[THE AMERICAN FUNDS GROUP(R)]
CAPITAL WORLD BOND FUND
ANNUAL REPORT
FOR THE YEAR ENDED SEPTEMBER 30
1999
WHY GLOBAL BONDS HAVE EARNED A PLACE IN MANY INVESTORS' PORTFOLIOS
[cover illustration: collage of various currencies overlaying a world
atlas]
[Begin Sidebar]
CAPITAL WORLD BOND FUND(R)
The fund seeks long-term total return, consistent with prudent management, by
investing in fixed-income securities issued by major governments and
corporations all over the world, including the United States. The total return
is made up of three elements: interest income, any change in the local 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 29 mutual funds in The American Funds
Group,(r) the nation's third-largest mutual fund family. For more than six
decades, Capital Research and Management Company, the American Funds adviser,
has invested with a long-term focus based on thorough research and attention to
risk.
INVESTMENT RESULTS AT A GLANCE
Fiscal-year total return
(10/1/98 - 9/30/99) -0.3%
Lifetime total return
(8/4/87 - 9/30/99) +152.1
Lifetime average annual
compound return
(8/4/87 - 9/30/99) +7.9
[End Sidebar]
THE VALUE OF A LONG-TERM INVESTMENT
How a $10,000 investment has grown over the fund's lifetime
[begin line chart]
$27,152/1/
Salomon Smith Barney
World Government
Bond Index
$24,009/1/
Capital World
Bond Fund
$14,754/2/
Consumer
Price Index
(Inflation)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended 9/30 Capital World Salomon Smith Barney Consumer
Bond Fund/1/ World Government Bond Price Index
Index/1/ Inflation)
</TABLE>
<TABLE>
<CAPTION>
<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
1999 24,009 27,152 14,754
</TABLE>
[end chart]
/1/With dividends and capital gains reinvested or interest compounded.
/2/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
/3/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 indexes. The
indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended September 30, 1999,
assuming payment of the 4.75% maximum sales charge at the beginning of the
stated periods:
<TABLE>
<CAPTION>
<S> <C> <C>
Total Average Annual
Return Compound Return
Ten Years +101.80% +7.27%
Five Years +34.15 +6.05
One Year -5.03 -
</TABLE>
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
yield as of October 31, 1999, calculated in accordance with the Securities and
Exchange Commission formula, was 4.51%. The fund's distribution rate as of that
date was 4.30%. 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 AND ARE NOT PREDICTIVE OF FUTURE 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, higher transaction costs, possible changes in taxation
and periods of illiquidity.
FELLOW SHAREHOLDERS:
[Begin Sidebar]
PORTFOLIO SUMMARY
Percent of net assets as of September 30, 1999
[pie chart]
<TABLE>
<CAPTION>
<S> <C>
Non-U.S. Governments/Agencies 49.6%
Non-U.S. Corporate Bonds 15.9
U.S. Treasuries 9.2
U.S. Corporate Bonds 8.4
U.S. Mortgage- and Asset-
Backed Securities 5.0
Non-U.S. Mortgage- and Asset-
Backed Securities 4.2
U.S. Government Agency Notes 4.0
Cash & Equivalents 3.7
</TABLE>
[End Sidebar]
Capital World Bond Fund's 1999 fiscal year was characterized by renewed
economic growth in many countries, aided by a general recovery in Asia.
Economic growth, however, has been accompanied by rising interest rates
throughout much of the world. As a result, while most bonds continue to
generate income far ahead of the rate of inflation, bond prices this past year
have generally declined.
For the 12 months ended September 30, 1999, the value of your holdings declined
0.3% if, like most shareholders, you reinvested dividends totaling 55 cents a
share. The fund's fiscal-year return virtually matched the 0.2% average return
from the 145 global income funds followed by Lipper, Inc., a leading mutual
fund tracking service. At the same time, government bond markets worldwide
increased just 0.5% as measured by the unmanaged Salomon Smith Barney World
Government Bond Index. The Salomon Smith Barney Broad Investment-Grade Bond
Index, an unmanaged measure of the U.S. bond market, declined 0.3%.
This was only the second time in the fund's 12-year history that a fiscal-year
return was negative. The other year was 1994 - the worst year for bonds on
record - when the fund declined 0.6%.
THE U.S. BOND MARKET: FEW PLACES TO HIDE
1998 could have been called "The Year of the Government Bond." Government bonds
from around the world were enormously popular for the protection they offered
from the financial turmoil in Asia, Latin America and Russia. In the United
States, yields on 10-year Treasury bonds fell to 4.2% in October 1998, their
lowest level in nearly 30 years. Bond prices, which move inversely to yields,
soared.
This trend reversed - and then some - in 1999, as strong economic activity
throughout the world resulted in generally higher interest rates. To slow U.S.
economic growth, the Federal Reserve Board elected to tighten monetary policy
by increasing short-term interest rates one-quarter point in June and again in
August, causing government bond prices to fall. In addition, there was a third
quarter-point hike in November, after the fund's fiscal year-end. Meanwhile,
investors who were attracted by the safety of government bonds in 1998 moved
back into stocks and lower rated bonds in 1999. Ten-year U.S. Treasury yields
reached 6.2% in August, up two percentage points from last October, causing
prices to drop 8%.
In other sectors, corporate and government agency bond markets were deluged
with excess supply as issuers rushed to bring bonds to the market well in
advance of the Y2K transition. By the end of September, prices of U.S.
corporate bonds had declined almost as much as U.S. Treasury bonds, while U.S.
mortgage-backed securities ended the year mostly flat.
EUROPE: INTEREST RATES UP, CURRENCIES DOWN
European government bond markets also saw a reversal of fortune from last year,
when nervous investors flocked to the safety of government bonds, especially in
Germany and the United Kingdom. Government bond yields across Europe generally
held steady in the first half of 1999 until indications of a strong European
economic recovery - driven by rising exports and consumer spending - led to
worries about inflation. As a result, long-term bond rates moved up
dramatically toward the end of the fiscal year. To make matters worse, returns
for U.S. investors were pushed lower by the declining euro, the new currency
for countries in the European Monetary Union. The euro lost 14% against the
U.S. dollar from its January 1 introduction through July 12. Since then, it has
gained back some of its losses. On September 30, the fund had 22% of net assets
denominated in euros, up from 18% on March 31. Looking ahead, as European
economies continue to rebound, a strengthening euro could lead to attractive
returns from these bonds.
Elsewhere in Europe, the news has been more positive. Our holdings in Greek
bonds have benefited from the expectation that Greece will join the European
Monetary Union in 2001. Similarly, bonds from the United Kingdom provided some
cushion against declining prices in other European government bond markets.
