<PAGE>
SMALLCAP WORLD FUND, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1997 (as amended August 17, 1998)
This document is not a prospectus but should be read in conjunction with the
current prospectus of SMALLCAP World Fund, Inc. (the fund or SCWF) dated
December 1, 1997. The prospectus may be obtained from your investment dealer
or financial planner or by writing to the fund at the following address:
SMALLCAP WORLD FUND, INC.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
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ITEM PAGE NO.
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INVESTMENT POLICIES 1
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS 3
DESCRIPTION OF CERTAIN SECURITIES 3
INVESTMENT RESTRICTIONS 4
FUND DIRECTORS AND OFFICERS 7
MANAGEMENT 11
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 13
PURCHASE OF SHARES 17
REDEEMING SHARES 23
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 24
EXECUTION OF PORTFOLIO TRANSACTIONS 26
GENERAL INFORMATION 26
INVESTMENT RESULTS 28
APPENDIX - DESCRIPTION OF BOND RATINGS 32
FINANCIAL STATEMENTS ATTACHED
</TABLE>
INVESTMENT POLICIES
INVESTING IN SMALLER CAPITALIZATION STOCKS Capital Research and Management
Company (the Investment Adviser) believes that the issuers of smaller
capitalization stocks often have sales and earnings growth rates which exceed
those of larger companies and that such growth rates may in turn be reflected
in more rapid share price appreciation. However, investing in smaller
capitalization stocks can involve greater risk than is customarily associated
with investing in stocks of larger, more established companies. For example,
smaller companies often have limited product lines, markets, or financial
resources, may be dependent for management on one or a few key persons, and can
be more susceptible to losses. Also, their securities may be thinly traded (and
therefore have to be sold at a discount from current prices or sold in small
lots over an extended period of time), may be followed by fewer investment
research analysts, and may be subject to wider price swings thus creating a
greater chance of loss than securities of larger capitalization companies.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements, under
which the fund buys a security and obtains a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the fund to maintain liquidity and earn income over periods
of time as short as overnight. The seller must maintain with the fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Investment Adviser. See
"Management" below. The fund will only enter into repurchase agreements
involving securities in which it could otherwise invest and with selected banks
and securities dealers whose financial condition is monitored by the Investment
Adviser. If the seller under the repurchase agreement defaults, the fund may
incur a loss if the value of the collateral securing the repurchase agreement
has declined and may incur disposition costs in connection with liquidating the
collateral. If bankruptcy proceedings are commenced with respect to the
seller, realization upon the collateral by the fund may be delayed or limited.
CURRENCY TRANSACTIONS -- The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. The fund will
segregate liquid assets, which will be marked to market daily, to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may limit the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
INVESTMENT COMPANIES -- The fund has the ability to invest up to 5% of its
total assets in shares of closed-end investment companies, but would not
acquire more than 3% of the outstanding voting securities of any one closed-end
investment company. (If the fund invests in another investment company, it
would pay an investment advisory fee in addition to the fee paid to the
Investment Adviser.)
LOWER RATED DEBT SECURITIES -- Although the fund has no current intention of
investing in such securities (at least for the next 12 months), it may invest
up to 10% of its assets in debt securities rated Baa or BBB or below by Moody's
Investors Services, Inc. or Standard & Poor's Corporation or in unrated
securities that are determined to be of equivalent quality. Securities rated
Ba and BB or below or unrated securities determined to be of equivalent quality
are commonly known as "high-yield, high-risk" or "junk" bonds and may have
characteristics similar to the equity securities eligible for purchase by the
fund. High-yield, high-risk bonds are described by the rating agencies as
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness than higher rated bonds, or they may already
be in default. The market prices of these securities may fluctuate more than
higher quality securities and may decline significantly in periods of general
economic difficulty. It may be more difficult to dispose of, or to determine
the value of, high-yield, high-risk bonds. The fund's high-yield, high-risk
securities may be rated as low as Ca by Moody's or CC by S&P which are
described by the rating agencies as "speculative in a high degree; often in
default or [having] other marked shortcomings" or "predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
terms of the obligation."
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- High-yield, high risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value will decrease in a
rising interest rate market, as it will with all bonds.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund's investment adviser attempts to reduce these risks through
diversification of the portfolio, by credit analysis of each issuer as well as
by monitoring broad economic trends and corporate developments, but there can
be no assuruance that it will be successful in doing so. The fund's investment
policy with respect to investing in high-yield, high-risk securities is a
"non-fundamental" policy and thus may be changed by the board of directors at
any time.
