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, 2003
Date of reporting period: September 30, 2003
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:
Robert E. Carlson, Esq.
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
[cover: computer screen and keyboard with cup of coffee, tablet of paper and
pencil, and two passports with airline tickets inside]
Special report:
A look at our investment process
Annual report for the year ended September 30, 2003
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 nation's third-largest mutual
fund family. 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.
Contents
Letter to shareholders 1
The value of a long-term perspective 3
Special report: A look at our investment process 4
About your fund 8
Inside your fund's investment portfolio 9
Financial statements 19
Directors and officers 31
What makes American Funds different? back cover
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Results for other
share classes can be found on page 30. For the most current investment results,
please refer to americanfunds.com. Please see the inside back cover for
important information about other share classes.
The fund's 30-day yield for Class A shares as of October 31, 2003, calculated in
accordance with the Securities and Exchange Commission formula, was 3.40%. The
fund's distribution rate for Class A shares as of that date was 2.99%. 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.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. Investing in non-U.S.
bonds is subject to additional risks. They include currency fluctuations,
political and social instability, differing securities regulations and
accounting standards, higher transaction costs, possible changes in taxation and
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:
The slow pace of growth in leading economies around the world set the stage for
favorable results in global bond markets. A decline in the dollar versus other
major currencies magnified returns on non-U.S. dollar bonds for shareholders.
These factors, combined with a careful selection of individual credits, helped
the fund deliver exceptional returns for the recent fiscal year.
For the 12 months ended September 30, 2003, Capital World Bond Fund produced a
total return of 21.3% -- about half of which owes to currency factors and the
rest to capital appreciation and income. Dividends paid by the fund totaled 50
cents a share, and those who reinvested them earned an income return of 3.24%.
Those who elected to receive distributions in cash earned an income return of
3.21%.
The fund's total return significantly outpaced the 12.5% return of the Lehman
Brothers Global Aggregate Bond Index, which is unmanaged and does not include
expenses. It also surpassed the 14.5% average total return of global income
funds as measured by Lipper.
SETTING THE GLOBAL STAGE
Slow economic growth often benefits bond investors because it tends to lessen
inflationary pressures and often leads to lower interest rates. Under such
conditions, the prices of existing bonds typically rise. (Bond prices move
inversely to interest rates.) This was the case in the United States and
throughout much of Europe in the early part of the fiscal year.
[Begin Sidebar]
(as of September 30, 2003, with Cumulative Average annual
all distributions reinvested) total return total return
RESULTS AT A GLANCE
1 year +21.3% --
5 years +34.5% +6.1%
10 years +88.8% +6.6%
Lifetime (since August 4, 1987) +240.0% +7.9%
[End Sidebar]
In October 2002, the start of the fiscal year, the economic recovery in the
United States was still quite fragile. The collapse of the technology bubble,
the recession of 2001 and a handful of highly publicized accounting scandals
still lingered in the minds of investors and created a sharp division in the
bond market: Government bonds were prized among investors, while corporate bonds
- -- especially lower rated debt -- were largely shunned. Over the course of the
fiscal year, that preference would change significantly as evidence of renewed
economic vigor steadily began to emerge.
Changes in the economic climate and in the bond market were helped along by the
aggressive easing of the Federal Reserve. In November 2002, the Fed lowered
short-term rates for the twelfth consecutive time in two years in an effort to
bolster the nascent economic recovery. In June 2003, it lowered rates again,
setting the key federal funds rate at 1.0%, its lowest level in decades.
Although short-term rates remain quite low, intermediate- and long-term rates
began to rise in mid-June, as did expectations for a stronger recovery. The rise
in rates erased most of the gains that U.S. government bonds had posted earlier
in the year; returns for U.S. government debt were among the lowest for
developed countries. In contrast, weaker corporate credits generally fared
better, with high-yield bonds producing some of the strongest gains of the year
as they recovered from last year's depressed prices. Overall, the U.S.
investment-grade bond market returned 5.5% for the fiscal year as measured by
the Citigroup Broad Investment-Grade (BIG) Bond Index.
EUROPE
The European bond environment was largely shaped by weakness in its major
economies: Germany and Italy both experienced mild recessions, while growth in
France slowed as the year advanced. The European Central Bank, echoing the
actions of the Federal Reserve, also lowered short-term rates in an effort to
spur the fragile economies of Europe. Weakness in Switzerland and in the United
Kingdom prompted the central banks of those countries to ease as well. European
government bonds tended to track with their U.S. government counterparts, but
produced stronger returns for the 12-month period. Many of the fund's
investments in this region were further bolstered by a decline in the value of
the dollar versus the euro, the Swedish krona and other currencies of the
region; in most cases, this decline magnified solid single-digit returns in
local currencies into double-digit gains in U.S. dollars. Please refer to the
tables on page 8 for more information on individual country returns.
[Begin Sidebar]
As reported in the press, instances of excessive short-term trading and illegal
"late trading" (trading after 4 p.m. Eastern time) have been discovered at a
number of different fund companies. In several of those cases, fund personnel
engaged in or permitted these activities in clear violation of regulatory
requirements and strict internal policies. This sort of conduct is unethical and
detrimental to long-term shareholders. We will not tolerate it at American
Funds. Although it is often difficult to detect and prevent abusive trading
practices, we are committed to taking action to combat this harmful activity
wherever we find it.
[End Sidebar]
JAPAN
In recent years, the fund has maintained a relatively small exposure to Japan
due to ongoing economic concerns and the low level of interest rates. This past
year, returns on government bonds, though only marginally negative in yen, were
the weakest among developed markets. Surprisingly strong economic growth in the
second quarter of 2003 put pressure on bond prices, with the 10-year government
yield increasing more than one percentage point this summer to 1.62%, its
highest level in nearly three years. The sell-off in Japanese bonds was offset,
however, by a significant strengthening of the yen versus the dollar. As a
result, the fund's return on yen-denominated debt was positive for the year.
CORPORATE BONDS
Corporate bonds, including U.S. and non-U.S. investments, made a strong showing,
recovering from distressed levels in 2002 and posting some of the strongest
gains in the bond market. In general, lower quality credits outpaced higher
quality debt. High-yield bonds, in particular, benefited from improving investor
sentiment, as companies focused on cleaning up their balance sheets, reducing
costs and improving core operations. Among the fund's corporate holdings,
investments in media, wireless and diversified telecommunications produced solid
gains, helping the fund reap exceptional returns.
DEVELOPING MARKETS
Bonds from developing markets, which include both investment-grade and
high-yield credits, also helped boost returns during the fiscal year. These
bonds are an important component of the fund's global mandate. Portfolio
holdings include investments in Turkey, Brazil, Russia, Bulgaria and Mexico.
THE ADVANTAGE OF A GLOBAL PERSPECTIVE
While we are certainly pleased with the fund's results for the year, we caution
shareholders that double-digit returns are the exception, not the rule, in most
fixed-income markets. In the United States, for example, interest rates have
moved higher this year as prospects for economic recovery have strengthened; a
further rise in interest rates would have a dampening effect on bond prices in
that market.
Whichever way rates go, we believe Capital World Bond Fund will continue to
benefit from the vast global reach and ongoing research of its investment staff.
Some of the most attractive investment opportunities may well emerge in other
markets of the world where borrowing conditions are poised to improve and where
currencies may continue to strengthen against the dollar. Even as the fund seeks
to benefit from the wide range of markets to which it has access, so, too, it
benefits from the diversity of skills and opinions that shape our investment
ideas. We invite you to learn more about the fund's investment process in our
special report starting on page 4.
As always, we thank you for your continued support, and we remain confident that
Capital World Bond Fund will play an important role in helping you achieve your
long-term investment goals.
Cordially,
/s/ Paul G. Haaga, Jr.
Paul G. Haaga, Jr.
Chairman of the Board
/s/ Abner D. Goldstine
Abner D. Goldstine
President
November 13, 2003
The value of a long-term perspective
HOW A $10,000 INVESTMENT HAS GROWN OVER THE FUND'S LIFETIME
[begin mountain chart]
Year Capital Consumer Lehman Brothers
Ended World Price Index Global Aggregate Original
September 30 Bond Fund(2) (inflation)(3) Bond Index (1,2) Investment
1987 (4) $9,589 $10,105 $ 9,866 $10,000
1988 $10,852 $10,527 11,281 $10,000
1989 $11,444 $10,984 12,014 $10,000
1990 $12,354 $11,661 12,949 $10,000
1991 $14,343 $12,056 14,937 $10,000
1992 $15,699 $12,417 17,259 $10,000
1993 $17,332 $12,750 18,744 $10,000
1994 $17,225 $13,128 18,716 $10,000
1995 $20,343 $13,462 21,670 $10,000
1996 $21,903 $13,866 22,913 $10,000
1997 $22,863 $14,165 24,155 $10,000
1998 $24,330 $14,376 27,263 $10,000
1999 $24,252 $14,754 26,852 $10,000
2000 $23,308 $15,264 26,269 $10,000
2001 $24,748 $15,668 28,363 $10,000
2002 $26,967 $15,905 31,015 $10,000
2003 $32,721 $16,274 34,903 $10,000
Year ended September 30
[end mountain chart]
Average annual total returns
(based on a $1,000 investment with all distributions reinvested)
CLASS A SHARES* Periods ended
Reflecting 3.75% maximum sales charge 9/30/03
One year +16.77%
Five years +5.29%
Ten years +6.16%
*Results for other share classes can be found on page 30.
(1) Lehman Brothers Global Aggregate Bond Index did not exist until December
31, 1989. For the period August 4, 1987, to December 31, 1989, the Salomon
Brothers World Government Bond Index results were used.
(2) With dividends and capital gains reinvested or interest compounded.
(3) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
(4) For the period August 4, 1987 (when the fund began operations), through
September 30, 1987.
These figures, unlike those shown earlier in this report, reflect payment of the
maximum sales charge of 3.75%, so the net amount invested was $9,625. Prior to
January 10, 2000, the maximum sales charge was 4.75%. As outlined in the
prospectus, the sales charge is reduced for larger investments. There is no
sales charge on dividends or capital gain distributions that are reinvested in
additional shares. The market indexes are unmanaged and do not reflect sales
charges, commissions or expenses.
