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, 2010
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
![](https://capedge.com/proxy/N-CSR/0000051931-10-000560/ciilogoletterhead.jpg)
Emerging Markets Growth Fund
[cover: global map]
Annual report for the year ended June 30, 2010
Emerging Markets Growth FundSM seeks long-term growth of capital by investing in companies operating in developing countries around the world.
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 in developing markets involves additional risks, such as significant currency and price fluctuations, political instability, differing securities regulations and periods of illiquidity, which are detailed in the fund’s prospectus. Investments in developing markets have been more volatile than investments in developed markets, reflecting the greater uncertainties of investing in less established economies. Individuals investing in developing markets should have a long-term perspective and be able to tolerate potentially sharp declines in the value of their investments. The expense ratios are as of the fund’s most recent fiscal year-end.
Emerging Markets Growth Fund is a U.S.-domiciled open-end interval fund and redeems on a monthly basis as more fully described in its prospectus. Securities offered through American Funds Distributors,® Inc. Member FINRA/SIPC.
Dear shareholders:
Emerging markets equities ended the fiscal year with strong gains, supported by the recovery of domestic economies, robust corporate earnings, improved exports and firmer commodities demand following the financial crisis in 2008. The net asset value of the Emerging Markets Growth Fund rose 22.8% for the 12-month period, with dividends reinvested, compared with a 24.6% increase for its benchmark, the MSCI Emerging Markets Investable Market Index (IMI).
Stocks extended their sharp rally in the second half of 2009 as the effects of monetary stimulus continued to work their way through the global economic system. In 2010, however, equities succumbed to concerns over credit tightening measures in China and the European sovereign debt crisis. Technology and consumer-related stocks helped drive returns for the fiscal year as economies proved resilient. A number of machinery and construction-related companies also climbed on expectations for long-term infrastructure development in several markets, including Indonesia and India. Materials stocks benefited from the overall improvement in economic growth, with many metals producers rising sharply. In general, smaller markets in Asia and Latin America posted some of the steepest upswings, while Central and Eastern European equities trailed.
Market review
Led by the U.S and emerging Asia, the global economy had gained some traction by the beginning of July 2009. A combination of low interest rates, subdued inflation, inventory rebuilding and better-than-expected corporate results helped boost investors’ appetite for equities. But worries about the likely withdrawal of stimulus measures lingered in the backdrop, along with anxieties about heavy fiscal burdens. Dubai World’s attempted renegotiation of $26 billion in loans also sparked concerns in November, reminding investors of the risks associated with less mature markets. Fears subsided, however, as oil-rich Abu Dhabi issued a $10 billion bailout in December. Stocks registered significant gains over the last six months of 2009, with emerging markets equities outpacing those in the developed world. Emerging markets economies also appeare d to be on more solid footing than the developed world, spurred by strong growth in Asia and rising intra-regional trade.
Manufacturing and exports continued to improve in 2010. China and India resumed breakneck growth rates, while U.S. economic data was largely positive, with the exception of persistently high unemployment and sluggish housing data. By April, the International Monetary Fund (IMF) projected that emerging markets economies would grow 6.3% in 2010, fueled by an 8.7% advance in Asia, while the developed world would expand 2.3%. However, China’s credit crackdown and Greece’s potential debt default muted expectations for the immediate future. By spring, the fiscal situation in Greece had developed into a full-blown crisis, and wavering investor confidence over other highly indebted southern European nations contributed to the market slide that began in April. Several European governments approved sharp budget cuts in an effort to reduce their d eficits, and after several rounds of negotiations, the European Union and IMF agreed to provide relief in the form of loans and other financial guarantees totaling more than $1 trillion. However, questions remained whether the bailout would be enough to solve the structural problems facing Southern Europe.
[Begin Sidebar]
Results at a glance | ||||||||||||||||||||||||
For periods ended June 30, 2010, with distributions reinvested | ||||||||||||||||||||||||
Total returns | Average annual total returns | |||||||||||||||||||||||
Lifetime | ||||||||||||||||||||||||
6 months | 1 year | 3 years | 5 years | 10 years | (since 5/30/86) | |||||||||||||||||||
Emerging Markets Growth Fund | –5.5 | % | 22.8 | % | –0.7 | % | 15.5 | % | 9.7 | % | 16.8 | % | ||||||||||||
MSCI Emerging Markets IMI1 | –5.7 | 24.6 | –1.9 | 13.1 | 10.2 | 12.3 | 2 | |||||||||||||||||
MSCI Emerging Markets Index3 | –6.2 | 23.2 | –2.5 | 12.7 | 10.0 | 12.2 | 2 | |||||||||||||||||
1 Returns for the MSCI Emerging Markets Investable Market Index (IMI) 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 IMI with net dividends thereafter. The indices are unmanaged and do not reflect the effect of sales charges, commissions or expenses. | ||||||||||||||||||||||||
2 The MSCI Emerging Markets Index did not start until December 31, 1987. As a result, the International Finance Corporation (IFC) Global Composite Index was used in lieu of the MSCI Emerging Markets Index from May 30, 1986 to December 31, 1987. | ||||||||||||||||||||||||
3 Reflects gross dividends through December 31, 2000 and net dividends thereafter. The index is unmanaged and does not reflect the effect of sales charges, commissions or expenses. |
Percentage changes for markets and sectors are based on the MSCI Emerging Markets Investable Market Index, with net dividends reinvested, and are for the year ended June 30, 2010, unless otherwise noted. All returns and stock prices are reflected in U.S. dollars, unless otherwise noted.
[End Sidebar]
China curbed credit at a steady pace. The Chinese government hiked bank reserve requirements three times in the first half of 2010 and stepped up its efforts to limit speculation in the country’s booming property market, including increasing down payment requirements and placing limits on loans for third-home purchases. Chinese GDP grew a faster-than-anticipated 11.9% in the first quarter of 2010, though the pace was expected to moderate throughout the remainder of the year given the likely impact of tightening measures on the economy. Exports climbed 35% in the first six months of 2010; household consumption also grew rapidly, underscoring the economy’s gradual transition from a heavy reliance on exports to more domestic consumer-driven growth. China announced at the end of June that it would allow greater currency flexibility; the ren minbi ended the fiscal year up 0.7%.
Other developing economies also continued to expand, affording authorities in India, Malaysia and Brazil the flexibility to lift interest rates in an effort to stave off rising inflationary pressures. Brazil’s economy rose a better-than-expected 9% in the first quarter compared with a year earlier. Amid fears that the economy might overheat, Brazil’s central bank boosted its key lending rate, the Selic, by 75 basis points to 9.5% in late April and by another 75 basis points, to 10.25%, in June.
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10 largest equity holdings | ||||||||
Percent of price | ||||||||
change for the | ||||||||
Percent of net assets as | 12 months ended | |||||||
of 6/30/10 | 6/30/10* | |||||||
Samsung Electronics | 2.8 | % | 34.7 | % | ||||
América Móvil | 2.6 | 22.7 | ||||||
OAO Gazprom | 2.4 | –7.7 | ||||||
LG Chem | 2.3 | 102.1 | † | |||||
China Shenhua Energy | 1.9 | –1.2 | ||||||
Reliance Industries | 1.8 | 10.1 | ||||||
Petróleo Brasileiro – Petrobras | 1.7 | –13.5 | ||||||
Banpu | 1.7 | 89.1 | ||||||
Taiwan Semiconductor | 1.6 | 12.4 | ||||||
Industrial and Commercial Bank of China | 1.5 | 3.1 | ||||||
Total | 20.3 | % | ||||||
*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. | ||||||||
† The security was not held by the fund on June 30, 2009, but was purchased during the 12 months ended June 30, 2010. The percentage reflects the change in price subsequent to the purchase of the security by the fund. |
[End Sidebar]
As inflation continued to spike, the Reserve Bank of India raised its key lending rate twice in April, to 5.25%, following an earlier increase in March. India’s first-quarter GDP advanced 8.6%, supported by a rise in manufacturing and personal income. Investors cheered the release of the nation’s budget in early 2010, which highlighted the government’s intention to cut its deficit by more than one percentage point to 5.5% of GDP. Multibillion dollar revenues generated by an intense government auction of third-generation wireless licenses in May were expected to help further reduce the deficit. Elsewhere, Russia and South Africa bucked the broader trend by lowering interest rates to help boost economic recovery. Both countries showed signs of growth during the period.
On balance, the stock market volatility experienced in the first half of 2010 did little to offset the strong upturn in the latter part of 2009. Emerging markets stocks managed to end the fiscal year up by about a quarter, compared with a 14% bump for the unmanaged Standard & Poor’s 500 Composite Index and slighter increases in Europe. Most Asian and Latin American currencies appreciated against the U.S. dollar and registered even further gains against the euro for the period. However, they lost some ground to the dollar in the first six months of 2010. Central and Eastern European currencies depreciated.
[Begin Sidebar]
Where the fund’s assets were invested | ||||||||||||||||||||||||
MSCI | Value of | |||||||||||||||||||||||
Percent of net assets | EM IMI1 | holdings | ||||||||||||||||||||||
6/30/10 | ||||||||||||||||||||||||
6/30/08 | 6/30/09 | 12/31/09 | 6/30/10 | 6/30/10 | (000 | ) | ||||||||||||||||||
Asia-Pacific | ||||||||||||||||||||||||
China | 11.0 | % | 19.1 | % | 18.2 | % | 17.0 | % | 18.9 | % | $ | 2,190,867 | ||||||||||||
Hong Kong | .8 | 1.1 | .7 | 1.2 | — | 160,087 | ||||||||||||||||||
India | 5.4 | 9.7 | 9.3 | 10.8 | 9.0 | 1,391,289 | ||||||||||||||||||
Indonesia | 3.1 | 2.1 | 2.3 | 3.6 | 2.4 | 468,035 | ||||||||||||||||||
Malaysia | 3.2 | 3.0 | 3.5 | 3.3 | 3.0 | 421,726 | ||||||||||||||||||
Pakistan | .1 | .1 | .1 | .1 | — | 13,144 | ||||||||||||||||||
Philippines | .9 | 1.1 | 1.1 | 1.0 | .5 | 121,610 | ||||||||||||||||||
Singapore | .8 | .8 | .9 | 1.0 | — | 131,695 | ||||||||||||||||||
South Korea | 8.8 | 7.8 | 10.1 | 9.1 | 13.6 | 1,177,220 | ||||||||||||||||||
Sri Lanka | .1 | .1 | .1 | — | — | 5,760 | ||||||||||||||||||
Taiwan | 8.3 | 6.2 | 6.9 | 6.6 | 12.0 | 853,590 | ||||||||||||||||||
Thailand | 2.0 | 1.7 | 1.9 | 2.3 | 1.7 | 291,817 | ||||||||||||||||||
Vietnam | .1 | .1 | .1 | — | — | 4,564 | ||||||||||||||||||
44.6 | 52.9 | 55.2 | 56.0 | 61.1 | 7,231,404 | |||||||||||||||||||
Latin America | ||||||||||||||||||||||||
Argentina | 1.0 | .1 | .1 | .1 | — | 12,929 | ||||||||||||||||||
Brazil | 8.0 | 11.5 | 12.5 | 10.7 | 14.3 | 1,383,885 | ||||||||||||||||||
Chile | 1.1 | 1.3 | .8 | .6 | 1.5 | 71,568 | ||||||||||||||||||
Colombia | .3 | .2 | — | — | .7 | — | ||||||||||||||||||
Jamaica | — | .1 | .1 | — | — | — | ||||||||||||||||||
Mexico | 7.8 | 8.0 | 6.4 | 6.0 | 4.1 | 774,032 | ||||||||||||||||||
Peru | .1 | .1 | — | — | .6 | 1,096 | ||||||||||||||||||
18.3 | 21.3 | 19.9 | 17.4 | 21.2 | 2,243,510 | |||||||||||||||||||
Eastern Europe and Middle East | ||||||||||||||||||||||||
Croatia | .1 | — | — | — | — | — | ||||||||||||||||||
Czech Republic | .1 | .8 | .8 | .6 | .4 | 79,493 | ||||||||||||||||||
Hungary | — | .2 | — | .1 | .4 | 11,191 | ||||||||||||||||||
Israel | 1.7 | 1.2 | 1.5 | 1.3 | — | 2 | 164,078 | |||||||||||||||||
Oman | .3 | .1 | .1 | .2 | — | 20,406 | ||||||||||||||||||
Poland | .8 | 1.1 | 1.1 | 1.0 | 1.4 | 124,784 | ||||||||||||||||||
Russia | 13.2 | 5.2 | 5.1 | 5.2 | 5.7 | 663,477 | ||||||||||||||||||
Saudi Arabia | — | — | — | .3 | — | 40,360 | ||||||||||||||||||
Turkey | 1.2 | 1.5 | 1.2 | 1.4 | 1.8 | 181,325 | ||||||||||||||||||
United Arab Emirates | .2 | — | .1 | — | — | — | ||||||||||||||||||
17.6 | 10.1 | 9.9 | 10.1 | 9.7 | 1,285,114 | |||||||||||||||||||
Africa | ||||||||||||||||||||||||
Egypt | 2.2 | .8 | .4 | .1 | .5 | 19,043 | ||||||||||||||||||
Morocco | .1 | .1 | .1 | .1 | .2 | 12,397 | ||||||||||||||||||
South Africa | 7.0 | 5.4 | 5.4 | 4.6 | 7.3 | 589,076 | ||||||||||||||||||
9.3 | 6.3 | 5.9 | 4.8 | 8.0 | 620,516 | |||||||||||||||||||
Other markets3 | ||||||||||||||||||||||||
Australia | — | .3 | .6 | .6 | 73,604 | |||||||||||||||||||
Canada | .5 | .3 | .5 | .6 | 77,412 | |||||||||||||||||||
Germany | .1 | — | — | — | — | |||||||||||||||||||
Italy | — | .5 | — | — | — | |||||||||||||||||||
Netherlands | .8 | .2 | .2 | — | — | |||||||||||||||||||
United Kingdom | 1.9 | .3 | 1.4 | 1.2 | 150,637 | |||||||||||||||||||
United States of America | .5 | .6 | .5 | .8 | 108,289 | |||||||||||||||||||
3.8 | 2.2 | 3.2 | 3.2 | 409,942 | ||||||||||||||||||||
Multinational | .6 | .7 | .6 | .6 | 76,447 | |||||||||||||||||||
Other4 | 1.0 | 2.0 | 1.1 | 2.5 | 317,830 | |||||||||||||||||||
Other assets less liabilities (including | ||||||||||||||||||||||||
forward currency contracts) | 4.8 | 4.5 | 4.2 | 5.4 | 693,435 | |||||||||||||||||||
Total net assets | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | $ | 12,878,198 | ||||||||||||||
1 A dash indicates that the market is not included in the index. Source: MSCI. | ||||||||||||||||||||||||
2 Israel was removed from the MSCI EM IMI and placed in the MSCI World Index in May 2010. | ||||||||||||||||||||||||
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]
Asia’s expanding consumer base, combined with a jump in consumer confidence, supported strong returns in the consumer staples and discretionary sectors, especially among automakers and retailers. South Korea’s Hyundai Mobis and LG Chem were major contributors to index returns for the 12 months. Indonesian conglomerate Astra International shot up nearly 126%; car sales in the country rose 20% in the first six months of 2010. Shares of food and household goods producers also ratcheted higher as local companies continued to expand market share.
