UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-5888
SMALLCAP World Fund, Inc.
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code: (213) 486-9200
Date of fiscal year end: September 30, 2003
Date of reporting period: September 30, 2003
Chad L. Norton
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Michael J. Fairclough, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
SMALLCAP WORLD FUND
Our increasing emphasis on Asia
[cover: global view of Asia]
Annual report for the year ended September 30, 2003
SMALLCAP World Fund(R) seeks long-term growth of capital through investments in
smaller companies in the United States and around the world.
This fund is one of the 29 American Funds, the nation's third-largest mutual
fund family. For more than seven decades, Capital Research and Management
Company,SM the American Funds adviser, has invested with a long-term focus based
on thorough research and attention to risk.
Contents
Letter to shareholders 1
Chart: The value of a long-term perspective 3
Feature: Our increasing emphasis on Asia 4
About your fund 12
Investment portfolio 13
Financial statements 34
Directors and officers 48
The American Funds family back cover
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Please see page 3 for
Class A share results with relevant sales charges deducted. Results for other
share classes can be found on page 47. Please see the inside back cover for
important information about other share classes.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. INVESTING OUTSIDE THE
UNITED STATES IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS AND
POLITICAL INSTABILITY, WHICH ARE DETAILED IN THE FUND'S PROSPECTUS. INVESTING IN
SMALL-CAPITALIZATION STOCKS CAN INVOLVE GREATER RISK THAN IS CUSTOMARILY
ASSOCIATED WITH INVESTING IN STOCKS OF LARGER, MORE ESTABLISHED COMPANIES.
[photograph: global view of Asia]
FELLOW SHAREHOLDERS:
For SMALLCAP World Fund, fiscal year 2003 has been a tale of two stock markets.
The year began with the U.S. preparing for war with Iraq, a weak economy,
plunging interest rates and the climax of the worst bear market in decades. It
ended with the toppling of the Iraqi government, the economy growing at a
healthy clip and the stock market staging an impressive rebound.
SMALLCAP bounced up and down during the year, losing ground in the first six
months but surging in the second. For the 12-month period ended September 30,
2003, the fund's total return was 32.5%, with the entire gain coming in the last
six months of the fiscal year. That's better than the 31.3% gain turned in by
the average global small company fund, as measured by Lipper. But it trailed the
unmanaged Citigroup World Smallcap Index, which rose 39.6%, though this figure
doesn't reflect expenses. SMALLCAP did not pay any dividends or capital gains
this year.
THE GLOBAL ECONOMY
We are now in the early stages of a global economic recovery. Here in the U.S.,
federal tax cuts, low interest rates and a wave of mortgage refinancing
stimulated the economy and all but vanquished talk of a double-dip recession. In
Japan, home to the world's second-largest economy, investor sentiment, corporate
profits and business spending are up. After several false starts, it now appears
that its 14-year recession is over. And there are signs that Germany -- the
third-largest economy -- is reviving. Its stock market has soared this year.
When the world's three biggest economies are growing at the same time, it's hard
to be anything but optimistic.
What really excites many of us, though, is China. Since its initial embrace with
capitalism a quarter of a century ago, China's economy has grown by an average
8% a year and is on pace to overtake the United States within the next three
decades. It is history's greatest example of sustained economic growth. Although
there are risks, we think the investment opportunities and implications for
Asia, indeed the world, are enormous. It's the subject of this year's feature
article, which begins on page 4.
PORTFOLIO REVIEW
Most of our investments did well this year. Of the 288 stocks held in the
portfolio for the entire 12-month period, 80% of them rose in value. Of our 10
largest equity holdings, nine gained, including three technology companies:
semiconductor manufacturer PMC-Sierra (+240.0%), software maker Novell (+153.8%)
and Cymer, which makes lasers for the semiconductor industry (+121.0%).
[Begin Sidebar]
Where are SMALLCAP's holdings located?
[begin pie chart]
FISCAL YEAR 2003 Percent of
net assets
o United States 50.2%
o Asia & Pacific Basin 20.2
o Europe 15.1
o Other (including Canada
& Latin America) 6.5
o Cash & equivalents 8.0
[end pie chart]
[begin pie chart]
FISCAL YEAR 2002 Percent of
net assets
o United States 51.9%
o Asia & Pacific Basin 18.6
o Europe 15.5
o Other (including Canada
& Latin America) 6.3
o Cash & equivalents 7.7
[end pie chart]
[End Sidebar]
That many technology stocks were big winners this year isn't surprising. In
2000, there was too much capacity in the technology, media and
telecommunications -- or TMT -- sectors. Stock valuations simply weren't
realistic. The Internet and tech bubble burst. The Nasdaq Composite crashed,
eventually falling 78%; many stocks fell even more. At the market's low point in
October 2002, stocks of some technology companies were trading for less than 10
times their earnings; others could be snapped up for little more than the value
of the cash on their books. From such a low point, there's often nowhere to go
but up.
In fact, if you look back in time, you'll see that it's not unusual for a
growing industry, like technology, to go through fits and starts. Like railroads
150 years ago, cars at the beginning of the 20th century and the Internet at the
end of it, industries are born, grow quickly and stir investor excitement. But
at some point, things get out of hand. When the bubble bursts, a Darwinian
survival-of-the-fittest reality sets in. A weeding-out occurs, with weaker
companies being sold or going belly-up. Eventually, the industry begins growing
again with fewer, but better managed and more profitable, companies. Once, more
than a hundred American firms made automobiles; today, two do. The technology,
media and telecommunications sectors are now emerging from a similar
weeding-out; the survivors will be stronger for it.
In addition to technology, our other biggest investments by sector are all
benefiting from the U.S. economic rebound. Air travel is picking up. Hotels and
restaurants are busier. Retail sales are growing and the outlook for the coming
holiday season is promising. Supporting all of this are levels of consumer
confidence and spending that have by and large remained solid over the last few
years. As we've mentioned, there are reasons to be optimistic on a global basis
as well.
THE ROAD AHEAD
We think some of the changes we've been making to SMALLCAP -- being more
selective about technology, trimming the number of holdings in our portfolio and
stepping up our exposure to many fast growing global markets -- are bearing
fruit. We're optimistic about the impact of these changes on the portfolio.
Between 2000 and 2002, we were quite candid about the fund's bear market losses.
That being said, it's also fair to look at how SMALLCAP has done over a much
longer period of time. Since its inception more than 13 years ago, SMALLCAP has
posted an average annual return of 9.2%, compared with 8.0% for the average
global small-cap fund as measured by Lipper. The Citigroup World Smallcap Index
has averaged 7.5% -- and again, that's before expenses.
We'd like to remind you about our feature story. As we'll explain in detail,
Asia -- particularly China -- is likely to grow quickly over the next few years.
We're well-positioned to take advantage of the investment opportunities in this
part of the world. SMALLCAP's investment advisor, Capital Research and
Management Company, has research offices in Hong Kong, Tokyo and Singapore. Some
of our analysts were raised in countries, and worked in industries, they now
cover. They're part of a global team of analysts, some 75 strong, who
collectively hail from two dozen nations and speak as many languages. We think
their experience is as broad as it is deep, and will help us find the most
promising small companies for SMALLCAP to invest in.
Thank you for your patience, continued support and commitment to long-term
investing.
Cordially,
/s/ Gordon Crawford /s/ Gregory W. Wendt
Gordon Crawford Gregory W. Wendt
Chairman of the Board President
November 14, 2003
[Begin Sidebar]
As reported in the press, instances of excessive short-term trading and illegal
"late trading" (trading after 4 p.m. Eastern time) have been discovered at a
number of different fund companies. In several of those cases, fund personnel
engaged in or permitted these activities in clear violation of regulatory
requirements and strict internal policies. This sort of conduct is unethical and
detrimental to long-term shareholders. We will not tolerate it at American
Funds. Although it is often difficult to detect and prevent abusive trading
practices, we are committed to taking action to combat this harmful activity
wherever we find it.
[End Sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE
This chart shows how a $10,000 investment in SMALLCAP World Fund's Class A
shares grew from April 30, 1990 -- the fund's inception -- through September 30,
2003, the end of the fund's latest fiscal year.
As you can see, the $10,000 would have grown to $30,626 even after deducting the
maximum 5.75% sales charge. (Sales charges are lower for accounts -- and
aggregated investments -- of $25,000 or more.) This is significantly more than
the $26,252 generated by the unmanaged Citigroup World Smallcap Index, which
tracks about 5,000 small-company stocks around the world with market
capitalizations (price per share multiplied by number of shares outstanding)
between $100 million and $1.5 billion. These are virtually the same parameters
we use when selecting stocks for the fund's portfolio.
Please see the inside back cover for important information about other share
classes.
[begin mountain chart]
Year Ended SMALLCAP Citigroup World Consumer Price Original
September 30 World Fund(1) Smallcap Index Index(2) Investment
<s> <c> <c> <c> <c>
1990(3) $8,288 $8,919 $10,295 $10,000
1991 $11,307 $11,210 $10,644 $10,000
1992 $11,640 $10,999 $10,962 $10,000
1993 $15,418 $14,336 $11,257 $10,000
1994 $16,744 $15,390 $11,590 $10,000
1995 $19,856 $16,888 $11,885 $10,000
1996 $22,851 $18,899 $12,242 $10,000
1997 $28,689 $21,443 $12,506 $10,000
1998 $22,749 $17,195 $12,692 $10,000
1999 $32,172 $21,965 $13,026 $10,000
2000 $44,532 $24,828 $13,476 $10,000
2001 $24,516 $19,352 $13,832 $10,000
2002 $23,121 $18,799 $14,042 $10,000
2003 $30,626 $26,252 $14,368 $10,000
[end mountain chart]
AVERAGE ANNUAL TOTAL RETURNS ON A $1,000 INVESTMENT (for periods ended
September 30, 2003)
1 YEAR 5 YEARS 10 YEARS
CLASS A SHARES
Reflecting 5.75% maximum sales charge +24.84% +4.88% +6.47%
Results assume reinvestment of all distributions. Results for other share
classes can be found on page 47. For the most current investment results, please
refer to americanfunds.com. Past results are not predictive of future results.
The results shown are before taxes on fund distributions and sale of fund
shares.
(1) This figure, unlike those shown earlier in this report, reflects payment of
the maximum sales charge of 5.75% on the $10,000 investment. Thus the net
amount invested was $9,425. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares.
(2) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
(3) For the period April 30, 1990 (when the fund began operations) through
September 30, 1990.
[photograph: man on cell phone walking with woman on crowded street]
OUR INCREASING EMPHASIS ON ASIA
SMALLCAP WORLD FUND'S MANDATE IS TO INVEST IN THE MOST PROMISING SMALL COMPANIES
ON THE PLANET. AN INCREASING NUMBER OF THEM ARE BASED IN ASIA, WHICH BY ONE
ESTIMATE COULD ACCOUNT FOR MORE THAN 50% OF THE WORLD'S ECONOMIC GROWTH OVER THE
NEXT DECADE.* WE THINK THAT CHINA -- A BEHEMOTH THE SIZE OF THE UNITED STATES
WITH FOUR-AND-A-HALF TIMES THE POPULATION -- IS ESPECIALLY PROMISING. ON THE
FOLLOWING PAGES, WE'LL DISCUSS THE POTENTIAL RISKS -- AND REWARDS.
[photograph: buildings with neon lights at night]
It's one of the more eye-opening cab rides one can take: the 18-mile trip from
Capital International Airport to downtown Beijing. Hurtling down Shoudujichang
Road, a four-lane superhighway (with road signs in both Mandarin and English),
you see a forest of construction cranes racing to erect a Manhattan-like series
of skyscrapers. On one side there are modern homes; on the other, gleaming
headquarters of the country's biggest telecom and oil companies. Billboards
peddle everything from cell phones -- China last year became the world's top
wireless market -- to cigarettes and sneakers. And off in the distance, work is
beginning on the Olympic Village. Host to the 2008 summer games, Beijing intends
to show the world that the People's Republic of China has arrived as a political
and economic power.
As far as the latter is concerned, there is no doubt that China has already
arrived. In the quarter-century since it embarked on economic reform, China's
economy has averaged growth of nearly 8% a year and is now the world's
sixth-largest. The dean of Harvard University's Kennedy School of Government,
Joseph Nye, calculates that even if that blistering pace were to slow down --
say to 6% -- in just 30 years, China's economy would total about $16 trillion,
twice the size of the current American economy.
"I think China is the greatest growth story in modern economic history," says
Gordon Crawford, SMALLCAP's chairman and one of its portfolio counselors. "It's
growing faster than Great Britain during the industrial revolution, Japan in the
post World War II era and America a century ago."
As it did in Britain, Japan and the U.S., China's spectacular growth is creating
vast amounts of fu, or wealth. Much of it is controlled by young, brash
entrepreneurs -- reminiscent, perhaps, of America's 19th-century robber barons.
But the average citizen is rapidly gaining ground, too: Their income has
quadrupled in two decades, lifting an estimated 270 million people out of
poverty.
Like the ripples from a stone dropped into a pond, this growth is radiating
beyond China to encompass much of Asia. One sign of the continent's incredible
wealth creation: East Asia is minting new millionaires at a healthy clip.
According to Forbes, last year alone, while the bear market was pushing an
estimated 88,000 people below the millionaire ranks in North America, more than
100,000 people joined the seven-figure club in Asia.
*Source: Capital Strategy Research, Inc.,SM an affiliate of American Funds.
[Begin Pull Quote]
"I think China is the greatest growth story in modern economic history."
Gordon Crawford
[End Pull Quote]
[photograph: bicycle riders and bus on busy street]
[Begin Sidebar]
[Chinese character]
Fu
Wealth, Good Luck
[Chinese character]
Lu
Prosperity
[Chinese character]
Cai
Wealth, Money
[Chinese character]
He
Harmonious
[photograph: Three people - one walking, one on a cell phone and another
standing next to him with a view out of a window across a harbor with
skyscrapers in the background]
[End Sidebar]
But the heart of this story is China. And much of its remarkable rise -- perhaps
"re-emergence" is more like it, given that it has been the world's economic and
technological standard bearer for much of its 5,000-year history -- is being
fueled by small companies.
"China represents a phenomenal investment opportunity for us," says Winnie Kwan,
a SMALLCAP analyst based in Hong Kong. "There is a huge and expanding middle
class there now, especially in the coastal provinces. Their standard of living
is rising and there is a pent-up demand for goods and services. Of course, they
are creating, or participating in, the production and distribution of these
goods and services themselves, so it all just feeds on itself. It's an enormous
opportunity fueled by both investment and consumption, and it's getting bigger
every day."
