UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-5104
Capital World Bond Fund, Inc.
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code: (213) 486-9200
Date of fiscal year end: September 30
Date of reporting period: September 30, 2005
Julie F. Williams
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Michael Glazer
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
CAPITAL WORLD BOND FUND
Part of a well-balanced portfolio
[photo of pears in a fruit bowl]
Annual report for the year ended September 30, 2005
CAPITAL WORLD BOND FUND(R) seeks to maximize long-term total return, consistent
with prudent management, by investing primarily in a global portfolio of
investment-grade bonds denominated in U.S. dollars and other currencies. The
fund may also invest in lower quality, high-yield debt securities.
This fund is one of the 29 American Funds. The organization ranks among the
nation's three largest mutual fund families. For more than seven decades,
Capital Research and Management Company,(SM) the American Funds adviser, has
invested with a long-term focus based on thorough research and attention to
risk.
FIGURES SHOWN ARE PAST RESULTS FOR CLASS A SHARES AND ARE NOT PREDICTIVE OF
RESULTS IN FUTURE PERIODS. CURRENT AND FUTURE RESULTS MAY BE LOWER OR HIGHER
THAN THOSE SHOWN. SHARE PRICES AND RETURNS WILL VARY, SO INVESTORS 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. FOR THE MOST CURRENT INFORMATION AND MONTH-END RESULTS, VISIT
AMERICANFUNDS.COM. FUND RESULTS SHOWN, UNLESS OTHERWISE INDICATED, ARE AT NET
ASSET VALUE. IF A SALES CHARGE (MAXIMUM 3.75%) HAD BEEN DEDUCTED, THE RESULTS
WOULD HAVE BEEN LOWER.
Here are the average annual total returns on a $1,000 investment with all
distributions reinvested for periods ended September 30, 2005:
<TABLE>
<S> <C> <C> <C>
1 year 5 years 10 years
Class A shares
Reflecting 3.75% maximum sales charge +2.55% +9.22% +5.94%
</TABLE>
The fund's investment adviser waived 5% of its management fees from September 1,
2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005.
Fund results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 23 for details.
The fund's 30-day yield for Class A shares as of October 31, 2005, calculated in
accordance with the Securities and Exchange Commission formula, was 3.56%, which
reflects a fee waiver (3.51% without the fee waiver). The fund's distribution
rate for Class A shares as of that date was 4.28%. Both reflect the 3.75%
maximum sales charge. The SEC yield reflects the rate at which the fund is
earning income on its current portfolio of securities while the distribution
rate reflects the fund's past dividends paid to shareholders. Accordingly, the
fund's SEC yield and distribution rate may differ.
Results for other share classes can be found on page 30. Please see the inside
back cover for important information about other share classes.
The return of principal in bond funds is not guaranteed. Bond funds have the
same interest rate, inflation and credit risks that are associated with the
underlying bonds owned by the fund. 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 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:
[photo of pears in a fruit bowl]
Rising interest rates, higher energy prices and currency movements played
prominent roles in shaping markets during the past year. Local bond markets
worldwide delivered solid returns, but a strengthening U.S. dollar eroded some
of the gains for U.S. investors. Capital World Bond Fund benefited from its
broad global mix of bonds.
For the year ended September 30, 2005, Capital World Bond Fund produced a total
return of 6.5%. Shareholders received dividends totaling 82.3 cents a share.
This included an increase in the regular quarterly dividend -- from 14 cents to
16 cents -- as well as a special dividend of 22.3 cents a share paid in
December. Those who reinvested dividends earned an income return of 4.4%; those
who elected to receive dividends in cash earned an income return of 4.3%. The
fund paid a capital gain of 10 cents per share in December 2004 and is expected
to pay one at the end of this year, as well.
The fund's total return outpaced the 3.2% return of the unmanaged Lehman
Brothers Global Aggregate Bond Index, which does not include expenses. The
fund's results also surpassed the 4.6% return of the Lipper Global Income Funds
Index.
UNITED STATES
During Capital World Bond Fund's fiscal year, the U.S. economy continued to grow
at a solid pace, with annualized quarterly GDP between 3% and 4%. Consumer
spending, employment and corporate profits remained strong, despite the drag of
record-high oil prices. The Federal Reserve Board continued to gradually raise
its target for the federal funds rate (the rate at which banks lend to one
another on an overnight basis) in an effort to keep inflationary pressures at
bay. Eight quarter-point increases during the reporting period (plus an
additional quarter-point increase on November 1) brought the rate to 4.00%. In
response, short-term government bond yields moved higher, while long-term yields
unconventionally trended lower. (As a bond's yield rises, its price declines,
and vice versa.) This opposing movement resulted in a significant flattening of
the Treasury yield curve, which indicates a very small difference in yields
between longer and shorter maturity securities. Although gains were made across
all sectors, flattening yield curves favored longer dated issues, which finished
the year on a strong note. Among domestic bonds, high-yield debt posted the best
results, largely due to late-2004 gains. U.S. government securities and
investment-grade corporate bonds posted low single-digit returns.
EUROPE
In Europe, markets faced political uncertainty, slow economic growth and weaker
currencies. Momentum toward a stronger political and economic union slowed when
both France and the Netherlands rejected the proposed European Union
constitution and the June budget summit failed to agree. Economic growth and
domestic demand in the euro zone remained weak. Its largest economy, Germany,
continued to suffer from high unemployment, and Italy technically slipped into a
recession. Despite above-target inflation, the European Central Bank left its
key lending rate unchanged at 2.00%, where it has been since June 2003. The Bank
of England, on the other hand, cut rates in August by a quarter-point to 4.50%
to stimulate what had been one of Europe's stronger economic performers. Sweden
also lowered its benchmark rate by a half-point to 1.50%, owing to
lower-than-expected economic growth. With yields falling, returns on European
government bonds surpassed those of their U.S. counterparts. However, returns
were not as strong in U.S. dollars as they were in local currencies. Demand for
U.S. dollar-based securities and growing interest rate differentials helped the
dollar strengthen against European currencies, such as the euro, Swedish krona
and British pound. While a significant portion of the fund's assets continued to
be in bonds from euro zone countries, exposure to the euro was decreased through
hedging.
[Begin Sidebar]
<TABLE>
<S> <C> <C>
(as of September 30, 2005, Cumulative Average annual
with all distributions reinvested) total return total return
Results at a glance
1 year +6.5% --
5 years +61.5% +10.1%
10 years +85.0% +6.3%
Lifetime (since August 4, 1987) +291.1% +7.8%
</TABLE>
[End Sidebar]
JAPAN
Japan enjoyed positive economic growth for the third year in a row. Domestic
demand showed marked improvement, with higher consumer and corporate spending.
Unemployment hit a multi-year low, wages improved, and corporate profits
strengthened. With the economy looking more resilient, the Bank of Japan
forecasted an end to the country's seven-year deflationary trend. Government
bond yields rose slightly. The fund continued to decrease its exposure to
Japanese bonds, but maintained a sizable currency weighting in the yen.
GLOBAL CORPORATE BONDS
Corporate bond results weren't as strong as in the previous fiscal year. Despite
favorable corporate earnings and generally low default rates, concerns about
lower relative yields and credit deterioration in the auto and airline
industries underpinned weakness. In general, lower quality securities outpaced
higher quality bonds. As of September 30, corporate bonds accounted for nearly
24.7% of the fund's assets, which included 5.2% in high-yield corporate debt
securities. Holdings in wireless telecommunication services, diversified
telecommunication services and commercial banks were particularly helpful to the
fund's overall returns.
DEVELOPING MARKETS
Developing-market debt posted double-digit gains, topping all other sectors.
Many markets were aided by improving macroeconomic fundamentals, higher
commodity prices and investors hungry for attractive yields. Surging oil prices
supported oil-producing countries, such as Russia. Argentina benefited from
rapid economic growth and the successful restructuring of over $100 billion in
defaulted debt. The financial picture in Turkey improved as the country neared
negotiations for potential inclusion in the European Union. The fund's holdings
in these countries -- as well as in Poland, South Korea, Colombia and Mexico --
bolstered results. Our exposure to bonds from emerging markets grew to 18.7% of
the fund's assets, as of the fiscal year-end, up from 17.0% one year ago.
LOOKING AHEAD
With short-term interest rates rising here at home, but stable or falling in
many other markets, diversification becomes especially important. Capital World
Bond Fund, with its broad mandate, has the flexibility to seek out opportunities
wherever they may be, taking advantage of differing economic, interest rate and
currency relationships. The fund blends more than 600 bonds -- denominated in 18
currencies and from 49 countries -- to achieve its total return objective and
offer shareholders an added layer of diversification. We invite you to learn
more about the fund's objective and its role in a broader investment portfolio
from our feature article beginning on page 5, "Part of a well-balanced
portfolio."
We thank you for your continued trust and support.
Cordially,
/s/ Paul G. Haaga, Jr.
Paul G. Haaga, Jr.
Vice Chairman of the Board
/s/ Mark H. Dalzell
Mark H. Dalzell
President
November 9, 2005
For current information about the fund, visit americanfunds.com.
Martin Fenton, an independent Director of the fund since 1989, has been elected
non-executive chairman of the Board. Paul G. Haaga, Jr., the previous chairman,
has been elected vice chairman. As independent Board chair, Mr. Fenton will
chair Board meetings, including executive sessions of the independent Directors,
and will be responsible for Board agendas, but will not have other executive or
management responsibilities with the fund. He will remain unaffiliated with
Capital Research and Management Company, the fund's investment adviser, and any
of its affiliates.
THE VALUE OF A LONG-TERM PERSPECTIVE
How a $10,000 investment has grown over the fund's lifetime
Fund figures reflect deduction of the maximum sales charge of 3.75% on the
$10,000 investment.(1) Thus, the net amount invested was $9,625(2).
[begin mountain chart]
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Capital Consumer Lehman Brothers Citigroup World
Ended World Price Index Global Aggregate Government Bond Original
September 30 Bond Fund(3) (inflation)(5) Bond Index (3,4) Index (3) Investment
1987 (6) $9,589 $10,105 $ 9,865 $ 9,865 $10,000
1988 $10,852 $10,527 11,280 11,280 $10,000
1989 $11,444 $10,984 12,013 12,013 $10,000
1990 $12,354 $11,661 12,947 12,918 $10,000
1991 $14,343 $12,056 14,935 14,861 $10,000
1992 $15,699 $12,417 17,257 17,581 $10,000
1993 $17,332 $12,750 18,742 19,187 $10,000
1994 $17,225 $13,128 18,714 19,535 $10,000
1995 $20,343 $13,462 21,668 22,696 $10,000
1996 $21,903 $13,866 22,910 23,649 $10,000
1997 $22,863 $14,165 24,152 24,219 $10,000
1998 $24,330 $14,376 27,260 27,023 $10,000
1999 $24,252 $14,754 26,848 27,152 $10,000
2000 $23,308 $15,264 26,266 26,093 $10,000
2001 $24,748 $15,668 28,359 27,831 $10,000
2002 $26,967 $15,905 31,019 30,744 $10,000
2003 $32,721 $16,274 34,899 35,167 $10,000
2004 $35,325 $16,687 37,173 37,629 $10,000
2005 $37,635 $17,469 38,360 38,766 $10,000
</TABLE>
[end mountain chart]
(1) As outlined in the prospectus, the sales charge is reduced for accounts
(and aggregated investments) of $100,000 or more and is eliminated for
purchases of $1 million or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares.
(2) The maximum initial sales charge was 4.75% prior to January 10, 2000.
(3) With dividends and capital gains reinvested or interest compounded.
(4) Lehman Brothers Global Aggregate Bond Index did not exist until
December 31, 1989. For the period August 4, 1987, to December 31, 1989, the
Citigroup World Government Bond Index (formerly the Salomon Brothers World
Government Bond Index) results were used.
(5) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
(6) For the period August 4, 1987 (when the fund began operations), through
September 30, 1987.
The market indexes are unmanaged and do not reflect sales charges, commissions
or expenses.
Past results are not predictive of results in future periods. The results shown
are before taxes on fund distributions and sale of fund shares.
Average annual total returns based on a $1,000 investment (for periods ended
9/30/05)*
<TABLE>
<S> <C> <C> <C>
1 year 5 years 10 years
Class A shares +2.55 +9.22% +5.94%
</TABLE>
*Assumes reinvestment of all distributions and payment of the maximum 3.75%
sales charge.
The fund's investment adviser waived 5% of its management fees from September 1,
2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005.
Fund results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 23 for details.
[photo of a bowl of fruit on top of a wood table top]
Capital World Bond Fund's objective is to maximize long-term total return,
consistent with prudent management.
PART OF A WELL-BALANCED PORTFOLIO
Variety is much more than the proverbial "spice of life." It is essential to our
well-being, and a critical element of prudent investing.
As capital markets around the world have grown and matured, it has become more
common for investors to include global bond funds in their portfolios for
balance and diversification. But not all funds are alike -- some have large
positions in emerging markets debt, for example, while others focus solely on
currency movements. Capital World Bond Fund's objective is to maximize long-term
total return, consistent with prudent management. It seeks to achieve this
objective through careful research and a broadly diversified, flexible
portfolio. We hope this discussion will help shareholders better understand
their fund and the long-term role it can play in a well-balanced portfolio.
THE COMPONENTS OF TOTAL RETURN
With its global mandate, Capital World Bond Fund has helped investors
participate in a broad spectrum of bond markets and sectors. When the fund began
operations in 1987, only seven countries were represented in the fund's
portfolio; today there are 49. The fund has evolved over its lifetime, but one
thing has never changed: the commitment to achieving its total return objective.
The fund's managers don't reach for the highest yield or the highest return; nor
do they invest heavily in high-risk sectors or gamble on short-term currency
swings. Instead, they select bonds from around the world that, in aggregate,
balance the three components of the fund's total return: capital appreciation,
income and currency movements.
CAPITAL APPRECIATION
"Having a total return objective has distinct advantages, as it allows us to
look beyond the yield of a bond," remarks Mark Dalzell, the fund's president and
one of its five portfolio counselors. "Most bond funds have income as their
primary focus. We can look at bonds with relatively low yields but good capital
appreciation potential. For example, in 2003, euro zone 10-year government bond
yields declined to about 4%, on par with U.S. 10-year Treasuries. At that
point," adds Mark, "investors might have concluded that there was little
relative value left in the euro zone bond market, which represents countries in
the European Monetary Union. We felt otherwise, based on inflation differentials
and relative growth rates versus the U.S. economy, and in fact increased our
investment. Euro zone bond yields have fluctuated since then, but reached nearly
3% in September -- about 100 basis points lower than U.S. 10-year yields --
causing the fund's euro zone bond holdings to substantially outperform U.S.
bonds."
[Begin Sidebar]
The global fixed-income market has matured significantly since Capital World
Bond Fund was introduced in 1987, providing an expanded menu of opportunities
for investors.
[photo of pears in a fruit basket]
THE UNITED STATES -- RARELY THE WORLD'S BEST BOND MARKET
<TABLE>
<S> <C> <C> <C>
Best Best bond market U.S. bond
Calendar year bond market return (in U.S. dollars) market return
1995 Sweden +34.83% +18.30%
1996 Italy +27.19 +2.73
1997 United Kingdom +10.34 +9.64
1998 France +21.25 +10.00
1999 Japan +15.53 -2.45
2000 United States +13.48 +13.48
2001 United States +6.73 +6.73
2002 Switzerland +35.07 +11.64
2003 Australia +37.35 +2.27
2004 Poland +35.96 +3.53
</TABLE>
Source: Citigroup World Government Bond Index, based on one-year total returns
in U.S. dollars
[End Sidebar]
INCOME
A bond's coupon, or interest payment, is also important. The fund's ability to
go overseas broadens the search for yield. However, government bond yields
around the world, including the United States, have declined over the life of
the fund, largely as the result of lower inflation. Though the fund invests
primarily in government bonds from developed countries, shareholders elected in
1999 to allow the fund to invest up to 25% of assets in higher yielding, higher
risk bonds. "Since mid-2002, the fund's assets in higher yielding securities
have ranged from 10% to 18%. These changes have enhanced the fund's flexibility
and helped us produce competitive returns," remarks portfolio counselor Susan
Tolson, who specializes in high-yield securities. As of the fiscal year-end,
6.3% of assets was invested in higher yielding developing-market bonds and 4.5%
in high-yield developed market bonds.
GAINS OR LOSSES FROM CURRENCY INVESTMENTS
The third factor of total return, unique to international investing, is currency
movements. Currency fluctuations can either enhance or reduce the fund's
dividends and total returns. Unlike many global bond funds, Capital World Bond
Fund does not attempt to fully hedge its holdings against currency fluctuations.
Doing so automatically could be very costly to shareholders and could limit
returns. Instead, the fund's currency exposure is actively managed. "Each of the
fund's portfolio counselors decides whether or not to hedge a bond's currency
exposure," explains portfolio counselor Rob Neithart. Over the past few years,
many of the world's major currencies have appreciated against the dollar,
bolstering returns for investors. However, currency fluctuations have tended to
balance out over extended periods of time.
THE SELECTION PROCESS
Today Capital World Bond Fund's portfolio comprises more than 600 securities,
representing 49 countries and 18 currencies. Holdings range from government to
corporate, developed to developing market and investment-grade to high-yield
debt. Investments are selected based on both global macroeconomic analysis and
intensive credit research. Both are important and complementary in our pursuit
of attractive, undervalued bonds with good long-term total return potential.
Because the fund's portfolio counselors can act on their strongest convictions,
the fund's assets may at times be concentrated in certain geographic regions or
market sectors.
[Begin Pull Quote]
[photo of Mark Dalzell]
"Having a total return objective has distinct advantages, as it allows us to
look beyond the yield of a bond."
- -- Mark Dalzell
portfolio counselor
based in Los Angeles
[End Pull Quote]
[Begin Pull Quote]
[photo of Rob Neithart]
"Giving portfolio counselors the flexibility to invest in the markets or bonds
of their highest convictions, rather than limiting them to specific sectors or
regions, is vital to optimizing investment opportunities at any given time."
