SMALLCAP WORLD FUND, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1994
(as amended June 22, 1995)
This document is not a prospectus but should be read in conjunction with the
current prospectus dated December 1, 1994 of SMALLCAP World Fund, Inc. (the
fund). The prospectus may be obtained from your investment dealer or financial
planner or by writing to the fund at the following address:
SMALLCAP WORLD FUND, INC.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
The fund has two forms of prospectuses. Each reference to the prospectus in
this Statement of Additional Information includes both of the fund's
prospectuses. Shareholders who purchase shares at net asset value through
employer-sponsored defined contribution plans should note that not all of the
services or features described below may be available to them.
TABLE OF CONTENTS
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NO.
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INVESTMENT POLICIES 2
DESCRIPTION OF CERTAIN SECURITIES 3
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS 4
INVESTMENT RESTRICTIONS 4
FUND DIRECTORS AND OFFICERS 7
MANAGEMENT 9
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 11
PURCHASE OF SHARES 13
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 15
EXECUTION OF PORTFOLIO TRANSACTIONS 16
GENERAL INFORMATION 17
INVESTMENT RESULTS 19
APPENDIX - DESCRIPTION OF BOND RATINGS 22
FINANCIAL STATEMENTS ATTACHED
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INVESTMENT POLICIES
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements, under
which the fund buys a security and obtains a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the fund to maintain liquidity and earn income over periods
of time as short as overnight. The seller must maintain with the fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by Capital Research and Management Company
(the Investment Adviser, see Management below.) The fund will only enter into
repurchase agreements involving securities in which it could otherwise invest
and with selected banks and securities dealers whose financial condition is
monitored by the Investment Adviser. If the seller under the repurchase
agreement defaults, the fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization upon the collateral by the
fund may be delayed or limited.
CURRENCY TRANSACTIONS -- For the purpose of hedging currency exchange rate
risks, the fund may enter into forward currency exchange contracts. A forward
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks). In
addition, in order to purchase securities denominated in currencies other than
the U.S. dollar, the fund enters into foreign exchange contracts which fix the
dollar cost or proceeds for the transaction between the trade date and the
settlement date.
At the maturity of a forward contract, the fund may either accept or make
delivery of the currency specified in the contract or, prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original contract. The
fund will only enter into such a forward contract if it is expected that the
fund will be able readily to close out such contract. There can, however, be
no assurance that it will be able in any particular case to do so, in which
case the fund may suffer a loss.
The fund intends to engage in currency hedging transactions to a limited
extent. However, the fund intends to enter into foreign exchange contracts
between the trade date and the settlement date of a security transaction to fix
the dollar cost or proceeds for the transaction. Only in extraordinary
circumstances and for temporary defensive purposes would it attempt to hedge
all the risks involved in holding assets denominated in a particular currency.
Among other things, it is the Investment Adviser's view that the cost of
engaging in hedging transactions frequently equals or exceeds the expected
benefits from the potential reduction in exchange risk. Moreover, even if it
were to attempt to do so, the fund could not through hedging transactions
eliminate all the risks of holding assets denominated in a currency, as there
may be an imperfect correlation between price movements in the futures or
forward contracts and those of the underlying currency in which the fund's
assets are denominated. Also, where the fund enters into a hedging transaction
in anticipation of a currency movement in a particular direction but the
currency moves in the opposite direction, the transaction could lead to a
poorer result than if the fund had not engaged in any such transaction.
The fund will not enter into forward or futures contracts or maintain an
exposure to such contracts where (i) the aggregate amount of initial margin
deposits on the fund's futures positions would exceed 5% of the value of the
fund's total assets or (ii) where the consummation of such contracts would
obligate the fund to deliver an amount of currency in excess of the value of
the fund's portfolio securities or other assets denominated in that currency.
Where the fund is obligated to make deliveries under futures or forward
contracts, to avoid leverage it will "cover" its obligations by segregating
liquid assets such as cash, U.S. Government securities or other appropriate
high-grade debt obligations in an amount sufficient to meet its obligations.
Certain provisions of the Internal Revenue Code may limit the extent to which
the fund may enter into forward or futures contracts. Such transactions may
also affect, for U.S. federal income tax purposes, the character and timing of
income, gain or loss recognized by the fund.
INVESTMENT COMPANIES -- Although the fund has no current intention of investing
in such securities (at least for the next 12 months), it has the ability to
invest up to 5% of its total assets in shares of closed-end investment
companies. Additionally, the fund would not acquire more than 3% of the
outstanding voting securities of any one closed-end investment company. (To
the extent that the fund invests in another investment company, it would pay an
investment advisory fee in addition to the fee paid to the Investment Adviser.)
INVESTMENTS IN COMPANIES BASED IN COUNTRIES WITH DEVELOPING SECURITIES MARKETS
- -- A portion of the fund's assets (not to exceed 10% taken at cost) may be
invested in companies based in countries that have developing securities
markets, which will involve certain risks as described in detail in the
prospectus. In determining the extent to which it has invested in such
securities at any given time, the fund will divide the cost of such securities
by the current market value of the fund's net assets.
DESCRIPTION OF CERTAIN SECURITIES
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (i) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (ii) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. In these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the Treasury.
However, they generally involve federal sponsorship in one way or another; some
are backed by specific types of collateral; some are supported by the issuer's
right to borrow from the Treasury; some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer; others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank
Cooperatives, and Federal Intermediate Credit Banks.
CASH EQUIVALENTS -- These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (certificates of deposit
(interest-bearing time deposits), banker's acceptances (time drafts on a
commercial bank where the bank accepts an irrevocable obligation to pay at
maturity), and documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity)), (3) savings
association obligations (certificates of deposit issued by mutual savings banks
or savings and loan associations), (4) securities of the U.S. Government, its
agencies or instrumentalities that mature, or may be redeemed, in one year or
less, and (5) corporate bonds and notes (corporate obligations that mature, or
that may be redeemed, in one year or less).
HIGH-YIELD, HIGH-RISK BONDS -- Although the fund has no current intention of
investing in such securities (at least for the next 12 months), it has the
ability to invest up to 5% of it total assets in lower rated straight debt
securities (including securities commonly referred to as "junk bonds") or in
unrated securities that are determined to be of equivalent quality.
High-yield, high-risk bonds carry a higher degree of investment risk and are
considered speculative.
PORTFOLIO TURNOVER -- Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders. In the
over-the-counter market, purchases and sales are transacted directly with
principal market-makers except in those circumstances where it appears better
prices and executions are available. See Financial Highlights in the
prospectus for the fund's portfolio turnover for each of the last five fiscal
periods.
CERTAIN RISK FACTORS RELATING
TO
BELOW INVESTMENT GRADE BONDS
Certain risk factors relating to investing in below investment grade
securities (high-yield, high-risk bonds) are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high risk bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value will decrease in a
rising interest rate market, as it will with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental policies and investment
restrictions which may not be changed without a majority vote of its
outstanding shares. Such majority is defined by law as the vote of the lesser
of (i) 67% or more of the outstanding voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities are
present in person or by proxy, or (ii) more than 50% of the outstanding voting
securities. All percentage limitations expressed in the following investment
restrictions are measured immediately after and giving effect to the relevant
transaction. The fund may not:
1. Invest in securities of an issuer (other than the U.S. or its agencies or
instrumentalities), if immediately after and as a result of such investment
more than 5% of the value of its total assets would be invested in the
securities of such other issuer (except with respect to 25% of the value of its
total assets, the fund may exceed the 5% limitation with regard to investments
in the securities of any one foreign government);
2. Invest in companies for the purpose of exercising control or management;
3. Invest 25% or more of the value of its total assets in the securities of
companies primarily engaged in any one industry;
4. Invest more than 5% of its total assets in the securities of other managed
investment companies; such investments shall be limited to 3% of the voting
stock of any investment company, provided, however, that investment in the open
market of a closed-end investment company where no more than customary brokers'
commissions are involved and investment in connection with a merger,
consolidation, acquisition or reorganization shall not be prohibited by this
restriction;
5. Buy or sell real estate (including real estate limited partnerships) in the
ordinary course of its business; however, the fund may invest in securities
secured by real estate or interests therein or issued by companies, including
real estate investment trusts and funds, which invest in real estate or
interests therein;
6. Buy or sell commodities or commodity contracts in the ordinary course of
its business, provided, however, that entering into a currency forward or
futures contract shall not be prohibited by this restriction;
7. Invest more than 10% of the value of its total assets in securities which
are not readily marketable (including repurchase agreements maturing in more
than seven days or non-U.S. securities for which there is no recognized
exchange or active and substantial over-the-counter market) or engage in the
business of underwriting securities of other issuers, except to the extent that
the disposal of an investment position may technically constitute the fund an
underwriter as that term is defined under the Securities Act of 1933;
8. Lend money; provided that entering into repurchase agreements, investment
in debt securities or in cash equivalents and lending of portfolio securities
shall not be prohibited by this restriction;
9. Sell securities short except to the extent that the fund contemporaneously
owns or has the right to acquire, at no additional cost, securities identical
to those sold short;
10. Purchase securities on margin or mortgage, pledge or hypothecate its
assets to any extent;
11. Borrow amounts in excess of 5% of the value of its total assets or issue
senior securities. In any event, the fund may borrow only as a temporary
measure for extraordinary or emergency purposes and not for investment in
securities;
12. Purchase or retain the securities of any issuer if those individual
officers and Directors of the fund, its Investment Adviser or principal
underwriter, each owning beneficially more than 1/2 of 1% of the securities of
such issuer, together own more than 5% of the securities of such issuer;
13. Invest more than 5% of the value of its total assets in securities of
companies having, together with their predecessors, a record of less than three
years of continuous operation;
14. Purchase or sell puts, calls, straddles or spreads, or combinations
thereof; nor
15. Purchase partnership interests or invest in leases to develop, or explore
for, oil, gas, or minerals.
