UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-04692
Emerging Markets Growth Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, California 90025
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (310) 996-6000
Date of fiscal year end: June 30
Date of reporting period: June 30, 2012
Laurie D. Neat
Capital International, Inc.
333 South Hope Street
Los Angeles, California 90071
(Name and Address of Agent for Service)
Copies to:
Rob Helm, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
(Counsel for the Registrant)
ITEM 1 – Reports to Stockholders
Emerging Markets
Growth FundSM
[cover: global map]
Annual report for the year ended June 30, 2012
Emerging Markets Growth Fund seeks long-term growth of capital and invests primarily in common stock and other equity securities of issuers in developing countries.
Figures shown are past results and are not predictive of results in 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 Growth Fund is a U.S.-domiciled open-end interval fund and redeems on a monthly basis as more fully described in its prospectus. Securities offered through American Funds Distributors,® Inc., member FINRA.
Fellow investors:
Emerging markets equities retreated as investors worried about Europe’s ability to manage the sovereign debt crisis and the potential impact of a global economic slowdown. Signs of economic deceleration in China and several other emerging markets further dampened investor sentiment. For the 12-month period ended June 30, 2012, Emerging Markets Growth Fund’s total return declined by 21.7%, with distributions reinvested, while its benchmark, the unmanaged MSCI Emerging Markets Investable Market Index (IMI), fell 16.3%. About half of those losses stemmed from currency depreciation as emerging markets currencies dropped against the U.S. dollar.
Economically sensitive sectors shed the most, with energy, materials and industrials posting the steepest declines. Financial stocks also suffered in the face of tighter credit conditions in 2011 and concerns that nonperforming loans might increase in a more sluggish economic environment. Losses were more muted in defensive sectors such as telecommunication services, while growing demand for smartphones helped support some technology companies.
Market review
Financial markets were largely driven by macroeconomic events during the period as investors vacillated between “risk-on” and “risk-off” sentiment. The sheer scope of the European debt crisis — and the extent of the political and fiscal initiatives needed to resolve it — shook investor confidence and sent global equity markets sharply lower in late 2011. Equities rallied in early 2012 on signs of progress in European negotiations, slipped in April and May as anxieties resurfaced, then recovered some momentum in June. The International Monetary Fund (IMF) projected that global GDP growth would slow to 3.5% in 2012, compared with 3.9% in 2011, while economic growth in the emerging markets would moderate from 6.2% to 5.6%.
Larger markets dropped sharply on the whole. Smaller markets in Asia and Latin America fared better, supported by stable domestic economies. Investors worried, in particular, about slowing economic growth in China, government policies related to the country’s property market and the implications of an upcoming change in political leadership. Growth in India and Brazil also slowed, while the economic slump in Europe — a major export destination for Asia — weighed on exports in several countries. Authorities in China, Brazil and India reversed credit tightening policies and began to lower interest rates during the period. Inflation abated in many developing markets in the first half of 2012. Most emerging markets currencies depreciated, with the Brazilian real and the Indian rupee losing 23% and 20%, respectively.
[Begin Sidebar]
Results at a glance | ||||||||||||||||||||||||
For periods ended June 30, 2012, with distributions reinvested | ||||||||||||||||||||||||
Total returns | Average annual total returns | |||||||||||||||||||||||
Lifetime | ||||||||||||||||||||||||
6 months | 1 year | 3 years | 5 years | 10 years | (since 5/30/86) | |||||||||||||||||||
Emerging Markets | ||||||||||||||||||||||||
Growth Fund | 0.41 | % | –21.69 | % | 6.13 | % | –0.93 | % | 13.93 | % | 15.28 | % | ||||||||||||
MSCI Emerging | ||||||||||||||||||||||||
Markets IMI1,2 | 4.31 | –16.29 | 9.97 | 0.13 | 14.20 | 11.59 | 3 | |||||||||||||||||
MSCI Emerging | ||||||||||||||||||||||||
Markets Index2,4 | 3.93 | –15.95 | 9.77 | –0.09 | 14.08 | 11.54 | 3 | |||||||||||||||||
1 Returns for the MSCI Emerging Markets Investable Market Index (IMI) were calculated using the MSCI Emerging Markets Index with gross dividends from December 31, 1987 to December 31, 2000, and with net dividends from January 1, 2001 to November 30, 2007, and using the MSCI Emerging Markets IMI with net dividends thereafter. | ||||||||||||||||||||||||
2 The indices are unmanaged and, therefore, have no expenses. | ||||||||||||||||||||||||
3 The MSCI Emerging Markets Index did not start until December 31, 1987. As a result, the International Finance Corporation (IFC) Global Composite Index was used in lieu of the MSCI Emerging Markets Index from May 30, 1986 to December 31, 1987. | ||||||||||||||||||||||||
4 Reflects gross dividends through December 31, 2000 and net dividends thereafter. |
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, 2012 (unaudited).
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 June 30, 2012, unless otherwise noted. All returns and stock prices are reflected in U.S. dollars, unless otherwise noted.
[End Sidebar]
Energy heavyweights Petrobras and Gazprom detracted significantly from market returns. Russia’s Gazprom declined on reduced gas exports to Europe, while Brazilian oil producer Petrobras struggled amid rising costs and a weaker currency. Waning commodities demand from China hindered a number of energy and materials companies, including iron ore producer Vale. Shares of banks in China, India and Brazil dropped as investors fretted over the potential for a rise in nonperforming loans.
China’s economy decelerated, with GDP growth slowing to an annualized rate of 8.1% in the first quarter of 2012 compared with 9.7% in the first quarter of 2011. The government lowered its 2012 economic growth target from 8.0% to 7.5%. Manufacturing as measured by the HSBC Purchasing Managers Index contracted for an eighth consecutive month in June; property prices generally weakened but showed signs of resilience late in the period. Monetary authorities began lowering the reserve ratio requirement — the portion of depositors’ bank balances lenders must hold as cash — in early December and in June cut interest rates for the first time since 2008. June inflation slid to 2.2% after reaching a three-year high of 6.5% in July 2011. The MSCI China IMI fell 18%. A number of materials and infrastructure-related stocks posted steep declines. Shares of several property companies rose, however, against a backdrop of improving home sales and expectations for further policy easing.
Indian stocks sank 26%, with losses greatly exacerbated by the rupee’s slide. Financial conditions in India deteriorated despite the government’s efforts to support the currency and induce capital flows. January–March GDP growth slowed to an annualized 5.3% — considerably less than market expectations and the lowest rate in nine years. In April, the Reserve Bank of India cut its key interest rate to 8.0% after raising rates 13 times since March 2010. Inflation moderated to 7.3% in June 2012 from rates above 9.0% a year earlier.
[Begin Sidebar]
10 largest equity holdings | ||||||||
Percent of net assets as of 6/30/12 | Percent of price change for the 12 months ended 6/30/12* | |||||||
Samsung Electronics | 3.6 | % | 37.6 | % | ||||
OAO Gazprom | 2.1 | –35.4 | ||||||
Bank of China | 2.0 | –21.8 | ||||||
Industrial and Commercial | ||||||||
Bank of China | 1.8 | –25.7 | ||||||
China Petroleum & Chemical | 1.7 | –11.4 | ||||||
China Shenhua Energy | 1.7 | –26.4 | ||||||
Taiwan Semiconductor | ||||||||
Manufacturing | 1.6 | 8.1 | ||||||
Hynix Semiconductor | 1.6 | –10.5 | ||||||
Sberbank of Russia | 1.5 | –27.7 | ||||||
Bharti Airtel | 1.5 | –37.7 | ||||||
Total | 19.1 | % | ||||||
*The percent change is reflected in U.S. dollars. The actual gain or loss on the total position in the fund may differ from the percentage shown. |
[End Sidebar]
Weaker exports weighed on South Korean and Taiwanese equity markets. Several technology companies fell sharply, including HTC; the Taiwanese smartphone maker tumbled as it drastically lowered its outlook in the face of tougher competition. Equity losses in South Korea were tempered by Samsung Electronics; shares of the technology heavyweight surged 38%, supported by the popularity of its Galaxy smartphone. The country’s automakers lost ground after strong gains in early 2011 amid supply disruptions at other companies following Japan’s natural disasters.
Thailand experienced its heaviest flooding in more than 50 years in October, crippling transportation networks, disrupting major supply chains and forcing global companies such as Honda and Toyota Motor to suspend production. The Thai economy rebounded sharply in early 2012, however, contributing to a 10% gain for the MSCI Thailand IMI. Philippine stocks rallied 25%, bolstered by better-than-expected GDP growth of 6.4% in the first quarter. Indonesian stocks lost 9%, pulling back from a steep rise in the previous 12-month period. The country’s first-quarter GDP slowed but nonetheless came in at a robust 6.3%.
[Begin Sidebar]
Where the fund’s assets were invested | ||||||||||||||||||||||||
MSCI | Value of | |||||||||||||||||||||||
Percent of net assets | EM IMI1 | holdings | ||||||||||||||||||||||
6/30/12 | ||||||||||||||||||||||||
6/30/10 | 6/30/11 | 12/31/11 | 6/30/12 | 6/30/12 | (000) | |||||||||||||||||||
Asia-Pacific | ||||||||||||||||||||||||
China | 17.0 | % | 15.7 | % | 18.2 | % | 16.9 | % | 17.6 | % | $ | 2,002,446 | ||||||||||||
Hong Kong | 1.2 | 2.4 | 3.6 | 3.7 | — | 439,672 | ||||||||||||||||||
India | 10.8 | 9.5 | 7.2 | 8.1 | 6.6 | 956,265 | ||||||||||||||||||
Indonesia | 3.6 | 3.3 | 3.1 | 2.3 | 3.0 | 271,509 | ||||||||||||||||||
Malaysia | 3.3 | 3.8 | 3.7 | 2.9 | 3.8 | 343,604 | ||||||||||||||||||
Pakistan | .1 | .1 | .1 | .1 | — | 13,169 | ||||||||||||||||||
Philippines | 1.0 | .9 | .8 | 1.0 | 1.0 | 116,701 | ||||||||||||||||||
Singapore | 1.0 | .8 | 1.0 | .7 | — | 78,931 | ||||||||||||||||||
South Korea | 9.1 | 10.5 | 11.2 | 11.3 | 15.3 | 1,341,967 | ||||||||||||||||||
Taiwan | 6.6 | 6.0 | 6.1 | 6.3 | 12.0 | 749,131 | ||||||||||||||||||
Thailand | 2.3 | 2.9 | 2.5 | 1.2 | 2.3 | 147,441 | ||||||||||||||||||
56.0 | 55.9 | 57.5 | 54.5 | 61.6 | 6,460,836 | |||||||||||||||||||
Eastern Europe and Middle East | ||||||||||||||||||||||||
Czech Republic | .6 | .7 | .7 | .3 | .3 | 29,337 | ||||||||||||||||||
Hungary | .1 | .3 | .3 | .2 | .3 | 19,982 | ||||||||||||||||||
Israel | 1.3 | .9 | .7 | .4 | — | 50,365 | ||||||||||||||||||
Oman | .2 | .2 | .3 | .3 | — | 39,720 | ||||||||||||||||||
Poland | 1.0 | 1.5 | 1.3 | 1.4 | 1.4 | 159,476 | ||||||||||||||||||
Russia | 5.2 | 8.3 | 6.9 | 7.9 | 5.3 | 938,618 | ||||||||||||||||||
Saudi Arabia | .3 | .6 | .9 | 1.2 | — | 146,699 | ||||||||||||||||||
Turkey | 1.4 | .6 | .2 | .7 | 1.8 | 86,144 | ||||||||||||||||||
United Arab Emirates | — | .2 | .4 | .4 | — | 43,182 | ||||||||||||||||||
10.1 | 13.3 | 11.7 | 12.8 | 9.1 | 1,513,523 | |||||||||||||||||||
Latin America | ||||||||||||||||||||||||
Argentina | .1 | 1.2 | .4 | — | — | — | ||||||||||||||||||
Brazil | 10.7 | 9.4 | 9.4 | 7.3 | 12.3 | 862,540 | ||||||||||||||||||
Chile | .6 | .3 | .2 | .4 | 2.0 | 47,349 | ||||||||||||||||||
Colombia | — | .3 | .3 | — | 1.1 | — | ||||||||||||||||||
Mexico | 6.0 | 4.5 | 3.9 | 3.4 | 4.7 | 401,941 | ||||||||||||||||||
Peru | — | — | — | .2 | .7 | 24,623 | ||||||||||||||||||
Uruguay | — | .1 | — | — | — | — | ||||||||||||||||||
17.4 | 15.8 | 14.2 | 11.3 | 20.8 | 1,336,453 | |||||||||||||||||||
Africa | ||||||||||||||||||||||||
Egypt | .1 | — | .1 | — | .3 | 2,077 | ||||||||||||||||||
Morocco | .1 | .1 | .1 | .1 | .1 | 10,390 | ||||||||||||||||||
South Africa | 4.6 | 3.1 | 3.5 | 2.6 | 8.1 | 300,834 | ||||||||||||||||||
4.8 | 3.2 | 3.7 | 2.7 | 8.5 | 313,301 | |||||||||||||||||||
Other markets2 | ||||||||||||||||||||||||
Australia | .6 | .9 | .7 | .9 | 104,807 | |||||||||||||||||||
