[The American Funds Group (R)]
SMALLCAP WORLD FUND
1997 Annual Report
for the year ended September 30
[photos: business meeting, portions of globe of world, portion of a clock]
MEETING THE CHALLENGES OF SMALL COMPANY INVESTING
INVESTMENT HIGHLIGHTS
Total returns for periods ended September 30, 1997 with dividends reinvested
Salomon Brothers
SMALLCAP World S&P 500 MSCI
World Fund Smallcap Index EAFE
Index Index
Twelve months + 25.4% + 13.5% + 40.4% +12.5%
Five years +146.5 + 95.0 +156.5 +81.5
Since fund's inception +204.4 +114.4 +251.6 +80.3
on April 30, 1990
Average annual compound + 16.2 + 10.8 + 18.5 + 8.3
return since inception
The Salomon Brothers World Smallcap Index tracks more than 5,100 publicly
traded stocks, in 22 countries, with market capitalizations between $100
million and $1.2 billion.
Standard & Poor's 500 Composite Index tracks the 500 largest 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 9/30/97
Brightpoint (U.S. cellular phone distributor) +260.4%
Newcourt Credit Group
(Canadian financial services) +186.8
Chauvco Resources (Canadian oil and gas) +170.2
All American Communications
(U.S. television syndicator) +167.7
Shaw Industries (Canadian energy equipment) +167.6
Cyberonics (U.S. medical devices) +158.0
Petroleum Geo-Services
(Norwegian oilfield services) +148.2
Avid Technology (U.S. audio/visual technology) +138.5
Four Seasons Hotels (Canadian hotelier) +133.1
Canandaigua Brands (U.S. wine and spirits) +127.1
OUR 10 LEAST SUCCESSFUL HOLDINGS
For holdings owned throughout the fiscal year ended 9/30/97
Aboitiz Equity Ventures
(Philippine infrastructure projects) -67.9%
PictureTel (U.S. videoconferencing equipment) -70.6
Air & Water Technologies
(U.S. pollution control) -71.1
Anzoil (Australian oil and gas exploration) -71.1
Alpha-Beta Technology (U.S. biotechnology) -72.4
Pentex Energy (U.K. oil and gas exploration) -72.7
Epicore Network (Canadian biotechnology) -75.4
Pilipino Telephone
(Philippine telecommunications) -80.8
Philippine Gold (U.K. mining) -85.8
First Pacific Networks (U.S. data transmission) -99.1
Measured by changes in stock prices excluding dividends.
SMALLCAP World Fund(R) seeks long-term growth of capital through investments in
smaller companies in the U.S. and around the world.
SMALLCAP is one of the 28 mutual funds in The American Funds Group(R), managed
by Capital Research and Management Company. Since 1931, Capital has invested
with a long-term focus based on thorough research and attention to risk.
On Our Cover...
Investing in small companies presents unique challenges, requiring
around-the-clock and around-the-globe attention. Read more about how your fund
meets these challenges in the article beginning on page 4.
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.
FELLOW SHAREHOLDERS:
Fiscal 1997 was a wonderful year to own stocks, large or small, U.S. or
non-U.S. Only an investor focusing on Asian stocks would have had a
disappointing year.
Once again we are glad to report that SMALLCAP World Fund fared much better
than indexes tracking its investment universe and better than most mutual funds
with similar missions. If, like virtually all of the fund's shareholders, you
reinvested the two income dividends totaling 12<UNDEF> a share as well as the
$2.35 capital gain distribution paid last December, your total return for the
12 months ended September 30, 1997 amounted to 25.4%. Nearly all of this return
occurred in the second half of the fiscal year; as you may recall, we reported
a modest 0.7% increase at midyear.
This return ranked SMALLCAP World Fund fourth of the 28 small-company global
mutual funds tracked by Lipper Analytical Services for the fiscal year. Over
five years, the fund's 146.5% gain placed the fund second of the nine funds in
existence for the period. Over its lifetime, SMALLCAP's 204.4% return ranks
first among six such funds. Lipper rankings do not reflect the effects of sales
charges.
NEW INDEX UNVEILED
For some time we have tracked the results of the fund's investment universe
using an index called the Financial Times/S&P-Actuaries Small Cap World Index,
which last year was renamed the Financial Times/S&P-Actuaries Medium-Small Cap
World Index to reflect the growing size of the companies in that index.
Besides being a mouthful, the new name reflects our general concern that the FT
index no longer accurately measures the results of small companies. For that
reason, we worked closely with Salomon Brothers over the past year to create an
index that more closely tracks the fund's investment universe.
The aptly named Salomon Brothers World Smallcap Index does just that. It
measures the results of more than 5,100 publicly traded stocks in 22 markets
around the world, including the U.S. These stocks have market capitalizations
between $100 million and $1.2 billion - virtually the same parameters we use to
define SMALLCAP's universe.
This unmanaged index returned 13.5% during the fund's fiscal year, as shown in
the top table at left. The FT Index gained 16.4%. Over five years, they have
identical returns of 14.3% a year; the Salomon Brothers edges out the FT over
SMALLCAP's lifetime 10.8% to 10.5%. While the results of the two indexes so far
have been similar, we are concerned that they increasingly may diverge as the
market capitalization of companies in the FT index grows larger.
TO THE BIG GO THE SPOILS
As has happened in each of the past three years, SMALLCAP far outpaced the
return of stocks in its universe yet its gain still fell below that of the
largest U.S. companies. The unmanaged Standard & Poor's 500 Composite Index, a
widely used gauge of these stocks, rose an impressive 40.4% during SMALLCAP's
fiscal year.
Small-company stocks have been somewhat overlooked as an asset class in recent
years. Investors have focused on the easy money being made in the stocks of
larger companies and have wondered why they should take more risk for less
reward. That's a good question. Sooner or later we believe it will be answered
by investors wondering how they possibly could have expected the very largest
companies to continue to provide the best returns for any significant period of
time.
Evidence that this trend may be at its end surfaced in the final quarter of the
fund's fiscal year, when the Russell 2000 Index of smaller U.S. companies rose
14.9% versus 7.5% for the S&P 500. Some analysts attributed the small-stock
rally to the cut in the capital gains tax (from 28% to 20% for assets held more
than 18 months). Clearly other factors were also at work, but it is true that
the tax cut increases the allure of small-company stocks, which pay little in
the way of dividends and derive most of their return from capital gains.
ON THE BRIGHT SIDE
Large-company stocks may have done better, but small-company stocks did not
fare poorly. As evidenced by the fund's gain, they did quite well as a group.
Your fund had particularly good results with small oil and gas companies and
energy equipment firms. Many people think of the oil industry as being the
province of multinational giants, but it has its share of entrepreneurs. Partly
as a result of our commitment to the industry and partly as a result of
spectacular returns, four of the fund's ten largest holdings are energy or
energy equipment stocks.
Technology stocks also saw sharp gains, except for a brief swoon in March and
April. We took advantage of this weakness to add to our technology holdings,
especially in the area of networking equipment and software. These companies,
which make products to help computers work together more effectively, have
become one of the industry's driving forces.
Once again, media and entertainment companies treated the fund well. Not only
has the business environment for movie, radio and cable TV firms been
favorable, but a rising tide of mergers and acquisitions has boosted share
prices. Three of the fund's holdings - Black Entertainment Television,
International Family Entertainment and All American Communications - received
buy-out bids during the year.
Other successes include finance and banking companies, as well as selected
biotechnology firms. Two little-known areas also provided solid gains:
residential security companies, which help make homeowners feel more secure,
and outsourcing firms, which include temporary help and contract manufacturing.
Both industries are experiencing rapid growth and steady consolidation as
larger firms buy their smaller competitors.
CLOUDS ON THE HORIZON
During the year, returns outside the U.S. typically lagged those here at home.
Only the relatively small markets of Turkey (+91%), Finland (+63%), Spain
(+58%), Argentina (+52%), Brazil (+61%) and Mexico (+60%) did meaningfully
better than the U.S. in dollar terms. Many markets in Europe did well in local
currency; but, with the exception of the United Kingdom, the strength of the
U.S. dollar reduced results for U.S. investors by more than 20 percentage
points on average.
As always there were a few trouble spots. This year's worst markets were
concentrated in Asia, which experienced a currency crisis not unlike the one
that battered Latin American markets two years back. One market after another
saw its currency, and then its stock market, come under attack. Investors in
the region, accustomed to outsize gains, were stunned by the magnitude of the
losses: Thailand (-60%), Malaysia (-45%), the Philippines (-52%) and Indonesia
(-32%).
We didn't have many holdings in Asia when the crisis unfolded. Our analysts in
the region, who operate out of our offices in Tokyo, Hong Kong and Singapore,
have been concerned for some time that the region's rapid economic growth was
obscuring a number of significant structural defects. One is the lack of
attention to infrastructure - roads, water systems and the like. Equally
troubling has been the lax lending standards throughout the region; as growth
has stalled, banks' loan losses have skyrocketed. Overbuilding of manufacturing
capacity has exacerbated the problem.
The response to the crisis, especially in Malaysia, has been anything but
encouraging. The tone of the political debate has turned openly hostile to
foreign investors. While the region's strengths are difficult to ignore, risk
appears to outweigh reward at this juncture - although with stock prices down
sharply, we're keeping an eye out for bargains.
THE MERITS OF FLEXIBILITY
The terrible beating taken by stocks in Asia illustrates the dangers of
indexing and sector investing, especially on a global basis. If you don't have
the flexibility to make independent judgments and invest wherever you see
value, you increase the potential for extreme volatility. That's not something
of which we're particularly fond.
Global diversification, in our view, has always been as much about reducing
volatility as it has been about enhancing returns. In recent years, of course,
diversification has been the only benefit, since investing outside the U.S.
hasn't enhanced anyone's returns. But we firmly believe there will come a day
when it will.
We can continue to say with some confidence that growth around the world will
be fastest outside the U.S. in coming years, especially in the developing
world, and fastest among smaller companies over the long run. SMALLCAP's wide
diversification - representing over 500 smaller companies in 39 countries -
gives you exposure to many of these opportunities.
That is the long-term view. But as events in Asia so clearly demonstrate, in
the short run things can go wrong quickly even in the best of times.
With the turmoil in Asia now having unnerved investors around the world, we
would urge all of our shareholders to keep a long-term perspective and maintain
realistic expectations about the returns stocks can deliver over the long run.
In the meantime, we will do our best to navigate these unpredictable waters
and, when possible, take advantage of this volatility for you and other fund
shareholders.
Cordially,
/s/ Robert B. Egelston
Robert B. Egelston
Chairman of the Board
/s/ Gordon Crawford
Gordon Crawford
President
November 14, 1997
[Begin sidebar]
CHARTING THE COURSE OF A $10,000 INVESTMENT
This chart shows how a $10,000 investment in SMALLCAP World Fund grew from
April 30, 1990 - the date of the fund's inception - through September 30, 1997,
the end of the fund's latest fiscal year. The high, low and closing values are
shown for each year.
As you can see, that $10,000 would have grown to $28,689, 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 $21,443 generated by an
investment in the unmanaged Salomon Brothers World Smallcap Index, which tracks
over 5,100 small-company stocks traded around the world with market
capitalizations (price per share multiplied by number of shares outstanding)
between $100 million and $1.2 billion - virtually the same size parameters we
use when selecting stocks for the fund's portfolio. Of course, past results are
not predictive of future performance.
[begin mountain chart]
$28,689/1/ SMALLCAP World Fund
$21,443 Salomon Brothers World Smallcap Index
$12,506/2/ Consumer Price Index
$10,000 Original Investment
<TABLE>
<CAPTION>
Date SMALLCAP Date Salomon Date Consumer Price
World Bros. World Index /3/
Fund, Inc. Smallcap
/1/ Index
<S> <C> <C> <C> <C> <C> <C>
Fiscal year 1990#
High 7/16/90 9,963 7/90 11,442 9/90 10,295
Low 9/28/90 8,288 9/90 8,919 4/90 10,000
Close 9/28/90 8,288 9/90 8,919 9/90 10,295
Fiscal year 1991
High 9/30/91 11,307 9/91 11,211 9/91 10,644
Low 10/11/90 8,231 11/90 9,352 10/90 10,357
Close 9/30/91 11,307 9/91 11,210 9/91 10,644
Fiscal year 1992
High 2/12/92 12,666 2/92 11,675 9/92 10,962
Low 10/9/91 11,140 11/91 10,797 10/91 10,659
Close 9/30/92 11,640 9/92 10,999 9/92 10,962
Fiscal year 1993
High 9/30/93 15,418 8/93 14,340 9/93 11,257
Low 10/5/92 11,368 10/92 10,822 10/92 11,001
Close 9/30/93 15,418 9/93 14,336 9/93 11,257
Fiscal year 1994
High 2/3/94 17,254 8/94 15,655 9/94 11,590
Low 6/24/94 15,474 11/93 13,652 10/93 11,303
Close 9/30/94 16,744 9/94 15,390 9/94 11,590
Fiscal year 1995
High 9/11/95 20,046 9/95 16,888 9/95 11,885
Low 1/30/95 15,821 1/95 14,547 10/94 11,598
Close 9/29/95 19,856 9/95 16,888 9/95 11,885
Fiscal year 1996
High 5/20/96 23,573 5/96 19,339 9/96 12,242
Low 12/18/95 19,323 10/95 16,284 12/95 11,908
Close 9/30/96 22,877 9/96 18,899 9/96 12,242
Fiscal year 1997
High 9/30/97 28,689 7/97 21,443 9/97 12,506
Low 4/28/97 22,594 4/97 18,539 10/96 12,281
Close 9/30/97 28,689 9/97 21,443 9/97 12,506
</TABLE>
[end chart]
Average Annual Compound Returns for periods ended September 30, 1997
Lifetime Since inception on April 30, 1990 + 15.26%
Five years + 18.36%
One year + 18.21%
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/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
[End sidebar]
MEETING THE CHALLENGES OF SMALL COMPANY INVESTING
[photo: portion of globe of world]
[Begin sidebar]
LIKE PARENTS WITH SMALL CHILDREN, SUCCESSFUL SMALL-COMPANY MUTUAL FUNDS MUST
WATCH THEIR OFFSPRING GROW AND EVENTUALLY LEAVE.
