SMALLCAP WORLD FUND, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1998
(as amended August 1, 1999)
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, 1998. 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
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
CERTAIN INVESTMENT LIMITATIONS 1
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 2
INVESTMENT RESTRICTIONS 7
FUND DIRECTORS AND OFFICERS 9
MANAGEMENT 12
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 15
PURCHASE OF SHARES 19
SELLING SHARES 25
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 27
EXECUTION OF PORTFOLIO TRANSACTIONS 29
GENERAL INFORMATION 29
INVESTMENT RESULTS AND RELATED STATISTICS 31
DESCRIPTION OF BOND RATINGS 35
FINANCIAL STATEMENTS ATTACHED
</TABLE>
CERTAIN INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
EQUITY SECURITIES - SMALL CAPITALIZATION ISSUERS
- - At least 65% of the fund's assets will be invested in equity securities of
small capitalization issuers, typically having individual market
capitalizations of approximately $50 million to $1.2 billion.
DEBT SECURITIES
- - The fund 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 and Poor's
Corporation, or unrated but determined to be of equivalent quality.
NON-U.S. SECURITIES
- - The fund's investments outside the U.S. will be in at least three countries.
INVESTMENT COMPANIES
- - The fund may invest up to 5% of its assets in closed-end investment
companies.
- - The fund may acquire up to 3% of the outstanding voting stock of any one
closed-end investment company.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions. The
descriptions below are intended to supplement the material in the prospectus
under "Investment Objective, Strategies and Risks."
EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. The prices of equity securities fluctuate based on changes in the
financial condition of their issuers and on market and economic conditions. The
fund's results will be related to the overall market for these securities. The
growth-oriented, equity-type securities generally purchased by the fund may
involve large price swings and potential for loss, particularly in the case of
smaller capitalization stocks.
INVESTING IN SMALLER CAPITALIZATION STOCKS -- Investing in smaller
capitalization stocks can involve greater risk than is customarily associated
with investing in stocks of larger, more established companies. Transaction
costs in stocks of smaller capitalization companies may be higher than those of
larger capitalization companies. Because the fund emphasizes the stocks of
issuers with smaller market capitalizations (by U.S. standards), it can be
expected to have more difficulty obtaining information about the issuers or
valuing or disposing of its securities than it would if it were to concentrate
on more widely held stocks. The fund determines relative market capitalizations
using U.S. standards. Accordingly, the fund's non-U.S. investments may have
large capitalizations relative to market capitalizations of companies based
outside the U.S.
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.
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality and maturity. In general their prices decline
when interest rates rise and vice versa.
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 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. 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 assurance 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.
OTHER SECURITIES -- The fund may also invest in securities that have equity
and debt characteristics such as non-convertible preferred stocks and
convertible securities. These securities may at times resemble equity more than
debt, and vice versa. Non-convertible preferred stocks are similar to debt in
that they have a stated dividend rate akin to the coupon of a bond or note even
though they are often classified as equity securities. The prices and yields of
non- convertible preferred stocks generally move with changes in interest rates
and the issuer's credit quality, similar to the factors affecting debt
securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics, their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
INVESTING IN VARIOUS COUNTRIES -- The fund has the ability to invest outside
the U.S. Investing outside the U.S. involves special risks, particularly in
certain developing countries, caused by, among other things: fluctuating
currency values; different accounting, auditing, and financial reporting
regulations and practices in some countries; changing local and regional
economic, political, and social conditions; expropriation or confiscatory
taxation; greater market volatility; differing securities market structures;
and various administrative difficulties such as delays in clearing and settling
portfolio transactions or in receiving payment of dividends. However, in the
opinion of Capital Research and Management Company, investing outside the U.S.
also can reduce certain portfolio risks due to greater diversification
opportunities.
The risks described above are potentially heightened in connection with
investments in less developed and developing countries. Although there is no
universally accepted definition, a developing country is generally considered
to be a country which is in the initial stages of its industrialization cycle
with a low per capita gross national product. For example, political and/or
economic structures in these countries may be in their infancy and developing
rapidly. Historically, the markets of developing countries have been more
volatile than the markets of developed countries. The fund may only invest in
securities of issuers in developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
In making its investments in companies outside the U.S., the fund does not
intend to emphasize any particular country or region. These investments will be
located in at least three countries.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities
subject to restrictions on resale. All such securities not actively traded
outside the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures adopted by the fund's board of
directors, taking into account factors such as the frequency and volume of
trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The fund may
incur certain additional costs in disposing of illiquid securities.
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 can purchase and sell currencies to
facilitate securities transactions and enter into forward currency contracts to
hedge 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. While entering into forward currency
transactions could minimize the risk of loss due to a decline in the value of
the hedged currency, it could also limit any potential gain which might result
from an increase in the value of the currency. The fund will not generally
attempt to protect against all potential changes in exchange rates. 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.)
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 purchase or sell securities date under
which it gives or receives a commitment to complete the transaction beyond the
normal settlement period. When the fund agrees to purchase such securities it
assumes the uncertainty 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 five 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 ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Maryland corporation on December 18, 1989.
All fund operations are supervised by the fund's board of directors. The board
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Fund Directors and Officers" below.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund.
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON WHICH
COMPENSATION COMPENSATION DIRECTOR
/1/) FROM /1/) FROM ALL SERVES
THE FUND FUNDS MANAGED /3/
DURING BY CAPITAL
FISCAL YEAR RESEARCH AND
ENDED MANAGEMENT
9/30/98 COMPANY OR
ITS
AFFILIATES
/2/ FOR THE
YEAR ENDED
9/30/98
<S> <C> <C> <C> <C> <C>
Richard G. Capen, Jr. Director Corporate $18,200 $33,250 2
Box 2494 Director and
Rancho Santa Fe, CA author;
92067 former United
Age: 64 States
Ambassador to
Spain; former
Vice Chairman
of the Board,
Knight
Ridder, Inc.;
former
Chairman and
Publisher,
The Miami
Herald.
H. Frederick Christie Director Private $18,200/4/ $180,700/4/ 18
P.O. Box 144 Investor;
Palos Verdes Estates, CA former
90274 President and
Age: 65 Chief
Executive
Officer, The
Mission Group
(non-utility
holding
company,
subsidiary of
Southern
California
Edison
Company);
former
President,
Southern
California
Edison Company
Alan W. Clements Director Private $16,100 $29,450 2
16 Great Peter Street investor;
London SW1P3JF former
England Executive
Age: 70 Director -
Finance,
Imperial
Chemical
Industries
PLC
+ Gordon Crawford President Senior Vice None/5/ None/5/ 1
333 South Hope Street and President and
Los Angeles, CA 90071 Director Director,
Age: 51 Capital
Research and
Management
Company
Alan Greenway Director President, $18,200 $75,150 4
7413 Fairway Road Greenway
La Jolla, CA 92037 Associates,
Age: 71 Inc.
(management
consulting
services)
+ William R. Grimsley Chairman Senior Vice None/5/ None/5/ 3
P.O. 7650 of the President and
San Francisco, CA 94120 Board Director,
Age: 60 Capital
Research and
Management
Company
+ Graham Holloway Director Former None/5/ None/5/ 2
17309 Club Hill Drive Chairman of
Dallas, TX 75248 the Board,
Age: 68 American
Funds
Distributors,
Inc.
Leonade D. Jones Director Former $18,200/4/ $100,967/4/ 5
1536 Los Montes Drive Treasurer,
Burlingame, CA 94010 The
Age: 51 Washington
Post Company
William H. Kling Director President, $16,900/4/ $77,850/4/ 4
2619 Lake of the Isles Minnesota
Parkway East Public Radio;
Minneapolis, MN 55408 President,
Age: 56 Greenspring
Co.; former
President,
American
Public Radio
(now Public
Radio
International)
Norman R. Weldon Director Managing $16,900 $38,550 2
7026 Timbers Drive Director,
Evergreen, CO 80439 Partisan
Age: 64 Management
Group, Inc.;
Chairman of
the Board,
Novoste
Corporation;
Director,
Enable
Medical;
former
President and
Director,
Corvita
Corporation
Patricia K. Woolf Director Private $16,900 $103,250 6
506 Quaker Road investor;
Princeton, NJ 08540 Lecturer,
Age: 64 Department of
Molecular
Biology,
Princeton
University;
Corporate
Director
</TABLE>
+ "Interested persons" of the fund within the meaning of the Investment Company
Act of 1940 (the 1940 Act) on the basis of their affiliation with the fund's
Investment Adviser, Capital Research and Management Company or the parent
company of the Investment Adviser, The Capital Group Companies, Inc.
/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 29 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., New World 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 Endowments, shareholders are
limited to (I) any entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any
trust, the present or future bneficiary of which is a 501(c)(3) organization;
and (iii) any other entity formed for the primary purpose of benefiting a
501(c)(3) organization.
/3/ Includes funds managed by Capital Research and Management Company.
/4/ 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 ($51,132), Leonade D. Jones ($47,340) and
William H. Kling ($65,612). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the Director.
/5/ Gordon Crawford, William R. Grimsley and Graham Holloway are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL
HELD WITH OCCUPATION(S) DURING
REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Gordon Crawford
(see above)
William R. Grimsley
(see above)
Gregory W. Wendt 36 Senior Senior Vice
P.O. Box 7650 Vice President and
San Francisco, CA President Director, Capital
94120 Research Company
Vincent P. Corti 42 Vice Vice President -
333 South Hope Street President Fund Business
Los Angeles, CA 90071 Management Group,
Capital Research and
Management Company
Robert W. Lovelace 36 Vice Executive Vice
1110 Santa Monica President President and
Blvd. Director, Capital
Los Angeles, CA 90025 Research Company
Chad L. Norton 38 Secretary Vice President -
333 South Hope Street Fund Business
Los Angeles, CA 90071 Management Group,
Capital Research and
Management Company
Robert P. Simmer 37 Treasurer Vice President -
5300 Robin Hood Road Fund Business
Norfolk, VA 23513 Management Group,
Capital 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 $ $14,000 per annum to
Directors who are not affiliated with the Investment Adviser, plus $ $1,000 for
each Board of Directors meeting attended, plus $ $500 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, 1998, 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.
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, 1999, 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, 0.625% on average net assets in excess of $8 billion but
not exceeding $13 billion, and 0.615% on overage net assets in excess of $13
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, 1998, 1997 and 1996, the Investment
Adviser received advisory fees of $59,135,000, $50,724,000 and $37,904,000,
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, 3500 Wiseman Boulevard, 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, 1998 amounted to $4,795,000 after allowance of $23,709,000 to
dealers. During the fiscal years ended September 30, 1997 and 1996, the
Principal Underwriter retained $6,589,000 and $6,297,000, 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, 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) or a community foundation.
Commissions 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 any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended September 30, 1998, the fund paid or accrued $20,206,000
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 value of the fund's total 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 total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
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 (a) amounts actually distributed by the fund from its current
year's ordinary income and capital gain net income and (b) 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.
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 has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which
if received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
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, foreign
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% on the fund's income subject to
rax in such countries, 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 one year is 20%; 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. The
maximum amount that an individual may contriubte to all IRAs (deductible,
nondeductible and Roth IRAs) per year is the lesser of $2,000 or the
individual's compensation for the year. 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
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and Fund $50 minimum (except where a
Numbers" for initial investment lower minimum is noted under
minimums. "Investment Minimums and Fund
Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the dealer's address printed on your
investment purchase is made and who has a account statement.
dealer sales agreement with American Funds
Distributors.
