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 800/421-4989.
Investing in developing markets involves 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.
Emerging markets equities dropped in the last six months of 2011 as investors worried about Europe’s ability to manage the sovereign debt crisis and the potential impact of a global economic slowdown on emerging markets exports. Signs of deceleration in China’s economy further dampened sentiment. For the six-month period ended December 31, 2011, the net asset value of the Emerging Markets Growth Fund declined 22.0%, with distributions reinvested, while its benchmark, the unmanaged MSCI Emerging Markets Investable Market Index (IMI), fell 19.7%.
Economically sensitive sectors declined the most, with industrials and materials posting the steepest losses. Financials stocks also suffered in the face of tighter credit conditions and a possible increase in nonperforming loans in a more sluggish economic environment. Losses were more muted in defensive sectors such as telecommunication services and consumer staples, while growing demand for smartphones helped support some technology companies.
The enormity of the European debt crisis — and the vast scope of the political and fiscal initiatives needed to address it — kept markets on edge during the second half of the year. Major emerging markets economies showed signs of slowing, including China, India and Brazil. The economic slump in Europe — Asia’s largest export destination — weighed on exports in several markets, and factory output in Asia declined in the fourth quarter.
Capital seeped from the emerging markets, with dedicated emerging markets funds reporting high outflows. Most currencies depreciated against the U.S. dollar after taking a sharp downward turn in September. A number registered double-digit losses, including the Indian rupee, the Turkish lira, the South African rand and the Brazilian real, as well as most Central and Eastern European currencies.
Prices for most metals slid, with the primary exception of gold, which rose slightly. Oil prices plummeted in late September, but ended the period slightly higher. Energy heavyweights Petrobras and Gazprom were major detractors to market returns. Shares of Russia’s Gazprom fell 27% despite healthy gas sales to Europe, as investors appeared more nervous about slowing global growth. Brazil’s state-owned oil producer Petrobras declined on fears related to a potential increase in government control and the effect of rising costs and currency depreciation on the firm’s profitability. Iron ore producer Vale slumped on expectations for sagging demand for steel from China.
The total annual fund operating expense ratio was 0.68% as of the most recent fiscal year-end, and was 0.74% including “Acquired Fund” fees and expenses, as reflected in the prospectus dated August 29, 2011.
Percentage changes for markets and sectors are based on the MSCI Emerging Markets Investable Market Index, with net dividends reinvested, and are for the period ended December 31, 2011, unless otherwise noted. All returns and stock prices are reflected in U.S. dollars, unless otherwise noted.
Larger markets fell sharply on the whole. Smaller markets in Asia and Latin America fared somewhat better, supported by stable domestic economies. Shares of banks in China, India and Brazil dropped despite solid corporate profits, as investors worried about stricter lending criteria. Financials stocks shed 23% overall.
Authorities in some markets, including China and Brazil, tightened credit in early 2011 but reversed course in the second half of the year on hopes that inflation might ease. China’s economy lost some momentum, with GDP growth slowing to a 9.1% annualized rate in the third quarter from 9.5% in the second quarter and 9.7% in the first. Property prices continued to weaken, and in November manufacturing activity fell to its lowest level since early 2009. Monetary authorities lowered the reserve ratio requirement — the portion of depositors’ bank balances lenders must hold as cash — in early December for the first time in three years. Inflation slid to 4.1% in December after reaching a three-year high of 6.5% in July, fueling expectations for further monetary policy easing in 2012. The MSCI China IMI fell 21%.
Meanwhile, India battled high inflation, which ebbed from its peak but remained above 9% through November amidst stricter credit conditions. GDP growth decelerated to an annual rate of 6.9% in the July–September quarter, from 7.7% in the previous quarter. The Reserve Bank of India continued to lift interest rates for a total of 13 times since early 2010. Stocks dropped 33%, with the sharp depreciation of the Indian rupee holding back returns. The rupee was among the world’s weakest currencies during the period, losing 16% against the U.S. dollar. Worries that political gridlock had stymied reforms in India and that a sluggish economy would dampen corporate earnings also hampered market sentiment.
Weaker export numbers, which account for about half of South Korean GDP and roughly two-thirds of Taiwan’s growth, weighed on both economies. South Korean automakers, which rose in the first six months of the year, tapered off in the second half amid fears of growing competition. Shares of several technology companies in both countries advanced, however, helping to pare losses in their respective markets. Ordinary shares of Samsung Electronics climbed 19% as strong smartphone sales offset a waning desire for LCD panels and televisions. But Taiwanese smartphone maker HTC tumbled as it drastically lowered its outlook in the face of additional competition. Both Samsung and HTC found themselves embroiled in ongoing legal skirmishes with Apple over patent issues.
Elsewhere in Asia, Thailand experienced its heaviest floods in 50 years, which crippled transportation networks and disrupted major supply chains — including those of Toyota Motor and Sony. Earlier in the period, investors cheered the election of Yingluck Shinawatra as prime minister, the sister of former prime minister Thaksin Shinawatra, who was ousted in 2006. Thai stocks ended only 4% lower, supported by several consumer-related companies. Meanwhile, Indonesia lost just 6% in aggregate. Shares of cement producer Semen Gresik and auto conglomerate Astra International rose. Indonesia’s third-quarter GDP expanded by more than 6% for the fourth consecutive quarter, fueled by domestic consumption.
Brazilian stocks fell 21%. The country’s economy stalled in the third quarter, with consumer spending — which accounts for about 60% of GDP — dropping considerably. The central bank lowered its key lending rate to 11%. Mexico’s GDP grew at a better-than-expected rate of 4.5% in the third quarter from a year earlier, up from 3.2% in the previous quarter. Mexican equities climbed 4% in local currency, but posted double-digit losses in U.S. dollar terms given the sharp decline in the peso. América Móvil ended 16% lower amid increased regulatory pressures; the Latin American telecommunications provider increased its stake in fixed-line company Telmex to more than 90% through a share buyout in November.
The MSCI Russia IMI weakened 27%, hurt by declining commodity and banking stocks. Russian stocks took a particularly hard hit in December after protests erupted over allegations of fraud in parliamentary elections, setting the stage for political instability in the run-up to March’s presidential vote.
Turkish equities finished 30% lower. Bank shares dropped amid apprehension that higher borrowing rates would cut into profits. South Africa’s market witnessed a 6% jump in local currency terms, partly sustained by several consumer stocks, but the rand’s depreciation eroded gains. Hungarian equities lost 46% as the country’s debt swelled to more than 80% of GDP, and doubts persisted about whether changes in its constitution might prevent the government from securing help from the International Monetary Fund. The forint struggled, dipping 24% against the U.S. dollar. Egypt’s stock market shed 32%, stoked by political and religious tensions surrounding the collapse of Hosni Mubarak’s regime.
The fund’s value deteriorated, with investments in consumer staples and telecommunication services posting especially steep losses. Materials and industrial stocks also dropped appreciably. Overall, equity holdings in the larger markets of China, India, Brazil and Russia detracted from results. Nevertheless, several investments in the energy and technology sectors rose.
Investments in a few growth-oriented consumer stocks dampened fund results as the market favored more defensive companies. Brazilian consumer goods conglomerate Hypermarcas plunged as investors became increasingly alarmed over debts accumulated as a result of its aggressive acquisitions policy in recent years. A more sluggish local economy further undermined the company’s stock price. Meanwhile, shares of Indian beverage giant United Spirits slid amid worries about the actions of majority shareholder Vijay Mallya, who also owns a controlling stake in the troubled Kingfisher Airlines. Although United Spirits continues to have a robust business, investors feared that Mallya might tap its balance sheet to finance Kingfisher’s increasingly unsustainable debt burden.
A number of other investments in India hampered results. Shares of coal, port and power conglomerate Adani Enterprises registered further declines as investors fretted over political gridlock and the possibility that government red tape could delay clearances for projects. Jain Irrigation Systems retreated as late payments from various state governments sparked anxiety over a potential deterioration of the company’s balance sheet.
Among telecommunications providers, Brazil’s Tele Norte Leste Participações struggled on concerns about declining revenues and the impact of ongoing corporate restructuring. Shares fell 38% over the period. India’s Bharti Airtel also slid; the wireless provider reported profit declines, missing analyst estimates for a fifth consecutive quarter as it grappled with rising costs.
Shares of South Korean petrochemicals firm LG Chem — one of the fund’s largest holdings — shed 40% as profits disappointed. Speculation late in the year that LG Chem would spin off its profitable battery business further distressed investors. Several other materials stocks also fell, including Indorama Ventures; Thailand’s largest maker of polyester and plastic packaging dropped as the massive floods affected sales. Shares of South Africa’s Sappi — the world’s biggest producer of glossy paper — declined as demand for the product weakened.
China’s Anhui Conch Cement stumbled despite realizing higher profits as investors worried about a slowdown in the country’s industrial sector. Meanwhile, the repercussions of July’s high-speed train crash sent shares of China High Speed Transmission markedly lower. Elsewhere in Asia, several Indonesian companies, including auto conglomerate Astra International, advanced.
Investments in a few major banks further detracted from fund results, including Bank of China and Industrial and Commercial Bank of China. India’s ICICI dipped as the outlook for the country’s banking sector dimmed amid concerns that a decrease in economic growth would pressure margins and might lead to a rise in bad loans. Shares of Sberbank fell even as Russia’s largest lending institution posted strong profits. Several of the fund’s investments in the financial sector gained, however, including Oman’s BankMuscat, which reported healthy profits.
Holdings in the technology sector produced mixed results. Shares of Delta Electronics, which produces power supplies, components, video and electromechanical products, slipped as the company faced a combination of higher costs and lower sales. Despite record quarterly earnings, Taiwanese smartphone maker HTC also lost ground.
A few technology-related investments proved to be bright spots, including Samsung Electronics. Meanwhile, shares of China’s biggest PC maker, Lenovo, jumped 16%. The company generated robust quarterly profits as it further developed its overseas business while domestic sales continued to expand.
Energy stocks declined overall, with investments in Gazprom detracting heavily from fund results. Several holdings in the energy sector managed to rise however. State-owned China Petroleum and Chemical Corporation (SINOPEC) climbed as the firm, which has refining, production and exploration businesses in oil and gas, continued to acquire shale-gas reserves. Shares of Tullow Oil gained momentum as the U.K.-domiciled exploration firm announced new offshore discoveries in French Guiana.