- -- Rob Neithart
portfolio counselor
based in Los Angeles
[End Pull Quote]
A BALANCING ROLE
The fund's focus on long-term returns is designed to help it play a similarly
long-term role in investors' portfolios. The breadth and flexibility of its
portfolio offers opportunities for attractive yields and returns, as well as
risk management.
History indicates that some of the most attractive bond market returns have been
overseas. In the past 10 calendar years, for example, the best bond market among
developed countries has been a non-U.S. market 80% of the time. "Giving
portfolio counselors the flexibility to invest in the markets or bonds of their
highest convictions, rather than limiting them to specific sectors or regions,
is vital to optimizing investment opportunities at any given time," adds Rob
Neithart.
A global perspective helps in the search for yield. "Even as world economies
have become more interdependent and interconnected, different countries are
typically in different phases of their interest rate cycles at any moment in
time," remarks portfolio counselor, Jim Mulally. This allows investment managers
to shift assets to countries with the most likely prospects for stable to lower
interest rates -- or toward higher yielding, higher risk bonds, when
appropriate.
DIVERSIFICATION AND RISK MANAGEMENT
Of course, the potential for higher returns often comes with greater risks,
which is why Capital World Bond Fund typically plays a complementary role in an
investor's overall portfolio. The diverse patterns of each country's economic,
business and market cycles present an opportunity for long-term investors to
spread their assets across various sectors and lessen their exposure to any one
market.
"It's nearly impossible to know which bonds or regions are going to deliver the
best returns in a given year," states portfolio counselor Thomas Hogh. "That's
why it's best to have a mix of investments in your portfolio at all times.
You're likely to do better over the long term by remaining invested through
entire market cycles, rather than trying to pick the right time to invest." Over
the past 30 calendar years, for example, a portfolio invested 20% in non-U.S.
bonds and 80% in U.S. bonds, both government and corporate, would have generated
greater returns, with less volatility, than a 100% U.S. bond portfolio.(1)
(1) Sources: U.S. bonds 1975: Lehman Brothers Government/Corporate Bond Index;
U.S. bonds 1976-2004: Lehman Brothers Aggregate Bond Index; non-U.S. bonds
1975-77: Ibbotson, Carr and Robinson, "International Equity and Bond
Returns," Financial Analyst Journal, July 1982; non-U.S. bonds 1978-84:
Citigroup Non-U.S. Dollar World Bond Index; non-U.S. bonds 1985-2004:
Citigroup Non-U.S. Dollar World Government Bond Index. All indexes are
unmanaged.
[Begin Pull Quote]
[photo of Thomas Hogh]
"You're likely to do better over the long term by remaining invested through
entire market cycles, rather than trying to pick the right time to invest."
- -- Thomas Hogh
portfolio counselor
based in London
[End Pull Quote]
[Begin Sidebar]
Non-U.S. bond markets have not typically moved in synch with U.S. markets.
[photo of a bowl of fruit on a wood table top]
CAPITAL WORLD BOND FUND HAS OFFERED A CUSHION AGAINST U.S. MARKET DECLINES
Figures shown are past results for Class A shares and are not predictive of
results in future periods. Current and future results may be lower or higher
than those shown. Share prices and returns will vary, so investors may lose
money. For the most current information and month-end results, visit
americanfunds.com. Fund results shown, unless otherwise indicated, are at net
asset value. If a sales charge (maximum 3.75%) had been deducted, the results
would have been lower.
[begin bar chart]
U.S. Capital World
stocks Bond Fund
8/25/87 - 12/4/87 -32.8% 7.0%
7/16/90 - 10/11/90 -19.2 4.6
7/17/98 - 8/31/98 -19.1 -0.6
3/24/00 - 10/9/02 -47.4 12.0
[end bar chart]
Capital World Bond Fund
U.S. stocks
Source for U.S. stocks: the unmanaged Standard & Poor's 500 Composite Index.
Results include reinvestment of all distributions.
[End Sidebar]
Owning non-U.S. bonds can be especially important during periods of rising U.S.
interest rates, since they can sometimes help to offset price declines in U.S.
bonds. "With fewer currencies pegged to the U.S. dollar, and more countries'
economies and bond markets maturing, diversification opportunities have
multiplied," notes Jim Mulally.
Global bonds have also offered a haven during severe U.S. stock market declines.
As the chart at left shows, Capital World Bond Fund has helped shareholders
weather all four U.S. stock market declines of 15% or more.
Capital World Bond Fund seeks new opportunities from an ever-broadening
universe, as it continues to emphasize intensive research and prudent
management. With its wide variety of countries and sectors, as well as its
multiple avenues for appreciation, income and currency gains, Capital World Bond
Fund offers its shareholders balance and diversification. For long-term
investors, these are essential tools for limiting risks and reaping rewards.
[photo of six pears lined up in a row]
A SYSTEM FOR ALL SEASONS
Diversification is more than an investment philosophy; it is a key part of the
American Funds investment process. Capital World Bond Fund is managed by five
portfolio counselors: Four manage with a global mandate, and one focuses on
corporate high-yield debt. Each independently manages a portion of the fund's
assets, subject to its objectives and overall guidelines. They have an average
of 22 years of total investment experience and 11 years as a counselor with this
fund.* An additional segment, the fund's research portfolio, is managed by a
group of research analysts, who invest in securities within the industries or
regions they follow, bringing to bear their specialized expertise on the fund's
results. "The system itself is a natural diversifier. No two counselors or
analysts think alike, so each invests differently. One counselor's strongest
conviction might be another's area of caution," explains Mark Dalzell. This
balanced blend of differing investment approaches and styles has tended to
deliver consistent results over longer time periods.
A wealth of experience*
<TABLE>
<S> <C> <C> <C>
Years with fund as Years with American Funds Years of
Portfolio counselor portfolio counselor or affiliates investment experience
Mark Dalzell 15 17 28
Thomas Hogh 10 16 19
James Mulally 18 25 29
Robert Neithart 6 18 18
Susan Tolson 6 16 17
</TABLE>
The fund is supported by the integrated global research network of its adviser,
Capital Research and Management Company, with 11 research offices worldwide and
150 investment professionals who come from 30 countries and speak more than two
dozen languages.
*As of December 2005
ABOUT YOUR FUND
Capital World Bond Fund offers shareholders a selection of global bonds that is
unparalleled among the other fixed-income funds of the American Funds family. It
may invest in virtually any bond market in the world and in bonds denominated in
any currency. This broad mandate allows the fund to seek a high level of total
return through capital appreciation, through a wide range of income
opportunities and from changing currency relationships.
PORTFOLIO SUMMARY
Percent of net assets as of September 30, 2005
[begin pie chart]
Non-U.S. government/agency securities 52.3%
Non-U.S. corporate bonds 16.6%
U.S. Treasury bonds & notes 12.5%
U.S. corporate bonds 6.9%
Mortgage- and asset-backed securities 5.2%
U.S. government agency bonds & notes 0.6%
Other securities 1.2%
Cash & equivalents 4.7%
[end pie chart]
NET ASSETS AND PORTFOLIO TURNOVER
<TABLE>
<S> <C> <C>
Fund net assets Portfolio
Fiscal year (millions) turnover
2005 $2,825 72%
2004 1,635 79
2003 1,037 83
2002 577 48
2001 408 61
</TABLE>
EXPENSE RATIOS
as of September 30, 2005
<TABLE>
<S> <C>
Capital World Bond Fund (Class A shares) 0.93%*
Lipper Global Income Funds Average
(front-end load funds only) 1.23
</TABLE>
* The fund's investment adviser waived 5% of its management fees from
September 1, 2004, through March 31, 2005, and increased the waiver to 10% on
April 1, 2005. Expense ratios shown reflect the waiver, without which they
would have been higher. Please see the Financial Highlights table on page 23
for details.
CAPITAL WORLD BOND FUND NET ASSETS
<TABLE>
<S> <C> <C>
as of September 30, 2005 Before After
currency currency
hedging hedging
United States 38.7% 43.5%
Europe 43.9 30.7
Japan 7.3 17.6
Dollar bloc* 3.4 1.5
Other+ 6.7 6.7
</TABLE>
Securities and currency weightings may differ due to the fund's use of hedging
techniques designed to control its exposure to fluctuations in exchange rates.
Short-term investments, cash equivalents, receivables and payables are included
in the securities weighting.
*Dollar bloc includes Australia, Canada and New Zealand.
+ Mexico, South Korea, Argentina, Colombia, Indonesia, Israel.
WHERE THE FUND'S ASSETS ARE INVESTED...
....and how those markets have done over the past year
as of September 30, 2005
<TABLE>
<S> <C> <C> <C>
Capital World Bond Fund Government bond
market total returns(1)
12 months ended
September 30, 2005
Currency
weighting In local In U.S.
Country (after hedging) currency dollars
United States(2) 43.5% 2.5% 2.5%
European Monetary Union(3) 18.5 8.6 5.4
Japan 17.6 1.0 -1.8
United Kingdom 5.6 8.3 5.9
Sweden 2.0 9.4 3.0
Israel 1.9 --* --*
South Korea 1.8 --* --*
Poland 1.7 14.2 23.6
Turkey 1.7 --* --*
Argentina 1.5 --* --*
Mexico 1.4 --* --*
Denmark 1.2 8.6 5.1
Canada 0.7 9.0 18.8
Australia 0.6 5.7 11.4
Indonesia 0.1 --* --*
New Zealand 0.2 7.4 10.1
</TABLE>
(1) Source: Citigroup World Government Bond Index, based on bonds with
remaining maturities of at least one year.
(2) Includes U.S. dollar-denominated bonds of other countries, totaling 17.1%.
(3) Euro-denominated bonds including corporate and European government debt.
European Monetary Union consists of Austria, Belgium, Finland, France,
Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain.
*This market is not included in the Citigroup World Government Bond Index.
SUMMARY INVESTMENT PORTFOLIO, September 30, 2005
The following summary investment portfolio is designed to streamline the report
and help investors better focus on a fund's principal holdings. For details on
how to obtain a complete schedule of portfolio holdings, please see the inside
back cover.
<TABLE>
<S> <C> <C> <C>
Principal Market Percent
amount value of net
Bonds & notes - 94.11% (000) (000) assets
Euros - 30.61%
German Government:
5.375% 2010 (euro) 12,150 US$ 16,190
5.25% 2011 63,180 85,148
5.00% 2012 22,800 30,903
4.50% 2013 47,500 62,867
6.25% 2024 28,800 47,523
6.25% 2030 17,965 30,908
5.50% 2031 10,000 15,823
4.25%-6.50% 2005-2028 31,660 40,461 11.67
France (Republic of) Treasury Note 5.00% 2006 5,205 6,303
French Government:
OAT 4.00% 2009 50,650 63,848
OAT 5.00% 2011 24,355 32,815
OAT 4.75% 2035 13,845 20,104
OAT 0%-5.50% 2009-2055 (1) 16,450 16,237 4.93
General Motors Corp.:
7.25% 2013 18,965 18,945
5.375%-6.00% 2008-2011 13,020 14,039 1.17
Netherlands Government 5.00%-7.50% 2007-2028 23,365 32,259 1.14
Spanish Government:
6.15% 2013 11,500 16,695
3.25%-4.80% 2006-2010 9,810 12,105 1.02
Belgium (Kingdom of) 4.25% 2014 14,520 18,986 .67
Allied Irish Banks, PLC 4.781% (undated) (2) 13,560 16,601 .59
Aries Vermogensverwaltungs GmbH, Series B, 7.75% 2009 1,500 2,122 .08
Other securities 263,904 9.34
864,786 30.61
Japanese yen - 7.35%
Japanese Government:
0.10% 2005 (Y) 2,128,800 18,744
0.90% 2008 8,143,500 72,734
1.80% 2010 2,767,500 25,566
0.50% 2013 6,224,250 51,921
1.50% 2014 2,412,800 21,494
0.40%-0.50% 2006-2007 350,000 3,097 6.85
Spain (Kingdom of) 3.10% 2006 370,000 3,353 .12
Other securities 10,812 .38
207,721 7.35
British pounds - 6.52%
United Kingdom:
5.00% 2012 (pound) 13,500 24,821
5.00% 2014 17,255 32,038
4.75% 2015 10,450 19,126
8.00% 2015 6,460 14,884
4.25 %-7.50% 2006-2036 (1) 22,275 42,970 4.73
Other securities 50,513 1.79
184,352 6.52
Australian dollars - 2.50%
Queensland Treasury Corp. 6.00% 2015 A$ 44,690 35,347 1.25
New South Wales Treasury Corp.:
6.00% 2012 23,000 17,907
5.50% 2014 20,750 15,739 1.19
Other securities 1,557 .06
70,550 2.50
Swedish kronor - 2.01%
Swedish Government:
5.25% 2011 SKr 158,250 22,924
6.75% 2014 88,000 14,553
5.00%-8.00% 2007-2009 74,590 10,417 1.69
Other securities 8,994 .32
56,888 2.01
Israeli shekels - 1.94%
Israel Government:
7.00% 2011 ILS 42,000 9,832
7.50% 2014 186,490 44,933 1.94
54,765 1.94
South Korean won - 1.76%
Korean Government:
4.50% 2008 KRW 36,430,750 34,818
4.25%-4.50% 2009-2014 16,214,000 14,920 1.76
49,738 1.76
New Turkish lire - 1.75%
Turkey (Republic of):
20.00% 2007 TRY 30,398 24,574
15.00% 2010 19,277 15,120
Treasury Bill 0% 2006 14,515 9,722 1.75
49,416 1.75
Polish zloty - 1.66%
Polish Government:
5.75% 2010 PLZ 45,000 14,414
6.00% 2010 99,500 32,362 1.66
46,776 1.66
Argentine pesos - 1.49%
Argentina (Republic of):
6.501% 2033 (1) (3) ARS 63,121 24,245
0.72%-2.00% 2016-2038 (1) (4) 80,689 17,772 1.49
42,017 1.49
Mexican pesos - 1.43%
United Mexican States Government:
Series M20, 8.00% 2023 MXP 178,587 15,387
8.00%-10.50% 2011-2024 250,386 24,928 1.43
40,315 1.43
Danish kroner - 1.15%
Nykredit 4.00% 2035 (5) DKr 201,320 32,003 1.13
Other securities 597 .02
32,600 1.15
U.S. dollars - 32.95%
U.S. Treasury:
1.875% 2006 (6) US$ 17,475 17,369
4.75% 2008 (6) 28,500 28,963
5.75% 2010 (6) 30,550 32,579
4.25% 2013 (6) 47,500 47,329
4.25% 2014 (6) 73,000 72,544
4.25% 2014 (6) 15,950 15,833
5.25% 2029 (6) 43,675 47,619
1.625%-8.875% 2006-2030 (1) (6) 82,356 90,485 12.49
Freddie Mac 4.054%-6.00% 2010-2035 (2) (5) (6) 40,180 39,633 1.40
Aries Vermogensverwaltungs GmbH, Series C:
9.60% 2014 (7) 4,000 5,290
9.60% 2014 19,500 25,789 1.10
Russian Federation 5.00%/7.50% 2030 (8) 22,900 26,335 .93
Argentina (Republic of) 3.504% 2012 (2) 11,300 8,989 .32
General Motors Corp. 7.20% 2011 (6) 1,020 913
General Motors Acceptance Corp. 6.07%-8.00% 2011-2031 (2) (6) 3,325 2,983
Residential Capital Corp. 6.875% 2015 (7) 1,510 1,583 .19
Polish Government 5.25% 2014 3,200 3,300 .12
Turkey (Republic of) 11.875% 2030 1,500 2,209 .08
United Mexican States Government Global 7.50% 2033 1,440 1,674 .06
Other securities 459,429 16.26
930,848 32.95
Other currencies - 0.99% 28,029 .99
Total bonds & notes (cost: $2,593,012,000) 2,658,801 94.11
Market Percent
value of net
Rights & warrants - 0.00% (000) assets
Total rights & warrants (cost: $52,000) -* .00
Market Percent
value of net
Preferred securities - 1.23% (000) assets
U.S. dollars - 1.07% US$ 30,107 1.07
Euros - 0.16% 4,580 .16
Total preferred securities (cost: $34,998,000) 34,687 1.23
Market Percent
value of net
Common stocks - 0.00% (000) assets
Total common stocks (cost: $204,000) US$ 26 .00
Principal Market Percent
amount value of net
Short-term securities - 4.71% (000) (000) assets
Barton Capital LLC 3.59%-3.80% due 10/12-10/14/2005 (6) (7) US$ 22,700 US$ 22,670 .80
National Australia Funding (DE) Inc. 3.74% due 10/4/2005 (7) 22,500 22,491 .80
Total Capital S.A. 3.775% due 10/3/2005 (7) 20,000 19,994 .71
Swedish Export Credit Corp. 3.75% due 10/5/2005 15,000 14,992 .53
Rabobank USA Financials Corp. 3.72% due 10/13/2005 (6) 14,600 14,580 .52
Freddie Mac 3.58% due 11/1/2005 (6) 5,500 5,483 .19
Other securities 32,927 1.16
Total short-term securities (cost: $133,137,000) 133,137 4.71
Total investment securities (cost: $2,761,403,000) 2,826,651 100.05
Other assets less liabilities (1,307) (0.05)
Net assets US$ 2,825,344 100.00%
</TABLE>
* Amount less than one thousand.
"Other securities" includes all issues that are not disclosed separately in the
summary investment portfolio.
The following footnotes to the summary investment portfolio apply to either the
individual securities noted or one or more of the securities aggregated and
listed as a single item.
(1) Index-linked bond whose principal amount moves with a government
retail price index.
(2) Coupon rate may change periodically.
(3) Payment in kind; the issuer has the option of paying additional
securities in lieu of cash.
(4) Company not making scheduled interest payments; bankruptcy proceedings
pending.
(5) 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.
(6) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(7) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities,
including those in "Other securities" in the summary investment portfolio,
was $262,595,000, which represented 9.29% of the net assets of the fund.
(8) Step bond; coupon rate will increase at a later date.
See Notes to Financial Statements.