By mail Make your check payable to the fund Fill out the account additions
and mail to the address indicated form at the bottom of a recent
on the account application. Please account statement, make your
indicate an investment dealer on check payable to the fund, write
the account application. your account number on your
check, and mail the check and
form in the envelope provided
with your account statement.
By telephone Please contact your investment Complete the "Investments by
dealer to open account, then follow Phone" section on the account
the procedures for additional application or American
investments. FundsLink 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 Complete the American FundsLink
dealer to open account, then follow Authorization Form. Once you
the procedures for additional establish the privilege, you,
investments. your 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 Your bank should wire your
account number(s), if necessary. additional investments in the
Please indicate an investment same manner as described under
dealer on the account. Instruct "Initial Investment."
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.
</TABLE>
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 1,000 33
Fund(SM)
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
New World Fund(SM) 1,000+ 36
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(R)
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 1,000 23
America(SM)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of 1,000 19
America(R)
The Tax-Exempt Fund of 1,000 20
California(R)*
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 2,500 09
America(R)
The Tax-Exempt Money Fund of 2,500 39
America(SM)
The U.S. Treasury Money Fund of 2,500 49
America(SM)
*Available only in certain states.
+Effective September 15, 1999.
</TABLE>
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).
SALES CHARGES -- 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 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets, and employer-sponsored
defined contribution-type plans with 100 or more eligible employees may be made
with no sales charge and are not subject to a contingent deferred sales charge.
In addition, 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 of organizations 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.
DEALER COMMISSIONS -- 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 $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS -- 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.
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.
REDUCING YOUR SALES CHARGE -- You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. 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 American
Funds Service Company. 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 American
Funds Distributors 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 by the close of the
period, 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 American Funds Distributors 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 account application) and any individual investments in American Legacy
products (American Legacy, American Legacy II and American Legacy III variable
annuities, American Legacy Life, American Legacy Variable Life, and American
Legacy Estate Builder) 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.
When the trustees of certain retirement plans purchase shares 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), any rollovers or transfers reasonably anticipated to be invested
in non-money market American Funds during the 13-month period, and any
individual investments in American Legacy products 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.
CONCURRENT PURCHASES - You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION - You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). Direct purchases of the
money market funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received and accepted 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 American Funds Distributors 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 American Funds
Distributors. Orders received by the investment dealer, American Funds Service
Company, 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 non-U.S. 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 American Funds Distributors or the fund.
American Funds Distributors 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.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- - Redemptions by telephone or fax (including American FundsLine(R) and American
FundsLine OnLine(SM)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application)
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). 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 403(b) plans or IRAs due to
death, disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; and for redemptions through certain automatic
withdrawals not exceeding 10% of the amount that would otherwise be subject to
the charge.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will
begin within 30 days after your account application is received. Your bank
account will be debited on the day or a few days before your investment is
made, depending on the bank's capabilities. American Funds Service Company will
then invest your money into the fund you specified on or around the date you
specified. If your account cannot be debited due to insufficient funds, a
stop-payment, or the closing of the account, the plan may be terminated and the
related investment reversed. You may change the amount of the investment or
discontinue the plan at any time by writing to American Funds Service Company.
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 -- You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
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 "Shareholder Information -- American Funds Service
Company Service Areas" 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
American Funds Service Company arranges for the redemption by the fund of
sufficient shares, deposited by the shareholder with American Funds Service
Company, 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
TouchTone(TM) 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 purchase, 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.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
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.
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, 1998, 1997 and 1996 amounted to $8,662,000, $8,965,000 and
$7,988,000 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 $8,036,000 for the fiscal year ended September 30, 1998.
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.
SHAREHOLDER VOTING RIGHTS -- The fund does not hold annual meetings of
shareholders. However, significant matters which require shareholder approval,
such as certain elections of board members or a change in a fundamental
investment policy, will be presented to shareholders at a meeting called for
such pruposes. At any meeting of shareholders, duly called and at which a
quorum is present, the shareholders holding a majority of the votes entitled
to be cast thereon, may 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. In an effort to reduce the volume of mail shareholders receive from
the fund when a household owns more than one account, the Transfer Agent has
taken steps to eliminate duplicate mailings of shareholder reports. To receive
additional copies of a report shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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, 1998
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $22.14
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) $23.49
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 0.68% based on a 30-day (or one month) period ended
September 30, 1998, 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,
1998 were -25.25%, 6.81% and 10.26%, 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 computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of 5.75%
from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
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).
SMALL CAPITALIZATION STOCKS VERSUS LARGE CAPITALIZATION STOCKS -- According to
Ibbottson Associates, an investment in small company stocks has grown an
average of 16.1% a year from September 30, 1973 through September 30, 1998,
compared with an average of 13.6% 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 /4/
Russell /3/ NASDAQ /5/
Period SMALLCAP S&P 500 /1/ MSCIW /2/ 2000 SMALLCAP OTC
<S> <C> <C> <C> <C> <C> <C>
4/30/90*
to 9/30/98 +127.5% + 283.3% + 140.9% + 163.7% + 113.7% + 303.2%
</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/ Reflects the change in value of the fund and index without the effect of
reinvested dividends.
/5/ 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>
(10/1/97 - 9/30/98) (10/1/95 - 9/30/98) (4/30/90 - 9/30/98)
$1,495 $5,530 $25,704
</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, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Fiscal Annual Total Investment From From Dividends Total
