The American Funds Group(r)
CAPITAL WORLD BOND FUND
2000
Annual Report
For the year ended September 30
a world of change
[photograph of several balls wrapped in various world currencies, rolling over
a map of the world]
Capital World Bond Fund(r) is one of the 29 American Funds, the nation's
third-largest mutual fund family. For nearly seven 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.
Capital World Bond Fund seeks to maximize long-term total return, consistent
with prudent management, by investing primarily in investment-grade bonds
denominated in U.S. dollars and other currencies. The fund may also invest in
lower quality, higher yielding debt securities.
[begin mountain chart]
The value of a long-term perspective
How a $10,000 investment has grown over the fund's lifetime
$26,096(1)
Salomon Smith Barney
World Government
Bond Index
$23,324(1)
Capital World
Bond Fund
$15,264(2)
Consumer
Price Index
(Inflation)
<TABLE>
<CAPTION>
Year Salomon Smith Barney World Capital World Consumer Price Original
Ended 9/30 Government Bond Index Bond Fund Index (inflation) Investment
<S> <C> <C> <C> <C>
1987 (3) $9,866 $9,596 $10,105 $10,000
1988 $11,281 $10,859 $10,527 $10,000
1989 $12,014 $11,452 $10,984 $10,000
1990 $12,920 $12,362 $11,661 $10,000
1991 $14,866 $14,352 $12,056 $10,000
1992 $17,586 $15,710 $12,417 $10,000
1993 $19,190 $17,344 $12,750 $10,000
1994 $19,537 $17,237 $13,128 $10,000
1995 $22,699 $20,357 $13,462 $10,000
1996 $23,652 $21,918 $13,866 $10,000
1997 $24,222 $22,878 $14,165 $10,000
1998 $27,026 $24,347 $14,376 $10,000
1999 $27,155 $24,268 $14,754 $10,000
2000 $26,096 $23,324 $15,264 $10,000
</TABLE>
(1) With dividends and capital gains reinvested or interest compounded.
(2) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
(3) For the period August 4, 1987 (when the fund began operations) through
September 30, 1987.
The fund's results in this chart reflect payment of the maximum sales charge of
3.75%, so the net amount invested was $9,625 versus $10,000 in the indexes.
Prior to January 10, 2000, the maximum sales charge was 4.75%. The indexes are
unmanaged and do not reflect sales charges, commissions or expenses.
[end mountain chart]
There are two ways to invest in this fund. Class A shares are subject to a
3.75% up-front sales charge that declines for accounts of $100,000 or more.
Class B shares, which are not available for certain employer-sponsored
retirement plans, have no up-front sales charge. They are, however, subject to
additional expenses of approximately 0.75% a year over the first eight years of
ownership. If redeemed within six years, they may also be subject to a
contingent deferred sales charge (5% maximum) that declines over time. Because
expenses are first deducted from income, dividends for Class B share accounts
will be lower.
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Here are the average
annual compound returns on a $1,000 investment with all distributions
reinvested for periods ended September 30, 2000:
<TABLE>
<CAPTION>
12 MONTHS 5 YEARS 10 YEARS
<S> <C> <C> <C>
CLASS A SHARES
reflecting 3.75% maximum sales charge -7.50% +1.98% +6.15%
CLASS B SHARES*
reflecting 5% maximum contingent deferred sales -7.14%* - -
charge (CDSC) (payable only if shares are sold)
not reflecting the CDSC -2.34%* - -
</TABLE>
*Reflects total return for the period March 15, 2000, when B shares first
became available, through September 30, 2000.
The fund's 30-day yield as of October 31, 2000, calculated in accordance with
the Securities and Exchange Commission formula, was 5.15%. The fund's
distribution rate as of that date was 4.17%. The SEC yield reflects income the
fund expects to earn based on its current portfolio of securities, while the
distribution rate is based solely on the fund's past dividends. Accordingly,
the fund's SEC yield and distribution rate may differ.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. Investing in non-U.S.
bonds is subject to additional risks. They include currency fluctuations,
political and social instability, differing securities regulations and
accounting standards, higher transaction costs, possible changes in taxation
and periods of illiquidity. High-yield bonds are subject to greater
fluctuations in value and risk of loss of income and principal. For more
complete information, please read the prospectus.
FELLOW SHAREHOLDERS:
Bonds performed well globally during the past year despite evidence of
inflationary pressures, stemming mostly from rising oil prices. Nonetheless,
for U.S. investors, gains from markets outside the United States were offset by
declines in their currencies, especially the euro, against the U.S. dollar.
For the fiscal year ended September 30, Capital World Bond Fund declined 3.9%,
assuming reinvestment of distributions. The fund paid income dividends totaling
60 cents a share during this period, for an income return of 4.0%, assuming
reinvestment of dividends. It also paid a capital gain distribution of 7 cents
a share in December.
The fund's total return matched the 3.9% decline in the Salomon Smith Barney
World Government Bond Index, which tracks major world markets. The U.S. bond
market fared better, with the Salomon Smith Barney Broad Investment-Grade Bond
Index gaining 6.9%.
WHAT HELPED, WHAT HURT
Over the 12-month period, 30-year government bond yields fell everywhere but in
Japan. Ten-year government bond yields fell in the United States, the U.K.,
Australia, New Zealand and Canada, but were mostly stable elsewhere. Yields on
short-term bonds rose everywhere as central banks raised rates in response to
economic strength and inflationary pressures. Overall, these yield shifts
resulted in particularly attractive returns on 30-year U.S., U.K. and European
government bonds. In comparison, corporate investment-grade and high-yield
bonds fared poorly, while high-yield debt of developing countries did well.
What had the greatest effect on the fund's return this year, however, was the
weakness of the euro. On September 30, 35% of the fund's portfolio was
denominated in euros or related currencies. As you can see from the table on
page 2, the +3.5% return on euro bonds fell to <UNDEF>14.2% when expressed in
U.S. dollar terms.
A STRONG DEMAND FOR U.S. DOLLARS
The U.S. dollar has been rising in value for several years now, principally the
net result of two competing factors:
Foreign investment - A strong U.S. economy, good corporate earnings and a
soaring U.S. equity market have been enticing to foreign investors. Recently,
enthusiasm for U.S. financial assets has been stronger than ever, particularly
in Europe. As European investors diversify their investments and globalize
their businesses, they keep up demand for the dollar while driving up its value
against the euro.
[Begin Sidebar]
INVESTMENT
RESULTS AT A GLANCE
<TABLE>
<CAPTION>
<S> <C>
Fiscal-year total return (10/1/99 - 9/30/00) -3.9%
Lifetime total return (8/4/87 - 9/30/00) +142.3
Lifetime average annual compound return (8/4/87 - 9/30/00) +7.0
</TABLE>
PORTFOLIO SUMMARY
Percent of net assets as of September 30, 2000
[begin pie chart]
<TABLE>
<CAPTION>
<S> <C>
Non-U.S. Governments/Agencies 45.9%
Non-U.S. Corporate Bonds 23.0
U.S. Corporate Bonds 9.8
U.S. Treasuries 9.0
Mortgage- and Asset-Backed Securities 6.9
U.S. Government Agency Notes 1.2
Cash & Equivalents 4.2
</TABLE>
[end pie chart]
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT-GRADE BONDS 88.2%
NON-INVESTMENT-GRADE BONDS 11.8%
Corporate Bonds 9.3%
Developing Country Bonds 2.5%
</TABLE>
[End Sidebar]
Current account (trade) deficit - Despite a pickup in European economic
activity, economic growth has been even stronger in the United States. As a
result, Americans are importing far more than they export. Increased U.S.
demand for foreign goods and services normally depresses the value of the
dollar. This time around, however, the trade factor has been overwhelmed by
money flowing into the United States for investment purposes.
