<PAGE>
Capital World Bond Fund/(R)/
Prospectus
DECEMBER 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<PAGE>
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CAPITAL WORLD BOND FUND, INC.
333 South Hope Street
Los Angeles, CA 90071
<TABLE>
<CAPTION>
<S> <C> <C>
TICKER SYMBOL: CWBFX NEWSPAPER ABBREV: Cap W FUND NO: 31
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
Risk/Return Summary 2
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Fees and Expenses of the Fund 5
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Investment Objective, Strategies and Risks 6
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Year 2000 9
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Management and Organization 10
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Shareholder Information 12
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Purchase and Exchange of Shares 13
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Distribution Arrangements 18
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Financial Highlights 19
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Appendix 20
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</TABLE>
1
31-010-1299/RRD
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
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RISK/RETURN SUMMARY
The fund seeks to provide you, over the long term, a high level of total return
as is consistent with prudent management, by investing primarily in investment
grade bonds denominated in U.S. dollars or other currencies. The fund may also
invest in lower quality, higher yielding debt securities. Bonds held in the
fund's portfolio may provide total return through interest income, changes in
the market value of the fund's investment and changes in the value of other
currencies against the U.S. dollar.
The fund is designed for investors seeking returns through a portfolio of bonds
of issuers based around the world. An investment in the fund is subject to
risks, including the possibility that the fund may decline in value in response
to economic, political or social events in the U.S. or abroad. The values of
debt securities may be affected by changing interest rates and credit risk
assessments. Lower quality and longer maturity bonds will be subject to greater
credit risk and price fluctuations than higher quality and shorter maturity
bonds.
Although all securities in the fund's portfolio may be adversely affected by
currency fluctuations or world political, social and economic instability,
investments outside the U.S. may be affected to a greater extent. In addition,
the fund is non-diversified, which allows it to invest a greater percentage of
its assets in any one issuer. However, the fund intends to limit its
investments in the securities of any single issuer.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME.
2
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information illustrates how the fund's results fluctuate. Past
results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a calendar
year basis. (If a sales charge were included, results would be lower.)
[bar chart]
1989 4.57%
1990 11.65%
1991 15.28%
1992 0.82%
1993 16.73%
1994 -1.43%
1995 21.41%
1996 6.34%
1997 -0.36%
1998 10.16%
[end bar chart\
The fund's year-to-date return for the nine months ended September 30, 1999
was -2.66%.
------------------------------------------------------------------------------
The fund's highest/lowest quarterly results during this time period were:
<TABLE>
<CAPTION>
<S> <C> <C>
HIGHEST 7.43% (quarter ended March 31, 1995)
LOWEST -3.20% (quarter ended March 31, 1990)
</TABLE>
3
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
THE FUND WITH SSB WORLD
AVERAGE ANNUAL MAXIMUM SALES GOVERNMENT
TOTAL RETURN CHARGE DEDUCTED/1/ BOND INDEX/2/
<S> <C> <C>
One Year 4.89% 15.30%
-----------------------------------------------------------------------
Five Years 5.88% 7.85%
-----------------------------------------------------------------------
Ten Years 7.74% 8.96%
-----------------------------------------------------------------------
Lifetime/3/ 8.24% 9.44%
-----------------------------------------------------------------------
</TABLE>
30-day yield/1/: 4.46%
(For current yield information, please call American FundsLine/R/ at
1-800-325-3590)
1 These fund results were calculated according to a formula which requires that
the maximum sales charge of 4.75% be deducted and include the reinvestment of
dividend and capital gain distributions. Results would be higher if they were
calculated at net asset value.
2 The Salomon Smith Barney World Government Bond Index includes the 18
government bond markets of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal,
Spain, Sweden, Switzerland, the United Kingdom and the United States and
includes eligible markets which must total at least US $20 billion, DM 30
billion and 2.5 trillion yen for three consecutive months. This index is
unmanaged and does not reflect sales charges, commissions or expenses.
3 The fund began investment operations on August 4, 1987.
4
CAPITAL WORLD BOND FUND / PROSPECTUS
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FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment)
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<S> <C>
Maximum sales charge imposed on purchases 4.75%/1/
(as a percentage of offering price)
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Maximum sales charge imposed on reinvested dividends 0%
----------------------------------------------------------------
Maximum deferred sales charge 0%/2/
----------------------------------------------------------------
Redemption or exchange fees 0%
</TABLE>
1 Sales charges are reduced or eliminated for larger purchases.
2 A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following purchases of $1 million or more made without a
sales charge.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
----------------------------------------------------------
<S> <C>
Management Fees 0.64%
Service (12b-1) Fees 0.25%*
Other Expenses 0.19%
Total Annual Fund Operating Expenses 1.08%
</TABLE>
* 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your cumulative expenses would
be:
<TABLE>
<CAPTION>
<S> <C>
One year $ 580
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Three years $ 802
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Five years $1,042
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Ten years $1,730
</TABLE>
5
CAPITAL WORLD BOND FUND / PROSPECTUS
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INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The fund's investment objective is to provide you, over the long term, with a
high level of total return as is consistent with prudent investment management.
The fund invests primarily in debt securities denominated in various
currencies, including U.S. dollars. Normally, the fund's debt obligations will
consist substantially of investment grade bonds (rated Baa or BBB or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation). The fund may
also invest up to 25% of its assets in lower quality, higher yielding debt
securities (rated Ba and BB or below).
In seeking to achieve its investment objective, the fund may engage in active
and frequent trading of portfolio securities. High portfolio turnover
typically involves greater transaction costs and may result in net capital
gains which are taxable when distributed to shareholders.
The values of most debt securities held by the fund may be affected by changing
interest rates, effective maturities and credit ratings. For example, the
values of bonds in the fund's portfolio generally will decline when interest
rates rise and vice versa. Debt securities are also subject to credit risk
which is the possibility that an issuer of a debt security will fail to make
timely payments of principal or interest and the security will go into default.
The values of lower quality and longer maturity bonds will be subject to
greater price fluctuations than higher quality and shorter maturity bonds. The
fund's investment adviser attempts to reduce these risks through
diversification of the portfolio and by doing a credit analysis of each issuer
as well as by monitoring economic and legislative developments. Investments
outside the U.S. may be affected by these events to a greater extent and may
also be affected by differing securities regulations, higher transaction costs,
and administrative difficulties such as delays in clearing and settling
portfolio transactions.
The fund may also hold cash or money market instruments. The size of the fund's
cash position will vary and will depend on various factors, including market
conditions and purchases and redemptions of fund shares. A larger cash position
could detract from the achievement of the fund's objective, but it also
provides greater liquidity to meet redemptions or to make additional
investments, and it would reduce the fund's exposure in the event of a market
downturn.
6
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of the investment adviser is to
seek undervalued securities that represent good long-term investment
opportunities. Securities may be sold when the investment adviser believes they
no longer represent good long-term value.
ADDITIONAL INVESTMENT RESULTS
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL THE FUND WITH LIPPER GLOBAL
TOTAL RETURN NO SALES CHARGE/1/ INCOME AVERAGE/2/ CPI/3/
<S> <C> <C> <C>
One Year 10.16% 6.37% 1.61%
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Five Years 6.91% 5.70% 2.37%
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Ten Years 8.27% 7.74% 3.12%
--------------------------------------------------------------------
Lifetime/4/ 8.70% 8.23% 3.25%
--------------------------------------------------------------------
</TABLE>
Distribution rate/5/: 4.85%
1 These fund results were calculated at net asset value according to a formula
that is required for all stock and bond funds and include the reinvestment of
dividend and capital gain distributions.
2 The Lipper Global Income Category Average represents an average of funds that
invest primarily in U.S. dollar and non-U.S. dollar debt securities of issuers
located in at least three countries, one of which may be the United States.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
3 The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
4 The fund began investment operations on August 4, 1987.
5 The distribution rate represents actual distributions paid by the fund. It
was calculated at net asset value by annualizing dividends paid by the fund
over one month and dividing that number by the fund's average net asset value
for the month.
7
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
The following chart illustrates the asset mix of the fund's investment
portfolio as of the end of the fund's fiscal year, September 30, 1999.
[pie chart]
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 and Cash Equivalents 3.7%
[end pie chart]
[map]
United States 26.6%
Europe 44.0%
Asia/Pacific Rim 22.4%
Other 3.3%
[end map]
<TABLE>
<CAPTION>
BOND HOLDINGS BY QUALITY CATEGORY PERCENT OF
NET ASSETS
See the Appendix for a description of quality categories
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<S> <C>
U.S. Treasury and Agency 15.0%
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AAA 40.1
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AA 10.5
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A 17.7
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BBB 10.7
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BB 2.3
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</TABLE>
Because the fund is actively managed, its holdings will change from time to
time.
8
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
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YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers -
including the investment adviser and its affiliates - have updated all of their
computer systems to process date-related information properly following the
turn of the century. In addition, the Year 2000 problem may adversely affect
the issuers in which the fund invests. For example, issuers may incur
substantial costs to address the problem. They may also suffer losses caused by
corporate and governmental data processing errors. These risks may be
particularly acute in certain countries outside the U.S. in which the fund may
invest and may adversely affect the fund's net asset value and total return.
The fund and its investment adviser will continue to monitor developments
relating to this issue.
9
CAPITAL WORLD BOND FUND / PROSPECTUS
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MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and
other funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for Capital World Bond Fund are listed on the following
page.