Year End Dividends Dividends Cost Initial Capital Reinvested Value
9/30 (cumulative) Investment Gains
Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1990# $ -- $ -- $10,000 $8,288 $ -- $ -- $8,288
1991 251 251 10,251 11,000 -- 307 11,307
1992 71 322 10,322 11,256 -- 384 11,640
1993 52 374 10,374 14,200 670 548 15,418
1994 41 415 10,415 14,756 1,376 612 16,744
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
1998 47 863 10,863 13,838 7,919 992 22,749
</TABLE>
The dollar amount of capital gain distributions during the period was $8,346
# from April 30, 1990, the date the fund commenced operations
EXPERIENCE OF THE INVESTMENT ADVISER -- Capital Research and Management Company
manages nine growth and growth-income funds
that are at least 10 years old. In the 10-year periods since January 1, 1968
(133 in all), those funds have had better total returns than the Standard and
Poor's 500 Stock Composite Index in 124 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.
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, 1998
<S> <C>
Industry Diversification
Business & Public Services 15.91%
Broadcasting & Publishing 10.42%
Merchandising 5.67%
Health & Personal Care 4.75%
Leisure & Tourism 4.22%
Other Industries 45.86%
Cash & Equivalents 13.17%
</TABLE>
<TABLE>
<S> <C>
Largest Equity-Type Holdings
ISS-International Service System 1.17%
OM Gruppen 1.05
SkyTel Communications .95
HNC Software .91
Unibail .90
NTL .88
PMC-Sierra .85
Adelphia Communications .70
Corporate Services Group .70
CSC Holdings .68
</TABLE>
<TABLE>
SMALLCAP World Fund
<S> <C> <C> <C>
Percent
Shares or Market of
EQUITY-TYPE SECURITIES Principal Value Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
Business & Public Services - 15.91%
ISS-International Service System A/S, Class B (Denmark) 1,569,041 $82,789 1.17
Corporate Services Group PLC (United Kingdom) (1), (2) 11,092,098 34,373
Corporate Services Group PLC, 7.50% convertible debentures 2005 (1) $6,000,000 9,067 .70
Corporate Services Group PLC (1) 2,000,000 6,198
Protection One, Inc. (USA) (3) 3,715,800 36,229 .51
Enator AB (Sweden) 1,550,000 35,976 .51
Renaissance Worldwide Inc. (USA) (3) 2,700,000 35,437 .50
MSC Industrial Direct Co., Inc., Class A (USA) (3) 1,521,000 30,420 .43
Vanstar Corp. (USA) (1), (3) 2,525,000 24,934
Vanstar Financing Trust, 6.75% convertible preferred (1), (2) 175,000 3,981 .41
NCO Group, Inc. (USA) (1), (3) 995,300 27,682 .39
Midas, Inc. (USA) 1,091,000 26,457 .37
Franklin Covey Co. (USA) (1), (3) 1,350,000 26,409 .37
Medicis Pharmaceutical Corp., Class A (USA) (3) 650,000 25,756 .36
ABR Information Services, Inc. (USA) (1), (3) 1,865,000 25,527 .36
Sapient Corp. (USA) (3) 747,100 25,495 .36
Universal Health Services, Inc., Class B (USA) (3) 500,000 20,875 .29
Concord EFS, Inc. (USA) (3) 794,100 20,498 .29
Black Box Corp. (USA) (3) 838,000 20,321 .29
USWeb Corp. (USA) (3) 1,550,000 20,247 .29
Kroll-O'Gara Co. (USA) (3) 850,000 19,869 .28
Rental Service Corp. (USA) (3) 1,100,000 19,800 .28
Casella Waste Systems, Inc., Class A (USA)(3) 575,500 19,567 .28
ChoicePoint Inc. (USA) (3) 400,000 19,250 .27
Brunel International NV (Netherlands) 592,892 18,535 .26
CBT Group PLC (ADR) (Ireland) (3) 1,341,700 18,113 .26
Rhon-Klinikum AG, preferred shares (Germany) 187,100 17,029 .24
Regis Corp. (USA) 525,000 16,538 .23
Trigon Healthcare, Inc. (USA) (3) 525,700 16,297 .23
Budget Group, Inc., Class A (USA) (3) 700,000 15,969 .22
Bally Total Fitness Holding Corp. (USA)(3) 860,500 14,951 .21
MemberWorks Inc. (USA) (1), (3) 961,700 14,906 .21
Intentia International AB, Class B (Sweden) (3) 540,000 14,531 .20
DeVry Inc. (USA) (3) 600,000 14,063 .20
Pittston Brink's Group (USA) 400,000 14,000 .20
Vincam Group, Inc. (USA) (1), (3) 1,017,750 13,930 .20
ProBusiness Services, Inc. (USA) (3) 400,000 13,600 .19
Primark Corp. (USA) (3) 445,512 13,588 .19
CKS Group, Inc. (USA) (3) 729,400 12,901 .18
Flextronics International Ltd. (USA - Incorporated in Singapore) (3) 358,200 12,694 .18
APAC TeleServices, Inc. (USA) (3) 2,408,200 12,192 .17
Bright Horizons Family Solutions, Inc. (USA) (3) 555,000 11,794 .17
American Disposal Services, Inc. (USA) (3) 300,000 11,681 .16
Lernout & Hauspie Speech Products NV (Belgium) (3) 284,000 11,413 .16
Cambridge Technology Partners (Massachusetts), Inc. (USA) (3) 500,000 11,156 .16
Superior Consultant Holdings Corp. (USA) (3) 250,000 10,875 .15
ARIS Corp. (USA) (3) 553,700 10,797 .15
Photobition Group PLC (United Kingdom) 3,354,670 9,968 .14
APCOA Parking AG (Germany) (1) 120,800 9,404 .13
Iron Mountain Inc. (USA) (3) 301,500 9,045 .13
SportsLine USA, Inc. (USA) (3) 500,000 8,719 .12
Data Processing Resources Corp., 5.25% convertible debentures 2005 (USA) (2) $8,500,000 8,500 .12
Lason, Inc. (USA) (3) 160,000 8,200 .12
Filofax Group PLC (United Kingdom) (1) 1,956,000 6,817 .10
Administaff, Inc. (USA) (3) 203,900 6,512 .09
PSS World Medical, Inc. (USA) (3) 325,700 6,025 .08
Strategic Distribution, Inc. (USA) (1), (3) 1,890,000 6,024 .08
G&K Services, Inc., Class A (USA) 124,600 5,841 .08
Freepages Group PLC (United Kingdom) (3) 11,250,000 5,158 .07
Coinmach Laundry Corp., Class A (USA) (3) 522,100 5,156 .07
Sylvan Learning Systems, Inc. (USA) (3) 219,850 5,139 .07
Saskatchewan Wheat Pool, non+D161voting shares, Class B (Canada)+D289 665,800 4,888 .07
InaCom Corp. (USA) (3) 250,000 4,719 .07
GTS Duratek, Inc. (USA) (3) 811,100 4,562 .06
SCB Computer Technology, Inc. (USA) (3) 580,000 4,495 .06
Snyder Communications, Inc. (USA) (3) 130,000 4,355 .06
Kanamoto Co., Ltd. (Japan) 1,086,000 4,216 .06
American Healthcorp, Inc. (USA) (1), (3) 522,000 4,209 .06
International Container Terminal Services, Inc., 1.75% convertible debentures $5,905,000 4,134 .06
2004 (Philippines)
AmSurg Corp., Class B (USA) (3) 309,972 1,899
AmSurg Corp., Class A (3) 250,000 1,719 .05
Lorien PLC (United Kingdom) 819,663 3,368 .05
Monro Muffler Brake, Inc. (USA) (3) 347,838 3,304 .05
MDC Communications Corp., Class A (Canada) (3) 433,333 3,224 .05
CompuCom Systems, Inc. (USA) (3) 800,000 3,200 .04
CCC Information Services Group Inc. (USA) (3) 244,700 3,059 .04
PRT Group (formerly PRT Corp. of America) (USA) (2), (3) 761,960 3,048 .04
Warrantech Corp. (USA) (1), (3) 860,000 3,010 .04
Taylor Nelson Sofres PLC (United Kingdom) 2,000,000 2,700 .04
UroCor, Inc. (USA) (1), (3) 600,000 2,625 .04
Alarmguard Holdings, Inc. (USA) (1), (3) 360,000 2,610 .04
Healthcare Recoveries, Inc. (USA) (3) 250,000 2,500 .04
Bellsystem24 Inc. (Japan) 15,000 2,362 .03
Insignia/ESG Holdings, Inc. (USA) (3) 200,000 2,300 .03
Four Media Co. (USA) (1), (3) 610,000 2,288 .03
JLK Direct Distribution Inc., Class A (USA) (3) 191,600 2,060 .03
Australian Hospital Care Ltd. (Australia) 3,619,500 2,038 .03
American Management Systems, Inc. (USA) (3) 61,000 1,670 .02
Rural/Metro Corp. (USA) (3) 200,000 1,600 .02
Pricer AB, Class B (Sweden) (3) 563,650 1,531 .02
Fujitsu Support and Service Inc. (Japan) 36,000 1,371 .02
Learning Tree International, Inc. (USA) (3) 100,000 1,281 .02
Prosolvia AB, Class B (Sweden) (2), (3) 111,150 663 .01
Broadcasting & Publishing - 10.42%
NTL Inc. (United Kingdom-Incorporated in USA) (3) 1,450,000 62,350 .88
Adelphia Communications Corp., Class A (USA) (3) 1,271,000 49,728 .70
CSC Holdings, Inc., Class A (formerly Cablevision Systems Corp.) (USA) (3) 1,120,000 48,370 .68
Century Communications Corp., Class A (USA) (3) 2,020,000 48,227 .68
United Video Satellite Group, Inc., Class A (USA) (3) 3,000,000 44,437 .62
Flextech PLC (United Kingdom) (3) 4,442,100 42,993 .60
Jones Intercable, Inc., Class A (USA) (3) 1,705,000 42,412 .60
Antena 3 de Television, SA (GDR) (Spain) (1), (2), (3), (4) 1,500 39,207 .55
United Television, Inc. (USA) 350,000 37,362 .53
Scottish Media Group PLC (United Kingdom) (1) 3,280,000 35,923 .51
Westwood One, Inc. (USA) (3) 1,943,100 34,733 .49
Scandinavian Broadcasting System SA (Denmark-Incorporated in Luxembourg) (1), (3) 887,900 18,868 .26
CanWest Global Communications Corp. (Canada) 1,554,946 18,857 .26
Emmis Broadcasting Corp., Class A (USA) (3) 476,100 17,973 .25
Shaw Communications Inc., Class B (Canada) 1,050,000 17,552 .25
Chrysalis Group PLC (United Kingdom) (1) 1,824,000 17,499 .25
Scholastic Corp. (USA) (3) 408,800 17,374 .24
United International Holdings, Inc., Class A (USA) (3) 1,625,000 15,742 .22
Ascent Entertainment Group, Inc. (USA) (1), (3) 1,930,000 15,440 .22
CD Radio Inc. (USA) (3) 600,000 11,400 .16
Rural Press Ltd. (Australia) 3,509,840 10,087 .14
Data Broadcasting Corp. (USA) (1), (3) 2,130,000 9,984 .14
NRJ SA (France) 47,284 7,678 .11
Australian Provincial Newspapers Holdings Ltd. (Australia) 5,518,911 7,361 .10
Central European Media Enterprises Ltd., Class A (USA - Incorporated in Bermuda) (3) 755,000 7,267 .10
HIT Entertainment PLC (United Kingdom) (1) 840,000 6,918 .10
Matav-Cable Systems Media Ltd. (ADR) (Israel) 320,000 6,400 .09
Media General, Inc., Class A (USA) 139,500 5,406 .08
@ Entertainment Inc. (USA) (3) 635,000 5,397 .08
Investec--Consultoria Internacional, SA (Portugal) 99,000 4,220 .06
