[THE AMERICAN FUNDS GROUP(R)]
CAPITAL WORLD BOND FUND
SEMI-ANNUAL REPORT
For the six months ended March 31
1999
[cover: illustration of various paper currencies entertwined in
architectural columns]
[Begin Sidebar]
The fund seeks long-term total return, consistent with prudent management, by
investing in quality fixed-income securities issued by major governments and
corporations all over the world, including the United States. The total return
is made up of three elements: interest income, any change in the local market
value of the fund's investments and any change in the value of other currencies
against the U.S. dollar.
Capital World Bond Fund is one of the 29 mutual funds in The American Funds
Group,(r) the nation's third-largest mutual fund family. For more than six
decades, Capital Research and Management Company, the American Funds adviser,
has invested with a long-term focus based on thorough research and attention to
risk.
[End Sidebar]
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended March 31, 1999,
assuming payment of the 4.75% maximum sales charge at the beginning of the
stated periods.
<TABLE>
<CAPTION>
Total Average Annual
Return Compound Return
<S> <C> <C>
Ten Years +110.66% +7.74%
Five Years +33.56 +5.96
One Year +1.15 -
</TABLE>
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
yield as of April 30, 1999, calculated in accordance with the Securities and
Exchange Commission formula, was 4.20%. The fund's distribution rate as of that
date was 4.74%. The SEC yield reflects income the fund expects to earn based on
its current portfolio of securities, while the distribution rate is based
solely on the fund's past dividends. Accordingly, the fund's SEC yield and
distribution rate may differ.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. Investing in non-U.S.
bonds is subject to additional risks. They include currency fluctuations,
political and social instability, differing securities regulations and
accounting standards, and higher transaction costs.
FELLOW SHAREHOLDERS:
The recent six-month period was marked by a significant shift in global
financial markets. Late in 1998 the "flight to quality" toward U.S. Treasury
securities that dominated the global bond market during the previous several
months reversed course as investors regained confidence in other sectors of the
market. As a result, government bond prices declined, particularly in the
United States, and other sectors of the bond market saw moderate rises.
Higher government bond yields and declining prices, along with a strengthening
U.S. dollar, were reflected in Capital World Bond Fund's six-month results. For
the semi-annual period ended March 31, Capital World Bond Fund posted a return
of just 0.1% if you reinvested your income dividends totaling 40 cents a share
and the December capital gain distribution of 32.3 cents a share.
[Begin Sidebar]
INVESTMENT RESULTS AT A GLANCE
6-month total return
(10/1/98 - 3/31/99) +0.1%
12-month total return
(4/1/98 - 3/31/99) +6.2
Lifetime total return
(8/4/87 - 3/31/99) +153.2
Lifetime average annual
compound return
(8/4/87 - 3/31/99) +8.3
[End Sidebar]
The fund's total return for the six-month period was slightly better than the
0.4% loss posted by the Salomon Smith Barney World Government Bond Index, which
measures major world bond markets. The Salomon Smith Barney Broad
Investment-Grade Bond Index, which measures the U.S. bond market, posted a
decline of 0.1%. (Both indexes are unmanaged and measure returns with interest
compounded.)
The fund's modest six-month return comes on the heels of more substantial
results in the prior year. The fund's total return over the 12 months ended
March 31 was 6.2%, and for calendar 1998 it was 10.2% - outpacing the 1998
increase of 8.7% for the U.S. bond market index cited above.
ECONOMIC REVIEW: INVESTORS REGAIN CONFIDENCE IN THE MARKET
As we reported to you in November, uncertainties generated by the economic
crises in Asia, Russia and Latin America drove investors to the relative safety
of U.S., German and U.K. government bonds in the last few months of fiscal
1998. This pushed prices up, causing 10-year U.S. Treasury yields to tumble in
early October to an extraordinary 4.2%, their lowest level in 30 years. In this
environment, corporate bonds and higher yielding non-U.S. government bonds
lagged far behind U.S. Treasuries.
In an effort to stabilize credit markets and stave off an economic slowdown
here at home, the U.S. Federal Reserve Board cut short-term interest rates
three times between September and November. Japan, the United Kingdom and the
newly formed European Central Bank, which sets monetary policy for 11 European
countries, also cut short-term rates.
These events had a positive effect on investor confidence, motivating global
investors to move away from the safety of U.S. Treasury and other government
securities in search of higher yielding values in other sectors. The result,
particularly in the first quarter of 1999, was rising yields - and falling
prices - for government bonds, while other sectors of the bond market
recovered. From October through early March, yields on 10-year U.S. Treasury
bonds rose from 4.2% to 5.4%, as compared with 5.7% one year ago. Typically,
yields rise because of fears that inflation is looming or that the economy is
overheating. This time around, it simply signaled a return from the unusually
low levels of early October.
