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: 811-04692
Emerging Markets Growth Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, California 90025
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (310) 996-6000
Date of fiscal year end: June 30
Date of reporting period: June 30, 2009
Nelson N. Lee
Capital International, Inc.
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, California 90025
(Name and Address of Agent for Service)
Copies to:
Rob Helm, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
(Counsel for the Registrant)
ITEM 1 – Reports to Stockholders
[logo - Capital InternationalSM]
Emerging Markets Growth FundSM
Seeks long-term growth of capital by investing in companies operating in developing countries around the world
[cover: global map]
Annual report for the year ended June 30, 2009
Dear shareholders:
Emerging markets stocks sustained double-digit losses over a fiscal year marked by substantial volatility in global markets and a dramatic slide in world economic growth. Stocks tumbled from July through October as the failure of a major financial institution in the U.S. and the government-brokered rescue of several other financial groups shook investor confidence. Equities showed tentative signs of recovery in late 2008 only to slip again in January and February.
Markets rallied sharply in March through May as fiscal stimulus measures began to take effect, central banks lowered interest rates and a U.S. government survey indicated that major global banks were healthier than expected. But in spite of these gains, the net asset value of the Emerging Markets Growth Fund declined 23% for the one-year period ended June 30, 2009, with distributions reinvested, compared with a 27% loss for its benchmark, the MSCI Emerging Markets Investable Market Index (IMI).
Market review
The financial system’s severe breakdown hobbled the flow of credit, dampened trade and ruptured short-term money markets. Although the U.S. was the epicenter of the crisis, no market was unscathed. While in better economic shape than developed markets on the whole, emerging markets experienced steep declines in the second half of 2008 as investors withdrew from riskier assets across the board. Most currencies depreciated against the U.S. dollar, further diminishing returns for dollar-based investors. Central and Eastern European currencies in particular were affected, along with those of several commodity-heavy markets.
[Begin Sidebar]
EMGF total returns vs. MSCI Emerging | ||||||||||||||||
Markets Index (stacked)* | ||||||||||||||||
for periods ended 6/30/09 (with distributions reinvested) | ||||||||||||||||
Emerging | MSCI | |||||||||||||||
Markets | Emerging | |||||||||||||||
Growth Fund | Markets | |||||||||||||||
(EMGF) | Annualized | Index* | Annualized | |||||||||||||
12 months | –23.1 | % | — | –26.9 | % | — | ||||||||||
3 years | 21.4 | 6.7 | % | 9.7 | 3.1 | % | ||||||||||
5 years | 124.9 | 17.6 | 99.8 | 14.8 | ||||||||||||
10 years | 158.2 | 9.9 | 132.6 | 8.8 | ||||||||||||
Lifetime | 3,318.1 | 16.5 | 1,212.6 | † | 11.8 | † | ||||||||||
(since 5/30/86) | ||||||||||||||||
*Returns for the MSCI Emerging Markets Index (stacked) were calculated using the MSCI Emerging Markets Index with gross dividends from December 31, 1987 to December 31, 2000, and with net dividends from January 1, 2001 to November 30, 2007, and using the MSCI Emerging Markets Investable Market Index (IMI) with net dividends thereafter. The indices are unmanaged and do not reflect the effect of sales charges, commissions or expenses. | ||||||||||||||||
† The MSCI Emerging Markets Index did not start until December 31, 1987. As a result, the IFC Global Composite Index was used in lieu of the MSCI Emerging Markets Index from May 30, 1986 to December 31, 1987. |
[End Sidebar]
Policymakers’ responses to the financial market crisis were swift and aggressive. Governments pumped nearly $2 trillion into economies worldwide by the end of 2008 and central banks slashed interest rates in a series of coordinated actions. The International Monetary Fund (IMF) provided billions of dollars in aid to economies in need, extended flexible credit lines to several countries in Latin America and Eastern Europe and relaxed loan conditions for Eastern and Central European nations. Emerging markets economies slowed and exports continued to slump through the beginning of the year, particularly in Asia, but several domestic economies showed signs of life in May and June as stimulus measures gained traction. After plunging 55% from the end of June 2008 to early March 2009, the MSCI EM IMI rebounded by more than 60% in less than four months.
Percentage changes for markets and sectors are based on the MSCI EM IMI, with net dividends reinvested, and are for the period ended June 30, 2009, unless otherwise noted. All returns and stock prices are reflected in U.S. dollars, unless otherwise noted.
Fund results shown in this report are for past periods and are not predictive of results for future periods. The results shown are before taxes on fund distributions and sale of fund shares. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors 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, so they may lose value. For current information and month-end results, please call 800/421-0180, ext. 96245. Investing outside the United States, especially in developing markets, may be subject to additional risks, such as currency and price fluctuations, political instability, differing securities regulations and periods of illiquidity, which are detailed in the fund’s prospectus.
The sell-off was broad in scope, with most markets and all sectors registering declines. Energy and materials stocks slid the most, with heavyweights such as Russia’s Gazprom, Brazilian oil giant Petrobras and iron ore producer Vale dragging the market lower. Crude oil futures retreated from a high of more than $145 a barrel last July to below $50 by the end of 2008, finally settling around $70 by the end of the reporting period. Industrials fell sharply, as did telecommunication services and technology stocks. The consumer sectors fared somewhat better. Emerging markets financials lost 16%, compared to a drop of more than 35% experienced by their developed market counterparts.
Economic growth varied across the emerging markets and there was a substantial divergence in returns by country. Central and Eastern Europe were hurt by concerns over bank losses and the possibility of forced currency devaluations. Wrenching economic contractions in Russia, South Africa and Mexico reached a magnitude not seen in a decade. China and India managed to sustain GDP growth in the mid to high single digits, helped by considerable stimulus measures. Other Asian economies proved to be less robust; South Korean stocks in particular were hampered by the nation’s tepid economy, soft exports and problems in its banking sector.
Russian and Brazilian stocks slid as commodities tumbled. Increased investor concerns over the Russian corporate sector’s high level of indebtedness to foreign investors further hampered the country’s equity market, compounding economic challenges. Russia’s annualized GDP fell 9.8% in the first quarter — the most significant decline in 15 years — as industrial production plunged and the government’s $80 billion in stimulus failed to boost economic activity. Financial institutions also continued to exhibit signs of stress. The central bank ended its gradual currency devaluation policy in early 2009, and the ruble fell 25% against the U.S. dollar.
[Begin Sidebar]
10 largest equity holdings | ||||||||
Percent of net assets as | Percent of price change for the | |||||||
OAO Gazprom | 3.1 | % | –64.8 | % | ||||
Samsung Electronics | 3.0 | –21.4 | ||||||
China Shenhua Energy | 2.9 | –6.7 | ||||||
América Móvil | 2.7 | –26.6 | ||||||
Reliance Industries | 2.7 | –13.3 | ||||||
Sasol | 2.0 | –40.6 | ||||||
Industrial and Commercial Bank of China | 1.9 | 1.9 | ||||||
Bharti Airtel | 1.9 | –0.2 | ||||||
Petróleo Brasileiro – Petrobras | 1.7 | –42.3 | ||||||
Vale | 1.5 | –48.6 | ||||||
Total | 23.4 | % | ||||||
*The percent change is reflected in U.S. dollars. The actual gain or loss on the total position in the fund may differ from the percentage shown. |
[End Sidebar]
Despite substantial monetary stimulus, Brazilian authorities could not prevent the economy from contracting a record 3.6% in the fourth quarter of 2008 from the previous quarter. Brazil’s central bank, which had been raising interest rates as late as September, slashed the Selic rate by 450 basis points to 9.25% by June. Stocks fell 38% and the real ended the period down 19% against the U.S. dollar.
China and India held up better, with their stock markets posting single-digit losses. The extent of China’s economic recovery sparked some debate as investors tried to gauge the government’s ability to sustain domestic demand with a $585 billion stimulus package. Annualized GDP in the second quarter rose 7.9% from a year earlier, up from 6.1% in the first quarter — which had been the economy’s weakest gain in almost a decade.
[Begin Sidebar]
Where the fund’s assets were invested | ||||||||||||||||||||||||
Percent of net assets | MSCI EM | Value of holdings | ||||||||||||||||||||||
IMI1 | 6/30/09 | |||||||||||||||||||||||
6/30/07 | 6/30/08 | 12/31/08 | 6/30/09 | 6/30/09 | (000 | ) | ||||||||||||||||||
Asia-Pacific | ||||||||||||||||||||||||
China | 10.3 | % | 11.0 | % | 19.2 | % | 19.1 | % | 19.0 | % | $ | 2,073,314 | ||||||||||||
Hong Kong | 1.1 | .8 | 1.0 | 1.1 | — | 123,053 | ||||||||||||||||||
India | 5.5 | 5.4 | 7.8 | 9.7 | 8.0 | 1,048,622 | ||||||||||||||||||
Indonesia | 2.2 | 3.1 | 2.3 | 2.1 | 1.7 | 225,488 | ||||||||||||||||||
Malaysia | 4.4 | 3.2 | 2.7 | 3.0 | 3.0 | 322,654 | ||||||||||||||||||
Philippines | 1.0 | .9 | 1.0 | 1.1 | .5 | 118,578 | ||||||||||||||||||
Singapore | .9 | .8 | 1.1 | .8 | — | 83,793 | ||||||||||||||||||
South Korea | 10.3 | 8.8 | 7.3 | 7.8 | 12.5 | 841,748 | ||||||||||||||||||
Sri Lanka | .2 | .1 | .1 | .1 | — | 6,842 | ||||||||||||||||||
Taiwan | 11.2 | 8.3 | 7.0 | 6.2 | 12.6 | 669,219 | ||||||||||||||||||
Thailand | 1.3 | 2.0 | 2.0 | 1.7 | 1.5 | 182,938 | ||||||||||||||||||
Vietnam | .3 | .1 | .1 | .1 | — | 8,557 | ||||||||||||||||||
48.7 | 44.5 | 51.6 | 52.8 | 58.8 | 5,704,806 | |||||||||||||||||||
Latin America | ||||||||||||||||||||||||
Argentina | .3 | 1.0 | .4 | .1 | — | 2 | 11,697 | |||||||||||||||||
Brazil | 12.6 | 8.0 | 11.1 | 11.5 | 13.8 | 1,250,541 | ||||||||||||||||||
Chile | .5 | 1.1 | 1.8 | 1.3 | 1.6 | 144,918 | ||||||||||||||||||
Colombia | .4 | .3 | .3 | .2 | .6 | 17,580 | ||||||||||||||||||
Dominican Republic | — | — | — | — | — | 388 | ||||||||||||||||||
Jamaica | — | — | — | .1 | — | 7,613 | ||||||||||||||||||
Mexico | 6.1 | 7.8 | 7.9 | 8.0 | 4.1 | 868,730 | ||||||||||||||||||
Peru | — | .1 | .1 | .1 | .5 | 6,128 | ||||||||||||||||||
Venezuela | — | — | — | — | — | 750 | ||||||||||||||||||
19.9 | 18.3 | 21.6 | 21.3 | 20.6 | 2,308,345 | |||||||||||||||||||
Eastern Europe and Middle East | ||||||||||||||||||||||||
Croatia | — | .1 | .1 | — | — | — | ||||||||||||||||||
Czech Republic | — | .1 | .3 | .8 | .5 | 83,618 | ||||||||||||||||||
Hungary | — | — | .2 | .2 | .5 | 27,714 | ||||||||||||||||||
Israel | 2.1 | 1.7 | 1.6 | 1.2 | 2.9 | 132,750 | ||||||||||||||||||
Kazakhstan | .5 | — | — | — | — | — | ||||||||||||||||||
Oman | .3 | .3 | .2 | .1 | — | 14,897 | ||||||||||||||||||
Pakistan | .1 | .1 | — | .1 | — | 2 | 7,127 | |||||||||||||||||
Poland | .2 | .8 | .7 | 1.1 | 1.1 | 116,546 | ||||||||||||||||||
Russia | 6.4 | 13.2 | 4.0 | 5.2 | 5.4 | 566,165 | ||||||||||||||||||
Turkey | 2.8 | 1.2 | 1.1 | 1.5 | 1.5 | 167,111 | ||||||||||||||||||
United Arab Emirates | .1 | .2 | — | — | — | — | ||||||||||||||||||
12.5 | 17.7 | 8.2 | 10.2 | 11.9 | 1,115,928 | |||||||||||||||||||
Africa | ||||||||||||||||||||||||
Egypt | 2.7 | 2.2 | 1.1 | .8 | .6 | 82,891 | ||||||||||||||||||
Morocco | .1 | .1 | .1 | .1 | .4 | 10,640 | ||||||||||||||||||
South Africa | 7.9 | 7.0 | 6.6 | 5.4 | 7.7 | 584,969 | ||||||||||||||||||
Zambia | — | — | — | — | — | 3,884 | ||||||||||||||||||
10.7 | 9.3 | 7.8 | 6.3 | 8.7 | 682,384 | |||||||||||||||||||
Other markets3 | ||||||||||||||||||||||||
Australia | — | — | — | .3 | 32,776 | |||||||||||||||||||
Canada | .5 | .5 | .2 | .3 | 38,161 | |||||||||||||||||||
Germany | .2 | .1 | — | — | — | |||||||||||||||||||
Italy | — | — | .1 | .5 | 58,012 | |||||||||||||||||||
Netherlands | — | .8 | .2 | .2 | 16,554 | |||||||||||||||||||
Sweden | .1 | — | — | — | — | |||||||||||||||||||
United Kingdom | 1.0 | 1.9 | .3 | .3 | 33,067 | |||||||||||||||||||
United States | ||||||||||||||||||||||||
of America | .7 | .5 | .6 | .6 | 64,996 | |||||||||||||||||||
2.5 | 3.8 | 1.4 | 2.2 | 243,566 | ||||||||||||||||||||
Multinational | .6 | .6 | .9 | .7 | 77,417 | |||||||||||||||||||
Other4 | 1.2 | 1.0 | 1.5 | 2.0 | 215,230 | |||||||||||||||||||
Cash & equivalents | ||||||||||||||||||||||||
less liabilities | 3.9 | 4.8 | 7.0 | 4.5 | 482,207 | |||||||||||||||||||
Total net assets | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | $ | 10,829,883 | ||||||||||||||
1 A dash indicates that the market is not included in the index. Source: MSCI. | ||||||||||||||||||||||||
2 Argentina and Pakistan were removed from the MSCI EM IMI and placed in the MSCI Frontier Markets Index. | ||||||||||||||||||||||||
3 Includes investments in companies incorporated in the region that have significant operations in emerging markets. | ||||||||||||||||||||||||
4 Includes securities in initial period of acquisition. |
[End Sidebar]
Fixed-asset investment in urban areas, China’s primary measure of capital spending, climbed more than 30% in the first half of the year. Industrial production and manufacturing, which had slowed after the Olympics in August and remained sluggish through the rest of 2008, started to ramp up. Auto sales vividly highlighted the divergent growth trajectories experienced by developing and developed markets. While Chinese car sales climbed, U.S. sales plunged. More cars were purchased in China than in the U.S. in the first six months of 2009, making it the world’s largest auto market in terms of unit sales.
