The Value Line Mutual Fund Survey

Model Portfolio Asset Class—International Bond

International bond funds, down an average of 5.0% for the nine months ended September 30, 2008, moved in the same direction as most of the other bond fund categories we follow. The one exception, government bond funds, showed the best performance for the same nine months, with break-even results. With the global economies of the world in turmoil, more of the same can be anticipated for some time into the future. Nevertheless, we recommend that International bond funds be part of most investors portfolios, except for aggressive investors with a long-time horizon. This month, we will examine several International bond funds that we follow in the Mutual Fund Survey.

American Funds Cap World Bond Fund A (CWBFX) is best suited for higher-risk investors. The fund aims to maximize total return through investments in bonds of global issuers. Although up to 25% of assets may be held in lower-quality issues, the portfolio will typically be composed primarily of investment- grade bonds. Management’s emphasis on high-quality issues effectively restricts investment in most emerging markets. Both corporate and government debt securities are included in the portfolio. Normally, assets are diversified among issuers from various countries but, for temporary defensive purposes, management may hold a substantial portion of the portfolio in domestic issues or cash. Heavy importance is placed on identifying value through rigorous macroeconomic and company-specific research.

The fund’s total return was -2.7% for the nine months ended September 30, 2008, underperforming the Lehman Brothers Aggregate Bond Index, but outperforming more than half of its peer group. Its longterm performance is outstanding, outpacing both its objective group and the Lehman Aggregate Bond Index over the trailing three, five-, and 15-year periods as of September 30, 2008. To obtain more information on this fund, call (800) 421-0180, or visit the Web site at www.americanfunds.com.

Investors with slightly less risk tolerance may want to look at SMAM International Fixed Income Fund A (SDIFX). The fund aims to provide maximum total return and a competitive level of income, with additional objectives being principal preservation and liquidity. It may invest up to 3% in any one emerging market, with its total emerging-markets position not exceeding 10% of assets. The fund targets investment-grade debt of foreign and domestic issuers. In determining country allocations, management employs top-down analysis, as well as a bottom-up approach to identify particular issues in those countries. It focuses on long-term value, rather than on technical factors or momentum. The fund generally hedges between 90% and 100% of its foreign currency exposure.

The fund’s total return was 2.20% for the nine months ended September 30, 2008, outperforming the Lehman Brothers Aggregate Bond Index and more than half of its peer group. Its long-term performance is very good, outpacing most of its objective group and the Lehman Aggregate Bond Index over the trailing one-, three, five-, 10-, and 15-year periods as of September 30, 2008. To obtain more information on this fund, call (800) 221-4795, or visit the Web site at www.standishmellon.com.

Investors with lower risk tolerance may want to look at Eaton Vance Strategic Income Fund B (EVSGX). The fund maintains a barbell structure, usually holding approximately half of its assets in highquality domestic bonds and roughly half in high-yield foreign bonds. Low-grade securities may not exceed 50% of assets. Management may hedge both currencies and U.S. interest rates.

The fund’s total return was –2.00% for the nine months ended September 30, 2008, underperforming the Lehman Brothers Aggregate Bond Index but outperforming more than half of its peer group. Its long-term performance is good, outperforming the Lehman Aggregate Bond Index over the trailing five-, 10-, and 15-year periods as of September 30, 2008, while outperforming half or more of its objective group during those same time frames. To obtain more information on this fund, call (800) 262-1122, or visit the Web site at www.eatonvance.com.