SMALLCAP WORLD FUND
1996 Annual Report
For the year ended September 30
[cover: globe and various graphs]
COPING WITH MARKET VOLATILITY
[The American Funds Group(R)]
INVESTMENT HIGHLIGHTS
Total returns for periods ended September 30, 1996 with dividends reinvested
<TABLE>
<CAPTION>
FT/S&P-
Actuaries
Medium-
SMALLCAP Small Cap MSCI
World Fund World Index S&P 500 EAFE Index
<S> <C> <C> <C> <C>
One year + 15.2% + 11.6% + 20.3% + 8.9%
Five years + 102.3 + 64.3 + 102.9 + 50.4
Since fund's inception
on April 30, 1990 + 142.7 + 79.7 + 150.5 + 60.3
Average annual
compound return
since inception + 14.8 + 9.6 + 15.4 + 7.6
</TABLE>
The FT/S&P-Actuaries Medium-Small Cap World Index tracks the stocks of smaller
companies in 28 world markets. Standard & Poor's 500 Composite Index tracks
large-company U.S. stocks. The Morgan Stanley Capital International EAFE(R)
(Europe, Australasia, Far East) Index tracks large-company stocks in all major
non-U.S. markets.
OUR 10 MOST SUCCESSFUL HOLDINGS
For holdings owned throughout the fiscal year ended 9/30/96
<TABLE>
<CAPTION>
<S> <C>
Fairfax Financial Holdings (Canadian insurer) +213.4%
Lewis Galoob Toys (U.S. toymaker) +212.0
Abacan Resource (Canadian oil and gas exploration) +169.6
Western Digital (U.S. computer products) +152.8
OM Gruppen (Swedish financial services) +129.9
Reading & Bates (U.S. oil drilling) +126.0
Atwood Oceanics (U.S. oil drilling) +112.7
CINAR Films (Canadian TV programmer) +110.6
D'Ieteren (Belgian car distributor) +99.1
Biomatrix (U.S. biotechnology) +91.4
</TABLE>
OUR 10 LEAST SUCCESSFUL HOLDINGS
For holdings owned throughout the fiscal year ended 9/30/96
<TABLE>
<CAPTION>
<S> <C>
Hanover Direct (U.S. catalog retailer) -51.6%
VLSI Technology (U.S. semiconductors) -52.6
Katz Media Group (U.S. advertising) -56.4
Mentor Graphics (U.S. computer software) -57.5
Savoy Pictures Entertainment (U.S. feature films) -62.3
Microwave Power Devices (U.S. electronics) -65.0
Avid Technology (U.S. video equipment) -68.3
Babcock International (U.K. energy equipment) -68.4
Acclaim Entertainment (U.S. video games) -69.9
Radius (U.S. computer products) -77.2
</TABLE>
SMALLCAP World Fund(R) seeks long-term growth of capital through investments in
smaller companies in the U.S. and around the world.
ON OUR COVER...
Individual and professional investors alike are affected by market volatility.
To learn how your fund's managers reconcile the Capital organization's
traditional long-term perspective with the above-average volatility of
small-company stocks, please turn to page 5.
All market indexes cited in this report are unmanaged and include reinvestment
of all distributions. Fund results were computed without a sales charge unless
otherwise indicated.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
[Pull quote]
We have always felt that conserving capital in difficult markets should be one
of our primary concerns.[End pull quote]
FELLOW SHAREHOLDERS:
For the second year in a row, U.S. stocks set the pace for world financial
markets while the stocks of larger companies outdistanced their smaller
siblings. Despite its investments outside the United States and in smaller
companies, SMALLCAP World Fund posted a solid gain of 15.2% if you reinvested
the dividends of 23 cents a share and capital gain distribution of $2.45 a
share, as virtually all shareholders do.
Relative to its investment universe, the fund's return looks even better. The
average small-company global mutual fund gained 13.1% as reported by Lipper
Analytical Services. As the table at left shows, the fund's primary benchmark,
the Financial Times/S&P-Actuaries Medium-Small Cap World Index, and the leading
international index also fell short of the fund's gain. Still, this was not
good enough to keep pace with the rampaging market for the stocks of large U.S.
companies.
Lifetime results follow a similar pattern: SMALLCAP's return has stayed
consistently ahead of the fund's investment universe and most non-U.S. markets
while simply staying abreast of larger U.S. stocks. Still, we think that has
been quite an accomplishment during a period when large-cap U.S. stocks have
been the world's standard-bearer.
COMING BACK TO EARTH
The U.S. stock market's unprecedented rise, which has continued unabated for
six years and has recently sent the Dow Jones Industrial Average above the 6000
level for the first time, did see a meaningful setback during the fiscal year.
We hesitate to use the words significant or substantial to characterize the
decline, since the S&P 500 fell only 7.1% from late May through late July.
Small-company stocks fared much worse during the decline, falling 12.5% as
measured by the Russell 2000 Index, and many technology stocks shed much more.
The decline was mercifully brief. Less than four months after the decline
began, stocks were back at new highs. While consistent with the short, sharp
declines of 1987 and 1990, we caution shareholders not to draw the conclusion
that this is the way things always will be.
One of our colleagues, who retired recently, is widely credited with coining
the phrase, "Don't confuse a bull market with brains." Virtually every investor
looks good when the market is rising; very few look good on the way down.
Capital Research and Management Company has staked its reputation for 65 years
on being among those few. We have always felt that conserving capital in
difficult markets should be one of our primary concerns. Investing in
small-company stocks makes that task especially difficult, but it remains a
guiding principle.
On pages 5 through 12, we take a closer look at how your fund invests in
volatile small-company stocks. But first, let's look at the year in review.
WHAT WE'RE FINDING
Our analysts continue to look for value where others haven't. As a result, the
fund is extremely well-diversified, with over 500 holdings in 38 industries.
Our largest position remains Wisconsin Central Transportation, a regional
railroad; given the preponderance of technology and biotech in most
small-company funds, we think this illustrates better than anything our
commitment to looking beneath the surface for undiscovered gems.
Some of the sectors that drew our attention during the year included
semiconductors and natural resources. When technology stocks plunged during the
summer, we saw an opportunity to invest in some of the most dynamic companies
around, where the biggest problem has been coping with exploding demand. One
such group was the makers of semiconductors, which are the brains of computers
and other electronic devices. Though a highly cyclical business, long-term
growth rates have been phenomenal and stock prices currently offer good value.
Natural resource stocks also offer good value in our opinion. Commodity prices
have yet to stage a sustained or broad-based recovery, but we've found plenty
of specific situations where growth potential is enormous. Canada has offered a
veritable gusher of opportunities in oil exploration and oil-field services,
and we've also been drawn toward companies that are operating in, but not
necessarily based in, some of the world's less developed countries. In places
as far-flung as the former Soviet republics, Africa and Latin America,
governments are turning to foreign companies to help them tap their nations'
mineral wealth.
WHERE WE'RE FINDING THEM
We have continued to add relatively more stocks outside the U.S. than in it,
sustaining a gradual decline in U.S. holdings to near the 50% mark. Although
many international markets did not fare as well as the U.S. during the fiscal
year, only eight of the 32 countries in which SMALLCAP invests posted declines
and none of them was a major market. Most stocks were held back somewhat by the
strength of the U.S. dollar, so local returns were higher than those for U.S.
investors.
Despite the additional risks of investing internationally, we are continuing to
find good value outside our borders. In particular, we see solid opportunities
in economies that encourage entrepreneurship and share ownership - principally
Australia, Canada, the United Kingdom and Sweden.
Canada, in particular, may rate more than a mention. While being closely allied
in people's minds with the country with which it shares its border, Canada has
been on a very different track. For most of the past decade, it has suffered
from over-zealous regulators and campaigns to split the country into English-
and French-speaking parts. The result has been a deteriorating currency and
weak financial markets. Recently, the country has benefited from a pro-business
administration and a resolution, at least temporarily, of the issue of
provincial sovereignty. For some time, we've been finding particularly good
values in small-company Canadian stocks, including oil exploration companies as
mentioned earlier, media operations, financial services and two other
well-known firms: Four Seasons Hotels, based in Toronto, and IMAX Films, the
maker of large-screen visual extravaganzas.
[Pull quote]
We have continued to add relatively more stocks outside the U.S. than in it,
sustaining a gradual decline in U.S. holdings to near the 50% mark.
[End pull quote]
We've been less sanguine on Asia. Not only are we concerned about the high
level of stock prices, but it appears that the region may be heading toward a
bit of an economic slowdown.
SUMMING UP
It's always worth reiterating why investing in smaller companies makes sense:
Quite simply, that is where the world's vast stores of economic creativity
reside. Almost every important new advance comes from a smaller firm. Some of
those firms ride that success to become large businesses; others become
acquisition targets; some attract competition and succumb to it. With
professional investment managers working for you, doing the homework, you have
a good chance of owning the right stocks. And while small-company stocks
haven't kept pace with large-cap stocks for most of SMALLCAP's lifetime, we
continue to believe they offer better long-term opportunities.
At this point, investors around the globe are enjoying a relatively benign
environment. Economic growth is moderate, inflation is low, interest rates are
reasonable and governments continue to help spread the gospel of capitalism. Of
course, so much good news gives the more skeptical among us some cause to
wonder what might upset the apple cart.
So far, we've been pleased with what we've been able to accomplish with
SMALLCAP and we hope you are as well. Over its lifetime, the fund has outpaced
its competition, generated substantial absolute returns and held its own
against the world's most difficult benchmark, the S&P 500. This points to the
strength of our global research efforts. With 100 investment professionals on
the ground around the world, we continue to find an array of intriguing smaller
companies. Again last year we visited more than 5,000 companies located in over
50 countries. Research is where our strength has been, and it is where we
believe we will continue to make a difference.
We look forward to reporting to you again in six months.
Cordially,
/s/Robert B. Egelston
Robert B. Egelston
Chairman of the Board
/s/Gordon Crawford
Gordon Crawford
President
November 15, 1996
[Pull quote]
Over its lifetime, the fund has outpaced its competition, generated substantial
absolute returns and held its own against the world's most difficult
benchmark.[End pull quote]
WHERE ARE SMALLCAP'S PORTFOLIO COMPANIES LOCATED?
Geographical distribution of equity assets on September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
THE AMERICAS 59.3%
United States 50.9%
Canada 7.3
Mexico .5
Other Latin America .6
EUROPE 16.0%
United Kingdom 4.7%
Sweden 3.3
Germany 1.3
Norway 1.2
Austria 1.2
France .9
Finland .7
Belgium .6
Spain .5
Ireland .5
Other Europe 1.1
ASIA/PACIFIC 9.3%
Australia 4.2%
Hong Kong 1.8
Japan .9
Malaysia .8
Indonesia .5
Other Asia 1.1
OTHER COUNTRIES 1.3%
CASH & EQUIVALENTS 14.1%
TOTAL 100.0%
</TABLE>
HOW BIG ARE SMALLCAP'S COMPANIES?
Ranked by market capitalization
<TABLE>
<CAPTION>
Percent of
Number of Equity
Holdings Assets
<S> <C> <C>
$1 BILLION+ 52 29.0%
Example: Gaylord Entertainment
$800 MILLION+ 36 12.7%
Example: Sports Authority
$600 MILLION+ 63 17.2%
Example: Scottish Television
$400 MILLION+ 73 14.3%
Example: Four Seasons Hotels
$200 MILLION+ 158 18.6%
Example: Armor All Products
LESS THAN $200 MILLION 183 8.2%
Example: Puerto Rican Cement
AVERAGE MARKET CAPITALIZATION: $447 MILLION
</TABLE>
Market capitalization is calculated by multiplying the price of a company's
stock by the number of its shares outstanding. It is often used as a rough
gauge of a company's size.
CHARTING THE COURSE OF A $10,000 INVESTMENT
This chart shows the annual high, low and closing values of a $10,000
investment in SMALLCAP World Fund from April 30, 1990 - the date of the fund's
inception - through September 30, 1996, the end of the fund's latest fiscal
year.