SUPPLY AND DEMAND
There are many angles to the China story. The rest of the world has long
salivated at the prospect of exporting to the People's Republic, which with 1.3
billion people is, by far, the world's biggest market. But that colossal
population also represents one-fifth of the world's labor supply -- and with an
average manufacturing wage of 60 cents an hour, one of the cheapest.
That seemingly inexhaustible pool of low-cost workers has transformed China into
the world's factory. The Economist reports that exports have been growing by
double digits for more than two decades. But here, too, there are nuances. Those
exports are largely low-tech: a quarter of the world's toys; an eighth of its
footwear and clothing; and a third of suitcases and handbags. "The most
important development in China over the last five years is that it has gained
significant market share in global manufacturing," says Winnie.
Shoes, and suitcases to put them in, are one thing. But more sophisticated
goods, which better reflect a country's economic development, are another. Here,
claims portfolio counselor Mark Denning, China is just getting started.
"Yes, China has gone from essentially nothing to the biggest manufacturing power
in the world in relatively short order," he says. "But that doesn't mean it's a
developed market economy. It has a hugely undeveloped infrastructure -- roads,
modern hospitals, water and power distribution, and so forth. China may be good
at low-tech manufacturing, but it's behind its neighbors -- and way behind the
U.S. -- in high technology. China's growth has been spectacular, in large part
because its economy was so backward to begin with."
[photograph: busy street at night - buildings with neon lights]
REGIONAL OPPORTUNITIES
Another key part of the story: China is not just a giant exporter; it imports a
staggering amount, too. Last year alone, imports grew by $55 billion, and from
1998 to 2002 surged from 17% to 25% of GDP. Given its relative economic
backwardness, it needs goods, services, expertise and capital. Its neighbors --
and the United States -- are supplying it.
"There's a misconception that China's going to be the low-cost provider for
everything from A to Z and wipe everybody out," says Tokyo-based analyst Sung
Lee. "The fact is China still can't make things like, for example, precision
machinery and machine tools. That will probably change, but at the very least,
it will take quite a while." To support his theory, Sung points to South Korea,
which despite a vibrant market economy and open political system, still hasn't
caught up with Japan's vaunted technological prowess. "The bottom line," he
says, "is countries that can provide high value goods and services are going to
profit off China for years to come."
[photograph: Boy and girl holding hands walking on crowded street]
This helps explain why China is now the biggest export market for Taiwan and
South Korea; when Hong Kong is factored in, it's about to become the biggest
market for Japan, Singapore, Malaysia and the Philippines. According to a recent
World Bank study, China "has had a major positive impact on the trade of other
East Asian countries." The study adds that from 1995 to 2001, Asian exports to
China grew 11.5% a year, while total global trade grew at a 3.8% pace.
China is also at the mercy of other countries for many basic raw materials. It
has a seemingly insatiable appetite for iron ore and alumina. Like the United
States, China also imports much of its energy: natural gas from Malaysia and oil
from Indonesia and the Persian Gulf. In the next year, in fact, it most likely
will become the second-largest importer of oil, after the U.S. That China gulps
so much petroleum is even more astonishing when you consider that the biggest
consumer of oil in the U.S. -- the auto industry -- is only beginning to shift
into high gear in the People's Republic. Half of all Americans own a car; just
one in a hundred Chinese do.
[Begin Sidebar]
"This tidal wave of information, flowing freely among citizens, is speeding up
economic development and helping capital and labor to be allocated more
efficiently."
Galen Hoskin
AN EMPHASIS ON INVESTMENT RESEARCH
To find the most promising small companies to invest in -- while mitigating the
risk -- SMALLCAP relies heavily on its research analysts. We mentioned Winnie,
Galen and Sung. They're just three of dozens of analysts, all of whom are part
of the global research network run by the fund's advisor, Capital Research and
Management Company. They are multilingual -- speaking a collective two dozen
languages -- multiethnic and multicultural, invaluable traits for a global
mutual fund.
Take Winnie, for instance. Born in Kowloon, a 10-minute ride on the fabled Star
Ferry from Hong Kong Island, she grew up in a Chinese household, studied
economics at Cambridge University and spent several years in the fund management
business before joining Capital in 2000. In addition to English, she is fluent
in Mandarin and Cantonese, the principal languages of China.
"Being on the ground is an important part of the research process," she says.
"China is a very big and complicated country. You really have to spend a lot of
time talking to management, listening and asking lots of questions. I also talk
to their competitors, suppliers and customers. Kicking the tires, so to speak,
is the only way to find good companies. It's very challenging and very
rewarding."
For his part, Sung Lee was born in Korea, moved to the United States at age 10,
earned an MBA from Columbia University Business School and joined Capital in
1994. Based in Tokyo, he speaks English, Korean and Japanese.
"I spend a lot of time on the road," he says. "That's because I think it's
crucial to visit companies and get to know the management. Good management is
vital for any company, of course, but especially for a smaller one. I'm excited
about Asia these days because the overall quality of management at the companies
I follow always seems to be getting better. I see a lot of managers and owners
whose interests are aligned with shareholders; those are the kinds of companies
I like."
Capital Research itself has 11 offices around the world, including Tokyo, Hong
Kong and Singapore. Capital has been investing in Asia since the 1950s. Last
year, our analysts made countless research visits in the region. Over the last
three years, while some investment companies were letting research analysts go,
Capital made several key hires. In 2002, its budget for investment research
topped $160 million. "Capital doesn't skimp on research," says Gordy. "It's the
lifeblood of our investment process."
"There's no question that the experience and judgment of our research analysts
are tremendously helpful," says London-based portfolio counselor Jonathan
Knowles. "Over the long run, their ability to spot growth opportunities early
has generated real value for our shareholders."
[End Sidebar]
[photograph: two teenagers walking; one of them dialing a cell phone]
[Begin Sidebar]
"The most important development in China over the last five years is that it has
gained significant market share in global manufacturing."
Winnie Kwan
[End Sidebar]
KARL MARX, MEET ADAM SMITH
It is difficult to stroll through Tiananmen Square -- the heart of Beijing and
site of 1989's bloody crackdown on a democracy movement -- without wondering how
a market economy can coexist, much less thrive, under the dominion of a
communist government. "The Communist party still believes that it's possible to
have a socialist ideology and a market economy," Winnie says. "Eventually,
something's got to give."
On many important fronts, it is the government that seems to be blinking.
Although China has had a de facto market economy for 20 years, authorities
appear set, for the first time, to codify its underpinnings with a series of
sweeping laws and regulations.
[photograph: busy street with automobile and pedestrian traffic with the
buildings and signs lit up]
China's economy is also becoming more investor friendly thanks to its membership
in the World Trade Organization, which it joined in 2001. It is cutting tariff
and nontariff barriers, as well as opening up sectors of the economy that have
long been off-limits to foreigners, such as banking and telecommunications.
Other changes are brewing from pressure generated by China's growing army of
entrepreneurs and businessmen demanding laws on everything from property rights
to contract enforcement.
However, the government continues to prohibit political changes such as direct
elections and freedom of speech and assembly. But here, too, proponents of the
free flow of information among private citizens -- vital in an efficient
capitalist system, but threatening to a one-party state -- are gaining the upper
hand, literally, when one sees the millions of Chinese holding one of the
country's 400 million cell phones up to their ears. And when they're not
chatting, they're surfing cyberspace: In the next year or so, China most likely
will pass the U.S. as the nation with the biggest number of Internet users.
"This tidal wave of information, flowing freely among citizens, is speeding up
economic development and helping capital and labor to be allocated more
efficiently," notes Galen Hoskin, a SMALLCAP analyst based in San Francisco.
"Certainly more efficiently than the government could."
In short, China is becoming less autocratic by the day, with an increasing
number of well-educated, wired and entrepreneurial citizens who bow not to the
teachings of Marx, but Adam Smith. This, in turn, is likely to ensure that
China's experiment with communism, forced upon it in 1949, will likely prove to
be a short chapter in the Middle Kingdom's ancient history. The next chapter,
now being written, is likely to have a lot more to do with things like private
ownership and free enterprise than the hammer and sickle.
[photograph: father (holding a baby) and mother boarding the subway]
CLOSE ATTENTION TO RISK
As is the case with any emerging market, investing in China carries risks.
Politically, the Communist Party's determination to maintain a closed, one-party
system is likely to be tested severely by its citizens in the years ahead --
recent demonstrations in Hong Kong against a proposed internal security law
provided a glimpse of this -- and Beijing's unresolved dispute with Taiwan over
the future of that democratic island continues to strain relations with the
United States.
There are currency risks. As anyone who invested in Mexico, Russia or Argentina
in recent years knows, currencies in emerging markets have a nasty way of
suddenly being devalued. China's currency, the renminbi ("the people's money"),
is not regarded as overvalued. But it is pegged to the U.S. dollar, leading some
investment analysts to wonder what the renminbi's true value is. The United
States is pressuring China to let its currency float freely, claiming it is
contributing to America's trade deficit.
[Begin Sidebar]
THE VALUE OF INVESTING IN SMALL-CAP STOCKS
As bright as we think the future is for Asia's emerging markets, it's hardly the
first time that those markets and/or small-cap stocks have shined.
Over a period of many years, small company stocks -- in the U.S. and around the
world -- have often been the best or second-best performing segment of the
equities market.
"When it comes to investing, you never know what's going to do better in any
given year," Gordy points out. "For example, bond funds did well during the
stock market decline. But over the long run, history shows that stocks usually
do much better. It also shows that small company stocks, both U.S. and non-U.S.,
can do quite well."
[begin table]
BEST PERFORMING EQUITY CLASSES OVER THE PAST 15 CALENDAR YEARS
(through 9/30/03)
BEST-PERFORMING SECOND-BEST
2003* NON-U.S. SMALL CAP EMERGING MARKETS
2002 NON-U.S. SMALL CAP EMERGING MARKETS
2001 U.S. SMALL CAP VALUE U.S. SMALL CAP
2000 U.S. SMALL CAP VALUE U.S. large cap value
1999 EMERGING MARKETS U.S. SMALL CAP GROWTH
1998 U.S. large cap growth U.S. large cap
1997 U.S. large cap U.S. large cap value
1996 U.S. large cap U.S. large cap growth
1995 U.S. large cap U.S. large cap growth
1994 Non-U.S. large cap Global
1993 EMERGING MARKETS NON-U.S. SMALL CAP
1992 U.S. SMALL CAP VALUE U.S. SMALL CAP
1991 EMERGING MARKETS U.S. SMALL CAP GROWTH
1990 U.S. large cap growth U.S. large cap
1989 EMERGING MARKETS U.S. large cap growth
1988 EMERGING MARKETS U.S. SMALL CAP VALUE
[end table]
*Through 9/30/2003.
Sources:
U.S. large cap represented by Standard & Poor's 500 Composite Index, with
distributions reinvested.
U.S. small cap represented by the Russell 2000 Index.
U.S. small cap value represented by the Russell 2000 Value Index.
U.S. small cap growth represented by the Russell 2000 Growth Index. U.S. large
cap value represented by the Russell 1000 Value Index.
U.S. large cap growth represented by the Russell 1000 Growth Index.
Non-U.S. small cap represented by the Citigroup World Smallcap (ex-U.S.) Index
(companies under $1.2 billion market cap). Index inception was July 1989.
Non-U.S. large cap represented by the MSCI EAFE(R) (Europe, Australasia, Far
East) Index with gross dividends reinvested.
Emerging markets equity represented by the MSCI EMF (Emerging Markets Free)
Index,SM with gross dividends reinvested.
Global represented by the MSCI World IndexSM with gross dividends reinvested.
[End Sidebar]
[photograph: night scene of buildings with lights and a lit up fountain spraying
water upward]
[Begin Sidebar]
"There are many good companies in Japan, Taiwan and South Korea with significant
business operations in the People's Republic."
Winnie Kwan
[End Sidebar]
[three photographs: blur of dragon's tail; night scene of buildings lit up with
water on one side and mountains on the other; girl talking on cell phone in
front of market place]
There are two principal ways to invest in China. The first, and most obvious, is
to invest directly in Chinese companies. "We're finding lots of great
opportunities," notes Gordy. "For example, we've bought stakes in Zhejiang
Expressway and Jiangsu Expressway, two companies that collect tolls on China's
expanding highway system." With more and more cars zipping around, Gordy figured
it would also make sense to invest in Clear Media, China's leading billboard
company. Other examples of Chinese companies that SMALLCAP owns include Yanzhou
Coal Mining Co. and Anhui Conch Cement, both investment plays on that country's
growing energy and infrastructure needs.
SMALLCAP also invests in foreign companies that do a lot of business in China.
"There are many good companies in Japan, Taiwan and South Korea with significant
business operations in the People's Republic," Winnie notes. Examples of this
include Largan Precision, a lens manufacturer for digital cameras with
production facilities in China; and Hung Hing Printing Group of Hong Kong, which
makes packaging and paper products. "Companies like these, which we think are
extremely well managed, have significant exposure to the growing Chinese
market."
Sung looks for Japanese and Korean companies with a footprint in the People's
Republic. "KEC is a good one. It's a small semiconductor manufacturer. Solid
management; very shareholder-oriented."
Because the Chinese don't yet have the technology to make high-end
semiconductors on their own, KEC is building a plant there. "They'll get high
quality at a low cost," Sung says, predicting KEC will double its sales over the
next four years.
Investing in China through its next-door neighbors lowers risk, but doesn't
eliminate it. It has been only six years since Thailand devalued its currency,
the baht, sparking an Asian economic collapse and a global financial crisis.
Could it happen again?
"I suppose anything is possible," cautions Mark, who has been investing in Asia
for more than two decades. "But there have been many positive changes since
1997-98. The chances of it happening again are much lower now."
[photograph: shipping yard]
These changes include reforms, which resulted in the destruction of much of the
cronyism, protectionism and government regulation that had burdened many Asian
businesses. The result, write Nicholas Kristof and Sheryl WuDunn, Pulitzer
Prize-winning correspondents for The New York Times, is "a political, social and
economic revolution that is still incomplete but that ultimately will reshape
Asia as greatly as the fall of the Berlin Wall reshaped Europe."
A dramatic observation, perhaps, but one that Mark generally agrees with. "Most
Asian countries learned some bitter lessons in the late 1990s. They've
restructured in all sorts of ways and have really gotten their economic houses
in order. I'm impressed with their levels of corporate governance and
accountability to shareholders. On top of that, valuations of many Asian stocks
are extremely low and interest rates are very low. Asia is as attractive as I've
ever seen it."
Still, he is cautious. "Although it's true that many companies are trading at
very low prices, and emerging markets in general are trading at their lowest
valuations in years, it's because investors are aware of the risks. You have to
be careful."