P4 Radio Hele Norge ASA (Norway) 960,000 4,154 .06
Primedia Ltd., units (South Africa) 1,650,000 4,114 .06
Modern Times Group MTG AB, Class B (ADR) (Sweden) (3) 69,200 3,927 .05
CHUM Ltd., Class B (Canada) 158,200 3,925 .05
Alma Media Oyj (formerly Aamulehti Corp. Ltd.) (Finland) (3) 126,400 3,605 .05
Southern Star Group Ltd. (Australia) 3,870,000 3,556 .05
Prime Television Ltd. (Australia) 2,217,570 2,761 .04
Grupo Radio Centro, SA de CV (ADR) (Mexico) 420,000 2,678 .04
International Broadcasting Corp. Ltd. (Thailand) (3) 5,800,000 2,536 .04
StoryFirst Communications Inc., convertible preferred, Class B (Russia) 4,022 1,207 .02
(2), (3), (4)
Pacific Media PLC (United Kingdom) (3) 61,749,124 577 .01
Merchandising - 5.67%
Claire's Stores, Inc. (USA) 2,020,000 36,360 .51
Zale Corp. (USA) (3) 898,700 23,029 .32
Hanover Direct, Inc. (USA) (3) 3,837,440 11,512
Hanover Direct, Inc. (2), (3) 3,700,000 11,100 .32
Jo-Ann Stores, Inc., Class A (formerly Fabri-Centers of America, Inc.) 525,000 11,681
(USA) (1), (3)
Jo-Ann Stores, Inc., Class B (1), (3) 525,000 9,975 .30
PETsMART, Inc. (USA) (3) 3,000,000 20,812 .29
Michaels Stores, Inc. (USA) (3) 794,700 20,265 .28
EM.TV & Merchandising AG (Germany) 54,000 17,946 .25
DFS Furniture Co. PLC (United Kingdom) 5,202,700 17,580 .25
GrandVision SA (France) 721,704 16,729 .24
Rent-Way, Inc. (USA) (1), (3) 600,000 14,775 .21
Brylane Inc. (USA) (3) 919,600 14,714 .21
Mobel Walther AG, nonvoting preferred shares (Germany) 260,000 10,120
Mobel Walther AG 88,000 3,425 .19
Cost Plus, Inc. (USA) (1), (3) 500,000 13,313 .19
Hornbach Holding AG, preferred shares (Germany) 142,650 11,788 .17
Gymboree Corp. (USA) (1), (3) 1,435,600 10,767 .15
Haverty Furniture Companies, Inc. (USA) 545,000 10,355 .15
Migros Turk TAS (Turkey) 13,634,675 9,833 .14
AnnTaylor, Inc. (USA) (3) 428,400 8,702 .12
Homac Corp. (Japan) 663,000 8,255 .12
Komori Corp. (Japan) 675,000 7,910 .11
Williams-Sonoma, Inc. (USA) (3) 234,099 4,989
Williams-Sonoma, Inc. (2), (3) 134,099 2,858 .11
Sixt AG (Germany) 33,712 5,642
Sixt AG, nonvoting preferred shares 12,256 1,688 .10
CDnow, Inc. (USA) (3) 800,000 7,200 .10
Sunglass Hut International, Inc. (USA) (3) 1,200,000 6,900 .10
Marks Bros. Jewelers, Inc. (USA) (1), (3) 510,000 6,821 .10
Aaron Rents, Inc. (USA) 450,000 6,750 .10
Garden Ridge Corp. (USA) (3) 795,000 6,112 .09
Piercing Pagoda, Inc. (USA) (1), (3) 502,500 5,779 .08
Controladora Comercial Mexicana, SA de CV, units (Mexico) 10,737,000 5,764 .08
Chapters Inc. (Canada) (3) 324,200 4,144 .06
Liquidation World Inc. (Canada) (1), (3) 450,000 3,982 .06
Bilia AB, Class A (Sweden) 554,600 3,890 .05
Dickson Concepts (International) Ltd. (Hong Kong--Incorporated in Bermuda) 4,575,699 3,573 .05
Homeplace Holdings Inc., 7.00% convertible preferred (USA) (3), (4) 30,200 2,001 .03
T Eaton Co. Ltd. (Canada) (3) 386,100 1,772 .02
Disco SA (ADR) (Argentina) (3) 110,000 1,595 .02
Health & Personal Care - 4.75%
Andrx Corp. (USA) (2), (3) 730,000 26,827 .38
Gilead Sciences, Inc. (USA) (3) 850,000 18,381 .26
Orthodontic Centers of America, Inc. (USA) (3) 1,077,700 17,984 .25
Vertex Pharmaceuticals Inc. (USA) (3) 730,000 16,790 .24
SEQUUS Pharmaceuticals, Inc. (USA) (1), (3) 1,709,584 16,561 .23
GelTex Pharmaceuticals, Inc. (USA) (3) 685,000 14,471 .20
Pharmacyclics, Inc. (USA) (1), (2), (3) 580,000 9,643
Pharmacyclics, Inc. (1), (3) 215,000 3,574 .19
Mentor Corp. (USA) 1,100,000 12,512 .18
Protein Design Labs, Inc. (USA) (3) 500,000 12,000 .17
Nobel Biocare AB (Sweden) 940,000 11,388 .16
Thermedics Inc. (USA) (3) 1,390,000 10,425 .15
Anesta Corp. (USA) (1), (3) 550,000 10,244 .14
Chr. Hansen Holding A/S, Class B (Denmark) 80,000 10,080 .14
Zonagen, Inc. (USA) (1), (3) 640,000 9,920 .14
Cytyc Corp. (USA) (1), (3) 933,700 9,454 .13
Nature's Sunshine Products, Inc. (USA) 554,500 8,872 .12
Scios Nova Inc. (USA) (3) 1,485,000 8,446 .12
Ocular Sciences, Inc. (USA) (3) 400,000 8,400 .12
Vical Inc. (USA) (3) 700,000 7,700 .11
COR Therapeutics, Inc. (USA) (3) 947,300 7,342 .10
OrthoLogic Corp. (USA) (1), (3) 1,620,000 6,379 .09
Scotia Holdings PLC (United Kingdom) (3) 3,551,900 6,333 .09
Digene Corp. (USA) (1), (3) 800,000 5,800 .08
ImClone Systems Inc. (USA) (3) 650,000 5,687 .08
Martek Biosciences Corp. (USA) (3) 600,000 4,950 .07
Genelabs Technologies, Inc. (USA) (3) 2,085,000 4,822 .07
Aviron (USA) (3) 305,000 4,708 .07
Neose Technologies, Inc. (USA) (3) 400,000 4,450 .06
Alkermes, Inc. (USA) (3) 300,000 4,369 .06
i-STAT Corp. (USA) (3) 463,200 3,416
i-STAT Corp. (2), (3) 125,000 922 .06
Gensia Sicor Inc. (USA) (3) 964,000 3,916 .06
Computer Motion, Inc. (USA) (1), (3) 434,900 3,833 .05
KeraVision, Inc. (USA) (1), (3) 795,000 3,379 .05
NeoPath, Inc. (USA) (3) 621,400 3,068 .04
Grupo Casa Autrey, SA de CV (ADR) (Mexico) 500,000 2,875 .04
Cyberonics, Inc. (USA) (2), (3) 479,000 2,874 .04
Technical Chemicals and Products, Inc. (USA) (1), (3) 600,000 2,475 .03
Creative BioMolecules, Inc. (USA) (3) 700,000 2,100 .03
AVANT Immunotherapeutics, Inc. (formerly T Cell Sciences, Inc.) (USA) (2), (3) 1,000,000 1,375
AVANT Immunotherapeutics, Inc. (3) 500,000 688 .03
CIMA LABS Inc. (USA) (1), (3) 617,200 1,774 .03
Cardiovascular Diagnostics, Inc. (USA) (3) 332,200 1,661 .02
Virbac SA (France) 24,770 1,547 .02
Intercardia, Inc. (USA) (3) 300,000 1,200 .02
Applied Imaging Corp. (USA) (3) 435,000 1,115 .02
Vision-Sciences, Inc. (USA) (3) 484,500 727 .01
Ethical Holdings PLC (ADR) (United Kingdom) (3) 569,900 89 .00
Leisure & Tourism - 4.22%
Imax Corp. (Canada) (1), (3) 1,558,000 31,160 .44
Vail Resorts, Inc. (USA) (3) 1,170,000 23,327 .33
Consolidated Products, Inc. (USA) (1), (3) 1,250,000 21,953 .31
Alliance Atlantis Communications Corp., nonvoting shares, Class B (formerly 738,000 12,941
Alliance Communications Corp.) (Canada) (1), (3)
Alliance Atlantis Communications Corp., Class A (1), (3) 322,700 5,711 .31
Alliance Atlantis Communications Corp., special voting shares, Class C (1), (3) 8,975 3,148
Village Roadshow Ltd. (Australia) 8,201,596 14,100
Village Roadshow Ltd., 5.50% preferred shares, Class A 5,722,143 7,632 .31
Cheesecake Factory Inc. (USA) (1), (3) 1,295,500 20,080 .28
Florida Panthers Holdings, Inc., Class A (USA) (3) 1,175,000 12,705
Florida Panthers Holdings, Inc., Class A (2), (3) 500,000 5,406 .26
J D Wetherspoon PLC (United Kingdom) 5,204,935 17,322 .24
Rio Hotel & Casino, Inc. (USA) (3) 1,150,000 15,884 .22
CINAR Films Inc., Class B (Canada) (3) 830,600 14,899 .21
Ruby Tuesday, Inc. (USA) 841,800 12,732 .18
Four Seasons Hotels Inc. (Canada) 599,307 12,257 .17
Hoyts Cinemas Ltd., units (Australia) 10,332,807 10,045 .14
Spelling Entertainment Group Inc. (USA) (3) 1,300,000 9,181 .13
Morton's Restaurant Group, Inc. (USA) (1), (3) 415,000 8,923 .13
SFX Entertainment, Inc., Class A (USA) (3) 260,000 8,093 .11
Gaumont SA (France) 94,835 6,295 .09
Kinowelt Medien AG (Germany) (3) 30,000 3,943 .06
Filmes Lusomundo, SA, preferred shares (Portugal) 292,500 3,757 .05
Lions Gate Entertainment Corp. (Canada) (1), (3) 2,766,667 3,355 .05
Mandarin Oriental International Ltd. (Singapore) 6,540,217 3,074 .04
Capital Corp. PLC (United Kingdom) 2,900,000 2,955 .04
Norsk Lotteridrift ASA (Norway) (1), (3) 965,000 2,480 .04
Penske Motorsports, Inc. (USA) (3) 100,000 2,175 .03
Harry Ramsden's PLC (United Kingdom) 495,115 1,471 .02
Beyond International Ltd. (Australia) (3) 1,665,742 968 .01
CinemaxX AG (Germany) (3) 32,409 932 .01
Mainframe Entertainment, Inc. (Canada) (3) 506,500 830 .01
Electronic Components - 3.82%
PMC-Sierra, Inc. (USA) (1), (3) 1,900,000 60,563 .85
Micrel, Inc. (USA) (1), (3) 1,275,000 33,788 .48
Level One Communications, Inc. (USA) (3) 1,500,000 30,188 .43
Sanmina Corp. (USA) (3) 917,000 25,791 .36
NatSteel Electronics Ltd. (Singapore) 10,500,000 23,029 .32
Venture Manufacturing (Singapore) Ltd (Singapore) 3,038,000 9,364
Venture Manufacturing (Singapore) Ltd (2) 2,710,000 8,353 .25
Littelfuse, Inc. (USA) (3) 800,000 15,900 .22
Cymer, Inc. (USA) (1), (3) 1,500,000 13,688 .19
Stoneridge, Inc. (USA) (3) 697,700 11,294 .16
Wus Printed Circuit Co., Ltd. (Taiwan) (3) 4,056,000 8,598 .12
Rogers Corp. (USA) (3) 370,000 8,279 .12
Kinpo Electronics, Inc. (Taiwan) (3) 5,100,000 7,247 .10
Unicap Electronics Industrial Corp. (Taiwan) (3) 3,388,543 4,528 .06
Elcoteq Network Corp., Class A (Finland) 468,850 3,228 .05
SAIA-Burgess Electronics AG (Switzerland) (3) 17,360 3,018 .04
Pioneer-Standard Electronics, Inc. (USA) 275,400 1,738 .03
Accton Technology Corp. (GDR) (Taiwan) (3) 375,737 1,249 .02
QPL International Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 9,290,000 899 .01
Megachips Corp. (Japan) (3) 30,000 780 .01
Energy Sources - 2.92%
Ranger Oil Ltd. (Canada) (1), (3) 7,018,915 46,062 .65
Hardy Oil & Gas PLC (United Kingdom) (1) 9,058,014 25,070 .35
Oil Search Ltd. (Australia) 13,740,000 17,105
Oil Search Ltd., 9.50% convertible preferred (3) 50,000 3,097 .32
Oil Search Ltd. (2) 2,300,000 2,863
Fletcher Challenge Energy (New Zealand) 13,756,562 20,489 .29
QCT Resources Ltd. (Australia) 27,787,331 18,449 .26
Premier Oil PLC (United Kingdom) 42,825,000 18,179 .26
Encal Energy Ltd. (Canada) (3) 4,335,000 16,482 .23