As you can see, that $10,000 would have grown to $22,877, even after deducting
the maximum 5.75% sales charge. (Sales charges are lower for accounts of
$50,000 or more.) This is significantly better than the $17,971 generated by an
investment in the unmanaged FT/S&P-Actuaries Medium-Small Cap World Index/2/,
which tracks small-company stocks in 28 world markets - a universe quite
similar to SMALLCAP's. Of course, past results are not predictive of future
performance.
[chart]
Original investment $10,000
<TABLE>
<CAPTION>
Date SMALLCAP Date FT/S&P - Date Consumer Price
World Actuaries Index /3/
Fund, Medium-Small
Inc./1/ Cap World
Index /2/
<S> <C> <C> <C> <C> <C> <C>
Fiscal year 1990#
High 7/16/90 9,963 7/90 11,303 9/90 10,295
Low 9/28/90 8,288 9/90 8,624 4/90 10,000
Close 9/28/90 8,288 9/90 8,624 9/90 10,295
Fiscal year 1991
High 9/30/91 11,307 9/91 10,935 9/91 10,644
Low 10/11/90 8,231 11/90 9,237 10/90 10,357
Close 9/30/91 11,307 9/91 10,935 9/91 10,644
Fiscal year 1992
High 2/12/92 12,666 5/92 11,176 9/92 10,962
Low 10/9/91 11,140 11/91 10,423 10/91 10,659
Close 9/30/92 11,640 9/92 10,717 9/92 10,962
Fiscal year 1993
High 9/30/93 15,418 8/93 13,824 9/93 11,257
Low 10/5/92 11,368 10/92 10,462 10/92 11,001
Close 9/30/93 15,418 9/93 13,579 9/93 11,257
Fiscal year 1994
High 2/3/94 17,254 8/94 15,311 9/94 11,590
Low 6/24/94 15,474 11/93 12,971 10/93 11,303
Close 9/30/94 16,744 9/94 14,932 9/94 11,590
Fiscal year 1995
High 9/11/95 20,046 7/95 16,103 9/95 11,885
Low 1/30/95 15,821 1/95 14,236 10/94 11,598
Close 9/29/95 19,856 9/95 16,098 9/95 11,885
Fiscal year 1996
High 5/20/96 23,573 8/96 18,073 9/96 12,242
Low 12/18/95 19,323 10/95 15,658 12/95 11,908
Close 9/30/96 22,877 9/96 17,971 9/96 12,242
</TABLE>
[end chart]
AVERAGE ANNUAL COMPOUND RETURNS
for periods ended September 30, 1996
Lifetime Since inception on April 30, 1990 +13.76%
Five years +13.78%
One year +8.60%
Assumes reinvestment of all distributions and payment of the maximum 5.75%
sales charge.
#For the period April 30, 1990 (when the fund began operations) through
September 30, 1990.
/1/ This figure, unlike those shown earlier in this report, reflects payment of
the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425.
/2/ This index is owned by FTSE International, Goldman, Sachs & Co. and
Standard & Poor's. It is compiled by FTSE International and Standard & Poor's
in conjunction with the Faculty and the Institute of Actuaries.
/3/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
[Graphic: Time watch]
[Pull quote]
"Very few small-company stocks stand still for any length of time." Bill
Grimsley
Portfolio counselor[End pull quote]
COPING WITH SMALL-COMPANY VOLATILITY
CAN A LONG-TERM INVESTMENT PERSPECTIVE COEXIST WITH ABOVE-AVERAGE SHORT-TERM
MARKET FLUCTUATIONS?
Capital Research and Management Company, SMALLCAP World Fund's investment
adviser, is well-known for its long-term perspective and buy-and-hold
investment strategy honed over the past 65 years. Small-company stocks,
typically the purview of active traders, can be notoriously volatile. How does
SMALLCAP reconcile these seemingly contradictory approaches?
As you might expect, we've tried to find a sensible middle ground. We don't
believe a true long-term investor has to compromise his or her principles to
invest in small-company stocks, but some adjustments are prudent. We still rely
on fundamental, kick-the-tires research to identify great companies, buy their
stocks at reasonable prices and hold them for the long term. But compared with
Capital's traditional approach to investing in larger companies, we do buy and
sell a bit more frequently because fluctuations in certain segments of the
small-company market can be greatly exaggerated.
The numbers bear this out. SMALLCAP's portfolio turnover rate, a measure of
trading activity, has averaged about 40% over the past three years. That's well
above the rate for the other equity funds in The American Funds Group. But it
is still half of the industry average for growth funds, according to Lipper
Analytical Services.
How much volatility do small-company stocks experience? In SMALLCAP's case, out
of 274 stocks it held throughout the fiscal year, 98 gained over 20%; another
56 lost more than 20%. That kind of disparity has been typical during
SMALLCAP's lifetime.
"Very few small-company stocks stand still for any length of time," notes Bill
Grimsley, one of the fund's seven portfolio counselors. "In my own part of the
portfolio, I've had stocks that lost 50% last year and others that doubled. But
the portfolio as a whole hasn't seen anywhere near that level of volatility. If
you're well-diversified, as the fund is, these moves tend to even out."
How does an investment professional cope with that level of volatility? If you
hear one theme from SMALLCAP's portfolio counselors and analysts, it's that
knowledge is power.
"We spend a lot of time trying to figure out what a company is worth," says Rob
Lovelace, a portfolio counselor. "Whether there is volatility or not, you need
that anchor, that solid conviction to guide you. What you have to believe, at
the end of the day, is that your research will lead you to companies that have
the potential to grow and prosper for years to come. If that is true, you buy
those companies when their stock is cheap and hold on."
Mark Denning, a portfolio counselor based in London, takes that view a step
further. "It's not just a matter of knowledge," he says, "but of having strong
convictions. If you really believe in what you know, based on the work you've
done, you're operating from strength. If you're not operating from strength,
from a deep well of knowledge, then you have to assume you're in the dark. It's
like what they say about playing poker: If you don't know who at your table is
the patsy, it's probably you. If you don't do the research, you can get
blindsided. You don't know what a 50% decline means, so how can you possibly
react intelligently?"
Many investors obviously don't. "Companies don't change nearly as much, or
nearly as quickly, as stock prices do," notes Gordon Crawford, president of the
fund. "But most people don't have the patience to endure the daily barrage of
market news. They want to buy a stock they never have to sell, but those can be
hard to find in the small-company market. So when they can't find one, many
investors feel a need to trade aggressively."
"There are times when short-term trading makes sense," concedes Denning, "but
not often. There's too much uncertainty. You're attempting to base your
decision on the future course of stock prices, which is inherently unknowable,
rather than on the future course of a company's business, which can be
determined with a greater degree of certainty."
"There are other dangers to excessive trading," adds Crawford, "and they're not
what most people think. Yes, it's expensive; and yes, you might own a stock at
the wrong time. But the real risk is missing the growth of a truly great
company because you sold its stock too soon."
As Grimsley puts it: "If you're reacting to every daily market move, you're
gambling, not investing. We truly believe that stocks aren't just pieces of
paper, but that they represent ownership in real companies. That view may be in
the minority these days, but it has served us well for many years."
WHEN BUYING AND SELLING MAKE SENSE
Obviously, you can't own every stock forever. So how do you determine the right
time to buy and sell?
"The beginning of the process is determining what a company is worth," explains
Lovelace. "If you know that, when its stock is grossly undervalued you just
can't wait to buy. And when it's grossly overvalued, you're just as happy to
let someone else own the stock."
[Graphic: Factory buildings]
[Pull quote]
"Companies don't change nearly as much, or nearly as quickly, as stock prices
do."
Gordon Crawford
President of the Fund[End pull quote]
[Sidebar]
WHICH INVESTMENT WOULD YOU CHOOSE?
[chart1]
<TABLE>
<CAPTION>
Month 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan -0.0432 0.1326 0.2767 0.2684 0.0450 -0.0189 0.1321 0.0836 0.0207 -0.0196
Feb -0.0799 -0.0085 0.0285 0.1390 -0.0039 0.0347 -0.0282 -0.0284 0.0094 -0.0296
Mar -0.0208 -0.0074 0.0618 -0.0015 0.0131 0.1032 0.1120 -0.1778 0.0943 -0.0086
Apr -0.0621 0-0464 0.0531 -0.0359 0.0228 0.0788 0.0387 0.0694 0.0657 0.0383
May -0.0811 -0.0793 0.0663 -0.0361 -0.0028 0.0820 0.0035 0.0750 0.0422 -0.0248
June -0.0290 -0.0147 0.0750 0.0459 0.0772 -0.0189 0.0472 0.0452 0.0076 -0.0159
July 0.1194 -0.0219 -0.0254 0.0045 0.0030 0.0684 0.0171 0.1323 -0.0316 -0.0015
Aug -0.0445 -0.0681 -0.0574 -0.0290 -0.0107 0.0939 0.0756 0.0604 -0.0684 0.0698
Sept 0.1064 -0.0653 -0.0182 0.0104 0.0092 -0.0032 -0.0344 0.0418 -0.0733 0.0327
Oct 0.0084 0.1063 -0.0050 -0.0209 -0.0330 -0.2427 -0.1154 0.0333 0.0742 0.1305
Nov -0.1962 -0.0438 0.0320 0.0404 0.1086 0.0732 0.0858 0.0766 0.0276 0.0779
Dec -0.0014 -0.0788 -0.0197 0.1180 0.0081 0.0168 0.0588 -0.0338 -0.0220 0.0132
</TABLE>
[end chart1]
[chart2]
<TABLE>
<CAPTION>
Month 1973 1974 1975 1976 1977 1978 1979 1980 1982
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan $9,568 $7,826 7,062 10,722 13,900 16,363 23,314 32,012 46,126
Feb 8,804 7,760 7,264 12,212 13,846 16,931 22,656 31,103 44,760
Mar 8,620 7,702 7,713 12,194 14,027 18,678 25,194 25,573 44,375
Apr 8,085 7,345 8,122 11,756 14,347 20,150 26,169 27,348 46,075
May 7,429 6,762 8,661 11,331 14,307 21,803 26,260 29,399 44,932
June 7,214 6,663 9,310 11,851 15,412 21,390 27,500 30,728 44,218
July 8,075 6,517 9,074 11,905 15,458 22,854 27,970 34,793 44,152
Aug 7,716 6,073 8,553 11,560 15,292 25,000 30,084 36,895 47,233
Sept 8,537 5,677 8,397 11,680 15,433 24,920 29,050 38,437 48,778
Oct 8,609 6,280 8,355 11,436 14,924 18,872 25,697 39,717 55,143
Nov 6,920 6,005 8,623 11,898 16,544 20,253 27,902 42,759 59,439
Dec 6,910 5,532 8,453 13,302 16,678 20,593 29,543 41,314 60,224
</TABLE>
[end chart2]
[chart3]
<TABLE>
<CAPTION>
Year Investment
<S> <C>
$10,000
12/31/73 6,910
12/31/74 5,531
12/31/75 8,453
12/31/76 13,304
12/31/77 16,680
12/31/78 20,593
12/31/79 29,543
12/31/80 41,325
12/31/81 47,061
12/31/82 60,242
</TABLE>
[end chart3]
Chart source: Ibbotson Associates
WHAT IS VOLATILITY?
Most people instinctively know that volatility and risk are related. But
they're not synonymous. Volatility refers to the amount of fluctuation - both
up and down - that an investment may experience. Risk is the perceived
possibility of loss (or the perceived loss of purchasing power to inflation).
This perception varies with every individual - How long will I be investing?
Will I be checking my investments daily, weekly, monthly or once a year? - and
can change throughout a person's life.
The charts above are an attempt to show that volatility, like risk, is in the
eye of the beholder. Each uses the same data to illustrate what happened to
small company stocks between the years of 1973 and 1982. The first chart (which
we tend to think reflects how most people view their investments) traces the
month-by-month percentage return. The second plots the cumulative effects of
those monthly returns on the value of a $10,000 investment. The third shows the
cumulative annual change in the value of that same investment, illustrating how
short-term fluctuations generally smooth out over time.
