CAPITAL WORLD BOND FUND, INC.
Part B
Statement of Additional Information
December 1, 1998
as amended August 1, 1999
This document is not a prospectus but should be read in conjunction with the
current prospectus dated December 1, 1998 of Capital World Bond Fund, Inc. (the
"fund"). The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
Capital World Bond Fund, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through employer-sponsored
defined contribution plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Item Page No.
Certain Investment Limitations 2
Description of Securities and Investment Techniques 2
Investment Restrictions 7
Fund Organization 8
Fund Officers and Directors 9
Management 12
Dividends, Distributions and Federal Taxes 15
Purchase of Shares 18
Selling Shares 24
Shareholder Account Services and Privileges 25
Execution of Portfolio Transactions 28
General Information 28
Investment Results and Related Statistics 30
Appendix 34
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS
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).
- - The fund will invest in debt securities rated Baa/BBB or better by Moody's
Investors Services Inc. or Standard & Poor's Corporation or unrated but
determined to be of equivalent quality. If, as a result of a downgrade, the
fund holds more than 5% of its assets in bonds rated below Baa/BBB it will
dispose of the excess as deemed prudent by the investment adviser.
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.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Objective and Policies."
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality, and maturity. In general their prices decline
when interest rates rise and vice versa.
The fund will invest in debt securities rated BBB by S&P or Baa by Moody's or
determined to be of equivalent quality by the fund's investment adviser. These
securities are considered to be investment grade but also may have speculative
characteristics. Although the fund is not normally required to dispose of a
security in the event its rating is reduced below the current minimum rating
for its purchase (or it is not rated and its quality becomes equivalent to such
a security), if, as a result of a downgrade or otherwise, the fund holds more
than 5% of its net assets in these securities, the fund will dispose of the
excess as deemed prudent by the investment adviser. Securities rated Ba and BB
or below or unrated securities determined to be of equivalent quality are
commonly known as "high-yield, high-risk" or "junk" bonds. The market prices
of these securities may fluctuate more than higher quality securities and may
decline significantly in periods of general economic difficulty.
INFLATION INDEXED NOTES AND BONDS -- The fund may also 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
falling inflation, 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.
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.
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.
ASSET-BACKED SECURITIES -- "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.
INVESTING IN VARIOUS COUNTRIES -- Investing in securities of issuers domiciled
outside the U.S. involves special risks, particularly in certain developing
countries, 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.
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
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 has the ability to enter into forward
currency contracts to either protect against changes in currency exchange rates
or in lieu of holding a security denominated in a particular currency. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. The fund will segregate liquid assets which will be marked to market
daily to meet its forward contract commitments to the extent required by the
Securities and Exchange Commission. Although forward contracts entered into by
the fund will typically involve the purchase or sale of a currency against the
U.S. dollar, the fund also may purchase or sell one currency against another
currency (other than the U.S. dollar).
Although the fund has no current intention of doing so (at least for the next
12 months), the fund may attempt to accomplish objectives similar to those
involved in its use of forward currency contracts by purchasing put or call
options on currencies. A put option gives the fund as purchaser the right (but
not the obligation) to sell a specified amount of currency at the exercise
price until the expiration of the option. A call option gives the fund as
purchaser the right (but not the obligation) to purchase a specified amount of
currency at the exercise price until its expiration. The fund might purchase a
currency put option, for example, to protect itself during the contract period
against a decline in the dollar value of a currency in which it holds or
anticipates holding securities. If the currency's value should decline against
the dollar, the loss in currency value should be offset, in whole or in part,
by an increase in the value of the put. If the value of the currency instead
should rise against the dollar, any gain to the fund would be reduced by the
premium it had paid for the put option. A currency call option might be
purchased, for example, in anticipation of, or to protect against, a rise in
the value against the dollar of a currency in which the fund anticipates
purchasing securities. Currency options may be either listed on an exchange or
traded over-the-counter ("OTC options"). Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation), and have standardized
strike prices and expiration dates. OTC options are two-party contracts with
negotiated strike prices and expiration dates. The fund will not purchase an
OTC option unless it believes that daily valuations for such options are
readily obtainable. OTC options differ from exchange-traded options in that
OTC options are transacted with dealers directly and not through a clearing
corporation (which guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC options are
valued on the basis of a quote provided by the dealer. In the case of OTC
options, there can be no assurance that a liquid secondary market will exist
for any particular option at any specific time.
Certain provisions of the Internal Revenue Code may limit the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded outside the
U.S. will be considered illiquid unless they have been specifically determined
to be liquid under procedures adopted by the fund's board of directors taking
into account factors such as 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.
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.
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.
PORTFOLIO TRADING -- The fund intends to engage in portfolio trading when
Capital Research and Management Company (the "Investment Adviser") believes
that the sale of a security owned by the fund and the purchase of another
security of better value can reduce prospective risk and/or increase
prospective return. A security may be sold to avoid any prospective decline in
market value in light of what is evaluated as an expected rise in prevailing
yields, or a security may be purchased in anticipation of a market rise (a
decline in prevailing yields). A security also may be sold and a comparable
security purchased coincidentally in order to take advantage of what is
believed to be a disparity in the normal yield and price relationship between
the two securities, or in connection with a "roll" transaction as described
below.
CASH AND CASH EQUIVALENTS -- Subject to the requirement that under normal
market conditions it maintain at least 65% of its assets in bonds, the fund may
maintain assets in cash or cash equivalents. Cash equivalents include: (1)
commercial paper (short-term notes up to 9 months in maturity issued by
corporations or governmental bodies); (2) commercial bank obligations such as
certificates of deposit (interest-bearing time deposits), bankers' acceptances
(time drafts on a commercial bank where the bank accepts an irrevocable
obligation to pay at maturity); (3) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations); (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less; and (5)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less. Cash and cash equivalents may be denominated in U.S. dollars, non-U.S.
currencies or multinational currency units.
STOCK, WARRANTS AND RIGHTS -- While, the fund may not make direct purchases of
common or preferred stocks, and common or warrants or rights to acquire common
stocks, the fund may, however, invest in debt securities that are issued
together with common stock or other equity interests, or have equity
conversion, exchange or purchase rights. Common or preferred stocks acquired
through conversions, exchanges or the exercise of warrants or rights will be
disposed of by the fund within a reasonable period of time after acquisition.
OTHER INVESTMENT COMPANIES -- Although it intends to do so only infrequently,
if at all, the fund has the authority to invest up to 10% of its total assets
in shares of other investment companies. (Any such shares would be included in
the fund's average net assets for purposes of calculating the investment
adviser's fee, as described under "Investment Advisory and Service Agreement"
below). The fund may not invest more than 5% of its total assets in any one
investment company nor acquire more than 3% of the outstanding voting
securities of any one investment company.
REPURCHASE AGREEMENTS -- Although the fund has no current intention to do so
during the next 12 months, the fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. The seller must
maintain with the fund's custodian collateral equal to at least 100% of the
repurchase price including accrued interest, as monitored daily by the
Investment Adviser. If the seller under the repurchase agreement defaults, the
fund may incur a loss if the value of the collateral security under or subject
to the repurchase agreement has declined and may incur disposition costs in
connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, liquidation of the collateral by the fund
may be delayed or limited.