DESCRIPTION OF CERTAIN SECURITIES
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. In these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the U.S. Treasury; some are supported by the
discretionary authority of the U.S. Treasury to purchase certain obligations of
the issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank Cooperatives, and Federal Intermediate Credit Banks.
CASH AND CASH EQUIVALENTS -- These securities include (1) commercial paper
(short-term notes issued by corporations or governmental bodies), (2)
commercial bank obligations (E.G. certificates of deposit (interest-bearing
time deposits) and banker's acceptances (time drafts on a commercial bank where
the bank accepts an irrevocable obligation to pay at maturity)), (3) savings
association and savings bank obligations (certificates of deposit issued by
savings banks or savings associations), (4) securities of the U.S. Government,
its agencies or instrumentalities that mature, or may be redeemed, in one year
or less, and (5) corporate bonds and notes that mature, or that may be
redeemed, in one year or less).
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities, it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When a fund sells such securities, it does not participate in
further gains or losses with respect to such securities beginning on the date
of the agreement. If the other party to such a transaction fails to deliver
or pay for the securities, the fund could miss a favorable price or yield
opportunity or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
PORTFOLIO TURNOVER -- Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders. In the
over-the-counter market, purchases and sales are transacted directly with
principal market-makers, except in those circumstances where it appears better
prices and executions are available. See "Financial Highlights" in the
prospectus for the fund's portfolio turnover for each of the last seven fiscal
periods.
INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental policies and investment
restrictions which may not be changed without a majority vote of its
outstanding shares. Such majority is defined by law as the vote of the lesser
of (1) 67% or more of the outstanding voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities are
present in person or by proxy, or (2) more than 50% of the outstanding voting
securities. Investment limitations expressed in the following restrictions as
a percentage of assets are considered at the time securities are purchased.
The fund may not:
1. Invest in securities of an issuer (other than the U.S. Government or its
agencies or instrumentalities), if immediately after and as a result of such
investment more than 5% of the value of its total assets would be invested in
the securities of such other issuer (except with respect to 25% of the value of
its total assets, the fund may exceed the 5% limitation with regard to
investments in the securities of any one foreign government);
2. Invest in companies for the purpose of exercising control or management;
3. Invest 25% or more of the value of its total assets in the securities of
companies primarily engaged in any one industry;
4. Invest more than 5% of its total assets in the securities of other managed
investment companies; such investments shall be limited to 3% of the voting
stock of any investment company, provided, however, that investment in the open
market of a closed-end investment company where no more than customary brokers'
commissions are involved and investment in connection with a merger,
consolidation, acquisition or reorganization shall not be prohibited by this
restriction;
5. Buy or sell real estate (including real estate limited partnerships) in
the ordinary course of its business; however, the fund may invest in securities
secured by real estate or interests therein or issued by companies, including
real estate investment trusts and funds, which invest in real estate or
interests therein;
6. Buy or sell commodities or commodity contracts in the ordinary course of
its business; provided, however, that entering into a currency forward or
futures contract shall not be prohibited by this restriction;
7. Invest more than 10% of the value of its total assets in securities which
are not readily marketable (including repurchase agreements maturing in more
than seven days or non-U.S. securities for which there is no recognized
exchange or active and substantial over-the-counter market) or engage in the
business of underwriting securities of other issuers, except to the extent that
the disposal of an investment position may technically constitute the fund an
underwriter as that term is defined under the Securities Act of 1933;
8. Lend money; provided that entering into repurchase agreements, investment
in debt securities or in cash equivalents and lending of portfolio securities
shall not be prohibited by this restriction;
9. Sell securities short except to the extent that the fund contemporaneously
owns or has the right to acquire, at no additional cost, securities identical
to those sold short;
10. Purchase securities on margin or mortgage, pledge or hypothecate its
assets to any extent;
11. Borrow amounts in excess of 5% of the value of its total assets or issue
senior securities. In any event, the fund may borrow only as a temporary
measure for extraordinary or emergency purposes and not for investment in
securities;
12. Purchase or retain the securities of any issuer if those individual
officers and Directors of the fund, its Investment Adviser or principal
underwriter, each owning beneficially more than 1/2 of 1% of the securities of
such issuer, together own more than 5% of the securities of such issuer;
13. Invest more than 5% of the value of its total assets in securities of
companies having, together with their predecessors, a record of less than three
years of continuous operation;
14. Purchase or sell puts, calls, straddles or spreads, or combinations
thereof; nor
15. Purchase partnership interests or invest in leases to develop, or explore
for, oil, gas, or minerals.