An interesting way to think about how you feel about volatility is to consider
this question: If stocks were a yo-yo carried by an investor climbing the
stairs, would you be watching the yo-yo or the stairs?
[End sidebar]
"Stocks go down for a variety of reasons," adds David Siminoff, an analyst
following media and Internet companies. "A general market decline, a change in
investor psychology, a management change, an earnings disappointment. If you
understand why the stock went down, then you probably also know how you should
react. Whether you sell, buy more or hold on is a decision that can then be
based on information rather than emotion."
Greg Wendt, an analyst who follows retailers, uses a concrete example:
"Williams-Sonoma is a company that SMALLCAP has invested in for most of the
fund's life, but there have been times when we've owned less than 1% and times
when we've been their largest institutional shareholder. The company is more
than twice the size it was three years ago, but at times they've sacrificed
profits for sales and the stock has dropped sharply. If you understand this
company like we do, if you know its competitors and the mall owners, you can
see the steady progress in their business plan even if the stock price or
earnings don't reflect it. As a result, you have tremendous opportunities to
buy and sell the stock."
As we hope you can see, patience works well in most instances. But there are
industries and situations where the volatility can be extreme. Initial public
offerings, technology stocks and health care often require a somewhat different
approach. Many small-company stocks in these areas can see up and down moves of
50% or more in a brief span. As much as we want to be long-term investors, we
need to react to that. Let's take a quick look at each.
[Graphic: Computer]
[Pull quote]
"A lot of technology investors have a very short-term perspective. One poor
earnings report and they're gone."
David Siminoff
Analyst[End Pull quote]
INITIAL PUBLIC OFFERINGS
IPOs, as they are known, take place when companies first sell stock to the
public. Because IPOs often involve smaller firms, SMALLCAP participates in the
IPO market with some frequency. Once again, our strategy is quite different
from many other institutional investors, who use IPOs as part of their
aggressive trading strategy.
Your fund participates in IPOs only if Capital's analysts like the underlying
company's business prospects - and the price appears reasonable. In our view,
participating solely to reap short-term gains is far riskier than a more
selective approach. "IPOs are opportunities to either get in on the ground
floor or get taken for a ride," explains Siminoff. "Because we study these
companies thoroughly, we have a better chance of telling the difference."
The reason IPOs tend to increase SMALLCAP's trading activity is that there can
be overwhelming demand for some IPOs - and stunning price moves that have
nothing to do with company fundamentals. If the price quickly heads to
unsustainable territory, we often sell the stock, step to the sidelines and
await other opportunities.
[Sidebar]
HOW VOLATILE ARE SMALL-COMPANY STOCKS?
[chart]
<TABLE>
<CAPTION>
Decade Small-company stocks Large-company stocks
High Low High Low
<S> <C> <C> <C> <C>
$26-'35 143% -51% 54% -43%
$36-'45 88 -58 36 -35
$46-'55 61 -12 53 -8
$56-'65 65 -15 43 -11
$66-'75 84 -31 37 -26
$76-'85 57 -7 32 -7
$77-'95 45 -22 37 -3
</TABLE>
[end chart]
RISK AND REWARD GO HAND-IN-HAND
History shows, as one might expect, that the stocks of smaller companies are
more volatile than the stocks of more established firms. We decided to find out
exactly how much more volatile. We looked at the year-by-year returns of both
small-company and large-company U.S. stocks in each of the past seven decades.
The chart above illustrates the range of yearly returns, both high and low. In
every period the stocks of smaller companies exhibited more volatility on the
upside and, except for the 1976-1985 period, on the downside as well. That's
not something every investor wants to live with, of course, but the table below
shows the flip side of this equation: While small-company stocks have been more
volatile, over most meaningful periods they have also been more rewarding.
Total returns for calendar year periods 1926-1995
<TABLE>
<CAPTION>
1-year periods 5-year periods 10-year periods
best worst average best worst average best worst average
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small-
company 143% -58% 18% 561% -80% 123% 1320% -44% 346%
stocks (1933) (1937) (1941-45) (1928-32) (1975-84) (1929-38)
Large-
company 54% -43% 13% 192% -49% 72% 522% -9% 205%
stocks (1933) (1931) (1950-54) (1928-32) (1949-58) (1929-38)
</TABLE>
Source: Ibbotson Associates
[End sidebar]
[Sidebar]
A LOOK AT AN INDIVIDUAL STOCK: WILLIAMS-SONOMA
[chart]
<TABLE>
<CAPTION>
Date Quarterly range in Buy Sell
stock price
High Low
<S> <C> <C> <C> <C>
December 31, 1990 9.668 5.556 8.78
March 29, 1991 12.668 7.334 9.85
June 28, 1991 12.668 7.779 11.22
September 30, 1991 11.668 7.223 8
December 31, 1991 8.223 5.667 6.12
March 31, 1992 8.112 6.556
June 30, 1992 7.667 4.778 6.24
September 30, 1992 6.112 3.889 4.41
December 31, 1992 6.001 4.334 5.52
March 31, 1993 6.667 4.445
June 30, 1993 7.556 5.667 7.13
September 30, 1993 11.112 6.89
December 31, 1993 18.78 10.445 12.22
March 31, 1994 25.501 15.779 22.06
June 30, 1994 26.501 18.168
September 30, 1994 34.5 18.834 26.12
December 30, 1994 35.25 27
March 31, 1995 31.75 20.25 29.48
June 30, 1995 26 15.75
September 29, 1995 24.875 18.5 21.24
December 29, 1995 21.875 15.625 17.25
March 29, 1996 23.125 12.5 14.07
June 28, 1996 29.75 20.5 23.75
September 30, 1996 30.5 17.75 27.97
</TABLE>
[end chart]
MORE ART THAN SCIENCE
To see how words translate into action, we thought it might be interesting to
look at an individual stock's trading history and how we responded to it. We
chose Williams-Sonoma, the purveyor of high-quality kitchen items found in
malls throughout the country.
SMALLCAP has owned the stock continuously for more than five years, but its
exposure has waxed and waned. The vertical bars show the range of quarterly
price movements. The green crossbars show when the fund was buying; the orange
crossbars show when the fund was selling.
As you can see, the fund tended to accumulate stock when it could take
advantage of relatively low prices and began lightening its load when the stock
spiked sharply higher. These decisions, of course, are not made with the
advantage of hindsight and thus can never be perfectly timed. A strong sense of
value is what gives an investor the confidence to act.
The buy and sell prices for each quarter have been adjusted for stock splits
and represent the dollar-weighted average price of all transactions in that
quarter.
[End sidebar]
[Graphic: Stethoscope]
[Pull quote]
"People get overly excited in the beginning. They tend to overestimate
potential demand while underestimating the risks."
Rick Beleson
Analyst[End pull quote]
TECHNOLOGY
The computer industry is perhaps the world's wildest place to invest: Growth is
rapid, change is constant and competition is fierce, so unpleasant surprises
are typical. Worse, investor psychology changes with the wind.
"A lot of technology investors have a very short-term perspective," explains
Siminoff. "One poor earnings report, even if a penny shy, and they're gone. In
my industries, I try to take advantage of situations like that."
Technology is also a prime hunting ground for "momentum" investors, who (as
simple as this may sound) buy stocks that have been going up. "When a stock's
momentum breaks down, these investors sell regardless of price," notes Peter
Labon, who follows computer software and semiconductor firms. "They keep on
selling until value-oriented investors like us step in. Stocks therefore tend
to oscillate between momentum and value; or you could say, between
overvaluation and undervaluation."
America Online, the online service provider, is a good example of both living
with, and profiting from, volatility. As Siminoff recalls, "SMALLCAP invested
early on, well before the stock was popular, and hung on through several
periods of pretty wild volatility. Then there was a period when the stock
spiked sharply higher for no fundamental reason. Although we believed, and
continue to believe, that the Internet would change the world, we saw
competition increasing rapidly and took the opportunity to sell our entire
position. Since then, the stock has come down along with all the other Internet
stocks. One of them, Netcom, crashed from $90 down to $16 and was selling for
less than the book value of their network and their cash on hand. That seemed
like a good buying opportunity."
"The key is still to identify great long-term businesses," adds Labon, "but
adjust your exposure in response to market activity. That doesn't mean active
trading, but opportunistic buying and selling to adjust how much of the stock
you own."
HEALTH CARE
"What tends to happen with new medical devices or drugs is that people get
overly excited in the beginning," explains Rick Beleson, who analyzes the
health care industry. "They tend to overestimate potential demand while
underestimating the risks. So they bid the stocks much too high when the news
is good. Then, when bad news hits, investors have a difficult time separating
fact from fiction. They turn against the entire industry as a precaution. Both
of these situations present great opportunities for us."
What's important, says Beleson, is identifying the most promising companies and
using volatility to buy a meaningful position. "Even if your recommendation is
brilliant, if you have only a few shares, the effect on the fund won't amount
to much more than a rounding error. So my job as an analyst is to educate the
portfolio counselors about my highest conviction ideas and encourage them to
take advantage of volatility when it occurs."
BEING RIGHT 51% OF THE TIME
One of our long-time colleagues is fond of saying, "If I'm right 51% of the
time, I'm going to make money for our shareholders." This is another way of
saying, not everything works out as well as we might plan.
"Part of the problem is that a body in motion tends to remain in motion," notes
Wendt. "Stocks on a rocket ship can keep rising, and those that have fallen can
continue to fall."
All analysts have at least one stock that makes them cringe when they hear its
name. "Mine's Acclaim Entertainment," says Labon of the video-game maker. "I've
always thought this company had great management and a very competitive
strategy. I watched as the stock declined from $32 to $13 over a six-month
period in late 1993 and early 1994. We started buying near the bottom, then
watched the stock rise to the mid-$20 range, where we sold some. Since then the
industry has undergone a major product transition, which wreaked havoc on a lot
of companies, including Acclaim. Even though I feel I made a series of good
decisions, we haven't made money on the stock."
"What keeps you from making the same mistakes twice," adds Wendt, after
recounting similar experiences with Oil-Dri and Canandaigua Wine, "is having a
keen sense of value. You're not always - and maybe rarely - going to be right
the day you place your order. But if you know what the company is worth, you
can be confident that over the long run you're likely to be pleased with your
decision - even though you may feel horrible at the time."
Like investment professionals, individual investors would do well to separate
their emotions from their actions. "When a stock goes down," notes Siminoff,
"you can't help but get a sick feeling in the pit of your stomach. But you
can't react to your gut; you have to clear your head first."
Since the only kinds of volatility most shareholders have experienced in recent
years are "up" and "way up," any prolonged downturn will naturally be
unsettling. After all, few periods have presented as benign an environment for
investors as the past 15 years.
"Shareholders have to be aware of history," says Crawford. "But if they keep
their eyes focused on the most important time period - the time they expect to
need the money - all the fluctuations in the world between now and then
shouldn't distract them from their goal."
[Graphic: Magnifying glass]
[Pull quote]
"What keeps you from making the same mistakes twice is having a keen sense of
value."