[Begin Sidebar]
Capital World Bond Fund Net Assets
As of September 30, 1999
WEIGHTED BY BOND HOLDINGS
(before currency hedging)
[pie chart]
<TABLE>
<CAPTION>
<S> <C>
United States 30.5%
European Monetary Union 22.1
Non-EMU Europe 21.7
Japan 13.6
Dollar Bloc* 11.6
Other 0.5
</TABLE>
WEIGHTED BY CURRENCY EXPOSURE
(after currency hedging)
[pie chart]
<TABLE>
<CAPTION>
<S> <C>
United States 30.5%
European Monetary Union/+/ 23.3
Non-EMU Europe 19.5
Japan 14.2
Dollar Bloc* 12.0
Other 0.5
</TABLE>
*Australia, Canada and New Zealand
/+/Includes 0.2% in U.S. corporate bonds that are denominated in euros
[End Sidebar]
JAPAN: HINTS OF RECOVERY CAUSE A SURGE IN THE YEN
Japanese bond prices were anything but steady during the past 12 months. As the
Japanese government issued large quantities of bonds to finance its economic
stimulus package, investors worried that supply would outstrip demand. Prices
slumped until mid-February, when government assurances of a renewed bond-buying
program - and a short-term interest rate cut - helped the market bounce back.
Fortunately, two surges in the Japanese currency boosted returns for U.S.
investors. Between July 1998 and mid-January 1999, the yen gained 25% against
the U.S. dollar, and gained even more later in the year. Fueling the activity
were both Japanese and foreign investors, eager to return to Japanese markets
after learning of Japan's economic turnaround in the first quarter.
Although the total return from Japanese government bonds was -1.8% in local
currency terms over the fiscal year, the yen's strength translated that return
to +26% for U.S. investors. The fund increased its Japanese yen exposure from
2% to 14%, thus benefiting from the yen's strength. This is still a cautious
stance, however, as compared with a 26% Japanese yen weighting in the Salomon
Smith Barney World Government Bond Index.
"DOLLAR BLOC": COMMODITY PRICES HELP CURRENCIES
Bond markets in Australia, Canada and New Zealand - the so-called "dollar bloc"
countries - bounced back early in the year after dismal performances in 1998,
but couldn't sustain their rallies. Bond prices in all three countries ended
the fiscal year only slightly higher, although stronger currencies helped to
provide attractive returns for U.S. investors. With stronger commodity prices
helping to support these currencies, the fund benefited from its holdings of
dollar bloc bonds, which totaled about 12% at the end of September.
LOOKING AHEAD
Good news about economic growth is usually bad news for bond investors, but
there can be exceptions to the rule. While stronger economies have pushed
interest rates higher than they were a year ago, worldwide inflation rates
remain low. This means that global bond investors can benefit from today's
higher yields without surrendering much to inflation. Moreover, investing in
bonds of different countries and currencies helps provide some protection from
declines in the U.S. stock and bond markets. On the next few pages, you will
meet some of the fund's shareholders and learn why diversification plays an
important role in their investment programs.
Finally, as you may recall from our report six months ago, the dividend
previously paid in September was shifted to early October, the first month of
our next fiscal year, in order to take into account currency gains and losses
through the fund's fiscal year-end. The October dividend payment will likely be
a permanent change for the fund, meaning that income in fiscal 2000 will
reflect four dividend payments.
Cordially,
/s/Paul G. Haaga, Jr. /s/Abner D. Goldstine
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
November 22, 1999
[Begin Sidebar]
A CHANGE IN THE FUND'S INVESTMENT POLICY
Shareholders of Capital World Bond Fund recently approved a new policy allowing
the fund to invest up to 25% of its net assets in below-investment-grade
securities (those rated Ba or below by Moody's and BB or below by Standard &
Poor's or unrated but determined to be of comparable quality). Previously,
investments were limited to investment-grade securities (those rated Baa or BBB
and above).
Over the fund's lifetime, global bond markets have expanded considerably.
Although investments in below-investment-grade securities may present certain
risks, we believe this new policy will provide opportunities for greater
diversification and increased returns over time, utilizing the research
capabilities of the fund's investment adviser, Capital Research and Management
Company. Specifically, it will give the fund's portfolio counselors the
flexibility to invest in higher yielding, higher risk corporate bonds and in
the government bonds of countries that do not currently receive an
investment-grade rating.
[End Sidebar]
A LOOK AT THE FUND'S PORTFOLIO -
WHAT HELPED AND WHAT HURT RETURNS
as of September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Government Bond Market
Capital World Bond Fund Total Returns
Net Assets 12 months ended September 30, 1999
Country Securities Weighting In Local Currency In U.S. Dollars
United States 30.5%/1/ -1.9% -1.9%
European Monetary Union
Germany 17.5/2/ -0.2/3/ -9.2
Netherlands 1.2 -0.7/3/ -9.6
Italy 1.1 +0.5/3/ -8.7
Spain 1.0 -0.3/3/ -9.3
France 0.9 -0.8/3/ -9.7
Ireland 0.4 -0.2/3/ -9.7
Japan 13.6 -1.8 +25.6
New Zealand 5.8 +1.8 +5.0
Greece 5.4 +16.9 +10.2
United Kingdom 5.4 +0.8 -2.3
Denmark 5.0 +2.0 -7.1
Australia 2.9 +0.6 +10.8
Canada 2.9 +1.2 +5.1
Sweden 2.2 +0.4 -4.1
Norway 1.7 +3.4 -1.3
Poland 1.4 +17.4 +4.9
Hungary 0.6 +22.7 +13.1
South Africa 0.5 +30.0 +28.6
</TABLE>
Sources: Salomon Smith Barney World Government Bond Index, based on bonds with
remaining maturities of at least one year, and Capital Research and Management
Company, the fund's adviser.
/1/ Includes 0.2% in U.S. corporate bonds that are denominated in euros, as
reflected on page 12.
/2/ Includes 2.4% in bonds that are denominated in German marks, as reflected
on page 12.
/3/ Bonds are denominated in euros, the new currency for the countries forming
the European Monetary Union. Market returns for EMU countries were calculated
based on national currencies through 12/31/98. After 1/1/99, returns were
calculated in euros.
WHY GLOBAL BONDS HAVE EARNED A PLACE IN MANY INVESTORS' PORTFOLIOS
[Begin Sidebar]
AT TIMES WHEN U.S. STOCKS SEEM OVERVALUED, MANY FINANCIAL ADVISERS RECOMMEND
REINFORCING YOUR SAFETY NET BY HAVING SOME U.S. AND NON-U.S. BONDS IN YOUR
PORTFOLIO.