For purposes of investment restriction number 3, the fund will not invest 25%
or more of total assets in the securities of issuers in the same industry.
The following investment policy of the fund may be changed by action of the
Board of Directors without shareholder approval: the fund will not invest in
securities of an issuer if the investment would cause the fund to own more than
10% of any class of securities of any one issuer.
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
AND AGE WITH PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION (INCLUDING OF FUND BOARDS
REGISTRANT ORGANIZATIONS LISTED MAY HAVE (INCLUDING VOLUNTARILY VOLUNTARILY DEFERRED ON WHICH
CHANGED DURING THIS PERIOD) DEFERRED COMPENSATION) DIRECTOR
COMPENSATION/1/) FROM ALL FUNDS SERVES/2/
FROM THE FUND MANAGED BY CAPITAL
DURING FISCAL YEAR RESEARCH AND
ENDED 9/30/97 MANAGEMENT
COMPANY
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Richard G. Capen, Jr. Director Corporate Director and author; former $18,500 $34,000 2
Box 2494 United States Ambassador to Spain;
Rancho Santa Fe, CA 92067 former Vice Chairman of the Board,
Age: 63 Knight Ridder, Inc.; former Chairman
and Publisher, The Miami Herald.
H. Frederick Christie Director Private Investor; former President $17,611/3/ $166,300/3/ 18
P.O. Box 144 and Chief Executive Officer, The
Palos Verdes Estates, CA Mission Group (non-utility holding
90274 company, subsidiary of Southern
Age: 64 California Edison Company); former
President, Southern California Edison
Company
Alan E. Clements Director Private investor; former Executive $14,500 $26,000 2
16 Great Peter Street Director - Finance, Imperial Chemical
London SW1P3JF Industries PLC
England
Age: 69
+Robert B. Egelston Chairman Former Chairman of the Board, The None/4/ None/4/ 5
333 South Hope Street of the Capital Group Companies, Inc.
Los Angeles, CA 90071 Board
Age: 66
Alan Greenway Director President, Greenway Associates, Inc. $18,000 $69,200 4
7413 Fairway Road (management consulting services)
La Jolla, CA 92037
Age: 70
+William R. Grimsley Director Senior Vice President and Director, None/4/ None/4/ 3
P.O. 7650 Capital Research and Management
San Francisco, CA 94120 Company
Age: 59
+Graham Holloway Director Former Chairman of the Board, None/4/ None/4/ 2
17309 Club Hill Drive American Funds Distributors, Inc.
Dallas, TX 75248
Age: 67
Leonade D. Jones Director Former Treasurer, The Washington $17,900/3/ $80,400/3/ 5
1536 Los Montes Drive Post Company
Burlingame, CA 94010
Age: 50
++William H. Kling Director President, Minnesota Public Radio; $16,950/3/ $71,500/3/ 4
2619 Lake of the Isles President, Greenspring Co.; former
Parkway East President, American Public Radio
Minneapolis, MN 55408 (now Public Radio International)
Age: 55
Norman R. Weldon Director Managing Director, Partisan $17,700 $39,900 2
15600 N.W. 67th Avenue Management Group, Inc.; Chairman
Suite 310 of the Board, Novoste Corporation;
Miami Lakes, FL 33014 Director, Enable Medical; former
Age: 63 President and Director, Corvita
Corporation
Patricia K. Woolf Director Private investor; Lecturer, $17,100 $83,300 5
506 Quaker Road Department of Molecular Biology,
Princeton, NJ 08540 Princeton University
Age: 63
</TABLE>
+ Directors who are "interested persons" within the meaning of the 1940 Act on
the basis of their affiliation with the Investment Adviser.
++ Director who may be deemed an "interested person" of the fund as defined in
the 1940 Act due to membership on the board of directors of the parent company
of a registered broker-dealer.
/1/ Amounts may be deferred by eligible Directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors are as
follows: H. Frederick Christie ($31,277), Leonade D. Jones ($50,682) and
William H. Kling ($62,401). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the Director.