10
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF EXPERIENCE
YEARS OF EXPERIENCE AS AN INVESTMENT PROFESSIONAL
AS PORTFOLIO COUNSELOR (INCLUDNG THE LAST FIVE YEARS)
(AND RESEARCH PROFESSIONAL, -----------------------------------
PORTFOLIO IF APPLICABLE) FOR WITH CAPITAL
COUNSELORS FOR CAPITAL WORLD RESEARCH AND
CAPITAL WORLD BOND FUND MANAGEMENT
BOND FUND PRIMARY TITLE(S) (APPROXIMATE) COMPANY
------------------------------------------------------- OR AFFILIATES TOTAL YEARS
-----------------------------------
<S> <C> <C> <C> <C>
MARK H. Vice President of the 9 years 11 years 22 years
DALZELL fund. Vice President -
Investment Management
Group, Capital Research
and Management Company
----------------------------------------------------------------
---------------------------------------
MARK A. Senior Vice President, 2 years (plus 2 years as a 6 years 14 years
BRETT Capital International research professional prior
Limited* to becoming a portfolio
counselor for the fund)
-----------------------------------
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LAURENTIUS Vice President, Capital 5 years 6 years 11 years
HARRER International Research*
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THOMAS H. Vice President, Capital 4 years (plus 2 years as a 10 years 13 years
HOGH International Research* research professional prior
to becoming a portfolio
counselor for the fund)
-----------------------------------
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JAMES R. Vice President, Capital 12 years (since the fund 19 years 23 years
MULALLY Research Company* began operations)
The fund began investment operations on August 4, 1987
* Company affiliated with Capital Research and Management Company.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
11
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
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SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services are available only in states
where they may be legally offered and may be terminated or modified at any time
upon 60 days' written notice. For your convenience, American Funds Service
Company has four service centers across the country.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
Call toll-Free from anywhere in the U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
[map of the United States]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Western Western Central Eastern Central Eastern
Service Center Service Center Service Center Service Center
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS INCLUDED IN THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is
sent to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, some
retirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan administrator/
trustee or dealer.
12
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
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PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into other funds in The American Funds Group
generally without a sales charge. Exchanges of shares from the money market
funds initially purchased without a sales charge generally will be subject to
the appropriate sales charge. Exchanges have the same tax consequences as
ordinary sales and purchases. See "Transactions by Telephone..." for
information regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE
IS CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A
PERIOD OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY
INVESTOR WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES
ACTUAL OR POTENTIAL HARM TO THE FUND.
<TABLE>
<CAPTION>
INVESTMENT MINIMUMS
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
</TABLE>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time, which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value,
market prices are used when available. If a market price for a particular
security is not available, the fund will determine the appropriate price for
the security.
13
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and
accepts your request. The offering price is the net asset value plus a sales
charge, if applicable.
SALES CHARGE
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION> SALES CHARGE AS A
PERCENTAGE OF
-------------------- DEALER
NET COMMISSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
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$25,000 but less than $50,000 4.50% 4.71% 3.75%
-----------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.17% 3.25%
-----------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 2.75%
-----------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
-----------------------------------------------------------------------
$500,000 but less than $1 million 2.00% 2.04% 1.60%
-----------------------------------------------------------------------
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGE
Investments of $1 million or more are sold with no initial sales charge.
HOWEVER A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED IF REDEMPTIONS ARE
MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type
plans investing $1 million or more, or with 100 or more eligible employees, may
invest with no sales charge and are not subject to a contingent deferred sales
charge. Investments made by retirement plans, endowments or foundations with
$50 million or more in assets may also be made with no sales charge and are not
subject to a contingent deferred sales charge. The fund may pay a dealer
concession of up to 1% under its Plan of Distribution on investments made with
no initial sales charge.
14
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
REDUCING YOUR SALES CHARGE
You and your "immediate family" (your spouse and your children under the age of
21) may combine investments to reduce your sales charge. You must let your
investment dealer or American Funds Service Company know if you qualify for a
reduction in your sales charge using one or any combination of the methods
described below and in the statement of additional information and "Welcome to
the Family."
AGGREGATING ACCOUNTS
To receive a reduced sales charge, investments made by you and your immediate
family (see above) may be aggregated if made for their own account(s) and/or:
- trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of
the trust.
- solely controlled business accounts.
- single-participant retirement plans.
Other types of accounts may also be aggregated. You should check with your
financial adviser or consult the statement of additional information or
"Welcome to the Family" for more information.
CONCURRENT PURCHASES
You may combine simultaneous purchases of two or more American Funds, as well
as individual holdings in various American Legacy variable annuities or
variable life insurance policies, to qualify for a reduced sales charge. Direct
purchases of money market funds are excluded.
RIGHTS OF ACCUMULATION
You may take into account the current value of your existing holdings in The
American Funds Group, as well as individual holdings in various American Legacy
variable annuities or variable life insurance policies, to determine your sales
charge. Direct purchases of money market funds are excluded.
STATEMENT OF INTENTION
You may establish a Statement of Intention (SOI) that allows you to combine the
purchases you intend to make over a 13-month period in any non-money market
fund or individual American Legacy variable annuity or variable life insurance
policy. At your request purchases made during the previous 90 days may be
included; however, capital appreciation and reinvested dividends and
15
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
capital gains do not apply toward these combined purchases. An SOI allows you
to take immediate advantage of the maximum quantity discount available. A
portion of your account may be held in escrow to cover additional sales charges
which may be due if your total investments over the 13-month period do not
qualify for the applicable sales charge reduction.
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of directors. Up to 0.25%
of average net assets is paid annually to qualified dealers for providing
certain shareholder services. The 12b-1 fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is indicated earlier under
"Fees and Expenses of the Fund." Since these fees are paid out of the fund's
assets or income on an ongoing basis, over time they will increase the cost and
reduce the return of an investment and may cost you more than paying higher
initial sales charges.
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
- Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s).
- A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
16
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/:
- Redemptions by telephone or fax (including American FundsLine and
American FundsLine OnLine) are limited to $50,000 per shareholder
each day.
- Checks must be made payable to the registered shareholder.
- Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE, OR AMERICAN FUNDSLINE
ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all
of these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your
account(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liabilities (including attorney fees) which may
be incurred in connection with the exercise of these privileges, provided
American Funds Service Company employs reasonable procedures to confirm that
the instructions received from any person with appropriate account information
are genuine. If reasonable procedures are not employed, the fund may be liable
for losses due to unauthorized or fraudulent instructions.
17
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
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DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
The fund intends to distribute dividends to you, usually in March, June,
October and December. The first three dividends of each year are normally the
same; the December dividend may be greater or less than the first three
reflecting the impact of foreign currency transactions. Capital gains, if any,
are usually distributed in December. When a capital gain is distributed, the
net asset value per share is reduced by the amount of the payment.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash. Most shareholders do not elect
to take capital gain distributions in cash because these distributions reduce
principal value.
TAXES ON DISTRIBUTIONS
Distributions you receive from the fund may be subject to income tax and may
also be subject to state or local taxes - unless you are exempt from taxation.
For federal tax purposes, any taxable dividends and distributions of short-term
capital gains are treated as ordinary income. The fund's distributions of
long-term capital gains are taxable to you as long-term capital gains. Any
taxable distributions you receive from the fund will normally be taxable to you
when made, regardless of whether you reinvest distributions or receive them in
cash.
TAXES ON TRANSACTIONS
Your redemptions, including exchanges, may result in a capital gain or loss for
federal tax purposes. A capital gain or loss on your investment in the fund is
the difference between the cost of your shares, including any sales charges,
and the price you receive when you sell them.
Please see the statement of additional information, the "Welcome to the Family"
guide, and your tax adviser for further information.
18
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
---------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the fund's financial
statements, is included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
---------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, $16.32 $16.40 $16.86 $16.81 $15.33
Beginning of Year
-------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .84 .43 .88 1.09 1.09
Net gains or losses on
securities (both
realized and (.88) .57 (.16) .16 1.57
unrealized)
-------------------------------------------------------------------------------------
Total from investment (.04) 1.00 .72 1.25 2.66
operations
-------------------------------------------------------------------------------------
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 (.32) (.28) - - -
capital gains)
-------------------------------------------------------------------------------------
Total distributions (.87) (1.08) (1.18) (1.20) (1.18)
-------------------------------------------------------------------------------------
Net Asset Value, $15.41 $16.32 $16.40 $16.86 $16.81
End of Year
-------------------------------------------------------------------------------------
Total return/2/ (.32 )% 6.42% 4.38% 7.67% 18.10%
-------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of $554 $645 $758 $811 $653
year (in millions)
-------------------------------------------------------------------------------------
Ratio of expenses to 1.08% 1.06% 1.07% 1.09% 1.12%
average net assets
-------------------------------------------------------------------------------------
Ratio of net income 4.66% 5.15% 5.21% 6.07% 6.83%
to average net assets
-------------------------------------------------------------------------------------
Portfolio turnover
rate
1Realized non-U.S. currency gains are treated as ordinary income for federal income
tax purposes.
2 Excludes maximum sales charge of 4.75%.
</TABLE>
19
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
---------------------------------------------------------
APPENDIX
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C," according to quality
as described below.
"Aaa--Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such shares."
"Aa--High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A--Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa--Medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well."
"Ba--Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B--Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa--Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca--Speculative in a high degree; often in default or having other marked
shortcomings."
"C--Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
20
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
Moody's supplies numerical indicators, 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic category.
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA--Highest rating. Capacity to pay interest and repay principal is extremely
strong."
"AA--High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A--Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB--Regarded as having adequate capacity to pay interest and repay principal.
These bonds normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for debt in higher
rated categories."
"BB, B, CCC, CC, C--Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions."
"C1--Reserved for income bonds on which interest is being paid."
"D--In default and payment of interest and/or repayment of principal is in
arrears."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
21
CAPITAL WORLD BOND FUND / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 800/421-9900 ext. 11
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FOR 24-HOUR INFORMATION
American FundsLine(R) American FundsLine OnLine(R)
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
---------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. If there is any
inconsistency or ambiguity as to the meaning of any word or phrase in a
translation, the English text will prevail.
---------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Contains additional information about the fund including financial statements,
investment results, portfolio holdings, a statement from portfolio management
discussing market conditions and the fund's investment strategies, and the
independent auditors' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the fund, including the
fund's financial statements.