Financial statements
Statement of assets and liabilities
at September 30, 2005 (dollars and shares in thousands,
except per-share amounts)
<TABLE>
<S> <C> <C>
Assets:
Investment securities at market (cost: $2,761,403) $2,826,651
Cash 675
Receivables for:
Sales of investments $33,554
Sales of fund's shares 12,446
Open forward currency contracts 7,224
Closed forward currency contracts 1,093
Interest 47,437 101,754
2,929,080
Liabilities:
Payables for:
Purchases of investments 82,878
Repurchases of fund's shares 4,957
Open forward currency contracts 10,106
Closed forward currency contracts 2,333
Investment advisory services 1,095
Services provided by affiliates 1,058
Deferred Directors' compensation 84
Other fees and expenses 1,225 103,736
Net Assets at September 30, 2005 $2,825,344
Net assets consist of:
Capital paid in on shares of capital stock $2,687,512
Undistributed net investment income 46,567
Undistributed net realized gain 30,433
Net unrealized appreciation 60,832
Net Assets at September 30, 2005 $2,825,344
</TABLE>
Total authorized capital stock - 200,000 shares, $.001 par value (146,342 total
shares outstanding)
<TABLE>
<S> <C> <C> <C>
Net asset value
Net assets Shares outstanding per share (1)
Class A $1,907,001 98,609 $19.34
Class B 111,184 5,788 19.21
Class C 204,072 10,666 19.13
Class F 387,926 20,142 19.26
Class 529-A 38,541 1,989 19.38
Class 529-B 6,560 341 19.26
Class 529-C 19,379 1,007 19.25
Class 529-E 2,387 124 19.30
Class 529-F 3,057 158 19.31
Class R-1 2,323 121 19.24
Class R-2 26,226 1,364 19.23
Class R-3 43,281 2,240 19.32
Class R-4 10,735 555 19.34
Class R-5 62,672 3,238 19.35
</TABLE>
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $20.09 and
$20.14, respectively.
See Notes to Financial Statements
Statement of operations
for the year ended September 30, 2005 (dollars in thousands)
<TABLE>
<S> <C> <C>
Investment income:
Income:
Interest (net of non-U.S. withholding tax of $946) $108,934
Fees and expenses(1):
Investment advisory services 12,300
Distribution services 8,074
Transfer agent services 2,035
Administrative services 1,203
Reports to shareholders 164
Registration statement and prospectus 308
Postage, stationery and supplies 283
Directors' compensation 46
Auditing and legal 96
Custodian 632
State and local taxes 34
Other 36
Total expenses before reimbursements/waivers 25,211
Less reimbursement/waiver of expenses:
Investment advisory services 961
Administrative services 88
Total expenses after reimbursements/waivers 24,162
Net investment income 84,772
Net realized gain and unrealized
depreciation on investments and non-U.S. currency:
Net realized gain (loss) on:
Investments 68,923
Non-U.S. currency transactions (1,454) 67,469
Net unrealized depreciation on:
Investments (46,577)
Non-U.S. currency translations (4,483) (51,060)
Net realized gain and
unrealized depreciation
on investments and non-U.S. currency 16,409
Net increase in net assets resulting from operations $101,181
</TABLE>
(1) Additional information related to class-specific fees and expenses is
included in the Notes to Financial Statements.
Statements of changes in net assets (dollars in thousands)
<TABLE>
<S> <C> <C>
Year ended September 30
2005 2004
Operations:
Net investment income $84,772 $49,413
Net realized gain on investments and
non-U.S. currency transactions 67,469 25,042
Net unrealized (depreciation) appreciation
on investments and non-U.S. currency translations (51,060) 23,507
Net increase in net assets
resulting from operations 101,181 97,962
Dividends and distributions paid to
shareholders:
Dividends from net investment income and currency gains and non-U.S.
currency gains (85,943) (51,137)
Distributions from net realized gain
on investments (9,745) -
Total dividends and distributions paid
to shareholders (95,688) (51,137)
Capital share transactions 1,184,835 550,870
Total increase in net assets 1,190,328 597,695
Net assets:
Beginning of year 1,635,016 1,037,321
End of year (including undistributed
net investment income: $46,567 and $22,154,
respectively) $2,825,344 $1,635,016
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Capital World Bond Fund, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, nondiversified management
investment company. The fund seeks to maximize long-term total return,
consistent with prudent management, by investing primarily in a global portfolio
of investment-grade bonds denominated in U.S. dollars and other currencies. The
fund may also invest in lower quality, high-yield debt securities.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica(R) savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) can be utilized to save for college education. The five
retirement plan share classes (R-1, R-2, R-3, R-4 and R-5) are sold without any
sales charges and do not carry any conversion rights. The fund's share classes
are described below:
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 3.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to 0% Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation proceeds. Each share class has identical voting rights, except for
the exclusive right to vote on matters affecting only its class. Share classes
have different fees and expenses ("class-specific fees and expenses"), primarily
due to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official
closing price of, or the last reported sale price on, the exchange or
market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Prices for each security are
taken from the principal exchange or market in which the security
trades. Fixed-income securities, including short-term securities
purchased with more than 60 days left to maturity, are valued at
prices obtained from an independent pricing service when such prices
are available. However, where the investment adviser deems it
appropriate, such securities will be valued at the mean quoted bid and
asked prices (or bid prices, if asked prices are not available) or at
prices for securities of comparable maturity, quality and type.
Securities with both fixed-income and equity characteristics, or
equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by
the investment adviser. Short-term securities purchased within 60 days
to maturity are valued at amortized cost, which approximates market
value. The value of short-term securities originally purchased with
maturities greater than 60 days is determined based on an amortized
value to par when they reach 60 days or less remaining to maturity.
The ability of the issuers of the debt securities held by the fund to
meet their obligations may be affected by economic developments in a
specific industry, state or region. Forward currency contracts are
valued at the mean of representative quoted bid and asked prices.
Securities and other assets for which representative market quotations
are not readily available are fair valued as determined in good faith
under procedures adopted by authority of the fund's Board of
Directors. Various factors may be reviewed in order to make a good
faith determination of a security's fair value. These factors include,
but are not limited to, the type and cost of the security; contractual
or legal restrictions on resale of the security; relevant financial or
business developments of the issuer; actively traded similar or
related securities; conversion or exchange rights on the security;
related corporate actions; significant events occurring after the
close of trading in the security; and changes in overall market
conditions.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. In the event a security is purchased with a delayed
payment date, the fund will segregate liquid assets sufficient to meet
its payment obligations. 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.
CLASS ALLOCATIONS - Income, fees and expenses (other than
class-specific fees and expenses) and realized and unrealized gains
and losses are allocated daily among the various share classes based
on their relative net assets. Class-specific fees and expenses, such
as distribution, administrative and shareholder services, are charged
directly to the respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions paid to shareholders are recorded on the ex-dividend
date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the
end of the reporting period. Purchases and sales of investment
securities and income and expenses are translated into U.S. dollars at
the exchange rates on the dates of such transactions. In the
accompanying financial statements, the effects of changes in non-U.S.
exchange rates on investment securities are included with the net
realized gain or loss and net unrealized appreciation or depreciation
on investments. The realized gain or loss and unrealized appreciation
or depreciation resulting from all other transactions denominated in
non-U.S. currencies are disclosed separately.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange non-U.S. currencies
on specific future dates at predetermined rates. The fund enters into
these contracts to manage its exposure to changes in non-U.S. exchange
rates arising from investments denominated in non-U.S. currencies.
Upon entering into these contracts, risks may arise from the potential
inability of counterparties to meet the terms of their contracts and
from possible movements in non-U.S. exchange rates. Due to these
risks, the fund could incur losses up to the entire contract amount,
which may exceed the net unrealized value shown on the accompanying
financial statements. On a daily basis, the fund values forward
currency contracts based on the applicable exchange rates and records
unrealized gains or losses. The fund records realized gains or losses
at the time the forward contract is closed or offset by another
contract with the same broker for the same settlement date and
currency.
Mortgage dollar rolls - The fund may enter into mortgage dollar roll
transactions in which the fund sells a mortgage-backed security to a
counterparty and simultaneously enters into an agreement with the same
counterparty to buy back a similar security on a specific future date
at a predetermined price. Each mortgage dollar roll is treated as a
financing transaction, therefore, any gain or loss is considered
unrealized until the roll reaches completion. Risks may arise due to
the delayed payment date and the potential inability of counterparties
to complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income in
the accompanying financial statements.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers 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.
TAXATION - Dividend and interest income is recorded net of non-U.S. withholding
taxes paid. Realized and unrealized gains on securities in certain countries are
subject to non-U.S. taxes. The fund records a liability based on realized and
unrealized gains to provide for potential non-U.S. taxes payable on these
securities. For the year ended September 30, 2005, non-U.S. withholding taxes
paid on realized and unrealized gains were $574,000. In addition, as of
September 30, 2005, the liability for non-U.S. taxes based on realized and
unrealized gains was $584,000.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
Distributions - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses; capital
losses related to sales of certain securities within 30 days of purchase;
unrealized appreciation of certain investments in non-U.S. securities; deferred
expenses; cost of investments sold; paydowns on investments; and amortization of
premiums. 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 for financial reporting purposes. The fund may also designate a portion
of the amount paid to redeeming shareholders as a distribution for tax purposes.
As of September 30, 2005, the cost of investment securities, excluding forward
currency contracts, for federal income tax purposes was $2,764,186,000.
During the year ended September 30, 2005, the fund reclassified $33,341,000 from
realized gains to undistributed net investment income and $7,757,000 from
undistributed net investment income to capital paid in on shares of capital
stock to align financial reporting with tax reporting.
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows (dollars in thousands):
<TABLE>
<S> <C>
Undistributed net investment income and non-U.S. currency gains $45,253
Undistributed short-term capital gains 9,086
Undistributed long-term capital gains 21,967
Gross unrealized appreciation on investment securities 90,055
Gross unrealized depreciation on investment securities (27,590)
Net unrealized appreciation on investment securities 62,465
</TABLE>
During the year ended September 30, 2005, the fund realized, on a tax basis, a
net capital gain of $34,747,000.
The tax character of distributions paid to shareholders was as follows (dollars
in thousands):
<TABLE>
<S> <C> <C> <c> <C>
Year ended September 30, 2005
Distributions from ordinary income Total distributions
Net investment income Distributions from paid
Share class and currency gains Short-term capital gains long-term capital gains
Class A $ 61,015 $ 1,084 $ 5,693 $ 67,792
Class B 3,219 71 374 3,664
Class C 5,197 109 570 5,876
Class F 10,777 182 957 11,916
Class 529-A 1,118 19 102 1,239
Class 529-B 170 4 21 195
Class 529-C 453 10 52 515
Class 529-E 62 1 6 69
Class 529-F 86 2 8 96
Class R-1 55 1 6 62
Class R-2 537 11 55 603
Class R-3 1,080 29 154 1,263
Class R-4 252 4 20 276
Class R-5 1,922 32 168 2,122
Total $ 85,943 $ 1,559 $ 8,186 $ 95,688
Year ended September 30, 2004
Distributions from ordinary income Total distributions
Net investment income Distributions from paid
Share class and currency gains Short-term capital gains long-term capital gains
Class A $ 39,545 $ - $ - $ 39,545
Class B 2,215 - - 2,215
Class C 2,509 - - 2,509
Class F 4,210 - - 4,210
Class 529-A 539 - - 539
Class 529-B 108 - - 108
Class 529-C 228 - - 228
Class 529-E 34 - - 34
Class 529-F 31 - - 31
Class R-1 30 - - 30
Class R-2 189 - - 189
Class R-3 241 - - 241
Class R-4 22 - - 22
Class R-5 1,236 - - 1,236
Total $ 51,137 $ - $ - $ 51,137
</TABLE>
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES -The Investment Advisory and Service Agreement with
CRMC provides for monthly fees accrued daily. These fees are based on an annual
rate of 0.570% on the first $1 billion of daily net assets and 0.500% on such
assets in excess of $1 billion. The Board of Directors approved an amended
agreement effective November 1, 2005, continuing the series of rates to include
an additional annual rate of 0.45% on daily net assets in excess of $3 billion.
CRMC is currently waiving a portion of investment advisory services fees. At the
beginning of the period, CRMC waived 5% of these fees and increased the waiver
to 10% on April 1, 2005. During the year ended September 30, 2005, total
investment advisory services fees waived by CRMC were $961,000. As a result, the
fee shown on the accompanying financial statements of $12,300,000, which was
equivalent to an annualized rate of 0.530%, was reduced to $11,339,000, or
0.489% of average daily net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Directors approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares and service
existing accounts. The plans provide for payments, based on an
annualized percentage of average daily net assets, ranging from 0.30%
to 1.00% as noted below. In some cases, the Board of Directors has
limited the amounts that may be paid to less than the maximum allowed
by the plans. All share classes may use up to 0.25% of average daily
net assets to pay service fees, or to compensate AFD for paying
service fees, to firms that have entered into agreements with AFD for
providing certain shareholder services. The remaining amounts
available to be paid under each plan are paid to selling dealers to
compensate them for their selling activities.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. These classes reimburse
AFD for amounts billed within the prior 15 months but only to the
extent that the overall annual expense limit of 0.30% is not exceeded.
As of September 30, 2005, there were no unreimbursed expenses subject
to reimbursement for classes A or 529-A.
<TABLE>
<S> <C> <C>
------------------------------------------------ ----------------------------- -----------------------------
Share class Currently approved limits Plan limits
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class A 0.30% 0.30%
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class 529-A 0.30 0.50
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes B and 529-B 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes C, 529-C and R-1 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class R-2 0.75 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes 529-E and R-3 0.50 0.75
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes F, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
</TABLE>
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described on the next page.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all share classes other than classes A and B.
Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant share class also pays AFS additional amounts for certain
transfer agent services. CRMC and AFS may use these fees to compensate
third parties for performing these services. CRMC has agreed to pay
AFS on the fund's behalf for a portion of the transfer agent services
fees for some of the retirement plan share classes. For the year ended
September 30, 2005, the total administrative services fees paid by
CRMC were $1,000, $87,000, $180 and $180 for classes R-1, R-2, R-3,
and R-4, respectively. Administrative services fees are presented
gross of any payments made by CRMC. Each 529 share class is subject to
an additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services
fees on the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party.
Expenses under the agreements described above for the year ended
September 30, 2005, were as follows (dollars in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $4,103 $1,901 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 987 134 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 1,682 Included $252 $53 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 733 Included 386 63 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 49 Included 41 6 $31
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 56 Included 8 4 6
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 154 Included 21 8 15
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 9 Included 2 -* 2
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 3 Included 3 1 2
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 18 Included 3 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 136 Included 27 135 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 129 Included 39 30 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 15 Included 11 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 48 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $8,074 $2,035 $841 $306 $56
--------------------------------------------------------------------------------------------------------------
* Amount less than one thousand.
</TABLE>
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Directors' compensation of $46,000, shown on the accompanying
financial statements, includes $35,000 in current fees (either paid in cash or
deferred) and a net increase of $11,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
Reinvestments of
Share class Sales(1) dividends and distributions
Amount Shares Amount Shares
Year ended September 30, 2005
Class A $ 948,570 48,246 $ 60,385 3,076
Class B 44,886 2,294 3,278 167
Class C 126,731 6,498 5,091 261
Class F 258,942 13,237 10,195 521
Class 529-A 19,278 979 1,239 63
Class 529-B 2,249 115 194 10
Class 529-C 9,671 494 515 26
Class 529-E 1,245 63 70 4
Class 529-F 1,462 74 95 5
Class R-1 1,791 91 63 3
Class R-2 18,785 961 602 31
Class R-3 82,674 4,194 1,263 64
Class R-4 8,681 442 277 14
Class R-5 35,207 1,788 1,797 91
Total net increase
(decrease) $ 1,560,172 79,476 $ 85,064 4,336
Year ended September 30, 2004
Class A $ 524,283 28,177 $ 35,184 1,898
Class B 38,315 2,071 1,974 107
Class C 82,447 4,466 2,153 117
Class F 151,902 8,205 3,754 203
Class 529-A 12,173 652 539 29
Class 529-B 1,966 106 108 6
Class 529-C 6,147 331 228 12
Class 529-E 741 40 34 2
Class 529-F 1,226 67 30 2
Class R-1 737 40 30 1
Class R-2 9,285 500 189 10
Class R-3 35,341 1,902 241 13
Class R-4 9,130 497 22 1
Class R-5 10,094 545 1,080 58
Total net increase
(decrease) $ 883,787 47,599 $ 45,566 2,459
Share class Repurchases(1) Net increase
Amount Shares Amount Shares
Year ended September 30, 2005
Class A $ (274,426) (14,020) $ 734,529 37,302
Class B (15,490) (795) 32,674 1,666
Class C (37,773) (1,949) 94,049 4,810
Class F (67,036) (3,445) 202,101 10,313
Class 529-A (2,732) (139) 17,785 903
Class 529-B (264) (14) 2,179 111
Class 529-C (1,522) (78) 8,664 442
Class 529-E (157) (8) 1,158 59
Class 529-F (87) (5) 1,470 74
Class R-1 (503) (25) 1,351 69
Class R-2 (3,972) (203) 15,415 789
Class R-3 (48,540) (2,463) 35,397 1,795
Class R-4 (2,044) (104) 6,914 352
Class R-5 (5,855) (298) 31,149 1,581
Total net increase
(decrease) $ (460,401) (23,546) $ 1,184,835 60,266
Year ended September 30, 2004
Class A $ (254,321) (13,771) $ 305,146 16,304
Class B (20,646) (1,121) 19,643 1,057
Class C (23,664) (1,294) 60,936 3,289
Class F (33,190) (1,804) 122,466 6,604
Class 529-A (2,010) (108) 10,702 573
Class 529-B (500) (27) 1,574 85
Class 529-C (870) (47) 5,505 296
Class 529-E (334) (18) 441 24
Class 529-F (67) (4) 1,189 65
Class R-1 (624) (34) 143 7
Class R-2 (1,722) (93) 7,752 417
Class R-3 (29,465) (1,576) 6,117 339
Class R-4 (5,613) (308) 3,539 190
Class R-5 (5,457) (297) 5,717 306
Total net increase
(decrease) $ (378,483) (20,502) $ 550,870 29,556
</TABLE>
(1) Includes exchanges between share classes of the fund.