/4/ Robert B. Egelston, William R. Grimsley and Graham Holloway are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
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NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S) DURING
HELD WITH PAST 5 YEARS
REGISTRANT
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Robert B. Egelston
(see above)
William R. Grimsley
(see above)
Gordon Crawford 50 President Senior Vice President and Director,
333 South Hope Street Capital Research and Management
Los Angeles, CA 90071 Company
Gregory W. Wendt 35 Senior Senior Vice President and Director,
P.O. Box 7650 Vice President Capital Research Company
San Francisco, CA 94120
Vincent P. Corti 41 Vice President Vice President - Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management
Company
Robert W. Lovelace 35 Vice President Executive Vice President and
1110 Santa Monica Blvd. Director, Capital Research Company
Los Angeles, CA 90025
Chad L. Norton 37 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management
Company
Robert P. Simmer 36 Treasurer Vice President - Fund Business
5300 Robin Hood Road Management Group, Capital
Norfolk, VA 23513 Research and Management
Company
</TABLE>
All of the officers listed also are officers or employees of the Investment
Adviser or affiliated companies. No compensation is paid by the fund to any
officer or Director who is a director, officer or employee of the Investment
Adviser or affiliated companies. The fund pays fees of $11,500 per annum to
Directors who are not affiliated with the Investment Adviser, plus $800 for
each Board of Directors meeting attended, plus $400 for each meeting attended
as a member of a committee of the Board of Directors. No pension or retirement
benefits are accrued as part of fund expenses. The Directors may elect, on a
voluntary basis, to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund also reimburses certain
expenses of the Directors who are not affiliated with the Investment Adviser.
As of September 30, 1997, the officers and Directors of the fund and their
families as a group owned beneficially or of record less than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits Morgan Stanley Capital International
Perspective, providing financial and market information about more than 2,400
companies around the world.
The Investment Adviser is responsible for more than $175 billion of stocks,
bonds and money market instruments and serves over eight million investors of
all types. These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser
will continue in effect until November 30, 1998, unless sooner terminated, and
may be renewed from year to year thereafter, provided that any such renewal has
been specifically approved at least annually by (i) the Board of Directors of
the fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
Directors who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval. The Agreement provides that the
Investment Adviser has no liability to the fund for its acts or omissions in
performance of its obligations to the fund not involving willful misconduct,
bad faith, gross negligence or reckless disregard of its obligations under the
Agreement. The Agreement also provides that either party has the right to
terminate it, without penalty, upon 60 days' written notice to the other party
and that the Agreement automatically terminates in the event of its assignment
(as defined in the 1940 Act).
The Investment Adviser, in addition to providing the services and paying the
compensation and travel expenses of qualified persons to perform executive,
administrative, clerical and bookkeeping functions of the fund, provides
suitable office space and utilities, and provides necessary small office
equipment and general purpose accounting forms, supplies, and postage used at
the office of the fund.
Under the Agreement, the Investment Adviser's fee is calculated at the annual
rates of 0.80% on the first $1 billion of the fund's average net assets, 0.70%
on average net assets in excess of $1 billion but not exceeding $2 billion,
0.67% on average net assets in excess of $2 billion but not exceeding $3
billion, 0.65% on average net assets in excess of $3 billion but not exceeding
$5 billion, 0.635% on average net assets in excess of $5 billion but not
exceeding $8 billion, and 0.625% on average net assets in excess of $8 billion.
The Investment Adviser has agreed that in the event the expenses of the fund
(with the exclusion of interest, taxes, brokerage costs, extraordinary expenses
such as litigation and acquisitions or other expenses excludable under
applicable state securities laws or regulations) for any fiscal year ending on
a date on which the Agreement is in effect, exceed the expense limitations, if
any, applicable to the fund pursuant to state securities laws or any
regulations thereunder, it will reduce its fee by the extent of such excess
and, if required pursuant to any such laws or any regulations thereunder, will
reimburse the fund in the amount of such excess.