[End sidebar]
In at least one critical way, the discipline of investing in small companies
differs markedly from investing in larger firms: Successful small companies
grow up. Unless you are willing to let these successes "graduate" from your
portfolio, sooner or later you will no longer be investing in small companies.
This issue is particularly acute with small-company mutual funds. In addition
to the challenge of companies growing larger over time, successful mutual funds
attract new investors. As assets flow into the fund, you have only three
choices: You can buy more of each company, you can own more stocks or you can
invest in larger and larger companies.
Buying more of each company may not be possible because of ownership
restrictions and may not be prudent in light of liquidity concerns, while
owning more stocks may stretch an organization's resources. This explains why
the path of least resistance is to retain your investments as they grow larger.
Our intention has always been to keep SMALLCAP World Fund focused on its
original mission. Staying true to that small-company focus, though, has
required the diligent application of several important principles.
STICK TO YOUR PLAN.
"What happens to the typical small-company fund," notes Greg Wendt, a portfolio
counselor and analyst who focuses on small companies, "is that when it gets
big, so do the companies it invests in. It's only natural. It takes a lot more
effort to keep the portfolio focused on small companies."
In recent years, professional investors have had an even more compelling reason
to stray from the small-company path. Quite simply, the stocks of larger
companies have done much better. As the charts at right show, the stocks of
small and large companies have exchanged leadership regularly over time. While
SMALLCAP was introduced at a propitious time, near the bottom of the last big
cycle in 1990, for most of the past three years large companies have led the
market higher.
"SMALLCAP has done exceptionally well relative to the universe of small-company
stocks," says Gordon Crawford, the fund's president. "But large company stocks
have done better still. That's been frustrating, but if you believe in the
inherent advantages of small-company investing, you don't want to give up the
ship just because the wind's blowing against you."
The Wall Street Journal recently reported on the impact of these various
trends: Small-company mutual funds now have an average market capitalization of
$861 million, up from an average of $547 million in September 1993. Typically,
$1.0 billion to $1.2 billion is considered the upper limit for defining a small
company.
SMALLCAP's trendline looks quite different. Though the fund's assets have risen
from $570 million at the end of its first fiscal year to $9.3 billion today,
its average market capitalization - a widely used gauge of company size - has
remained remarkably consistent near $500 million. (See chart on page 6.)
One way we've kept the portfolio focused on small companies is to "graduate"
companies that clearly no longer fit the fund's parameters. We don't sell
automatically when a stock reaches our guideline of $1.2 billion in market
capitalization, but we do start looking for a good exit point.
"Selling your best performers is always a trade-off," says Crawford, "But you
have to do it to keep true to your goals. Fortunately for SMALLCAP, our
analysts continue to find more opportunities than we can take advantage of."
[Begin sidebar]
Small and large stock cycles over 70 years
[begin bar chart]
<TABLE>
<CAPTION>
<S> <C>
1927 -13.76%
1928 3.56%
1929 -55.75%
1930 -18.39%
1931 -3.20%
1932 14.02%
1933 47.98%
1934 6.81%
1935 -15.12%
1936 33.63%
1937 -8.23%
1938 -23.68%
1939 21.46%
1940 -4.68%
1941 17.84%
1942 9.58%
1943 60.00%
1944 26.14%
1945 28.74%
1946 10.07%
1947 -7.74%
1948 -2.46%
1949 -5.93%
1950 3.72%
1951 -4.03%
1952 -16.94%
1953 -3.54%
1954 -10.93%
1955 -2.22%
1956 -1.13%
1957 1.47%
1958 6.40%
1959 4.18%
1960 3.46%
1961 -4.08%
1962 3.02%
1963 -0.15%
1964 2.13%
1965 12.76%
1966 15.69%
1967 47.82%
1968 24.95%
1969 -6.30%
1970 -17.66%
1971 -4.48%
1972 -11.82%
1973 -14.11%
1974 5.43%
1975 9.81%
1976 8.64%
1977 36.28%
1978 49.52%
1979 4.12%
1980 11.20%
1981 16.12%
1982 1.96%
1983 32.17%
1984 -9.72%
1985 -9.92%
1986 -10.32%
1987 -16.01%
1988 1.88%
1989 -15.56%
1990 -18.67%
1991 5.33%
1992 1.50%
1993 21.51%
1994 6.80%
1995 2.89%
1996 -7.12%
1997 -4.37%
</TABLE>
[end chart]
Source: Ibbotson Associates. Large stocks - S & P 500 Index (unmanaged).
Small stocks - DFA Small Company Fund (1982-1997) and the lowest 20% of NYSE
market capitalization (1927-1981). All rights reserved. All figures include
reinvestment of dividends.
Over the past 70 years, the stocks of small and large companies have traded
leadership roles regularly. This chart measures the difference between their
returns. When the bar is above the line, small-company stocks did better; when
the bar is below the line, large-company stocks had better returns.
QUARTERLY SMALL AND LARGE STOCK RETURNS OVER SMALLCAP'S LIFE
[begin bar chart]
<TABLE>
<CAPTION>
Time Period USA Europe Asia
<S> <C> <C> <C>
4/30/90 - 6/30/90 -1.81% -2.01% 12.34%
6/30/90 - 9/30/90 -8.93% -3.27% -0.32%
9/30/90 - 12/31/90 0.32% -1.70% -14.46%
12/31/90 - 3/31/91 10.02% 11.84% 7.08%
3/31/91 - 6/30/91 0.78% -4.09% 1.91%
6/30/91 - 9/30/91 2.28% -0.99% -7.93%
9/30/91 - 12/31/91 -0.62% -8.65% -2.06%
12/31/91 - 3/31/92 7.31% 1.71% 8.35%
3/31/92 - 6/30/92 -5.01% -0.91% 6.19%
6/30/92 - 9/30/92 0.75% -11.02% -12.52%
9/30/92 - 12/31/92 10.06% -0.84% -2.48%
12/31/92 - 3/31/93 2.53% 7.23% -1.30%
3/31/93 - 6/30/93 2.11% 1.18% 3.20%
6/30/93 - 9/30/93 5.73% 0.64% -0.26%
9/30/93 - 12/31/93 -1.09% -2.03% 0.86%
12/31/93 - 3/31/94 1.44% 10.90% -1.36%
3/31/94 - 6/30/94 -3.28% -2.54% -0.12%
6/30/94 - 9/30/94 2.14% -2.29% 1.08%
9/30/94 - 12/31/94 -3.45% -3.68% -4.45%
12/30/94 - 3/31/95 -3.22% -4.42% -2.42%
3/31/95 - 6/30/95 -1.81% 0.06% -3.60%
6/30/95 - 9/30/95 1.36% -1.49% -1.11%
9/30/95 - 12/31/95 -4.01% -6.76% -0.58%
12/31/95 - 3/31/96 -1.36% 4.36% 4.83%
3/31/96 - 6/30/96 -0.44% 2.38% 3.40%
6/30/96 - 9/30/96 -3.25% -4.18% -3.28%
9/30/96 - 12/31/96 -2.76% -1.39% -3.05%
12/31/96 - 3/31/97 -7.87% -0.78% 1.93%
3/31/97 - 6/30/97 -2.59% -9.03% -13.86%
6/30/97 - 9/30/97 7.77% -2.16% -17.05%
</TABLE>
[end chart]
Source: Salomon Brothers
These charts show the relationship of small- and large-company stocks by region
since SMALLCAP's introduction. In the U.S., small-company stocks enjoyed strong
performance in the fund's early years, with large-company stocks leading in
recent years. In both Europe and Asia, large-company stocks have led most of
the time.
All charts are for years ended September 30.
[End sidebar]
[Begin sidebar]
SMALLCAP'S HOLDINGS HAVE REMAINED SMALL
Average market capitalization at fiscal year-ends, in millions
[begin bar chart]
<TABLE>
<CAPTION>
Year ended 9/30 SMALLCAP Median of small-cap
mutual funds
<S> <C> <C>
1990 $350
1991 $439
1992 $416
1993 $525 $547
1994 $510
1995 $494
1996 $447
1997 $522 $861
</TABLE>
[end chart]
Source: Wall Street Journal, October 8, 1997
Market capitalization, often used as a gauge of a company's size, is calculated
by multiplying a company's share price by the number of shares outstanding.
SMALLCAP's average market capitalization has hovered around $500 million since
its introduction, despite sharply higher total assets. (The lower figure in
1990 reflects the market decline following Iraq's invasion of Kuwait.) The
typical small-company fund, on the other hand, has seen the size of its average
company rise dramatically.
[End sidebar]
[Begin sidebar]
HOW BIG ARE SMALLCAP'S COMPANIES?
Ranked by market capitalization
<TABLE>
<CAPTION>
Number of Percent of
Example Holdings Equity Assets
<S> <C> <C> <C>
$1 billion+ Four Seasons 74 33.0%
Hotel
$800 million+ Village 53 14.4%
Roadshow
$600 million+ Gymboree 77 16.5%
$400 million+ Australian 111 16.7%
Provincial
Newspapers
$200 million+ Scandinavian 158 14.3%
Broadcasting
System
less than Celestial 155 5.1%
$200 million Seasonings
</TABLE>
$522 million is the average market capitalization.
[End sidebar]
DO YOUR HOMEWORK.
This continuing flow of new investment ideas is the principal reason we've been
able to accommodate the growth of assets while keeping the average size of the
companies we invest in relatively small.
Of course, the only way you can confidently invest in as many companies as
SMALLCAP does - 500 and counting, located in 39 countries - is to have the
resources to identify a large number of interesting companies on a global
basis. Fortunately, we do. In fact, Capital Research and Management Company
(CRMC), the fund's adviser, operates one of the world's foremost global
research networks.
"The ability of our analysts to generate new ideas constantly amazes me," notes
Jim Rothenberg, president of CRMC. "The size of our non-U.S. capability, in
particular, is exponentially greater than all but a few firms."
Indeed, from nine offices worldwide we have more than 100 investment
professionals visiting companies. The diversity of perspectives is truly
telling: Our analysts and portfolio counselors come from 31 countries and speak
37 languages.
Many of our analysts focus on industries while others, particularly in
developing markets, look at all the companies in a particular country or
region. We also have a dedicated team of analysts looking solely at smaller
companies.
"Our small-company research team fits two needs," Rothenberg adds. "First, it
fills in the cracks in our industry coverage when other analysts have too many
larger companies to follow. Also, many newer companies don't fit neatly in an
existing industry, so you may not find them using traditional methods."
[Begin sidebar]
A continuing flow of new investment ideas is the principal reason we've been
able to keep the average size of the companies we invest in relatively small.
[End sidebar]
[photo: lightbulbs]
[Begin sidebar]
"We're looking in every nook and cranny around the world for intriguing
companies. They don't have to fit any preconceived pattern or description."
[End sidebar]
[photo: magnifying glass]
DON'T BET THE FARM.
The stocks of small companies can be volatile. Even a portfolio of
small-company stocks, if focused around a particular theme, style or region,
may fluctuate more than most investors would be comfortable with.
Unfortunately, much of the financial press and most consultants today are doing
their best to pigeonhole managers into certain easily communicated styles.
You're either a "growth" investor or a "value" investor, a "momentum" player or
a "technician." We've always thought these exercises were nonsense: What
intelligent investor would ever buy a stock that didn't offer good value?
We don't have a style; we don't invest in themes or regions or industries. We
simply buy the stocks of solid companies at reasonable prices and hold them for
the long run.
"Curiosity is one of our most important characteristics as an organization,"
explains Mark Denning, a SMALLCAP portfolio counselor based in London. "We're
looking in every nook and cranny around the world for intriguing companies.
They don't have to fit any preconceived pattern or description. The only thing
in common is that the stocks must offer good value and the opportunity to make
money over the long run."
Casting such a wide net has many benefits, especially for small-company
investors. "Investing in a highly diversified, global portfolio takes a lot of
the risk and a lot of the volatility out of investing in individual small
companies," adds Bill Grimsley, the fund's vice chairman.