FORWARD COMMITMENTS -- The fund may purchase or sell securities under which it
gives or receives a commitment to complete the transaction beyond the normal
settlement period. When the fund agrees to purchase such securities it assumes
the risk of any decline in the value of the security beginning on the date of
the agreement. When the fund agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities. If the
other party to such a transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could experience
a loss beginning on the date of the agreement.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it may have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
Although the fund has no current intention to do so during the next 12 months,
the fund is authorized to enter into reverse repurchase agreements and "roll"
transactions. A reverse repurchase agreement is the sale of a security by a
fund and its agreement to repurchase the security at a specified time and
price. A "roll" transaction is the sale of mortgage-backed securities or other
securities together with a commitment to purchase similar, but not identical,
securities at a future date. The fund will segregate liquid assets which will
be marked to market daily in an amount sufficient to cover its obligations
under "roll" transactions and reverse repurchase agreements with
broker-dealers (but no collateral is required on reverse repurchase agreements
with banks). Under the Investment Company Act of 1940 (the "1940 Act"), these
transactions may be considered borrowings by the fund; accordingly, the fund
will limit these transactions, together with any other borrowings, to no more
than one-third of its total assets. Although these transactions will not be
entered into for the purpose of leveraging, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily will be in a leveraged position (I.E., it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. As the fund's aggregate commitments under these
transactions increase, the opportunity for leverage similarly increases. If
the income and gains on securities purchased with the proceeds of reverse
repurchase or roll agreements exceed the costs of the agreements, the fund's
earnings or net asset value will increase faster than otherwise would be the
case; conversely, if the income and gains fail to exceed the costs, earnings or
net asset value would decline faster than otherwise would be the case.
LOANS OF PORTFOLIO SECURITIES -- The fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors
whose financial condition is monitored by the Investment Adviser. The borrower
must maintain with the fund's custodian collateral consisting of cash, cash
equivalents or U.S. Government securities equal to at least 100% of the value
of the borrowed securities, plus any accrued interest. The Investment Adviser
will monitor the adequacy of the collateral on a daily basis. The fund may at
any time call a loan of its portfolio securities and obtain the return of the
loaned securities. The fund will receive any interest paid on the loaned
securities and a fee or a portion of the interest earned on the collateral.
The fund will limit its loans of portfolio securities to an aggregate of 10% of
the value of its total assets, measured at the time any such loan is made.
DIVERSIFICATION -- For the fund to be considered a "diversified" investment
company under federal and state laws, it would be required to limit its
investment in any one issuer (other than the U.S. Government) to 5% of its
total assets. However, such a limitation would reduce the extent to which the
fund could concentrate its non-U.S. investments in securities of governmental
issuers, which are generally considered to be of higher credit quality than are
non-U.S. private issuers, and accordingly might increase the fund's investment
risk. The fund intends to comply with the diversification and other
requirements of the U.S. Internal Revenue Code of 1986, as amended, applicable
to regulated investment companies so that the fund will not be subject to U.S.
taxes on the net investment income and net capital gains that it distributes to
its shareholders.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions which may not be changed
without a majority vote of its outstanding shares. Such majority is defined by
the 1940 Act as the vote of the lesser of (i) 67% or more of the outstanding
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (ii) more
than 50% of the outstanding voting securities. Investment limitations expressed
in the following restrictions are considered at the time securities are
purchased. These restrictions provide that the fund may not:
1. Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the
same industry;
2. Invest in companies for the purpose of exercising control or
management;
3. Buy or sell real estate or commodities or commodity contracts;
however, the fund may invest in debt securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein, including real estate investment trusts, and may purchase or
sell currencies (including forward currency contracts) or options on
currencies;
4. Acquire securities subject to restrictions on disposition or
securities for which there is no readily available market or OTC options for
which there is no secondary market, or enter into repurchase agreements or
purchase time deposits maturing in more than seven days, if, immediately after
and as a result, the value of such securities would exceed, in the aggregate,
10% of the fund's total assets;
5. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the Securities Act of 1933;
6. Make loans, except that the fund may purchase debt securities and
enter into repurchase agreements and make loans of portfolio securities;
7. Sell securities short, except to the extent that the fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
8. Purchase securities on margin, provided that the fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
9. Borrow money, except from banks for temporary or emergency purposes
not in excess of 5% of the value of the fund's total assets (in the event that
the asset coverage for such borrowings falls below 300%, the fund will reduce,
within three days, the amount of its borrowings in order to provide for 300%
asset coverage), and except that the fund may enter into reverse repurchase
agreements and engage in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the fund may not exceed one-third of the fund's total assets;
10. Mortgage, pledge, or hypothecate any of its assets, provided that
this restriction shall not apply to the transfer of securities in connection
with any permissible borrowing;
11. Invest in interests in oil, gas, or other mineral exploration or
development programs;
12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three years of
continuous operation;
13. Write, purchase or sell put options, call options or combinations
thereof, except that this shall not prevent the purchase of put or call options
on currencies;
14. Purchase or retain the securities of any issuer, if those
individual officers and Directors of the fund, its investment adviser, or
distributor, each owning beneficially more than 1/2 of 1% of the securities of
such issuer, together own more than 5% of the securities of such issuer.
A further investment policy of the fund, which may be changed by action of the
Board of Directors without shareholder approval, is that the fund will not
invest in securities of an issuer if the investment would cause the fund to own
more than 10% of any class of securities of any one issuer.
FUND ORGANIZATION
The fund is an open-end, non-diversified management investment company. It was
organized as a Maryland corporation on June 8, 1987.
All fund operations are supervised by the fund's board of directors. The board
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.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING (INCLUDING (INCLUDING OF FUND
PAST 5 YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
DEFERRED DEFERRED WHICH
COMPENSATION/1/) COMPENSATION/1/) DIRECTOR
FROM FROM ALL SERVES/2/
THE FUND DURING FUNDS MANAGED BY
FISCAL YEAR ENDED CAPITAL RESEARCH
SEPTEMBER 30, AND
1998 MANAGEMENT
COMPANY OR ITS
AFFILIATES/2/ FOR
THE YEAR ENDED
SEPTEMBER 30,
1998
<S> <C> <C> <C> <C> <C>
H. Frederick Director Private $3,500 $180,700 19
Christie Investor.
Age: 65 Former
P.O. Box 144 President and
Palos Verdes CEO, The
Estates, CA Mission Group
90274 (non-utility
holding
company,
subsidiary of
Southern
California
Edison
Company)
+Don R. Director President none/4/ none/4/ 12
Conlan (retired),
Age: 62 The Capital
1630 Milan Group
Avenue Companies,
South Inc.
Pasadena, CA
91030
Diane C. Director CEO and $2,700/3/ $44,650 12
Creel President,
Age: 50 The Earth
100 W. Technology
Broadway Corporation
Suite 5000 (international
Long Beach, consulting
CA 90802 engineering)
Martin Director Chairman, $3,100/3/ $122,584 15
Fenton, Jr. Senior
Age: 63 Resource Group
4660 La Jolla LLC
Village Drive (management of
Suite 725 senior living
San Diego, CA centers)
92122
Leonard R. Director President, $3,500 $49,850 12
Fuller Fuller
Age: 52 Consulting
4337 Marina (management
City Drive consultanting
Suite 841 ETN firm)
Marina del
Rey, CA 90292
+*Abner D. President, Senior Vice none/4/ none/4/ 12
Goldstine PEO President and
Age: 68 and Director Director,
Capital
Research and
Management
Company
+**Paul G. Chairman of Executive Vice none/4/ none/4/ 14
Haaga, Jr. the Board President and
Age: 49 Director,
Capital
Research and
Management
Company
Herbert Director Private $3,500 $68,484 13
Hoover Investor
IIIAge: 71
1520 Circle
Drive
San Marino,
CA 91108
Richard G. Director Chairman, $3,100/3/ $100,650 13
Newman President and
Age: 64 CEO,
3250 Wilshire AECOM
Boulevard Technology
Los Angeles, Corporation
CA 90010-1599 (architectural
engineering)
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible Directors under a non-qualified
deferred compensation plan adopted by the fund in 1994. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 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 plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: H. Frederick Christie ($7,050), Diane C. Creel ($649), Martin Fenton,
Jr. ($7,351), and Richard G. Newman ($16,014). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/4/ Don R. Conlan, Abner D. Goldstine and Paul G. Haaga, Jr. are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
(with their principal occupations during the past five years)
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST 5 YEARS
REGISTRANT
<S> <C> <C> <C>
Mark H. Dalzell 44 Vice Vice President, Capital
11100 Santa Monica President International Limited
Blvd.