6. FORWARD CURRENCY CONTRACTS
As of September 30, 2005, the fund had open forward currency contracts to
purchase or sell non-U.S. currencies as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Contract amount U.S. valuations at September 30, 2005
Unrealized
appreciation
Non-U.S. U.S. Amount (depreciation)
Non-U.S. currency contracts (000) (000) (000) (000)
Purchases:
Australian dollars
expiring 10/27/2005 A$5,164 $3,941 $3,935 $(6)
Canadian dollars
expiring 11/3/2005 C$4,441 3,660 3,829 169
Euros
expiring 10/31 - 12/12/2005 (euro)33,104 40,775 39,918 (857)
Japanese yen
expiring 10/19/2005 - 3/15/2006 (Y)32,667,331 297,838 289,169 (8,669)
346,214 336,851 (9,363)
Sales:
Australian dollars
expiring 10/24 - 12/19/2005 A$74,290 56,179 56,559 380
Euros
expiring 10/5/2005 - 6/19/2006 (euro)319,495 391,907 385,669 (6,238)
British pounds
expiring 11/3/2005 - 5/16/2006 (pound)14,666 26,512 25,836 (676)
New Zealand dollars
expiring 10/27/2005 NZ$5,778 3,941 3,994 53
478,539 472,058 (6,481)
Forward currency contracts - net $(2,882)
</TABLE>
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $2,692,638,000 and $1,571,910,000, respectively, during the year
ended September 30, 2005.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended September 30, 2005, the custodian fee of $632,000, shown on the
accompanying financial statements, includes $25,000 that was offset by this
reduction, rather than paid in cash.
- --------
CollegeAmerica is a registered trademark of and sponsored by the
Virginia College Savings Plan.(SM)
Financial highlights (1)
<TABLE>
<S> <C> <C> <C> <C>
Income from investment operations(2)
Net
Net asset gains (losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class A:
Year ended 9/30/2005 $19.02 $.74 $.50 $1.24
Year ended 9/30/2004 18.37 .69 .74 1.43
Year ended 9/30/2003 15.60 .72 2.55 3.27
Year ended 9/30/2002 14.63 .80 .49 1.29
Year ended 9/30/2001 14.16 .79 .07 .86
Class B:
Year ended 9/30/2005 18.90 .58 .51 1.09
Year ended 9/30/2004 18.27 .55 .73 1.28
Year ended 9/30/2003 15.52 .58 2.55 3.13
Year ended 9/30/2002 14.59 .70 .47 1.17
Year ended 9/30/2001 14.12 .71 .04 .75
Class C:
Year ended 9/30/2005 18.84 .57 .50 1.07
Year ended 9/30/2004 18.22 .54 .73 1.27
Year ended 9/30/2003 15.48 .57 2.54 3.11
Year ended 9/30/2002 14.54 .69 .47 1.16
Period from 3/15/2001 to 9/30/2001 14.50 .42 (.34) .08
Class F:
Year ended 9/30/2005 18.95 .73 .50 1.23
Year ended 9/30/2004 18.31 .69 .73 1.42
Year ended 9/30/2003 15.55 .71 2.54 3.25
Year ended 9/30/2002 14.59 .80 .47 1.27
Period from 3/16/2001 to 9/30/2001 14.44 .49 (.26) .23
Class 529-A:
Year ended 9/30/2005 19.07 .73 .50 1.23
Year ended 9/30/2004 18.41 .69 .74 1.43
Year ended 9/30/2003 15.63 .72 2.56 3.28
Period from 2/15/2002 to 9/30/2002 14.48 .50 .81 1.31
Class 529-B:
Year ended 9/30/2005 18.95 .55 .51 1.06
Year ended 9/30/2004 18.32 .52 .73 1.25
Year ended 9/30/2003 15.56 .55 2.56 3.11
Period from 2/25/2002 to 9/30/2002 14.42 .41 .85 1.26
Class 529-C:
Year ended 9/30/2005 18.94 .56 .51 1.07
Year ended 9/30/2004 18.32 .52 .73 1.25
Year ended 9/30/2003 15.56 .56 2.55 3.11
Period from 2/28/2002 to 9/30/2002 14.43 .41 .85 1.26
Class 529-E:
Year ended 9/30/2005 18.99 .66 .51 1.17
Year ended 9/30/2004 18.35 .62 .73 1.35
Year ended 9/30/2003 15.59 .65 2.55 3.20
Period from 5/16/2002 to 9/30/2002 14.81 .29 .56 .85
Class 529-F:
Year ended 9/30/2005 18.98 .73 .51 1.24
Year ended 9/30/2004 18.36 .67 .72 1.39
Year ended 9/30/2003 15.60 .69 2.56 3.25
Period from 9/17/2002 to 9/30/2002 15.48 .03 .09 .12
Financial highlights (1) (continued)
Income from investment operations(2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income (loss) and unrealized) operations
Class R-1:
Year ended 9/30/2005 $18.96 $.58 $.49 $1.07
Year ended 9/30/2004 18.32 .55 .74 1.29
Year ended 9/30/2003 15.57 .58 2.54 3.12
Period from 6/28/2002 to 9/30/2002 15.32 .18 .07 .25
Class R-2:
Year ended 9/30/2005 18.94 .58 .50 1.08
Year ended 9/30/2004 18.32 .55 .74 1.29
Year ended 9/30/2003 15.57 .58 2.55 3.13
Period from 7/9/2002 to 9/30/2002 15.34 .17 .06 .23
Class R-3:
Year ended 9/30/2005 18.99 .66 .50 1.16
Year ended 9/30/2004 18.32 .63 .75 1.38
Year ended 9/30/2003 15.59 .64 2.53 3.17
Period from 7/16/2002 to 9/30/2002 15.50 .16 (.07) .09
Class R-4:
Year ended 9/30/2005 19.03 .74 .50 1.24
Year ended 9/30/2004 18.40 .69 .73 1.42
Year ended 9/30/2003 15.63 .70 2.57 3.27
Period from 8/15/2002 to 9/30/2002 15.28 .20 .15 .35
Class R-5:
Year ended 9/30/2005 19.04 .79 .50 1.29
Year ended 9/30/2004 18.38 .75 .74 1.49
Year ended 9/30/2003 15.62 .77 2.54 3.31
Period from 5/15/2002 to 9/30/2002 14.79 .34 .58 .92
Financial highlights (1)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class A:
Year ended 9/30/2005 $(.82) $(.10) $(.92) $19.34
Year ended 9/30/2004 (.78) - (.78) 19.02
Year ended 9/30/2003 (.50) - (.50) 18.37
Year ended 9/30/2002 (.32) - (.32) 15.60
Year ended 9/30/2001 (.39) - (.39) 14.63
Class B:
Year ended 9/30/2005 (.68) (.10) (.78) 19.21
Year ended 9/30/2004 (.65) - (.65) 18.90
Year ended 9/30/2003 (.38) - (.38) 18.27
Year ended 9/30/2002 (.24) - (.24) 15.52
Year ended 9/30/2001 (.28) - (.28) 14.59
Class C:
Year ended 9/30/2005 (.68) (.10) (.78) 19.13
Year ended 9/30/2004 (.65) - (.65) 18.84
Year ended 9/30/2003 (.37) - (.37) 18.22
Year ended 9/30/2002 (.22) - (.22) 15.48
Period from 3/15/2001 to 9/30/2001 (.04) - (.04) 14.54
Class F:
Year ended 9/30/2005 (.82) (.10) (.92) 19.26
Year ended 9/30/2004 (.78) - (.78) 18.95
Year ended 9/30/2003 (.49) - (.49) 18.31
Year ended 9/30/2002 (.31) - (.31) 15.55
Period from 3/16/2001 to 9/30/2001 (.08) - (.08) 14.59
Class 529-A:
Year ended 9/30/2005 (.82) (.10) (.92) 19.38
Year ended 9/30/2004 (.77) - (.77) 19.07
Year ended 9/30/2003 (.50) - (.50) 18.41
Period from 2/15/2002 to 9/30/2002 (.16) - (.16) 15.63
Class 529-B:
Year ended 9/30/2005 (.65) (.10) (.75) 19.26
Year ended 9/30/2004 (.62) - (.62) 18.95
Year ended 9/30/2003 (.35) - (.35) 18.32
Period from 2/25/2002 to 9/30/2002 (.12) - (.12) 15.56
Class 529-C:
Year ended 9/30/2005 (.66) (.10) (.76) 19.25
Year ended 9/30/2004 (.63) - (.63) 18.94
Year ended 9/30/2003 (.35) - (.35) 18.32
Period from 2/28/2002 to 9/30/2002 (.13) - (.13) 15.56
Class 529-E:
Year ended 9/30/2005 (.76) (.10) (.86) 19.30
Year ended 9/30/2004 (.71) - (.71) 18.99
Year ended 9/30/2003 (.44) - (.44) 18.35
Period from 5/16/2002 to 9/30/2002 (.07) - (.07) 15.59
Class 529-F:
Year ended 9/30/2005 (.81) (.10) (.91) 19.31
Year ended 9/30/2004 (.77) - (.77) 18.98
Year ended 9/30/2003 (.49) - (.49) 18.36
Period from 9/17/2002 to 9/30/2002 - - - 15.60
Financial highlights (1) (continued)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class R-1:
Year ended 9/30/2005 $(.69) $(.10) $(.79) $19.24
Year ended 9/30/2004 (.65) - (.65) 18.96
Year ended 9/30/2003 (.37) - (.37) 18.32
Period from 6/28/2002 to 9/30/2002 - - - 15.57
Class R-2:
Year ended 9/30/2005 (.69) (.10) (.79) 19.23
Year ended 9/30/2004 (.67) - (.67) 18.94
Year ended 9/30/2003 (.38) - (.38) 18.32
Period from 7/9/2002 to 9/30/2002 - - - 15.57
Class R-3:
Year ended 9/30/2005 (.73) (.10) (.83) 19.32
Year ended 9/30/2004 (.71) - (.71) 18.99
Year ended 9/30/2003 (.44) - (.44) 18.32
Period from 7/16/2002 to 9/30/2002 - - - 15.59
Class R-4:
Year ended 9/30/2005 (.83) (.10) (.93) 19.34
Year ended 9/30/2004 (.79) - (.79) 19.03
Year ended 9/30/2003 (.50) - (.50) 18.40
Period from 8/15/2002 to 9/30/2002 - - - 15.63
Class R-5:
Year ended 9/30/2005 (.88) (.10) (.98) 19.35
Year ended 9/30/2004 (.83) - (.83) 19.04
Year ended 9/30/2003 (.55) - (.55) 18.38
Period from 5/15/2002 to 9/30/2002 (.09) - (.09) 15.62
</TABLE>
Financial highlights (1)
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (3) (in millions) waivers waivers (4) net assets
Class A:
Year ended 9/30/2005 6.54% $1,907 .98% .93% 3.76%
Year ended 9/30/2004 7.96 1,166 1.03 1.02 3.74
Year ended 9/30/2003 21.34 827 1.09 1.04 4.22
Year ended 9/30/2002 8.97 517 1.16 1.08 5.38
Year ended 9/30/2001 6.18 399 1.13 1.12 5.46
Class B:
Year ended 9/30/2005 5.75 111 1.74 1.70 2.99
Year ended 9/30/2004 7.12 78 1.77 1.77 3.00
Year ended 9/30/2003 20.41 56 1.86 1.81 3.40
Year ended 9/30/2002 8.10 18 1.92 1.84 4.65
Year ended 9/30/2001 5.35 4 1.86 1.85 4.92
Class C:
Year ended 9/30/2005 5.66 204 1.78 1.74 2.96
Year ended 9/30/2004 7.11 110 1.82 1.82 2.95
Year ended 9/30/2003 20.33 47 1.92 1.87 3.32
Year ended 9/30/2002 8.10 11 1.98 1.90 4.60
Period from 3/15/2001 to 9/30/2001 .58 2 1.99 (5) 1.98 (5) 5.34 (5)
Class F:
Year ended 9/30/2005 6.51 388 .99 .95 3.75
Year ended 9/30/2004 7.94 186 1.05 1.04 3.73
Year ended 9/30/2003 21.27 59 1.16 1.11 4.09
Year ended 9/30/2002 8.87 15 1.24 1.16 5.34
Period from 3/16/2001 to 9/30/2001 1.60 3 1.21 (5) 1.20 (5) 6.30 (5)
Class 529-A:
Year ended 9/30/2005 6.51 39 1.02 .97 3.72
Year ended 9/30/2004 7.89 21 1.07 1.06 3.71
Year ended 9/30/2003 21.35 9 1.07 1.02 4.16
Period from 2/15/2002 to 9/30/2002 9.08 2 1.33 (5) 1.25 (5) 5.26 (5)
Class 529-B:
Year ended 9/30/2005 5.55 7 1.90 1.86 2.83
Year ended 9/30/2004 6.95 4 1.96 1.95 2.81
Year ended 9/30/2003 20.22 2 2.04 1.99 3.19
Period from 2/25/2002 to 9/30/2002 8.80 - (6) 2.08 (5) 2.00 (5) 4.51 (5)
Class 529-C:
Year ended 9/30/2005 5.60 19 1.88 1.84 2.85
Year ended 9/30/2004 6.94 11 1.94 1.93 2.84
Year ended 9/30/2003 20.24 5 2.02 1.97 3.22
Period from 2/28/2002 to 9/30/2002 8.76 1 2.07 (5) 1.99 (5) 4.53 (5)
Class 529-E:
Year ended 9/30/2005 6.13 2 1.36 1.31 3.39
Year ended 9/30/2004 7.53 1 1.41 1.40 3.36
Year ended 9/30/2003 20.84 1 1.48 1.43 3.71
Period from 5/16/2002 to 9/30/2002 5.77 - (6) .62 .54 1.92
Class 529-F:
Year ended 9/30/2005 6.52 3 .99 .95 3.75
Year ended 9/30/2004 7.72 2 1.16 1.15 3.62
Year ended 9/30/2003 21.19 - (6) 1.23 1.18 3.94
Period from 9/17/2002 to 9/30/2002 .77 - (6) .08 - (7) .20
Financial highlights (1) (continued)
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (in millions) waivers waivers (4) net assets
Class R-1:
Year ended 9/30/2005 5.60% $2 1.85% 1.73% 2.97%
Year ended 9/30/2004 7.14 1 1.95 1.82 2.94
Year ended 9/30/2003 20.33 1 2.15 1.86 3.32
Period from 6/28/2002 to 9/30/2002 1.63 - (6) .62 .47 1.17
Class R-2:
Year ended 9/30/2005 5.68 26 2.23 1.71 2.99
Year ended 9/30/2004 7.18 11 2.51 1.78 2.99
Year ended 9/30/2003 20.38 3 2.91 1.81 3.29
Period from 7/9/2002 to 9/30/2002 1.50 - (6) 1.79 .42 1.08
Class R-3:
Year ended 9/30/2005 6.07 43 1.36 1.32 3.37
Year ended 9/30/2004 7.59 8 1.42 1.40 3.38
Year ended 9/30/2003 20.81 2 1.73 1.43 3.68
Period from 7/16/2002 to 9/30/2002 .58 - (6) .64 .32 1.02
Class R-4:
Year ended 9/30/2005 6.51 11 .98 .94 3.77
Year ended 9/30/2004 7.91 4 1.11 1.05 3.72
Year ended 9/30/2003 21.34 - (6) 2.70 1.08 3.94
Period from 8/15/2002 to 9/30/2002 2.29 - (6) 35.55 - (7) 1.32
Class R-5:
Year ended 9/30/2005 6.78 63 .69 .65 4.04
Year ended 9/30/2004 8.32 32 .73 .72 4.04
Year ended 9/30/2003 21.60 25 .81 .76 4.49
Period from 5/15/2002 to 9/30/2002 6.20 13 .37 .29 2.17
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended September 30
2005 2004 2003 2002 2001
Portfolio turnover rate for all classes of shares 72% 79% 83% 48% 61%
</TABLE>
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) The ratios in this column reflect the impact, if any, of certain
reimbursements/waivers from CRMC. During some of the periods shown,
CRMC reduced fees for investment advisory services for all share classes.
In addition, during the start-up period for the retirement plan share
classes (except Class R-5), CRMC agreed to pay a portion of the fees
related to transfer agent services.
(5) Annualized.
(6) Amount less than $1 million.
(7) Amount less than .01 percent.
See Notes to Financial Statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors 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 summary investment portfolio,
as of September 30, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital World Bond Fund, Inc. as of September 30, 2005, 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 financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Costa Mesa, California
November 9, 2005
Tax information unaudited
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year. The information below is provided for the
fund's fiscal year ended September 30, 2005.
During the fiscal year ended, the fund paid a long-term capital gain
distribution of $8,186,000.
The amount of foreign taxes paid by the fund for the fiscal year was $1,032,000.
Foreign source income earned by the fund for the fiscal year was $82,642,000.
For state tax purposes, certain states may exempt from income taxation that
portion of the income dividends paid by the fund that was derived from direct
U.S. government obligations. The fund designates $10,869,000 as interest derived
on direct U.S. government obligations.
INDIVIDUAL SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION, WHICH WILL BE MAILED IN JANUARY 2006, TO DETERMINE THE CALENDAR
YEAR AMOUNTS TO BE INCLUDED ON THEIR 2005 TAX RETURNS. SHAREHOLDERS SHOULD
CONSULT THEIR TAX ADVISERS.
EXPENSE EXAMPLE unaudited
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs such as initial sales charges on purchase payments and contingent deferred
sales charges on redemptions (loads); and (2) ongoing costs, including
management fees; distribution and service (12b-1) fees; and other expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund so you can compare these costs with the ongoing costs of
investing in other mutual funds. The example is based on an investment of $1,000
invested at the beginning of the period and held for the entire period (April 1,
2005, through September 30, 2005).