Austria | — | .2 | .2 | .2 | 28,628 | |||||||||||||||||||
Canada | .6 | .8 | .9 | .9 | 110,285 | |||||||||||||||||||
Italy | — | .1 | .4 | .2 | 16,793 | |||||||||||||||||||
Netherlands | — | — | — | .3 | 34,426 | |||||||||||||||||||
Switzerland | — | .2 | .1 | .1 | 16,318 | |||||||||||||||||||
United Kingdom | 1.2 | 3.4 | 4.7 | 3.8 | 450,241 | |||||||||||||||||||
United States of America | .8 | .9 | 1.1 | 1.6 | 185,137 | |||||||||||||||||||
3.2 | 6.5 | 8.1 | 8.0 | 946,635 | ||||||||||||||||||||
Multinational | .6 | .3 | .3 | .3 | 39,941 | |||||||||||||||||||
Other3 | 2.5 | 1.8 | .7 | 4.8 | 573,203 | |||||||||||||||||||
Other assets less liabilities (including short-term securities and forward currency contracts) | 5.4 | 3.2 | 3.8 | 5.6 | 667,482 | |||||||||||||||||||
Total net assets | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | $ | 11,851,374 | ||||||||||||||
1 A dash indicates that the market is not included in the index. Source: MSCI. | ||||||||||||||||||||||||
2 Includes investments in companies incorporated in the region that have significant operations in emerging markets. | ||||||||||||||||||||||||
3 Includes securities in initial period of acquisition. |
[End Sidebar]
[Begin Sidebar]
Percent change in key markets* | ||||||||||||||||
12 months | 6 months | |||||||||||||||
ended 6/30/12 | ended 6/30/12 | |||||||||||||||
Expressed | Expressed | Expressed | Expressed | |||||||||||||
in U.S. | in local | in U.S. | in local | |||||||||||||
dollars | currency | dollars | currency | |||||||||||||
Asia-Pacific | ||||||||||||||||
China | –17.7 | % | –17.9 | % | 3.6 | % | 3.5 | % | ||||||||
India | –26.2 | –7.8 | 9.5 | 15.1 | ||||||||||||
Indonesia | –8.7 | 0.0 | –2.4 | 1.0 | ||||||||||||
Malaysia | –3.1 | 1.9 | 4.9 | 5.1 | ||||||||||||
Philippines | 24.7 | 21.2 | 26.6 | 21.7 | ||||||||||||
South Korea | –14.9 | –8.7 | 4.0 | 3.4 | ||||||||||||
Taiwan | –16.6 | –13.2 | 5.3 | 4.0 | ||||||||||||
Thailand | 10.3 | 14.0 | 14.9 | 15.7 | ||||||||||||
Latin America | ||||||||||||||||
Brazil | –26.2 | –4.7 | –6.9 | 0.7 | ||||||||||||
Chile | –15.2 | –9.1 | 7.7 | 4.2 | ||||||||||||
Colombia | 5.2 | 6.0 | 18.0 | 8.6 | ||||||||||||
Mexico | –0.4 | 14.0 | 14.5 | 10.1 | ||||||||||||
Peru | 16.0 | 15.7 | 8.8 | 8.6 | ||||||||||||
Eastern Europe and Middle East | ||||||||||||||||
Czech Republic | –27.3 | –12.9 | –4.2 | –1.8 | ||||||||||||
Hungary | –39.0 | –24.9 | 12.4 | 4.4 | ||||||||||||
Poland | –31.1 | –16.2 | 10.9 | 7.8 | ||||||||||||
Russia | –26.2 | –15.9 | 1.2 | 2.0 | ||||||||||||
Turkey | –10.0 | 0.3 | 29.2 | 23.7 | ||||||||||||
Africa | ||||||||||||||||
Egypt | –9.4 | –8.2 | 34.0 | 34.5 | ||||||||||||
Morocco | –22.9 | –14.2 | –9.4 | –7.8 | ||||||||||||
South Africa | –5.9 | 13.5 | 5.8 | 7.2 | ||||||||||||
*The market indices, compiled by MSCI, are unmanaged and, therefore, have no expenses. |
[End Sidebar]
Meanwhile, Brazilian stocks slumped 26%, hurt by currency declines. Economic expansion tapered to an annualized 0.8% in the first quarter of 2012. The nation’s central bank slashed the benchmark Selic by a total of four percentage points since August to a record low of 8.5%. Mexico fared better than most markets, spurred in part by hopes that the July 1 presidential election would lead to economic reforms. The PRI party returned to power with Enrique Peña Nieto confirmed as winner. Mexican stocks fell less than 1% in U.S. dollar terms, with local currency gains eroded by the peso’s 13% drop. Argentine equities tumbled more than 60% after the government’s renationalization of Spanish-owned oil company YPF sparked political concerns and led investors to question the viability of the country’s equity market.
Falling commodity prices and a 14% depreciation of the ruble sent Russian equities 26% lower. Protests leading up to the March presidential elections escalated, further depressing the market. Meanwhile, Russian GDP grew at a rapid clip of 4.9% in the first quarter of 2012, buoyed by strong retail sales.
Other developing European equity markets posted substantial declines, their losses aggravated by currency depreciation. Hungarian equities lost almost 40% as the country’s debt swelled to more than 80% of GDP, and doubts persisted as to whether changes in its constitution might prevent the government from securing help from the IMF. Turkey weathered the market selloff somewhat better, slipping 10%. As a net importer of oil, the country was shielded in part by expectations that it would benefit from lower oil prices. South African stocks lost 6% in U.S. dollar terms but rose more than 13% in local currency. Shares of commodity producers sank, but several consumer stocks and banks registered solid gains.
Portfolio review
The portfolio declined in the market selloff, trailing the benchmark. A number of commodities and infrastructure-related stocks fell sharply as the global economic outlook dimmed. Several consumer stocks and telecommunication services providers also slumped. In particular, stock selection in China, Russia and India hampered fund returns. Investments in financials and information technology proved to be bright spots, however, with several stocks in these areas advancing.
Shares of South Korean petrochemicals company LG Chem fell on reports of greater-than-anticipated profit declines amid waning Chinese demand for materials used to make plastic and synthetic rubber. Demand for petrochemicals has been more sluggish than expected and could weigh on earnings growth for a considerable period of time. As a result, managers substantially reduced exposure to the stock. Several other investments in the materials sector also slid, including metals conglomerate Glencore International and Centerra Gold. The latter was hurt by reduced production at its flagship Kumtor mine amid icy conditions in Kyrgyzstan; allegations that the mine threatened the environment and health of local residents also contributed to share price declines, along with concerns that authorities might strip the gold producer of its operating license.
Several investments in Chinese infrastructure-related stocks fell, with Anhui Conch Cement and construction and machinery manufacturer Sany Heavy Equipment International losing considerable ground. Meanwhile, China High Speed Transmission — the country’s largest maker of wind gearboxes — dropped as the company issued profit warnings in response to a combination of lower sales and rising costs.
Infrastructure-related investments in India further dampened returns amid questions about the government’s commitment to reforms. Coal, port and power firm Adani Enterprises grappled with weaker macroeconomic conditions, investor concerns about political gridlock and the possibility that government red tape could delay clearances for projects. Adani also struggled with higher fuel costs in the face of local shortages. Jain Irrigation Systems — one of the world’s largest drip irrigation firms — stumbled as the rupee’s depreciation eroded profits. In addition, late payments from various state governments fostered anxiety over a potential deterioration of the firm’s balance sheet. On the other hand, several of the fund’s investments in industrials companies rose, including Taiwanese construction and engineering company CTCI and Philippines-based International Container Terminal Services, which climbed about 42% and 51%, respectively.
Several of the fund’s holdings in the energy sector proved disappointing. Shares of Russia’s Gazprom, which depends upon Europe for about half of its revenues, shed more than 35% amid reduced shipments to the region and concerns about potential tax increases resulting from Vladimir Putin’s re-election in May. China Shenhua Energy dropped as a combination of falling coal prices, increased mining costs and a decelerating domestic economy clouded the company’s outlook. China Petroleum & Chemical Corporation (SINOPEC) also suffered amidst worries that fuel price cuts would squeeze margins in its refining business. But shares of Tullow Oil advanced as the U.K.-domiciled exploration firm announced the first major commercial oil discovery in Kenya, following new offshore finds in French Guiana.
Overall, the fund’s emphasis on growth-oriented telecommunications companies versus those with steadier, more stable earnings detracted from returns during this volatile period. Bharti Airtel — one of the fund’s largest holdings — fell as the Indian wireless provider registered lower-than-anticipated profits in an environment of escalating costs and stiff competition. On a positive note, Etihad Etisalat (Mobily) climbed 25%; the Saudi Arabian telecommunications operator reported strong earnings and increased revenue from data services.
Several consumer-related investments weighed on fund returns. Shares of Indian beverage giant United Spirits fell as profits slumped; investors also worried that majority shareholder Vijay Mallya, who also owns a controlling stake in the troubled Kingfisher Airlines, might tap United Spirits’ balance sheet to finance Kingfisher’s increasingly unsustainable debt burden. Meanwhile, Chinese luxury car dealer Zhongsheng Group Holdings dropped on concerns about falling auto prices in the midst of an industry-wide supply glut. However, Hong Kong-listed Sands China benefited from an influx of Chinese tourists visiting Macau as the gaming company opened its new Sands Cotai Central resort.
Several of the fund’s investments in the financials sector proved to be bright spots. Shares of Asian life insurer AIA Group edged higher as the company continued to generate new business, while Thailand’s Bank of Ayudhya rose 5%, supported by strong lending growth. Chinese real estate company Longfor Properties rallied amid expectations of further policy easing in the country and signs of an improvement in home sales.
Investments in information technology also advanced. Shares of Samsung Electronics gained as rising smartphone sales fueled profits. Shares of China’s biggest PC maker Lenovo jumped 48%, with robust demand in emerging markets offsetting weakness in Europe.
Outlook
Despite some progress in negotiations, the scope of Europe’s debt crisis continues to weigh on investors’ minds, as do worries about the pace of economic expansion in the U.S., Europe, China and other emerging markets. Political uncertainty may fuel additional anxiety in the coming months, particularly ahead of China’s leadership transition later this year and prior to the rapidly approaching “fiscal cliff” in the U.S. — a series of federal spending cuts and tax hikes scheduled to take effect in early 2013. A degree of investor skepticism about the capability of authorities to address these enormous challenges is likely to foster a “risk-on,” “risk-off” environment for some time.
Meanwhile, emerging markets equity valuations have fallen sharply and appear increasingly attractive, both relative to the developed markets as well as historical levels for emerging markets stocks. Although volatility driven by macroeconomic factors is likely to remain high, many companies have appealing business models with dominant franchises and — in several cases — industry-leading positions with the potential for multiyear sales and profit growth. As bottom-up, long-term investment managers, we focus on these companies and their medium- to long-term prospects. As such, we view bouts of market volatility as opportunities to find attractive entry points. Managers also take some comfort in the view that the macroeconomic policies of many emerging markets countries remain sound — marked by fiscal surpluses and evidence that authorities have the agility to respond effectively to evolving global financial conditions. There is also sufficient internally generated demand for many economies to sustain a baseline of growth despite tough global conditions.
On balance, managers think that China’s economy is likely to stabilize as a result of a controlled structural slowdown driven by policymakers’ efforts to facilitate more sustainable growth over the longer term. While some managers are concerned about the shorter term impact of more subdued economic growth, several believe that select Chinese companies offer considerable value, especially given their prospects. Against this backdrop, investments in China and Hong Kong make up about 21% of the fund’s holdings. In particular, the portfolio is focused on several attractively valued energy companies that are likely to benefit from coal demand in China as well as increased natural gas usage over time.