PAST RESULTS ARE NOT PREDICTIVE OF FUTURE RESULTS. No adjustment has been made
for income or capital gain taxes. The results shown are before taxes on fund
distributions and sale of fund shares.
[photograph: tablet of paper and pencil next to cup of coffee]
A LOOK AT OUR INVESTMENT PROCESS
Some say the world is getting smaller. A global bond investor might see things
differently. Each passing year seems to bring more bonds from a greater variety
of global markets: new borrowers, old borrowers in new circumstances, more
sophisticated debt structures and sometimes even a choice of currencies if the
borrower has a multinational perspective. The proliferation of choices might
perplex some investors, but for Capital World Bond Fund, the range of choices is
an important ingredient in the investment process.
On the following pages, we'll take a look at facets of the investment process as
practiced by the fixed-income professionals of Capital World Bond Fund. We hope
that this discussion provides our shareholders with a better understanding of
the fund, a stronger appreciation for its intrinsic values and a clearer sense
of how we pursue the fund's objectives.
FUNDAMENTAL DISTINCTIONS
Many global debt funds have a single individual managing the portfolio. Capital
World Bond Fund has five portfolio counselors (four global bond specialists and
a global corporate high-yield specialist) who each manage a portion of the
fund's assets. In addition, a team of global fixed-income analysts manages a
sixth portion (see diagram at right). These investment professionals operate
from our offices in Los Angeles and London; geographical dispersion is an
important investment strength for a globally oriented fund that looks for
investment opportunities both in the United States and abroad.
Some global debt funds are designed to match a global index; in this sense they
are passively managed. Some of these funds are also fully hedged back into U.S.
dollars, reducing volatility but also the opportunity to take advantage of
currencies that might appreciate against the dollar. By design, Capital World
Bond Fund actively manages its bonds and currencies. Our exposure to bond
markets and to individual borrowers is based on fundamental analysis -- that is,
on the merits of each bond itself. We recently adopted the Lehman Brothers
Global Aggregate Bond Index as a tool to communicate to shareholders areas of
likely investment and to assess returns. However, the fund's objective is to
provide shareholders with the widest diversity of the best investments we can
find. These elements -- management diversity and research-driven selection -- go
to the core of the fund's investment process.
MANAGING COMPLEXITY
The multiple portfolio counselor system has long been a hallmark of Capital
Research and Management Company, adviser to the fund. One distinction of this
system is that each portfolio counselor invests independently, in accordance
with the fund's objectives. As a result, returns tend to be less volatile and
more consistent over time. Each portfolio counselor is able to exercise his or
her expertise and invest according to his or her strongest convictions. This
applies to the research portion of the fund's portfolio, as well, offering our
analysts a unique opportunity to contribute to the fund's results. Portfolio
counselor Jim Mulally notes, "This system encourages us to maximize our
individual abilities without having to defer to a specific style. The fund's
objective is our mandate, our directive, but that embraces a fairly wide
spectrum of choices in the global market."
[Begin Pull Quote]
"This system encourages us to maximize our individual abilities."
[End Pull Quote]
[Begin Sidebar]
WHO MANAGES YOUR FUND?
Capital World Bond Fund has five portfolio counselors, four of whom manage with
a broad global mandate and one who focuses on corporate high-yield debt. A sixth
portion of the fund is devoted to research analysts who put their best ideas to
work for you. This system brings together more than 80 years of investment
experience for the benefit of fund shareholders.
[illustration of a pie with six segments]
o GLOBAL BOND SPECIALISTS
Mark Dalzell
Thomas Hogh
James Mulally
Robert Neithart
o GLOBAL CORPORATE
high-yield specialist
Susan Tolson
o RESEARCH PORTFOLIO
Global fixed-income analysts
[End Sidebar]
The multiple portfolio counselor system consists of much more than apportioning
the pie. It is also a mechanism for sharing expertise, a colloquium for
formulating new investment ideas, and an ongoing dialogue that advances the
objectives of the fund. The portfolio counselors and analysts of Capital World
Bond Fund gather regularly to examine various aspects of the global bond market
that pertain to the fund. At one meeting, the topic may be markets in the euro
zone and the euro currency; the following week, gilts (government bonds in the
United Kingdom) may become the focus, or Japanese government bonds.
TAKING A BROAD VIEW
A vital aspect of the fund's investment process is rigorous attention to the
macroeconomic conditions of the countries in which we invest. Using all the
resources of Capital Research, we carefully monitor the economic growth
prospects, fiscal and monetary conditions, inflation patterns, balance of
payments prospects (a country's trade, current and capital accounts), underlying
credit quality, commitment to economic reforms, and the politics of each country
in which the fund invests. Only then can we begin to understand the forces that
might affect the fundamental values of the bonds held in the portfolio.
Moreover, the world has become a vastly more interconnected marketplace, and it
is increasingly important to understand how economic and market conditions in
one region of the world might affect other regions. To facilitate that
understanding, the fund's portfolio counselors have access to more than 120
investment professionals who work for Capital Research in 11 offices around the
world.
GROWING MARKETS, CHANGING MARKETS
The growth of worldwide bond markets has created new and enticing opportunities
for Capital World Bond Fund. To access these opportunities, the fund broadened
its mandate in November 1999, allowing it to invest up to 25% of its assets in
securities rated below investment grade. The catalysts for this expansion were
the increasing depth and breadth of the global corporate high-yield market and
the parallel growth of a market for developing country bonds.
Because of the risk characteristics of these bonds and the limits imposed by the
fund's mandate, global corporate high-yield and developing country debt receive
special scrutiny. Some meetings are devoted to the fund's investments in these
specialized markets. The fund's counselors collectively determine how much of
the fund's assets should be invested in high-yield bonds, and the portion
allotted to high-yield corporate debt is then managed specifically by Susan
Tolson. Please see page 7, "A Special Focus on Risk," for more details.
[photograph: two passports with airline tickets inside lying on tablet of paper]
In addition to creditworthiness, the portfolio counselors carefully consider the
fund's currency exposures. Portions of the portfolio holdings denominated in
non-U.S. currencies may be hedged when counselors deem it prudent to limit
currency risks; at other times, counselors will seek to take advantage of
changing currency relationships if they believe the changes will bolster
returns.
SHARING INFORMATION
Every discussion, every meeting helps portfolio counselors refine their
investment strategies and perceptions of risk and reward in the global markets.
Basic investment questions are repeatedly evaluated: How much risk is
appropriate for the fund under current market conditions? Which sectors of the
bond market are the most attractive? Least inviting? Where are currencies
headed? Although investment decisions are made independently, the fund's
portfolio counselors use ongoing dialogue -- and a host of additional research
forums -- to shape and hone strategies. Discussion, research and market
experience are key ingredients in this decision-making process. Mark Dalzell,
one of the fund's portfolio counselors, observes, "Shareholders benefit from the
constant exchange of information and ideas because the fund is exposed to a
range of opinions as to where values exist in global markets."
RESEARCH ADDING INSIGHT AND RESONANCE
The fixed-income analysts of Capital Research greatly expand and enrich the flow
of information that the fund's counselors share. Each analyst typically
specializes in a sector of the bond market (such as asset-backed securities) or
a particular segment of the corporate market (such as media companies or bank
and financial institutions). Some devote themselves exclusively to economic
analyses of countries and regions. Whatever the specialty, our bond analysts
often join forces with their equity counterparts to visit companies (or
countries), to share impressions and to forge opinions of borrowers they
collectively cover. These recommendations form the basis for investment
decisions made by the counselors.
INVESTING WITH EXPERIENCE
At Capital Research the roles of portfolio counselor and research analyst
frequently overlap. Some portfolio counselors are also analysts, and analysts
manage portfolio assets as well. The portfolio counselors of Capital World Bond
Fund all possess years of experience in global investing, which helps to guide
them when making investment decisions. At the same time, a portion of the fund's
assets -- currently about 13% -- is allotted to a research portfolio, where the
best investment ideas of our research analysts find expression. Portfolio
counselor Rob Neithart notes, "The research portfolio serves as a signaling
mechanism to the fund's portfolio counselors and is a wonderful incubator for
new and timely investment ideas."
Capital Research's unique culture and management system encourage a wide range
of viewpoints. That's particularly important for a global bond fund, which, by
definition, embraces a large variety of distinct markets. No single person could
monitor them all and master them as well. Successful global investing requires
open-mindedness and mutual dedication. It also requires rigorous research and an
appetite for new ideas. Capital World Bond Fund embraces that diversity not only
in the fund's holdings, but in the very process that brings bonds into the
portfolio.
[photograph: close-up of two passports, each with airline tickets inside]
[Begin Pull Quote]
"Shareholders benefit from the constant exchange of information and ideas."
[End Pull Quote]
[Begin Sidebar]
A SPECIAL FOCUS ON RISK
Managing risk is an important consideration for every portfolio counselor.
High-yield bonds require special attention because their potential for higher
returns comes with a greater degree of risk.
Each month, the fund's counselors -- Mark, Thomas, Jim, Rob and Susan -- gather
to determine the recommended allocation to high-yield bonds, which includes both
corporate and some developing market debt. The fund has set a maximum limit of
25% of net assets for all bonds rated below investment grade, but in practice,
the percentage has been much lower. This procedure allows each counselor to
voice an opinion regarding the level of appropriate risk given current market
conditions.
Once they've decided, the portion allocated to corporate high-yield debt is the
management responsibility of Susan. Her extensive experience in the high-yield
market provides a solid background for determining just how these funds are
invested.
The portion of high-yield debt allotted to developing markets is typically
shared among the global bond specialists (Mark, Rob, Thomas and Jim) or research
analysts who have expertise and strong convictions in developing markets. In
total, the fund may invest up to 20% of net assets in developing market debt,
but this includes bonds rated above and below investment grade. Recently, a
number of these countries have been upgraded to investment-grade status,
reflecting ongoing improvements in the conditions of many developing countries.
QUALITY BREAKDOWN
The chart below depicts the fund's investments by credit quality as of 9/30/03.