What this means in practice is that your fund's portfolio includes a wide range
of companies you won't find in the typical small-company fund focused on rapid
growth and cutting edge technologies. You'll find some of that, but you'll also
find railroads, oil companies, construction firms, phone companies and
manufacturers. And they're just as likely to be located outside the U.S. as in
it.
"Our biggest gainers over the years haven't been technology stocks, or even
traditional growth companies," Denning says. "Take Newcourt Credit Group, a
Canadian financial services firm, or J D Wetherspoon, a chain of British pubs.
KCI Konecranes, as the name implies, makes cranes, and H<UNDEF>gan<UNDEF>s of
Sweden is an engineering and metallurgy firm. All of these stocks are selling
at multiples of what we paid for them. That's not because we took unusual
risks, but because we recognized the potential early."
Another way we have institutionalized the concept of diversification is with
our multiple portfolio counselor system. Six people each manage a slice of
SMALLCAP's portfolio, and another slice is managed cooperatively by a group of
research analysts. Unlike most team-managed funds, the portfolio counselors
operate independently. They are free to buy any stock that meets the fund's
guidelines. SMALLCAP's portfolio is the sum of all these individual decisions.
[Begin sidebar]
RESEARCHING COMPANIES AROUND THE WORLD
[illustration: Map of the world with the following countries color-coded to
represent Capital's research visits in 1996:
Argentina, Brazil, Canada, Chile, Colombia, Jamaica, Mexico, Panama, Peru,
Venezuela, United States, Venezuela, Bulgaria, Croatia, Czech Republic, Egypt,
Greece, Israel, Poland, Russia, Turkey, Ukraine, Ghana, Kenya, Namibia, South
Africa, Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
New Zealand, Pakistan, Philippines, Singapore, Taiwan, Thailand, Austria,
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg,
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom. Map
also shows Capital's offices' locations: Los Angeles, New York, Washington DC,
San Francisco, London, Tokyo, Singapore, Hong Kong, Geneva]
Capital's analysts made more than 7,500 visits in the past year to companies in
54 countries.
Research Calls
North America 5,159 Europe 1,501
Central and South Eastern Europe 26
America 211 Pacific Basin 1,013
Africa 48
WHERE ARE SMALLCAP'S PORTFOLIO COMPANIES LOCATED?
Geographical distribution of net assets on September 30, 1997
<TABLE>
<CAPTION>
<S> <C>
The Americas 60.6%
United States 51.8%
Canada 6.9
Mexico 1.1
Other Latin America .8
Europe 17.5%
United Kingdom 5.8%
Sweden 3.4
Norway 2.0
France .9
Austria .8
Ireland .8
Germany .7
Spain .7
Finland .5
Other Europe 1.9
Asia/Pacific 9.8%
Australia 3.6%
Hong Kong 1.5
New Zealand 1.4
Japan 1.1
Other Asia 2.2
Other countries 1.9%
Cash & Equivalents 10.2%
Total 100.0%
</TABLE>
[End sidebar]
[Begin sidebar]
THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
[pie chart representing the multiple portfolio counselor system]
Six portfolio counselors manage a portion of SMALLCAP's assets, with decisions
made independently. Another portion - representing 40% of the fund - is managed
by a group of research analysts.
[End sidebar]
"With the multiple portfolio counselor system, everyone focuses on what he or
she does best," explains Rob Lovelace, another portfolio counselor. "Whether
that's a portfolio counselor who really understands the media business or an
analyst focusing on Malaysia, by balancing people with different strengths and
different perspectives, we create a whole that's more than the sum of its
parts."
INSIST ON ACCOUNTABILITY.
To ensure that our portfolio counselors and analysts have the best interests of
fund shareholders at heart, we compensate them based on their actual results.
And to promote consistency, we compensate them on their results over a
four-year period rather than year-by-year (which might encourage aggressive
strategies toward the end of each year).
The multiple portfolio counselor system that SMALLCAP uses, which is employed
by all of the American Funds, makes it easy to track the performance of our
investment professionals. That's true for both portfolio counselors and
analysts because, as part of our unique process, analysts manage a portion of
each fund. In SMALLCAP's case, this "research portfolio" is 40% of fund assets
- - the largest of any fund in The American Funds Group.
"The principle behind the research portfolio," explains Rothenberg, "is that
it's helpful to have the people closest to the companies actively involved in
the investment process. That's particularly true with smaller companies; there
are just so many choices that one person - or even a handful of people - simply
can't understand all of them."
"The research portfolio also gets at the question of how you manage a $9
billion fund that's invested in small companies," adds Grimsley. "The answer
is: You have lots of decision-makers." Indeed, there are more than 40 analysts
who make investments through the research portfolio.
Capital's commitment to research is unique. It is the only investment
organization of any size where research is a career on a par with - and not
simply a stepping stone to - portfolio management. We encourage our investment
professionals to do whatever they enjoy most and do best; if that means
analyzing companies, then that's how they'll spend their careers. For that
reason, we have analysts who have followed the same companies for decades,
building relationships, experience and knowledge that can't be duplicated.
Our commitment to keeping the fund focused on small companies, our belief in
the value of in-depth research and our use of the multiple portfolio counselor
system have all contributed to SMALLCAP's success.
"I think you can fairly state that size hasn't hindered us," Crawford adds.
"In fact, the size of our organization and the resources we can bring to bear
have worked in the fund's favor."
Still, you might be asking yourself, "What's so important about maintaining
such a strict small-company approach?" Well, we think that harkens back to the
main reasons for investing in smaller companies at all: Over time they're
likely to offer the fastest growth, and they offer added diversification to a
portfolio of larger companies. If you don't actively work to keep the size of
your holdings small, you've lost those advantages.
We also never forget the most important reason to take investing in small
companies so seriously: That's why you hired us.
[photo: business meeting]
[Begin sidebar]
Capital is the only investment organization of any size where research is a
career on a par with - and not simply a stepping stone to - portfolio
management.
[End sidebar]
<TABLE>
SMALLCAP World Fund
INVESTMENT PORTFOLIO September 30, 1997
<S> <C> <C> <C>
Industry Diversification
Business & Public Services 10.42%
Broadcasting & Publishing 9.10%
Health & Personal Care 8.19%
Energy Sources 5.86%
Merchandising 5.34%
Other Industries 50.88%
Cash & Equivalents 10.21%
Percent
of
Net
Assets
Largest Equity-Type Holdings
Newcourt Credit Group 1.17%
Fletcher Challenge Energy 1.04
J. Ray McDermott .90
Brightpoint .78
Camco International .75
Smedvig .70
Westwood One .67
Consolidated Stores .65
CBT Group .63
Cablevision Systems .62
Percent
Shares or Market of
EQUITY-TYPE SECURITIES Principal Value Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
Business & Public Services - 10.42%
CBT Group PLC (American Depositary Receipts) (Ireland)/1/ 725,000 58,181 .63
ABR Information Services, Inc. (USA) /1,2/ 1,550,000 42,819 .46
Vanstar Corp. (USA) /1,2/ 2,200,000 33,550
Vanstar Financing Trust, 6.75% convertible preferred /2,4/ 175,000 7,263 .44
Primark Corp. (USA) /1,2/ 1,350,000 39,909 .43
ISS-International Service System A/S, Class B (Denmark)/1/ 1,221,041 39,135 .42
Franklin Covey Co. (formerly Franklin Quest Co.) (USA) /1,2/ 1,350,000 37,716 .41
Banta Corp. (USA) 1,350,000 37,631 .41
MSC Industrial Direct Co., Inc., Class A (USA) /1/ 760,500 34,983 .38
Corporate Services Group PLC (United Kingdom) /2,4/ 6,760,398 23,077
Corporate Services Group PLC/2/ 3,300,000 11,265 .37
BDM International, Inc. (USA) /1/ 1,233,300 30,987 .34
Allied Waste Industries, Inc. (USA) /1/ 1,256,700 24,034 .26
Universal Health Services, Inc., Class B (USA) /1/ 500,000 21,625 .23
Snyder Communications, Inc. (USA) /1/ 775,200 21,318 .23
Borg-Warner Security Corp. (USA) /1/ 1,000,000 19,500 .21
Pinkerton's, Inc. (USA) /1,2/A35 810,000 18,630 .20
Physician Sales & Service, Inc. (USA) /1/ 940,000 18,330 .20
ENVOY Corp. (USA) /1/ 600,000 17,138 .19
Protection One, Inc. (USA) /1,2/ 920,000 16,848 .18
Pricer AB, Class B (Sweden) 568,750 16,610 .18
Rhon-Klinikum AG, preferred shares (Germany) 154,000 16,517 .18
MemberWorks Inc. (USA) /1/ 733,000 16,401 .18
Dr Solomon's Group PLC (American Depositary Receipts) (United Kingdom)/1/ 635,000 16,113 .17
Pittston Brink's Group (USA) 400,000 16,025 .17
Saskatchewan Wheat Pool, non-voting shares, Class B (Canada) 1,125,000 15,432 .17
Choicepoint, Inc. (USA) /1/ 400,000 14,950 .16
Concord EFS, Inc. (USA) /1/ 529,400 14,294 .15
SCB Computer Technology, Inc. (USA) /1,2/ 562,350 11,809 .13
CCC Information Services Group Inc. (USA) /1/ 529,100 11,243 .12
Rental Service Corp. (USA)/1/ 500,000 11,219 .12
Australian Hospital Care Ltd. (Australia) /1/ 6,700,000 10,728
Australian Hospital Care Ltd., subscription rights 1,340,000 339 .12
Precision Response Corp. (USA) /1,2/ 1,398,000 10,835 .12
APCOA Parking AG (Germany) /2/ 120,800 10,625 .12
Rollins, Inc. (USA) 440,000 10,505 .11
Strategic Distribution, Inc. (USA) /1,2/ 1,890,000 10,454 .11
National Surgery Centers, Inc. (USA) /1/ 454,500 9,885 .11
Bally Total Fitness Holding Corp. (USA)/1/ 560,500 9,669 .11
American Disposal Services, Inc. (USA) /1/ 300,000 9,375 .10
MicroAge, Inc. (USA) /1/ 300,000 8,700 .09
G&K Services, Inc., Class A (USA) 247,000 8,583 .09
Sapient Corp. (USA) /1/ 166,300 8,461 .09
PMT Services, Inc. (USA) /1/ 545,000 8,448 .09
Flughafen Wien AG (Austria) 200,000 8,275 .09
Bell & Howell Co. (USA)/1/ 250,000 8,109 .09
InaCom Corp. (USA) /1/ 200,000 7,438 .08
CompuCom Systems, Inc. (USA) /1/ 800,000 7,400 .08
American Healthcorp, Inc. (USA) /1,2/ 522,000 7,373 .08