[Begin Sidebar]
Percent change in key markets* | ||||||||||||||||
12 months | 6 months | |||||||||||||||
ended 6/30/10 | ended 6/30/10 | |||||||||||||||
Expressed | Expressed | Expressed | Expressed | |||||||||||||
in U.S. | in local | in U.S. | in local | |||||||||||||
dollars | currency | dollars | currency | |||||||||||||
Asia-Pacific | ||||||||||||||||
China | 12.5 | % | 13.0 | % | –6.3 | % | –5.9 | % | ||||||||
India | 34.1 | 30.0 | 3.1 | 2.9 | ||||||||||||
Indonesia | 60.3 | 42.4 | 14.2 | 10.2 | ||||||||||||
Malaysia | 34.6 | 23.9 | 10.0 | 4.0 | ||||||||||||
Philippines | 44.3 | 39.0 | 10.4 | 10.6 | ||||||||||||
South Korea | 29.8 | 24.5 | –3.9 | .8 | ||||||||||||
Taiwan | 17.7 | 15.3 | –12.4 | –12.0 | ||||||||||||
Thailand | 41.0 | 34.1 | 12.3 | 9.1 | ||||||||||||
Latin America | ||||||||||||||||
Brazil | 25.1 | 15.0 | –14.7 | –11.8 | ||||||||||||
Chile | 26.0 | 30.0 | 3.7 | 12.0 | ||||||||||||
Colombia | 55.2 | 38.6 | 14.1 | 7.1 | ||||||||||||
Mexico | 32.4 | 29.5 | –1.8 | –3.1 | ||||||||||||
Peru | 50.4 | 50.2 | 4.5 | 4.4 | ||||||||||||
Eastern Europe and Middle East | ||||||||||||||||
Czech Republic | 2.4 | 15.8 | –11.3 | 1.1 | ||||||||||||
Hungary | 14.8 | 37.5 | –21.5 | –3.0 | ||||||||||||
Poland | 22.2 | 29.6 | –18.0 | –3.3 | ||||||||||||
Russia | 27.7 | 28.1 | –9.4 | –6.9 | ||||||||||||
Turkey | 45.5 | 49.9 | –.6 | 5.0 | ||||||||||||
Africa | ||||||||||||||||
Egypt | 7.9 | 9.8 | –2.9 | .6 | ||||||||||||
Morocco | –10.9 | –.5 | 2.7 | 17.0 | ||||||||||||
South Africa | 19.8 | 18.9 | –4.6 | –.6 | ||||||||||||
Emerging Markets Growth Fund | 22.8 | –5.5 | ||||||||||||||
*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]
Technology heavyweights such as South Korea’s Samsung Electronics also advanced, with the company reporting that first-quarter profits had increased sevenfold amid a recovery in chip demand. Samsung also announced it would double capital expenditures in 2010 to $16 billion in a bid to maintain its dominant position in the computer chip and LCD display industries. In general, global chipmakers rushed to expand their production facilities amid robust sales of new devices such as smartphones and tablet personal computers. Indian information technology service providers such as Infosys Technologies also registered substantial gains as companies won additional outsourcing business in Western markets.
The Thomson Reuters/Jefferies CRB Index of 19 commodity futures edged up over the period, despite sliding from its peak in early January. Shares of Brazilian iron ore producer Vale climbed nearly 40% on soaring iron ore prices. In a landmark shift, several iron ore producers abandoned a 40-year-old annual contract system, opting instead for short-term deals based on spot prices.
Real estate stocks trailed as credit availability was reduced. Telecommunication services also struggled amid fierce competition and slower mobile growth rates as more mature wireless markets reached their saturation points. The sector witnessed some consolidation, with Indian wireless firm Bharti Airtel announcing in February its intention to purchase $10.7 billion of Kuwaiti provider Zain’s African assets after last year’s highly anticipated deal with South Africa’s MTN fell through. Latin America’s largest wireless company, América Móvil, also acquired fixed-line provider Telmex Internacional in 2010.
Most Asian markets notched double-digit returns. Indonesian stocks jumped 60% as political and economic reforms initiated after the 1997–1998 Asian financial crisis began to bear fruit. In March, Standard & Poor’s raised the country’s credit rating to its highest level in more than a decade. India, South Korea and Malaysia also rose significantly amid broader economic improvements and an upsurge in exports. The MSCI China IMI rose 12.5%. Chinese consumer companies posted some of the most pronounced gains as consumer confidence rallied steadily over the period and household income increased in cities and rural areas. Property stocks suffered, hurt by government measures to cool the real estate market. Taiwanese equities lagged slightly, constrained by financials stocks. Thailand edged up 41%, despite increased political turmoil that led to violent anti-government riots and the burning of numerous buildings, including Bangkok’s stock exchange.
Metals producers helped bolster the Brazilian and Russian markets, though oil stocks such as Petrobras and Gazprom fell. Mexican stocks climbed 32%, with the economy emerging from recession in the third quarter of 2009. In February a major earthquake in Chile left at least 700 dead; roads were blocked, infrastructure damaged and mine production halted. Chilean equities nonetheless ended the period up 26%, buoyed by banks and retailers. Colombian stocks rallied as investors celebrated the victory of president-elect Juan Manuel Santos, a defense minister in outgoing president Álvaro Uribe’s government.
Elsewhere, Israel made the transition to developed-market status in May. Turkey’s stock market shot up over 45% for the 12-month period, supported by banks and shrugging off a fresh bout of political instability when more than 40 military officers were detained in an alleged plot to derail the government in February. South Africa — host of the 2010 FIFA World Cup, which kicked off in June — ended the fiscal year up 20%.
Markets in Hungary and the Czech Republic dragged amid concerns about their economies’ exposure to the European debt crisis. Poland fared better, despite political uncertainty following the tragic April death of its president, Lech Kaczynski, and dozens of other senior officials, who were killed when their plane crashed in Russia.
Portfolio review
The fund registered steep gains for the year, but slightly trailed the benchmark. Investments in the materials and consumer areas shined overall amid robust growth in domestic economies. Stock selection in China also had a powerful impact on portfolio returns.
Commodity-related investments boosted fund results, particularly holdings in Vale, as the iron ore producer benefited from the shift to quarterly contracts. Nine Dragons Paper, China’s biggest manufacturer of containerboard for packaging, also advanced sharply as exports climbed. Meanwhile, Thai coal company Banpu experienced an uptick as it increased production capacity in an ongoing effort to meet Asia’s escalating energy needs.
Domestic demand for infrastructure further spurred holdings, benefiting Indonesian cement companies Semen Gresik and Indocement and India’s Jain Irrigation. Portfolio managers returned from research trips to both countries with generally positive views on their prospects for infrastructure development against a backdrop of economic growth and reform. Construction-related firms in Latin America, such as Brazil’s Cia. de Concessões de Rodoviárias (CCR), also advanced over the period.
Auto-related holdings throughout Asia surged. Shares of Chinese hybrid battery manufacturer BYD soared 84%, helped, in part, by government tax cuts and subsidies aimed at boosting demand, especially for energy-efficient vehicles. Leading diesel engine maker Weichai Power also climbed, with its yearly profits supported by recovering demand for heavy trucks. Shares of South Korea’s LG Chem rocketed more than 127% over the year as the battery producer solidified joint ventures with companies such as Hyundai-Kia and General Motors. Investments in South Korea’s Hyundai Mobis and Hankook Tire further contributed to results, as did holdings in Indonesian auto conglomerate Astra International. In recent months, however, several of the fund’s managers have grown wary of some Asian automakers in the wake of dramatic share price run-ups.
Other consumer-related investments lifted fund returns as household consumption in markets such as China expanded. Domestically oriented companies in several emerging markets countries also made successful strides to further establish local brand names. Chinese sportswear firm ANTA helped lead gains, along with Chilean retailer Falabella, which has a burgeoning presence in Colombia and Peru. Brazilian household and beauty products manufacturer Hypermarcas, Indian beverage maker United Spirits and Russian supermarket chain Magnit also realized healthy increases.
Technology stocks were mixed but provided a few favorable contributors. Buoyed by greater demand for new products and smartphones, powerhouse Samsung Electronics achieved record-breaking profits in its first quarter and was up 35% for the fund’s fiscal year. Meanwhile, shares of Internet portal company Tencent jumped 42% as China’s online gaming and instant messaging markets boomed. On the other hand, Brazilian credit card processor Redecard slid in the first half of 2010 due, in part, to the government’s plan to force the company to reduce fees to retailers.
Telecommunications providers hindered portfolio returns, particularly India’s Bharti Airtel, which slid more than 30% amid fierce domestic competition and its acquisition of Kuwaiti provider Zain’s African assets. Competition in India intensified in May as firms vied for much-coveted licenses to deliver third-generation mobile phone services throughout the country. Bharti paid about $2.6 billion in licensing fees for the critical areas of Delhi and Mumbai. Although Bharti will most likely remain a leader in India’s rapidly expanding wireless universe, increased market rivalry and the costs related to licensing and the Zain acquisition have become a concern. Investments in South Africa’s MTN also slumped, with shares down 15% for the period. MTN — the country’s largest telecommunications provider — suffered as weaker-than-expected subscriber growth weighed on annual profits.
Chinese real estate stocks declined during the period following substantial gains in the first half of 2009 when the country’s property market soared. As 2010 began, fears over a potential real estate bubble, the subsequent implementation of additional credit restraints and property restrictions weighed heavily on investments. China Resources Land, China Vanke, Sino-Ocean Land and China Overseas Land & Investment faltered. Several infrastructure-related stocks in China also declined amid sluggish demand and worries about a slowdown in the market.