Los Angeles, CA 90025
Michael J. Downer 43 Vice Senior Vice President -
333 South Hope Street President Fund Business Management
Los Angeles, CA 90071 Group, Capital Research
and Management Company
Julie F. Williams 50 Secretary Vice President - Fund
333 South Hope Street Business Management
Los Angeles, CA 90071 Group, Capital Research
and Management Company
Anthony W. Hynes, Jr. 35 Treasurer Vice President - Fund
135 South State Business Management
College Blvd. Group, Capital Research
Brea, CA 92821 and Management Company
Kimberly S. Verdick 33 Assistant Assistant Vice President
333 South Hope Street Secretary - Fund Business
Los Angeles, CA 90071 Management Group, Capital
Research and Management
Company
Todd L. Miller 39 Assistant Assistant Vice President
135 South State Treasurer - Fund Business
College Blvd. Management Group, Capital
Brea, CA 92821 Research and Management
Company
</TABLE>
No compensation is paid by the fund to any officer or Director who is a
director or officer of the Investment Adviser. The fund pays annual fees of
$1,500 to Directors who are not affiliated with the Investment Adviser, plus
$200 for each Board of Directors meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Directors. The Directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the Directors who are not affiliated with the
Investment Adviser. As of November 1, 1998, the officers and Directors and
their families as a group, owned beneficially or of record fewer than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have years of investment experience. The
Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071,
and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $175 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, 1999 unless sooner
terminated, and may be renewed from year to year thereafter provided that any
such renewal has been specifically approved at least annually by (i) the Board
of Directors or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
Directors who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person, at a meeting called
for the purpose of voting on such approval. The Agreement provides that either
party has the right to terminate it without penalty, upon 60 days' written
notice to the other party and that the Agreement automatically terminates in
the event of its assignment (as defined in the 1940 Act).
The Agreement provides for an advisory fee reduction by any amount necessary to
assure that the fund's annual ordinary net operating expenses do not exceed
applicable expense limitations in any state in which the fund's shares are
being offered for sale. Other expenses which are not subject to these
limitations include interest, taxes, brokerage commissions, transaction costs,
and extraordinary items such as litigation, as well as, for purposes of the
state expense limitations, any amounts excludable under the applicable
regulation. Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, are accounted for as capital items and not as expenses.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space and utilities, necessary small
office equipment and general purpose accounting forms, supplies, and postage
used at the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer
and dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares
(including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; compensation, fees, and expenses paid
to directors unaffiliated with the Investment Adviser; association dues; costs
of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.
The management fee is based upon the annual rates of 0.65% 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.
During the fiscal years ended September 30, 1998, 1997, and 1996, the
Investment Adviser's total fees amounted to $4,538,000, $5,266,000, and
$4,847,000, respectively.
The fund pays all expenses not specifically assumed by the Investment Adviser,
including, but not limited to, registration and filing fees with federal and
state agencies, blue sky expenses, expenses of shareholders meetings, the
expense of reports to existing shareholders, expenses of printing proxies and
prospectuses, insurance premiums, legal and auditing fees, dividend
disbursement expenses, the expense of the issuance, transfer and redemption of
its shares, expenses pursuant to the fund's Plan of Distribution, custodian
fees, costs of printing and preparation of registration statements, taxes and
compensation and expenses of Directors who are not affiliated with the
Investment Adviser.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the
1940 Act (see "Principal Underwriter" in the Prospectus). The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended
September 30, 1998 amounted to $245,000 after allowance of $1,020,000 to
dealers. During the fiscal years ended September 30, 1997 and 1996, 1995, the
Principal Underwriter retained $480,000, 707,000, and $838,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors and separately by a
majority of the Directors who are not "interested persons" of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by a
majority of the outstanding voting securities of the fund. The officers and
Directors who are "interested persons" of the fund may be considered to have a
direct or indirect financial interest in the operation of the Plan due to
present or past affiliations with the Investment Adviser and related companies.
Potential benefits of the Plan to the fund include improved shareholder
services, savings to the fund in transfer agency costs, savings to the fund in
advisory fees and other expenses, and benefits to the investment process from
growth or stability of assets and maintenance of a financially healthy
management organization. The selection and nomination of Directors who are not
"interested persons" of the fund is committed to the discretion of the
Directors who are not interested persons during the existence of the Plan.
Plan expenditures are reviewed quarterly and must be renewed annually by the
Board of Directors.
Under the Plan the fund may expend up to 0.30% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the Board of Directors has approved the category
of expenses for which payment is being made. These include service fees for
qualified dealers and dealers commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, 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 fund's fiscal year ended September 30, 1998, the Fund paid $1,595,000 to
the Principal Underwriter under the Plan as compensation to dealers. As of
September 30, 1998, accrued and unpaid distribution expenses to the Principal
Underwriter were $114,000.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences. In addition, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and certain banks and
financial institutions may be required to be registered as dealers pursuant to
state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and to elect the tax status of a
"regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Under Subchapter M, if
the fund distributes within specified times at least 90% of the sum of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses), it will be taxed
only on that portion (if any) of the investment company taxable income and net
capital gain which it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or currencies or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and (b) diversify its holdings so that, at the end
of each fiscal quarter, (i) at least 50% of the market value of the fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities (but
such other securities must be limited, in respect of any one issuer, to an
amount not greater than 5% of the fund's assets and 10% of the outstanding
voting securities of such issuer), and (ii) not more than 25% of the value of
its assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and capital
gain net income and (ii) any amount on which the fund pays income tax for the
year. The fund intends to distribute net investment income and net capital
gains so as to minimize or meet these distribution requirements to avoid the
excise tax liability.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would in effect be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
It is anticipated that any net gain realized from the closing out of forward
currency contracts will be considered a gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above. In order to
avoid realizing excessive gains on securities or currencies held less than
three months, the fund may be required to defer the closing out of a forward
currency contract beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains on forward currency contracts,
which have been open for less than three months as of the end of the fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test, as discussed above.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of non-U.S.
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Except for transactions in forward currency contracts which are classified as
part of a "mixed straddle," any gain or loss recognized with respect to forward
currency contracts is considered to be 60% long-term capital gain or loss, and
40% short-term capital gain or loss, without regard to the holding period of
the contract. In the case of a transaction classified as a "mixed straddle,"
the recognition of losses may be deferred to a later taxable year. Code
Section 988 may also apply to forward currency contracts. Under Section 988,
each non-U.S. currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
The fund will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions
of capital gains realized on the fund's other investments.
Dividends and distributions generally are taxable to shareholders at the time
they are paid. However, dividends and distributions declared in October,
November and December and made payable to shareholders of record in such a
month are treated as paid and are thereby taxable as of December 31, provided
that the fund pays the dividend no later than the end of January of the
following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares will not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of the fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, a fund's taxable income for each year will be computed without
regard to any net non-U.S. currency loss attributable to transactions after
October 31, and any such net non-U.S. currency loss will be treated as arising
on the first day of the following taxable year.
The fund may be required to pay withholding and other taxes imposed by
countries outside the United States which would reduce the fund's investment
income, generally at rates from 10% to 40%. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If more
than 50% in value of the fund's total assets at the close of its taxable year
consist of securities of non-U.S. corporations, the fund will be eligible to
file elections with the Internal Revenue Service pursuant to which shareholders
of the fund will be required to include their respective pro rata portions of
such withholding taxes in their federal income tax returns as gross income,
treat such amounts as foreign taxes paid by them, and deduct such amounts in
computing their taxable income or, alternatively, use them as foreign tax
credits against their federal income taxes.