Alternative Resources Corp. (USA)/1/ 300,000 7,088 .08
Freepages Group PLC (United Kingdom) 11,250,000 6,627 .07
Prosolvia AB, Class B (Sweden)/4/ 210,100 6,608 .07
Eagle River Interactive, Inc. (USA) /1/ 600,000 6,450 .07
Newalta Corp. (Canada) 1,000,000 6,261 .07
Brunel International NV (Netherlands) /1/ 297,255 6,216 .07
Vincam Group, Inc. (USA) /1/ 203,100 5,839 .06
Kanamoto Co., Ltd. (Japan) 1,088,000 5,688 .06
More Group PLC (United Kingdom) 475,000 5,405 .06
International Container Terminal Services, Inc., 1.75% convertible
debentures 2004 (Philippines) $5,905,000 5,196 .06
PRT Corp. of America Units (USA)/1,2,3,4/ 48,631 3,191
PRT Corp. of America, 4.00% convertible preferred/1,2,3,4,5/ 27,565 1,809 .05
Thomas Group, Inc. (USA) /1,2/ 388,500 4,953 .05
Henry Schein, Inc. (USA) /1/ 127,500 4,558 .05
UroCor, Inc. (USA)/1/ 500,000 4,375 .05
Filofax Group PLC (United Kingdom)/2/ 1,956,000 4,167 .05
Staff Builders, Inc., Class A (USA)/1/ 1,180,000 2,876 .03
MDC Corp., Class A (Canada) /1/ 433,333 2,698 .03
Triple P NV (Netherlands)/1/ 985,000 2,093 .02
InteliData Technologies Corp. (USA)/1/ 670,000 2,010 .02
Air & Water Technologies Corp., Class A (USA) /1/ 203,000 419 .00
Broadcasting & Publishing - 9.10%
Westwood One, Inc. (USA)/1/ 1,943,100 61,693 .67
Cablevision Systems Corp., Class A (USA)/1/ 910,000 57,103 .62
Antena 3 de Radio, SA (Global Depositary Receipts) (Spain) /1,2,3,4/ 1,500 39,207 .42
FLEXTECH PLC (United Kingdom) /1/ 3,979,600 38,635 .42
BET Holdings, Inc., Class A (USA) /1/ 662,100 35,009 .38
HSN, Inc. (USA) /1/ 822,400 33,410 .36
United Video Satellite Group, Inc., Class A (USA) /1/ 1,200,000 33,300 .36
NTL Inc. (USA)/1/ 1,250,000 32,969 .36
CanWest Global Communications Corp. (Canada) 1,554,946 30,221 .33
United Television, Inc. (USA) 250,000 26,063 .28
Scottish Media Group PLC (formerly Scottish Television PLC) (United Kingdom) 2,300,000 25,429 .27
Ackerley Group, Inc.(formerly Ackerley Communications, Inc.) (USA) 1,285,000 23,210 .25
Emmis Broadcasting Corp., Class A (USA) /1/ 476,100 22,734 .25
Ascent Entertainment Group, Inc.(USA) /1,2/ 1,930,000 22,195 .24
Jones Intercable, Inc., Class A (USA) /1/ 1,705,000 21,526 .23
Scandinavian Broadcasting System SA (Denmark - Incorporated in Luxembourg) /1,2 887,900 21,310 .23
Marieberg Tidnings A (Sweden) 707,750 19,640 .21
Young Broadcasting Inc., Class A (USA)/1/ 557,000 19,077 .21
Chrysalis Group PLC (United Kingdom)/2/ 1,824,000 16,780 .18
Scholastic Corp. (USA) /1/ 408,800 16,148 .17
United International Holdings, Inc., Class A (USA) /1/ 1,295,000 15,864 .17
TCA Cable TV, Inc. (USA) 400,000 15,600 .17
Central European Media Enterprises Ltd., Class A (USA - Incorporated in
Bermuda) /1/ 555,000 14,846 .16
Data Broadcasting Corp. (USA)/1,2/ 2,000,000 13,500 .15
Adelphia Communications Corp., Class A (USA) /1/ 1,008,100 12,223 .13
Comcast UK Cable Partners Ltd., Class A (United Kingdom - Incorporated
in Bermuda) /1/ 1,150,000 11,788 .13
Baton Broadcasting Inc. (Canada) 940,000 11,567 .12
Australian Provincial Newspapers Holdings Ltd. (Australia) 5,402,537 10,098 .11
@Entertainment Inc. (USA) /1/ 635,000 10,001 .11
Shaw Communications Inc., Class B (Canada) 1,050,000 9,729 .11
New Straits Times Press (Malaysia) Bhd. (Malaysia) 3,175,000 9,595 .10
Primedia Ltd. (South Africa) 1,650,000 9,535 .10
Wegener Arcade CV A (formerly Wegener NV) (Netherlands) 433,000 8,727 .09
Modern Times Group MTG AB, Class B (Sweden) /1/ 884,000 6,892
Modern Times Group MTG AB, Class A /1/ 203,440 1,559 .09
Gaylord Entertainment Co., Class A (USA) 295,050 7,616 .08
Grupo Radio Centro, SA de CV (American Depositary Receipts) (Mexico) 420,000 7,271 .08
Century Communications Corp., Class A (USA)/1/ 900,000 6,863 .07
ValueVision International, Inc., Class A (USA)/1/ 1,370,000 6,508 .07
NRJ SA (France) 47,284 6,434 .07
Capital Radio PLC (United Kingdom) 735,000 5,706 .06
Nasionale Pers Beperk (South Africa) 534,900 5,688 .06
Matav-Cable Systems Media Ltd. (American Depositary Receipts) (Israel) /1/ 320,000 5,480 .06
MIH Holdings Ltd. (South Africa) 1,835,300 5,480 .06
Prime Television Ltd. (Australia) 2,192,227 4,924 .05
TCI Music, Inc., Series A (formerly DMX Inc.) (USA) /1/ 642,500 4,738 .05
Schibsted ASA (Norway) 252,800 4,425 .05
Southern Starr Group Ltd. (Australia) 2,870,000 3,535 .04
Investec - Consultoria Internacional, SA (Portugal) 99,000 3,532 .04
HIT Entertainment PLC (United Kingdom) 700,000 3,389 .04
Pacific Media PLC (United Kingdom) /1,2/ 88,249,124 1,780 .02
Dorling Kindersley Holdings PLC (United Kingdom) 261,900 1,205 .01
ENDEMOL Entertainment Holding BV (Netherlands) 20,000 493 .01
Health & Personal Care - 8.19%
Orthodontic Centers of America, Inc. (USA) /1/ 1,970,000 39,400 .43
IDEC Pharmaceuticals Corp. (USA) /1/ 920,000 38,525 .42
PathoGenesis Corp. (USA) /1,2/ 1,035,000 36,743 .40
Scotia Holdings PLC (United Kingdom) /2/ 5,062,200 36,603 .40
Andrx Corp. (USA) /1,3,4/ 730,000 31,554 .34
Mentor Corp. (USA) 800,000 25,400 .27
Millennium Pharmaceuticals, Inc. (USA) /1/ 1,250,000 24,375 .26
Vertex Pharmaceuticals Inc. (USA) /1/ 630,000 23,783 .26
Cytyc Corp. (USA) /1,2/ 933,700 23,459 .25
Acuson Corp. (USA) /1/ 850,000 23,162 .25
SONUS Pharmaceuticals, Inc. (USA) /1,2,4/ 442,500 18,585
SONUS Pharmaceuticals, Inc. /1,2/ 107,500 4,515 .25
Gilead Sciences, Inc. (USA) /1/ 500,000 22,187 .24
Zonagen, Inc. (USA) /1/ 590,800 21,269 .23
Thermedics Inc. (USA)/1/ 1,050,000 19,819 .21
i-STAT Corp. (USA) /1,2/ 727,000 16,903
i-STAT Corp. /1,2,4/ 125,000 2,906 .21
Kos Pharmaceuticals, Inc. (USA)/1/ 550,000 19,662 .21
Protein Design Labs, Inc. (USA) /1/ 500,000 19,375 .21
COR Therapeutics, Inc. (USA) /1,2/ 1,150,000 19,119 .21
Ranbaxy Laboratories Ltd. (Global Depositary Receipts)(India) 553,500 11,485
Ranbaxy Laboratories Ltd. 241,235 4,243 .17
Paragon Trade Brands, Inc. (USA) /1,2/ 787,700 14,622 .16
Pharmacyclics, Inc. (USA) /1,2,4/ 580,000 14,355 .16
Sano Corp. (USA) /1,2,4/ 600,000 14,325 .15
Cyberonics, Inc. (USA) /1,2,4/ 494,000 7,966
Cyberonics, Inc. /1,2/ 370,800 5,979 .15
Anesta Corp. (USA) /1,2/ 550,000 12,787 .14
Physio-Control International Corp. (USA) /1/ 750,000 12,703 .14
NeoPath, Inc. (USA)/1/ 622,800 12,145 .13
Gedeon Richter Ltd. (Global Depositary Receipts) (Hungary) 110,000 11,660 .13
Grupo Casa Autrey, SA de CV (American Depositary Receipts) (Mexico) 500,000 11,437 .12
Nobel Biocare AB (Sweden) 740,000 11,245 .12
Vical Inc. (USA) /1/ 700,000 9,888 .11
Technical Chemicals and Products, Inc. (USA) /1,2/ 600,000 9,600 .10
Martek Biosciences Corp. (USA)/1/ 600,000 9,000 .10
Genelabs Technologies, Inc. (USA) /1,2/ 2,085,000 8,861 .10
PerSeptive Biosystems, Inc. (USA)/1/ 684,581 8,215
PerSeptive Biosystems, Inc., warrants, expire 2003 /1/ 5,419 16 .09
ImClone Systems Inc. (USA) /1/ 1,000,000 8,125 .09
OrthoLogic Corp. (USA) /1/ 1,250,000 7,656 .08
Creative BioMolecules, Inc. (USA)/1/ 700,000 7,525 .08
Neose Technologies, Inc. (USA) /1/ 400,000 7,200 .08
SEQUUS Pharmaceuticals, Inc. (USA) /1/ 800,000 6,900
SEQUUS Pharmaceuticals, Inc., warrants, expire 4/17/98/1/ 80,832 44 .08
Intercardia, Inc. (USA) /1/ 300,000 6,750 .07
Gensia Sicor Inc. (formerly Gensia Pharmaceuticals, Inc.) (USA) 964,000 6,688 .07
KeraVision, Inc. (USA) /1,2/ 795,000 6,658 .07
Digene Corp. (USA) /1/ 500,000 6,437 .07
Virbac SA (France) 47,300 4,222 .05
CIMA LABS INC. (USA)/1,2/ 565,500 3,817 .04
Cardiovascular Diagnostics, Inc. (USA) /1,2/ 412,500 3,712 .04
SIBIA Neurosciences, Inc. (USA) /1/ 410,000 3,434 .04
Ethical Holdings PLC (American Depositary Receipts)(United Kingdom) /1/ 675,000 3,080 .03
NPS Pharmaceuticals, Inc. (USA) /1/ 300,000 2,775 .03
T Cell Sciences, Inc. (USA) /1,2,4/ 800,000 1,700
T Cell Sciences, Inc. /1,2/ 500,000 1,063 .03
InSite Vision Inc. (USA) /1/ 350,000 1,619
InSite Vision Inc./1,4/ 200,000 925
InSite Vision Inc., warrants, expire 2001 /1,4/ 50,000 69 .03
ImmuLogic Pharmaceutical Corp. (USA) /1/ 750,000 2,484 .03
Neurocrine Biosciences, Inc. (USA) /1/ 249,000 2,381 .02
Alpha-Beta Technology, Inc. (USA) /1/ 695,000 2,063 .02
Vision-Sciences, Inc. (USA) /1/ 484,500 1,332 .01
Life Medical Sciences, Inc. (USA)/1/ 295,000 1,143 .01
Energy Sources - 5.86%
Fletcher Challenge Energy (New Zealand) 21,339,310 96,495 1.04
Chauvco Resources Ltd., Class A (Canada) 2,061,300 45,210 .49
Premier Oil PLC (United Kingdom) /2/ 51,251,227 42,394 .46
Ranger Oil Ltd. (Canada) 4,350,000 40,776 .44
Oil Search Ltd. (Australia) 13,740,000 31,656
Oil Search Ltd. /4/ 2,300,000 5,299 .40
Hardy Oil & Gas PLC (United Kingdom) 6,037,900 33,134 .36
QCT Resources Ltd. (Australia) 27,043,028 32,132 .35
Ramco Energy PLC (United Kingdom) /2/ 1,597,000 28,095 .30
Paramount Resources Ltd. (Canada) /2/ 2,493,000 24,001 .26
ELAN Energy Inc. (Canada) /1,2/ 3,212,000 23,715 .25
Novus Petroleum Ltd. (Australia) /2/ 5,670,461 21,527 .23
Forcenergy Inc (USA) /1/ 526,300 20,427 .22
Cabre Exploration Ltd. (Canada) /1,2/ 993,400 19,235 .21
Abacan Resource Corp. (Canada) /1,2/ 4,762,400 14,823
Abacan Resource Corp. /1,2/ 947,000 2,959 .19
Encal Energy Ltd. (Canada) 4,335,000 16,788 .18
American Exploration Co. (USA)/1/ 500,000 9,500 .10
Arcon International Resources PLC (Ireland) 11,798,000 7,426 .08
Rubis & Cie (France) 214,000 5,061 .05
Black Sea Energy Ltd. (Canada) 1,950,000 4,517 .05
World Fuel Services Corp. (USA) 178,300 4,435 .05
Pentex Energy PLC (United Kingdom) 14,480,000 3,506 .04
Aminex PLC (Ireland) /4/ 3,250,000 3,410 .04
Orbit Oil & Gas Ltd. (Canada) /2/ 2,681,000 2,523 .03
Cultus Petroleum New NL (Australia) /4/ 580,000 1,240
Cultus Petroleum NL 210,000 449 .02
Anzoil NL (Australia) /1,2/ 40,600,000 1,441 .01
Providence Resources (Ireland) 11,798,000 686 .01
Merchandising - 5.34%
Consolidated Stores Corp. (USA) /1/ 1,445,312 60,522 .65
Zale Corp. (USA) /1,2/ 1,950,000 50,578 .55
Gymboree Corp. (USA) /1,2/ 1,535,600 39,926 .43
Sports Authority, Inc. (USA) /1/ 1,233,300 22,970
Sports Authority, Inc., 5.25% convertible debentures 2001 /4/ $11,000,000 10,093 .36
Williams-Sonoma, Inc. (USA) /1/ 475,000 20,306
Williams-Sonoma, Inc., 5.25% convertible debentures 2003/4/ $3,500,000 5,880 .28
Fabri-Centers of America, Inc., Class A (USA) /1,2/ 525,000 12,141
Fabri-Centers of America, Inc., non-voting shares, Class B /1,2/ 525,000 11,386 .25
DFS Furniture Co. PLC (United Kingdom) 2,097,700 20,653 .22