During the fiscal years ended September 30, 1997, 1996 and 1995, the Investment
Adviser received advisory fees of $50,724,000, $37,904,000 and $26,933,000,
respectively.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240 and 5300 Robin
Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution (the
Plan), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter
receives amounts payable pursuant to the Plan (see below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. Commissions retained by the Principal
Underwriter on sales of fund shares for the fiscal year ended September 30,
1997 amounted to $6,589,000 after allowance of $31,103,000 to dealers. During
the fiscal years ended September 30, 1996 and 1995, the Principal Underwriter
retained $6,297,000 and $3,278,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire Board of Directors and
separately by a majority of the Directors who are not interested persons of the
fund and who have no direct or indirect financial interest in the operation of
the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and Directors who are "interested persons" of the fund may
be considered to have a direct or indirect financial interest in the operation
of the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Directors who
are not interested persons of the fund are committed to the discretion of the
Directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan, the fund may expend up to 0.30% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares provided the fund's Board of Directors has approved the
category of expenses for which payment is made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue code including a 401(k) plan with 100 or
more eligible employees). During the fiscal year ended September 30, 1997, the
fund paid or accrued $17,932,000 under the Plan as compensation to dealers.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status of
a regulated investment company under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of its investment company
taxable income, it will be taxed only on that portion of such investment
company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities which must be
limited, in respect of any one issuer, to an amount not greater than 5% of the
fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (1) 98% of ordinary income for the calendar year, (2) 98% of
capital gains (both long-term and short-term) for the one-year period ending on
October 31 (as though the one-year period ending on October 31 were the
regulated investment company's taxable year), and (3) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (1) amounts actually distributed by the fund from its current
year's ordinary income and capital gain net income and (2) any amount on which
the fund pays income tax for the year. The fund intends, to the extent
practicable, to meet these distribution requirements to minimize or avoid
excise tax liability.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of foreign
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Code Section 988 may also apply to forward currency contracts. Under Section
988, each foreign currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Except for transactions the fund has identified as hedging transactions, the
fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency
contracts as of the end of the year as well as those actually realized during
the year. Except for transactions in forward currency contracts which are
classified as part of a "mixed straddle," any gain or loss recognized with
respect to forward currency contracts is considered to be 60% long-term capital
gain or loss and 40% short-term capital gain or loss, without regard to the
holding period of the contract. In the case of a transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
It is anticipated that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above. In order to
avoid realizing excessive gains on securities or currencies held less than
three months, the fund may be required to defer the closing out of a forward
currency contract beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains on forward currency contracts,
which have been open for less than three months as of the end of the fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test, as discussed above.
The fund will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions
of capital gains realized on the fund's other investments.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a non-U.S. shareholder) will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. However, if the distribution is effectively connected
with the conduct of the non-U.S. shareholder's trade or business within the
U.S., the distribution would be included in the net income of the shareholder
and subject to U.S. income tax at the applicable marginal rate. Distributions
of net long-term capital gains are not subject to tax withholding, but if the
non-U.S. shareholder was an individual who was physically present in the U.S.
during the tax year for more than 182 days and such shareholder is nonetheless
treated as a nonresident alien, the distributions would be subject to a 30%
tax.
The fund may be required to pay withholding and other taxes imposed by foreign
countries, generally at rates from 10% to 40%, which would reduce the fund's
investment income. While the fund expects to invest less than 50% of its
assets outside the U.S. under current market conditions, if more than 50% in
value of the fund's total assets at the close of its taxable year consists of
securities of foreign issuers, the fund will be eligible to file elections with
the Internal Revenue Service pursuant to which shareholders of the fund will be
required to include their respective pro rata portions of such withholding
taxes in their federal income tax returns as gross income, treat such amounts
as foreign taxes paid by them, and deduct such amounts in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their federal income taxes. In any year the fund makes such an election,
shareholders will be notified as to the amount of foreign withholding and other
taxes paid by the fund.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains on assets held more than 18 months is 20%, and on assets held
more than one year and not more than 18 months is 28%; and the maximum
corporate tax applicable to ordinary income and net capital gain is 35%.
However, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have income in excess of $100,000 for a taxable year will be
required to pay an additional income tax liability up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000.
Naturally, the amount of tax payable by a taxpayer will be affected by a
combination of tax law rules covering, E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish an IRA each year (prior to the tax return filing
deadline for that year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and Fund $50 minimum (except where a lower minimum is
Numbers" for initial investment noted under "Investment Minimums and Fund
minimums. Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the purchase dealer's address printed on your
investment is made and who has a sales agreement account statement.
dealer with American Funds Distributors.