[begin pie chart]
AAA -- 48.3%
AA -- 10.2%
A -- 9.9%
BBB -- 8.8%
High-yield -- 16.1%
Corporate bonds -- 10.9%
Developing country bonds -- 5.2%
Cash & equivalents -- 6.4%
Equity-related securities -- 0.3%
[end pie chart]
[End Sidebar]
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 debt 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
[begin pie chart]
Percent of net assets as of September 30, 2003
Non-U.S. government/agency securities 58.2%
Non-U.S. corporate bonds 12.8
U.S. corporate bonds 11.8
Mortgage- and asset-backed securities 5.5
U.S. Treasury notes & bonds 3.9
U.S. government agency notes & bonds 1.0
Equity-related securities 0.3
Municipal securities 0.1
Cash & equivalents 6.4
[end pie chart]
Net assets and portfolio turnover
Fund net assets Portfolio
Fiscal year (millions) turnover
2003 $ 1,037 83%
2002 577 48
2001 408 61
2000 418 52
1999 554 129
Expense ratios
as of September 30, 2003
Capital World Bond Fund (Class A Shares) 1.04% +
Lipper average of global income funds
(front-end load funds only) 1.27
+ Capital Research and Management Company voluntarily reduced fees for
investment advisory services. Had such fees not been reduced, the expense
ratio would have been 1.09%.
Capital World Bond Fund net assets
As of September 30, 2003
Before After
currency currency
hedging hedging
United States 37.4% 28.6%
Europe 51.4 49.1
Japan 6.4 16.9
Dollar bloc* 4.8 5.4
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.
Where the fund's assets are invested...
....and how those markets have done over the past year
as of September 30, 2003
Government
bond market
total returns (3)
Capital World 12 months ended
Bond Fund September 30, 2003
Currency
weighting In local In U.S.
Country (after hedging) currency dollars
European Monetary Union (1) 39.5% 6.5% 25.5%
United States (2) 28.6 3.2 3.2
Japan 16.9 -0.3 8.6
Sweden 3.5 7.4 28.8
Canada 2.8 6.8 25.5
Hungary 2.3 - * - *
Denmark 2.1 6.8 25.9
Australia 1.4 5.1 30.9
New Zealand 1.2 7.5 36.1
Norway 0.7 12.4 18.1
Turkey 0.5 - * _ *
United Kingdom 0.3 2.6 8.4
Poland 0.2 - * - *
(1) Euro-denominated bonds including corporate and European government debt.
European Monetary Union consists of Austria, Belgium, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain.
(2) Includes U.S. dollar-denominated bonds of other countries, totaling 16.9%
(see pages 12-18).
(3) Source: Citigroup World Government Bond Index, based on bonds with
remaining maturities of at least one year.
* this market is not included in the Citigroup World Government Bond Index.
INVESTMENT PORTFOLIO September 30, 2003
Principal Market
amount (000) value
Bonds and notes or shares (000)
Euros - 42.75%
German Government:
7.50% 2004 Euro 45 US$ 55
6.50% 2005 6,800 8,573
6.875% 2005 2,604 3,256
4.50% 2006 2,065 2,537
6.00% 2006 500 628
6.00% 2007 600 775
5.25% 2008 21,901 27,752
3.75% 2009 13,000 15,531
5.375% 2010 12,150 15,651
5.25% 2011 23,435 30,076
5.00% 2012 5,700 7,189
6.25% 2024 5,000 7,008
6.25% 2030 10,900 15,440
French Government:
OAT 5.50% 2007 3,000 3,818
OAT 5.25% 2008 3,489 4,435
OAT 3.00% 2009 (1) 836 984
OAT 4.00% 2009 35,765 43,189
OAT Strip Principal 0% 2011 6,150 5,413
OAT 5.00% 2011 14,820 18,693
OAT Strip Principal 0% 2019 19,200 10,609
OAT 5.50% 2029 2,000 2,563
Netherlands Government:
5.25% 2008 5,750 7,320
3.75% 2009 8,295 9,857
5.50% 2010 6,000 7,791
5.00% 2012 8,235 10,372
7.50% 2023 1,500 2,382
5.50% 2028 3,310 4,249
Spanish Government:
6.00% 2008 8,840 11,539
5.40% 2011 5,750 7,440
6.15% 2013 10,088 13,768
Greece (Republic of):
8.90% 2004 1,761 2,119
8.80% 2007 5,047 7,108
8.60% 2008 3,786 5,412
7.50% 2013 2,386 3,531
Finland (Republic of) 5.75% 2011 11,735 15,485
Bayer Hypo-Vereinsbank 6.00% 2014 3,900 4,749
HVB Funding Trust VIII 7.055% (undated) 3,150 3,722
Bayerische Vereinsbank, Series 678, 5.50% 2008 1,250 1,590
Bulgaria (Republic of) 7.50% 2013 5,788 7,474
Belgium (Kingdom of) 3.75% 2009 6,250 7,436
Deutsche Telekom International Finance BV: (2)
7.50% 2007 250 329
7.125% 2011 1,750 2,335
8.125% 2012 2,845 4,086
Romania (Republic of):
10.625% 2008 3,565 5,053
8.50% 2012 735 996
National Westminster Bank PLC 6.625% (undated) (2) 4,200 5,515
Royal Bank of Scotland PLC 4.875% 2009 250 307
France Telecom:
8.25% 2008 (2) 3,030 4,047
7.00% 2009 900 1,206
NGG Finance PLC 6.125% 2011 3,440 4,398
Skandinaviska Enskilda Banken AB 5.625% 2012 (2) 3,400 4,238
HSBC Capital Funding LP 8.03% noncumulative preferred (undated) (2) 1,900 2,730
Household Finance Corp. 5.125% 2009 1,000 1,235
Veolia Environnement 4.875% 2013 3,300 3,817
Rheinische Hypothekenbank Eurobond 4.25% 2008 3,000 3,647
RWE Finance BV:
5.50% 2007 2,000 2,519
6.125% 2012 250 328
MBNA Europe Funding PLC 6.50% 2007 2,200 2,801
Commerzbank AG, Series 360, 6.125% 2011 2,200 2,772
E.ON International Finance BV 5.75% 2009 2,000 2,566
BNP Paribas:
5.25% 2012 1,800 2,221
5.25% 2014 (2) 250 310
Prudential PLC 5.75% 2021 2,010 2,460
Bank of America Corp. 3.625% 2008 1,850 2,172
mmO2 6.375% 2007 1,645 2,077
Ireland (Republic of) Eurobond 5.00% 2013 1,630 2,052
Societe Generale 5.625% 2012 1,540 1,956
PTC International Finance II SA 11.25% 2009 1,250 1,604
United Mexican States Government Eurobonds, Global 7.50% 2010 1,200 1,585
International Paper Co. 5.375% 2006 1,135 1,393
ING Bank NV 5.50% 2012 1,100 1,393
Corporacion Andina de Fomento 4.75% 2004 1,000 1,174
Antenna TV SA 9.75% 2008 1,000 1,129
HBOS PLC 6.05% (undated) (2) 880 1,123
Svenska Handelsbanken AB 5.50% 2011 (2) 900 1,111
Munich Re Finance BV 6.75% 2023 850 1,076
Telefonica Europe BV 5.125% 2013 885 1,075
Ford Motor Credit Co. 6.75% 2008 800 990
UPM-Kymmene Corp. 6.125% 2012 770 979
Philip Morris Finance (Cayman Islands) Ltd. 5.625% 2008 525 621
UniCredito Italiano SpA 5.00% 2011 (2) 455 558
Landesbank Hessen-Thueringen 5.50% 2015 440 556
Governor and Company of the Bank of Ireland 6.45% 2010 415 551
Standard Chartered Bank 5.375% 2009 400 496
AT&T Corp. 6.50% 2006 (2) (3) 250 315
443,421
Japanese yen - 6.42%
Japanese Government:
0.40% 2006 Yen 150,000 1,348
0.90% 2008 3,225,000 29,206
1.80% 2010 1,105,000 10,444
0.50% 2013 1,520,000 12,581
Fannie Mae 2.125% 2007 420,000 3,981
Spain (Kingdom of) 3.10% 2006 370,000 3,580
SHL 1999-1 Corp. Ltd.: (4)
Class A-2, 0.754% 2024 (2) 91,249 819
Class A-3, 2.09% 2024 175,478 1,601
Ontario (Province of) 1.875% 2010 225,000 2,126
KfW International Finance Inc. 1.75% 2010 100,000 942
66,628
Hungarian forints - 2.54%
Hungarian Government:
8.50% 2006 HUF 830,000 3,871
6.25% 2007 2,806,630 12,369
Class C, 6.25% 2008 550,000 2,417
6.75% 2013 1,700,000 7,682
26,339
Swedish kronor - 2.32%
Swedish Government:
6.00% 2005 SKr 5,000 670
8.00% 2007 5,000 746
5.00% 2009 39,000 5,286
5.25% 2011 94,500 12,964
Series 3105, 3.50% 2015 (1) 3,793 526
AB Spintab 6.00% 2009 28,000 3,899
24,091
Canadian dollars - 2.16%
Canadian Government:
7.25% 2007 C$ 7,985 6,699
5.50% 2010 18,200 14,540
8.00% 2023 1,200 1,208
22,447
Danish kroner - 1.82%
Nykredit: (4)
6.00% 2029 DKr 11,389 1,845
7.00% 2029 3,388 564
5.00% 2035 28,813 4,348
Realkredit Danmark A/S 5.00% 2035 (4) 36,379 5,542
Denmark (Kingdom of):
7.00% 2004 2,500 415
5.00% 2005 21,000 3,453
6.00% 2009 2,800 497
Danske Kredit: (4)
6.00% 2029 12,145 1,967
7.00% 2029 1,367 227
18,858
Australian dollars - 1.40%
Australian Government:
6.75% 2006 A$ 4,100 2,925
10.00% 2006 500 378
5.75% 2011 2,600 1,817
News America Holdings Inc. 8.625% 2014 5,050 3,590
Queensland Treasury Corp., Series 2009-G, 6.00% 2009 4,250 2,977