[Begin Sidebar]
Percent change in key markets* | ||||||||||||||||
12 months ended 6/30/09 | 6 months ended 6/30/09 | |||||||||||||||
Expressed | Expressed | Expressed | Expressed | |||||||||||||
in U.S. | in local | in U.S. | in local | |||||||||||||
dollars | currency | dollars | currency | |||||||||||||
Asia-Pacific | ||||||||||||||||
China | –6.5 | % | –7.1 | % | 40.7 | % | 40.7 | % | ||||||||
India | –5.6 | 5.1 | 58.9 | 56.3 | ||||||||||||
Indonesia | –25.3 | –17.3 | 60.2 | 50.1 | ||||||||||||
Malaysia | –12.0 | –5.3 | 26.2 | 28.2 | ||||||||||||
Philippines | –2.4 | 4.7 | 34.1 | 35.7 | ||||||||||||
South Korea | –30.4 | –15.2 | 26.1 | 27.6 | ||||||||||||
Taiwan | –20.3 | –13.9 | 40.3 | 40.3 | ||||||||||||
Thailand | –18.7 | –17.2 | 46.0 | 43.0 | ||||||||||||
Latin America | ||||||||||||||||
Brazil | –38.1 | –23.7 | 60.2 | 34.6 | ||||||||||||
Chile | 2.5 | 3.3 | 54.2 | 28.5 | ||||||||||||
Colombia | 5.2 | 18.5 | 38.2 | 32.0 | ||||||||||||
Mexico | –34.2 | –15.9 | 17.0 | 11.2 | ||||||||||||
Peru | –34.6 | –34.0 | 19.6 | 17.4 | ||||||||||||
Eastern Europe and Middle East | ||||||||||||||||
Czech Republic | –42.4 | –29.6 | 11.6 | 7.2 | ||||||||||||
Hungary | –47.4 | –31.5 | 20.9 | 22.8 | ||||||||||||
Israel | –19.2 | –6.8 | 25.4 | 29.7 | ||||||||||||
Poland | –52.1 | –28.4 | –3.2 | 4.0 | ||||||||||||
Russia | –61.3 | –61.5 | 46.3 | 35.4 | ||||||||||||
Turkey | –14.3 | 7.6 | 42.9 | 42.2 | ||||||||||||
Africa | ||||||||||||||||
Egypt | –40.0 | –37.2 | 23.4 | 25.1 | ||||||||||||
Morocco | –25.6 | –17.8 | 7.8 | 7.3 | ||||||||||||
South Africa | –10.9 | –12.1 | 25.8 | 5.1 | ||||||||||||
Emerging Markets | ||||||||||||||||
Growth Fund | –23.1 | 36.9 | ||||||||||||||
*The market indices, compiled by MSCI, are unmanaged and their results include reinvested distributions, but do not reflect the effect of sales charges, commissions or expenses. |
[End Sidebar]
China’s property market also rebounded, encouraged by a host of policy changes and incentives implemented in late 2008. New loans soared to about $1.1 trillion in the first half of the year, more than triple the amount from a year earlier. Chinese equities regained ground in 2009, narrowing the decline for the reporting period to 7%. Although the consumer discretionary sector fell overall, shares of auto companies rose 37%. Technology stocks climbed, led by Internet companies, while property stocks boosted the financials sector.
Indian equities were volatile during the period, whipsawed by the global market turmoil, ongoing tensions with neighboring Pakistan in the months following November’s Mumbai terrorist attacks and political uncertainty in advance of May’s general elections. Stocks soared following the Congress Party-led United Progressive Alliance’s surprise victory in mid-May. Hopes that the new coalition government would reform the oil, gas and power industries while promoting infrastructure and agricultural development contributed to broad-based gains. Despite early fears of a sharp cyclical slowdown, the economy showed some resilience, with GDP growing 5.8% in the first quarter of 2009 from a year earlier. Infrastructure-related stocks, including Bharat Heavy Electricals, engineering and construction conglomerate Larsen & Toubro and Jindal Steel were among the market leaders. Shares of companies with heavy exposure to the Indian consumer, such as Hero Honda and HDFC Bank, were also in the vanguard. Technology stocks lagged amid softening exports and renewed concerns about corporate governance after Satyam Computers was investigated for fraudulent accounting practices and its chairman subsequently resigned. Indian equities fell 6% overall.
South Korea trailed other Asian markets, hurt by worries over declining exports and high levels of short-term debt in the financial system. Steel giant Posco, Kookmin Bank and Shinhan Financial were among the large companies nursing marked share price losses. Increased tensions with North Korea over its nuclear missile testing also weighed on sentiment, as did MSCI’s decision to not reclassify South Korea as a developed market due to its currency issues and investors’ difficulty accessing its market. The won was highly volatile, ending the period 18% lower against the U.S. dollar.
Taiwan also suffered from waning exports, but benefited in May from signals of improving relations with mainland China, including less stringent controls on Taiwanese investments by Chinese entities. China Mobile agreed in May to buy 12% of Far EasTone Telecommunications, the first investment by a Chinese state-owned company in Taiwan in decades, opening the door to further opportunities. Anti-government protests plagued Thailand throughout the year, while political tensions in Malaysia and Indonesia appeared to subside, boosting hopes for reform.
Mexico dropped 34% amid deepening economic troubles, including reduced export demand from the U.S., sharply lower remittances and a pronounced drop in tourism with the proliferation of swine flu. Telecom giants América Móvil and Teléfonos de México detracted, as did debt-laden Cemex. GDP shrank 8.2% in the first quarter of 2009 from a year earlier in the biggest contraction since the 1995 peso crisis. The Mexican government requested a $47 billion flexible credit line from the IMF in March. Argentina found itself downgraded to frontier market status by MSCI as the commodities slide shook the market and the future of Cristina Fernández de Kirchner’s government became more uncertain.
South African equities dropped 11% in spite of double-digit gains in financials and the consumer areas. Infrastructure companies Murray & Roberts and Barloworld faltered amid a slowdown in the Middle East construction boom, which had provided a considerable portion of the companies’ revenues. By May the economy had slipped into recession for the first time in 17 years. Meanwhile, the ruling African National Congress retained its stronghold on national politics; the party won the country’s elections, with Jacob Zuma assuming the presidency after the downfall and resignation of former president Thabo Mbeki.
Turkish stocks fared better than the broader market, rebounding sharply in March to end the period down 14%. The government’s tentative deal with the IMF for a multilateral loan package further boosted sentiment.
Although merger-and-acquisition activity in the emerging markets slowed considerably, several deals garnered attention. Brazil’s Unibanco and Banco Itaú merged to form Latin America’s largest bank. South African telecommunications giant MTN also resurrected talks with India’s Bharti Airtel to create one of the world’s biggest mobile phone companies. The materials sector witnessed a flurry of consolidation activity, particularly in the aluminum and iron ore industries, though few deals were completed. China furthered its efforts to secure sources of raw materials abroad, taking advantage of weaker market conditions by acquiring several struggling Australian mining companies.
Portfolio review
The fund suffered losses amid the broad market decline, even though its returns exceeded those of its benchmark. Our investments in several energy and materials companies fell sharply, particularly shares of Russian oil and gas giants Gazprom and Rosneft and steel companies Evraz and Magnitogorsk Iron & Steel. Energy and materials holdings lost 40% and 37%, respectively, but some of our commodity-related investments proved resilient in the market sell-off, including China Shenhua Energy. Shares of the coal producer rallied in the first half of 2009 and lost only 7% over the 12-month period as the company reported record profits for 2008. Reliance Industries, India’s biggest petrochemicals conglomerate, also bounced back in the second quarter of 2009, ending the one-year period 13% lower. Some gold producers fared better than other commodity-related companies, with shares of AngloGold Ashanti rising 8%.
Fund investments in several consumer-related areas declined as the economic downturn weighed on discretionary spending and dampened the outlook for retailers. Shares of China’s Focus Media Holdings and Russia’s M.video plunged approximately 70%. Shares of GOME Electrical Appliances ended the period down 47%, even though the price soared in June after the company sold more than $400 million worth of convertible bonds and new shares to private equity firm Bain Capital in the wake of a seven-month trading suspension. Holdings in Brazilian meat processor Marfrig, travel retailer Dufry South America, Russia’s Efes Breweries and South Korea’s Hite Brewery also fell sharply.
Other fund investments were less badly shaken. Several Chinese technology companies benefited as Internet usage in China climbed; web portals Alibaba.com and NetEase rose 26% and 61%, respectively, while instant messaging provider Tencent jumped 52%. In addition, Chinese auto battery maker BYD gained 210%, buoyed by rising sales and plans to explore a partnership with Volkswagen to produce hybrid and electric vehicles powered by lithium batteries. Investments in large technology companies, particularly in the semiconductor field, proved less successful. Taiwan Semiconductor Manufacturing and Samsung Electronics fell amid a slowdown in developed market discretionary spending and a worldwide reduction in corporate capital expenditures.
Several of the fund’s bank and real estate holdings realized positive returns, including China Resources Land, Bank of China and Industrial and Commercial Bank of China. Turkish bank T. Garanti Bankası and Malaysia’s SP Setia also climbed. Significant investments in Indian property developer DLF hurt the fund’s results, however, as India’s red-hot real estate market began to cool.
The fund continues to have substantial exposure to China, with investments in that country representing nearly a fifth of the portfolio at the end of June. Chinese holdings rose 1% in aggregate for the period, and more than half of the top 20 contributors to portfolio returns were based in China. Infrastructure-related holdings such as Weichai Power and China Railway Construction aided fund results as these companies benefited from optimism surrounding increased infrastructure development tied to the government’s stimulus measures. On the consumer front, our shares in fitness apparel companies Li Ning and ANTA Sports gained despite some softening in the economy, helped by the strong brand recognition they have developed in recent years.
Some investments in other markets also had positive returns. Chilean power company Enersis climbed 19%, proving to be a good defensive holding. Turkish stocks registered gains, with shares of Akbank rising 28%. Indonesia’s Bank Mandiri ended the period up 9%, while auto conglomerate PT Astra rose 11%.
Our investments in India had mixed results. Shares of wind turbine manufacturer Suzlon Energy dropped 57% for the period, as reports of product defects led to order cancellations, product replacements and lower profits. Some infrastructure-related and consumer companies had a positive impact, however, including Bharat Heavy Electricals and tea producer McLeod Russel.
Although some investments in Brazilian consumer-related companies weighed on results, a few bright spots emerged, including our holdings in household and beauty products company Hypermarcas, which gained 2%. Owning substantial investments in Mexico was a drawback, however, primarily due to our holdings in the construction area. Stocks such as ICA, Cemex and IDEAL lost about half or more of their value as the Mexican economy slumped.
Telecommunication services continue to represent a significant portion of the portfolio’s holdings, representing 13% of assets compared to 9% for the fund’s benchmark. We are generally attracted to the recurring cash flows that characterize many of these companies as well as the potential for expansive growth in some markets. Investments in Telekomunikasi Indonesia, Egypt’s Mobinil and India’s Bharti Airtel outpaced the broader market.
Overall, we have assumed a less defensive stance, increasing our investments in some financial companies, particularly Asian banks. We also took advantage of the steep slide in oil prices to add to our energy investments during the year, based on the attractiveness of some companies’ stock valuations and their capacity for strong cash flow generation. We have avoided certain materials investments as we believe that some commodities, such as iron ore and steel, will take time to recover as inventories are unloaded. We believe that the long-term structural trend in commodity prices will remain positive but will likely be volatile in the shorter term, especially given the speed of their recent comeback.
Outlook
A smattering of positive data has furthered hopes that the global economy has seen the worst of the recent crisis. Although markets worldwide will continue to face challenges, it appears that emerging markets economies are better poised for recovery than those in the developed world; their public debt is lower, their current accounts are generally in better shape, foreign exchange reserves and savings are higher, and fiscal deficits have largely been kept under control. In its July world economic report, the IMF projected that economic growth in the developing world would be 1.5% in 2009, compared with a 1.4% contraction globally.
The impact of the economic crisis in the last year has been undeniable. While sluggish exports remain a concern, we believe that domestic demand is healthy in many emerging economies and will continue to sustain growth at much higher levels than in other parts of the world. Consumer bases continue to expand on the whole and many companies throughout the developing world have successfully begun to establish strong brands. We are looking closely at consumer-related investments, given our belief that domestic demand will help bolster a number of economies.
Although China remains a significant factor in global growth, we recognize that it alone cannot pull the world out of recession, or support the rest of Asia if other economies stay weak. We do believe, however, that China’s economy will continue to expand even if exports remain at relatively lower levels, and that stimulus measures will boost key areas such as infrastructure development. Despite the inevitable obstacles ahead, Chinese GDP seems to be on target to land within the 7–8% range for 2009, a rate that far outpaces most of the world. We have concentrated our investments in some Chinese energy producers and financial institutions, along with industrial companies and consumer-related stocks.
We have also maintained significant investments in a number of Indian stocks which we believe will further benefit from consumer, real estate and infrastructure trends. Although we expect the Indian market to remain somewhat volatile in the near term, we believe that the recent elections are likely to yield a number of positive developments and opportunities in the longer term.
Despite remaining cautious about financials on the whole, we have begun to augment our investments in the sector, especially in Asian banks. Many banking groups undertook substantial deleveraging following the 1997 crisis and are now largely funded by deposits, due in part to high savings in Asia overall. On balance, we think that financial institutions in the emerging markets have proven to be and will continue to be in much better shape than those in the developed world.
The degree of last year’s downfall has been sobering. Extreme market losses have reminded investors that no matter how solid emerging markets economies may seem, they are still vulnerable to sharp downturns in the developed world. While emerging economies have slowed over the last year, we believe that the recent crisis has also highlighted an underlying strength and resilience that will allow them to prosper even if developed economies remain comparatively less robust. In our view emerging markets economies are coming out of the recent crisis healthier and stronger than advanced economies.
We look forward to reporting to you in another six months.
Sincerely,
/s/ Victor D. Kohn
Victor D. Kohn
President
August 12, 2009
The value of a long-term perspective
How a $100,000 investment has grown
While notable for their volatility in recent years, financial markets have tended to reward investors over the long term. Active management — bolstered by experience and careful research — can add even more value. This chart shows how a $100,0001 investment in Emerging Markets Growth Fund grew from December 31, 1987 — the inception of the MSCI Emerging Markets Index — through June 30, 2009, the end of the fund’s latest fiscal year.
As you can see, the $100,000 would have grown to $2,463,059. This is significantly more than the $1,290,915 generated by the unmanaged MSCI EM Index (stacked).