CURRENCY MOVEMENTS: A STRONG U.S. DOLLAR HURT RETURNS
Not long after the three U.S. interest rate cuts, the U.S. dollar began to gain
strength against most major currencies. While a strong dollar is music to the
ears of an American tourist or importer, it means lower returns for U.S.-based
investors in foreign markets. One of the currencies losing value against the
dollar was the euro, the new currency for the 11 countries of the European
Monetary Union. The euro began to weaken shortly after its inception in January
as a result of the slowdown in European economies induced by lower exports.
From January through March, the euro declined 8% against the U.S. dollar.
In the Pacific Basin, the Japanese yen, which appreciated 25% against the U.S.
dollar between July 1998 and mid-January 1999, lost some of its gains as the
first quarter progressed. The only currencies that played a major role in
enhancing the fund's bond returns in this period were the Australian and New
Zealand dollars.
CHANGES IN THE FUND'S PORTFOLIO
The most significant change in the fund's holdings was in Japanese government
bonds, which have increased to 7.5% of the portfolio from 3.0% in September.
Some of the fund's portfolio counselors took advantage of lower prices from
October to February as yields on 10-year government bonds moved from less than
1% to 2.7% amid concerns about excess supply. In mid-February, the Bank of
Japan eased monetary policy by cutting short-term interest rates, triggering a
bond market rally. The rally continued for the next two months with assurances
of government support to the bond market from a renewed bond-buying program.
The fund increased its holdings of mortgage- and asset-backed securities
slightly to 10.1% from 3.8% in September. Danish mortgage bonds, profiled in
our November report, continue to provide a healthy yield advantage over
government bonds in Europe. Another country featured in our last report was
Greece, where the long-term investment environment continues to look promising.
Our holdings in Greek bonds stand at 4.8%.
OUTLOOK
It seems likely that European economies may soon perk up. While stronger
economic activity usually triggers an increase in bond yields, we anticipate
that low inflation will keep European bond yields relatively stable for some
time to come. We remain cautious but are nonetheless positive on the long-term
outlook for Europe's developing markets, such as Poland, Greece and Hungary,
despite the proximity of the latter two countries to the hostilities in
Yugoslavia.
In the Pacific Basin, New Zealand and Australia are perhaps the countries
offering the most promise, as we expect their economies to rebound as commodity
markets benefit from improving worldwide economic conditions. Regarding Asia,
our opinions remain mixed. South Korea, Thailand and Malaysia show strong signs
of recovery, while the larger, weaker economies of China and Japan act as a
drag on the entire region.
We have been experiencing a prolonged period of strength in the U.S. dollar,
interrupted only in the second half of last year. No one knows how long this
will last, but we do know from prior experience that no currency rises forever.
A sizable and growing gap between levels of U.S. exports and imports is likely
to keep the U.S. dollar from rising substantially. In addition, several factors
that could potentially contribute to a weaker U.S. dollar include a slower U.S.
economy, a decline in the U.S. stock market or a rebound in non-U.S. economies.
We would like to thank you for the trust you place in us to manage your
long-term assets. As always, we will continue to monitor changing worldwide
economic conditions closely. We believe that the world's constantly evolving
financial landscape provides new opportunities for those who know where to
look.
Cordially,
/s/Paul G. Haaga, Jr. /s/Abner D. Goldstine
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
May 13, 1999
IMPORTANT DIVIDEND INFORMATION
Federal tax law requires that Capital World Bond Fund adjust its income
dividend by the amount of its currency gains or losses. Last year, the fund
paid a dividend of 20 cents a share in all four quarters. This year, however,
the fund will pay a 15-cent dividend in June since the continued strength of
the U.S. dollar has resulted in losses in the fund's holdings in other
currencies. The fund will also pay its following dividend (previously paid in
September) in early October in order to take into account the calculation of
currency gains and losses through the fund's fiscal year-end.
#Securities and currency weightings may differ due to the use of forward
foreign exchange contracts by the fund. Short-term investments, cash and
equivalents, receivables and payables are included in the securities weighting.
*This market is not included.
+The new single currency representing 11 countries forming the European
Monetary Union. In the fund, securities weightings in each country are as
follows: France 0.4%; Germany 13.4%; Ireland 1.1%; Italy 1.1%; Netherlands
0.7%; Spain 1.0%; and 0.2% in U.S. corporate bonds that are denominated in
euros. The 13.4% holding in German bonds includes 2.3% in bonds that continue
to be denominated in German marks, as reflected on page 5.