Managers are actively investing in stocks with valuations that seem inexpensive relative to their prospects. Among these investments are banks expanding in underpenetrated markets that are likely to be supported by moderate economic growth. The portfolio is also invested in select life insurers that are poised to benefit from broader trends in Asia, where individuals have become increasingly inclined to purchase safety nets for their families. On the whole, managers are more cautious about India, but continue to favor several Indian banks that have strong managements, limited leverage on their balance sheets and the ability to navigate a difficult macroeconomic environment. Overall, financial investments currently make up 21% of the portfolio compared with 19% as of June 30, 2011.
The fund emphasizes several well-established global technology leaders as well as smaller suppliers that are likely to outstrip the competition. In the area of telecommunication services, managers favor growth-oriented providers that are likely to gain from corporate restructuring and expansion efforts and whose value they believe may be underestimated by the market. They are also attracted to several integrated telecommunications providers that could potentially profit from regulatory changes. Consumer businesses that are gaining market share in their respective industries also feature prominently, particularly several auto-related companies.
Overall, managers think that macroeconomic conditions are likely to remain challenging and that earnings growth for some companies may be more muted in the short term. At the same time, they have an underlying confidence in longer term fundamentals and are enthusiastic about the opportunities that have arisen from this difficult period. We look forward to reporting to you again in six months’ time.
Sincerely,
/s/ Victor D. Kohn
Victor D. Kohn
President
August 20, 2012
The value of a long-term perspective
How a $100,000 investment has grown
While notable for their volatility in recent years, financial markets have tended to reward investors over the long term. Active management — bolstered by experience and careful research — can add even more value. This chart shows how a $100,0001 investment in Emerging Markets Growth Fund (EMGF) grew from December 31, 1987 — the inception of the MSCI Emerging Markets Index — through June 30, 2012, the end of the fund’s latest fiscal year.
As you can see, the $100,000 would have grown to $2,944,625. This is significantly more than the $1,716,718 generated by the unmanaged MSCI EM Index.
[begin mountain chart]
Values of a $100,000 investment in EMGF from 12/31/1987-6/30/2012: | Emerging Markets Growth Fund2 | MSCI Emerging Markets Index3 | ||||||
12/31/1987 | 100,000 | 100,000 | ||||||
6/30/1988 | 138,053 | 136,912 | ||||||
12/31/1988 | 141,980 | 140,427 | ||||||
6/30/1989 | 203,614 | 173,906 | ||||||
12/31/1989 | 275,812 | 231,650 | ||||||
6/30/1990 | 296,302 | 258,080 | ||||||
12/31/1990 | 250,848 | 207,209 | ||||||
6/30/1991 | 349,859 | 281,281 | ||||||
12/31/1991 | 409,863 | 331,349 | ||||||
6/30/1992 | 453,884 | 355,819 | ||||||
12/31/1992 | 460,360 | 369,135 | ||||||
6/30/1993 | 551,713 | 421,825 | ||||||
12/31/1993 | 794,977 | 645,384 | ||||||
6/30/1994 | 741,137 | 578,578 | ||||||
12/31/1994 | 782,904 | 598,165 | ||||||
6/30/1995 | 732,096 | 578,478 | ||||||
12/31/1995 | 726,601 | 567,009 | ||||||
6/30/1996 | 845,474 | 627,491 | ||||||
12/31/1996 | 845,574 | 601,205 | ||||||
6/30/1997 | 1,092,098 | 707,935 | ||||||
12/31/1997 | 927,272 | 531,555 | ||||||
6/30/1998 | 791,087 | 431,270 | ||||||
12/31/1998 | 696,603 | 396,860 | ||||||
6/30/1999 | 953,943 | 555,079 | ||||||
12/31/1999 | 1,239,461 | 660,407 | ||||||
6/30/2000 | 1,198,460 | 607,647 | ||||||
12/31/2000 | 855,467 | 458,257 | ||||||
6/30/2001 | 847,207 | 450,050 | ||||||
12/31/2001 | 826,143 | 446,274 | ||||||
6/30/2002 | 799,378 | 454,921 | ||||||
12/31/2002 | 744,120 | 418,732 | ||||||
6/30/2003 | 856,488 | 485,280 | ||||||
12/31/2003 | 1,127,420 | 652,453 | ||||||
6/30/2004 | 1,095,308 | 646,124 | ||||||
12/31/2004 | 1,361,210 | 819,176 | ||||||
6/30/2005 | 1,471,426 | 868,292 | ||||||
12/31/2005 | 1,883,298 | 1,097,686 | ||||||
6/30/2006 | 2,028,701 | 1,176,259 | ||||||
12/31/2006 | 2,571,214 | 1,450,832 | ||||||
6/30/2007 | 3,085,311 | 1,705,431 | ||||||
12/31/2007 | 3,563,076 | 2,022,748 | ||||||
6/30/2008 | 3,202,070 | 1,764,921 | ||||||
12/31/2008 | 1,799,646 | 934,885 | ||||||
6/30/2009 | 2,463,059 | 1,290,915 | ||||||
12/31/2009 | 3,200,168 | 1,704,887 | ||||||
6/30/2010 | 3,025,275 | 1,608,057 | ||||||
12/31/2010 | 3,737,453 | 2,044,164 | ||||||
6/30/2011 | 3,760,173 | 2,050,745 | ||||||
12/31/2011 | 2,932,671 | 1,645,733 | ||||||
6/30/2012 | 2,944,625 | 1,716,718 |
1The minimum initial investment for EMGF is $100,000. |
2Values are based on a $100,000 investment with distributions reinvested. |
3Returns for the MSCI Emerging Markets Index were calculated using the MSCI Emerging Markets Index with gross dividends from December 31, 1987 to December 31, 2000, and with net dividends from January 1, 2001 to November 30, 2007, and using the MSCI EM IMI with net dividends thereafter. The indices are unmanaged and, therefore, have no expenses. |
4For the period December 31, 1987 (inception of the MSCI EM Index), through June 30, 1988. EMGF began operations on May 30, 1986. |
Total returns | ||||||||
(with all distributions reinvested for periods ended June 30, 2012) | ||||||||
Cumulative | Average annual | |||||||
total returns | total returns | |||||||
1 year | –21.69 | % | — | |||||
5 years | –4.56 | –.93 | % | |||||
10 years | 268.35 | 13.93 |
Figures shown are past results and are not predictive of results in future periods. The results shown are before taxes on fund distributions and sale of fund shares. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. For current information and month-end results, please call 800/421-4989.
About the fund and its adviser
Emerging Markets Growth Fund was organized in 1986 by the International Finance Corporation (IFC), an affiliate of the World Bank, as a vehicle for investing in the securities of companies based in developing countries. The premise behind the formation of the fund was that rapid growth in these countries could create very attractive investment opportunities. It also was felt that the availability of equity capital would stimulate the development of capital markets and encourage countries to liberalize their investment regulations.
Capital International, Inc., the fund’s investment adviser, is part of The Capital Group Companies,SM Inc., one of the world’s most experienced investment advisory organizations, with roots dating back to 1931. The fund has been managed by Capital International or an affiliate since 1986. The Capital Group organization has been involved in international investing since the 1950s. Capital International employs a research-driven approach to investing. Along with its institutional management affiliates, Capital International maintains a global investment research network spanning three continents. This network includes analysts and portfolio managers from more than 30 countries who speak a variety of languages. These professionals travel the world scrutinizing thousands of companies and keeping a close watch on industry trends and government actions.
The fund’s adviser has devoted substantial resources to the task of evaluating and managing investments in developing countries. Currently, there are more than 20 analysts covering these countries, with most also managing a portion of the fund. The majority of the fund’s assets are managed by six portfolio managers.
Capital International’s research effort focuses heavily on sectors as well as on individual countries. It is an intensive effort that combines company and industry analysis with a political and macroeconomic overview, and we believe it has given Emerging Markets Growth Fund a competitive edge.
Investment portfolio June 30, 2012 Equity securities -------------------------------------- Common Convertible Bonds Percent of stocks stocks and notes net assets SECTOR DIVERSIFICATION Financials 21.20% .07% --% 21.27% -------------------------------------------------------------------------------------------------------------------- Information technology 14.83 -- -- 14.83 -------------------------------------------------------------------------------------------------------------------- Energy 11.47 -- .08 11.55 -------------------------------------------------------------------------------------------------------------------- Materials 10.50 -- .08 10.58 -------------------------------------------------------------------------------------------------------------------- Industrials 8.87 -- -- 8.87 -------------------------------------------------------------------------------------------------------------------- Consumer discretionary 8.63 -- -- 8.63 -------------------------------------------------------------------------------------------------------------------- Telecommunication services 7.88 -- -- 7.88 -------------------------------------------------------------------------------------------------------------------- Consumer staples 5.59 -- -- 5.59 -------------------------------------------------------------------------------------------------------------------- Utilities 2.24 -- -- 2.24 -------------------------------------------------------------------------------------------------------------------- Health care 1.39 -- -- 1.39 -------------------------------------------------------------------------------------------------------------------- Other 1.54 -- -- 1.54 -------------------------------------------------------------------------------------------------------------------- 94.14% .07% .16% 94.37 ============== ============== ============== Short-term securities 4.21 -------------------------------------------------------------------------------------------------------------------- Other assets less liabilities (including forward currency contracts) 1.42 -------------------------------------------------------------------------------------------------------------------- Net assets 100.00% ============ Equity securities Value Shares (000) ASIA-PACIFIC -- 54.5% CHINA -- 16.9% Ambow Education Holding Ltd. (ADR)(1) 1,341,420 $ 6,278 -------------------------------------------------------------------------------------------------------------------- Anhui Conch Cement Co. Ltd. 11,494,654 26,899 Anhui Conch Cement Co. Ltd. (Hong Kong) 6,939,000 19,033 -------------------------------------------------------------------------------------------------------------------- Bank of China Ltd. (Hong Kong) 632,759,724 242,120 -------------------------------------------------------------------------------------------------------------------- Beijing Enterprises Holdings Ltd. (Hong Kong) 6,042,500 36,472 -------------------------------------------------------------------------------------------------------------------- Beijing Enterprises Water Group Ltd. (Hong Kong) 92,102,000 17,384 -------------------------------------------------------------------------------------------------------------------- BYD Co. Ltd. (Hong Kong)(1) 2,653,200 5,074 -------------------------------------------------------------------------------------------------------------------- China Construction Bank Corp. (Hong Kong) 140,024,190 96,543 -------------------------------------------------------------------------------------------------------------------- China High Speed Transmission Equipment Group Co. Ltd. (Hong Kong)(1) 60,551,600 18,992 -------------------------------------------------------------------------------------------------------------------- China Kanghui Holdings (ADR)(1) 1,101,500 21,700 -------------------------------------------------------------------------------------------------------------------- China Life Insurance Co. Ltd. 6,207,957 17,950 China Life Insurance Co. Ltd. (Hong Kong) 26,483,000 69,541 -------------------------------------------------------------------------------------------------------------------- China Longyuan Power Group Corp. Ltd. (Hong Kong) 56,557,000 37,249 -------------------------------------------------------------------------------------------------------------------- China Mengniu Dairy Co. (Hong Kong) 27,643,000 73,077 -------------------------------------------------------------------------------------------------------------------- China Mobile Ltd. (Hong Kong) 4,417,500 48,551 -------------------------------------------------------------------------------------------------------------------- China Petroleum & Chemical Corp. (Hong Kong) 221,538,000 198,593 -------------------------------------------------------------------------------------------------------------------- China Resources Land Ltd. (Hong Kong) 5,961,000 12,310 -------------------------------------------------------------------------------------------------------------------- China Shenhua Energy Co. Ltd. 1,309,200 4,649 China Shenhua Energy Co. Ltd. (Hong Kong) 54,747,000 193,427 -------------------------------------------------------------------------------------------------------------------- CSR Corp. Ltd. (Hong Kong) 37,875,000 29,638 -------------------------------------------------------------------------------------------------------------------- Ctrip.com International, Ltd. (ADR)(1) 84,060 1,409 -------------------------------------------------------------------------------------------------------------------- ENN Energy Holdings Ltd. (Hong Kong) 4,630,000 16,281 -------------------------------------------------------------------------------------------------------------------- First Tractor Co. Ltd. (Hong Kong)(1) 13,402,000 10,819 -------------------------------------------------------------------------------------------------------------------- Fu Ji Food and Catering Services Holdings Ltd. (Hong Kong)(1) 15,126,000 24 -------------------------------------------------------------------------------------------------------------------- <PAGE> Value Shares (000) CHINA (CONTINUED) Hengan International Group Co. Ltd. (Hong Kong) 1,293,000 $ 12,572 -------------------------------------------------------------------------------------------------------------------- Honghua Group Ltd. (Hong Kong) 3,817,000 607 -------------------------------------------------------------------------------------------------------------------- Huabao International Holdings Ltd. (Hong Kong) 14,604,000 7,188 -------------------------------------------------------------------------------------------------------------------- Industrial and Commercial Bank of China Ltd. 10,092,300 6,281 Industrial and Commercial Bank of China Ltd. (Hong Kong) 371,199,761 207,565 -------------------------------------------------------------------------------------------------------------------- Kingboard Chemical Holdings Ltd. (Hong Kong) 3,795,100 7,379 -------------------------------------------------------------------------------------------------------------------- Kingboard Laminates Holdings Ltd. (Hong Kong) 37,262,000 13,743 -------------------------------------------------------------------------------------------------------------------- Lenovo Group Ltd. (Hong Kong) 29,260,000 24,965 -------------------------------------------------------------------------------------------------------------------- Leoch International Technology Ltd. (Hong Kong) 8,877,000 1,581 -------------------------------------------------------------------------------------------------------------------- Longfor Properties Co. Ltd. (Hong Kong) 34,262,000 53,820 -------------------------------------------------------------------------------------------------------------------- Minth Group Ltd. (Hong Kong) 43,060,000 46,732 -------------------------------------------------------------------------------------------------------------------- New Oriental Education & Technology Group Inc. (ADR)(1) 1,603,100 39,276 -------------------------------------------------------------------------------------------------------------------- Nine