[begin mountain chart]
Emerging Markets Growth Fund2 | MSCI Emerging Markets Index (stacked)3 | |||||||
12/31/1987 | 100,000 | 100,000 | ||||||
6/30/1988 | 138,053 | 136,912 | ||||||
12/31/1988 | 141,980 | 140,427 | ||||||
6/30/1989 | 203,614 | 173,906 | ||||||
12/31/1989 | 275,812 | 231,650 | ||||||
6/30/1990 | 296,302 | 258,080 | ||||||
12/31/1990 | 250,848 | 207,209 | ||||||
6/30/1991 | 349,859 | 281,281 | ||||||
12/31/1991 | 409,863 | 331,349 | ||||||
6/30/1992 | 453,884 | 355,819 | ||||||
12/31/1992 | 460,360 | 369,135 | ||||||
6/30/1993 | 551,713 | 421,825 | ||||||
12/31/1993 | 794,977 | 645,384 | ||||||
6/30/1994 | 741,137 | 578,578 | ||||||
12/31/1994 | 782,904 | 598,165 | ||||||
6/30/1995 | 732,096 | 578,478 | ||||||
12/31/1995 | 726,601 | 567,009 | ||||||
6/30/1996 | 845,474 | 627,491 | ||||||
12/31/1996 | 845,574 | 601,205 | ||||||
6/30/1997 | 1,092,098 | 707,935 | ||||||
12/31/1997 | 927,272 | 531,555 | ||||||
6/30/1998 | 791,087 | 431,270 | ||||||
12/31/1998 | 696,603 | 396,860 | ||||||
6/30/1999 | 953,943 | 555,079 | ||||||
12/31/1999 | 1,239,461 | 660,407 | ||||||
6/30/2000 | 1,198,460 | 607,647 | ||||||
12/31/2000 | 855,467 | 458,257 | ||||||
6/30/2001 | 847,207 | 450,050 | ||||||
12/31/2001 | 826,143 | 446,274 | ||||||
6/30/2002 | 799,378 | 454,921 | ||||||
12/31/2002 | 744,120 | 418,732 | ||||||
6/30/2003 | 856,488 | 485,280 | ||||||
12/31/2003 | 1,127,420 | 652,453 | ||||||
6/30/2004 | 1,095,308 | 646,124 | ||||||
12/31/2004 | 1,361,210 | 819,176 | ||||||
6/30/2005 | 1,471,426 | 868,292 | ||||||
12/31/2005 | 1,883,298 | 1,097,686 | ||||||
6/30/2006 | 2,028,701 | 1,176,259 | ||||||
12/31/2006 | 2,571,214 | 1,450,832 | ||||||
6/30/2007 | 3,085,311 | 1,705,431 | ||||||
12/31/2007 | 3,563,076 | 2,022,748 | ||||||
6/30/2008 | 3,202,070 | 1,764,921 | ||||||
12/31/2008 | 1,799,646 | 934,885 | ||||||
6/30/2009 | 2,463,059 | 1,290,915 |
[end mountain chart]
1The minimum initial investment for EMGF is $100,000. |
2Values are based on a $100,000 investment with distributions reinvested. |
3Values for the MSCI Emerging Markets Index (stacked) were calculated using the MSCI Emerging Markets Index with gross dividends from December 31, 1987 to December 31, 2000, and with net dividends from January 1, 2001 to November 30, 2007, and using the MSCI EM IMI with net dividends thereafter. The indices are unmanaged and do not reflect the effect of sales charges, commissions or expenses. |
4For the period December 31, 1987 (inception of the MSCI EM Index), through June 30, 1988. EMGF began operations on May 30, 1986. |
Total returns | ||||||||
(with all distributions reinvested for periods ended June 30, 2009) | ||||||||
Cumulative total returns | Average annual total returns | |||||||
1 year | –23.1 | % | — | |||||
5 years | 124.9 | 17.6 | % | |||||
10 years | 158.2 | 9.9 |
Fund results shown are for past periods and are not predictive of results for future periods. The results shown are before taxes on fund distributions and sale of fund shares. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. For current information and month-end results, please call 800/421-0180, ext. 96245.
About the fund and its adviser
Emerging Markets Growth Fund was organized in 1986 by the International Finance Corporation (IFC), an affiliate of the World Bank, as a vehicle for investing in the securities of companies based in developing countries. The premise behind the formation of the fund was that rapid growth in these countries could create very attractive investment opportunities. It also was felt that the availability of equity capital would stimulate the development of capital markets and encourage countries to liberalize their investment regulations.
Capital International, Inc., the fund’s investment adviser, is part of The Capital Group Companies,SM one of the world’s most experienced investment advisory organizations, with roots dating back to 1931. The Capital Group organization has been involved in international investing since the 1950s. Capital International employs a research-driven approach to investing. Along with its institutional management affiliates, Capital International maintains a global investment research network that employs more than 150 investment professionals based on three continents. They include analysts and portfolio managers, born in more than 30 countries, who speak a variety of languages. These professionals travel millions of miles each year, keeping a close watch on industry trends and government actions and scrutinizing thousands of companies.
The fund’s adviser has devoted substantial resources to the task of evaluating and managing investments in developing countries. Currently, there are more than 20 analysts covering these countries, with most also managing a portion of the fund. The majority of the fund’s assets are managed by six portfolio managers.
Capital International’s research effort focuses heavily on sectors as well as on individual countries. It is an intensive effort that combines company and industry analysis with a political and macroeconomic overview, and we believe it has given Emerging Markets Growth Fund a competitive edge.
Investment portfolio
June 30, 2009
Equity securities | ||||||||||||||||||||
Sector diversification | Common stocks | Preferred stocks | Convertible stocks | Bonds and notes | Percent of net assets | |||||||||||||||
Financials | 14.79 | % | .53 | % | - | .33 | % | 15.65 | % | |||||||||||
Energy | 14.54 | .84 | - | .14 | 15.52 | |||||||||||||||
Telecommunication services | 12.39 | .58 | - | .07 | 13.04 | |||||||||||||||
Information technology | 11.77 | .12 | - | - | 11.89 | |||||||||||||||
Materials | 7.88 | 1.87 | .14 | % | - | 9.89 | ||||||||||||||
Consumer discretionary | 7.40 | .47 | - | .15 | 8.02 | |||||||||||||||
Consumer staples | 6.61 | .54 | - | .10 | 7.25 | |||||||||||||||
Industrials | 6.97 | - | - | .05 | 7.02 | |||||||||||||||
Utilities | 2.72 | .70 | - | - | 3.42 | |||||||||||||||
Health care | .67 | - | .02 | .05 | .74 | |||||||||||||||
Other | 1.23 | - | - | 1.88 | 3.11 | |||||||||||||||
86.97 | % | 5.65 | % | .16 | % | 2.77 | % | 95.55 | % | |||||||||||
Short-term securities | 5.06 | |||||||||||||||||||
Excess of payables over cash and receivables (including foreign currency contracts) | (.61 | ) | ||||||||||||||||||
Net assets | 100.00 | % |
Equity securities | Value | ||||||||
Shares | (000 | ) | |||||||
Asia-Pacific | |||||||||
China - 19.14% | |||||||||
Acorn International, Inc.(ADR) (1) | 75,000 | $ | 307 | ||||||
Advanced Semiconductor Manufacturing Corp. Ltd. (Hong Kong) (1) | 8,030,000 | 237 | |||||||
AirMedia Group Inc. (ADR) (1) | 801,300 | 5,160 | |||||||
Alibaba.com Ltd. (Hong Kong) (1) | 14,394,500 | 25,410 | |||||||
Anhui Conch Cement Co. Ltd. | 5,348,318 | 29,698 | |||||||
Anhui Conch Cement Co. Ltd. (Hong Kong) | 13,835,500 | 86,332 | |||||||
ANTA Sports Products Ltd. (Hong Kong) | 39,890,600 | 49,807 | |||||||
Bank of China Ltd. (Hong Kong) | 306,538,000 | 145,258 | |||||||
Beijing Enterprises Holdings Ltd. (Hong Kong) | 7,929,500 | 39,524 | |||||||
BYD Co. Ltd. (Hong Kong) (1) | 22,812,200 | 91,236 | |||||||
China Aoyuan Property Group Ltd. (Hong Kong) (1) | 8,953,000 | 2,144 | |||||||
China Communications Construction Co. Ltd. (Hong Kong) | 3,907,000 | 4,552 | |||||||
China Construction Bank Corp. (Hong Kong) | 91,692,600 | 70,893 | |||||||
China High Speed Transmission Equipment Group Co. Ltd. (Hong Kong) | 19,443,600 | 38,998 | |||||||
China Huiyuan Juice Group Ltd. (Hong Kong) | 930,500 | 658 | |||||||
China Life Insurance Co. Ltd. | 1,407,973 | 5,111 | |||||||
China Life Insurance Co. Ltd. (Hong Kong) | 2,357,000 | 8,703 | |||||||
China Mengniu Dairy Co. (Hong Kong) (1) | 14,666,000 | 34,023 | |||||||
China Mobile Ltd. (Hong Kong) | 1,378,000 | 13,819 | |||||||
China National Offshore Oil Corp. (Hong Kong) | 62,009,000 | 76,359 | |||||||
China Overseas Land & Investment Ltd. (Hong Kong) | 26,487,206 | 61,330 | |||||||
China Railway Construction Corp. Ltd. (Hong Kong) (1) | 36,695,500 | 56,518 | |||||||
China Resources Enterprise Ltd. (Hong Kong) | 2,540,000 | 5,084 | |||||||
China Resources Land Ltd. (Hong Kong) | 34,004,000 | 74,871 | |||||||
China Shenhua Energy Co. Ltd. (Hong Kong) | 84,441,500 | 309,894 | |||||||
China Vanke Co. Ltd. | 6,527,100 | 10,966 | |||||||
China Yurun Food Group Ltd. (Hong Kong) | 9,641,000 | 14,542 | |||||||
COSCO Pacific Ltd. (Hong Kong) | 3,554,000 | 3,989 | |||||||
Ctrip.com International Ltd. (ADR) (1) | 741,980 | 34,354 | |||||||
Fu Ji Food and Catering Services Holdings Ltd. (Hong Kong) | 12,028,000 | 10,093 | |||||||
Giant Interactive Group Inc. (ADR) | 2,032,800 | 16,506 | |||||||
GOME Electrical Appliances Holding Ltd. (Hong Kong) | 141,653,316 | 35,279 | |||||||
Hopewell Highway Infrastructure Ltd. (Hong Kong) | 4,088,400 | 2,295 | |||||||
Industrial and Commercial Bank of China Ltd. | 19,000,000 | 13,569 | |||||||
Industrial and Commercial Bank of China Ltd. (Hong Kong) | 280,938,000 | 195,117 | |||||||
Intime Department Store (Group) Co. Ltd. (Hong Kong) | 1,101,500 | 482 | |||||||
Lenovo Group Ltd. (Hong Kong) | 52,146,700 | 19,806 | |||||||
Li Ning Co. Ltd. (Hong Kong) | 15,285,500 | 44,981 | |||||||
Mindray Medical International Ltd., Class A (ADR) | 123,500 | 3,448 | |||||||
NetDragon Websoft Inc. (Hong Kong) | 6,497,500 | 4,254 | |||||||
NetEase.com, Inc. (ADR) (1) | 1,236,600 | 43,504 | |||||||
New Oriental Education & Technology Group Inc. (ADR) (1) | 32,000 | 2,156 | |||||||
Nine Dragons Paper Industries Co. Ltd. (Hong Kong) | 105,900,200 | 69,702 | |||||||
Perfect World Co. Ltd., Class B (ADR) (1) | 1,104,800 | 31,597 | |||||||
Qinghai Salt Lake Potash Co. Ltd. | 824,000 | 5,987 | |||||||
Shanda Interactive Entertainment Ltd. (ADR) (1) | 616,800 | 32,252 | |||||||
Shanghai Forte Land Co. Ltd. (Hong Kong) | 7,550,000 | 2,336 | |||||||
Shanghai Prime Machinery Co. Ltd. (Hong Kong) | 20,880,000 | 3,828 | |||||||
Sino-Ocean Land Holdings Ltd. (Hong Kong) | 15,474,500 | 17,657 | |||||||
Suntech Power Holdings Co. Ltd. (ADR) (1) | 1,837,800 | 32,823 | |||||||
Tencent Holdings Ltd. (Hong Kong) | 7,537,200 | 87,763 | |||||||
TPV Technology Ltd. (Hong Kong) | 23,572,000 | 10,620 | |||||||
Weichai Power Co. Ltd. (Hong Kong) | 15,011,600 | 50,393 | |||||||
Wumart Stores, Inc. (Hong Kong) | 18,022,384 | 22,569 | |||||||
Xinao Gas Holdings Ltd. (Hong Kong) | 3,306,000 | 5,669 | |||||||
Zhuzhou CSR Times Electric Co. Ltd. (Hong Kong) | 6,255,000 | 8,851 | |||||||
2,073,314 | |||||||||
Hong Kong - 1.14% | |||||||||
BOC Hong Kong (Holdings) Ltd. | 2,776,500 | 4,915 | |||||||
C C Land Holdings Ltd. | 27,686,200 | 17,816 | |||||||
First Pacific Co. Ltd. | 43,996,000 | 25,419 | |||||||
Hopewell Holdings Ltd. | 12,085,000 | 37,718 | |||||||
Kerry Properties Ltd. | 1,547,000 | 6,877 | |||||||
Kingway Brewery Holdings Ltd. (1) | 3,993,300 | 710 | |||||||
Shangri-La Asia Ltd. | 19,791,246 | 29,598 | |||||||
123,053 | |||||||||
India - 9.67% | |||||||||
Ambuja Cements Ltd. | 20,072,501 | 36,759 | |||||||
Apollo Hospitals Enterprise Ltd. | 1,222,966 | 14,662 | |||||||
Apollo Hospitals Enterprise Ltd. (GDR) | 233,800 | 2,803 | |||||||
Bharat Electronics Ltd. | 380,971 | 10,450 | |||||||
Bharat Heavy Electricals Ltd. | 669,158 | 30,839 | |||||||
Bharti Airtel Ltd. (1) | 12,445,874 | 208,629 | |||||||
Container Corp. of India Ltd. | 785,300 | 16,044 | |||||||
Cummins India Ltd. | 1,182,073 | 6,876 | |||||||
DLF Ltd. | 22,149,682 | 143,790 | |||||||
Everest Kanto Cylinder Ltd. | 2,879,764 | 11,629 | |||||||
Future Capital Holdings Ltd. (1) | 646,417 | 3,556 | |||||||
GMR Infrastructure Ltd. (1) | 2,892,000 | 8,575 | |||||||
Hindustan Unilever Ltd. | 1,285,755 | 7,195 | |||||||
Housing Development Finance Corp. Ltd. | 1,248,262 | 61,179 | |||||||
India Cements Ltd. | 1,865,000 | 5,106 | |||||||
Infosys Technologies Ltd. | 462,428 | 17,166 | |||||||
Infrastructure Development Finance Co. Ltd. | 15,193,391 | 43,117 | |||||||
ITC Ltd. | 865,340 | 3,455 | |||||||
IVRCL Infrastructures & Projects Ltd. | 1,516,972 | 10,757 | |||||||
McLeod Russel India Ltd. (2) | 5,566,169 | 13,242 | |||||||
Multi Screen Media Private Ltd. (acquired 5/15/00, cost: $107,294,000) (1) (3) | 284,195 | 24,350 | |||||||
Mundra Port and Special Economic Zone Ltd. | 83,696 | 1,057 | |||||||
Rajesh Exports Ltd. | 7,591,146 | 6,689 | |||||||
Reliance Industries Ltd. (1) | 6,853,677 | 290,003 | |||||||
Sanghvi Movers Ltd. | 969,167 | 3,493 | |||||||
Shopper's Stop Ltd. | 1,005,300 | 3,209 | |||||||
Shree Cement Ltd. | 35,300 | 883 | |||||||
Sobha Developers Ltd. | 3,594,606 | 15,710 | |||||||
Sun Pharmaceutical Industries Ltd. | 196,010 | 4,481 | |||||||
United Spirits Ltd. | 2,140,900 | 39,091 | |||||||
Wipro Ltd. | 365,778 | 2,889 | |||||||
1,047,684 | |||||||||
Indonesia - 1.92% | |||||||||
PT Astra International Tbk | 36,682,300 | 85,429 | |||||||
PT Bank Mandiri (Persero) Tbk | 44,770,000 | 13,814 | |||||||
PT Bank Rakyat Indonesia (Persero) Tbk | 30,769,000 | 18,919 | |||||||
PT Ciputra Surya Tbk (1) | 20,735,500 | 1,034 | |||||||
PT Indocement Tunggal Prakarsa Tbk | 11,360,000 | 8,607 | |||||||
PT Jaya Real Property | 5,900,500 | 399 | |||||||