For purposes of investment restriction number 3, the fund will not invest 25%
or more of total assets in the securities of issuers in the same industry.
Further investment policies of the fund, which may be changed by action of the
Board of Directors without shareholder approval, are as follows:
1. The fund will not invest in securities of an issuer if the investment
would cause the fund to own more than 10% of any class of securities of any one
issuer; and
2. The fund will not invest more than 5% of its net assets valued at the
lower of cost or market at the time of purchase in warrants, including not more
than 2% of such net assets in warrants that are not listed on either the New
York Stock Exchange or the American Stock Exchange; however, warrants acquired
or attached to securities may be deemed to be without value for the purpose of
this restriction.
All percentages relating to the policies and restrictions of the fund are
measured at the time the investment is made.
FUND DIRECTORS AND OFFICERS
(with their principal occupations during the past five years)#
DIRECTORS
RICHARD G. CAPEN, JR., Box 2494, Rancho Santa Fe, CA 92067.
Corporate director and author; former United States Ambassador to Spain;
former Vice Chairman of the Board, Knight Ridder, Inc.; former Chairman and
Publisher, The Miami Herald.
+ H. FREDERICK CHRISTIE, P.O. Box 144, Palos Verdes Estates, CA 90274
Private Investor; former President and Chief Executive Officer, The Mission
Group (non-utility holding company, subsidiary of Southern California Edison
Company); former President, Southern California Edison Company.
ALAN W. CLEMENTS, 16 Great Peter Street, London SW1P3JF, England.
Private Investor; former Executive Director - Finance, Imperial Chemical
Industries PLC.
++* ROBERT B. EGELSTON, Chairman of the Board.
Senior Partner, Capital Group Partners, Limited Partnership.
ALAN GREENWAY, 7413 Fairway Road, La Jolla, CA 92037.
President, Greenway Associates, Inc. (management consulting services); former
Chairman, Australian Tourist Commission.
++ WILLIAM R. GRIMSLEY, President.
Four Embarcadero Center, Suite 1800, San Francisco, CA 94111. Senior Vice
President and Director, Capital Research and Management Company.
++ GRAHAM HOLLOWAY, 17309 Club Hill Drive, Dallas, TX 75248.
Former Chairman of the Board, American Funds Distributors, Inc.
LEONADE D. JONES, 1150-15th Street, N.W., Washington, D.C. 20071.
Treasurer, The Washington Post Company.
WILLIAM H. KLING, 45 East Seventh Street, St. Paul, MN 55101.
President, Minnesota Public Radio; President, Greenspring Co.; former
President, American Public Radio (now Public Radio International).
NORMAN R. WELDON, 8210 N.W. 27th Street, Miami, FL 33122.
President and Director, Corvita Corporation; former President and Director,
Cordis Corporation.
PATRICIA K. WOOLF, 506 Quaker Road, Princeton, NJ 08544.
Private Investor; Lecturer, Department of Molecular Biology (Princeton
University).
___________________________________
+ May be deemed an "interested person" due to membership on the board of
directors of the parent company of a registered broker-dealer.
++ Directors who are "interested persons" within the meaning of the Investment
Company Act of 1940 (the 1940 Act) on the basis of their affiliation with the
Investment Adviser.
OFFICERS
(with their principal occupations during the past five years)#
ROBERT B. EGELSTON, Chairman of the Board (see above).
WILLIAM R. GRIMSLEY, President (see above).
* GORDON CRAWFORD, Senior Vice President. Senior Vice President and Director,
Capital Research Company
** STEVEN N. KEARSLEY, Vice President and Treasurer. Vice President and
Treasurer,
Capital Research and Management Company.
* VINCENT P. CORTI, Vice President. Vice President - Fund Business Management
Group, Capital Research and Management Company.
GREGORY W. WENDT, Vice President. Four Embarcadero Center, San Francisco, CA
94111. Vice President, Capital Research Company.
* CHAD L. NORTON, Secretary. Vice President - Fund Business Management Group,
Capital Research and Management Company.
** MARY C. CREMIN, Assistant Treasurer. Vice President - Fund Business
Management Group, Capital Research and Management Company.
** ROBERT P. SIMMER, Assistant Treasurer. Vice President - Fund Business
Management Group, Capital Research and Management Company.
__________________________________
# Positions within the organizations listed may have change during this period.
* Address is 333 South Hope Street, Los Angeles, CA 90071
** Address is 135 South State College Boulevard, Brea, CA 92621
Each unaffiliated Director is paid a fee of $8,000 per annum, plus $700 for
each Board of Directors meeting attended, plus $300 for each meeting attended
as a member of a committee of the Board of Directors. No compensation is paid
by the fund to any officer or Director who is a director, officer or employee
of the Investment Adviser or affiliated companies. The Directors may elect, on
a voluntary basis, to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund also reimburses certain
expenses of the Directors who are not affiliated with the Investment Adviser.
The total compensation paid by the fund to unaffiliated Directors during the
fiscal year ended September 30, 1994 was $89,000. As of November 1, 1994 the
officers and Directors of the fund and their families as a group owned
beneficially or of record less than 1% of the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for approximately $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser
will continue in effect until November 30, 1995, unless sooner terminated and
may be renewed from year to year thereafter, provided that any such renewal has
been specifically approved at least annually by (i) the Board of Directors of
the fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
Directors who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval. The Agreement provides that the
Investment Adviser has no liability to the fund for its acts or omissions in
performance of its obligations to the fund not involving willful misconduct,
bad faith, gross negligence or reckless disregard of its obligations under the
Agreement. The Agreement also provides that either party has the right to
terminate it, without penalty, upon 60 days' written notice to the other party
and that the Agreement automatically terminates in the event of its assignment
(as defined in the 1940 Act).
Under the Agreement, the Investment Adviser's fee is calculated at the annual
rates of 0.80% on the first $1 billion of the fund's net assets, 0.70% on net
assets in excess of $1 billion but not exceeding $2 billion, 0.67% on net
assets in excess of $2 billion but not exceeding $3 billion, 0.65% on net
assets in excess of $3 billion but not exceeding $5 billion, 0.635% on net
assets in excess of $5 billion but not exceeding $8 billion, and 0.625% on net
assets in excess of $8 billion.
The Investment Adviser, in addition to providing the services and paying the
compensation and travel expenses of qualified persons to perform executive,
administrative, clerical and bookkeeping functions of the fund, provides
suitable office space and utilities, and provides necessary small office
equipment and general purpose accounting forms, supplies, and postage used at
the office of the fund.
The Investment Adviser has agreed that in the event the expenses of the fund
(with the exclusion of interest, taxes, brokerage costs, extraordinary expenses
such as litigation and acquisitions or other expenses excludable under
applicable state securities laws or regulations) for any fiscal year ending on
a date on which the Agreement is in effect, exceed the expense limitations, if
any, applicable to the fund pursuant to state securities laws or any
regulations thereunder, it will reduce its fee by the extent of such excess
and, if required pursuant to any such laws or any regulations thereunder, will
reimburse the fund in the amount of such excess.
During the fiscal years ended September 30, 1994, 1993 and 1992, the
Investment Adviser received advisory fees of $21,425,000, $12,856,000 and
$10,796,000, respectively.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 under the
1940 Act (see Fund Organization and Management -- Principal Underwriter in the
prospectus). The Principal Underwriter receives amounts payable pursuant to
the Plan (see below) and commissions consisting of that portion of the sales
charge remaining after the discounts which it allows to investment dealers.
Commissions retained by the Principal Underwriter on sales of fund shares for
the fiscal year ended September 30, 1994 amounted to $5,343,000 after allowance
of $28,153,000 to dealers. During the fiscal years ended September 30, 1993
and 1992, the Principal Underwriter retained $3,044,000 and $3,384,000,
respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire Board of Directors and
separately by a majority of the Directors who are not interested persons of the
fund and who have no direct or indirect financial interest in the operation of
the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and Directors who are interested persons of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Directors who
are not interested persons of the fund shall be committed to the discretion of
the Directors who are not interested persons during the existence of the Plan.
The Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan, the fund may expend up to 0.30% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares provided the fund's Board of Directors has approved the
category of expenses for which payment is made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million. Only expenses incurred during the preceeding
12 months and accrued while the Plan is in effect may be paid by the fund.
During the fiscal year ended September 30, 1994, the fund paid or accrued
$6,698,000 under the Plan as compensation to dealers.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status
of a regulated investment company under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of its investment company
taxable income, it will be taxed only on that portion of such investment
company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
gains or sale or other disposition of stock or securities held less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies and other securities, but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends, to the extent practicable, to meet these
distribution requirements to minimize or avoid the excise tax liability.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of foreign
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Code Section 988 may also apply to forward currency contracts. Under Section
988, each foreign currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Except for transactions the fund has identified as hedging
transactions, the fund is required for federal income tax purposes to recognize
as income for each taxable year its net unrealized gains and losses on forward
currency contracts as of the end of the year as well as those actually realized
during the year. Except for transactions in forward currency contracts which
are classified as part of a "mixed straddle," any gain or loss recognized with
respect to forward currency contracts is considered to be 60% long-term capital
gain or loss and 40% short-term capital gain or loss, without regard to the
holding period of the contract. In the case of a transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
It is anticipated that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above. In order to
avoid realizing excessive gains on securities or currencies held less than
three months, the fund may be required to defer the closing out of a forward
currency contract beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains on forward currency contracts,
which have been open for less than three months as of the end of the fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test, as discussed above.