New South Wales Treasury Corp.:
7.00% 2004 250 172
8.00% 2008 3,500 2,629
14,488
New Zealand dollars - 1.21%
New Zealand Government:
6.50% 2013 NZ$ 3,000 1,872
4.50% 2016 (1) 9,514 6,127
Canadian Government 6.625% 2007 7,500 4,591
12,590
Norwegian kroner - 0.83%
Norwegian Government:
5.75% 2004 NOK 4,000 586
6.75% 2007 18,200 2,822
6.00% 2011 33,500 5,179
8,587
Turkish lira - 0.47%
Turkish Treasury Bill:
0% 2003 TRL 5,650,050,000 3,896
0% 2004 1,501,000,000 957
4,853
British pounds - 0.41%
United Kingdom:
7.25% 2007 Lira 500 924
6.00% 2028 350 698
ING Bank NV 7.00% 2010 700 1,298
Halifax Building Society 11.00% 2014 400 968
Monumental Global Funding Ltd., Series 2001-N, 5.75% 2007 235 400
4,288
Polish zloty - 0.24%
Polish Government:
8.50% 2006 PLZ 1,500 407
8.50% 2006 2,000 552
6.00% 2010 6,000 1,531
2,490
Mexican pesos - 0.00%
United Mexican States Government, Series M10, 10.50% 2011 MXP 11 1
U.S. dollars - 30.73%
U.S. Treasury notes & bonds:
1.875% 2004 US$ 1,000 1,008
5.875% 2004 (5) 5,500 5,791
1.125% 2005 (5) 2,535 2,526
6.875% 2006 (5) 750 848
6.125% 2007 700 798
6.25% 2007 (5) 80 91
5.625% 2008 (5) 400 451
5.75% 2010 (5) 4,300 4,926
6.50% 2010 (5) 635 754
3.50% 2011 (1) (5) 951 1,075
3.625% 2013 (5) 3,765 3,698
7.50% 2016 (5) 1,000 1,306
8.125% 2019 (5) 4,790 6,639
6.125% 2027 (5) 2,050 2,375
3.625% 2028 (1) (5) 824 990
5.25% 2029 (5) 6,500 6,742
Fannie Mae:
6.00% 2008 (5) 750 846
6.00% 2011 (5) 2,975 3,361
6.00% 2013 (4) (5) 1,710 1,792
6.00% 2015 (4) (5) 1,107 1,159
Series 2002-W7, Class A-2, 4.80% 2022 (4) (5) 1,000 1,038
Series 2001-4, Class GA, 10.178% 2025 (2) (4) 91 105
6.25% 2029 (5) 2,100 2,341
3.819% 2033 (2) (4) (5) 4,000 4,031
5.50% 2033 (4) 5,350 5,438
Russian Federation 5.00% 2030 (2) 18,000 17,123
Brazil (Federal Republic of):
10.00% 2007 500 537
10.25% 2013 1,000 982
Bearer 8.00% 2014 (6) 8,989 8,315
11.00% 2040 2,700 2,565
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed
preference shares (undated) (2) 3,800 4,369
Development Bank of Singapore Ltd.: (3)
7.875% 2010 (5) 2,250 2,700
7.125% 2011 800 925
Dominican Republic:
9.50% 2006 (3) 2,100 2,079
9.50% 2006 1,750 1,732
9.04% 2013 (3) 4,450 4,049
United Mexican States Government Eurobonds, Global:
4.625% 2008 1,025 1,048
10.375% 2009 250 321
8.375% 2011 700 835
6.375% 2013 750 793
11.375% 2016 2,000 2,886
8.30% 2031 950 1,081
7.50% 2033 500 524
Freddie Mac: (4)
6.50% 2016 622 656
6.00% 2017 1,374 1,435
6.50% 2017 470 495
4.105% 2033 (2) (5) 3,458 3,513
Ukraine Government 7.65% 2013 (3) 5,000 5,000
Fuji JGB Investment LLC, Series A, 9.87% noncumulative
preferred (undated) (2) (3) 3,125 3,371
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative
preferred (undated) (2) (3) 1,200 1,239
Colombia (Republic of):
10.00% 2012 1,050 1,147
10.75% 2013 2,500 2,812
Tyco International Group SA:
6.375% 2005 620 648
6.125% 2009 (5) 2,000 2,100
6.375% 2011 900 933
France Telecom: (2)
8.45% 2006 500 566
9.00% 2011 2,230 2,729
Bulgaria (Republic of) 8.25% 2015 2,793 3,196
General Motors Acceptance Corp.: (5)
6.875% 2011 765 795
7.25% 2011 2,250 2,386
HCA Inc.:
6.95% 2012 1,000 1,063
6.25% 2013 500 508
6.75% 2013 370 389
Columbia/HCA Healthcare Corp.: (5)
7.00% 2007 600 654
8.85% 2007 485 549
Guatemala (Republic of): (3)
10.25% 2011 1,750 2,012
9.25% 2013 975 1,041
Kazkommerts International BV:
10.125% 2007 1,000 1,093
8.50% 2013 (3) 2,000 1,955
State of Qatar 9.75% 2030 2,115 2,950
Peru (Republic of) 9.875% 2015 2,500 2,906
PCCW-HKT Capital Ltd.:
7.75% 2011 1,600 1,834
7.75% 2011 (3) 875 1,003
Dobson Communications Corp.:
12.25% senior exchangeable preferred 2008 (6) 638 shares 678
13.00% senior exchangeable preferred 2009 (6) 691 719
8.875% 2013 (3) US$ 670 681
American Cellular Corp. 10.00% 2011 (3) (5) 500 540
American Tower Corp. 9.375% 2009 (5) 2,550 2,614
Crown Castle International Corp.:
12.75% senior exchangeable preferred 2010 (6) (7) 220 shares 238
9.00% 2011 US$ 850 882
9.375% 2011 500 536
0%/10.375% 2011 (8) 675 682
0%/11.25% 2011 (8) 150 150
PETRONAS Capital Ltd. 7.00% 2012 (3) 2,050 2,350
Qwest Services Corp.: (3) (5)
13.00% 2007 1,100 1,237
13.50% 2010 500 585
Qwest Capital Funding, Inc. 7.75% 2006 500 492
DaimlerChrysler North America Holding Corp.:
4.75% 2008 530 543
7.75% 2011 1,500 1,717
Telefonica Europe BV 7.75% 2010 1,750 2,107
Burns Philp Capital Pty Ltd.: (3)
9.50% 2010 250 262
10.75% 2011 250 262
9.75% 2012 (5) 1,500 1,507
Mobile Telesystems Finance 5.141% 2004 (2) (3) 2,000 1,997
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 (5) 1,770 1,987
Banque Centrale de Tunisie 7.375% 2012 1,750 1,982
Six Flags, Inc.: (5)
9.50% 2009 500 479
9.75% 2013 (3) 800 756
Premier Parks Inc. 9.75% 2007 750 741
Nomura Asset Securities Corp., Series 1998-D6, Class A-1A,
6.28% 2030 (4) (5) 1,822 1,964
Young Broadcasting Inc.: (5)
Series B, 9.00% 2006 170 172
Series B, 8.75% 2007 1,530 1,561
10.00% 2011 170 181
Allied Waste North America, Inc.: (5)
Series B, 8.875% 2008 250 272
10.00% 2009 1,500 1,633
WaMu Mortgage Pass-Through Certficates Trust, Series 2003-AR7,
Class A-7, 3.842% 2033 (2) (4) (5) 1,876 1,854
AES Corp.: (3)
10.00% 2005 500 517
8.75% 2013 (5) 1,250 1,319
Nextel Partners, Inc.:
12.50% 2009 250 286
11.00% 2010 250 274
8.125% 2011 (3) (5) 1,275 1,249
Graphic Packaging International, Inc. 8.50% 2011 (3) 1,650 1,794
Illinois Power Special Purpose Trust, Series 1998-1, Class A-6,
5.54% 2009 (4) (5) 1,575 1,714
Deutsche Telekom International Finance BV 9.25% 2032 (2) 1,250 1,713
Solectron Corp. 9.625% 2009 (5) 1,500 1,661
Terex Corp.:
9.25% 2011 1,100 1,210
Class B, 10.375% 2011 400 450
MDC Holdings, Inc. 5.50% 2013 (5) 1,650 1,653
Open Joint Stock Co. Gazprom:
9.125% 2007 750 809
9.625% 2013 (3) 750 806
Earle M. Jorgensen Co. 9.75% 2012 (5) 1,500 1,605
CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1,
3.569% 2033 (2) (4) (5) 1,613 1,592
TFM, SA de CV:
10.25% 2007 585 605
11.75% 2009 170 175
12.50% 2012 715 790
Old Dominion Electric Cooperative, Series 2003-A, 5.676% 2028 (4) (5) 1,500 1,525
Venezuela (Republic of):
10.75% 2013 (3) 700 647
9.25% 2027 1,120 871
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 (5) 1,500 1,515
Vodafone Group PLC 7.75% 2010 1,250 1,511
Dynegy Holdings Inc. 10.125% 2013 (3) 1,425 1,510
Sprint Capital Corp.:
6.00% 2007 250 269
7.625% 2011 580 655
6.90% 2019 265 272
6.875% 2028 300 294
Oregon Steel Mills, Inc. 10.00% 2009 (5) 1,750 1,444
GMAC Commercial Mortgage Securities, Inc., Series 1999-C1,
Class A-1, 5.83% 2033 (4) (5) 1,323 1,412
Royal Bank of Scotland Group PLC 5.00% 2014 810 826
RBS Capital Trust I noncumulative trust preferred 4.709% (undated) 600 582
Tenneco Automotive Inc. 10.25% 2013 (3) 1,250 1,363
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3,
6.238% 2034 (4) (5) 1,200 1,336
Cendant Corp. 7.375% 2013 (5) 1,150 1,329
Univision Communications Inc. 7.85% 2011 (5) 1,100 1,307
International Lease Finance Corp. 5.875% 2013 (5) 1,200 1,270
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2,
6.56% 2030 (4) (5) 1,100 1,240
Concentra Operating Corp., Series A, 13.00% 2009 (5) 1,095 1,221
Cinemark USA, Inc. 9.00% 2013 1,120 1,201
Ahold Finance U.S.A., Inc.:
6.25% 2009 150 149
8.25% 2010 950 1,026
Owens-Illinois, Inc.:
7.35% 2008 400 390
7.50% 2010 600 582
Owens-Brockway Glass Container Inc.:
8.875% 2009 25 27
7.75% 2011 160 166
Wells Fargo & Co. 3.50% 2008 (5) 1,135 1,153
Stoneridge, Inc. 11.50% 2012 (5) 1,000 1,148
Skandinaviska Enskilda Banken 6.875% 2009 (5) 1,000 1,142