ACTUAL EXPENSES:
The first line of each share class in the table below provides information about
actual account values and actual expenses. You may use the information in this
line, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the first line under the heading entitled "Expenses paid during
period" to estimate the expenses you paid on your account during this period.
There are some account fees that are charged to certain types of accounts, such
as Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10
fee is charged to set up the account and an additional $10 fee is charged to the
account annually) that would increase the amount of expenses paid on your
account. In addition, retirement plan participants may be subject to certain
fees charged by the plan sponsor, and Class F and Class 529-F shareholders may
be subject to fees charged by financial intermediaries, typically ranging from
0.75% to 1.50% of assets annually depending on services offered. You can
estimate the impact of these fees by adding the amount of the fees to the total
estimated expenses you paid on your account during the period as calculated
above. In addition, your ending account value would also be lower by the amount
of these fees.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second line of each share class in the table below provides information
about hypothetical account values and hypothetical expenses based on the actual
expense ratio for the share class and an assumed rate of return of 5.00% per
year before expenses, which is not the actual return of the share class. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the fund and other
funds. To do so, compare this 5.00% hypothetical example with the 5.00%
hypothetical examples that appear in the shareholder reports of the other funds.
There are some account fees that are charged to certain types of accounts, such
as Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10
fee is charged to set up the account and an additional $10 fee is charged to the
account annually) that would increase the amount of expenses paid on your
account. In addition, retirement plan participants may be subject to certain
fees charged by the plan sponsor, and Class F and Class 529-F shareholders may
be subject to fees charged by financial intermediaries, typically ranging from
0.75% to 1.50% of assets annually depending on services offered. You can
estimate the impact of these fees by adding the amount of the fees to the total
estimated expenses you paid on your account during the period as calculated
above. In addition, your ending account value would also be lower by the amount
of these fees.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each share class in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
<TABLE>
<S> <C> <C> <C> <C>
Beginning account Ending account Expenses paid Annualized
value 4/1/2005 value 9/30/2005 during period(1) expense ratio
Class A -- actual return $1,000.00 $1,002.02 $4.52 .90%
Class A -- assumed 5% return 1,000.00 1,020.56 4.56 .90
Class B -- actual return 1,000.00 998.65 8.37 1.67
Class B -- assumed 5% return 1,000.00 1,016.70 8.44 1.67
Class C -- actual return 1,000.00 997.99 8.61 1.72
Class C -- assumed 5% return 1,000.00 1,016.44 8.69 1.72
Class F -- actual return 1,000.00 1,002.10 4.57 .91
Class F -- assumed 5% return 1,000.00 1,020.51 4.61 .91
Class 529-A -- actual return 1,000.00 1,001.89 4.72 .94
Class 529-A -- assumed 5% return 1,000.00 1,020.36 4.76 .94
Class 529-B -- actual return 1,000.00 997.65 9.11 1.82
Class 529-B -- assumed 5% return 1,000.00 1,015.94 9.20 1.82
Class 529-C -- actual return 1,000.00 997.84 9.06 1.81
Class 529-C -- assumed 5% return 1,000.00 1,015.99 9.15 1.81
Class 529-E -- actual return 1,000.00 1,000.20 6.42 1.28
Class 529-E -- assumed 5% return 1,000.00 1,018.65 6.48 1.28
Class 529-F -- actual return 1,000.00 1,002.59 4.17 .83
Class 529-F -- assumed 5% return 1,000.00 1,020.91 4.20 .83
Class R-1 -- actual return 1,000.00 997.98 8.51 1.70
Class R-1 -- assumed 5% return 1,000.00 1,016.55 8.59 1.70
Class R-2 -- actual return 1,000.00 998.15 8.47 1.69
Class R-2 -- assumed 5% return 1,000.00 1,016.60 8.54 1.69
Class R-3 -- actual return 1,000.00 1,000.24 6.52 1.30
Class R-3 -- assumed 5% return 1,000.00 1,018.55 6.58 1.30
Class R-4 -- actual return 1,000.00 1,002.08 4.52 .90
Class R-4 -- assumed 5% return 1,000.00 1,020.56 4.56 .90
Class R-5 -- actual return 1,000.00 1,003.36 3.16 .63
Class R-5 -- assumed 5% return 1,000.00 1,021.91 3.19 .63
</TABLE>
(1) Expenses are equal to the annualized expense ratio, multiplied by the
average account value over the period, multiplied by the number of days in
the period (183), and divided by 365 (to reflect the one-half year period).
APPROVAL OF AMENDMENT AND RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT
The fund's Board members have approved the amendment and renewal of the fund's
Investment Advisory and Service Agreement (the "agreement") with Capital
Research and Management Company ("CRMC") for an additional one-year term through
October 31, 2006. The amendment and renewal of the agreement was approved by the
Board following the recommendation of the fund's Contracts Committee (the
"committee"), which is comprised of all of the fund's independent Board members.
The information, material facts and conclusions that formed the basis for the
committee's recommendation and the Board's subsequent approval are described
below.
1. INFORMATION RECEIVED
Materials reviewed -- During the course of each year, the independent Board
members receive a wide variety of materials relating to the services provided by
CRMC, including reports on the fund's investment results, portfolio composition,
portfolio trading practices, shareholder services, and other information
relating to the nature, extent and quality of services provided by CRMC to the
fund. In addition, the committee requests and reviews supplementary information
that includes extensive materials regarding the fund's investment results,
advisory fee and expense comparisons (including comparisons to advisory fees
charged by an affiliate of CRMC to institutional clients), financial and
profitability information regarding CRMC, descriptions of various functions such
as compliance monitoring and portfolio trading practices, and information about
the personnel providing investment management and administrative services to the
fund.
Review process -- The committee received assistance and advice regarding legal
and industry standards from independent counsel to the independent Board
members. The committee discussed the amendment and renewal of the agreement with
CRMC representatives and in a private session with independent legal counsel at
which no representatives of CRMC were present. In deciding to recommend the
amendment and renewal of the agreement, the committee did not identify any
single or particular piece of information that, in isolation, was the
controlling factor. This summary describes the most important, but not all, of
the factors considered by the Board and the committee.
2. NATURE, EXTENT AND QUALITY OF SERVICES
CRMC, its personnel and its resources -- The Board and the committee considered
the depth and quality of CRMC's investment management process, including its
global research capabilities; the experience, capability and integrity of its
senior management and other personnel; the low turnover rates of its key
personnel; the overall financial strength and stability of its organization; and
the ability of its organizational structure to address the recent growth in
assets under management. The Board and the committee also considered that CRMC
made available to its investment professionals a variety of resources and
systems relating to investment management, compliance, trading, results and
portfolio accounting. They considered CRMC's commitment to investing in
information technology supporting investment management and compliance. They
further considered CRMC's continuing need to attract and retain qualified
personnel and to maintain and enhance its resources and systems.
Other services -- The Board and the committee considered CRMC's policies,
procedures and systems to ensure compliance with applicable laws and regulations
and its commitment to these programs; its efforts to keep the Board members
informed; and its attention to matters that may involve conflicts of interest
with the fund. The Board and the committee also considered the nature, extent,
quality and cost of administrative, distribution and shareholder services
provided by CRMC to the fund under the agreement and other agreements, including
the information technology, legal, and fund accounting and treasury functions.
The Board and the committee concluded that the nature, extent and quality of the
services provided by CRMC have benefited and will continue to benefit the fund
and its shareholders.
3. INVESTMENT RESULTS
The Board and committee considered the investment results of the fund in light
of its objective of providing over the long term a high level of total return
consistent with prudent investment management. They compared the fund's total
returns with the total returns of the Lipper Global Income Funds Index (the
Lipper category that includes the fund), the averages of comparable funds
included in the index each year, and a Blended Index comprised of the total
returns of the Citigroup World Government Bond Index (until December 31, 2001)
and the Lehman Global Aggregate Bond Index (thereafter).
The Board and the committee noted that for the seven months ended July 31, 2005,
and the three-, five- and 10-year periods ended July 31, 2005, the fund's
investment results exceeded those of both the Lipper Index and the Blended Index
(except the Lipper Index for the one-year period) and the averages of the
comparable funds in the Lipper Index. The Board also noted that many of the
other funds in the Lipper Index were managed differently than the fund as a
result of higher emerging markets exposure, full or almost full hedging, and
substantial exposure to high yield bonds and equities. The Board and the
committee ultimately concluded that CRMC's record in managing the fund indicates
that its continued management will benefit the fund and its shareholders.
4. ADVISORY FEES AND TOTAL EXPENSES
The Board and the committee compared the advisory fees and total expenses of the
fund (each as a percentage of average net assets) with the median fee and
expense levels of all other funds in the Lipper Global Income Funds Index. The
Board and the committee observed that the fund's advisory fee had decreased over
the 10-year period ended September 30, 2004 and was at the median for all such
other funds for the year ended September 30, 2004, and that its total expenses
had decreased over the 10-year period and were below the median for all such
other funds for the one-year period. The Board and the committee also noted the
complexwide 5% voluntary advisory fee waiver that CRMC put into effect during
2004, and the additional 5% advisory fee waiver implemented effective April 1,
2005. The Board and the committee concluded that the relatively low level of the
fees charged by CRMC will benefit the fund and its shareholders.
The Board and the committee also reviewed information regarding the advisory
fees paid by institutional clients of an affiliate of CRMC with similar
investment mandates. They concluded that, although the fees paid by those
clients generally were lower than those paid by American Funds, the differences
appropriately reflected CRMC's significantly greater responsibilities with
respect to American Funds and the more comprehensive regulatory regime
applicable to mutual funds.
5. ADVISER COSTS, LEVEL OF PROFITS AND ECONOMIES OF SCALE
The Board and the committee reviewed information regarding CRMC's costs of
providing services to the American Funds, as well as the resulting level of
profits to CRMC, noting that those results were comparable to the reported
results of several large, publicly held investment management companies. The
committee also received information during the past year regarding the structure
and manner in which CRMC's investment professionals were compensated and CRMC's
view of the relationship of such compensation to the attraction and retention of
quality personnel. The Board and the committee considered CRMC's willingness to
invest in technology, infrastructure and staff to reinforce and offer new
services and to accommodate changing regulatory requirements. They further
considered that breakpoints in the fund's advisory fee structure (including an
additional breakpoint for net assets of the fund in excess of $3 billion adopted
in connection with the renewal of the agreement) provide for reductions in the
level of fees charged by CRMC to the fund as fund assets increase, reflecting
economies of scale in the cost of operations that are shared with fund
shareholders. The Board and the committee concluded that the fund's cost
structure was reasonable and that CRMC was sharing economies of scale with the
fund and its shareholders, to their benefit.
6. ANCILLARY BENEFITS
The Board and the committee considered a variety of other benefits received by
CRMC and its affiliates as a result of CRMC's relationship with the fund and the
other American Funds, including fees for administrative services provided to
certain share classes; fees paid to CRMC's affiliated transfer agent; sales
charges and distribution fees received and retained by the fund's principal
underwriter, an affiliate of CRMC; and possible ancillary benefits to CRMC's
institutional management affiliate. The Board and the committee reviewed CRMC's
portfolio trading practices, noting that, while CRMC receives the benefit of
research provided by broker-dealers executing portfolio transactions on behalf
of the fund, it does not obtain third-party research or other services in return
for allocating brokerage to such broker-dealers.
7. CONCLUSIONS
Based on their review, including their consideration of each of the factors
referred to above, the Board and the committee concluded that the agreement is
fair and reasonable to the fund and its shareholders, that the fund's
shareholders received reasonable value in return for the advisory fees and other
amounts paid to CRMC by the fund, and that the amendment and renewal of the
agreement was in the best interests of the fund and its shareholders.
OTHER SHARE CLASS RESULTS unaudited
Class B, Class C, Class F and Class 529
Figures shown are past results and are not predictive of results in future
periods. Current and future results may be lower or higher than those shown.
Share prices and returns will vary, so investors may lose money. For the most
current information and month-end results, visit americanfunds.com.
<TABLE>
<S> <C> <C> <C>
Average annual total returns for periods Life
ended September 30, 2005: 1 year 5 years of class
Class B shares -- first sold 3/15/00
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares
are sold within six years of purchase +0.75% +8.93% +7.68%
Not reflecting CDSC +5.75% +9.21% +7.80%
Class C shares -- first sold 3/15/01
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase +4.66% -- +9.02%
Not reflecting CDSC +5.66% -- +9.02%
Class F shares(1) -- first sold 3/16/01
Not reflecting annual asset-based fee charged
by sponsoring firm +6.51% -- +10.01%
Class 529-A shares(2) --first sold 2/15/02
Reflecting 3.75% maximum sales charge +2.53% -- +11.11%
Not reflecting maximum sales charge +6.51% -- +12.28%
Class 529-B shares(2) -- first sold 2/25/02
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +0.55% -- +10.82%
Not reflecting CDSC +5.55% -- +11.45%
Class 529-C shares(2) -- first sold 2/28/02
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase +4.60% -- +11.48%
Not reflecting CDSC +5.60% -- +11.48%
Class 529-E shares(1,2) -- first sold 5/16/02 +6.13% -- +11.83%
Class 529-F shares(1,2) -- first sold 9/17/02
Not reflecting annual asset-based fee charged
by sponsoring firm +6.52% -- +11.76%
</TABLE>
The fund's investment adviser waived 5% of its management fees from September 1,
2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005.
Fund results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 23 for details.
(1) These shares are sold without any initial or contingent deferred sales
charge.
(2) Results shown do not reflect the $10 initial account setup fee and an
annual $10 account maintenance fee.
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
"NON-INTERESTED" DIRECTORS
YEAR FIRST
ELECTED
A DIRECTOR
NAME AND AGE OF THE FUND(1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
Ambassador
Richard G. Capen, Jr., 71 1999 Corporate director and author; former U.S. Ambassador to Spain;
former Vice Chairman, Knight-Ridder, Inc. (communications company);
former Chairman and Publisher, The Miami Herald
H. Frederick Christie, 72 1987 Private investor; former President and CEO, The Mission Group
(non-utility holding company, subsidiary of Southern California
Edison Company)
Diane C. Creel, 57 1994 Chairman of the Board and CEO, Ecovation, Inc. (organic waste
management)
Martin Fenton, 70 1989 Chairman of the Board and CEO, Senior Resource
Chairman of the Board Group LLC (development and management of senior
(Independent and Non-Executive) living communities)
Leonard R. Fuller, 59 1994 President and CEO, Fuller Consulting (financial management consulting
firm)
R. Clark Hooper, 59 2005 President, Dumbarton Group LLC (consulting); former Executive Vice
President -- Policy and Oversight, NASD
Richard G. Newman, 71 1991 Chairman of the Board, AECOM Technology Corporation (engineering,
consulting and professional technical services)
Frank M. Sanchez, 62 1999 Principal, The Sanchez Family Corporation dba McDonald's Restaurants
(McDonald's licensee)
"NON-INTERESTED" DIRECTORS
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX(2)
OVERSEEN BY
NAME AND AGE DIRECTOR OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
Ambassador
Richard G. Capen, Jr., 71 14 Carnival Corporation
H. Frederick Christie, 72 19 Ducommun Incorporated; IHOP Corporation; Southwest Water Company
Diane C. Creel, 57 12 Allegheny Technologies; BF Goodrich; Foster Wheeler Ltd.; Teledyne
Technologies
Martin Fenton, 70 16 None
Chairman of the Board
(Independent and Non-Executive)
Leonard R. Fuller, 59 14 None
R. Clark Hooper, 59 13 None
Richard G. Newman, 71 13 Sempra Energy; Southwest Water Company
Frank M. Sanchez, 62 12 None
"INTERESTED" DIRECTORS(4)
YEAR FIRST
ELECTED A
DIRECTOR OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
NAME, AGE AND OFFICER OF POSITIONS HELD WITH AFFILIATED ENTITIES OR THE PRINCIPAL
POSITION WITH FUND THE FUND(1) UNDERWRITER OF THE FUND
Abner D. Goldstine, 75 1987 Senior Vice President and Director, Capital
Vice Chairman of the Board Research and Management Company
Paul G. Haaga, Jr., 56 1987 Executive Vice President and Director,
Vice Chairman of the Board Capital Research and Management Company; Director, The Capital Group
Companies, Inc.(5)
Don R. Conlan, 69 1996 President (retired), The Capital Group Companies, Inc.(5)
"INTERESTED" DIRECTORS(4)
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX(2)
NAME, AGE AND OVERSEEN BY
POSITION WITH FUND DIRECTOR OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
Abner D. Goldstine, 75 12 None
Vice Chairman of the Board
Paul G. Haaga, Jr., 56 16 None
Vice Chairman of the Board
Don R. Conlan, 69 5 None
</TABLE>
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series,(R) which serves as the underlying
investment vehicle for certain variable insurance contracts, and Endowments,
whose shareholders are limited to certain nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act, on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company.
OTHER OFFICERS
<TABLE>
<S> <C> <C>
YEAR FIRST
ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND AN OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR
POSITION WITH FUND OF THE FUND(1) THE PRINCIPAL UNDERWRITER OF THE FUND
Mark H. Dalzell, 51 1998 Senior Vice President, Capital Research Company(5)
President
Thomas H. Hogh, 42 2001 Vice President, Capital International Research, Inc.(5)
Vice President
Kristine M. Nishiyama, 35 2003 Vice President and Counsel -- Fund Business
Vice President Management Group, Capital Research and Management Company; Vice
President and Counsel -- Capital Bank and Trust Company(5)
Julie F. Williams, 57 1987 Vice President -- Fund Business Management
Secretary Group, Capital Research and Management Company
Sharon G. Moseley, 37 2002 Vice President -- Fund Business Management
Treasurer Group, Capital Research and Management Company
Kimberly S. Verdick, 41 1994 Assistant Vice President -- Fund Business
Assistant Secretary Management Group, Capital Research and Management Company
Susi M. Silverman, 35 2001 Vice President -- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
</TABLE>
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in Capital World Bond Fund. Class A shares are
subject to a 3.75% maximum up-front sales charge that declines for accounts (and
aggregated investments) of $100,000 or more and is eliminated for purchases of
$1 million or more. Other share classes, which are generally not available for
certain employer-sponsored retirement plans, have no up-front sales charges but
are subject to additional annual expenses and fees. Annual expenses for Class B
shares were 0.77 percentage points higher than for Class A shares; Class B
shares convert to Class A shares after eight years of ownership. If redeemed
within six years, Class B shares may also be subject to a contingent deferred
sales charge ("CDSC") of up to 5% that declines over time. Class C shares were
subject to annual expenses 0.81 percentage points higher than those for Class A
shares and a 1% CDSC if redeemed within the first year after purchase. Class C
shares convert to Class F shares after 10 years. Class F shares, which are
available only through certain fee-based programs offered by broker-dealer firms
and registered investment advisers, had higher annual expenses (by 0.02
percentage points) than did Class A shares, and an annual asset-based fee
charged by the sponsoring firm. Expenses are deducted from income earned by the
fund. As a result, dividends and investment results will differ for each share
class.
INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES
AND EXPENSES OF THE AMERICAN FUNDS AND COLLEGEAMERICA. THIS AND OTHER IMPORTANT
INFORMATION IS CONTAINED IN THE FUND'S PROSPECTUS AND THE COLLEGEAMERICA PROGRAM
DESCRIPTION, WHICH CAN BE OBTAINED FROM YOUR FINANCIAL ADVISER AND SHOULD BE
READ CAREFULLY BEFORE INVESTING. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY (AFS) AT 800/421-0180 OR VISIT THE AMERICAN FUNDS WEBSITE AT
AMERICANFUNDS.COM. IF YOU RESIDE IN A STATE OTHER THAN VIRGINIA, THERE MAY BE AN
IN-STATE PLAN THAT PROVIDES TAX AND OTHER BENEFITS NOT AVAILABLE THROUGH
COLLEGEAMERICA. TALK TO YOUR TAX ADVISER. COLLEGEAMERICA IS DISTRIBUTED BY
AMERICAN FUNDS DISTRIBUTORS AND SOLD THROUGH UNAFFILIATED INTERMEDIARIES.
"American Funds Proxy Voting Guidelines" -- which describes how we vote proxies
relating to portfolio securities -- is available free of charge on the U.S.
Securities and Exchange Commission (SEC) website at www.sec.gov, on the American
Funds website or upon request by calling AFS. The fund files its proxy voting
record with the SEC for the 12 months ended June 30 by August 31. The report
also is available on the SEC and American Funds websites.
A complete September 30, 2005, portfolio of Capital World Bond Fund's
investments is available free of charge by calling AFS or visiting the SEC
website (where it is part of Form N-CSR).
Capital World Bond Fund files a complete list of its portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. This
filing is available free of charge on the SEC website. You may also review or,
for a fee, copy this filing at the SEC's Public Reference Room in Washington,
D.C. (800/SEC-0330). Additionally, the list of portfolio holdings also is
available by calling AFS.
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, 2005, this report must be accompanied by an American Funds
statistical update for the most recently completed calendar quarter.
[logo - American Funds(R)]
CollegeAmerica is sponsored by
Virginia College Savings Plan(SM)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 30 million shareholder accounts.
OUR UNIQUE COMBINATION OF STRENGTHS INCLUDES THESE FIVE FACTORS:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. More than half of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o 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)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND 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)
o TAX-EXEMPT BOND 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)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-931-1105P
Litho in USA WG/PNL/8071-S4891
Printed on recycled paper
ITEM 2 - Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal Executive Officer and Principal Financial Officer. The Registrant undertakes to provide to any person without charge, upon request, a copy of the Code of Ethics. Such request can be made to American Funds Service Company at 800/421-0180 or to the Secretary of the Registrant, 333 South Hope Street, Los Angeles, California 90071.
ITEM 3 - Audit Committee Financial Expert
The Registrant’s Board has determined that H. Frederick Christie, a member of the Registrant’s Audit Committee, is an “audit committee financial expert” and "independent," as such terms are defined in this Item. This designation will not increase the designee’s duties, obligations or liability as compared to his or her duties, obligations and liability as a member of the Audit Committee and of the Board; nor will it reduce the responsibility of the other Audit Committee members. There may be other individuals who, through education or experience, would qualify as "audit committee financial experts" if the Board had designated them as such. Most importantly, the Board believes each member of the Audit Committee contributes significantly to the effective oversight of the Registrant’s financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
| | Registrant: |
| | | a) Audit Fees: |
| | | | 2004 | $62,000 |
| | | | 2005 | $69,000 |
| | | b) Audit-Related Fees: |
| | | | 2004 | $9,000 |
| | | | 2005 | $1,000 |
| | | | The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s investment adviser conducted in accordance with Statement on Auditing Standards Number 70 issued by the American Institute of Certified Public Accountants. |
| | | c) Tax Fees: |
| | | | 2004 | $6,000 |
| | | | 2005 | $6,000 |
| | | | The tax fees consist of professional services relating to the preparation of the Registrant’s tax returns. |
| | | c) All Other Fees: |
| | | | 2004 | none |
| | | | 2005 | none |
| | Adviser and affiliates (includes only fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant and were subject to the pre-approval policies described below): |
| | | a) Not Applicable |
| | | b) Audit-Related Fees: |
| | | | 2004 | $323,000 |
| | | | 2005 | $338,000 |
| | | | The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s transfer agency and investment adviser conducted in accordance with Statement on Auditing Standards Number 70 issued by the American Institute of Certified Public Accountants. |
| | | c) Tax Fees: |
| | | | 2004 | none |
| | | | 2005 | none |
| | | d) All Other Fees: |
| | | | 2004 | none |
| | | | 2005 | none |
The Registrant’s Audit Committee will pre-approve all audit and permissible non-audit services that the Committee considers compatible with maintaining the auditors’ independence. The pre-approval requirement will extend to all non-audit services provided to the Registrant, the investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. The Committee will not delegate its responsibility to pre-approve these services to the investment adviser. The Committee may delegate to one or more Committee members the authority to review and pre-approve audit and permissible non-audit services. Actions taken under any such delegation will be reported to the full Committee at its next meeting. The pre-approval requirement is waived with respect to non-audit services if certain conditions are met. The pre-approval requirement was not waived for any of the non-audit services listed above provided to the Registrant, adviser, and affiliates.
Aggregate non-audit fees paid to the Registrant’s auditors, including fees for all services billed to the Registrant and the adviser and affiliates that provide ongoing services to the Registrant were $885,000 for fiscal year 2004 and $1,047,000 for fiscal year 2005. The non-audit services represented by these amounts were brought to the attention of the Committee and considered to be compatible with maintaining the auditors’ independence.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 - Schedule of Investments
[logo- American Funds (r)]
Capital World Bond Fund(R)
Investment portfolio
September 30, 2005
<TABLE>
<S> <C> <C>
Principal amount Market value
Bonds & notes -- 94.11% (000) (000)
EUROS -- 30.61%
German Government 6.50% 2005 (euro) 8,750 US$10,530
German Government 4.50% 2006 4,030 4,938
German Government 6.00% 2006 2,250 2,742
German Government 6.00% 2007 2,085 2,661
German Government 5.25% 2008 9,750 12,433
German Government 4.50% 2009 180 231
German Government 5.375% 2010 12,150 16,190
German Government 5.25% 2011 63,180 85,148
German Government 5.00% 2012 22,800 30,903
German Government 4.50% 2013 47,500 62,867
German Government 4.25% 2014 1,380 1,805
German Government 6.25% 2024 28,800 47,523
German Government 5.625% 2028 3,235 5,121
German Government 6.25% 2030 17,965 30,908
German Government 5.50% 2031 10,000 15,823
France (Republic of) Treasury Note 5.00% 2006 5,205 6,303
French Government O.A.T. 4.00% 2009 50,650 63,848
French Government O.A.T. 3.329% 2009(1) 1,077 1,418
French Government O.A.T. 5.00% 2011 24,355 32,815
French Government O.A.T. 3.215% 2012(1) 3,344 4,636
French Government O.A.T. Strip Principal 0% 2019 10,750 8,018
French Government O.A.T. 5.50% 2029 250 392
French Government O.A.T. 4.75% 2035 13,845 20,104
French Government O.A.T. 4.00% 2055 1,360 1,773
General Motors Acceptance Corp. 6.00% 2008 1,960 2,320
General Motors Acceptance Corp. 5.375% 2011 11,060 11,719
General Motors Corp. 7.25% 2013 18,965 18,945
Netherlands Government 5.75% 2007 215 270
Netherlands Government 5.25% 2008 9,325 12,038
Netherlands Government 5.50% 2010 3,000 4,053
Netherlands Government 5.00% 2012 6,765 9,165
Netherlands Government 7.50% 2023 1,500 2,743
Netherlands Government 5.50% 2028 2,560 3,990
Spanish Government 4.80% 2006 6,710 8,286
Spanish Government 3.25% 2010 3,100 3,819
Spanish Government 6.15% 2013 11,500 16,695
Belgium (Kingdom of) 4.25% 2014 14,520 18,986
Allied Irish Banks, PLC 4.781% (undated)(2) 13,560 16,601
Banque Centrale de Tunisie 4.75% 2011 4,750 6,131
Banque Centrale de Tunisie 4.75% 2011 4,500 5,808
Banque Centrale de Tunisie 6.25% 2013 1,350 1,903
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
EUROS (continued)
Telekom Austria AG 3.375% 2010 (euro)8,800 US$10,737
Telekom Finanzmanagement GmbH 4.25% 2017 1,930 2,411
Gaz Capital SA 5.875% 2015 6,250 8,379
Gaz Capital SA 5.875% 2015 3,000 4,022
Commerzbank AG 6.125% 2011 8,000 11,048
Deutsche Bank AG 5.125% 2013 1,700 2,285
Deutsche Bank Capital Funding Trust IV, noncumulative trust preferred, Class B, 5.33% (undated)(2) 6,550 8,723
Metro Finance BV 4.625% 2011 8,230 10,554
BNP Paribas 5.25% 2014(2) 250 324
BNP Paribas, noncumulative preferred 5.868% (undated)(2) 6,750 9,326
Hellenic Republic 8.80% 2007 5,047 6,713
Hellenic Republic 8.60% 2008 1,994 2,743
Ireland (Republic of) 5.00% 2013 6,830 9,335
Holcim Finance (Luxembourg) SA 4.375% 2014 7,190 9,114
Resona Bank, Ltd. 3.75% 2015(2) 2,490 3,024
Resona Bank, Ltd. 4.125% (undated) 4,935 5,891
Barclays Bank PLC 4.875% (undated)(2) 3,000 3,742
Barclays Bank PLC 7.50% (undated)(2) 3,300 4,799
PLD International Finance LLC 4.375% 2011 5,650 7,120
Bayerische Vereinsbank 5.50% 2008(3) 750 961
Bayerische Hypo- und Vereinsbank AG 6.625% 2010 2,000 2,794
Bayerische Hypo- und Vereinsbank AG 6.00% 2014 2,000 2,828
HVB Funding Trust VIII 7.055% (undated)(2) 360 514
WT Finance (Aust) Pty Ltd., Westfield Europe Finance PLC, and WEA Finance LLC 3.625% 2012 5,600 6,789
Deutsche Genossenschafts-Hypothekenbank AG 5.25% 2009(3) 5,157 6,778
Edison SpA 7.375% 2007(2) 2,500 3,250
Edison SpA 5.125% 2010 2,400 3,158
Telecom Italia SpA 5.625% 2007 2,280 2,851
Sogerim SA 7.25% 2011 750 1,075
Telecom Italia SpA 6.25% 2012 1,760 2,456
Abbey National PLC, Series 5, 7.125% (undated)(2) 4,000 5,681
Cadbury Schweppes Investments PLC, Series 41, 4.25% 2009 4,150 5,213
Royal Bank of Scotland PLC 4.875% 2009 750 964
Royal Bank of Scotland PLC 6.00% 2013 960 1,366
Royal Bank of Scotland PLC 5.125% (undated) 2,000 2,676
Essent NV 4.50% 2013 3,835 4,949
Societe Generale 5.625% 2012 440 605
SG Capital Trust III 5.419% noncumulative trust preferred (undated)(2) 2,000 2,699
SG Capital Trust I 7.875% noncumulative trust preferred (undated)(2) 1,000 1,431
Tesco PLC 4.75% 2010 3,575 4,629
France Telecom 7.00% 2008(2) 2,530 3,331
France Telecom 7.00% 2009 900 1,253
DaimlerChrysler North America Holding Corp. 7.00% 2011 2,825 3,993
mmO2 6.375% 2007 3,150 3,973
Rheinische Hypothekenbank Eurobond 4.25% 2008(3) 3,000 3,780
ING Bank NV 5.50% 2012 2,000 2,726
Ing Verzekeringen NV 6.25% 2021(2) 750 1,040
Ford Motor Credit Co. 5.50% 2006 1,250 1,521
Ford Motor Credit Co. 6.75% 2008 1,800 2,228
E.ON International Finance BV 5.75% 2009 2,688 3,559
Vivendi Environnement 5.875% 2008 1,500 1,952
Veolia Environnement 4.875% 2013 1,175 1,558
Kingfisher PLC 4.50% 2010 2,600 3,281
Bulgaria (Republic of) 7.50% 2013 1,638 2,505
Bulgaria (Republic of) 7.50% 2013 250 382
MBNA Europe Funding PLC 6.50% 2007 2,000 2,542
Anglian Water Services Financing PLC 4.625% 2013 1,750 2,284
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
EUROS (continued)
Aries Vermogensverwaltungs GmbH, Series B, 7.75% 2009 (euro)1,500 US$ 2,122
Fortum Oyj 4.625% 2010 1,590 2,056
Mizuho Financial Group (Cayman) Ltd. 4.75% 2014(2) 1,500 1,903
Sumitomo Mitsui Banking Corp. 4.375% 2014(2) 1,485 1,867
Dexia Municipal Agency 3.50% 2009(3) 1,428 1,770
NGG Finance PLC 6.125% 2011 1,183 1,646
International Paper Co. 5.375% 2006 1,135 1,397
Stora Enso Oyj 5.125% 2014 1,000 1,318
Household Finance Corp. 5.125% 2009 1,000 1,300
International Endesa BV 5.375% 2013 800 1,093
Telenet Communications NV 9.00% 2013 750 1,019
Deutsche Telekom International Finance BV 7.50% 2007(2) 750 973
AEGON NV 4.625% 2008 750 945
Diageo PLC 3.875% 2009 750 931
Bank of America Corp. 3.625% 2008 750 924
JSG Holdings PLC 11.50% 2015(4) 835 893
Munich Re Finance BV 6.75% 2023(2) 550 785
Finland (Republic of) 5.75% 2011 500 690
Iesy Repository GmbH 10.125% 2015 500 643
Governor and Company of the Bank of Ireland 6.45% 2010 415 571
UniCredito Italiano SpA 5.00% 2011(2) 455 562
RWE Finance BV 6.125% 2012 250 356
Lighthouse International Co. SA 8.00% 2014 250 319
Italian Government BTPS 0.95% 2010(1) 190 236
864,786
JAPANESE YEN -- 7.35%
Japanese Government 0.10% 2005 (Y)2,128,800 18,744
Japanese Government 0.40% 2006 50,000 441
Japanese Government 0.50% 2007 300,000 2,656
Japanese Government 0.90% 2008 8,143,500 72,734
Japanese Government 1.80% 2010 2,767,500 25,566
Japanese Government 0.50% 2013 6,224,250 51,921
Japanese Government 1.50% 2014 2,412,800 21,494
Fannie Mae 2.125% 2007 570,000 5,206
Ontario (Province of) 1.875% 2010 382,000 3,544
Spain (Kingdom of) 3.10% 2006 370,000 3,353
SHL 1999-1 Corp. Ltd., Class A-2, 0.758% 2024(2,3) 43,883 387
SHL 1999-1 Corp. Ltd., Class A-3, 2.09% 2024(3) 84,391 752
KfW International Finance Inc. 1.75% 2010 100,000 923
207,721
BRITISH POUNDS -- 6.52%
United Kingdom 7.50% 2006 (pound) 1,750 3,201
United Kingdom 4.50% 2007 1,575 2,790
United Kingdom 7.25% 2007 2,875 5,390
United Kingdom 5.00% 2008 3,650 6,557
United Kingdom 5.75% 2009 250 467
United Kingdom 4.75% 2010 5,150 9,290
United Kingdom 5.00% 2012 13,500 24,821
United Kingdom 5.00% 2014 17,255 32,038
United Kingdom 4.75% 2015 10,450 19,126
United Kingdom 8.00% 2015 6,460 14,884
United Kingdom 5.837% 2016(1) 1,693 3,257
United Kingdom 6.00% 2028 2,000 4,427
United Kingdom 4.25% 2032 3,705 6,541
United Kingdom 4.25% 2036 595 1,050
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
BRITISH POUNDS (continued)
Abbey National PLC 7.50% (undated)(2) (pound)6,060 US$ 12,637
Abbey National PLC 7.50% (undated)(2) 450 885
J Sainsbury PLC 6.125% 2017 5,330 9,570
SLM Private Credit Student Loan Trust, Series 2003-10, Class A-4, 5.15% 2039(3,5) 2,400 4,360
France Telecom 7.75% 2011(2) 1,750 3,476
Halifax Building Society 8.75% 2006 500 908
