchase, sell and exchange shares on a
regular basis.
FLEXIBLE DIVIDEND OPTIONS
Use your dividend and capital gain distributions to meet your changing needs.
You may -
* Invest dividends and capital gain distributions back into the fund
* Diversify by investing dividends and capital gain distributions into another
American Fund
* Take dividends in cash
* Have dividends paid directly to someone else
Because certain transactions have restrictions or tax consequences, please
consult your financial adviser before requesting changes.
WOULD YOU LIKE MORE INFORMATION?
Your financial adviser will be happy to explain these services in greater
detail, or you may contact American Funds Service Company.
TO CONTACT AMERICAN FUNDS SERVICE COMPANY:
Shareholder Services Representative - 8 a.m. to 8 p.m. Eastern time -
800/421-0180
American FundsLine - 24-hour automated telephone service - 800/325-3590
FundsLine OnLine - Web site - www.americanfunds.com
By mail -Write to the service center nearest you.
(If you live outside the United States, please write to the western service
center.)
[map of United States broken into service center areas]
WESTERN
American Funds
Service Company
P.O. Box 2205
Brea, CA 92822-2205
WEST CENTRAL
American Funds
Service Company
P.O. Box 659522
San Antonio, TX 78265-9522
EAST CENTRAL
American Funds
Service Company
P.O. Box 6007
Indianapolis, IN 46206-6007
EASTERN
American Funds
Service Company
P.O. Box 2280
Norfolk, VA
23501-2280
Please obtain the applicable prospectuses from your financial adviser or our
Web site and read them carefully before investing or sending money. American
Funds reserves the right to terminate or modify these services.
[THE AMERICAN FUNDS GROUP(R)
BOARD OF DIRECTORS
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and Chief
Executive Officer, The Mission Group; former
President, Southern California Edison Company
DON R. CONLAN
South Pasadena, California
President (retired),
The Capital Group Companies, Inc.
DIANE C. CREEL
Long Beach, California
President and Chief Executive Officer,
The Earth Technology Corporation
(international consulting engineering)
MARTIN FENTON, JR.
San Diego, California
Chairman of the Board,
Senior Resource Group, Inc.
(senior living centers management)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller Consulting
(management consultants)
ABNER D. GOLDSTINE
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Chairman of the Board of the fund
Executive Vice President and Director,
Capital Research and Management Company
HERBERT HOOVER III
San Marino, California
Private investor
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President and
Chief Executive Officer, AECOM Technology
Corporation (architectural engineering)
PETER C. VALLI retired from the Board of Directors effective March 17, 1998. He
had been a Director of the fund since 1991. The Directors wish to thank him for
his many contributions to the fund.
OTHER OFFICERS
MICHAEL J. DOWNER
Los Angeles, California
Vice President of the fund
Senior Vice President - Fund Business
Management Group, Capital Research
and Management Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President - Fund Business
Management Group, Capital Research
and Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the fund
Vice President - Fund Business
Management Group, Capital Research
and Management Company
KIMBERLY S. VERDICK
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President - Fund Business
Management Group, Capital Research
and Management Company
TODD L. MILLER
Brea, California
Assistant Treasurer of the fund
Assistant Vice President - Fund Business
Management Group, Capital Research
and Management Company
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of Capital World Bond Fund,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
December 31, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA WG/INS/3930
Lit. No. WBF-011-1198