As of the date of this statement of additional information, the maximum
individual tax rate applicable to ordinary income is 39.6% (effective tax rates
may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains on assets held more than one year is 20%, and the maximum
corporate tax applicable to ordinary income and net capital gains is 35%.
However, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 in a taxable year
will be required to pay an additional amount of tax of up to $11,750, and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax up to $100,000.
Naturally, the amount of tax payable by a taxpayer will be affected by a
combination of tax law rules covering deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish an IRA each year (prior to the tax return filing
deadline for that year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary discussion of federal taxation and should
not be viewed as a comprehensive discussion of all provisions of the Code
relevant to investors. Dividends and distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums $50 minimum (except where a
and Fund Numbers" for lower minimum is noted under
initial investment "Investment Minimums and
minimums. Fund Numbers").
By contacting Visit any investment Mail directly to your
your dealer who is registered investment dealer's address
investment in the state where the printed on your account
dealer purchase is made and who statement.
has a sales agreement with
American Funds
Distributors.
By mail Make your check payable to Fill out the account
the fund and mail to the additions form at the bottom
address indicated on the of a recent account
account application. statement, make your check
Please indicate an payable to the fund, write
investment dealer on the your account number on your
account application. check, and mail the check
and form in the envelope
provided with your account
statement.
By telephone Please contact your Complete the "Investments by
investment dealer to open Phone" section on the
account, then follow the account application or
procedures for additional American FundsLink
investments. Authorization Form. Once
you establish the privilege,
you, your financial advisor
or any person with your
account information can call
American FundsLine(r) and
make investments by
telephone (subject to
conditions noted in
"Telephone Purchases, Sales
and Exchanges" below).
By computer Please contact your Complete the American
investment dealer to open FundsLink Authorization
account, then follow the Form. Once you establish
procedures for additional the privilege, you, your
investments. financial advisor or any
person with your account
information may access
American FundsLine(r) on the
Internet and make
investments by computer
(subject to conditions noted
in "Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to Your bank should wire your
obtain additional investments in
your account number(s), if the same manner as
necessary. Please described under "Initial
indicate an Investment."
investment dealer on the
account. Instruct your
bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account
of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(r) (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) $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 1,000 33
Fund(sm)
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 1,000 40
Fund(r)
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 1,000 23
America(sm)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(sm)
The Tax-Exempt Bond Fund of 1,000 19
America(r)
The Tax-Exempt Fund of 1,000 20
California(r)*
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 2,500 09
America(r)
The Tax-Exempt Money Fund of 2,500 39
America(sm)
The U.S. Treasury Money Fund of 2,500 49
America(sm)
___________
*Available only in certain states.
+Effective September 15, 1999.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
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>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10% 5.5% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES -- Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets, and employer-sponsored
defined contribution-type plans with 100 or more eligible employees may be made
with no sales charge and are not subject to a contingent deferred sales charge.
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
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of foundations or endowments with 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 -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis, determine
the advisability of continuing these payments.
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 may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) 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) terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to use the Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent. All dividends and capital gain distributions on these shares
held in escrow will be credited to the shareholder's account in shares (or paid
in cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will pay to the Principal Underwriter
the difference between the sales charge actually paid and the sales charge
which would have been paid if the total purchases had been made at a single
time. If the difference is not paid by the close of the period, the
appropriate number of escrowed shares will be redeemed to pay such difference.
If the proceeds from this redemption are inadequate, the purchaser will be
liable to the Principal Underwriter for the balance still outstanding. The
Statement may be revised upward at any time during the 13-month period, and
such a revision will be treated as a new Statement, except that the 13-month
period during which the purchase must be made will remain unchanged and there
will be no retroactive reduction of the sales charges paid on prior purchases.
Existing holdings eligible for rights of accumulation (see the account
application) and any individual investments in American Legacy products
(American Legacy, American Legacy II and American Legacy III 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 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)
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 products are added to the figure determined
above. The sum is the Statement amount and applicable breakpoint level. On
the first investment and all other investments made pursuant to the statement
of intention, a sales charge will be assessed according to the sales charge
breakpoint thus determined. There will be no retroactive adjustments in sales
charges on investments previously made during the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the 1940 Act, again excluding employee benefit plans described
above, or (3) for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, 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 products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). 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 American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper do not always indicate the prices at which you will be purchasing and
redeeming shares of the fund, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated price.
The price you pay for fund shares, the public offering price, is based on the
net asset value per share which is calculated once daily at the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. 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.'s 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 the 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.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
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.
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 fund will not knowingly sell fund shares (other than for the reinvestment
of dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
4.5% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. 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 are eligible guarantor institutions.
- - 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 and American
FundsLine OnLine) 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.
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 Investment Company Act of 1940), 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 American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more (other than redemptions by employer-sponsored
contribution 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 -- The automatic investment plan enables you to make
regular monthly or quarterly investments in shares through automatic charges to
your bank accounts. With shareholder authorization and bank approval, the
Transfer Agent will automatically charge the bank account for the amount
specified ($50 minimum), which will be automatically invested in shares at the
offering price on or about the dates you select. Bank accounts will be charged
on the day or a few days before investments are credited, depending on the
bank's capabilities, and you will receive a confirmation statement at least
quarterly. Participation in the plan will begin within 30 days after receipt
of the account application. If your bank account cannot be charged due to
insufficient funds, a stop-payment order or closing of the account, the plan
may be terminated and the related investment reversed. You may change the
amount of the investment or discontinue the plan at any time by writing the
Transfer Agent.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS --You may elect to
cross-reinvest dividends or dividends and capital gain distributions paid by
that fund (the "paying fund") into any other fund in The American Funds Group
(the "receiving fund") subject to the following conditions: (i) the aggregate
value of your account(s) in the paying fund(s) must equal or exceed $5,000
(this condition is waived if the value of the account in the receiving fund
equals or exceeds that fund's minimum initial investment requirement), (ii) as
long as the value of the account in the receiving fund is below that fund's
minimum initial investment requirement, dividends and capital gain
distributions paid by the receiving fund must be automatically reinvested in
the receiving fund, and (iii) if this privilege is discontinued with respect to
a particular receiving fund, the value of the account in that fund must equal
or exceed the fund's minimum initial investment requirement or the fund will
have the right, if you fail to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, automatically to
redeem the account and send the proceeds to you. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine or 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 American Funds Service Company. (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, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES -- You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments, will be reflected on regular confirmation statements from American
Funds Service Company. 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
this service, 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 "Redeeming Shares--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) and American FundsLine OnLine, fax or
telegraph redemption and/or exchange options, you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges. Generally, all shareholders are automatically eligible to
use these options. However, you may elect to opt out of these options by
writing American Funds Service Company (you may also reinstate them at any time
by writing American Funds Service Company). If American Funds Service Company
does not employ reasonable procedures to confirm that the instructions received
from any person with appropriate account information are genuine, the fund may
be liable for losses due to unauthorized or fraudulent instructions. In the
event that shareholders are unable to reach the fund by telephone because of
technical difficulties, market conditions, or a natural disaster, redemption
and exchange requests may be made in writing only.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES -- The fund's Articles of Incorporation permit the fund to
direct the Transfer Agent to redeem your shares if, through redemptions or
otherwise, they have a value of less than the minimum initial investment amount
required of new shareholders (determined, for this purpose only, as the greater
of the shareholder's cost or the current net asset value of the shares,
including any shares acquired through reinvestment of income dividends and
capital gain distributions). We will give you prior notice of at least 60 days
before the involuntary redemption provision is made effective with respect to
your account. You will have not less than 30 days from the date of such notice
within which to bring the account up to the minimum determined as set forth
above.
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
promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
Portfolio transactions for the fund may be executed as part of concurrent
authorizations to purchase or sell the same security for other funds served by
the Investment Adviser, or for trusts or other accounts served by affiliated
companies of the Investment Adviser. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to the fund, they
are effected only when the Investment Adviser believes that to do so is in the
interest of the fund. When such concurrent authorizations occur, the objective
is to allocate the executions in an equitable manner.