Capital World Bond Fund
Investment Portfolio, March 31, 1999 unaudited
[begin pie chart]
Portfolio summary
Non-U.S. Governments/Agencies 42.1%
Non-U.S. Corporate Bonds 15.0%
U.S. Treasuries 13.1%
U.S. Corporate Bonds 12.3%
U.S. Mortgage- and Asset-
Backed Securities 5.7%
Non-U.S. Mortgage- and
Asset-Backed Securities 4.4%
U.S. Government Agency Notes 2.6%
Cash and Equivalents 4.8%
[end pie chart]
<TABLE>
<CAPTION>
Capital World Bond Fund Salomon Smith Barney
Net Assets World Government
Bond Index
Currency of Securities Currency Currency
Denomination Weighting# Weighting# Weighting
(before hedging) (after hedging)
<S> <C> <C> <C>
U.S. Dollars 38.0% 39.1% 29.6%
Euros+ 17.9 17.5 36.5
British Pounds 8.6 6.6 6.2
Japanese Yen 7.5 7.2 20.7
New Zealand Dollars 5.7 5.7 *
Danish Kroner 5.5 5.5 1.5
Greek Drachmas 4.8 4.8 *
Canadian Dollars 3.7 5.3 2.8
Australian Dollars 2.6 2.9 0.7
Norwegian Kroner 2.2 2.3 *
Swedish Kronor 1.5 1.1 1.5
Polish Zloty 1.3 1.4 *
Hungarian Forints 0.4 0.4 *
Czech Korunas 0.2 0.1 *
South African Rands 0.1 0.1 *
Swiss Francs * * 0.5
100.0% 100.0% 100.0%
</TABLE>
#Securities and currency weightings may differ due to the use of forward
foreign exchange contracts by the fund. Short-term investments, cash and
equivalents, receivables and payables are included in the securities weighting.
*This market is not included.
+The new single currency representing 11 countries forming the European
Monetary Union. In the fund, securities weightings in each country are as
follows: France 0.4%; Germany 13.4%; Ireland 1.1%; Italy 1.1%; Netherlands
0.7%; Spain 1.0%; and 0.2% in U.S. corporate bonds that are denominated in
euros. The 13.4% holding in German bonds includes 2.3% in bonds that continue
to be denominated in German marks, as reflected on page 5.
<TABLE>
<S> <C> <C> <C>
Principal Market Percent
Amount Value Of Net
Bonds and Notes (000) (000) Assets
- -------------------------------------------- ------ ------ ------
EURO
German Government
5.00% 2002 Euro 6,500 $ 7,435
8.00% 2002 6,641 8,231
6.75% 2003 1,023 1,248
6.50% 2005 9,063 11,333
6.875% 2005 7,030 8,904 6.00%
Bayerische Vereinsbank:
5.00% 2008 2,000 2,276
5.50% 2008 10,226 12,038 2.31
Treuhandanstalt:
7.125% 2003 5,669 6,951
7.50% 2004 5,645 7,264 2.29
Italian Government BTPS:
6.00% 2007 3,744 4,585
5.00% 2008 2,000 2,289 1.11
Ireland (Republic of):
6.25% 1999 1,905 2,056
6.25% 2004 2,857 3,497
6.00% 2008 889 1,097 1.07
Spanish Government:
6.00% 2008 3,486 4,240
6.15% 2013 1,503 1,869 .99
Netherlands Government:
5.75% 2002 2,000 2,345
3.75% 2009 795 832
5.50% 2028 735 852 .65
Rheinische Hypothekenbank 4.25% 2008 3,000 3,216 .52
French Government:
BTNS 4.75% 2002 600 677
OAT 5.25% 2008 1,606 1,888 .42
General Motors Acceptance Corp. 4.00% 2006 1,000 1,057 .17
------ ------
96,180 15.53
------ ------
GERMAN MARKS
Ford Motor Credit Co. 5.25% 2008 DM22900 13,158 2.12
Telstra Corp. Ltd. 5.125% 2008 2,250 1,299 .21
------ ------
14,457 2.33
------ ------
BRITISH POUNDS
United Kingdom:
8.00% 2000 L2,000 3,388
8.50% 2005 3,000 5,907
7.50% 2006 600 1,145
5.75% 2009 1,100 1,969 2.00
Punch Taverns:
7.274% 2022 2,700 4,731
7.567% 2026 3,000 5,209 1.60
Royal Bank of Scotland 8.375% 2007 3,000 5,584 .90
Scottish Life Finance PLC 9.00% undated(1) 2,750 4,999 .81
Halifax Building Society:
8.75% 2006 1,000 1,901
11.00% 2014 1,100 2,649 .74
Lloyds TSB Group PLC 8.50% 2006 2,300 4,300 .69
LCR Finance PLC:
4.75% 2010 2,000 3,183
4.50% 2028 675 1,021 .68
Bank of Ireland 9.75% 2005 2,035 3,896 .63
Land Securities PLC 9.00% 2020 750 1,705 .28