Lyondell Chemical Co.:
Series A, 9.625% 2007 375 358
Series B, 9.875% 2007 125 120
9.50% 2008 150 140
11.125% 2012 500 493
10.50% 2013 25 24
General Electric Capital Corp., Series A, 6.75% 2032 (5) 1,000 1,132
Potlatch Corp. 10.00% 2011 (5) 1,000 1,115
Gray Communications Systems, Inc. 9.25% 2011 (5) 1,000 1,108
AMC Entertainment Inc. 9.875% 2012 (5) 1,000 1,095
Radio One, Inc., Series B, 8.875% 2011 (5) 1,000 1,093
J.C. Penney Co., Inc.:
7.60% 2007 600 651
8.25% 2022 (4) 425 440
Ford Motor Credit Co. 7.875% 2010 (5) 1,000 1,086
United Rentals (North America), Inc.:
10.75% 2008 (3) 500 556
Series B, 9.00% 2009 500 520
Washington Mutual, Inc. 5.625% 2007 (5) 500 544
Washington Mutual Bank, FA 5.50% 2013 (5) 490 513
Carmike Cinemas, Inc., Series B, 10.375% 2009 (5) 1,000 1,055
MeriStar Hospitality Operating Partnership, MeriStar Hospitality
Finance Corp. III 9.125% 2011 (5) 1,000 1,055
UFJ Finance Aruba AEC 6.75% 2013 1,000 1,050
Triton PCS, Inc.:
8.75% 2011 375 376
9.375% 2011 500 511
8.50% 2013 125 135
Eldorado Resorts LLC 10.50% 2006 (5) 1,000 1,015
Litigation Settlement Monetized Fee Trust I, Series 2001-1A, Class A-2,
10.98% 2031 (3) (4) (5) 1,000 1,003
Quebecor Media Inc. 11.125% 2011 875 1,002
Pemex Project Funding Master Trust:
7.875% 2009 350 399
9.125% 2010 500 601
Xerox Corp. 7.125% 2010 1,000 998
American Express Credit Corp. 3.00% 2008 (5) 1,000 990
Perkins Family Restaurants, LP, Perkins Finance Corp., Series B,
10.125% 2007 1,000 980
Motorola, Inc. 8.00% 2011 (5) 840 974
Cox Communications, Inc. 4.625% 2013 (5) 1,000 973
Micron Technology, Inc. 6.50% 2005 (3) 1,000 970
ON Semiconductor Corp. 13.00% 2008 (2) 825 945
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011 (3) (4) 846 935
Petrozuata Finance, Inc., Series B: (4)
8.22% 2017 (3) 560 482
8.22% 2017 525 452
General Maritime Corp. 10.00% 2013 825 926
Panama (Republic of) 10.75% 2020 750 898
Badger Tobacco Asset Securitization Corp., Tobacco Settlement
Asset-backed Bonds, 6.125% 2027 (5) 1,000 898
Western Wireless Corp. 9.25% 2013 (3) (5) 875 897
SLM Corp., Series A, 5.00% 2015 (5) 875 891
RH Donnelley Inc. 10.875% 2012 (3) 750 889
Barclays Bank PLC 6.86% callable perpetual core tier one notes
(undated) (2) (3) 800 888
Amkor Technology, Inc. 9.25% 2008 (5) 750 814
Technical Olympic USA, Inc. 10.375% 2012 750 810
Stone Container Corp. 9.75% 2011 500 548
Jefferson Smurfit Corp. (U.S.) 7.50% 2013 250 255
AT&T Wireless Services, Inc.: (5)
8.125% 2012 345 410
8.75% 2031 310 385
Regal Cinemas Corp., Series B, 9.375% 2012 700 791
Buffets, Inc. 11.25% 2010 (5) 750 784
Pathmark Stores, Inc.:
8.75% 2012 500 515
8.75% 2012 (3) 250 258
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 (5) 710 768
Packaging Corp. of America 5.75% 2013 755 768
Circus and Eldorado Joint Venture and Silver Legacy Resort Casino
10.125% 2012 750 750
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6,
5.96% 2031 (4) 700 748
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1,
6.079% 2033 (4) 682 744
Hollinger Participation Trust 12.125% 2010 (2) (3) (6) 657 743
Government National Mortgage Assn.: (4)
6.00% 2013 652 688
8.50% 2021 20 22
6.50% 2029 25 27
Liberty Media Corp.:
7.875% 2009 500 579
8.25% 2030 125 145
Hospitality Properties Trust 6.75% 2013 690 721
Saks Inc.:
9.875% 2011 500 593
7.375% 2019 100 101
Target Corp. 3.375% 2008 630 638
Nextel Communications, Inc. 7.375% 2015 625 634
WCI Communities, Inc.:
10.625% 2011 (5) 325 358
9.125% 2012 250 269
Centennial Communications Corp. and Centennial Cellular
Operating Co. LLC 10.125% 2013 (3) (5) 590 611
Sanmina-SCI Corp. 10.375% 2010 (5) 500 589
Western Oil Sands Inc. 8.375% 2012 500 569
Nabisco, Inc. 7.05% 2007 500 567
NextMedia Operating, Inc. 10.75% 2011 500 563
BNP Paribas 5.125% 2015 (3) 550 562
Household Finance Corp. 6.40% 2008 (5) 500 562
Dana Corp. 10.125% 2010 500 561
Office Depot, Inc. 6.25% 2013 (3) 525 560
RailAmerica Transportation Corp. 12.875% 2010 500 554
Bayer Hypo-Vereinsbank 8.741% 2031 (3) 500 553
Del Monte Corp. 8.625% 2012 (3) 500 549
Centex Corp. 4.75% 2008 (5) 525 546
William Lyon Homes, Inc. 10.75% 2013 (5) 500 545
AK Steel Corp. 7.875% 2009 (5) 750 540
Steel Dynamics, Inc. 9.50% 2009 500 538
First Union National Bank Commercial Mortgage Trust, Series 2000-C1,
Class A-1, 7.739% 2032 (4) 468 528
Entravision Communications Corp. 8.125% 2009 500 526
Texas Gas Transmission, LLC 4.60% 2015 (3) 540 523
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (3) (4) 483 519
Quintiles Transnational 10.00% 2013 (3) 500 519
Royal Caribbean Cruises Ltd. 7.00% 2007 500 516
Dominion Resources, Inc., Series B, 4.125% 2008 500 515
Clark Refining & Marketing, Inc. 8.875% 2007 (5) 500 513
Gerdau Ameristeel Corp. 10.375% 2011 (3) 500 505
Cincinnati Bell Inc. 7.25% 2013 (3) (5) 500 498
Argentina (Republic of):
11.75% 2009 (9) 210 60
1.162% 2012 (2) 600 369
11.375% 2017 (9) 15 4
12.25% 2018 (6) (9) 223 60
TeleWest PLC 11.00% 2007 (10) 1,000 493
Toys "R" Us, Inc.:
7.875% 2013 250 274
7.375% 2018 205 211
MetLife, Inc. 3.911% 2005 440 456
HMH Properties, Inc., Series A, 7.875% 2005 429 442
Salton, Inc. 12.25% 2008 425 418
Humana Inc. 6.30% 2018 375 399
NTELOS, Inc. 9.00% convertible bonds 2013 (3) (11) 395 398
Structured Asset Securities Corp., Series 1998-RF2, Class A,
8.537% 2027 (2) (3) (4) 297 335
Constellation Brands, Inc. 8.125% 2012 300 326
Clear Channel Communications, Inc. 7.65% 2010 (5) 250 297
Commonwealth Edison Co., Series 99, 3.70% 2008 (5) 290 295
Telstra Corp. Ltd. 6.375% 2012 250 283
Toll Brothers, Inc. 6.875% 2012 250 280
Delhaize America, Inc. 8.125% 2011 250 276
Verizon Global Funding Corp. 7.375% 2012 (5) 220 260
International Game Technology 8.375% 2009 200 243
Waste Management, Inc. 7.375% 2010 (5) 200 234
Georgia-Pacific Corp. 8.25% 2023 250 233
TRW Automotive Acquisition Corp.: (3)
9.375% 2013 110 124
11.00% 2013 75 88
Homer City Funding LLC 8.734% 2026 (4) 200 206
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 2022 (4) 163 160
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G,
MBIA insured, 5.70% 2023 (3) (4) 125 133
Levi Strauss & Co. 11.625% 2008 125 103
Great Atlantic & Pacific Tea Co., Inc. 9.125% 2011 100 95
Kaiser Aluminum & Chemical Corp. 12.75% 2003 (12) 375 30
Cricket Communications, Inc. 6.188% 2007 (2) (10) 55 26
318,721
TOTAL BONDS AND NOTES (cost: $882,671,000) 967,802
Market
Value
EQUITY-RELATED SECURITIES Shares (000)
STOCKS AND WARRANTS - 0.25%
SpectraSite, Inc. (3) (7) (11) 98,808 2,582
GT Group Telecom Inc., warrants, expire 2010 (3) (7) (11) 1,000 0
2,582
MISCELLANEOUS - 0.07%
Other equity-related securities in initial period of acquisition 675
TOTAL EQUITY-RELATED SECURITIES (cost: $3,957,000) 3,257
Principal
amount
SHORT-TERM SECURITIES (000)
CORPORATE SHORT-TERM NOTES - 4.92%
Total Capital 1.11% due 10/1/2003 (3) US$ 6,100 6,100
Total Capital 1.03% due 10/16/2003 (3) 5,000 4,998
UBS Finance Delaware LLC 1.11% due 10/1/2003 10,000 9,999
CBA (Delaware) Finance Inc. 1.04% due 10/7/2003 5,500 5,499
CBA (Delaware) Finance Inc. 1.04% due 10/9/2003 4,500 4,499
Dexia Delaware LLC 1.03% due 10/14/2003 5,000 4,998
Dexia Delaware LLC 1.04% due 10/21/2003 5,000 4,997
BMW U.S. Capital Corp. 1.03% due 10/22/2003 10,000 9,993
TOTAL SHORT-TERM SECURITIES (cost: $51,083,000) 51,083
TOTAL INVESTMENT SECURITIES (cost: $937,711,000) 1,022,142
OTHER ASSETS LESS LIABILITIES 15,179
Net assets US$1,037,321
(1) Index-linked bond whose principal amount moves with a government retail
price index.