The year 2011 began with a series of unexpected events, including natural disasters in Japan and the Arab Spring. A crisis of confidence followed in the second half of 2011 as concerns about Europe’s sovereign debt problems escalated, and investors grappled with the repercussions of a likely recession in Europe as well as the impact of economic slowdowns in China and other major emerging markets. Increased uncertainty ahead of China’s 2012 government transition exacerbated fears as the new year approached, as did the prolonged political stalemate in India and rising popular unrest in Russia.
The lack of a clear resolution to these issues is likely to keep investors on edge for some time. In addition, emerging markets are susceptible to the slowing pace of global economic growth and trade, despite their relative health. But these factors already appear to have been discounted in stock prices, with sharp market downturns creating opportunities — especially for long-term investors. Most developing economies also continue to be in better fiscal shape than they were even a decade ago, while corporate profits and balance sheets are strong overall. Furthermore, monetary authorities seem poised to loosen policies as inflation appears likely to ebb. The emerging markets also have greater flexibility to provide fiscal stimulus than their developed market counterparts.
Overall, the fund is positioned to benefit from modest economic expansion amid expectations that additional growth-oriented policies will emerge in the coming year. A little more than a quarter of the fund’s assets are invested in the materials and energy sectors. Managers are especially interested in commodity firms with considerable assets and long-term earnings potential whose shares have taken a beating in recent months. They are also finding value in companies that seem favorably positioned to effectively meet demand for coal and natural gas. Several gold and cement producers also feature prominently.
Given the relative strength of emerging markets finances and the growing needs of their populations, managers expect that governments in a number of countries are likely to support infrastructure development and social safety nets over the long term. As a result, they are attracted to firms in China, Brazil and Mexico that may benefit from government spending, as well as those fully equipped to execute projects in their respective industries. Specifically, managers have been adding to investments in several Chinese infrastructure stocks that have struggled in the past but they believe are likely to do well in the long run.
Fund holdings in China have increased in recent months as valuations have become more attractive. Chinese equities currently make up about 18% of the fund’s assets, compared with 16% as of June 30, 2011. Several fund managers have also become more interested in Brazilian firms with low price-to-earnings ratios and strong corporate managements.
They have added to investments in a number of banks in China and Brazil during the last six months and continue to find opportunities in other emerging markets banks with solid growth prospects and low stock valuations. Some Chinese life insurers are also drawing attention as they stand to benefit from a broadening desire among consumers to provide financial security for their families. About 20% of the fund’s assets were invested in the financials sector at the end of the period.
India is another major area of focus, despite the challenges associated with widespread corruption, infrastructure bottlenecks and the impact of inflation on industrial output and consumer confidence. Fund managers nonetheless think there are considerable longer term opportunities, especially in the areas of infrastructure development and finance. The fund emphasizes companies that are likely to profit from an increase in corporate capital spending and those that focus on solving infrastructure problems. Interest rate sensitive cyclical stocks have also fallen sharply, and valuations are starting to look more attractive from a two- to three-year perspective.
Technology investments make up about 13% of assets. In this area, managers are accentuating companies with unique product offerings and the capacity to deliver in a highly competitive environment. In addition, telecommunication services firms constitute about 10% of fund assets. Escalating need for data and broadband services against a backdrop of favorable regulatory shifts should help buttress fixed-line providers, while several wireless companies still have significant room to expand in underpenetrated areas.
On balance, fund managers are enthusiastic about prospects for emerging markets, especially following this difficult period, and look forward to reporting to you again in six months.
/s/ Victor D. Kohn
Victor D. Kohn
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.
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
December 31, 2011
Equity securities
-------------------------------
Bonds Percent
Common Preferred Convertible and of net
stocks stocks stocks notes assets
================================================================================
Sector diversification
================================================================================
Financials 18.38% 1.94% .09% --% 20.41%
--------------------------------------------------------------------------------
Materials 13.16 .70 -- .05 13.91
--------------------------------------------------------------------------------
Information technology 13.19 -- -- -- 13.19
--------------------------------------------------------------------------------
Energy 11.04 .99 -- .07 12.10
--------------------------------------------------------------------------------
Telecommunication services 8.31 1.82 -- -- 10.13
--------------------------------------------------------------------------------
Industrials 8.99 -- -- -- 8.99
--------------------------------------------------------------------------------
Consumer discretionary 8.66 -- -- -- 8.66
--------------------------------------------------------------------------------
Consumer staples 5.07 -- -- -- 5.07
--------------------------------------------------------------------------------
Utilities 1.57 -- -- -- 1.57
--------------------------------------------------------------------------------
Health care .80 -- -- -- .80
--------------------------------------------------------------------------------
Other 1.42 -- -- -- 1.42
--------------------------------------------------------------------------------
90.59% 5.45% .09% .12% 96.25
====== ====== ====== ======
Short-term securities 3.31
--------------------------------------------------------------------------------
Other assets less liabilities (including forward currency contracts) .44
--------------------------------------------------------------------------------
Net assets 100.00%
======
Value
Equity securities Shares (000)
===========================================================================================================================
Asia-Pacific -- 57.5%
===========================================================================================================================
China -- 18.2%
---------------------------------------------------------------------------------------------------------------------------
Agricultural Bank of China Ltd. 1,528,800 $636
---------------------------------------------------------------------------------------------------------------------------
Agricultural Bank of China Ltd. (Hong Kong) 102,344,000 44,013
---------------------------------------------------------------------------------------------------------------------------
Alibaba.com Ltd. (Hong Kong)(1) 34,954,500 36,140
---------------------------------------------------------------------------------------------------------------------------
Ambow Education Holding Ltd. (ADR)(1) 1,341,420 9,457
---------------------------------------------------------------------------------------------------------------------------
Anhui Conch Cement Co. Ltd. 10,961,154 27,255
---------------------------------------------------------------------------------------------------------------------------
Anhui Conch Cement Co. Ltd. (Hong Kong) 21,552,000 63,963
---------------------------------------------------------------------------------------------------------------------------
Bank of China Ltd. (Hong Kong) 688,490,724 253,532
---------------------------------------------------------------------------------------------------------------------------
Beijing Enterprises Water Group Ltd. (Hong Kong)(1) 122,236,000 33,366
---------------------------------------------------------------------------------------------------------------------------
BYD Co. Ltd. (Hong Kong)(1) 4,396,200 9,532
---------------------------------------------------------------------------------------------------------------------------
China Construction Bank Corp. (Hong Kong) 176,481,190 123,159
---------------------------------------------------------------------------------------------------------------------------
China High Speed Transmission Equipment Group Co. Ltd. (Hong Kong) 59,763,600 26,163
---------------------------------------------------------------------------------------------------------------------------
China Kanghui Holdings (ADR)(1) 1,085,000 15,993
---------------------------------------------------------------------------------------------------------------------------
China Life Insurance Co. Ltd. 6,207,957 17,399
---------------------------------------------------------------------------------------------------------------------------
China Life Insurance Co. Ltd. (Hong Kong) 26,534,000 65,595
---------------------------------------------------------------------------------------------------------------------------
China Longyuan Power Group Corp. Ltd. (Hong Kong) 56,557,000 44,202
---------------------------------------------------------------------------------------------------------------------------
China Mengniu Dairy Co. (Hong Kong) 15,324,000 35,831
---------------------------------------------------------------------------------------------------------------------------
China Mobile Ltd. (Hong Kong) 8,901,000 86,986
---------------------------------------------------------------------------------------------------------------------------
China Overseas Land & Investment Ltd. (Hong Kong) 1,249,206 2,088
---------------------------------------------------------------------------------------------------------------------------
China Petroleum & Chemical Corp. (Hong Kong) 187,792,000 197,546
---------------------------------------------------------------------------------------------------------------------------
China Resources Enterprise Ltd. (Hong Kong) 4,562,000 15,654
---------------------------------------------------------------------------------------------------------------------------
China Resources Land Ltd. (Hong Kong) 5,961,000 9,579
---------------------------------------------------------------------------------------------------------------------------
China Shenhua Energy Co. Ltd. 1,309,200 5,269
---------------------------------------------------------------------------------------------------------------------------
China Shenhua Energy Co. Ltd. (Hong Kong) 54,663,500 237,190
---------------------------------------------------------------------------------------------------------------------------
China Yurun Food Group Ltd. (Hong Kong) 15,011,000 19,714
---------------------------------------------------------------------------------------------------------------------------
Value
Shares (000)
---------------------------------------------------------------------------------------------------------------------------
China (continued)
---------------------------------------------------------------------------------------------------------------------------
CSR Corp. Ltd. (Hong Kong) 37,875,000 $21,652
---------------------------------------------------------------------------------------------------------------------------
Ctrip.com International, Ltd. (ADR)(1) 84,060 1,967
---------------------------------------------------------------------------------------------------------------------------
ENN Energy Holdings Ltd. (Hong Kong) 4,630,000 14,844
---------------------------------------------------------------------------------------------------------------------------
First Tractor Co. Ltd. (Hong Kong) 13,402,000 12,545
---------------------------------------------------------------------------------------------------------------------------
Fu Ji Food and Catering Services Holdings Ltd. (Hong Kong)(1) 15,126,000 24
---------------------------------------------------------------------------------------------------------------------------
Hengan International Group Co. Ltd. (Hong Kong) 2,375,500 22,221
---------------------------------------------------------------------------------------------------------------------------
Honghua Group Ltd. (Hong Kong)(1) 3,817,000 369
---------------------------------------------------------------------------------------------------------------------------
Huabao International Holdings Ltd. (Hong Kong) 14,604,000 7,465
---------------------------------------------------------------------------------------------------------------------------
Industrial and Commercial Bank of China Ltd. 10,092,300 6,799
---------------------------------------------------------------------------------------------------------------------------
Industrial and Commercial Bank of China Ltd. (Hong Kong) 430,558,761 255,565
---------------------------------------------------------------------------------------------------------------------------
Kingboard Chemical Holdings Ltd. (Hong Kong) 3,795,100 11,239
---------------------------------------------------------------------------------------------------------------------------
Kingboard Laminates Holdings Ltd. (Hong Kong) 37,262,000 16,984
---------------------------------------------------------------------------------------------------------------------------
Lenovo Group Ltd. (Hong Kong) 52,766,000 35,193
---------------------------------------------------------------------------------------------------------------------------
Leoch International Technology Ltd. (Hong Kong) 8,877,000 2,194
---------------------------------------------------------------------------------------------------------------------------
Li Ning Co. Ltd. (Hong Kong) 13,721,500 10,901
---------------------------------------------------------------------------------------------------------------------------
Longfor Properties Co. Ltd. (Hong Kong) 51,269,000 57,959
---------------------------------------------------------------------------------------------------------------------------
Man Wah Holdings Ltd. (Hong Kong) 24,656,600 14,794
---------------------------------------------------------------------------------------------------------------------------