NPI Finance PLC 9.625% undated 750 1,376 .22
European Investment Bank 6.75% 2004 250 421 .07
------ ------
53,384 8.62
------ ------
JAPANESE YEN
Japanese Government:
0.70% 2004 Yen570,000 4,717
0.90% 2008 1,430,000 11,066
1.50% 2008 772,000 6,347 3.57
International Bank for Reconstruction and Development:
4.50% 2000 700,000 6,216
4.50% 2003 319,000 3,099
4.75% 2004 150,000 1,533 1.75
Fannie Mae 2.125% 2007 750,000 6,703 1.08
Spain (Kingdom of) 3.10% 2006 250,000 2,371 .39
Hellenic Republic 2.90% 2007 230,000 2,052 .33
European Investment Bank 6.750% 2001 200,000 1,917 .31
Nippon Telegraph & Telephone Corp. 2.50% 2007 60,000 537 .09
------ ------
46,558 7.52
------ ------
NEW ZEALAND DOLLARS
New Zealand Government:
8.00% 2001 NZ$7,000 3,957
10.00% 2002 7,500 4,549
8.00% 2004 6,500 3,868
8.00% 2006 3,000 1,832
7.00% 2009 1,725 1,009
4.50% 2016(2) 17,147 8,797 3.88
Fannie Mae 7.25% 2002 12,250 6,844 1.10
Canadian Government 6.625% 2007 8,500 4,592 .74
------ ------
35,448 5.72
------ ------
DANISH KRONER
Nykredit: (3)
5.00% 2029 DKr5,000 672
6.00% 2029 114,922 16,339 2.75
Danske Kredit 6.00% 2029 (3) 64,675 9,195 1.48
Denmark (Kingdom of):
8.00% 2003 10,000 1,692
7.00% 2004 7,000 1,179
7.00% 2007 15,000 2,599
6.00% 2009 12,800 2,114 1.22
------ ------
33,790 5.45
------ ------
GREEK DRACHMAS
Hellenic Republic:
8.90% 2004 GRD600,000 2,198
8.80% 2007 5,005,000 19,254
8.60% 2008 1,930,000 7,485
7.50% 2013 270,000 1,001 4.83
------ ------
29,938 4.83
------ ------
CANADIAN DOLLARS
Canadian Government:
9.75% 2001 C$4,000 2,961
7.25% 2003 5,750 4,129
7.25% 2007 8,350 6,328
4.25% 2021(2) 1,109 743
4.25% 2026(2) 4,721 3,162 2.80
Lindsey Morden Group Inc., Series B, 7.00% 2008(4) 7,000 4,547 .73
Canada Trust 6.75% 2001 (3) 1,537 1,035 .17
------ ------
22,905 3.70
------ ------
AUSTRALIAN DOLLARS
News America Holdings Inc. 8.625% 2014 A$9,000 5,918 .96
New South Wales Treasury Corp:
7.00% 2004 3,000 2,033
8.00% 2008 2,700 1,978 .65
Australian Government:
10.00% 2002 550 405
7.50% 2005 3,000 2,130
10.00% 2006 1,000 804 .54
Statens Bostadfinansier 6.50% 2000 2,800 1,819 .29
South Australian Government Financing Authority 11.25% 2001 1,500 1,083 .17
------ ------
16,170 2.61
------ ------
NORWEGIAN KRONER
Norwegian Government:
6.75% 2007 NOK88,000 12,719
5.50% 2009 5,750 783 2.18
------ ------
13,502 2.18
------ ------
SWEDISH KRONOR
AB Spintab:
6.25% 2002 SKr32,000 4,206
6.00% 2009 22,800 2,990 1.16
Swedish Government:
10.25% 2000 3,500 458
6.50% 2008 6,500 918 .22
Stadshypotek AB 5.75% 2003 7,000 909 .15
------ ------
9,481 1.53
------ ------
POLISH ZLOTY
Polish Government:
13.00% 2001 PLZ22,250 5,707
12.00% 2003 10,000 2,653 1.35
------ ------
8,360 1.35
------ ------
HUNGARIAN FORINTS
Hungary Government 13.00% 2003 HUF650,000 2,749 .44
------ ------
CZECH KORUNAS
Czech Republic 10.90% 2003 CZK30,000 941 .15
------ ------
SOUTH AFRICAN RANDS
South Africa (Republic of) 13.00% 2010 ZAR2,350 343 .06
------ ------
U.S. DOLLARS
U.S. Treasury Obligations:
6.375% 2000-2027 US$16,750 17,443
6.75% 2000 2,900 2,954
6.625% 2001-2002 550 570
6.625% March 2002 0 0
6.375% August 2002 0 0
5.875% 2002 250 256
5.50% 2003 3,000 3,031
5.75% 2003 520 531
7.875% 2004 10,750 12,077
11.625% 2004 4,750 6,174
6.50% 2005 3,000 3,178
6.50% August 2005 0 0
6.875% 2006 1,500 1,628
7.00% 2006 860 941
3.375% 2007(2) 1,317 1,268
6.125% 2007 5,120 5,360
6.25% 2007 9,850 10,365
5.625% 2008 7,600 7,737
10.375% 2009 715 881
7.50% 2016 1,000 1,174
8.125% 2019 500 630
6.375% August 2027 0 0
3.625% 2028(2) 5,231 5,012 13.11