[Begin Sidebar]
THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
[Begin Sidebar]
[photographs]:
Gordon Crawford
32 years with Capital
Claudia Huntington
28 years with Capital
Mark Denning
21 years with Capital
J. Dale Harvey
12 years with Capital
Jonathan Knowles
11 years with Capital
Blair Frank
9 years with Capital
SMALLCAP World Fund's portfolio counselors average 19 years of investment
experience. Why six people to manage one fund? Because Capital Research and
Management Company, adviser to the American Funds, has developed a unique method
we call the multiple portfolio counselor system. We believe it helps our funds
achieve consistently superior long-term investment results.
Here's how it works: SMALLCAP's assets are divided into portions. Each of the
fund's six portfolio counselors manages one portion; another is managed by the
fund's research analysts, who bring their own investment expertise to the table.
The advantages of this system are many:
o DIVERSITY. Within the fund's overall guidelines, the counselors get to act
on their own convictions. This offers the best attributes of both
individualism and teamwork, with no need for consensus.
o CONSISTENCY. Over time, having more than one person managing assets tends
to smooth out the peaks and valleys of investing.
o CONTINUITY. Since the fund is not dependent on any single individual, when
one person leaves or retires, only a portion of the portfolio changes
hands. Smooth, gradual transitions help the fund maintain a steady
investment approach.
[End Sidebar]
ABOUT YOUR FUND
Launched in 1990, SMALLCAP World Fund is one of the few small-company growth
funds that invests globally. Usually, at least 80% of the fund's assets will be
invested in the stock of companies with market values ranging from $50 million
to $1.5 billion. Because it is a global fund, SMALLCAP is subject to economic,
social, political, interest rate or currency-related risk. These risks can mean
added volatility and the potential loss of capital; shareholders should have a
long-term perspective when investing in this fund.
[begin table]
SMALLCAP FACTS AND FIGURES (as of September 30, 2003)
Shareholders: 817,666
Assets under management: $8.5 billion
Portfolio counselors: Six
Average amount of investment experience: 19 years
[end table]
SMALLCAP COMPARED WITH ITS BENCHMARKS
GLOBAL SMALL-
CUMULATIVE TOTAL RETURNS SMALLCAP CITIGROUP WORLD COMPANY MUTUAL
ENDING SEPTEMBER 30, 2003+ WORLD FUND SMALLCAP INDEX FUND AVERAGE*
1 year +32.5% +39.6% +31.3%
3 years -31.2 +5.7 -21.4
5 years +34.6 +52.7 +45.0
10 years +98.6 +83.1 +81.1
Lifetime (since April 30, 1990) +225.0 +162.5 +181.3
Lifetime (since April 30, 1990) annualized +9.2 +7.5 +8.0
*As measured by Lipper.
+With distributions reinvested.
OUR LONG-TERM FOCUS HELPS LOWER EXPENSES
SMALLCAP's Class A expense ratio of 1.19% of portfolio assets is less than the
average front-end load global small-company fund's 1.57%, as measured by Lipper.
One reason our expenses are lower is because as long-term investors, we tend to
hold stocks for longer periods of time. Over the long run, holding costs down
can help the total return on your investment.
A TOTAL COMMITMENT TO HONESTY AND INTEGRITY
A key objective of our investment research process is determining, to the best
of our ability, that the companies we invest in adhere to the highest standards
of ethics and openness. Companies that do so tend to act in the best interests
of their shareholders. We apply these standards to ourselves as well. SMALLCAP
is watched by a board of Directors that is comprised largely of independent
outsiders. Our audit committee is completely independent.
INVESTMENT PORTFOLIO, September 30, 2003
[begin pie chart]
Percent of
INDUSTRY DIVERSIFICATION net assets
Semiconductors & semiconductor equipment 8.0%
Commercial services & supplies 7.7
Media 6.3
Hotels, restaurants & leisure 5.3
Specialty retail 4.5
All other industries 60.2
Cash & equivalents 8.0
[end pie chart]
Percent
of net
LARGEST EQUITY HOLDINGS assets
Performance Food Group 1.41 %
Michaels Stores 1.28
PMC-Sierra 1.22
Extended Stay America 1.09
Education Management 1.02
Amylin Pharmaceuticals .99
Cymer .97
Venture .97
Novell .86
Sylvan Learning Systems .84
Shares or Market
principal value
EQUITY SECURITIES (common and convertible preferred stocks and convertible debentures) amount (000)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 7.95%
PMC-Sierra, Inc. (USA) (1) 7,800,000 $ 102,890
Cymer, Inc. (USA) (1) (2) 2,000,000 82,400
Micrel, Inc. (USA) (1) (2) 4,767,112 58,111
Fairchild Semiconductor International (USA) (1) 3,142,800 52,108
ASM International NV (New York registered) (Netherlands) (1) (2) 3,119,100 46,007
Applied Micro Circuits Corp. (USA) (1) 8,500,000 41,395
Cypress Semiconductor Corp. (USA) (1) 2,200,000 38,896
Varian Semiconductor Equipment Associates, Inc. (USA) (1) 1,000,000 37,450
Semtech Corp. (USA) (1) 2,000,000 36,920
Integrated Circuit Systems, Inc. (USA) (1) 1,200,000 36,048
O2Micro International Ltd. (USA) (1) 1,759,500 25,425
Brooks Automation, Inc. (USA) (1) 1,200,000 25,080
KEC Corp. (South Korea)(2) 523,540 16,919
PDF Solutions, Inc. (USA) (1) (2) 1,500,000 16,875
Axcelis Technologies, Inc. (USA) (1) 2,000,000 16,520
ASE Test Ltd. (Taiwan) (1) 1,500,000 13,035
Faraday Technology Corp. (Taiwan) 3,539,125 8,244
MKS Instruments, Inc. (USA) (1) 300,000 6,498
Advanced Energy Industries, Inc. (USA) (1) 211,500 3,991
ASM Pacific Technology Ltd. (Hong Kong) 1,050,000 3,552
MegaChips Corp. (Japan) 295,000 2,604
Zeevo, Inc., Series C, convertible preferred (USA) (1) (2) (3) (4) 1,587,301 921
Zeevo, Inc. 5.00% convertible notes 2004 (2)(3)(4) $ 398,561 399
Zeevo, Inc., warrants, expire 2008 (1)(2)(3)(4) 3 -
ClearSpeed Technology Ltd. (United Kingdom) (1) (3) (4) 2,300,000 28
COMMERCIAL SERVICES & SUPPLIES - 7.68%
Education Management Corp. (USA) (1) 1,500,000 86,505
Sylvan Learning Systems, Inc. (USA) (1) (2) 2,589,516 70,642
United Rentals, Inc. (USA) (1) 2,560,000 41,190
S1 Corp. (South Korea)(2) 2,090,000 40,507
ChoicePoint Inc. (USA) (1) 1,150,000 38,525
Vedior NV (Netherlands) 2,948,571 35,987
School Specialty, Inc. (USA) (1) (2) 1,130,000 31,877
Downer EDI Ltd. (Australia)(2) 51,045,208 30,238
Techem AG (Germany) (1) (2) 1,413,300 24,356
Arbitron Inc. (USA) (1) 621,060 21,923
Valassis Communications, Inc. (USA) (1) 800,000 21,120
Imagistics International Inc. (USA) (1) 696,100 20,173
Tetra Tech, Inc. (USA) (1) 1,000,000 19,910
Kroll Inc. (USA) (1) 1,000,000 18,600
CoStar Group, Inc. (USA) (1) 689,700 17,932
Group 4 Falck A/S (Denmark) 780,000 16,919
Kelly Services, Inc., Class A (USA) 600,000 14,964
Portfolio Recovery Associates, Inc. (USA) (1) 500,000 12,710
Buhrmann NV (Netherlands) 1,700,000 12,635
Ionics, Inc. (USA) (1) 500,000 12,230
Brinks Company (USA) 700,000 12,152
Duratek, Inc. (USA) (1) 891,100 7,949
MITIE Group PLC (United Kingdom) 3,560,000 7,246
DIS Deutscher Industrie Service AG (Germany) 390,000 7,244
Informatics Holdings Ltd. (Singapore)(2) 16,065,000 7,148
Michael Page International PLC (United Kingdom) 2,310,000 5,721
Reliance Security Group PLC (United Kingdom) 440,000 5,117
Oslo Bors Holding ASA (Norway)(3) 125,000 3,124
Oslo Bors Holding ASA 31,000 775
Proffice AB, Class B (Sweden) 900,000 2,495
ZOOTS (USA) (1)(2)(3)(4) 12,586,913 1,208
MEDIA - 6.25%
Astral Media Inc., Class A (Canada) 3,349,100 62,118
Gemstar International Group Ltd. (USA) (1) 11,750,000 55,577
Corus Entertainment Inc., Class B, nonvoting (Canada) (1) 2,630,000 45,836
SBS Broadcasting SA (Luxembourg) (1) (2) 1,800,000 44,784
UnitedGlobalCom, Inc., Class A (USA) (1) 6,726,675 41,100
CanWest Global Communications Corp. (Canada) (1) 4,729,946 39,113
CanWest Global Communications Corp., nonvoting, Class A (1) 14,321 119
EMI Group PLC (United Kingdom) 15,625,000 38,357
Capital Radio PLC (United Kindgom) 2,412,000 19,156
Modern Times Group MTG AB, Class B (Sweden) (1) 700,000 11,239
Modern Times Group MTG AB 5.50% convertible debenture 2006 Euro 7,000,000 7,882
Clear Media Ltd. (Hong Kong) (1) (2) 32,579,000 18,826
Rural Press Ltd. (Australia) 3,726,466 18,269
Toei Animation Co., Ltd. (Japan) 290,000 16,114
Sanctuary Group PLC (United Kingdom)(2) 19,470,839 15,528
Fox Kids Europe NV (Netherlands) (1) 2,351,649 14,268
Catalina Marketing Corp. (USA) (1) 800,000 12,152
Nasionale Pers Beperk, Class N (South Africa) 2,908,534 11,844
Lions Gate Entertainment Corp. (Canada) (1) (2) 2,378,500 7,056
Lions Gate Entertainment Corp., USD denominated (1) (2) 1,425,000 4,261
Phoenix Satellite Television Holdings Ltd. (Hong Kong) (1) 94,688,000 10,149
Austereo Group Ltd. (Australia) 9,820,000 9,361
Alliance Atlantis Communications Inc., nonvoting, Class B (Canada) (1) 560,000 8,846
Zee Telefilms Ltd. (India) 2,700,000 7,289
GWR Group PLC (United Kingdom) 1,250,000 4,439
Woongjin.com Co., Ltd. (South Korea) 1,065,150 2,783
ABS-CBN Holdings Corp. (PDR) (Philippines) (1) 3,500,000 1,548
BKN International AG (Germany) (1) 244,200 356
Lone Star Research, Inc. (USA) (1)(3)(4) 966,793 10
HOTELS, RESTAURANTS & LEISURE - 5.35%
Extended Stay America, Inc. (USA) (1) (2) 6,190,000 92,417
Mandalay Resort Group (USA) 1,062,400 42,082
J D Wetherspoon PLC (United Kingdom) (2) 10,644,724 40,754
IHOP Corp. (USA) 915,800 30,084
Triarc Companies, Inc., Class B (USA) 1,900,000 19,760
Triarc Companies, Inc., Class A 950,000 9,566
Cafe de Coral Holdings Ltd. (Hong Kong) (2) 28,192,000 25,847
Aristocrat Leisure Ltd. (Australia) 19,558,157 25,569
Orient-Express Hotels Ltd., Class A (USA) (1) 1,610,000 25,116
William Hill PLC (United Kingdom) 4,015,000 20,680
P.F. Chang's China Bistro, Inc. (USA) (1) 437,000 19,818
Luminar PLC (United Kingdom) 2,000,000 15,984
Stanley Leisure PLC (United Kingdom) 2,740,000 15,661
Steak n Shake Co. (USA) (1) 1,024,750 15,269
City Centre Restaurants PLC (United Kingdom) 7,710,000 9,447
Pinnacle Entertainment, Inc. (USA) (1) 1,000,000 7,000
California Pizza Kitchen, Inc. (USA) (1) 400,000 6,960
Applebee's International, Inc. (USA) 200,000 6,296
Panera Bread Co., Class A (USA) (1) 150,000 6,144
Greene King PLC (United Kingdom) 430,000 6,026
O'Charley's Inc. (USA) (1) 400,000 5,932
Sky City Ltd. (New Zealand) 1,094,800 5,662
SPECIALTY RETAIL - 4.51%
Michaels Stores, Inc. (USA) 2,650,000 108,014
CarMax, Inc. (USA) (1) 1,800,000 58,788
Big Lots, Inc. (USA) (1) 2,771,400 43,816
JJB Sports PLC (United Kingdom) 6,744,080 29,022
Sharper Image Corp. (USA) (1) (2) 950,000 21,907
Williams-Sonoma, Inc. (USA) (1) 750,000 20,235
Payless ShoeSource, Inc. (USA) (1) 1,425,000 18,439
Culture Convenience Club Co., Ltd. (Japan) 1,686,100 15,081
KOMERI Co., Ltd. (Japan) 567,100 14,078
DFS Furniture Co. PLC (United Kingdom) 1,545,300 10,527
Nobia AB (Sweden) 1,255,000 10,116
Miller's Retail Ltd. (Australia) 7,650,000 9,324
Chico's FAS, Inc. (USA) (1) 235,000 7,200
Lithia Motors, Inc., Class A (USA) 325,000 6,490
Restoration Hardware, Inc. (USA) (1) 713,000 4,143
Carpetright PLC (United Kingdom) 307,213 4,017
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.22%
Venture Corp. Ltd. (Singapore) 7,099,600 82,048
Kingboard Chemical Holdings Ltd. (Hong Kong)(2) 34,662,000 36,702
Kingboard Chemical Holdings Ltd., warrants, expire 2003 (1) (2) 2,772,000 859
Renishaw PLC (United Kingdom) 3,630,308 33,597
National Instruments Corp. (USA) 825,000 33,206
Citizen Electronics Co., Ltd. (Japan) 368,600 27,749
Orbotech Ltd. (Israel) (1) 1,316,500 26,909
Rogers Corp. (USA) (1) (2) 856,800 26,578
Vaisala Oyj, Class A (Finland) 876,095 21,426
Micronic Laser Systems AB (Sweden) (1) (2) 2,638,952 18,888
Littelfuse, Inc. (USA) (1) 800,000 18,400
Hana Microelectronics PCL (Thailand) 4,991,400 11,730