Dragons Paper (Holdings) Ltd. (Hong Kong) 44,867,200 25,328 -------------------------------------------------------------------------------------------------------------------- Sany Heavy Equipment International Holdings Co. Ltd. (Hong Kong) 56,608,000 30,519 -------------------------------------------------------------------------------------------------------------------- Shanda Games Ltd., Class A (ADR)(2) 3,943,800 15,775 -------------------------------------------------------------------------------------------------------------------- Shandong Weigao Group Medical Polymer Co. Ltd. (Hong Kong) 57,586,000 63,897 -------------------------------------------------------------------------------------------------------------------- Shanghai Zhixin Electric Co. Ltd. 4,988,567 9,023 -------------------------------------------------------------------------------------------------------------------- Shenguan Holdings Group Ltd. (Hong Kong) 48,496,000 27,767 -------------------------------------------------------------------------------------------------------------------- Shenzhou International Group Holdings Ltd. (Hong Kong) 6,468,000 11,269 -------------------------------------------------------------------------------------------------------------------- Weichai Power Co. Ltd. (Hong Kong)(1) 17,524,200 70,086 -------------------------------------------------------------------------------------------------------------------- Wumart Stores, Inc. (Hong Kong)(1) 4,430,384 8,995 -------------------------------------------------------------------------------------------------------------------- Yingde Gases Group Co. Ltd. (Hong Kong) 19,971,000 18,216 -------------------------------------------------------------------------------------------------------------------- Zhongsheng Group Holdings Ltd. (Hong Kong) 62,275,500 75,779 -------------------------------------------------------------------------------------------------------------------- Zhuzhou CSR Times Electric Co. Ltd. (Hong Kong) 7,324,000 20,070 -------------------------------------------------------------------------------------------------------------------- 2,002,446 HONG KONG -- 3.7% AIA Group Ltd. 37,812,800 130,376 -------------------------------------------------------------------------------------------------------------------- ASM Pacific Technology Ltd. 5,078,900 64,767 -------------------------------------------------------------------------------------------------------------------- EVA Precision Industrial Holdings Ltd. 69,356,000 5,714 -------------------------------------------------------------------------------------------------------------------- Goodbaby International Holdings Ltd. 22,216,000 6,512 -------------------------------------------------------------------------------------------------------------------- Jardine Matheson Holdings Ltd. 181,200 8,824 -------------------------------------------------------------------------------------------------------------------- Man Wah Holdings Ltd. 1,343,000 558 -------------------------------------------------------------------------------------------------------------------- Samsonite International SA 35,541,600 60,168 -------------------------------------------------------------------------------------------------------------------- Sands China Ltd. 19,417,200 62,200 -------------------------------------------------------------------------------------------------------------------- SJM Holdings Ltd. 30,803,000 57,474 -------------------------------------------------------------------------------------------------------------------- United Company RUSAL PLC(1) 17,254,000 9,934 -------------------------------------------------------------------------------------------------------------------- VTech Holdings Ltd. 695,400 8,291 -------------------------------------------------------------------------------------------------------------------- Wynn Macau Ltd. 10,570,000 24,854 -------------------------------------------------------------------------------------------------------------------- 439,672 INDIA -- 8.1% Adani Enterprises Ltd. 12,183,334 48,992 -------------------------------------------------------------------------------------------------------------------- Apollo Hospitals Enterprise Ltd. 2,445,932 27,211 Apollo Hospitals Enterprise Ltd. (GDR) 467,600 5,170 -------------------------------------------------------------------------------------------------------------------- Bharat Electronics Ltd. 380,971 9,212 -------------------------------------------------------------------------------------------------------------------- Bharti Airtel Ltd. 32,420,261 178,422 -------------------------------------------------------------------------------------------------------------------- Cox and Kings Ltd. 4,202,697 9,928 Cox and Kings Ltd. (GDR) 453,204 1,067 -------------------------------------------------------------------------------------------------------------------- DLF Ltd. 9,608,793 34,500 -------------------------------------------------------------------------------------------------------------------- HDFC Bank Ltd. 7,335,905 74,466 HDFC Bank Ltd. (ADR) 8,000 261 -------------------------------------------------------------------------------------------------------------------- Housing Development Finance Corp. Ltd. 7,352,944 86,527 -------------------------------------------------------------------------------------------------------------------- ICICI Bank Ltd. 3,935,488 64,007 -------------------------------------------------------------------------------------------------------------------- <PAGE> Equity securities Shares Value (000) INDIA (CONTINUED) ICICI Bank Ltd. (ADR) 1,878,400 $ 60,879 -------------------------------------------------------------------------------------------------------------------- Infosys Ltd. 173,730 7,877 -------------------------------------------------------------------------------------------------------------------- Infrastructure Development Finance Co. Ltd. 9,615,654 23,710 -------------------------------------------------------------------------------------------------------------------- ITC Ltd. 1,730,680 8,060 -------------------------------------------------------------------------------------------------------------------- Jain Irrigation Systems Ltd.(2) 21,176,552 31,023 -------------------------------------------------------------------------------------------------------------------- Kotak Mahindra Bank Ltd. 8,891,847 95,003 -------------------------------------------------------------------------------------------------------------------- Multi Screen Media Private Ltd. (acquired 5/15/00, cost: $107,294,000)(1),(3) 284,195 23,512 -------------------------------------------------------------------------------------------------------------------- PTC India Financial Services Ltd.(1) 15,933,450 4,254 -------------------------------------------------------------------------------------------------------------------- Reliance Industries Ltd. 5,709,743 75,937 -------------------------------------------------------------------------------------------------------------------- Shopper's Stop Ltd. 1,071,363 6,589 -------------------------------------------------------------------------------------------------------------------- Sobha Developers Ltd. 3,594,606 21,938 -------------------------------------------------------------------------------------------------------------------- Sun Pharmaceutical Industries Ltd. 739,909 8,455 -------------------------------------------------------------------------------------------------------------------- United Spirits Ltd. 2,819,002 34,883 -------------------------------------------------------------------------------------------------------------------- VA Tech Wabag Ltd.(1),(2) 1,584,552 14,382 -------------------------------------------------------------------------------------------------------------------- 956,265 INDONESIA -- 2.3% PT Agung Podomoro Land Tbk 479,240,500 17,753 -------------------------------------------------------------------------------------------------------------------- PT Astra International Tbk 19,278,000 14,096 -------------------------------------------------------------------------------------------------------------------- PT Bank Mandiri (Persero) Tbk 118,168,824 91,469 -------------------------------------------------------------------------------------------------------------------- PT Bank Rakswyat Indonesia (Persero) Tbk 48,029,000 32,870 -------------------------------------------------------------------------------------------------------------------- PT Elang Mahkota Teknologi Tbk 49,762,000 23,179 -------------------------------------------------------------------------------------------------------------------- PT Indocement Tunggal Prakarsa Tbk 4,976,000 9,215 -------------------------------------------------------------------------------------------------------------------- PT Semen Gresik (Persero) Tbk 5,658,500 6,834 -------------------------------------------------------------------------------------------------------------------- PT Surya Citra Media Tbk 38,277,500 38,953 -------------------------------------------------------------------------------------------------------------------- PT Tower Bersama Infrastructure Tbk(1) 105,953,500 37,140 -------------------------------------------------------------------------------------------------------------------- 271,509 MALAYSIA -- 2.9% Bumi Armada Bhd. 64,192,600 81,202 -------------------------------------------------------------------------------------------------------------------- CIMB Group Holdings Bhd. 44,210,098 105,800 -------------------------------------------------------------------------------------------------------------------- Eastern & Oriental Bhd. 7,469,930 3,314 -------------------------------------------------------------------------------------------------------------------- Genting Bhd. 38,122,200 115,021 -------------------------------------------------------------------------------------------------------------------- IJM Corp. Bhd. 19,316,568 30,671 -------------------------------------------------------------------------------------------------------------------- Naim Cendera Holdings Bhd. 11,661,500 6,389 -------------------------------------------------------------------------------------------------------------------- StemLife Bhd.(2) 8,331,900 1,207 -------------------------------------------------------------------------------------------------------------------- 343,604 PAKISTAN -- 0.1% Oil and Gas Development Co. Ltd. (GDR) 775,826 13,169 -------------------------------------------------------------------------------------------------------------------- PHILIPPINES -- 1.0% Bayan Telecommunications Holdings Corp., Class A (acquired 2/12/98, cost: $1,850,000)(1),(3) 724,790 -- Bayan Telecommunications Holdings Corp., Class B (acquired 2/12/98, cost: $616,000)(1),(3) 241,431 -- -------------------------------------------------------------------------------------------------------------------- Energy Development Corp. 423,227,850 60,613 -------------------------------------------------------------------------------------------------------------------- International Container Terminal Services, Inc. 27,284,888 47,808 -------------------------------------------------------------------------------------------------------------------- Philippine Airlines, Inc. (acquired 3/31/97, cost: $0)(1),(3) 68,631,450 -- -------------------------------------------------------------------------------------------------------------------- Philippine Long Distance Telephone Co. 51,870 3,266 -------------------------------------------------------------------------------------------------------------------- SM Investments Corp. 288,450 5,014 -------------------------------------------------------------------------------------------------------------------- 116,701 SINGAPORE -- 0.7% CapitaRetail China Trust 8,476,000 8,784 -------------------------------------------------------------------------------------------------------------------- <PAGE> Value Shares (000) SINGAPORE (CONTINUED) Olam International Ltd. 17,054,868 $ 24,818 -------------------------------------------------------------------------------------------------------------------- Wilmar International Ltd. 15,767,420 45,329 -------------------------------------------------------------------------------------------------------------------- 78,931 SOUTH KOREA -- 11.3% Cheil Worldwide, Inc. 992,090 15,837 -------------------------------------------------------------------------------------------------------------------- Daum Communications Corp. 353,979 31,832 -------------------------------------------------------------------------------------------------------------------- Hana Financial Holdings 4,511,620 144,018 -------------------------------------------------------------------------------------------------------------------- Hankook Tire Co., Ltd. 1,195,190 47,497 -------------------------------------------------------------------------------------------------------------------- Hyundai Engineering & Construction Co., Ltd. 426,879 24,542 -------------------------------------------------------------------------------------------------------------------- Hyundai Mobis Co., Ltd. 590,878 143,037 -------------------------------------------------------------------------------------------------------------------- Hyundai Motor Co. 81,733 16,767 -------------------------------------------------------------------------------------------------------------------- KT Corp. 259,980 6,877 -------------------------------------------------------------------------------------------------------------------- LG Chem, Ltd. 286,452 74,086 -------------------------------------------------------------------------------------------------------------------- LG Household & Health Care Ltd. 87,992 47,415 -------------------------------------------------------------------------------------------------------------------- OCI Co., Ltd. 355,182 70,947 -------------------------------------------------------------------------------------------------------------------- Samsung C&T Corp. 1,243,671 71,760 -------------------------------------------------------------------------------------------------------------------- Samsung Electronics Co., Ltd. 73,595 78,027 Samsung Electronics Co., Ltd. (GDR) 639,548 343,179 -------------------------------------------------------------------------------------------------------------------- Shinhan Financial Group Co., Ltd. 953,176 33,175 -------------------------------------------------------------------------------------------------------------------- SK Hynix, Inc.(1) 9,129,300 192,971 -------------------------------------------------------------------------------------------------------------------- 1,341,967 TAIWAN -- 6.3% Advanced Semiconductor Engineering, Inc. 40,875,515 33,335 -------------------------------------------------------------------------------------------------------------------- ASUSTeK Computer, Inc. 7,185,980 66,472 -------------------------------------------------------------------------------------------------------------------- Compeq Manufacturing Co., Ltd.(2) 73,599,000 29,599 -------------------------------------------------------------------------------------------------------------------- CTCI Corp. 24,607,000 45,973 -------------------------------------------------------------------------------------------------------------------- Delta Electronics, Inc. 42,587,348 131,937 -------------------------------------------------------------------------------------------------------------------- Hon Hai Precision Industry Co., Ltd. 28,859,570 87,022 Hon Hai Precision Industry Co., Ltd. (GDR) 1,673,870 10,128 -------------------------------------------------------------------------------------------------------------------- HTC Corp. 699,704 9,200 -------------------------------------------------------------------------------------------------------------------- MediaTek, Inc. 1,743,000 16,153 -------------------------------------------------------------------------------------------------------------------- Synnex Technology International Corp. 24,111,268 58,971 -------------------------------------------------------------------------------------------------------------------- Taiwan Cement Corp. 4,347,000 5,186 -------------------------------------------------------------------------------------------------------------------- Taiwan Semiconductor Manufacturing Co., Ltd.