[End Sidebar]
Wide fluctuations in an investment portfolio can make financial planning
difficult for those with short- to medium-term income needs. That's why
diversification strategies are especially important for retirees, those nearing
retirement and others with an immediate need for income, such as college or
medical expenses.
THE CASE FOR DIVERSIFICATION
Mutual funds that invest outside the United States offer investors a number of
advantages. They offer greater access to investment opportunities, since
non-U.S. bonds comprise more than half the value of all the world's bonds. They
also open the door to new income opportunities, which are especially welcome
when U.S. yields are low.
DIVERSIFICATION PROVIDES OPPORTUNITY FOR HIGHER RETURNS
The best bond market among developed countries in each of the past 10 years has
been a non-U.S. market.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BEST BOND
YEAR BEST BOND MARKET RETURN U.S. BOND
MARKET (in U.S. dollars) MARKET RETURN
1989 Canada +16.2% +14.4%
1990 United Kingdom +30.9 +8.6
1991 Australia +23.5 +15.3
1992 Japan +10.8 +7.2
1993 Japan +27.6 +10.7
1994 Belgium +12.2 -3.4
1995 Sweden +34.8 +18.3
1996 Italy +27.2 +2.7
1997 United Kingdom +10.3 +9.6
1998 France +21.3 +10.0
</TABLE>
Source: Salomon Smith Barney World Government Bond Index, based on one-year
total returns in U.S. dollars.
A POTENTIAL BUFFER AGAINST STOCK MARKET DECLINES
Most significant, however, is that financial markets move in different cycles
and rhythms. Combining U.S. stocks or bonds with overseas investments can help
cushion the full impact of down markets in any one country. For example, over
the past 30 years through 1998, non-U.S. bonds have fared better than both U.S.
stocks and U.S. bonds in five of the six calendar years in which the U.S. stock
market showed a negative return.
HOW ADDING NON-U.S. BONDS TO A U.S. BOND PORTFOLIO COULD HAVE HELPED CUSHION
U.S. STOCK MARKET DECLINES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. U.S. NON-U.S.
YEAR STOCKS BONDS BONDS
1969 -8.4% -8.1% +4.2%
1973 -14.7 +2.3 +6.3
1974 -26.3 +0.2 +5.3
1977 -7.2 +3.0 +38.9
1981 -4.9 +6.3 -4.6
1990 -3.1 +9.0 +15.3
</TABLE>
[Begin Sidebar]
A LOOK AT THE FUND'S
SHAREHOLDERS
as of September 30, 1999
WHO OWNS THE FUND?
Capital World Bond Fund's more than 32,000 shareholder accounts include:
52% Individual retirement accounts
16% Corporate retirement plans and business organizations
14% Individuals and couples
12% Brokerage accounts
6% Trustees, guardians and custodians
The fund's shareholders include corporations, labor unions, trust companies,
insurance companies, churches, religious organizations, schools, colleges and
libraries.
OTHER FACTS ABOUT THE FUND'S SHAREHOLDERS:
* Women outnumber men nearly 2 to 1
* Shareholders live in 22 different countries
* Average account size: $17,000
* 93% of shareholders reinvest their dividends
* 96% reinvest capital gains
* 69% own other American Funds
* 60% own at least one American Funds global equity fund
[illustration: collage of various currencies overlaying a world
atlas]
[End Sidebar]
HOW CAPITAL WORLD BOND FUND HAS FARED DURING MAJOR STOCK MARKET CORRECTIONS
At times when U.S. stocks seem overvalued, many financial advisers recommend
reinforcing your safety net by having some U.S. and non-U.S. bonds in your
portfolio. Over its lifetime, Capital World Bond Fund has helped investors ride
out each of the three stock market corrections of 15% or more.
<TABLE>
<CAPTION>
<S> <C> <C>
Stock Market U.S. Capital World
Correction Stocks Bond Fund
8/25/87 - 12/4/87 -33.0% 0.07
7/16/90 - 10/11/90 -19.1 +4.6
7/17/98 - 8/31/98 -19.3 -0.6
</TABLE>
Worth mentioning, however, is that investments outside the United States
involve additional risks, such as currency fluctuations and political
instability. Your financial adviser can best determine the role global
diversification should play in your overall portfolio.
THE MIDDLE-OF-THE-ROAD APPROACH
A blend of several types of investments will never outpace the best-performing
asset class in any given year, but it will also provide greater stability of
income and principal. This middle-of-the-road approach can be very reassuring
as investors make plans for the future. On the next four pages, you'll read
about a few of the fund's shareholders who have made diversification a central
theme for their retirement years.
Sources for statistical illustrations, unless otherwise indicated -
U.S. stocks: Standard & Poor's 500 Composite Index.
Non-U.S. stocks: Morgan Stanley Capital International EAFE(r) (Europe,
Australasia, Far East) Index.
U.S. bonds: 1969-72: Salomon Smith Barney High-Grade Corporate Bond Index;
1973-75: Lehman Brothers Government/Corporate Bond Index; 1976-present: Lehman
Brothers Aggregate Bond Index.
Non-U.S. bonds: 1969-77: Ibbotson, Carr and Robinson, "International Equity and
Bond Returns," Financial Analyst Journal, July 1982; 1978-84: Salomon Smith
Barney Non-U.S. Dollar World Bond Index; 1985-present: Salomon Smith Barney
Non-U.S. Dollar World Government Bond Index. All indexes are unmanaged. Capital
World Bond Fund results on this page include reinvestment of all distributions
but do not reflect the effects of sales charges.
[Begin Sidebar]
DRIVING TO ALASKA IS PART OF A LONG-TERM PLAN FOR GARELD AND BETTY JO HANSON.
SO IS CAPITAL WORLD BOND FUND.
[illustration: road from Alaska to "bountiful" with caricatures of various
travel souvenirs]
[End Sidebar]
[Begin Sidebar]
JOURNEY
[End Sidebar]
THE TRIP FROM BOUNTIFUL
[photo: Gareld and Betty Jo Hanson]
Gareld and Betty Jo Hanson are residents of Bountiful, Utah, a suburb of Salt
Lake City. 1998 marked Gareld's retirement after working for 34 years as an
executive with a local bank. When asked about his investment strategy during
his preretirement years, Gareld reflects, "I spent many years with all my eggs
in one basket. Every penny of my 401(k) was invested in the bank's stock. In
fact, for many years, that was the only option available." Fortunately, Gareld
was not hurt by having all of his retirement money in a single investment. "But
when I retired," he adds, "I knew I needed to diversify my investments."