The fund will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions
of capital gains realized on the fund's other investments.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid, and are
therefore taxable, in the current calendar year even if the fund pays the
dividend after December 31 but during January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a non-U.S. shareholder) will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens or domestic corporations will apply.
However, if the distribution is effectively connected with the conduct of the
non-U.S. shareholder's trade or business within the U.S., the distribution
would be included in the net income of the shareholder and subject to U.S.
income tax at the applicable marginal rate. Distributions of net long-term
capital gains are not subject to tax withholding, but if the non-U.S.
shareholder was an individual who was physically present in the U.S. during the
tax year for more than 182 days and such shareholder is nonetheless treated as
a nonresident alien, the distributions would be subject to a 30% tax.
The fund may be required to pay withholding and other taxes imposed by foreign
countries, generally at rates from 10% to 40%, which would reduce the fund's
investment income. While the fund expects to invest less than 50% of its
assets outside the U.S. under current market conditions, if more than 50% in
value of the fund's total assets at the close of its taxable year consists of
securities of foreign issuers, the fund will be eligible to file elections with
the Internal Revenue Service pursuant to which shareholders of the fund will be
required to include their respective pro rata portions of such withholding
taxes in their federal income tax returns as gross income, treat such amounts
as foreign taxes paid by them, and deduct such amounts in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their federal income taxes. In any year the fund makes such an election,
shareholders will be notified as to the amount of foreign withholding and other
taxes paid by the fund.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gain is 28%; and the maximum corporate tax applicable
to ordinary income and net capital gain is 35% (except that corporations with
income in excess of $100,000 for a taxable year will be required to pay an
additional income tax liability up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of tax of up to $100,000). Naturally, the amount of
tax payable by a taxpayer will be affected by a combination of tax law rules
covering, E.G., deductions, credits, deferrals, exemptions, sources of income
and other matters. Under the Code, an individual is entitled to establish an
IRA each year (prior to the tax return filing deadline for that year) whereby
earnings on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
PRICE OF SHARES -- Purchases of shares are made at the offering price next
determined after the purchase order is received. This offering price is
effective for orders received by American Funds Service Company (the Transfer
Agent), the fund or investment dealers prior to the time of determination of
the net asset value and, in the case of orders placed with dealers, accepted by
the Principal Underwriter prior to its close of business. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Any prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the public offering price, is based on the net
asset value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York Time) each day the New York Stock Exchange is
open as set forth below. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. The net asset value per share is determined as follows:
1. Portfolio securities, including ADR's and EDR's, which are traded on stock
exchanges, are valued at the last sale price on the exchange 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. In
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the over-the-counter
market are valued at the last reported sale price prior to the time of
valuation or, lacking any sales, at the last available bid price in the
over-the-counter market prior to the time of valuation. Securities and assets
for which market quotations are not readily available (including restricted
securities which are subject to limitations as to their sale) are valued at
fair value as determined in good faith by or under the direction of the Board
of Directors. U.S. Treasury bills, and other short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, with
original or remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, are valued at the mean of representative quoted bid
and asked prices for securities of comparable maturity, quality and type.
Short-term securities with 60 days or less to maturity are amortized to
maturity based on their cost if acquired within 60 days of maturity or, if
already held on the 60th day, based on the value determined on the 61st day.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business day in New York. In addition, European or Far Eastern securities
trading may not take place on all business days in New York. Furthermore,
trading takes place in various non-U.S. markets on days which are not business
days in New York and on which the Fund's net asset value is not calculated.
The calculation of net asset value may not take place contemporaneously with
the determination of the prices of portfolio securities used in such
calculation. Events affecting the values of non-U.S. portfolio securities that
occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the fund's calculation of net
asset value unless the Board of Directors deems that the particular event would
materially affect net asset value, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares, into U.S. dollars at the prevailing market rates. The fair value of
all other assets is added to the value of securities to arrive at the total
assets;
2. There are deducted from the total assets, thus determined, the liabilities,
including accruals of taxes and other expense items; and
3. The value of the net assets so obtained is then divided by the total number
of shares outstanding (excluding treasury shares) and the result, rounded to
the nearer cent, is the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The fund will not knowingly sell shares (other than for the reinvestment of
dividends or capital gain distributions) directly or indirectly, or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
4.5% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
STATEMENT OF INTENTION -- The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $50,000 or more made within a
13-month period pursuant to the terms of a written statement of intention (the
Statement) in the form provided by the Principal Underwriter and signed by the
purchaser. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder signs a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the
Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser must remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total purchases had been made at a single time. If
the difference is not paid within 20 days after written request by the
Principal Underwriter or the investment dealer, the appropriate number of
shares will be redeemed to pay such difference. If the proceeds from this
redemption are inadequate, the purchaser will be liable to the Principal
Underwriter for the balance still outstanding. The Statement may be revised
upward at any time during the 13-month period, and such a revision will be
treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases.
In the case of purchase orders by the trustees of certain retirement plans
by payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The investment made the first
month of the 13-month period will be multiplied by 13 and then multiplied by
1.5. On the first investment and all other investments made pursuant to the
statement of intention, a sales charge will be assessed according to the sales
charge breakpoint thus determined. There will be no retroactive adjustments in
sales charges on investments previously made during the 13-month period.
DEALER COMMISSIONS -- The following commissions will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k)" plan with 200 or more eligible employees, and
for purchases made at net asset value by certain retirement plans of
organizations with collective retirement plan assets of $100 million or more:
1.00% on amounts to $2 million, 0.80% on amounts over $2 million to $3 million,
0.50% on amounts over $3 million to $50 million, 0.25% on amounts over $50
million to $100 million, and 0.15% on amounts over $100 million. the level of
dealer commissions will be determined based on sales made over a 12-month
period commencing from the date of the first sale. See "The American Funds
Shareholder Guide" in the fund's prospectus for more information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as trustee or custodian.) Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement showing the current transaction. Participation in the
plan will begin within 30 days after receipt of the account application. If
your bank account cannot be charged due to insufficient funds, a stop-payment
order or closing of your account, the plan may be terminated and the related
investment reversed. The shareholder may change the amount of the investment
or discontinue the plan at any time by writing the Transfer Agent.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended September 30, 1994,
1993 and 1992 amounted to $10,987,000, $8,787,000 and $4,961,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank, N.A., One Chase Manhattan
Plaza, New York, NY 10081, as Custodian. Non-U.S. securities may be held by
the Custodian pursuant to sub-custodial arrangements in non-U.S. banks or
foreign branches of U.S. banks.
INDEPENDENT ACCOUNTANTS -- Deloitte & Touche LLP, 1000 Wilshire Boulevard,
Suite 1500, Los Angeles, CA 90017, has served as the fund's independent
accountants since its inception, providing audit services, preparation of tax
returns and review of certain documents to be filed with the Securities and
Exchange Commission. The financial statements included in this Statement of
Additional Information from the Annual Report have been so included in reliance
on the report of Deloitte & Touche LLP given on the authority of said firm as
experts in accounting and auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS -- At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on September 30.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent accountants,
Deloitte & Touche LLP, whose selection is determined annually by the Board of
Directors.
PERSONAL INVESTING POLICY -- Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Accountants contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE - SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $23.61
Maximum offering price per share (100/94.25 of
per share net asset value, which takes into
account the fund's current maximum sales load) $25.05
</TABLE>
INVESTMENT RESULTS
The fund's yield is 0.67% based on a 30-day (or one month) period ended
September 30, 1994, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's one-year total return and lifetime average annual compound return
for the periods ended September 30, 1994 were 2.34% and 12.37%, respectively.
The average annual compound return ("T") is computed by using the value at the
end of the period ("ERV") of a hypothetical initial investment of $1,000 ("P")
over a period of years ("n") according to the following formula as required by
the Securities and Exchange Commission: P(1+T)/n/ = ERV.
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period. Total return may be calculated for one year, five years,
ten years and for other periods of years. The average annual total return over
periods greater than one year also may be computed by utilizing ending values
as determined above.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Stock Composite
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc. and Weisenberger Investment Companies Services and by the U.S. Department
of Commerce. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (I.E. food, clothing, and
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results set forth below were calculated as described in the
fund's prospectus. The fund's results will vary from time to time depending
upon market conditions, the composition of the fund's portfolio and operating
expenses of the fund, so that any investment results reported by the fund
should not be considered representative of what an investment in the fund may
earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
EXPERIENCE OF THE INVESTMENT ADVISER -- Capital Research and Management Company
manages eight common stock funds that are at least 10 years old. In all of the
10-year periods since 1963 (109 in all), those funds have had better total
returns than the Standard and Poor's 500 Stock Composite Index in 91 of the 109
periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
SMALL CAPITALIZATION STOCKS VERSUS LARGE CAPITALIZATION STOCKS -- According to
Ibbottson Associates, an investment in small company stocks has grown an
average of 13.1% a year from September 30, 1969 through September 30, 1994
compared with an average of 11.0% a year for an investment in large company
stocks. Small company stocks are represented by the lowest 20% of market
capitalization of New York Stock Exchange, American Stock Exchange and
Over-the-Counter stocks, while large company stocks are represented by the
Standard & Poor's 500 Stock Composite Index.