Hankuk Electric Glass Co., Ltd. (South Korea) 119,810 7,932
TTM Technologies, Inc. (USA) (1) 450,000 6,426
Jahwa Electronics Co., Ltd. (South Korea) 540,000 3,862
INTERNET SOFTWARE & SERVICES - 3.80%
DoubleClick Inc. (USA) (1) 6,514,400 70,160
CNET Networks, Inc. (USA) (1) 7,000,000 49,560
Ask Jeeves, Inc. (USA) (1) 2,800,000 48,720
InfoSpace.com, Inc. (USA) (1) (2) 2,005,000 40,922
RealNetworks, Inc. (USA) (1) 4,000,000 26,200
Retek Inc. (USA) (1) 2,500,000 16,875
FindWhat.com (USA) (1) 900,000 15,552
EarthLink, Inc. (USA) (1) 1,577,300 12,981
Homestore, Inc. (USA) (1) 4,600,000 12,742
MatrixOne, Inc. (USA) (1) (2) 2,500,000 12,325
LookSmart, Ltd. (USA) (1) 3,000,000 9,420
Autobytel Inc. (USA) (1) 496,600 4,728
Orbiscom Ltd. (Ireland) (1)(3)(4) 3,905,874 453
Meet World Trade, Series C, convertible preferred (USA) (1)(3)(4) 389,416 362
Muse Prime Software, Inc., Series B, convertible preferred (USA) (1)(2)(3)(4) 1,770,000 230
ProcurePoint Travel Solutions Inc., Series B, convertible preferred (USA) (1)(3)(4) 514,933 50
BIOTECHNOLOGY - 3.26%
Amylin Pharmaceuticals, Inc. (USA) (1) 2,959,400 83,573
IDEXX Laboratories, Inc. (USA) (1) 869,700 36,954
Neurocrine Biosciences, Inc. (USA) (1) 600,000 29,712
Q-Med AB (Sweden) (1) (2) 1,610,000 29,691
NPS Pharmaceuticals, Inc. (USA) (1) 905,900 25,229
ImClone Systems Inc. (USA) (1) 400,000 15,488
Transkaryotic Therapies, Inc. (USA) (1) 1,208,300 12,627
QIAGEN NV (Netherlands) (1) 1,176,500 12,494
InterMune Inc. (USA) (1) 600,000 11,448
OSI Pharmaceuticals, Inc. (USA) (1) 287,000 9,319
Alkermes, Inc. (USA) (1) 500,000 6,860
Vical Inc. (USA) (1) 282,000 1,641
Control Delivery Systems Inc., Series A, convertible preferred (USA) (1)(3) (4) 55,824 750
COMMERCIAL BANKS - 2.91%
Pusan Bank (South Korea)(2) 9,520,500 45,446
Cathay Bancorp, Inc. (USA) (2) 1,015,000 44,914
Fulton Financial Corp. (USA) 1,540,350 30,930
Daegu Bank, Ltd. (South Korea) 6,606,100 27,995
ICICI Bank Ltd. (India) 5,584,503 24,973
Southwest Bancorporation of Texas, Inc. (USA) 510,000 18,620
Citizens Banking Corp. (USA) 549,900 14,523
Republic Bancshares Inc. (USA) 506,400 14,463
Korea Exchange Bank (South Korea) (1) 3,540,140 14,247
Southern Financial Bancorp, Inc. (USA) 240,350 9,465
SOFTWARE - 2.66%
Novell, Inc. (USA) (1) 13,658,130 72,798
Creo Inc., USD denominated (Canada) (1) (2) 2,486,000 26,227
Creo Inc.(1) (2) 430,000 4,503
Borland Software Corp. (USA) (1) 2,925,000 26,939
Documentum, Inc. (USA) (1) 1,000,000 21,310
Manhattan Associates, Inc. (USA) (1) 800,000 20,712
Macromedia, Inc. (USA) (1) 800,000 19,792
Lawson Software, Inc. (USA) (1) 1,405,000 9,961
Mentor Graphics Corp. (USA) (1) 500,000 8,765
Fair Isaac Corp. (formerly Fair, Isaac and Company, Inc.) (USA) 100,000 5,896
Jack Henry & Associates, Inc. (USA) 320,000 5,565
Infoteria Corp. (Japan) (1)(2)(3)(4) 2,672 1,497
SuSE Linux AG (Germany) (1)(3)(4) 75,626 290
diCarta (USA) (1)(3)(4) 103,135 105
Monterey Design Systems Inc. (formerly Monterey Design Systems Inc., 100,000 90
Series E, convertible preferred) (USA) (1)(3)(4)
MMC AS (Norway) (1)(3)(4) 4,150,000 6
Aspen Technology, Inc., warrants, expire 2007 (USA) (1)(3)(4) 84,060 -
HEALTH CARE PROVIDERS & SERVICES - 2.64%
Rhon-Klinikum AG (Germany) 863,800 40,114
Rhon-Klinikum AG, nonvoting preferred 561,300 24,560
American Healthways, Inc. (USA) (1) (2) 850,000 35,691
Service Corp. International (USA) (1) 7,000,000 31,990
Centene Corp. (USA) (1) 812,500 24,692
Odyssey HealthCare, Inc. (USA) (1) 751,875 22,421
Sonic Healthcare Ltd. (Australia) 2,615,800 11,951
Ramsay Health Care Ltd. (Australia) 3,450,000 10,219
AMERIGROUP Corp. (USA) (1) 188,900 8,431
Triad Hospitals, Inc. (USA) (1) 250,000 7,570
LifePoint Hospitals, Inc. (USA) (1) 225,000 5,411
PHARMACEUTICALS - 2.61%
Medicis Pharmaceutical Corp., Class A (USA) 1,055,000 61,823
Recordati SpA (Italy)(2) 2,652,000 45,796
ICN Pharmaceuticals, Inc. (USA) 2,400,000 41,184
MGI PHARMA, Inc. (USA) (1) 600,000 23,556
Inspire Pharmaceuticals, Inc. (USA) (1) 1,250,000 21,500
Penwest Pharmaceuticals Co. (USA) (1) 500,000 10,750
Eon Labs, Inc (USA) (1) 275,000 10,546
NexMed, Inc. (USA) (1) 1,100,000 4,455
NexMed, Inc. (1) (3) 152,355 617
NexMed, Inc., warrants, expire 2004 (1)(3)(4) 30,471 39
Generex Biotechnology Corp., warrants, expire 2005 (USA) (1)(3)(4) 164,467 -
OIL & GAS - 2.49%
Western Oil Sands Inc., Class A (Canada) (1) 1,320,000 26,431
Patina Oil & Gas Corp. (USA) 660,000 23,918
Quicksilver Resources Inc. (USA) (1) 810,000 19,788
First Calgary Petroleums Ltd., GBP denominated (Canada) (1) 4,800,000 15,073
First Calgary Petroleums Ltd. (1) 1,376,000 4,347
Premcor Inc. (USA) (1) 778,112 18,029
Encore Acquisition Co. (USA) (1) 715,000 15,408
Canadian Oil Sands Trust (Canada) 514,720 14,964
Venture Production Company Ltd. (United Kingdom) (1) (2) 6,500,000 14,256
OPTI Canada Inc., Class C (Canada) (1)(3)(4) 1,099,000 12,429
Sibir Energy PLC (United Kingdom) (1) 35,784,282 9,662
Tullow Oil PLC (Ireland) (1) 7,734,133 9,618
Tsakos Energy Navigation Ltd. (Norway) 669,500 9,574
Australian Worldwide Exploration Ltd. (Australia) (1) 10,000,000 7,694
Penn West Petroleum Ltd. (Canada) (1) 225,000 7,632
InterOil Corp. (Canada) (1)(3) 81,700 1,990
CHEMICALS - 1.95%
Millennium Chemicals Inc. (USA)(2) 3,995,000 38,152
Asian Paints (India) Ltd. (India) 4,789,500 31,797
Cambrex Corp. (USA)(2) 1,300,000 29,510
Georgia Gulf Corp. (USA) 800,000 18,680
Hyosung Corp. (South Korea)(2) 1,773,200 16,682
Ferro Corp. (USA) 700,000 14,952
Valspar Corp. (USA) 237,000 11,056
Crompton Corp. (USA) 671,200 3,900
HEALTH CARE EQUIPMENT & SUPPLIES - 1.84%
ResMed Inc (USA) (1) 451,000 19,835
ResMed Inc, AUD denominated (1) 750,000 3,253
Cochlear Ltd. (Australia) 1,037,000 22,157
Kobayashi Pharmaceutical Co., Ltd. (Japan) 538,200 12,541
Kobayashi Pharmaceutical Co., Ltd. (1) (4) (5) 269,100 6,270
Wilson Greatbatch Technologies, Inc. (USA) (1) 465,800 16,792
Tecan Group Ltd., Mannedorf (Switzerland) 493,242 16,670
Nobel Biocare Holding AG (Switzerland) 168,000 14,656
Coloplast A/S, Class B (Denmark) 137,000 11,499
Straumann Holding AG (Switzerland) 74,000 7,747
TriPath Imaging, Inc. (USA) (1) 886,242 7,710
Aspect Medical Systems, Inc. (USA) (1) 562,000 5,772
Moulin International Holdings Ltd. (Hong Kong) 6,000,000 3,525
Lumenis Ltd. (Israel) (1) (2) 2,270,000 3,042
MedSource Technologies, Inc. (USA) (1) 400,000 1,996
Vision-Sciences, Inc. (USA) (1) 984,500 1,713
FOOD PRODUCTS - 1.81%
Nestle India Ltd. (India) 3,874,650 49,689
IOI Corp. Bhd. (Malaysia) 20,000,000 32,368
Lindt & Sprungli AG, participation certificate (Switzerland) 19,166 13,929
Lindt & Sprungli AG 1,694 12,915
Burns, Philp & Co. Ltd. (Australia) (1) 39,624,066 18,886
Interstate Bakeries Corp. (USA) 800,000 12,000
DyDo Drinco (Japan) 350,000 7,701
Binggrae Co., Ltd. (South Korea) 495,000 5,519
FOOD & STAPLES RETAILING - 1.74%
Performance Food Group Co. (USA) (1) (2) 2,935,000 119,484
Cawachi Ltd. (Japan) 219,000 16,212
Whole Foods Market, Inc. (USA) (1) 200,000 11,036
BUILDING PRODUCTS - 1.69%
Uponor Oyj (Finland) 1,470,050 34,991
Geberit AG (Switzerland) 65,901 24,497
Noritz Corp. (Japan) 1,460,000 20,007
Royal Group Technologies Ltd. (Canada) (1) 1,846,000 16,565
Masonite International Corp. (Canada) (1) 635,000 15,018
Kumgang Korea Chemical Co., Ltd. (South Korea) 145,000 12,252
York International Corp. (USA) 300,000 10,377
Ultraframe PLC (United Kingdom) 1,575,000 9,041
HOUSEHOLD DURABLES - 1.67%
Yankee Candle Company, Inc. (USA) (1) (2) 2,769,600 70,569
Ekornes ASA (Norway)(2) 1,725,598 27,693
Rational AG (Germany) 272,100 12,652
Palm Harbor Homes, Inc. (USA) (1) 663,906 11,373
Fisher & Paykel Appliances Holdings Ltd. (New Zealand) 1,043,000 8,958
Rinnai Corp. (Japan) 230,000 5,741
Compass East Industry (Thailand) PCL (Thailand) 9,000,000 4,500
METALS & MINING - 1.51%
CONSOL Energy Inc. (USA) 1,000,000 18,580
Wheaton River Minerals Ltd. (Canada) (1)(3) 7,275,500 14,515
Wheaton River Minerals Ltd., warrants, expire 2007 (1)(3) 2,379,500 2,294
Wheaton River Minerals Ltd., warrants, expire 2008 (1)(3) 441,250 327
First Quantum Minerals Ltd. (Canada) (1) 2,540,000 15,258
Yanzhou Coal Mining Co. Ltd., Class H (China) 26,400,000 14,829
Gabriel Resources Ltd. (Canada) (1) 6,160,000 14,710
Peter Hambro Mining PLC (United Kingdom) (1) 1,726,011 10,611
Hindalco Industries Ltd. (India) 500,000 10,060
Northern Orion Resources Inc. (Canada) (1)(3) 4,200,000 6,292
Northern Orion Resources Inc., warrants, expires 2008 (1)(3) 2,100,000 1,246
Haganas AB, Class B (Sweden) 260,000 5,449
Thistle Mining Inc. (Canada) (1) 6,264,309 2,602
Thistle Mining Inc., GBP denominated (1) 4,525,000 1,880
Thistle Mining Inc., warrants, expire 2004 (1)(3)(4) 750,000 19
Bema Gold Corp. (Canada) (1)(3) 1,500,000 3,805
Kenmare Resources PLC (Ireland) (1) 7,200,000 2,165
Kenmare Resources PLC (1)(3) 2,500,000 752
America Mineral Fields Inc. (Canada) (1)(3) 2,625,000 2,394
Navan Mining PLC (United Kingdom) (1)(2)(4) 13,800,000 0
TRANSPORTATION INFRASTRUCTURE - 1.44%
Zhejiang Expressway Co. Ltd., Class H (China) 75,000,000 42,371
SembCorp Logistics Ltd. (Singapore) 39,605,200 38,447
Jiangsu Expressway Co. Ltd., Class H (China) 79,250,000 34,027
Anhui Expressway Co. Ltd., Class H (China) 24,000,000 7,051
COMMUNICATIONS EQUIPMENT - 1.17%
Polycom, Inc. (USA) (1) 2,950,000 48,999
CIENA Corp. (USA) (1) 3,900,000 23,049
Ixia (USA) (1) 1,305,000 14,119
Brocade Communications Systems, Inc. (USA) (1) 1,470,000 7,673
Cambridge Silicon Radio, Series II, convertible preferred 1,512,607 5,037
(United Kingdom) (1)(3)(4)
THRIFTS & MORTGAGE FINANCE - 1.15%
Housing Development Finance Corp. Ltd. (India) 2,212,480 24,128
Hudson River Bancorp, Inc. (USA) 718,100 23,073
Saxon Capital, Inc. (USA) (1) 1,200,000 20,568
Federal Agricultural Mortgage Corp., Class C (USA) (1) 630,000 17,010
IndyMac Bancorp, Inc. (USA) 550,000 12,743
REAL ESTATE - 1.08%
Central Pattana Public Co., Ltd. (Thailand) 16,413,400 19,696
Unibail Holding (France) 222,000 17,484
Corrections Corporation of America (USA) (1) 700,000 17,269
FelCor Lodging Trust Inc. (USA) 1,300,000 13,468
Ascendas Real Estate Investment Trust (Singapore) 12,400,000 7,523
Golden Land Property Development PLC, non-voting 20,000,000 6,800
depositary receipt (Thailand) (1)
Gladstone Commercial Corp. (USA) (1) (2) 428,000 6,313
Shanghai Real Estate Ltd. (Hong Kong) 33,842,000 2,404
AIRLINES - 1.04%
WestJet Airlines Ltd. (Canada) (1) 2,866,000 51,649
AMR Corp. (USA) (1) 3,200,000 36,640
ENERGY EQUIPMENT & SERVICES - 0.92%
Rowan Companies, Inc. (USA) (1) 770,600 18,941
China Oilfield Services Ltd., Class H (China) 60,637,100 15,661
Enerflex Systems Ltd. (Canada) 895,000 11,118
FMC Technologies, Inc. (USA) (1) 350,000 7,497
Ramco Energy PLC (United Kingdom) (1) 1,140,000 6,914
Newpark Resources, Inc. (USA) (1) 1,500,000 6,450
Hydril Co. (USA) (1) 317,500 6,433
Cie. Generale de Geophysique (France) (1) 215,000 4,879
CONSTRUCTION & ENGINEERING - 0.87%
Daelim Industrial Co., Ltd. (South Korea) 1,536,640 32,393
Hyundai Development Co. (South Korea) 2,600,000 22,422
LG Engineering & Construction Co., Ltd. (South Korea) 1,100,000 18,685
CONSTRUCTION MATERIALS - 0.86%
Associated Cement Companies Ltd. (India) 8,250,000 36,695
Hanil Cement Co., Ltd. (South Korea) (2) 447,000 18,924
Anhui Conch Cement Co. Ltd., Class H (China) 23,000,000 17,078
COMPUTERS & PERIPHERALS - 0.83%
Hutchinson Technology Inc. (USA) (1) (2) 1,300,000 43,030
High Tech Computer Corp. (Taiwan) 3,804,960 13,831
Anoto Group AB (Sweden) (1) (2) 6,623,244 7,602
Opticom ASA (Norway) (1) 553,600 5,661
INSURANCE - 0.72%
China Insurance International Holdings Co. Ltd. (Hong Kong) 36,408,000 21,861