Ramco Energy PLC (United Kingdom) (1) 1,597,000 11,118 .16
Cabre Exploration Ltd. (Canada) (1), (3) 1,033,400 7,621 .11
Novus Petroleum Ltd. (Australia) 4,895,605 5,079 .07
Paladin Resources NL+D513 (Australia) (1), (3) 11,270,998 3,636 .05
Arcon International Resources PLC (Ireland) (3) 11,798,000 3,205 .05
Forcenergy Inc (USA) (3) 526,300 3,059 .04
Rubis & Cie (France) 107,000 2,521 .04
Aminex PLC (Ireland) (1), (2), (3) 3,250,000 1,656 .02
Sibir Energy PLC (United Kingdom) (3) 12,193,274 1,449 .02
Anzoil NL (Australia) (3) 2,730,000 267 .00
Banking - 2.78%
Keystone Financial, Inc. (USA) 787,500 23,330 .33
Citizens Banking Corp. (USA) 700,000 23,012 .32
UST Inc. (USA) 800,000 16,900 .24
Laurentian Bank of Canada (Canada) 987,100 16,662 .23
FirstMerit Corp. (USA) 680,000 15,937 .22
Provident Bankshares Corp. (USA) 595,350 15,107 .21
Fulton Financial Corp. (USA) 684,425 13,688 .19
Commerce Bancorp, Inc. (USA) 305,687 12,094 .17
AMCORE Financial, Inc. (USA) 524,400 11,930 .17
Yapi ve Kredi Bankasi AS (Turkey) 552,522,220 6,276
Yapi ve Kredi Bankasi AS, receipts (3) 436,492,553 4,958 .16
Imperial Bancorp (USA) (3) 718,200 10,863 .15
Banco de Galicia y Buenos Aires SA, Class B (ADR) (Argentina) 652,982 10,366 .15
Bank Handlowy w Warszawie SA (GDR) (Poland) 950,000 9,738 .14
BankUnited Financial Corp., Class A (USA) (3) 620,000 6,820 .10
Chemicals - 2.66%
Valspar Corp. (USA) 1,281,000 38,350 .54
Cambrex Corp. (USA) (1) 1,400,000 32,988 .46
OM Group, Inc. (USA) 1,050,000 29,597 .42
Airgas, Inc. (USA) (3) 2,269,500 27,518 .39
Ionics, Inc. (USA) (3) 750,000 19,875 .28
McWhorter Technologies, Inc. (USA) (1), (3) 706,000 14,252 .20
Georgia Gulf Corp. (USA) 550,300 8,598 .12
Kalon Group PLC (United Kingdom) 5,932,800 8,462 .12
Gurit-Heberlein AG (Switzerland) 3,000 6,629 .09
Landec Corp. (USA) (1), (3) 690,000 2,717 .04
Real Estate - 2.60%
Unibail (France) 459,000 64,296 .90
Castellum AB (Sweden) (1) 2,515,000 24,857 .35
Newhall Land and Farming Co. (USA) 850,000 19,869 .28
Cadiz Land Co., Inc. (USA) (1), (3) 2,122,000 17,772 .25
CCA Prison Realty Trust (USA) 915,700 16,483 .23
TBI PLC (United Kingdom) 9,718,400 16,172 .23
Sponda Oyj (Finland) (3) 1,330,000 8,895 .12
Diligentia AB (Sweden) 800,000 6,785 .10
Wiggins Group PLC (United Kingdom) (3) 30,868,000 5,864
Wiggins Group PLC, subscription rights (3) 2,057,866 17 .08
Asticus AB (Sweden) (3) 400,000 3,979 .06
Data Processing & Reproduction - 2.45%
HNC Software Inc. (USA) (1), (3) 1,595,000 64,797 .91
Macromedia, Inc. (USA) (3) 1,700,000 27,625 .39
Platinum Software Corp. (USA) (1), (3) 1,625,000 16,656 .23
Datacraft Asia Ltd. (Singapore) 4,489,000 12,120 .17
PictureTel Corp. (USA) (3) 1,500,000 9,656 .14
Scient Corp., convertible preferred, Series B (USA) (2), (3), (4) 1,417,323 9,000 .13
Primax Electronics Ltd. (Taiwan) 4,345,428 7,814 .11
Remedy Corp. (USA) (3) 860,000 7,740 .11
Edify Corp. (USA) (1), (3) 1,055,000 7,121 .10
Gretag Imaging Group (Switzerland) (3) 85,000 6,405 .09
Indus Group, Inc. (USA) (3) 860,000 4,193 .06
Acer Computer International Ltd. (Singapore) 2,300,000 587 .01
Electronic Instruments - 2.36%
Plantronics, Inc. (USA) (3) 575,000 27,708 .39
L-3 Communications Corp. (USA) (3) 550,000 21,828 .31
LoJack Corp. (USA) (1), (3) 1,347,000 14,480 .20
Disco Corp. (Japan) 709,000 13,761 .19
Trimble Navigation Ltd. (USA) (1), (3) 1,250,000 12,578 .18
Etec Systems, Inc. (USA) (3) 460,000 11,989 .17
ThermoQuest Corp. (USA) (3) 1,010,000 9,848 .14
Milltronics Ltd.-Milltronics Ltee (Canada) (1), (3) 900,000 8,791 .12
ANTEC Corp. (USA) (3) 570,000 8,764 .12
ITI Technologies, Inc. (USA) (3) 342,600 8,222 .12
Mercury Computer Systems, Inc. (USA) (3) 490,000 7,656 .11
Horiba, Ltd. (Japan) 803,000 7,470 .11
Harmonic Lightwaves, Inc. (USA) (3) 300,000 3,675 .05
Lumonics Inc. (Canada) (3) 710,000 3,630 .05
ASM Pacific Technology Ltd. (Hong Kong) 13,969,000 3,533 .05
Micronic Laser Systems AB (Sweden) (2), (3), (4) 400,000 1,938 .03
Vivid Technologies, Inc. (USA) (3) 200,000 1,419 .02
Voice Control Systems, Inc. (USA) (3) 175,000 295 .00
Food & Household Products - 1.96%
Metro-Richelieu Inc., Class A (Canada) 2,307,900 27,534 .39
Fyffes PLC, 8.25% convertible preferred (Ireland) 4,650,000 10,075
Fyffes PLC 4,600,000 7,904 .26
Geest PLC (United Kingdom) 2,250,000 16,333 .23
Nutreco Holding NV (Netherlands) 427,658 15,821 .22
Royal Canin SA (France) (3) 272,000 13,687 .19
Grupo Industrial Maseca, SA de CV, Class B (ADR) (Mexico) 1,272,500 13,043 .19
LDC SA (France) 47,000 9,226 .13
Celestial Seasonings, Inc. (USA) (1), (3) 520,000 7,865 .11
Devro PLC (United Kingdom) 1,500,000 6,240 .09
Ben & Jerry's Homemade, Inc., Class A (USA) (3) 300,000 4,462 .06
Karlshamns AB (Sweden) 616,000 4,360 .06
Tingyi (Cayman Islands) Holding Corp., 1.625% convertible debentures 2002 $6,000,000 2,340 .03
(China-Incorporated in the Cayman Islands)
Insurance - 1.82%
Independent Insurance Group PLC (United Kingdom) 8,150,000 37,503 .53
Mutual Risk Management Ltd. (USA-Incorporated in Bermuda) 800,000 28,300 .40
HCC Insurance Holdings, Inc. (USA) 1,290,000 24,994 .35
Harleysville Group Inc. (USA) 552,900 11,403 .16
LandAmerica Financial Group, Inc. (USA) 200,000 10,250 .14
Selective Insurance Group, Inc. (USA) 390,000 7,459 .10
Unipol Priv (Italy) 2,220,000 5,510 .08
Lindsey Morden Group Inc. (Canada) 230,000 3,015 .04
HIH Winterthur International Holdings Ltd. (Australia) 882,048 1,072 .02
Machinery & Engineering - 1.62%
KCI Konecranes International Corp. (Finland) (1) 911,700 35,887 .51
Svedala Industri AB (Sweden) 1,418,000 21,700 .30
Thermo Fibertek Inc. (USA) (3) 1,452,000 11,072
Thermo Fibertek Inc., 4.50% convertible debentures 2004 (2) $4,000,000 3,520 .20
SIG Swiss Industrial Co. Holding Ltd. (Switzerland) 22,280 12,267 .17
Crompton & Knowles Corp. (USA) 671,200 9,774 .14
Hussmann International, Inc. (USA) 600,000 8,513 .12
Miura Co., Ltd. (Japan) 500,000 6,043 .09
Powerscreen International PLC (United Kingdom) 3,550,000 5,425 .08
UMW Holdings Bhd. (Malaysia) (4) 2,505,500 877 .01
Transportation: Shipping - 1.56%
ICB Shipping AB, Class B (Sweden) 1,969,000 16,322 .23
MIF Ltd. (Greece) (1), (3) 682,902 13,853 .20
Stolt-Nielsen SA, Class B (ADR) (Multinational) 1,040,000 12,220 .17
Nordic American Tanker Shipping Ltd. (Bermuda) (1) 733,500 9,352 .13
Ugland International Holdings PLC (United Kingdom) (1) 7,342,000 9,038 .13
Great Eastern Shipping Co. Ltd. (India) (1) 14,402,500 7,766
Great Eastern Shipping Co. Ltd. (GDR) (1) 325,500 773 .12
Odfjell ASA, Class B (Norway) 445,000 4,694
Odfjell ASA, Class A 214,320 2,203 .10
N & T Argonaut AB, Class B (Sweden) (3) 7,703,790 5,993 .08
Bona Shipholding Ltd. (Norway) (3) 913,332 4,817 .07
Benor Tankers Ltd. (Norway) (1) 1,240,000 4,192 .06
Frontline Ltd. (formerly London & Overseas Freighters Ltd.) (Bermuda) (3) 4,833,000 4,103 .06
Shipping Corp. of India Ltd. (India) 5,391,600 3,632 .05
Knightsbridge Tankers Ltd. (Bermuda) 150,000 3,225 .04
Orient Overseas (International) Ltd. (Hong Kong - Incorporated in Bermuda) 8,800,000 3,067 .04
Wah Kwong Shipping Holdings Ltd. (Hong Kong) 5,713,000 2,138 .03
Mosvold Shipping Ltd. (Norway) (3) 2,580,000 1,291 .02
IMC Holdings Ltd. (Hong Kong) 11,000,000 1,278 .02
Waterfront Shipping ASA (Norway) (3) 3,411,000 461 .01
WABO ASA (Norway) (3) 3,411,000 115 .00
Industrial Components - 1.56%
Superior TeleCom Inc. (USA) 750,000 36,281 .51
Senior Engineering Group PLC (United Kingdom) 10,100,000 20,580 .29
Tower Automotive, Inc. (USA) (3) 805,400 15,907 .23
Material Sciences Corp. (USA) (1), (3) 1,000,000 8,750 .12
Hayes Lemmerz International, Inc. (USA) (3) 300,000 8,212 .12
Koito Manufacturing Co., Ltd. (Japan) 1,670,000 6,727 .10
BREED Technologies, Inc. (USA) 500,000 3,063
BTI Capital Trust, 6.50% convertible preferred (USA) (2) 125,000 2,438 .07
Applied Industrial Technologies, Inc. (USA) 300,000 4,894 .07
Roper Industries, Inc. (USA) 150,000 2,606 .04
Innovative International (Holdings) Ltd. (Hong Kong) 7,075,104 1,004
Innovative International (Holdings) Ltd., warrants, expire 8/31/1999 (3) 1 0 .01
Financial Services - 1.52%
OM Gruppen AB (Sweden) (1) 4,329,300 74,535 1.05
CB Richard Ellis Services Inc. (formerly CB Commercial Real Estate Services 1,042,800 20,921 .30
Group, Inc.) (USA) (1), (3)
American Capital Strategies, Ltd. (USA) 325,000 5,261 .07
Medallion Financial Corp. (USA) 275,000 4,331 .06
Insignia Financial Group, Inc., Class A (USA) (3) 300,000 2,963 .04
Recreation & Other Consumer Products - 1.49%
VTech Holdings Ltd. (Hong Kong) 5,925,000 23,628 .33
Infogrames Entertainment (France) (3) 343,000 18,423
Infogrames Entertainment, 2.00% convertible debentures 2002 $9,272 2,479 .30
Infogrames Entertainment, warrants, expire 2001 (3) 25,500 182
Midway Games Inc. (USA) (3) 1,593,400 18,623 .26
ACTIVISION, Inc. (USA) (1), (3) 645,000 7,256
ACTIVISION, Inc. (1), (2), (3) 570,000 6,413 .19
Galoob Toys, Inc. (USA) (3) 900,000 10,237 .14
Movado Group, Inc. (USA) 440,000 9,240 .13
Acclaim Entertainment, Inc. (USA) (3) 750,000 4,781 .07
Safety 1st, Inc. (USA) (1), (3) 460,000 2,473 .04