The investment results set forth below were calculated as described in the
fund's Prospectus.
SMALLCAP VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Capital Appreciation
Russell/3/ NASDAQ/4/
Period SMALLCAP S&P 500/1/ MSCIW/2/ 2000 SMALLCAP OTC
<S> <C> <C> <C> <C> <C> <C>
4/30/90*
to 9/30/94 + 67.4% + 60.5% + 46.5% + 75.1% + 60.8% + 81.9%
</TABLE>
*Commencement of operations
/1/ The Standard and Poor's 500 Stock Composite Index, which consists of
industrial, transportation, public utilities and financial stocks and
represents a large portion of the value of issues traded on the New York Stock
Exchange. Selected issues traded on the American Stock Exchange are also
included.
/2/ The Morgan Stanley Capital International World Index, which is an
arithmetical average, weighted by market value, of the performance of more than
1,400 securities listed on the stock exchanges of Europe, Australia, the Far
East, Canada, New Zealand and the U.S.
/3/ The Russell 2000 Index, which contains 2000 smaller capitalized companies
in the Russell 3000 Index (these smaller companies have market capitalizations
of approximately $20 million to $300 million).
/4/ The National Association of Securities Dealers Automated Quotation
Composite Index of Over-the-Counter Stocks represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, covers some 3,500 stocks, is market value weighed and
reflects only capital appreciation.
IF YOU ARE CONSIDERING THE FUND FOR AN INDIVIDUAL RETIREMENT ACCOUNT...
<TABLE>
<CAPTION>
Here's how much you would have if you invested $2,000 a year in the fund:
<S> <C> <C>
1 Year 2 Years Lifetime
(10/1/93 - 9/30/94) (10/1/92 - 9/30/94) (4/30/90 - 9/30/94)
$2,047 $4,758 $13,249
</TABLE>
Illustration of a $10,000 investment in the fund with
dividends reinvested and capital gain distributions taken in shares
(For the lifetime of the fund, April 30, 1990 through September 30, 1994)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF
SHARES
Fiscal Annual Total Investment From From Dividends Total
Year End Dividends Dividends Cost Initial Capital Reinvested Value
9/30 (cumulative) Investment Gains
Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1990# $ -- $ -- $ 10,000 $ 8,288 $ -- $ -- $ 8,288
1991 251 251 10,251 11,000 -- 307 11,307
1992 71 322 10,322 11,256 -- 384 11,640
1993 52 374 10,374 14,200 670 548 15,418
1994 41 415 10,415 14,756 1,376 612 16,744
</TABLE>
The dollar amount of capital gain distributions during the period was $1,194
# from April 30, 1990, the date the fund commenced operations
21
APPENDIX
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"A - Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C-1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
SMALLCAP WORLD FUND
INVESTMENT PORTFOLIO SEPTEMBER 30, 1994
INDUSTRY DIVERSIFICATION
Broadcasting & Publishing 8.27%
Merchandising 7.49%
Electronic Components 5.44%
Telecommunications 4.89%
Banking 4.30%
Other Industries 50.24%
Cash & Equivalents 19.37%
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percent
of Net
LARGEST INDIVIDUAL HOLDINGS Assets
First Pacific 1.15%
Tolmex 1.04
Lands' End 1.00
Associated Communications .92
Cablevision Systems .91
Western Digital .87
ANTEC .84
Gaylord Entertainment .83
Staples .83
Corel .81
Shares or Market Percent
EQUITY-TYPE SECURITIES Principal Value of Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
Broadcasting & Publishing - 8.27%
Cablevision Systems Corp., Class A (USA)/1/ 530,000 $31,800 .91%
Gaylord Entertainment Co., Class A (USA) 1,280,000 29,120 .83
Bell Cablemedia PLC (American Depositary Receipts) (United
Kingdom)/1/ 895,000 22,822 .65
Westwood One, Inc. (USA)/1/ 1,840,000 20,930 .60
International Family Entertainment, Inc., Class B (USA)/1/ 1,250,000 18,125 .52
Scandinavian Broadcasting System SA (Denmark - Incorporated
in Luxembourg)/1/ 655,000 17,194 .49
FLEXTECH PLC (United Kingdom)/1/ 2,049,600 13,401 .38
TCA Cable TV, Inc. (USA) 540,000 12,960 .37
United International Holdings, Inc., Class A (USA)/1/ 760,000 11,020 .32
Australis Media Group Ltd. (Australia)/1/ /2/ /3/ 7,596,960 5,904
Australis Media Group Ltd., convertible preferred /1/ 6,400,000 4,974 .31
BET Holdings, Inc., Class A (USA)/1/ 630,000 10,159 .29
Jones Intercable, Inc., Class A (USA)/1/ 610,000 8,540 .25
CanWest Global Communications Corp. (Canada)/2/ 390,000 8,289 .24
TV 4 AB, CLASS A (SWEDEN) 325,000 7,038 .20
McClatchy Newspapers, Inc., Class A (USA) 293,000 6,959 .20
Scottish Television PLC (United Kingdom) 900,000 6,948 .20
Renaissance Communications Corp. (USA)/1/ 261,300 6,924 .20
Century Communications Corp., Class A (USA)/1/ 724,064 6,517 .19
Playboy Enterprises, Inc., Class B (USA)/1/ 756,000 6,426 .18
Adelphia Communications Corp., Class A (USA)/1/ 525,000 6,038 .17
Le Groupe Videotron Ltee (Canada) 556,000 5,494 .16
Shaw Communications Inc., Class B (Canada)/2/ 390,000 2,908 .08
AUDIOFINA (Luxembourg) 5,168 2,844 .08
Infinity Broadcasting Corp., Class A (USA)/1/ 92,375 2,771 .08
SelecTV PLC (United Kingdom)/1/ 6,800,000 2,303 .07
NRJ SA (France) 19,284 2,187 .06
Broadcasting Partners, Inc., Class A (USA)/1/ 150,000 2,025 .06
Pulitzer Publishing Co. (USA) 55,000 1,973 .06
Pacific Media PLC (United Kingdom)/1/ 52,249,124 1,852 .05
Wattachak (Thailand) 775,000 1,536 .04
Multimedia, Inc. (USA)/1/ 37,700 1,131 .03
Merchandising - 7.49%
Lands' End, Inc. (USA) 1,750,000 35,000 1.00
Staples, Inc. (USA)/1/ 888,750 29,107 .83
Viking Office Products, Inc. (USA)/1/ 900,000 27,000 .77
H & M Hennes & Mauritz AB, Class B (Sweden) 520,000 24,955 .71
Consolidated Stores Corp. (USA)/1/ 1,505,000 24,644 .71
Williams-Sonoma, Inc. (USA)/1/ 543,750 18,487 .53
Hanover Direct, Inc. (USA)/1/ 3,800,000 15,913 .46
Duty Free International, Inc. (USA) 855,000 10,260 .29
Colruyt NV (Belgium) 41,850 9,450 .27
Kwik-Fit Holdings PLC (United Kingdom) 3,570,000 8,606 .25
Micro Warehouse, Inc. (USA)/1/ 275,000 8,525 .24
Fabri-Centers of America, Inc. (USA)/1/ 470,000 7,520 .22
Goody's Family Clothing, Inc. (USA)/1/ 610,000 6,710 .19
TJX Companies, Inc. (USA) 270,000 5,670 .16
ShopKo Stores, Inc. (USA) 376,800 4,004 .12
Super Food Services, Inc. (USA) 345,000 3,968 .11
Goldlion Holdings Ltd., 4.875% convertible debentures 1999
(Hong Kong) $5,000,000 3,775 .11
PETsMART, Inc. (USA)/1/ 100,000 3,775 .11
Komeri Co. (Japan) 123,000 3,230 .09
Tandy Brands Accessories, Inc. (USA)/1/ 221,625 2,937 .08
Crown Books Corp. (USA)/1/ 160,000 2,600 .07
Tsutsumi Jewelry Co., Ltd. (Japan) 20,000 2,060 .06
Groupe Andre (France) 18,494 1,989 .06
Ishiguro Homa Corp. (Japan) 59,000 1,668 .05
Electronic Components - 5.44%
Western Digital Corp. (USA)/1/ 2,050,000 30,494 .87
ANTEC Corp. (USA)/1/ 1,150,000 29,325 .84
Analog Devices, Inc. (USA)/1/ 650,000 21,450 .61
