WDB CARGO ACFT HAS NMAC WITH SMA ON DEP.

Narrative

AFTER TKOF FROM ONT RWY 26R; WE BEGAN FLYING THE PRADO 4 DEP. DURING THE INITIAL TURN; PASSING 180 DEGS; WE RECEIVED OUR FIRST TA FROM DEP ABOUT GA TFC 11-12 O'CLOCK AND 5 MI RESTR TO 3500 FT. WE WERE TO LEVEL AT 3000 FT. THE CTLR ASKED OUR ALT AND ADVISED US THAT HER ALT ENCODING EQUIP WAS INOP. AS WE WERE ROLLING OUT ON A HDG OF APPROX 115 DEGS; THE FO (PNF) REQUESTED AN UPDATE ON THE TFC POS. THE CTLR IMMEDIATELY CAME BACK WITH A POS OF '12-1 O'CLOCK; 3 MI' THEN SHE SAID 'AT YOUR 12 O'CLOCK NOW.' WE WERE LEVELING AT 3000 FT AT THIS TIME. WE ALL PICKED UP THE TFC ABOUT THE SAME TIME AS THE ENGINEER SAID; 'THERE HE IS; TURN R.' THE CAPT (PF) IMMEDIATELY INITIATED A R TURN AND THE TFC (A SINGLE ENG GRUMMAN) PASSED APPROX 500-700 FT OFF OF OUR L WING AND CO-ALT. GOOD COCKPIT RESOURCE MGMNT; GOOD COM BTWN THE CREW AND THE CTLR; AND ACCURATE POS CALLS BY THE CTLR AVOIDED A POTENTIAL DISASTER. THE GA PLT BEING 500 FT BELOW HIS/HER ASSIGNED ALT CAUSED THIS VERY SERIOUS CONFLICT. THE MALFUNCTIONING ENCODING EQUIP FOR ATC WAS A CONTRIBUTING FACTOR. TCASII WOULD HAVE GREATLY ASSISTED BOTH THE PLTS AND THE CTLR (WHO WAS BUSY) IN THIS SIT AND SHOULD BE REQUIRED ON LARGE CARGO ACFT.