Dickson Concepts (International) Ltd. (Hong Kong - Incorporated in Bermuda) 5,477,199 20,423 .22
Talbots, Inc. (USA) 675,300 19,288 .21
Mobel Walther AG, non-voting, preferred shares (Germany) 260,000 12,910
Mobel Walther AG 88,000 4,619 .19
Bilia AB, Class A (Sweden) 1,085,000 16,488 .18
AnnTaylor, Inc. (USA)/1/ 955,900 14,219 .15
Controladora Comercial Mexicana, SA de CV Units (Mexico) 10,737,000 13,743 .15
Michaels Stores, Inc. (USA)/1/ 400,000 12,225 .13
Migros Turk TAS (Turkey) 13,634,675 11,940 .13
Garden Ridge Corp. (USA) /1/ 795,000 11,627 .13
Piercing Pagoda, Inc. (USA) /1,2/ 335,000 10,636 .12
Hanover Direct, Inc. (USA) /1/ 6,280,440 10,598 .11
Hornbach Holding AG, preferred shares (Germany) 142,650 10,119 .11
Hibbett Sporting Goods, Inc. (USA) /1/ 300,000 8,363 .09
Homeplace Holdings, 7.00% convertible preferred (USA)/1,3/ 30,200 8,003 .09
Haverty Furniture Companies, Inc. (USA) 545,000 7,698 .08
Marks Bros. Jewelers, Inc. (USA) /1,2/ 510,000 7,140 .08
PT Modern Photo Film Co. (Indonesia) 5,320,000 6,946 .08
Chapters Inc. (Canada) 305,200 6,164
Chapters Inc., warrants, expire 1/10/98 19,000 353 .07
Homac Corp. (Japan) 663,000 6,052 .07
Suburban Ostomy Supply Co., Inc. (USA) /1,2/ 563,000 5,489 .06
Aldeasa (Spain) 215,000 4,731 .05
Liquidation World Inc. (Canada) 186,000 3,736 .04
Cash Converters International Ltd. (Australia) /2/ 9,417,563 3,040 .03
Tandy Brands Accessories, Inc. (USA) /1/ 221,625 2,881 .03
Leisure & Tourism - 5.20%
Village Roadshow Ltd. (Australia) 8,201,596 29,116
Village Roadshow Ltd., 5.50% preferred shares, Class A 5,722,143 15,132 .48
Four Seasons Hotels Inc. (Canada) 1,062,149 43,824 .47
Imax Corp. (Canada) /1,2/ 1,558,000 40,703 .44
Ticketmaster Group, Inc. (USA)/1,2/ 1,600,000 37,200 .40
Florida Panthers Holdings, Inc., Class A (USA) /1/ 951,700 22,424
Florida Panthers Holdings, Inc., Class A /1,4/ 500,000 11,781 .37
Rio Hotel & Casino, Inc. (USA) /1,2/ 1,382,700 28,950 .31
Landry's Seafood Restaurants, Inc.(USA) /1,4/ 926,500 27,216 .30
J D Wetherspoon PLC (United Kingdom) 1,040,987 25,034 .27
Consolidated Products, Inc. (USA) /1,2/ 1,000,000 19,438 .21
Hoyts Cinemas Ltd. (Australia) 9,228,022 18,452 .20
AAPC Ltd. (Australia) /2/ 38,618,333 15,948
AAPC Ltd. /2,4/ 61,978 26 .17
CINAR Films Inc., Class B (Canada) /1/ 415,300 15,833 .17
Spelling Entertainment Group Inc. (USA) /1/ 1,500,000 13,781 .15
Cheesecake Factory Inc. (USA) /1/ 450,000 12,403 .13
Alliance Communications Corp., non-voting shares, Class B (Canada) /1,2/ 519,000 6,556
Alliance Communications Corp., Class A /1,2/ 322,700 4,029 .12
Morton's Restaurant Group, Inc. (USA)/1,2/ 415,000 10,168 .11
All American Communications, Inc., Class B (USA)/1/ 370,000 8,418 .09
Station Casinos, Inc. (USA) /1/ 1,005,000 8,166 .09
Capital Corp. PLC (United Kingdom) 2,900,000 7,840 .09
WHG Resorts & Casinos, Inc. (USA) /1,2/ 380,000 7,790 .09
Norsk Lotteridrift ASA (Norway) /2/ 965,000 7,424 .08
Gaumont SA (France) 94,835 6,701 .07
Silicon Gaming, Inc. (USA) /1,3,4/ 426,666 6,400 .07
Lions Gate (Canada)/3/ 2,075,000 6,083 .07
Penske Motorsports, Inc. (USA)/1/ 164,800 5,531 .06
Tourism Asset Holdings Ltd. (Australia) 5,531,713 5,210 .06
Mandarin Oriental Hotel Group Ltd. (Hong Kong) 4,040,217 4,081 .04
Mainframe Entertainment, Inc. (Canada) 516,000 4,015 .04
Filmes Lusomundo, SA, preferred shares (Portugal) 292,500 2,190 .02
Golden Harvest Entertainment (Holdings) Ltd. (Hong Kong) 10,400,000 1,721 .02
MovieFone, Inc., Class A (USA)/1/ 240,900 1,325 .01
Banking - 3.51%
First Financial Corp. (USA) 1,250,000 42,578 .46
Keystone Financial, Inc. (USA) 787,500 29,728 .32
Associated Banc-Corp (USA) 605,340 27,278 .29
FirstMerit Corp. (USA) 680,000 18,360 .20
UST Inc. (USA) 700,000 17,850 .19
Citizens Banking Corp. (USA) 376,600 16,570 .18
Banco de Galicia y Buenos Aires SA, Class B (American Depositary Receipts)
(Argentina) /1/ 555,730 16,464 .18
Fulton Financial Corp. (USA) 547,540 16,221 .18
Provident Bankshares Corp. (USA) 283,500 16,160 .17
Fort Wayne National Corp. (USA) 450,000 16,031 .17
Imperial Bancorp (USA) /1/ 400,000 14,950 .16
Yapi ve Kredi Bankasi AS (Turkey) 552,522,220 13,801 .15
Washington Federal Savings and Loan Assn. (USA) 428,248 12,687 .14
First Midwest Bancorp, Inc. (USA) 312,500 11,719 .13
Carolina First Corp. (USA) 528,400 11,559 .12
AMCORE Financial, Inc. (USA) 504,000 11,466 .12
Dah Sing Financial Holdings Ltd. (Hong Kong) 2,170,000 9,115 .10
Commerce Bancorp, Inc. (USA) 232,905 9,054 .10
International Bank of Asia Ltd. (Hong Kong) 10,497,000 8,411 .09
Bank Handlowy w Warszawie SA (Global Depositary Receipts) (Poland) /1/ 189,000 2,674 .03
Sterling Financial Corp. (USA) /1/ 138,000 2,631 .03
Energy Equipment - 2.83%
J. Ray McDermott SA (USA) /1/ 1,700,000 83,300 .90
Camco International, Inc. (USA) 990,700 69,101 .75
Smedvig ASA, Class A (Norway) 1,340,000 40,478
Smedvig ASA, non-voting shares, Class B 812,500 24,200 .70
Shaw Industries Ltd., Class A (Canada) 595,000 23,387 .25
Petroleum Geo-Services ASA (American Depositary Receipts) (Norway)/1/ 314,500 21,268 .23
Chemicals - 2.78%
Valspar Corp. (USA) 1,281,000 40,191 .42
OM Group, Inc. (USA) 900,000 35,944 .39
Airgas, Inc. (USA)/1/ 1,844,200 31,236 .34
Cambrex Corp. (USA) 550,000 25,644 .28
Kalon Group PLC (United Kingdom) 9,030,000 24,995 .27
Mycogen Corp. (USA) /1/ 900,000 21,150 .23
McWhorter Technologies, Inc. (USA) /1,2/ 706,000 17,738 .19
Polymer Group, Inc. (USA) /1/ 1,285,000 16,544 .18
Holliday Chemical Holdings PLC (United Kingdom) 4,912,500 14,510 .16
Georgia Gulf Corp. (USA) 450,300 13,790 .15
Ferro Corp. (USA) 150,000 5,728 .06
NuCo2 Inc. (USA) /1/ 330,000 5,362 .06
Landec Corp. (USA)/1,2/ 690,000 3,709 .04
Epicore Network Inc. (Canada)/2/ 1,405,000 509 .01
Electronic Instruments - 2.43%
Plantronics, Inc. (USA) /1,2/ 1,000,000 37,750 .41
Tokyo Seimitsu Corp. (Japan) 894,000 24,112 .26
ThermoQuest Corp. (USA) /1/ 1,010,000 20,200 .22
Trimble Navigation Ltd. (USA) /1/ 1,000,000 19,625 .21
LoJack Corp. (USA) /1,2/ 1,347,000 19,195 .21
Disco Corp. (Japan) 575,000 18,610 .20
CIDCO Inc. (USA) /1,2/ 913,000 17,575 .19
Milltronics Ltd. - Milltronics Ltee (Canada)/2/ 900,000 12,671 .15
ASM Pacific Technology Ltd. (Hong Kong) 13,969,000 12,277 .13
Horiba, Ltd. (Japan) 890,000 9,676 .10
Vivid Technologies, Inc. (USA) /1,2/ 600,000 9,300 .10
Lumonics Inc. (Canada) /1/ 460,000 9,157 .10
ANTEC Corp. (USA)/1/ 570,000 6,697 .07
Harmonic Lightwaves, Inc. (USA)/1/ 300,000 4,912 .05
Micronic Laser Systems AB (Sweden) /3,4/ 400,000 2,009 .02
Voice Control Systems, Inc. (USA) /1/ 247,000 957 .01
Transportation: Shipping - 2.37%
Knightsbridge Tankers Ltd. (Bermuda) /2/ 1,105,000 31,285 .34
Stolt-Nielsen SA, Class B (American Depositary Receipts) (Multinational) 1,040,000 30,160 .33
ICB Shipping AB, Class B (Sweden) 1,667,000 25,223 .27
Skibsaksjeselskapet Storli, Class A (Norway) 540,000 12,310
Skibsaksjeselskapet Storli, Class B 455,000 10,340 .24
Bona Shipholding Ltd. (Norway) 1,370,000 18,372 .20
Orient Overseas (International) Ltd. (Hong Kong - Incorporated in Bermuda) 21,715,000 15,717 .17
Nordic American Tanker Shipping Ltd.(Bermuda) /1,2/ 762,000 14,288 .15
Nordstrom & Thulin AB, Class B (Sweden) /1/ 3,618,300 12,718 .14
Benor Tankers Ltd. (Norway) /2/ 1,240,000 11,027 .12
MIF Ltd. (Multinational)/2/ 668,202 10,634 .11
London & Overseas Freighters Ltd. (Bermuda)/2/ 4,833,000 7,098 .08
Ugland International Holdings PLC (United Kingdom) 5,000,000 6,698 .07
Wah Kwong Shipping Holdings Ltd. (Hong Kong) 5,713,000 6,202 .07
IMC Holdings Ltd. (Hong Kong) 8,198,000 4,000 .04
Waterfront Shipping ASA (Norway) /1/ 3,340,000 3,725 .04
Electronic Components - 2.36%
Flextronics International Ltd. (USA-Incorporated in Singapore) /1,2/ 825,000 39,291 .42
Pioneer-Standard Electronics, Inc. (USA) /2/ 1,660,000 28,531 .31
Littelfuse, Inc. (USA) /1/ 800,000 27,900 .30
Alliance Semiconductor Corp. (USA) /1,2/ 2,510,000 24,786 .27
PMC-Sierra, Inc. (USA) /1/ 890,700 22,713 .25
S3 Inc. (USA) /1/ 1,600,000 18,800 .20
Rogers Corp. (USA)/1/ 370,000 16,002 .17
Trident Microsystems, Inc. (USA)/1,2/ 825,000 14,541 .16
QPL International Holdings Ltd. (Hong Kong) 11,010,000 9,961 .11
ITI Technologies, Inc. (USA) /1/ 285,200 8,128 .09
Accton Technology Corp. (Global Depositary Receipts) (Taiwan) /1/ 1,274,900 7,618 .08
First Pacific Networks, Inc. (USA)/1/ 850,000 8
First Pacific Networks, Inc., warrants, expire 2000 /1,3/ 250,000 0
First Pacific Networks, Inc., convertible preferred, Series H /1,3,4/ 1,000 0 .00
Financial Services - 2.05%
Newcourt Credit Group Inc. (Canada) 2,880,000 108,300 1.17
OM Gruppen AB (Sweden)/2/ 1,443,100 49,295 .53
CB Commercial Real Estate Services Group, Inc. (USA)/1/ 500,000 16,000 .18
MoneyGram Payment Systems, Inc. (USA) /1,2/ 878,600 15,760 .17
Industrial Components - 1.90%
Federal-Mogul Corp. (USA) 1,245,000 46,221 .50
Superior TeleCom Inc. (USA) /1/ 600,000 23,625 .26
Tower Automotive, Inc. (USA) /1/ 514,500 23,153 .25
Applied Technologies, Inc.(USA) 490,350 16,886 .18
Material Sciences Corp. (USA)/1,2/ 1,000,000 14,250 .15
Semperit AG Holding, Class B (Austria) 114,250 12,433
Semperit AG Holding, Class B New 11,937 1,302 .15
Koito Manufacturing Co., Ltd. (Japan) 1,670,000 10,741 .12
Finnveden Invest AB, Class B (Sweden) 300,000 7,770 .08
Standard Products Co. (USA) 280,000 7,367 .08
Kolbenschmidt AG (Germany) /1/ 450,000 6,895 .07
Innovative International (Holdings) Ltd. (Hong Kong) 18,361,707 5,458
Innovative International (Holdings) Ltd., warrants, expire 8/31/99 1,836,170 89 .06
Miscellaneous Materials & Commodities - 1.78%
Intertape Polymer Group Inc. (Canada) /2/ 1,500,000 36,375 .39
Hoganas Eldfast AB, Class B (Sweden) 935,000 33,545 .36
Sealed Air Corp. (USA)/1/ 400,000 21,975 .24
Carbide/Graphite Group, Inc. (USA) /1,2/ 511,800 17,401 .19
Delta and Pine Land Co. (USA) 460,900 14,835 .16
Sinocan Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 33,120,000 12,200 .13
Ashton Mining Ltd. (Australia - Incorporated in Bermuda) 7,600,000 9,856 .12
PT PP London Suymatra Indonesia (Indonesia) 5,486,400 6,742 .07
Arisawa Manufacturing Co. (Japan) /1/ 411,000 5,866 .06
PT Mulia Industrindo (Indonesia) 20,528,000 3,942 .04
New Indigo Resources (Canada) 600,000 2,172 .02
Food & Household Products - 1.74%
Metro-Richelieu Inc., Class A (Canada) 3,010,000 35,296 .38