Cirrus Logic, Inc. (USA)/1/ 450,000 12,600 .36
Tellabs, Inc. (USA)1 273,600 11,628 .33
Linear Technology Corp. (USA) 260,000 11,505 .33
SCI Systems, Inc. (USA)/1/ 525,236 11,096 .32
Maxim Integrated Products, Inc. (USA)/1/ 150,000 9,113 .26
Microchip Technology Inc. (USA)/1/ 232,500 9,068 .26
Quantum Corp. (USA)/1/ 593,100 8,748 .25
Cypress Semiconductor Corp. (USA)/1/ 500,000 8,687 .25
First Pacific Networks, Inc. (USA)/1/ 850,000 5,206 .15
OPTi Inc. (USA)/1/ 380,000 4,940 .14
Park Electrochemical Corp. (USA) 120,000 4,080 .12
Nihon Dempa Kogyo Co., Ltd. (Japan) 100,000 3,424 .10
Megahertz Corp. (USA)/1/ 393,900 2,954 .08
Maxtor Corp. (USA)/1/ 600,000 2,775 .08
Rogers Corp. (USA)/1/ 70,000 2,380 .07
Burr-Brown Corp. (USA)/1/ 89,800 887 .02
Telecommunications - 4.89%
Associated Communications Corp., Class A (USA)/1/ 901,300 22,758
Associated Communications Corp., Class B /1/ 375,000 9,469 .92
United States Cellular Corp. (USA)/1/ 924,000 28,182 .81
Vanguard Cellular Systems, Inc. (USA)/1/ 937,500 24,375 .70
International CableTel Inc. (USA)/1/ 507,400 15,983 .46
Telephone and Data Systems, Inc. (USA) 270,000 12,420 .35
Pilipino Telephone Corp. (Philippines)/1/ /3/ 1,260,000 10,395 .30
Octel Communications Corp. (USA)/1/ 450,000 9,225 .26
LCI International, Inc. (USA)/1/ 450,000 8,663 .25
Centennial Cellular Corp. (USA)/1/ 490,000 8,085 .23
NORDICTEL HOLDINGS AB (SWEDEN)/1/ 780,100 7,300 .21
Atlantic Tele-Network, Inc. (USA)/1/ 610,000 6,329 .18
Century Telephone Enterprises, Inc. (USA) 174,500 5,039 .14
BCE Mobile Communications Inc. (Canada)/1/ 95,000 2,736 .08
Banking - 4.30%
BayBanks, Inc. (USA) 475,200 26,017 .74
Washington Mutual Savings Bank (USA) 918,750 18,720 .54
Mercantile Bancorporation Inc. (USA) 375,000 13,828 .40
First Financial Corp. (USA) 700,000 11,725 .34
Central Fidelity Banks, Inc. (USA) 367,500 11,117 .32
Provident Bancorp, Inc. (USA) 305,000 10,523 .30
West One Bancorp (USA) 350,000 9,756 .28
City National Corp. (USA)/1/ 875,000 9,625 .27
Safra Republic Holdings SA (Luxembourg) 112,000 9,240 .26
Bay View Capital Corp. (USA) 338,000 8,450 .24
Washington Federal Savings and Loan Assn. (USA) 353,925 7,123 .20
Keystone Financial, Inc. (USA) 220,000 6,215 .18
Philippine National Bank (Philippines) 287,176 4,492 .13
TriCo Bancshares (USA) 149,880 2,248 .06
First Bancorporation of Ohio (USA) 51,000 1,339 .04
Data Processing & Reproduction - 3.59%
Corel Corp. (Canada)/1/ 1,370,000 28,427 .81
Mentor Graphics Corp. (USA)/1/ 1,750,000 19,469 .56
Electronic Arts (USA)/1/ 715,000 13,049 .37
Autodesk, Inc. (USA) 200,000 12,500 .36
CONVEX Computer Corp. (USA)/1/ 1,020,000 8,160 .23
Acclaim Entertainment, Inc. (USA)/1/ 450,000 7,650 .22
Macromedia, Inc. (USA)/1/ 475,000 7,244 .21
Learning Co. (USA)/1/ 360,000 7,110 .20
SCRIBONA AB, CLASS B (SWEDEN) 982,000 5,645 .16
PictureTel Corp. (USA)/1/ 300,000 5,100 .15
Walker Interactive Systems, Inc. (USA)/1/ 620,000 4,495 .13
Micrografx, Inc. (USA)/1/ 425,000 2,284 .07
Fulcrum Technologies Inc. (Canada)/1/ 160,000 1,880 .05
Information International, Inc. (USA)/1/ /2/ 150,000 1,538 .04
Structural Dynamics Research Corp. (USA)/1/ 200,000 900 .03
Leisure & Tourism - 3.53%
Village Roadshow Ltd. (Australia) 8,005,000 19,435
Village Roadshow Ltd., preferred shares /4/ 2,826,150 5,439 .80
Village Roadshow Ltd., preferred shares 1,550,000 2,983
Spelling Entertainment Group Inc. (USA) 1,563,800 18,766 .54
Rio Hotel & Casino, Inc. (USA)/1/ 947,600 12,556 .36
AAPC Ltd. (Australia) 17,635,365 12,532 .36
Savoy Pictures Entertainment, Inc. (USA)/1/ 960,000 11,040 .32
J D Wetherspoon PLC (United Kingdom) 1,600,000 10,134 .29
Four Seasons Hotels Inc. (Canada) 780,000 9,234 .26
UGC Droit Audiovisuels (France) 135,000 5,308 .15
Au Bon Pain Co., Inc. (USA)/1/ 300,000 4,950 .14
Samuel Goldwyn Co. (USA)/1/ 500,600 3,254 .09
ACTIVISION, Inc. (USA)/1/ /3/ 570,000 2,992 .09
Quantum Restaurant Group, Inc. (USA)/1/ 315,000 2,835 .08
Mandarin Oriental International Ltd. (Hong Kong -
Incorporated in Bermuda) 1,400,000 1,866 .05
Business & Public Services - 3.32%
America Online, Inc.(USA)/1/ 175,000 11,944 .34
United Waste Systems, Inc. (USA)/1/ 420,000 10,185 .29
Blenheim Group PLC (United Kingdom) 2,261,460 8,872
Blenheim Group PLC, 6.40% convertible preferred 409,090 425 .27
Quebecor Printing Inc. (Canada) 705,000 7,754 .22
Oxford Health Plans, Inc. (USA)/1/ 100,000 7,600 .22
Flughafen Wien AG (Austria) 163,000 6,940 .20
Banta Corp. (USA) 195,000 6,386 .18
MDC Corp., Class A (Canada)/1/ 2,600,000 5,468 .16
Saatchi & Saatchi Co. PLC (United Kingdom)/1/ 2,199,995 5,407 .15
Goldsborough Healthcare PLC (United Kingdom) 2,195,000 5,291 .15
International Container Terminal Services, Inc., 5.00%
convertible debentures 2001 (Philippines) $5,500,000 5,101 .15
Air & Water Technologies Corp., Class A (USA)/1/ 658,500 4,856 .14
Kanamoto Co. Ltd. (Japan) 120,000 3,624 .10
Logitech International SA (Switzerland) 41,800 3,410 .10
Pacific Physician Services, Inc. (USA)/1/ 200,000 3,150 .09
Thomas Group, Inc. (USA)/1/ 358,100 3,133 .09
Matrix Service Co. (USA)/1/ 460,000 2,933 .08
Ceridian Corp. (USA)/1/ 100,000 2,462 .07
UNC Inc. (USA)/1/ 350,000 2,275 .07
Harding Associates, Inc. (USA)/1/ 235,000 1,821 .05
Energy BioSystems Corp. (USA)/1/ 240,000 1,800 .05
M.A.I.D. PLC (United Kingdom)/1/ 1,800,000 1,560 .04
EnSys Environmental Products, Inc. (USA)/1/ 265,000 1,458 .04
Western Waste Industries (USA)/1/ 75,000 1,331 .04
GNI Group, Inc. (USA)/1/ 290,000 1,051 .03
Health & Personal Care - 2.95%
Genetics Institute, Inc. (USA)/1/ 333,000 15,068 .43
Paragon Trade Brands, Inc. (USA)/1/ 520,000 13,520 .39
Roberts Pharmaceutical Corp. (USA)/1/ 375,000 10,219 .29
Omnicare, Inc. (USA) 210,000 8,426 .24
Ethical Holdings PLC (American Depositary Receipts)
(United Kingdom)/1/ /2/ 675,000 5,569 .16
Alpha-Beta Technology, Inc. (USA)/1/ 400,000 5,200 .15
Acuson Corp. (USA)/1/ 300,000 4,875 .14
PerSeptive Biosystems, Inc. (USA)/1/ 350,000 4,812 .14
Body Shop International PLC (United Kingdom) 1,360,000 4,778 .14
Isis Pharmaceuticals, Inc. (USA)/1/ 975,000 4,631 .13
Cephalon, Inc. (USA)/1/ 445,000 4,561 .13
SciClone Pharmaceuticals, Inc. (USA)/1/ 600,000 4,275 .12
Liposome Technology, Inc. (USA)/1/ 585,000 3,803 .11
Vision-Sciences, Inc. (USA)/1/ 450,000 2,925 .08
Biomatrix, Inc. (USA)/1/ 410,000 2,050 .06
InSite Vision Inc. (USA)/1/ 350,000 2,012 .06
AutoImmune Inc. (USA)/1/ 400,000 1,950 .06
Gensia Pharmaceuticals, Inc. (USA)/1/ 180,000 1,575 .04
Cyberonics, Inc. (USA)/1/ 354,500 1,329 .04
Maybelline, Inc. (USA) 51,900 993 .03
Cortecs International Ltd. (Australia)/1/ 974,500 534 .01
Chemicals - 2.62%
Kalon Group PLC (United Kingdom)/2/ 7,330,000 18,304 .52