[Begin Sidebar]
Federal tax law requires that Capital World Bond Fund adjust its income
dividend by the amount of its realized currency gains or losses. As you may
recall from past years, the fund generally pays a stable income dividend for
the first three quarters of the calendar year, while the December dividend may
be higher or lower as a result of non-U.S. currency transactions. In fiscal
2000, the fund paid four quarterly dividends of 15 cents a share. This
December, however, the fund will pay a dividend of 8 cents a share. In
addition, future dividends are likely to be less than 15 cents a share if the
fund continues to realize currency losses.
[End Sidebar]
LOOKING AHEAD
By traditional measures of value, we feel that the dollar is now significantly
overvalued. It has reached levels against other currencies not seen since the
1980s, when high interest rates caused the dollar to reach extreme values. It
then fell sharply in the early 1990s, as strong outflows of capital from the
United States and a large current account deficit combined to weaken the
dollar. From past experience, we know that there can be long periods in which
the value of the U.S. dollar can "overshoot," either on the upside - as now -
or the downside. Given the enormous size of the U.S. current account deficit,
however, all it may take for the dollar to begin to fall is a modest decline in
new investment.
As you are probably aware, we have recently broadened the fund's investment
mandate, which gives the fund's portfolio counselors greater flexibility and
new ways in which to diversify the fund's portfolio and seek long-term value.
These newer investments have only begun to play their expected role in the
fund. On the next several pages we explain how we have been using the resources
of American Funds' research effort in broadening the fund's investment horizon.
Cordially,
/s/ Paul G. Haaga, Jr.
Paul G. Haaga, Jr.
Chairman of the Board
/s/ Abner D. Goldstine
Abner D. Goldstine
President
November 22, 2000
[Begin Sidebar]
A LOOK AT THE FUND'S PORTFOLIO - WHAT HELPED AND WHAT HURT RETURNS
as of September 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital World Bond Fund Government Bond Market
Net Assets 12 months ended September 30, 2000
Country Currency Weighting In Local Currency In U.S. Dollars
(After Hedging)
United States 41.7%(1) +7.3% +7.3%
European Monetary Union 28.2(2) +3.5 -14.2
Japan 15.0 +1.0 -0.5
Greece 4.9 - -
United Kingdom 2.6 +7.6 -3.4
Canada 1.4 +6.1 +3.6
Poland 1.4 - -
Australia 1.0 +6.1 -11.9
Denmark 0.9 +3.6 -14.4
Norway 0.9 +3.8 -11.3
New Zealand 0.8 +7.0 -15.8
South Africa 0.7 - -
Sweden 0.5 +7.1 -8.9
</TABLE>
Sources: Salomon Smith Barney World Government Bond Index, based on bonds with
remaining maturities of at least one year, and Capital Research and Management
Company, the fund's adviser.
(1) Includes 0.2% in U.S. corporate bonds that are denominated in euros, as
reflected on page 12.
(2) Includes bonds from Finland, France, Germany, Italy, the Netherlands and
Spain; also includes bonds denominated in German marks, totaling 2.6%.
[End Sidebar]
"CAPITAL WORLD BOND FUND IS SPREADING ITS WINGS."
Morningstar Mutual Funds, June 6, 2000
When Capital World Bond Fund was introduced in 1987, it was designed as a
high-quality global bond portfolio consisting mainly of government bonds from
around the world. At that time, lower rated global bonds were considered too
risky for most investors, while high-quality government bonds were highly
liquid and offered prospects for good returns.
Today, more than 13 years later, the global bond universe is broader, richer
and more dynamic. Some developing countries' government bonds have made the
transition to investment-grade status, yet factors such as inflation, currency
stability, liquidity and political risk still set them apart from the debt of
more developed countries. Meanwhile, government bond issuance has been
shrinking in both Europe and the United States as deficits are reduced or
surpluses grow. With relatively fewer high-quality government bonds to choose
from, global bond investors have begun to look elsewhere for new opportunities.
The corporate bond market, armed with bonds that are bargain-priced relative to
the government sector, has risen to the occasion. Recently, more and more
companies have turned to the bond market, not banks, as a source for borrowing.
Old- and new-economy companies alike have inundated the corporate bond market
in recent years, presenting both opportunities and risks for investors.
[photograph of three balls wrapped in various world currencies, rolling over a
map of the world]
In response to the changing marketplace, Capital World Bond Fund is making
changes too. Last November, the fund's shareholders approved a proposal to
broaden the fund's investment mandate. The fund can now invest as much as 25%
of its assets in the higher yielding, higher risk bonds of developing nations
and of corporations. These changes enhance the fund's flexibility and keep it
competitive with other global bond funds in its peer group.
With American Funds' two decades of bond experience and unparalleled global
research capabilities, it makes sense for Capital World Bond Fund to broaden
its horizons in response to the changing global bond landscape. On the
following pages, some of the fund's portfolio counselors and research analysts
discuss a few of the areas the fund is exploring.
[blurred photograph of a Mexican girl dancing]
MEXICAN GOVERNMENT BONDS
Mexican securities may be new to Capital World Bond Fund's portfolio, but they
are anything but foreign to American Funds' investment adviser. For the past 25
years, their investment professionals have had a keen interest in Mexico and
have cultivated relationships with key business leaders and government
officials in that country. American Funds' first investment in Mexican equities
occurred in 1977, with bonds following in the mid '80s. "Over the years, we
have watched Mexico move away from the high-risk spectrum of developing market
securities," explains Capital World Bond Fund portfolio counselor Rob Neithart.
By the time Capital World Bond Fund's shareholders voted in 1999 to allow
investments in lower rated bonds, including developing country securities, Rob
and his colleagues had already identified a number of potentially attractive
securities for Capital World Bond Fund's portfolio. "Mexico was one of the
first, if not the first, countries where we made purchases when the new
investment guidelines were introduced," notes Rob. "Mexico's economy has been
improving for some time. The 1994<UNDEF>1996 peso crisis caused a major
setback, but better economic policies and favorable external developments have
produced the strong performance we've seen in Mexico for the past five years,"
he adds. "One of the major U.S. bond rating agencies recently upgraded Mexico's
bonds, and I believe Mexico's credit fundamentals will continue to improve."
[Begin Sidebar]
EVOLVE
Mexican government bonds are attracting new investors as the bonds move toward
investment-grade status. New bond issues mean new roads, schools, hospitals and
electricity for the Mexican people.
[End Sidebar]
[begin pull quote]
"I believe Mexico's credit fundamentals will continue to improve over the
medium to long term. There is always the potential for short-term problems, but
the underlying credit trend still appears positive."
Rob Neithart, Capital World Bond Fund portfolio counselor
[end pull quote]
Rob is not merely following conventional wisdom. His views are the result of
dozens of face-to-face meetings made by investment analysts each year with
corporate leaders and government officials in Mexico and its major trading
partners.
[three circular photographs: one of a bridge, one of two books with an apple
sitting atop, and one of three rows of a grwoing crop.]
As an investor in Capital World Bond Fund, you benefit from the knowledge
gained from American Funds' more than 45 years of global investing, and the
resources and expertise of more than 100 investment professionals based in nine
offices around the world. Capital World Bond Fund benefits not only from this
comprehensive global research effort but also from the organization's presence
in developing markets. Rob and other investment professionals from Capital
Research, American Funds' investment adviser, and its affiliates made nearly
1,000 visits to companies in Latin America last year. Their research visits
also took them to Eastern Europe, Asia, Africa, the Middle East and the Pacific
Basin. Developing countries should account for more than 65% of the world's
estimated incremental economic growth over the next decade, according to the
International Monetary Fund and the World Bank. There is excitement in those
numbers, and there is opportunity. The best opportunities, however, will be
found by those who know where to look.