LG Insurance Co., Ltd. (South Korea)(2) 3,000,000 12,413
Hilb, Rogal and Hamilton Co. (USA) 355,000 11,019
Euler Hermes SA (France) 220,051 8,447
First American Corp. (USA) 300,000 7,470
INTERNET & CATALOG RETAIL - 0.70%
drugstore.com, inc. (USA) (1) 2,830,700 21,655
Internet Auction Co. Ltd. (South Korea) (1) 400,000 17,247
1-800-FLOWERS.COM, Inc., Class A (USA) (1) 1,300,000 9,776
Alloy, Inc. (USA) (1) 1,304,000 7,302
RedEnvelope, Inc. (formerly RedEnvelope, Inc., Series E and F, 257,665 3,067
convertible preferred)(USA)(1)(3)(4)
BEVERAGES - 0.67%
Anadolu Efes Biracilik ve Malt Sanayii AS (Turkey) 2,160,000,000 25,719
Cott Corp. (Canada) (1) 1,080,000 25,246
Robert Mondavi Corp., Class A (USA) (1) 193,200 5,985
WIRELESS TELECOMMUNICATION SERVICES - 0.61%
GLOBE TELECOM, Inc. (Philippines) 1,127,500 14,294
Tele Celular Sul Participacoes SA, preferred nominative (ADR) (Brazil) 1,132,400 10,633
Tele Celular Sul Participacoes SA, ordinary nominative 2,247,692,036 1,675
Nextel Partners, Inc., Class A (USA) (1) 1,400,000 10,990
Tele Nordeste Celular Participacoes SA, preferred nominative (ADR) (Brazil) 401,700 8,114
Mobistar NV (Belgium) (1) 102,500 5,165
Total Access Communication PCL (Thailand) (1) 667,700 1,008
IT SERVICES - 0.60%
Baycorp Advantage Ltd. (Australia)(1)(2) 13,892,100 21,567
Teleca AB, Class B (Sweden) 2,893,241 16,939
iPayment, Inc. (USA) (1) 300,000 6,828
Titan Corp. (USA) (1) 273,400 5,698
MACHINERY - 0.58%
Cummins Inc. (USA) 400,000 17,772
Kaulin Manufacturing Co. Ltd. (Taiwan) 4,915,000 7,876
Seco Tools AB, Class B (Sweden) 225,000 7,472
ZENON Environmental Inc. (Canada) (1) 575,000 6,652
Spirax-Sarco Engineering PLC (United Kingdom) 500,000 4,520
Munters AB (Sweden) 130,000 2,817
LTG Technologies PLC (United Kingdom) (1) (2) 17,785,714 2,308
TEXTILES, APPAREL & LUXURY GOODS - 0.57%
Phillips-Van Heusen Corp. (USA) 1,300,000 19,513
Columbia Sportswear Co. (USA) (1) 250,000 13,188
Cheil Industries Inc. (South Korea) 750,000 8,395
Nien Hsing Textile Co., Ltd. (Taiwan) 7,000,000 7,104
DIVERSIFIED FINANCIAL SERVICES - 0.50%
GATX Corp. (USA) 950,000 20,093
Hong Kong Exchanges and Clearing Ltd. (Hong Kong) 5,554,000 11,834
TSX Group Inc. (Canada) 437,200 10,538
TRADING COMPANIES & DISTRIBUTORS - 0.47%
MSC Industrial Direct Co., Inc., Class A (USA) 992,500 20,694
Hughes Supply, Inc. (USA) 575,000 18,659
CONTAINERS & PACKAGING - 0.39%
Owens-Illinois, Inc. (USA) (1) 1,650,000 18,843
Hung Hing Printing Group Ltd. (Hong Kong) 17,199,000 14,214
GAS UTILITIES - 0.35%
Xinao Gas Holdings Ltd. (Hong Kong) (1) (2) 37,300,000 17,581
International Energy Group Ltd. (United Kingdom)(2) 4,640,000 11,950
ELECTRICAL EQUIPMENT - 0.35%
BYD Co. Ltd., Class H (China) 4,000,000 9,917
Bharat Heavy Electricals Ltd. (India) 852,700 7,523
Korea Electric Terminal Co., Ltd. (South Korea) 350,000 6,052
Gamesa Corporacion Technologica, SA (Spain) (1) 143,000 3,417
Moatech Co., Ltd. (South Korea) 266,000 2,526
AUTO COMPONENTS - 0.33%
Cheng Shin Rubber (Xiamen) Ind., Ltd. (Taiwan) 18,750,000 24,091
Nokian Renkaat Oyj (Finland) 60,000 3,661
PAPER & FOREST PRODUCTS - 0.28%
M-real Oyj, Class B (Finland) 2,610,000 23,815
ROAD & RAIL - 0.27%
Container Corp. of India Ltd. (India) 2,033,457 22,536
OTHER - 1.73%
WD-40 Co. (USA) 640,900 20,310
MEDION AG (Germany) 476,600 18,713
American Capital Strategies, Ltd. (USA) 600,000 14,916
Grasim Industries Ltd. (India) 951,284 13,860
Cleco Corp. (USA) 700,000 11,438
Warehouse Group Ltd. (New Zealand) 3,150,000 10,335
Perusahaan Perseroan (Persero) PT Indonesian Satellite 850,000 9,605
Corp. Tbk (ADR) (Indonesia)
Wilh. Wilhelmsen ASA, Class A (Norway) 399,800 8,403
Zebra Technologies Corp., Class A (USA)(1) 135,000 6,962
JCG Holdings Ltd. (Hong Kong) 7,990,000 5,726
Engineered Support Systems, Inc. (USA) 91,700 5,548
TECMO, Ltd. (Japan) 450,000 4,440
China Shipping Development Co. Ltd., Class H (China) 8,142,000 3,995
Wan Hai Lines Ltd. (Taiwan) 4,247,600 3,832
Maruti Udyog Ltd. (India) (1) 750,000 3,814
Hero Honda Motors Ltd. (India) 500,000 3,375
Cogent Communications, Inc., Series C, convertible preferred (USA) (1)(3)(4) 4,973,129 486
Cogent Communications, Inc., Series B, convertible preferred (1)(3)(4) 1,098,901 139
Multiplex, Inc., Series C, convertible preferred (USA) (1)(3)(4) 1,358,696 223
Miscellaneous - 4.99%
Other equity securities in initial period of acquisition 422,029
Total equity securities (cost: $6,604,536,000) 7,777,879
Principal Market
amount value
Short-term securities (000) (000)
Corporate short-term notes - 6.78%
Spintab AB (Swedmortgage) 1.06%-1.07% due 11/21-12/11/2003 $50,100 $50,002
BMW U.S. Capital Corp. 1.04% due 10/21/2003 50,000 49,970
Toyota Motor Credit Corp. 1.05% due 10/10-11/6/2003 (3) 50,000 49,967
Shell Finance (U.K.) 1.04% PLC due 11/7/2003 29,600 29,567
Shell Finance (U.K.) 1.01% PLC due 10/1/2003 (3) 20,400 20,399
American Honda Finance Corp. 1.03%-1.04% due 10/22-10/28/2003 50,000 49,963
Aventis S.A. 1.05%-1.07% due 10/20-12/5/2003 (3) 50,000 49,924
Rabobank Nederland NV 1.05% due 12/16/2003 50,000 49,887
Nestle Capital Corp 1.04% due 10/15/2003 (3) 28,600 28,587
Electricite de France 1.03% due 10/7/2003 25,000 24,995
Rio Tinto PLC 1.05%-1.06% due 10/7-10/8/2003 (3) 25,000 24,994
Dexia Delaware 1.04% LLC due 10/22/2003 25,000 24,984
Gaz de France 1.04% due 11/4/2003 25,000 24,975
Bank of Ireland 1.07% due 11/5/2003 (3) 25,000 24,973
Credit Lyonnais N.A. Inc. 1.04% due 10/16/2003 24,700 24,689
ANZ (Delaware) Inc. 1.01% due 10/6/2003 22,600 22,596
Stadshypotek Delaware Inc. 1.08% due 10/14/2003 (3) 22,500 22,491
Certificates of deposit - 0.89%
Royal Bank of Scotland PLC 1.07%-1.08% due 11/5-12/17/2003 50,000 50,000
Svenska Handelsbanken Inc. 1.07% due 11/26/2003 25,000 25,000
U.S. Treasuries - 0.49%
U.S. Treasury Bills 0.85%-0.935% due 10/9-11/20/2003 41,250 41,210
Total short-term securities (cost: $689,177,000) 689,173
Total investment securities (cost: $7,293,713,000) 8,467,052
New Taiwanese Dollar (cost: $4,244,000) NT$141,073 4,186
Other assets less liabilities (18,273)
Net assets $8,452,965
(1) Security did not produce income during the last 12 months.
(2) Represents an affiliated company as defined under the Investment Company
Act of 1940.
(3) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration.
(4) Valued under fair value procedures adopted by authority of the Board of
Directors.
(5) This security has been authorized but has not yet been issued.
ADR = American Depositary Receipts
PDR = Philippine 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
EQUITY SECURITIES APPEARING IN THE PORTFOLIO SINCE MARCH 31, 2003
Alkermes
American Mineral Fields
AMR
ASE Test
Ask Jeeves
Australian Worldwide Exploration
Autobytel
Axcelis Technologies
Bema Gold
Bharat Heavy Electricals
Binggrae
Borland Software
Brinks
Brocade Communications Systems
Brooks Automation
California Pizza Kitchen
Carpetright
Catalina Marketing
Cathay Bancorp
Cheng Shin Rubber (Xiamen) Ind.
China Insurance International Holdings
China Oilfield Services
China Shipping Development
Cie. Generale de Geophysique
Cleco
CNET Networks
Cochlear
Compass East Industry (Thailand)
CONSOL Energy
Container Corp. of India
Corrections Corporation of America
Documentum
Downer EDI
drugstore.com
EMI Group
Engineered Support Systems
Fairchild Semiconductor International
FelCor Lodging Trust
FindWhat.com
First Calgary Petroleums
GATX
Gladstone Commercial
Golden Land Property Development
Grasim Industries
Greene King
GWR Group
Hanil Cement
Hero Honda Motors
Hindalco Industries
Hughes Supply
ICN Pharmaceuticals
IHOP
IndyMac Bancorp
InfoSpace.com
InterOil
Interstate Bakeries
iPayment
Jack Henry & Associates
Jahwa Electronics
Kaulin Manufacturing
Kelly Services
Kenmare Resources
Korea Electric Terminal
Lawson Software
LG Insurance
LookSmart
Manhattan Associates
Maruti Udyog
Masonite International
MatrixOne
MGI PHARMA
Millennium Chemicals
Moatech
Moulin International Holdings
Nextel Partners
Nien Hsing Textile
Nokian Renkaat
Northern Orion Resources
O'Charley's
OPTI Canada
Owens-Illinois
Patina Oil & Gas
Penwest Pharmaceuticals
Portfolio Recovery Associates
QIAGEN
Quicksilver Resources
RealNetworks
Retek
Royal Group Technologies
Seco Tools
Sonic Healthcare
Southwest Bancorporation of Texas
Stanley Leisure
Straumann Holding
Tecan Group
Total Access Communication
TSX Group
TTM Technologies
United Rentals
Valassis Communications
Varian Semiconductor Equipment Associates
Wan Hai Lines
Warehouse Group
Wilh. Wilhelmsen
Zee Telefilms
EQUITY SECURITIES ELIMINATED FROM THE PORTFOLIO SINCE MARCH 31, 2003
Accton Technology
AFC Enterprises
Ameristar Casinos
Arthur J. Gallagher
Ashtead Group
Avigen
Bally Total Fitness Holding
Barnes & Noble
Bonavista Petroleum
Business Objects
Cadence Design Systems
Cadiz
Cairn Energy
Caliper Technologies
Career Education
Centerpulse
Cheil Communications
CIMA LABS
Claire's Stores
Continental Airlines
Cooper Companies
dELiA*s
Digitas
E-LOAN
Emmis Communications
Everlight Chemical Industrial
Fairmont Hotels & Resorts
Fidelity National Information Solutions
Fitness First
Genetronics Biomedical
Gray Television
Groupe
Gunnebo
Highpoint Telecommunications
ICON
Incisive Media
Integrated Production and Test Engineering
International Game Technology
Ivanhoe Energy
J.D. Edwards
Korea Gas
KOSE
Kyowa Exeo
Leefung-Asco Printers Holdings
LendingTree
Mandarin Oriental International
Melexis
Mercury Computer Systems
Microlife
M.I.M. Holdings
Neptune Orient Lines
NetRatings
Neurobiological Technologies
New Focus
Newhall Land and Farming
99 Cents Only Stores
Novus Petroleum
Oil Search
OM Group
OPNET Technologies
Overstock.com
Overture Services
Pacific Northwest Bancorp
Paladin Resources
Philadelphia Consolidated Holding
Pogo Producing
PT Indofood Sukses Makmur
Radio One
Reinsurance Group of America
Robert Walters
Scios
Sealed Air
SGL Carbon
Sindo Ricoh
Sixt
Software
Solutia
Sumitomo Forestry
SwitchCore
TECHNE
Test-Rite International
Texwinca Holdings
Transgenomic
Ubizen
UMB Financial
Urologix
Vail Resorts
Verisity
Village Roadshow
Western Gas Resources
Westwood One
YM BioSciences
Zenith National Insurance
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES at September 30, 2003
(dollars and shares in thousands, except per-share amounts)
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $5,862,992) $6,936,719
Affiliated issuers (cost: $1,430,721) 1,530,333 $8,467,052
Cash denominated in non-U.S. currencies
(cost: $4,244) 4,186
Cash 1,828
Receivables for:
Sales of investments 44,211
Sales of fund's shares 15,555
Dividends and interest 7,617 67,383
8,540,449
LIABILITIES:
Payables for:
Purchases of investments 64,433
Repurchases of fund's shares 10,797
Investment advisory services 4,735
Services provided by affiliates 2,800
Deferred Directors' compensation 643
Other fees and expenses 4,076 87,484
NET ASSETS AT SEPTEMBER 30, 2003 $8,452,965
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $9,720,727
Accumulated net investment loss (20,150)
Accumulated net realized loss (2,417,417)
Net unrealized appreciation 1,169,805
NET ASSETS AT SEPTEMBER 30, 2003 $8,452,965
TOTAL AUTHORIZED CAPITAL STOCK - 800,000 SHARES,$0.01 PAR VALUE
Shares Net asset
Net assets outstanding value per share
Class A $7,832,765 337,370 $23.22
Class B 201,222 8,905 22.60
Class C 124,337 5,517 22.54
Class F 56,950 2,459 23.16
Class 529-A 42,457 1,827 23.24
Class 529-B 10,214 446 22.88
Class 529-C 19,479 851 22.89
Class 529-E 2,636 114 23.09
Class 529-F 2,852 123 23.20
Class R-1 2,026 88 23.00
Class R-2 45,889 1,995 23.00
Class R-3 30,407 1,315 23.12
Class R-4 10,018 431 23.22
Class R-5 71,713 3,074 23.33
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $24.64 and
$24.66, respectively.