(2) Coupon rate may change periodically.
(3) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration.
(4) 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.
(5) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(6) Payment in kind; the issuer has the option of paying additional securities
in lieu of cash.
(7) Security did not produce income during the last 12 months.
(8) Step bond; coupon rate will increase at a later date.
(9) Scheduled interest payments not made; reorganization pending.
(10) Company not making scheduled interest payments; bankruptcy proceedings
pending.
(11) Valued under fair value procedures adopted by authority of the Board of
Directors.
(12) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of assets and liabilities (dollars and shares in thousands,
at September 30, 2003 except per-share amounts)
ASSETS:
Investment securities at market (cost: $937,711) $1,022,142
Cash 2,916
Receivables for:
Sales of investments $23,451
Sales of fund's shares 8,683
Open forward currency contracts 5,767
Closed forward currency contracts 1,180
Dividends and interest 20,782 59,863
1,084,921
LIABILITIES:
Payables for:
Purchases of investments 41,820
Repurchases of fund's shares 1,194
Open forward currency contracts 2,416
Closed forward currency contracts 1,318
Investment advisory services 461
Services provided by affiliates 327
Deferred Directors' compensation 41
Other fees and expenses 23 47,600
NET ASSETS AT SEPTEMBER 30, 2003 $1,037,321
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $941,355
Undistributed net investment income 13,341
Accumulated net realized loss (5,760)
Net unrealized appreciation 88,385
NET ASSETS AT SEPTEMBER 30, 2003 $1,037,321
TOTAL AUTHORIZED CAPITAL STOCK - 200,000 SHARES, $0.001 PAR VALUE
Net assets Shares outstanding Net asset value
per share (1)
Class A $826,704 45,003 $ 18.37
Class B 55,983 3,065 18.27
Class C 46,769 2,567 18.22
Class F 59,040 3,225 18.31
Class 529-A 9,441 513 18.41
Class 529-B 2,654 145 18.32
Class 529-C 4,922 269 18.32
Class 529-E 744 41 18.35
Class 529-F 351 19 18.36
Class R-1 817 45 18.32
Class R-2 2,891 158 18.32
Class R-3 1,940 106 18.32
Class R-4 240 13 18.40
Class R-5 24,825 1,351 18.38
(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 $19.09 and
$19.13, respectively.
See Notes to Financial Statements
Statement of operations
for the year ended September 30, 2003 (dollars in thousands)
INVESTMENT INCOME:
Income:
Interest (net of non-U.S. withholding tax of $59) $43,224
Dividends 224 $43,448
Fees and expenses:
Investment advisory services 5,120
Distribution services 2,505
Transfer agent services 944
Administrative services 187
Reports to shareholders 117
Registration statement and prospectus 211
Postage, stationery and supplies 136
Directors' compensation 27
Auditing and legal 76
Custodian 211
State and local taxes 12
Other 16
Total expenses before reimbursement 9,562
Reimbursement of expenses 414 9,148
Net investment income 34,300
NET REALIZED GAIN AND UNREALIZED APPRECIATION ON
INVESTMENTS AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments 2,059
Non-U.S. currency transactions (1,476) 583
Net unrealized appreciation on:
Investments 109,493
Non-U.S. currency translations 4,142 113,635
Net realized gain and unrealized
appreciation on investments
and non-U.S. currency 114,218
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $148,518
Statement of changes in net assets (dollars in thousands)
Year ended September 30
2003 2002
OPERATIONS:
Net investment income $34,300 $23,200
Net realized gain (loss) on investments
and non-U.S. currency transactions 583 (16,275)
Net unrealized appreciation on investments
and non-U.S. currency translations 113,635 29,605
Net increase in net assets resulting
from operations 148,518 36,530
DIVIDENDS PAID TO SHAREHOLDERS
FROM NET INVESTMENT INCOME (22,556) (8,745)
CAPITAL SHARE TRANSACTIONS 334,271 141,198
TOTAL INCREASE IN NET ASSETS 460,233 168,983
NET ASSETS:
Beginning of year 577,088 408,105
End of year (including undistributed
net investment income: $13,341 and
$5,458, respectively) $1,037,321 $577,088
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 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) are sponsored by the Commonwealth of Virginia and 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:
- ---------------------------------------------------------------------------------------------------------
INITIAL SALES CONTINGENT DEFERRED SALES
SHARE CLASS CHARGE CHARGE UPON REDEMPTION CONVERSION FEATURE
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 3.75% None (except 1% for certain None
redemptions within one year
of purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero for Classes B and 529-B
redemptions within six years convert to classes A
of purchase and 529-A, respectively,
after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to
one year of purchase Class F 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
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. 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
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 at prices for securities of comparable maturity, quality
and type. Short-term securities maturing within 60 days are valued at
amortized cost, which approximates market value. 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 their 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 by authority of the fund's Board of Directors.
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 in 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 realized gain or loss is
deferred 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. taxes paid.
Gains realized by the fund on the sale of securities in certain countries are
subject to non-U.S. taxes. The fund records a liability based on unrealized
gains to provide for potential non-U.S. taxes payable upon the sale of these
securities. For the year ended September 30, 2003, there were no non-U.S. taxes
paid on realized gains.
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;
deferred expenses; cost of investments sold; paydowns on investments; and net
capital losses. The fiscal year in which amounts are distributed may differ from
the year in which the net investment income and net realized gains are recorded
by the fund. As of September 30, 2003, the cost of investment securities,
excluding forward currency contracts, for federal income tax purposes was
$937,719,000.
During the year ended September 30, 2003, the fund reclassified $3,861,000 from
undistributed net investment income to accumulated net realized loss to align
financial reporting with tax reporting.
As of September 30, 2003, the components of distributable earnings on a tax
basis were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $ 16,463
Short-term and long-term capital loss deferrals (5,752)
Gross unrealized appreciation on investment securities 87,503
Gross unrealized depreciation on investment securities (3,080)
Short-term and long-term capital loss deferrals above include capital loss
carryforwards of $716,000, $1,694,000, $2,178,000 and $1,164,000, expiring in
2008, 2009, 2010 and 2011. The capital loss carryforwards will be used to offset
any capital gains realized by the fund in future years through the expiration
dates. The fund will not make distributions from capital gains while capital
loss carryforwards remain.
Distributions paid to shareholders from net investment income and currency gains
were as follows (dollars in thousands):
Year ended Year ended
Share class(1) September 30, 2003 September 30, 2002
Class A $ 19,751 $ 8,455
Class B 755 97
Class C 520 42
Class F 740 124
Class 529-A 130 3
Class 529-B 27 1
Class 529-C 51 1
Class 529-E 8 -*
Class 529-F 3 -
Class R-1 8 -
Class R-2 16 -
Class R-3 12 -
Class R-4 -* -
Class R-5 535 22
Total $ 22,556 $ 8,745
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
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 a
declining series of annual rates beginning with 0.650% on the first $500 million
of daily net assets and decreasing to 0.500% on such assets in excess of $1
billion. The Board of Directors approved an amended agreement effective November
1, 2003, reducing the rates to 0.570% on the first $1 billion of daily net
assets and 0.500% on such assets in excess of $1 billion. Beginning September 1,
2001, CRMC voluntarily reduced fees for investment advisory services to the
rates provided by the amended agreement. As a result, for the year ended
September 30, 2003, the fee shown on the accompanying financial statements of
$5,120,000, which was equivalent to an annualized rate of 0.618%, was
voluntarily reduced by $400,000 to $4,720,000, or 0.570% 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. The plans provide for annual
expenses, based on a percentage of average daily net assets, ranging from
0.30% to 1.00% as noted below. In some cases, the Board of Directors has
approved expense amounts lower than plan limits.
-----------------------------------------------------------------------
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
-----------------------------------------------------------------------
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. Expenses in excess of these amounts, up to
approved limits, may be used to compensate dealers and wholesalers for
shares sold.
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. Each class reimburses 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, 2003, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.
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 below.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A
and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant 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. During the start-up period for
classes R-1, R-2, R-3 and R-4, CRMC has voluntarily agreed to pay a
portion of these fees. For the year ended September 30, 2003, the
total fees paid by CRMC were $14,000. 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 in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party. Administrative services
fees are presented gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended
September 30, 2003, were as follows (dollars in thousands):
- ---------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES
-------------------------------------------------------------
COMMONWEALTH OF
CRMC VIRGINIA
DISTRIBUTION TRANSFER AGENT ADMINISTRATIVE TRANSFER AGENT ADMINISTRATIVE
SHARE CLASS SERVICES SERVICES SERVICES SERVICES SERVICES
- ---------------------------------------------------------------------------------------------------------------
Class A $1,706 $888 Not applicable Not applicable Not applicable
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class B 381 56 Not applicable Not applicable Not applicable
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class C 275 Included $41 $14 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class F 76 Included 46 16 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-A 4 Included 8 1 $ 5
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-B 16 Included 2 1 2
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-C 30 Included 4 2 3
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-E 2 Included 1 -* -*
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-F -* Included -* -* -*
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-1 4 Included 1 1 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-2 8 Included 2 14 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-3 3 Included 1 2 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-4 -* Included -* 1 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 18 1 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total $2,505 $944 $124 $53 $10
- ----------------===============================================================================================
* Amount less than one thousand.