Minth Group Ltd. (Hong Kong) 42,018,000 39,440
---------------------------------------------------------------------------------------------------------------------------
NetEase.com, Inc. (ADR)(1) 204,300 9,163
---------------------------------------------------------------------------------------------------------------------------
New Oriental Education & Technology Group Inc. (ADR)(1) 1,127,000 27,104
---------------------------------------------------------------------------------------------------------------------------
Nine Dragons Paper (Holdings) Ltd. (Hong Kong) 64,686,200 40,728
---------------------------------------------------------------------------------------------------------------------------
Perfect World Co. Ltd., Class B (ADR)(1) 611,600 6,403
---------------------------------------------------------------------------------------------------------------------------
Real Nutriceutical Group Ltd. (Hong Kong) 7,325,000 2,396
---------------------------------------------------------------------------------------------------------------------------
Sany Heavy Equipment International Holdings Co. Ltd. (Hong Kong) 56,608,000 46,137
---------------------------------------------------------------------------------------------------------------------------
Shanda Games Ltd., Class A (ADR)(1) 3,943,800 15,420
---------------------------------------------------------------------------------------------------------------------------
Shandong Weigao Group Medical Polymer Co. Ltd. (Hong Kong) 45,994,000 41,395
---------------------------------------------------------------------------------------------------------------------------
Shanghai Zhixin Electric Co. Ltd. 4,426,067 10,344
---------------------------------------------------------------------------------------------------------------------------
Shenguan Holdings Group Ltd. (Hong Kong) 12,222,000 7,081
---------------------------------------------------------------------------------------------------------------------------
Suntech Power Holdings Co. Ltd. (ADR)(1) 804,400 1,778
---------------------------------------------------------------------------------------------------------------------------
Tingyi (Cayman Islands) Holding Corp. (Hong Kong) 12,878,000 39,132
---------------------------------------------------------------------------------------------------------------------------
Weichai Power Co. Ltd. (Hong Kong) 17,524,200 86,193
---------------------------------------------------------------------------------------------------------------------------
Wumart Stores, Inc. (Hong Kong) 4,430,384 9,252
---------------------------------------------------------------------------------------------------------------------------
Zhongsheng Group Holdings Ltd. (Hong Kong) 52,753,000 87,892
---------------------------------------------------------------------------------------------------------------------------
Zhuzhou CSR Times Electric Co. Ltd. (Hong Kong) 7,324,000 16,050
---------------------------------------------------------------------------------------------------------------------------
2,358,885
---------------------------------------------------------------------------------------------------------------------------
Hong Kong -- 3.6%
---------------------------------------------------------------------------------------------------------------------------
AIA Group Ltd. 37,812,800 118,065
---------------------------------------------------------------------------------------------------------------------------
ASM Pacific Technology Ltd. 4,370,900 49,046
---------------------------------------------------------------------------------------------------------------------------
EVA Precision Industrial Holdings Ltd. 69,356,000 16,789
---------------------------------------------------------------------------------------------------------------------------
First Pacific Co. Ltd. 20,354,858 21,176
---------------------------------------------------------------------------------------------------------------------------
Goodbaby International Holdings Ltd. 22,216,000 6,064
---------------------------------------------------------------------------------------------------------------------------
Hopewell Holdings Ltd. 4,804,000 12,284
---------------------------------------------------------------------------------------------------------------------------
Jardine Matheson Holdings Ltd. 252,000 11,857
---------------------------------------------------------------------------------------------------------------------------
Samsonite International SA(1) 31,693,500 49,703
---------------------------------------------------------------------------------------------------------------------------
Sands China Ltd.(1) 25,354,400 71,657
---------------------------------------------------------------------------------------------------------------------------
SJM Holdings Ltd. 29,555,000 48,252
---------------------------------------------------------------------------------------------------------------------------
United Company RUSAL PLC(1) 27,361,000 17,333
---------------------------------------------------------------------------------------------------------------------------
VTech Holdings Ltd. 1,808,700 18,118
---------------------------------------------------------------------------------------------------------------------------
Wynn Macau Ltd. 10,570,000 26,539
---------------------------------------------------------------------------------------------------------------------------
466,883
---------------------------------------------------------------------------------------------------------------------------
Value
Equity securities Shares (000)
---------------------------------------------------------------------------------------------------------------------------
India -- 7.2%
---------------------------------------------------------------------------------------------------------------------------
Adani Enterprises Ltd. 13,950,450 $77,128
---------------------------------------------------------------------------------------------------------------------------
Apollo Hospitals Enterprise Ltd. 2,445,932 26,032
---------------------------------------------------------------------------------------------------------------------------
Apollo Hospitals Enterprise Ltd. (GDR) 467,600 4,977
---------------------------------------------------------------------------------------------------------------------------
Bharat Electronics Ltd. 380,971 9,687
---------------------------------------------------------------------------------------------------------------------------
Bharti Airtel Ltd. 29,381,621 190,050
---------------------------------------------------------------------------------------------------------------------------
Cox and Kings Ltd. 4,202,697 12,199
---------------------------------------------------------------------------------------------------------------------------
Cox and Kings Ltd. (GDR) 453,204 1,316
---------------------------------------------------------------------------------------------------------------------------
DLF Ltd. 11,952,593 41,211
---------------------------------------------------------------------------------------------------------------------------
HDFC Bank Ltd. 7,335,905 58,965
---------------------------------------------------------------------------------------------------------------------------
HDFC Bank Ltd. (ADR) 8,000 210
---------------------------------------------------------------------------------------------------------------------------
Housing Development Finance Corp. Ltd. 7,352,944 90,283
---------------------------------------------------------------------------------------------------------------------------
ICICI Bank Ltd. 3,935,488 50,738
---------------------------------------------------------------------------------------------------------------------------
ICICI Bank Ltd. (ADR) 1,878,400 49,646
---------------------------------------------------------------------------------------------------------------------------
Infosys Ltd. 422,272 22,007
---------------------------------------------------------------------------------------------------------------------------
Infrastructure Development Finance Co. Ltd. 19,165,091 33,076
---------------------------------------------------------------------------------------------------------------------------
ITC Ltd. 1,730,680 6,560
---------------------------------------------------------------------------------------------------------------------------
Jain Irrigation Systems Ltd.(2) 21,176,553 33,572
---------------------------------------------------------------------------------------------------------------------------
Kotak Mahindra Bank Ltd. 6,938,802 56,257
---------------------------------------------------------------------------------------------------------------------------
Multi Screen Media Private Ltd. (acquired 5/15/00, cost: $107,294,000)(1,3) 284,195 21,721
---------------------------------------------------------------------------------------------------------------------------
Pantaloon Retail (India) Ltd. 1,384,736 3,356
---------------------------------------------------------------------------------------------------------------------------
PTC India Financial Services Ltd.(1) 15,933,450 3,030
---------------------------------------------------------------------------------------------------------------------------
Reliance Industries Ltd. 5,191,667 67,744
---------------------------------------------------------------------------------------------------------------------------
Shopper's Stop Ltd. 1,421,269 7,038
---------------------------------------------------------------------------------------------------------------------------
Sobha Developers Ltd. 3,594,606 12,949
---------------------------------------------------------------------------------------------------------------------------
Sun Pharmaceutical Industries Ltd. 522,485 4,896
---------------------------------------------------------------------------------------------------------------------------
United Spirits Ltd. 4,182,156 38,738
---------------------------------------------------------------------------------------------------------------------------
VA Tech Wabag Ltd.(2) 1,584,552 10,000
---------------------------------------------------------------------------------------------------------------------------
Wipro Ltd. 609,630 4,577
---------------------------------------------------------------------------------------------------------------------------
937,963
---------------------------------------------------------------------------------------------------------------------------
Indonesia -- 3.1%
---------------------------------------------------------------------------------------------------------------------------
PT Agung Podomoro Land Tbk(1) 479,240,500 18,498
---------------------------------------------------------------------------------------------------------------------------
PT Astra International Tbk 7,309,300 59,651
---------------------------------------------------------------------------------------------------------------------------
PT Bank Mandiri (Persero) Tbk 140,273,824 104,422
---------------------------------------------------------------------------------------------------------------------------
PT Bank Rakyat Indonesia (Persero) Tbk 63,680,000 47,405
---------------------------------------------------------------------------------------------------------------------------
PT Elang Mahkota Teknologi Tbk(1) 49,762,000 18,110
---------------------------------------------------------------------------------------------------------------------------
PT Indocement Tunggal Prakarsa Tbk 32,025,000 60,218
---------------------------------------------------------------------------------------------------------------------------
PT Semen Gresik (Persero) Tbk 22,576,500 28,509
---------------------------------------------------------------------------------------------------------------------------
PT Surya Citra Media Tbk 38,277,500 33,138
---------------------------------------------------------------------------------------------------------------------------
PT Tower Bersama Infrastructure Tbk 105,953,500 27,752
---------------------------------------------------------------------------------------------------------------------------
PT XL Axiata Tbk 16,059,500 8,014
---------------------------------------------------------------------------------------------------------------------------
405,717
---------------------------------------------------------------------------------------------------------------------------
Malaysia -- 3.7%
---------------------------------------------------------------------------------------------------------------------------
Bumi Armada Bhd.(1) 60,092,100 77,722
---------------------------------------------------------------------------------------------------------------------------
CIMB Group Holdings Bhd. 53,611,498 125,826
---------------------------------------------------------------------------------------------------------------------------
Eastern & Oriental Bhd. 7,469,930 3,299
---------------------------------------------------------------------------------------------------------------------------
Genting Bhd. 34,924,200 121,188
---------------------------------------------------------------------------------------------------------------------------
IJM Corp. Bhd. 49,773,298 88,713
---------------------------------------------------------------------------------------------------------------------------
Malaysia Marine and Heavy Engineering Holdings Bhd. 15,243,500 27,217
---------------------------------------------------------------------------------------------------------------------------
Naim Cendera Holdings Bhd. 11,661,500 6,033
---------------------------------------------------------------------------------------------------------------------------
S P Setia Bhd. 18,718,725 22,734
---------------------------------------------------------------------------------------------------------------------------
StemLife Bhd.(2) 8,331,900 723
---------------------------------------------------------------------------------------------------------------------------
Value
Shares (000)
---------------------------------------------------------------------------------------------------------------------------
Malaysia (continued)
---------------------------------------------------------------------------------------------------------------------------
UMW Holdings Bhd. 2,571,600 $5,678
---------------------------------------------------------------------------------------------------------------------------
479,133
---------------------------------------------------------------------------------------------------------------------------
Pakistan -- 0.1%
---------------------------------------------------------------------------------------------------------------------------