See Notes to Financial Statements
STATEMENT OF OPERATIONS for the year ended September 30, 2003
(dollars in thousands)
INVESTMENT INCOME:
Income:
Interest $9,415
Dividends (net of non-U.S. withholding
tax of $6,438; also includes
$11,736 from affiliates) 68,468 $77,883
Fees and expenses:
Investment advisory services 47,110
Distribution services 19,309
Transfer agent services 12,655
Administrative services 754
Reports to shareholders 571
Registration statement and prospectus 269
Postage, stationery and supplies 1,458
Directors' compensation 293
Auditing and legal 250
Custodian 1,550
State and local taxes 182
Other 124
Total expenses before reimbursement 84,525
Reimbursement of expenses 165 84,360
Net investment loss (6,477)
NET REALIZED LOSS AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized loss on:
Investments (including $232,441 (246,930)
net loss from affiliates)
Non-U.S. currency transactions (456) (247,386)
Net unrealized appreciation (depreciation) on:
Investments 2,282,537
Non-U.S. currency translations (3,455) 2,279,082
Net realized loss and
unrealized appreciation
on investments and non-U.S. currency 2,031,696
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,025,219
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended September 30
2003 2002
OPERATIONS:
Net investment loss $ (6,477) $ (27,698)
Net realized loss on investments and
non-U.S. currency transactions (247,386) (1,019,399)
Net unrealized appreciation
on investments and non-U.S. currency translations 2,279,082 682,878
Net increase (decrease) in net assets
resulting from operations 2,025,219 (364,219)
DIVIDENDS PAID TO SHAREHOLDERS - (14,969)
FROM NET INVESTMENT INCOME
CAPITAL SHARE TRANSACTIONS (136,746) (431,741)
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,888,473 (810,929)
NET ASSETS:
Beginning of year 6,564,492 7,375,421
End of year (including accumulated
net investment loss: $20,150 and $51,687,
respectively) $8,452,965 $6,564,492
See Notes to Financial Statements
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.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
- -------------------------------------------------------------------------------------------------------
Contingent deferred
Share class Initial sales sales charge upon
charge redemption Conversion feature
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for certain None
redemptions within one year
of purchase without an initial
sales charge)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero for Classes B and 529-B
redemptions within six years convert to classes A
of purchase and 529-A, respectively,
after eight years
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within one Class C converts to
year of purchase Class F after 10 years
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within one None
year of purchase
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Class 529-E None None None
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. Each share class has identical voting rights, except for the
exclusive right to vote on matters affecting only its class. Share classes have
different fees and expenses ("class-specific fees and expenses"), primarily due
to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official closing
price of, or 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. Prices for each security are taken from the principal
exchange or market in which the security trades. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates
market value. The ability of the issuers of the debt securities held by the
fund to meet their obligations may be affected by economic developments in
a specific industry, state or region. Forward currency contracts are valued
at the mean of their representative quoted bid and asked prices. Securities
and other assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith by authority
of the fund's Board of Directors.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are recorded by the fund as of the date the trades are executed with
brokers. Realized gains and losses from security transactions are
determined based on the specific identified cost of the securities. In the
event a security is purchased with a delayed payment date, the fund will
segregate liquid assets sufficient to meet its payment obligations.
Dividend income is recognized on the ex-dividend date and interest income
is recognized on an accrual basis. Market discounts, premiums and original
issue discounts on fixed-income securities are amortized daily over the
expected life of the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific
fees and expenses) and realized and unrealized gains and losses are
allocated daily among the various share classes based on their relative net
assets. Class-specific fees and expenses, such as distribution,
administrative and shareholder services, are charged directly to the
respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are translated
into U.S. dollars at the exchange rates in effect at the end of the
reporting period. Purchases and sales of investment securities and income
and expenses are translated into U.S. dollars at the exchange rates on the
dates of such transactions. In the accompanying financial statements, the
effects of changes in non-U.S. exchange rates on investment securities are
included with the net realized gain or loss and net unrealized appreciation
or depreciation on investments. The realized gain or loss and unrealized
appreciation or depreciation resulting from all other transactions
denominated in non-U.S. currencies are disclosed separately.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange non-U.S. currencies on
specific future dates at predetermined rates. The fund enters into these
contracts to manage its exposure to changes in non-U.S. exchange rates
arising from investments denominated in non-U.S. currencies. Upon entering
into these contracts, risks may arise from the potential inability of
counterparties to meet the terms of their contracts and from possible
movements in non-U.S. exchange rates. Due to these risks, the fund could
incur losses up to the entire contract amount, which may exceed the net
unrealized value shown in the accompanying financial statements. On a daily
basis, the fund values forward currency contracts based on the applicable
exchange rates and records unrealized gains or losses. The fund records
realized gains or losses at the time the forward contract is closed or
offset by another contract with the same broker for the same settlement
date and currency.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions;
revaluation of currencies; adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable investor
information; lack of liquidity; certain local tax law considerations; and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
Gains realized by the fund on the sale of securities in certain countries are
subject to non-U.S. taxes. The fund records a liability based on unrealized
gains to provide for potential non-U.S. taxes payable upon the sale of these
securities. For the year ended September 30, 2003, non-U.S. taxes paid on
realized gains were $17,000. As of September 30, 2003, non-U.S. taxes provided
on unrealized gains were $3,828,000.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses; capital
losses related to sales of securities within 30 days of purchase; unrealized
appreciation of certain investments in non-U.S. securities; deferred expenses;
cost of investments sold; net capital losses; and net operating losses. The
fiscal year in which amounts are distributed may differ from the year in which
the net investment income and net realized gains are recorded by the fund. As of
September, 30, 2003, the cost of investment securities and cash denominated in
non-U.S. currencies for federal income tax purposes was $7,328,776,000.
During the year ended September 30, 2003, the fund reclassified $15,000,000 from
additional paid-in capital and $23,014,000 from net realized gains to
undistributed net investment income to align financial reporting with tax
reporting.
As of September 30, 2003, the components of distributable earnings on a tax
basis were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $10,941
Loss deferrals related to non-U.S. currency that were
realized during the period November 1, 2002 through
September 30, 2003 (109)
Short-term and long-term capital loss deferrals (2,416,937)
Gross unrealized appreciation on investment securities 1,815,625
Gross unrealized depreciation on investment securities (673,163)
Short-term and long-term capital loss deferrals above include capital loss
carryforwards of $53,865,000, $1,186,404,000 and $1,122,269,000 expiring in
2009, 2010 and 2011, respectively. The capital loss carryforwards will be used
to offset any capital gains realized by the fund in future years through the
expiration dates. The fund will not make distributions from capital gains while
capital loss carryforwards remain. Also included are capital losses of
$54,399,000 that were realized during the period November 1, 2002 through
September 30, 2003.
No distributions were paid to shareholders during the year ended September 30,
2003. For the year ended September 30, 2002 distributions paid to shareholders
from net investment income and currency gains were $14,919,000 for Class A,
$6,000 for Class C and $44,000 for Class F, totaling $14,969,000 as shown in the
accompanying financial statements.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES -The Investment Advisory and Service Agreement with
CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.800% on the first $1 billion
of daily net assets and decreasing to 0.595% on such assets in excess of $27
billion. For the year ended September 30, 2003, the investment advisory services
fee was $47,110,000, which was equivalent to an annualized rate of 0.677% of
average daily net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for all
share classes, except Class R-5. Under the plans, the Board of Directors
approves certain categories of expenses that are used to finance activities
primarily intended to sell fund shares. The plans provide for annual
expenses, based on a percentage of average daily net assets, ranging from
0.30% to 1.00% as noted below. In some cases, the Board of Directors has
approved expense amounts lower than plan limits.
- ----------------------------------------------------------------------------
Share class Currently approved limits Plan limits
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Class A 0.30% 0.30%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Class 529-A 0.30 0.50
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Classes B and 529-B 1.00 1.00
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Classes C, 529-C and R-1 1.00 1.00
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Class R-2 0.75 1.00
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Classes 529-E and R-3 0.50 0.75
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Classes F, 529-F and R-4 0.25 0.50
- ----------------------------------------------------------------------------
All share classes may use up to 0.25% of average daily net assets to pay
service fees, or to compensate AFD for paying service fees, to firms that
have entered into agreements with AFD for providing certain shareholder
services. Expenses in excess of these amounts, up to approved limits, may
be used to compensate dealers and wholesalers for shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for certain
shares sold without a sales charge. Each class reimburses AFD for amounts
billed within the prior 15 months but only to the extent that the overall
annual expense limit of 0.30% is not exceeded. As of September 30, 2003,
there were no unreimbursed expenses subject to reimbursement for classes A
or 529-A.
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with AFS
for classes A and B. Under this agreement, these share classes compensate
AFS for transfer agent services including shareholder recordkeeping,
communications and transaction processing. AFS is also compensated for
certain transfer agent services provided to all other share classes from
the administrative services fees paid to CRMC described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services agreement
with CRMC to provide transfer agent and other related shareholder services
for all classes of shares other than classes A and B. Each relevant class
pays CRMC annual fees of 0.15% (0.10% for Class R-5) based on its
respective average daily net assets. Each relevant class also pays AFS
additional amounts for certain transfer agent services. CRMC and AFS may
use these fees to compensate third parties for performing these services.
During the start-up period for classes R-1, R-2, R-3 and R-4, CRMC has
voluntarily agreed to pay a portion of these fees. Each 529 share class is
subject to an additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica plan.
Although these amounts are included with administrative services fees in
the accompanying financial statements, the Commonwealth of Virginia is not
considered a related party. Administrative services fees are presented
gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended September
30, 2003, were as follows (dollars in thousands):
- --------------------------------------------------------------------------------------------------------------
Administrative services
------------------------------------------------------------
Commonwealth of
CRMC Virginia
Distribution Transfer agent administrative Transfer agent administrative
Share class services services services services services
- --------------------------------------------------------------------------------------------------------------
Class A $16,513 $12,328 Not applicable Not applicable Not applicable
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class B 1,457 327 Not applicable Not applicable Not applicable
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class C 799 Included $120 $63 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class F 88 Included 53 18 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class 529-A 21 Included 39 9 $26
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class 529-B 60 Included 9 6 6
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class 529-C 118 Included 18 9 12
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class 529-E 8 Included 2 1 1
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class 529-F 3 Included 2 -* 2
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class R-1 8 Included 1 4 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class R-2 149 Included 30 192 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class R-3 70 Included 21 40 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class R-4 15 Included 9 2 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 57 2 Not applicable
in
administrative
services
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Total $19,309 $12,655 $361 $346 $47
- ----------------==============================================================================================
* Amount less than one thousand.