Holliday Chemical Holdings PLC (United Kingdom) 4,912,500 17,027 .49
Tessenderlo Chemie SA (Belgium) 40,429 12,933 .37
Sterling Chemicals, Inc. (USA)/1/ 730,000 9,855 .28
Valspar Corp. (USA) 190,000 6,484 .18
RPM, Inc. (USA) 330,000 6,187 .18
Armor All Products Corp. (USA) 222,100 5,108 .15
Yip's Hang Cheung (Holdings) Ltd. (Hong Kong) 13,100,000 4,747 .14
Airgas, Inc. (USA)/1/ 141,000 3,860 .11
Raychem Corp. (USA) 88,000 3,608 .10
Yorkshire Chemical PLC (United Kingdom) 350,000 2,294 .07
Ellis & Everard PLC (United Kingdom) 250,000 1,030 .03
Insurance - 2.39%
Fairfax Financial Holdings Ltd. (Canada)/1/ 360,700 19,904 .57
Pohjola Insurance Co. Ltd., Class B (Finland)/2/ 1,003,000 13,111 .38
Transatlantic Holdings, Inc. (USA) 225,000 11,334 .32
Harleysville Group Inc. (USA) 355,000 8,786 .25
C.E. Heath International Holdings Ltd. (Australia) 5,421,020 4,936 .14
Kolnische Ruckversicherungs-Gesellschaft AG (Germany) 7,835 4,445 .13
NYMAGIC, INC. (USA) 254,000 4,350 .13
Selective Insurance Group, Inc. (USA) 165,000 4,208 .12
Irish Life PLC (Ireland) 1,234,000 3,645 .11
Vital Forsikring AS, Class A Frie (Norway) 358,000 3,272 .09
Taisei Fire and Marine Insurance Co., Ltd. (Japan) 500,000 3,237 .09
NAC Re Corp. (USA) 87,200 2,202 .06
Multi-Industry - 2.22%
First Pacific Co. Ltd. (Hong Kong) 54,885,117 40,134 1.15
D'Ieteren Holdings BV (Belgium) 203,883 15,282 .44
Industriforvaltnings AB Kinnevik, Class B (Sweden) 360,000 10,467
Industriforvaltnings AB Kinnevik, Class A 166,440 4,761 .43
Corporacion Financiera Alba, SA (Spain) 80,000 3,771 .11
Amalgamated Holdings Ltd. (Australia) 290,000 1,664
Amalgamated Holdings Ltd., 5.00% convertible preferred 265,000 1,569 .09
Energy Sources - 2.05%
Ashland Coal, Inc. (USA)/3/ 429,000 12,977 .37
ELAN Energy Inc. (Canada)/1/ 1,635,000 10,973 .31
California Energy Co., Inc. (USA)/1/ 512,000 8,768 .25
CRSS Inc. (USA)/2/ 720,000 8,190 .23
Cabre Exploration Ltd. (Canada)/1/ 723,500 6,879 .20
Paramount Resources Ltd. (Canada) 400,000 4,623 .13
Trident NGL Holding, Inc. (USA) 450,000 4,556 .13
Jordan Petroleum Ltd., Class A (Canada)/1/ 450,000 3,523 .10
Czar Resources Ltd. (Canada)/1/ 2,558,000 2,995 .09
Ampolex Ltd., 8.00% convertible preferred (Australia) 908,000 2,823 .08
Penn West Petroleum Ltd., warrants, expire 1995 (Canada)/1/ 478,000 2,762 .08
Northstar Energy Corp. (Canada)/1/ 145,400 1,355 .04
Elf Gabon SA (Gabon) 6,700 1,279 .04
Industrial Components - 1.95%
Standard Products Co. (USA) 507,600 12,690 .36
Bearings, Inc. (USA) 273,300 8,438 .24
Hayes Wheels International, Inc. (USA) 344,000 8,170 .23
Lear Seating Corp. (USA)/1/ 352,300 6,474 .19
Autoliv AB (American Depositary Receipts) (Sweden)/1/ 203,300 6,115 .18
Federal-Mogul Corp. (USA) 250,000 5,563 .16
Innovative International (Holdings) Ltd. (Hong Kong) 18,156,000 5,287 .15
Yurtec Corp. (Japan) 207,900 4,850 .14
Orbital Engine Corp. Ltd. (Australia)/1/ 1,914,701 2,608 .07
Watts Industries, Inc., Class A (USA) 100,000 2,425 .07
Gold Peak Industries (Holdings) Ltd. (Hong Kong) 5,483,000 2,200
Gold Peak Industries (Holdings) Ltd., warrants, expire
1995 /1/ 1,200,000 101 .07
Timken Co. (USA) 50,000 1,881 .05
Goulds Pumps, Inc. (USA) 65,000 1,422 .04
Building Materials & Components - 1.91%
Tolmex, SA de CV, Class B2 (Mexico) 2,400,000 36,428 1.04
Puerto Rican Cement Co., Inc. (USA) 336,000 11,004 .32
Lafarge Corp. (USA) 335,000 6,742 .19
Butler Manufacturing Co. (USA) 210,000 6,720 .19
Deceuninck Plastics Industries NV (Belgium) 50,000 5,959 .17
Machinery & Engineering - 1.90%
Svedala Industri AB (Sweden) 685,000 14,651 .42
Kalmar Industries AB (Sweden)/1/ 638,000 7,120 .20
KSB AG, preferred shares (Germany) 23,930 5,323
KSB AG 5,988 1,448 .19
Thermo Fibertek Inc. (USA)/1/ 400,000 5,850 .17
Jungheinrich AG (Germany) 20,500 4,725 .13
Miura Co., Ltd. (Japan) 250,000 4,444 .13
Thermo Power Corp. (USA)/1/ 410,000 3,741 .11
Cincinnati Milacron Inc. (USA) 138,900 3,577 .10
Hitachi Kiden Kogyo, Ltd. (Japan) 180,000 2,690 .08
Varity Corp. (USA)/1/ 71,914 2,688 .08
Memtec Ltd. (Australia) 2,325,010 2,668 .07
APV PLC (United Kingdom) 2,260,000 2,492 .07
EMCON (USA)/1/ 365,000 1,825 .05
Siu-Fung Ceramics Holdings Ltd. (Hong Kong - Incorporated
in
Bermuda) 8,000,000 1,719 .05
Bobst SA (Switzerland) 1,280 1,631 .05
Transportation: Rail & Road - 1.55%
Wisconsin Central Transportation Corp. (USA)/1/ 472,100 19,120 .55
TNT Freightways Corp. (USA) 600,000 15,300 .44
TNT Ltd. (Australia)/1/ 4,000,000 7,076
TNT Ltd., 8.00% convertible preferred 1,316,100 2,513 .27
M.S. Carriers, Inc. (USA)/1/ 250,000 5,563 .16
Nippon Konpo Unyu Soko (Japan) 460,000 4,436 .13
Beverages - 1.53%
Brau Union (Austria) 271,800 18,681 .54
Canandaigua Wine Co., Inc., Class A (USA)/1/ 345,000 11,385 .33
Osterreichische Brau-Beteiligungs AG (Austria) 176,770 10,219 .29
El Aguila, SA (Spain)/1/ 648,100 6,160
El Aguila, SA, 10.00% convertible debentures 1997 PTA224,000,000 1,658 .22
Boddington Group PLC (United Kingdom) 1,316,000 5,339 .15
Energy Equipment - 1.40%
Landmark Graphics Corp. (USA)1 650,000 15,112 .43
Camco International, Inc. (USA) 782,700 14,969 .43
Babcock International Group PLC (United Kingdom)/1/ 25,571,428 12,489 .36
Enterra Corp. (USA)/1/ 160,000 3,560 .10
Moorco International Inc. (USA) 120,000 1,845 .05
Tokyo Denki Komusho (Japan) 80,000 1,026 .03
Metals: Steel - 1.34%
Avesta Sheffield AB (Sweden)/1/ 1,766,400 14,404 .41
ARBED SA (Luxembourg)/1/ 35,500 5,433
ARBED SA, 2.50% convertible Eurobonds 2003 BFR6,000,000 3,849 .27
Svenskt Stal AB, Class A (Sweden) 120,000 5,181 .15
Worthington Industries, Inc. (USA) 213,750 4,596 .13
Quanex Corp. (USA) 150,000 3,938 .11
Nippon Denro Ispat Ltd., 3.00% convertible debentures 2001
(India) $4,700,000 3,878 .11
Tung Ho Steel Enterprise Corp. (Global Depositary Receipts)
(Taiwan)/1/ 157,000 2,630 .07
Maanshan Iron & Steel Co. Ltd., Class H (China) 6,022,000 1,980 .06
Tubos de Acero de Mexico, SA (American Depositary
Receipts) (Mexico)/1/ 182,000 1,001 .03
Metals: Nonferrous - 1.21%
ERAMET (France)/3/ 230,000 14,825 .42
Magma Copper Co., convertible preferred, Series E (USA) 90,000 6,300
Magma Copper Co., convertible preferred, Series D 70,000 4,690 .32
Alcan Australia Ltd. (Australia)/1/ 3,604,200 8,404 .24
QNI Ltd. (Australia)/1/ 5,207,000 8,094 .23
Construction & Housing - 1.06%
Plettac AG (Germany) 22,200 11,594
Plettac AG, rights, expire 10/10/94 /1/ 22,200 272 .34
Ryland Group, Inc. (USA) 660,000 10,477 .30
Del Webb Corp. (USA) 500,000 7,687 .22
Stone & Webster, Inc. (USA) 85,000 2,763 .08
Nippon Denwa Shisetsu Co., Ltd. (Japan) 165,000 2,483 .07
Higashi Nihon House Co. Ltd. (Japan) 46,000 1,779 .05
Wholesale & International Trade - 1.03%
Kamei Corp. (Japan) 790,000 10,691 .31
Jardine International Motor Holdings Ltd.