PT Medco Energi Internasional Tbk (1) | 49,202,500 | 14,585 | |||||||
PT Ramayana Lestari Sentosa Tbk | 184,120,000 | 9,178 | |||||||
PT Semen Gresik (1) | 43,271,000 | 20,706 | |||||||
PT Surya Citra Media Tbk | 38,277,500 | 2,664 | |||||||
Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, Class B | 44,529,652 | 33,007 | |||||||
208,342 | |||||||||
Malaysia - 2.98% | |||||||||
AirAsia Bhd. (1) | 15,185,700 | 4,810 | |||||||
Astro All Asia Networks PLC | 6,357,300 | 5,844 | |||||||
Bumiputra-Commerce Holdings Bhd. | 29,565,849 | 76,058 | |||||||
Eastern & Oriental Bhd. (1) | 20,582,430 | 5,522 | |||||||
Genting Bhd. | 33,184,600 | 53,146 | |||||||
IJM Corp. Bhd. | 38,020,714 | 62,607 | |||||||
IOI Corp. Bhd. | 6,961,475 | 9,340 | |||||||
Mah Sing Group Bhd. | 27,663,533 | 13,715 | |||||||
Naim Cendera Holdings Bhd. | 11,661,500 | 6,229 | |||||||
S P Setia Bhd. | 37,583,950 | 42,492 | |||||||
StemLife Bhd. (2) | 8,331,900 | 2,032 | |||||||
Tanjong PLC | 9,705,600 | 36,709 | |||||||
Transmile Group Bhd. (1) | 11,264,800 | 4,150 | |||||||
322,654 | |||||||||
Philippines - 1.09% | |||||||||
Bayan Telecommunications Holdings Corp., Class A (acquired 2/12/98, cost: $1,850,000) (1) (3) | 724,790 | - | |||||||
Bayan Telecommunications Holdings Corp., Class B (acquired 2/12/98, cost: $616,000) (1) (3) | 241,431 | - | |||||||
Energy Development Corp. (2) | 780,051,000 | 63,805 | |||||||
First Gen Corp. (1) | 9,166,000 | 3,799 | |||||||
International Container Terminal Services, Inc. | 29,660,688 | 9,503 | |||||||
Philippine Airlines, Inc. (acquired 3/31/97, cost: $0) (1) (3) | 68,631,450 | ||||||||
Philippine Long Distance Telephone Co. | 311,320 | 15,494 | |||||||
Philippine Long Distance Telephone Co. (ADR) | 227,900 | 11,331 | |||||||
SM Investments Corp. | 2,313,829 | 14,646 | |||||||
118,578 | |||||||||
Singapore - 0.72% | |||||||||
Ascendas India Trust | 28,651,500 | 13,587 | |||||||
Banyan Tree Holdings Ltd. (1) | 3,782,000 | 1,530 | |||||||
CapitaRetail China Trust | 8,476,000 | 6,229 | |||||||
Olam International Ltd. | 3,331,190 | 5,572 | |||||||
Wilmar International Ltd. | 14,893,420 | 51,497 | |||||||
78,415 | |||||||||
South Korea - 7.69% | |||||||||
Cheil Worldwide Inc. | 61,020 | 11,216 | |||||||
Hankook Tire Co., Ltd. | 2,419,180 | 31,555 | |||||||
Hite Brewery Co., Ltd. | 324,655 | 39,979 | |||||||
Hyundai Department Store Co., Ltd. | 439,225 | 30,831 | |||||||
Hyundai Mobis Co., Ltd. | 592,331 | 51,701 | |||||||
Korean Reinsurance Co. | 852,868 | 7,888 | |||||||
KT&G Corp. | 669,197 | 37,840 | |||||||
LG Electronics Inc. | 939,031 | 85,888 | |||||||
LG Electronics Inc., nonvoting preferred | 529,326 | 22,309 | |||||||
LG Telecom Ltd. | 1,097,278 | 6,910 | |||||||
Macquarie Korea Infrastructure Fund (GDR) | 1,303,200 | 5,052 | |||||||
Megastudy Co., Ltd. | 95,015 | 17,123 | |||||||
NHN Corp. (1) | 457,791 | 63,327 | |||||||
Samsung Electronics Co., Ltd. | 311,326 | 144,347 | |||||||
Samsung Electronics Co., Ltd. (GDR) | 702,238 | 163,807 | |||||||
Samsung Electronics Co., Ltd., nonvoting preferred | 43,290 | 13,211 | |||||||
Shinhan Financial Group Co., Ltd. (1) | 2,120,803 | 53,332 | |||||||
Shinsegae Co., Ltd. | 51,609 | 20,441 | |||||||
S-Oil Corp. | 577,240 | 25,731 | |||||||
832,488 | |||||||||
Sri Lanka - 0.06% | |||||||||
Dialog Telekom Ltd. (1) | 149,615,180 | 6,842 | |||||||
Taiwan - 6.18% | |||||||||
Acer Inc. | 8,729,000 | 15,129 | |||||||
Cathay Financial Holding Co., Ltd. | 32,844,000 | 48,310 | |||||||
China Steel Corp. | 11,452,000 | 9,818 | |||||||
Chunghwa Telecom Co., Ltd. | 15,959,840 | 31,865 | |||||||
Delta Electronics, Inc. | 24,359,700 | 55,200 | |||||||
Hon Hai Precision Industry Co., Ltd. | 26,929,726 | 82,996 | |||||||
Hon Hai Precision Industry Co., Ltd. (GDR) | 1,572,110 | 9,597 | |||||||
HTC Corp. | 3,375,709 | 47,525 | |||||||
MediaTek Inc. | 331,403 | 3,947 | |||||||
Phison Electronics Corp. | 1,120,374 | 6,134 | |||||||
President Chain Store Corp. | 5,042,517 | 12,922 | |||||||
Siliconware Precision Industries Co., Ltd. | 3,521,000 | 4,058 | |||||||
SinoPac Financial Holdings Co. Ltd. | 43,431,000 | 15,089 | |||||||
Synnex Technology International Corp. | 13,116,990 | 21,315 | |||||||
Taiwan Cement Corp. | 78,139,324 | 74,510 | |||||||
Taiwan Mobile Co., Ltd. | 29,062,422 | 49,636 | |||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 90,592,733 | 150,671 | |||||||
TECO Electric & Machinery Co., Ltd. | 16,599,000 | 6,604 | |||||||
Test-Rite International Co., Ltd. | 10,032,309 | 4,649 | |||||||
Tripod Technology Corp. | 10,656,265 | 17,800 | |||||||
United Microelectronics Corp. (ADR) | 547,100 | 1,444 | |||||||
669,219 | |||||||||
Thailand - 1.69% | |||||||||
Bangkok Bank PCL | 1,830,200 | 5,973 | |||||||
Banpu PCL | 13,429,800 | 132,450 | |||||||
Banpu PCL, nonvoting depositary receipt | 208,800 | 2,037 | |||||||
Bumrungrad Hospital PCL (2) | 43,774,600 | 33,334 | |||||||
Esso (Thailand) PCL | 25,502,700 | 4,518 | |||||||
Rojana Industrial Park PCL | 26,670,500 | 4,626 | |||||||
182,938 | |||||||||
Vietnam - 0.08% | |||||||||
Vietnam Enterprise Investments Ltd., Redeemable (acquired 9/20/01, cost: $4,515,000) (1) (3) | 1,630,227 | 3,016 | |||||||
Vietnam Resource Investments (Holdings) Ltd. (acquired 6/15/07, cost: $11,302,000) (1) (3) | 1,108,000 | 5,540 | |||||||
Vietnam Resource Investment (Holdings) Ltd., warrants expire June 18, 2010 (acquired 6/15/07, cost: $0) (1) (3) | 110,800 | 1 | |||||||
8,557 | |||||||||
Latin America | |||||||||
Argentina - 0.01% | |||||||||
Grupo Financiero Galicia SA, Class B (1) | 5 | - | |||||||
Telecom Argentina SA, Class B (ADR) (1) | 77,400 | 993 | |||||||
993 | |||||||||
Brazil - 10.76% | |||||||||
ALL - América Latina Logística SA, units | 6,953,000 | 42,774 | |||||||
Bradespar SA, preferred nominative | 945,000 | 12,330 | |||||||
Centrais Elétricas Brasileiras SA - ELETROBRÁS, ordinary nominative | 1,915,400 | 27,970 | |||||||
Centrais Elétricas Brasileiras SA - ELETROBRÁS, ordinary nominative (ADR) | 617,600 | 9,005 | |||||||
CESP - Cía. Energética de São Paulo, Class B, preferred nominative | 1,455,360 | 14,531 | |||||||
Cía. de Bebidas das Américas - AmBev, preferred nominative | 18,200 | 1,182 | |||||||
Cía. de Bebidas das Américas - AmBev, preferred nominative (ADR) | 882,100 | 57,187 | |||||||
Cía. de Bebidas das Américas - AmBev, preferred nominative, receipts (1) | 57 | 4 | |||||||
Cía. de Saneamento de Minas Gerais, ordinary nominative | 1,368,447 | 17,820 | |||||||
Cía. Energética de Minas Gerais - CEMIG, preferred nominative | 5,683,856 | 76,335 | |||||||
Companhia de Concessões Rodoviárias, ordinary nominative | 4,176,200 | 66,900 | |||||||
Drogasil SA, ordinary nominative | 880,600 | 8,411 | |||||||
Dufry South America Ltd. (BDR) (2) | 3,716,500 | 46,390 | |||||||
Estácio Participações SA, ordinary nominative | 621,300 | 5,732 | |||||||
Gerdau SA (ADR) | 1,293,100 | 13,539 | |||||||
Gerdau SA, preferred nominative | 817,200 | 8,539 | |||||||
Hypermarcas SA, ordinary nominative (1) | 4,807,500 | 59,543 | |||||||
Itaú Unibanco Banco Múltiplo SA (ADR) | 3,362,900 | 53,235 | |||||||
Itaúsa - Investimentos Itaú SA, preferred nominative | 12,809,427 | 56,931 | |||||||
LIGHT SA, ordinary nominative | 843,879 | 11,592 | |||||||
Marfrig Frigoríficos e Comércio de Alimentos SA, ordinary nominative (1) | 5,582,340 | 41,256 | |||||||
NET Serviços de Comunicação SA, preferred nominative (1) | 3,005,567 | 29,106 | |||||||
New GP Capital Partners, LP, Class B (acquired 1/28/94, cost: $11,955,000) (1) (2) (3) (4) | 27,000 | - | |||||||
Petróleo Brasileiro SA - Petrobras, ordinary nominative (ADR) | 2,230,200 | 91,394 | |||||||
Petróleo Brasileiro SA - Petrobras, preferred nominative (ADR) | 2,741,100 | 91,443 | |||||||
Telemig Celular Participações SA, preferred nominative (ADR) | 300,700 | 15,251 | |||||||
Telemig Celular SA, Class G, preferred nominative | 38,529 | 13,746 | |||||||
Tele Norte Leste Participações SA, preferred nominative | 1,219,200 | 19,450 | |||||||
Tele Norte Leste Participações SA, preferred nominative (ADR) | 926,100 | 13,771 | |||||||
TIM Participações SA, ordinary nominative (1) | 17,445,899 | 59,575 | |||||||
Usinas Siderúrgicas de Minas Gerais SA, ordinary nominative | 241,050 | 5,093 | |||||||
Usinas Siderúrgicas de Minas Gerais SA, Class A, preferred nominative | 927,870 | 19,678 | |||||||
Vale SA, ordinary nominative (ADR) | 8,400 | 148 | |||||||
Vale SA, Class A, preferred nominative (ADR) | 10,503,724 | 161,232 | |||||||
Wilson Sons Ltd. (BDR) | 1,882,300 | 14,583 | |||||||
1,165,676 | |||||||||
Chile - 1.34% | |||||||||
Banco Santander - Chile (ADR) | 428,100 | 19,988 | |||||||
Empresa Nacional de Electricidad SA (ADR) | 184,200 | 9,171 | |||||||
Empresas La Polar SA | 1,750,800 | 6,481 | |||||||
Enersis SA (ADR) | 3,476,100 | 64,204 | |||||||
Ripley Corp SA | 47,821,748 | 36,584 | |||||||
SACI Falabella | 2,159,395 | 8,490 | |||||||
144,918 | |||||||||
Mexico - 7.56% | |||||||||
América Móvil, SAB de CV, Series L (ADR) | 7,611,731 | 294,726 | |||||||
Bolsa Mexicana de Valores, SAB de CV, Series A (1) | 7,705,600 | 7,035 | |||||||
Carso Infraestructura y Construcción, SAB de CV, Series B1 (1) | 57,009,700 | 30,581 | |||||||
CEMEX, SAB de CV, ordinary participation certificates, units (ADR) (1) | 3,246,525 | 30,323 | |||||||
Empresas ICA, SAB de CV, ordinary participation certificates (1) | 3,252,651 | 5,569 | |||||||
Fomento Económico Mexicano, SAB de CV (ADR) | 2,510,500 | 80,939 | |||||||
Genomma Lab Internacional, SAB de CV, Series B (1) | 458,400 | 410 | |||||||
Grupo Famsa, SAB de CV, Series A (1) | 613,800 | 663 | |||||||
Grupo Financiero Inbursa, SAB de CV | 22,466,257 | 59,473 | |||||||
Grupo Modelo, SAB de CV, Series C (1) | 3,225,600 | 11,418 | |||||||
Grupo Televisa, SAB de CV, ordinary participation certificates (ADR) | 659,028 | 11,203 | |||||||
Impulsora del Desarrollo y el Empleo en America Latina, SAB de CV, Series B1 (1) | 65,108,200 | 52,683 | |||||||
Kimberly-Clark de México, SAB de CV, Series A | 13,098,750 | 50,097 | |||||||
Teléfonos de México, SAB de CV, Series L (ADR) | 4,105,400 | 66,549 | |||||||
Telmex Internacional, SAB de CV, Series L | 22,737,100 | 14,401 | |||||||
Telmex Internacional, SAB de CV, Series L (ADR) | 8,102,766 | 102,500 | |||||||
818,570 | |||||||||
Eastern Europe and Middle East | |||||||||
Czech Republic - 0.77% | |||||||||
ČEZ, AS | 363,938 | 16,414 | |||||||
Komercní banka, AS | 161,969 | 22,413 | |||||||
Telefónica 02 Czech Republic, AS | 1,969,600 | 44,791 | |||||||
83,618 | |||||||||
Hungary - 0.26% | |||||||||
Magyar Telekom Telecommunications PLC | 9,146,400 | 26,898 | |||||||
Magyar Telekom Telecommunications PLC (ADR) | 54,678 | 816 | |||||||
27,714 | |||||||||
Israel - 1.23% | |||||||||
"Bezeq" The Israel Telecommunication Corp. Ltd. | 35,415,300 | 65,375 | |||||||
Cellcom Israel Ltd. | 1,181,533 | 31,431 | |||||||
Israel Chemicals Ltd. | 477,623 | 4,703 | |||||||
Orbotech Ltd. (1) | 425,673 | 3,682 | |||||||
Partner Communications Co. Ltd. | 725,204 | 12,392 | |||||||
Partner Communications Co. Ltd. (ADR) | 246,500 | 4,213 | |||||||
Shufersal Ltd. | 2,969,940 | 10,954 | |||||||
132,750 | |||||||||
Kazakhstan - 0.00% | |||||||||
JSC KazMunaiGas Exploration Production | 1 | - | |||||||
Oman - 0.14% | |||||||||
BankMuscat (SAOG) (GDR) | 2,040,632 | 14,897 | |||||||
Pakistan - 0.07% | |||||||||
Oil and Gas Development Co. Ltd. (GDR) | 791,800 | 7,127 | |||||||
Poland - 0.99% | |||||||||
Bank Pekao SA (1) | 897,142 | 32,502 | |||||||
Powszechna Kasa Oszczednosci Bank Polski SA, Series C | 2,612,142 | 21,071 | |||||||
Telekomunikacja Polska SA | 10,952,200 | 53,196 | |||||||
106,769 | |||||||||
Russia - 4.93% | |||||||||
Baring Vostok Private Equity Fund, LP (acquired 12/15/00, cost: $6,902,000) (2) (3) (4) (5) | 11,783,118 | 13,538 | |||||||
Baring Vostok Private Equity Fund III, LP (acquired 3/30/05, cost: $19,150,000) (1) (2) (3) (4) (5) | 20,292,114 | 15,962 | |||||||
Baring Vostok Private Equity Fund IV, LP (acquired 4/25/07, cost: $4,456,000) (1) (2) (3) (4) (5) | 4,456,271 | 2,042 | |||||||
Baring Vostok Fund IV Supplemental Fund, LP (acquired 10/8/07, cost: $6,315,000) (1) (2) (3) (4) (5) | 6,315,000 | 1,848 | |||||||
Evraz Group SA (GDR) | 1,173,182 | 22,244 | |||||||
Integra Group, Class A (GDR) (1) | 1,446,510 | 3,193 | |||||||
New Century Capital Partners, LP (acquired 12/7/95, cost: $951,000) (1) (3) (4) | 5,247,900 | 5,552 | |||||||
OAO Gazprom | 1,334,000 | 6,954 | |||||||
OAO Gazprom (ADR) | 15,907,800 | 324,153 | |||||||
OAO TMK (GDR) | 509,740 | 5,284 | |||||||
OJSC Holding Co. Sibirskiy Cement (1) | 693,300 | 8,666 | |||||||
OJSC M.video (1) | 2,260,570 | 5,018 | |||||||
OJSC Magnit | 572,564 | 21,328 | |||||||
OJSC Magnit (GDR) | 1,161,500 | 10,320 | |||||||
OJSC Magnitogorsk Iron and Steel Works (GDR) | 1,552,400 | 9,134 | |||||||
OJSC Mining and Metallurgical Co. Norilsk Nickel (ADR) | 1,074,470 | 9,778 | |||||||
OJSC Mobile TeleSystems (ADR) | 402,000 | 14,846 | |||||||
OJSC Novolipetsk Steel (GDR) | 1,183,850 | 24,283 | |||||||
OJSC Pharmstandard (GDR) (1) | 347,100 | 5,273 | |||||||
OJSC Vimpel-Communications (ADR) (1) | 2,047,700 | 24,101 | |||||||