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 in the
accompanying financial statements includes $24,000 in current fees (either
paid in cash or deferred) and a net increase of $3,000 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):
REINVESTMENTS OF DIVIDENDS
SALES(2) AND DISTRIBUTIONS REPURCHASES(2) NET INCREASE
SHARE CLASS(1) AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
YEAR ENDED SEPTEMBER 30, 2003
Class A $524,729 30,608 $ 17,833 1,065 $ (340,241) (19,776) $ 202,321 11,897
Class B 53,204 3,104 668 40 (21,718) (1,264) 32,154 1,880
Class C 72,048 4,182 480 28 (40,206) (2,328) 32,322 1,882
Class F 70,377 4,063 657 39 (31,360) (1,851) 39,674 2,251
Class 529-A 7,647 444 130 8 (702) (40) 7,075 412
Class 529-B 2,125 125 27 2 (163) (10) 1,989 117
Class 529-C 3,870 228 51 3 (346) (20) 3,575 211
Class 529-E 636 37 8 1 (28) (2) 616 36
Class 529-F 322 19 3 -* - - 325 19
Class R-1 875 51 8 1 (264) (15) 619 37
Class R-2 3,238 186 16 1 (533) (31) 2,721 156
Class R-3 2,286 131 11 1 (496) (29) 1,801 103
Class R-4 391 22 -* -* (163) (9) 228 13
Class R-5 10,861 613 460 28 (2,470) (140) 8,851 501
TOTAL NET INCREASE (DECREASE) $752,609 43,813 $ 20,352 1,217 $ (438,690) (25,515) $ 334,271 19,515
YEAR ENDED SEPTEMBER 30, 2002
Class A $226,505 14,861 $ 7,414 503 $ (141,876) (9,493) $ 92,043 5,871
Class B 14,971 988 83 6 (1,689) (112) 13,365 882
Class C 10,217 679 40 3 (1,670) (113) 8,587 569
Class F 18,695 1,247 98 7 (7,726) (517) 11,067 737
Class 529-A 1,595 105 3 -* (64) (4) 1,534 101
Class 529-B 421 28 1 -* (1) -* 421 28
Class 529-C 880 58 1 -* -* -* 881 58
Class 529-E 70 5 -* -* -* -* 70 5
Class 529-F 1 -* - - - - 1 -*
Class R-1 123 8 - - - - 123 8
Class R-2 26 2 - - (1) -* 25 2
Class R-3 216 14 - - (165) (11) 51 3
Class R-4 1 -* - - - - 1 -*
Class R-5 13,091 854 21 1 (83) (5) 13,029 850
TOTAL NET INCREASE (DECREASE) $286,812 18,849 $ 7,661 520 $ (153,275) (10,255) $ 141,198 9,114
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
(2) Includes exchanges between share classes of the fund.
6. FORWARD CURRENCY CONTRACTS
As of September 30, 2003, the fund had outstanding forward currency contracts to
purchase or sell non-U.S. currencies as follows:
CONTRACT AMOUNT U.S. VALUATIONS AT SEPTEMBER 30, 2003
UNREALIZED
NON-U.S. APPRECIATION
CURRENCY NON-U.S. U.S. AMOUNT (DEPRECIATION)
CONTRACTS (000) (000) (000) (000)
PURCHASES:
Canadian Dollars
expiring 11/5/2003 C$16,165 $11,460 $11,965 $505
Danish Kroner
expiring 10/3/2003 DKr18,261 2,842 2,869 27
Euros
expiring 10/7/2003-1/30/2004 Euro14,038 16,183 16,355 172
Japanese Yen
expiring 10/9-12/24/2003 Yen12,071,052 103,722 108,344 4,622
Swedish Kronor
expiring 12/16-12/17/2003 SKr98,928 12,302 12,706 404
146,509 152,239 5,730
SALES:
British Pounds
expiring 1/5/2004 Lira790 1,294 1,304 (10)
Canadian Dollars
expiring 12/31/2003 C$7,750 5,667 5,723 (56)
Euros
expiring 10/9-12/17/2003 Euro42,751 47,573 49,822 (2,249)
Hungarian Forints
expiring 12/4/2003 HUF605,801 2,733 2,738 (5)
Norwegian Kroner
expiring 1/30/2004 NOK6,000 831 847 (16)
Swedish Kronor
expiring 12/4/2003 SKr4,000 471 514 (43)
58,569 60,948 (2,379)
FORWARD CURRENCY CONTRACTS - NET $ 3,351
7. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of September 30, 2003, the total
value of restricted securities was $77,218,000, which represented 7.44% of the
net assets of the fund.
8. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $870,290,000 and $653,096,000, respectively, during the year
ended September 30, 2003.
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, 2003, the custodian fee of $211,000 included $5,000
that was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
Income (loss) 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 9/30/2003 $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
Year ended 9/30/2000 15.41 .68 (1.26) (.58)
Year ended 9/30/1999 16.32 .84 (.88) (.04)
CLASS B:
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
Period from 3/15/2000 to 9/30/2000 14.74 .28 (.63) (.35)
CLASS C:
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 9/30/2003 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 9/30/2003 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 9/30/2003 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 9/30/2003 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 9/30/2003 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 9/30/2003 15.60 .69 2.56 3.25
Period from 9/17/2002 to 9/30/2002 15.48 .03 .09 .12
CLASS R-1:
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 9/30/2003 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 9/30/2003 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 9/30/2003 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 9/30/2003 15.62 .77 2.54 3.31
Period from 5/15/2002 to 9/30/2002 14.79 .34 .58 .92
Dividends and distributions
Dividends
(from net Distributions Total
investment (from capital dividends and
income) gains) distributions
CLASS A:
Year ended 9/30/2003 $(.50) $ - $(.50)
Year ended 9/30/2002 (.32) - (.32)
Year ended 9/30/2001 (.39) - (.39)
Year ended 9/30/2000 (.60) (.07) (.67)
Year ended 9/30/1999 (.55) (.32) (.87)
CLASS B:
Year ended 9/30/2003 (.38) - (.38)
Year ended 9/30/2002 (.24) - (.24)
Year ended 9/30/2001 (.28) - (.28)
Period from 3/15/2000 to 9/30/2000 (.27) - (.27)
CLASS C:
Year ended 9/30/2003 (.37) - (.37)
Year ended 9/30/2002 (.22) - (.22)
Period from 3/15/2001 to 9/30/2001 (.04) - (.04)
CLASS F:
Year ended 9/30/2003 (.49) - (.49)
Year ended 9/30/2002 (.31) - (.31)
Period from 3/16/2001 to 9/30/2001 (.08) - (.08)
CLASS 529-A:
Year ended 9/30/2003 (.50) - (.50)
Period from 2/15/2002 to 9/30/2002 (.16) - (.16)
CLASS 529-B:
Year ended 9/30/2003 (.35) - (.35)
Period from 2/25/2002 to 9/30/2002 (.12) - (.12)
CLASS 529-C:
Year ended 9/30/2003 (.35) - (.35)
Period from 2/28/2002 to 9/30/2002 (.13) - (.13)
CLASS 529-E:
Year ended 9/30/2003 (.44) - (.44)
Period from 5/16/2002 to 9/30/2002 (.07) - (.07)
CLASS 529-F:
Year ended 9/30/2003 (.49) - (.49)
Period from 9/17/2002 to 9/30/2002 - - -
CLASS R-1:
Year ended 9/30/2003 (.37) - (.37)
Period from 6/28/2002 to 9/30/2002 - - -
CLASS R-2:
Year ended 9/30/2003 (.38) - (.38)
Period from 7/9/2002 to 9/30/2002 - - -
CLASS R-3:
Year ended 9/30/2003 (.44) - (.44)
Period from 7/16/2002 to 9/30/2002 - - -
CLASS R-4:
Year ended 9/30/2003 (.50) - (.50)
Period from 8/15/2002 to 9/30/2002 - - -
CLASS R-5:
Year ended 9/30/2003 (.55) - (.55)
Period from 5/15/2002 to 9/30/2002 (.09) - (.09)
Ratio of Ratio of
Net asset Net assets, expenses net income
value, end Total end of period to average to average
of period return(3) (in millions) net assets(5) net assets
CLASS A:
Year ended 9/30/2003 $18.37 21.34% $827 1.04% 4.22%
Year ended 9/30/2002 15.60 8.97 517 1.08 5.38
Year ended 9/30/2001 14.63 6.18 399 1.12 5.46
Year ended 9/30/2000 14.16 (3.89) 416 1.12 4.66
Year ended 9/30/1999 15.41 (.32) 554 1.08 4.66
CLASS B:
Year ended 9/30/2003 18.27 20.41 56 1.81 3.40
Year ended 9/30/2002 15.52 8.10 18 1.84 4.65
Year ended 9/30/2001 14.59 5.35 4 1.85 4.92
Period from 3/15/2000 to 9/30/2000 14.12 (2.34) 1 1.81 (6) 3.99 (6)
CLASS C:
Year ended 9/30/2003 18.22 20.33 47 1.87 3.32
Year ended 9/30/2002 15.48 8.10 11 1.90 4.60
Period from 3/15/2001 to 9/30/2001 14.54 .58 2 1.98 (6) 5.34 (6)
CLASS F:
Year ended 9/30/2003 18.31 21.27 59 1.11 4.09
Year ended 9/30/2002 15.55 8.87 15 1.16 5.34
Period from 3/16/2001 to 9/30/2001 14.59 1.60 3 1.20 (6) 6.30 (6)
CLASS 529-A:
Year ended 9/30/2003 18.41 21.35 9 1.02 4.16
Period from 2/15/2002 to 9/30/2002 15.63 9.08 2 1.25 (6) 5.26 (6)
CLASS 529-B:
Year ended 9/30/2003 18.32 20.22 2 1.99 3.19
Period from 2/25/2002 to 9/30/2002 15.56 8.80 - (4) 2.00 (6) 4.51 (6)
CLASS 529-C:
Year ended 9/30/2003 18.32 20.24 5 1.97 3.22
Period from 2/28/2002 to 9/30/2002 15.56 8.76 1 1.99 (6) 4.53 (6)
CLASS 529-E:
Year ended 9/30/2003 18.35 20.84 1 1.43 3.71
Period from 5/16/2002 to 9/30/2002 15.59 5.77 - (4) .54 1.92
CLASS 529-F:
Year ended 9/30/2003 18.36 21.19 - (4) 1.18 3.94
Period from 9/17/2002 to 9/30/2002 15.60 .77 - (4) - (7) .20
CLASS R-1:
Year ended 9/30/2003 18.32 20.33 1 1.86 (8) 3.32
Period from 6/28/2002 to 9/30/2002 15.57 1.63 - (4) .47 (8) 1.17
CLASS R-2:
Year ended 9/30/2003 18.32 20.38 3 1.81 (8) 3.29
Period from 7/9/2002 to 9/30/2002 15.57 1.50 - (4) .42 (8) 1.08
CLASS R-3:
Year ended 9/30/2003 18.32 20.81 2 1.43 (8) 3.68
Period from 7/16/2002 to 9/30/2002 15.59 .58 - (4) .32 (8) 1.02
CLASS R-4:
Year ended 9/30/2003 18.40 21.34 - (4) 1.08 (8) 3.94
Period from 8/15/2002 to 9/30/2002 15.63 2.29 - (4) - (7)(8) 1.32
CLASS R-5:
Year ended 9/30/2003 18.38 21.60 25 .76 4.49
Period from 5/15/2002 to 9/30/2002 15.62 6.20 13 .29 2.17
Year ended September 30
2003 2002 2001 2000 1999
Portfolio turnover
rate for all classes of shares 83% 48% 61% 52% 129%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) Amount less than 1 million.