(1) 70,550,568 193,106 -------------------------------------------------------------------------------------------------------------------- TPK Holding Co., Ltd. 331,744 4,198 -------------------------------------------------------------------------------------------------------------------- Tripod Technology Corp. 20,315,433 57,851 -------------------------------------------------------------------------------------------------------------------- 749,131 THAILAND -- 1.2% Advanced Info Service PCL 5,634,800 32,898 -------------------------------------------------------------------------------------------------------------------- Bangkok Bank PCL, nonvoting depository receipt 1,754,900 10,624 -------------------------------------------------------------------------------------------------------------------- Bank of Ayudhya PCL 50,080,500 47,715 Bank of Ayudhya PCL, nonvoting depository receipt 8,916,500 8,383 -------------------------------------------------------------------------------------------------------------------- Banpu PCL 277,188 3,930 Banpu PCL, nonvoting depository receipt 106,200 1,506 -------------------------------------------------------------------------------------------------------------------- Kasikornbank PCL, nonvoting depository receipt 3,394,100 17,404 -------------------------------------------------------------------------------------------------------------------- Siam Cement PCL, nonvoting depository receipt 2,503,300 24,981 -------------------------------------------------------------------------------------------------------------------- 147,441 EASTERN EUROPE AND MIDDLE EAST -- 12.7% CZECH REPUBLIC -- 0.3% CEZ AS 613,434 21,192 -------------------------------------------------------------------------------------------------------------------- <PAGE> Equity securities Value Shares (000) CZECH REPUBLIC (CONTINUED) Telefonica Czech Republic, AS 426,258 $ 8,145 -------------------------------------------------------------------------------------------------------------------- 29,337 HUNGARY -- 0.2% Magyar Telekom Telecommunications PLC 10,166,323 19,982 -------------------------------------------------------------------------------------------------------------------- ISRAEL -- 0.4% Bezeq - The Israel Telecommunication Corp. Ltd. 26,816,056 28,375 -------------------------------------------------------------------------------------------------------------------- Cellcom Israel Ltd. 1,181,533 7,237 -------------------------------------------------------------------------------------------------------------------- Partner Communications Co. Ltd. 1,605,304 6,473 Partner Communications Co. Ltd. (ADR) 112,000 453 -------------------------------------------------------------------------------------------------------------------- Shufersal Ltd. 3,233,940 7,827 -------------------------------------------------------------------------------------------------------------------- 50,365 OMAN -- 0.3% BankMuscat (SAOG) 1,402,850 2,160 BankMuscat (SAOG) (GDR) 6,148,303 37,560 -------------------------------------------------------------------------------------------------------------------- 39,720 POLAND -- 1.4% Bank Pekao SA 350,036 15,963 -------------------------------------------------------------------------------------------------------------------- Telekomunikacja Polska SA 30,698,012 143,513 -------------------------------------------------------------------------------------------------------------------- 159,476 RUSSIA -- 7.8% Baring Vostok Private Equity Fund, LP (acquired 12/15/00, cost: $6,693,000)(1),(2),(3),(4),(5) 11,783,118 42,946 Baring Vostok Private Equity Fund III, LP (acquired 3/30/05, cost: $18,593,000)(1),(2),(3),(4),(5) 22,698,434 45,349 Baring Vostok Private Equity Fund IV, LP (acquired 4/25/07, cost: $16,717,000)(1),(2),(3),(4),(5) 17,343,113 21,315 Baring Vostok Fund IV Supplemental Fund, LP (acquired 10/8/07, cost: $26,344,000)(1),(2),(3),(4),(5) 29,323,334 37,287 -------------------------------------------------------------------------------------------------------------------- Etalon Group Ltd. (GDR)(1) 2,969,916 16,222 -------------------------------------------------------------------------------------------------------------------- Global Ports Investments PLC (GDR) 801,841 10,967 Global Ports Investments PLC (GDR)(6) 1,984,210 27,140 -------------------------------------------------------------------------------------------------------------------- New Century Capital Partners, LP (acquired 12/7/95, cost: $951,000)(1),(3),(4) 5,247,900 2,437 -------------------------------------------------------------------------------------------------------------------- OAO Gazprom 1,334,000 6,270 OAO Gazprom (ADR) 25,731,995 243,582 -------------------------------------------------------------------------------------------------------------------- OAO Lukoil (ADR) 1,426,648 79,752 -------------------------------------------------------------------------------------------------------------------- OAO Mechel, preferred nominative 1,673,606 7,970 -------------------------------------------------------------------------------------------------------------------- OAO TMK (GDR) 670,893 8,074 -------------------------------------------------------------------------------------------------------------------- OJSC Bank Saint Petersburg, Class A, 13.50% convertible preferred May 15, 2013 3,968,399 8,580 -------------------------------------------------------------------------------------------------------------------- OJSC Kuzbasskaya Toplivnaya Co. 1,665,000 7,455 -------------------------------------------------------------------------------------------------------------------- OJSC Magnit 152,084 18,302 OJSC Magnit (GDR) 199,031 6,001 -------------------------------------------------------------------------------------------------------------------- OJSC Mining and Metallurgical Co. Norilsk Nickel (ADR) 797,354 13,211 -------------------------------------------------------------------------------------------------------------------- OJSC Pharmstandard (GDR)(1) 347,100 4,952 -------------------------------------------------------------------------------------------------------------------- OJSC Rostelecom 5,322,820 19,192 OJSC Rostelecom, preferred 1,628,200 4,117 OJSC Rostelecom (ADR) 1,511,727 33,031 -------------------------------------------------------------------------------------------------------------------- Sberbank of Russia 66,412,605 177,155 Sberbank of Russia (ADR) 228,141 2,482 -------------------------------------------------------------------------------------------------------------------- X5 Retail Group NV (GDR)(1) 939,434 21,526 -------------------------------------------------------------------------------------------------------------------- <PAGE> Value Shares (000) RUSSIA (CONTINUED) Yandex NV, Class A(1) 3,361,600 $ 64,039 -------------------------------------------------------------------------------------------------------------------- 929,354 SAUDI ARABIA -- 1.2% Almarai Co., PALMS issued by HSBC Bank plc, expires November 24, 2014 (acquired 3/20/12, cost: $34,321,000)(3) 2,035,067 34,592 -------------------------------------------------------------------------------------------------------------------- Etihad Etisalat Co., PALMS issued by Deutsche Bank, expires December 3, 2012 (acquired 3/21/11, cost: $97,841,000)(3) 6,836,583 112,107 -------------------------------------------------------------------------------------------------------------------- 146,699 TURKEY -- 0.7% Aktas Elektrik Ticaret AS(1) 4,273 -- -------------------------------------------------------------------------------------------------------------------- Coca-Cola Icecek AS, Class C 1,300,245 20,197 -------------------------------------------------------------------------------------------------------------------- Enka Insaat ve Sanayi AS 5,519,244 14,844 -------------------------------------------------------------------------------------------------------------------- Turk Telekomunikasyon AS, Class D 12,494,543 51,103 -------------------------------------------------------------------------------------------------------------------- 86,144 UNITED ARAB EMIRATES -- 0.4% DP World Ltd. 4,112,512 43,182 -------------------------------------------------------------------------------------------------------------------- LATIN AMERICA -- 11.2% ARGENTINA -- 0.0% Grupo Financiero Galicia SA, Class B 5 -- -------------------------------------------------------------------------------------------------------------------- BRAZIL -- 7.3% Anhanguera Educacional Participacoes SA, ordinary nominative 3,609,360 46,004 -------------------------------------------------------------------------------------------------------------------- Banco Bradesco SA, preferred nominative (ADR) 6,118,654 90,984 -------------------------------------------------------------------------------------------------------------------- Cia. de Concessoes Rodoviarias, ordinary nominative 17,140,800 139,362 -------------------------------------------------------------------------------------------------------------------- Cia. de Saneamento Basico do Estado de Sao Paulo - SABESP, ordinary nominative 394,100 15,109 Cia. de Saneamento Basico do Estado de Sao Paulo - SABESP (ADR) 252,827 19,179 -------------------------------------------------------------------------------------------------------------------- Cia. de Saneamento de Minas Gerais 1,142,600 24,746 -------------------------------------------------------------------------------------------------------------------- Cia. Energetica de Minas Gerais - CEMIG, preferred nominative 1,052,375 19,664 -------------------------------------------------------------------------------------------------------------------- Gerdau SA (ADR) 9,318,600 81,631 -------------------------------------------------------------------------------------------------------------------- Hypermarcas SA, ordinary nominative(1) 16,228,300 95,907 -------------------------------------------------------------------------------------------------------------------- Itau Unibanco Holding SA, preferred nominative (ADR) 1,053,064 14,659 -------------------------------------------------------------------------------------------------------------------- Itausa - Investimentos Itau SA, preferred nominative 12,053,186 51,009 -------------------------------------------------------------------------------------------------------------------- Mills Estruturas e Servicos de Engenharia SA, ordinary nominative 3,429,700 47,130 -------------------------------------------------------------------------------------------------------------------- Petroleo Brasileiro SA - Petrobras, ordinary nominative (ADR) 1,695,400 31,823 Petroleo Brasileiro SA - Petrobras, preferred nominative (ADR) 4,171,627 75,673 -------------------------------------------------------------------------------------------------------------------- QGEP Participacoes SA 7,958,500 29,044 -------------------------------------------------------------------------------------------------------------------- T4F Entretenimento SA, ordinary nominative 256,900 2,130 -------------------------------------------------------------------------------------------------------------------- Vale SA, Class A, preferred nominative (ADR) 1,732,624 33,804 -------------------------------------------------------------------------------------------------------------------- WEG SA, ordinary nominative 1,658,900 16,098 -------------------------------------------------------------------------------------------------------------------- Wilson Sons Ltd. (BDR) 1,882,300 28,584 -------------------------------------------------------------------------------------------------------------------- 862,540 CHILE -- 0.4% CorpBanca 70,588,425 891 -------------------------------------------------------------------------------------------------------------------- Enersis SA (ADR) 879,744 16,451 -------------------------------------------------------------------------------------------------------------------- Ripley Corp SA 31,811,944 30,007 -------------------------------------------------------------------------------------------------------------------- 47,349 MEXICO -- 3.3% Alsea, SAB de CV, Series A(1) 8,180,118 10,927 -------------------------------------------------------------------------------------------------------------------- Arca Continental, SAB de CV 8,444,950 49,088 -------------------------------------------------------------------------------------------------------------------- Banregio Grupo Financiero SAB de CV, Series O 4,486,550 13,221 -------------------------------------------------------------------------------------------------------------------- <PAGE> Equity securities Value Shares (000) MEXICO (CONTINUED) Bolsa Mexicana de Valores, SAB de CV, Series A 7,705,600 $ 15,198 -------------------------------------------------------------------------------------------------------------------- CEMEX, SAB de CV, ordinary participation certificates, units (ADR)(1) 7,265,548 48,897 -------------------------------------------------------------------------------------------------------------------- Corporacion Geo, SAB de CV, Class B(1) 1,688,400 1,909 -------------------------------------------------------------------------------------------------------------------- Grupo Comercial Chedraui, SAB de CV, Series B 11,184,200 30,057 -------------------------------------------------------------------------------------------------------------------- Grupo Famsa SAB de CV, Class A(1) 3,948,887 3,650 -------------------------------------------------------------------------------------------------------------------- Grupo Financiero Inbursa, SAB de CV 36,442,014 82,857 -------------------------------------------------------------------------------------------------------------------- Grupo Televisa, SAB de CV, ordinary participation certificates (ADR) 1,090,400 23,422 -------------------------------------------------------------------------------------------------------------------- Impulsora del Desarrollo y el Empleo en America Latina, SAB de CV, Series B-1(1) 50,587,000 85,287 -------------------------------------------------------------------------------------------------------------------- Kimberly-Clark de Mexico, SAB de CV, Series A 8,400,099 16,505 -------------------------------------------------------------------------------------------------------------------- Urbi Desarrollos Urbanos, SAB de CV(1) 12,181,874 11,707 -------------------------------------------------------------------------------------------------------------------- 392,725 PERU -- 0.2% Cia. de Minas Buenaventura SAA (ADR) 583,500 22,162 -------------------------------------------------------------------------------------------------------------------- Pesquera Exalmar SA 2,136,994 2,461 -------------------------------------------------------------------------------------------------------------------- 24,623 AFRICA -- 2.7% EGYPT -- 0.0% Orascom Construction Industries 49,742 2,077 -------------------------------------------------------------------------------------------------------------------- MOROCCO -- 0.1% Holcim (Maroc) SA 46,585 10,390 -------------------------------------------------------------------------------------------------------------------- SOUTH AFRICA -- 2.6% Anglo American Platinum Ltd. 195,626 11,650 -------------------------------------------------------------------------------------------------------------------- AngloGold Ashanti Ltd. 219,485 7,523 AngloGold Ashanti Ltd. (ADR) 1,403,697 48,203 -------------------------------------------------------------------------------------------------------------------- Barloworld Ltd. 4,008,615 39,778 -------------------------------------------------------------------------------------------------------------------- Harmony Gold Mining Co. Ltd. 5,343,955 50,158 Harmony Gold Mining Co. Ltd. (ADR) 3,041,813 28,593 -------------------------------------------------------------------------------------------------------------------- Impala Platinum Holdings Ltd. 1,305,239 21,706 -------------------------------------------------------------------------------------------------------------------- MTN Group Ltd. 838,470 14,494 -------------------------------------------------------------------------------------------------------------------- Royal Bafokeng Platinum Ltd.