[Begin Sidebar]
MEXICO'S MIGRATION TOWARD AN INVESTMENT-GRADE RATING
"Not every developing country offers what we consider a suitable investment
environment," says Rob Neithart. Mexico stands out for its:
- Excellent growth performance
- Increasingly deep integration with the U.S. economy
- Political stability
- Increased financial stability and an extended schedule for repaying debts
- Efforts to clean up the banking system and develop its domestic securities
markets
"If Mexico continues on this path, there is excellent potential for further
credit improvement," says Rob. There are potential obstacles, of course,
including an untested political administration, drug-related violence and
volatile oil prices, but the long<UNDEF>term outlook is good.
[End Sidebar]
[Begin Sidebar]
ANATOMY OF A CORPORATE HIGH-YIELD BOND
ALSO CALLED:
Lower rated, higher risk bonds, below-investment-grade bonds, junk bonds
WHAT DETERMINES A HIGH-YIELD BOND:
Many corporate bonds are rated by independent agencies that assess the credit
strength of issuers. The highest rating for "investment grade" bonds is AAA or
Aaa and the lowest is BBB or Baa. Anything below that is considered "below
investment grade" and generally provides a higher yield to compensate investors
for the extra risk they accept.
TYPICALLY ISSUED BY:
Relatively new companies as well as more established companies that are
experiencing difficult times. Often, such companies find it more attractive to
borrow from investors than to borrow from a bank or sell shares of stock.
DEFAULT RATE (PERCENT OF ISSUERS THAT FAIL TO REPAY PRINCIPAL):
Current U.S. high-yield bond default rate: 4% (Over the past decade, the annual
rate for this sector has been as low as 1% and as high as 11%.)
[End Sidebar]
HIGH-YIELD CORPORATE BONDS
When investing in higher yielding, higher risk bonds, there are two potential
benefits. First, these bonds offer attractive income compared with higher
quality corporate or Treasury bonds, though investors must be comfortable with
taking on additional risk. Second, they offer an opportunity for capital
appreciation if the bonds are upgraded or if the company's business
opportunities improve and investors bid up their prices.
To achieve both objectives, Susan Tolson, Capital World Bond Fund's portfolio
counselor specializing in high-yield corporate bonds, looks for more than just
yield. She searches for well-managed world class companies that have been
overlooked or undervalued for one reason or another, but does not confine
herself to just the United States. She also looks globally to find the most
attractive opportunities.
[three circular photographs: one of a pair of hands dialing a telephone, one of
a roller coaster ride, and one of a pile of empty aluminum cans]
The difficult part lies in deciphering which companies will remain lower rated
and which have the potential to grow stronger. A bond rating - or the lack of
one - provides a good starting point but seldom tells the whole story. Because
the rating services follow thousands of issuers, it can be difficult for them
to anticipate or quickly react to changes in a company's financial strength.
"Thorough research is key in high-yield investing," says Susan. "It helps
minimize defaults and allows the fund to reap greater value than from higher
quality securities, since there are more opportunities for upgrades." She also
notes that American Funds' investment adviser takes an approach to research
that makes it an ideal high-yield manager. "We take a company-by-company
approach, generally looking for companies that have performed well through good
times and bad." She recalls a recent example of the organization's
research-driven approach. Michelle Freitag, a U.S. high-yield analyst, had been
following the waste services industry for several years. In 1999, Arizona-based
Allied Waste sold $2 billion worth of bonds to raise the cash needed to buy out
a much larger waste services firm. Their newly increased debt burden made
investors uneasy; to make matters worse, industry leader Waste Management
announced that it was experiencing operational and financial troubles.
This one announcement cast a shadow of doubt on the entire waste services
industry, and Allied Waste's bonds lost about 35% of their value in the first
four months of 2000. "Fortunately," says Michelle, "we had a long-term
relationship with Allied Waste, both from a fixed-income and an equity
perspective, which gave us the luxury of researching the company from two
angles. We were convinced that Allied could generate enough cash to
substantially reduce their debt over the next five years, and we added to our
holdings of these bonds. Allied realized that it's a marathon, not a sprint.
They weren't managing results quarter to quarter; they were focused on the long
term." By September, Allied Waste's bonds had regained nearly all of their
losses. When asked what gave American Funds an edge in this case, Michelle
reflects: "We had the resources, the relationships and an understanding of the
industry. We also shared the company's long-term view."
[Begin Sidebar]
"We take a company-by-company approach, generally looking for companies that
have performed well through good times and bad."
Susan Tolson,
Capital World Bond Fund
Portfolio Counselor
EXPAND
American Funds has two decades of high-yield bond research experience. Solid
research helps the fund's investment professionals hold on to their strongest
convictions when the ride gets rough.
[blurred photograph of two rodeo riders]
[End Sidebar]
[Begin Sidebar]
[blurred photograph of a guard as a train passes by]
CHANGE
A steady stream of acquisitions and new technologies has made European
telecommunications companies one of the most dynamic sectors of the global bond
market.
[End Sidebar]
EUROPEAN TELECOMMUNICATIONS BONDS
Developing countries and high-yield corporate bonds aren't the only sectors
providing new opportunities for the fund these days. With greater bond issuance
by European companies in recent years, the fund has been selectively increasing
its holdings in higher quality corporate bonds. One of the most dynamic sectors
of the corporate market has been European telecommunications companies. They
have been issuing bonds at a breakneck pace, trying to raise the capital needed
to acquire other companies and to bid on licenses for wireless services. Their
race for market access has reached a frenzied pace with this year's "Third
Generation," or 3G, auctions, in which governments are auctioning off space on
the electromagnetic spectrum. Telecommunications companies need access to
bandwidth, or chunks of spectrum, in order to offer their customers
high-quality, high-speed wireless phone service and access to Internet-based
data using a mobile phone.
The catch here is that 3G technology is still being developed. It isn't
expected until 2002, but the need to pay for this nonexistent technology is
very real. This summer's German auction brought in a record $46.5 billion from
six firms. Telecommunications companies, traditionally state-owned issuers of
high-quality bonds, are now bidding billions on technology that is still at an
embryonic stage - and are clearly taking on significant risks.
[Begin Sidebar]
"Part of my job is to look beyond the headlines and the hype in the market."
Kirstie McAndrew, Capital Research investment analyst
[End Sidebar]
Fortunately, perceptions of risk in the bond market can create excellent
opportunities for research-driven investors. While the entire European
telecommunications industry is suffering from heavy debt and investor concerns,
we have set out to find those well-run companies that are strong enough to
survive the current and future drain on cash reserves. We look for companies
that have the underlying infrastructure in place to support this future
business.
"Vodafone Group appears to be a sea of calm in the frenzied telecom market,"
remarks London-based investment analyst Kirstie McAndrew. "It's one company
that appears to have the focus - mobile phones are their only business - as
well as the money and global reach to pull this off." Vodafone is the world's
largest telecommunications company and recently became one of the world's 10
largest companies - in any category. They serve more than 65 million customers
in 25 countries on five continents.
[three circular photographs: one of a tower, one of the ends of cables, and on
of a hand dialing a telephone]
"Until recently, when prices came down," says Kirstie, "we were not focusing on
these bonds for Capital World Bond Fund. But American Funds has had its equity
eyes and ears on this industry for some time. Our depth of knowledge and
invaluable relationships within the telecommunications industry certainly
helped us to get a firsthand look at these companies." It has also helped us
avoid potential pitfalls.
[Begin Sidebar]
THREE GENERATIONS OF TELECOMMUNICATIONS TECHNOLOGY
Telecommunications technology has undergone several "generations" ("Gs") over
the past two decades:
<TABLE>
<CAPTION>
<S> <C> <C>
1G 1980s Analog voice transmission - high-frequency signals are transmitted that are
similar, or analogous, to the original signal.
2G 1990s Digital voice transmission - cheaper, more powerful and "cleaner" than analog;
relies on digitally encoded signals using binary code.