Government National Mortgage Assn.:(3)
9.00% 2020-2024 1262 1353
8.50% 2021-2028 2365 2499
9.00% 2021 0 0
9.00% 2021 0 0
7.50% 2022-2023 4000 4128
7.50% 2022 0 0
7.50% 2022 0 0
7.50% 2023 0 0
7.50% 2023 0 0
8.00% 2023 1,836 1,913
9.00% 2024 0 0
7.00% 2026-2029 2,049 2,080
6.00% 2028 500 486
6.50% 2028 500 498 2.09
8.50% 2028 0 0
7.00% 2029 0 0
Fannie Mae:
6.00% 2008-2029 2,915 2,871
7.00% 2028 1,895 1,921
6.50% 2029 1,908 1,899 1.08
6.00% 2029 0 0
Airplanes Pass Through Trust, pass-through certificates, Series 1, Class C, 5,864 5,904 .95
8.15% 2019(3)
Komercni Finance BV 9.00%/10.75% 2008(4) 7,075 5,607 .90
Korea Development Bank:
7.125% 2001 2,000 1,968
7.375% 2004 3,250 3,177 .83
Time Warner Inc.:
Pass-Through Certificate, Series 1997-1, 6.10% 2001(3),(4) 2,500 2,519
Time Warner Companies, Inc. 6.95% 2028 2,000 1,998 .73
Columbia/HCA Healthcare Corp.:
6.125% 2000 2,000 1,948
7.00% 2007 900 809
8.85% 2007 1,000 998
8.70% 2010 750 730 .73
Transener SA 9.25% 2008 (4) 4,500 4,095 .66
DLJ Mortgage Acceptance Corp.:(3)
Series 1997-CF1, Class A1A, 7.40% 2006(4) 1,999 2,038
Series 1996-CF1, Class A1A, 7.28% 2028 2,001 2,050 .66
PDVSA Finance Ltd.:(4)
7.40% 2016 1,000 770
7.50% 2028 4,000 2,924 .60
Household Finance Corp. 6.40% 2008 3,250 3,223 .52
Poland (Republic of) Past Due Interest Bonds:(1)
Registered 5.00% 2014 2,000 1,856
Bearer 5.00% 2014 1,400 1,299 .51
Associates Corp. of North America 5.85% 2001 3,000 3,015 .49
Peco Energy Transition Trust: (3)
Series 1999-A, Class A6, 6.05% 2009 2,000 1,987
Series 1999-A, Class A7, 6.13% 2009 1,000 988 .48
Grupo Financiero Banamex Accival, SA de CV 0% 2002 (3), (4) 3,327 2,965 .48
Reliance Industries Ltd.:
8.125% 2005 1,000 932
10.25% 2097(4) 2,500 1,934 .46
Cable & Wireless Communications PLC 6.375% 2003 2,750 2,770 .45
Colombia (Republic of):
8.70% 2016 500 413
8.375% 2027 3,000 2,355 .45
Tenaga Nasional Berhad: (4)
7.875% 2004 750 700
7.625% 2007 2,300 2,067 .45
CSFB Finance Co. Ltd., Series 1995-A, 7.142% 2005(1),(3),(4) 1,250 1,150
CS First Boston Mortgage Securities Corp., Series 1998-C1, Class A-1A, 949 953 .34
6.26% 2040 (3)
Hutchison Whampoa Finance Ltd.:(4)
7.45% 2017 1,500 1,289
Series C, 7.50% 2027 900 774 .33
Skandinaviska Enskilda Banken 6.875% 2009 2,000 2,026 .33
Pioneer Natural Resources Co.:
6.50% 2008 1,200 974
7.20% 2028 1,500 1,051 .33
Federal Home Loan Bank 5.125% 2003 2,000 1,967 .32
Nationslink Funding Corp., Series 1999-1, Class D, 7.10% 2031 (3) 2,000 1,963 .32
Freeport Terminal (Malta) PLC 7.25% 2028(4) 2,000 1,935 .31
Samsung Electronics Co., Ltd. 7.45% 2002(4) 2,000 1,907 .31
Continental Airlines, Inc., pass-through certificates, Series 1996, 1,861 1,901 .31
Class A, 6.94% 2015(3)
Parker & Parsley Petroleum Co. 8.25% 2007 2,000 1,800 .29
Joseph E. Seagram & Sons, Inc. 7.50% 2018 1,750 1,763 .28
Hyundai Semiconductor America, Inc. 8.25% 2004(4) 2,000 1,732 .28
Royal Caribbean Cruises Ltd. 7.25% 2006 1,500 1,523 .24
Pohang Iron & Steel Co., Ltd.:
7.125% 2004 1,000 943
7.125% 2006 500 459 .22
Israel Electric Corp. Ltd. 7.75% 2009 (4) 1,250 1,279 .21
Svenska Handelsbanken 8.125% 2007 1,075 1,187 .19
Mirage Resorts, Inc. 6.75% 2008 1,200 1,164 .19
Inter-American Development Bank 8.875% 2001 1,000 1,071 .17
The Price Reit, Inc. 7.50% 2006 1,000 1,025 .16
Corporacion Andina de Fomento 7.75% 2004 1,000 1,001 .16
Merita Bank Ltd. 6.50% 2006 1,000 998 .16
United Utilities PLC 6.25% 2005 1,000 986 .16
Structured Asset Securities Corp., pass-through certificates, Series 1998-RF2, 875 932 .15
Class A, 8.567% 2027 (1),(3),(4)