(5) Effective September 1, 2001, CRMC voluntarily reduced fees for investment
advisory services. Had CRMC not reduced such fees, expense ratios for all
share classes, on an annualized basis, would have been higher by .05 and
.08 percentage points for the year ended September 30, 2003 and the period
ended September 30, 2002, respectively. For the period ended September 30,
2001, expense ratios for all share classes would have been higher by .01
percentage points.
(6) Annualized.
(7) Amount less than .01 percent.
(8) During the start-up period for this class, CRMC voluntarily agreed to pay a
portion of the fees relating to transfer agent services. Had CRMC not paid
such fees, expense ratios would have been 2.10%, 2.86%, 1.68% and 2.65% for
classes R-1, R-2, R-3 and R-4, respectively, during the year ended
September 30, 2003, and .54%, 1.71%, .56% and 35.47% for classes R-1, R-2,
R-3 and R-4, respectively, during the period ended September 30, 2002.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CAPITAL WORLD BOND FUND, INC.:
We have audited the accompanying statement of assets and liabilities of Capital
World Bond Fund, Inc. (the "Fund"), including the investment portfolio, as of
September 30, 2003, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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 the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital World Bond Fund, Inc. as of September 30, 2003, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 7, 2003
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.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 1% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. government
obligations. For purposes of computing this exclusion, 5% of the dividends paid
by the fund from net investment income were derived from interest on direct U.S.
government obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
SINCE THE INFORMATION ABOVE IS REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2004 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2003 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
OTHER SHARE CLASS RESULTS (unaudited)
CLASS B, CLASS C, CLASS F AND CLASS 529
Life
Returns for periods ended September 30, 2003: 1 year of class
CLASS B SHARES
Reflecting applicable contingent deferred sales charge (CDSC),
maximum of 5%, payable only if shares are sold within six years
of purchase +15.41% +7.89% (1)
Not reflecting CDSC +20.41% +8.58% (1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +19.33% +11.14% (2)
Not reflecting CDSC +20.33% +11.14% (2)
CLASS F SHARES (3)
Not reflecting annual asset-based fee charged
by sponsoring firm +21.27% +12.24% (4)
CLASS 529-A SHARES
Reflecting 3.75% maximum sales charge +16.79% +16.12% (5)
Not reflecting maximum sales charge +21.35% +18.87% (5)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +15.22% +16.06% (6)
Not reflecting CDSC +20.22% +18.34% (6)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +19.24% +18.42% (7)
Not reflecting CDSC +20.24% +18.42% (7)
CLASS 529-E SHARES (3) +20.84% +19.53% (8)
CLASS 529-F SHARES (3)
Not reflecting annual asset-based fee charged
by sponsoring firm +21.19% +21.29% (9)
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C shares were
first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from March 16, 2001, when Class F shares were
first sold.
(5) Average annual total return from February 15, 2002, when Class 529-A shares
were first sold.
(6) Average annual total return from February 25, 2002, when Class 529-B shares
were first sold.
(7) Average annual total return from February 28, 2002, when Class 529-C shares
were first sold.
(8) Average annual total return from May 16, 2002, when Class 529-E shares were
first sold.
(9) Average annual total return from September 17, 2002, when Class 529-F
shares were first sold.
BOARD OF DIRECTORS
Year first
elected
a Director
Name and age of the fund (1) Principal occupation(s) during past five years
"NON-INTERESTED" DIRECTORS
Ambassador
Richard G. Capen, Jr., 69 1999 Corporate director and author; former U.S. Ambassador
to Spain; former Vice Chairman, Knight-Ridder, Inc.;
former Chairman and Publisher, The Miami Herald
H. Frederick Christie, 70 1987 Private investor; former President and CEO,
The Mission Group (non-utility holding company,
subsidiary of Southern California Edison Company)
Diane C. Creel, 55 1994 Chairman of the Board and CEO, AnAerobics, Inc.
(organic waste management)
Martin Fenton, 68 1989 Chairman of the Board and CEO, Senior Resource
Group LLC (development and management of senior
living communities)
Leonard R. Fuller, 57 1994 President and CEO, Fuller Consulting (financial
management consulting firm)
Richard G. Newman, 69 1991 Chairman of the Board and CEO, AECOM Technology
Corporation (engineering, consulting and
professional services)
Frank M. Sanchez, 60 1999 Principal, The Sanchez Family Corporation dba
McDonald's Restaurants (McDonald's licensee)
Number of
boards within the
fund complex (2)
on which
Name and age Director serves Other directorships (3) held by Director
"NON-INTERESTED" DIRECTORS
Ambassador
Richard G. Capen, Jr., 69 14 Carnival Corporation
H. Frederick Christie, 70 19 Ducommun Incorporated; IHOP Corporation;
Southwest Water Company; Valero L.P.
Diane C. Creel, 55 12 Allegheny Technologies; BF Goodrich;
Teledyne Technologies
Martin Fenton, 68 16 None
Leonard R. Fuller, 57 14 None
Richard G. Newman, 69 13 Sempra Energy; Southwest Water Company
Frank M. Sanchez, 60 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
Paul G. Haaga, Jr., 54 1987 Executive Vice President and Director,
Chairman of the Board Capital Research and Management Company; Director,
The Capital Group Companies, Inc. (5); Director,
American Funds Distributors, Inc. (5)
Abner D. Goldstine, 73 1987 Senior Vice President and Director, Capital
President Research and Management Company
Don R. Conlan, 67 1996 President (retired), The Capital Group
Companies, Inc. (5)
Number of
boards within the
fund complex (2) Other
Name, age and on which directorships(3)
position with fund Director serves held by Director
"INTERESTED" DIRECTORS (4)
Paul G. Haaga, Jr., 54 17 None
Chairman of the Board
Abner D. Goldstine, 73 12 None
President
Don R. Conlan, 67 7 None
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) and Anchor Pathway Fund, which
serve as the underlying investment vehicles 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.
Principal occupation(s)
during past five years
Year first and positions held with
elected an affiliated entities or the
Name, age and officer of principal underwriter of
position with fund the fund (1) the fund
Other Officers
Mark H. Dalzell, 49 1998 Senior Vice President, Capital Research Company (2)
Executive Vice President
Michael J. Downer, 48 1994 Vice President and Secretary, Capital Research and
Vice President Management Company; Secretary, American Funds
Distributors, Inc. (2); Director, Capital Bank and Trust Company (2)
Thomas H. Hogh, 40 2001 Vice President, Capital International Research, Inc. (2)
Vice President
Julie F. Williams, 55 1987 Vice President-- Fund Business Management Group,
Secretary Capital Research and Management Company
Sharon G. Moseley, 35 2002 Vice President-- Fund Business Management Group,
Treasurer Capital Research and Management Company
Kimberly S. Verdick, 39 1994 Assistant Vice President-- Fund Business
Assistant Secretary Management Group, Capital Research and Management Company
Susi M. Silverman, 33 2001 Vice President-- Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(1) Directors and officers serve until their resignation, removal or
retirement.
(2) Company affiliated with Capital Research and Management Company.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, 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 AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
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. 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 0.83 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 0.07 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.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A
PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL ADVISER.
YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT US AT
AMERICANFUNDS.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
THE AMERICAN FUNDS PROXY VOTING GUIDELINES -- USED TO DETERMINE HOW TO VOTE
PROXIES RELATING TO PORTFOLIO SECURITIES -- ARE AVAILABLE UPON REQUEST, FREE OF
CHARGE, BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS
WEBSITE OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT
WWW.SEC.GOV.
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, 2003, this report must be accompanied by an American Funds
statistical update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
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 20 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. Nearly 70% 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 FundSM
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 FundSM
Fundamental InvestorsSM
The Investment Company of America(R)
Washington Mutual Investors FundSM
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 TrustSM
The Bond Fund of AmericaSM
CAPITAL WORLD BOND FUND(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities FundSM
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 AmericaSM
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 AmericaSM
The U.S. Treasury Money Fund of AmericaSM
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-931-1103
Litho in USA WG/INS/8071
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
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
Form N-CSR disclosure requirement not yet effective with respect to Registrant.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Reserved
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 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), 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 last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) 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/ Abner D. Goldstine
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Abner D. Goldstine, President and PEO
Date: December 9, 2003
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/ Abner D. Goldstine
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Abner D. Goldstine, President and PEO
Date: December 9, 2003
By: /s/ Sharon G. Moseley
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Sharon G. Moseley, Treasurer
Date: December 9, 2003