CODE OF ETHICS
Includes a description of the fund's personal investing policy.
The fund's code of ethics and current SAI has been filed with the Securities
and Exchange Commission ("SEC"). The SAI is incorporated by reference into
this prospectus. These and other related materials about the fund are available
for review or to be copied at the SEC's Public Reference Room in Washington,
D.C. (1-800-SEC-0330) or on the SEC's Internet Web site at http://www.sec.gov.
To request a free copy of any of the documents above:
<TABLE>
<CAPTION>
<S> <C> <C>
Call American Funds Write to the Secretary of the fund
Service Company or 333 South Hope StreetLos Angeles, CA
800/421-0180 ext. 1 90071
</TABLE>
Investment Company File No. 811-5104
Printed on recycled paper
<PAGE>
CAPITAL WORLD BOND FUND, INC.
Part B
Statement of Additional Information
December 1, 1999
This document is not a prospectus but should be read in conjunction with the
current prospectus of Capital World Bond Fund (the "fund" or "WBF") dated
December 1, 1999. The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
Capital World Bond Fund, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
- ---- --------
<S> <C>
Certain Investment Limitations and Guidelines . . . . . . . . . . . 2
Description of Certain Securities and Investment Techniques . . . . 2
Fundamental Policies and Investment Restrictions. . . . . . . . . . 9
Fund Organization and Voting Rights . . . . . . . . . . . . . . . . 10
Fund Directors and Officers . . . . . . . . . . . . . . . . . . . . 11
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 17
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 22
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Shareholder Account Services and Privileges . . . . . . . . . . . . 30
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 33
General Information . . . . . . . . . . . . . . . . . . . . . . . . 33
Investment Results and Related Statistics . . . . . . . . . . . . . 35
Financial Statements
</TABLE>
Capital World Bond Fund -- Page 1
<PAGE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of purchase,
under normal market conditions, and are based on a percentage of the fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the fund's investment limitations.
DEBT SECURITIES
- - The fund will invest at least 65% of its assets in bonds (for this purpose,
bonds are considered any debt securities having initial maturities in
excess of one year).
- - Normally, the fund will invest substantially in debt securities rated
Baa/BBB or better by Moody's Investors Services Inc. (Moody's) or Standard
& Poor's Corporation (S&P) or unrated but determined to be of equivalent
quality.
- - The fund may invest up to 25% of its assets in straight debt securities
rated Ba and BB or below by Moody's and S&P or unrated but determined to be
of equivalent quality.
NON-U.S. SECURITIES
- - The fund's debt securities will be invested in at least three countries.
- - Issuers of debt securities located in any one country (other than the
United States) will represent no more than 40% of the fund's assets.
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the prospectus
under "Investment Objective, Strategies and Risks."
DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow
money. Issuers pay investors interest and generally must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality, and maturity. In general their prices decline when
interest rates rise and vice versa.
High-yield, high-risk bonds rated Ba or below by Standard & Poor's Corporation
and BB or below by Moody's Investors Services, Inc. (or unrated but considered
to be of equivalent quality) are described by the rating agencies as speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness than higher rated bonds, or they may already be in
default. The market prices of these securities may fluctuate more than higher
quality securities and may decline significantly in periods of general economic
difficulty. It may be more difficult to dispose of, or to determine the value
of, high-yield, high-risk bonds. Certain risk factors relating to "high-yield,
high-risk bonds" are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds can be sensitive to adverse economic changes and political and
corporate developments and may be less sensitive to interest rate changes.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial
Capital World Bond Fund -- Page 2
<PAGE>
stress that would adversely affect their ability to service their principal
and interest payment obligations, to meet projected business goals, and to
obtain additional financing. In addition, periods of economic uncertainty
and changes can be expected to result in increased volatility of market
prices and yields of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercises these
provisions in a declining interest rate market, the fund would have to
replace the security with a lower yielding security, resulting in a
decreased return for investors. If the issuer of a bond defaults on its
obligations to pay interest or principal or enters into bankruptcy
proceedings, the fund may incur losses or expenses in seeking recovery of
amounts owed to it.
LIQUIDITY AND VALUATION - There may be little trading in the secondary
market for particular bonds, which may affect adversely the fund's ability
to value accurately or dispose of such bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high-yield, high-risk bonds,
especially in a thin market.
The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.
INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities, and corporations. The
principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of deflation, principal value will be
adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
INVESTING IN VARIOUS COUNTRIES -- Investing outside the U.S. involves special
risks, caused by, among other things: currency controls, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
Capital World Bond Fund -- Page 3
<PAGE>
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate
securities transactions and enter into forward currency contracts to protect
against changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Although forward contracts
entered into by the fund will typically involve the purchase or sale of a
currency against the U.S. dollar, the fund also may purchase or sell one
currency against another currency (other than the U.S. dollar). While entering
into forward currency transactions could minimize the risk of loss due to a
decline in the value of the hedged currency, it could also limit any potential
gain which might result from an increase in the value of the currency. The fund
will not generally attempt to protect against all potential changes in exchange
rates. The fund will segregate liquid assets which will be marked to market
daily to meet its forward contract commitments to the extent required by the
Securities and Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
The fund may attempt to accomplish objectives similar to those involved in its
use of forward currency contracts by purchasing put or call options on
currencies. A put option gives the fund as purchaser the right (but not the
obligation) to sell a specified amount of currency at the exercise price until
the expiration of the option. A call option gives the fund as purchaser the
right (but not the obligation) to purchase a specified amount of currency at the
exercise price until its expiration. The fund might purchase a currency put
option, for example, to protect itself during the contract period against a
decline in the dollar value of a currency in which it holds or anticipates
holding securities. If the currency's value should decline against the dollar,
the loss in currency value should be offset, in whole or in part, by an increase
in the value of the put. If the value of the currency instead should rise
against the dollar, any gain to the fund would be reduced by the premium it had
paid for the put option. A currency call option might be purchased, for example,
in anticipation of, or to protect against, a rise in the value against the
dollar of a currency in which the fund anticipates purchasing securities.
Currency options may be either listed on an exchange or traded over-the-counter
("OTC options"). Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The fund will not purchase an OTC option unless it believes that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers directly
and not through a clearing corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of a quote provided by
the dealer. In
Capital World Bond Fund -- Page 4
<PAGE>
the case of OTC options, there can be no assurance that a liquid secondary
market will exist for any particular option at any specific time.
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. For these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government, and
thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, Farmers Home Administration, Federal Home Loan Bank, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee
Valley Authority, and Federal Farm Credit Bank System.
PASS-THROUGH SECURITIES - The fund may invest in various debt obligations backed
by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and interest
payments made on the underlying asset pools backing these obligations are
typically passed through to investors. Pass-through securities may have either
fixed or adjustable coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities) or
the issuer (in the case of FNMA and FHLMC securities). However, the guarantees
do not apply to the market prices and yields of these securities, which vary
with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be
Capital World Bond Fund -- Page 5
<PAGE>
structured in a way that when interest rates change the impact of changing
prepayment rates on these securities' effective maturities is magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment uncertainty
than other mortgage-related securities because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the securities' effective maturities.
RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures which have been adopted by the fund's board of directors,
taking into account factors such as the frequency and volume of trading, the
commitment of dealers to make markets and the availability of qualified
investors, all of which can change from time to time. The fund may incur certain
additional costs in disposing of illiquid securities.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. Repurchase agreements
permit the fund to maintain liquidity and earn income over periods of time as
short as overnight. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price, including accrued
interest, as monitored daily by the Investment Adviser. The fund will only enter
into repurchase agreements involving securities in which it could otherwise
invest and with selected banks and securities dealers whose financial condition
is monitored by the Investment Adviser. If the seller under the repurchase
agreement defaults, the fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization upon the collateral by the
fund may be delayed or limited.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When the fund agrees to purchase such securities it
assumes the risk of any decline in value of the security beginning on the date
of the agreement. When the fund agrees to sell such securities it does not
participate in further gains or losses with respect to the securities beginning
on the date of the agreement. If the other party to such a transaction fails to
deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.
Capital World Bond Fund -- Page 6
<PAGE>
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its payment
obligations in these transactions. Although these transactions will not be
entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it may have an amount
greater than its net assets subject to market risk). Should market values of the
fund's portfolio securities decline while the fund is in a leveraged position,
greater depreciation of its net assets would likely occur than were it not in
such a position. The fund will not borrow money to settle these transactions and
therefore, will liquidate other portfolio securities in advance of settlement if
necessary to generate additional cash to meet its obligations thereunder.
The fund may also enter into reverse repurchase agreements and "roll"
transactions. A reverse repurchase agreement is the sale of a security by a fund
and its agreement to repurchase the security at a specified time and price. A
"roll" transaction is the sale of mortgage-backed or other securities together
with a commitment to purchase similar, but not identical securities at a later
date. The fund assumes the rights and risks of ownership, including the risk of
price and yield fluctuations as of the time of the agreement. The fund intends
to treat roll transactions as two separate transactions: one involving the
purchase of a security and a separate transaction involving the sale of a
security. Since the fund does not intend to enter into roll transactions for
financing purposes, it may treat these transactions as not falling within the
definition of "borrowing" set forth in Section 2(a)(23) of the Investment
Company Act of 1940. The fund will segregate liquid assets which will be marked
to market daily in an amount sufficient to meet its payment obligations under
"roll" transactions and reverse repurchase agreements with broker-dealers (no
collateral is required for reverse repurchase agreements with banks).
MATURITY -- There are no restrictions on the maturity composition of the
portfolio, although it is anticipated that the fund normally will be invested
substantially in securities with maturities in excess of three years. Under
normal market conditions, longer term securities yield more than shorter term
securities, but are subject to greater price fluctuations.