Gareld and his financial adviser agreed on a portfolio of mutual funds
representing four basic investment categories: U.S. stocks, U.S. bonds,
non-U.S. stocks and non-U.S. bonds. "One of the things that attracted me to
global bonds was that they tend to move differently from the U.S. stock market.
I was also looking for a mutual fund manager with a long track record - someone
who knows how to handle a portfolio in a down market. American Funds fit right
in."
While he admits that he is still adjusting to retirement, Gareld says, "I'm
doing almost anything I want and I'm really good at it." Anything he wants
includes catching up on his reading, doing yard work - "No longer do I live in
a jungle," he jokes - and getting in better shape. He is not worried about
drawing upon his investments just yet, but that time will soon come. "One of
the things Betty Jo and I hope our portfolio will allow us to do is drive to
Alaska next year. We'll take the Alaska Marine Highway and partake of the local
flavor of each town along the way. It's something we've always wanted to do."
For their trip from Bountiful to Alaska, Gareld and Betty Jo will need a new
sport utility vehicle and some cash for spending. They will need to rely on the
stability of their investment portfolio to keep them going during their trip
and throughout their retirement.
That's why they see diversification into global bonds as one of the keys to a
successful journey ahead.
[Begin Pull Quote]
"I SPENT MANY YEARS WITH ALL MY EGGS IN ONE BASKET. EVERY PENNY OF MY 401(K)
WAS INVESTED IN THE BANK'S STOCK. BUT WHEN I RETIRED, I KNEW I NEEDED TO
DIVERSIFY MY INVESTMENTS."
[End Pull Quote]
[Begin Sidebar]
[illustration: road from San Francisco to Greece with caricatures of various
travel souvenirs]
HAVING LIVED ON THREE CONTINENTS WITH HER HUSBAND, JOHN, ANN MARIE SULZBACH HAS
AN INVESTMENT PORTFOLIO THAT REFLECTS THE SAME LEVEL OF GLOBAL DIVERSITY AS HER
WELL-WORN PASSPORT.
[End Sidebar]
[Begin Sidebar]
DIVERSIFICATION
[End Sidebar]
KEEPING A GLOBAL PERSPECTIVE
[photo: Ann Marie and John Sulzbach]
As a public schoolteacher in the San Francisco Bay area, Ann Marie Sulzbach
worked hard to give her students an awareness of the world around them. She
knew from firsthand experience that learning comes from doing, not just reading
or listening.
In the 1970s, Ann Marie and her husband, John, lived in Greece and then in
Saudi Arabia, where John worked briefly. When they returned to San Francisco in
the late '70s, Ann Marie brought with her a greater appreciation for
international affairs. She became active in a global education program
sponsored by Stanford University and the World Affairs Council of Northern
California. "I realized that you don't get a global education solely from a
textbook - the world is more dynamic than that." To help her students gain a
new perspective, she traveled abroad on study tours and learned how to
incorporate international topics into her lesson plans. "I encouraged my
second-grade students to inspect labels to see where a product was
manufactured,"
she explains. "Then we located the country on a map and talked about what life
was like in that part of the world."
Last year, Ann Marie and John met with their financial adviser to discuss Ann
Marie's retirement. "As a teacher," she says, "you don't get a big salary, so
you need growth and stability." Their adviser recommended a portfolio of seven
American Funds, four of which were global funds. "Our financial adviser knew us
well enough to know that global diversification was very important to us," says
Ann Marie. At about 10% of the portfolio, Capital World Bond Fund plays, in her
words, "a prudent diversification role."
Now retired, Ann Marie's lesson plan for herself includes computer literacy,
golf lessons and a trip to Greece - two-thirds of which she has already
accomplished. Although she is not drawing income from her American Funds
individual retirement account at this time, she knows that she will eventually
need to tap into her investments for living expenses. Until then, she is
enjoying the challenge of being a student again, with the world as her
textbook.
[Begin Pull Quote]
"OUR FINANCIAL ADVISER KNEW US WELL ENOUGH TO KNOW THAT GLOBAL DIVERSIFICATION
WAS VERY IMPORTANT TO US. CAPITAL WORLD BOND FUND PLAYS A PRUDENT
DIVERSIFICATION ROLE IN OUR PORTFOLIO."
[End Pull Quote]
WHAT MAKES THE AMERICAN FUNDS DIFFERENT?
[illustration of the United States flag]
As a shareholder in Capital World Bond Fund, you are also a member of The
American Funds Group, the nation's third-largest mutual fund family. You won't
find us advertised, yet thousands of financial advisers recommend the American
Funds for their clients' serious money - money set aside for education, a home,
retirement and other important dreams.
[illustration: decorative border]
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
A LONG-TERM, VALUE-ORIENTED APPROACH: Rather than follow short-term fads, we
rely on our own intensive research to find well-managed companies with
reasonably priced shares and solid, long-term potential. Despite our size, we
offer relatively few funds compared with many large fund families, allowing us
to maintain a careful focus on our objectives and enabling you to benefit from
economies of scale.
A GLOBAL PERSPECTIVE: We opened our first overseas office in 1962, well before
most mutual funds began investing internationally. Today, the American Funds
draw on one of the industry's most globally integrated research networks. We
spend substantial resources getting to know companies and industries around the
world.
A MULTIPLE PORTFOLIO COUNSELOR SYSTEM: More than 40 years ago, we developed a
unique strategy for managing investments that blends teamwork with individual
accountability. Every American Fund is divided among a number of portfolio
counselors, each of whom manages his or her portion independently, within each
fund's objectives; in most cases, research analysts manage a portion as well.
Over time, this method has contributed to consistency of results and continuity
of management.
EXPERIENCED INVESTMENT PROFESSIONALS: Nearly 90% of the portfolio counselors
who serve the American Funds were in the investment business before the stock
market decline in October 1987. Long tenure and experience through a variety of
market conditions mean we aren't "practicing" with your money.
A COMMITMENT TO LOW OPERATING EXPENSES: You can't control market returns, but
you can control what you invest in and how much you pay to own it. American
Funds provide exceptional value for shareholders, with operating expenses that
are among the lowest in the mutual fund industry. Our portfolio turnover rates
are low as well, keeping transaction costs and tax consequences contained.