A handful of commodity investments also struggled, including Russia’s Gazprom and Brazil’s Petrobras. Shares of the latter dipped 14%, hampered by uncertainty surrounding its deal to buy oil reserves from the government. The company also delayed a much-awaited $25 billion share offering until September, further disappointing investors. Australian-based uranium producer, Paladin Energy, which has considerable assets in Africa, languished amid a forecasted drop in its annual production.
Outlook
The fiscal year began with equities extending a buoyant rally as massive stimulus plans continued to provide relief to a hobbled economy. The world began a period of readjustment in 2010, as authorities in China and other emerging markets such as India and Brazil initiated tightening measures. During the spring, the escalation of Europe’s debt crisis dashed hopes for sustained global economic recovery and triggered a deep market spiral through late May. Throughout this period, emerging markets economies continued to show strong signs of growth, but markets remained volatile.
Concerns about the impact of the European debt crisis are likely to linger in the near term. As a consequence, several smaller emerging markets economies with considerable debt burdens — primarily those in Central and Eastern Europe — may come under additional pressure. Despite this, the developing world is generally in better shape than the developed world and appears well positioned to continue on that path. Asia remains anchored by substantial currency reserves and healthy balance sheets. Countries with substantial exports to Europe, such as Korea and Taiwan, may suffer in the short term, especially in the machinery area. But domestic economies should remain relatively strong on the whole, while trade among developing economies continues to expand, particularly in Asia. Greater flexibility in China’s currency policy is also lik ely to prove favorable both domestically and globally, as a gradual appreciation of the renminbi would help shift the economy toward an increased consumption base while simultaneously rebalancing trade.
Against this backdrop, portfolio managers and analysts favor consumer companies that stand to benefit from credit growth and rising consumption in local Asian markets. Managers also remain interested in infrastructure-related firms poised to profit from urbanization and development trends in countries such as India and Indonesia. China’s property market has cooled following the recent credit tightening. Some of our analysts and managers believe that further restrictions are likely to be more subdued in upcoming months, and they are augmenting their investments in a handful of Chinese companies based on share price weakness. Overall, fund managers continue to find opportunities among well-capitalized banks in Asia.
Credit and consumer growth in Latin America has also been robust. However, some managers have become less enthusiastic about Brazilian financial and consumer stocks, as they are concerned about valuations and uncertainty over the upcoming presidential election.
In general, the fund’s managers and analysts are optimistic about technology firms over the long term, but believe there is considerable potential for correction in the near future. As a result, investments that are likely to suffer from decreased European demand in the short term have been trimmed, while those with exposure to global demand for newer products provide greater appeal.
Energy and materials companies that have unique access to natural resources also feature prominently in the portfolio, with notable holdings invested in commodities producers. Energy needs in the developing world are expected to ramp up significantly over the next decade. Fund analysts particularly like the major oil firms that are trading at attractive valuations relative to their assets, as well as several Asian coal producers that are apt to dominate, especially as wage pressures increase.
Telecommunications providers continue to be an area of importance for the portfolio, particularly those that still have considerable opportunities to expand within local markets, such as Turkey and Poland. Wireless markets in Latin America are more mature, with few stand-alone mobile businesses remaining, but broadband providers are gaining significance and offer opportunities, in the view of our analysts.
Although world markets may witness near-term volatility as the European debt crisis continues to unfold, the developing world appears to have come through the recent crises stronger and healthier than the developed world. Currencies have appreciated, politics are more supportive than in the past and corporate governance has improved. Given these factors, our managers believe that emerging markets continue to offer myriad opportunities.
We look forward to reporting to you again in another six months.
Sincerely,
/s/ Victor D. Kohn
Victor D. Kohn
President
August 16, 2010
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 (EMGF) grew from December 31, 1987 — the inception of the MSCI Emerging Markets Index — through June 30, 2010, the end of the fund’s latest fiscal year.
As you can see, the $100,000 would have grown to $3,025,275. This is significantly more than the $1,608,057 generated by the unmanaged MSCI EM Index.
[begin mountain chart]
Values of a $100,000 investment in EMGF from 12/31/1987-6/30/2010: | Emerging Markets Growth Fund2 | MSCI Emerging Markets Index3 | ||||||
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 | ||||||
12/31/2009 | 3,200,168 | 1,704,887 | ||||||
6/30/2010 | 3,025,275 | 1,608,057 |
1The minimum initial investment for EMGF is $100,000. |
2Values are based on a $100,000 investment with distributions reinvested. |
3Returns for the MSCI Emerging Markets Index 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, 2010) | ||||||||
Cumulative | Average annual | |||||||
total returns | total returns | |||||||
1 year | 22.8 | % | — | |||||
5 years | 105.6 | 15.5 | % | |||||
10 years | 152.4 | 9.7 |
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.,SM has been investment adviser for the fund since 1986. It is part of The Capital Group Companies, Inc.,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 spanning three continents. This network includes analysts and portfolio managers, from more than 30 countries, who speak a variety of languages. These professionals travel t he world scrutinizing thousands of companies and keeping a close watch on industry trends and government actions.
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, 2010
Equity securities | ||||||||||||||||||||
Sector diversification | Common stocks | Preferred stocks | Convertible stocks | Bonds and notes | Percent of net assets | |||||||||||||||
Financials | 16.30 | % | 1.40 | % | .14 | % | .04 | % | 17.88 | % | ||||||||||
Information technology | 13.32 | - | - | - | 13.32 | |||||||||||||||
Materials | 11.61 | 1.61 | - | .09 | 13.31 | |||||||||||||||
Energy | 11.49 | .22 | - | - | 11.71 | |||||||||||||||
Telecommunication services | 10.30 | .49 | - | - | 10.79 | |||||||||||||||
Consumer staples | 8.41 | .25 | - | - | 8.66 | |||||||||||||||
Consumer discretionary | 7.32 | .10 | - | .01 | 7.43 | |||||||||||||||
Industrials | 6.39 | - | - | - | 6.39 | |||||||||||||||
Utilities | 1.84 | 1.04 | - | - | 2.88 | |||||||||||||||
Health care | .75 | - | .02 | - | .77 | |||||||||||||||
Other | 1.22 | - | - | .25 | 1.47 | |||||||||||||||
88.95 | % | 5.11 | % | .16 | % | .39 | % | 94.61 | % | |||||||||||
Short-term securities | 4.34 | |||||||||||||||||||
Other assets less liabilities (including forward currency contracts) | 1.05 | |||||||||||||||||||
Net assets | 100.00 | % |
Equity securities | Value | |||||||
Shares | (000 | ) | ||||||
Asia-Pacific - 56.12% | ||||||||
China - 16.99% | ||||||||
361 Degrees International Ltd. (Hong Kong) | 24,418,000 | $ | 17,404 | |||||
AirMedia Group Inc. (ADR) (1) | 92,607 | 289 | ||||||
Alibaba.com Ltd. (Hong Kong) (1) | 18,207,000 | 35,933 | ||||||
Anhui Conch Cement Co. Ltd. | 7,307,436 | 17,222 | ||||||
Anhui Conch Cement Co. Ltd. (Hong Kong) | 10,050,000 | 29,110 | ||||||
ANTA Sports Products Ltd. (Hong Kong) | 20,200,600 | 36,370 | ||||||
Bank of China Ltd. (Hong Kong) | 336,699,000 | 169,861 | ||||||
BaWang International (Group) Holding Ltd. (Hong Kong) | 58,800,000 | 41,751 | ||||||
Beijing Enterprises Holdings Ltd. (Hong Kong) | 6,455,500 | 41,936 | ||||||
BYD Co. Ltd. (Hong Kong) | 7,948,200 | 58,590 | ||||||
Changyou.com Ltd., Class A (ADR) (1) | 414,900 | 10,729 | ||||||
China Construction Bank Corp. (Hong Kong) | 111,052,600 | 89,370 | ||||||
China Dongxiang (Group) Co. Ltd. (Hong Kong) | 37,013,000 | 24,622 | ||||||
China High Speed Transmission Equipment Group Co. Ltd. (Hong Kong) | 6,937,600 | 14,555 | ||||||
China Life Insurance Co. Ltd. | 1,407,973 | 5,094 | ||||||
China Life Insurance Co. Ltd. (Hong Kong) | 20,530,000 | 90,191 | ||||||
China Longyuan Power Group Corp. Ltd. (Hong Kong) (1) | 33,565,000 | 30,820 | ||||||
China Mengniu Dairy Co. (Hong Kong) | 18,625,000 | 60,389 | ||||||
China Mobile Ltd. (Hong Kong) | 3,143,000 | 31,325 | ||||||
China National Offshore Oil Corp. (Hong Kong) | 4,864,000 | 8,292 | ||||||
China Overseas Land & Investment Ltd. (Hong Kong) | 27,299,206 | 50,852 | ||||||
China Railway Construction Corp. Ltd. | 543,800 | 575 | ||||||
China Railway Construction Corp. Ltd. (Hong Kong) | 64,166,000 | 80,424 | ||||||
China Railway Group Ltd. (Hong Kong) (1) | 11,951,000 | 7,663 | ||||||
China Resources Enterprise Ltd. (Hong Kong) | 2,540,000 | 9,365 | ||||||
China Resources Land Ltd. (Hong Kong) | 1,867,000 | 3,506 | ||||||
China Shanshui Cement Group Ltd. (Hong Kong) | 41,183,000 | 18,254 | ||||||
China Shenhua Energy Co. Ltd. (1) | 1,309,200 | 4,214 | ||||||
China Shenhua Energy Co. Ltd. (Hong Kong) | 65,163,000 | 236,335 | ||||||
China Vanke Co. Ltd. | 1,527,100 | 1,514 | ||||||
China Yurun Food Group Ltd. (Hong Kong) | 15,458,000 | 48,389 | ||||||
Ctrip.com International, Ltd. (ADR) (1) | 782,960 | 29,408 | ||||||