CASH AND CASH EQUIVALENTS - These securities include (i) commercial paper
(short-term notes up to 9 months in maturity issued by corporations or
governmental bodies), (ii) commercial bank obligations (e.g., certificates of
deposit, bankers' acceptances (time drafts on a commercial bank where the bank
accepts an irrevocable obligation to pay at maturity)), (iii) savings
association and saving bank obligations (e.g., certificates of deposit issued by
savings banks or savings associations), (iv) securities of the U.S. Government,
its agencies or instrumentalities that mature, or may be redeemed, in one year
or less, and (v) corporate bonds and notes that mature, or that may be redeemed,
in one year or less.
Cash and cash equivalents may be denominated in U.S. dollars, non-U.S.
currencies or multinational currency units.
WARRANTS AND RIGHTS -- The fund may purchase warrants, which may be issued
together with bonds or preferred stocks. Warrants generally entitle the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the current market price. Warrants may be issued with an expiration
date or in perpetuity. Rights are similar to warrants except that they normally
entitle the holder to purchase common stock at a lower price than the current
market price.
Capital World Bond Fund -- Page 7
<PAGE>
INVESTMENT COMPANIES -- The fund has the ability to invest up to 10% of its
total assets in shares of closed-end investment companies, but will not acquire
more than 3% of the outstanding voting securities of any one closed-end
investment company. (If the fund invests in another investment company, it would
pay an investment advisory fee in addition to the fee paid to the Investment
Adviser.)
LOANS OF PORTFOLIO SECURITIES -- The fund is authorized to lend portfolio
securities to selected securities dealers or other institutional investors whose
financial condition is monitored by the Investment Adviser. The borrower must
maintain with the fund's custodian collateral consisting of cash, cash
equivalents or U.S. Government securities equal to at least 100% of the value of
the borrowed securities, plus any accrued interest. The Investment Adviser will
monitor the adequacy of the collateral on a daily basis. The fund may at any
time call a loan of its portfolio securities and obtain the return of the loaned
securities. The fund will receive any interest paid on the loaned securities and
a fee or a portion of the interest earned on the collateral. The fund will limit
its loans of portfolio securities to an aggregate of 10% of the value of its
total assets, measured at the time any such loan is made.
DIVERSIFICATION -- For the fund to be considered a "diversified" investment
company under federal and state laws, it would be required to limit its
investment in any one issuer (other than the U.S. Government) to 5% of its total
assets. However, such a limitation would reduce the extent to which the fund
could concentrate its non-U.S. investments in securities of governmental
issuers, which are generally considered to be of higher credit quality than are
non-U.S. private issuers, and accordingly might increase the fund's investment
risk. The fund intends to comply with the diversification and other requirements
of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies so that the fund will not be subject to U.S. taxes on the
net investment income and net capital gains that it distributes to its
shareholders.
* * * * * *
PORTFOLIO TURNOVER -- The fund will attempt to take prompt advantage of market
conditions and as a result may at times have a high rate of portfolio turnover
relative to many other mutual funds. The fund may dispose of any security at any
time, and it is the fund's intention to take either short- or long-term profits
or losses consistent with its objective and sound investment practice, and when
such action would not impair the fund's tax status. Portfolio changes will be
made without regard to the length of time particular investments may have been
held. High portfolio turnover(100% or more) involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when
distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved.
The fund's portfolio turnover rate would equal 100% if each security in the
fund's portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's annual portfolio turnover for each of the last five
fiscal periods.
Capital World Bond Fund -- Page 8
<PAGE>
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67%
or more of the outstanding voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy, or (ii) more than 50% of the outstanding voting securities.
All percentage limitations are considered at the time securities are purchased
and are based on the fund's net assets unless otherwise indicated. None of the
following investment restrictions involving a maximum percentage of assets will
be considered violated unless the excess occurs immediately after, and is caused
by, an acquisition by the fund.
These restrictions provide that the fund may not:
1. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry;
2. Invest in companies for the purpose of exercising control or management;
3. Buy or sell real estate or commodities or commodity contracts; however, the
fund may invest in debt securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein,
including real estate investment trusts, and may purchase or sell currencies
(including forward currency contracts) or options on currencies;
4. Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933;
5. Lend any security or make any other loan if, as a result, more than 15% of
its total assets would be lent to third parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements;
6. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;
7. Purchase securities on margin, provided that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
8. Borrow money, except from banks for temporary or emergency purposes not in
excess of 5% of the value of the fund's total assets (in the event that the
asset coverage for such borrowings falls below 300%, the fund will reduce,
within three days, the amount of its borrowings in order to provide for 300%
asset coverage), and except that the fund may enter into reverse repurchase
agreements and engage in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the fund may not exceed one-third of the fund's total assets;
9. Invest in interests in oil, gas, or other mineral exploration or
development programs;
Capital World Bond Fund -- Page 9
<PAGE>
10. Write, purchase or sell put options, call options or combinations thereof,
except that this shall not prevent the purchase of put or call options on
currencies;
NON-FUNDAMENTAL POLICIES -- The following non-fundamental policies may be
changed without shareholder approval:
1. The fund may invest up to 25% of its net assets in below investment grade
debt securities (those rated Ba or below by Moody's and BB or below by S&P or
unrated but determined to be of comparable value).
2. The fund does not currently intend to lend portfolio securities or other
assets to third parties, except by acquiring loans, loan participations, or
other forms of direct debt instruments. (This limitation does not apply to
purchases of debt securities or to repurchase agreements.)
3. The fund will not invest more than 15% of the value of its net assets in
illiquid securities.
4. The fund will not invest in securities of an issuer if the investment would
cause the fund to own more than 10% of any class of securities of any one
issuer.
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Maryland corporation on June 8, 1987.
All fund operations are supervised by the fund's board of directors which meets
periodically and performs duties required by applicable state and federal laws.
Members of the board who are not employed by Capital Research and Management
Company or its affiliates are paid certain fees for services rendered to the
fund as described in "Directors and Director Compensation" below. They may elect
to defer all or a portion of these fees through a deferred compensation plan in
effect for the fund.
The fund does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
Capital World Bond Fund -- Page 10
<PAGE>
FUND DIRECTORS AND OFFICERS
Directors and Director Compensation
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/)
FROM THE FUND
POSITION DURING FISCAL YEAR
WITH PRINCIPAL OCCUPATION(S) DURING ENDED
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard G. Capen, Jr. Director Corporate Director and author; former $1,950/3/
6077 San Elijo, Box 2494 United States Ambassador to Spain;
Rancho Santa Fe, CA 92067 former Vice Chairman of the Board,
Age: 65 Knight-Ridder, Inc., former Chairman
and Publisher, The Miami Herald
------------------------
- -----------------------------------------------------------------------------------------
H. Frederick Christie Director Private Investor. Former President and $3,750/3/
P.O. Box 144 Chief Executive Officer, The Mission
Palos Verdes Estates, CA Group (non-utility holding company,
90274 subsidiary of Southern California
Age: 66 Edison Company)
- -----------------------------------------------------------------------------------------------------------------
+ Don R. Conlan Director President (retired), The Capital Group none/4/
1630 Milan Avenue Companies, Inc.
South Pasadena, CA 91030
Age: 63
- -----------------------------------------------------------------------------------------------------------------
Diane C. Creel Director CEO and President, The Earth Technology $2,900/3/
100 W. Broadway Corporation (international consulting
Suite 5000 engineering)
Long Beach, CA 90802
Age: 51
- -----------------------------------------------------------------------------------------------------------------
Martin Fenton Director Chairman, Senior Resource Group LLC $3,100/3/
4660 La Jolla Village (development and management of senior
Drive living communities)
Suite 725
San Diego, CA 92122
Age: 64
- -----------------------------------------------------------------------------------------------------------------
Leonard R. Fuller Director President, Fuller Consulting (financial $ 3,500
4337 Marina City Drive management consulting firm)
Suite 841 ETN
Marina del Rey, CA 90292
Age: 53
- -----------------------------------------------------------------------------------------------------------------
+* Abner D. Goldstine President, Senior Vice President and Trustee, none/4/
Age: 69 PEO Capital Research and Management Company
and Director
- -----------------------------------------------------------------------------------------------------------------
+** Paul G. Haaga, Jr. Chairman of Executive Vice President and Director, none/4/
Age: 50 the Board Capital Research and Management Company
------------------------
- -----------------------------------------------------------------------------------------
Richard G. Newman Director Chairman, President and CEO, AECOM $3,100/3/
3250 Wilshire Boulevard Technology Corporation (architectural
Los Angeles, CA 90010-1599 engineering)
Age: 65
- -----------------------------------------------------------------------------------------------------------------
Frank M. Sanchez Director President, The Sanchez Family $1,750/3/
5234 Via San Delarro, #1 Corporation dba McDonald's Restaurants
Los Angeles, CA 90022 (McDonald's licensee)
Age: 55
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/) FROM TOTAL NUMBER
ALL FUNDS MANAGED BY OF FUND
CAPITAL RESEARCH AND BOARDS
MANAGEMENT COMPANY ON WHICH
OR ITS AFFILIATES/2/ FOR THE DIRECTOR
NAME, ADDRESS AND AGE YEAR ENDED SEPTEMBER 30, 1999 SERVES/2/
- ---------------------------------------------------------------------------
<S> <C> <C>
Richard G. Capen, Jr. $45,250/3/ 14
6077 San Elijo, Box 2494
Rancho Santa Fe, CA 92067
Age: 65
- ---------------------------------------------------------------------------
H. Frederick Christie $211,600/3/ 19
P.O. Box 144
Palos Verdes Estates, CA
90274
Age: 66
- ---------------------------------------------------------------------------
+ Don R. Conlan none/4/ 12
1630 Milan Avenue
South Pasadena, CA 91030
Age: 63
- ---------------------------------------------------------------------------
Diane C. Creel $48,000/3/ 12
100 W. Broadway
Suite 5000
Long Beach, CA 90802
Age: 51
- ---------------------------------------------------------------------------
Martin Fenton $ 132,600 15
4660 La Jolla Village
Drive
Suite 725
San Diego, CA 92122
Age: 64
- ---------------------------------------------------------------------------
Leonard R. Fuller $ 63,267 12
4337 Marina City Drive
Suite 841 ETN
Marina del Rey, CA 90292
Age: 53
- ---------------------------------------------------------------------------
+* Abner D. Goldstine none/4/ 12
Age: 69
- ---------------------------------------------------------------------------
+** Paul G. Haaga, Jr. none/4/ 14
Age: 50
- ---------------------------------------------------------------------------
Richard G. Newman $ 107,100 13
3250 Wilshire Boulevard
Los Angeles, CA 90010-1599
Age: 65
- ---------------------------------------------------------------------------
Frank M. Sanchez $ 5,050 12
5234 Via San Delarro, #1
Los Angeles, CA 90022
Age: 55
- ---------------------------------------------------------------------------
</TABLE>
Capital World Bond Fund -- Page 11
<PAGE>
Capital World Bond Fund -- Page 12
<PAGE>
+ "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and
Management Company or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
1 Amounts may be deferred by eligible Directors under a non-qualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Directors.