(Hong Kong - Incorporated in Bermuda) 7,880,000 10,606 .30
Finning Ltd. (Canada) 653,500 10,477 .30
Tokyo Sangyo (Japan) 288,000 4,072 .12
Transportation: Shipping - 1.00%
Wah Kwong Shipping Holdings Ltd. (Hong Kong) 4,408,500 9,300 .27
SMEDVIG AS (American Depositary Receipts) (Norway)/1/ /2/ 425,000 6,800 .19
EffJohn Oy AB, Class A (Finland)/1/ 362,000 6,342 .18
IMC Holdings Ltd. (Hong Kong) 8,198,000 6,101 .17
Benor Tankers Ltd. (Norway) /1/ 750,000 3,753 .11
Shun Tak Holdings Ltd. (Hong Kong) 3,338,926 2,809 .08
Utilities: Electric & Gas - 0.98%
Australian Gas Light Co. (Australia) 4,580,934 15,326 .44
Capex SA, Class A (Global Depositary Receipts) (Argentina)/1/ 384,200 7,300 .21
South Wales Electricity PLC (United Kingdom) 520,000 6,226 .18
Burgenland Holding AG (Austria)/2/ 150,000 5,423 .15
Miscellaneous Materials & Commodities - 0.92%
Hoganas Eldfast AB, Class B (Sweden)/2/ 1,490,000 22,308 .64
Sealed Air Corp. (USA)/1/ 200,000 6,450 .18
Oil-Dri Corp. of America (USA) 175,000 3,456 .10
Appliances & Household Durables - 0.90%
Industrie Natuzzi SpA (American Depositary Receipts)
(Italy) 525,000 16,341 .47
O'Sullivan Industries Holdings, Inc. (USA)/1/ 665,000 7,980 .23
Harman International Industries, Inc. (USA) 133,100 4,642 .13
SEB SA (France) 25,437 2,543 .07
Electronic Instruments - 0.86%
Plantronics, Inc. (USA)/1/ 350,000 8,400 .24
Benefon (Finland) 20,500 7,174 .20
Ultratech Stepper, Inc. (USA)/1/ 190,000 6,840 .20
Fluke Corp. (USA) 160,000 4,960 .14
LoJack Corp. (USA)/1/ 400,000 2,700 .08
Food & Household Products - 0.75%
Hazelwood Foods PLC (United Kingdom) 7,500,000 14,298 .41
J.M. Smucker Co., Class B (USA) 300,000 6,487 .18
Nestle (Malaysia) Sdn. Bhd. (Malaysia) 730,000 4,500 .13
JC Foods (Japan) 60,000 1,024 .03
Recreation & Other Consumer Products - 0.57%
Pacific Concord Holding Ltd. (Hong Kong) 19,862,000 6,529
Pacific Concord Holding Ltd., 4.75% convertible debentures $5,000,000 4,288 .31
1998
Coleman Co., Inc. (USA)/1/ 155,000 5,425 .16
Jostens, Inc. (USA) 200,000 3,575 .10
Textiles & Apparel - 0.48%
Fila Holding SpA (American Depositary Receipts) (Italy) 555,000 8,533 .24
Gamma Holding NV (Netherlands) 105,200 5,592 .16
Chaus (Bernard), Inc. (USA)/1/ 700,000 2,800 .08
Forest Products & Paper - 0.47%
Caraustar Industries, Inc. (USA) 495,000 10,024 .29
P.T. Indah Kiat Pulp & Paper Corp. (Indonesia) 4,935,000 6,464 .18
Electrical & Electronics - 0.43%
Johnson Electric Holdings Ltd. (Hong Kong - Incorporated in
Bermuda) 3,135,000 8,825 .25
MagneTek, Inc. (USA)/1/ 400,000 5,250 .15
Steinbrecher Corp., convertible preferred, Series D (USA)/3/ 125,000 1,000 .03
Transportation: Airlines - 0.32%
PR Holdings, Inc., subscription rights (Philippines)/1/ /3/ 1,730,000 7,344 .21
Tower Air, Inc. (USA) 450,000 3,881 .11
Aerospace & Military Technology - 0.16%
Celsius Industries Corp., Class B (Sweden) 250,000 5,581 .16
Real Estate - 0.13%
Burswood Property Trust (Australia) 4,500,000 4,497 .13
Miscellaneous - 4.72%
Other equity-type securities in initial period of
acquisition 164,899 4.72
-------- ------
TOTAL EQUITY-TYPE SECURITIES (cost: $2,354,143,000) 2,819,251 80.63
-------- ------
Principal
Amount
SHORT-TERM SECURITIES (000)
Corporate Short-Term Notes - 10.74%
Nestle Capital Corp. 4.72%-4.86% due 10/6-10/28/94 $ 52,350 52,227 1.49
National Australia Funding (Delaware) Inc. 4.77% due
10/24/94 44,100 43,960 1.26
Canadian Imperial Holdings Inc. 4.86% due 12/12/94 40,000 39,588 1.13
Ford Credit Europe PLC 4.87%-4.92% due 10/27-11/21/94 32,600 32,388 .93
Toyota Motor Credit Corp. 4.92% due 10/25/94 31,000 30,894 .88
Halifax Building Society 4.76%-4.98% due 10/19-11/28/94 27,600 27,474 .79
ABN-AMRO North America Finance Inc. 4.73%-4.97% due
10/3-11/30/94 25,000 24,908 .71
Panasonic Finance Inc. 4.62% due 10/12/94 20,000 19,969 .57
Toronto-Dominion Holdings USA Inc. 4.77% due 10/17/94 20,000 19,955 .57
Barclays U.S. Funding Corp. 4.48% due 10/4/94 18,800 18,791 .54
Abbey National North America 4.81% due 11/21/94 18,200 18,072 .52
Sony Capital Corp. 4.92% due 10/21/94 13,000 12,963 .37
Daimler-Benz North America Corp. 4.76% due 10/28/94 11,000 10,959 .31
Commerzbank U.S. Finance Inc. 4.715% due 10/6/94 8,900 8,893 .25
PepsiCo, Inc. 4.71% due 10/5/94 7,800 7,795 .22
British Telecommunications PLC 4.93% due 11/1/94 6,200 6,173 .18
Canadian Wheat Board 4.85% due 10/21/94 700 698 .02
Federal Agency Discount Notes - 7.63%
Federal Home Loan Mortgage Corp. 4.52%-4.91% due
10/3-11/2/94 152,060 151,520 4.33
Federal Home Loan Bank 4.73%-4.93% due 11/8-11/28/94 73,110 72,572 2.08
Federal National Mortgage Assn. 4.71%-4.90% due
10/13-12/2/94 43,000 42,803 1.22
Certificates of Deposit - 2.29%
ABN-AMRO Bank NV 4.77% due 10/17/94 25,000 25,000 .72
Commerzbank AG 4.89% due 12/9/94 25,000 24,987 .71
National Westminster Bank PLC 4.82% due 11/8/94 15,000 15,000 .43
Societe Generale 4.75% due 10/6/94 15,000 15,000 .43
Non-U.S. Government Short-Term Notes - 0.51%
Alberta (Province of) 4.76% due 11/1/94 3,700 3,684 .10
British Columbia (Province of) 4.81% due 12/5/94 14,300 14,166 .41
-------- -------
TOTAL SHORT-TERM SECURITIES (cost: $740,496,000) 740,439 21.17
-------- -------
TOTAL INVESTMENT SECURITIES (cost: $3,094,639,000) 3,559,690 101.80
Excess of payables over cash and receivables 62,976 1.80
-------- -------
NET ASSETS $3,496,714 100.00%
======== =======
</TABLE>
/1/ Non-income-producing securities
/2/ The fund owns 7.16%, 6.30%, 6.00%, 5.57%, 5.56%, 5.42%, 5.34%, 5.25%,
5.00%, 5.00% and 5.00% of the
outstanding voting securities of Shaw Communications, Information
International, Hoganas Eldfast, CRSS, Kalon Group, Australis Media, CanWest
Global Communications, Ethical Holdings, Burgenland Holding, Pohjola Insurance
and SMEDVIG, respectively, which represent investments in an affiliate as
defined in the Investment Company Act of 1940.
/3/ Purchased in a private placement transaction; resale to the public may
require registration.
/4/ Represents a when-issued security.