Fu Ji Food and Catering Services Holdings Ltd. (Hong Kong) (1) | 15,126,000 | 21 | ||||||
GCL-Poly Energy Holdings Ltd. (Hong Kong) (1) | 46,284,000 | 8,633 | ||||||
Giant Interactive Group Inc. (ADR) | 2,032,800 | 13,986 | ||||||
GOME Electrical Appliances Holding Ltd. (Hong Kong) (1) | 16,714,930 | 5,050 | ||||||
Hengan International Group Co. Ltd. (Hong Kong) | 3,817,500 | 30,803 | ||||||
Hopewell Highway Infrastructure Ltd. (Hong Kong) | 4,088,400 | 2,868 | ||||||
Industrial and Commercial Bank of China Ltd. | 26,847,500 | 15,985 | ||||||
Industrial and Commercial Bank of China Ltd. (Hong Kong) | 240,705,000 | 174,778 | ||||||
Kingboard Chemical Holdings Ltd. (Hong Kong) | 6,248,500 | 26,747 | ||||||
Kingboard Laminates Holdings Ltd. (Hong Kong) | 18,220,000 | 15,242 | ||||||
Lenovo Group Ltd. (Hong Kong) | 29,374,000 | 15,762 | ||||||
Li Ning Co. Ltd. (Hong Kong) | 29,487,000 | 96,518 | ||||||
Longfor Properties Co. Ltd. (Hong Kong) | 49,968,000 | 49,990 | ||||||
Man Wah Holdings Ltd. (Hong Kong) (1) | 19,111,000 | 18,518 | ||||||
Mindray Medical International Ltd., Class A (ADR) | 209,700 | 6,589 | ||||||
Minth Group Ltd. (Hong Kong) | 23,980,000 | 28,369 | ||||||
NetDragon Websoft Inc. (Hong Kong) | 6,497,500 | 2,931 | ||||||
NetEase.com, Inc. (ADR) (1) | 204,300 | 6,478 | ||||||
New Oriental Education & Technology Group Inc. (ADR) (1) | 210,500 | 19,616 | ||||||
Nine Dragons Paper (Holdings) Ltd. (Hong Kong) | 34,715,200 | 46,923 | ||||||
Parkson Retail Group Ltd. (Hong Kong) | 7,067,000 | 11,930 | ||||||
Perfect World Co. Ltd., Class B (ADR) (1) | 801,000 | 17,630 | ||||||
Ports Design Ltd. (Hong Kong) | 9,926,500 | 25,291 | ||||||
Shanda Games Ltd., Class A (ADR) (1) | 1,224,300 | 7,113 | ||||||
Shanghai Forte Land Co. Ltd. (Hong Kong) | 7,550,000 | 1,975 | ||||||
Shanghai Prime Machinery Co. Ltd. (Hong Kong) | 7,304,000 | 1,243 | ||||||
Shanghai Zhixin Electric Co. Ltd. | 4,305,267 | 10,927 | ||||||
Suntech Power Holdings Co. Ltd. (ADR) (1) | 1,837,800 | 16,853 | ||||||
Tencent Holdings Ltd. (Hong Kong) | 1,634,400 | 26,952 | ||||||
Tingyi (Cayman Islands) Holding Corp. (Hong Kong) | 11,094,000 | 26,958 | ||||||
Weichai Power Co. Ltd. (Hong Kong) | 9,310,600 | 59,831 | ||||||
Wumart Stores, Inc. (Hong Kong) | 21,931,384 | 39,291 | ||||||
Xinao Gas Holdings Ltd. (Hong Kong) | 4,630,000 | 10,069 | ||||||
Zhongsheng Group Holdings Ltd. (Hong Kong) (1) | 24,391,000 | 29,861 | ||||||
Zhuzhou CSR Times Electric Co. Ltd. (Hong Kong) | 5,717,000 | 12,098 | ||||||
2,188,181 | ||||||||
Hong Kong - 1.24% | ||||||||
ASM Pacific Technology Ltd. | 1,907,700 | 14,834 | ||||||
BOC Hong Kong (Holdings) Ltd. | 4,247,000 | 9,654 | ||||||
First Pacific Co. Ltd. | 71,487,658 | 48,369 | ||||||
Hopewell Holdings Ltd. | 11,276,000 | 31,716 | ||||||
Sands China Ltd. (1) | 6,110,000 | 8,969 | ||||||
United Company RUSAL PLC (1) | 29,568,000 | 26,720 | ||||||
VTech Holdings Ltd. | 1,860,000 | 19,825 | ||||||
160,087 | ||||||||
India - 10.80% | ||||||||
Ambuja Cements Ltd. | 7,274,930 | 17,802 | ||||||
Apollo Hospitals Enterprise Ltd. | 1,222,966 | 19,673 | ||||||
Apollo Hospitals Enterprise Ltd. (GDR) | 233,800 | 3,761 | ||||||
Bharat Electronics Ltd. | 380,971 | 14,157 | ||||||
Bharti Airtel Ltd. | 29,211,460 | 163,814 | ||||||
Colgate-Palmolive Ltd. | 424,489 | 7,584 | ||||||
Cox and Kings Ltd. (1) | 1,624,647 | 16,109 | ||||||
Cummins India Ltd. | 1,182,073 | 15,082 | ||||||
DLF Ltd. | 28,611,291 | 175,595 | ||||||
Everest Kanto Cylinder Ltd. | 1,783,035 | 5,117 | ||||||
GMR Infrastructure Ltd. (1) | 5,784,000 | 7,311 | ||||||
HDFC Bank Ltd. | 1,726,216 | 71,038 | ||||||
HDFC Bank Ltd. (ADR) | 1,600 | 229 | ||||||
Housing Development Finance Corp. Ltd. | 1,755,095 | 110,247 | ||||||
ICICI Bank Ltd. | 2,486,835 | 45,602 | ||||||
ICICI Bank Ltd. (ADR) | 1,136,100 | 41,059 | ||||||
Infosys Technologies Ltd. | 568,267 | 33,960 | ||||||
Infrastructure Development Finance Co. Ltd. | 18,377,391 | 69,832 | ||||||
ITC Ltd. | 865,340 | 5,651 | ||||||
IVRCL Infrastructures & Projects Ltd. | 3,033,944 | 12,060 | ||||||
Jain Irrigation Systems Ltd. | 2,599,523 | 59,408 | ||||||
Kotak Mahindra Bank Ltd. | 383,700 | 6,299 | ||||||
McLeod Russel India Ltd. | 3,634,012 | 15,524 | ||||||
Multi Screen Media Private Ltd. (acquired 5/15/00, cost: $107,294,000) (1) (2) | 284,195 | 18,609 | ||||||
Pantaloon Retail (India) Ltd. | 2,367,636 | 20,961 | ||||||
Reliance Industries Ltd. | 10,174,253 | 237,067 | ||||||
Sanghvi Movers Ltd. | 819,991 | 3,337 | ||||||
Shopper's Stop Ltd. (1) | 1,005,300 | 12,153 | ||||||
Sobha Developers Ltd. | 3,594,606 | 22,080 | ||||||
Sun Pharmaceutical Industries Ltd. | 296,775 | 11,345 | ||||||
United Spirits Ltd. | 5,139,177 | 143,816 | ||||||
Wipro Ltd. | 609,630 | 5,007 | ||||||
1,391,289 | ||||||||
Indonesia - 3.63% | ||||||||
PT Astra International Tbk | 22,277,300 | 117,267 | ||||||
PT Bank Mandiri (Persero) Tbk | 90,250,000 | 58,763 | ||||||
PT Bank Rakyat Indonesia (Persero) Tbk | 53,054,500 | 53,587 | ||||||
PT Indocement Tunggal Prakarsa Tbk | 53,959,500 | 92,938 | ||||||
PT Indosat Tbk | 21,272,500 | 11,476 | ||||||
PT Semen Gresik (Persero) Tbk | 113,763,500 | 108,798 | ||||||
PT Surya Citra Media Tbk | 38,277,500 | 4,726 | ||||||
PT XL Axiata Tbk (1) | 45,738,500 | 20,480 | ||||||
468,035 | ||||||||
Kazakhstan - 0.00% | ||||||||
JSC KazMunaiGas Exploration Production | 1 | - | ||||||
Malaysia - 3.27% | ||||||||
CIMB Group Holdings Bhd. | 82,307,698 | 177,307 | ||||||
Eastern & Oriental Bhd. (1) | 7,469,930 | 2,062 | ||||||
Genting Bhd. | 21,644,200 | 47,398 | ||||||
IJM Corp. Bhd. | 46,943,279 | 71,081 | ||||||
IJM Corp. Bhd., warrants, expire October 24, 2014 (1) | 4,694,327 | 1,595 | ||||||
IOI Corp. Bhd. | 3,575,460 | 5,512 | ||||||
Maxis Bhd. | 15,618,700 | 25,424 | ||||||
Naim Cendera Holdings Bhd. | 11,661,500 | 10,559 | ||||||
S P Setia Bhd. | 12,479,150 | 16,069 | ||||||
StemLife Bhd. (3) | 8,331,900 | 819 | ||||||
Tanjong PLC | 11,716,800 | 62,857 | ||||||
420,683 | ||||||||
Pakistan - 0.10% | ||||||||
Oil and Gas Development Co. Ltd. (GDR) | 791,800 | 13,144 | ||||||
Philippines - 0.94% | ||||||||
Bayan Telecommunications Holdings Corp., Class A (acquired 2/12/98, cost: $1,850,000) (1) (2) | 724,790 | - | ||||||
Bayan Telecommunications Holdings Corp., Class B (acquired 2/12/98, cost: $616,000) (1) (2) | 241,431 | - | ||||||
Energy Development Corp. | 780,372,750 | 74,724 | ||||||
International Container Terminal Services, Inc. | 29,660,688 | 19,302 | ||||||
Philippine Airlines, Inc. (acquired 3/31/97, cost: $0) (1) (2) | 68,631,450 | - | ||||||
Philippine Long Distance Telephone Co. | 311,320 | 15,968 | ||||||
Philippine Long Distance Telephone Co. (ADR) | 227,900 | 11,616 | ||||||
121,610 | ||||||||
Singapore - 1.02% | ||||||||
Ascendas India Trust | 28,651,500 | 19,187 | ||||||
CapitaMalls Asia Ltd. | 14,843,000 | 22,095 | ||||||
CapitaRetail China Trust | 8,476,000 | 7,476 | ||||||
Noble Group Ltd. | 12,582,000 | 15,193 | ||||||
Olam International Ltd. | 3,331,190 | 6,100 | ||||||
Wilmar International Ltd. | 15,064,420 | 61,644 | ||||||
131,695 | ||||||||
South Korea - 9.14% | ||||||||
Cheil Worldwide Inc. | 727,250 | 7,604 | ||||||
Hankook Tire Co., Ltd. | 2,498,660 | 56,663 | ||||||
Hite Brewery Co., Ltd. | 150,803 | 17,907 | ||||||
Hynix Semiconductor Inc. (1) | 2,792,040 | 56,615 | ||||||
Hyundai Mobis Co., Ltd. | 335,649 | 56,213 | ||||||
Korea Exchange Bank | 3,214,560 | 32,714 | ||||||
Korean Reinsurance Co. | 869,925 | 6,824 | ||||||
KT&G Corp. | 934,307 | 45,939 | ||||||
LG Chem, Ltd. | 1,167,020 | 293,281 | ||||||
LG Electronics Inc. | 360,181 | 27,505 | ||||||
LG Electronics Inc., nonvoting preferred | 396,548 | 12,435 | ||||||
LG Fashion Corp. | 605,960 | 14,112 | ||||||
NHN Corp. (1) | 77,716 | 11,566 | ||||||
OCI Co., Ltd. | 155,300 | 31,316 | ||||||
Samsung Electronics Co., Ltd. | 263,368 | 165,366 | ||||||
Samsung Electronics Co., Ltd. (GDR) | 639,548 | 200,081 | ||||||
Shinhan Financial Group Co., Ltd. | 2,272,963 | 83,710 | ||||||
SK Telecom Co., Ltd. | 187,919 | 24,612 | ||||||
SK Telecom Co., Ltd. (ADR) | 1,236,536 | 18,214 | ||||||
S-Oil Corp. | 331,682 | 14,543 | ||||||
1,177,220 | ||||||||
Sri Lanka - 0.05% | ||||||||
Dialog Telekom Ltd. (1) | 66,906,180 | 5,760 | ||||||
Taiwan - 6.63% | ||||||||
Acer Inc. | 15,863,060 | 36,788 | ||||||
Cathay Financial Holding Co., Ltd. (1) | 34,262,000 | 50,650 | ||||||
CTCI Corp. | 18,759,000 | 18,374 | ||||||
Delta Electronics, Inc. | 35,743,874 | 114,420 | ||||||
Epistar Corp. | 373,000 | 965 | ||||||
Epistar Corp. (GDR) (1) | 254,646 | 3,293 | ||||||
Hon Hai Precision Industry Co., Ltd. (1) | 27,378,726 | 96,157 | ||||||
Hon Hai Precision Industry Co., Ltd. (GDR) (1) | 1,572,111 | 11,335 | ||||||
HTC Corp. | 2,763,994 | 36,670 | ||||||
MediaTek Inc. | 6,174,305 | 86,113 | ||||||
Phison Electronics Corp. | 1,945,656 | 11,126 | ||||||
SinoPac Financial Holdings Co., Ltd. (1) | 33,939,000 | 10,693 | ||||||
Synnex Technology International Corp. | 8,760,393 | 18,986 | ||||||
Taiwan Cement Corp. | 13,829,526 | 11,661 | ||||||
Taiwan Mobile Co., Ltd. | 15,757,422 | 32,139 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 108,017,680 | 201,982 | ||||||
TECO Electric & Machinery Co., Ltd. | 16,599,000 | 6,817 | ||||||
Tripod Technology Corp. | 14,343,877 | 53,210 | ||||||
Wintek Corp. (1) (3) | 54,341,000 | 43,475 | ||||||
Wintek Corp. (GDR) (acquired 4/27/10, cost: $8,888,000) (1) (2) (3) | 2,183,808 | 8,736 | ||||||
853,590 | ||||||||
Thailand - 2.27% | ||||||||
Advanced Info Service PCL | 5,634,800 | 15,034 | ||||||
Banpu PCL | 11,318,400 | 211,046 | ||||||
Banpu PCL, nonvoting depository receipt | 106,200 | 1,975 | ||||||
Bumrungrad Hospital PCL (3) | 43,774,600 | 41,793 | ||||||
CP ALL PCL | 24,962,800 | 21,969 | ||||||
291,817 | ||||||||
Vietnam - 0.04% | ||||||||
Vietnam Enterprise Investments Ltd., redeemable (acquired 9/20/01, cost: $4,515,000) (1) (2) | 1,630,227 | 3,179 | ||||||
Vietnam Resource Investment (Holdings) Ltd. (acquired 6/15/07, cost: $11,302,000) (1) (2) | 1,108,000 | 1,385 | ||||||