2 Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash
Management Trust of America, Capital Income Builder, Inc., Capital World
Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific
Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc.,
The Income Fund of America, Inc., Intermediate Bond Fund of America, The
Investment Company of America, Limited Term Tax-Exempt Bond Fund of America,
The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc.,
SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The
Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt
Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury
Money Fund of America, U.S. Government Securities Fund and Washington Mutual
Investors Fund, Inc. Capital Research and Management Company also manages
American Variable Insurance Series and Anchor Pathway Fund, which serve as the
underlying investment vehicle for certain variable insurance contracts; and
Endowments, whose shareholders are limited to (i) any entity exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501(c)(3) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization, and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization. An
affiliate of Capital Research and Management Company, Capital International,
Inc., manages Emerging Markets Growth Fund, Inc.
3 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) as of fiscal year
ended September 30, 1999 for participating Directors is as follows: Richard G.
Capen, Jr., ($1,927), H. Frederick Christie ($7,378), Diane C. Creel ($2,711),
Martin Fenton ($10,007), Richard G. Newman ($22,532), and Frank M. Sanchez
($730). Amounts deferred and accumulated earnings thereon are not funded and
are general unsecured liabilities of the fund until paid to the Director.
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Directors.
4 Don R. Conlan, Abner D. Goldstine, and Paul G. Haaga, Jr. are affiliated with
the Investment Adviser and, accordingly, receive no compensation from the
fund.
Capital World Bond Fund -- Page 13
<PAGE>
OFFICERS
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Mark H. Dalzell 45 Vice President Vice President - Investment
11100 Santa Monica Management Group, Capital
Blvd. Research and Management Company
Los Angeles, CA 90025
- -------------------------------------------------------------------------------
Michael J. Downer 44 Vice President Senior Vice President - Fund
333 South Hope Street Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Company
- -------------------------------------------------------------------------------
Julie F. Williams 51 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management Company
- -------------------------------------------------------------------------------
Anthony W. Hynes, Jr. 37 Treasurer Vice President - Fund Business
135 South State Management Group, Capital
College Blvd. Research and Management Company
Brea, CA 92821
- -------------------------------------------------------------------------------
Kimberly S. Verdick 35 Assistant Assistant Vice President - Fund
333 South Hope Street Secretary Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Company
- -------------------------------------------------------------------------------
Todd L. Miller 41 Assistant Assistant Vice President - Fund
135 South State Treasurer Business Management Group,
College Blvd. Capital Research and Management
Brea, CA 92821 Company
- -------------------------------------------------------------------------------
</TABLE>
All of the officers listed are officers, and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company serves
as Investment Adviser.
No compensation is paid by the fund to any officer or Director who is a
director, officer or employee of the Investment Adviser or affiliated companies.
The fund pays annual fees of $1,500 to Directors who are not affiliated with the
Investment Adviser, plus $200 for each Board of Directors meeting attended, plus
$200 for each meeting attended as a member of a committee of the Board of
Directors. No pension or retirement benefits are accrued as part of fund
expenses. The Directors may elect, on a voluntary basis, to defer all or a
portion of their fees through a deferred compensation plan in effect for the
fund. The fund also reimburses certain expenses of the Directors who are not
affiliated with the Investment Adviser. As of November 1, 1999 the officers and
Directors of the fund and their families, as a group, owned beneficially or of
record less than 1% of the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research
facilities in the U.S. and abroad (Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a staff
of professionals, many of whom have a number of years of investment experience.
The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA
90071, and at 135 South State College Boulevard, Brea, CA 92821. The
Capital World Bond Fund -- Page 14
<PAGE>
Investment Adviser's research professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital International
Perspective, providing financial and market information about more than 2,400
companies around the world.
The Investment Adviser is responsible for managing more than $200 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types throughout the world. These investors include privately
owned businesses and large corporations as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser will
continue in effect until October 31, 2000, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the Investment Adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer and
dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares of the
fund (including stock certificates, registration and qualification fees and
expenses); expenses pursuant to the fund's Plan of Distribution (described
below); legal and auditing expenses; compensation, fees, and expenses paid to
directors unaffiliated with the Investment Adviser; association dues; costs of
stationery and forms prepared exclusively for the fund; and costs of assembling
and storing shareholder account data.
The management fee is based upon the annual rates of 0.65% of the first $500
million of the fund's average net assets, plus 0.57% on average net assets in
excess of $500 million but not exceeding $1 billion, plus 0.50% on average net
assets in excess of $1 billion.
The Investment Adviser has agreed that in the event the expenses of the fund
(with the exclusion of interest, taxes, brokerage costs, extraordinary expenses
such as litigation and acquisitions or other expenses excludable under
applicable state securities laws or regulations) for any fiscal
Capital World Bond Fund -- Page 15
<PAGE>
year ending ona date on which the Agreement is in effect, exceed the expense
limitations, if any, applicable to the fund pursuant to state securities laws or
any regulations thereunder, it will reduce its fee by the extent of such excess
and, if required pursuant to any such laws or any regulations thereunder, will
reimburse the fund in the amount of such excess.
For the fiscal years ended September 30, 1999, 1998, and 1997, the Investment
Adviser received advisory fees of $3,875,000, $4,538,000, and $5,266,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended
September 30, 1999 amounted to $231,000 after allowance of $1,186,000 to
dealers. During the fiscal years ended 1998 and 1997 the Principal Underwriter
retained $245,000 and $480,000, respectively after an allowance of $1,020,000
and $2,008,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors and separately by a majority of the directors who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting securities
of the fund. The officers and directors who are "interested persons" of the fund
may be considered to have a direct or indirect financial interest in the
operation of the Plan due to present or past affiliations with the Investment
Adviser and related companies. Potential benefits of the Plan to the fund
include improved shareholder services, savings to the fund in transfer agency
costs, savings to the fund in advisory fees and other expenses, benefits to the
investment process from growth or stability of assets and maintenance of a
financially healthy management organization. The selection and nomination of
directors who are not "interested persons" of the fund are committed to the
discretion of the directors who are not "interested persons" during the
existence of the Plan. The Plan is reviewed quarterly and must be renewed
annually by the Board of Directors.
Under the Plan the fund may expend up to 0.30% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales of
shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, any defined contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees or a community foundation).
Commissions on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During the
fiscal year ended
Capital World Bond Fund -- Page 16
<PAGE>
September 30, 1999, the fund paid or accrued $1,535,000 for compensation to
dealers under the Plan. As of September 30, 1999, accrued and paid distribution
expenses were $103,000.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting, selling
or distributing securities, but permit banks to make shares of mutual funds
available to their customers and to perform administrative and shareholder
servicing functions. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. If a bank were prohibited from so acting,
shareholder clients of such bank would be permitted to remain shareholders of
the fund and alternate means for continuing the servicing of such shareholders
would be sought. In such event, changes in the operation of the fund might occur
and shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being provided by
such bank. It is not expected that shareholders would suffer adverse financial
consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS - The fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term gains over net realized long-term capital
losses. Additional distributions may be made, if necessary. The fund also
intends to follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the fund may retain all or part of such gain for reinvestment, after paying the
related federal taxes for which shareholders may then be able to claim a credit
against their federal tax liability. If the fund does not distribute the amount
of capital gain and/or net investment income required to be distributed by an
excise tax provision of the Code, the fund may be subject to that excise tax. In
certain circumstances, the fund may determine that it is in the interest of
shareholders to distribute less than the required amount. In this case, the fund
will pay any income or excise taxes due.
Dividends will be reinvested in shares of the fund unless shareholders indicate
in writing that they wish to receive them in cash or in shares of other American
Funds, as provided in the prospectus.
TAXES - The fund intends to elect to be treated as a regulated investment
company under Subchapter M of the Code. A regulated investment company
qualifying under Subchapter M of the Code is required to distribute to its
shareholders at least 90% of its investment company taxable income (including
the excess of net short-term capital gain over net long-term capital losses) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code. The fund intends to distribute annually all
of its investment company taxable income and net realized capital gains and
therefore does not expect to pay federal income tax, although in certain
circumstances the fund may determine that it is in the interest of shareholders
to distribute less than that amount.
Capital World Bond Fund -- Page 17
<PAGE>
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (ii) any amount on which the fund pays income tax during the periods
described above. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
Investment company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and certain
foreign currency gains, if any, less expenses and certain foreign currency
losses, if any. Net capital gains for a fiscal year are computed by taking into
account any capital loss carry-forward of the fund.