A PORTFOLIO FOR EVERY INVESTOR
[Begin sidebar]
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things - including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
[End Sidebar]
GROWTH FUNDS
EMPHASIS ON LONG-TERM GROWTH THROUGH STOCKS
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(SM)
SMALLCAP World Fund(r)
GROWTH-AND-INCOME FUNDS
EMPHASIS ON LONG-TERM GROWTH AND DIVIDENDS THROUGH STOCKS
American Mutual Fund(r)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(r)
Washington Mutual Investors Fund(SM)
EQUITY-INCOME FUNDS
EMPHASIS ON ABOVE-AVERAGE INCOME AND GROWTH THROUGH STOCKS AND/OR BONDS
Capital Income Builder(r)
The Income Fund of America(r)
BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(r)
INCOME FUNDS
EMPHASIS ON CURRENT INCOME THROUGH BONDS
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(SM)
[illustration of glob and American flag]
TAX-EXEMPT INCOME FUNDS
EMPHASIS ON TAX-FREE CURRENT INCOME THROUGH MUNICIPAL BONDS
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(r)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
MONEY MARKET FUNDS
SEEK STABLE MONTHLY INCOME THROUGH MONEY MARKET INSTRUMENTS
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE FUNDS, INCLUDING CHARGES AND
EXPENSES, PLEASE OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISER, DOWNLOAD ONE
FROM OUR WEB SITE AT WWW.AMERICANFUNDS.COM, OR PHONE THE FUND'S TRANSFER AGENT,
AMERICAN FUNDS SERVICE COMPANY, AT 800/421-0180. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE YOU INVEST OR SEND MONEY. FOR MORE INFORMATION, ASK YOUR
FINANCIAL ADVISER FOR A COPY OF A PORTFOLIO FOR EVERY INVESTOR.
<TABLE>
Capital World Bond Fund, Inc.
Investment Portfolio, September 30, 1999
<S> <C> <C> <C>
Principal Market Percent
Amount Value of Net
Bonds and Notes (000) (000) Assets
- -------------------------------------------- ---------- ------------ ------------
EUROS
German Government:
8.875% 2000 pounds4,400 US$ 4993
8.25% 2001 4,000 4,623
7.25% 2002 4,250 4,936
8.00% 2002 6,641 7,798
6.75% 2003 1,023 1,176
6.50% 2005 10,858 12,590
6.875% 2005 4,975 5,844 11.92%
Bundesrepublic:
5.00% 2002 6,500 7,095
6.00% 2007 600 677
Treuhandanstalt:
7.125% 2003 6,669 7,722
7.50% 2004 7,145 8,555
Bayerische Vereinsbank:
5.00% 2008 4,000 4,138 2.53
5.50% 2008 9,226 9,882
Netherlands Government:
5.75% 2002 4,700 5,230
3.75% 2009 795 752 1.22
5.50% 2028 735 740
Italian Government BTPS:
6.00% 2007 3,744 4,176 1.13
5.00% 2008 2,000 2,095
Spanish Government:
6.00% 2008 3,486 3,888 1.00
6.15% 2013 1,503 1,669
French Government:
BTNS 4.75% 2002 600 652
4.50% 2003 2,500 2,679 .91
OAT 5.25% 2008 1,606 1,722
Rheinische Hypothekenbank Eurobond 4.25% 2008 3,000 2,917 .53
Ireland (Republic of) 2.75% 2002 1,800 1,844 .33
Corporacion Andina de Fomento 4.75% 2004 1,000 1,005 .18
General Motors Acceptance Corp. 4.00% 2006 1,000 987 .18
------------ -----------
110,385 19.93
------------ -----------
GERMAN MARKS
Ford Motor Credit Co. 5.25% 2008 DM22,900 11,985 2.17
Telstra Corp. Ltd. 5.125% 2008 2,250 1,185 .21
------------ -----------
13,170 2.38
------------ -----------
JAPANESE YEN
International Bank for Reconstruction and Development:
4.50% 2000 yen450,000 4,364
4.50% 2003 789,000 8,438 3.12
4.75% 2004 400,000 4,495
The Japan Development Bank 6.50% 2001 990,000 10,445
Japanese Government:
.70% 2004 570,000 5,273 3.05
.90% 2008 130,000 1,133
General Motors Acceptance Corp. .206% 2002 (1) 1,434,000 13,472 2.43
European Investment Bank:
4.25% 2001 826,000 8,197 1.85
6.75% 2001 200,000 2,078
SHL 1991-1 Corp. Ltd.: (2)
Class A1, .478% 2024 (1) 107,514 1,011
Class A2, .778% 2024 (1) 130,000 1,223 .90
Class A3, 2.09% 2024 300,000 2,761
Fannie Mae 2.125% 2007 420,000 4,140 .75
Spain (Kingdom of) 3.11% 2006 380,000 3,992 .72
Hellenic Republic 2.90% 2007 230,000 2,291 .41
Inter-American Development Bank 6.75% 2001 150,000 1,538 .28
Nippon Telegraph & Telephone Corp. 2.50% 2007 60,000 600 .11
------------ -----------
75,451 13.62
------------ -----------
NEW ZEALAND DOLLARS
New Zealand Government:
8.00% 2001 NZ$7,000 3,729
8.00% 2004 6,500 3,536
8.00% 2006 3,000 1,651 3.94
7.00% 2009 8,725 4,531
4.72% 2016 (3) 17,046 8,399
Fannie Mae 7.25% 2002 12,000 6,286 1.14
Canadian Government 6.625% 2007 8,500 4,156 .75
------------ -----------
32,288 5.83
------------ -----------
GREEK DRACHMAS
Hellenic Republic:
6.60% 2004 GRD300,000US$ 964
8.90% 2004 600,000 2,103
8.80% 2007 3,714,700 13,411 5.39%
8.60% 2008 1,930,000 6,968
7.50% 2013 1,885,000 6,389
------------ -----------
29,835 5.39
------------ -----------
BRITISH POUNDS
United Kingdom:
8.00% 2000 L1,000 1,685
6.50% 2003 2,000 3,324 1.36
5.75% 2009 1,500 2,499
Tussauds Finance Ltd., Class A3, 7.078% 2020 3,000 4,630 .84
Scottish Life Finance PLC 9.00% undated (1) 2,750 4,584 .83
Halifax Building Society:
8.75% 2006 1,000 1,772 .57
11.00% 2014 600 1,364
Punch Taverns 7.567% 2026 2,000 3,067 .55
Royal Bank of Scotland 8.375% 2007 1,000 1,741 .31
Bank of Ireland 9.75% 2005 835 1,503 .27
Lloyds TSB Group PLC 8.50% 2006 800 1,396 .25
NPI Finance PLC 9.625% undated 750 1,307 .24
Pubmaster Finance Ltd., Class B, 8.44% 2025 550 908 .16
------------ -----------
29,780 5.38
------------ -----------
DANISH KRONER
Nykredit: (2)
6.00% 2029 DKr61,043 7,980 1.96
7.00% 2029 20,775 2,902
Denmark (Kingdom of):
8.00% 2003 10,000 1,588
7.00% 2004 7,000 1,096
5.00% 2005 31,000 4,406 1.95
7.00% 2007 21,000 3,300
6.00% 2009 2,800 414
Danske Kredit: (2)
6.00% 2029 29,302 3,831 1.11
7.00% 2029 16,500 2,298
------------ -----------
27,815 5.02
------------ -----------