2.5G 2001 Faster digital voice and data transmission (up to 56Kbit/second)
3G 2002 Even faster digital voice and data transmission (up to 2Mbit/second)
</TABLE>
"With 3G technology, your mobile phone will essentially know your precise
location as well as your tastes and habits. It will be able to give you
directions to the nearest bank or alert you of today's specials as you walk by
your favorite restaurant." - Kirstie McAndrew
[End Sidebar]
WHAT MAKES THE AMERICAN FUNDS DIFFERENT
[photograph of a globe]
As a shareholder in Capital World Bond Fund, you are also a member of the
American Funds, the nation's third-largest mutual fund family. You won't find
us advertised, yet thousands of financial advisers recommend the American Funds
for their clients' serious money - money set aside for education, a home,
retirement and other important dreams.
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow short-term fads, we rely on our own intensive research to
find well-managed companies with reasonably priced securities and solid,
long-term potential. Despite our size, we offer relatively few funds compared
with many large fund families, allowing us to maintain a careful focus on our
objectives and enabling you to benefit from economies of scale.
AN UNPARALLELED GLOBAL RESEARCH EFFORT
We opened our first overseas office in 1962, well before most mutual funds
began investing internationally. Today, the American Funds draw on one of the
industry's most globally integrated research networks. Capital Research spends
substantial resources getting to know companies and industries around the
world.
A MULTIPLE PORTFOLIO COUNSELOR SYSTEM
More than 40 years ago, we developed a unique strategy for managing investments
that blends teamwork with individual accountability. Every American Fund is
divided among a number of portfolio counselors, each of whom manages his or her
portion independently, within each fund's objectives; in most cases, research
analysts manage a portion as well. Over time, this method has contributed to
consistency of results and continuity of management.
EXPERIENCED INVESTMENT PROFESSIONALS
More than 75% of the portfolio counselors who serve the American Funds were in
the investment business before the sharp stock market decline in October 1987.
Long tenure and experience through a variety of market conditions mean we
aren't "practicing" with your money.
A COMMITMENT TO LOW OPERATING EXPENSES
You can't control market returns, but you can control what you invest in and
how much you pay to own it. American Funds provide exceptional value for
shareholders, with operating expenses that are among the lowest in the mutual
fund industry. Our portfolio turnover rates are low as well, keeping
transaction costs and tax consequences contained.
GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(sm)
SMALLCAP World Fund(r)
GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends though stocks
American Mutual Fund(r)
Capital World Growth and Income Fund(sm)
Fundamental Investors(sm)
The Investment Company of America(r)
Washington Mutual Investors Fund(sm)
EQUITY-INCOME FUND
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(r)
The Income Fund of America(r)
BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(r)
INCOME FUNDS
Emphasis on current income through bonds
American High-Income Trust(sm)
The Bond Fund of America(sm)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(sm)
TAX-EXEMPT INCOME FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(sm)
The Tax-Exempt Bond Fund of America(r)
State-specific tax-exempt funds
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
MONEY MARKET FUNDS
Seek stable monthly income through money market instruments
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(sm)
The U.S. Treasury Money Fund of America(sm)
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE FUNDS, INCLUDING CHARGES AND
EXPENSES, PLEASE OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISER, DOWNLOAD ONE
FROM OUR WEB SITE AT WWW.AMERICANFUNDS.COM, OR PHONE THE FUNDS' TRANSFER AGENT,
AMERICAN FUNDS SERVICE COMPANY, AT 800/421-0180. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE YOU INVEST OR SEND MONEY. FOR MORE INFORMATION, ASK YOUR
FINANCIAL ADVISER FOR A COPY OF OUR BROCHURE A PORTFOLIO FOR EVERY INVESTOR.
[Begin Sidebar]
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things -including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
A PORTFOLIO FOR EVERY INVESTOR
[End Sidebar]
<TABLE>
Investment Portfolio
Capital World Bond Fund September 30, 2000
<S> <C> <C> <C> <C>
Principal Market Percent
Amount Value of Net
Bonds and Notes (000) (000) Assets
EUROS
German Government:
8.875% 2000 Euro 1,500 US$ 1,335
8.25% 2001 2,600 2,362
7.25% 2002 6,850 6,296
8.00% 2002 6,641 6,150
6.75% 2003 1,023 936
6.50% 2005 8,000 7,469
6.875% 2005 4,974 4,699
6.00% 2006 1,300 1,191
5.25% 2008 6,751 5,969
4.50% 2009 1,300 1,090
5.375% 2010 800 714
6.25% 2030 800 776
Treuhandanstalt:
7.125% 2003 4,908 4,517
7.50% 2004 4,695 4,489
Bundesrepublic:
5.00% 2002 6,500 5,730
6.00% 2007 600 553 12.99%
Bayerische Vereinsbank:
5.00% 2008 2,000 1,687
5.50% 2008 9,226 8,040 2.33
Italian Government BTPS:
6.00% 2007 3,744 3,400
5.00% 2008 2,000 1,712 1.22
Netherlands Government:
5.75% 2002 4,700 4,197
3.75% 2009 795 627
5.50% 2028 250 217 1.21
Spanish Government:
6.00% 2008 3,486 3,151
6.15% 2013 1,503 1,385 1.08
French Government:
BTNS 4.75% 2002 600 527
4.50% 2003 2,500 2,174
OAT 5.25% 2008 1,906 1,676 1.05
Rheinische Hypothekenbank Eurobond 4.25% 2008 3,000 2,390 .57
Kappa Beheer BV 10.625% 2009 1,000 914 .22
Finland (Republic of) 5.75% 2011 1,000 904 .22
PTC International Finance II SA 11.25% 2009 1,000 868 .21
Allgemeine Hypotheken Bank AG 5.00% 2009 1,000 833 .20
Corporacion Andina de Fomento 4.75% 2004 1,000 831 .20
General Motors Acceptance Corp. 4.00% 2006 1,000 794 .19
Mannesmann Finance 4.75% 2009 1,000 777 .18
91,380 21.87
GERMAN MARKS
Ford Motor Credit Co. 5.25% 2008 DM 22,900 9,660 2.31
Telstra Corp. Ltd. 5.125% 2008 2,250 937 .22
Viatel, Inc. 0%/12.40% 2008(1) 1,900 236 .06
10,833 2.59
JAPANESE YEN
KfW International Finance Inc. 1.00% 2004 Yen 1,270,000 11,754 2.81
General Motors Acceptance Corp. 0.299% 2002(2) 1,206,000 11,048 2.64
International Bank for Reconstruction and Development:
4.50% 2003 589,000 5,976
4.75% 2004 400,000 4,273 2.45
European Investment Bank:
4.25% 2001 826,000 7,757
6.75% 2001 200,000 1,923 2.32
The Japan Development Bank 6.50% 2001 495,000 4,844 1.16
SHL 1999-1 Corp. Ltd.:(3)
Class A1, 0.794% 2024(2) 64,189 595
Class A2, 1.094% 2024(2) 130,000 1,204
Class A3, 2.09% 2024 250,000 2,281 .98
Spain (Kingdom of) 3.11% 2006 380,000 3,864 .92
Fannie Mae 2.125% 2007 350,000 3,366 .81
Hellenic Republic 2.90% 2007 230,000 2,283 .55
61,168 14.64
NEW ZEALAND DOLLARS
New Zealand Government:
8.00% 2001 NZ$ 2,000 818
8.00% 2004 6,500 2,749
8.00% 2006 3,000 1,297
7.00% 2009 8,725 3,611
4.50% 2016(4) 17,344 6,927 3.69
Fannie Mae 7.25% 2002 10,750 4,354 1.04
Canadian Government 6.625% 2007 7,500 2,916 .70
22,672 5.43
GREEK DRACHMAS
Hellenic Republic:
8.90% 2004 GRD 600,000 1,714
8.80% 2007 3,314,700 9,957
8.60% 2008 1,930,000 5,800
7.50% 2013 980,000 2,856 4.87
20,327 4.87
DANISH KRONER
Nykredit:(3)
6.00% 2029 DKr 56,236 6,228
7.00% 2029 15,946 1,858 1.93
Denmark (Kingdom of):
8.00% 2003 10,000 1,247