If any net long-term capital gains in excess of net short-term capital losses
are retained by a fund for reinvestment, requiring federal income taxes to be
paid thereon by the fund, the fund intends to elect to treat such capital gains
as having been distributed to shareholders. As a result, each shareholder will
report such capital gains as long-term capital gains taxable to individual
shareholders at a maximum 20% capital gains rate, will be able to claim a pro
rata share of federal income taxes paid by the fund on such gains as a credit
against personal federal income tax liability, and will be entitled to increase
the adjusted tax basis on fund shares by the difference between a pro rata share
of the retained gains and their related tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Distributions of the excess of net long-term capital gains over net short-term
capital losses which the fund properly designates as "capital gain dividends"
generally will be taxable to individual shareholders at a maximum 20% capital
gains rate, regardless of the length of time the shares of the fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.
Distributions of investment company taxable income and net realized capital
gains to individual shareholders will be taxable as described above, whether
received in shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder subject to tax on his or her federal income tax return. Dividends
and capital gains distributions declared in October, November or December and
payable to shareholders of record in such a month will be deemed
Capital World Bond Fund -- Page 18
<PAGE>
to have been received by shareholders on December 31 if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another American Fund, may result in tax consequences (gain or loss) to the
shareholder and must also be reported on the shareholder's federal income tax
return.
Dividends from domestic corporations are expected to comprise some portion of
the fund's gross income. To the extent that such dividends constitute any of the
fund's gross income, a portion of the income distributions of the fund will be
eligible for the deduction for dividends received by corporations. Shareholders
will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent that either the fund
shares, or the underlying shares of stock held by the fund, with respect to
which dividends are received, are treated as debt-financed under federal income
tax law and is eliminated if the shares are deemed to have been held by the
shareholder or the fund, as the case may be, for less than 46 days.
Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of investment
capital. For this reason, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of investment
capital upon the distribution, which will nevertheless be taxable to them.
A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to
the fund each year, even though the fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of the fund which must
be distributed to shareholders in order to maintain the qualification of the
fund as a regulated investment company and to avoid federal income tax at the
level of the fund. Shareholders will be subject to income tax on such original
issue discount, whether or not they elect to receive their distributions in
cash.
The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt U.S. shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the fund may be subject to state and local taxes on
distributions received from the fund and on redemptions of the fund's shares.
Capital World Bond Fund -- Page 19
<PAGE>
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year fund shareholders will
receive a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on dividend income received by him or her.
Dividend and interest income received by the fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however. Most foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.
The fund may make the election permitted under Section 853 of the Code so that
shareholders may (subject to limitations) be able to claim a credit or deduction
on their federal income tax returns for, and will be required to treat as part
of the amounts distributed to them, their pro rata portion of qualified taxes
paid by the Fund to foreign countries (which taxes relate primarily to
investment income). The fund may make an election under Section 853 of the Code,
provided that more than 50% of the value of the total assets of the fund at the
close of the taxable year consists of securities in foreign corporations. The
foreign tax credit available to shareholders is subject to certain limitations
imposed by the Code.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the fund accrues receivables or liabilities
denominated in a foreign currency and the time the fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the fund invests in stock of certain passive foreign investment companies,
the fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the fund's investment company taxable income
and, accordingly, would not be taxable to the fund to the extent distributed by
the fund as a dividend to its shareholders.
Capital World Bond Fund -- Page 20
<PAGE>
To avoid such tax and interest, the fund intends to elect to treat these
securities as sold on the last day of its fiscal year and recognize any gains
for tax purposes at that time. Under this election, deductions for losses are
allowable only to the extent of any prior recognized gains, and both gains and
losses will be treated as ordinary income or loss. The fund will be required to
distribute any resulting income, even though it has not sold the security and
received cash to pay such distributions.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
Capital World Bond Fund -- Page 21
<PAGE>
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
- -------------------------------------------------------------------------------
<S> <C> <C>
See "Investment $50 minimum (except where a
Minimums and Fund lower minimum is noted under
Numbers "for initial "Investment Minimums and Fund
investment minimums. Numbers").
- -------------------------------------------------------------------------------
By contacting Visit any investment Mail directly to your
your investment dealer dealer who is investment dealer's address
registered in the printed on your account
state where the statement.
purchase is made and
who has a sales
agreement with
American Funds
Distributors.
- -------------------------------------------------------------------------------
By mail Make your check Fill out the account additions
payable to the fund form at the bottom of a recent
and mail to the account statement, make your
address indicated on check payable to the fund,
the account write your account number on
application. Please your check, and mail the check
indicate an investment and form in the envelope
dealer on the account provided with your account
application. statement.
- -------------------------------------------------------------------------------
By telephone Please contact your Complete the "Investments by
investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional Once you establish the
investments. privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(R) and make
investments by telephone
(subject to conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
- -------------------------------------------------------------------------------
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you
open account, then established the privilege, you,
follow the procedures your financial advisor or any
for additional person with your account
investments. information may access American
FundsLine OnLine(R) on the
Internet and make investments
by computer (subject to
conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
- -------------------------------------------------------------------------------
By wire Call800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described under
necessary. Please "Initial Investment."
indicate an investment
dealer on the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street,
Sixth Floor
San Francisco, CA
94106
(ABA#121000248)
For credit to the
account of:
American Funds Service
Company a/c#
4600-076178
(fund name)
(your fund acct. no.)
- -------------------------------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY
PURCHASE ORDER.
- -------------------------------------------------------------------------------
</TABLE>
Capital World Bond Fund -- Page 22
<PAGE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine/(R)/ (see description
below):
<TABLE>
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
---- ---------- ------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 02
American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 500 11
American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 03
Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . . . . 1,000 12
Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . . . . 1,000 33
EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 16
Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . . . . 250 10
The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . 1,000 05
The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . 1,000 06
The Investment Company of America/(R)/ . . . . . . . . . . . . . . . . . 250 04
The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 1,000 14
New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 07
New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 36
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 1,000 35
Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . . . . 250 01
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . . . . 1,000 40
American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . . . . 1,000 21
The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . . . 1,000 08
Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 1,000 31
Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . 1,000 23
Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . 1,000 43
The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . . . . 1,000 19
The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . . . . 1,000 20
The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . . . . 1,000 24
The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . . . . 1,000 25
U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . . . . 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/ . . . . . . . . . . . . . . . 2,500 09
The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . . . . 2,500 39
The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . . . . 2,500 49
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts (IRAs).
Minimums are reduced to $50 for purchases through "Automatic Investment Plans"
(except for the money market funds) or to $25
Capital World Bond Fund -- Page 23
<PAGE>
for purchases by retirement plans through payroll deductions and may be reduced
or waived for shareholders of other funds in The American Funds Group.
TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is
$50 for additional investments (except as noted above).
SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below. The
money market funds of The American Funds Group are offered at net asset value.
(See "Investment Minimums and Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE
AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING
-INVESTED- PRICE PRICE
- ------------------------------------------ -------- ----- -----
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000 . . . . . . . . . . . 6.10% 5.75% 5.00%
$50,000 but less than $100,000. . 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 . . . . . . . . 4.99 4.75 4.00
$25,000 but less than $50,000 . . 4.71 4.50 3.75
$50,000 but less than $100,000 . . 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 . 3.63 3.50 2.75
$250,000 but less than $500,000 . 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.60
$1,000,000 or more . . . . . . . . . . none none (see below)
- -----------------------------------------------------------------------------
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are
sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES
CHARGE MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE.
Employer-sponsored defined contribution-type plans investing $1 million or more,
or with 100 or more eligible employees, may invest with no sales charge and are
not subject to a contingent deferred sales charge. Investments made by
retirement plans, endowments or foundations with $50 million or more in assets
may also be made with no sales charge and are not subject to a contingent
deferred sales charge. A dealer concession of up to 1% may be paid by the fund
under its Plan of Distribution on investments made with no initial sales charge.
Capital World Bond Fund -- Page 24
<PAGE>
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board members
of the funds managed by Capital Research and Management Company, employees of
Washington Management Corporation, employees and partners of The Capital Group
Companies, Inc. and its affiliated companies, certain family members of the
above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such dealers) and plans
for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at net
asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million to
$4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from
a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally on a pro rata share of a
qualifying dealer's sales. The Principal Underwriter will, on an annual basis,
determine the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing certain
information and assistance with respect to the fund.
REDUCING YOUR SALES CHARGE - You and your "immediate family" (your spouse and
your children under age 21) may combine investments to reduce your costs. You
must let your
Capital World Bond Fund -- Page 25
<PAGE>
investment dealer or American Funds Service Company (the "Transfer Agent") know
if you qualify for a reduction in your sales charge using one or any combination
of the methods described below.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a over a 13-month period and receive the
same sales charge as if all shares had been purchased at once. This
includes purchases made during the previous 90 days, but does not include
appreciation of your investment or reinvested distributions. The reduced
sales charges and offering prices set forth in the Prospectus apply to
purchases of $50,000 or more made within a 13-month period subject to the
following statement of intention (the "Statement"). The Statement is not a
binding obligation to purchase the indicated amount. When a shareholder
elects to utilize a Statement in order to qualify for a reduced sales
charge, shares equal to 5% of the dollar amount specified in the Statement
will be held in escrow in the shareholder's account out of the initial
purchase (or subsequent purchases, if necessary) by the Transfer Agent. All
dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the
sales charge which would have been paid if the total of such purchases had
been made at a single time. If the difference is not paid by the close of
the period, the appropriate number of shares held in escrow will be
redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Principal Underwriter for
the balance still outstanding. The Statement may be revised upward at any
time during the 13-month period, and such a revision will be treated as a
new Statement, except that the 13-month period during which the purchase
must be made will remain unchanged. Existing holdings eligible for rights
of accumulation (see the account application) and any individual
investments in American Legacy variable annuities or variable life
insurance policies (American Legacy, American Legacy II, American Legacy
III, and American Legacy Shareholder's Advantage variable annuities,
American Legacy Life, American Legacy Variable Life, and American Legacy
Estate Builder) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month
period will be handled as follows: The regular monthly payroll deduction
investment will be multiplied by 13 and then multiplied by 1.5. The current
value of existing American Funds investments (other than money market fund
investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period, and
any individual investments in American Legacy variable annuities or
variable life insurance policies are added to the figure determined above.