Crystal Dynamics, Inc., convertible preferred, Series D (USA) (2), (3), (4) 533,334 2,000 .03
Telecommunications - 1.29%
SkyTel Communications Inc. (formerly Mobile Telecommunications Technologies 3,725,000 67,516 .95
Corp.) (USA) (1), (3)
Cellular Communications International, Inc., 6.00% convertible debentures $7,500,000 11,475 .16
2005 (USA) (2)
Global TeleSystems Group, Inc. (USA) (3) 175,000 5,906 .08
CESKE RADIOKOMUNIKACE AS (GDR) (Czech Republic) (3) 113,300 2,934 .04
Nera ASA (Norway) 2,020,900 2,514 .04
TelDaFax AG (Germany) (3) 30,000 1,204 .02
Beverages & Tobacco - 1.28%
Beringer Wine Estates Holdings, Inc., Class B (USA) (3) 708,000 27,125 .38
Brau und Brunnen AG (Germany) (3) 146,000 15,737 .22
Corporate Investments Ltd. (New Zealand) (1) 27,900,000 12,132 .17
Oy Hartwall AB, Class A (Finland) 1,105,950 11,966 .17
Robert Mondavi Corp., Class A (USA) (3) 500,000 11,156 .16
Quilmes Industrial SA, preferred shares (ADR) (Argentina) 700,000 5,731 .08
AL-Ahram Beverages Co. (GDR) (Egypt) 120,000 3,780 .05
Guinness Anchor Bhd. (Malaysia) (4) 4,271,000 2,171 .03
San Miguel Brewery Hong Kong Ltd. (Hong Kong) 10,410,000 1,008 .02
Miscellaneous Materials & Commodities - 0.96%
Intertape Polymer Group Inc. (Canada) (1) 1,500,000 27,187 .38
Buckeye Technologies Inc. (USA) (3) 900,000 16,256 .23
Hog Hoganas AB, Class B (Sweden) 497,500 7,550 .11
Arisawa Manufacturing Co. (Japan) 680,000 6,475 .09
Carbide/Graphite Group, Inc. (USA) (1), (3) 511,800 5,694 .08
Ashton Mining Ltd. (Australia - Incorporated in Bermuda) 7,600,000 3,244 .05
PT PP London Sumatra Indonesia (Indonesia) 6,486,400 673 .01
New Indigo Resources Inc. (Canada) (3) 600,000 590 .01
Sinocan Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 36,608,000 369 .00
Vilmorin & Cie SA (France) 3,186 321 .00
Textiles & Apparel - 0.70%
Wolford Group (Austria) (1) 324,000 19,383 .27
Esprit Asia Holdings Ltd. (Hong Kong) 39,314,000 11,923 .17
Hartmarx Corp. (USA) (1), (3) 1,787,900 11,733 .17
Culp, Inc. (USA) 635,000 5,040 .07
PT Indo-Rama Synthetics (Indonesia) 8,952,700 845 .01
Saha-Union Corp. Ltd. (Thailand) 1,991,000 618 .01
Construction & Housing - 0.64%
Societe Generale d'Entreprises (France) 815,000 30,468 .43
Palm Harbor Homes, Inc. (USA) (3) 604,101 15,027 .21
Wholesale & International Trade - 0.64%
Brightpoint, Inc. (USA) (1), (3) 2,732,500 21,006 .30
United Natural Foods, Inc. (USA) (3) 425,000 10,837 .15
Daewoo Corp., 0.50% convertible debentures 2007 (South Korea) $5,000,000 3,650
Daewoo Corp. 1,400,000 2,450 .09
Lazare Kaplan International Inc. (USA) (1), (3) 550,000 4,263 .06
Kamei Corp. (Japan) 637,000 3,140 .04
Electrical & Electronics - 0.63%
Elsag Bailey Process Automation NV (Netherlands) (3) 613,300 12,918 .18
Johnson Electric Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 5,088,000 9,653 .14
Tandberg Television AS (Norway) (3) 1,061,500 7,321 .10
ERG Ltd. (Australia) 8,014,840 5,939 .09
Gilat Satellite Networks Ltd. (Israel) (3) 100,000 4,500 .06
Astec (BSR) PLC (United Kingdom) 1,900,000 1,548 .02
Muhlbauer Holding AG & Co. KGaA (Germany) (3) 15,000 1,214 .02
Advanced Systems Automation Ltd. (Singapore) 2,250,000 894 .01
Powerwave Technologies, Inc. (USA) (3) 70,000 595 .01
Building Materials & Components - 0.56%
Puerto Rican Cement Co., Inc. (USA) (1) 371,000 16,417 .23
Futuris Corp. Ltd. (Australia) 10,553,316 8,821 .13
Radex-Heraklith Industriebeteiligungs AG (Austria) 225,000 7,352 .10
Apasco, SA de CV (Mexico) 1,322,620 3,822 .05
Cia. Cimento Portland Itau, preferred shares (Brazil) 23,200,000 3,228 .05
Utilities: Electric & Gas - 0.52%
Australian Gas Light Co. (Australia) 3,895,920 26,836 .38
Centrais Eletricas de Santa Catarina SA - CELESC (Brazil) 13,500,000 6,150 .09
Cia. de Eletricidade do Estado da Bahia - COELBA (Brazil) 92,000,000 2,794 .04
Espirito Santo Centrais Eletricas SA - ESCELSA, ordinary nominative (Brazil) 17,460 884 .01
Metals: Nonferrous - 0.47%
Kaiser Aluminum Corp. (USA) (3) 1,850,000 11,331 .16
Century Aluminium Co. (USA) 735,000 7,901 .11
Gencor Ltd. (South Africa) 4,000,000 7,192 .10
Capral Aluminium Ltd. (Australia) 3,091,177 3,736 .05
QNI Ltd. (Australia) 5,840,000 3,220 .05
Appliances & Household Durables - 0.41%
Pittway Corp., Class A (USA) 916,000 21,870 .31
Otsuka Kagu Ltd. (Japan) (3) 143,300 7,137 .10
Energy Equipment - 0.35%
Shaw Industries Ltd., Class A (Canada) 1,493,700 11,309 .16
Petroleum Geo-Services ASA (ADR) (Norway) (3) 523,800 8,315 .12
Smedvig ASA, Class A (Norway) 538,800 4,955 .07
Multi-Industry - 0.33%
Corporacion Financiera Alba, SA (Spain) 178,449 21,530 .30
Aboitiz Equity Ventures (Philippines) (3) 86,063,940 2,018 .03
Equity Common Trusts - 0.30%
Atle AB, Class A (Sweden) 1,590,000 20,987 .30
Aerospace & Military Technology - 0.29%
Alvis PLC (United Kingdom) (1) 4,831,250 17,883 .25
Orbital Sciences Corp., 5.00% convertible debentures 2002 (USA) (2) $2,500,000 2,969 .04
Transportation: Rail & Road - 0.20%
Werner Enterprises, Inc. (USA) 500,000 7,875 .11
Tranz Rail Holdings Ltd. (ADR) (New Zealand) 1,051,200 4,205 .06
M.S. Carriers, Inc. (USA) (3) 105,700 2,101 .03
Forest Products & Paper - 0.18%
Caraustar Industries, Inc. (USA) 465,400 10,588 .15
PT Indah Kiat Pulp & Paper Corp. Tbk (Indonesia) 8,707,000 1,253 .02
Deltic Timber Corp. (USA) 42,100 758 .01
Gold Mines - 0.08%
Ashanti Goldfields Co. Ltd. (Ghana) 400,000 3,470 .05
Avocet Mining PLC (United Kingdom) (1), (2), (3) 2,750,000 864
Avocet Mining PLC (1), (3) 1,100,000 345 .02
Philippine Gold PLC (United Kingdom) (1), (3) 4,953,700 1,009 .01
Banro Resource Corp. (Canada) (3) 370,000 158
Banro Resource Corp., warrants, expire 1999 (3), (4) 295,000 101 .00
Metals: Steel - 0.05%
Tubos de Acero de Mexico, SA (ADR) (Mexico) 335,547 2,433 .03
Ispat Industries Ltd., 3.00% convertible debentures 2001 (India) $4,000,000 1,480 .02
Automobiles - 0.05%
Mahindra & Mahindra Ltd. (India) 550,000 2,367
Mahindra & Mahindra Ltd. (GDR) 250,000 1,025 .05
Transportation: Airlines - 0.00%
Philippine Airlines Inc. (Philippines) (3), (4) 64,494,643 0 .00
PR Holdings, Inc., subscription rights (Philippines) (2), (3), (4) 1,730,000 0 .00
Miscellaneous - 4.81%
Other equity securities in initial period of acquisition 342,052 4.81
TOTAL EQUITY SECURITIES (cost: $6,724,827,000) ----- -----
6,166,636 86.83
----- -----
Principal Market Percent
Amount Value of Net
SHORT-TERM SECURITIES (000) (000) Assets
Corporate Short-Term Notes - 9.50%
Dresdner U.S. Finance Inc. 5.50% due 10/5-10/7/98 $79,923 1.13
Canada Bills 5.32%-5.47% due 10/19-12/2/98 79,500 78,884 1.11
Commonwealth Bank of Australia 5.42%-5.515% due 10/6-12/14/98 73,000 72,842 1.03
Reed Elsevier Inc. 5.31%-5.49% due 10/9-12/15/98 (2) 70,000 69,561 .98
Daimler-Benz North America Corp. 5.33%-5.51% due 10/15-12/21/98 65,800 65,405 .92
Svenska Handelsbanken Group 5.33%-5.50% due 11/4-12/14/98 61,700 61,251 .86
Rio Tinto America Inc. 5.40%-5.52% due 10/23-12/7/98 (2) 60,350 59,984 .85
National Australia Funding (Delaware) Inc. 5.48%-5.50% due 10/22-10/26/98 55,500 55,298 .78
International Lease Finance Corp. 5.39%-5.50% due 10/6-11/20/98 46,632 46,392 .65
Ford Motor Credit Co. 5.50%-5.52% due 10/5-10/19/98 31,600 31,558 .44
Panasonic Finance Inc. 5.47% due 11/9/98 (2) 27,430 27,263 .38
BP America Inc. 5.32%-5.49% due 10/8-12/14/98 26,375 26,274 .37
Federal Agency Discount Notes - 3.80%
Freddie Mac 4.95%-5.45% due 10/1/98-2/24/99 161,581 159,568 2.25
Fannie Mae 5.40%-5.43% due 10/5-10/30/98 61,400 61,255 .86
Federal Home Loan Banks 5.08% due 2/12/99 50,000 49,062 .69
Non-U.S. Currency - 0.05%
New Taiwanese Dollar NT$118,204 3,456 .05
----- -----
TOTAL SHORT-TERM SECURITIES (cost: $948,686,000) 947,976 13.35
----- -----
TOTAL INVESTMENT SECURITIES (cost: $7,673,513,000) 7,114,612 100.18
Excess of payables over cash and receivables 13,052 .18
----- -----
NET ASSETS $7,101,560 100.00
===== =====
1 Represents an affiliated company as defined under the
Investment Company Act of 1940.
2 Purchased in a private placement transaction; resale to the public may
require registration or sale only to qualified institutional buyers.
3 Non-income-producing securities.
4 Valued under procedures established by the Board of Directors.
ADR = American Depositary Receipts
GDR = Global Depositary Receipts
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
</TABLE>
EQUITY-TYPE SECURITIES APPEARING IN THE
PORTFOLIO SINCE MARCH 31, 1998
Aaron Rents
Acer Computer International
Advanced Systems Automation
Alarmguard Holdings
American Capital Strategies
Asticus
Banro Resource
Bellsystem24
Brau und Brunnen
Bright Horizons Family Solutions
Buckeye Technologies
Cambridge Technology Partners (Massachusetts)
Casella Waste Systems
CCA Prison Realty Trust
CDnow
Centrais Eletricas de Santa Catarina - CELESC
CESKE RADIOKOMUNIKACE
CHUM
CinemaxX
Computer Motion
EM.TV & Merchandising
Espirito Santo Centrais Eletricas - ESCELSA
Fujitsu Support and Service
Indah Kiat Pulp & Paper
Gretag Imaging Group
Insignia/ESG Holdings
Intentia International
International Broadcasting
Ionics
Kinowelt Medien
Kinpo Electronics
Komori
Kroll-O'Gara
L-3 Communications
LandAmerica Financial Group
Laurentian Bank of Canada
L.D.C.