Greg Wendt
Analyst[End pull quote]
<PAGE>
<TABLE>
<S> <C> <C> <C>
SMALLCAP World Fund
INVESTMENT PORTFOLIO September 30, 1996
[pie chart]
Industry Diversification
Broadcasting & Publishing 7.65%
Health & Personal Care 6.88%
Merchandising 6.67%
Business & Public Services 6.13%
Electronic Components 4.10%
Other Industries 54.49%
Cash & Equivalents 14.08%
[end pie chart]
Percent
of
Net
Assets
Largest Equity-Type Holdings
Wisconsin Central Transportation 1.23%
Reading & Bates .96
Microchip Technology .96
Camco International .89
Village Roadshow .81
Fairfax Financial Holdings .78
Hoganas Eldfast .71
Airgas .71
Sports Authority .67
Zale .63
Percent
Shares or Market of
EQUITY-TYPE SECURITIES Principal Value Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
Broadcasting & Publishing - 7.65%
CanWest Global Communications Corp. (Canada) 3,076,341 30,054
CanWest Global Communications Corp., non-voting shares 600,000 5,850 .54
Westwood One, Inc. (USA)/1/ 1,905,000 35,004 .53
Gaylord Entertainment Co., Class A (USA) 1,411,200 31,928 .48
International Family Entertainment, Inc., Class B (USA)/1/ 1,768,750 28,963 .44
FLEXTECH PLC (United Kingdom)/1/ 3,309,600 28,007 .42
Cablevision Systems Corp., Class A (USA)/1/ 630,000 27,405 .42
New Straits Times Press Bhd. (Malaysia) 3,900,000 20,543 .31
Central European Media Enterprises Ltd., Class A (USA - Incorporated in
Bermuda) /1/ 655,000 19,322 .29
BET Holdings, Inc., Class A (USA)/1/ 662,100 19,035 .29
Data Broadcasting Corp. (USA) /1/ /2/ 2,000,000 18,250 .28
United Television, Inc. (USA) 186,000 17,903 .27
United International Holdings, Inc., Class A (USA)/1/ 1,195,000 16,282 .25
Ascent Entertainment Group, Inc.(USA) /1/ 700,000 16,100 .24
Schibsted ASA (Norway) 1,080,000 15,784 .24
Ackerley Communications, Inc. (USA) 458,900 15,316 .23
Scandinavian Broadcasting System SA (Denmark - Incorporated in Luxembourg) /1/ 655,000 14,737 .22
Scottish Television PLC (United Kingdom) 1,200,000 13,627 .21
Chrysalis Group PLC (United Kingdom)/2/ 1,600,000 12,388 .19
WIC Western International Communications Ltd., Class B (Canada) 875,000 11,730 .18
Australian Provincial Newspapers Holdings Ltd. (Australia) 5,336,537 10,263 .16
Silver King Communications, Inc. (USA) /1/ 400,000 9,400 .14
Jones Intercable, Inc., Class A (USA)/1/ 610,000 8,311 .13
Wegener NV (Netherlands) 86,600 8,149 .12
ValueVision International, Inc., Class A (USA) /1/ 1,370,000 7,706 .12
Heritage Media Inc., Class A (USA) /1/ 400,000 7,550 .11
Omni Media Corp. Ltd. (South Africa) 390,000 6,192 .09
Austereo Ltd. (Australia) 3,481,707 6,172 .09
Century Communications Corp., Class A (USA)/1/ 724,064 5,430 .08
Adelphia Communications Corp., Class A (USA)/1/ 525,000 5,316 .08
Nasionale Pers Beperk-N (South Africa) 534,900 5,213 .08
NRJ SA (France) 39,284 4,678 .07
DMX Inc. (USA) /1/ 2,570,000 4,658 .07
Southern Star Group Ltd. (Australia) 2,870,000 3,975 .06
Grupo Radio Centro, SA de CV (American Depositary Receipts) (Mexico) /1/ 420,000 3,465 .05
Investec - Consultoria Internacional, SA (Portgual) 99,000 3,317 .05
Metropole Television (France) 35,000 3,182 .05
Pacific Media PLC (United Kingdom)/1/ 52,249,124 1,635 .03
M-Net (South Africa) 1,571,800 1,594 .02
Grammy Entertainment Public Co. Ltd.(Thailand) 104,200 1,246 .02
Health & Personal Care - 6.88%
Orthodontic Centers of America, Inc. (USA) /1/ 1,370,000 27,914 .42
Scotia Holdings PLC (United Kingdom) 2,760,000 24,824 .38
VISX, Inc. (USA) /1/ /2/ 825,000 22,275 .34
IDEC Pharmaceuticals Corp. (USA) /1/ /2/ 920,000 22,080 .33
Mentor Corp. (USA) 800,000 22,000 .33
Acuson Corp. (USA) /1/ 1,150,000 19,694 .30
Physio - Control International Corp. (USA) /1/ 750,000 18,938 .29
Thermedics Inc. (USA) /1/ 625,000 16,484 .25
PathoGenesis Corp. (USA) /1/ /2/ 870,000 15,443 .23
Paragon Trade Brands, Inc. (USA)/1/ /2/ 650,000 15,194 .23
Martek Biosciences Corp. (USA) /1/ 600,000 15,000 .23
Vertex Pharmaceuticals Inc. (USA) /1/ 505,000 14,898 .22
Gilead Sciences, Inc. (USA) /1/ 500,000 14,125 .21
i-STAT Corp. (USA) /1/ /2/ 727,000 13,359 .20
SEQUUS Pharmaceuticals, Inc. (USA) /1/ /3/ 746,616 11,759
SEQUUS Pharmaceuticals, Inc., warrants, expire /1/998 /1/ /3/ 80,832 647 .19
KeraVision, Inc. (USA) /1/ /2/ 795,000 11,925 .18
Ranbaxy Laboratories Ltd. (Global Depositary Receipts)(India) 423,500 7,729
Ranbaxy Laboratories Ltd. 241,235 4,145 .18
Vical Inc. (USA) /1/ 700,000 10,850 .16
GelTex Pharmaceuticals, Inc. (USA) /1/ 500,000 10,000 .15
COR Therapeutics, Inc. (USA) /1/ 900,000 9,000 .14
ImClone Systems Inc. (USA) /1/ /2/ 1,000,000 8,625 .13
Genelabs Technologies, Inc. (USA) /1/ /2/ /4/ 2,085,000 8,601 .13
VIVUS, Inc. (USA) /1/ 200,000 7,600 .11
AutoImmune Inc. (USA)/1/ /4/ 794,000 7,444 .11
Spine-Tech, Inc.( USA) /1/ 246,800 6,910 .10
Anesta Corp. (USA)/1/ 460,000 6,497 .10
Technical Chemicals and Products, Inc. (USA) /1/ /2/ 600,000 6,375 .10
Neurogen Corp. (USA) /1/ 250,000 6,313 .10
PDT, Inc. (USA) /1/ 200,000 6,250 .09
ImmuLogic Pharmaceutical Corp. (USA) /1/ 750,000 6,094 .09
Alpha-Beta Technology, Inc. (USA)/1/ 545,000 5,859 .09
NeoPath, Inc. (USA) /1/ 290,600 5,594 .08
Ethical Holdings PLC (American Depositary Receipts)(United Kingdom) /1/ 675,000 4,725 .07
PerSeptive Biosystems, Inc. (USA)/1/ 675,000 4,725 .07
CIMA LABS INC. (USA) /1/ /2/ 565,500 4,595 .07
Body Shop International PLC (United Kingdom) 1,360,000 3,999 .06
Biomatrix, Inc. (USA)/1/ 200,000 3,350 .05
Intercardia, Inc. (USA) /1/ 135,000 3,341 .05
Virbac (France) 27,300 3,076 .05
T Cell Sciences, Inc. (USA) /1/ /2/ /4/ 1,300,000 3,006 .05
Cardiovascular Diagnostics, Inc. (USA) /1/ /2/ 412,500 2,784 .04
HemaSure Inc. (USA) /1/ 240,000 2,580 .04
InSite Vision Inc. (USA) /1/ /4/ 550,000 2,406
InSite Vision Inc., warrants, expire 2001 /1/ /4/ 50,000 56 .04
Gensia Pharmaceuticals, Inc. (USA) /1/ 480,000 2,340 .04
Cyberonics, Inc. (USA)/1/ 370,800 2,317 .04
Vision-Sciences, Inc. (USA)/1/ 484,500 999 .02
Merchandising - 6.67%
Sports Authority, Inc. (USA) /1/ 1,233,300 32,837
Sports Authority, Inc., 5.25% convertible debentures 2001 /4/ $11,000,000 11,358 .67
Zale Corp. (USA) /1/ /2/ 1,900,000 41,563 .63
Gymboree Corp. (USA) /1/ /2/ 1,325,000 40,247 .61
Consolidated Stores Corp. (USA)/1/ 925,000 37,000 .56
Henry Schein, Inc. (USA) /1/ 595,000 22,907 .35
AnnTaylor, Inc. (USA) /1/ /2/ 1,300,000 21,937 .33
Williams-Sonoma, Inc. (USA)/1/ 550,000 15,606
Williams-Sonoma, Inc., 5.25% convertible debentures 2003 /4/ $3,500,000 4,174 .30
Dickson Concepts (Hong Kong) 5,477,200 17,601 .27
MSC Industrial Direct Co., Inc., Class A (USA) /1/ 475,000 16,922 .26
Mac Frugal's Bargins * Close-outs Inc. (USA) /1/ 715,800 16,911 .26
Mobel Walther AG, non-voting, preferred shares (Germany) 180,000 10,970
Mobel Walther AG 88,000 4,902 .24
DFS Furniture Co. PLC (United Kingdom) 1,622,000 13,777 .21
Garden Ridge Corp. (USA) /1/ 795,000 13,614 .21
Fabri-Centers of America, Inc., Class A (USA) /1/ /2/ 525,000 6,759
Fabri-Centers of America, Inc., non-voting shares, Class B /1/ /2/ 525,000 6,694 .20
Giordano Holdings Ltd. (Hong Kong) 15,260,000 13,419 .20
Homac Corp. (Japan) 663,000 12,364 .19
Hornbach Holding AG, preferred shares (Germany) 142,650 10,283 .15
Michaels Stores, Inc. (USA) /1/ 610,000 8,959 .13
Homeplace Holdings, 7.00% convertible preferred (USA) /1/ /3/ 30,200 8,003 .12
PT Modern Photo Film Co. (Indonesia) 2,660,000 7,726 .12
Duty Free International, Inc. (USA) 466,500 6,414 .10
Migros Turk TAS (Turkey) 6,973,100 6,225 .09
Hanover Direct, Inc. (USA)/1/ 5,955,440 5,583 .08
Garden Botanika, Inc. (USA) /1/ /2/ 430,000 4,837 .07
Colruyt NV (Belgium) 12,000 4,766 .07
Barnett Inc. (USA) /1/ 200,000 4,725 .07
DAIKI Co. Ltd., 1.50% convertible debentures 2004 (Japan) Y450,000,000 3,813 .06
APS Holding Corp., Class A (USA) /1/ 100,000 2,912 .04
Leslie's Poolmart (USA) /1/ 159,750 1,877 .03
Eastbay, Inc. (USA) /1/ 100,000 1,775 .03
Tandy Brands Accessories, Inc. (USA)/1/ 221,625 1,496 .02
Business & Public Services - 6.13%
Banta Corp. (USA) 1,425,000 32,419 .49
BDM International, Inc. (USA) /1/ 450,000 26,775 .41
Flughafen Wien AG (Austria) 500,600 26,395 .40
KCI Konecranes International Corp. (Finland) /2/ 942,700 26,224 .40