By mail Make your check payable to the fund and Fill out the account additions form at the bottom of a
mail to the address indicated on the recent account statement, make your check payable
account application. Please indicate an to the fund, write your account number on your
investment dealer on the account check, and mail the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment dealer to Complete the "Investments by Phone" section on the
open account, then follow the procedures account application or American FundsLink
for additional investments. Authorization Form. Once you establish the
privilege, you, your financial advisor or any person
with your account information can call American
FundsLine(R) and make investments by telephone
(subject to conditions noted in "Telephone and
Computer Purchases, Redemptions and Exchanges"
below).
By computer Please contact your investment dealer to Complete the American FundsLink Authorization
open account, then follow the procedures Form. Once you establish the privilege, you, your
for additional investments. financial advisor or any person with your account
information may access American FundsLine OnLine(SM)
on the Internet and make investments by computer
(subject to conditions noted in "Telephone and
Computer Purchases, Redemptions and Exchanges" below).
By wire Call 800/421-0180 to obtain your account Your bank should wire your additional investments in
number(s), if necessary. Please indicate the same manner as described under "Initial
an investment dealer on the account. Investment."
Instruct your bank to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
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INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(R) (see description
below):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*Available only in certain states.
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For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than $50,000 4.71 4.50 3.75
$50,000 but less than $100,000 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63 3.50 2.75
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.60
$1,000,000 or more none none (see below)
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Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), currently provides additional compensation to dealers. Currently
these payments are limited to the top 100 dealers who have sold shares of the
fund or other funds in The American Funds Group. These payments will be based
on a pro rata share of a qualifying dealer's sales. American Funds Distributors
will, on an annual basis, determine the advisability of continuing these
payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100
or more eligible employees or any other purchaser investing at least $1 million
in shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares at
net asset value; however, a contingent deferred sales charge of 1% is imposed
on certain redemptions from funds other than the money market funds made within
twelve months of the purchase. (See "Redeeming Shares--Contingent Deferred
Sales Charge.") Investments by retirement plans, foundations or endowments
with $50 million or more in assets may be made with no sales charge and are not
subject to a contingent deferred sales charge.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES -- The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans, foundations or endowments with retirement plan assets
of $50 million or more; (5) insurance company separate accounts; (6) accounts
managed by subsidiaries of The Capital Group Companies, Inc.; and (7) The
Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION -- The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize a Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period, reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES -- Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service; this offering price is effective for orders received prior to the time
of determination of the net asset value and, in the case of orders placed with
dealers, accepted by the Principal Underwriter prior to its close of business.
In the case of orders sent directly to the fund or American Funds Service
Company, an investment dealer MUST be indicated. The dealer is responsible for
promptly transmitting purchase orders to the Principal Underwriter. Orders
received by the investment dealer, the Transfer Agent, or the fund after the
time of the determination of the net asset value will be entered at the next
calculated offering price. Prices which appear in the newspaper are not always
indicative of prices at which you will be purchasing and redeeming shares of
the fund, since such prices generally reflect the previous day's closing price
whereas purchases and redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York Time) each day the New York Stock Exchange is
open as set forth below. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. All portfolio securities of funds managed by
Capital Research and Management Company (other than money market funds) are
valued, and the net asset value per share is determined, as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly
or indirectly trust to any person or entity, where, after the sale, such
person or entity would own beneficially directly or indirectly more than 4.5%
of the outstanding shares of the fund without the consent of a majority of the
fund's directors.
REDEEMING SHARES
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By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company (at the number of shares or dollar amount to be sold, your name and
appropriate address indicated account number. You should also enclose any share certificates
under "Fund Organization and you wish to redeem. For redemptions over $50,000 and for
Management - Principal certain redemptions of $50,000 or less (see below), your
Underwriter and Transfer signature must be guaranteed by a bank, savings association,
Agent" in the prospectus) credit union, or member firm of a domestic stock exchange or the
National Association of Securities Dealers, Inc. that is an eligible
guarantor institution. You should verify with the institution that it
is an eligible guarantor prior to signing. Additional
documentation may be required for redemption of shares held in
corporate, partnership or fiduciary accounts. Notarization by a
Notary Public is not an acceptable signature guarantee.
By contacting your investment If you redeem shares through your investment dealer, you may
dealer be charged for this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED THROUGH
THE DEALER.