Learning Tree International
Lindsey Morden Group
Megachips
Muhlbauer Holding
Nature's Sunshine Products
Ocular Sciences
Otsuka Kagu
P4 Radio Hele Norge
Paladin Resources
ProBusiness Services
Regis
Remedy
Roper Industries
Royal Canin
Ruby Tuesday
SAIA-Burgess Electronics
Scient
SFX Entertainment
Shipping Corp. of India
Sibir Energy
Sponda
SportsLine USA
Taylor Nelson Sofres
T. Eaton
TelDaFax
Trigon Healthcare
Unicap Electronics Industrial
United Natural Foods
USWeb
Venture Manufacturing (Singapore)
Vilmorin
VTech Holdings
WABO
Warrantech
EQUITY-TYPE SECURITIES ELIMINATED FROM
THE PORTFOLIO SINCE MARCH 31, 1998
Abacan Resource
Ackerley Group
Acuson
Advanced Health
Aldeasa
Alliance Semiconductor
Allied Waste Industries
Alpha-Beta Technology
Alternative Resources
America West Holdings
American Radio Systems
ANADIGICS
Banta
Bell & Howell
BET Holdings
Black Sea Energy
Blue Range Resource
Borg-Warner Security
Camco International
Capex
Carolina First
Cash Converters International
Celeritek
Cerner
Championship Auto Racing Teams
Chauvco Resources
China-Hongkong Photo Products Holdings
CIDCO
COLT Telecom Group
Cultus Petroleum
Dah Sing Financial Holdings
DEKALB Genetics
Dialog
D'Ieteren
Digital Microwave
Dorling Kindersley Holdings
Dr Solomon's Group
Eagle USA Airfreight
Eidos
Energen
Epicore Networks
ERAMET
Federal-Mogul
First Midwest Bancorp
First Pacific Networks
Flughafen Wien
Fresh Del Monte Produce
Gargoyles
Gedeon Richter
Gemstar International Group
Globalstar Telecommunications
Golden Harvest Entertainment Holdings
Guinness Peat Group
HealthPlan Services
Hibbett Sporting Goods
ImmuLogic Pharmaceutical
Immune Response
Industriforvaltnings AB Kinnevik
InSite Vision
IntelliQuest Information Group
International Bank of Asia
International Precious Metals
Kolbenschmidt
Komag
Kos Pharmaceuticals
Larscom
Liberty
Life Medical Sciences
Lite-On Technology
Louis Dreyfus Natural Gas
Mastering
Mentor Graphics
MicroAge
Millennium Pharmaceuticals
Modern Photo Film
MoneyGram Payment Systems
More Group
Mulia Industrindo
Munters
Mycogen
Nasionale Pers Beperk
National Surgery Centers
Navan Resources
Neurocrine Biosciences
Newalta
NPS Pharmaceuticals
NuCo2
Paramount Resources
Pentex Energy
Pepsi-Gemex
Perkin-Elmer
Pete's Brewing
Physio-Control International
Pilipino Telephone
Pinkerton's
Precision Response
Prokom Software
Providence Resources
Rambus
Read-Rite
S3
Sadia Concordia
Schibsted
SIBIA Neurosciences
Silicon Gaming
Simon Transportation Services
SITEL
Smithfield Foods
SoftQuad International
St. John Knits
Standard Products
Sterling Financial
Swift Transportation
Talbots
Tandy Brands Accessories
TCI Music
TeleTech Holdings
Thermo Power
Thomas Group
Ticketmaster Group
Tidnings AB Marieberg
Tokyo Seimitsu
Triple P
ValueVision International
Washington Federal Savings and Loan
WMS Industries
Young Broadcasting
Yue Yuen Industrial Holdings
<TABLE>
SMALLCAP World Fund
FINANCIAL STATEMENTS
- ---------------------------------------- -----------------------
<S> <C> <C>
Statement of Assets and Liabilities
at September 30, 1998 (dollars inthousands)
- ---------------------------------------- -----------------------
Assets:
Investment securities at market:
Unaffiliated issuers (cost: $ 6,116,139) $5,651,249
Affiliated issuers (cost: $ 1,557,374) 1,463,363
$7,114,612
Cash 5,377
Receivables for -
Sales of investments 27,804
Sales of fund's shares 5,394
Dividends and interest 9,986 43,184
-----------------------
7,163,173
Liabilities:
Payables for -
Purchases of investments 42,790
Repurchases of fund's shares 12,884
Forward currency contract 100
Management services 3,987
Other expenses 1,852 61,613
-----------------------
Net Assets at September 30, 1998 -
Equivalent to $22.14 per share on
320,741,224 shares of $0.01 par value
capital stock outstanding (authorized
capital stock - 400,000,000 shares) $7,101,560
============
Statement of Operations
for the year ended September 30, 1998 (dollars inthousands)
- ---------------------------------------- -----------------------
Investment Income:
Income:
Dividends (includes $ 13,438 from affiliates) $ 70,684
Interest 45,865 $ 116,549
------------
Expenses:
Management services fee 59,135
Distribution expenses 20,206
Transfer agent fee 8,036
Reports to shareholders 509
Registration statement and
prospectus 840
Postage, stationery and supplies 1,701
Directors' fees 144
Auditing and legal fees 81
Custodian fee 1,608
Taxes other than federal income tax 222
Other expenses 258 92,740
-----------------------
Net investment income 23,809
------------
Realized Gain and Unrealized
Depreciation on Investments:
Net realized gain (including $ 3,422 net gain from affiliates) 493,492
Change from unrealized appreciation to
unrealized depreciation on investments:
Beginning of year 1,865,216
End of year (558,923)
Net unrealized depreciation on investments -----------(2,424,139)
------------
Net realized gain and unrealized depreciation
on investments (1,930,647)
------------
Net Decrease in Net Assets Resulting
from Operations $ (1,906,838)
============
Statement of Changes in Net
Assets (dollars inthousands)
- ---------------------------------------- ------------------------
Year ended September 30
1998 1997
-----------------------
Operations:
Net investment income $ 23,80$ 30,264
Net realized gain on investments 493,492 756,663
Net unrealized (depreciation) appreciation
on investments (2,424,139) 1,029,222
-----------------------
Net (decrease) increase in net assets
resulting from operations (1,906,838) 1,816,149
-----------------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net
investment income (15,213) (32,129)
Distributions from net realized
gain on investments (760,633) (591,521)
-----------------------
Total dividends and
distributions (775,846) (623,650)
-----------------------
Capital Share Transactions:
Proceeds from shares sold:
54,562,618 and 76,906,660
shares, respectively 1,498,043 2,051,195
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
29,239,348 and 23,876,950
shares, respectively 743,523 597,206
Cost of shares repurchased:
64,322,473 and 44,913,003
shares, respectively (1,713,474)(1,191,845)
-----------------------
Net increase in net assets
resulting from capital share
transactions 528,092 1,456,556
-----------------------
Total (Decrease) Increase in Net Assets (2,154,592) 2,649,055
Net Assets:
Beginning of year 9,256,152 6,607,097
-----------------------
End of year (including undistributed
net investment income: $21,487 and
$14,749, respectively) $7,101,560 $9,256,152
=======================
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
SECURITY VALUATION - 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. 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 their representative
quoted bid and asked prices. Securities and assets for which representative
market quotations are not readily available are valued at fair value as
determined in good faith by a committee appointed by the Board of Directors.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed
in terms of non-U.S. currencies are translated into U.S. dollars at the
prevailing market rates at the end of the reporting period. Purchases and sales
of securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - 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 and premiums on securities
purchased are amortized.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to reduce its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. The fund's
use of forward currency contracts involves market risk in excess of the amount
recognized in the statement of assets and liabilities. The contracts are
recorded in the statement of assets and liabilities at their net unrealized
value. The fund records realized gains or losses at the time the forward
contract is closed or offset by a matching contract. The face or contract
amount in U.S. dollars reflects the total exposure the fund has in that
particular contract. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from possible movements in non-U.S. exchange rates and securities values
underlying these instruments.
2. FEDERAL INCOME TAXATION - 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, 1998, net unrealized depreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $558,901,000, of which $1,107,145,000 related to appreciated
securities and $1,666,046,000 related to depreciated securities. During the
year ended September 30, 1998, the fund realized, on a tax basis, a net capital
gain of $494,278,000 on securities transactions. Net losses related to non-U.S.
currency transactions of $844,000 were treated as an adjustment to ordinary
income for federal income tax purposes. In addition, the fund has deferred, for
tax purposes, to fiscal year ending September 30, 1999, the recognition of
losses related to non-U.S. currency transactions totaling $1,114,000 which were
realized during the period November 1, 1997 through September 30, 1998. The
cost of portfolio securities, excluding forward currency contracts, for book
and federal income tax purposes was $7,673,513,000 at September 30, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $59,135,000 for management services
was incurred 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 $8.0 billion. The
Board of Directors has approved an amended Investment Advisory and Service
Agreement, effective December 1, 1998, which provides for reduced fees at the
following annual rates: 0.625% of average net assets in excess of $8.0 billion
but not exceeding $13.0 billion; and 0.615% of such assets in excess of $13.0
billion.
DISTRIBUTION EXPENSES - 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, 1998, distribution expenses under the Plan were $20,206,000. As
of September 30, 1998, accrued and unpaid distribution expenses were
$1,340,000.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer
agent for the fund, was paid a fee of $8,036,000. American Funds Distributors,
Inc. (AFD), the principal underwriter of the fund's shares, received $4,795,000
(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.
DEFERRED DIRECTORS' FEES - 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, 1998, aggregate amounts deferred and earnings
thereon were $164,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,530,362,000 and $3,738,425,000, respectively,
during the year ended September 30, 1998.
As of September 30, 1998, accumulated undistributed net realized gain on
investments was $456,466,000 and additional paid-in capital was $7,179,323,000.
The fund reclassified $1,858,000 of currency losses from undistributed net
realized gains to undistributed net investment income for the year ended
September 30, 1998.
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 $1,608,000 includes $115,000 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, 1998, such non-U.S. taxes were $5,820,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable, on a book basis, were $592,000 for the year ended September 30,
1998.