Smithfield Foods, Inc. (USA) /1/ 900,000 27,000 .29
Tingyi (Cayman Islands) Holding Corp. (China - Incorporated in the
Cayman Islands) 65,600,000 13,057
Tingyi (Cayman Islands) Holding Corp., 1.625% convertible debentures 2002 $8,000,000 7,460 .22
Grupo Industrial Maseca, SA de CV, Class B (American Depository Receipts) (Mexi 1,026,400 18,603 .20
Hazlewood Foods PLC (United Kingdom) 7,500,000 18,097 .20
Geest PLC (United Kingdom) 2,250,000 13,073 .14
Berisford International PLC (United Kingdom) 3,000,000 8,473 .09
Celestial Seasonings, Inc. (USA) /1,2/ 260,000 8,060 .09
Sadia Concordia SAIC, preferred shares (Brazil) 6,800,000 6,763 .07
Ben & Jerry's Homemade, Inc., Class A (USA) /1/ 400,000 5,150 .06
Machinery & Engineering - 1.73%
KCI Konecranes International Corp. (Finland) /2/ 975,000 40,409 .44
Svedala Industri AB (Sweden) 1,418,000 33,166 .36
Thermo Fibertek Inc. (USA) /1/ 1,600,000 18,800
Thermo Fibertek Inc., 4.50% convertible debentures 2004 (USA)/1/ $4,000,000 4,200 .25
Crompton & Knowles Corp. (USA) 678,400 18,020 .19
Greenfield Industries, Inc. (USA) 511,900 14,717 .16
Sig Inhaber (Switzerland) 3,740 10,906 .12
UMW Holdings Bhd. (Malaysia) 4,066,000 8,150 .08
Miura Co., Ltd. (Japan) 500,000 6,224 .07
Thermo Power Corp. (USA)/1,2/ 620,000 5,154 .06
Stevens International, Inc., Class A, warrants, expire 10/30/97 (USA) /1,3/ 8,333 0
Data Processing & Reproduction - 1.72%
HNC Software Inc. (USA) /1,2/ 1,145,000 45,514 .49
Indus Group, Inc. (USA) /1/ 1,235,000 19,760 .21
Avid Technology, Inc. (USA) /1/ 600,000 19,500 .21
Cerner Corp. (USA) /1/ 775,000 18,552 .20
Edify Corp. (USA) /1,2/ 1,055,000 15,166 .16
Mentor Graphics Corp. (USA) /1/ 1,050,000 12,731 .14
PictureTel Corp. (USA) /1/ 999,500 10,370 .11
Altron Inc. (USA) /1/ 425,000 7,066 .08
Macromedia, Inc. (USA) /1/ 555,000 6,695 .07
Cylink Corp. (USA) /1/ 165,000 2,609 .03
Verity, Inc. (USA) /1/ 248,800 1,213 .02
SoftQuad International Inc. (Canada)/1/ 270,000 405 .00
Metals: Nonferrous - 1.22%
Capral Aluminium Ltd. (Australia) /2/ 12,237,825 37,770 .41
Kaiser Aluminum Corp. (USA)/1/ 1,850,000 26,247 .28
Century Aluminum Co. (USA) 955,000 16,832 .18
ERAMET (France) /4/ 226,910 10,241
ERAMET 61,802 2,789 .14
QNI Ltd. (Australia) 9,011,900 12,405 .14
International Precious Metals Corp. (Canada) /1,2/ 1,155,000 6,786 .07
Telecommunications - 1.08%
Mobile Telecommunication Technologies Corp. (USA)/1,2/ 3,525,000 57,061 .62
Nera ASA (Norway) /2/ 3,287,500 20,418 .22
Globalstar Telecommunications Ltd. (USA)/1/ 200,000 10,500 .11
M-Cell Ltd.(South Africa) 4,300,400 5,912 .06
Centennial Cellular Corp. (USA) /1/ 300,000 5,138 .06
Pilipino Telephone Corp. (Philippines) /1/ 3,125,000 825 .01
Insurance - 1.08%
Independent Insurance Group PLC (United Kingdom) 1,630,000 29,991 .32
Mutual Risk Management Ltd. (USA) 400,000 20,325 .22
Harleysville Group Inc. (USA) 375,000 15,750 .17
Executive Risk Inc. (USA) 150,000 10,256 .11
Selective Insurance Group, Inc. (USA) 195,000 10,043 .11
Liberty Corp. (USA) 200,000 9,050 .10
Unipol Priv (Italy) 2,220,000 4,188 .05
Wholesale & International Trade - 1.04%
Brightpoint, Inc. (USA) /1,2/ 1,566,250 72,635 .78
Daewoo Corp. (South Korea) 1,400,000 9,890 .11
Lazare Kaplan International Inc. (USA) /1,2/ 500,000 7,688 .08
Kamei Corp. (Japan) 693,000 6,154 .07
Real Estate - 1.04%
Unibail (France) 379,000 37,285 .40
Castellum AB (Sweden) /1/ 2,375,000 22,910 .25
Cadiz Land Co., Inc. (USA)/1,2/ 1,665,000 11,863
Cadiz Land Co., Inc. /1,2,4/ 250,000 1,781 .15
Newhall Land and Farming Co. (USA) 463,600 11,184 .12
Diligentia AB (Sweden) 800,000 10,783 .12
Recreation & Other Consumer Products - 1.00%
WMS Industries Inc. (USA) /1/ 900,000 27,169 .29
ACTIVISION, Inc. (USA) /1,2,4/ 570,000 8,550
ACTIVISION, Inc./1,2/ 330,000 4,950 .14
Galoob Toys, Inc. (USA) /1/ 850,000 12,538 .14
Midway Games Inc. (USA) /1/ 440,500 11,673 .13
Acclaim Entertainment, Inc. (USA) /1/ 1,860,000 9,416 .10
Infogrames Entertainment (France) 51,000 6,517
Infogrames Entertainment, 2.00% convertible debentures 2002 $9,000 1,460 .09
Crystal Dynamics, Inc., convertible preferred, Series D (USA) /1,3,4/ 533,334 4,000 .04
China - Hongkong Photo Products Holdings Ltd. (Hong Kong - Incorporated
in Bermuda) 12,060,000 3,975 .04
Koei Co., Ltd. (Japan) 234,900 2,437 .03
Beverages & Tobacco - 1.00%
Brau-Union Goss-Reininghaus-osterreichische Brau AG (Austria) 271,900 16,247 .18
Corporate Investments Ltd. (New Zealand)/2/ 25,500,000 15,189 .16
Pepsi-Gemex, SA de CV (Global Depositary Receipts) (Mexico) 685,000 11,688
Pepsi-Gemex, SA de CV 600,000 1,727 .14
BBAG osterreichische Brau-Beteiligungs-AG (Austria) 180,220 9,864 .11
Canandaigua Brands Inc., Class A (USA) /1/ 200,000 9,425 .10
Quilmes Industrial SA, preferred shares (American Depositary Receipts)
(Argentina) 600,000 9,300 .10
Guinness Anchor Bhd. (Malaysia) 4,830,000 7,447 .08
San Miguel Brewery Hong Kong Ltd. (Hong Kong) 11,600,000 4,498 .05
Al-Ahram Beverages (Global Depositary Receipts) (Egypt)/1/ 120,000 3,780 .04
Matthew Clark PLC (United Kingdom) 849,759 3,360 .04
Transportation: Rail & Road - 0.93%
Swift Transportation Co., Inc. (USA) /1/ 950,000 30,044 .32
Werner Enterprises, Inc. (USA) 800,000 19,400 .21
Tranz Rail Holdings Ltd.(American Depositary Receipts) (New Zealand) 1,051,200 17,345 .19
M.S. Carriers, Inc. (USA)/1/ 466,400 12,418 .13
Simon Transportation Services Inc., Class A (USA) /1/ 300,000 7,088 .08
Textiles & Apparel - 0.90%
Wolford Group (Austria)/2/ 324,000 29,259 .32
Esprit Asia Holdings Ltd. (Hong Kong) 36,314,000 18,891 .20
Hartmarx Corp. (USA) 1 1,287,400 11,104 .12
St. John Knits, Inc. (USA) 225,000 10,111 .11
Saha-Union Corp. Ltd. (Thailand) 8,488,300 7,093 .08
PT Indo-Rama Synthetics (Indonesia) 7,952,700 4,886 .05
Gargoyles, Inc. (USA)/1/ 360,000 2,160 .02
Multi-Industry - 0.75%
Industriforvaltnings AB Kinnevik, Class B (Sweden) 884,000 19,800
Industriforvaltnings AB Kinnevik, Class A 203,440 4,543 .26
SA D'Ieteren NV (Belgium) 103,883 22,296 .24
Corporacion Financiera Alba, SA (Spain) 178,449 19,958 .22
Aboitiz Equity Ventures (Philippines) 76,346,940 3,179 .03
Appliances & Household Durables - 0.58%
Pittway Corp., Class A (USA) 458,000 29,741 .32
Gemstar International Group Ltd. (USA) /1/ 960,900 24,023 .26
Utilities: Electric & Gas - 0.57%
Australian Gas Light Co. (Australia) 3,895,920 26,476 .29
Energen Corp. (USA) 576,400 20,498 .22
Capex SA, Class A (Global Depositary Receipts)(Argentina) 334,200 5,723 .06
Electrical & Electronics - 0.54%
Elsag Bailey Process Automation NV (Netherlands)/1/ 716,600 12,093 .13
ERG Ltd. (Australia) 9,014,840 7,184 .08
Johnson Electric Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 2,544,000 6,938 .08
TriGem Computer Inc. (South Korea) 400,000 6,922 .07
Tandberg Television AS (Norway) 720,000 5,793 .06
Powerwave Technologies, Inc. (USA) /1/ 120,000 4,650 .05
Gilat Satellite Networks Ltd. (Israel)/1/ 100,000 3,689 .04
Celeritek, Inc. (USA) /1/ 158,000 2,804 .03
Building Materials & Components - 0.51%
Futuris Corp. Ltd. (Australia) 10,553,316 15,559 .17
Puerto Rican Cement Co., Inc. (USA)/2/ 371,000 14,886 .16
Apasco, SA de CV (Mexico) 1,322,620 10,116 .11
Cia. Cimento Portland Itau, preferred shares (Brazil) 23,200,000 7,091 .07
Forest Products & Paper - 0.51%
Caraustar Industries, Inc. (USA) 810,000 27,742 .30
Deltic Timber Corp. (USA) 592,857 19,379 .21
Construction & Housing - 0.33%
Palm Harbor Homes, Inc. (USA) /1/ 483,281 14,257 .15
Ryland Group, Inc. (USA) 739,700 13,130 .14
Corporacion Geo, SA de CV, Class B (Mexico) 543,568 3,429 .04
Metals: Steel - 0.28%
Tubos de Acero de Mexico, SA (American Depositary Receipts) (Mexico) /1/ 1,000,000 23,187 .25
Ispat Industries Ltd., 3.00% convertible debentures 2001 (India) $4,700,000 2,397 .03
Automobiles - 0.15%
Mahindra & Mahindra Ltd. (India) 550,000 5,896
Mahindra & Mahindra Ltd. (Global Depositary Receipts) 250,000 2,937 .10
Qingling Motors Co., Ltd., 3.50% convertible debentures 2002 (China) /1,4/ $4,500,000 4,928 .05
Gold Mines - 0.13%
Avocet Mining PLC (United Kingdom)/2,4/ 1,500,000 3,607
Avocet Mining PLC /2/ 600,000 1,443 .06
Ashanti Goldfields Co. Ltd. (Ghana) 400,000 4,080 .04
Navan Resource PLC (Ireland) 1,000,000 2,098 .02
Philippine Gold PLC (United Kingdom) /2/ 2,453,700 1,089 .01
Transportation: Airlines - 0.12%
Philippine Airlines Inc. (Philippines)/3/ 64,494,643 9,457 .10
PR Holdings, Inc., subscription rights (Philippines) /1,3,4/ 1,730,000 1,681 .02
Equity Common Trusts - 0.10%
Atle AB, Class A (Sweden) 600,000 9,078 .10
Aerospace & Military Technology - 0.03%
Orbital Sciences Corp., 5.00% convertible debentures 2002 (USA) $2,500,000 2,731 .03
Miscellaneous - 4.59%
Other equity-type securities in initial period of acquisition 425,211 4.59
----------- -----------
TOTAL EQUITY-TYPE SECURITIES (cost: $6,445,467,000) 8,310,995 89.79
----------- -----------
Principal
Amount
SHORT-TERM SECURITIES (000)
Corporate Short-Term Notes - 8.36%
Svenska Handelsbanken 5.51% due 10/9-12/9/97 $74,300 73,831 .80
National Australia Funding (Delaware) Inc. 5.48%-5.50% due 10/6-11/18/97 70,800 70,504 .76
Societe Generale 5.495%-5.53% due 10/2-12/17/97 61,000 60,476 .65
ANZ (Delaware) Inc. 5.49% due 10/28-10/29/97 59,000 58,738 .64
General Electric Capital Corp. 5.50%-6.50% due 10/1-12/10/97 58,500 58,201 .63
Glaxo Wellcome PLC 5.49%-5.50% due 11/4-12/11/97 /4/4 56,700 56,280 .61
Abbey National North America 5.47%-5.50% due 10/17-12/23/97 54,100 53,747 .58
Canada Bills 5.44%-5.51% due 10/8-11/3/97 48,500 48,401 .52
Ritz American Holdings 5.49%-5.52% due 10/27-11/12/97 /4/ 45,000 44,765 .48
Panasonic Finance Inc. 5.48%-5.50% due 11/4-11/14/97 /4/ 43,000 42,749 .46
Ford Credit Europe PLC 5.51%-5.52% due 10/16-12/3/97 42,200 41,991 .45
Bayer AG 5.48%-5.50% due 11/18-12/19/97 /4/ 41,500 41,086 .44
Daimler-Benz North America Corp. 5.50%-5.51% due 10/17-12/19/97 40,000 39,641 .43
Rank Xerox Capital (Europe) PLC 5.47%-5.50% due 10/3-10/10/97 39,000 38,950 .42
Arco British Ltd. 5.50%-5.53% due 10/16-10/30/97 /4/ 25,000 24,909 .27
Toronto-Dominion Holdings Inc. 5.50% due 10/14/97 20,000 19,957 .22
Federal Agency Discount Notes - 0.86%
Freddie Mac (formerly Federal Home Loan Mortgage Corp.) 5.43%-5.44% due 10/6-12 43,400 43,126 .47
Fannie Mae (formerly Federal National Mortgage Assn.) 5.40%-5.45% due 11/4-11/2 36,600 36,369 .39