Franklin Quest Co. (USA) /1/ /2/ 1,350,000 25,313 .38
Vivra Inc. (USA)/1/ 600,000 19,575 .30
Primark Corp. (USA) /1/ 700,000 19,162 .29
Rhon-Klinikum AG, preferred shares (Germany) 123,100 13,714 .21
Kanamoto Co., Ltd. (Japan) 880,000 13,649 .21
Saskatchewan Wheat Pool, non-voting shares, Class B (Canada) 1,125,000 13,221 .20
NETCOM On-Line Communication Services, Inc. (USA) /1/ /2/ 745,000 12,758 .19
APCOA Parking AG (Germany) /2/ 120,800 12,191 .18
Outdoor Systems, Inc. (USA) /1/ 250,000 11,750 .18
National TechTeam, Inc. (USA) /1/ 400,000 10,850 .16
Vanstar Financing Trust, 6.75% convertible preferred (USA) /4/ 132,000 6,831
Vanstar Corp. /1/ 150,000 3,638 .16
Strategic Distribution, Inc. (USA) /1/ /2/ 1,890,000 9,568 .14
Abacus Direct Corporation (USA) /1/ 402,000 8,442 .13
Corporate Services Group PLC (United Kingdom) /4/ 3,010,398 8,005 .12
US Order, Inc. (USA) /1/ 670,000 7,956 .12
Registry, Inc. (USA) /1/ 200,000 7,600 .12
SCB Computer Technology, Inc. (USA) /1/ /2/ 374,900 7,311 .11
United Waste Systems, Inc. (USA)/1/ 200,000 6,950 .11
Vincam Group, Inc. (USA) /1/ 170,000 6,503 .10
UroCor, Inc. (USA) /1/ 500,000 6,313 .10
American Residential Services, Inc. (USA) /1/ 326,500 6,244 .09
Thomas Group, Inc. (USA)/1/ /2/ 388,500 5,439 .08
American Disposal Services, Inc. (USA) /1/ 300,000 5,437 .08
Filofax Group PLC (United Kingdom) /2/ 1,956,000 4,956 .07
International Container Terminal Services, Inc., 5.00% convertible
debentures 2001 (Philippines) $5,500,000 4,758 .07
Air & Water Technologies Corp., Class A (USA)/1/ 658,500 4,692 .07
MDC Corp., Class A (Canada)/1/ 433,333 4,408 .07
Katz Media Group, Inc. (USA) /1/ 482,300 4,280 .06
Staff Builders, Inc., Class A (USA) /1/ 1,180,000 3,577 .05
Pittston Brinks (USA) 100,000 3,137 .05
UNC Inc. (USA)/1/ 350,000 3,106 .05
Triple P NV (Netherlands) /1/ 765,000 3,012 .04
Goldsborough Healthcare PLC (United Kingdom) 980,000 2,192 .03
DII Group, Inc. (USA) /1/ 100,000 2,075 .03
GNI Group, Inc. (USA)/1/ 290,000 1,776 .03
OzEmail Ltd. (American Depositary Receipts) ( Australia) /1/ 194,000 1,770 .03
Bell & Howell Holdings Co. (USA) /1/ 40,000 1,270 .02
Electronic Components - 4.10%
Microchip Technology Inc. (USA) /1/ /2/ 1,700,000 63,537 .96
Lattice Semiconductor Corp. (USA) /1/ 900,000 25,987 .39
Flextronics International Ltd. (USA-Incorporated in Singapore)/1/ /2/ 825,000 22,791 .35
Cypress Semiconductor Corp. (USA) /1/ 1,700,000 21,250 .32
ANTEC Corp. (USA)/1/ /2/ 1,370,000 20,036 .30
VLSI Technology, Inc. (USA)/1/ 1,200,000 19,500 .30
Littelfuse, Inc. (USA) /1/ 456,200 17,678 .27
Wyle Electronics (USA) 382,300 12,281 .19
Micrel, Inc. (USA) /1/ /2/ 475,000 11,281 .17
Etec Systems, Inc. (USA) /1/ 300,000 10,200 .15
ASM Pacific Technology Ltd. (Hong Kong) 11,969,000 9,596 .15
Level One Communications, Inc. (USA) /1/ 243,000 8,323 .13
Western Digital Corp. (USA)/1/ 200,000 8,025 .12
Micro Linear Corp. (USA)/1/ /2/ 807,500 6,359 .10
Park Electrochemical Corp. (USA) 240,000 4,890 .07
Rogers Corp. (USA)/1/ 140,000 3,447 .05
Quantum Corp. (USA)/1/ 145,300 2,552 .04
ROSS Technology, Inc. (USA) /1/ 314,500 2,005 .03
First Pacific Networks, Inc. (USA)/1/ 850,000 930 .01
Energy Sources - 3.78%
Abacan Resource Corp. (Canada)/1/ /2/ 5,159,400 35,276 .53
California Energy Co., Inc. (USA)/1/ 750,000 23,906 .36
QCT Resources Ltd. (Australia) 16,444,073 23,165 .35
Premier Oil PLC (UNITED KINGDOM) 50,472,549 22,698 .34
Clyde Petroleum PLC (United Kingdom) 19,500,000 21,961 .33
Hardy Oil & Gas PLC (United Kingdom) 4,715,100 21,057 .32
ELAN Energy Inc. (Canada)/1/ 2,035,000 18,386 .29
Chauvco Resources Ltd., Class A (Canada) 1,718,000 13,944 .21
Cabre Exploration Ltd. (Canada)/1/ /2/ 993,400 13,864 .21
Paramount Resources Ltd. (Canada) /2/ 831,000 11,903 .18
Stampeder Exploration Ltd. (Canada) /2/ 2,780,000 11,333 .17
Novus Petroleum Ltd. (Australia) 4,779,661 8,322 .13
Cimarron Petroleum Ltd. (Canada) /1/ /2/ 723,400 8,236 .12
Ramco Energy PLC (United Kingdom) 575,000 5,783 .09
Anzoil NL (AUSTRALIA) /1/ /2/ 40,600,000 4,980 .08
Oil Search Ltd. (Australia) /4/ 2,300,000 2,858 .04
Orbit Oil & Gas Ltd. (Canada) /2/ 2,681,000 2,127 .03
Leisure & Tourism - 3.78%
Village Roadshow Ltd. (Australia) 8,201,596 36,867
Village Roadshow Ltd., 5.50% preferred shares, Class A 5,336,602 16,894 .81
Trump Hotels & Casino Resorts, Inc. (USA) /1/ 950,000 22,087 .34
Rio Hotel & Casino, Inc. (USA)/1/ /2/ 1,382,700 21,778 .33
AAPC Ltd. (Australia) /2/ /4/ 31,116,337 19,700 .30
J D Wetherspoon PLC (United Kingdom) 1,040,987 17,097 .26
Four Seasons Hotels Inc. (Canada) 822,149 14,554 .22
CINAR Films Inc., Class B (Canada) /1/ 500,000 13,031 .20
Imax Corp. (Canada) /1/ 360,000 12,105 .18
Station Casinos, Inc. (USA) /1/ 1,005,000 12,060 .18
Capital Corp. PLC (United Kingdom) 3,000,000 8,775 .13
Alliance Communications Corp., non-voting shares, Class B (Canada) /1/ 420,200 4,753
Alliance Communications Corp., Class A /1/ /2/ 316,000 3,540 .13
Spelling Entertainment Group Inc. (USA)/1/ 1,000,000 7,500 .11
Mandarin Oriental International Ltd. (Singapore) 4,040,217 5,980 .09
Morton's Restaurant Group, Inc. (USA) /1/ (Formerly Quantum Restuarant Group) 315,000 5,512 .08
Savoy Pictures Entertainment, Inc. (USA) /1/ /2/ 1,950,000 4,875 .07
Gaumont SA (France) 69,411 4,811 .07
Aristocrat Leisure (Australia) /1/ 1,570,440 4,412 .07
Golden Harvest Entertainment (Holdings) Ltd. (Hong Kong) 10,400,000 3,261 .05
All American Communications, Inc., Class B (USA) /1/ 370,000 3,145 .05
Filmes Lusomundo, SA, preferred shares (Portugal) 292,500 2,262 .04
MovieFone, Inc., Class A (USA)/1/ 360,000 1,710 .03
Premiere Radio Networks, Inc., Class A (USA) /1/ 135,000 1,451 .02
Ameristar Casinos, Inc. (USA)/1/ 257,500 1,416 .02
Energy Equipment - 3.46%
Reading & Bates Corp. (USA)/1/ 2,350,000 63,744 .96
Camco International, Inc. (USA) /2/ 1,575,000 58,865 .89
Smedvig ASA, Class A (Norway) 1,245,000 25,665
Smedvig ASA, non-voting shares, Class B 311,250 5,770 .48
COFLEXIP SA (American Depositary Receipts)(France) /1/ 749,800 16,308 .25
Atwood Oceanics, Inc. (USA) /1/ /2/ 360,000 15,840 .24
Shaw Industries Ltd., Class A (Canada) 595,000 8,741 .13
Precision Drilling Corp., Class A (Canada) 326,800 8,582 .13
Babcock International Group PLC (United Kingdom) /2/ 9,822,285 8,450 .13
Ensign Resource Service Group Inc. (Canada) 682,300 7,142 .11
Varco International, Inc. (USA) /1/ 318,000 5,605 .08
Weatherford Enterra, Inc. (USA) /1/ 135,200 3,701 .06
Chemicals - 3.28%
Airgas, Inc. (USA)/1/ 1,844,200 46,797 .71
Valspar Corp. (USA) 578,000 28,467 .43
Polymer Group, Inc. (USA) /1/ 1,285,000 17,990 .27
OM Group, Inc. (USA) 400,000 15,200 .23
Kalon Group PLC (United Kingdom) 8,030,000 14,256 .22
McWhorter Technologies, Inc. (USA)/1/ /2/ 706,000 13,767 .21
Cambrex Corp. (USA) 361,300 12,239 .19
Holliday Chemical Holdings PLC (United Kingdom) 4,912,500 10,988 .17
Ferro Corp. (USA) 350,000 9,450 .14
Mycogen Corp. (USA) /1/ 641,000 9,134 .14
Armor All Products Corp. (USA) 550,000 8,800 .13
Sociedad Espanola de Carburos Metalicos, SA (Spain) 164,696 7,300 .11
NuCo2 Inc. (USA) /1/ 330,000 6,847 .10
RPM, Inc. (USA) 412,500 6,806 .10
Landec Corp. (USA) /1/ /2/ 690,000 6,727 .10
Epicore Network Inc. (Canada) /2/ 1,405,000 2,064 .03
Miscellaneous Materials & Commodities - 3.09%
Hoganas Eldfast AB, Class B (Sweden) 1,515,000 47,115 .71
Intertape Polymer Group Inc. (Canada) /2/ 1,500,000 33,562 .51
Delta and Pine Land Co. (USA) /2/ 1,125,400 32,918 .50
Sealed Air Corp. (USA)/1/ 400,000 14,900 .23
SGL Carbon AG (Germany) 100,000 11,664 .18
PT Mulia Industrindo (Indonesia) 11,560,000 11,565 .18
Forsheda AB, Class B (Sweden) 450,000 11,005 .17
Sinocan Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 24,314,000 10,848 .16
Carbide/Graphite Group, Inc. (USA)/1/ /2/ 511,800 9,404 .14
Ashton Mining Ltd. (Australia - Incorporated in Bermuda) 6,100,000 8,834 .13
Penn Engineering & Manufacturing Corp., non-voting shares (USA) 400,000 7,000 .10
PT PP London Sumatra (Indonesia) 2,248,500 5,563 .08
Transportation: Rail & Road - 2.93%
Wisconsin Central Transportation Corp. (USA)/1/ 2,274,300 81,591 1.23