(1) 3,663,764 24,014 -------------------------------------------------------------------------------------------------------------------- Sappi Ltd.(1) 14,337,123 48,227 Sappi Ltd. (ADR)(1) 1,308,900 4,175 -------------------------------------------------------------------------------------------------------------------- South African Private Equity Fund III, LP (acquired 9/23/98, cost: $2,744,000)(2),(3),(4),(5) 27,594,065 2,313 -------------------------------------------------------------------------------------------------------------------- 300,834 OTHER MARKETS -- 8.0% AUSTRALIA -- 0.9% Oil Search Ltd. 15,360,356 104,807 -------------------------------------------------------------------------------------------------------------------- AUSTRIA -- 0.2% Vienna Insurance Group 708,593 28,628 -------------------------------------------------------------------------------------------------------------------- CANADA -- 0.9% Centerra Gold Inc. 6,112,400 42,747 -------------------------------------------------------------------------------------------------------------------- First Quantum Minerals Ltd. 1,285,000 22,719 -------------------------------------------------------------------------------------------------------------------- Inmet Mining Corp. 796,500 32,647 -------------------------------------------------------------------------------------------------------------------- <PAGE> Value Shares (000) CANADA (CONTINUED) Uranium One Inc.(1) 4,784,900 $ 12,172 -------------------------------------------------------------------------------------------------------------------- 110,285 ITALY -- 0.2% Tenaris SA (ADR) 480,200 16,793 -------------------------------------------------------------------------------------------------------------------- NETHERLANDS -- 0.3% Fugro NV 566,555 34,426 -------------------------------------------------------------------------------------------------------------------- SWITZERLAND -- 0.1% Dufry AG(1) 134,518 16,318 -------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM -- 3.8% Anglo American PLC 3,292,000 108,010 -------------------------------------------------------------------------------------------------------------------- Evraz PLC 6,136,326 25,113 -------------------------------------------------------------------------------------------------------------------- Gem Diamonds Ltd.(1) 296,355 911 -------------------------------------------------------------------------------------------------------------------- Glencore International PLC 9,248,100 42,964 -------------------------------------------------------------------------------------------------------------------- Lonrho PLC1 52,213,881 5,510 -------------------------------------------------------------------------------------------------------------------- Mondi PLC 9,486,942 81,340 -------------------------------------------------------------------------------------------------------------------- Petra Diamonds Ltd. (CDI)(1) 20,294,596 38,380 -------------------------------------------------------------------------------------------------------------------- Petropavlovsk PLC 1,426,018 10,230 -------------------------------------------------------------------------------------------------------------------- Platmin Ltd.(1) 16,963,500 2,249 -------------------------------------------------------------------------------------------------------------------- SABMiller PLC 670,691 26,940 -------------------------------------------------------------------------------------------------------------------- Standard Chartered PLC 2,327,100 50,733 -------------------------------------------------------------------------------------------------------------------- Tullow Oil PLC 2,506,507 57,861 -------------------------------------------------------------------------------------------------------------------- 450,241 UNITED STATES OF AMERICA -- 1.6% AutoNavi Holdings Ltd. (ADR)(1) 1,643,800 22,043 -------------------------------------------------------------------------------------------------------------------- Freeport-McMoRan Copper & Gold Inc. 589,210 20,074 -------------------------------------------------------------------------------------------------------------------- Genpact Ltd.(1) 5,995,763 99,710 -------------------------------------------------------------------------------------------------------------------- Sohu.com, Inc.(1) 970,200 43,310 -------------------------------------------------------------------------------------------------------------------- 185,137 MULTINATIONAL -- 0.3% Capital International Global Emerging Markets Private Equity Fund, LP (acquired 6/30/99, cost: $206,000)(1),(2),(3),(4),(5) 55,999,402 515 -------------------------------------------------------------------------------------------------------------------- Capital International Private Equity Fund IV, LP (acquired 3/29/05, cost: $28,530,000)(2),(3),(4),(5) 50,131,312 29,893 -------------------------------------------------------------------------------------------------------------------- International Hospital Corp. Holding NV (acquired 9/25/97, cost: $8,011,000)1,2,3 609,873 1,806 International Hospital Corp. Holding NV, Class B, convertible preferred (acquired 2/12/07, cost: $3,504,000)(1),(2),(3) 622,354 1,842 -------------------------------------------------------------------------------------------------------------------- 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) 3,810,369 388 -------------------------------------------------------------------------------------------------------------------- Pan-African Investment Partners II Ltd., Class A (acquired 6/20/08 cost: $13,932,000)(2),(3),(4),(5) 3,800 5,469 -------------------------------------------------------------------------------------------------------------------- 39,941 MISCELLANEOUS -- 4.8% Equity securities in initial period of acquisition 573,203 -------------------------------------------------------------------------------------------------------------------- TOTAL EQUITY SECURITIES (COST: $10,582,734,000) 11,165,412 <PAGE> Principal amount Value Bonds and notes (000) (000) EASTERN EUROPE AND MIDDLE EAST -- 0.1% RUSSIA -- 0.1% OAO TMK 5.25% convertible, February 11, 2015 $ 9,400 $ 9,264 -------------------------------------------------------------------------------------------------------------------- LATIN AMERICA -- 0.1% MEXICO -- 0.1% CEMEX, SAB de CV, 4.875% convertible, March 15, 2015 10,384 9,216 -------------------------------------------------------------------------------------------------------------------- TOTAL BONDS AND NOTES (COST: $20,544,000) 18,480 Short-term securities -------------------------------------------------------------------------------------------------------------------- CORPORATE SHORT-TERM NOTES -- 4.2% -------------------------------------------------------------------------------------------------------------------- Bank of Nova Scotia 0.08%-0.15% due 7/2- 7/10/12 113,700 113,699 -------------------------------------------------------------------------------------------------------------------- National Australia Funding Delaware, Inc. 0.07% due 7/2/12 49,000 49,000 -------------------------------------------------------------------------------------------------------------------- NetJets, Inc. 0.15% due 8/2/12 26,200 26,197 -------------------------------------------------------------------------------------------------------------------- Novartis Securities Investment Ltd. 0.15% due 8/2-8/3/12 49,000 48,993 -------------------------------------------------------------------------------------------------------------------- Siemens Capital Co. LLC 0.13%-0.14% due 7/9/12 95,700 95,697 -------------------------------------------------------------------------------------------------------------------- Sumitomo Mitsui Banking Corp. 0.17% due 7/9/12 23,500 23,499 -------------------------------------------------------------------------------------------------------------------- Thunder Bay Funding LLC 0.15% due 7/9/12 97,877 97,873 -------------------------------------------------------------------------------------------------------------------- Toronto-Dominion Holdings USA, Inc. 0.15% due 7/9/12 44,200 44,198 -------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (COST: $499,158,000) 499,156 TOTAL INVESTMENT SECURITIES (COST: $11,102,436,000) 11,683,048 OTHER ASSETS LESS LIABILITIES (including forward currency contracts) 168,326 ------------ NET ASSETS $11,851,374 ============ <PAGE> (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) Acquired through a private placement transaction exempt from registration under the Securities Act of 1933. These securities, acquired at a cost of $368,306,000, may be subject to legal or contractual restrictions on resale. The total value of all such securities was $361,799,000, which represented 3.05% of the net assets of the fund. (4) Cost and market value do not include prior distributions to the fund from income or proceeds realized from securities held by the private equity fund. Therefore, the cost and market value may not be indicative of the private equity fund's performance. For private equity funds structured as limited partnerships, shares are not applicable and therefore the fund's interest in the partnerships is reported. (5) Excludes an unfunded capital commitment representing an agreement which obligates the fund to meet capital calls in the future. Capital calls can only be made if and when certain requirements have been fulfilled; thus, the timing and the amount of such capital calls cannot readily be determined. (6) Acquired in a transaction exempt from registration under Rule 144A or section 4(2) of the Securities Act of 1933 (not including purchases of securities that were publicly offered in the primary local market but were not registered under U.S. securities laws). May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $27,140,000, which represented 0.23% of the net assets of the fund. 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 <PAGE> Financial Statements STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 2012 (dollars in thousands, except per-share data) -------------------------------------------------------------------------------------------------------------------------- ASSETS: Investment securities, at value: Unaffiliated issuers (cost: $10,809,493)............................................ $ 11,401,911 Affiliated issuers (cost: $292,943)................................................. 281,137 $ 11,683,048 ------------ Cash.................................................................................. 148 Cash denominated in non-U.S. currency (cost: $2,743).................................. 2,754 Unrealized appreciation on open forward currency contracts............................ 1,032 Receivables for - Sales of investments................................................................ 116,747 Sales of fund's shares.............................................................. 16,725 Dividends and interest.............................................................. 109,125 Non-U.S. taxes...................................................................... 875 243,472 ------------ ------------ 11,930,454 ------------ LIABILITIES: Unrealized depreciation on open forward currency contracts............................ 13,451 Payables for - Purchases of investments............................................................ 56,961 Investment advisory services........................................................ 6,063 Directors' compensation............................................................. 1,736 Other fees and expenses............................................................. 869 65,629 ------------ ------------ 79,080 ------------ NET ASSETS AT JUNE 30, 2012 - Equivalent to $7.39 per share on 1,603,051,308 shares of $0.01 par value capital stock outstanding (authorized capital stock - 2,000,000,000 shares)................... $ 11,851,374 ============ NET ASSETS CONSIST OF: Capital paid in on shares of capital stock............................................ $ 11,328,474 Undistributed net investment income................................................... 147,027 Accumulated net realized loss......................................................... (191,753) Net unrealized appreciation........................................................... 567,626 ------------ NET ASSETS AT JUNE 30, 2012.............................................................. $ 11,851,374 ============ See Notes to financial statements <PAGE> Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2012 (dollars in thousands) -------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Income: Dividends (net of non-U.S. withholding tax of $25,112; also includes $6,768 from affiliates)................................................................... $ 373,694 Interest (net of non-U.S. withholding tax of $34; also includes $800 from affiliates)........................................................................ 3,083 $ 376,777 ------------ Fees and expenses: Investment advisory services........................................................ 85,331 Custodian........................................................................... 5,239 Registration statement and prospectus............................................... 35 Auditing and legal.................................................................. 401 Reports to shareholders............................................................. 13 Directors' compensation............................................................. 641 Other............................................................................... 3,352 ------------ Total expenses before expense reduction............................................. 95,012 Custodian expense reduction....................................................... 3 95,009 ------------ ------------ Net investment income................................................................. 281,768 ------------ NET REALIZED GAIN AND UNREALIZED DEPRECIATION ON INVESTMENTS, FORWARD CURRENCY CONTRACTS AND CURRENCY: Net realized gain (loss) on: Investments (net of non-U.S. taxes of $2,612)....................................... (52,038) Forward currency contracts.......................................................... 102,590 Currency transactions............................................................... (12,563) 37,989 ------------ Net unrealized depreciation on: Investments ....................................................................... (3,847,101) Forward currency contracts.......................................................... (1,619) Currency translations............................................................... (2,885) (3,851,605) ------------ Net realized gain and unrealized depreciation on investments, forward currency contracts and currency.......................................................... (3,813,616) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS..................................... $ (3,531,848) ============ See Notes to financial statements <PAGE> Financial Statements -------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (dollars in thousands) -------------------------------------------------------------------------------------------------------------------------- Year ended June 30, ------------------------ 2012 2011 ----------- ----------- OPERATIONS: Net investment income................................................................. $ 281,768 $ 260,602 Net realized gain on investments, forward currency contracts and currency transactions. 