Oil and Gas Development Co. Ltd. (GDR)(1) 775,826 13,083
---------------------------------------------------------------------------------------------------------------------------
Philippines -- 0.8%
---------------------------------------------------------------------------------------------------------------------------
Bayan Telecommunications Holdings Corp., Class A (acquired 2/12/98, cost: 724,790 --
$1,850,000)(1,3)
---------------------------------------------------------------------------------------------------------------------------
Bayan Telecommunications Holdings Corp., Class B (acquired 2/12/98, cost:
$616,000)(1,3) 241,431 --
---------------------------------------------------------------------------------------------------------------------------
Energy Development Corp. 441,031,750 63,555
---------------------------------------------------------------------------------------------------------------------------
International Container Terminal Services, Inc. 27,284,888 33,183
---------------------------------------------------------------------------------------------------------------------------
Philippine Airlines, Inc. (acquired 3/31/97, cost: $0)(1,3) 68,631,450 --
---------------------------------------------------------------------------------------------------------------------------
96,738
---------------------------------------------------------------------------------------------------------------------------
Singapore -- 1.0%
---------------------------------------------------------------------------------------------------------------------------
Ascendas India Trust 12,574,500 6,689
---------------------------------------------------------------------------------------------------------------------------
CapitaRetail China Trust 8,476,000 7,515
---------------------------------------------------------------------------------------------------------------------------
Hutchison Port Holdings Trust 28,808,000 17,861
---------------------------------------------------------------------------------------------------------------------------
Olam International Ltd. 18,903,868 31,044
---------------------------------------------------------------------------------------------------------------------------
Wilmar International Ltd. 16,287,420 62,786
---------------------------------------------------------------------------------------------------------------------------
125,895
---------------------------------------------------------------------------------------------------------------------------
South Korea -- 11.2%
---------------------------------------------------------------------------------------------------------------------------
Cheil Worldwide, Inc.(1) 992,090 16,382
---------------------------------------------------------------------------------------------------------------------------
Daum Communications Corp.(1) 83,276 8,704
---------------------------------------------------------------------------------------------------------------------------
Hana Financial Group Inc. 3,140,000 97,048
---------------------------------------------------------------------------------------------------------------------------
Hankook Tire Co., Ltd.(1) 1,195,190 46,961
---------------------------------------------------------------------------------------------------------------------------
Hynix Semiconductor, Inc.(1) 6,654,810 127,611
---------------------------------------------------------------------------------------------------------------------------
Hyundai Engineering & Construction Co., Ltd.(1) 426,879 26,262
---------------------------------------------------------------------------------------------------------------------------
Hyundai Mobis Co., Ltd.(1) 470,752 119,946
---------------------------------------------------------------------------------------------------------------------------
Korean Reinsurance Co. 1,753,525 22,899
---------------------------------------------------------------------------------------------------------------------------
KT Corp. (ADR)(1) 2,663,500 41,657
---------------------------------------------------------------------------------------------------------------------------
LG Chem, Ltd.(1) 948,777 263,474
---------------------------------------------------------------------------------------------------------------------------
LG Household & Health Care Ltd.(1) 106,271 44,966
---------------------------------------------------------------------------------------------------------------------------
OCI Co., Ltd.(1) 191,602 36,815
---------------------------------------------------------------------------------------------------------------------------
Samsung C&T Corp.(1) 1,120,423 66,637
---------------------------------------------------------------------------------------------------------------------------
Samsung Electronics Co., Ltd. 193,572 178,146
---------------------------------------------------------------------------------------------------------------------------
Samsung Electronics Co., Ltd. (GDR) 639,548 294,640
---------------------------------------------------------------------------------------------------------------------------
Shinhan Financial Group Co., Ltd.(1) 1,151,863 39,987
---------------------------------------------------------------------------------------------------------------------------
SK Telecom Co., Ltd. (ADR) 1,658,800 22,576
---------------------------------------------------------------------------------------------------------------------------
1,454,711
---------------------------------------------------------------------------------------------------------------------------
Taiwan -- 6.1%
---------------------------------------------------------------------------------------------------------------------------
Advanced Semiconductor Engineering, Inc. 39,243,515 33,568
---------------------------------------------------------------------------------------------------------------------------
ASUSTeK Computer, Inc. 10,803,980 76,893
---------------------------------------------------------------------------------------------------------------------------
Compeq Manufacturing Co., Ltd.(1,2) 73,599,000 22,630
---------------------------------------------------------------------------------------------------------------------------
CTCI Corp. 24,607,000 33,563
---------------------------------------------------------------------------------------------------------------------------
Delta Electronics, Inc. 37,607,348 89,426
---------------------------------------------------------------------------------------------------------------------------
Far Eastern Department Stores Ltd. 21,470,420 25,314
---------------------------------------------------------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd. 16,462,570 45,073
---------------------------------------------------------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd. (GDR) 1,673,870 9,206
---------------------------------------------------------------------------------------------------------------------------
Hotai Motor Co., Ltd. 5,250,000 25,228
---------------------------------------------------------------------------------------------------------------------------
HTC Corp. 3,709,652 60,890
---------------------------------------------------------------------------------------------------------------------------
MediaTek, Inc. 1,455,000 13,335
---------------------------------------------------------------------------------------------------------------------------
Value
Equity securities Shares (000)
---------------------------------------------------------------------------------------------------------------------------
Taiwan (continued)
---------------------------------------------------------------------------------------------------------------------------
Standard Foods Corp. 3,119,250 $9,478
---------------------------------------------------------------------------------------------------------------------------
Synnex Technology International Corp. 24,111,268 58,210
---------------------------------------------------------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co., Ltd. 104,257,680 260,997
---------------------------------------------------------------------------------------------------------------------------
Tripod Technology Corp. 12,836,433 30,948
---------------------------------------------------------------------------------------------------------------------------
794,759
---------------------------------------------------------------------------------------------------------------------------
Thailand -- 2.5%
---------------------------------------------------------------------------------------------------------------------------
Advanced Info Service PCL 5,634,800 25,093
---------------------------------------------------------------------------------------------------------------------------
Bangkok Bank PCL, nonvoting depository receipt 2,244,700 10,921
---------------------------------------------------------------------------------------------------------------------------
Bank of Ayudhya PCL 50,080,500 35,239
---------------------------------------------------------------------------------------------------------------------------
Bank of Ayudhya PCL, nonvoting depository receipt 2,912,100 2,030
---------------------------------------------------------------------------------------------------------------------------
Banpu PCL 5,354,587 92,666
---------------------------------------------------------------------------------------------------------------------------
Banpu PCL, nonvoting depository receipt 106,200 1,838
---------------------------------------------------------------------------------------------------------------------------
Indorama Ventures PCL 72,334,200 67,061
---------------------------------------------------------------------------------------------------------------------------
Kasikornbank PCL, nonvoting depository receipt 3,394,100 13,125
---------------------------------------------------------------------------------------------------------------------------
Siam Cement PCL, nonvoting depository receipt 7,526,800 74,672
---------------------------------------------------------------------------------------------------------------------------
322,645
---------------------------------------------------------------------------------------------------------------------------
Vietnam -- 0.0%
---------------------------------------------------------------------------------------------------------------------------
Vietnam Enterprise Investments Ltd., redeemable (acquired 9/20/01, cost: 1,630,227 2,722
$4,515,000)(1,3)
===========================================================================================================================
Latin America -- 14.2%
===========================================================================================================================
Argentina -- 0.4%
---------------------------------------------------------------------------------------------------------------------------
Grupo Financiero Galicia SA, Class B 5 --
---------------------------------------------------------------------------------------------------------------------------
YPF Sociedad Anonima, Class D (ADR) 1,319,978 45,777
---------------------------------------------------------------------------------------------------------------------------
45,777
---------------------------------------------------------------------------------------------------------------------------
Brazil -- 9.4%
---------------------------------------------------------------------------------------------------------------------------
Anhanguera Educacional Participacoes SA, ordinary nominative 3,609,360 38,895
---------------------------------------------------------------------------------------------------------------------------
Banco Bradesco SA, preferred nominative (ADR) 5,410,200 90,242
---------------------------------------------------------------------------------------------------------------------------
Cia. de Concessoes Rodoviarias, ordinary nominative 19,542,800 128,033
---------------------------------------------------------------------------------------------------------------------------
Estacio Participacoes SA, ordinary nominative 2,041,400 19,689
---------------------------------------------------------------------------------------------------------------------------
Gerdau SA (ADR) 9,318,600 72,778
---------------------------------------------------------------------------------------------------------------------------
Hypermarcas SA, ordinary nominative 16,228,300 73,953
---------------------------------------------------------------------------------------------------------------------------
International Meal Co. Holdings SA(1) 2,537,600 17,672
---------------------------------------------------------------------------------------------------------------------------
Itau Unibanco Holding SA, preferred nominative (ADR) 3,389,964 62,918
---------------------------------------------------------------------------------------------------------------------------
Itausa - Investimentos Itau SA, preferred nominative 11,316,288 68,435
---------------------------------------------------------------------------------------------------------------------------
Mills Estruturas e Servicos de Engenharia SA, ordinary nominative 3,429,700 32,546
---------------------------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA - Petrobras, ordinary nominative (ADR) 1,769,500 43,972
---------------------------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA - Petrobras, preferred nominative (ADR) 5,448,227 127,979
---------------------------------------------------------------------------------------------------------------------------
QGEP Participacoes SA 7,156,800 63,309
---------------------------------------------------------------------------------------------------------------------------
T4F Entretenimento SA, ordinary nominative(1) 256,900 1,577
---------------------------------------------------------------------------------------------------------------------------
Telemar Norte Leste SA, Class A, preferred nominative 1,530,153 36,735
---------------------------------------------------------------------------------------------------------------------------
Tele Norte Leste Participacoes SA, ordinary nominative 1,664,800 19,154
---------------------------------------------------------------------------------------------------------------------------
Tele Norte Leste Participacoes SA, preferred nominative 637,788 6,004
---------------------------------------------------------------------------------------------------------------------------
Tele Norte Leste Participacoes SA, preferred nominative (ADR) 13,361,400 127,067