GMAC Commercial Mortgage Securities, Inc. (3)
Series 1999-C1, Class D, 6.865% 2033 500 480
Series 1999-C1, Class E, 6.865% 2033 500 445 .15
Banco General, SA 7.70% 2002(4) 1,000 923 .15
J.P. Morgan & Co. Inc., Series A, 5.493% 2012(1) 1,000 871 .14
Merrill Lynch Mortgage Investors, Inc., Mortgage Pass-Through Certificates, 737 742 .12
Series 1995-C2, Class A-1, 7.125% 2021(1),(3)
South Africa (Republic of) 8.50% 2017 700 599 .10
Sony Corp. 6.125% 2003 500 506 .08
Telefonica de Argentina S.A. 9.125% 2008(4) 500 474 .08
------ ------
205,690 33.21
------ ------
Total Bonds and Notes (cost: $607,825,000) 589,896 95.23
------ ------
Short-Term Securities
- --------------------------------------------
Corporate Short-Term Notes
Xerox Capital (Europe) PLC:
4.83% due 4/14/99 7,359 7,345
4.80% due 4/27/99 4,000 3,986 1.83
Lucent Technologies Inc. 4.75% due 4/9/99 10,000 9,988 1.61
General Electric Capital Corp. 5.03% due 4/1/99 4,170 4,169 .68
------ ------
Total Short-Term Securities (cost: $25,488,000) 25,488 4.12
------ ------
Total Investment Securities (cost: $633,313,000) 615,384 99.35
Excess of cash and receivables over payables 4,042 .65
------ ------
Net Assets $ 619,426 100.00%
======= =======
(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; resales to the
public may require registration.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Capital World Bond Fund
Financial Statements
Statement of Assets and Liabilities
at March 31, 1999 (dollars in thousands) Unaudited
Assets:
Investment securities at market
(cost: $633,313) $615,384
Cash 243
Receivables for--
Sales of investments $ 8,372
Sales of fund's shares 1,056
Forward currency contracts - net 1,076
Accrued interest 11,947 22,451
--------- ---------
638,078
Liabilities:
Payables for--
Purchases of investments 17,178
Repurchases of fund's shares 949
Management services 334
Accrued expenses 191 18,652
--------- ---------
Net Assets at March 31, 1999--
Equivalent to $15.63 per share on
39,622,897 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 200,000,000 shares) $619,426
=========
Statement of Operations
for the six months ended March 31, 1999 Unaudited
(dollars in thousands)
Investment Income:
Income:
Interest $18,373
Expenses:
Management services fee $ 1,983
Distribution expenses 805
Transfer agent fee 278
Reports to shareholders 61
Registration statement and prospectus 28
Postage, stationery and supplies 60
Directors' fees 10
Auditing and legal fees 60
Custodian fee 101
Taxes other than federal income tax 16
Other expenses 9 3,411
--------- ---------
Net investment income 14,962
---------
Realized Gain and Unrealized Depreciation
on Investments:
Net realized gain 12,322
Net unrealized (depreciation) appreciation on:
Investments (28,928)
Open forward currency contracts 2,061
---------
Net unrealized depreciation (26,867)
---------
Net realized gain and unrealized
depreciation on investments (14,545)
---------
Net Increase in Net Assets Resulting
from Operations $ 417
=========
Statement of Changes in Net Assets
(dollars in thousands)
Six Year
months ended ended
3/31/99* 9/30/98
--------- ---------
Operations:
Net investment income $14,962 $34,893
Net realized gain (loss) on investments 12,322 (6,184)
Net unrealized (depreciation) appreciation
on investments (26,867) 11,051
--------- ---------
Net increase in net
assets resulting from operations 417 39,760
--------- ---------
Dividends and Distributions
Paid to Shareholders:
Dividends from net investment income (15,398) (32,995)
Distributions from net realized gain