4,564 | ||||||||
Latin America - 17.18% | ||||||||
Argentina - 0.00% | ||||||||
Grupo Financiero Galicia SA, Class B (1) | 5 | - | ||||||
Brazil - 10.71% | ||||||||
ALL - América Latina Logística SA, units | 3,524,240 | 27,725 | ||||||
Anhanguera Educacional Participações SA, units | 1,842,900 | 27,863 | ||||||
Bradespar SA, preferred nominative | 854,100 | 15,516 | ||||||
CESP - Cia. Energética de São Paulo, Class B, preferred nominative | 5,753,060 | 78,407 | ||||||
Cia. de Bebidas das Américas - AmBev, preferred nominative | 7,157 | 713 | ||||||
Cia. de Bebidas das Américas - AmBev, preferred nominative (ADR) | 320,600 | 32,384 | ||||||
Cia. de Bebidas das Américas - AmBev, preferred nominative receipts | 54 | 5 | ||||||
Cia. de Concessões Rodoviárias, ordinary nominative | 4,237,200 | 87,749 | ||||||
Cia. Energética de Minas Gerais - CEMIG, preferred nominative | 3,822,946 | 55,406 | ||||||
Cielo SA, ordinary nominative | 6,461,200 | 54,411 | ||||||
Dufry AG (BDR) | 607,756 | 46,799 | ||||||
Eletropaulo Metropolitana Eletricidade de São Paulo SA, Class B, preferred nominative | 1,238,900 | 24,682 | ||||||
Hypermarcas SA, ordinary nominative (1) | 8,863,100 | 113,821 | ||||||
Itaú Unibanco Holding SA, preferred nominative (ADR) | 3,534,690 | 63,660 | ||||||
Itaúsa - Investimentos Itaú SA, preferred nominative | 19,738,946 | 117,138 | ||||||
Marfrig Alimentos SA, ordinary nominative | 4,397,040 | 41,120 | ||||||
Mills Estruturas e Serviços de Engenharia SA, ordinary nominative (1) | 3,669,700 | 27,751 | ||||||
Petróleo Brasileiro SA - Petrobras, ordinary nominative (ADR) | 5,574,500 | 191,317 | ||||||
Petróleo Brasileiro SA - Petrobras, preferred nominative (ADR) | 930,100 | 27,717 | ||||||
Telemar Norte Leste SA, Class A, preferred nominative | 300,800 | 8,166 | ||||||
TeleNorte Leste Participações SA, preferred nominative | 1,219,200 | 18,237 | ||||||
TeleNorte Leste Participações SA, preferred nominative (ADR) | 2,485,900 | 37,189 | ||||||
TIM Participações SA, ordinary nominative (1) | 11,466,921 | 46,376 | ||||||
TOTVS SA, ordinary nominative | 17,700 | 1,314 | ||||||
Usinas Siderúrgicas de Minas Gerais SA - USIMINAS, ordinary nominative | 241,050 | 6,330 | ||||||
Usinas Siderúrgicas de Minas Gerais SA - USIMINAS, Class A, preferred nominative | 927,870 | 24,731 | ||||||
Vale SA, ordinary nominative (ADR) | 8,400 | 205 | ||||||
Vale SA, Class A, preferred nominative | 162,800 | 3,419 | ||||||
Vale SA, Class A, preferred nominative (ADR) | 7,770,724 | 163,341 | ||||||
WEG SA, ordinary nominative | 1,480,200 | 13,695 | ||||||
Wilson Sons Ltd. (BDR) | 1,882,300 | 22,421 | ||||||
1,379,608 | ||||||||
Chile - 0.56% | ||||||||
Enersis SA (ADR) | 162,844 | 3,242 | ||||||
Ripley Corp SA | 3,086,123 | 3,322 | ||||||
S.A.C.I. Falabella | 10,041,402 | 65,004 | ||||||
71,568 | ||||||||
Mexico - 5.90% | ||||||||
Alsea, SAB de CV, Series A | 5,910,700 | 5,530 | ||||||
América Móvil, SAB de CV, Series L (ADR) | 7,135,935 | 338,957 | ||||||
Bolsa Mexicana de Valores, SAB de CV, Series A | 7,705,600 | 12,023 | ||||||
Carso Infraestructura y Construcción SAB de CV, Series B-1 (1) | 56,641,900 | 30,000 | ||||||
CEMEX, SAB de CV, ordinary participation certificates, units (ADR) (1) | 3,828,058 | 37,017 | ||||||
Empresas ICA, SAB de CV, ordinary participation certificates (1) | 3,252,651 | 7,643 | ||||||
Grupo Carso, SAB de CV, Series A-1 | 196,300 | 624 | ||||||
Grupo Financiero Inbursa, SAB de CV | 25,257,357 | 81,515 | ||||||
Grupo México, SAB de CV, Series B | 882,900 | 2,082 | ||||||
Grupo Televisa, SAB de CV, ordinary participation certificates (ADR) | 1,082,600 | 18,848 | ||||||
Impulsora del Desarrollo y el Empleo en América Latina, SAB de CV, Series B-1 (1) | 41,425,500 | 48,046 | ||||||
Kimberly-Clark de México, SAB de CV, Series A | 14,537,050 | 83,998 | ||||||
Teléfonos de México, SAB de CV, Series L | 2,004,300 | 1,420 | ||||||
Teléfonos de México, SAB de CV, Series L (ADR) | 6,500,600 | 91,723 | ||||||
759,426 | ||||||||
Peru - 0.01% | ||||||||
Cia. de Minas Buenaventura SA (ADR) | 28,500 | 1,096 | ||||||
Eastern Europe and Middle East - 9.98% | ||||||||
Czech Republic - 0.62% | ||||||||
ČEZ, AS | 363,938 | 14,946 | ||||||
Komercní banka, AS | 35,814 | 5,787 | ||||||
Telefónica O2 Czech Republic, AS | 3,022,100 | 58,760 | ||||||
79,493 | ||||||||
Hungary - 0.09% | ||||||||
Magyar Telekom Telecommunications PLC | 4,100,000 | 11,191 | ||||||
Israel - 1.27% | ||||||||
Bezeq - The Israel Telecommunication Corp. Ltd. | 35,415,300 | 77,478 | ||||||
Cellcom Israel Ltd. | 1,181,533 | 29,513 | ||||||
Israel Chemicals Ltd. | 1,316,410 | 13,728 | ||||||
Partner Communications Co. Ltd. | 1,605,304 | 24,682 | ||||||
Partner Communications Co. Ltd. (ADR) | 112,000 | 1,709 | ||||||
Shufersal Ltd. | 3,233,940 | 16,968 | ||||||
164,078 | ||||||||
Oman - 0.16% | ||||||||
BankMuscat (SAOG) (GDR) | 2,550,790 | 20,406 | ||||||
Poland - 0.97% | ||||||||
Bank Pekao SA | 553,492 | 25,216 | ||||||
Bank Zachodni WBK SA | 208,255 | 11,789 | ||||||
Powszechny Zaklad Ubezpieczen SA (1) | 127,900 | 13,196 | ||||||
Telekomunikacja Polska SA | 17,758,500 | 74,583 | ||||||
124,784 | ||||||||
Russia - 5.15% | ||||||||
Baring Vostok Private Equity Fund, LP (acquired 12/15/00, cost: $6,902,000) (1) (2) (3) (4) (5) | 11,783,118 | 17,787 | ||||||
Baring Vostok Private Equity Fund III, LP (acquired 3/30/05, cost: $20,548,000) (2) (3) (4) (5) | 21,690,364 | 27,968 | ||||||
Baring Vostok Private Equity Fund IV, LP (acquired 4/25/07, cost: $7,891,000) (1) (2) (3) (4) (5) | 8,252,671 | 6,726 | ||||||
Baring Vostok Fund IV Supplemental Fund, LP (acquired 10/8/07, cost: $12,550,000) (1) (2) (3) (4) (5) | 15,205,976 | 13,156 | ||||||
Evraz Group SA (GDR) (1) | 2,577,532 | 59,224 | ||||||
New Century Capital Partners, LP (acquired 12/7/95, cost: $951,000) (1) (2) (4) | 5,247,900 | 6,034 | ||||||
OAO Gazprom | 1,334,000 | 6,372 | ||||||
OAO Gazprom (ADR) | 15,942,900 | 299,861 | ||||||
OAO LUKOIL (ADR) | 692,850 | 35,637 | ||||||
OAO TMK (GDR) (1) | 247,400 | 3,602 | ||||||
OJSC Bank Saint Petersburg, Class A, 13.50% convertible preferred May 15, 2013 | 4,547,800 | 17,937 | ||||||
OJSC Holding Co. Sibirskiy Cement (1) | 693,300 | 10,399 | ||||||
OJSC Kuzbasskaya Toplivnaya Co. | 1,665,000 | 9,957 | ||||||
OJSC M.video | 1,613,870 | 9,752 | ||||||
OJSC Magnit | 572,564 | 46,584 | ||||||
OJSC Magnit (GDR) | 98,900 | 1,693 | ||||||
OJSC Magnitogorsk Iron and Steel Works (GDR) | 645,200 | 5,868 | ||||||
OJSC Mining and Metallurgical Co. Norilsk Nickel (ADR) | 992,967 | 14,288 | ||||||
OJSC Novolipetsk Steel (GDR) | 562,950 | 14,412 | ||||||
OJSC Pharmstandard (GDR) (1) | 347,100 | 7,572 | ||||||
OJSC Rostelecom (ADR) | 741,900 | 15,629 | ||||||
Sberbank (Savings Bank of the Russian Federation) | 3,670,679 | 8,804 | ||||||
X5 Retail Group NV (GDR) (1) | 728,834 | 24,215 | ||||||
663,477 | ||||||||
Saudi Arabia - 0.31% | ||||||||
Almarai Co., PALMS issued by HSBC Bank plc, expires March 27, 2012 (acquired 11/23/09, cost: $39,553,000) (2) | 795,599 | 40,360 | ||||||
Turkey - 1.41% | ||||||||
Aktaş Elektrik Ticaret AŞ (1) | 4,273 | - | ||||||
Anadolu Efes Biracilik ve Malt Sanayii AŞ | 5,914,218 | 69,054 | ||||||
Coca-Cola İçecek AŞ, Class C | 1,300,245 | 11,564 | ||||||
Enka Insaat ve Sanayi AS | 5,403,543 | 18,443 | ||||||
Selçuk Ecza Deposu Ticaret ve Sanayi AŞ, Class B | 988,104 | 1,346 | ||||||
Sinpaş Gayrimenkul Yatirim Ortakligi AŞ (1) | 259,509 | 309 | ||||||
Türk Telekomünikasyon AŞ, Class D | 23,170,328 | 73,430 | ||||||
Türkiye Garanti Bankasi AŞ | 1,732,866 | 7,179 | ||||||
181,325 | ||||||||
Africa - 4.82% | ||||||||
Egypt - 0.15% | ||||||||
Commercial International Bank (Egypt) S.A.E. | 1,180,515 | 13,896 | ||||||
Orascom Construction Industries Co. (GDR) | 135,413 | 5,147 | ||||||
19,043 | ||||||||
Morocco - 0.10% | ||||||||
Holcim (Maroc) SA | 46,585 | 12,397 | ||||||
South Africa - 4.57% | ||||||||
AngloGold Ashanti Ltd. | 1,781,897 | 77,019 | ||||||
AngloGold Ashanti Ltd. (ADR) | 1,706,297 | 73,678 | ||||||
Anglo Platinum Ltd. (1) | 173,543 | 16,330 | ||||||
Group Five Ltd. | 1,339,405 | 6,002 | ||||||
Harmony Gold Mining Co. Ltd. | 2,138,548 | 22,647 | ||||||
Harmony Gold Mining Co. Ltd. (ADR) | 1,427,913 | 15,093 | ||||||
Impala Platinum Holdings Ltd. | 1,207,787 | 27,999 | ||||||
MTN Group Ltd. | 6,597,251 | 86,487 | ||||||
Mvelaphanda Resources Ltd. (1) | 2,578,176 | 14,907 | ||||||
Pretoria Portland Cement Co. Ltd. | 3,254,414 | 13,467 | ||||||
Sappi Ltd. (1) | 8,937,654 | 34,251 | ||||||
Sappi Ltd. (ADR) (1) | 1,308,900 | 4,948 | ||||||
Sasol Ltd. | 2,893,011 | 102,694 | ||||||
Sasol Ltd. (ADR) | 516,300 | 18,210 | ||||||
Shoprite Holdings Ltd. | 905,004 | 9,719 | ||||||
South African Private Equity Fund III, LP (acquired 9/23/98, cost: $3,767,000) (1) (2) (3) (4) (5) | 27,594,065 | 19,021 | ||||||
Standard Bank Group Ltd. | 1,236,500 | 16,356 | ||||||
Telkom SA Ltd. | 3,687,240 | 18,068 | ||||||
Wilson Bayly Holmes - Ovcon Ltd. | 857,080 | 12,180 | ||||||
589,076 | ||||||||
Other markets - 3.18% | ||||||||
Australia - 0.57% | ||||||||
Aquarius Platinum Ltd. | 8,539,334 | 41,426 | ||||||
Paladin Energy Ltd (1) | 10,770,668 | 32,178 | ||||||
73,604 | ||||||||
Canada - 0.60% | ||||||||
Banro Corp. (1) | 6,230,500 | 11,881 | ||||||
Banro Corp., warrants, expire September 17, 2011 (1) | 204,900 | 77 | ||||||
Centerra Gold Inc. (1) | 3,047,800 | 33,554 | ||||||
CIC Energy Corp. (1) | 514,700 | 653 | ||||||
Farallon Mining Ltd. (1) | 18,813,300 | 6,185 | ||||||
Katanga Mining Ltd. (1) | 324,107 | 198 | ||||||
Platmin Ltd. (1) | 17,419,400 | 17,999 | ||||||
Platmin Ltd. (CDI) (1) | 6,481,100 | 6,865 | ||||||
77,412 | ||||||||
United Kingdom - 1.17% | ||||||||
Anglo American PLC (1) | 2,433,900 | 84,611 | ||||||
Antofagasta PLC | 1,023,400 | 11,879 | ||||||
Ferrexpo PLC | 348,693 | 1,278 | ||||||
Gem Diamonds Ltd. (1) | 5,524,029 | 17,226 | ||||||
Kazakhmys PLC | 258,790 | 3,797 | ||||||
Lonrho PLC (1) | 52,947,100 | 8,144 | ||||||
Namakwa Diamonds Ltd. (1) | 3,605,500 | 2,227 | ||||||