37,989 1,145,434 Net unrealized (depreciation) appreciation on investments, forward currency contracts and currency translations.................................................. (3,851,605) 1,758,377 ----------- ----------- Net (decrease) increase in net assets resulting from operations..................... (3,531,848) 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: 129,703,922 and 182,743,001 shares, respectively........... 1,037,532 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: 305,894,059 and 99,158,150 shares, respectively........... (2,464,236) (967,497) ----------- ----------- Net increase (decrease) in net assets resulting from capital share transactions..... (809,199) 1,059,862 ----------- ----------- TOTAL (DECREASE) INCREASE IN NET ASSETS.................................................. (4,975,166) 3,948,342 NET ASSETS: Beginning of year..................................................................... 16,826,540 12,878,198 ----------- ----------- End of year (including undistributed net investment income and distributions in excess of net investment income: $147,027 and $(18,085), respectively)............ 11,851,374 16,826,540 =========== =========== See Notes to financial statements <PAGE> 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 Capital International, Inc., the fund's investment adviser, values the fund's investments at fair value as defined by accounting principles generally accepted in the United States of America. The net asset value of the fund is generally determined 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. <PAGE> METHODS AND INPUTS - The fund's investment adviser uses the following methods and inputs to establish the fair value of the fund's 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 including depositary receipts 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 on 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; Standard inputs and underlying equity of the issuer convertible securities ------------------------- ------------------------------------------------------ The fund's investment adviser performs certain checks on vendor prices prior to calculation of the fund's net asset value. When the fund's 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 ask prices that are reasonably and timely available (or bid prices, if ask 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 fund's 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. Forward currency contracts are valued at the mean of representative quoted bid and ask prices, generally based on prices supplied by one or more vendors. <PAGE> Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the fund's investment adviser are fair valued as determined in good faith under fair value guidelines adopted by authority of the fund's board of directors as further described below. The investment adviser follows fair valuation guidelines, consistent with U.S. Securities and Exchange Commission ("SEC") rules and guidance, to consider relevant principles and factors when making fair value determinations. The investment adviser considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as 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. In addition, the closing prices of equity securities that trade in markets outside U.S. time zones may be adjusted to reflect significant events that occur after the close of local trading but before the net asset value of the fund is determined. 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. PROCESSES AND STRUCTURE - The fund's board of directors has delegated authority to the fund's investment adviser to make fair value determinations, subject to board oversight. The investment adviser has established a Joint Fair Valuation Committee (the "Fair Valuation Committee") to administer, implement and oversee the fair value process, and to make fair value decisions. The Fair Valuation Committee regularly reviews its own fair value decisions, as well as decisions made under its standing instructions to the investment adviser's valuation teams. The Fair Valuation Committee reviews changes in fair value measurements from period to period, and may, as deemed appropriate, update the fair valuation guidelines to better reflect the results of back testing and address new or evolving issues. The Fair Valuation Committee reports any changes to the fair value guidelines to the audit committee with supplemental information to support the changes. The fund's audit committee also regularly reviews reports that describe fair value determinations and methods. The fund's investment adviser has also established a Fixed-Income Pricing Review Group to administer and oversee the fixed-income valuation process, including the use of fixed-income pricing vendors. This group regularly reviews pricing vendor information and market data. Pricing decisions, processes and controls over security valuation are also subject to internal reviews including an annual control self-evaluation program facilitated by the investment adviser's compliance group. <PAGE> CLASSIFICATIONS - The fund's investment adviser classifies the fund's 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 investment adviser'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 tables present the fund's valuation levels as of June 30, 2012 (dollars in thousands): INVESTMENT SECURITIES ------------------------------------------------------------------- LEVEL 1 LEVEL 2(1) LEVEL 3(1) TOTAL ------------------------------------------------------------------- Assets: Equity securities: Asia-Pacific................................ $ 145,577 $ 6,291,723 $ 23,536 $ 6,460,836 Eastern Europe and Middle East.............. 101,805 1,253,120 149,334 1,504,259 Latin America............................... 1,324,776 2,461 - 1,327,237 Other markets............................... 393,185 862,189 44,503 1,299,877 Miscellaneous.................................. 387,299 157,322 28,582 573,203 Bonds and notes................................ - 18,480 - 18,480 Short-term securities.......................... - 499,156 - 499,156 ------------------------------------------------------------------- Total $ 2,352,642 $ 9,084,451 $ 245,955 $ 11,683,048 =================================================================== OTHER INVESTMENTS(2) ------------------------------------------------------------------- LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------- Assets: Unrealized appreciation on open forward currency contracts $ - $ 1,032 $ - $ 1,032 Liabilities: Unrealized depreciation on open forward currency contracts - (13,451) - (13,451) ------------------------------------------------------------------- Total $ - $ (12,419) $ - $ (12,419) =================================================================== (1) Level 2 and Level 3 include investment securities with an aggregate value of $8,812,770,000 that were fair valued under guidelines adopted by authority of the fund's board of directors. Of this amount, securities with an aggregate value of $8,360,689,000 were fair valued as a result of significant market movements following the close of local trading and, therefore, classified as Level 2. (2) Forward currency contracts are not included in the investment portfolio. <PAGE> The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions during the year ended June 30, 2012 (dollars in thousands): Gross Gross Begining transfers transfers Ending value at into Net Net Unrealized out of value at 7/1/2011 Level 3(3) Purchases Sales realized gain(4) depreciation(4) Level 3(3) 6/30/2012 ==================================================================================================================== Private Equity Funds $ 250,675 $ - $ 11,556 $ (32,945) $ 28,002 $ (69,348) $ - $ 187,940 Other Securities(5) 40,845 23,564 28,573 (1,553) (25,042) 4,591 (12,963) 58,015 ==================================================================================================================== Total $ 291,520 $ 23,564 $ 40,129 $ (34,498) $ 2,960 $ (64,757) $ (12,963) $ 245,955 ==================================================================================================================== Net unrealized depreciation during the period on Level 3 investment securities held at June 30, 2012 (dollars in thousands): $ (75,641) ========= (3) Transfers into and out of Level 3 are based on the beginning market value of the quarter in which they occurred. (4) Net realized gain and unrealized depreciation are included in the related amounts on investments in the statement of operations. (5) Represents less than 1% of portfolio securities as of June 30, 2012. The fund owns an interest in multiple private equity funds, which are considered alternative investments and are classified as Level 3 investments in accordance with accounting principles generally accepted in the United States of America. The private equity funds are fair valued using the net asset value based on the fund's financial statements adjusted for known company or market events, updated market pricing for underlying securities, and/or fund transactions (i.e., drawdowns and distributions) and may include unobservable inputs. The significant unobservable inputs used in the fair value measurements of the reporting entity's private equity funds are directional adjustments based on relevant market data (such as significant movement of a country-specific exchange-traded fund or index after the financial statement date of the private equity fund). Significant increases (decreases) of these inputs could result in significantly higher (lower) fair value measurements. There were no significant unobservable inputs as of June 30, 2012. The following table lists the characteristics of the alternative investments held by the fund as of June 30, 2012 (dollars in thousands): <PAGE> ------------------ ---------------- -------------- ------------------ ----------------- ------------------ Investment Fair Unfunded Investment type strategy Value commitment* Remaining life+ Redemption terms ------------------ ---------------- -------------- ------------------ ----------------- ------------------ Private equity Primarily $187,940 $45,008 (less than or Redemptions are funds private sector equal to) 1 to 6 not permitted. equity years These funds investments distribute (i.e., proceeds from the expansion liquidation of capital, underlying assets buyouts) in of the funds. emerging markets ------------------ ---------------- -------------- ------------------ ----------------- ------------------ *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. +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. MARKET CONDITIONS - The prices of, and the income generated by, the common stocks and other securities held by the fund may decline due to market conditions and other factors, including those directly involving the issuers of securities held by the fund. INVESTING IN GROWTH-ORIENTED STOCKS - Growth-oriented stocks may involve larger price swings and greater potential for loss than other types of investments. These risks may be even greater in the case of smaller capitalization stocks. INVESTING OUTSIDE THE UNITED STATES - Securities of issuers domiciled outside the United States, or with significant operations outside the United States, may lose value because of political, social, economic or market developments in the countries or regions in which the issuer operates. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Securities markets in certain countries may be more volatile and/or less liquid than those in the United States. Investments outside the United States may also be subject to different settlement and accounting practices and different regulatory, legal and reporting standards, and may be more difficult to value, than those in the United States. The risks of investing outside the United States may be heightened in connection with investments in developing countries. <PAGE> INVESTING IN DEVELOPING COUNTRIES - Investing in countries with developing economies and/or markets may involve risks in addition to and greater than those generally associated with investing in developed countries. For instance, developing countries may have less developed legal and accounting systems than those in developed countries. The governments of these countries may be more unstable and more likely to impose capital controls, nationalize a company or industry, place restrictions on foreign ownership and on withdrawing sale proceeds of securities from the country, and/or impose punitive taxes that could adversely affect the prices of securities. In addition, the economies of these countries may be dependent on relatively few industries that are more susceptible to local and global changes. Securities markets in these countries can also be relatively small and have substantially lower trading volumes. As a result, securities issued in these countries may be more volatile and less liquid, and may be more difficult to value, than securities issued in countries with more developed economies and/or markets. Additionally, there may be increased settlement risks for transactions in local securities. MANAGEMENT - The investment adviser to the fund actively manages the fund's investments. Consequently, the fund is subject to the risk that the methods and analyses employed by the investment adviser in this process may not produce the desired results. This could cause the fund to lose value or its investment results to lag relevant benchmarks or other funds with similar objectives. 5. TAXATION AND DISTRIBUTIONS FEDERAL INCOME TAXATION - The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to regulated investment companies and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required. As of and during the year ended June 30, 2012, 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 2008, by state authorities for tax years before 2007 and by tax authorities outside the U.S. for tax years before 2005. 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 June 30, 2012, 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; short-term capital gains and losses; and income on certain investments. <PAGE> The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes. For the year ended June 30, 2012, the tax characters of distributions paid to shareholders were ordinary income and long-term capital gain in the amounts of $200,248,000 and $433,871,000, respectively. For the year ended June 30, 2011, the tax character of the distribution paid to shareholders was ordinary income in the amount of $275,933,000. During the year ended June 30, 2012, the fund reclassified $90,126,000 from accumulated net realized loss to undistributed net investment income and $6,534,000 from undistributed net investment income to capital paid in on shares of capital stock to align financial reporting with tax reporting. As of June 30, 2012, the components of distributable earnings on a tax basis were as follows: (dollars in thousands) -------------------------------------------------------------------------------------------- -------------------- Undistributed ordinary income $ 214,570 Post-October capital loss deferrals (realized during the period November 1, 2011, through June 30, 2012)* (88,639) -------------------------------------------------------------------------------------------- -------------------- * These deferrals are considered incurred in the subsequent year. As of June 30, 2012, the tax basis unrealized appreciation (depreciation) and cost of investments were as follows: (dollars in thousands) Gross unrealized appreciation on investment securities $ 2,042,422 Gross unrealized depreciation on investment securities (1,643,428) Net unrealized appreciation on investment securities 398,994 -------------------------------------------------------------------------------------------- -------------------- Cost of investment securities 11,284,054 -------------------------------------------------------------------------------------------- -------------------- 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 Companiessm, 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. <PAGE> 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 - 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 $1,051,000 in current fees (either paid in cash or deferred) and a net decrease of $410,000 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 June 30, 2012, the total value of restricted securities was $361,799,000, which represents 3.05% 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 $5,273,456,000 and $6,453,616,000, respectively, during the year ended June 30, 2012. The fund receives an expense reduction in its custodian fee equal to the amount of interest calculated on certain cash balances held at the custodian bank. For the year ended June 30, 2012, the custodian fee of $5,239,000 was reduced by $3,000. 