Halifax Building Society 11.00% 2014 650 1,619
WT Finance (Aust) Pty Ltd., Westfield Europe Finance PLC, and WEA Finance LLC 5.50% 2017 1,385 2,487
Telecom Italia SpA 6.375% 2019 1,250 2,392
General Electric Capital Corp., Series A, 7.25% 2007 350 648
General Electric Capital Corp. 5.625% 2031 750 1,471
Cadbury Schweppes Finance PLC 4.875% 2010 1,000 1,761
Commerzbank 6.625% 2019 800 1,604
UPM-Kymmene Corp. 6.625% 2017 750 1,447
Wal-Mart Stores, Inc. 5.25% 2035 750 1,402
Tyco International Group SA 6.50% 2031 600 1,192
Lloyds TSB Bank PLC 6.625% 2015 350 700
Llyods TSB Bank PLC 5.125% (undated)(2) 145 256
British Telecommunications PLC 5.75% 2028 500 897
Kingfisher PLC 5.625% 2014 450 801
184,352
AUSTRALIAN DOLLARS -- 2.50%
Queensland Treasury Corp. 6.00% 2015 A$44,690 35,347
New South Wales Treasury Corp. 6.00% 2012 23,000 17,907
New South Wales Treasury Corp. 5.50% 2014 20,750 15,739
Australian Government 5.75% 2011 2,000 1,557
70,550
SWEDISH KRONOR -- 2.01%
Swedish Government 8.00% 2007 SKr 12,000 1,710
Swedish Government 5.00% 2009 62,590 8,707
Swedish Government 5.25% 2011 158,250 22,924
Swedish Government 6.75% 2014 88,000 14,553
AB Spintab 6.00% 2009 62,800 8,994
56,888
ISRAELI SHEKELS -- 1.94%
Israel Government 7.00% 2011 ILS 42,000 9,832
Israel Government 7.50% 2014 186,490 44,933
54,765
SOUTH KOREAN WON -- 1.76%
Korean Government 4.50% 2008 KRW36,430,750 34,818
Korean Government 4.50% 2009 5,909,000 5,636
Korean Government 4.25% 2014 10,305,000 9,284
49,738
NEW TURKISH LIRE -- 1.75%
Turkey (Republic of) Treasury Bill 0% 2006 TRY 9,000 6,158
Turkey (Republic of) Treasury Bill 0% 2006 5,515 3,564
Turkey (Republic of) 20.00% 2007 30,398 24,574
Turkey (Republic of) 15.00% 2010 19,277 15,120
49,416
POLISH ZLOTY -- 1.66%
Polish Government 5.75% 2010 PLZ45,000 14,414
Polish Government 6.00% 2010 99,500 32,362
46,776
Principal amount Market value
Bonds & notes (000) (000)
ARGENTINE PESOS -- 1.49%
Argentina (Republic of) 2.00% 2016(6) ARS11,900 US$ 7,347
Argentina (Republic of) 6.501% 2033(1,4) 63,121 24,245
Argentina (Republic of) 0.72% 2038(1) 60,179 10,425
42,017
MEXICAN PESOS -- 1.43%
United Mexican States Government, Series M10, 10.50% 2011 MXP 10,011 1,048
United Mexican States Government, Series MI10, 8.00% 2013 28,875 2,599
United Mexican States Government, Series MI10, 9.50% 2014 117,000 11,522
United Mexican States Government, Series M20, 8.00% 2023 178,587 15,387
United Mexican States Government, Series M20, 10.00% 2024 94,500 9,759
40,315
DANISH KRONER -- 1.15%
Nykredit 4.00% 2035(3) DKr201,320 32,003
Realkredit Danmark A/S, Series 23D, 5.00% 2035(3) 3,605 597
32,600
CANADIAN DOLLARS -- 0.57%
Canadian Government 7.25% 2007 C$ 1,000 916
Canadian Government 5.50% 2010 1,500 1,396
Canadian Government 5.25% 2012 12,000 11,224
Canadian Government 5.75% 2029 750 790
Manitoba Telecom Services Inc., Series 4, 5.85% 2009 1,000 913
Thompson Corp. 6.50% 2007 825 746
15,985
NEW ZEALAND DOLLARS -- 0.29%
New Zealand Government 6.50% 2013 NZ$3,000 2,159
New Zealand Government 4.50% 2016(1) 6,953 5,332
General Electric Capital Corp., Series A, 6.625% 2010 1,125 775
8,266
INDONESIA RUPIAH -- 0.09%
Indonesia (Republic of) 14.00% 2009 IDR22,000,000 2,138
Indonesia (Republic of) 10.00% 2011 4,000,000 315
2,453
COLOMBIAN PESOS -- 0.04%
Colombia (Republic of) Global 12.00% 2015 COP2,330,000 1,238
NORWEGIAN KRONER -- 0.00%
Norwegian Government 6.00% 2011 NOK500 87
U.S. DOLLARS -- 32.95%
U.S. Treasury 1.625% 2006(7) US$ 6,500 6,442
U.S. Treasury 1.875% 2006(7) 17,475 17,369
U.S. Treasury 2.50% 2006(7) 2,170 2,149
U.S. Treasury 6.875% 2006(7) 13,095 13,319
U.S. Treasury 3.125% 2007(7) 6,940 6,827
U.S. Treasury 3.25% 2007(7) 7,250 7,133
U.S. Treasury 4.75% 2008(7) 28,500 28,963
U.S. Treasury 3.625% 2008(1,7) 4,184 4,431
U.S. Treasury 3.375% 2008(7) 5,000 4,881
U.S. Treasury 6.00% 2009(7) 4,230 4,498
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
U.S. Treasury 5.75% 2010(7) US$30,550 US$32,579
U.S. Treasury 3.00% 2012(1,7) 6,329 6,887
U.S. Treasury 4.25% 2013(7) 47,500 47,329
U.S. Treasury 4.00% 2014(7) 4,250 4,153
U.S. Treasury 4.25% 2014(7) 73,000 72,544
U.S. Treasury 4.25% 2014(7) 15,950 15,833
U.S. Treasury 2.123% 2014(1,7) 7,232 7,378
U.S. Treasury 7.50% 2016(7) 6,850 8,673
U.S. Treasury 8.875% 2017(7) 1,750 2,454
U.S. Treasury 7.875% 2021(7) 315 429
U.S. Treasury 5.25% 2028(7) 336 366
U.S. Treasury 5.25% 2029(7) 43,675 47,619
U.S. Treasury 3.875% 2029(1,7) 3,399 4,646
U.S. Treasury 6.25% 2030(7) 4,685 5,819
Freddie Mac 4.125% 2010(7) 6,500 6,387
Freddie Mac 4.054% 2033(2,3,7) 2,050 2,019
Freddie Mac 6.00% 2033(3,7) 1,554 1,581
Freddie Mac 6.00% 2035(3,7) 1,368 1,392
Freddie Mac 4.619% 2035(2,3,7) 6,446 6,374
Freddie Mac 4.647% 2035(2,3,7) 9,262 9,161
Freddie Mac 5.00% 2035(3,7) 13,000 12,719
Aries Vermogensverwaltungs GmbH, Series C, 9.60% 2014(5) 4,000 5,290
Aries Vermogensverwaltungs GmbH, Series C, 9.60% 2014 19,500 25,789
Russian Federation 5.00%/7.50% 2030(8) 22,900 26,335
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012(3,7) 3,000 2,961
Fannie Mae 5.00% 2017(3,7) 2,522 2,520
Fannie Mae 5.00% 2019(3,7) 759 757
Fannie Mae, Series 2001-4, Class GA, 10.254% 2025(2,3,7) 47 52
Fannie Mae 3.761% 2033(2,3,7) 2,490 2,443
Fannie Mae 5.50% 2034(3,7) 3,882 3,884
Fannie Mae 5.50% 2034(3,7) 1,478 1,479
Fannie Mae 6.00% 2034(3,7) 1,013 1,031
Fannie Mae 5.00% 2035(3,7) 7,250 7,097
Colombia (Republic of) Global 10.00% 2012 6,550 7,925
Colombia (Republic of) Global 10.75% 2013 2,500 3,154
Columbia (Republic of) Global 8.25% 2014 4,500 5,065
Enersis SA 7.375% 2014 13,650 14,450
Dominican Republic 9.50% 2011(4,5) 278 307
Dominican Republic 9.50% 2011(4) 2,058 2,274
Dominican Republic 9.04% 2018(4,5) 4,228 4,714
Dominican Republic 9.04% 2018(4) 5,728 6,386
Scottish Power PLC 5.375% 2015 11,560 11,681
Scottish Power PLC 5.81% 2025 1,225 1,242
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(3,5) 2,280 2,207
Ras Laffan Liquefied Natural Gas II 5.298% 2020(3) 1,725 1,726
Ras Laffan Liquefied Natural Gas III 5.838% 2027(3,5) 8,000 8,042
France Telecom 7.75% 2011(2) 9,630 10,947
Kazkommerts International BV 7.00% 2009(5) 2,250 2,337
Kazkommerts International BV 8.50% 2013 1,750 1,923
Kazkommerts International BV (CGMD) 7.375% 2014(2,5) 1,250 1,300
Kazkommerts International BV 7.875% 2014(5) 3,500 3,706
Kazkommerts International BV 7.875% 2014 500 529
HBOS PLC 5.92% (undated)(5) 9,500 9,541
Singapore Telecommunications Ltd. 6.375% 2011(5) 8,400 9,044
Argentina (Republic of) 3.504% 2012(2) 11,300 8,989
TuranAlem Finance BV 8.00% 2014 2,600 2,698
TuranAlem Finance BV 8.50% 2015(5) 4,695 4,994
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
Brazil (Federal Republic of) Global 9.25% 2010 US$2,825 US$3,182
Brazil (Federal Republic of) Global 10.00% 2011 2,500 2,919
Brazil (Federal Republic of) Global 11.00% 2040 1,000 1,227
Telecom Italia Capital SA, Series B, 5.25% 2013 7,150 7,111
Deutsche Telekom International Finance BV 8.50% 2010(2) 2,500 2,837
Deutsche Telekom International Finance BV 8.75% 2030(2) 3,250 4,208
PSEG Energy Holdings Inc. 8.625% 2008(7) 845 887
PSEG Power LLC 7.75% 2011(7) 3,325 3,727
PSEG Power LLC 5.00% 2014(7) 2,300 2,241
HVB Funding Trust I 8.741% 2031(5) 5,050 6,598
BNP Paribas 5.186% noncumulative (undated)(2,5) 6,680 6,571
Open Joint Stock Co. Gazprom 9.125% 2007 3,250 3,456
Open Joint Stock Co. Gazprom, Series 2, 8.625% 2034(5) 2,000 2,635
DaimlerChrysler North America Holding Corp. 4.75% 2008 530 527
DaimlerChrysler North America Holding Corp. 8.00% 2010 3,000 3,325
DaimlerChrysler North America Holding Corp. 7.75% 2011 1,500 1,663
DaimlerChrysler North America Holding Corp. 8.50% 2031 300 364
General Motors Corp. 7.20% 2011(7) 1,020 913
General Motors Acceptance Corp. 7.25% 2011 630 586
General Motors Acceptance Corp. 6.875% 2012(7) 315 282
General Motors Acceptance Corp. 7.00% 2012(7) 1,255 1,135
General Motors Acceptance Corp. 6.07% 2014(2,7) 125 105
General Motors Acceptance Corp. 8.00% 2031(7) 1,000 875
Residential Capital Corp. 6.875% 2015(5) 1,510 1,583
Chuo Mitsui Trust and Banking Co., Ltd. 5.506% (undated)(2,5) 5,650 5,448
SBC Communications Inc. 4.125% 2009(7) 3,250 3,171
SBC Communications Inc. 5.10% 2014(7) 900 893
SBC Communications Inc. 5.625% 2016(7) 500 512
SBC Communications Inc. 6.45% 2034(7) 520 551
Skandinaviska Enskilda Banken 6.875% 2009 1,985 2,107
Skandinaviska Enskilda Banken AB 5.471% (undated)(2,5) 3,000 3,010
Development Bank of Singapore Ltd. 7.875% 2010(5) 3,750 4,212
Development Bank of Singapore Ltd. 7.125% 2011(5) 800 885
CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1, 3.47% 2033(2,3,7) 572 560
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class II-A-4, 5.90% 2036(3) 4,125 4,153
Tengizchevroil Finance Co. S.ar.l., Series A, 6.124% 2014(3,5) 4,500 4,624
Household Finance Corp. 6.40% 2008(7) 500 522
HSBC Finance Corp. 5.00% 2015 1,815 1,788
HSBC Capital Funding LP 4.61% (undated)(2,5) 2,250 2,158
State of Qatar 9.75% 2030 2,750 4,235
Massachusetts RRB Special Purpose Trust, Series 2005-1, Class A-4, 4.40% 2015(3,7) 4,000 3,916
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-CIBC10, Class A-2, 3.89% 2037(3,7) 1,000 978
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042(3,7) 2,890 2,883
Sprint Capital Corp. 6.00% 2007(7) 250 254
Nextel Communications, Inc. 6.875% 2013(7) 2,660 2,826
Nextel Communications, Inc. 7.375% 2015(7) 625 670
Resona Bank, Ltd 7.191% (undated)(2,5) 3,565 3,697
Bear Stearns ALT-A Trust, Series 2005-9, Class II-6A-1, 5.903% 2035(2,3,7) 3,500 3,535
Liberty Mutual Group Inc. 6.50% 2035(5) 3,585 3,375
Cendant Corp. 6.25% 2008(7) 1,655 1,696
Cendant Corp. 7.375% 2013(7) 1,505 1,648
International Lease Finance Corp. 4.75% 2009(7) 750 744
American International Group, Inc. 4.25% 2013(7) 1,185 1,133
International Lease Finance Corp. 5.875% 2013(7) 1,400 1,461
Peru (Republic of) 9.875% 2015 1,750 2,244
Peru (Republic of) 7.35% 2025 1,000 1,065
Polish Government 5.25% 2014 3,200 3,300
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
Federal Home Loan Bank 3.75% 2008(7) US$3,250 US$3,180
Panama (Republic of) Global 9.625% 2011 280 336
Panama (Republic of) Global 9.375% 2012 1,315 1,598
Panama (Republic of) Global 10.75% 2020 750 1,048
Panama (Republic of) Global 9.375% 2029 130 166
El Salvador (Republic of) 7.65% 2035(5) 1,925 2,016
El Salvador (Republic of) 7.65% 2035 1,040 1,089
Guatemala (Republic of) 10.25% 2011(5) 750 920
Guatemala (Republic of) 10.25% 2011 990 1,214
Guatemala (Republic of) 9.25% 2013(5) 500 601
Guatemala (Republic of) 9.25% 2013 260 312
Korea Development Bank 4.625% 2010 3,000 2,964
Wal-Mart Stores, Inc. 4.125% 2010(7) 3,000 2,931
Lebanon (Republic of) 11.625% 2016 2,385 2,811
XL Capital Ltd. 5.25% 2014(7) 1,885 1,822
Twin Reefs Asset Trust (XLFA), Series B, 4.728% (undated)(2,5) 900 898
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036(3,7) 750 804
Banc of America Commercial Mortgage Inc., Series 2004-5, Class A-1, 3.812% 2041(3,7) 1,823 1,790
Pemex Project Funding Master Trust 9.125% 2010 500 586
Pemex Project Funding Master Trust, Series A, 5.75% 2015(5) 2,000 1,982
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 9.50% 2010 250 277
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 10.75% 2011 500 562
Burns Philp Capital Pty Ltd., Series B, 9.75% 2012 1,500 1,687
Vodafone Group PLC 7.75% 2010 2,250 2,512
Ford Motor Credit Co. 6.50% 2007(7) 1,000 1,001
Ford Motor Credit Co. 7.875% 2010(7) 1,500 1,461
Westfield Capital Corp. Ltd. and WT Finance (Australia) Pty Ltd. and WEA Finance LLC 4.375% 2010(5) 1,760 1,719
Westfield Capital Corp. Ltd. and WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 2014(5) 700 696
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033(3,7) 577 591
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034(3,7) 1,200 1,234
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039(3,7) 500 483
PETRONAS Capital Ltd. 7.00% 2012(5) 2,050 2,291
Spirit Master Funding LLC, Net-Lease Mortgage Notes, Series 2005-1, Class A-1, AMBAC insured, 5.05% 2023(3,5) 2,234 2,225
Turkey (Republic of) 11.875% 2030 1,500 2,209
Norske Skogindustrier ASA 7.625% 2011(5) 1,690 1,835
Norske Skogindustrier ASA 7.125% 2033(5) 360 366
AES Corp. 9.50% 2009 750 821
AES Corp. 8.75% 2013(5) 1,250 1,375
General Electric Co. 5.00% 2013(7) 1,000 1,010
General Electric Capital Corp., Series A, 6.75% 2032(7) 1,000 1,180
Centex Corp. 4.75% 2008(7) 525 522
Centex Corp. 5.25% 2015(7) 1,735 1,665
Sierra Pacific Power Co., General and Refunding Mortgage Notes, Series H, 6.25% 2012(7) 1,375 1,406
Nevada Power Co., General and Refunding Mortgage Notes, Series G, 9.00% 2013(7) 325 363
Sierra Pacific Resources 8.625% 2014 250 277
Lazard LLC 7.125% 2015(5) 2,010 1,999
Banque Centrale de Tunisie 7.375% 2012 1,750 1,986
Telefonica Europe BV 7.75% 2010 1,750 1,975
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041(3,7) 2,000 1,973
Drivetime Auto Owner Trust, Series 2004-C, Class A-3, XLCA insured, 3.493% 2010(3,5) 2,000 1,973
Chohung Bank 4.50% 2014(2,5) 2,000 1,937
SK Telecom Co., Ltd. 4.25% 2011(5) 2,000 1,927
Edison Mission Energy 10.00% 2008(7) 1,250 1,391
Edison Mission Energy 7.73% 2009(7) 500 530
Qwest Capital Funding, Inc. 7.75% 2006 320 325
Qwest Capital Funding, Inc. 7.00% 2009(7) 900 884
Qwest Capital Funding, Inc. 7.75% 2031 180 156
Qwest Services Corp. 13.50% 2010 270 311
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
U S WEST Capital Funding, Inc. 6.375% 2008(7) US$ 170 US$ 167
U S WEST Capital Funding, Inc. 6.875% 2028(7) 50 41
J.P. Morgan Chase & Co. 5.15% 2015(7) 1,880 1,872
Electronic Data Systems Corp., Series B, 6.50% 2013(2,7) 480 492
Electronic Data Systems Corp. 7.45% 2029(7) 1,200 1,262
American Tower Corp. 7.125% 2012(7) 1,175 1,240
American Tower Corp. 7.50% 2012(7) 475 506
Hospitality Properties Trust 6.75% 2013(7) 690 740
Hospitality Properties Trust 5.125% 2015(7) 1,000 965
United Mexican States Government Global 7.50% 2033 1,440 1,674
MDC Holdings, Inc. 5.50% 2013(7) 1,690 1,665
Corporacion Nacional del Cobre de Chile 5.625% 2035(5) 1,675 1,664
Pulte Homes, Inc. 5.20% 2015(7) 1,750 1,660
Dynegy Holdings Inc. 10.125% 2013(5) 1,425 1,596
Six Flags, Inc. 9.75% 2013 975 965
Six Flags, Inc. 9.625% 2014 625 619
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033(3,7) 495 508
GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07% 2038(3,7) 1,000 1,061
Old Dominion Electric Cooperative, Series 2003-A, 5.676% 2028(3,7) 1,500 1,567
National Capital Trust II 5.486% (undated)(2,5) 1,500 1,509
Toll Brothers, Inc. 6.875% 2012(7) 250 269
Toll Brothers, Inc. 4.95% 2014(7) 1,290 1,228