Petra Diamonds Ltd. (CDI) (1) | 12,730,000 | 13,580 | ||||||
Volga Gas PLC (1) | 2,618,946 | 7,895 | ||||||
150,637 | ||||||||
United States of America - 0.84% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 141,105 | 8,344 | ||||||
Genpact Ltd. (1) | 6,435,634 | 99,945 | ||||||
108,289 | ||||||||
Multinational - 0.59% | ||||||||
Capital International Global Emerging Markets Private Equity Fund, LP (acquired 6/30/99, cost: $5,834,000) (2) (3) (4) (5) | 55,999,402 | 9,850 | ||||||
Capital International Private Equity Fund IV, LP (acquired 3/29/05, cost:$37,790,000) (2) (3) (4) (5) | 48,725,871 | 45,257 | ||||||
International Hospital Corp. Holding NV (acquired 9/25/97, cost: $8,011,000) (1) (2) (3) | 609,873 | 3,434 | ||||||
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 | 476 | ||||||
New Asia East Investment Fund Ltd., Class B (acquired 5/23/96, cost: $2,584,000) (1) (2) (3) (4) | 3,810,369 | 6,497 | ||||||
Pan-African Investment Partners II Ltd., Class A (acquired 6/20/08, cost: $11,883,000) (2) (3) (4) (5) | 3,800 | 8,572 | ||||||
Pan Asia Special Opportunities Fund (Cayman) (acquired 10/18/00, cost: $197,000) (1) (2) (3) (4) | 600,000 | 25 | ||||||
76,447 | ||||||||
Miscellaneous - 2.35% | ||||||||
Equity securities in initial period of acquisition | 302,476 | |||||||
Total equity securities (cost: $9,454,617,000) | 12,133,868 | |||||||
Bonds and notes | Principal amount | Value | ||||||
(000 | ) | (000 | ) | |||||
Asia-Pacific - 0.03% | ||||||||
China - 0.02% | ||||||||
Fu Ji Food and Catering Services Holdings Ltd. 0% convertible bonds, October 18, 2010 (6) | CNY 93,400 | $ | 2,686 | |||||
Malaysia - 0.01% | ||||||||
Eastern & Oriental Bhd. 8.00% convertible bonds, November 16, 2019 | MYR 3,753 | 1,043 | ||||||
Latin America - 0.24% | ||||||||
Argentina - 0.10% | ||||||||
Republic of Argentina Index-Linked, Payment-in-Kind Bond, 10.031% December 31, 2033 (7) | ARS 64,316 | 12,929 | ||||||
Brazil - 0.03% | ||||||||
Banco BMG SA: | ||||||||
8.75% July 1, 2010 | $ | 917 | 917 | |||||
8.75% July 1, 2010 (acquired 6/22/05, cost: $3,360,000) (2) | 3,360 | 3,360 | ||||||
4,277 | ||||||||
Mexico - 0.11% | ||||||||
CEMEX, SAB de CV, 4.875% convertible bonds March 15, 2015 (acquired 3/25/10, cost: $12,915,000) (2) | 12,826 | 12,746 | ||||||
United Mexican States Government Bonds, Series M30, 8.50% November 18, 2038 | MXN 220 | 1,860 | ||||||
14,606 | ||||||||
Miscellaneous - 0.12% | ||||||||
Bonds and notes in initial period of acquisition | 15,354 | |||||||
Total bonds and notes (cost: $70,611,000) | 50,895 | |||||||
Short-term securities | Principal amount | Value | ||||||
(000 | ) | (000 | ) | |||||
Corporate short-term notes - 2.21% | ||||||||
Commonwealth Bank of Australia 0.15% due 7/6/10 | 5,500 | 5,500 | ||||||
Credit Suisse Group AG 0.481% due 9/2/10 | 52,500 | 52,458 | ||||||
General Electric Co. 0.08% due 7/1/10 | 30,700 | 30,700 | ||||||
JPMorgan Chase & Co. 0.09% due 7/1/10 | 8,942 | 8,942 | ||||||
Novartis AG 0.03% due 7/1/10 | 25,000 | 25,000 | ||||||
UBS AG 0.20%-0.295% due 7/8-7/14/10 | 162,000 | 161,986 | ||||||
284,586 | ||||||||
Federal agency discount notes - 1.68% | ||||||||
Federal Home Loan Bank Discount Corp. 0.19% due 7/30/10 | 31,900 | 31,895 | ||||||
Federal National Mortgage Association 0.24% due 9/27/10 | 26,600 | 26,592 | ||||||
International Bank for Reconstruction and Development 0.22%-0.35% due 7/9-8/20/10 | 157,700 | 157,685 | ||||||
216,172 | ||||||||
U.S. treasuries - 0.45% | ||||||||
U.S. Treasury Bill 0.14% due 8/19/10 | 57,400 | 57,389 | ||||||
Total short-term securities (cost: $558,117,000) | 558,147 | |||||||
Total investment securities (cost: $10,083,345,000) | 12,742,910 | |||||||
Other assets less liabilities (including forward currency contracts) | 135,288 | |||||||
Net assets | $ | 12,878,198 |
(1) Security did not produce income during the last 12 months. |
(2) 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, 2010, the total value and cost of such securities were $255,514,000 and $311,726,000, respectively, and the value represented 1.98% of net assets. |
(3) 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. |
(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) Security is currently in default pending restructure. |
(7) Coupon rate may change periodically. |
Abbreviations |
Securities: |
ADR - American Depositary Receipts |
BDR - Brazilian Depositary Receipts |
CDI - CREST Depository Interest |
GDR - Global Depositary Receipts |
PALMS - Participating Access Linked Middle Eastern Securities |
Currencies other than U.S. dollars: |
ARS - Argentine Peso |
CNY - Chinese Renminbi |
MYR - Malaysian Ringgit |
MXN - Mexican Peso |
See Notes to financial statements |
Financial statements
Statement of assets and liabilities at June 30, 2010 | (dollars in thousands, except per-share data) | |||||||
Assets: | ||||||||
Investment securities at value: | ||||||||
Unaffiliated issuers (cost: $9,851,516) | $ | 12,486,982 | ||||||
Affiliated issuers (cost: $231,829) | 255,928 | $ | 12,742,910 | |||||
Cash | 13,003 | |||||||
Cash denominated in non-U.S. currency (cost: $821) | 825 | |||||||
Unrealized appreciation on open forward currency contracts | 4,249 | |||||||
Receivables for-- | ||||||||
Sales of investments | 43,339 | |||||||
Sales of fund's shares | 73,246 | |||||||
Dividends and interest | 58,957 | |||||||
Non-U.S. taxes | 2,722 | 178,264 | ||||||
12,939,251 | ||||||||
Liabilities: | ||||||||
Unrealized depreciation on open forward currency contracts | 3,144 | |||||||
Payables for-- | ||||||||
Purchases of investments | 48,606 | |||||||
Investment advisory services | 6,700 | |||||||
Directors' compensation | 1,397 | |||||||
Other fees and expenses | 1,206 | 57,909 | ||||||
61,053 | ||||||||
Net assets at June 30, 2010 -- | ||||||||
Equivalent to $8.13 per share on | ||||||||
1,584,229,851 shares of $0.01 par value | ||||||||
capital stock outstanding (authorized | ||||||||
capital stock -- 2,000,000,000 shares) | $ | 12,878,198 | ||||||
Net assets consist of: | ||||||||
Capital paid in on shares of capital stock | $ | 11,067,653 | ||||||
Undistributed net investment income | 54,274 | |||||||
Accumulated net realized loss | (904,583 | ) | ||||||
Net unrealized appreciation | 2,660,854 | |||||||
Net assets at June 30, 2010 | $ | 12,878,198 | ||||||
See Notes to financial statements | ||||||||
Statement of operations for the year ended June 30, 2010 | (dollars in thousands) | |||||||
Investment income: | ||||||||
Income: | ||||||||
Dividends (net of non-U.S. withholding tax of $33,778; | $ | 307,621 | ||||||
also includes $15,604 from affiliates) | ||||||||
Interest (includes $60 from affiliates) | 23,185 | $ | 330,806 | |||||
Fees and expenses: | ||||||||
Investment advisory services | 81,360 | |||||||
Custodian | 7,748 | |||||||
Registration statement and prospectus | 46 | |||||||
Auditing and legal | 384 | |||||||
Reports to shareholders | 12 | |||||||
Directors' compensation | 983 | |||||||
Other | 504 | 91,037 | ||||||
Net investment income | 239,769 | |||||||
Net realized gain and unrealized | ||||||||
appreciation on investments, forward | ||||||||
currency contracts and currency: | ||||||||
Net realized gain (loss) on: | ||||||||
Investments (net of non-U.S. taxes of $134; | ||||||||
also includes $30,167 net loss from affiliates) | 1,030,841 | |||||||
Forward currency contracts | (30,150 | ) | ||||||
Currency transactions | 1,165 | 1,001,856 | ||||||
Net unrealized appreciation (depreciation) on: | ||||||||
Investments (net of non-U.S. taxes of $(480)) | 1,184,044 | |||||||
Forward currency contracts | 10,602 | |||||||
Currency translations | (106 | ) | 1,194,540 | |||||
Net realized gain and unrealized | ||||||||
appreciation on investments, forward currency | ||||||||
contracts and currency | 2,196,396 | |||||||
Net increase in net assets resulting | ||||||||
from operations | $ | 2,436,165 | ||||||
Statement of changes in net assets | (dollars in thousands) | |||||||
Year ended June 30, | ||||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 239,769 | $ | 238,306 | ||||
Net realized gain (loss) on investments, forward currency | ||||||||
contracts and currency transactions | 1,001,856 | (1,884,730 | ) | |||||
Net unrealized appreciation (depreciation) on investments, | ||||||||
forward currency contracts and currency translations | 1,194,540 | (1,459,609 | ) | |||||
Net increase (decrease) in net assets | ||||||||
resulting from operations | 2,436,165 | (3,106,033 | ) | |||||
Dividends and distributions paid | ||||||||
to shareholders: | ||||||||
Dividends from net | ||||||||
investment income | (204,568 | ) | (232,579 | ) | ||||
Distributions from net | ||||||||
realized gain on investments | __ | (2,113,433 | ) | |||||
Total dividends and distributions paid to shareholders | (204,568 | ) | (2,346,012 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from shares sold: | ||||||||
106,825,625 and 199,011,713 shares, respectively | 882,249 | 1,283,577 | ||||||
Proceeds from shares issued in | ||||||||
reinvestment of net investment income dividends | ||||||||
and net realized gain distributions: | ||||||||
22,202,610 and 480,838,418 shares, respectively | 189,388 | 2,312,833 | ||||||
Cost of shares repurchased: | ||||||||
156,771,705 and 143,295,513 shares, respectively | (1,254,919 | ) | (1,239,109 | ) | ||||
Net (decrease) increase in net assets | ||||||||
resulting from capital share | ||||||||
transactions | (183,282 | ) | 2,357,301 | |||||
Total increase (decrease) in net assets | 2,048,315 | (3,094,744 | ) | |||||
Net assets: | ||||||||
Beginning of year | 10,829,883 | 13,924,627 | ||||||
End of year | ||||||||
(including undistributed net investment income: | ||||||||
$54,274 and $38,146, respectively) | $ | 12,878,198 | $ | 10,829,883 | ||||
See Notes to financial statements |
Notes to financial statements
1. Organization
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 seeks long-term growth of capital by investing in companies operating in developing countries around the world.