7.00% 2004 6,000 745
5.00% 2005 21,000 2,425
7.00% 2007 5,000 636
6.00% 2009 2,800 341 1.29
Danske Kredit:(3)
6.00% 2029 25,770 2,854
7.00% 2029 8,025 935 .91
17,269 4.13
BRITISH POUNDS
Tussauds Finance Ltd., Class A-3, 7.078% 2020 Pounds 3,000 4,278 1.03
United Kingdom 6.50% 2003 2,000 3,016 .72
Royal Bank of Scotland 8.375% 2007 1,000 1,592 .38
Halifax Building Society 11.00% 2014 600 1,207 .29
Pubmaster Finance Ltd., Class B, 8.44% 2025 550 841 .20
10,934 2.62
AUSTRALIAN DOLLARS
News America Holdings Inc. 8.625% 2014 A$ 9,000 4,871 1.17
Australian Government:
10.00% 2002 550 319
6.75% 2006 2,000 1,115
10.00% 2006 1,000 635
8.75% 2008 1,500 940 .72
New South Wales Treasury Corp. 7.00% 2004 3,000 1,658 .40
South Australian Government Financing Authority 1,500 850 .20
11.25% 2001
10,388 2.49
CANADIAN DOLLARS
Lindsey Morden Group Inc., Series B, 7.00% 2008(5) C$ 7,000 3,918 .94
Canadian Government:
9.75% 2001 2,000 1,388
7.25% 2003 2,500 1,721
7.25% 2007 750 538 .87
Domtar Inc. 10.00% 2011 1,000 761 .18
8,326 1.99
POLISH ZLOTY
Polish Government:
0% 2001 PLZ 2,500 449
12.00% 2001 6,750 1,415
13.00% 2001 22,250 4,784
8.50% 2004 4,000 691 1.76
7,339 1.76
NORWEGIAN KRONER
Norwegian Government 6.75% 2007 NOK 50,500 5,654 1.35
SWEDISH KRONOR
AB Spintab:
6.25% 2002 SKr 14,500 1,539
7.50% 2004 3,100 343 .45
Stadshypotek AB 5.50% 2008 12,000 1,205 .29
3,087 .74
SOUTH AFRICAN RANDS
South Africa (Republic of) 13.00% 2010 ZAR 21,750 2,925 .70
U.S. DOLLARS
U.S. Treasury Obligations:
8.00% 2001 US$ 2,000 2,020
5.50% 2003 3,450 3,414
11.625% 2004 1,475 1,776
6.50% 2005 700 718
3.375% 2007(4) 1,091 1,054
6.125% 2007 1,345 1,358
6.25% 2007 1,345 1,367
5.50% 2009 2,750 2,673
6.00% 2009 5,950 5,980
Strip Principal 0% 2010 8,250 4,717
7.50% 2016 500 570
8.875% 2017 1,000 1,286
7.875% 2021 1,200 1,443
Strip Principal 0% 2027 16,000 3,323
3.625% 2028(4) 2,110 2,005
5.25% 2028 2,250 2,016
5.25% 2029 2,250 2,021 9.03
Airplanes Pass Through Trust, pass-through 5,597 5,371 1.29
certificates, Series 1, Class C, 8.15% 2019(3)
Fannie Mae:
6.00% 2008 2,750 2,627
5.25% 2009 750 678
6.25% 2029 1,950 1,798 1.22
Komercni Finance BV 9.00%/10.75% 2008(2) 4,325 4,184 1.00
Government National Mortgage Assn.:(3)
8.50% 2021 189 195
9.00% 2024 228 236
6.50% 2029 1,427 1,374
7.00% 2029 1,762 1,735 .85
United Mexican States Government Eurobonds, 3,000 3,197 .77
Global, 9.875% 2010
State of Israel 7.75% 2010 2,000 2,000 .49
Nationslink Funding Corp., Series 1999-1, 2,000 1,890 .45
Class D, 7.10% 2031(2),(3)
Skandinaviska Enskilda Banken 6.875% 2009 2,000 1,876 .45
Bulgaria (Republic of):
7.75% 2011(2) 1,000 765
Front Loaded Interest Reduction Bond, 3.00% 2012(2) 1,500 1,093 .44
Chancellor Media Corp. of Los Angeles 8.00% 2008 500 508
Clear Channel Communications, Inc. 7.65% 2010 1,250 1,237 .42
Comcast UK Cable Partners Ltd. 0%/11.20% 2007(1) 1,000 945
NTL Communications Corp. 11.50% 2008 750 729 .40
Adelphia Communications Corp. 8.375% 2008 1,000 873
Century Communications, Inc. 0% 2003 1,000 763 .40
Nabisco, Inc. 6.375% 2035(2) 1,745 1,620 .39
Reliance Industries Ltd.:
8.125% 2005 550 532
10.25% 2097 1,250 1,075 .38
SBA Communications Corp. 0%/12.00% 2008(1) 2,125 1,604 .38
South Africa (Republic of) 9.125% 2009 1,500 1,489 .36
Boyd Gaming Corp.:
9.25% 2003 500 494
9.50% 2007 1,000 944 .34
Household Finance Corp. 6.40% 2008 1,500 1,406 .34
McDermott Inc. 9.375% 2002 1,500 1,350 .32
Morocco (Kingdom of) 7.75% 2009(2) 1,500 1,350 .32
Allegiance Telecom, Inc.:
0%/11.75% 2008(1) 500 335
12.875% 2008 1,000 990 .32
SpectraSite Holdings, Inc., Series B, 0%/12.00% 2008(1) 2,000 1,310 .31
Allied Waste North America, Inc., Series B, 10.00% 2009 1,500 1,301 .31
Voicestream Wireless Corp. 0%/11.875% 2009(1) 1,000 720
Omnipoint Corp. 11.50% 2009(5) 500 555 .31
Development Bank of Singapore Ltd. 7.875% 2010 1,250 1,261 .30
Clark Oil & Refining Corp. 9.50% 2004 1,275 1,155
Clark Refining & Marketing, Inc. 8.375% 2007 125 105 .30
Container Corp. of America 9.75% 2003 1,250 1,253 .30
Young Broadcasting Inc.:
10.125% 2005 1,000 1,010
9.00% 2006 250 241 .30
American Media Operations, Inc. 10.25% 2009 1,250 1,238 .30
Premier Parks Inc.:
9.75% 2007 750 705
0%/10.00% 2008(1) 750 508 .29
CSFB Finance Co. Ltd., Series 1995-A, 10.00% 1,250 1,125 .28
2005(2),(3),(5)
Russian Federation 12.75% 2028 1,200 1,048 .25
Leap Wireless International, Inc. 12.50% 2010(6),(8) 1,251 1,019 .24
Hanvit Bank 12.75% 2010(2) 1,000 1,015 .24
Citadel Broadcasting Co. 9.25% 2008 1,000 1,005 .24
Dobson/Sygnet Communications Co. 12.25% 2008 1,000 1,005 .24
Gray Communications Systems, Inc. 10.625% 2006 1,000 1,003 .24
Turkey (Republic of):
11.75% 2010 500 499
11.875% 2030 500 501 .24
TransWestern Publishing Co. LLC 9.625% 2007 1,000 995 .24
Clearnet Communications Inc. 0%/10.125% 2009(1) 1,250 994 .24
KSL Recreation Group, Inc. 10.25% 2007 1,000 980 .23
Crown Castle International Corp. 0%/10.625% 2007(1) 1,250 975 .23
International Game Technology 7.875% 2004 1,000 973 .23
WMX Technologies, Inc. 7.10% 2026 500 484
USA Waste Services, Inc.:
6.50% 2002 250 242
7.00% 2004 250 240 .23
Printpack, Inc. 10.625% 2006 1,000 965 .23
Eletson Holdings Inc. 9.25% 2003 1,000 960 .23
PDVSA Finance Ltd. 7.50% 2028 1,250 941 .23
Nextel Partners, Inc. 0%/14.00% 2009(1) 1,298 909 .22
Charter Communications Holdings, LLC 8.625% 2009 1,000 895 .21
Croatian Government, Series A, 7.75% 2010(2) 909 825 .20
Hollywood Casino Corp. 11.25% 2007 750 782 .19
ACME Television, LLC, Series B, 0%/10.875% 2004(1) 750 713 .17
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 750 696 .17
Delta Beverage Group, Inc. 9.75% 2003 650 666 .16
Structured Asset Securities Corp., Series 651 664 .16
1998-RF2, Class A, 8.541% 2027(2),(3),(5)
Cumulus Media:
10.375% 2008 250 213
13.75% preferred 2009(7) 534 shares 406 .15
GT Group Telecom Inc. 0%/13.25% 2010(1),(6),(8) $ 1,001 555 .13
Graham Packaging Co. 0%/10.75% 2009(1) 1,000 525 .13
State of Qatar 9.75% 2030 500 514 .12
Vodafone AirTouch PLC, 7.75% 2010 500 509 .12
Sun Media Corp. 9.50% 2007 500 499 .12
L.A. Arena Funding, LLC, Series 1, 500 477 .11
Class A, 7.656% 2026(3),(5)
Versatel Telecom International NV 11.875% 2009 500 435 .10
Royal Caribbean Cruises Ltd. 7.00% 2007 450 396 .09
Colombia (Republic of) 8.70% 2016 575 392 .09
Telemundo Holdings, Inc., Series B, 0%/11.50% 2008(1) 500 350 .08
Home Products International, Inc. 9.625% 2008 500 305 .07
Brazil (Federal Republic of), Bearer 8.00% 2014(7) 369 283 .07
Capitalization Interest ADD TO 35B06
Argentina (Republic of), Series C, 0% 2001 300 277 .07
Korea Exchange Bank 13.75% 2010(2) 250 258 .06
Fairchild Semiconductor Corp. 10.375% 2007 250 253 .06
Station Casinos, Inc. 9.875% 2010(5) 250 252 .06
Eldorado Resorts LLC 10.50% 2006 250 249 .06
Panama (Republic of) 10.75% 2020 250 246 .06
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 500 241 .06
Ford Motor Co. 7.45% 2031 250 231 .06
Venezuela (Republic of) 9.25% 2027 300 204 .05
Hyundai Semiconductor America, Inc. 8.25% 2004 150 135 .03
127,690 30.57
Total Bonds and Notes (cost: $472,035,000) 399,992 95.75
Short-Term Securities
CORPORATE SHORT-TERM NOTES
UBS Finance Delaware LLC 6.68% due 10/2/00 9,750 9,745 2.33
Total Short Term Securities (cost: $9,745,000) 9,745 2.33
Total Investment Securities (cost: $481,780,000) 409,737 98.08
Excess of cash and receivables over payables 8,021 1.92