Dealer concessions on underwritings, for the fiscal years ended September 30,
1998, 1997, and 1996, amounted to $172,000, $212,000, and $151,000,
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
Securities, Inc. was among the dealers that acted as principals in portfolio
transactions. The fund held debt securities of J. P. Morgan Securities, Inc.
in the amount of $907,000 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. Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial agreements in non-U.S. banks or non-U.S.
branches of U.S. banks.
TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $544,000 for the fiscal year ended September 30, 1998.
INDEPENDENT AUDITORS -- Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent auditors
since inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements included in this Statement of Additional
Information have been so included in reliance on the report of the independent
auditors given on the authority of said firm as experts in accounting and
auditing.
SHAREHOLDER VOTING RIGHTS -- At any meeting of shareholders, duly called and at
which a quorum is present, the shareholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors. The
fund has made an undertaking, at the request of the staff of the Securities and
Exchange Commission, to apply the provisions of section 16(c) of the 1940 Act
with respect to the removal of directors, as though the fund were a common-law
trust. Accordingly, the directors of the fund will promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the record holders of not less
than 10% of the outstanding shares.
The fund currently issues shares in one class and series, but the Board of
Directors may establish additional classes or series of shares in the future.
When more than one class or series of shares is outstanding, shares of all
classes and series will vote together for a single set of Directors, and on
other matters affecting the entire fund, with each share entitled to a single
vote. On matters affecting only one class or series, only the shareholders of
that class or series shall be entitled to vote. On matters relating to more
than one class or series but affecting the classes and series differently,
separate votes by class and series are required.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on September 30. It
provides shareholders at least semiannually with reports showing the
investment portfolio, financial statements and other information. The fund's
financial statements are audited annually by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined annually by the Directors.
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. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be 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 Investment Adviser and its affiliated companies
have adopted a personal investing policy consistent with Investment Company
Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; blackout periods on personal investing for
certain investment personnel; ban on short-term trading profits for investment
personnel; limitations on service as a director of publicly traded companies;
and disclosure of personal securities transactions. You may obtain a summary
of the personal investing policy by contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE -- SEPTEMBER 30, 1998
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $16.32
Offering price per share (100/95.25 of per share
net asset value, which takes into account the
fund's current maximum sales charge) $17.13
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 5.01% based on a 30-day (or one month) period ended
September 30, 1998, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months.
The distribution rate may differ from the yield.
In addition, investments in certain currency contracts may affect the fund's
distribution rate. The Internal Revenue Service requires funds to recognize as
ordinary income certain realized currency gains on non-U.S. currency
transactions and to distribute such amounts as dividends to shareholders.
Conversely, realized currency losses must be recognized as ordinary losses and
reflected by reductions in dividends. Because such adjustments affect a fund's
distribution rate calculations, a fund's distribution rate may be greater (if
there is a net currency gain) or lesser (if there is a net currency loss) than
its SEC yield. In addition, because of special tax treatment, certain other
transactions may result in differences between the SEC yield and distribution
rate. For example, unrealized gains on certain open forward currency contracts
are required to be recognized as income and distributed as dividends (and are
therefore included in the distribution rate but are not included in the SEC
yield).
The fund's total return over the past 12 months and average annual total return
for the five-year and ten-year periods ending on September 30, 1998 was 1.35%,
5.98% and 7.88%, respectively. The fund's total return at net asset value over
the past 12 months and average annual total return for the five-year and
ten-year periods at September 30, 1998 were 6.42%, 7.02% and 8.41%,
respectively. The average annual total return ("T") is computed by equating
the value at the end of the period ("ERV") with a hypothetical initial
investment of $1,000 ("P") over a period of years ("n") according to the
following formula as required by the Securities and Exchange Commission:
P(1+T)/n/ = ERV.
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. The fund will calculate total return for five
and ten-year periods after such periods have elapsed. In addition, the fund
will provide lifetime average annual total return figures.
EXPERIENCE OF INVESTMENT ADVISER -- Capital Research and Management Company
manages nine growth and growth-income funds that are at least 10 years old. In
the rolling 10-year periods since January 1, 1968 (133 in all), those funds
have had better total returns than the Standard and Poor's 500 Stock Composite
Index in 124 of the 133 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The fund may include,in advertisements or in reports furnished to present or
prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices or results
of other mutual funds or investment or savings vehicles. The fund may also
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 compare its investment results with the following:
(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).
The fund may also refer to results compiled by organizations such as CDA
Investment Technologies, Ibbotson Associates, Lipper Analytical Services
("Lipper"), Morningstar, Inc. Wiesenberger Investment Companies Services and
the U.S. Department of Commerce. Additionally, the fund may refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
In addition, the fund may also from time to time illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans.
<TABLE>
<CAPTION>
If you are considering the fund for an Individual Retirement
Account
Here's how much you would have if you invested $2,000 a year in
the Fund:
<S> <C> <C>
1 Year 3 Years Lifetime
(10/1/97 - 9/30/98) (10/1/95 - 9/30/98) (8/4/87 - 9/30/98)
$2,027 $6,421 $37,164
</TABLE>
See the difference time can make in an investment program
<TABLE>
<CAPTION>
... and taken all
distributions in shares,
If you had invested your investment would
$10,000 in the Fund have been worth this
this many years ago... much at September 30, 1998
| |
Periods
Number of Years 10/1-9/30 Value**
<S> <C> <C>
1 1997 - 1998 $10,135
2 1996 - 1998 10,581
3 1995 - 1998 11,391
4 1994 - 1998 13.459
5 1993 - 1998 13,372
6 1992 - 1998 14,758
7 1991 - 1998 16,156
8 1990 - 1998 18,760
9 1989 - 1998 20,245
10 1988 - 1998 21,352
11 1987 - 1998 24,168
Lifetime 1987 - 1998* 24,087
</TABLE>
Illustration of a $10,000 investment in the Fund
WITH DIVIDENDS AND CAPITAL GAINS REINVESTED
(For the lifetime of the Fund August 4, 1987 - September 30, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal From
Year Total From Capital From
End Annual Dividends Investment Initial Gains Dividends Total
September 30 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <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
</TABLE>
The dollar amount of capital gain distributions during the fund's lifetime was
$866.
* From inception on August 4, 1987.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc. employs the designations "Prime-1"and "Prime-2"
to indicate the two highest grades of commercial paper.
"ISSUERS RATED PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources
of alternate liquidity."
"ISSUERS RATED PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained."
Standard & Poor's Corporation's two highest ratings of commercial paper are
"A-1" and "A-2."
"A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category in which the fund invests
may be delineated with the numbers 1 or 2 to indicate the relative degree of
safety."
"A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong."
"A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
'A-1'."