---------------------------------------------------------------------------------------------------------------------------
Telefonica Brasil SA, preferred nominative (ADR) 2,266,520 61,944
---------------------------------------------------------------------------------------------------------------------------
Vale SA, Class A, preferred nominative (ADR) 3,909,924 80,544
---------------------------------------------------------------------------------------------------------------------------
WEG SA, ordinary nominative 1,658,900 16,702
---------------------------------------------------------------------------------------------------------------------------
Wilson Sons Ltd. (BDR) 1,882,300 25,632
---------------------------------------------------------------------------------------------------------------------------
1,215,780
---------------------------------------------------------------------------------------------------------------------------
Chile -- 0.2%
---------------------------------------------------------------------------------------------------------------------------
CorpBanca 60,241,682 776
---------------------------------------------------------------------------------------------------------------------------
Enersis SA (ADR) 879,744 15,510
---------------------------------------------------------------------------------------------------------------------------
Value
Shares (000)
---------------------------------------------------------------------------------------------------------------------------
Chile (continued)
---------------------------------------------------------------------------------------------------------------------------
Ripley Corp SA 14,122,302 $13,456
---------------------------------------------------------------------------------------------------------------------------
29,742
---------------------------------------------------------------------------------------------------------------------------
Colombia -- 0.3%
---------------------------------------------------------------------------------------------------------------------------
Bancolombia SA 934,357 13,727
---------------------------------------------------------------------------------------------------------------------------
Bancolombia SA, preferred nominative (ADR) 502,400 29,923
---------------------------------------------------------------------------------------------------------------------------
43,650
---------------------------------------------------------------------------------------------------------------------------
Mexico -- 3.9%
---------------------------------------------------------------------------------------------------------------------------
Alsea, SAB de CV, Series A 18,188,900 18,352
---------------------------------------------------------------------------------------------------------------------------
Arca Continental, SAB de CV 7,700,344 32,789
---------------------------------------------------------------------------------------------------------------------------
Bolsa Mexicana de Valores, SAB de CV, Series A 7,705,600 12,397
---------------------------------------------------------------------------------------------------------------------------
Carso Infraestructura y Construccion, SAB de CV, Series B-1(1) 61,245,000 35,462
---------------------------------------------------------------------------------------------------------------------------
CEMEX, SAB de CV, ordinary participation certificates, units (ADR)(1) 5,913,604 31,874
---------------------------------------------------------------------------------------------------------------------------
Corporacion Geo, SAB de CV, Class B(1) 1,355,100 1,686
---------------------------------------------------------------------------------------------------------------------------
Grupo Comercial Chedraui, SAB de CV, Series B 11,184,200 28,115
---------------------------------------------------------------------------------------------------------------------------
Grupo Financiero Inbursa, SAB de CV 46,342,114 85,214
---------------------------------------------------------------------------------------------------------------------------
Grupo Televisa, SAB de CV, ordinary participation certificates (ADR) 2,011,600 42,364
---------------------------------------------------------------------------------------------------------------------------
Impulsora del Desarrollo y el Empleo en America Latina, SAB de CV, Series B-1(1) 50,587,000 78,846
---------------------------------------------------------------------------------------------------------------------------
Kimberly-Clark de Mexico, SAB de CV, Series A 2,800,033 15,101
---------------------------------------------------------------------------------------------------------------------------
Telefonos de Mexico, SAB de CV, Series L 2,004,300 1,458
---------------------------------------------------------------------------------------------------------------------------
Telefonos de Mexico, SAB de CV, Series L (ADR) 6,352,600 91,731
---------------------------------------------------------------------------------------------------------------------------
Urbi Desarrollos Urbanos, SAB de CV(1) 28,989,200 32,989
---------------------------------------------------------------------------------------------------------------------------
508,378
---------------------------------------------------------------------------------------------------------------------------
Peru -- 0.0%
---------------------------------------------------------------------------------------------------------------------------
Pesquera Exalmar SA, Class A 2,544,222 3,586
===========================================================================================================================
Eastern Europe and Middle East -- 11.6%
===========================================================================================================================
Czech Republic -- 0.7%
---------------------------------------------------------------------------------------------------------------------------
CEZ AS 574,153 22,842
---------------------------------------------------------------------------------------------------------------------------
Telefonica O2 Czech Republic, AS 3,257,100 63,159
---------------------------------------------------------------------------------------------------------------------------
86,001
---------------------------------------------------------------------------------------------------------------------------
Hungary -- 0.3%
---------------------------------------------------------------------------------------------------------------------------
Magyar Telekom Telecommunications PLC 15,111,400 32,209
---------------------------------------------------------------------------------------------------------------------------
Israel -- 0.7%
---------------------------------------------------------------------------------------------------------------------------
Bezeq - The Israel Telecommunication Corp. Ltd. 26,816,056 49,300
---------------------------------------------------------------------------------------------------------------------------
Cellcom Israel Ltd. 1,181,533 19,912
---------------------------------------------------------------------------------------------------------------------------
Partner Communications Co. Ltd. 1,605,304 14,240
---------------------------------------------------------------------------------------------------------------------------
Partner Communications Co. Ltd. (ADR) 112,000 990
---------------------------------------------------------------------------------------------------------------------------
Shufersal Ltd. 3,233,940 11,396
---------------------------------------------------------------------------------------------------------------------------
95,838
---------------------------------------------------------------------------------------------------------------------------
Oman -- 0.3%
---------------------------------------------------------------------------------------------------------------------------
BankMuscat (SAOG) 1,219,870 2,419
---------------------------------------------------------------------------------------------------------------------------
BankMuscat (SAOG) (GDR) 5,346,351 42,271
---------------------------------------------------------------------------------------------------------------------------
44,690
---------------------------------------------------------------------------------------------------------------------------
Poland -- 1.3%
---------------------------------------------------------------------------------------------------------------------------
Powszechny Zaklad Ubezpieczen SA 108,475 9,714
---------------------------------------------------------------------------------------------------------------------------
Telekomunikacja Polska SA 32,241,075 160,981
---------------------------------------------------------------------------------------------------------------------------
170,695
---------------------------------------------------------------------------------------------------------------------------
Value
Equity securities Shares (000)
---------------------------------------------------------------------------------------------------------------------------
Russia -- 6.8%
---------------------------------------------------------------------------------------------------------------------------
Baring Vostok Private Equity Fund, LP (acquired 12/15/00, cost: 11,783,118 $50,300
$6,693,000)(1,2,3,4,5)
---------------------------------------------------------------------------------------------------------------------------
Baring Vostok Private Equity Fund III, LP (acquired 3/30/05, cost:
$19,357,000)(1,2,3,4,5) 22,390,548 43,935
---------------------------------------------------------------------------------------------------------------------------
Baring Vostok Private Equity Fund IV, LP (acquired 4/25/07, cost:
$13,141,000)(1,2,3,4,5) 13,767,054 17,083
---------------------------------------------------------------------------------------------------------------------------
Baring Vostok Fund IV Supplemental Fund, LP (acquired 10/8/07, cost:
$24,976,000)(1,2,3,4,5) 27,955,209 31,852
---------------------------------------------------------------------------------------------------------------------------
Etalon Group Ltd. (GDR)(1) 2,969,916 13,959
---------------------------------------------------------------------------------------------------------------------------
Global Ports Investments PLC (GDR) 801,841 11,226
---------------------------------------------------------------------------------------------------------------------------
Global Ports Investments PLC (acquired 6/24/11, cost: $29,763,000)(3) 1,984,210 27,779
---------------------------------------------------------------------------------------------------------------------------
Mechel OAO 1,733,100 10,908
---------------------------------------------------------------------------------------------------------------------------
New Century Capital Partners, LP (acquired 12/7/95, cost: $951,000)(1,3,4) 5,247,900 6,566
---------------------------------------------------------------------------------------------------------------------------
OAO Gazprom 1,334,000 7,099
---------------------------------------------------------------------------------------------------------------------------
OAO Gazprom (ADR) 21,868,886 233,122
---------------------------------------------------------------------------------------------------------------------------
OAO TMK (GDR) 2,207,100 19,864
---------------------------------------------------------------------------------------------------------------------------
OJSC Bank Saint Petersburg, Class A, 13.50% convertible preferred May 15, 2013 4,264,200 11,910
---------------------------------------------------------------------------------------------------------------------------
OJSC Holding Co. Sibirskiy Cement(1) 620,637 7,758
---------------------------------------------------------------------------------------------------------------------------
OJSC Kuzbasskaya Toplivnaya Co. 1,665,000 7,755
---------------------------------------------------------------------------------------------------------------------------
OJSC Magnit 528,953 46,250
---------------------------------------------------------------------------------------------------------------------------
OJSC Magnit (GDR) 420,900 8,906
---------------------------------------------------------------------------------------------------------------------------
OJSC Mining and Metallurgical Co. Norilsk Nickel (ADR) 875,326 13,401
---------------------------------------------------------------------------------------------------------------------------
OJSC Pharmstandard (GDR)(1) 347,100 4,894
---------------------------------------------------------------------------------------------------------------------------
OJSC Rostelecom(1) 5,322,820 25,183
---------------------------------------------------------------------------------------------------------------------------
OJSC Rostelecom, preferred 1,628,200 4,818
---------------------------------------------------------------------------------------------------------------------------
OJSC Rostelecom (ADR)(1) 1,511,727 43,311
---------------------------------------------------------------------------------------------------------------------------
Sberbank of Russia 65,829,651 162,203
---------------------------------------------------------------------------------------------------------------------------
Sberbank of Russia (ADR)(1) 375,910 3,729
---------------------------------------------------------------------------------------------------------------------------
X5 Retail Group NV (GDR)(1) 728,834 16,647
---------------------------------------------------------------------------------------------------------------------------
Yandex NV, Class A(1) 2,804,400 55,247
---------------------------------------------------------------------------------------------------------------------------
885,705
---------------------------------------------------------------------------------------------------------------------------
Saudi Arabia -- 0.9%
---------------------------------------------------------------------------------------------------------------------------
Almarai Co., PALMS issued by HSBC Bank plc, expires March 27, 2012 (acquired 1,593,250 42,484
11/23/09, cost: $39,591,000)(3)
---------------------------------------------------------------------------------------------------------------------------
Etihad Etisalat Co., PALMS issued by Deutsche Bank, expires December 3, 2012
(acquired 3/21/11, cost: $78,694,000)(3) 5,617,400 78,265
---------------------------------------------------------------------------------------------------------------------------
120,749
---------------------------------------------------------------------------------------------------------------------------