Net Assets $417,758 100.00%
1 Step bond; coupon rate will increase at a later date.
2 Coupon rate may change periodically.
3 Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore, the
effective maturities are shorter than the stated
maturities.
4 Index-linked bond whose principal amount moves with a
government retail price index.
5 Purchased in a private placement transaction;
resale may be limited to
qualified institutional buyers; resale to the public
may require registration.
6 Purchased as a unit; issue was separated but
reattached for reporting purposes.
7 Payment in kind; the issuer has the option of
paying additional securities in lieu of cash.
8 Valued under procedures established by the
Board of Directors.
See Notes to Financial Statements
</TABLE>
<TABLE>
CAPITAL WORLD BOND FUND
FINANCIAL STATEMENTS
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
at September 30, 2000 (dollars in thousands)
Assets:
Investment securities at market
(cost: $481,780,000) $409,737
Cash 266
Receivables for--
Sales of investments 36
Sales of fund's shares 425
Forward currency contracts - net 63,815
Dividends and accrued interest 8,842 73,118
Other 0
483,121
Liabilities:
Payables for--
Purchases of investments 1,053
Repurchases of fund's shares 1,803
Forward currency contracts - net 0
Dividends on fund's shares 0
Forward currency contracts - net 62,050
Management services 224
Chase Manhattan Bank 0
Other expenses 233 65,363
Net Assets at September 30, 2000 $417,758
Total authorized capital stock - 200,000,000 shares
Class A shares, $.001 par value:
outstanding (unlimited shares authorized)
Net assets $416,441
Shares outstanding 29,410,580
Net asset value per share $14.16
Class B shares, $.001 par value
Net Assets $1,317
Shares outstanding $93,240
Net asset value per share $14.12
STATEMENT OF OPERATIONS
for the year ended September 30, 2000 (dollars in thousands)
Investment Income:
Income:
Interest $28,001
Dividends 0 $0
Expenses:
Management services fee 3,136
Distribution expenses - Class A 1,129
Distribution expenses - Class B 4
Transfer agent fee - Class A 592
Transfer agent fee - Class B 1
Reports to shareholders 93
Registration statement and prospectus 74
Postage, stationery and supplies 154
Directors' fees 22
Auditing and legal fees 69
Custodian fee 148
Taxes other than federal income tax 15
Other expenses 17 5,454
Net investment income 22,547
Realized Loss and Unrealized
Depreciation on Investments:
Net realized loss (3,578)
Net change in unrealized depreciation on:
appreciation on:
Investments (40,103)
Open forward currency contracts 1,501
Net unrealized depreciation (38,602)
Net realized loss and
unrealized depreciation
on investments (42,180)
Net Decrease in Net Assets Resulting
from Operations $(19,633)
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended
September 30,
2000 1999
Operations:
Net investment income $ 22,547 $ 28,373
Net realized (loss) gain on investments (3,578) 9,498
Net unrealized depreciation
on investments (38,602) (40,896)
Net decrease in net assets
resulting from operations (19,633) (3,025)
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income:
Class A (20,142) (21,252)
Class B (6) -
Distributions from net realized gains on investments
Class A (2,356) (12,170)
Class B - -
Total Dividends and Distributions (22,504) (33,422)
Capital Share Transactions:
Proceeds from shares sold 98,853 138,397
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on investments 19,886 30,005
Cost of shares repurchased (212,632) (222,735)
Net decrease in net assets resulting from
capital share transactions (93,893) (54,333)
0 0
Total Decrease in Net Assets (136,030) (90,780)
Net Assets:
Beginning of year 553,788 644,568
End of year (including
undistributed net investment
income: $3,624 and $1,225
respectively) $417,758 $553,788
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
CAPITAL WORLD BOND FUND
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. The fund offers Class A and Class B shares. Class
A shares are sold with an initial sales charge of up to 3.75%. Class B shares
are sold without an initial sales charge but subject to a contingent deferred
sales charge paid upon redemption. This charge declines from 5% to zero over a
period of six years. Class B shares have higher distribution expenses and
transfer agent fees than Class A shares. Class B shares are automatically
converted to Class A shares eight years after the date of purchase. Holders of
both classes of shares have equal pro rata rights to assets and identical
voting, dividend, liquidation and other rights, except that each class bears
different distribution and transfer agent expenses, and each class shall have
exclusive rights to vote on matters affecting only their class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
in conformity with accounting principles generally accepted in the United
States which require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
SECURITY VALUATION - Fixed-income securities are valued at prices obtained from
a pricing service, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean quoted bid and asked prices or at prices for
securities of comparable maturity, quality and type. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates market
value. Forward currency contracts are valued at the mean of their
representative quoted bid and asked prices. Securities and assets for which
representative market quotations are not readily available are valued at fair
value as determined in good faith by a committee appointed by the Board of
Directors. The ability of the issuers of the fixed-income securities held by
the fund to meet their obligations may be affected by economic developments in
a specific industry, state or region.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are
accounted for as of the trade date. Realized gains and losses from securities
transactions are determined based on specific identified cost. In the event
securities are purchased on a delayed delivery or $when-issued' basis, the fund
will instruct the custodian to segregate liquid assets sufficient to meet its
payment obligations in these transactions. Dividend income is recognized on the
ex-dividend date, and interest income is recognized on an accrual basis. Market
discounts, premiums, and original issue discounts on fixed-income securities
are amortized daily over the expected life of the security.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to manage its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. The fund's
use of forward currency contracts involves market risk in excess of the amount
recognized in the statement of assets and liabilities. The contracts are
recorded in the statement of assets and liabilities at their net unrealized
value. The fund records realized gains or losses at the time the forward
contract is closed or offset by a matching contract. The face or contract
amount in U.S. dollars reflects the total exposure the fund has in that
particular contract. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from possible movements in non-U.S. exchange rates and securities values
underlying these instruments. Purchases and sales of forward currency exchange
contracts having the same settlement date and broker are offset and presented
net in the statement of assets and liabilities.