USFreightways Corp. (USA) /2/ (Formerly TNT Freightways Corp) 1,350,000 27,675 .42
Swift Transportation Co., Inc. (USA)/1/ 950,000 20,841 .32
Werner Enterprises, Inc. (USA) 1,275,000 20,400 .31
M.S. Carriers, Inc. (USA)/1/ /2/ 837,000 16,112 .24
United TransNet, Inc. (USA) /1/ /2/ 492,000 8,487 .13
Tranz Rail Holdings Ltd.(American Depositary Receipts) (New Zealand) 504,000 7,308 .11
TNT Ltd. (Australia)/1/ 4,076,379 5,194
TNT Ltd., 8.00% convertible preferred 1,316,100 1,854 .11
Nippon Konpo Unyu Soko Co., Ltd. (Japan) 460,000 3,811 .06
Banking - 2.53%
First Financial Corp. (USA) 1,000,000 24,000 .36
Keystone Financial, Inc. (USA) 787,500 19,688 .30
Associated Banc-Corp (USA) 423,600 17,103 .26
Central Fidelity Banks, Inc. (USA) 551,250 13,368 .20
Collective Bancorp, Inc. (USA) 464,800 13,247 .20
Safra Republic Holdings SA (Luxembourg) 112,000 13,203 .20
Hibernia Corp., Class A (USA) 1,100,000 12,512 .19
FirstMerit Corp. (USA) 340,000 10,880 .16
Banco de Galicia y Buenos Aires SA, Class B, (American Depositary Receipts)
(Argentina) 467,000 10,216 .15
Washington Federal Savings and Loan Assn. (USA) 389,317 9,198 .14
Jefferson BankShares, Inc. (USA) 296,500 8,061 .12
Dah Sing Financial Holdings Ltd. (Hong Kong) 2,170,000 7,633 .12
International Bank of Asia Ltd. (Hong Kong) 10,497,000 6,346 .10
Sterling Financial Corp. (USA) /1/ 138,000 1,880 .03
Machinery & Engineering - 2.30%
Svedala Industri AB (Sweden) 1,300,000 22,569 .34
Crompton & Knowles Corp. (USA) 1,262,200 20,669 .31
Thermo Fibertek Inc. (USA)/1/ 1,480,100 19,426 .30
Greenfield Industries, Inc. (USA) 761,900 18,286 .28
UMW Holdings Bhd. (Malaysia) 4,655,000 17,925 .27
AGCO Corp. (USA) 600,000 15,300 .23
Kalmar Industries AB (American Depositary Receipts)(Sweden) /2/ /4/ 625,600 9,597
Kalmar Industries AB /2/ 134,500 2,091 .18
Toolex Alpha N.V. (Netherlands) /1/ 470,000 10,575 .16
Thermo Power Corp. (USA)/1/ 485,000 4,668 .07
Miura Co., Ltd. (Japan) 250,000 4,034 .06
Valmont Industries, Inc. (USA) 113,700 3,880 .06
Allied Products Corp. (USA) 105,400 2,635 .04
Electronic Instruments - 2.11%
CIDCO Inc. (USA)/1/ /2/ 913,000 18,945 .29
Plantronics, Inc. (USA)/1/ /2/ 500,000 18,812 .28
Trimble Navigation Ltd. (USA) /1/ 756,900 12,583 .19
LoJack Corp. (USA)/1/ /2/ 1,145,000 12,452 .19
ThermoQuest Corp. (USA) /1/ 730,000 9,764 .15
C-COR Electronics, Inc. (USA)/1/ /2/ 600,000 9,750 .15
TSX Corp.(USA) /1/ 653,850 9,317 .14
Milltronics Ltd. - Milltronics Ltee (Canada) 290,000 8,787 .13
Lumonics Inc. (Canada)/1/ 435,000 8,627 .13
Horiba Ltd. (Japan) 650,000 7,984 .12
Fluke Corp. (USA) 200,000 7,375 .11
Discreet Logic Inc. (Canada) /1/ 923,200 7,039 .11
Pinnacle Systems, Inc. (USA) /1/ /2/ 470,000 5,757 .09
Voice Control Systems, Inc. (USA) /1/ 247,000 1,482 .02
Microwave Power Devices, Inc. (USA) /1/ 250,000 766 .01
Telecommunications - 2.06%
Brooks Fiber Properties, Inc. (USA) /1/ 980,000 28,175 .43
International CableTel Inc. (USA)/1/ 1,009,466 25,868 .39
Mobile Telecommunication Technologies Corp. (USA) /1/ 1,084,900 17,087 .26
Octel Communications Corp. (USA)/1/ 500,000 14,500 .22
ICG Holdings, Inc. (Canada) /1/ 620,300 13,026 .20
McLeod, Inc., Class A (USA) /1/ 392,700 12,959 .20
MIH Holdings Ltd. (South Africa) 1,405,300 6,136 .09
MIDCOM Communications Inc. (USA) /1/ 347,700 4,781 .07
Pilipino Telephone Corp. (Philippines)/1/ 3,125,000 4,294 .07
Centennial Cellular Corp. (USA)/1/ 300,000 4,087 .06
Vanguard Cellular Systems, Inc. (USA)/1/ 150,000 2,906 .04
M-CELL (South Africa) 2,500,400 2,261 .03
Digicall Group Ltd. (Australia) /1/ /3/ 6,925,000 - .00
Data Processing & Reproduction - 1.94%
Macromedia, Inc. (USA) /1/ 914,200 18,970 .29
Avid Technology, Inc. (USA)/1/ /2/ 1,325,000 18,053 .27
Mentor Graphics Corp. (USA)/1/ 1,550,000 13,756 .21
Edify Corp. (USA) /1/ 650,000 13,162 .20
Altron Inc. (USA) /1/ /2/ 915,000 12,352 .19
Cerner Corp. (USA) /1/ 748,500 11,602 .17
PictureTel Corp. (USA) /1/ 300,000 10,575 .16
Cylink Corp. (USA) /1/ 715,000 10,278 .16
Wonderware Corp. (USA) /1/ 658,000 6,745 .10
Crystal Dynamics, Inc., convertible preferred, Series D (USA) /1/ /3/ /4/ 533,334 4,000 .06
Global Village Communications, Inc. (USA) /1/ 400,000 3,250 .05
Datalogix International Inc. (USA) /1/ 273,000 2,116 .03
Architel Systems Corp. (Canada) 226,500 1,763 .03
Innovus Corp. (USA) /1/ /4/ 118,625 712 .01
Intelligroup, Inc. (USA) /1/ 42,500 590 .01
Radius Inc. (USA) /1/ 383 1 .00
Transportation: Shipping - 1.87%
ICB Shipping AB, Class B (Sweden) 1,667,000 19,755 .30
Skibsaksjeselskatet Storli, Class A (Norway) 540,000 8,972
Skibsaksjeselskatet Storli, Class B (Norway) 455,000 7,350 .25
Stolt-Nielsen SA, Class B (American Depositary Receipts) (Multinational) 1,040,000 16,250 .25
Orient Overseas (International) Ltd. (Hong Kong - Incorporated in Bermuda) 21,715,000 15,726 .24
Bona Shipholding Ltd. (Norway) 880,200 10,427 .16
Nordstrom & Thulin AB, Class B (Sweden) /1/ 3,278,300 8,958 .13
Wah Kwong Shipping Holdings Ltd. (Hong Kong) 5,258,500 7,888 .12
Irish Continental Group PLC (Ireland) 1,025,000 7,877 .12
Benor Tankers Ltd. (Norway)/1/ 960,000 5,760 .09
IMC Holdings Ltd. (Hong Kong) 8,198,000 4,612 .07
Nordic American Tanker Shipping Ltd., warrants, expire /1/997 (Bermuda) /1/ 762,000 3,619 .05
William, Gothong & Aboitiz, Inc. (Philippines) (Formerly William Lines, Inc.) 14,100,000 3,229 .05
Silja Oy AB, Class A (Finland)/1/ 362,000 2,775 .04
Industrial Components - 1.86%
Federal-Mogul Corp. (USA) 975,000 20,597 .31
Cardo AB (Sweden) 914,717 20,299 .31
Material Sciences Corp. (USA) /1/ /2/ 1,000,000 17,000 .26
Bearings, Inc. (USA) 574,000 16,215 .25
Kolbenschmidt AG (Germany)/1/ 1,145,900 14,192 .21
Standard Products Co. (USA) 507,600 12,817 .19
Lear Seating Corp. (USA)/1/ 352,300 11,626 .18
Innovative International (Holdings) Ltd. (Hong Kong) 18,156,000 5,870 .09
Finnveden Invest AB, Class B (Sweden) 300,000 4,144 .06
Multi-Industry - 1.67%
SA D'Ieteren NV (Belgium) 203,883 33,751
SA D'Ieteren NV, VVPR 13,883 2 .51
Industriforvaltnings AB Kinnevik, Class B (Sweden) 884,000 23,088
Industriforvaltnings AB Kinnevik, Class A 203,440 5,252 .43
Amalgamated Holdings Ltd. (Australia) 3,157,280 18,415
Amalgamated Holdings Ltd., 5.00% convertible preferred 265,000 7,550 .39
Corporacion Financiera Alba, SA (Spain) 178,449 14,873 .23
Aboitiz Equity Ventures (Philippines) 57,568,940 7,471 .11
Insurance - 1.61%
Fairfax Financial Holdings Ltd. (Canada)/1/ /4/ 272,700 51,599 .78
Transatlantic Holdings, Inc. (USA) 225,000 15,300 .23
Harleysville Group Inc. (USA) 375,000 9,750 .15
Irish Life PLC (Ireland) 2,194,398 8,822 .13
Liberty Corp. (USA) 200,000 7,025 .11
Selective Insurance Group, Inc. (USA) 195,000 6,532 .10
Nelson Hurst PLC (United Kingdom) 1,435,000 4,265 .06
NAC Re Corp. (USA) 87,200 3,139 .05
Metals: Nonferrous - 1.32%
Capral Aluminium Ltd. (Australia) 8,954,587 27,284 .41
ERAMET (France)/4/ 288,712 17,223 .26
Century Aluminum Co. (USA) 900,000 13,275 .20
QNI Ltd. (Australia) 6,211,900 13,028 .20
Asturiana de Zinc, SA (Spain)/1/ 1,640,000 11,369 .17
Arcon International Resources PLC (Ireland) 9,798,000 5,287 .08
Recreation & Other Consumer Products - 1.19%
WMS Industries Inc. (USA)/1/ 600,000 16,200 .25
ACTIVISION, Inc. (USA)/1/ /2/ /4/ 900,000 12,712 .19
Acclaim Entertainment, Inc. (USA)/1/ 1,640,000 12,710 .19
Maxis, Inc. (USA) /1/ /2/ 630,000 8,820 .13
Lewis Galoob Toys, Inc. (USA) /1/ 250,000 7,313 .11
Koei Co., Ltd. (Japan) 234,900 6,192 .09
Pacific Concord Holding Ltd. (Hong Kong) 14,242,200 3,334
Pacific Concord Holding Ltd., 4.75% convertible debentures 1998 $3,000,000 2,670 .09
Infogrames Entertainment (France) 36,000 5,165 .08
Rawlings Sporting Goods Co., Inc. (USA)/1/ 380,000 3,658 .06
Financial Services - 1.17%
Newcourt Credit Group Inc. (Canada) /2/ 1,515,000 39,728 .60
OM Gruppen AB (Sweden) /2/ 1,443,100 37,799 .57
Beverages & Tobacco - 1.17%
Canandaigua Wine Co., Inc., Class A (USA) /1/ 784,000 16,268 .25
Brau-Union Goss-Reininghaus-Osterreichische Brau AG (Austria) 271,800 16,230 .25
Matthew Clark PLC (United Kingdom) 2,699,759 14,253 .21
Guinness Anchor Bhd. (Malaysia) 5,660,000 13,551 .20
BBAG Oest Brau-Betl (Austria) 195,770 12,401 .19