on investments (12,170) (12,122)
--------- ---------
Total dividends and distributions (27,568) (45,117)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
5,360,613 and 7,109,572
shares, respectively 87,440 114,147
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gains on investments:
1,546,923 and 2,433,725 shares, respectively 24,871 38,620
Cost of shares repurchased:
6,776,071 and 16,238,266
shares, respectively (110,302) (260,351)
--------- ---------
Net increase (decrease) in net assets
resulting from capital share
transactions 2,009 (107,584)
--------- ---------
Total Decrease in Net Assets (25,142) (112,941)
Net Assets:
Beginning of period 644,568 757,509
--------- ---------
End of period (including undistributed
net investment income: $(10,795) and
$(10,359), respectively) $619,426 $644,568
========= =========
* Unaudited
See Notes to Financial Statements
</TABLE>
Capital World Bond Fund
Notes to Financial Statements
Unaudited
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 March 31, 1999, net unrealized depreciation on investments, excluding
forward currency contracts, for book and federal income tax purposes aggregated
$17,929,000, of which $5,667,000 related to appreciated securities and
$23,596,000 related to depreciated securities. During the six months ended
March 31, 1999, the fund realized, on a tax basis, a net capital gain of
$11,418,000 on securities transactions. Net gains related to non-U.S. currency
transactions of $2,344,000 are treated as ordinary income for federal income
tax purposes. IN ADDITION, THE FUND HAS RECOGNIZED, FOR TAX PURPOSES, LOSSES
RELATED TO NON-U.S. CURRENCY TRANSACTIONS TOTALING $13,476,000 WHICH WERE
REALIZED DURING THE PERIOD NOVEMBER 1, 1997 THROUGH SEPTEMBER 30, 1998. The
cost of portfolio securities, excluding forward currency contracts, for book
and federal income tax purposes was $633,313,000 at March 31, 1999.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $1,983,000 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 $2,008,000.
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 six months
ended March 31, 1999 distribution expenses under the Plan were $805,000. As of
March 31, 1999, accrued and unpaid distribution expenses were $115,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $119,000 (after allowances to dealers) as its portion
of the sales charges paid by purchasers of the fund's shares. Such sales
charges are not an expense of the fund and, hence, are not reflected in the
accompanying statement of operations.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $278,000.
DEFERRED DIRECTORS' FEES - Directors who are unaffiliated with CRMC may
elect to defer part or all of the fees earned for services as members of the
Board. Amounts deferred are not funded and are general unsecured liabilities of
the fund. As of March 31, 1999, aggregate deferred compensation and earnings
thereon since the plans adoption (1993), net of any payments to directors, were
$38,000.
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 $360,083,000 and $370,702,000, respectively, during
the six months ended March 31, 1999.
As of March 31, 1999, accumulated undistributed net realized gain on
investments was $9,619,000 and additional paid-in capital was $638,557,000. The
fund reclassified $1,140,000 from undistributed net realized gain to additional
paid-in capital in the six months ended March 31, 1999.
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 $101,000 includes $7,000 that was paid by these credits
rather than in cash.