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Directors' compensation in the accompanying financial statements
includes $186,000 in current fees (either paid in cash or deferred) and a net
increase of $107,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
YEAR ENDED SEPTEMBER 30, 2003
SALES(2) REINVESTMENTS OF DIVIDENDS
SHARE CLASS(1) AMOUNT SHARES AMOUNT SHARES
Class A $ 1,130,418 58,444 - -
Class B 62,773 3,257 - -
Class C 86,227 4,503 - -
Class F 48,187 2,475 - -
Class 529-A 19,948 1,027 - -
Class 529-B 5,233 272 - -
Class 529-C 9,480 494 - -
Class 529-E 1,507 79 - -
Class 529-F 2,385 124 - -
Class R-1 1,936 98 - -
Class R-2 43,636 2,264 - -
Class R-3 30,982 1,612 - -
Class R-4 11,864 641 - -
Class R-5 11,090 544 - -
Total net increase
(decrease) $ 1,465,666 75,834 - -
REPURCHASES(2) NET (DECREASE) INCREASE
SHARE CLASS(1) AMOUNT SHARES AMOUNT SHARES
Class A $(1,479,092) (79,492) $ (348,674) (21,048)
Class B (23,085) (1,233) 39,688 2,024
Class C (42,533) (2,269) 43,694 2,234
Class F (26,459) (1,397) 21,728 1,078
Class 529-A (1,191) (64) 18,757 963
Class 529-B (178) (10) 5,055 262
Class 529-C (419) (22) 9,061 472
Class 529-E (75) (3) 1,432 76
Class 529-F (27) (1) 2,358 123
Class R-1 (211) (11) 1,725 87
Class R-2 (7,789) (404) 35,847 1,860
Class R-3 (8,304) (433) 22,678 1,179
Class R-4 (3,997) (211) 7,867 430
Class R-5 (9,052) (467) 2,038 77
Total net increase
(decrease) $(1,602,412) (86,017) $ (136,746) (10,183)
YEAR ENDED SEPTEMBER 30, 2002
SALES(2) REINVESTMENTS OF DIVIDENDS
SHARE CLASS(1) AMOUNT SHARES AMOUNT SHARES
Class A $ 1,421,738 66,536 $ 14,140 631
Class B 67,429 3,183 - -
Class C 83,268 4,003 6 - *
Class F 46,726 2,199 38 2
Class 529-A 18,779 875 - -
Class 529-B 3,915 185 - -
Class 529-C 8,196 384 - -
Class 529-E 798 38 - -
Class 529-F 1 - * - -
Class R-1 21 1 - -
Class R-2 2,903 157 - -
Class R-3 2,790 154 - -
Class R-4 14 1 - -
Class R-5 70,305 3,177 - -
Total net increase
(decrease) $ 1,726,883 80,893 $ 14,184 633
REPURCHASES(2) NET (DECREASE) INCREASE
SHARE CLASS(1) AMOUNT SHARES AMOUNT SHARES
Class A $(2,088,680) (98,892) $ (652,802) (31,725)
Class B (20,798) (1,007) 46,631 2,176
Class C (32,956) (1,644) 50,318 2,359
Class F (25,762) (1,219) 21,002 982
Class 529-A (214) (11) 18,565 864
Class 529-B (16) (1) 3,899 184
Class 529-C (94) (5) 8,102 379
Class 529-E - * - * 798 38
Class 529-F - - 1 - *
Class R-1 - * - * 21 1
Class R-2 (390) (22) 2,513 135
Class R-3 (328) (18) 2,462 136
Class R-4 - - 14 1
Class R-5 (3,570) (180) 66,735 2,997
Total net increase
(decrease) $(2,172,808) (102,999) $ (431,741) (21,473)
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
(2) Includes exchanges between share classes of the fund.
6. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of September 30, 2003, the total
value of restricted securities was $286,529,000, which represented 3.39% of the
net assets of the fund.
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $3,135,162,000 and $3,437,624,000 respectively, during the year
ended September 30, 2003.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended September 30, 2003, the custodian fee of $1,550,000 included $9,000
that was offset by this reduction, rather than paid in cash.
8. TRANSACTIONS WITH AFFILIATES
If the fund's holdings of an issuer represent 5% or more of the outstanding
voting securities of the issuer, that issuer is considered to be an affiliated
issuer, as defined under the Investment Company Act of 1940. A summary of the
fund's transactions in the securities of affiliated issuers during the year
ended September 30, 2003 is as follows:
Market
Value of
Dividend Affiliates
Beginning Ending Income at 9/30/03
Company Shares Purchases Sales Shares (000) (000)
Aldata Solution(1) 4,237,300 - 4,237,300 - $ - $ -
Alphameric(1) 6,625,000 - 6,625,000 - - -
alphyra group(1) 1,848,200 - 1,848,200 - - -
American Healthways 900,000 90,000 140,000 850,000 - 35,691
Anoto Group 9,934,866 1,655,811 4,967,433 6,623,244 - 7,602
ASM International 2,746,800 372,300 - 3,119,100 - 46,007
Aspect Medical Systems(1) 1,137,000 - 575,000 562,000 - -
Baycorp Advantage 13,892,100 - - 13,892,100 - 21,567
BKN International(1) 500,000 - 255,800 244,200 - -
Cadiz(1) 2,300,000 - 2,300,000 - - -
Cafe de Coral Holdings 28,192,000 - - 28,192,000 882 25,847
Cambrex 1,300,000 - - 1,300,000 156 29,510
Cathay Bancorp - 1,015,000 - 1,015,000 190 44,914
Centene(1) 650,000 362,500 200,000 812,500 - -
Cheil Communications(1) 298,000 - 298,000 - 416 -
Clear Media 24,950,000 7,629,000 - 32,579,000 - 18,826
Creo 1,000,000 1,916,000 - 2,916,000 - 30,730
Cymer 400,000 1,700,000 100,000 2,000,000 - 82,400
Daelim Industrial(1) 2,425,000 256,640 1,145,000 1,536,640 1,058 -
dELiA*s(1) 2,750,000 - 2,750,000 - - -
Downer EDI - 51,045,208 - 51,045,208 718 30,238
EarthLink(1) 7,531,700 1,000,000 6,954,400 1,577,300 - -
Education Management(1) 1,825,000 75,000 400,000 1,500,000 - -
Ekornes 2,230,000 - 504,402 1,725,598 1,283 27,693
E-LOAN(1) - 3,160,850 3,160,850 - - -
Extended Stay America 6,190,000 - - 6,190,000 - 92,417
First Quantum Minerals(1) 2,540,000 - - 2,540,000 - -
Fitness First(1) 6,662,500 850,000 7,512,500 - - -
Gabriel Resources(1) 6,160,000 - - 6,160,000 - -
Gladstone Commercial - 428,000 - 428,000 - 6,313
Hana Microelectronics(1) 8,649,400 - 3,658,000 4,991,400 758 -
Hanil Cement - 447,000 - 447,000 - 18,924
Hilb, Rogal and Hamilton(1) 1,780,000 150,000 1,575,000 355,000 497 -
HiQ International(1) 2,415,500 - 2,415,500 - - -
Hutchinson Technology - 1,300,000 - 1,300,000 - 43,030
Hyosung 1,720,000 368,200 315,000 1,773,200 119 16,682
Imagistics International(1) 1,001,100 - 305,000 696,100 - -
Informatics Holdings 16,065,000 - - 16,065,000 107 7,148
InfoSpace.com - 2,005,000 - 2,005,000 - 40,922
Infoteria 2,672 - - 2,672 - 1,497
Integrated Defense Technologies(1) 996,300 - 996,300 - - -
International Energy Group 4,640,000 - - 4,640,000 396 11,950
Internet Auction(1) 677,443 - 277,443 400,000 - -
J D Wetherspoon 11,385,616 1,024,763 1,765,655 10,644,724 211 40,754
KEC 391,040 132,500 - 523,540 521 16,919
Kingboard Chemical Holdings 35,042,000 2,392,000 - 37,434,000 414 37,561
LG Insurance - 3,000,000 - 3,000,000 - 12,413
Lions Gate Entertainment 2,803,500 1,000,000 - 3,803,500 - 11,317
LTG Technologies 17,785,714 - - 17,785,714 - 2,308
Lumenis 2,270,000 - - 2,270,000 - 3,042
Mandarin Oriental International(1) 53,000,000 - 53,000,000 - - -
MatrixOne 1,500,000 2,500,000 1,500,000 2,500,000 - 12,325
Mercury Computer Systems(1) 1,435,700 - 1,435,700 - - -
Micrel 1,750,000 3,017,112 - 4,767,112 - 58,111
Micronic Laser Systems 1,319,476 1,319,476 - 2,638,952 - 18,888
Millennium Chemicals - 3,995,000 - 3,995,000 148 38,152
Muse Prime Software 1,770,000 - - 1,770,000 - 230
Navan Mining 13,800,000 - - 13,800,000 - -
OPNET Technologies(1) 1,045,500 - 1,045,500 - - -
O2Micro International(1) 2,150,000 911,700 1,302,200 1,759,500 - -
Paladin Resources(1) 16,083,990 4,026,693 20,110,683 - 317 -
PDF Solutions - 2,100,000 600,000 1,500,000 - 16,875
Performance Food Group 2,920,000 15,000 - 2,935,000 - 119,484
P4 Radio Hele Norge(1) 1,648,000 - 1,648,000 - - -
Province Healthcare(1) 3,095,000 - 3,095,000 - - -
PSD Group(1) 1,628,000 - 1,628,000 - - -
Pusan Bank 3,690,000 5,830,500 - 9,520,500 982 45,446
Q-Med 1,610,000 - - 1,610,000 - 29,691
Recordati 2,256,000 396,000 - 2,652,000 918 45,796
Redenvelope(1) 3,543,805 257,665 3,543,805 257,665 - -
Robert Walters(1) 5,000,000 - 5,000,000 - 169 -
Rogers 956,800 - 100,000 856,800 - 26,578
Sanctuary Group 19,470,839 - - 19,470,839 108 15,528
SBS Broadcasting 1,800,000 - - 1,800,000 - 44,784
School Specialty 1,080,000 50,000 - 1,130,000 - 31,877
Semtech1 1,350,000 2,800,000 2,150,000 2,000,000 - -
Sharper Image 775,000 175,000 - 950,000 - 21,907
S1 1,670,000 420,000 - 2,090,000 254 40,507
Steak n Shake(1) 1,699,150 - 674,400 1,024,750 - -
Sylvan Learning Systems 2,620,000 129,516 160,000 2,589,516 - 70,642
Techem AG 1,567,335 35,965 190,000 1,413,300 - 24,356
Telelogic(1) 12,452,500 - 12,452,500 - - -
Transgenomic(1) 1,525,000 - 1,525,000 - - -
Urologix(1) 900,000 - 900,000 - - -
Venture Production 6,021,600 478,400 - 6,500,000 - 14,256
Western Oil Sands(1) 3,278,333 - 1,958,333 1,320,000 - -
Woongjin.com(1) 1,956,980 - 891,830 1,065,150 170 -
Xinao Gas Holdings 37,300,000 - - 37,300,000 - 17,581
Yankee Candle 800,000 1,969,600 - 2,769,600 - 70,569
Zeevo 1,587,301 398,564 - 1,985,865 5 1,320
Zenith National Insurance(1) 1,050,000 165,000 1,215,000 - 939 -
ZOOTS 12,582,994 3,919 - 12,586,913 - 1,208
$11,736 $1,530,333
(1) Unaffiliated issuer at 09/30/2003
FINANCIAL HIGHLIGHTS (1)
Income (loss) from investment operations(2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period (loss) income and unrealized) operations
CLASS A:
Year ended 9/30/2003 $17.53 $(.01) $5.70 $5.69
Year ended 9/30/2002 18.62 (.07) (.98) (1.05)
Year ended 9/30/2001 40.24 - (3) (16.33) (16.33)
Year ended 9/30/2000 29.57 - (3) 11.29 11.29
Year ended 9/30/1999 22.14 .03 8.78 8.81
CLASS B:
Year ended 9/30/2003 17.20 (.16) 5.56 5.40
Year ended 9/30/2002 18.38 (.23) (.95) (1.18)
Year ended 9/30/2001 40.08 (.21) (16.20) (16.41)
Period from 3/15/2000 to 9/30/2000 47.11 (.12) (6.91) (7.03)
CLASS C:
Year ended 9/30/2003 17.15 (.16) 5.55 5.39
Year ended 9/30/2002 18.33 (.22) (.95) (1.17)
Period from 3/15/2001 to 9/30/2001 23.06 (.16) (4.57) (4.73)
CLASS F:
Year ended 9/30/2003 17.48 (.01) 5.69 5.68
Year ended 9/30/2002 18.60 (.07) (.98) (1.05)
Period from 3/15/2001 to 9/30/2001 23.27 (.03) (4.64) (4.67)
CLASS 529-A:
Year ended 9/30/2003 17.53 .01 5.70 5.71
Period from 2/19/2002 to 9/30/2002 21.68 (.03) (4.12) (4.15)
CLASS 529-B:
Year ended 9/30/2003 17.43 (.19) 5.64 5.45
Period from 2/20/2002 to 9/30/2002 21.82 (.14) (4.25) (4.39)
CLASS 529-C:
Year ended 9/30/2003 17.44 (.18) 5.63 5.45
Period from 2/20/2002 to 9/30/2002 21.82 (.14) (4.24) (4.38)
CLASS 529-E:
Year ended 9/30/2003 17.50 (.07) 5.66 5.59
Period from 3/15/2002 to 9/30/2002 23.21 (.06) (5.65) (5.71)
CLASS 529-F:
Year ended 9/30/2003 17.53 (.02) 5.69 5.67
Period from 9/17/2002 to 9/30/2002 18.24 - (3) (.71) (.71)
CLASS R-1:
Year ended 9/30/2003 17.49 (.16) 5.67 5.51
Period from 6/19/2002 to 9/30/2002 21.60 (.04) (4.07) (4.11)
CLASS R-2:
Year ended 9/30/2003 17.49 (.15) 5.66 5.51
Period from 5/31/2002 to 9/30/2002 22.62 (.05) (5.08) (5.13)
CLASS R-3:
Year ended 9/30/2003 17.51 (.07) 5.68 5.61
Period from 6/20/2002 to 9/30/2002 21.43 (.02) (3.90) (3.92)
CLASS R-4:
Year ended 9/30/2003 17.53 - (3) 5.69 5.69
Period from 7/24/2002 to 9/30/2002 18.55 (.01) (1.01) (1.02)
CLASS R-5:
Year ended 9/30/2003 17.55 .05 5.73 5.78
Period from 5/15/2002 to 9/30/2002 23.36 - (3) (5.81) (5.81)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end Total
income) gains) distributions of period return(4)
CLASS A:
Year ended 9/30/2003 $ - $ - $ - $23.22 32.46%
Year ended 9/30/2002 (.04) - (.04) 17.53 (5.69)
Year ended 9/30/2001 - (5.29) (5.29) 18.62 (44.95)
Year ended 9/30/2000 (.02) (.60) (.62) 40.24 38.42
Year ended 9/30/1999 (.09) (1.29) (1.38) 29.57 41.42
CLASS B:
Year ended 9/30/2003 - - - 22.60 31.40
Year ended 9/30/2002 - - - 17.20 (6.42)
Year ended 9/30/2001 - (5.29) (5.29) 18.38 (45.38)
Period from 3/15/2000 to 9/30/2000 - - - 40.08 (14.92)
CLASS C:
Year ended 9/30/2003 - - - 22.54 31.43
Year ended 9/30/2002 (.01) - (.01) 17.15 (6.42)
Period from 3/15/2001 to 9/30/2001 - - - 18.33 (20.51)
CLASS F:
Year ended 9/30/2003 - - - 23.16 32.49
Year ended 9/30/2002 (.07) - (.07) 17.48 (5.73)
Period from 3/15/2001 to 9/30/2001 - - - 18.60 (20.07)
CLASS 529-A:
Year ended 9/30/2003 - - - 23.24 32.57
Period from 2/19/2002 to 9/30/2002 - - - 17.53 (19.14)
CLASS 529-B:
Year ended 9/30/2003 - - - 22.88 31.27
Period from 2/20/2002 to 9/30/2002 - - - 17.43 (20.12)
CLASS 529-C:
Year ended 9/30/2003 - - - 22.89 31.25
Period from 2/20/2002 to 9/30/2002 - - - 17.44 (20.07)
CLASS 529-E:
Year ended 9/30/2003 - - - 23.09 31.94
Period from 3/15/2002 to 9/30/2002 - - - 17.50 (24.60)
CLASS 529-F:
Year ended 9/30/2003 - - - 23.20 32.34
Period from 9/17/2002 to 9/30/2002 - - - 17.53 (3.89)
CLASS R-1:
Year ended 9/30/2003 - - - 23.00 31.50
Period from 6/19/2002 to 9/30/2002 - - - 17.49 (19.03)
CLASS R-2:
Year ended 9/30/2003 - - - 23.00 31.50
Period from 5/31/2002 to 9/30/2002 - - - 17.49 (22.68)
CLASS R-3:
Year ended 9/30/2003 - - - 23.12 32.04
Period from 6/20/2002 to 9/30/2002 - - - 17.51 (18.29)
CLASS R-4:
Year ended 9/30/2003 - - - 23.22 32.46
Period from 7/24/2002 to 9/30/2002 - - - 17.53 (5.50)
CLASS R-5:
Year ended 9/30/2003 - - - 23.33 32.93
Period from 5/15/2002 to 9/30/2002 - - - 17.55 (24.87)
Ratio of Ratio of net
Net assets, expenses (loss) income
end of period to average to average
(in millions) net assets net assets
CLASS A:
Year ended 9/30/2003 $7,833 1.19% (.07)%
Year ended 9/30/2002 6,283 1.17 (.32)
Year ended 9/30/2001 7,265 1.09 (.01)
Year ended 9/30/2000 14,098 1.10 - (8)
Year ended 9/30/1999 8,983 1.09 .12
CLASS B:
Year ended 9/30/2003 201 1.97 (.85)
Year ended 9/30/2002 118 1.95 (1.09)
Year ended 9/30/2001 86 1.89 (.81)
Period from 3/15/2000 to 9/30/2000 73 1.84 (6) (.57) (6)
CLASS C:
Year ended 9/30/2003 124 1.97 (.85)
Year ended 9/30/2002 56 1.96 (1.08)
Period from 3/15/2001 to 9/30/2001 17 2.11 (6) (1.11) (6)
CLASS F:
Year ended 9/30/2003 57 1.18 (.06)
Year ended 9/30/2002 24 1.20 (.32)
Period from 3/15/2001 to 9/30/2001 7 1.23 (6) (.21) (6)
CLASS 529-A:
Year ended 9/30/2003 42 1.11 .03
Period from 2/19/2002 to 9/30/2002 15 1.18 (6) (.25) (6)
CLASS 529-B:
Year ended 9/30/2003 10 2.09 (.95)
Period from 2/20/2002 to 9/30/2002 3 2.08 (6) (1.15) (6)
CLASS 529-C:
Year ended 9/30/2003 20 2.07 (.94)
Period from 2/20/2002 to 9/30/2002 7 2.05 (6) (1.12) (6)
CLASS 529-E:
Year ended 9/30/2003 3 1.53 (.38)
Period from 3/15/2002 to 9/30/2002 1 1.51 (6) (.60) (6)
CLASS 529-F:
Year ended 9/30/2003 3 1.27 (.10)
Period from 9/17/2002 to 9/30/2002 - (5) .04 .01
CLASS R-1:
Year ended 9/30/2003 2 1.93 (7) (.78)
Period from 6/19/2002 to 9/30/2002 - (5) .54 (7) (.22)
CLASS R-2:
Year ended 9/30/2003 46 1.89 (7) (.75)
Period from 5/31/2002 to 9/30/2002 2 .63 (7) (.29)
CLASS R-3:
Year ended 9/30/2003 30 1.51 (7) (.37)
Period from 6/20/2002 to 9/30/2002 2 .42 (7) (.11)
CLASS R-4:
Year ended 9/30/2003 10 1.16 (7) (.02)
Period from 7/24/2002 to 9/30/2002 - (5) .21 (7) (.03)
CLASS R-5:
Year ended 9/30/2003 72 .83 .28
Period from 5/15/2002 to 9/30/2002 53 .31 .01
Year ended September 30
2003 2002 2001 2000 1999
Portfolio turnover rate for all classes of shares 49% 51% 60% 63% 50%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are based on average shares outstanding.