San Miguel Brewery Hong Kong Ltd. (Hong Kong) 11,600,000 4,613 .07
Food & Household Products - 1.15%
Smithfield Foods, Inc. (USA) /1/ 600,000 18,675 .28
Metro-Richelieu Inc., Class A (Canada) 1,275,000 18,262 .28
Hazlewood Foods PLC (United Kingdom) 7,500,000 11,321 .17
Geest PLC (United Kingdom) 2,250,000 8,271 .12
Cultor Ltd. (Finland) 132,500 7,111 .11
Rykoff-Sexton, Inc. (USA) 450,000 6,469 .10
Berisford International PLC (United Kingdom) 3,000,000 5,631 .09
Utilities: Electric & Gas - 0.80%
Australian Gas Light Co. (Australia) 3,895,920 20,966 .32
Hub Power Co. Ltd. (Global Depositary Receipts)(Pakistan)/1/ /4/ 723,909 14,840 .22
Espoon Sahko Oy (Finland) 510,900 10,967 .17
Capex SA, Class A (Global Depositary Receipts)(Argentina) /4/ 384,200 5,859 .09
Building Materials & Components - 0.77%
Futuris Corp. Ltd. (Australia) 10,332,382 12,184 .19
Puerto Rican Cement Co., Inc. (USA) /2/ 371,000 10,666 .16
Apasco, SA de CV (Mexico) 1,322,620 9,090 .14
Lafarge Corp. (USA) 402,800 7,502 .11
Companhia Cimento Portland Itau, preferred shares (Brazil) 23,200,000 6,181 .09
Falcon Building Products, Inc., Class A (USA)/1/ 390,000 5,070 .08
Textiles & Apparel - 0.62%
Wolford Group (Austria) 92,000 23,483 .36
Saha-Union Corp. Ltd. (Thailand) 6,660,000 8,779 .13
PT Indo-Rama Synthetics (Indonesia) 2,052,000 6,115 .09
Phillips-Van Heusen Corp. (USA) 250,000 2,781 .04
Electrical & Electronics - 0.61%
Tee-Comm Electronics Inc. (Canada) 1,043,200 8,812
Tee-Comm Electronics Inc., warrants, expire 1996 /1/ 300,000 187 .14
SR Telecom Inc. (Canada) 1,500,000 8,704 .13
ERG Ltd. (Australia) 8,178,961 7,832 .12
Johnson Electric Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 2,120,000 4,853 .07
MagneTek, Inc. (USA)/1/ 400,000 4,600 .07
Elsag Bailey Process Automation NV (Netherlands) /1/ 160,500 3,431 .05
Gilat Satellite Networks Ltd. (Israel) /1/ 100,000 1,763 .03
Construction & Housing - 0.50%
Ryland Group, Inc. (USA) /2/ 939,700 13,978 .21
plettac AG (Germany) 49,332 10,668 .16
Corporacion Geo, SA de CV, Class B (Mexico) 1,751,568 8,134 .13
Appliances & Household Durables - 0.45%
Gemstar International Group Ltd. (USA) /1/ 673,700 19,874 .30
Protection One, Inc. (USA) /1/ /2/ 795,000 10,037 .15
Aerospace & Military Technology - 0.44%
Thiokol Corp. (USA) 400,000 18,750 .28
CAE Industries Ltd. (Canada) 1,376,100 10,563 .16
Wholesale & International Trade - 0.44%
Brightpoint, Inc. (USA) /1/ /2/ 710,000 17,129 .26
Kamei Corp. (Japan) 483,000 5,716 .09
Thompson PBE, Inc. (USA) /1/ 415,000 4,150 .06
Finning Ltd. (Canada) 120,000 2,204 .03
Metals: Steel - 0.34%
Tubos de Acero de Mexico, SA (American Depositary Receipts)(Mexico)/1/ 1,000,000 10,875 .17
Siderca SAIC (Argentina) 6,400,000 9,538 .14
Nippon Denro Ispat Ltd., 3.00% convertible debentures 2001 (India) $4,700,000 2,232 .03
Forest Products & Paper - 0.28%
Caraustar Industries, Inc. (USA) 625,000 18,555 .28
Automobiles - 0.11%
Mahindra & Mahindra Ltd., 5.00% convertible debentures 2001 (India) $6,660,000 7,018 .11
Gold Mines - 0.10%
Golden Shamrock Mines Ltd. (Australia) /1/ 9,000,000 6,766 .10
Real Estate - 0.10%
Cadiz Land Co., Inc. (USA)/1/ /2/ /4/ 1,290,000 6,450 .10
Transportation: Airlines - 0.06%
PR Holdings, Inc., subscription rights (Philippines)/1/ /3/ /4/ 1,730,000 2,188 .03
Philippine Airlines Inc. 25% Paid (Philippines) /3/ 39,175,311 1,869 .03
Miscellaneous - 4.60%
Other equity-type securities in initial period of acquisition 303,644 4.60
----------- -----------
TOTAL EQUITY-TYPE SECURITIES (cost: $4,840,598,000) 5,676,614 85.92
----------- -----------
SHORT-TERM SECURITIES
Corporate Short-Term Notes - 12.55%
Bayer AG 5.29%-5.33% due 10/10-11/14/96 $ 72,000 71,623 1.08
General Electric Capital Corp. 5.30%-5.80% due 10/1-11/22/96 65,800 65,411 .98
Canadian Imperial Holdings Inc. 5.285%-5.30% due 10/7-10/28/96 62,000 61,782 .94
Halifax Building Society 5.30%-5.34% due 11/14-11/26/96 50,400 50,002 .76
Sony Capital Corp. 5.29%-5.44% due 10/17-11/25/96 50,000 49,716 .75
Canadian Wheat Board 5.28%-5.30% due 11/18-11/25/96 50,000 49,604 .75
Toyota Motor Credit Corp. 5.27%-5.37% due 10/23-12/17/96 48,000 47,569 .72
Ford Credit Europe PLC 5.30% due 10/31-11/1/96 44,700 44,491 .67
Daimler-Benz North America Corp. 5.34%-5.42% due 11/15-12/11/96 39,000 38,655 .59
Glaxo Wellcome PLC 5.36%-5.37% due 11/8-11/19/96 38,000 37,758 .57
International Lease Finance Corp. 5.27%-5.44% due 10/17-12/11/96 37,200 36,925 .56
Canada Bills 5.37%-5.40% due 10/10-11/12/96 35,400 35,247 .53
Reed Elsevier Inc. 5.37%-5.39% due 10/3-11/22/96 35,000 34,872 .53
Svenska Handelsbanken 5.29%-5.43% due 11/18-12/19/96 31,700 31,417 .48
National Australia Funding (Delaware) Inc. 5.27%-5.40% due 10/2-11/21/96 31,400 31,230 .47
Commonwealth Bank of Australia 5.33%-5.34% due 10/21-12/20/96 30,825 30,550 .46
Deutsche Bank Financial Inc. 5.28% due 10/21/96 24,500 24,424 .37
ABN-AMRO North America Finance Inc. 5.50% due 12/3/96 21,400 21,197 .32
American Express Credit Corp. 5.30% due 10/11-10/21/96 21,000 20,950 .32
Wool International 5.29%-5.45% due 10/10-12/9/96 21,000 20,881 .32
Ford Motor Credit Co. 5.30% due 10/16/96 13,200 13,169 .20
Commerzbank U.S. Finance Inc. 5.50% due 12/6/96 11,700 11,584 .18
Certificates of Deposit - 0.88%
Societe Generale 5.33%-5.38% due 10/17-11/7/96 43,000 42,996 .65
Bayerische Hypotheken-und Wechsel-Bank AG 5.60% due 10/9/96 15,000 15,001 .23
Federal Agency Discount Notes - 0.54%
Federal National Mortgage Assn. 5.36%-5.38% due 10/28-12/19/96 23,500 23,298 .35
Federal Home Loan Mortgage Corp. 5.37% due 11/13/96 12,500 12,420 .19
----------- --------
TOTAL SHORT-TERM SECURITIES (cost: $922,804,000) 922,772 13.97
----------- --------
TOTAL INVESTMENT SECURITIES (cost: $5,763,402,000) 6,599,386 99.89
Excess of cash and receivables over payables 7,711 .11
----------- --------
NET ASSETS $6,607,097 100.00
=========== ========
</TABLE>
<TABLE>
<S> <C>
/1/ Non-income-producing securities.
/2/ The fund owns the following percentages
(5% or more) of the outstanding voting
securities of the following companies and
thus is considered an affiliate as defined
in the Investment Company Act of 1940:
COMPANY PERCENT
M.S. Carriers 6.98%
McWhorter Technologies 6.75
Puerto Rican Cement 6.71
Brightpoint 6.62
Thomas Group 6.61
APCOA Parking 6.57
Rio Hotel & Casino 6.52
Franklin Quest 6.51
Anzoil 6.50
i-STAT 6.50
Micro Linear 6.50
Orbit Oil & Gas 6.50
ACTIVISION 6.49
Camco International 6.49
Filofax Group 6.49
Material Sciences 6.49
Savoy Pictures Entertainment 6.49
Landec 6.47
KeraVision 6.44
Alliance Communications 6.42
NETCOM On-Line Communication
Services 6.42
Strategic Distribution 6.42
Data Broadcasting 6.40
CIDCO 6.37
Epicore Network 6.37
Carbide/Graphite Group 6.34
PathoGenesis 6.32
Cardiovascular Diagnostics 6.29
Pinnacle Systems 6.29
KCI Konecranes International 6.28
Avid Technologies 6.26
C-COR Electronics 6.24
Intertape Polymer Group 6.24
Protection One 6.24
Flextronics International 6.22
OM Gruppen 6.12
Technical Chemicals and Products 6.10
Garden Botanika 6.08
Plantronics 6.08
Cadiz Land 6.06
Altron 6.02
CIMA LABS 6.02
USFreightways 5.99
ANTEC 5.98
Chrysalis Group 5.95
Ryland Group 5.95
Kalmar Industries 5.94
Cabre Exploration 5.91
Babcock International 5.80
Stampeder Exploration 5.79
Genelabs Technologies 5.74
Abacan Resources 5.67
Fabri-Centers of America 5.66
Maxis 5.66
AnnTaylor 5.63
Cimarron Petroleum 5.56
Zale 5.40
Atwood Oceanics 5.38
Paragon Trade Brands 5.37
Delta and Pine Land 5.36
VISX 5.36
AAPC 5.35
SCB Computer Technology 5.34
LoJack 5.30
IDEC Pharmaceuticals 5.29
Gymboree 5.25
United TransNet 5.25
Paramount Resources 5.23
T Cell Sciences 5.21
Micrel 5.16
Newcourt Credit Group 5.10
ImClone Systems 5.02
Microchip Technology 5.02
/3/ Valued under procedures established by
the Board of Directors
/4/ Purchased in a private placement
transaction; resale to the public may
require registration or sale only to
qualified institutional buyers.
The descriptions of the companies shown in
the portfolio, which were obtained from
published reports and other sources believed
to be reliable, are supplemental and are not
covered by the Independent Auditors' Report.