Net realized currency gains on interest, sales of non-U.S. bonds and notes,
and other receivables and payables, on a book basis, were $2,904,000 for the
six months ended March 31, 1999.
At March 31, 1999, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
<TABLE>
<S> <C> <C> <C> <C>
Non-U.S. Contract Amount U.S. Valuations at 3/31/1999
Currency --------- --------- --------- ---------
Contracts Unrealized
Non-U.S. U.S. Amount (Depreciation)
Appreciation
- --------- --------- --------- --------- ---------
Purchases:
Australian Dollars
expiring 9/9/1999 A$3,000,000 $1,880,000 $1,910,000 $30,000
Canadian Dollars
expiring 4/13/1999 to
7/15/1999 C$14,526,000 9,546,000 9,633,000 87,000
Euros
expiring 4/12/1999 to 8,143,000 9,066,000 8,833,000 (233,000)
7/15/1999
Japanese Yen
expiring 4/6/1999 to
6/11/1999 Y1,215,660,000 10,438,000 10,352,000 (86,000)
Norwegian Kroner
expiring 9/22/1999 NOK6,740,000 873,000 867,000 (6,000)
--------- --------- ---------
31,803,000 31,595,000 (208,000)
--------- --------- ---------
Sales:
Czech Korunas
expiring 4/12/1999 CZK31,500,000 908,000 $884,000 24,000
British Pounds
expiring 6/2/1999 to
7/16/1999 L7,672,000 12,521,000 12,376,000 145,000
Euros
expiring 5/3/1999 to
5/28/1999 9,800,000 10,620,000 10,598,000 22,000
Japanese Yen
expiring 4/12/1999 to
10/1/1999 Y1,410,940,000 11,921,000 12,024,000 (103,000)
Swedish Kronor
expiring 6/16/1999 to
9/22/1999 SKr19,000,000 2,359,000 2,326,000 33,000
--------- --------- ---------
38,329,000 38,208,000 121,000
--------- --------- ---------
Forward currency contracts - net $(87,000)
========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six months
Per-Share Data and Ratios ended
March 31, Year ended September 30
1999 (1) 1998 1997 1996 1995 1994
Net Asset Value, Beginning of Period $16.32 $16.40 $16.86 $16.81 $15.33 $16.48
----- ----- ----- ----- ----- -----
Income From Investment Operations:
Net investment income $.39 $.43 $.88 $1.09 $1.09 $1.05
Net gains or losses on securities (both
realized and unrealized) (.36) .57 (.16) .16 1.57 (1.14)
----- ----- ----- ----- ----- -----
Total from investment operations .03 1.00 .72 1.25 2.66 (.09)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends (from net investment income) (.40) (.80) (.95) (1.08) (1.18) (.90)
Dividends (from net realized non-U.S. currency gains) (2) - - (.23) (.12) - (.04)
Distributions (from capital gains) (.32) (.28) - - - (.12)
----- ----- ----- ----- ----- -----
Total distributions (.72) (1.08) (1.18) (1.20) (1.18) (1.06)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period $15.63 $16.32 $16.40 $16.86 $16.81 $15.33
==== ==== ==== ==== ==== ====
Total Return (3) .12% (4) 6.42% 4.38% 7.67% 18.10% (0.62)%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $619 $645 $758 $811 $653 $576
Ratio of expenses to average net assets 0.54% (4) 1.06% 1.07% 1.09% 1.12% 1.11%
Ratio of net income to average net assets 2.39% (4) 5.15% 5.21% 6.07% 6.83% 6.88%
Portfolio turnover rate 60.79% (4) 100.92% 79.00% 91.27% 104.96% 77.04%
(1) Unaudited
(2) Realized non-U.S. currency gains are
treated as ordinary income for federal
income tax purposes.
(3) Excludes maximum sales charge of 4.75%.
(4) Based on operations for the period
shown and, accordingly, not representative
of a full year.
</TABLE>
[THE AMERICAN FUNDS GROUP(R)]
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of Capital World Bond Fund,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
June 30, 1999, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
PREPARING FOR THE YEAR 2000
The fund's key service providers - Capital Research and Management Company, the
investment adviser, and American Funds Service Company, the transfer agent -
have updated all significant computer systems to process date-related
information properly following the turn of the century. Testing of these and
other systems with business partners, vendors and other service providers will
continue through much of 1999. We will continue to keep you up to date in our
regular publications. If you'd like more detailed information, call Shareholder
Services at 800/421-0180, ext. 21, or visit our Web site at
www.americanfunds.com.
Printed on recycled paper
Litho in USA WG/INS/3975
Lit. No. WBF-013-0599