Turkey -- 0.2%
---------------------------------------------------------------------------------------------------------------------------
Aktas Elektrik Ticaret AS(1) 4,273 --
---------------------------------------------------------------------------------------------------------------------------
Coca-Cola Icecek AS, Class C 1,300,245 15,517
---------------------------------------------------------------------------------------------------------------------------
Enka Insaat ve Sanayi AS 3,255,909 7,049
---------------------------------------------------------------------------------------------------------------------------
Selcuk Ecza Deposu Ticaret ve Sanayi AS, Class B 445,010 329
---------------------------------------------------------------------------------------------------------------------------
Sinpas Gayrimenkul Yatirim Ortakligi AS 1,107,522 579
---------------------------------------------------------------------------------------------------------------------------
23,474
---------------------------------------------------------------------------------------------------------------------------
United Arab Emirates -- 0.4%
---------------------------------------------------------------------------------------------------------------------------
DP World Ltd. 4,712,750 45,667
---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Africa -- 3.7%
===========================================================================================================================
Egypt -- 0.1%
---------------------------------------------------------------------------------------------------------------------------
Orascom Construction Industries 282,224 9,594
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Morocco -- 0.1%
---------------------------------------------------------------------------------------------------------------------------
Holcim (Maroc) SA 46,585 10,629
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
South Africa -- 3.5%
---------------------------------------------------------------------------------------------------------------------------
Anglo American Platinum Ltd. 195,626 12,892
---------------------------------------------------------------------------------------------------------------------------
AngloGold Ashanti Ltd. 219,485 9,337
---------------------------------------------------------------------------------------------------------------------------
AngloGold Ashanti Ltd. (ADR) 1,293,697 54,917
---------------------------------------------------------------------------------------------------------------------------
Value
Shares (000)
---------------------------------------------------------------------------------------------------------------------------
South Africa (continued)
---------------------------------------------------------------------------------------------------------------------------
Barloworld Ltd. 4,041,533 $37,614
---------------------------------------------------------------------------------------------------------------------------
Harmony Gold Mining Co. Ltd. 5,555,814 65,383
---------------------------------------------------------------------------------------------------------------------------
Harmony Gold Mining Co. Ltd. (ADR) 2,948,913 34,325
---------------------------------------------------------------------------------------------------------------------------
Impala Platinum Holdings Ltd. 1,305,239 27,059
---------------------------------------------------------------------------------------------------------------------------
MTN Group Ltd. 5,848,679 104,134
---------------------------------------------------------------------------------------------------------------------------
Royal Bafokeng Platinum Ltd.(1) 3,663,764 24,962
---------------------------------------------------------------------------------------------------------------------------
Sappi Ltd.(1) 17,522,002 51,660
---------------------------------------------------------------------------------------------------------------------------
Sappi Ltd. (ADR)(1) 1,308,900 3,743
---------------------------------------------------------------------------------------------------------------------------
Sasol Ltd. 505,082 24,120
---------------------------------------------------------------------------------------------------------------------------
South African Private Equity Fund III, LP (acquired 9/23/98, cost:
$2,744,000)(2,3,4,5) 27,594,065 2,425
---------------------------------------------------------------------------------------------------------------------------
452,571
===========================================================================================================================
Other markets -- 8.1%
===========================================================================================================================
Australia -- 0.7%
---------------------------------------------------------------------------------------------------------------------------
Oil Search Ltd. 14,809,168 94,667
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Austria -- 0.2%
---------------------------------------------------------------------------------------------------------------------------
Vienna Insurance Group 645,816 25,614
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Canada -- 0.9%
---------------------------------------------------------------------------------------------------------------------------
Centerra Gold Inc. 3,791,400 66,989
---------------------------------------------------------------------------------------------------------------------------
First Quantum Minerals Ltd. 1,285,000 25,290
---------------------------------------------------------------------------------------------------------------------------
Ivanhoe Mines Ltd.(1) 417,860 7,405
---------------------------------------------------------------------------------------------------------------------------
Platmin Ltd.(1) 16,963,500 2,248
---------------------------------------------------------------------------------------------------------------------------
Uranium One Inc.(1) 4,784,900 10,145
---------------------------------------------------------------------------------------------------------------------------
112,077
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Italy -- 0.4%
---------------------------------------------------------------------------------------------------------------------------
Tenaris SA (ADR) 1,505,700 55,982
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Switzerland -- 0.1%
---------------------------------------------------------------------------------------------------------------------------
Dufry AG(1) 181,161 16,673
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
United Kingdom -- 4.7%
---------------------------------------------------------------------------------------------------------------------------
Anglo American PLC 3,247,900 119,996
---------------------------------------------------------------------------------------------------------------------------
Cairn Energy PLC(1) 16,238,805 66,906
---------------------------------------------------------------------------------------------------------------------------
Evraz PLC(1) 10,197,131 59,338
---------------------------------------------------------------------------------------------------------------------------
Gem Diamonds Ltd.(1) 2,675,629 8,070
---------------------------------------------------------------------------------------------------------------------------
Glencore International PLC 15,670,700 95,399
---------------------------------------------------------------------------------------------------------------------------
Kazakhmys PLC 258,790 3,726
---------------------------------------------------------------------------------------------------------------------------
Lonrho PLC(1) 52,947,100 7,647
---------------------------------------------------------------------------------------------------------------------------
Mondi PLC 11,864,413 83,836
---------------------------------------------------------------------------------------------------------------------------
Petra Diamonds Ltd. (CDI)(1) 20,294,596 36,245
---------------------------------------------------------------------------------------------------------------------------
Petropavlovsk PLC 1,426,018 13,620
---------------------------------------------------------------------------------------------------------------------------
SABMiller PLC 539,891 19,003
---------------------------------------------------------------------------------------------------------------------------
Standard Chartered PLC 2,327,100 50,921
---------------------------------------------------------------------------------------------------------------------------
Tullow Oil PLC 2,237,707 48,722
---------------------------------------------------------------------------------------------------------------------------
613,429
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
United States of America -- 1.1%
---------------------------------------------------------------------------------------------------------------------------
AutoNavi Holdings Ltd. (ADR)(1) 1,643,800 16,488
---------------------------------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold Inc. 589,210 21,677
---------------------------------------------------------------------------------------------------------------------------
Genpact Ltd.(1) 5,372,863 80,324
---------------------------------------------------------------------------------------------------------------------------
Value
Equity securities Shares (000)
---------------------------------------------------------------------------------------------------------------------------
United States of America (continued)
---------------------------------------------------------------------------------------------------------------------------
Sohu.com, Inc.(1) 475,800 $23,790
---------------------------------------------------------------------------------------------------------------------------
142,279
===========================================================================================================================
Multinational -- 0.3%
===========================================================================================================================
Capital International Global Emerging Markets Private Equity Fund, LP
(acquired 6/30/99, cost: $206,000)(2,3,4,5) 55,999,402 521
---------------------------------------------------------------------------------------------------------------------------
Capital International Private Equity Fund IV, LP (acquired 3/29/05, cost:
$27,939,000)(2,3,4,5) 49,540,803 28,625
---------------------------------------------------------------------------------------------------------------------------
International Hospital Corp. Holding NV (acquired 9/25/97, cost: $8,011,000)(1,2,3) 609,873 2,494
---------------------------------------------------------------------------------------------------------------------------
International Hospital Corp. Holding NV, Class B, convertible preferred
(acquired 2/12/07, cost: $3,504,000)(1,2,3) 622,354 2,546
---------------------------------------------------------------------------------------------------------------------------
New Asia East Investment Fund Ltd., Class A (acquired 5/23/96, cost:
$11,000)(1,2,3,4) 279,240 28
---------------------------------------------------------------------------------------------------------------------------
New Asia East Investment Fund Ltd., Class B (acquired 5/23/96, cost:
$148,000)(1,2,3,4) 3,810,369 391
---------------------------------------------------------------------------------------------------------------------------
Pan-African Investment Partners II Ltd., Class A (acquired 06/20/08 cost:
$13,932,000)(2,3,4,5) 3,800 5,469
---------------------------------------------------------------------------------------------------------------------------
40,074
===========================================================================================================================
Miscellaneous -- 0.7%
===========================================================================================================================
Equity securities in initial period of acquisition 95,480
---------------------------------------------------------------------------------------------------------------------------
Total equity securities (cost: $11,800,292,000)
12,480,144
Principal amount
Bonds and notes (000)
===========================================================================================================================
Eastern Europe and Middle East -- 0.1%
===========================================================================================================================
Russia -- 0.1%
---------------------------------------------------------------------------------------------------------------------------
OAO TMK 5.25% convertible, February 11, 2015 $9,400 8,803
---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Latin America -- 0.0%
===========================================================================================================================
Mexico -- 0.0%
---------------------------------------------------------------------------------------------------------------------------
CEMEX, SAB de CV, 4.875% convertible, March 15, 2015 10,384 6,827
---------------------------------------------------------------------------------------------------------------------------
Total bonds and notes (cost: $20,545,000)
15,630
Short-term securities
---------------------------------------------------------------------------------------------------------------------------
Corporate short-term notes -- 3.3%
---------------------------------------------------------------------------------------------------------------------------
Bank of Nova Scotia 0.01% due 1/13/12 58,200 58,200
---------------------------------------------------------------------------------------------------------------------------
Barclays U.S. Funding Corp. 0.09%-0.20% due 1/3-1/9/12 261,500 261,495
---------------------------------------------------------------------------------------------------------------------------
Deutsche Bank Financial LLC 0.31% due 1/4/12 40,000 39,998
---------------------------------------------------------------------------------------------------------------------------
Toronto-Dominion Holdings USA, Inc. 0.06% due 1/9-1/12/12 70,000 69,999
---------------------------------------------------------------------------------------------------------------------------
Total short-term securities (cost: $429,694,000)
429,692
Total investment securities (cost: $12,250,531,000) 12,925,466
Other assets less liabilities (including forward currency contracts) 57,781
------------
Net assets $12,983,247
===========
(1) Security did not produce income during the last 12 months.