The sum is the Statement amount and applicable breakpoint level. On the
first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint
thus determined.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
Capital World Bond Fund -- Page 26
<PAGE>
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and
your children under the age of 21, if all parties are purchasing shares for
their own accounts and/or:
- employee benefit plan(s), such as an IRA, individual-type 403(b) plan,
or single-participant Keogh-type plan;
- business accounts solely controlled by these individuals (for example,
the individuals own the entire business);
- trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may
be aggregated with accounts of the person who is the primary
beneficiary of the trust.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:
- for a single trust estate or fiduciary account, including an employee
benefit plan other than those described above;
- made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding
employee benefit plans described above; or
- for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund
shares.
Purchases made for nominee or street name accounts (securities held in the
name of an investment dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with those made
for other accounts and may not be aggregated with other nominee or street
name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES - You may combine purchases of two or more funds in
The American Funds Group, as well as individual holdings in various
American Legacy variable annuities and variable life insurance policies.
Direct purchases of the money market funds are excluded. Shares of money
market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHTS OF ACCUMULATION - You may take into account the current value of
your existing holdings in The American Funds Group, as well as your
holdings in Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. When determining your sales charge, you may also take into account
the value of your individual holdings, as of the end of the week prior to
your investment, in various American Legacy variable annuities and variable
life insurance policies. Direct purchases of the money market funds are
excluded.
PRICE OF SHARES - Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or the Transfer
Agent; this offering price is effective for orders received prior to the time of
determination of the net asset value and, in the case of orders placed with
dealers, accepted by the Principal Underwriter prior to its close of business.
In
Capital World Bond Fund -- Page 27
<PAGE>
the case of orders sent directly to the fund or the Transfer Agent, an
investment dealer MUST be indicated. The dealer is responsible for promptly
transmitting purchase orders to the Principal Underwriter. Orders received by
the investment dealer, the Transfer Agent, or the fund after the time of the
determination of the net asset value will be entered at the next calculated
offering price. Prices which appear in the newspaper are not always indicative
of prices at which you will be purchasing and redeeming shares of the fund,
since such prices generally reflect the previous day's closing price whereas
purchases and redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be determined as of 4:00 p.m. New
York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or the
over-the-counter market. 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.
Short-term securities maturing within 60 days are valued at amortized cost which
approximates market value.
Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith under policies
approved by the fund's Board. The fair value of all other assets is added to the
value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share
Any purchase order may be rejected by the Principal Underwriter or by the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly or
indirectly to any person or entity,
Capital World Bond Fund -- Page 28
<PAGE>
where, after the sale, such person or entity would own beneficially directly or
indirectly more than 4.5% of the outstanding shares of the fund without the
consent of a majority of the fund's Board of Directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by the Transfer Agent. You may sell (redeem) shares in
your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- Shares held for you in your dealer's street name must be sold through
the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
- Over $50,000;
- Made payable to someone other than the registered shareholder(s);
or
- Sent to an address other than the address of record, or an address
of record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- Additional documentation may be required for sales of shares held
in corporate, partnership or fiduciary accounts.
- You must include any shares you wish to sell that are in certificate
form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/
- Redemptions by telephone or fax (including American FundsLine/(R)/
and American FundsLine OnLine/(R)/) are limited to $50,000 per
shareholder each day.
- Checks must be made payable to the registered shareholder(s).
- Checks must be mailed to an address of record that has been used with
the account for at least 10 days.
Capital World Bond Fund -- Page 29
<PAGE>
MONEY MARKET FUNDS
- You may have redemptions of $1,000 or more wired to your bank by
writing American Funds Service Company.
- You may establish check writing privileges (use the money market
funds application).
- If you request check writing privileges, you will be provided with
checks that you may use to draw against your account. These checks may
be made payable to anyone you designate and must be signed by the
authorized number or registered shareholders exactly as indicated on
your checking account signature card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the 1940 Act), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group within
90 days after the date of the redemption or distribution. Redemption proceeds of
shares representing direct purchases in the money market funds are excluded.
Proceeds will be reinvested at the next calculated net asset value after your
request is received and accepted by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds made
within twelve months of purchase on investments of $1 million or more (other
than redemptions by employer-sponsored retirement plans). The charge is 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares.
Shares held for the longest period are assumed to be redeemed first for purposes
of calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from 403(b) plans or IRAs due to death, disability
or attainment of age 591/2; for tax-free returns of excess contributions to
IRAs; and for redemptions through certain automatic withdrawals not exceeding
10% of the amount that would otherwise be subject to the charge.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will begin
within 30 days after your account application is received. Your bank account
will be debited on the day or a few days before your investment is made,
depending on the bank's capabilities. The Transfer Agent will then invest your
money into the fund you specified on or
Capital World Bond Fund -- Page 30
<PAGE>
around the date you specified. If your bank account cannot be debited due to
insufficient funds, a stop-payment or the closing of the account, the plan may
be terminated and the related investment reversed. You may change the amount of
the investment or discontinue the plan at any time by writing to the Transfer
Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested
in additional shares at no sales charge unless you indicate otherwise on the
account application. You also may elect to have dividends and/or capital gain
distributions paid in cash by informing the fund, the Transfer Agent or your
investment dealer.
If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares. Checks that remain uncashed
earn no interest.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distributions must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine and
American FundsLine OnLine (see "American FundsLine and American FundsLine
OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "Principal
Underwriter and Transfer Agent" in the prospectus for the appropriate fax
numbers) or telegraphing the Transfer Agent. (See "Telephone and Computer
Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type
retirement plans for which Capital Guardian Trust Company serves as trustee may
not be exchanged by telephone, computer, fax or telegraph. Exchange redemptions
and purchases are processed simultaneously at the share prices next determined
after the exchange order is received. (See "Purchase of Shares--Price of
Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES
AND PURCHASES.
Capital World Bond Fund -- Page 31
<PAGE>
AUTOMATIC EXCHANGES - You may automatically exchange shares in amounts of $50 or
more among any of the funds in The American Funds Group on any day (or preceding
business day if the day falls on a non-business day of each month you designate.
You must either (a) meet the minimum initial investment requirement for the
receiving fund OR (b) the originating fund's balance must be at least $5,000 and
the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments will
be reflected on regular confirmation statements from the Transfer Agent.
Dividend and capital gain reinvestments and purchases through automatic
investment plans and certain retirement plans will be confirmed at least
quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share
balance, the price of your shares, or your most recent account transaction,
redeem shares (up to $50,000 per shareholder each day), or exchange shares
around the clock with American FundsLine and American FundsLine OnLine. To use
these services, call 800/325-3590 from a TouchTone(TM) telephone or access the
American Funds Web site on the Internet at www.americanfunds.com. Redemptions
and exchanges through American FundsLine and American FundsLine OnLine are
subject to the conditions noted above and in "Shareholder Account Services and
Privileges - Telephone and Computer Purchases, Redemptions and Exchanges" below.
You will need your fund number (see the list of funds in The American Funds
Group under "Purchase of Shares - Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of your Social Security
number or other tax identification number associated with your account) and
account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine) or computer (including American
FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.
REDEMPTION OF SHARES - The fund's articles of incorporation permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per
Capital World Bond Fund -- Page 32
<PAGE>
share if at such time the shareholder owns of record shares having an aggregate
net asset value of less than the minimum initial investment amount required of
new shareholders as set forth in the fund's current registration statement under
the 1940 Act, and subject to such further terms and conditions as the Board of
Directors of the fund may from time to time adopt.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available prices
in its portfolio transactions taking into account the costs and quality of
executions. When, in the opinion of the Investment Adviser, two or more brokers
(either directly or through their correspondent clearing agents) are in a
position to obtain the best price and execution, preference may be given to
brokers who have sold shares of the fund or who have provided investment
research, statistical, or other related services to the Investment Adviser. The
fund does not consider that it has an obligation to obtain the lowest available
commission rate to the exclusion of price, service and qualitative
considerations.
There are occasions on which portfolio transactions for the fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other funds served by the Investment Adviser, or for trusts or other accounts
served by affiliated companies of the Investment Adviser. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to the fund, they are effected only when the Investment Adviser
believes that to do so is in the interest of the fund. When such concurrent
authorizations occur, the objective is to allocate the executions in an
equitable manner. The fund will not pay a mark-up for research in principal
transactions.
Dealer concessions paid on underwriting transactions for the fiscal years ended
September 30, 1999, 1998 and 1997, amounted to $98,000, $172,000 and $212,000,
respectively.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more than
15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J.P. Morgan & Co. and
Merrill Lynch, Pierce, Fenner and Smith, Inc. were among the top 10 dealers that
received the largest amount of brokerage commissions and that acted as
principals in portfolio transactions. The fund held debt securities of J.P.
Morgan & Co. and Merrill Lynch, Pierce, Fenner and Smith, Inc. in the amount of
$880,000 and $340,000, respectively, as of the close of its most recent fiscal
year.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081, as Custodian. If the fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to sub-custodial arrangements in non-U.S. banks
or foreign branches of U.S. banks.
Capital World Bond Fund -- Page 33
<PAGE>
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee of
$551,000 for the fiscal year ended September 30, 1999.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 10017, serves as the funds' independent auditors
providing audit services, preparation of tax returns and review of certain
documents to be filed with the Securities and Exchange Commission. The financial
statements included in this Statement of Additional Information from the Annual
Report have been so included in reliance on the report Deloitte & Touche LLP,
independent auditors, given on the authority of said firm as experts in
accounting and auditing. The selection of the funds' independent auditors is
reviewed and determined annually by the Board of Directors.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on September 30.