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. rates "investment grade" long-term debt
obligations issued by various entities from "Aaa" to "Baa." These ratings are
described below:
"Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
Standard & Poor's Corporation rates the investment grade long-term debt
obligations of various entities in categories ranging from "AAA" to "BBB"
according to quality. These ratings are described below:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
<TABLE>
Capital World Bond Fund Principal Market Percent
Investment Portfolio September 30, 1998 Amount Value of Net
(000) (000) Assets
<S> <C> <C> <C>
Bonds & Notes
German Marks
Deutschland Republic:
8.00% 2002 DM13,250 US$ 9,180 10.17%
6.75% 2003 17,250 11,644
6.50% 2005 12,900 8,918
6.875% 2005 22,500 15,759
6.00% 2007 2,000 1,370
6.00% 2007 1,000 683
5.25% 2008 22,500 14,807
5.625% 2028 4,800 3,204
Treuhandanstalt:
7.125% 2003 10,000 6,798 2.91
7.50% 2004 16,750 11,944
Ford Motor Credit Co. 5.25% 2008 22,900 14,035 2.18
Bayerische Vereinsbank 5.50% 2008 2,000 12,994 2.01
-------- --------
111,336 17.27
-------- --------
British Pounds
United Kingdom:
8.00% 2000 pounds3,000 5,333 3.18
7.00% 2001 1,000 1,771
8.50% 2005 2,750 5,631
7.50% 2006 1,000 1,980
8.00% 2015 2,500 5,812
Punch Taverns:
7.274% 2022 2,700 5,047 1.65
7.567% 2026 3,000 5,576
Bank of Ireland 9.75% 2005 3,885 7,660 1.19
Lloyds Trustee Savings Banking Group
8.50% 2006 3,000 5,696 .88
Royal Bank of Scotland 8.375% 2007 3,000 5,610 .87
Scott Life 9.00% 2049(1) 2,750 5,057 .79
Halifax Building Society:
8.75% 2006 1,000 1,910 .72
11.00% 2014 1,100 2,707
Land Securities PLC 9.00% 2000 750 1,690 .26
NPI Finance 9.625% 2049 750 1,431 .22
European Investment Bank 6.00% 2004 250 426 .07
-------- --------
63,337 9.83
-------- --------
New Zealand Dollars
New Zealand Government:
8.00% 2001 NZ$7,000 3,678 4.05
8.00% 2004 6,500 3,603
8.00% 2006 3,000 1,721
7.00% 2009 12,300 6,794
4.50% 2016(2) 20,698 10,288
Fannie Mae 7.25% 2002 12,250 6,322 .98
Canadian Government 6.625% 2007 8,500 4,323 .67
-------- --------
36,729 5.70
-------- --------
Danish Kroner
Danish Government:
7.00% 2000 DKr9,500 1,818 2.51
8.00% 2003 10,000 1,809
7.00% 2004 7,000 1,249
7.00% 2007 23,000 4,258
6.00% 2009 40,300 7,067
Nykredit 6.00% 2029 102,729 15,535 2.41
-------- --------
31,736 4.92
-------- --------
Greek Drachmas
Hellenic Republic:
8.90% 2004 GRD600,000 2,047 4.12
8.80% 2007 5,005,000 17,754
8.60% 2008 1,650,000 5,840
7.50% 2013 270,000 917
-------- --------
26,558 4.12
-------- --------
Canadian Dollars
Canadian Government:
9.75% 2001 C$8,000 5,988 3.12
7.25% 2003 5,750 4,144
7.50% 2003 250 184
9.00% 2004 2,000 1,596
7.25% 2007 5,600 4,258
4.25% 2021(2) 1,100 749
4.25% 2026(2) 4,684 3,194
Lyndsey Morden Group Inc., Series B, 7.00% 2008 (4) 7,000 4,444 .69
Canada Trust 6.75% 2001 1,677 1,117 .17
-------- --------
25,674 3.98
-------- --------
Japanese Yen
International Bank for Reconstruction and Development
4.50% 2003 Y28,500 244 .71
4.75% 2004 475,000 4,316
Fannie Mae 2.125% 2007 460,000 3,768 .58
GMAC International Finance 3.75% 1999 300,000 2,227 .35
Spain (Kingdom of) 3.11% 2006 250,000 2,138 .33
Hellenic Republic 2.90% 2007 230,000 1,833 .28
Japanese Government 1.50% 2008 220,000 1,715 .27
European Investment Bank 6.75% 2001 200,000 1,703 .26
Nippon Telegraph & Telephone Corp. 2.50% 2007 60,000 484 .08
Austria (Republic of) 4.50% 2005 50,000 457 .07
Japan Development Bank 6.50% 2001 40,000 344 .05
-------- --------
19,229 2.98
-------- --------
Swedish Kronor
Spintab AB:
6.25% 2002 SKr47,500 6,314 1.29
6.00% 2009 15,500 2,030
Stadshypotek AB 5.75% 2003 31,000 4,042 .63
Swedish Government:
10.25% 2000 5,000 694 .38
6.50% 2008 12,000 1,725
-------- --------
14,805 2.30
-------- --------
Australian Dollars
News America Holdings Inc. 8.625% 2014 A$9,000 5,951 .92
New South Wales Treasury:
7.00% 2004 3,000 1,919 .59
8.00% 2008 2,700 1,888
Australian Government:
10.00% 2002 1,550 1,096 .35
10.00% 2006 1,500 1,160
Statens Bostadfinansier 6.50% 2000 2,800 1,707 .27
Southern Australia Finance Authority 11.25% 2001 1,500 1,040 .16
-------- --------
14,761 2.29
-------- --------
Irish Pounds
Ireland (Republic of):
6.25% 1999 IR pounds1,500 2,262 2.10
6.50% 2001 1,000 1,609
6.00% 2004 4,500 7,517
6.00% 2008 1,250 2,125
-------- --------
13,513 2.10
-------- --------
Norwegian Kroner
Norwegian Government:
6.75% 2007 NOK58,000 8,550 1.63
5.50% 2009 14,500 1,970
-------- --------
10,520 1.63
-------- --------
Polish Zloty
Polish Government 13.00% 2001 PLZ22250 5,900 .92
-------- --------
Netherlands Guilders
Netherlands Government 5.50% 2028 NLG6,000 3,451 .54
-------- --------
Swiss Francs
Swiss Government 4.25% 2008 CHF2,000 1,629 .25
-------- --------
U.S. Dollars
U.S. Treasury Obligations:
6.375% 1999-2027 US$32,250 35,323 17.72
6.75% 2000 3,200 3,309
8.50% 2000 1,000 1,083
6.625% 2001-2002 950 1,014
7.75% 2001 3,000 3,225
5.875% 2002 4,250 4,484
5.75% 2003 660 700
7.25% 2004 2,700 3,088
11.625% 2004 7,250 10,005
6.50% 2005 10,500 11,768
5.625% 2006 5,500 5,931
7.00% 2006 2,000 2,330
3.375% 2007(2) 1,010 1,014
6.125% 2007 5,425 6,081
7.25% 2007 5,450 6,121
5.50% 2008 750 811
10.375% 2009 840 1,097
7.50% 2016 3,750 4,774
7.125% 2023 5,225 6,596
3.625% 2028(2) 5,499 5,485
Government National Mortgage Assn.:(3)
9.00% 2017-2024 1,872 2,010 1.03
8.50% 2021 419 446
6.50% 2024 2,372 2,429
7.00% 2026 1,731 1,786
Airplanes Pass Through Trust, pass-through
certificates, Class C, 8.15% 2019(3) 5,927 6,431 1.00
Woolworth Corp., Series A:
6.98% 2001 3,000 2,922 .90
7.00% 2002 2,000 1,926
8.50% 2022 1,000 940
Columbia HCA Healthcare Corp.:
6.50% 1999 1,000 1,000 .89
6.125% 2000 2,000 1,993
7.00% 2007 900 877
8.85% 2007 1,000 1,087
8.70% 2010 750 791
Komercni Finance BV 9.00% 2008(4) 7,075 5,695 .88
Poland (Republic of)Past Due Interest Bonds:(1)
Bearer shares 4.00% 2014 3,900 3,373 .86
Registered shares 4.00% 2014 2,500 2,163
Time Warner Inc.:
Pass-through certificates, Series 1997-1 ,
6.10% 2001(3),(4) 2,500 2,544 .72
6.95% 2028 2,000 2,079
DLJ Mortgage Acceptance Corp.:(3)
Series 1997-CF1, Class A1A, 7.40% 2006(4) 2,071 2,218 .69
Series 1996-CF1, Class A1A, 7.40% 2028 2,098 2,206
Korea Development Bank:
7.125% 2001 2,000 1,734 .66
7.375% 2001 3,250 2,535
Continental Airlines, Inc.:(3)
Series 1997-1A, 7.461% 2005 1,982 2,192 .66
Series 1996A, 6.94% 2015 1,922 2,032
PDVSA Finance Ltd.:(4)
7.40% 2016 1,000 829 .63
7.50% 2028 4,000 3,216
Freddie Mac 5.78% 2003(3) 4,000 4,002 .62
Worldcom Inc. 7.75% 2007 3,000 3,428 .53
Household Finance Corp. 6.40% 2008 3,250 3,393 .53
Grupo Financiero Banamex Accival
SA de CV 0% 2002 3,802 3,359 .52
Transener SA 9.25% 2008(4) 4,500 3,218 .50
Associates Corporation of North America 5.85% 2001 3,000 3,042 .47
Pioneer Natural Resources Co.:
6.50% 2008 1,700 1,603 .45
7.20% 2028 1,500 1,309
Reliance Industries Ltd.