U.S. Treasury Bills - 0.48%
5.065% due 2/12/98 45,000 44,161 .48
Non-U.S. Currency - 0.05%
Taiwanese Dollars NT$ 137,800 4,825 .05
----------- --------
TOTAL SHORT-TERM SECURITIES (cost: $902,914,000) 902,707 9.75
----------- --------
TOTAL INVESTMENT SECURITIES (cost: $7,348,381,000) 9,213,702 99.54
Excess of cash and receivables over payables 42,450 0.46
----------- --------
NET ASSETS $9,256,152 100.00
=========== ========
1 Non-income-producing securities.
2 Represents an affiliated company as defined under the
Investment Company Act of 1940.
3 Purchased in a private placement transaction; resale to the public may
require registration or sale only to qualified institutional buyers.
4 Valued under procedures established by the fund's Board of Directors.
5 Payment in kind. The issuer has the option of paying
additional securities in lieu of cash.
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, 1997
@Entertainment
ABR Information Services
Aldeasa
Alliance Semiconductor
Allied Waste Industries
AMCORE Financial
American Exploration
American Healthcorp
Aminex
Andrx
Arisawa Manufacturing
Atle
Avocet Mining
Bally Total Fitness
Bank Handlowy w Warszawie
Bilia
Black Sea Energy
Borg-Warner Security
Brunel International
Carolina First
Cash Converters
Castellum
CB Commercial Real Estate Services Group
CCC Information Services Group
Chapters
Cheesecake Factory
Choicepoint
CompuCom Systems
Concord EFS
Cultus Petroleum
Daewoo
Diligentia
Disco
Elsag Bailey Process Automation
Esprit Asia Holdings
Forcenergy
Fort Wayne National
Fulton Financial
G&K Services
Gargoyles
Georgia Gulf
Globalstar Telecommunications
Grupo Casa Autrey
Grupo Industrial Maseca
Hartmarx
HIT Entertainment
HNC Software
Hoyts Cinemas
Imperial Bancorp
InaCom
Independent Insurance Group
ITI Technologies
Landry's Seafood Restaurants
Life Medical Sciences
Lions Gate
Liquidation World
Mainframe Entertainment
Marieberg Tidnings
J. Ray McDermott
MemberWorks
MicroAge
Micronic Laser Systems
Modern Times Group
MoneyGram Payment Systems
Mutual Risk Management
Navan Resource
Nera
Neurocrine Biosciences
New Indigo Resources
Newhall Land and Farming
Nobel Biocare
Norsk Lotteridrift
NPS Pharmaceuticals
Orbital Science
Penske Motorsports
Pentex Energy
Pepsi-Gemex
Piercing Pagoda
Pinkerton's
Pittway
PMC-Sierra
PMT Services
Precision Response
Prosolvia
Providence Resources
QPL International Holdings
Rental Service
Rollins
S3
Sano
Scholastic
Sig Inhaber
Snyder Communications
St. John Knits
TCA Cable TV
Tokyo Seimitsu
Tourism Asset Holdings
Tower Automotive
Trident Microsystems
United Video Satellite Group
Waterfront Shipping
WHG Resorts & Casinos
Zonagen
EQUITY-TYPE SECURITIES ELIMINATED FROM
THE PORTFOLIO SINCE MARCH 31, 1997
Accustaff
AGCO
ANADIGICS
APS Holding
APV
ASM International
Asturiana de Zinc
Austereo
AutoImmune
Avigen
Babcock International
BE Semiconductor Industries
Brooks Fiber Properties
C-COR Electronics
California Energy
Cambridge NeuroScience
Catena
Central Fidelity Banks
Chancellor Broadcasting
Cimarron Petroleum
COFLEXIP
Colruyt
Credence Systems
Cultor
Cypress Semiconductor
DAIKI
Dana Petroleum
Digicall
Discreet Logic
Dreco Energy Services
Duty Free International
Echelon International
Etec Systems
Fabege
Fairfax Financial Holdings
Falcon Drilling
Fluke
Garden Botanika
Giordano Holdings
Global Village Communications
Groupe
HemaSure
Hibernia
ICG Holdings
InnerDyne
Integrated Process Equipment
International Family Entertainment
Irish Continental Group
Irish Life
Jefferson BankShares
Kalmar Industries
Katz Media Group
Lafarge
Level One Communications
Lindt & Sprungli
Mattel
Maxis
McLeod
Micrel
Microchip Technology
MIDCOM Communications
Nelson Hurst
NETCOM On-Line Communication Services
Nets
Neurogen
Nippon Konpo Unyu Soko
Northstar Energy
Octel Communications
Park Electrochemical
Penn Engineering & Manufacturing
Pinnacle Systems
Premiere Radio Networks
Reading & Bates
Registry
RPM
Rykoff-Sexton
Safra Republic Holdings
Santa Anita Realty Enterprises
SFX Broadcasting
SGL Carbon
Siderca
Sinclair Broadcast Group
SR Telecom
Thiokol
Transatlantic Holdings
Trikon Technologies
TriQuint Semiconductor
Trump Hotels & Casino Resorts
Tschudi & Eitzen Shipping
UNC
United Auto
United Waste Systems
USA Waste Services
USFreightways
Vivra
William, Gothong & Aboitiz
Wyle Electronics
</TABLE>
<TABLE>
SMALLCAP World Fund
FINANCIAL STATEMENTS
<S> <C> <C>
- ---------------------------------------- ------------ ------------
Statement of Assets and Liabilities
at September 30, 1997 (dollars in thousands)
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market:
Unaffiliated issuers (cost: $ 5,824,276) 7,205,652
Affiliated issuers (cost: $ 1,524,105) 2,008,050
(cost: $7,348,381) $9,213,702
Cash 2,381
Receivables for -
Sales of investments 68,020
Sales of fund's shares 16,439
Dividends and accrued interest 8,652 93,111
------------ ------------
9,309,194
Liabilities:
Payables for -
Purchases of investments 37,669
Repurchases of fund's shares 8,390
Management services 4,892
Accrued expenses 2,091 53,042
------------ ------------
Net Assets at September 30, 1997 -
Equivalent to $30.72 per share on
301,261,731 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 400,000,000 shares) $9,256,152
============
Statement of Operations
for the year ended September 30, 1997 (dollars in thousands)
- ---------------------------------------- ------------ ------------
Investment Income:
Income:
Dividends (includes $ 11,476 from affiliates) $ 63,840
Interest 46,989 $ 110,829
------------
Expenses:
Management services fee 50,724
Distribution expenses 17,932
Transfer agent fee 6,976
Reports to shareholders 401
Registration statement and
prospectus 879
Postage, stationery and supplies 1,336
Directors' fees 134
Auditing and legal fees 65
Custodian fee 1,864
Taxes other than federal income tax 150
Other expenses 104 80,565
------------ ------------
Net investment income 30,264
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain (including $ 73,044 net gain from affiliates) 756,663
Net increase in unrealized appreciation
on investments:
Beginning of year 835,994
End of year 1,865,216
Net unrealized appreciation on investments 1,029,222
------------
Net realized gain and unrealized appreciation
on investments 1,785,885
------------
Net Increase in Net Assets Resulting
from Operations $1,816,149
============
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year ended September 30
1997 1996
------------ ------------
Operations:
Net investment income $ 30,264 $ 37,294
Net realized gain on investments 756,663 595,514
Net unrealized appreciation
on investments 1,029,222 132,107
------------ ------------
Net increase in net assets
resulting from operations 1,816,149 764,915
------------ ------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net
investment income (32,129) (43,854)
Distributions from net realized
gain on investments (591,521) (441,715)
------------ ------------
Total dividends and
distributions (623,650) (485,569)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
76,906,660 and 86,216,034
shares, respectively 2,051,195 2,214,661
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
23,876,950 and 20,219,912
shares, respectively 597,206 462,452
Cost of shares repurchased:
44,913,003 and 38,162,440
shares, respectively (1,191,845) (974,760)
------------ ------------
Net increase in net assets
resulting from capital share
transactions 1,456,556 1,702,353
------------ ------------
Total Increase in Net Assets 2,649,055 1,981,699
Net Assets:
Beginning of year 6,607,097 4,625,398
------------ ------------
End of year (including undistributed
net investment income: $14,749 and
$16,689, respectively) $9,256,152 $6,607,097
============ ============
See Notes to Financial Statements
</TABLE>
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. Short-term securities with 60 days
or less to maturity are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily available are
valued at fair value by the Board of Directors or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. 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.
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, 1997, net unrealized appreciation on investments
for book and federal income tax purposes aggregated $1,865,321,000, of which
$2,339,489,000 related to appreciated securities and $474,168,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended September 30, 1997. The
cost of portfolio securities for book and federal income tax purposes was
$7,348,381,000 at September 30, 1997.
3. The fee of $50,724,000 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, 1997,
distribution expenses under the Plan were $17,932,000. As of September 30,
1997, accrued and unpaid distribution expenses were $1,509,000.
American Funds Service Company (AFS), the transfer agent for the fund,
was paid a fee of $6,976,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $6,589,000 (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, 1997, aggregate amounts deferred and earnings thereon were $144,000.
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, 1997, accumulated undistributed net realized gain
on investments was $721,749,000 and additional paid-in capital was
$6,651,425,000. The fund reclassified $75,000 of realized currency loss from
undistributed net realized gain to undistributed net investment income for the
year ended September 30, 1997.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,682,802,000 and $2,840,847,000, respectively,
during the year ended September 30, 1997.
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 $1,864,000 includes $113,000 that was paid by these
credits rather than in cash
Dividend and interest income is recorded net of non-U.S. taxes paid.
For the year ended September 30, 1997, such non-U.S. taxes were $4,839,000.
Net realized currency losses on dividends, interest, withholding taxes
reclaimable, and sales of non-U.S. bonds and notes were $1,067,000 for the year
ended September 30, 1997.