AUSTRALIAN DOLLARS
News America Holdings Inc. 8.625% 2014 A$9,000 5,816 1.05
Queensland Treasury Corp. 6.00% 2009 4,450 2,776 .50
Australian Government:
10.00% 2002 550 402
6.75% 2006 2,000 1,351 .46
10.00% 2006 1,000 786
New South Wales Treasury Corp. 7.00% 2004 3,000 2,019 .37
Statens Bostadfinansier 6.50% 2000 2,800 1,844 .33
South Australian Government Financing Authority 1,500 1,075 .19
11.25% 2001
------------ -----------
16,069 2.90
------------ -----------
CANADIAN DOLLARS
Canadian Government:
9.75% 2001 4,000 2,954
7.25% 2003 5,250 3,763
7.25% 2007 2,350 1,749 1.85
10.75% 2009 1,000 933
4.819% 2021 (3) 1,071 789
Lindsey Morden Group Inc., Series B, 7.00% 2008 (4) 7,000 4,337 .78
Canada Trust 6.75% 2001 (2) 1,320 904 .16
Merrill Lynch Mortgage Loans Inc., Series CAN-2, 500 340 .06
Class A2, 6.68% 2031 (2)
------------ -----------
15,769 2.85
------------ -----------
SWEDISH KRONOR
AB Spintab:
6.25% 2002 32,000 3,998
7.50% 2004 38,100 4,930 1.77
6.00% 2009 7,300 860
Stadshypotek AB 5.50% 2008 18,000 2,057 .37
Swedish Government 10.25% 2000 3,500 446 .08
------------ -----------
12,291 2.22
------------ -----------
NORWEGIAN KRONER
Norwegian Government 6.75% 2007 68,350 9,183 1.66
------------ -----------
POLISH ZLOTY
Polish Government:
13.00% 2001 22,250 5,333 1.39
12.00% 2003 10,000 2,361
------------ -----------
7,694 1.39
------------ -----------
HUNGARIAN FORINTS
Hungarian Government:
13.00% 2003 750,000 3,087 .63
10.50% 2004 100,000 387
------------ -----------
3,474 .63
------------ -----------
SOUTH AFRICAN RANDS
South Africa (Republic of) 13.00% 2010 19,050 2,835 .51
------------ -----------
U.S. DOLLAR
U.S. Treasury Obligations:
6.75% 2000 900 907
6.625% 2001-2007 4,950 5,081
8.00% 2001 750 777
5.875% 2002 100 100
6.375% 2002 9,500 9,659
5.50% 2003 5,800 5,747
5.75% 2003 520 518
7.875% 2004 750 813
11.625% 2004 3,750 4,663
6.50% 2005 3,000 3,071 9.25
3.55% 2007 (3) 1,016 1,005
6.125% 2007 5,295 5,301
7.25% 2007 1,545 1,558
4.75% 2008 4,500 4,096
5.625% 2008 2,350 2,281
10.375% 2009 715 844
7.50% 2016 1,000 1,107
7.125% 2023 625 678
3.694% 2028 (3) 3,194 3,004
Fannie Mae: (2)
5.625% 2004 2,750 2,668
5.75% 2005 5,000 4,839 2.09
6.00% 2008 4,250 4,071
Government National Mortgage Assn.: (2)
9.00% 2020-2024 963 1015
8.50% 2021 314 327
7.00% 2026-2029 3,841 3,767 1.74
6.00% 2029 2389 2217
6.50% 2029 2396 2290
Komercni Finance BV 9.00%/10.75% 2008 (1,4) 7,575 6,912 1.25
Airplanes Pass Through Trust, pass-through 5,864 5,570 1.01
certificates, Series 1, Class C, 8.15% 2019 (2)
Columbia/HCA Healthcare Corp.:
6.125% 2000 2,000 1,946
7.00% 2007 900 787 .80
8.85% 2007 1,000 970
8.70% 2010 750 716
Transener SA 9.25% 2008 (4) 4,500 3,746 .68
Korea (Republic of) 8.875% 2008 3,000 3,100 .56
Colombia (Republic of):
7.625% 2007 600 467 .53
8.70% 2016 3,500 2,490
PDVSA Finance Ltd.:
7.40% 2016 1,000 719 .51
7.50% 2028 3,000 2,112
Grupo Financiero Banamex Accival, SA de CV 0% 2,852 2,561 .46
2002 (2,4)
Time Warner Inc., Pass-Through Asset Trust, 1997-1, 2,500 2,486 .45
6.10% 2001 (2,4)
DLJ Mortgage Acceptance Corp.: (2)
Series 1997-CF1, Class A1A, 7.40% 2006 (4) 641 651 .45
Series 1996-CF1, Class A1A, 7.28% 2028 1,808 1,827
Hutchison Whampoa Finance Ltd.: (4)
7.45% 2017 1,500 1,281 .37
Series C, 7.50% 2027 900 749
2,000 2,018 .36
Samsung Electronics Co., Ltd. 7.45% 2002 (4) 2,000 1,938 .35
Skandinaviska Enskilda Banken 6.875% 2009 2,000 1,905 .34
Nationslink Funding Corp., Series 1999-1, Class D, 2,000 1,883 .34
7.10% 2031 (2)
Croatian Government, Series B, 6.456% 2006 (1) 2,164 1,779 .32
Hyundai Semiconductor America, Inc. 8.25% 2004 (4) 2,000 1,723 .31
Nabisco, Inc. 6.375% 2035 (1) 1,745 1,653 .30
Poland (Republic of) Past Due Interest Bonds: (1)
Bearer 5.00% 2014 1,400 1,238
Registered 5.00% 2014 450 398 .30
McDermott Inc. 9.375% 2002 1,500 1,556 .28
Reliance Industries Ltd.:
8.125% 2005 550 516 .27
10.25% 2097 (4) 1,250 1,002
Royal Caribbean Cruises Ltd. 7.25% 2006 1,500 1,463 .26
Household Finance Corp. 6.40% 2008 1,500 1,417 .26
Svenska Handelsbanken 8.125% 2007 1,075 1,112 .20
Mirage Resorts, Inc. 6.75% 2008 1,200 1,080 .20
CSFB Finance Co. Ltd., Series 1995-A, 5.969% 1,250 1,078 .19
2005 (1,2,4)
Liberty Media Corp. 7.875% 2009 (4) 1,000 1,001 .18
Corporacion Andina de Fomento 7.75% 2004 1,000 999 .18
British Sky Broadcasting Group PLC 8.20% 2009 (4) 1,000 992 .18
Mass Transit Railway Corp. 7.50% 2009 1,000 988 .18
Merita Bank Ltd. 6.50% 2006 1,000 955 .17
Banco General, SA 7.70% 2002 (4) 1,000 948 .17
GMAC Commercial Mortgage Securities, Inc.: (1,2)
Series 1999-C1, Class D, 7.074% 2033 500 462 .16
Series 1999-C1, Class E, 7.074% 2033 500 427
J.P. Morgan & Co. Inc., Series A, 6.783% 2012 (1) 1,000 880 .16
Structured Asset Securities Corp., pass-through
certificates,
Series 1998-RF2, Class A, 8.558% 2022 (1,2,4) 779 790 .14
Tenaga Nasional Berhad 7.625% 2007 (4) 815 734 .13
South Africa (Republic of) 8.50% 2017 700 609 .11
Merrill Lynch Mortgage Investors, Inc., Mortgage
Pass-Through Certificates,
Series 1995-C2, Class A-1, 7.113% 2021 (1,2) 590 587 .11
Pioneer Natural Resources Co. 7.20% 2028 750 569 .10
USA Waste Services, Inc.:
6.50% 2002 250 234 .08
7.00% 2004 250 234
L.A. Arena Funding, LLC, Series 1, Class A, 500 457 .08
7.656% 2026 (2,4)
Telefonica de Argentina S.A. 9.125% 2008 (4) 500 439 .08
------------ -----------
147,558 26.64
------------ -----------
Total Bonds and Notes 533,59 96.35
(cost: $565,909,000) ------------ -----------
Short-Term Securities
CORPORATE SHORT-TERM NOTES
General Electric Capital Corp., 5.55% due 10/01/1999 7000 6,99 1.27