533,517 | |||||||||
Turkey - 1.35% | |||||||||
Akbank TAŞ | 1,485,004 | 6,598 | |||||||
Aktas Elektrik Ticaret AŞ (1) | 4,273 | - | |||||||
Anadolu Efes Biracilik ve Malt Sanayii AŞ | 4,556,309 | 40,933 | |||||||
Coca-Cola Içecek AŞ, Class C | 1,300,245 | 7,396 | |||||||
Haci Ömer Sabanci Holding AŞ | 2,653,631 | 7,112 | |||||||
Selçuk Ecza Deposu Ticaret ve Sanayi AŞ, Class B | 823,420 | 1,161 | |||||||
Türk Telekomünikasyon AŞ, Class D | 19,070,375 | 59,553 | |||||||
Türkiye Garanti Bankasi AŞ (1) | 8,593,254 | 23,112 | |||||||
145,865 | |||||||||
Africa | |||||||||
Egypt - 0.76% | |||||||||
Commercial International Bank (Egypt) S.A.E. | 861,107 | 7,553 | |||||||
Egyptian Company for Mobile Services S.A.E. | 1,015,026 | 35,232 | |||||||
Orascom Construction Industries Co. | 603,108 | 20,614 | |||||||
Orascom Construction Industries Co. (GDR) | 596,312 | 19,492 | |||||||
82,891 | |||||||||
Morocco - 0.10% | |||||||||
Holcim (Maroc) SA | 46,585 | 10,640 | |||||||
South Africa - 5.31% | |||||||||
AngloGold Ashanti Ltd. | 2,002,597 | 73,518 | |||||||
AngloGold Ashanti Ltd. (ADR) | 1,450,597 | 53,135 | |||||||
Aveng Ltd. | 2,337,800 | 10,612 | |||||||
Harmony Gold Mining Co. Ltd. (1) | 4,369,910 | 45,253 | |||||||
Harmony Gold Mining Co. Ltd. (ADR) (1) | 1,104,122 | 11,395 | |||||||
Impala Platinum Holdings Ltd. | 1,207,787 | 26,778 | |||||||
Massmart Holdings Ltd. | 1,055,900 | 11,001 | |||||||
MTN Group Ltd. | 1,131,615 | 17,406 | |||||||
Murray & Roberts Holdings Ltd. | 2,623,734 | 17,112 | |||||||
Mvelaphanda Resources Ltd. (1) | 2,578,176 | 10,215 | |||||||
Sappi Ltd. | 1,989,795 | 5,855 | |||||||
Sappi Ltd. (ADR) | 1,308,900 | 3,914 | |||||||
Sasol Ltd. | 4,784,711 | 168,319 | |||||||
Sasol Ltd. (ADR) | 1,345,500 | 46,850 | |||||||
Shoprite Holdings Ltd. | 905,004 | 6,474 | |||||||
South African Private Equity Fund III, LP (acquired 9/23/98, cost: $10,827,000) (1) (2) (3) (4) (5) | 27,594 | 26,464 | |||||||
Telkom SA Ltd. | 3,815,482 | 18,892 | |||||||
Truworths International Ltd. | 2,045,880 | 9,841 | |||||||
Wilson Bayly Holmes - Ovcon Ltd. | 871,093 | 12,033 | |||||||
575,067 | |||||||||
Zambia - 0.04% | |||||||||
Celtel Zambia PLC | 39,611,800 | 3,884 | |||||||
Other markets | |||||||||
Australia - 0.30% | |||||||||
Aquarius Platinum Ltd. | 8,539,334 | 32,776 | |||||||
Canada - 0.35% | |||||||||
Banro Corp. (1) (2) | 6,230,500 | 11,255 | |||||||
Banro Corp., warrants expire September 17, 2011 (1) (2) | 204,900 | 171 | |||||||
CIC Energy Corp. (1) (2) | 3,251,700 | 5,175 | |||||||
Farallon Mining Ltd. (1) | 8,407,500 | 2,170 | |||||||
Ivanhoe Mines Ltd. (1) | 2,307,000 | 12,800 | |||||||
Katanga Mining Ltd. (1) | 2,341,807 | 846 | |||||||
Platmin Ltd. (1) | 1,186,900 | 898 | |||||||
Platmin Ltd. (CDI) (1) | 6,481,100 | 4,846 | |||||||
38,161 | |||||||||
Italy - 0.54% | |||||||||
Tenaris SA (ADR) | 2,145,400 | 58,012 | |||||||
Netherlands - 0.15% | |||||||||
New World Resources NV, Class A | 1,049,136 | 4,892 | |||||||
Vimetco NV (GDR) (1) | 601,950 | 515 | |||||||
X5 Retail Group NV (GDR) (1) | 728,834 | 11,147 | |||||||
16,554 | |||||||||
United Kingdom - 0.30% | |||||||||
Eurasian Natural Resources Corp. PLC | 180,900 | 1,956 | |||||||
Ferrexpo PLC | 2,981,893 | 6,597 | |||||||
Gem Diamonds Ltd. (1) | 4,349,829 | 11,023 | |||||||
Kazakhmys PLC | 258,790 | 2,696 | |||||||
Lonrho PLC (1) (2) | 40,521,200 | 5,884 | |||||||
Namakwa Diamonds Ltd. (1) | 4,370,700 | 2,900 | |||||||
Volga Gas PLC (1) | 1,382,346 | 2,011 | |||||||
33,067 | |||||||||
United States Of America - 0.60% | |||||||||
CTC Media, Inc. (1) | 665,300 | 7,864 | |||||||
Freeport-McMoRan Copper & Gold Inc., 5.50% convertible preferred (undated) | 10,000 | 11,150 | |||||||
Freeport-McMoRan Copper & Gold Inc., 6.75% convertible preferred, May 1, 2010 | 53,400 | 4,242 | |||||||
Genpact Ltd. (1) | 3,047,400 | 35,807 | |||||||
GT Solar International, Inc. (1) | 450,700 | 2,398 | |||||||
SINA Corp. (1) | 119,900 | 3,535 | |||||||
64,996 | |||||||||
Multinational - 0.71% | |||||||||
Capital International Global Emerging Markets Private Equity Fund, LP (acquired 6/30/99, cost: $6,704,000) (1) (2) (3) (4) (5) | 55,951 | 9,536 | |||||||
Capital International Private Equity Fund IV, LP (acquired 3/29/05, cost: $39,013,000) (2) (3) (4) (5) | 48,278 | 43,722 | |||||||
International Hospital Corp. Holding NV (acquired 9/25/97, cost: $8,011,000) (1) (2) (3) | 609,873 | 4,470 | |||||||
International Hospital Corp. Holding NV, convertible preferred (acquired 2/12/07, cost: $2,336,000) (1) (2) (3) | 318,677 | 2,336 | |||||||
International Hospital Corp. Holding NV, warrants expire June 30,2011 (acquired 12/24/08, cost: $0) (1) (2) (3) | 31,867 | - | |||||||
New Asia East Investment Fund Ltd., Class A (acquired 5/23/96, cost: $189,000) (1) (2) (3) (4) | 279,240 | 430 | |||||||
New Asia East Investment Fund Ltd., Class B (acquired 5/23/96, cost: $2,584,000) (1) (2) (3) (4) | 3,810,369 | 5,874 | |||||||
Pan-African Investment Partners II Ltd., Class A (acquired 6/20/08, cost: $11,883,000) (1) (2) (3) (4) (5) | 3,800 | 11,016 | |||||||
Pan Asia Special Opportunities Fund (Cayman) (acquired 10/18/00, cost: $197,000) (1) (2) (3) (4) | 600,000 | 33 | |||||||
77,417 | |||||||||
Miscellaneous - 1.85% | |||||||||
Equity securities in initial period of acquisition | 200,246 | ||||||||
Total equity securities (cost: $8,575,995,000) | 10,048,209 | ||||||||
Bonds and notes | Units or principal | Value | |||||||
amount (000) | (000 | ) | |||||||
Asia-Pacific | |||||||||
India - 0.01% | |||||||||
Rajesh Exports Ltd. 0% convertible bonds, February 21, 2012 (6) | $ | 1,400 | 938 | ||||||
Indonesia - 0.16% | |||||||||
Republic of Indonesia: | |||||||||
10.375% May 4, 2014 | 6,570 | 7,523 | |||||||
10.375% May 4, 2014 (acquired 2/26/09, cost: $5,373,000) (3) | 5,400 | 6,183 | |||||||
12.50% March 15, 2013 | IDR 32,000,000 | 3,440 | |||||||
17,146 | |||||||||
Singapore - 0.05% | |||||||||
Noble Group Ltd. 0% convertible bonds, June 13, 2014 (6) | $ | 4,519 | 5,378 | ||||||
South Korea - 0.09% | |||||||||
Korean Government 4.25% September 10, 2014 | KRW 12,010,000 | 9,260 | |||||||
Latin America | |||||||||
Argentina - 0.10% | |||||||||
Republic of Argentina: | |||||||||
Index-Linked, Payment-in-Kind Bond, 9.092% December 31, 2033 (7) | ARS 63,193 | 10,046 | |||||||
GDP-Linked Bond, 0% December 15, 2035 (6) | 58,072 | 658 | |||||||
10,704 | |||||||||
Brazil - 0.78% | |||||||||
Banco BMG SA: | |||||||||
8.75% July 1, 2010 | $ | 1,833 | 1,847 | ||||||
8.75% July 1, 2010 (acquired 6/22/05, cost: $6,716,000) (3) | 6,720 | 6,770 | |||||||
Dasa Finance Corp. 8.75% May 29, 2018 | 5,485 | 5,424 | |||||||
Federal Republic of Brazil 11.00% August 17, 2040 | 12,225 | 15,966 | |||||||
Marfrig Frigoríficos e Comércio de Alimentos SA : | |||||||||
9.625% November 16, 2016 | 13,058 | 10,773 | |||||||
9.625% November 16, 2016 (acquired 2/3/09, cost: $349,000) (3) | 470 | 388 | |||||||
Nota do Tesouro Nacional: | |||||||||
10.00% January 1, 2012 | 71 | Units | 35,299 | ||||||
10.00% January 1, 2017 | 5 | Units | 2,169 | ||||||
10.776% May 15, 2045 (7) | 7 | Units | 6,229 | ||||||
84,865 | |||||||||
Colombia - 0.16% | |||||||||
Republic of Colombia: | |||||||||
7.375% March 18, 2019 | $ | 15,000 | 16,087 | ||||||
11.75% March 1, 2010 | COP 3,100,000 | 1,493 | |||||||
17,580 | |||||||||
Dominican Republic - 0.00% | |||||||||
Dominican Republic Payment-in-Kind Bond, 9.50% September 27, 2011 (acquired 5/12/05, cost: $405,000) (3) | $ | 390 | 388 | ||||||
Jamaica - 0.07% | |||||||||
Digicel Group Ltd. 12.00% April 1, 2014 (acquired 3/6/09, cost: $ 6,924,000) (3) | 7,500 | 7,613 | |||||||
Mexico - 0.46% | |||||||||
United Mexican States Government Bonds: | |||||||||
5.625% January 15, 2017 | 3,192 | 3,243 | |||||||
5.95% March 19, 2019 | 14,176 | 14,389 | |||||||
9.50% December 18, 2014 | MXN 3,925 | 32,528 | |||||||
50,160 | |||||||||
Peru - 0.06% | |||||||||
Republic of Peru 7.125% March 30, 2019 | $ | 5,700 | 6,128 | ||||||
Venezuela - 0.01% | |||||||||
Republic of Venezuela: | |||||||||
7.65% April 21, 2025 | 1,225 | 658 | |||||||
8.50% October 8, 2014 | 129 | 92 | |||||||
750 | |||||||||
Eastern Europe and Middle East | |||||||||
Poland - 0.09% | |||||||||
Poland Government 5.00% October 24, 2013 | PLN 31,750 | 9,777 | |||||||
Russia - 0.30% | |||||||||
OAO Gazprom Loan Participation Notes: | |||||||||
7.288% August 16, 2037 | $ | 5,065 | 3,824 | ||||||
8.146% April 11, 2018 | 4,720 | 4,319 | |||||||
9.625% March 1, 2013 | 5,240 | 5,423 | |||||||
OJSC VTB Bank Loan Participation Notes: | |||||||||
6.332% March 15, 2010 | GBP 4,202 | 6,936 | |||||||
6.875% May 29, 2018 | $ | 1,770 | 1,628 | ||||||
Russian Federation 7.50% March 31, 2030 | 267 | 264 | |||||||
Sberbank (Savings Bank of the Russian Federation) Loan Participation Notes: | |||||||||
5.93% November 14, 2011 | 3,600 | 3,632 | |||||||
6.468% July 2, 2013 | 2,760 | 2,657 | |||||||
6.48% May 15, 2013 | 4,025 | 3,965 | |||||||
32,648 | |||||||||
Turkey - 0.20% | |||||||||
Republic of Turkey: | |||||||||
7.50% November 7, 2019 | 9,300 | 9,719 | |||||||
14.00% January 19, 2011 | TRY 14,575 | 9,864 | |||||||
Index-Linked Bond, 12.003% February 15, 2012 (7) | 2,060 | 1,663 | |||||||
21,246 | |||||||||
Africa | |||||||||
South Africa - 0.09% | |||||||||
Edcon Pty Ltd. 4.527% June 15, 2014 (7) | EUR 12,070 | 9,902 | |||||||
Miscellaneous - 0.14% | |||||||||
Bonds and notes in initial period of acquisition | 14,984 | ||||||||
Total bonds and notes (cost: $295,675,000) | 299,467 | ||||||||
Short-term securities | Principal amount | Value | |||||||
(000 | ) | (000 | ) | ||||||
Corporate short-term notes - 4.32% | |||||||||
Bank of Nova Scotia 0.19% due 7/6/09 | 18,900 | 18,900 | |||||||
Berkshire Hathaway Inc. 0.21%-0.22% due 7/9-7/14/09 | 58,200 | 58,196 | |||||||
BNP Paribas SA 0.25% due 7/7/09 | 17,400 | 17,399 | |||||||
Canadian Imperial Bank of Commerce (CIBC) 0.20% due 7/22/09 | 13,800 | 13,798 | |||||||
Coca-Cola Co. 0.21% due 8/7/09 | 23,400 | 23,395 | |||||||
Crédit Agricole SA 0.22% due 7/6/09 | 25,000 | 24,999 | |||||||
JPMorgan Chase & Co. 0.18%-0.25% due 7/2-7/6/09 | 74,000 | 73,999 | |||||||
KfW International Finance Inc. 0.20%-0.21% due 7/10-7/22/09 | 57,300 | 57,294 | |||||||
Medtronic, Inc. 0.20% due 7/17/09 | 18,400 | 18,398 | |||||||
Nestlé SA 0.20% due 8/25/09 | 49,900 | 49,884 | |||||||
Procter & Gamble Co. 0.19% due 7/27/09 | 11,500 | 11,498 | |||||||
Rabobank Nederland NV 0.20% due 7/6/09 | 50,000 | 49,998 | |||||||
Royal Bank of Canada 0.27% due 7/15/09 | 50,000 | 49,994 | |||||||
467,752 | |||||||||
Federal agency discount notes - 0.74% | |||||||||
Federal Home Loan Bank Discount Corp. 0.18%-0.22% due 7/6-7/10/09 | 40,500 | 40,498 | |||||||
International Bank for Reconstruction and Development 0.17% due 7/16/09 | 40,000 | 39,997 | |||||||
80,495 | |||||||||
Total short-term securities (cost: $548,248,000) | 548,247 | ||||||||
Total investment securities (cost: $9,419,918,000) | 10,895,923 | ||||||||
Excess of payables over cash and receivables (including foreign currency contracts) | (66,040 | ) | |||||||
Net assets | $ | 10,829,883 |
(1) Security did not produce income during the last 12 months. |
(2) This issuer represents investment in an affiliate as defined in the Investment Company Act of 1940. This definition includes, but is not limited to, issuers in which the fund owns more than 5% of the outstanding voting securities. New Asia East Investment Fund Ltd., Capital International Global Emerging Markets Private Equity Fund, LP and Capital International Private Equity Fund IV, LP are also considered affiliates since these issuers have the same investment adviser as the fund ( see note 9 in Notes to financial statements). |
(3) Purchased in a private placement transaction (not including purchases of securities that were publicly offered in the primary local market but were not registered under U.S. securites laws); resale to the public may require registration in the country where the primary market is located and no right to demand registration exists. As of June 30, 2009, the total value and cost of such securities were $197,072,000 and $276,817,000, respectively, and the value represented 1.82% of net assets. |
(4) Cost and market value do not include prior distributions to the fund from income or proceeds realized from securities held by the private equity fund. Therefore, the cost and market value may not be indicative of the private equity fund's performance. For private equity funds structured as limited partnerships, shares are not applicable and therefore the fund's interest in the partnerships is reported. |
(5) Excludes an unfunded capital commitment representing an agreement which obligates the fund to meet capital calls in the future. Capital calls can only be made if and when certain requirements have been fulfilled; thus, the timing and the amount of such capital calls cannot readily be determined. |
(6) Represents a zero coupon security that may convert to a coupon-bearing security at a later date. |
(7) Coupon rate may change periodically. |
Abbreviations |
Securities: |
ADR - American Depositary Receipts |