See Notes to Financial Statements
EQUITY-TYPE SECURITIES APPEARING IN THE
PORTFOLIO SINCE MARCH 31, 1996
Abacus Direct
Ackerley Communication
Acuson
All American Communications
Altron
American Disposal Services
American Residental Services
Anzoil
APS Holding
Architel Systems
Arcon International Resources
Aristocrat Leisure
Associated Bancorp
Banco De Galicia
Barnett
Berisford International
Canandaigua Wine
Capital
Cardiovascular Diagnostics
Chauvco Resources
Companhia Cimento Portland Itau
CIMA LABS
Corporate Services Group
Cultor
Datalogix International
Digicall Group
Eastbay
Edify
Ensign Resource Service Group
Etec Systems
Finnveden Invest
Garden Botanika
Garden Ridge
Geest
GelTex Pharmaceuticals
Gilat Satellite Netwoks
Gilead Sciences
Golden Harvest Entertainment
Grupo Radio Centro
Guinness Anchor
Gymboree
Henry Schein
Heritage Media
Hornbach Holding
i- STAT
Infogrames Entertainment
Intelligroup
Intercardia
Investic Consultador
Jefferson BankShares
Leslie's Poolmart
Level One Communication
London Sumatra
Mac Frugal's Bargains
Macromedia
Mahindra & Mahindra
Maxis
McLeod
Metro-Richelieu
Micrel
Microwave Power Devices
Migros Turk
Milltronics
Mobel Walther
Mobile Telecommunications Tehnology
Mycogen
Nasionale Pers Beperk-N
National Techteam
Newcourt Credit
Nordic American Tanker Shipping
NuCo2
Oil Search
Orbit Oil & Gas
Orthodontic Centers of America
Outdooor Systems
OzEmail
PathoGenesis
PDT
Penn Engineering & Manufacturing
Philippine Airlines
PictureTel
Pittston Brink's
Polymer Group
Precision Drilling
Premier Oil
Premiere Radio Networks
Radius
Ramco Energy
Registry
Rhoen-Klinikum
Saha-Union
SCB Computer Technology
Schibsted
Shaw Industries
Siderca
Southern Star Group
Spine-Tech
SR Telecom
Staff Builders
Storli
Strategic Distribution
Technical Chemicals and Products
Toolex Alpha
Tranz Rail Holding
UroCor
Vertex Pharmaceuticals
Vincam Group
Virbac
VIVUS
Voice Control Systemss
Wegener
Wyle Electronics
EQUITY-TYPE SECURITIES ELIMINATED FROM
THE PORTFOLIO SINCE MARCH 31, 1996
Ampolex
Arbor Drugs
Ashland Coal
Associated Group
Atlantic Tele-Network
AUDIOFINA
Autoliv
Autologic Information International
Avesta Sheffield
Aztar
Bally Entertainment
Blenheim Group
British-Borneo Petroleum Syndicate
CBT Group
Cemex
Chen Hson Holdings
City National
Continental Waste Industries
Crisplant Industries
Energy BioSystems
First Pacific
Genetics Institute
Hologic
Isis Pharmaceuticals
Jungheinrich
Landmark Graphics
Mercantile Bancorporation
Mutual Risk Management
Nowsco Well Service
Omnicare
On Assignment
Open Text
Pacific Basin Bulk Shipping
Quebecor Printing
Renaissance Communications
Robert Half International
SCI Systems
SEB
Showboat
Sinclair Broadcast Group
Siu-Fung Ceramics Holdings
Spectra-Physics
Steinbrecher
TCA Cable TV
Tech Data
Telephone and Data Systems
Tingyi (Cayman Islands) Holding
Transaction Systems Architects
Transocean Drilling
UGC Droits Audiovisuels
Viking Office Products
Vitesse Semiconductor
Washington Mutual Savings Bank
Westcott Communications
Western Waste Industries
World Houseware (Holdings)
Yip's Hang Cheung (Holdings)
Young Broadcasting
Z Groupe Zannier
Zhenhai Refining & Chemical
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SMALLCAP World Fund
FINANCIAL STATEMENTS
- ---------------------------------------- ------------ ------------
Statement of Assets and Liabilities
at September 30, 1996 (dollars in thousands)
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market
(cost: $5,763,402) $6,599,386
Cash 11,271
Receivables for -
Sales of investments $40,741
Sales of fund's shares 17,731
Dividends and accrued interest 7,022 65,494
------------ ------------
6,676,151
Liabilities:
Payables for -
Purchases of investments 60,642
Repurchases of fund's shares 3,529
Management services 3,607
Accrued expenses 1,276 69,054
------------ ------------
Net Assets at September 30, 1996 -
Equivalent to $26.92 per share on
245,391,124 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 400,000,000 shares) $6,607,097
============
Statement of Operations
for the year ended September 30, 1996 (dollars in thousands)
- ---------------------------------------- ------------ ------------
Investment Income:
Income:
Dividends $ 46,605
Interest 51,069 $ 97,674
------------
Expenses:
Management services fee 37,904
Distribution expenses 12,769
Transfer agent fee 5,701
Reports to shareholders 301
Registration statement and
prospectus 687
Postage, stationery and supplies 1,112
Directors' fees 109
Auditing and legal fees 74
Custodian fee 1,412
Taxes other than federal income tax 110
Other expenses 201 60,380
------------ ------------
Net investment income 37,294
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 595,514
Net increase in unrealized appreciation
on investments:
Beginning of year 703,887
End of year 835,994
------------
Net unrealized appreciation on investments 132,107
------------
Net realized gain and unrealized appreciation
on investments 727,621
------------
Net Increase in Net Assets Resulting
from Operations $764,915
============
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year ended September 30
1995 1995
------------ ------------
Operations:
Net investment income $ 37,294 $ 36,956
Net realized gain on investments 595,514 429,536
Net unrealized appreciation
on investments 132,107 238,836
------------ ------------
Net increase in net assets
resulting from operations 764,915 705,328
------------ ------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net
investment income (43,854) (24,819)
Distributions from net realized
gain on investments (441,715) (204,948)
------------ ------------
Total dividends and
distributions (485,569) (229,767)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
86,216,034 and 43,202,952
shares, respectively 2,214,661 1,002,339
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
20,219,912 and 10,403,045,
respectively 462,452 217,741
Cost of shares repurchased:
38,162,440 and 24,592,934
shares, respectively (974,760) (566,957)
------------ ------------
Net increase in net assets
resulting from capital share
transactions 1,702,353 653,123
------------ ------------
Total Increase in Net Assets 1,981,699 1,128,684
Net Assets:
Beginning of year 4,625,398 3,496,714
------------ ------------
End of year (including undistributed
net investment income: $16,689 and
$23,552, respectively) $6,607,097 $4,625,398
============ ============
See Notes to Financial Statements
</TABLE>
<PAGE>
SMALLCAP WORLD FUND
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 fund seeks long-term growth of capital through investments in smaller
companies in the U.S. and around the world. The following paragraphs summarize
the significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Equity-type securities traded on a national securities exchange (or reported
on the NASDAQ national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. 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. Securities for which market quotations are not
readily available are valued at fair value as determined by the the Board of
Directors or a committee there of. Short-term securities with 60 days or less
to maturity are valued at amortized cost, which approximates market value.
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. Dividends and distributions paid 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 prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
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 $1,412,000 includes $182,000 that was paid by these
credits rather than in cash.
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, 1996, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $835,984,000, of which
$1,273,259,000 related to appreciated securities and $437,275,000 related to
depreciated securities. During the year ended September 30, 1996, the fund
realized, on a tax basis, a net capital gain of $595,424,000 on securities
transactions. Net gains related to non-U.S. currency transactions of $90,000
were treated as ordinary income for federal income tax purposes. The cost of
portfolio securities for book and federal income tax purposes was
$5,763,402,000 at September 30, 1996.
3. The fee of $37,904,000 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; 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, 1996,
distribution expenses under the Plan were $12,769,000. As of September 30,
1996, accrued and unpaid distribution expenses were $925,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $5,701,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $6,297,000 (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.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of September 30,
1996, aggregate amounts deferred and earnings thereon were $87,000.
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 CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
4. As of September 30, 1996, accumulated undistributed net realized gain on
investments was $556,532,000 and additional paid-in capital was $5,195,428,000.
The fund reclassified $303,000 from undistributed net investment income to
undistributed net realized gains for the year ended September 30, 1996.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,243,669,000 and $1,981,367,000, respectively,
during the year ended September 30, 1996.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended September 30, 1996, such non-U.S. taxes were $3,861,000. Net
realized currency gains on dividends, interest, withholding taxes reclaimable,
and sales of non-U.S. bonds and notes were $410,000 for the year ended
September 30, 1996.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA AND
RATIOS
Year ended September 30
----- ----- ----- ----- -----
1996 1995 1994 1993 1992
- ----------------------- ----- ----- ----- ----- -----
Net Asset Value,
Beginning of
Year $ 26.11 $ 23.61 $ 22.72 $ 18.01 $ 17.60
----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .17 .22 .09 .06 .14
Net realized and
unrealized gain
on investments 3.32 3.79 1.83 5.56 .38
----- ----- ----- ----- -----
Total income from
investment
operations 3.49 4.01 1.92 5.62 .52
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from
net investment
income (.23) (.16) (.06) (.08) (.11)
Distributions
from net
realized gains (2.45) (1.35) (.97) (.83) -
----- ----- ----- ----- -----
Total distributions (2.68) (1.51) (1.03) (.91) (.11)
----- ----- ----- ----- -----
Net Asset Value, End
of Year $ 26.92 $ 26.11 $ 23.61 $ 22.72 $ 18.01
===== ===== ===== ===== =====
Total Return /1/ 15.21% 18.59% 8.60% 32.46% 2.95%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of year (in
millions) $6,607 $4,625 $3,497 $2,247 $1,255
Ratio of expenses
to average net
assets 1.09% 1.13% 1.12% 1.15% 1.21%
Ratio of net income
to average net
assets .68% .97% .38% .33% .85%
Average commissions
paid per share /2/ 1.41cents 1.00cents 1.25cents 1.55cents 2.36cents
Portfolio turnover
rate 42.88% 45.63% 29.43% 25.00% 23.10%
/1/ Calculated without
deducting a sales charge.
The maximum sales
charge is 5.75% of the
fund's offering price.
/2/ Brokerage commissions
paid on portfolio
transactions increase the
cost of securities
purchased or reduce the
proceeds of securities sold,
and are not reflected in the
fund's statement of
operations. Shares traded
on a principal basis, such as most
over-the-counter and fixed-income
transactions, are excluded.
Generally, non-U.S. commissions
are lower than U.S. commissions
when expressed as cents per share
but higher when expressed as a
percentage of transactions
because of the lower per-share
prices of many non-U.S. securities.
</TABLE>
<PAGE>
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 of
SMALLCAP World Fund, Inc. (the "fund"), including the schedule of portfolio
investments as of September 30, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the per-share data and ratios for each
of the five years in the period then ended. 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
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, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of SMALLCAP World Fund, Inc. at September 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
October 29, 1996
1996 Tax Information (Unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 3% of the dividends
paid by the fund from net investment income represents qualifying dividends.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV WHICH WILL BE
MAILED IN JANUARY 1997 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON
THEIR 1996 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
SMALLCAP WORLD FUND
BOARD OF DIRECTORS
Ambassador Richard G. Capen, Jr.
Rancho Santa Fe, California
Corporate director and author; former
United States Ambassador to Spain;
former Vice Chairman of the Board,
Knight-Ridder, Inc.; former Chairman
and Publisher, The Miami Herald
H. Frederick Christie
Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission
Group; former President, Southern
California Edison Company
Alan W. Clements
London, England
Private investor; former Executive Director - Finance, Imperial Chemical
Industries PLC
Robert B. Egelston
Los Angeles, California
Chairman of the Board of the fund
Former Chairman of the Board,
The Capital Group Companies, Inc.
Alan Greenway
La Jolla, California
Private investor; President, Greenway Associates, Inc. (management consulting
services)
William R. Grimsley
San Francisco, California
Vice Chairman of the Board of the fund
Senior Vice President and Director, Capital Research and Management Company
Graham Holloway
Dallas, Texas
Former Chairman of the Board,
American Funds Distributors, Inc.
Leonade D. Jones
Washington, D.C.
Former Treasurer,
The Washington Post Company
William H. Kling
St. Paul, Minnesota
President, Minnesota Public Radio; President, Greenspring Co.; former
President, American Public Radio (now Public Radio International)
Norman R. Weldon, Ph.D.
Miami, Florida
Managing Director, Partisan Management Group, Inc.; Chairman of the Board,
Novoste Corporation
Patricia K. Woolf, Ph.D.
Princeton, New Jersey
Private investor; lecturer, Department of Molecular Biology, Princeton
University
OTHER OFFICERS
Gordon Crawford
Los Angeles, California
President of the fund
Senior Vice President and Director, Capital Research and Management Company
Gregory W. Wendt
San Francisco, California
Senior Vice President of the fund
Vice President, Capital Research Company
Vincent P. Corti
Los Angeles, California
Vice President of the fund
Vice President - Fund Business Management Group, Capital Research
and Management Company
Steven N. Kearsley
Brea, California
Vice President and
Treasurer of the fund
Vice President and Treasurer, Capital Research and Management Company
Robert W. Lovelace
Los Angeles, California
Vice President of the fund
Vice President, Capital International, Inc.
Chad L. Norton
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
Mary C. Hall
Brea, California
Assistant Treasurer of the fund
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company
Robert P. Simmer
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the office nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
INDEPENDENT AUDITORS
Deloitte & Touche llp
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER, OR CALL AMERICAN FUNDS SERVICE COMPANY,
TOLL-FREE, AT 800/421-0180.
This report is for the information of shareholders of SMALLCAP World Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
December 31, 1996, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA BDA/FS/3143
Lit. No. SCWF-011-1196
[The American Funds Group(R)]