See Notes to Financial Statements
- ----------
<TABLE>
<CAPTION>
EQUITY-TYPE SECURITIES APPEARING IN EQUITY-TYPE SECURITIES ELIMINATED
THE PORTFOLIO SINCE MARCH 31, 1994 FROM THE PORTFOLIO SINCE MARCH 31,
1994
<S> <C>
Acclaim Entertainment AAR
Alcan Australia Adaptec
ANTEC Aldus
Autoliv Applied Materials
Babcock International Group ASK Computer Systems
Bell Cablemedia Broderbund Software
Broadcasting Partners Catalina Marketing
CanWest Global Communications CEMEX
Capex COFLEXIP
Czar Resources Curative Technologies
D'Ieteren Holdings Delta Queen Steamboat
ERAMET Dorling Kindersley Holdings
Information International Espirito Santo Financial Holding
International CableTel GEA
International Container Terminal GOOD GUYS
Services Grupo Embotellador de Mexico
Jostens Guoco Group
Jungheinrich Interface
Kalmar Industries Jacor Communications
Lear Seating Keystone International
Nippon Denro Ispat Kimberly-Clark de Mexico
Nordictel Holdings Liberty Media
O'Sullivan Industries Holdings MacNeal-Schwendler
Oxford Health Plans Manila Electric
Pacific Media MathSoft
Penn West Petroleum MedImmune
QNI Meyer International
Renaissance Communications Motor-Columbus
Scribona Mr Max
Sterling Chemicals MTC Electronic Technologies
Thermo Fibertek National Semiconductor
Tung Ho Steel Enterprise Network Computing Devices
TV 4 N.S. Bancorp
Perini
Philippine Long Distance Telephone
Protein Design Labs
Providential
Ross Systems
Saga Communications
Senshukai
Shanks & McEwan Group
Sing Tao Holdings
WHSmith Group
Societe d'Applications Generales
d'Electricite et de Mecanique
Southwest Airlines
SPI Holding
Spir Communication
Strabag Bau
Stratus Computer
Sung Foo Kee Holdings
Takuma
TheraTech
Transportacion Maritima Mexicana
</TABLE>
- ----------
SMALLCAP WORLD FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
at September 30, 1994 (dollars in thousands)
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $3,094,639) $3,559,690
Cash 886
Receivables for -
Sales of investments $14,786
Sales of fund's shares 9,467
Dividends and accrued interest 4,183 28,436
------------ ------------
3,589,012
Liabilities:
Payables for -
Purchases of investments 86,226
Repurchases of fund's shares 3,392
Management services 2,032
Accrued expenses 648 92,298
------------ ------------
Net Assets at September 30, 1994 -
Equivalent to $23.61 per share on
148,104,555 shares of $0.01 par value
capital stock outstanding (authorized
capital stock--400,000,000 shares) $3,496,714
============
STATEMENT OF OPERATIONS
for the year ended September 30, 1994 (dollars in thousands)
- ---------------------------------------- ------------ ------------
Investment Income:
Income:
Dividends $ 23,645
Interest 20,607 $ 44,252
------------
Expenses:
Management services fee 21,425
Distribution expenses 6,698
Transfer agent fee 2,435
Reports to shareholders 425
Registration statement and
prospectus 414
Postage, stationery and supplies 469
Directors' fees 89
Auditing and legal fees 58
Custodian fee 956
Taxes other than federal income tax 60
Other expenses 77 33,106
------------ ------------
Net investment income 11,146
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 212,165
Net change in unrealized
appreciation on investments:
Beginning of year 477,652
End of year 465,051
------------
Net unrealized depreciation on Investments (12,601)
------------
Net realized gain and unrealized
depreciation on investments 199,564
------------
Net Increase in Net Assets Resulting
from Operations $210,710
============
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year ended September 30
1994 1993
------------ ------------
Operations:
Net investment income $11,146 $5,522
Net realized gain on investments 212,165 71,763
Net unrealized appreciation
(depreciation) on investments (12,601) 399,955
------------ ------------
Net increase in net assets
resulting from operations 210,710 477,240
------------ ------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net
investment income (6,434) (5,507)
Distributions from net realized
gain on investments (104,133) (57,133)
------------ ------------
Total dividends and
distributions (110,567) (62,640)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
57,399,291 and 33,681,046
shares, respectively 1,341,144 670,279
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
4,360,143 and 3,027,797 shares,
respectively 99,705 55,076
Cost of shares repurchased:
12,557,650 and 7,453,029
shares, respectively (290,901) (147,977)
------------ ------------
Net increase in net assets
resulting from capital share
transactions 1,149,948 577,378
------------ ------------
Total Increase in Net Assets 1,250,091 991,978
Net Assets:
Beginning of year 2,246,623 1,254,645
------------ ------------
End of year (including undistributed
net investment income: $11,447 and
$4,829, respectively) $3,496,714 $2,246,623
============ ============
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. SMALLCAP World Fund, Inc.(the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities are stated at market value based upon closing sales
prices reported on recognized securities exchanges on the last business day of
the year or, for listed securities having no sales reported and for unlisted
securities, upon last-reported bid prices on that date. Short-term securities
with original or remaining maturities in excess of 60 days are valued at the
mean of their quoted bid and asked prices. Short-term securities with 60 days
or less to maturity are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Valuation Committee of
the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis.
Discounts on securities purchased are amortized over the life of the respective
securities. Distributions to shareholders are recorded on the ex-dividend
date.
Investment securities and other assets and liabilities denominated in non-U.S.
currencies are recorded in the financial statements after translation into U.S.
dollars utilizing rates of exchange on the last business day of the year.
Purchases and sales of investment securities, income and expenses are
calculated using the approximate exchange rate as accrued. The fund does not
identify the portion of each amount shown in the fund's Statement of Operations
under the caption "Realized Gain and Unrealized Appreciation on Investments"
that arises from changes in non-U.S. currency exchange rates.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $956,000 includes $139,000 that was paid by these credits
rather than in cash.
During the current year, the fund adopted Statement of Position 93-2
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies."
Accordingly, book and tax basis differences relating to shareholder
distributions are reclassified to or from additional paid-in capital. As of
October 1, 1993, the cumulative effect of such differences totaling $1,422,000
was reclassified to undistributed net investment income from undistributed net
realized gains. During the year ended September 30, 1994, the fund
reclassified $484,000 to undistributed net investment income from undistributed
net realized gains. Net investment income, net realized gains, and net assets
were not affected by this change.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of September 30, 1994, net unrealized appreciation on investments for
book and federal income tax purposes aggregated $465,051,000, of which
$661,498,000 related to appreciated securities and $196,447,000 related to
depreciated securities. During the year ended September 30, 1994, the fund
realized, on a tax basis, a net capital gain of $211,681,000. Net gains
related to non-U.S. currency transactions of $484,000 were treated as ordinary
income for federal income tax purposes. The cost of portfolio securities for
book and federal income tax purposes was $3,094,639,000 at September 30, 1994.
3. The fee of $21,425,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.80% of the first $1 billion of average net assets; 0.70%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.67% of
such assets in excess of $2 billion but not exceeding $3 billion; and 0.65% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.635% of
such assets in excess of $5 billion but not exceeding $8 billion; and 0.625% of
such assets in excess of $8 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended September 30, 1994,
distribution expenses under the Plan were $6,698,000. As of September 30,
1994, accrued and unpaid distribution expenses were $458,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,435,000 under the terms of a contract that provides for
transfer agency services to be performed for the fund. American Funds
Distributors, Inc. (AFD), the principal underwriter of the fund's shares,
received $5,343,000(after allowances to dealers) as its portion of the sales
charges paid by purchasers of the fund's shares. Such sales charges are not an
expense of the fund and, hence, are not reflected in the accompanying statement
of operations.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with AFS and AFD.
4. As of September 30, 1994, accumulated undistributed net realized gain on
investments was $177,809,000 and additional paid-in capital was $2,840,926,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,383,812,000 and $717,259,000, respectively, during
the year ended September 30, 1994.
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the year ended September 30, 1994, such non-U.S. taxes were $1,502,000.
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Year Ended September 30 Period
-------- -------- --------- --------- 4/30/90/1/
1994 1993 1992 1991 to 9/30/90
- ----------------------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $22.72 $18.01 $17.60 $13.26 $15.08
--------- --------- --------- --------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .09 .06 .14 .18 .26
Net realized and
unrealized gain (loss)
on investments 1.83 5.56 .38 4.56 (2.08)
--------- --------- --------- --------- ----------
Total income from
investment
operations 1.92 5.62 .52 4.74 (1.82)
--------- --------- --------- --------- ----------
LESS DISTRIBUTIONS:
Dividends from
net investment
income (.06) (.08) (.11) (.40) -
Distributions
from net
realized gains (.97) (.83) - - -
--------- --------- --------- --------- ----------
Total distributions (1.03) (.91) (.11) (.40) -
--------- --------- --------- --------- ----------
Net Asset Value, End
of Period $23.61 $22.72 $18.01 $17.60 $13.26
========= ========= ========= ========= ==========
Total Return/2/ 8.60% 32.46% 2.95% 36.43% (12.07)%/3/
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period (in
millions) $3,497 $2,247 $1,255 $798 $571
Ratio of expenses
to average net
assets 1.12% 1.15% 1.21% 1.31% .49%/3/
Ratio of net income
to average net
assets .38% .33% .85% 1.11% 1.70%/3/
Portfolio turnover
rate 29.43% 25.00% 23.10% 19.26% 1.91%/3/
</TABLE>
/1/ Commencement of operations
/2/ Does not take into account effect of sales charge, at a maximum rate of
5.75%
/3/ These amounts are based on operations for the period shown and,
accordingly, not representative of a full year's operations.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
SMALLCAP World Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of SMALLCAP World Fund, Inc., as of
September 30, 1994,the related statements of operations for the year then ended
and of changes in net assets for the years ended September 30, 1994 and 1993,
and the related per-share data and ratios for the four years ended September
30, 1994 and for the period from April 30, 1990 to September 30, 1990. These
financial statements and the per-share data and ratios are the responsibility
of the fund's management. Our responsibility is to express an opinion on these
financial statements and the per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1994, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other 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 the per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of SMALLCAP World Fund, Inc. at September 30, 1994, and the results of
its operations, the changes in its net assets and the per-share data and ratios
for the respective stated periods, in conformity with generally accepted
accounting principles.
Los Angeles, California
October 28, 1994
1994 TAX INFORMATION (unaudited)
_________________________________________________________________
Approximately 19% of the distributions paid by the fund from investment income
earned in the year ended September 30,1994 qualifies for the corporate
dividends-received deduction. The fund derived no investment income on direct
U.S. Treasury obligations during the year.
Xx 1994 TAX INFORMATION (unaudited)
_________________________________________________________________
Approximately 19% of the distributions paid by the fund from
investment income earned in the year ended September 30,1994
qualifies for the corporate dividends-received deduction.
The fund derived no investment income on direct U.S. Treasury obligations
during the year.