2. 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 fund follows the significant accounting policies described below, as well as the valuation policies described in the next section on valuation.
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. dol lars are disclosed separately.
3. Valuation
The fund’s investments are reported at fair value as defined by accounting principles generally accepted in the United States of America. The fund generally determines its net asset value as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.
Methods and inputs – The fund uses the following methods and inputs to establish the fair value of its assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.
Equity securities are generally 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.
Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are generally valued at prices obtained as of approximately 3:00 p.m. New York time from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive and any of the inputs may be used to value any other class of fixed-income security.
Fixed-income class | Examples of standard inputs |
All | Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard inputs”) |
Corporate bonds & notes; convertible securities | Standard inputs and underlying equity of the issuer |
Bonds & notes of governments & government agencies | Standard inputs and interest rate volatilities |
Where the investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to be representative), fixed-income 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.
Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are generally valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates fair 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 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 equity securities trading 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 inputs may be reviewed in order to make a good faith determination of a security’s fair value. These inputs 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 issue r; 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.
Classifications - The fund classifies its assets and liabilities into three levels based on the inputs 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 reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following table presents the fund’s valuation levels as of June 30, 2010 (dollars in thousands):
Investment Securities: | Level 1 | Level 2 (1) | Level 3 (1) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Asia-Pacific | $ | 201,404 | $ | 7,007,641 | $ | 18,630 | 7,227,675 | |||||||||
Latin America | 2,200,413 | 11,285 | - | 2,211,698 | ||||||||||||
Eastern Europe/Middle East | 60,630 | 1,152,814 | 71,670 | 1,285,114 | ||||||||||||
Africa | 111,928 | 489,567 | 19,021 | 620,516 | ||||||||||||
Other markets | 178,837 | 231,105 | 76,447 | 486,389 | ||||||||||||
Miscellaneous securities | 126,287 | 191,543 | - | 317,830 | ||||||||||||
Bonds and notes | - | 35,541 | - | 35,541 | ||||||||||||
Short-term securities | - | 558,147 | - | 558,147 | ||||||||||||
Total | $ | 2,879,499 | $ | 9,677,643 | $ | 185,768 | $ | 12,742,910 | ||||||||
Forward Currency Contracts (2) | - | $ | 1,105 | - | $ | 1,105 |
The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions during the year ended June 30, 2010 (dollars in thousands):
Beginning value at 7/1/2009 | Net sales | Net realized loss (3) | Net unrealized appreciation (3) | Net transfers into Level 3 | Ending value at 6/30/2010 | |||||||||||||||||||
Investment securities | $ | 167,172 | $ | (8,819 | ) | $ | (5,918 | ) | $ | 15,032 | $ | 18,301 | $ | 185,768 |
Net unrealized appreciation during the period on Level 3 investment securities held at 6/30/2010 (3) | $ | 15,032 |
(1) Level 2 and Level 3 include investment securities with an aggregate value of $9,209,444,000 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 $8,983,457,000 were fair valued as a result of significant market movements following the close of local trading and, therefore, classified as Level 2.
(2) Forward currency contracts are not included in the investment portfolio.
(3) Net realized loss and unrealized appreciation are included in the related amounts on investments in the statement of operations.
The fund owns an interest in multiple private equity funds, which are considered alternative investments in accordance with Accounting Standards Update (ASU) 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share. The fund is permitted to use the Net Asset Value (NAV) of the private equity funds to determine the fair value of the investment in the funds as such funds do not have a readily determinable fair value and have attributes of an investment company (i.e. the primary business involves investment of pooled funds whereby ownership represents interests in partners’ capital to which a proportionate share of net assets is attributed). Although the fund typically uses the NAV of the respective private equity funds to determine fair va lue of its investments, adjustments may be made to the NAV as a result of known company or market events, updated market pricing for underlying securities held in the private equity fund and/or fund transactions (i.e. drawdowns and distributions).
The following table lists the characteristics of the alternative investments held by the fund as of June 30, 2010 (dollars in thousands):
Investment type | Investment strategy | Fair value1 | Unfunded commitment2 | Remaining life3 | Redemption terms | ||||||
Private equity funds | Primarily private sector equity investments (i.e., expansion capital, buyouts) in emerging markets | $ | 161,368 | $ | 72,678 | 1 to 9 years | Redemptions are not permitted. These funds distribute proceeds from the liquidation of underlying assets of the funds. |
1Included as Level 3 securities in the table on the previous page presenting the fund’s valuation levels as of June 30, 2010.
2Unfunded 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.
3Represents the remaining life of the fund term or the estimated period of liquidation.
4. 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.
5. 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, 2010, 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.
The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006, by state authorities for tax years before 2005 and by tax authorities outside the U.S. for tax years before 2003.
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, 2010, the fund did not accrue any liabilities for non-U.S. taxes on realized and unrealized gains.
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 different treatment for items such as currency gains and losses; capital losses related to sales of certain securities within 30 days of purchase; unrealized appreciation of certain investments in securities outside the U.S; cost of investments sold; net capital losses; and income on certain investments.
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. For the year ended June 30, 2010, the tax character of the distribution paid to shareholders was ordinary income in the amount of $204,568,000. For the year ended June 30, 2009, the tax characters of distributions paid to shareholders were ordinary income, short-term capital gain and long-term capital gain in the amounts of $232,579,000, $101,121,000 and $2,012,312,000, respectively.
During the year ended June 30, 2010, the fund reclassified $19,086,000 from undistributed net investment income to accumulated net realized loss and $13,000 from capital paid in on shares of capital stock to undistributed net investment income to align financial reporting with tax reporting.
As of June 30, 2010, the components of distributable earnings on a tax basis were as follows:
(dollars in thousands) | ||||
Undistributed ordinary income | $ | 176,604 | ||
Post-October currency loss deferrals (realized during the period November 1, 2008, through June 30, 2010) (*) | (8,157 | ) | ||
Capital loss carryforward expiring 2017 (†) | (761,021 | ) |
(*) 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.
As of June 30, 2010, the tax basis unrealized appreciation (depreciation) and cost of investments were as follows:
(dollars in thousands) | ||||
Gross unrealized appreciation on investment securities | $ | 3,386,881 | ||
Gross unrealized depreciation on investment securities | (982,676 | ) | ||
Net unrealized appreciation on investment securities | 2,404,205 | |||
Cost of investment securities | 10,338,705 |
6. Fees and transactions with related parties
Capital International, Inc. (CII) is an affiliate of American Funds Service Company® (“AFS”), the fund’s transfer agent, and American Funds Distributors®, Inc. (“AFD”), the principal underwriter of the fund.
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 a transfer agent agreement with AFS. 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, 2010. This amount was included in other fees and expenses.
Distribution services – The fund has a principal underwriting agreement with AFD. AFD does not receive compensation for any sale of the fund’s shares.
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 $789,000 in current fees (either paid in cash or deferred) and a net increase of $194,000 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.
7. Restricted 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, 2010, the total value of restricted securities was $255,514,000, which represents 1.98% of the net assets of the fund.
8. Investment transactions and other disclosures
The fund made purchases and sales of investment securities, excluding short-term securities, of $6,081,851,000 and $6,444,574,000, respectively, during the year ended June 30, 2010.
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, 2010, the fund did not receive an expense reduction.
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, 2010, is as follows:
Dividend | ||||||||||||||||||||||||
and interest | ||||||||||||||||||||||||
Beginning | Purchases/ | Sales/ | Ending | income | Value | |||||||||||||||||||
Issuer | shares | Additions | Reductions | shares | (000 | ) | (000 | ) | ||||||||||||||||
Affiliated issuers: | ||||||||||||||||||||||||
Bumrungrad Hospital | 43,774,600 | - | - | 43,774,600 | 1,006 | 41,793 | ||||||||||||||||||
StemLife | 8,331,900 | - | - | 8,331,900 | 25 | 819 | ||||||||||||||||||
Wintek | - | 56,524,808 | - | 56,524,808 | - | 52,211 | ||||||||||||||||||
Affiliated private equity funds/private placements: | ||||||||||||||||||||||||
Baring Vostok Private Equity Fund* | 11,783,118 | - | - | 11,783,118 | - | 17,787 | ||||||||||||||||||
Baring Vostok Private Equity Fund III* | 20,292,114 | 1,398,250 | - | 21,690,364 | 284 | 27,968 | ||||||||||||||||||
Baring Vostok Capital Partners IV* | 10,771,271 | 12,687,376 | - | 23,458,647 | - | 19,882 | ||||||||||||||||||
Capital International Global Emerging Markets Private Equity Fund* | 55,950,810 | 48,592 | - | 55,999,402 | 18 | 9,850 | ||||||||||||||||||
Capital International Private Equity Fund IV* | 48,277,620 | 448,251 | - | 48,725,871 | 755 | 45,257 | ||||||||||||||||||
International Hospital | 960,417 | - | - | 960,417 | - | 5,770 | ||||||||||||||||||
New Asia East Investment Fund | 4,089,609 | - | - | 4,089,609 | - | 6,973 | ||||||||||||||||||
Pan-African Investment Partners II | 3,800 | - | - | 3,800 | 60 | 8,572 | ||||||||||||||||||
Pan Asia Special Opportunities Fund | 600,000 | - | - | 600,000 | - | 25 | ||||||||||||||||||
South African Private Equity Fund III* | 27,594,065 | - | - | 27,594,065 | - | 19,021 | ||||||||||||||||||
Unaffiliated issuers+: | ||||||||||||||||||||||||
Banro | 6,435,400 | - | - | 6,435,400 | - | - | ||||||||||||||||||
CIC Energy | 3,251,700 | - | 2,737,000 | 514,700 | - | - | ||||||||||||||||||
Dufry AG | 3,716,500 | 46,000 | 3,154,744 | 607,756 | 11,528 | - | ||||||||||||||||||
Energy Development | 780,051,000 | 195,012,750 | 194,691,000 | 780,372,750 | 1,759 | |||||||||||||||||||
Lonrho | 40,521,200 | 12,425,900 | - | 52,947,100 | - | - | ||||||||||||||||||
McLeod Russel India | 5,566,169 | - | 1,932,157 | 3,634,012 | 229 | - | ||||||||||||||||||
New GP Capital Partners* | 27,000,000 | - | 27,000,000 | - | - | - | ||||||||||||||||||
$ | 15,664 | $ | 255,928 | |||||||||||||||||||||
*For private equity funds structured as limited partnerships, shares are not applicable and therefore the fund's interest in the partnerships is reported. | ||||||||||||||||||||||||
+Affiliated during the period but no longer affiliated at June 30, 2010. |
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. On a daily basis, the fund values forward currency contracts based on the applicable exchange rates and records unrealized appreciation or 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, 2010, the fund had open forward currency contracts to sell currencies as shown on the following table. The open forward currency contracts shown are generally indicative of the level of activity for the year ended June 30, 2010.