At September 30, 1998, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
<TABLE>
<S> <C> <C> <C> <C>
Non-U.S. Currency Sale Contracts Contract Amount U.S. Valuation at 9/30/98
------ ------ ------
Unrealized
Non-U.S. U.S. Amount Depreciation
------ ------ ------ ------
Brazilian Real
expiring 10/6/98 R$ 3,701,000$ 3,000,000 $ 3,100,000 $ 100,000
</TABLE>
5. TRANSACTIONS WITH AFFILIATES - 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, 1998 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Market
Beginning Ending Dividend Value
Company Shares Purchases Sales Shares Income at 9/30/98
(000) (000)
AAPC 38,680,311 038,680,311 0 0 0
Abacan Resource 5,709,400 0 5,709,400 0 0 0
ABR Information Services 1,550,000 315,000 0 1,865,000 0 $25,527
ACTIVISION 900,000 315,000 0 1,215,000 0 13,669
Advanced Health 295,100 334,900 630,000 0 0 0
Alarmguard Holdings 360,000 0 0 360,000 0 2,610
Alliance Atlantis Communications 1,060,700 8,975 0 1,069,675 0 21,800
Alliance Semiconductor 2,510,000 75,000 2,585,000 0 0 0
Alvis 2,850,000 1,981,250 0 4,831,250 $380 17,883
American Healthcorp 522,000 0 0 522,000 0 4,209
Aminex 3,250,000 0 0 3,250,000 0 1,656
AmSurg (1) 0 559,972 0 559,972 0 0
Anesta 550,000 0 0 550,000 0 10,244
AnnTaylor (1) 955,900 580,000 1,107,500 428,400 0 0
Antena 3 de Television 1,500 0 0 1,500 0 39,207
Anzoil (1) 40,600,000 037,870,000 2,730,000 0 0
APCOA Parking 120,800 0 0 120,800 197 9,404
Ascent Entertainment Group 1,930,000 0 0 1,930,000 0 15,440
AVANT Immunotherapeutics (1) 1,300,000 200,000 0 1,500,000 0 0
Avocet Mining 2,100,000 1,750,000 0 3,850,000 0 1,209
Benor Tankers 1,240,000 0 0 1,240,000 124 4,192
Borg-Warner Security 1,000,000 200,000 1,200,000 0 0 0
Brightpoint 1,566,250 1,366,250 200,000 2,732,500 0 21,006
Cabre Exploration 993,400 40,000 0 1,033,400 0 7,621
Cadiz Land 1,915,000 207,000 0 2,122,000 0 17,772
Cambrex 550,000 850,000 0 1,400,000 147 32,988
Capral Aluminium (1) 12,237,825 124,669 9,271,317 3,091,177 632 0
Carbide/Graphite Group 511,800 0 0 511,800 0 5,694
Cardiovascular Diagnostics (1) 412,500 0 80,300 332,200 0 0
Cash Converters International 9,417,563 0 9,417,563 0 182 0
Castellum 2,375,000 140,000 0 2,515,000 706 24,857
CB Richard Ellis Services 500,000 542,800 0 1,042,800 0 20,921
Celestial Seasonings 260,000 260,000 0 520,000 0 7,865
Chauvco Resources 2,061,300 3,061,300 5,122,600 0 0 0
Cheesecake Factory 450,000 845,500 0 1,295,500 0 20,080
Chrysalis Group 1,824,000 0 0 1,824,000 88 17,499
CIDCO 913,000 0 913,000 0 0 0
CIMA LABS 565,500 51,700 0 617,200 0 1,774
Computer Motion 346,000 88,900 0 434,900 0 3,833
Consolidated Products 1,000,000 250,000 0 1,250,000 0 21,953
COR Therapeutics (1) 1,150,000 200,000 402,700 947,300 0 0
Corporate Investments 25,500,000 2,400,000 027,900,000 230 12,132
Corporate Services Group 10,060,398 3,031,700 013,092,098 1,296 40,571
Cost Plus 0 500,000 0 500,000 0 13,313
Cyberonics (1) 864,800 0 385,800 479,000 0 0
Cymer 0 1,500,000 0 1,500,000 0 13,688
Cytyc 933,700 0 0 933,700 0 9,454
Data Broadcasting 2,000,000 130,000 0 2,130,000 0 9,984
Digene 500,000 300,000 0 800,000 0 5,800
Edify 1,055,000 0 0 1,055,000 0 7,121
ELAN Energy 3,212,000 0 3,212,000 0 0 0
Epicore Networks 1,405,000 220,000 1,625,000 0 0 0
Filofax Group 1,956,000 0 0 1,956,000 142 6,817
Flextronics International (1) 825,000 33,200 500,000 358,200 0 0
Four Media 620,000 15,000 25,000 610,000 0 2,288
Franklin Covey 1,350,000 0 0 1,350,000 0 26,409
Frontline (1) 4,833,000 0 0 4,833,000 0 0
GelTex Pharmaceuticals (1) 0 750,000 65,000 685,000 0 0
Great Eastern Shipping 4,448,000 10,280,000 014,728,000 1,414 8,539
Gymboree 1,535,600 0 100,000 1,435,600 0 10,767
Hardy Oil & Gas 6,037,900 3,020,114 0 9,058,014 108 25,070
Hartmarx 1,287,400 500,500 0 1,787,900 0 11,733
Healthcare Recoveries (1) 0 650,000 400,000 250,000 0 0
HIT Entertainment 700,000 140,000 0 840,000 14 6,918
HNC Software 1,145,000 450,000 0 1,595,000 0 64,797
i-STAT (1) 852,000 0 263,800 588,200 0 0
Imax 1,558,000 0 0 1,558,000 0 31,160
International Precious Metals 1,155,000 0 1,155,000 0 0 0
Intertape Polymer Group 1,500,000 0 0 1,500,000 117 27,187
Jo-Ann Stores 1,050,000 0 0 1,050,000 0 21,656
KCI Konecranes International 975,000 0 63,300 911,700 524 35,887
KeraVision 795,000 0 0 795,000 0 3,379
Knightsbridge Tankers (1) 1,105,000 0 955,000 150,000 1,167 0
Landec 690,000 0 0 690,000 0 2,717
Lazare Kaplan International 500,000 50,000 0 550,000 0 4,263
Lions Gate Entertainment 2,075,000 691,667 0 2,766,667 0 3,355
Liquidation World 186,000 264,000 0 450,000 0 3,982
LoJack 1,347,000 0 0 1,347,000 0 14,480
Marks Bros. Jewelers 510,000 0 0 510,000 0 6,821
Material Sciences 1,000,000 0 0 1,000,000 0 8,750
McWhorter Technologies 706,000 0 0 706,000 0 14,252
MemberWorks 733,000 228,700 0 961,700 0 14,906
Micrel 0 1,275,000 0 1,275,000 0 33,788
MIF 668,202 14,700 0 682,902 0 13,853
Milltronics 900,000 0 0 900,000 0 8,791
MoneyGram Payment Systems 878,600 0 878,600 0 0 0
Morton's Restaurant Group 415,000 0 0 415,000 0 8,923
NCO Group 100,000 895,300 0 995,300 0 27,682
Nera (1) 3,287,500 0 1,266,600 2,020,900 56 0
Nordic American Tanker Shipping 762,000 0 28,500 733,500 1,090 9,352
Norsk Lotteridrift 965,000 0 0 965,000 0 2,480
Novus Petroleum (1) 5,670,461 2,040,523 2,815,379 4,895,605 62 0
OM Gruppen 1,443,100 2,886,200 0 4,329,300 1,839 74,535
Orbit Oil & Gas 2,681,000 0 2,681,000 0 0 0
OrthoLogic 1,250,000 370,000 0 1,620,000 0 6,379
Pacific Media (1) 88,249,124 026,500,00061,749,124 0 0
Paladin Resources 3,000,000 8,270,998 011,270,998 0 3,636
Paragon Trade Brands 787,700 0 787,700 0 0 0
Paramount Resources 2,493,000 0 2,493,000 0 77 0
PathoGenesis 1,035,000 0 1,035,000 0 0 0
Pharmacyclics 580,000 215,000 0 795,000 0 13,217
Philippine Gold 2,453,700 2,500,000 0 4,953,700 0 1,009
Piercing Pagoda 335,000 167,500 0 502,500 0 5,779
Pinkerton's 810,000 0 810,000 0 0 0
Pioneer-Standard Electronics (1) 1,660,000 0 1,384,600 275,400 196 0
Plantronics (1) 1,000,000 0 425,000 575,000 0 0
Platinum Software 0 1,625,000 0 1,625,000 0 16,656
PMC-Sierra 890,700 1,009,300 0 1,900,000 0 60,563
Precision Response 1,398,000 0 1,398,000 0 0 0
Premier Oil (1) 51,251,227 9,963,31618,389,54342,825,000 370 0
Primark (1) 1,350,000 0 904,488 445,512 0 0
Protection One (1) 920,000 2,795,800 0 3,715,800 0 0
PRT Group (1) 761,960 0 0 761,960 0 0
Puerto Rican Cement 371,000 0 0 371,000 254 16,417
Ramco Energy 1,597,000 0 0 1,597,000 0 11,118
Ranger Oil 4,350,000 2,668,915 0 7,018,915 0 46,062
Rent-Way 330,000 325,000 55,000 600,000 0 14,775
Rio Hotel & Casino (1) 1,382,700 100,000 332,700 1,150,000 0 0
Safety 1st 400,000 60,000 0 460,000 0 2,473
Sano 600,000 0 600,000 0 0 0
Scandinavian Broadcasting System 887,900 0 0 887,900 0 18,868
SCB Computer Technology (1) 562,350 562,350 544,700 580,000 0 0
Scotia Holdings (1) 5,062,200 0 1,510,300 3,551,900 0 0
Scottish Media Group 2,300,000 980,000 0 3,280,000 1,184 35,923
SEQUUS Pharmaceuticals 880,832 909,584 80,832 1,709,584 0 16,561
SkyTel Communications 3,525,000 200,000 0 3,725,000 0 67,516
SONUS Pharmaceuticals 550,000 0 550,000 0 0 0
Strategic Distribution 1,890,000 0 0 1,890,000 0 6,024
Suburban Ostomy Supply 563,000 0 563,000 0 0 0
Technical Chemicals and Products 600,000 0 0 600,000 0 2,475
Thermo Power 620,000 0 620,000 0 0 0
Thomas Group 388,500 0 388,500 0 0 0
Ticketmaster Group 1,600,000 0 1,600,000 0 0 0
Trident Microsystems 825,000 0 825,000 0 0 0
Trimble Navigation 1,000,000 250,000 0 1,250,000 0 12,578
Ugland International Holdings 5,000,000 2,342,000 0 7,342,000 609 9,038
UroCor 500,000 100,000 0 600,000 0 2,625
Vanstar 2,375,000 325,000 0 2,700,000 0 28,915
Vincam Group 203,100 839,250 24,600 1,017,750 0 13,930
Vivid Technologies (1) 600,000 0 400,000 200,000 0 0
Warrantech 600,000 260,000 0 860,000 0 3,010
WHG Resorts & Casinos 380,000 0 380,000 0 0 0
Wolford Group 324,000 0 0 324,000 233 19,383
Zale (1) 1,950,000 0 1,051,300 898,700 0 0
Zonagen 590,800 109,200 60,000 640,000 0 9,920
$13,438$1,463,363
1 Unaffiliated issuer at 9/30/98
</TABLE>
<TABLE>
PER-SHARE DATA AND
RATIOS
<S> <C> <C> <C> <C> <C>
Year endeSeptember 30
---------------- -------- -------- --------
1998 1997 1996 1995 1994
- ----------------------- ----------------------------------- ---------
Net Asset Value
Beginning of Year $30.72 $26.92 $26.11 $23.61 $22.72
----------------------------------- ---------
Income (Loss) From Investment
Operations:
Net investment income .07 .10 .17 .22 .09
Net realized and
unrealized (loss) gain
on investments (6.10) 6.17 3.32 3.79 1.83
----------------------------------- ---------
Total (loss) income from
investment
operations (6.03) 6.27 3.49 4.01 1.92
----------------------------------- ---------
Less Distributions:
Dividends from
net investment
income (.05) (.12) (.23) (.16) (.06)
Distributions
from net
realized gains (2.50) (2.35) (2.45) (1.35) (.97)
----------------------------------- ---------
Total distributions (2.55) (2.47) (2.68) (1.51) (1.03)
----------------------------------- ---------
Net Asset Value, End
of Year $22.14 $30.72 $26.92 $26.11 $23.61
=================================== =========
Total Return(1) (20.70)% 25.41% 15.21% 18.59% 8.60%
Ratios/Supplemental
Data:
Net assets, end
of year (in
millions) $7,102 $9,256 $6,607 $4,625 $3,497
Ratio of expenses
to average net
assets 1.06% 1.07% 1.09% 1.13% 1.12%
Ratio of net income
to average net
assets .27% .40% .68% .97% .38%
Portfolio turnover
rate 44.31% 42.21% 42.88% 45.63% 29.43%
(1) Excludes maximum sales
charge of 5.75%.
</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 investment portfolio as
of September 30, 1998, 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 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 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, 1998 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, 1998, 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
November 6, 1998
1998 Tax Information (Unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<S> <C> <C> <C> <C>
Dividends and Distributions per Share
From Net From Net Realized From Net Realized
To Shareholders of Record Payment Date Investment Income Short-Term Gains Long-Term Gains
December 15, 1997 December 16, 1997 $.05 $.538 $1.962
</TABLE>
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 52% 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 retirement plan 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 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