BDR - Brazilian Depositary Receipts |
CDI - CREST Depository Interest |
GDR - Global Depositary Receipts |
Currencies other than U.S. dollars: |
ARS - Argentine Peso |
COP - Colombian Peso |
EUR - Euro |
GBP - British Pound Sterling |
IDR - Indonesian Rupiah |
KRW - South Korean Won |
MXN - Mexican New Peso |
PLN - Polish Zloty |
TRY - Turkish Lira |
See Notes to financial statements |
Financial statements
Statement of assets and liabilities at June 30, 2009 | (dollars in thousands, except per-share data) | |||||||
Assets: | ||||||||
Investment securities at value: | ||||||||
Unaffiliated issuers (cost: $9,000,706) | $ | 10,577,364 | ||||||
Affiliated issuers (cost: $419,212) | 318,559 | $ | 10,895,923 | |||||
Cash | 8,626 | |||||||
Cash denominated in non-U.S. currency (cost: $1,048) | 1,048 | |||||||
Receivables for-- | ||||||||
Sales of investments | 31,239 | |||||||
Sales of fund's shares | 22,720 | |||||||
Dividends and interest | 44,745 | |||||||
Non-U.S. taxes | 17,954 | 116,658 | ||||||
11,022,255 | ||||||||
Liabilities: | ||||||||
Unrealized depreciation on open forward currency contracts | 9,497 | |||||||
Payables for-- | ||||||||
Purchases of investments | 174,172 | |||||||
Investment advisory services | 5,704 | |||||||
Directors' compensation | 1,025 | |||||||
Other fees and expenses | 1,218 | |||||||
Non-U.S. taxes | 756 | 182,875 | ||||||
192,372 | ||||||||
Net assets at June 30, 2009 -- | ||||||||
Equivalent to $6.72 per share on 1,611,973,321 shares of $0.01 par value capital stock outstanding (authorized | ||||||||
capital stock -- 2,000,000,000 shares) | $ | 10,829,883 | ||||||
Net assets consist of: | ||||||||
Capital paid in on shares of capital stock | $ | 11,250,948 | ||||||
Undistributed net investment income | 38,146 | |||||||
Accumulated net realized loss | (1,925,525 | ) | ||||||
Net unrealized appreciation | 1,466,314 | |||||||
Net assets at June 30, 2009 | $ | 10,829,883 | ||||||
See Notes to financial statements | ||||||||
Financial statements | ||||||||
Statement of operations for the year ended June 30, 2009 | (dollars in thousands) | |||||||
Investment income: | ||||||||
Income: | ||||||||
Dividends (net of non-U.S. withholding tax of $30,946; also includes $11,661 from affiliates) | $ | 268,583 | ||||||
Interest (includes $659 from affiliates) | 37,228 | $ | 305,811 | |||||
Fees and expenses: | ||||||||
Investment advisory services | 59,229 | |||||||
Custodian | 7,068 | |||||||
Registration statement and prospectus | 61 | |||||||
Auditing and legal | 475 | |||||||
Reports to shareholders | 24 | |||||||
Directors' compensation | 424 | |||||||
Other | 389 | |||||||
Total expenses before expense reduction | 67,670 | |||||||
Custodian expense reduction | 165 | 67,505 | ||||||
Net investment income | 238,306 | |||||||
Net realized loss and unrealized depreciation on investments, forward currency contracts and currency: | ||||||||
Net realized (loss)/gain on: | ||||||||
Investments (net of non-U.S. taxes of $15; also includes $76,863 net loss from affiliates) | (1,891,040 | ) | ||||||
Forward currency contracts | 28,606 | |||||||
Currency transactions | (22,296 | ) | (1,884,730 | ) | ||||
Net unrealized depreciation on: | ||||||||
Investments (net of non-U.S. taxes of $119) | (1,456,609 | ) | ||||||
Forward currency contracts | (2,218 | ) | ||||||
Currency translations | (782 | ) | (1,459,609 | ) | ||||
Net realized loss and unrealized depreciation on investments, forward currency contracts and currency | (3,344,339 | ) | ||||||
Net decrease in net assets resulting from operations | $ | (3,106,033 | ) | |||||
Statement of changes in net assets | (dollars in thousands) | |||||||
Year ended June 30, | ||||||||
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 238,306 | $ | 385,210 | ||||
Net realized (loss) gain on investments, forward currency contracts and currency transactions | (1,884,730 | ) | 3,717,490 | |||||
Net unrealized depreciation on investments, forward currency contracts and currency translations | (1,459,609 | ) | (3,459,735 | ) | ||||
Net (decrease) increase in net assets resulting from operations | (3,106,033 | ) | 642,965 | |||||
Dividends and distributions paid to shareholders: | ||||||||
Dividends from net investment income | (232,579 | ) | (489,910 | ) | ||||
Distributions from net realized gain on investments | (2,113,433 | ) | (3,778,118 | ) | ||||
Total dividends and distributions paid to shareholders | (2,346,012 | ) | (4,268,028 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from shares sold: | ||||||||
199,011,713 and 22,694,483 shares, respectively | 1,283,577 | 322,653 | ||||||
Proceeds from shares issued in reinvestment of net investment income dividends and net realized gain distributions: | ||||||||
480,838,418 and 297,687,658 shares, respectively | 2,312,833 | 4,203,350 | ||||||
Cost of shares repurchased: | ||||||||
143,295,513 and 148,648,005 shares, respectively | (1,239,109 | ) | (2,359,541 | ) | ||||
Net increase in net assets resulting from capital share transactions | 2,357,301 | 2,166,462 | ||||||
Total decrease in net assets | (3,094,744 | ) | (1,458,601 | ) | ||||
Net assets: | ||||||||
Beginning of year | 13,924,627 | 15,383,228 | ||||||
End of year (including undistributed net investment income: $38,146 and $53,793, respectively) | $ | 10,829,883 | $ | 13,924,627 | ||||
See Notes to financial statements |
Notes to financial statements
1. Organization and significant accounting policies
Organization - Emerging Markets Growth Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 as an open-end interval management investment company. As an open-end interval management investment company, the fund offers its shareholders the opportunity to purchase and redeem shares on a periodic basis. The fund’s investment objective is to seek long-term capital growth by investing primarily in equity securities of issuers in developing countries.
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:
Net asset value – The fund generally determines its net asset value as of approximately 4:00 p.m. Eastern time on the last business day of each week and month. The fund will not determine its net asset value on any day during which the New York Stock Exchange has been closed for trading.
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. Bonds and notes, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from one or more independent pricing vendors when such prices are available. However, where the investment adviser deems it appropriate to do so, such securities will be valued in good faith at the mean quoted bid and asked prices that are reasonably and timely available (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality, and type. Vendors base bond prices on, among other things, valuation matrices that incorporate dealer-supplied valuations, proprietary pricing models and evaluations of the yield curve as of approximately 3:00 p.m. Eastern time. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed income securities, depending on which method is deemed most appropriate by the investment advisor. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. 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 or are considered unreliable by the investment adviser are fair valued as determined in good faith under guidelines adopted by authority of the fund’s board of directors. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly securities outside the U.S.) between the close of trading in those securities and the close of regular trading on the New York Stock Exchange. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.
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 bonds, notes, and short-term securities are amortized daily over the expected life of the security.
Dividends and distributions to shareholders - Dividends and distributions paid to shareholders are recorded on the ex-dividend date.
Currency translation - Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. 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. On the accompanying financial statements, the effects of changes in 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 currencies other than U.S. dollars are disclosed separately.
Unfunded capital commitments - Unfunded capital commitments represent agreements which obligate the fund to meet capital calls in the future. Payment would be made when a capital call is requested. Capital calls can only be made if and when certain requirements have been fulfilled; thus, the timing of such capital calls cannot readily be determined. As of June 30, 2009, unfunded capital commitments totaled $104,043,000.
2. Risk factors
Investing in the fund may involve certain risks including, but not limited to, those described below.
The value of the fund’s portfolio holdings may fluctuate in response to events specific to the companies in which the fund invests. In addition, investments in developing country securities may also be affected by government activities and restrictions, including repatriation restrictions; currency and price fluctuations and periods of illiquidity; limited availability of information; security valuations; taxes; potential fraud; settlement; transferability and recordkeeping practices; conditions affecting the general economy; higher transaction costs; social, economic and political instability; and different accounting, financial reporting and legal standards.
3. Taxation and distributions
Federal income taxation - The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to regulated investment companies 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. Therefore, no federal income tax provision is required.
As of and during the year ended June 30, 2009, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any significant interest or penalties. As mentioned below, the fund could be subject to interest and penalty amounts related to India capital gains taxes.
The fund is not subject to examination by U.S. federal tax authorities for tax years before 2005, by state authorities for tax years before 2004 and by tax authorities outside the U.S. for tax years before 2002.
Non-U.S. 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 realized and unrealized gains to provide for potential non-U.S. taxes payable on these securities. As of June 30, 2009, accrued non-U.S. taxes on realized and unrealized gains were $756,000.
As of June 30, 2009, the receivable for non-U.S. taxes includes $16,005,000 related to India capital gains taxes that are currently in dispute. Based on the advice of outside counsel, management believes it is more likely than not that the amount in dispute will be resolved in the fund’s favor. Potential tax, interest and penalty amounts relating to these issues, if any, may be assessed in the future. If the disputes are ultimately resolved unfavorably, it will not have a materially adverse effect on the fund’s financial position or results of operations.
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 currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; cost of investments sold; income on certain investments; and unrealized appreciation of certain investments in securities outside the U.S.
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 for financial reporting purposes. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. For the year ended June 30, 2009, the tax characters of distributions paid to shareholders were ordinary income, short-term realized gain and long-term realized gain in the amounts of $232,579,000, $101,121,000 and $2,012,312,000, respectively. For the year ended June 30, 2008, the tax characters of distributions paid to shareholders were ordinary income, short-tem realized gain and long-term realized gain in the amounts of $489,910,000, $539,731,000 and $3,238,387,000, respectively.
During the year ended June 30, 2009, the fund reclassified $21,374,000 from undistributed net investment income to accumulated net realized loss and $7,248,000 from accumulated net realized loss to capital paid in on shares of capital stock to align financial reporting with tax reporting.
As of June 30, 2009, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investments were as follows:
Undistributed ordinary income | $ | 140,267 | ||
Post-October currency loss deferrals (realized during the period November 1, 2008, through June 30, 2009 (*) | (43,271 | ) | ||
Capital loss carryforwards expiring 2017 (†) | (832,576 | ) | ||
Post-October capital loss deferrals (realized during the period November 1, 2008, through June 30, 2009) (*) | (923,306 | ) | ||
Gross unrealized appreciation on investment securities | 2,398,372 | |||
Gross unrealized depreciation on investment securities | (1,154,339 | ) | ||
Net unrealized appreciation on investment securities | 1,244,033 | |||
Cost of investment securities | 9,651,890 |
(*) These deferrals are considered incurred in the subsequent year.
(†) The capital loss carryforward will be used to offset any capital gains realized by the fund in future years through the expiration date. The fund will not make distributions from capital gains while a capital loss carryforward remains.