(2) This issuer represents investment in an affiliate as defined in the
Investment Company Act of 1940. This definition includes, but is not
limited to, issuers in which the fund owns more than 5% of the outstanding
voting securities. New Asia East Investment Fund Ltd., Capital
International Global Emerging Markets Private Equity Fund, LP and Capital
International Private Equity Fund IV, LP are also considered affiliates
since these issuers have the same investment adviser as the fund.
(3) Purchased in a private placement transaction (not including purchases of
securities that were publicly offered in the primary local market but were
not registered under U.S. securities 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 December 31, 2011, the
total value and cost of such securities were $365,206,000 and
$383,936,000, respectively, and the value represented 2.81% of net assets.
(4) Cost and market value do not include prior distributions to the fund from
income or proceeds realized from securities held by the private equity
fund. Therefore, the cost and market value may not be indicative of the
private equity fund's performance. For private equity funds structured as
limited partnerships, shares are not applicable and therefore the fund's
interest in the partnerships is reported.
(5) Excludes an unfunded capital commitment representing an agreement which
obligates the fund to meet capital calls in the future. Capital calls can
only be made if and when certain requirements have been fulfilled; thus,
the timing and the amount of such capital calls cannot readily be
determined.
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
See Notes to financial statements
Financial statements
unaudited
(dollars in thousands,
Statement of assets and liabilities at December 31, 2011 except per-share data)
------------------------------------------------------------------------------------------------------------
Assets:
Investment securities, at value:
Unaffiliated issuers (cost: $11,993,016) ............................... $ 12,672,872
------------
Affiliated issuers (cost: $257,515) .................................... 252,594 $ 12,925,466
Cash ...................................................................... 5,748
Cash denominated in non-U.S. currency (cost: $3,814) ...................... 3,872
Unrealized appreciation on open forward currency contracts ................ 4,439
Receivables for -
Sales of investments ................................................... 30,063
Sales of fund's shares ................................................. 13,427
Dividends and interest ................................................. 30,287
Non-U.S. taxes ......................................................... 2,305 76,082
------------ ------------
13,015,607
------------
Liabilities:
Unrealized depreciation on open forward currency contracts ................ 813
Payables for -
Purchases of investments ............................................... 22,031
Investment advisory services ........................................... 6,929
Directors' compensation ................................................ 1,684
Other fees and expenses ................................................ 903 31,547
------------ ------------
32,360
------------
Net assets at December 31, 2011 -
Equivalent to $7.36 per share on 1,763,210,772 shares of $0.01 par value
capital stock outstanding (authorized capital stock - 2,000,000,000 shares) $ 12,983,247
============
Net assets consist of:
Capital paid in on shares of capital stock ................................ $ 12,596,303
Distributions in excess of net investment income .......................... (132,584)
Accumulated net realized loss ............................................. (158,479)
Net unrealized appreciation ............................................... 678,007
------------
Net assets at December 31, 2011 ............................................. $ 12,983,247
============
See Notes to financial statements
Financial statements
unaudited
Statement of operations for the six months ended December 31, 2011 (dollars in thousands)
------------------------------------------------------------------------------------------------------------
Investment income:
Income:
Dividends (net of non-U.S. withholding tax of $10,721; also includes
$1,416 from affiliates) ............................................... $ 132,369
Interest (net of non-U.S. withholding tax of $1; also includes $800
from affiliates) ...................................................... 2,165 $ 134,534
------------
Fees and expenses:
Investment advisory services ........................................... 44,217
Custodian .............................................................. 2,745
Registration statement and prospectus .................................. 15
Auditing and legal ..................................................... 80
Reports to shareholders ................................................ 6
Directors' compensation ................................................ 164
Other .................................................................. 1,559
------------
Total expenses before expense reduction ................................ 48,786
Custodian expense reduction .......................................... 1 48,785
------------ ------------
Net investment income ..................................................... 85,749
------------
Net realized loss and unrealized depreciation on investments, forward
currency contracts and currency:
Net realized gain (loss) on:
Investments ............................................................ (110,314)
Forward currency contracts ............................................. 98,243
Currency transactions .................................................. (6,792) (18,863)
------------
Net unrealized appreciation (depreciation) on:
Investments ............................................................ (3,752,778)
Forward currency contracts ............................................. 14,426
Currency translations .................................................. (2,872) (3,741,224)
------------
Net realized loss and unrealized depreciation on investments,
forward currency contracts and currency .......................... (3,760,087)
------------
Net decrease in net assets resulting from operations ........................ $ (3,674,338)
============
See Notes to financial statements
Financial statements
------------------------------------------------------------------------------------------------------------------
Statements of changes in net assets (dollars in thousands)
------------------------------------------------------------------------------------------------------------------
(unaudited)
6 months ended
December 31, Year ended
2011 June 30, 2011
--------------------------------
Operations:
Net investment income ........................................................ $ 85,749 $ 260,602
Net realized gain (loss) on investments, forward currency contracts and
currency transactions ....................................................... (18,863) 1,145,434
Net unrealized appreciation (depreciation) on investments, forward
currency contracts and currency translations ................................ (3,741,224) 1,758,377
------------ ------------
Net increase (decrease) in net assets resulting from operations ........... (3,674,338) 3,164,413
------------ ------------
Dividends and distributions paid to shareholders:
Dividends from net investment income ......................................... (200,248) (275,933)
Distributions from net realized gain on investments .......................... (433,871) --
------------ ------------
Total dividends and distributions paid to shareholders .................... (634,119) (275,933)
Capital share transactions:
Proceeds from shares sold: 58,105,105 and 182,743,001 shares, respectively ... 472,070 1,771,750
Proceeds from shares issued in reinvestment of net investment income
dividends and net realized gain distributions: 84,938,753 and 26,487,990
shares, respectively ........................................................ 617,505 255,609
Cost of shares repurchased: 74,135,778 and 99,158,150 shares, respectively ... (624,411) (967,497)
------------ ------------
Net increase in net assets resulting from capital share transactions ...... 465,164 1,059,862
------------ ------------
Total increase (decrease) in net assets ........................................ (3,843,293) 3,948,342
Net assets:
Beginning of period .......................................................... 16,826,540 12,878,198
------------ ------------
End of period (including distributions in excess of net investment
income: $(132,584) and $(18,085), respectively) ............................. $ 12,983,247 $ 16,826,540
============ ============
See Notes to financial statements
Notes to financial statements
1. 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 and invests primarily in
common stock and other equity securities of issuers in developing countries.
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. dollars 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 on the last business day of each week and month except on any day on which
the New York Stock Exchange is closed for trading.
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 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 Standard inputs and underlying equity of the issuer
securities
-------------------------------------------- ---------------------------------------------------------------
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 issuer; actively
traded similar or related securities; conversion or exchange rights on the
security; related corporate actions; significant events occurring after the
close of trading in the security; and changes in overall market conditions. Fair
valuations and valuations of investments that are not actively trading involve
judgment and may differ materially from valuations that would have been used had
greater market activity occurred.
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. Certain
securities trading outside the U.S. may transfer between Level 1 and Level 2 due
to valuation adjustments resulting from significant market movements following
the close of local trading. 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 December 31, 2011 (dollars in thousands):
---------------------------------------------------------------------------------------------
Investment securities: Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------------------------------
Equity securities:
Asia-Pacific ..................... $ 6,222,715 $ 1,214,674 $ 21,745 $ 7,459,134
Latin America .................... 1,843,327 -- 3,586 1,846,913
Eastern Europe and Middle East ... 1,106,869 248,423 149,736 1,505,028
Other markets .................... 1,493,634 37,456 42,499 1,573,589
Miscellaneous ....................... 95,480 -- -- 95,480
Bonds and notes ..................... -- 15,630 -- 15,630
Short-term securities ............... -- 429,692 -- 429,692
-----------------------------------------------------
Total $10,762,025 $ 1,945,875 $ 217,566 $12,925,466
=====================================================
---------------------------------------------------------------------------------------------
Forward currency contracts(1): Level 1 Level 2 Level 3 Total
---------------------------------------------------------------------------------------------
Unrealized appreciation on open forward
currency contracts $ -- $ 4,439 $ -- $ 4,439
Unrealized depreciation on open forward
currency contracts -- (813) -- (813)
--------------------------------------
Total $ -- $ 3,626 $ -- $ 3,626
======================================
The following table reconciles the valuation of the fund's Level 3 investment
securities and related transactions during the six months ended December 31,
2011 (dollars in thousands):
Gross Gross
Beginning transfers Net transfers Ending
value at into realized Net unrealized out of value at
7/1/2011 Level 3 Purchases Sales gain(2) depreciation(2) Level 3 12/31/2011
---------------------------------------------------------------------------------------------------------------
Investment
securities $ 291,520 $ 9,655 $ 5,713 $ (31,415) $ 12,519 $ (60,771) $ (9,655) $ 217,566
===========================================================================================================
Net unrealized depreciation during the period on Level 3 investment securities
held at 12/31/2011(2)
$ (72,390)
===========
(1) Forward currency contracts are not included in the investment portfolio.
(2) Net realized gain and unrealized depreciation 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 value 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 December 31, 2011 (dollars in thousands):
---------------------------------------------------------------------------------------------------------------------------
Investment Unfunded
Investment type strategy Fair value(1) commitment(2) Remaining life(3) Redemption terms
---------------------------------------------------------------------------------------------------------------------------
Private equity Primarily $187,195 $50,851 (less than or equal) Redemptions are
funds private sector to 1 to 7 years not permitted.
equity These funds
investments distribute
(i.e., expansion proceeds from the
capital, liquidation of
buyouts) in underlying assets
emerging markets of the funds.