------------ -----------
Total Short-Term Securities 6,99 1.27
(cost: $6,999,000) ------------ -----------
Total Investment Securities 540,59 97.62
(cost: $572,908,000)
Excess of cash and receivable over payables 13,19 2.38
------------ -----------
Net Assets $ 553,788 100.00%
(1) Coupon rate may change periodically.
(2) Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore, the
effective maturities are shorter than the stated
maturities.
(3) Index-linked bond whose principal amount moves
with a government retail price index.
(4) Purchased in a private placement transaction;
resale may be limited to qualified institutional
buyers; resale to the public may require registration.
See Notes to Financial Statements
</TABLE>
<TABLE>
Capital World Bond Fund
Financial Statements
Statement of Assets and Liabilities
at September 30, 1999 (dollars in thousands)
<S> <C> <C>
Assets:
Investment securities at market
(cost: $572,908) $540,596
Cash 145
Receivables for--
Sales of investments $ 48,659
Sales of fund's shares 375
Forward currency contracts - net 612
Accrued interest 11,989 61,635
--------- ---------
602,376
Liabilities:
Payables for--
Purchases of investments 45,984
Repurchases of fund's shares 1,242
Forward currency contracts - net 902
Management services 295
Accrued expenses 165 48,588
--------- ---------
Net Assets at September 30, 1999--
Equivalent to $15.41 per share on
35,930,040 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $553,788
=========
Statement of Operations
for the year ended September 30, 1999
(dollars in thousands)
Investment Income:
Income:
Interest $34,937
Expenses:
Management services fee $ 3,875
Distribution expenses 1,535
Transfer agent fee 551
Reports to shareholders 85
Registration statement and prospectus 61
Postage, stationery and supplies 127
Directors' fees 23
Auditing and legal fees 61
Custodian fee 201
Taxes other than federal income tax 16
Other expenses 29 6,564
--------- ---------
Net investment income 28,373
---------
Realized Gain and Unrealized Depreciation
on Investments:
Net realized gain 9,498
Net unrealized (depreciation) appreciation on:
Investments (42,986)
Open forward currency contracts 2,090
---------
Net unrealized depreciation (40,896)
---------
Net realized gain and unrealized
depreciation on investments (31,398)
---------
Net Decrease in Net Assets Resulting
from Operations ($3,025)
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year Year
ended ended
9/30/99 9/30/98
--------- ---------
Operations:
Net investment income $28,373 $34,893
Net realized gain (loss) on investments 9,498 (6,184)
Net unrealized (depreciation) appreciation
on investments (40,896) 11,051
--------- ---------
Net (decrease)increase in net
assets resulting from operations (3,025) 39,760
--------- ---------
Dividends and Distributions
Paid to Shareholders:
Dividends from net investment income (21,252) (32,995)
Distributions from net realized gain
on investments (12,170) (12,122)
--------- ---------
Total dividends and distributions (33,422) (45,117)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
8,667,806 and 7,109,572
shares, respectively 138,397 114,147
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gains on investments:
1,883,186 and 2,433,725 shares, respectively 30,005 38,620
Cost of shares repurchased:
14,112,384 and 16,238,266
shares, respectively (222,735) (260,351)
--------- ---------
Net decrease in net assets
resulting from capital share
transactions (54,333) (107,584)
--------- ---------
Total Decrease in Net Assets (90,780) (112,941)
Net Assets:
Beginning of year 644,568 757,509
--------- ---------
End of year (including undistributed
net investment income: $1,225 and
$(10,359), respectively) $553,788 $644,568
========= =========
See Notes to Financial Statements
</TABLE>
Capital World Bond Fund
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 financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. 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. The ability of the
issuers of the debt securities held by the fund to meet their obligations may
be affected by economic developments in a specific industry, state or region.
Short-term securities maturing within 60 days are valued at amortized cost,
which approximates market value. 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 and 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 and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for as of the trade date. Realized gains and losses
from securities transactions are determined based on specific identified cost.
In the event securities are purchased on a delayed delivery or when-issued
basis, the fund will instruct the custodian to segregate liquid assets
sufficient to meet its payment obligations in these transactions. Interest
income is recognized on an accrual basis. Market discounts, premiums, and
original issue discounts on securities purchased are amortized daily over the
expected life of the security.
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 manage 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. Purchases and sales of forward currency exchange
contracts having the same settlement date and broker are offset and presented
net in the statement of assets and liabilities.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
CURRENCY GAINS AND LOSSES - Net realized currency gains on dividends,
interest, sales of non-U.S. bonds and notes, and other receivables and
payables, on a book basis, were $5,228,000 for the year ended September 30,
1999.