4. Fees and transactions with related parties
Investment advisory services fee – The Investment Advisory and Service Agreement with Capital International, Inc. (CII) provides for monthly management service fees, accrued weekly. CII is wholly owned by Capital Group International, Inc., which is wholly owned by The Capital Group Companies, Inc. These fees are based on an annual rate of 0.90% on the first $400 million of the fund’s net assets; 0.80% of assets in excess of $400 million but not exceeding $1 billion; 0.70% of assets in excess of $1 billion but not exceeding $2 billion; 0.65% of assets in excess of $2 billion but not exceeding $4 billion; 0.625% of assets in excess of $4 billion but not exceeding $6 billion; 0.60% of assets in excess of $6 billion but not exceeding $8 billion; 0.58% of assets in excess of $8 billion but not exceeding $11 billion; 0.56% of assets in excess of $11 billion but not exceeding $15 billion; 0.54% of assets in excess of $15 billion but not exceeding $20 billion; and 0.52% of assets in excess of $20 billion.
Transfer agent fee – The fund has an agreement with American Funds Service Company® (AFS), the transfer agent for the fund. AFS is a wholly owned indirect subsidiary of The Capital Group Companies, Inc. Under this agreement, the fund compensates AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. Transfer agent fees were $2,000 for the year ended June 30, 2009. This amount was included in other fees and expenses.
Directors’ compensation – Since the adoption of the deferred compensation plan in 1998, directors who are unaffiliated with CII 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 the American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation on the accompanying financial statements includes $761,000 in current fees (either paid in cash or deferred) and a net decrease of $337,000 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 CII. No affiliated officers and directors received any compensation directly from the fund.
5. Disclosure of fair value measurements
The fund classifies its assets and liabilities into three levels based on the method used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the fund’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are generally high quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following tables present the fund’s valuation levels as of June 30, 2009 (dollars in thousands):
Investment securities | Level 1 | Level 2 (*) | Level 3 (*) | |||||||||
Equity securities | ||||||||||||
Asia Pacific | $ | 269,685 | $ | 5,378,049 | $ | 24,350 | ||||||
Latin America | 2,130,157 | - | - | |||||||||
Eastern Europe/Middle East | 76,088 | 937,228 | 38,941 | |||||||||
Africa | 119,178 | 526,840 | 26,464 | |||||||||
Other markets | 145,173 | 98,393 | 77,417 | |||||||||
Miscellaneous securities | 48,244 | 166,986 | - | |||||||||
Bonds and notes | - | 284,483 | - | |||||||||
Short-term securities | - | 548,247 | - | |||||||||
Total | $ | 2,788,525 | $ | 7,940,226 | $ | 167,172 |
Level 1 | Level 2 | Level 3 | ||||||||||
Forward currency contracts (†) | - | $ | (9,497 | ) | - |
The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions during the 12 months ended June 30, 2009 (dollars in thousands):
Beginning value at 7/1/2008 | Net purchases | Net realized gain (**) | Net unrealized depreciation (**) | Net transfers out of Level 3 | Ending value at 06/30/2009 | |||||||||||||||||||
Investment securities | $ | 212,489 | $ | 119,648 | $ | 1,510 | $ | (64,121 | ) | $ | (102,354 | ) | $ | 167,172 |
Net unrealized depreciation during the period on Level 3 investment securities held at 06/30/2009(**) | $ | (64,303 | ) |
(*) Level 2 and Level 3 include investment securities with an aggregate value of $7,295,385,000 that were fair valued under guidelines adopted by authority of the fund’s board of directors. Of this amount, securities with an aggregate value of $6,984,307,000 were fair valued as a result of significant market movements following the close of local trading and, therefore, classified as Level 2.
(†) Forward currency contracts are not included in the investment portfolio.
(**) Net realized gain and net unrealized depreciation are included in the related amounts on investments in the statement of operations.
6. Ristricted securities
The fund has invested in certain securities for which resale may be limited (for example, in the U.S., to qualified institutional buyers) or which are otherwise restricted. These securities are identified in the investment portfolio. As of June 30, 2009, the total value of restricted securities was $197,072,000, which represents 1.82% 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 $6,543,888,000 and $6,126,436,000, respectively, during the year ended June 30, 2009.
The fund receives an expense 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 June 30, 2009, the custodian fee of $7,068,000 was reduced by $165,000, rather than paid in cash.
8. Subsequent events
As of August 12, 2009, the date the financial statements were available to be issued, no subsequent events or transactions had occurred that would have materially impacted the financial statements as presented.
9. Transactions with affiliates
If the fund owns more than 5% of the outstanding voting securities of an issuer, the fund’s investment in that issuer represents an investment in an affiliate as defined in the Investment Company Act of 1940. In addition, New Asia East Investment Fund Ltd., Capital International Global Emerging Markets Private Equity Fund, LP and Capital International Private Equity Fund IV, LP are considered affiliates since these issuers have the same investment adviser as the fund. A summary of the fund’s transactions in the securities of affiliated issuers during the year ended June 30, 2009, is as follows:
Dividend | ||||||||||||||||||||||||
and interest | ||||||||||||||||||||||||
Beginning | Purchases/ | Sales/ | Ending | income | Value | |||||||||||||||||||
Issuer | shares | Additions | Reductions | shares | (000 | ) | (000 | ) | ||||||||||||||||
Affiliated issuers: | ||||||||||||||||||||||||
Banro | 1,063,500 | 5,773,200 | 401,300 | 6,435,400 | $ | - | $ | 11,426 | ||||||||||||||||
Bumrungrad Hospital | 43,774,600 | - | - | 43,774,600 | 904 | 33,334 | ||||||||||||||||||
CIC Energy | 3,251,700 | - | - | 3,251,700 | - | 5,175 | ||||||||||||||||||
Dufry South America | 2,963,500 | 753,000 | - | 3,716,500 | 343 | 46,390 | ||||||||||||||||||
Energy Development1 | 529,738,000 | 250,313,000 | - | 780,051,000 | 1,529 | 63,805 | ||||||||||||||||||
Lonrho | 20,377,200 | 20,144,000 | - | 40,521,200 | - | 5,884 | ||||||||||||||||||
McLeod Russel India | 5,566,169 | - | - | 5,566,169 | 130 | 13,242 | ||||||||||||||||||
StemLife | 8,331,900 | - | - | 8,331,900 | 31 | 2,032 | ||||||||||||||||||
Affiliated private equity funds/private placements: | ||||||||||||||||||||||||
Baring Vostok Private Equity Fund2 | 11,429,113 | 354,005 | - | 11,783,118 | 142 | 13,538 | ||||||||||||||||||
Baring Vostok Private Equity Fund III2 | 19,460,214 | 831,900 | - | 20,292,114 | - | 15,962 | ||||||||||||||||||
Baring Vostok Private Equity Fund IV2 | 6,610,371 | 4,160,900 | - | 10,771,271 | - | 3,890 | ||||||||||||||||||
Capital International Global Emerging Markets Private Equity Fund2 | 55,951 | - | - | 55,951 | - | 9,536 | ||||||||||||||||||
Capital International Private Equity Fund IV2 | 46,808 | 1,470 | - | 48,278 | 1,309 | 43,722 | ||||||||||||||||||
International Hospital | 928,550 | 31,867 | - | 960,417 | - | 6,806 | ||||||||||||||||||
New Asia East Investment Fund | 4,089,609 | - | - | 4,089,609 | - | 6,304 | ||||||||||||||||||
New GP Capital Partners2 | 27,000 | - | - | 27,000 | - | - | ||||||||||||||||||
Pan-African Investment Partners II | 3,800 | - | - | 3,800 | - | 11,016 | ||||||||||||||||||
Pan Asia Special Opportunities Fund | 600,000 | - | - | 600,000 | - | 33 | ||||||||||||||||||
South African Private Equity Fund III2 | 27,594 | - | - | 27,594 | - | 26,464 | ||||||||||||||||||
Unaffiliated issuers3: | ||||||||||||||||||||||||
Banpu | 13,329,000 | 730,300 | 420,700 | 13,638,600 | 4,294 | - | ||||||||||||||||||
Gmarket | 2,554,429 | - | 2,554,429 | - | - | - | ||||||||||||||||||
Harmony Gold Mining | 16,821,400 | 46,745,000 | 58,092,368 | 5,474,032 | 659 | - | ||||||||||||||||||
IJM | 48,746,514 | 8,732,400 | 19,458,200 | 38,020,714 | 2,979 | - | ||||||||||||||||||
Transmile Group | 15,205,500 | - | 3,940,700 | 11,264,800 | - | - | ||||||||||||||||||
$ | 12,320 | $ | 318,559 | |||||||||||||||||||||
1. The holding was in its initial period of acquisition at June 30, 2008 and was not publicly disclosed. | ||||||||||||||||||||||||
2. For private equity funds structured as limited partnerships, shares are not applicable and therefore the fund's interest in the partnerships is reported. | ||||||||||||||||||||||||
3. Affiliated during the period but no longer affiliated at June 30, 2009. |
10. Forward currency contracts
The fund may enter into forward currency contracts, which represent agreements to exchange currencies on specific future dates at predetermined rates. The fund enters into these contracts to manage its exposure to changes in exchange rates. 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 exchange rates. The face or contract amount in U.S. dollars reflects the total exposure the fund has in that particular contract. On a daily basis, the fund values forward currency contracts based on the applicable exchange rates and records unrealized appreciation/depreciation for open forward currency contracts in the statement of assets and liabilities. 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. Closed forward currency contracts that have not reached their expiration date are included in the respective receivables or payables for closed forward currency contracts in the statement of assets and liabilities. Net realized gains or losses from closed forward currency contracts and net unrealized appreciation or depreciation from closed forward currency contracts are recorded in the statement of operations. As of June 30, 2009, the fund had open forward currency contracts to sell currencies as follows (amounts in thousands):
Contract amount | U.S. valuation | ||||||||||||
Unrealized | |||||||||||||
Non-U.S. | U.S. | Amount | (depreciation) | ||||||||||
Sales: | |||||||||||||
Czech Koruna to Euro expiring 7/21/09 | CZK196,696/EUR7,361 | $ | 10,325 | $ | 10,608 | $ | (283 | ) | |||||
Hungarian Forint to U.S. Dollar expiring 7/8/09 | HUF1,959,218 | 9,558 | 10,058 | (500 | ) | ||||||||
Indian Rupee to U.S. Dollar expiring 10/5/09 | INR 3,200,852 | 61,470 | 66,519 | (5,049 | ) | ||||||||
Israeli Shekel to U.S. Dollar expiring 7/21/09 | ILS 242,772 | 61,200 | 61,717 | (517 | ) | ||||||||
Mexican New Peso to U.S. Dollar expiring 7/21/09 | MXN 770,487 | 57,169 | 58,176 | (1,007 | ) | ||||||||
South African Rand to U.S. Dollar expiring 7/10-7/20/09 | ZAR 348,168 | 42,627 | 44,768 | (2,141 | ) | ||||||||
Foreign currency contracts ---net…………… | $ | (9,497 | ) |
Financial highlights
Year ended June 30 | ||||||||||||||||||||
2009 | 2008 | 2007 | * | 2006 | * | 2005 | * | |||||||||||||
Net asset value, beginning of year | $ | 12.95 | $ | 17.02 | $ | 15.21 | $ | 15.70 | $ | 11.87 | ||||||||||
(Loss) Income from investmentoperations+: | ||||||||||||||||||||
Net investment income | .18 | .39 | .22 | .26 | .27 | |||||||||||||||
Net realized and unrealized (loss) gain on investments | (4.09 | ) | .68 | 6.56 | 5.05 | 3.77 | ||||||||||||||
Total (loss) income from investment operations | (3.91 | ) | 1.07 | 6.78 | 5.31 | 4.04 | ||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.59 | ) | (.41 | ) | (.50 | ) | (.21 | ) | ||||||||||
Distributions from net realized gains | (2.09 | ) | (4.55 | ) | (4.56 | ) | (5.30 | ) | - | |||||||||||
Total distributions | (2.32 | ) | (5.14 | ) | (4.97 | ) | (5.80 | ) | (.21 | ) | ||||||||||
Net asset value, end of year | $ | 6.72 | $ | 12.95 | $ | 17.02 | $ | 15.21 | $ | 15.70 | ||||||||||
Total return | (23.08 | )% | 3.78 | % | 52.08 | % | 37.88 | % | 34.34 | % | ||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 10,830 | $ | 13,925 | $ | 15,383 | $ | 11,100 | $ | 13,632 | ||||||||||
Ratio of expenses to average net assets | 0.71 | % | .67 | % | .70 | % | .72 | % | .71 | % | ||||||||||
Ratio of net investment income to average net assets | 2.49 | % | 2.47 | % | 1.39 | % | 1.57 | % | 1.96 | % | ||||||||||
'Portfolio turnover rate | 67.91 | % | 57.50 | % | 52.19 | % | 38.48 | % | 29.00 | % | ||||||||||
* The per share data has been adjusted to reflect a 5-for-1 stock split effective at the close of business on January 12, 2007. | ||||||||||||||||||||
+ The per share data is based on average shares outstanding. |
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Emerging Markets Growth Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Emerging Markets Growth Fund, Inc. (the "Fund") at June 30, 2009, and 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 its 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. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at June 30, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Los Angeles, California
August 12, 2009
Expense example
unaudited
As a shareholder of the fund, you incur ongoing costs, including investment advisory services fees and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2009 through June 30, 2009).
Actual expenses:
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes:
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning account value 1/1/2009 | Ending account value 6/30/2009 | Expenses paid during period* | Annualized expense ratio | |||||||||||||
Actual return | $ | 1,000.00 | $ | 1,368.64 | $ | 4.17 | .71 | % | ||||||||
Hypothetical 5% return before expenses | 1,000.00 | 1,021.27 | 3.56 | .71 |
* Expenses are equal to the fund’s annualized expense ratio of .71%, multiplied by the average account value over the period, multiplied by the number of days in the period (181), and divided by 365 (to reflect the one-half year period).
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. The fund hereby designates the following amounts for the fund’s fiscal year ended June 30, 2009:
Long-term capital gains | $2,012,312,000 |
Foreign taxes | $0.02 per share |
Foreign source income | $0.20 per share |
Qualified dividend income | $210,799,000 |
Individual shareholders should refer to their Form 1099-DIV or other tax information, which will be mailed in January 2010, to determine the calendar year amounts to be included on their 2009 tax returns. Shareholders should consult their tax advisers.
Approval of renewal of Investment Advisory and Service Agreement
The fund’s board of directors has approved the renewal of the fund’s Investment Advisory and Service Agreement (the agreement) with Capital International, Inc. (CII) for an additional one-year term through June 20, 2010, following the recommendation of the fund’s Contracts Committee (the committee), which is composed of all of the fund’s independent directors. The information, material factors and the conclusions that formed the basis for the committee’s recommendation and the board’s subsequent approval are described below.
1. Information received
Materials reviewed
During the course of each year, the independent directors receive a wide variety of materials relating to the services provided by CII, including reports on the fund’s investment results, portfolio composition, sales and redemptions, as well as other information relating to the nature, extent and quality of the services provided by CII to the fund. In addition, supplementary information requested and reviewed by the committee included extensive materials regarding the fund’s investment results, advisory fee and expense comparisons, financial and profitability information regarding CII, descriptions of various functions such as compliance monitoring and portfolio trading practices, and information about the personnel providing investment management and administrative services to the fund.
Review process
The committee received assistance and advice regarding legal and industry standards from independent legal counsel to the independent directors. The committee discussed the renewal of the agreement with CII representatives and in a private session with independent counsel at which no CII representatives were present. In deciding to recommend renewal, the committee did not identify any specific piece of information or any single factor that was controlling. This summary describes the most important factors, but not all of the matters considered.