Petroleum Export Ltd., Class A-1, MBIA insured, 4.623% 2010(3,5) 1,500 1,493
Long Beach Acceptance Auto Receivables Trust, Series 2004-C, Class A-3, FSA insured, 3.402% 2009(3,7) 1,500 1,488
Bank of America, NA and First Union National Bank Commercial Mortgage Trust,
Series 2001-3, Class A-1, 4.89% 2037(3,7) 1,472 1,478
TFM, SA de CV 10.25% 2007 585 629
TFM, SA de CV 12.50% 2012 715 833
SLM Corp., Series A, 5.00% 2015(7) 1,375 1,370
Allied Waste North America, Inc., Series B, 8.875% 2008(7) 250 262
Allied Waste North America, Inc., Series B, 5.75% 2011(7) 250 234
Allied Waste North America, Inc., Series B, 7.375% 2014(7) 900 851
Indonesia (Republic of) 6.75% 2014(5) 1,250 1,234
Empresa Nacional de Electricidad SA 8.35% 2013 1,000 1,140
Petrozuata Finance, Inc., Series B, 8.22% 2017(3,5) 660 634
Petrozuata Finance, Inc., Series B, 8.22% 2017(3) 525 504
Quintiles Transnational Corp. 10.00% 2013(7) 1,000 1,130
Korea First Bank 7.267% 2034(2,5) 1,000 1,102
Comcast Cable Communications, Inc. 6.75% 2011(7) 1,020 1,098
LBI Media, Inc. 10.125% 2012 1,000 1,083
William Lyon Homes, Inc. 10.75% 2013 1,000 1,083
Seneca Gaming Corp. 7.25% 2012(7) 1,050 1,082
Litigation Settlement Monetized Fee Trust I, Series 2001-1, Class A-2 10.98% 2031(3,5) 1,000 1,079
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034(3,7) 1,076 1,074
Kraft Foods Inc. 6.25% 2012(7) 1,000 1,069
Stoneridge, Inc. 11.50% 2012(7) 1,000 1,065
NiSource Finance Corp. 6.15% 2013(7) 1,000 1,061
Federal Agricultural Mortgage Corp. 4.25% 2008(7) 1,000 993
BellSouth Corp. 4.20% 2009(7) 1,000 981
CanWest Media Inc., Series B, 8.00% 2012 916 977
AMC Entertainment Inc. 9.875% 2012 1,000 968
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038(3,7) 1,000 946
Tenet Healthcare Corp. 6.375% 2011 1,000 938
Archstone-Smith Operating Trust 5.625% 2014(7) 910 935
Fairfax Financial Holdings Ltd. 7.75% 2012 960 926
General Maritime Corp. 10.00% 2013(7) 825 912
Verizon Global Funding Corp. 7.25% 2010(7) 790 874
Carmike Cinemas, Inc. 7.50% 2014 1,000 873
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
Pathmark Stores, Inc. 8.75% 2012 US$ 895 US$866
Triton PCS, Inc. 8.75% 2011 375 308
Triton PCS, Inc. 9.375% 2011 675 557
Downey Financial Corp. 6.50% 2014(7) 840 861
Ultrapetrol (Bahamas) Ltd., First Preferred Ship Mortgage Notes, 9.00% 2014 925 857
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030(3,7) 820 850
Mediacom LLC and Mediacom Capital Corp. 9.50% 2013(7) 850 848
RH Donnelley Inc. 10.875% 2012(5) 750 846
Molson Coors Capital Finance ULC 4.85% 2010(5) 850 844
Gerdau Ameristeel Corp. and GUSAP Partners 10.375% 2011 750 838
Bear Stearns Commercial Mortgage Securities Inc., Series 2004-PWR6, Class A-1, 3.688% 2041(3,7) 844 830
Clear Channel Communications, Inc. 5.75% 2013(7) 835 827
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR7, Class A-7, 3.842% 2033(2,3,7) 825 809
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011(3,5) 760 802
Technical Olympic USA, Inc. 10.375% 2012 750 793
Circus and Eldorado Joint Venture and Silver Legacy Resort Casino 10.125% 2012(7) 750 788
Rite Aid Corp. 6.125% 2008(5) 375 358
Rite Aid Corp. 6.875% 2013 500 426
Petro Stopping Centers, LP 9.00% 2012(5) 200 198
Petro Stopping Centers, LP and Petro Financial Corp. 9.00% 2012 585 579
Dex Media, Inc., Series B, 8.00% 2013(7) 750 774
Payless ShoeSource, Inc. 8.25% 2013(7) 750 771
Nomura Asset Securities Corp., Series 1998-D6, Class A-1A, 6.28% 2030(3,7) 761 770
American Cellular Corp., Series B, 10.00% 2011 500 548
Dobson Cellular Systems, Inc. 9.875% 2012 200 220
Abitibi-Consolidated Inc. 8.55% 2010 750 767
AMH Holdings, Inc. 0%/11.25% 2014(8) 1,500 758
Ispat Inland ULC 9.75% 2014(7) 649 756
SBA Communications Corp. 8.50% 2012 690 754
Health Net, Inc. 9.875% 2011(2,7) 615 725
Argosy Gaming Co. 7.00% 2014(7) 650 724
MMCA Auto Owner Trust, Series 2002-2, Class A-4, 4.30% 2010(3,7) 717 716
HealthSouth Corp. 8.375% 2011 375 359
HealthSouth Corp. 7.625% 2012 375 353
Gold Kist Inc. 10.25% 2014(7) 626 711
THL Buildco, Inc. 8.50% 2014 370 342
NTK Holdings Inc. 0%/10.75% 2014(8) 650 367
Earle M. Jorgensen Co. 9.75% 2012(7) 650 709
Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2B, 4.14% 2035(2,3,7) 700 701
Warner Chilcott Corp. 8.75% 2015(5) 720 695
Jefferson Smurfit Corp. (U.S.) 8.25% 2012(7) 525 496
Stone Container Corp. 8.375% 2012 205 196
Riddell Bell Holdings Inc. 8.375% 2012 690 683
Aztar Corp. 7.875% 2014(7) 650 683
Ecuador (Republic of) 9.00% 2030(2) 715 678
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013 590 667
Kabel Deutschland GmbH 10.625% 2014(5) 600 666
Foundation PA Coal Co. 7.25% 2014(7) 625 655
American Media Operations, Inc., Series B, 10.25% 2009 315 308
American Media Operations, Inc. 8.875% 2011 380 338
World Savings Bank, FSB, Bank Notes, Series 2008-FXR, 4.125% 2008(7) 650 641
Graphic Packaging International, Inc. 8.50% 2011 650 640
Jacuzzi Brands, Inc. 9.625% 2010(7) 600 639
Rhodia 10.25% 2010 600 638
Columbia/HCA Healthcare Corp. 7.00% 2007(7) 600 616
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031(3,7) 610 616
Cox Communications, Inc. 4.625% 2010(7) 625 612
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
Wells Fargo & Co. 3.50% 2008(7) US$625 US$610
Buffets, Inc. 11.25% 2010 600 606
Cablevision Systems Corp., Series B, 8.00% 2012(7) 620 605
WH Holdings (Cayman Islands) Ltd. and WH Capital Corp. 9.50% 2011(7) 555 601
American Commercial Lines LLC and ACL Finance Corp. 9.50% 2015 550 597
Goodman Global Holdings 7.875% 2012(5) 650 592
Dyncorp International LLC 9.50% 2013(5) 560 588
Carnival Corp. 6.15% 2008 565 584
Owens-Illinois, Inc. 7.35% 2008(7) 400 410
Owens-Brockway Glass Container Inc. 7.75% 2011(7) 160 167
Amkor Technology, Inc. 9.25% 2008 560 528
Amkor Technology, Inc. 10.50% 2009 50 43
Atlantic Broadband Finance, LLC and Atlantic Broadband Finance, Inc. 9.375% 2014 575 546
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012 500 538
Fisher Communications, Inc. 8.625% 2014 500 536
Argo-Tech Corp. 9.25% 2011(7) 500 533
Ukraine Government 11.00% 2007 491 521
SunGard Data Systems Inc. 9.125% 2013(5) 500 521
Host Marriott, LP, Series K, 7.125% 2013(7) 500 513
Georgia-Pacific Corp. 9.375% 2013(7) 455 510
ACE INA Holdings Inc. 5.875% 2014(7) 500 510
Washington Mutual, Inc. 5.625% 2007(7) 500 506
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006(7) 500 505
Playtex Products, Inc. 9.375% 2011 475 498
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 500 496
Dominion Resources, Inc., Series B, 4.125% 2008(7) 500 493
Encore Acquisition Co. 6.00% 2015(5) 500 490
Building Materials Corp. of America 7.75% 2014(7) 500 488
United Rentals (North America), Inc. 7.75% 2013(7) 500 485
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014(7) 500 476
Sumitomo Mitsui Banking Corp. 5.625% (undated)(2,5) 470 469
K&F Industries, Inc. 7.75% 2014 460 467
Celestica Inc. 7.875% 2011 225 231
Celestica Inc. 7.625% 2013 235 236
Williams Companies, Inc. 8.75% 2032(7) 390 462
Blockbuster Inc. 9.50% 2012(5) 525 436
Regal Cinemas Corp., Series B, 9.375% 2012(9) 400 423
Gaylord Entertainment Co. 8.00% 2013 400 422
Telenet Group Holding NV 0%/11.50% 2014(5,8) 490 403
Spectrum Brands, Inc. 7.375% 2015 430 389
Standard Aero Holdings, Inc. 8.25% 2014 400 389
Iron Mountain Inc. 7.75% 2015(7) 380 388
Cooper-Standard Automotive Inc. 7.00% 2012(7) 350 322
Cooper-Standard Automotive Inc. 8.375% 2014(7) 75 63
WDAC Subsidiary Corp. 8.375% 2014(5) 375 365
Equistar Chemicals, LP 10.125% 2008(7) 325 351
Bombardier Recreational Products Inc. 8.375% 2013 325 342
Jostens IH Corp. 7.625% 2012 325 330
Mohegan Tribal Gaming Authority 6.375% 2009(7) 320 322
Dollarama Group LP 8.875% 2012(5) 325 319
Rockwood Specialties Group, Inc. 7.50% 2014(5) 325 317
Tenneco Automotive Inc. 8.625% 2014 310 314
Texas Genco LLC and Texas Genco Financing Corp. 6.875% 2014(5) 300 307
Pogo Producing Co. 6.875% 2017(5) 300 306
Electricidad de Caracas Finance BV 10.25% 2014(5) 270 287
Hawaiian Telcom Communications, Inc. 9.75% 2013(5) 275 282
UCAR Finance Inc. 10.25% 2012 260 280
<PAGE>
Principal amount Market value
Bonds & notes (000) (000)
U.S. DOLLARS (continued)
Williams Scotsman, Inc. 8.50% 2015(5) US$275 US$ 280
WCI Communities, Inc. 9.125% 2012(7) 250 259
Schering-Plough Corp. 5.55% 2013(2,7) 250 258
Emmis Communications Corp. 9.745% 2012(2) 250 253
JSG Funding PLC 9.625% 2012 250 252
Neiman Marcus Group, Inc. 9.00% 2015(4,5) 250 252
ICI Wilmington, Inc. 4.375% 2008 250 246
American Medical Response, Inc. and EmCare Holdings, Inc. 10.00% 2015(5) 225 244
Neenah Paper, Inc. 7.375% 2014(7) 250 242
Ahern Rentals, Inc. 9.25% 2013(5) 225 231
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014(7) 240 231
MedCath Holdings Corp. 9.875% 2012 210 230
Reader's Digest Association, Inc. 6.50% 2011(7) 225 229
Loews Cineplex Entertainment Corp. 9.00% 2014 230 225
Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. 7.75% 2015 230 224
Intelsat, Ltd. 8.25% 2013(5) 220 222
ACIH, Inc. 0%/11.50% 2012(5,8) 300 204
Exelon Corp. 4.90% 2015(7) 210 199
Team Health, Inc. 9.00% 2012 160 170
First Union National Bank Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.739% 2032(3,7) 159 165
Delphi Corp. 6.50% 2013 240 162
Young Broadcasting Inc. 10.00% 2011 170 161
Jamaican Government 9.00% 2015 150 156
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.582% 2027(2,3,5) 149 152
Ashtead Group PLC 8.625% 2015(5) 125 132
Accuride Corp. 8.50% 2015 125 123
Visteon Corp. 7.00% 2014 130 113
Elizabeth Arden, Inc. 7.75% 2014 100 102
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 2023(3,5) 94 95
PETCO Animal Supplies, Inc. 10.75% 2011(7) 75 83
Government National Mortgage Assn. 8.50% 2021(3,7) 2 2
930,848
Total bonds & notes (cost: $2,593,012,000) 2,658,801
Rights & warrants -- 0.00% Shares
U.S. DOLLARS -- 0.00%
GT Group Telecom Inc., warrants, expire 2010 (Canada)(5,9,10) 1 --*
Total rights & warrants (cost: $52,000) --*
Preferred securities -- 1.23%
U.S. DOLLARS -- 1.07%
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares(2,5) 8,800,000 9,860
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred(2,5) 4,320,000 4,823
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred(2,5) 3,670,000 3,997
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred(2,5) 7,140,000 8,032
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred(2,5) 2,200,000 2,429
RBS Capital Trust I 4.709% noncumulative trust preferred(2) 1,000,000 966
30,107
<PAGE>
Market value
Preferred securities Shares (000)
EURO -- 0.16%
HSBC Capital Funding LP 8.03% noncumulative preferred(2) 3,000,000 US$ 4,580
Total preferred securities (cost: $34,998,000) 34,687
Common stocks -- 0.00%
U.S. DOLLARS -- 0.00%
Delta Air Lines, Inc.(10) 34,503 26
Total common stocks (cost: $204,000) 26
Principal amount
Short-term securities -- 4.71% (000)
Barton Capital LLC 3.59%-3.80% due 10/12-10/14/2005(5,7) US$22,700 22,670
National Australia Funding (DE) Inc. 3.74% due 10/4/2005(5) 22,500 22,491
Total Capital S.A. 3.775% due 10/3/2005(5) 20,000 19,994
Swedish Export Credit Corp. 3.75% due 10/5/2005 15,000 14,992
Rabobank USA Financials Corp. 3.72% due 10/13/2005(7) 14,600 14,580
American Honda Finance Corp. 3.61% due 10/24/2005(7) 14,000 13,966
BMW U.S. Capital Corp. 3.64%-3.85% due 10/3-11/14/2005(5,7) 12,800 12,782
Hershey Co. 3.60% due 11/3/2005(5,7) 6,200 6,179
Freddie Mac 3.58% due 11/1/2005(7) 5,500 5,483
Total short-term securities (cost: $133,137,000) 133,137
Total investment securities (cost: $2,761,403,000) 2,826,651
Other assets less liabilities (1,307)
Net assets US$2,825,344
</TABLE>
(1) Index-linked bond whose principal amount moves with a government retail
price index.
(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) Payment in kind; the issuer has the option of paying additional securities
in lieu of cash.
(5) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities was
$262,595,000, which represented 9.29% of the net assets of the fund.
(6) Company not making scheduled interest payments; bankruptcy proceedings
pending.
(7) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(8) Step bond; coupon rate will increase at a later date.
(9) Valued under fair value procedures adopted by authority of the Board of
Directors.
(10) Security did not produce income during the last 12 months.
*Amount less than one thousand.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF INVESTMENTS
To the Shareholders and Board of Directors of Capital World Bond Fund, Inc.
We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements of Capital World Bond Fund, Inc. (the “Fund”) as of September 30, 2005, and for the year then ended and have issued our report thereon dated November 9, 2005, which report and financial statements are included in Item 1 of this Certified Shareholder Report on Form N-CSR. Our audit also included the Fund’s investment portfolio (the “Schedule”) as of September 30, 2005 appearing in Item 6 of this Form N-CSR. This Schedule is the responsibility of the Fund’s management. Our responsibility is to express an opinion based on our audit. In our opinion, the Schedule referred to above, when considered in relation to the basic financial statements taken as a whole of the Fund referred to above, presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
November 9, 2005
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 8 - Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 9 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 10 - Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Directors since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a Nominating and Governance Committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The committee periodically reviews such issues as the Board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating and Governance Committee of the Registrant, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Nominating and Governance Committee.
ITEM 11 - Controls and Procedures
| (a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. |
| (b) | There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12 - Exhibits
(a) (1) The Code of Ethics that is the subject of the disclosure required by Item 2 is attached as an exhibit hereto.
(a) (2) The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL WORLD BOND FUND, INC.
By /s/ Mark H. Dalzell
Mark H. Dalzell, President and PEO
Date: December 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By /s/ Mark H. Dalzell
Mark H. Dalzell, President and PEO
Date: December 8, 2005
By /s/ Sharon G. Moseley
Sharon G. Moseley, Treasurer and PFO
Date: December 8, 2005