3. FEDERAL INCOME TAXATION
The fund complies with the requirements of the Internal Revenue Code
applicable to regulated investment companies and intends to distribute all of
its net taxable income and net capital gains for the fiscal year. As a
regulated investment company, the fund is not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund.
As of September 30, 1999, net unrealized depreciation on investments, excluding
forward currency contracts, for book and federal income tax purposes aggregated
$32,312,000, of which $2,984,000 related to appreciated securities and
$35,296,000 related to depreciated securities. During the year ended September
30, 1999, the fund realized, on a tax basis, a net capital gain of $4,917,000
on securities transactions. Net gains related to non-U.S. currency transactions
of $6,034,000 were treated as an adjustment to ordinary income for federal
income tax purposes. In addition, the fund has recognized for tax purposes,
losses related to non-U.S. currency transactions totaling $13,476,000 which
were realized during the period November 1, 1997 to September 30, 1998. The
cost of portfolio securities, excluding forward currency contracts, for book
and federal income tax purposes was $572,908,000 at September 30, 1999.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $3,875,000 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 in effect through
October 31, 1998, 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. Beginning September 1, 1998, CRMC had voluntarily agreed to
waive its management fees in excess of those provided by the amended agreement.
As a result, the amount waived in the current year was $25,000.
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, 1999, distribution expenses under the Plan were $1,535,000. As of
September 30, 1999, accrued and unpaid distribution expenses were $103,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $231,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer
agent for the fund, was paid a fee of $551,000.
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, 1999, aggregate deferred amounts and earnings
thereon since the deferred compensation plan's adoption (1993), net of any
payments to Directors, were $45,000.
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.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $745,257,000 and $791,814,ooo, respectively, during
the year ended September 30, 1999.
As of September 30, 1999, accumulated undistributed net realized gain on
investments was $2,332,000 and additional paid-in capital was $582,252,000.
The fund reclassified $1,140,000 and 117,000 from undistributed net realized
gain to additional paid-in capital and undistributed net investment income,
respectively, in the year ended September 30, 1999, as a result of permanent
difference between book and tax. The fund also reclassified $4,580,000 of
realized currency gains to undistributed net investment income.
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 $201,000 includes $14,000 that was paid by these credits
rather than in cash.
At September 30, 1999, the fund had outstanding forward currency contracts
to purchase and sell non-U.S. currencies (excluding offset contracts) as
follows:
<TABLE>
Non-U.S. Contract AmountU.S. Valuations at 9/30/1999
Currency --------------- ------------- --------------- -------------
Contracts Unrealized
Non-U.S. U.S. Amount (Depreciation)
Appreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases:
Canadian Dollars
expiring 10/12/1999 C$3,100,000 $ 2,070,000 $ 2,112,000 $ 42,000
Euros
expiring 11/02/1999 to
1/31/2000 E4,830,000 5,205,000 5,187,000 (18,000)
Japanese Yen
expiring 10/6/1999 to
12/10/1999 yen326,184,000 2,842,000 3,081,000 239,000
-------------------------------------------------
10,117,000 10,380,000 263,000
-------------------------------------------------
Sales:
British Pounds
expiring 10/18/1999 to
11/02/1999 L4,330,000 6,881,000 7,130,000 (249,000)
Norwegian Kroner
expiring 11/29/1999 to
1/31/2000 N0K26,500,000 3,379,000 3,429,000 (50,000)
Swedish Kronor
expiring 1/31/2000 SKr7,000,000 844,000 866,000 (22,000)
-------------------------------------------------
11,104,000 11,425,000 (321,000)
-------------------------------------------------
Forward currency contracts - net $(58,000)
================
</TABLE>
<TABLE>
Per-Share Data and Ratios
Year Ended Septembe 30
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $16.32 $16.40 $16.86 $16.81 $15.33
-----------------------------------------
Income From Investment Operations:
Net investment income .84 .43 .88 1.09 1.09
Net gains or losses on securities (both
realized and unrealized) (.88) .57 (.16) .16 1.57
-----------------------------------------
Total from investment operations (.04) 1.00 .72 1.25 2.66
-----------------------------------------
Less Distributions:
Dividends (from net investment income) (.55) (.80) (.95) (1.08) (1.18)
Dividends (from net realized non-U.S. - - (.23) (.12) -
currency gains) (1)
Distributions (from capital gains) (.32) (.28) - - -
-----------------------------------------
Total distributions (.87) (1.08) (1.18) (1.20) (1.18)
-----------------------------------------
Net Asset Value, End of Year $15.41 $16.32 $16.40 $16.86 $16.81
=========================================
Total Return (2) (.32)% 6.42% 4.38% 7.67% 18.10%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $554 $645 $758 $811 $653
Ratio of expenses to average net assets 1.08% 1.06% 1.07% 1.09% 1.12%
Ratio of net income to average net assets 4.66% 5.15% 5.21% 6.07% 6.83%
Portfolio turnover rate 129.25% 100.92% 79.00% 91.27% 104.96%
(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,
as of September 30, 1999, 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, 1999, 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, 1999, 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, 1999
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, 17% 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 retirement plan 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 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
BOARD OF DIRECTORS
AMBASSADOR RICHARD G. CAPEN, JR.
Rancho Santa Fe, California
Corporate director and author; former
United States Ambassador to Spain; former
Vice Chairman of the Board, Knight-Ridder,
Inc.; former Chairman of the Board and
Publisher, The Miami Herald
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
San Diego, California
Managing Director, Senior Resource
Group, LLC (development and management
of senior living communities)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller Consulting
(financial management consulting firm)
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
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President and
Chief Executive Officer, AECOM Technology
Corporation (architectural engineering)
FRANK M. SANCHEZ
Los Angeles, California
Chairman of the Board and Chief Executive
Officer, The Sanchez Family Corporation dba
McDonald's Restaurants (McDonald's licensee)
HERBERT HOOVER III, a Director since 1987, has retired from the Board. The
Directors thank him for his many contributions to the fund.
OTHER OFFICERS
Mark H. Dalzell
Los Angeles, California
Vice President of the fund
Vice President - Investment Management
Group, Capital Research and Management
Company
MICHAEL J. DOWNER
Los Angeles, California
Vice President of the fund
Senior Vice President - Fund Business
Management Group, Capital Research
and Management Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President - Fund Business
Management Group, Capital Research
and Management Company
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
[THE AMERICAN FUNDS GROUP(R)]
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, 1999, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
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 -
have updated all computer systems to process date-related information properly
following the turn of the century. Other preparations continue, including
external monitoring and contingency planning. 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