---------------------------------------------------------------------------------------------------------------------------
(1) Included as Level 3 securities in the table on the previous page
presenting the fund's valuation levels as of December 31, 2011.
(2) Unfunded capital commitments represent agreements which obligate the
fund to meet capital calls in the future. Payment would be made when a
capital call is requested. Capital calls can only be made if and when
certain requirements have been fulfilled; thus, the timing of such
capital calls cannot readily be determined.
(3) Represents 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, the prices of
common stocks and other securities held by the fund may decline in response to
certain events taking place around the world, including those directly involving
issuers whose securities are owned by the fund; conditions affecting the general
economy; overall market changes; social, economic and political instability;
government activities and restrictions, including repatriation restrictions; and
currency and price fluctuations and periods of illiquidity.
Investments in securities issued by entities based outside the United States may
also be affected by currency controls; different accounting, auditing, financial
reporting, disclosure, and regulatory and legal standards and practices;
expropriation; changes in tax policy; greater market volatility; different
securities market structures; higher transaction costs; and various
administrative difficulties, such as delays in clearing and settling portfolio
transactions or in receiving payment of dividends. These risks may be heightened
in connection with investments in developing countries.
Developing countries may have less developed legal and accounting systems. The
governments of these countries may be more unstable and more likely to impose
capital controls and/or changes in tax policy that could adversely affect
security valuations. In addition, there is greater potential that securities
purchased by the fund in developing markets may be fraudulent or counterfeit due
to differences in the level of regulation, disclosure requirements and
recordkeeping practices in those markets. There may be less certainty with
respect to portfolio security valuations for developing market securities, which
may lead to additional challenges and risks in calculating the fund's net asset
value. Securities markets in these countries are also relatively small and have
substantially lower trading volumes. As a result, securities in these countries
may be more volatile and less liquid than securities issued in countries with
more developed economies or markets.
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 six months ended December 31, 2011, 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
interest or penalties.
The fund is not subject to examination by U.S. federal tax authorities for tax
years before 2007, by state authorities for tax years before 2006 and by tax
authorities outside the U.S. for tax years before 2004.
Non-U.S. taxation - Dividend and interest income are 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. When the fund is taxed on either
realized and/or unrealized capital gains, the fund will accrue for non-U.S.
taxes as applicable. As of December 31, 2011, 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; short-term capital gains
and 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 six months ended December 31, 2011,
the tax character of the distributions paid to shareholders was ordinary income
in the amount of $200,248,000 and long-term capital gain in the amount of
$433,871,000. For the year ended June 30, 2011, the tax character of
distribution paid to shareholders was ordinary income in the amount
$275,933,000.
The components of distributable earnings on a tax basis are reported as of the
fund's most recent year-end. As of June 30, 2011, the components of
distributable earnings on a tax basis were as follows:
(dollars in
thousands)
--------------------------------------------------------------------------------
Undistributed ordinary income $ 124,837
Undistributed long-term capital gains 410,294
Post-October currency loss deferrals (realized during
the period November 1, 2010, through June 30, 2011)* (57,664)
--------------------------------------------------------------------------------
* These deferrals are considered incurred in the subsequent year.
As of December 31, 2011, the tax basis unrealized appreciation (depreciation)
and cost of investments were as follows:
(dollars in
thousands)
Gross unrealized appreciation on investment securities $2,358,313
Gross unrealized depreciation on investment securities (1,893,448)
Net unrealized appreciation on investment securities 464,865
--------------------------------------------------------------------------------
Cost of investment securities 12,460,601
--------------------------------------------------------------------------------
6. Fees and transactions with related parties
Capital International, Inc. ("CII") is the fund's investment adviser. American
Funds Distributors(R), Inc. ("AFD"), the fund's principal underwriter, is
affiliated with CII.
Investment advisory services fee - The Investment Advisory and Service Agreement
with 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.
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
$514,000 in current fees (either paid in cash or deferred) and a net decrease of
$350,000 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 United States, to qualified institutional buyers) or which are
otherwise restricted. These securities are identified in the investment
portfolio. As of December 31, 2011, the total value of restricted securities was
$365,206,000, which represents 2.81% 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 $2,981,417,000 and $2,885,363,000, respectively, during the six
months ended December 31, 2011.
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 six months ended December 31, 2011, the custodian fee of $2,745,000 was
reduced by $1,000, rather than paid in cash.
9. Investments in 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 six months ended December 31, 2011, is as follows:
Dividend
and interest
Beginning Purchases/ Sales/ Ending income Value
Issuer shares Additions Reductions shares (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
Affiliated issuers:
Compeq Manufacturing 73,599,000 -- -- 73,599,000 $ -- $ 22,630
Jain Irrigation Systems Ltd. 14,740,760 6,435,793 -- 21,176,553 375 33,572
StemLife 8,331,900 -- -- 8,331,900 -- 723
VA Tech Wabag 633,821 950,731 -- 1,584,552 -- 10,000
Affiliated private equity funds/private placements:
Baring Vostok Private Equity Fund* 11,783,118 -- -- 11,783,118 -- 50,300
Baring Vostok Private Equity Fund III* 22,047,564 342,984 -- 22,390,548 -- 43,935
Baring Vostok Capital Partners IV* 38,746,859 2,975,404 -- 41,722,263 -- 48,935
Capital International Global Emerging Markets
Private Equity Fund* 55,999,402 -- -- 55,999,402 -- 521
Capital International Private Equity Fund IV* 49,194,744 346,059 -- 49,540,803 991 28,625
International Hospital 1,232,227 -- -- 1,232,227 -- 5,040
New Asia East Investment Fund 4,089,609 -- -- 4,089,609 -- 419
Pan-African Investment Partners II 3,800 -- -- 3,800 56 5,469
South African Private Equity Fund III* 27,594,065 -- -- 27,594,065 794 2,425
-------------------------
$ 2,216 $ 252,594
=========================
*For private equity funds structured as limited partnerships, shares are not
applicable and therefore the fund's interest in the partnerships is reported.
10. Forward currency contracts
The fund has entered 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 open forward currency
contracts are recorded in the statement of operations.
As of December 31, 2011, the fund had open forward currency contracts to sell
currencies, as shown in the following table. The open forward currency contracts
shown are generally indicative of the level of activity over the prior 12-month
period.
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 1/6/2012 Credit Suisse First AUD15,477 $15,349 $15,827 $(478)
Boston
Brazilian Real to U.S. Dollar expiring 2/28/2012 Bank of America BRL33,240 18,007 17,600 407
Brazilian Real to U.S. Dollar expiring 2/28/2012 JPMorgan Chase Bank BRL5,857 3,176 3,101 75
British Pound to U.S. Dollar expiring 1/13/2012 Bank of America GBP82,195 128,300 127,638 662
British Pound to U.S. Dollar expiring 1/13/2012 Mellon Bank GBP14,169 22,104 22,003 101
Canadian Dollar to U.S. Dollar expiring 1/6/2012 Credit Suisse First CAD19,488 18,793 19,128 (335)
Boston
Czech Koruna to U.S. Dollar expiring 1/6/2012 JPMorgan Chase Bank CZK656,533 34,799 33,232 1,567
Czech Koruna to U.S. Dollar expiring 1/23/2012 Royal Bank of Scotland CZK385,265 19,859 19,503 356
Euro Dollar to U.S. Dollar expiring 1/19/2012 Mellon Bank EUR37,946 49,357 49,117 240
Israeli Shekel to U.S. Dollar expiring 1/11/2012 UBS AG ILS307,219 81,430 80,585 845
Polish Zloty to U.S. Dollar expiring 2/6/2012 Bank of America PLN143,070 41,513 41,327 186
-----------
Forward currency contracts -- net $3,626
===========
Financial highlights
6 months
ended Year ended June 30
December ---------------------------------------------------------
31, 2011(1) 2011 2010 2009 2008 2007(2)
---------------------------------------------------------
Net asset value, beginning of period ....................... $ 9.93 $ 8.13 $ 6.72 $ 12.95 $ 17.02 $ 15.21
------- -------- -------- -------- -------- --------
Income (loss) from investment operations(3):
Net investment income ................................... .05 .16 .15 .18 .39 .22
Net realized and unrealized gain (loss) on investments .. (2.24) 1.81 1.39 (4.09) .68 6.56
------- -------- -------- -------- -------- --------
Total income (loss) from investment operations .......... (2.19) 1.97 1.54 (3.91) 1.07 6.78
------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income .................... (.12) (.17) (.13) (.23) (.59) (.41)
Distributions from net realized gains ................... (.26) -- -- (2.09) (4.55) (4.56)
------- -------- -------- -------- -------- --------
Total distributions .................................... (.38) (.17) (.13) (2.32) (5.14) (4.97)
------- -------- -------- -------- -------- --------
Net asset value, end of period ............................. $ 7.36 $ 9.93 $ 8.13 $ 6.72 $ 12.95 $ 17.02
======= ======== ======== ======== ======== ========
Total return ............................................... (22.01)%(4) 24.29% 22.83% (23.08)% 3.78% 52.08%
Ratios/supplemental data:
Net assets, end of period (in millions) .................. $12,983 $ 16,827 $ 12,878 $ 10,830 $ 13,925 $ 15,383
Ratio of expenses to average net assets .................. .67%(5) .68% .71% .71% .67% .70%
Ratio of net investment income to average net assets ..... 1.17%(5) 1.65% 1.86% 2.49% 2.47% 1.39%
Portfolio turnover rate .................................. 20.59%(4) 40.66% 49.38% 67.91% 57.50% 52.19%
(1) Unaudited
(2) 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.
(3) The per-share data is based on average shares outstanding.
(4) Based on operations for the period shown and, accordingly, not
representative of a full year's operations.
(5) Annualized
Capital International, Inc.
JPMorgan Investor Services Co.
1775 I Street, N.W.
Washington, D.C. 20006-2401
American Funds Distributors, Inc.
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 800/421-4989 and should be read carefully before investing.
Lit. No. MFGESR-915-0212P (NLS)
© 2012 Emerging Markets Growth Fund, Inc.