(3) Amount less than one cent.
(4) Total returns exclude all sales charges, including contingent deferred
sales charges.
(5) Amount less than 1 million.
(6) Annualized.
(7) During the start-up period for this class, CRMC voluntarily agreed to pay a
portion of the fees relating to transfer agent services. Had CRMC not paid
such fees, expense ratios would have been 2.43%, 2.59%, 1.67% and 1.17% for
classes R-1, R-2, R-3 and R-4, respectively during the year ended September
30, 2003, and 7.56%, .85%, .52% and .70% for class R-1, R-2, R-3, and R-4,
respectively, during the period ended September 30, 2002.
(8) Amount less than .01 percent.
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, 2003, 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 financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights 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 as of September 30, 2003, 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 financial highlights referred to
above present fairly, in all material respects, the financial position of
SMALLCAP World Fund, Inc. as of September 30, 2003, 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 financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 7, 2003
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 certain distributions received by
shareholders during such fiscal year. No distributions were made by the fund
during the last fiscal year.
SINCE THE INFORMATION ABOVE IS 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 2004 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2003 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
OTHER SHARE CLASS RESULTS (unaudited)
CLASS B, CLASS C, CLASS F AND CLASS 529
RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003 1 YEAR LIFE OF CLASS
CLASS B SHARES
Reflecting applicable contingent deferred sales
charge (CDSC), maximum of 5%, payable only
if shares are sold within six years of purchase +26.40% -15.22% (1)
Not reflecting CDSC +31.40% -14.60% (1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase +30.43% - 0.88% (2)
Not reflecting CDSC +31.43% - 0.88% (2)
CLASS F SHARES (3)
Not reflecting annual asset-based fee charged
by sponsoring firm +32.49% - 0.07% (2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge +24.95% + 0.65% (4)
Not reflecting maximum sales charge +32.57% + 4.41% (4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +26.27% + 0.53% (5)
Not reflecting CDSC +31.27% + 2.99% (5)
CLASS 529-C SHARES
Reflecting applicable CDSC, maximum of 1%, payable
only if shares are sold within one year of purchase +30.25% + 3.02% (5)
Not reflecting CDSC +31.25% + 3.02% (5)
CLASS 529-E SHARES (3) +31.94% - 0.33% (6)
CLASS 529-F SHARES (3)
Not reflecting annual asset-based fee charged by
sponsoring firm +32.34% +26.15% (7)
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent sales charge.
(4) Average annual total return from February 19, 2002, when Class 529-A shares
were first sold.
(5) Average annual total return from February 20, 2002, when Class 529-B and
Class 529-C shares were first sold.
(6) Average annual total return from March 15, 2002, when Class 529-E shares
were first sold.
(7) Average annual total return from September 17, 2002, when Class 529-F
shares were first sold.
BOARD OF DIRECTORS
"Non-interested" Directors
YEAR FIRST
ELECTED
A DIRECTOR
NAME AND AGE OF THE FUND (1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
JOSEPH C. BERENATO, 57 2000 Chairman of the Board and CEO, Ducommun Incorporated
AMBASSADOR RICHARD G. 1993 Corporate director and author; former U.S. Ambassador
CAPEN, JR., 69 to Spain; former Vice Chairman, Knight-Ridder, Inc.;
former Chairman and Publisher, The Miami Herald
H. FREDERICK CHRISTIE, 70 1990 Private investor; former President and CEO, The Mission Group
(non-utility holding company, subsidiary of Southern
California Edison Company)
JOHN G. FREUND, 50 2000 Founder and Managing Director, Skyline Ventures; former
Managing Director -- Alternative Asset Management Group,
Chancellor Capital Management
LEONADE D. JONES, 56 1995 Co-founder, VentureThink LLC (developed and managed
e-commerce businesses) and Versura Inc. (education loan
exchange); former Treasurer, The Washington Post Company
WILLIAM H. KLING, 61 1990 President, American Public Media Group
NORMAN R. WELDON, 69 1990 Managing Director, Partisan Management Group, Inc.;
former Chairman of the Board, Novoste Corporation;
former President and Director, Corvita Corporation
PATRICIA K. WOOLF, PH.D., 69 1990 Private investor; corporate director; lecturer,
Department of Molecular Biology, Princeton University
"Non-interested" Directors
NUMBER OF
BOARDS WITHIN THE
FUND COMPLEX (2)
ON WHICH
NAME AND AGE DIRECTOR SERVES OTHER DIRECTORSHIPS (3) HELD BY DIRECTOR
JOSEPH C. BERENATO, 57 2 Ducommun Incorporated
AMBASSADOR RICHARD G. 14 Carnival Corporation
CAPEN, JR., 69
H. FREDERICK CHRISTIE, 70 19 Ducommun Incorporated; IHOP Corporation; Southwest
Water Company; Valero L.P.
JOHN G. FREUND, 50 2 None
LEONADE D. JONES, 56 6 None
WILLIAM H. KLING, 61 6 Irwin Financial Corporation; St. Paul Companies
NORMAN R. WELDON, 69 3 Novoste Corporation
PATRICIA K. WOOLF, PH.D., 69 6 Crompton Corporation; First Energy Corporation;
National Life Holding Co.
"Interested" Directors (4)
YEAR FIRST
ELECTED A
DIRECTOR OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
NAME, AGE AND OFFICER OF POSITIONS HELD WITH AFFILIATED ENTITIES OR THE PRINCIPAL
POSITION WITH FUND THE FUND (1) UNDERWRITER OF THE FUND
GORDON CRAWFORD, 56 1992 Senior Vice President and Director, Capital
Chairman of the Board Research and Management Company;
Director, The Capital Group Companies, Inc. (5)
GREGORY W. WENDT, 42 1992 Senior Vice President, Capital Research Company (5);
President Director, American Funds Distributors, Inc. (5);
Director, Capital Management Services, Inc. (5)
"Interested" Directors (4)
NUMBER OF
BOARDS WITHIN THE
FUND COMPLEX (2)
NAME, AGE AND ON WHICH OTHER DIRECTORSHIPS (3)
POSITION WITH FUND DIRECTOR SERVES HELD BY DIRECTOr
GORDON CRAWFORD, 56 2 None
Chairman of the Board
GREGORY W. WENDT, 42 1 None
President
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series(R) and Anchor Pathway Fund, which
serve as the underlying investment vehicles for certain variable insurance
contracts; and Endowments, whose shareholders are limited to certain
nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company.
OTHER OFFICERS
YEAR FIRST
ELECTED AN PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
NAME, AGE AND OFFICER OF POSITIONS HELD WITH AFFILIATED ENTITIES OR THE PRINCIPAL
POSITION WITH FUND THE FUND (1) UNDERWRITER OF THE FUND
GRANT L. CAMBRIDGE, 41 2001 Vice President, Capital Research Company (5)
Vice President
VINCENT P. CORTI, 47 1990 Vice President-- Fund Business Management
Vice President Group, Capital Research and Management Company
J. BLAIR FRANK, 37 1999 Vice President, Capital Research Company (5)
Vice President
JONATHAN O. KNOWLES, 42 2000 Executive Vice President and Director, Capital
Vice President Research Company (5)
CHAD L. NORTON, 43 1990 Vice President-- Fund Business Management
Secretary Group, Capital Research and Management Company
DAVID A. PRITCHETT, 37 1999 Vice President-- Fund Business Management
Treasurer Group, Capital Research and Management Company
SHERYL F. JOHNSON, 35 1998 Vice President-- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065 Santa Ana, CA 92799-5065
P.O. Box 659522 San Antonio, TX 78265-9522
P.O. Box 6007 Indianapolis, IN 46206-6007
P.O. Box 2280 Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02105-1713
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in SMALLCAP World Fund. Class A shares are
subject to a 5.75% maximum up-front sales charge that declines for accounts (and
aggregated investments) of $25,000 or more. Other share classes, which are
generally not available for certain employer-sponsored retirement plans, have no
up-front sales charges but are subject to additional annual expenses and fees.
Annual expenses for Class B shares were 0.78 percentage points higher than for
Class A shares; Class B shares convert to Class A shares after eight years of
ownership. If redeemed within six years, Class B shares may also be subject to a
contingent deferred sales charge ("CDSC") of up to 5% that declines over time.
Class C shares were subject to annual expenses 0.78 percentage points higher
than those for Class A shares and a 1% CDSC if redeemed within the first year
after purchase. Class C shares convert to Class F shares after 10 years. Class F
shares, which are available only through certain fee-based programs offered by
broker-dealer firms and registered investment advisers, had lower annual
expenses (by 0.01 percentage points) than did Class A shares, and an annual
asset-based fee charged by the sponsoring firm. Expenses are deducted from
income earned by the fund. As a result, dividends and investment results will
differ for each share class.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A
PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL ADVISER.
YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT US AT
AMERICANFUNDS.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
THE AMERICAN FUNDS PROXY VOTING GUIDELINES -- USED TO DETERMINE HOW TO VOTE
PROXIES RELATING TO PORTFOLIO SECURITIES -- ARE AVAILABLE UPON REQUEST, FREE OF
CHARGE, BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS
WEBSITE OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT
WWW.SEC.GOV.
This report is for the information of shareholders of SMALLCAP World Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
December 31, 2003, this report must be accompanied by an American Funds
statistical update for the most recently completed calendar quarter.
[ logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 20 million shareholder accounts.
Our unique combination of strengths includes these five factors:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time, this method has contributed to a consistency of results and
continuity of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World FundSM
SMALLCAP WORLD FUND(R)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income FundSM
Fundamental InvestorsSM
The Investment Company of America(R)
Washington Mutual Investors FundSM
o EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
American High-Income TrustSM
The Bond Fund of AmericaSM
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities FundSM
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of AmericaSM
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of AmericaSM
The U.S. Treasury Money Fund of AmericaSM
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-935-1103
Litho in USA BDC/L/8067
Printed on recycled paper
ITEM 2 - Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, 333 South Hope Street, Los
Angeles, California 90071.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that Joseph C. Berenato, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Form N-CSR disclosure requirement not yet effective with respect to Registrant.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Reserved
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), that such controls and procedures
are adequate and reasonably designed to achieve the purposes described in
paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SMALLCAP World Fund, Inc.
By: /s/ Gordon Crawford
----------------------------------
Gordon Crawford, Chairman and PEO
Date: December 8, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Gordon Crawford
----------------------------------
Gordon Crawford, Chairman and PEO
Date: December 8, 2003
By: /s/ David A. Pritchett
----------------------------------
David A. Pritchett, Treasurer
Date: December 8, 2003