8.125% 2005 1,000 910 .44
10.25% 2097(4) 2,500 1,931
Cable & Wireless Communications PLC 6.375% 2003 2,750 2,812 .44
McDermott Inc. 9.375% 2002 2,000 2,159 .34
Columbia (Republic of):
8.70% 2016 500 320 .33
8.375% 2027 3,000 1,830
Parker & Parsley Petroleum Co. 8.25% 2007 2,000 2,134 .33
Skandinaviska Enskilda Banken 6.875% 2009 2,000 2,107 .33
United Utilities 6.25% 2005 2,000 2,079 .32
Freeport Terminal (Malta) PLC 7.25% 2028(4) 2,000 2,055 .32
Samsung Electronics Co., Ltd. 7.45% 2002(4) 2,000 1,635 .25
Chase Manhattan Bank 7.25% 2007 1,500 1,624 .25
Asset-Backed Securities Investment
Trust, Series 1997-D, 6.79% 2003(3),(4) 1,596 1,597 .25
Hyundai Semiconductor America, Inc.
Tranche A, 8.25% 2004(4) 2,000 1,450 .23
Svenska Handelsbanken 8.125% 2007 1,075 1,213 .19
Mirage Resorts, Inc. 6.75% 2008 1,200 1,155 .18
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 2,000 1,120 .17
Inter America Development Bank 8.875% 2001 1,000 1,103 .17
Abbey National PLC 6.69% 2005 1,000 1,057 .16
Structured Asset Securities Corp.,
pass-through certificates Series 1998
RF2, Class A, 8.582% 2022(1),(3),(4) 964 1,051 .16
The Price Reit Inc. 7.50% 2006 1,000 1,041 .16
Merita Bank Ltd. 6.5% 2006 1,000 1,013 .16
Ontario (Province of) 5.5% 2008 1,000 1,012 .16
CarrAmerica Realty Corp. 6.875% 2008 1,000 980 .15
Merrill Lynch Mortgage Investors Inc.,
Seller Manufactured Housing Contract,
Series 1995-C2, Class A-1, 7.325% 2021(1),(3) 904 927 .14
J.P. Morgan & Co. Inc., Series A, 5.861% 2012(1) 1,000 907 .14
Banco General, SA 7.70% 2002(4) 1,000 885 .14
Hellenic Republic 6.95% 2008 500 539 .08
Telefonica de Argentina 9.125% 2008(4) 500 418 .07
-------- --------
234,111 36.32
-------- --------
Total Bonds and Notes (cost:
$602,888,000) 613,289 95.16
-------- --------
Short-Term Securities
Corporate Short-Term Notes
General Electric Capital Corp.,
5.66% due 10/01/1998 13,790 13,788 2.14
Sony Europe Finance PLC(4):
5.55% 10/15/1998 5,000 4,989 1.47
5.50% 10/30/1998 4,500 4,479
Total Short-Term Securities (cost: -------- --------
$23,256,000) 23,256 3.61
-------- --------
Total Investment Securities (cost:
$626,144,000) 636,545 98.76
Excess of cash and receivables over
payables 8,023 1.24
-------- --------
Net Assets $644,568 100.00%
======== ========
(1)Coupon rate may change periodically.
(2)Index-linked bond whose principal amount moves
with a government retail price index.
(3)Pass-through securities backed by a pool
of mortgages or other loans on which
principal payments are periodically made. Therefore,
the effective maturites are shorter
than the stated maturities.
(4)Purchased in a private placement transaction;
resale may limited to qualified
institutional buyers; resale to the public may
require registration.
See Notes to Financial Statements
</TABLE>
<TABLE>
Capital World Bond Fund
Financial Statements
Statement of Assets and Liabilities
at September 30, 1998 (dollars in thousands)
<S> <C> <C>
Assets:
Investment securities at market
(cost: $626,144) $636,545
Cash 1,685
Receivables for--
Sales of investments $ 1,168
Sales of fund's shares 267
Accrued interest 14,009 15,444
--------- ---------
653,674
Liabilities:
Payables for--
Purchases of investments 2,869
Repurchases of fund's shares 542
Forward currency contracts - net 5,170
Management services 330
Accrued expenses 195 9,106
--------- ---------
Net Assets at September 30, 1998--
Equivalent to $16.32 per share on
39,491,432 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $644,568
=========
Statement of Operations
for the year ended September 30, 1998
(dollars in thousands)
Investment Income:
Income:
Interest $42,079
Expenses:
Management services fee $ 4,538
Distribution expenses 1,595
Transfer agent fee 544
Reports to shareholders 92
Registration statement and prospectus 21
Postage, stationery and supplies 118
Directors' fees 20
Auditing and legal fees 47
Custodian fee 177
Taxes other than federal income tax 21
Other expenses 13 7,186
--------- ---------
Net investment income 34,893
---------
Realized Loss and Unrealized Appreciation
on Investments:
Net realized loss (6,184)
Net unrealized appreciation (depreciation) on:
Investments 12,074
Open forward currency contracts (1,023)
---------
Net unrealized apppreciation 11,051
---------
Net realized loss and unrealized
appreciation on investments 4,867
---------
Net Increase in Net Assets Resulting
from Operations $39,760
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year Year
ended ended
9/30/98 9/30/97
--------- ---------
Operations:
Net investment income $34,893 $41,320
Net realized (loss) gain on investments (6,184) 8,579
Net unrealized appreciation (depreciation)
on investments 11,051 (15,766)
--------- ---------
Net increase in net
assets resulting from operations 39,760 34,133
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends from net
investment income (32,995) (55,642)
Distributions from net realized gain
on investments (12,122) -
------------ -----------
Total dividends and distributions (45,117) (55,642)
------------ -----------
Capital Share Transactions:
Proceeds from shares sold:
7,109,572 and 11,728,432
shares, respectively 114,147 195,677
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
2,433,725 and 2,810,625 shares, respectively 38,620 46,526
Cost of shares repurchased:
16,238,266 and 16,458,455
shares, respectively (260,351) (274,024)
--------- ---------
Net decrease in net assets
resulting from capital share
transactions (107,584) (31,821)
--------- ---------
Total Decrease in Net Assets (112,941) (53,330)
Net Assets:
Beginning of year 757,509 810,839
--------- ---------
End of year (including undistributed
net investment income: $(10,359) and
$5,386, respectively) $644,568 $757,509
========= =========
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Capital World Bond Fund, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, nondiversified management
investment company. The fund seeks to maximize long-term total return,
consistent with prudent management, by investing in quality fixed-income
securities issued by major governments and corporations all over the world,
including the United States.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - Fixed-income securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day. Forward currency contracts are valued at the mean of their
representative quoted bid and asked prices. Securities and assets for which
representative market quotations are not readily available are valued at fair
value as determined in good faith by a committee appointed by the Board of
Directors.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - As is customary in the
mutual fund industry, securities transactions are accounted for on the date the
securities are purchased or sold. In the event the fund purchases securities on
a delayed delivery or "when-issued" basis, it will segregate with its custodian
liquid assets in an amount sufficient to meet its payment obligations in these
transactions. Realized gains and losses from securities transactions are
reported on an identified cost basis. Interest income is reported on the
accrual basis. Discounts and premiums on securities purchased are amortized.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to reduce its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. The fund's
use of forward currency contracts involves market risk in excess of the amount
recognized in the statement of assets and liabilities. The contracts are
recorded in the statement of assets and liabilities at their net unrealized
value. The fund records realized gains or losses at the time the forward
contract is closed or offset by a matching contract. The face or contract
amount in U.S. dollars reflects the total exposure the fund has in that
particular contract. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from possible movements in non-U.S. exchange rates and securities values
underlying these instruments.