2. Nature, extent and quality of services
CII, its personnel and its resources
The board and the committee considered the depth and quality of CII’s investment management process, including: its global research capabilities; the experience, capability and integrity of its senior management and other personnel; and the low turnover rates of its key personnel. The board and the committee considered CII’s commitment to research and its multiple portfolio manager system, noting that CII continues to expend considerable effort to enhance its investment process and research coverage.
Other services
The board and the committee considered CII’s policies, procedures and systems designed to comply with applicable laws and regulations and its commitment to compliance; its efforts to keep the directors informed; and its attention to matters that may involve conflicts of interest with the fund. The board and the committee also considered the nature, extent, quality and cost of administrative and shareholder services provided by CII to the fund under the agreement and other agreements, including information technology, legal, fund accounting and treasury functions. The board and the committee concluded that they were satisfied with the nature, extent and quality of the investment advisory services to be provided to the fund under the agreement.
3. Investment results
The board and the committee reviewed the investment results of the fund as of December 31, 2008, and compared them to those of the fund’s benchmark, as well as to those of a selected group of funds with a similar investment mandate. The board and the committee reviewed the fund’s short-term and long-term investment results both in absolute terms and relative to its benchmark and the selected funds. The directors observed that the fund’s results had exceeded the benchmark over the short and long term, including the lifetime of the fund. The board and the committee concluded that the fund’s results over the long term and short term have generally been satisfactory and that CII’s record in managing the fund indicated that its continued management should benefit the fund and its shareholders.
4. Advisory fees and total expenses
The board and the committee compared the advisory fees and total expenses of the fund (as a percentage of average net assets) with the fees and expenses of comparable investment companies managed by CII and of other comparable third-party funds, as well as emerging markets equity investment management fees charged to separate accounts advised by CII and other managers. This information allowed the board and the committee to compare the fund’s advisory fees with advisory fees charged to both retail and institutional investors in emerging market equity mandates. The board and the committee also discussed information obtained from a third party source regarding advisory rates for emerging market equity mandates. The board and the committee considered these materials, as well as their personal knowledge of advisory fee rates charged by other emerging market equity funds. The board and the committee concluded that the fees charged under the agreement are significantly lower than fees charged by comparable retail mutual funds with emerging market equity mandates and are reasonable when compared with the fees institutional investors are typically charged in emerging market equity mandates.
5. Adviser costs, level of profits and economies of scale
The board and the committee reviewed information regarding CII’s costs of providing services to the fund and its other institutional clients, and also reviewed the resulting level of profits to CII. The board and the committee considered CII’s commitment to investing in technology, infrastructure and staff to maintain and enhance the services provided by CII. The board and the committee also noted recent operational restructuring efforts undertaken by CII. The board and the committee considered that pursuant to the fee schedule charged under the agreement, fees decline as the fund’s assets increase, reflecting economies of scale in the cost of operations that are shared with investors. The board and the committee also noted that long-term economies of scale are reflected in the fund’s expense ratio, which has historically decreased as assets under management have grown, and vice versa. The board and the committee noted that the fund’s potential to benefit from economies of scale has declined concurrently with the decline in the fund’s assets during 2008, which occurred primarily due to the negative performance of the equity market during the year. The board and the committee concluded that CII’s profitability from its relationship with the fund was reasonable, and that the fund’s fee and expense levels reflect economies of scale that benefit investors.
6. Ancillary benefits
The board and the committee considered the benefits received by CII and its affiliates as a result of CII’s relationship with the fund and other clients of CII, including fees paid to CII’s affiliated transfer agent, and possible ancillary benefits received by the fund in connection with the activities of CII or its affiliates, which are not directly related to the fund. The board and the committee also reviewed CII’s portfolio trading practices, noting that while CII receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the fund, it has not committed to direct any specific dollar amounts of brokerage to these broker-dealers in exchange for such research.
7. Conclusions
Based on their review, including their consideration of each of the factors referred to above, the board and the committee concluded that the agreement should be continued for another one-year period.
Board of directors and other officers
“Independent” directors | ||
Year first | ||
elected | ||
Name, age and | a director | |
position with fund | of the fund1 | Principal occupation(s) during past five years |
Paul N. Eckley, 54 | 2005 | Senior Vice President, Investments, State Farm Insurance Companies |
Nancy C. Everett, 54 | 2005 | Chairman of the Board, Chief Executive Officer and former President and Chief Investment Officer, Promark Investment Advisors, Inc. (formerly known as General Motors Investment Management Corporation); former Chief Investment Officer, Virginia Retirement System |
Beverly L. Hamilton, 62 | 1991 | Retired President, ARCO Investment |
Vice Chairman of the Board | Management Company | |
(Independent and Non-Executive) | ||
Raymond Kanner, 56 | 1997 | Managing Director and Chief Investment Officer, IBM Retirement Funds; former Director, Global Equity Investments, IBM Retirement Funds |
L. Erik Lundberg, 49 | 2005 | Chief Investment Officer, University of Michigan |
Helmut Mader, 67 | 1986 | Managing Director, Mader Capital Resources GmbH; former Director, Deutsche Bank AG |
William B. Robinson, 71 | 1986 | Director, Reckson Asset Management Australia |
Chairman of the Board | Limited; former Director, Unwired Australia Group | |
(Independent and Non-Executive) | Limited (Internet service provider); former Director, Deutsche Asset Management Australia Limited | |
Michael L. Ross, 40 | 2006 | Chief Investment Officer and Partner, Makena Capital Management, LLC; former Chief Investment Officer, Stanford Management Company |
Aje K. Saigal, 53 | 2000 | Director of Investment Policy and Strategy, Government of Singapore Investment Corporation Pte. Limited |
“Independent” directors | ||
Number of | ||
portfolios | ||
in fund | ||
complex2 | ||
Name, age and | overseen by | |
position with fund | director | Other directorships3 held by director |
Paul N. Eckley, 54 | 1 | None |
Nancy C. Everett, 54 | 1 | Promark Absolute Return Strategies Fund, LLC |
Beverly L. Hamilton, 62 | 1 | Oppenheimer Funds |
Vice Chairman of the Board | (director for 38 portfolios | |
(Independent and Non-Executive) | in the fund complex) | |
Raymond Kanner, 56 | 1 | None |
L. Erik Lundberg, 49 | 1 | None |
Helmut Mader, 67 | 1 | None |
William B. Robinson, 71 | 1 | None |
Chairman of the Board | ||
(Independent and Non-Executive) | ||
Michael L. Ross, 40 | 1 | None |
Aje K. Saigal, 53 | 1 | None |
“Interested” directors4 | ||
Year first | ||
elected a | ||
director or | Principal occupation(s) during past five years and | |
Name, age and | officer of | positions held with affiliated entities of the |
position with fund | the fund¹ | fund |
Victor D. Kohn, 51 | 1996 | President and Director, Capital International, Inc.; |
President and Chief | Director, Capital Guardian Trust Company5 | |
Executive Officer | ||
David I. Fisher, 69 | 1986 | Vice Chairman of the Board, Capital International, Inc.; Chairman of the Board, Capital Group International, Inc.;5 Director, Capital Group Research, Inc.;5 Chairman of the Board, Capital Guardian Trust Company;5 Vice Chairman of the Board, Capital International Limited;5 Director, Capital International Research, Inc.;5 Director, The Capital Group Companies, Inc.5 |
Shaw B. Wagener, 50 | 1997 | Chairman of the Board, Capital International, Inc.; President and Director, Capital Group International, Inc.;5 Senior Vice President, Capital Guardian Trust Company;5 Director, The Capital Group Companies, Inc.5 |
“Interested” directors4 | ||
Number of | ||
portfolios in | ||
fund complex2 | ||
Name, age and | overseen | |
position with fund | by director | Other directorships3 held by director |
Victor D. Kohn, 51 | 1 | None |
President and Chief | ||
Executive Officer | ||
David I. Fisher, 69 | 1 | None |
Shaw B. Wagener, 50 | 1 | None |
Chairman emeritus | ||
Walter P. Stern, 80 | Vice Chairman of the Board, Capital International, Inc.; Senior Partner, Capital Group International, Inc.5 |
Other officers | ||
Year first | ||
elected an | Principal occupation(s) during past five years and | |
Name, age and | officer of | positions held with affiliated entities of the |
position with fund | the fund¹ | fund |
Michael A. Felix, 48 | 1993 | Senior Vice President and Director, Capital |
Vice President and | International, Inc.; Senior Vice President, Treasurer | |
Treasurer | and Director, Capital Guardian Trust Company;5 Director, Capital Group Research, Inc.5 | |
Peter C. Kelly, 50 | 1996 | Senior Vice President, Senior Counsel, Secretary and |
Vice President | Director, Capital International, Inc.; Senior Vice President, Senior Counsel and Director, Capital Guardian Trust Company;5 Secretary, Capital Group International, Inc.5 | |
Robert H. Neithart, 44 | 2000 | Executive Vice President and Research Director, |
Vice President | Capital International Research, Inc.;5 Vice President and Director, Capital Strategy Research, Inc.;5 Senior Vice President and Director, Capital Guardian Trust Company5 | |
Abbe G. Shapiro, 49 | 1997 | Vice President, Capital International, Inc.; |
Vice President | Vice President, Capital Guardian Trust Company5 | |
M. Elaine Teo, 43 | 2006 | Senior Vice President, Capital International, Inc.; |
Vice President | Chairperson and Director, Capital International Research, Inc.5 | |
Lisa B. Thompson, 43 | 2000 | Senior Vice President, Capital International Research, |
Vice President | Inc.5 | |
Ricardo V. Torres, 39 | 2006 | Executive Vice President and Research Director, |
Vice President | Capital International Research, Inc.5 | |
Nelson N. Lee, 38 | 2005 | Vice President and Associate Counsel, Capital |
Secretary | International, Inc.; Vice President and Associate Counsel, Capital Guardian Trust Company5 | |
Laurie D. Neat, 38 | 2005 | Assistant Vice President and Senior Compliance |
Assistant Secretary | Manager, Capital International, Inc.; Assistant Vice President and Senior Compliance Manager, Capital Guardian Trust Company5 | |
Bryan K. Nielsen, 36 | 2006 | Vice President, Capital International, Inc.; |
Assistant Treasurer | Vice President, Capital Guardian Trust Company5 |
The fund’s statement of additional information (SAI) includes additional information about fund directors. The address for all directors and officers of the fund is 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025, Attention: Secretary.
The fund’s SAI, Proxy Voting Policy and Procedures and proxy voting record for the 12 months ended June 30 are available free of charge on the U.S. Securities and Exchange Commission (SEC) website at sec.gov or upon request by calling 800/421-0180, ext. 96245.
The fund files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website or upon request by calling 800/421-0180, ext. 96245. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. Additional information regarding the operation of the Public Reference Room may be obtained by calling the SEC’s Office of Investor Education and Advocacy at 800/SEC-0330.
1Directors and officers of the fund serve until their resignation, removal or retirement. |
2Capital International, Inc. serves as investment adviser for the fund and does not act as investment adviser for other U.S. registered investment companies. |
3This includes all directorships (other than those in the fund) that are held by each director as a director of a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934 or a company registered as an investment company under the 1940 Act. |
4“Interested persons” within the meaning of the 1940 Act, on the basis of their affiliation with the fund’s investment adviser, Capital International, Inc., or its affiliated entities. |
5Company affiliated with Capital International, Inc. |
Offices of the fund and of the
investment adviser
Capital International, Inc.
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, CA 90025-3302
6455 Irvine Center Drive
Irvine, CA 92618
Custodian of assets
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
Counsel
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006-2401
Independent registered public accounting firm
PricewaterhouseCoopers LLP
350 South Grand Avenue
Los Angeles, CA 90071-2889
This report is for the information of shareholders of Emerging Markets Growth Fund, but it also may 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.
The Capital Group Companies
Capital International Capital Guardian Capital Research and Management Capital Bank and Trust American Funds
Lit. No. MFGEAR-915-0809P (NLS)
Printed in USA TAG/AFD/6391-S20971
© 2009 Emerging Markets Growth Fund, Inc.
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 by dialing 800/421-0180, ext. 96245 or by writing to the Secretary of the Registrant, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, California 90025-3302.
ITEM 3 – Audit Committee Financial Expert
The Registrant’s Board has determined that each member of the Registrant’s Audit Committee, Paul N. Eckley, L. Erik Lundberg, Michael L. Ross and Aje K. Saigal, is an “audit committee financial expert” and "independent," as such terms are defined in this Item. This designation will not increase each 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. 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
Fees billed by the Registrant’s auditors for each of the last two fiscal years, including fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant, and a description of the nature of the services comprising the fees, are listed below:
Registrant:
a) | Audit Fees: |
2008 $128,000
2009 $128,000
b) | Audit- Related Fees: |
2008 none
2009 none
c) | Tax Fees: |
2008 $62,000
2009 $95,000
The tax fees for 2008 and 2009 consist of professional services relating to: preparing the fund’s federal and state income tax returns (2008: $12,000 2009: $12,000); preparing the local tax return and routine tax compliance services in India and Venezuela (2008: $34,000, 2009: $57,000); and other tax services in India and Venezuela (2008: $16,000, 2009: $26,000).
d) | All Other Fees: |
2008 none
2009 none
Adviser and affiliates (includes only fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant and were subject to the pre-approval policies described below):
a) Not applicable
b) Audit- Related Fees:
2008 none
2009 none
c) Tax Fees:
2008 $2,000
2009 $3,000
d) All Other Fees:
2008 none
2009 none
The Registrant’s Audit Committee will pre-approve all audit and permissible non-audit services that the Committee considers compatible with maintaining the auditors’ independence. The pre-approval requirement will extend to all non-audit services provided to the Registrant, the investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. The Committee will not delegate its responsibility to pre-approve these services to the investment adviser. The Committee may delegate to one or more Committee members the authority to review and pre-approve audit and permissible non-audit services. Actions taken under any such delegation will be reported to the full Committee at its next meeting. The pre-approval requirement is waived with respect to non-audit services if certain conditions are met. The pre-approval requirement was not waived for any of the non-audit services listed above provided to the Registrant, adviser, and affiliates.
Aggregate non-audit fees paid to the Registrant’s auditors, including fees for all services billed to the Registrant and the adviser and affiliates that provide ongoing services to the Registrant were $98,000 for fiscal year 2009 and $64,000 for fiscal year 2008. The non-audit services represented by these amounts were brought to the attention of the Committee and considered to be compatible with maintaining the auditors’ independence.
ITEM 5 – Audit Committee of Listed Registrants
Not applicable to this Registrant, as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 – Schedule of Investments
The Schedule of Investments is included in the Annual Report to Shareholders.
ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, as the Registrant is not a closed-end management investment company.
ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, as the Registrant is not a closed-end management investment company.
ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, as the Registrant is not a closed-end management investment company.
ITEM 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a Committee on Directors comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The Committee periodically reviews such issues as the Board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates independent director candidates to the full Board. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Committee, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee.
ITEM 11 – Controls and Procedures
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12 – Exhibits
(a)(1) | The Code of Ethics that is the subject of the disclosure required by Item 2 is attached as an exhibit hereto. |
(a)(2) | 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.
EMERGING MARKETS GROWTH FUND, INC. | |
By /s/ Victor D. Kohn | |
Victor D. Kohn, President and Chief Executive Officer | |
Date: August 28, 2009 |
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/ Victor D. Kohn |
Victor D. Kohn, President and Chief Executive Officer |
Date: August 28, 2009 |
By /s/ Michael A. Felix |
Michael A. Felix, Vice President and Treasurer |
Date: August 28, 2009 |