ALLOCATIONS - Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses are allocated daily between Class A
and Class B based on their relative net asset values. Distribution expenses,
transfer agent fees and any other class-specific expenses are accrued daily and
charged to the applicable share class.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends,
interest, sales of non-U.S. bonds and notes, forward contracts, and other
receivables and payables, on a book basis, were $1,758,000 for the year ended
September 30, 2000.
3. FEDERAL INCOME TAXATION
The fund complies with the requirements of the Internal Revenue Code applicable
to regulated investment companies and intends to distribute all of its net
taxable income for the fiscal year. As a regulated investment company, the
fund is not subject to income taxes if such distributions are made. Required
distributions are determined on a tax basis and may differ from net investment
income and net realized gains for financial reporting purposes. In addition,
the fiscal year in which amounts are distributed may differ from the year in
which the net investment income and net realized gains are recorded by the
fund.
As of September 30, 2000, net unrealized depreciation on investments, excluding
forward currency contracts, for book and federal income tax purposes aggregated
$72,043,000; $1,775,000 related to appreciated securities and $73,818,000
related to depreciated securities. During the year ended September 30, 2000,
the fund realized, on a tax basis, a net capital loss of $716,000 on securities
transactions. The fund had available at September 30, 2000 a net capital loss
carryforward totaling $716,000 which may be used to offset capital gains
realized during subsequent years through 2008 and thereby relieve the fund and
its shareholders of any federal income tax liability with respect to the
capital gains that are so offset. The fund will not make distributions from
capital gains while a capital loss carryforward remains. In addition, the fund
has deferred for tax purposes, to fiscal year ended September 30, 2001, the
recognition of capital losses totaling $1,710,000 and losses related to
non-U.S. currency transactions totaling $513,000 which were realized during the
period November 1, 1999 through September 30, 2000.
Net losses related to non-U.S. currency transactions of $1,151,000 are treated
as an adjustment to ordinary income for federal income tax purposes. The cost
of portfolio securities, excluding forward currency contracts, for book and
federal income tax purposes was $481,780,000 at September 30, 2000.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $3,136,000 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 provides for monthly fees based
on the following rates and net asset levels:
<TABLE>
<CAPTION>
NET ASSET LEVEL
RATE In Excess of Up to
<S> <C> <C>
0.65% $0 $500 million
0.57 500 million 1 billion
0.50 1 billion
</TABLE>
DISTRIBUTION EXPENSES - American Funds Distributors, Inc. ($AFD'), the
principal underwriter of the fund's shares, received $137,000 (after allowances
to dealers) as its portion of the sales charges paid by purchasers of the
fund's Class A shares during the year ended September 30, 2000. Such sales
charges are not an expense of the fund and, hence, are not reflected in the
accompanying Statement of Operations.
The fund has adopted plans of distribution under which it may finance
activities primarily intended to sell fund shares, provided the categories of
expense are approved in advance by the fund's Board of Directors. The plans
provide for aggregate annual expense limits of 0.30% of net assets for Class A
shares, and 1.00% of net assets for Class B shares.
For Class A shares, approved categories of expense include dealer service fees
of up to 0.25% of net assets. Also included are monthly reimbursements to AFD
for commissions paid during the prior 15-month period to dealers and
wholesalers in respect of certain shares sold without a sales charge. These
reimbursements are permitted only to the extent that the fund's overall 0.30%
annual expense limit is not exceeded. For the year ended September 30, 2000,
aggregate distribution expenses were $1,129,000 or 0.24% of net assets
attributable to Class A shares.
For Class B shares, approved categories of expense include fees of 0.75% per
annum payable to AFD. AFD sells the rights to receive such payments (as well as
any contingent deferred sales charges payable in respect of shares sold during
the period) in order to finance the payment of dealer commissions. Also
included are service fees of 0.25% per annum. These fees are paid to AFD to
compensate AFD for paying service fees to qualified dealers. For the year
ended September 30, 2000, aggregate distribution expenses were $4,000 or 1.00%
of net assets attributable to Class B shares.
As of September 30, 2000, accrued and unpaid distribution expenses payable to
AFD for Class A and Class B shares were $77,000 and $1,000, respectively.
TRANSFER AGENT FEE - A fee of $593,000 was incurred during the year ended
September 30, 2000 pursuant to an agreement with American Funds Service Company
(AFS), the transfer agent for the fund.
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, 2000, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Directors, were $61,000.
AFFILIATED DIRECTORS' AND OFFICERS - CRMC is owned by The Capital Group
Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC.
Officers of the fund and certain Directors are or may be considered to be
affiliated with CRMC, AFS and AFD. No such persons received any remuneration
directly from the fund.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $240,455,000 and $326,240,000, respectively, during
the year ended September 30, 2000.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
During the year ended September 30, 2000, the custodian fee of $148,000
includes $14,000 that was paid by these credits rather than in cash.