Shareholders are provided at least semiannually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent auditors,
Deloitte & Touche LLP. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of shareholder reports. To
receive additional copies of a report, shareholders should contact the Transfer
Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. The fund understands that these service providers
have updated all of their computer systems to process date-related information
properly following the turn of the century. However, there can be no assurance
that these steps are sufficient to avoid any adverse impact on the fund. In
addition, the fund's investments could be adversely affected by the Year 2000
problem. For example, the markets for securities in which the fund invests could
experience settlement problems and liquidity issues. Corporate and governmental
data processing errors may cause losses for individual companies and overall
economic uncertainties. Earnings of individual issuers are likely to be affected
by the costs of addressing the problem, which may be substantial and may be
reported inconsistently.
PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company
and its affiliated companies, including the fund's principal underwriter, have
adopted codes of ethics which allow for personal investments. The personal
investing policy is consistent with Investment Company Institute guidelines.
This policy includes: a ban on acquisitions of securities pursuant to an initial
public offering; restrictions on acquisitions of private placement securities;
pre-clearance and reporting requirements; review of duplicate confirmation
statements; annual recertification of compliance with codes of ethics; blackout
periods on personal investing for certain investment personnel; ban on
short-term trading profits for investment personnel; limitations on service as a
director of publicly traded companies; and disclosure of personal securities
transactions.
OTHER INFORMATION - The financial statements including the investment portfolio
and the report of Independent Auditors contained in the Annual Report are
included in this Statement of Additional Information. The following information
is not included in the Annual Report:
Capital World Bond Fund -- Page 34
<PAGE>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) . . . . . . . . . $15.41
Maximum offering price per share
(100/95.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . . . . . . . . . $16.18
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 4.74% based on a 30-day (or one month) period ended
September 30, 1999, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b =
expenses accrued for the period (net of reimbursements).
c =
the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d =
the maximum offering price per share on the last day of the
period.
The average total return ("T") is computed by equating the value at the end of
the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a
period of years ("n") according to the following formula as required by the
Securities and Exchange Commission: P(1+T)/n/ = ERV.
The fund's one year total return and average annual total return for the five-
and ten-year periods ended September 30, 1999 were -5.03%, 6.05% and 7.27%,
respectively. The fund's average annual total return at net asset value for the
one-, five- and ten-year periods ended on September 30, 1999 were -0.32%, 7.08%
and 7.80, respectively.
In calculating average annual total return, the fund assumes: (1) deduction of
the maximum sales load of 4.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated. In addition, the fund will provide lifetime
average total return figures.
The fund may also, at times, calculate total return based on net asset value per
share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
Capital World Bond Fund -- Page 35
<PAGE>
The fund may include information on its investment results and/or comparisons of
its investment results to various unmanaged indices (such as the Dow Jones
Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Funds Group for purposes of illustrating investment
strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA/
Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer
to results published in various newspapers and periodicals, including Barron's,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index, which
is a measure of the average change in prices over time in a fixed market basket
of goods and services (e.g. food, clothing, and fuels, transportation, and other
goods and services that people buy for day-to-day living).
In addition, investments in certain currency contracts may affect the fund's
distribution rate. The Internal Revenue Service requires funds to recognize as
ordinary income certain realized currency gains on non-U.S. currency
transactions and to distribute such amounts as dividends to shareholders.
Conversely, realized currency losses must be recognized as ordinary losses and
reflected by reductions in dividends. Because such adjustments affect a fund's
distribution rate calculations, a fund's distribution rate may be greater (if
there is a net currency gain) or lesser (if there is a net currency loss) than
its SEC yield. In addition, because of special tax treatment, certain other
transactions may result in differences between the SEC yield and distribution
rate. For example, unrealized gains on certain open forward currency contracts
are required to be recognized as income and distributed as dividends (and are
therefore included in the distribution rate but are not included in the SEC
yield).
Capital World Bond Fund -- Page 36
<PAGE>
EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine growth
and growth-income funds that are at least 10 years old. In the rolling 10-year
periods since January 1, 1969 (138 in all), those funds have had better total
returns than their comparable Lipper indexes in 128 of 138 periods.
Note that past results are not an indication of future investment results. Also,
the fund has different investment policies than the funds mentioned above. These
results are included solely for the purpose of informing investors about the
experience and history of Capital Research and Management Company.
(1) The Salomon Smith Barney non-U.S. Dollar Indexes, which measure the total
return of high-quality non-U.S. dollar denominated securities in major sectors
of the bond market.
(2) The Lehman Brothers Government/Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign-targeted issues), all publicly issued debt of agencies
of the U.S. Government (excluding mortgage-backed securities), and all public,
fixed-rate, non-convertible investment grade domestic corporate debt.
(3) The Salomon Smith Barney Broad Investment-Grade Bond Index, is a market
capitalization weighted index and includes fixed-rate Treasury,
Government-sponsored, mortgage, and investment-grade corporates (BBB/Baa3) with
a maturity of one year or longer. The minimum amount outstanding for U.S.
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government-sponsored and corporate issues, the entry and exit amounts are $100
million. .
(4) The Salomon Smith Barney World Government Bond Index includes the 18
government bond markets of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal,
Spain, Sweden, Switzerland, the United Kingdom and the United States and
includes eligible markets which must total at least U.S. $20 billion, DM 30
billion and 2.5 trillion yen for 3 consecutive months.
(5) Average of Savings Accounts, which is a measure of all kinds of savings
deposits, including longer-term certificates (based on figures supplied by the
U.S. League of Savings Institutions). Savings accounts offer a guaranteed rate
of return on principal, but no opportunity for capital growth.
(6) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
Capital World Bond Fund -- Page 37
<PAGE>
IF YOU ARE CONSIDERING WBF FOR AN
INDIVIDUAL RETIREMENT ACCOUNT HERE ARE THE BENEFITS OF SYSTEMATIC INVESTING:
<TABLE>
<CAPTION>
Here's how much you would have if you invested $2,000 a year in WBF:
1 Year 3 Years Lifetime
(10/1/98 - 9/30/99) (10/1/96 - 9/30/99) (8/4/87 - 9/30/99)
-
- -----------------------------------------------------------------------
<S> <C> <C>
$1,899 $6,029 $36,612
- -----------------------------------------------------------------------
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . AND HAD TAKEN
ALL DIVIDENDS AND
CAPITAL GAIN
DISTRIBUTIONS
IN SHARES, YOUR
IF YOU HAD INVESTMENT WOULD
INVESTED $10,000 HAVE BEEN WORTH
IN WBF THIS MANY THIS MUCH AT
YEARS AGO . . . SEPTEMBER 30, 1999
NUMBER PERIODS
OF YEARS 10/1 - 9/30 VALUE**
<S> <C> <C>
1
1998 - 1999 $ 9,496
2
1997 - 1999 10,102
3
1996 - 1999 10,547
4
1995 - 1999 11,354
5
1994 - 1999 13,415
6
1993 - 1999 13,329
7
1992 - 1999 14,710
8
1991 - 1999 16,104
9
1990 - 1999 18,700
10
1989 - 1999 20,180
11
1988 - 1999 21,283
12
1987 - 1999 24,090
Lifetime 1987* - 1999 24,009
</TABLE>
* From fund inception on August 4, 1987.
** Value assumes deduction of the maximum 4.75% sales charge from the initial
purchase payment.
Capital World Bond Fund -- Page 38
<PAGE>
Illustration of a $10,000 investment in WBF
with dividends and capital gains reinvested
(For the lifetime of the Fund August 4, 1987 - September 30, 1999)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
------------- --------------
FISCAL TOTAL FROM FROM FROM
YEAR END ANNUAL DIVIDENDS INVESTMENT INITIAL CAPITAL GAINS DIVIDENDS TOTAL
9/30 DIVIDENDS (CUMULATIVE) COST INVESTMENT REINVESTED REINVESTED VALUE
---- --------- ------------ ---- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1987* --- --- $10,000 $ 9,493 --- --- $ 9,493
1988 $ 621 $ 621 10,621 10,120 $ 8 615 10,743
1989 801 1,422 11,422 9,700 237 1,393 11,330
1990 945 2,367 12,367 9,640 236 2,355 12,231
1991 948 3,315 13,315 10,400 254 3,545 14,199
1992 1,000 4,315 14,315 10,633 260 4,649 15,542
1993 871 5,186 15,186 10,987 443 5,729 17,159
1994 1,046 6,232 16,232 10,220 491 6,342 17,053
1995 1,354 7,586 17,586 11,207 539 8,394 20,140
1996 1,474 9,060 19,060 11,240 540 9,904 21,684
1997 1,557 10,617 20,617 10,933 526 11,175 22,634
1998 1,140 11,757 21,757 10,880 916 12,291 24,087
1999 831 12,588 22,588 10,273 1,318 12,418 24,009
</TABLE>
The dollar amount of capital gain distributions during the fund^s lifetime was
$1,343.
* From inception on August 4, 1987.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
Capital World Bond Fund -- Page 39
<TABLE>
Capital World Bond Fund
Statistics Request
For year ended September 30, 1999
<S> <C> <C>
Investment Mix:
By Type of Security:
Stocks 0%
Bonds 96.30%
Cash 3.70%
Portfolio Summary:
US Corporate Bonds 8.43 8.4
US Treasuries 9.23 9.2
Non-US Corporate Bonds 15.94 15.9
Non-US Governments/Agencies 49.55 49.6
US Mortgage Backed 3.21 3.2
Non-US Mortgage Backed 3.29 3.3
US Asset Backed 1.83 1.8
Non-US Asset Backed 0.9 0.9
Agency Notes 3.97 4
Cash & Equivalents 3.65 3.7
NAV
9/30/1998 16.32
9/30/1999 15.41
</TABLE>
<TABLE>
Capital World Bond Fund, Inc.
Investment Portfolio, September 30, 1999
<S> <C> <C> <C>
Principal Market Percent
Amount Value of Net
Bonds and Notes (000) (000) Assets
- -------------------------------------------- ---------- ------------ ------------
EUROS
German Government:
8.875% 2000 E4,400 US$ 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 Y450,000 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 Y326,184,000 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.