5. Affiliated issuers, as defined under the Investment Company Act of
1940, are those in which the fund's holdings of an issuer represent 5% or more
of the outstanding voting securities of the issuer. A summary of the fund's
transactions in the securities of these issuers during the year ended September
30, 1997 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Market
Beginning Ending Dividend Value
Company Share Purchases Sales Share Income at 9/30/97
(000) (000)
AAPC 31,116,337 7,563,974 0 38,680,311 $ 149 $ 15,974
Abacan Resource 5,159,400 1,750,000 1,200,000 5,709,400 0 17,782
ABR Information Services 0 1,550,000 0 1,550,000 0 42,819
ACTIVISION 900,000 0 0 900,000 0 13,500
Alliance Communications 736,200 105,500 0 841,700 0 10,585
Alliance Semiconductor 0 2,510,000 0 2,510,000 0 24,786
Altron 1 915,000 70,000 560,000 425,000 0 0
American Healthcorp 0 522,000 0 522,000 0 7,373
Anesta 460,000 90,000 0 550,000 0 12,787
AnnTaylor 1 1,300,000 0 344,100 955,900 0 0
ANTEC 1 1,370,000 653,850 1,453,850 570,000 0 0
Antena 3 de Radio 0 1,500 0 1,500 0 39,207
Anzoil 40,600,000 0 0 40,600,000 0 1,441
APCOA Parking 120,800 0 0 120,800 196 10,625
Ascent Entertainment 700,000 1,230,000 0 1,930,000 0 22,195
Atwood Oceanics 360,000 0 360,000 0 0 0
Avid Technology 1 1,325,000 0 725,000 600,000 0 0
Avocet Mining 0 2,100,000 0 2,100,000 0 5,050
Babcock International 9,822,285 0 9,822,285 0 97 0
Benor Tankers 960,000 280,000 0 1,240,000 125 11,027
Brightpoint 710,000 856,250 0 1,566,250 0 72,635
C-COR Electronics 600,000 0 600,000 0 0 0
Cabre Exploration 993,400 0 0 993,400 0 19,235
Cadiz Land 1,290,000 625,000 0 1,915,000 0 13,644
Camco International 1 1,575,000 0 584,300 990,700 315 0
Capral Aluminium 8,954,587 3,283,238 0 12,237,825 3,597 37,770
Carbide/Graphite Group 511,800 0 0 511,800 0 17,401
Cardiovascular Diagnostics 412,500 0 0 412,500 0 3,712
Cash Converters International 9,090,593 326,970 0 9,417,563 95 3,040
Celestial Seasonings 250,000 10,000 0 260,000 0 8,060
Chrysalis Group 1,600,000 224,000 0 1,824,000 76 16,780
CIDCO 913,000 0 0 913,000 0 17,575
CIMA LABS 565,500 0 0 565,500 0 3,817
Cimarron Petroleum 723,400 116,600 840,000 0 0 0
Consolidated Products 0 1,000,000 0 1,000,000 0 19,438
COR Therapeutics 900,000 250,000 0 1,150,000 0 19,119
Corporate Investments 0 25,500,000 0 25,500,000 0 15,189
Corporate Services Group 3,010,398 7,050,000 0 10,060,398 653 34,342
Cyberonics 370,800 494,000 0 864,800 0 13,945
Cytyc 0 933,700 0 933,700 0 23,459
Data Broadcasting 2,000,000 0 0 2,000,000 0 13,500
Delta and Pine Land 1 1,125,400 697,000 1,361,500 460,900 152 0
Edify 650,000 405,000 0 1,055,000 0 15,166
ELAN Energy 2,035,000 1,177,000 0 3,212,000 0 23,715
Epicore Networks 1,405,000 0 0 1,405,000 0 509
ERG 1 8,178,961 3,979,474 3,143,595 9,014,840 178 0
Fabege 0 69,000,000 69,000,000 0 0 0
Fabri-Centers of America 1,050,000 0 0 1,050,000 0 23,527
Filofax Group 1,956,000 0 0 1,956,000 125 4,167
Flextronics International 825,000 0 0 825,000 0 39,291
Franklin Covey 1,350,000 0 0 1,350,000 0 37,716
Garden Botanika 430,000 0 430,000 0 0 0
Genelabs Technologies 1 2,085,000 0 0 2,085,000 0 0
Gymboree 1,325,000 210,600 0 1,535,600 0 39,926
Hardy Oil & Gas 1 4,715,100 1,322,800 0 6,037,900 104 0
HNC Software 0 1,145,000 0 1,145,000 0 45,514
i-STAT 727,000 125,000 0 852,000 0 19,809
IDEC Pharmaceuticals 1 920,000 0 0 920,000 0 0
Imax 360,000 1,198,000 0 1,558,000 0 40,703
ImClone Systems 1 1,000,000 0 0 1,000,000 0 0
International Precious Metals 0 1,155,000 0 1,155,000 0 6,786
Intertape Polymer Group 1,500,000 0 0 1,500,000 94 36,375
Kalmar Industries 760,100 71,500 831,600 0 353 0
KCI Konecranes International 942,700 32,300 0 975,000 486 40,409
KeraVision 795,000 0 0 795,000 0 6,658
Knightsbridge Tankers 0 1,105,000 0 1,105,000 663 31,285
Landec 690,000 0 0 690,000 0 3,709
Lazare Kaplan International 0 500,000 0 500,000 0 7,688
LoJack 1,145,000 202,000 0 1,347,000 0 19,195
London & Overseas Freighters 3,716,000 1,117,000 0 4,833,000 0 7,098
M.S. Carriers 1 837,000 0 370,600 466,400 0 0
Marks Bros. Jewelers 0 510,000 0 510,000 0 7,140
Material Sciences 1,000,000 0 0 1,000,000 0 14,250
Maxis 630,000 0 630,000 0 0 0
McWhorter Technologies 706,000 0 0 706,000 0 17,738
Micrel 475,000 123,000 598,000 0 0 0
Micro Linear 807,500 0 807,500 0 0 0
Microchip Technology 1,700,000 54,000 1,754,000 0 0 0
MIF 200,000 468,202 0 668,202 216 10,634
Milltronics 290,000 610,000 0 900,000 0 12,671
Mobile Telecommunication Technologies 1,084,900 2,440,100 0 3,525,000 0 57,061
MoneyGram Payment Systems 0 878,600 0 878,600 0 15,760
Morton's Restaurant Group 315,000 100,000 0 415,000 0 10,168
Nera 0 3,287,500 0 3,287,500 0 20,418
NETCOM On-Line Communication Services 745,000 0 745,000 0 0 0
Newcourt Credit Group 1 1,515,000 1,515,000 150,000 2,880,000 257 0
Nordic American Tanker Shipping 762,000 0 0 762,000 0 14,288
Norsk Lotteridrift 0 965,000 0 965,000 0 7,424
Novus Petroleum 4,779,661 890,800 0 5,670,461 149 21,527
OM Gruppen 1,443,100 0 0 1,443,100 1,437 49,295
Orbit Oil & Gas 2,681,000 0 0 2,681,000 0 2,523
Pacific Media 52,249,124 36,000,000 0 88,249,124 0 1,780
Paragon Trade Brands 650,000 137,700 0 787,700 0 14,622
Paramount Resources 831,000 1,662,000 0 2,493,000 52 24,001
PathoGenesis 870,000 165,000 0 1,035,000 0 36,743
Pharmacyclics 0 580,000 0 580,000 0 14,355
Philippine Gold 1,860,000 593,700 0 2,453,700 0 1,089
Piercing Pagoda 0 335,000 0 335,000 0 10,636
Pinkerton's 0 810,000 0 810,000 0 18,630
Pinnacle Systems 470,000 15,000 485,000 0 0 0
Pioneer-Standard Electronics 0 1,660,000 0 1,660,000 136 28,531
Plantronics 500,000 500,000 0 1,000,000 0 37,750
Precision Response 0 1,398,000 0 1,398,000 0 10,835
Premier Oil 50,472,549 778,678 0 51,251,227 469 42,394
Primark 700,000 650,000 0 1,350,000 0 39,909
Protection One 795,000 125,000 0 920,000 0 16,848
PRT Corp. of America 0 76,196 0 76,196 0 5,000
Puerto Rican Cement 371,000 0 0 371,000 247 14,886
Ramco Energy 575,000 1,022,000 0 1,597,000 28 28,095
Rio Hotel & Casino 1,382,700 0 0 1,382,700 0 28,950
Ryland Group 1 939,700 0 200,000 739,700 422 0
Sano 0 600,000 0 600,000 0 14,325
Savoy Pictures Entertainment 1,950,000 0 1,950,000 0 0 0
Scandinavian Broadcasting System 655,000 232,900 0 887,900 0 21,310
SCB Computer Technology 374,900 187,450 0 562,350 0 11,809
Scotia Holdings 2,760,000 2,302,200 0 5,062,200 0 36,603
SONUS Pharmaceuticals 0 550,000 0 550,000 0 23,100
Stampeder Exploration 2,780,000 0 2,780,000 0 0 0
Strategic Distribution 1,890,000 0 0 1,890,000 0 10,454
Suburban Ostomy Supply 0 563,000 0 563,000 0 5,489
T Cell Sciences 1,300,000 0 0 1,300,000 0 2,763
Technical Chemicals and Products 600,000 0 0 600,000 0 9,600
Thermo Power 485,000 135,000 0 620,000 0 5,154
Thomas Group 388,500 0 0 388,500 0 4,953
Ticketmaster Group 0 1,600,000 0 1,600,000 0 37,200
Trident Microsystems 0 825,000 0 825,000 0 14,541
United TransNet 492,000 0 492,000 0 0 0
USFreightways 1,350,000 0 1,350,000 0 378 0
Vanstar 282,000 243,000 150,000 2,375,000 0 40,813
Verity 1 684,300 21,200 456,700 248,800 0 0
VISX 825,000 125,000 950,000 0 0 0
Vivid Technologies 0 600,000 0 600,000 0 9,300
WHG Resorts & Casinos 0 380,000 0 380,000 0 7,790
Wolford Group 92,000 232,000 0 324,000 227 29,259
Zale 1,900,000 50,000 0 1,950,000 0 50,578
Total $ 11,47$ 2,008,05
1 Represents an unaffiliated company at 9/30/97.
</TABLE>
<TABLE>
PER-SHARE DATA AND
RATIOS
<S> <C> <C> <C> <C> <C>
Year endedSeptember 30
-------- -------- -------- -------- --------
1997 1996 1995 1994 1993
- ----------------------- ------------------ ---------------------------
Beginning of Year
Net Asset Value $ 26.9 $ 26. $ 23.6 $ 22.7 $ 18.0
------------------ ---------------------------
Income From Investment
Operations:
Net investment income 0.1012 0.17 0.22 0.09 0.06
Net realized and
unrealized gain
on investments 6.1688 3.32 3.79 1.83 5.56
------------------ ---------------------------
Total income from
investment
operations 6.27 3.49 4.01 1.92 5.62
------------------ ---------------------------
Less Distributions:
Dividends from
net investment
income (0.12) (0.23) (0.16) (0.06) (0.08)
Distributions
from net
realized gains (2.35) (2.45) (1.35) (0.97) (0.83)
------------------ ---------------------------
Total distributions (2.47) (2.68) (1.51) (1.03) (0.91)
------------------ ---------------------------
Net Asset Value, End
of Year $ 30.7 $ 26. $ 26.1 $ 23.6 $ 22.7
================== ===========================
Total Return/1/ 25.41% 15.21% 18.59% 8.60% 32.46%
Ratios/Supplemental
Data:
Net assets, end
of year (in
millions) $9,256 $6,607 $4,625 $3,497 $2,247
Ratio of expenses
to average net
assets 1.07% 1.09% 1.13% 1.12% 1.15%
Ratio of net income
to average net
assets .40% .68% .97% .38% .33%
Average commissions
paid per share/2/ .26c 1.41c 1.00c 1.25c 1.55c
Portfolio turnover
rate 42.21% 42.88% 45.63% 29.43% 25.00%
/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 separately reflected
in the fund's statement of
operations. Shares traded
on a principal basis (without
commissions), 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>
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, 1997, 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, 1997 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, 1997, 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.
/s/Deloitte & Touche LLP
Los Angeles, California
October 29, 1997
1997 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. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<S> <C> <C> <C> <C>
Dividends and Distributions per Share
From Net From Net RealizeFrom Net Realized
To Shareholders of Rec Payment Date Investment IncomShort-Term GainsLong-Term Gains
December 13, 1996 December 16, 1996 $.07 $.975 $1.375
May 22, 1997 May 23, 1997 .05 -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 6% 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 OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1998 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1997 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
E. GRAHAM HOLLOWAY
Dallas, Texas
Former Chairman of the Board,
American Funds Distributors, Inc.
LEONADE D. JONES
Burlingame, California
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 Lakes, 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
Senior Vice President and Director,
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
ROBERT W. LOVELACE
Los Angeles, California
Vice President of the fund
Executive Vice President and Director,
Capital Research Company
CHAD L. NORTON
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
ROBERT P. SIMMER
Norfolk, Virginia
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
STEVEN N. KEARSLEY retired as Vice President and Treasurer of the fund
effective May 20, 1997. He had been an officer since the fund began operations
in 1990. The Directors thank him for his many contributions to the fund.
[The American Funds Group(R)]
SMALLCAP WORLD FUND
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 address 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. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
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, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA BDA/FS/3216
Lit. No. SCWF-011-1197