<TABLE>
As of September 30, 2000, net assets consisted of the following:
<S> <C>
(dollars in thousands)
Capital paid in on shares of capital stock $488,718
Undistributed net investment income 3,624
Accumulated net realized income (3,602)
Net unrealized depreciation (70,982)
Net assets 417,758
</TABLE>
Capital share transactions in the fund were as follows:
<TABLE>
Year ended
September 30, 2000
Amount (000) Shares
<S> <C> <C>
Class A Shares:
Sold $ 97,450 6,644,172
Reinvestment of dividends and distributions 19,880 1,342,437
Repurchased (212,558) (14,506,069)
Net decrease in Class A (95,228) (6,519,460)
Class B Shares:
Sold 1,403 98,094
Reinvestment of dividends and distributions 6 375
Repurchased (74) (5,229)
Net increase in Class B 1,335 93,240
Total net decrease in fund $ (93,893) (6,426,220)
Year ended
September 30, 1999
Amount (000) Shares
Class A Shares:
Sold $ 138,397 8,667,806
Reinvestment of dividends and distributions 30,005 1,883,186
Repurchased (222,735) (14,112,384)
Net decrease in Class A (54,333) (3,561,392)
Class B Shares:
Sold - -
Reinvestment of dividends and distributions - -
Repurchased - -
Net increase in Class B - -
Total net decrease in fund $ (54,333) (3,561,392)
</TABLE>
At September 30, 2000, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-U.S. Contract Amount U.S. Valuations
Currency ----------- ----------- ----------- -----------
Contracts Unrealized
Non-U.S. U.S. Amount (Depreciation)
Appreciation
-------------------------- ----------- ----------- ----------- -----------
Purchases:
Euros
expiring 10/10/00 to 01/29/01 Euro 25,354,000 23,814,000 22,443,000 (1,371,000)
Japanese Yen
expiring 11/30 to 12/22/00 Yen 651,834,000 6,118,000 6,121,000 3,000
----------- ----------- -----------
(29,932,000) (28,564,000) (1,368,000)
----------- ----------- -----------
Sales:
Australian Dollars
expiring 10/27 to 11/22/00 A$ 11,191,000 (6,578,000) (6,066,000) 512,000
Canadian Dollars
expiring 10/23/00 C$ 3,735,000 (2,540,000) (2,483,000) 57,000
Danish Kroner
expiring 11/8/00 to 01/18/01 DKr 111,416,000 (13,783,000) (13,202,000) 581,000
Euros
expiring 11/29 to 12/13/00 Euro 7,874,000 (6,946,000) (6,978,000) (32,000)
Japanese Yen
expiring 10/5 to 12/20/00 Yen 500,084,000 (4,781,000) (4,664,000) 117,000
Norwegian Kroner
expiring 01/29/01 NOK 19,000,000 (2,159,000) (2,089,000) 70,000
New Zealand Dollar
expiring 10/10 to 12/22/00 NZ$ 67,277,732 (20,512,000) (19,066,000) 1,446,000
Polish Zloty
expiring 02/12/01 PLZ 6,888,000 (1,445,000) (1,453,000) (8,000)
Swedish Kronor
expiring 10/18 to 11/30/00 SKr 7,000,000 (797,000) (729,000) 68,000
----------- ----------- -----------
(59,541,000) (56,730,000) 2,811,000
----------- ----------- -----------
Forward currency contracts - net $ 1,443,000
</TABLE>
<TABLE>
PER-SHARE DATA AND RATIOS (1)
<S> <C> <C> <C>
Net
Net asset gains/(losses)
value, Net on securities
beginning investment (both realized
Year ended of year income and unrealized)
Class A:
2000 $15.41 $.68 (2) $(1.26) (2)
1999 16.32 .84 (.88)
1998 16.40 .43 .57
1997 16.86 .88 (.16)
1996 16.81 1.09 .16
1995 16.81 1.09 0.16
Class B:
2000 14.74 .28 (2) (.63) (2)
Dividends
Total from (from net Distributions
investment investment (from capital
Year ended operations income) gains)
Class A:
2000 $(.58) $(.60) $(.07)
1999 (.04) (.55) (.32)
1998 1.00 (.80) (.28)
1997 .72 (.95) -
1996 1.25 (1.08) -
1995 1.25 (1.08) (.12)
Class B:
2000 (.35) (.27) -
Distributions Net asset
(from currency Total value, end
Year ended gains) distributions of year
Class A:
2000 - $(.67) $14.16
1999 - (.87) 15.41
1998 - (1.08) 16.32
1997 $(.23) (1.18) 16.40
1996 (.12) (1.20) 16.86
1995 (.12) (1.32) 16.74
Class B:
2000 - (.27) 14.12
Ratio of
Net assets, expenses
Total end of year to average
Year ended return (in millions) net assets
Class A:
2000 (3.89)% $416 1.12%
1999 (.32) 554 1.08
1998 6.42 645 1.06
1997 4.38 758 1.07
1996 7.67 811 1.09
1995 30.63 25,678 .60
Class B:
2000 (2.34) 1 1.81 (3)
Ratio of
net income Portfolio
to average turnover
Year ended net assets rate
Class A:
2000 4.66% (3) 52.15% (4)
1999 4.66 129.25
1998 5.15 100.92
1997 5.21 79.00
1996 6.07 91.27
1995 2.70 20.91
Class B:
2000 3.99 (3) 52.15 (4)
(1) The periods 1996 through 2000 represent, for
Class A shares, fiscal years ended September 30.
The period ended 2000 represents, for Class B shares,
the 199-day period ended September 30, 2000.
Class B shares were not offered before March 15, 2000.
Total return for Class B is based on activity
during the period and thus is not representative of
a full year. Total returns exclude all sales
charges, including contingent deferred
sales charges.
(2) Based on average shares outstanding.
(3) Annualized.
(4) Represents portfolio turnover rate
(equivalent for all share classes) for the
year ended September 30, 2000.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders
of Capital World Bond Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Capital World Bond Fund, Inc. (the "fund"), including the investment portfolio,
as of September 30, 2000, 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 for Class A shares and the period March 15,
2000, through September 30, 2000, for Class B shares. 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 auditing standards generally
accepted in the United States of America. 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, 2000, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Capital World Bond Fund, Inc. at September 30, 2000, 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 for Class A shares and the
period March 15, 2000 through September 30, 2000 for Class B shares, in
conformity with generally accepted accounting principles in the United States
of America.
Deloitte & Touche LLP
Los Angeles, California
October 31, 2000
Tax Information (Unaudited)
Certain states may exempt from income taxation a portion of the dividends paid
from net investment income if derived from direct U.S. Treasury obligations.
For purposes of computing this exclusion, 10% of the dividends paid by the fund
from net investment income was derived from interest on direct U.S. Treasury
obligations.
Dividends received by retirement plans such as IRAs, Keogh-type plans, and
403(b) plans need not be reported as taxable income. However, many retirement
trusts may need this information for their annual information reporting.
Since the amounts above are reported for the FISCAL YEAR and not a CALENDAR
YEAR, shareholders should refer to their Form 1099-DIV or other tax information
which will be mailed in January 2001 to determine the CALENDAR YEAR amounts to
be included on their respective 2000 tax returns. Shareholders should consult
their tax advisers.
The American Funds Group(r)
CAPITAL WORLD BOND FUND
BOARD OF DIRECTORS
Ambassador Richard G. Capen, Jr.
Rancho Santa Fe, California
Corporate director and author; former United
States Ambassador to Spain; former Vice
Chairman of the Board, Knight-Ridder, Inc.;
former Chairman of the Board and Publisher,
The Miami Herald
H. Frederick Christie
Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group;
former President, Southern California
Edison Company
Don R. Conlan
South Pasadena, California
President (retired), The Capital Group
Companies, Inc.
Diane C. Creel
Long Beach, California
President and Chief Executive Officer,
The Earth Technology Corporation
(international consulting engineering)
Martin Fenton
San Diego, California
Managing Director, Senior Resource Group,
LLC (development and management of senior
living communities)
Leonard R. Fuller
Marina del Rey, California
President, Fuller Consulting
(financial management consulting firm)
Abner D. Goldstine
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
Paul G. Haaga, Jr.
Los Angeles, California
Chairman of the Board of the fund
Executive Vice President and Director,
Capital Research and Management Company
Richard G. Newman
Los Angeles, California
Chairman of the Board and Chief Executive
Officer, AECOM Technology Corporation
(architectural engineering)
Frank M. Sanchez
Los Angeles, California
Chairman of the Board and
Chief Executive Officer,
The Sanchez Family Corporation dba
McDonald's Restaurants (McDonald's licensee)
OTHER OFFICERS
Mark H. Dalzell
Los Angeles, California
Vice President of the fund
Vice President - Investment Management
Group, Capital Research and Management
Company
Michael J. Downer
Los Angeles, California
Vice President of the fund
Senior Vice President - Fund Business
Management Group, Capital Research and
Management Company
Julie F. Williams
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management
Group, Capital Research and Management
Company
Anthony W. Hynes, Jr.
Brea, California
Treasurer of the fund
Vice President - Fund Business Management
Group, Capital Research and Management
Company
Kimberly S. Verdick
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President - Fund Business
Management Group, Capital Research and
Management Company
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, California 90071-3462
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A
PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, 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. PLEASE READ
THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
This report is for the information of shareholders of Capital World Bond Fund,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
December 31, 2000, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA WG/INS/4805
Lit. No. WBF-011-1100