Contract amount | U.S. valuation | ||||||||||||||||
(000) | (000) | ||||||||||||||||
Unrealized | |||||||||||||||||
appreciation/ | |||||||||||||||||
Counterparty | Non-U.S. | U.S. | Amount | (depreciation) | |||||||||||||
Sales: | |||||||||||||||||
Australian Dollar to U.S. Dollar expiring 7/8/10 | UBS AG | AUD 18,374 | $ | 15,592 | $ | 15,452 | $ | 140 | |||||||||
Brazilian Real to U.S. Dollar expiring 7/23/10 | UBS AG | BRL 134,479 | 74,142 | 74,138 | 4 | ||||||||||||
British Pound Sterling to U.S. Dollar expiring 7/8-7/9/10 | Bank of America | GBP 44,078 | 64,623 | 65,856 | (1,233 | ) | |||||||||||
Canadian Dollar to U.S. Dollar expiring 7/8/10 | Bank of America | CAD 38,248 | 36,930 | 35,926 | 1,004 | ||||||||||||
Czech Koruna to U.S. expiring 7/8/10 | Bank of America | CZK 571,779 | 26,608 | 27,189 | (581 | ) | |||||||||||
Czech Koruna to U.S. expiring 8/4/10 | Bank of America | CZK 198,298 | 9,444 | 9,428 | 16 | ||||||||||||
Euro Dollar to U.S. Dollar expiring 7/9/10 | Bank of New York Mellon | EUR 11,916 | 15,350 | 14,572 | 778 | ||||||||||||
Hungarian Forint to U.S. Dollar expiring 7/8/10 | Bank of America | HUF 2,130,806 | 8,789 | 9,121 | (332 | ) | |||||||||||
Israeli Shekel to U.S. Dollar expiring 7/12/10 | UBS AG | ILS 304,698 | 78,721 | 78,374 | 347 | ||||||||||||
Polish Zloty to U.S. Dollar expiring 7/8/10 | Bank of America | PLN 120,529 | 34,548 | 35,510 | (962 | ) | |||||||||||
Polish Zloty to U.S. Dollar expiring 8/4/10 | Bank of America | PLN 60,672 | 17,947 | 17,840 | 107 | ||||||||||||
South African Rand to U.S. Dollar expiring 7/26-8/3/10 | UBS AG | ZAR 1,439,134 | 188,441 | 186,588 | 1,853 | ||||||||||||
Thai Baht to U.S. Dollar expiring 7/21/10 | Bank of America | THB 1,824,381 | 56,282 | 56,318 | (36 | ) | |||||||||||
Forward currency contracts ---net…………… | $ | 1,105 |
Financial highlights
Year ended June 30 | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | * | 2006 | * | ||||||||||||||
Net asset value, beginning of year | $ | 6.72 | $ | 12.95 | $ | 17.02 | $ | 15.21 | $ | 15.70 | ||||||||||
Income (loss) from investment | ||||||||||||||||||||
operations†: | ||||||||||||||||||||
Net investment income | .15 | .18 | .39 | .22 | .26 | |||||||||||||||
Net realized and unrealized | ||||||||||||||||||||
gain (loss) on investments | 1.39 | (4.09 | ) | .68 | 6.56 | 5.05 | ||||||||||||||
Total income (loss) from | ||||||||||||||||||||
investment operations | 1.54 | (3.91 | ) | 1.07 | 6.78 | 5.31 | ||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from | ||||||||||||||||||||
net investment income | (.13 | ) | (.23 | ) | (.59 | ) | (.41 | ) | (.50 | ) | ||||||||||
Distributions from | ||||||||||||||||||||
net realized gains | __ | (2.09 | ) | (4.55 | ) | (4.56 | ) | (5.30 | ) | |||||||||||
Total distributions | (.13 | ) | (2.32 | ) | (5.14 | ) | (4.97 | ) | (5.80 | ) | ||||||||||
Net asset value, end of year | $ | 8.13 | $ | 6.72 | $ | 12.95 | $ | 17.02 | $ | 15.21 | ||||||||||
Total return | 22.83 | % | (23.08 | )% | 3.78 | % | 52.08 | % | 37.88 | % | ||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year | ||||||||||||||||||||
(in millions) | $ | 12,878 | $ | 10,830 | $ | 13,925 | $ | 15,383 | $ | 11,100 | ||||||||||
Ratio of expenses to average | ||||||||||||||||||||
net assets | .71 | % | .71 | % | .67 | % | .70 | % | .72 | % | ||||||||||
Ratio of net investment income to | ||||||||||||||||||||
to average net assets | 1.86 | % | 2.49 | % | 2.47 | % | 1.39 | % | 1.57 | % | ||||||||||
'Portfolio turnover rate | 49.38 | % | 67.91 | % | 57.50 | % | 52.19 | % | 38.48 | % | ||||||||||
* 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, 2010, 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Los Angeles, California
August 16, 2010
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, 2010 through June 30, 2010).
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 1/1/2010 | Ending account value 06/30/2010 | Expenses paid during period* | Annualized expense ratio | |||||||||||||
Actual return | $ | 1,000.00 | $ | 945.35 | $ | 3.42 | .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 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, 2010:
Foreign taxes | $0.02 per share |
Foreign source income | $0.23 per share |
Qualified dividend income | $260,158,000 |
Individual shareholders should refer to their Form 1099-DIV or other tax information, which will be mailed in January 2011, to determine the calendar year amounts to be included on their 2010 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, 2011, 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, 2009, 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, although there had been recent periods of underperformance, the fund’s results generally 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 the board and the committee remain confident in CII’s ability to achieve superi or results over time.
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 third-party sources 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 emerg ing 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 noted recent operational restructuring efforts undertaken by CII designed to reduce its expenses and improve its effectiveness and efficiency. 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 conclu ded 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, 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, and does not give preference to broker-dealers that have sold shares of investment companies advised by it or its affiliates.
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 a | ||
Name, age and | director of | |
position with fund | the fund1 | Principal occupation(s) during past five years |
Paul N. Eckley, 55 | 2005 | Senior Vice President, Investments, State Farm |
Insurance Companies | ||
Beverly L. Hamilton, 63 | 1991 | Retired President, ARCO Investment |
Chairman of the Board | Management Company | |
(Independent and Non-Executive) | ||
Raymond Kanner, 57 | 1997 | Managing Director and Chief Investment Officer, IBM |
Retirement Funds; former Director, Global Equity | ||
Investments, IBM Retirement Funds | ||
L. Erik Lundberg, 50 | 2005 | Chief Investment Officer, University of Michigan |
Helmut Mader, 68 | 1986 | Managing Director, Mader Capital Resources GmbH; |
Vice Chairman of the Board | former Director, Deutsche Bank AG | |
(Independent and Non-Executive) | ||
William B. Robinson, 72 | 1986 | Director, Reckson Asset Management Australia |
Limited; former Director, Unwired Australia Group | ||
Limited (Internet service provider); former Director, | ||
Deutsche Asset Management Australia Limited | ||
Michael L. Ross, 41 | 2006 | Sr. Advisor, Makena Capital Management, LLC; |
former Partner and Chief Investment Officer, Makena | ||
Capital Management, LLC; former Chief Investment | ||
Officer, Stanford Management Company | ||
Aje K. Saigal, 54 | 2000 | Director of Investment Policy and Strategy, |
Government of Singapore Investment Corporation | ||
Pte. Limited | ||
David H. Zellner, 55 | 2010 | Chief Investment Officer, General Board of Pension |
and Health Benefits of The United Methodist Church | ||
“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, 55 | 1 | None |
Beverly L. Hamilton, 63 | 1 | Oppenheimer Funds |
Chairman of the Board | (director for 38 portfolios in the fund complex) | |
(Independent and Non-Executive) | ||
Raymond Kanner, 57 | 1 | None |
L. Erik Lundberg, 50 | 1 | None |
Helmut Mader, 68 | 1 | None |
Vice Chairman of the Board | ||
(Independent and Non-Executive) | ||
William B. Robinson, 72 | 1 | None |
Michael L. Ross, 41 | 1 | None |
Aje K. Saigal, 54 | 1 | None |
David H. Zellner, 55 | 1 | None |
“Interested” directors4 | ||
Year first | ||
elected a | ||
director or | ||
Name, age and | officer of | Principal occupation(s) during past five years and |
position with fund | the fund1 | positions held with affiliated entities of the fund |
Victor D. Kohn, 52 | 1996 | President and Director, Capital International, Inc. |
President and Chief | ||
Executive Officer | ||
David I. Fisher, 70 | 1986 | Vice Chairman of the Board, Capital International, |
Inc.; Chairman of the Board, Capital Group | ||
International, 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, 51 | 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 by | |
position with fund | director | Other directorships3 held by director |
Victor D. Kohn, 52 | 1 | None |
President and Chief | ||
Executive Officer | ||
David I. Fisher, 70 | 1 | None |
Shaw B. Wagener, 51 | 1 | None |
Chairman emeritus | ||
Walter P. Stern, 81 | Vice Chairman of the Board, Capital International, | |
Inc.; Senior Partner, Capital Group International, Inc.5 |
Other officers | ||
Year first | ||
elected | ||
Name, age and | an officer | Principal occupation(s) during past five years |
position with fund | of the fund1 | and positions held with affiliated entities of the fund |
Michael A. Felix, 49 | 1993 | Senior Vice President, Treasurer 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, 51 | 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, 45 | 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, 50 | 1997 | Vice President, Capital International, Inc.; |
Vice President | Vice President, Capital Guardian Trust Company;5 | |
Vice President, The Capital Group Companies, Inc., | ||
Institutional Investment Services Division5 | ||
Lisa B. Thompson, 44 | 2000 | Senior Vice President and Director, Capital Guardian |
Vice President | Trust Company;5 Director, The Capital Group | |
Companies, Inc.5 | ||
Ricardo V. Torres, 40 | 2006 | Executive Vice President, Capital International |
Vice President | Research, Inc.5 | |
Nelson N. Lee, 39 | 2005 | Vice President and Associate Counsel, Capital |
Secretary | International, Inc.; Vice President and Associate | |
Counsel, Capital Guardian Trust Company5 | ||
Laurie D. Neat, 39 | 2005 | Assistant Vice President, Capital International, Inc.; |
Assistant Secretary | Assistant Vice President, Capital Guardian Trust | |
Company5 | ||
Bryan K. Nielsen, 37 | 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. Information on the operation of the Public Reference Room may be obtained by calling 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, as amended, 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 | Counsel |
investment adviser | Dechert LLP |
Capital International, Inc. | 1775 I Street, N.W. |
11100 Santa Monica Boulevard, 15th Floor | Washington, D.C. 20006-2401 |
Los Angeles, CA 90025-3302 | |
Independent registered public accounting firm | |
6455 Irvine Center Drive | PricewaterhouseCoopers LLP |
Irvine, CA 92618 | 350 South Grand Avenue |
Los Angeles, CA 90071-2889 | |
Transfer agent for | |
shareholder accounts | Principal underwriter |
American Funds Service Company | American Funds Distributors, Inc. |
6455 Irvine Center Drive | 333 South Hope Street |
Irvine, CA 92618 | Los Angeles, CA 90071-1406 |
Custodian of assets | |
JPMorgan Chase Bank | |
270 Park Avenue | |
New York, NY 10017-2070 |
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.
Investors should carefully consider the investment objectives, risks, charges and expenses of the fund. This and other important information is in the prospectus, which can be obtained from Capital International by calling 800/421-0180, ext. 96245 and should be read carefully before investing.
The Capital Group Companies
Capital International Capital Guardian Capital Research and Management Capital Bank and Trust American Funds
Lit. No. MFGEAR-915-0810P (NLS)
Printed in USA
TAG/AFD/6391-S25919
© 2010 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: |
2009 $128,000
2010 $114,000
b) | Audit- Related Fees: |
2009 none
2010 none
c) | Tax Fees: |
2009 $95,000
2010 $94,000
The tax fees for 2009 and 2010 consist of professional services relating to: preparing the fund’s federal and state income tax returns (2009: $12,000, 2010: $12,000); preparing the local tax return and routine tax compliance services in India and Venezuela (2009: $57,000, 2010: $32,000); and other tax services in India and Venezuela (2009: $26,000, 2010: $50,000).
d) | All Other Fees: |
2009 none
2010 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: 2009 none 2010 none |
c) | Tax Fees: 2009 $3,000 2010 $4,000 |
d) | All Other Fees: 2009 none 2010 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 dele gation 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 2010 and $98,000 for fiscal year 2009. 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 i s 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 31, 2010 |
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 31, 2010 |
By /s/ Michael A. Felix |
Michael A. Felix, Vice President and Treasurer |
Date: August 31, 2010 |