You may have a redemption You may use this option, provided the account is registered in
check sent to you by using the name of an individual(s), a UGMA/UTMA custodian, or a
American FundsLine(R) or non-retirement plan trust. These redemptions may not exceed
American FundsLine $50,000 per shareholder, per day, per fund account and the
OnLine(SM) or by check must be made payable to the shareholder(s) of record and
telephoning, faxing, or be sent to the address of record provided the address has been
telegraphing American Funds used with the account for at least 10 days. See "Fund
Service Company (subject to Organization and Mangement - Principal Underwriter and
the conditions noted in this Transfer Agent" in the Prospectus and "Exchange Privilege"
section and in "Other below for the appropriate telephone or fax number.
Important Things to
Remember - Telephone and
Computer Purchases, Sales
and Exchanges" in the
prospectus)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which
redemptions wired to your will enable you to have a redemption sent to your bank account)
bank by telephoning and/or check writing privileges. If you request check writing
American Funds Service privileges, you will be provided with checks that you may use to
Company ($1,000 or more) or draw against your account. These checks may be made
by writing a check ($250 or payable to anyone you designate and must be signed by the
more) authorized number of registered shareholders exactly as
indicated on your checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) or American FundsLine OnLine (SM) (see "American FundsLine(R)" and
American FundsLine OnLine(SM)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the
prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone and Computer Purchases, Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, fax or telegraph. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES -- You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments, will be reflected on regular confirmation statements from American
Funds Service Company. Dividend and capital gain reinvestments and purchases
through automatic investment plans and certain retirement plans will be
confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per fund, per account each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLine(SM). To use this service, call 800/325-3590 from a TouchTonet
telephone or access the American Funds Web site on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(R)
and American FundsLine OnLine(SM) are subject to the conditions noted above and
in "Shareholder Account Services and Privileges -- Telephone and Computer
Purchases, Redemptions and Exchanges" below. You will need your fund number
(see the list of funds in The American Funds Group under "Purchase of Shares --
Investment Minimums and Fund Numbers"), personal identification number (the
last four digits of your Social Security number or other tax identification
number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone or computer (including American FundsLine(R) or American FundsLine
OnLine(SM)), fax or telegraph redemption and/or exchange options, you agree to
hold the fund, American Funds Service Company, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone because of technical difficulties, market conditions, or
a natural disaster, redemption and exchange requests may be made in writing
only.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions for the fiscal years ended
September 30, 1997, 1996 and 1995 amounted to $8,965,000, $7,988,000 and
$5,355,000 respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New
York, NY 10081, as Custodian. Non-U.S. securities may be held by the Custodian
pursuant to sub-custodial arrangements in non-U.S. banks or foreign branches of
U.S. banks.
TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $6,976,000 for the fiscal year ended September 30, 1997.
INDEPENDENT AUDITORS -- Deloitte & Touche LLP, 1000 Wilshire Boulevard, Suite
1500, Los Angeles, CA 90017, has served as the fund's independent auditors
since its inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements incorporated in this Statement of
Additional Information have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS -- At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on September 30.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined annually by the Board of
Directors.
PERSONAL INVESTING POLICY -- Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; blackout periods on
personal investing for certain investment personnel; ban on short-term trading
profits for investment personnel; limitations on service as a director of
publicly traded companies; and disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Accountants contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE - SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $30.72
Maximum offering price per share (100/94.25 of
per share net asset value, which takes into
account the fund's current maximum sales load) $32.59
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 0.30% based on a 30-day (or one month) period ended
September 30, 1997, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's one-year total return, five-year average annual compound return and
lifetime average annual compound return for the periods ended September 30,
1997 were 18.21%, 18.36% and 15.26%, respectively. The average annual compound
return ("T") is computed by using the value at the end of the period ("ERV") of
a hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in comptutations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of 5.75%
from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period. Total return may be calculated for one year, five years,
ten years and for other periods of years. The average annual total return over
periods greater than one year also may be computed by utilizing ending values
as determined above.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Stock Composite
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Funds Group for purposes of illustrating investment
strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA
Investment Technologies, Ibbotson Associates, Lipper Analytical Services,
Morningstar, Inc. and Weisenberger Investment Companies Services and by the
U.S. Department of Commerce. Additionally, the fund may, from time to time,
refer to results published in various newspapers or periodicals, including
BARRONS, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE
MAGAZINE, MONEY, U.S. NEWS AND WORLD REPORT and THE WALL STREET JOURNAL.
The fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investment to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
EXPERIENCE OF THE INVESTMENT ADVISER -- Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In all of the
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard and Poor's 500 Stock Composite Index in 91 of
the 127 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
SMALL CAPITALIZATION STOCKS VERSUS LARGE CAPITALIZATION STOCKS -- According to
Ibbottson Associates, an investment in small company stocks has grown an
average of 16.7% a year from September 30, 1972 through September 30, 1997,
compared with an average of 13.3% a year for an investment in large company
stocks. Small company stocks are represented by the lowest 20% of market
capitalization of New York Stock Exchange, American Stock Exchange and
Over-the-Counter stocks, while large company stocks are represented by the
Standard & Poor's 500 Stock Composite Index.
The investment results set forth below were calculated as described in the
fund's prospectus. The fund's results will vary from time to time depending
upon market conditions, the composition of the fund's portfolio and operating
expenses of the fund, so that any investment results reported by the fund
should not be considered representative of what an investment in the fund may
earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
SMALLCAP VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Capital Appreciation
Russell/3/ NASDAQ/4/
Period SMALLCAP S&P 500/1/ MSCIW/2/ 2000 SMALLCAP OTC
<S> <C> <C> <C> <C> <C> <C>
4/30/90*
to 9/30/97 +186.9% + 251.6% + 139.7% + 225.6% + 170.0% + 301.3%
</TABLE>
*Commencement of operations
/1/ The Standard and Poor's 500 Stock Composite Index, which consists of
industrial, transportation, public utilities and financial stocks and
represents a large portion of the value of issues traded on the New York Stock
Exchange. Selected issues traded on the American Stock Exchange are also
included.
/2/ The Morgan Stanley Capital International World Index, which is an
arithmetical average, weighted by market value, of the performance of more than
1,400 securities listed on the stock exchanges of Europe, Australia, the Far
East, Canada, New Zealand and the U.S.
/3/ The Russell 2000 Index, which contains 2000 smaller capitalized companies
in the Russell 3000 Index (these smaller companies have market capitalizations
of approximately $20 million to $300 million).
/4/ The National Association of Securities Dealers Automated Quotation
Composite Index of Over-the-Counter Stocks represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, covers some 3,500 stocks, is market value weighed and
reflects only capital appreciation.
IF YOU ARE CONSIDERING THE FUND FOR RETIREMENT...
<TABLE>
<CAPTION>
Here's how much you would have if you invested $2,000 a year in the fund:
1 Year 3 Years Lifetime
<S> <C> <C>
(10/1/96 - 9/30/97) (10/1/94 - 9/30/97) (4/30/90 - 9/30/97)
$2,364 $8,318 $30,614
</TABLE>
Illustration of a $10,000 investment in the fund with
dividends reinvested and capital gain distributions taken in shares
(For the lifetime of the fund, April 30, 1990 through September 30, 1997)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF
SHARES
Fiscal Annual Total Investment From From Dividends Total
Year End Dividends Dividends Cost Initial Capital Gains Reinvested Value
9/30 (cumulative) Investment Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1990# $ -- $ -- $ 10,000 $ 8,288 $ -- $ -- $ 8,288
1991 251 251 10,251 11,000 -- 307 11,307
1992 71 322 10,322 11,256 -- 384 11,640
1993 52 374 10,374 14,200 670 548 15,418
1994 41 415 10,415 14,756 1,376 612 16,744
1995 116 531 10,531 16,319 2,719 818 19,856
1996 179 710 10,710 16,825 5,005 1,047 22,877
1997 106 816 10,816 19,200 8,167 1,322 28,689
</TABLE>
The dollar amount of capital gain distributions during the period was $6,011
# from April 30, 1990, the date the fund commenced operations
APPENDIX
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"A - Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C-1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<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 $ 11,476 $ 2,008,050
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 $ 26.92 $ 26.11 $ 23.61 $ 22.72 $ 18.01
------------------ ---------------------------
Income From Investment
Operations:
Net investment income 0.10 0.17 0.22 0.09 0.06
Net realized and
unrealized gain
on investments 6.17 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 $ 30.72 $ 26.92 $ 26.11 $ 23.61 $ 22.72
================== ===========================
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:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Dividends and Distributions per Share
From Net From Net Realized From Net Realized
To Shareholders of Record Payment Date Investment Income Short-Term Gains Long-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.