2. FEDERAL INCOME TAXATION
It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of September 30, 1998, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $10,401,000, of which $30,138,000 related to appreciated securities
and $19,737,000 related to depreciated securities. During the year ended
September 30, 1998, the fund realized, on a tax basis, a net capital gain of
$11,143,000 on securities transactions. Net losses related to non-U.S. currency
transactions of $7,846,000 are treated as an adjustment to ordinary income for
federal income tax purposes. IN ADDITION, THE FUND HAS DEFERRED, FOR TAX
PURPOSES, TO FISCAL YEAR ENDING SEPTEMBER 30, 1999, THE RECOGNITION OF LOSSES
RELATED TO NON-U.S. CURRENCY TRANSACTIONS TOTALING $13,476,000 WHICH WERE
REALIZED DURING THE PERIOD NOVEMBER 1, 1997 THROUGH SEPTEMBER 30, 1998. The
cost of portfolio securities, excluding forward currency contracts, for book
and federal income tax purposes was $626,144,000 at September 30, 1998.
[3/4]. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEES - The fee of $4,538,000 for management services was
incurred pursuant to an agreement with Capital Research and Management Company
(CRMC), with which certain officers and Directors of the fund are affiliated.
The Investment Advisory and Service Agreement provided for monthly fees,
accrued daily, based on an annual rate of 0.70% of the first $500 million of
average net assets; 0.60% of such assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of such assets in excess of $1 billion. The
Board of Directors approved an amended agreement effective November 1, 1998
reducing the fees to 0.65% of the first $500 million of average net assets;
0.57% of such assets in excess of $500 million but not exceeding $1 billion;
and 0.50% of such assets in excess of $1 billion. In addition, CRMC has
agreed, effective September 1, 1998, to waive any fees in excess of what it
would have received under the new fee schedule. Had such a waiver not taken
place, the fee for management services would have been $4,562,000.
DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution, the fund may
expend up to 0.30% of its average net assets annually for any activities
primarily intended to result in sales of fund shares, provided the categories
of expenses for which reimbursement is made are approved by the fund's Board of
Directors. Fund expenses under the Plan include payments to dealers to
compensate them for their selling and servicing efforts. During the year ended
September 30, 1998, distribution expenses under the Plan were $1,595,000. As of
September 30, 1998, accrued and unpaid distribution expenses were $114,000.
TRANSFER AGENT FEES - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $544,000. American Funds Distributors, Inc.
(AFD), the principal underwriter of the fund's shares, received $245,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
DEFERRED DIRECTORS' FEES - Directors who are unaffiliated with CRMC may
elect to defer part or all of the fees earned for services as members of the
Board. Amounts deferred are not funded and are general unsecured liabilities of
the fund. As of September 30, 1998, aggregate amounts deferred and earnings
thereon were $31,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $653,886,000 and $773,262,000, respectively, during
the year ended September 30, 1998.
As of September 30, 1998, accumulated undistributed net realized gain on
investments was $10,607,000 and additional paid-in capital was $635,409,000.
The fund reclassified $17,643,000 of realized currency losses from accumulated
net realized losses to undistributed net investment income in the year ended
September 30, 1998.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $177,000 includes $31,000 that was paid by these credits
rather than in cash.
Net realized currency losses on interest, and sales of non-U.S. bonds and
notes, on a book basis, were $31,805,000 for the year ended September 30, 1998.
At September 30, 1998, the fund had outstanding forward currency contracts to
purchase and sell non-U.S. currencies as follows:
<TABLE> U.S. Valuation
Non-U.S. Contract Amount
Currency ------------------- ------------- Unrealized
Contracts Non-U.S. U.S. Amount (Depreciation)
Appreciation
- -------------------------- ------------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Purchases:
German Marks
expiring 10/30/98 to
3/1/99 DM10,789,000 $6,359,000 $6,486,000 $ 127,000
Japanese Yen
expiring 12/8/98 to
3/1/99 Y672,385,000 5,039,000 5,016,000 (23,000)
-------------------------------------------------------
11,398,000 11,502,000 104,000
-------------------------------------------------------
Sales:
Australian Dollars
expiring 10/26 to
11/19/98 A$13,119,000 7,703,000 7,784,000 (81,000)
British Pounds
expiring 10/19/98 to
1/15/99 10,945,000 POUNDS 18,026,000 18,536,000 (510,000)
German Marks
expiring 10/5/98 to
2/16/99 DM18,522,000 10,549,000 11,114,000 (565,000)
Greek Drachma
expiring 10/30 to
11/2/98 GRD2,652,973,000 8,649,000 9,163,000 (514,000)
Japanese Yen
expiring 10/20/98 to
3/8/99 Y1,453,263,000 10,438,000 10,691,000 (253,000)
Netherlands Guilders
expiring 1/28/99 NLG6,210,000 3,314,000 3,316,000 (2,000)
New Zealand Dollars
expiring 10/21 to
10/27/98 NZ$7,816,000 3,878,000 3,912,000 (34,000)
Swedish Kronor
expiring 11/25/98 SKr23,330,000 2,782,000 2,979,000 (197,000)
Swiss Francs
expiring 10/14/98 CHF2,000,000 1,355,000 1,451,000 (96,000)
-------------------------------------------------------
66,694,000 68,946,000 (2,252,000)
-------------------------------------------------------
Forward currency contracts - net $55,296,000 $57,444,000 $(2,148,000)
================ ================ ================
</TABLE>
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year Ended Septem ber 30
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Year $16.40 $16.86 $16.81 $15.33 $16.48
-------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income .43 .88 1.09 1.09 1.05
Net realized and unrealized gain(loss)
on investments .57 (.16) .16 1.57 (1.14)
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.00 .72 1.25 2.66 (.09)
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income (.80) (.95) (1.08) (1.18) (.90)
Dividneds from net realized non-U.S. currency gains (1) - (.23) (.12) - (.04)
Distributions from net realized gains (.28) - - - (.12)
-------- -------- -------- -------- --------
Total distributions (1.08) (1.18) (1.20) (1.18) (1.06)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $16.32 $16.40 $16.86 $16.81 $15.33
======== ======== ======== ======== ========
Total Return (2) 6.42% 4.38% 7.67% 18.10% (.62)%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $645 $758 $811 $653 $576
Ratio of expenses to average net assets 1.06% 1.07% 1.09% 1.12% 1.11%
Ratio of net income to average net assets 5.15% 5.21% 6.07% 6.83% 6.88%
Portfolio turnover rate 100.92% 79.00% 91.27% 104.96% 77.04%
(1) Realized non-U.S. currency gains are treated as
ordinary income for federal income tax purposes.
(2) Excludes maximum sales charge of 4.75%
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Capital World Bond Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Capital World Bond Fund, Inc. (the "fund"), including the investment portfolio
investments, as of September 30, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended. These financial statements
and per-share data and ratios are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1998, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Capital World Bond Fund, Inc. at September 30, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the per-share data and ratios
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 6, 1998
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 16% of the dividends
paid by the fund from net investment income were derived from interest on
direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
The fund designates as a capital gain distribution a portion of earnings and
profits paid to shareholders in redemption of their shares.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