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 year ended June 30, 2012, is as follows: <PAGE> Dividend and interest Beginning Purchases/ Sales/ Ending income Value Issuer shares Additions Reductions shares (000) (000) ---------------------------------------------------- ------------- ------------- ------------- ------------- ---------- ------------ AFFILIATED ISSUERS: Compeq Manufacturing 73,599,000 - - 73,599,000 983 $ 29,599 Jain Irrigation Systems 14,740,760 6,435,792 - 21,176,552 375 31,023 Shanda Games 1,916,900 2,026,900 - 3,943,800 4,023 15,775 StemLife 8,331,900 - - 8,331,900 26 1,207 VA Tech Wabag 633,821 950,731 - 1,584,552 - 14,382 AFFILIATED PRIVATE EQUITY FUNDS/PRIVATE PLACEMENTS: Baring Vostok Private Equity Fund* 11,783,118 - - 11,783,118 - 42,946 Baring Vostok Private Equity Fund III* 22,047,564 650,870 - 22,698,434 - 45,349 Baring Vostok Capital Partners IV* 38,746,859 7,919,588 - 46,666,447 - 58,602 Capital International Global Emerging Markets Private Equity Fund* 55,999,402 - - 55,999,402 - 515 Capital International Private Equity Fund IV* 49,194,744 936,568 - 50,131,312 1,311 29,893 International Hospital 1,232,227 - - 1,232,227 - 3,648 New Asia East Investment Fund 4,089,609 - - 4,089,609 - 416 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 2,313 ---------- ------------ $ 7,568 $ 281,137 ========== ============ *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's investment adviser uses forward currency contracts to manage the fund's 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's investment adviser values forward currency contracts based on the applicable exchange rates and records unrealized appreciation or depreciation for open forward currency contracts in the fund's statement of assets and liabilities. Realized gains or losses are recorded 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 fund's 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 June 30, 2012, the fund had open forward currency contracts to sell currencies, as shown in the following table. Open forward currency contracts throughout the year were generally at or lower than the amounts presented below (as a percentage of the fund's total net assets). <PAGE> CONTRACT AMOUNT U.S. VALUATION (000) (000) ------------------------ -------------------------- UNREALIZED (DEPRECIATION)/ COUNTERPARTY NON-U.S. U.S. AMOUNT APPRECIATION ------------------------------------------------------------------------------------------------------------------------------ SALES: Brazilian Real to U.S. Dollar expiring 7/27/2012 .Bank of America BRL225,003 $ 107,863 $ 111,440 $ (3,577) British Pound to U.S. Dollar expiring 7/23/2012 ..Bank of New York Mellon GBP88,616 139,339 138,779 560 British Pound to U.S. Dollar expiring 7/23/2012 ..Bank of New York Mellon GBP72,447 112,854 113,457 (603) Canadian Dollar to U.S. Dollar expiring 7/13/2012 Royal Bank of Scotland CAD102,361 99,236 100,519 (1,283) Euro to U.S. Dollar expiring 7/18/2012 ...........Bank of America EUR29,237 36,785 37,003 (218) Euro to U.S. Dollar expiring 7/20/2012 ...........Bank of New York Mellon EUR23,113 29,135 29,253 (118) Euro to U.S. Dollar expiring 7/27/2012 ...........JPMorgan Chase EUR7,680 9,605 9,721 (116) Hungarian Forint to U.S. Dollar expiring Royal Bank of Scotland 7/13/2012 ...................................... HUF4,125,478 17,329 18,245 (916) Israeli Shekel to U.S. Dollar expiring 7/11/2012 .UBS AG ILS164,615 42,555 42,083 472 Mexican Peso to U.S. Dollar expiring 7/25/2012 ...UBS AG MXN697,160 50,727 52,147 (1,420) Polish Zloty to U.S. Dollar expiring 7/13/2012 ...Bank of America PLN43,297 12,488 12,980 (492) Polish Zloty to U.S. Dollar expiring 7/13/2012 ...UBS AG PLN234,245 67,320 70,221 (2,901) South African Rand to U.S. Dollar expiring JPMorgan Chase 7/26/2012 ........................................ ZAR557,000 66,296 67,893 (1,597) Credit Suisse First Swiss Franc to U.S. Dollar expiring 7/18/2012 .... Boston CHF13,501 14,137 14,230 (93) Turkish Lira to U.S. Dollar expiring 7/23/2012 ...Bank of America TRY49,892 27,343 27,460 (117) ------------ FORWARD CURRENCY CONTRACTS -- NET................. $ (12,419) ============ <PAGE> Financial highlights Year ended June 30 ----------------------------------------------- 2012 2011 2010 2009 2008 ----------------------------------------------- Net asset value, beginning of year................................. $9.93 $8.13 $6.72 $12.95 $17.02 -------- ------- ------- -------- ------- INCOME (LOSS) FROM INVESTMENT OPERATIONS*: Net investment income........................................... .17 .16 .15 .18 .39 Net realized and unrealized (loss) gain on investments (2.33) 1.81 1.39 (4.09) .68 -------- ------- ------- -------- ------- Total (loss) income from investment operations.................. (2.16) 1.97 1.54 (3.91) 1.07 -------- ------- ------- -------- ------- LESS DISTRIBUTIONS: Dividends from net investment income............................ (.12) (.17) (.13) (.23) (.59) Distributions from net realized gains........................... (.26) -- -- (2.09) (4.55) -------- ------- ------- -------- ------- Total distributions............................................ (.38) (.17) (.13) (2.32) (5.14) -------- ------- ------- -------- ------- Net asset value, end of year....................................... $7.39 $9.93 $8.13 $6.72 $12.95 ======== ======= ======= ======== ======= Total return....................................................... (21.69)% 24.29% 22.83% (23.08)% 3.78% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in millions)............................ $11,851 $16,827 $12,878 $10,830 $13,925 Ratio of expenses to average net assets.......................... .68% .68% .71% .71% .67% Ratio of net investment income to average net assets............. 2.02% 1.65% 1.86% 2.49% 2.47% Portfolio turnover rate.......................................... 39.30% 40.66% 49.38% 67.91% 57.50% * The per-share data is based on average shares outstanding.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Emerging Markets Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Emerging Markets Growth Fund, Inc. (the “Fund”) at June 30, 2012, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Los Angeles, California
August 20, 2012
Expense example | unaudited |
As a shareholder of the fund, you incur ongoing costs, including investment advisory services fees and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2012 through June 30, 2012).
Actual expenses:
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes:
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning account value 1/1/2012 | Ending account value 6/30/2012 | Expenses paid during period* | Annualized expense ratio | |||||
Actual return | $1,000.00 | $1,004.08 | $3.39 | .68% | ||||
Hypothetical 5% return before expenses | 1,000.00 | 1,021.48 | 3.42 | .68 |
* The “expenses paid during period” are equal to the “annualized expense ratio”, multiplied by the average account value over the period, multiplied by the number of days in the period, and divided by 366 (to reflect the current period).
Tax information | unaudited |
We are required to advise you of the federal tax status of certain distributions received by shareholders during the fiscal year. The fund hereby designates the following amounts for the fund’s fiscal year ended June 30, 2012:
Foreign taxes | $0.02 per share |
Foreign source income | $0.25 per share |
Qualified dividend income | 100% |
Individual shareholders should refer to their Form 1099-DIV or other tax information, which will be mailed in January 2013, to determine the calendar year amounts to be included on their 2012 tax returns. Shareholders should consult their tax advisers.
Approval of renewal of Investment Advisory and Service Agreement
The fund’s board of directors has approved the renewal of the fund’s Investment Advisory and Service Agreement (the agreement) with Capital International, Inc. (CII) for an additional one-year term through June 20, 2013, following the recommendation of the fund’s Contracts Committee (the committee), which is composed of all of the fund’s independent directors. The information, material factors and the conclusions that formed the basis for the committee’s recommendation and the board’s subsequent approval are described below.
1. Information received
Materials reviewed
During the course of each year, the independent directors receive a wide variety of materials relating to the services provided by CII, including reports on the fund’s investment results, portfolio composition, sales and redemptions, as well as other information relating to the nature, extent and quality of the services provided by CII to the fund. In addition, supplementary information requested and reviewed by the committee included extensive materials regarding the fund’s investment results, advisory fee and expense comparisons, financial and profitability information regarding CII, descriptions of various functions such as compliance monitoring and portfolio trading practices, and information about the personnel providing investment management and administrative services to the fund.
Review process
The committee received assistance and advice regarding legal and industry standards from independent legal counsel to the independent directors. The committee discussed the renewal of the agreement with CII representatives and in a private session with independent counsel at which no CII representatives were present. In deciding to recommend renewal, the committee did not identify any specific piece of information or any single factor that was controlling. This summary describes the most important factors, but not all of the matters considered.
2. Nature, extent and quality of services
CII, its personnel and its resources
The board and the committee considered the depth and quality of CII’s investment management process, including: its global research capabilities; the experience, capability and integrity of its senior management and other personnel; and the low turnover rates of its key personnel. The board and the committee considered CII’s commitment to research and its multiple portfolio manager system, noting that CII continues to expend considerable effort to enhance its investment process and research coverage.
Other services
The board and the committee considered CII’s policies, procedures and systems designed to comply with applicable laws and regulations and its commitment to compliance; its efforts to keep the directors informed; and its attention to matters that may involve conflicts of interest with the fund. The board and the committee also considered the nature, extent, quality and cost of administrative and shareholder services provided by CII to the fund under the agreement and other agreements, including information technology, legal, fund accounting and treasury functions. The board and the committee concluded that they were satisfied with the nature, extent and quality of the investment advisory services to be provided to the fund under the agreement.
3. Investment results
The board and the committee reviewed the investment results of the fund as of December 31, 2011, and compared them to those of the fund’s benchmark, as well as to those of a selected group of funds with a similar investment mandate. The board and the committee reviewed the fund’s short-term and long-term investment results both in absolute terms and relative to its benchmark and the selected funds. The directors noted that although the fund had recently underperformed its benchmark, the fund’s long-term results have generally exceeded its benchmark. The directors also noted that although the fund’s recent returns had lagged the performance of the selected funds, the fund’s long-term performance was generally in line with, and in some cases exceeded, the long-term performance of the selected funds. The board and the committee concluded that although recent results have lagged, long-term results have generally been satisfactory, and the board and the committee remain confident in CII’s ability to achieve superior long-term results over time.
4. Advisory fees and total expenses
The board and the committee compared the advisory fees and total expenses of the fund (as a percentage of average net assets) with the fees and expenses of comparable investment companies managed by CII and of other comparable third-party funds, as well as emerging market equity investment management fees charged to separate accounts advised by CII and other managers. This information allowed the board and the committee to compare the fund’s advisory fees with advisory fees charged to both retail and institutional investors in emerging market equity mandates. The board and the committee also discussed information obtained from third-party sources regarding advisory rates for emerging market equity mandates. The board and the committee considered these materials, as well as their personal knowledge of advisory fee rates charged by other emerging market equity funds. The board and the committee concluded that the fees charged under the agreement are significantly lower than fees charged by comparable retail mutual funds with emerging market equity mandates and are reasonable when compared with the fees institutional investors are typically charged in emerging market equity mandates.
5. Adviser costs, level of profits and economies of scale
The board and the committee reviewed information regarding CII’s costs of providing services to the fund and its other institutional clients, and also reviewed the economics of the relationship between CII and the fund and any resulting level of profits to CII. The board and the committee noted operational restructuring efforts undertaken by CII designed to reduce its expenses and improve its effectiveness and efficiency. The board and the committee considered the current and historic financial stability of CII’s parent company. The board and the committee also considered that pursuant to the fee schedule charged under the agreement, fees decline as the fund’s assets increase, reflecting economies of scale in the cost of operations that are shared with investors. The board and the committee also noted that long-term economies of scale are reflected in the fund’s expense ratio, which has historically decreased as assets under management have grown, and vice versa. The board and the committee concluded that CII’s profitability from its relationship with the fund over the long term was reasonable, and that the fund’s fee and expense levels reflect economies of scale that benefit investors.
6. Ancillary benefits
The board and the committee considered the benefits received by CII and its affiliates as a result of CII’s relationship with the fund, including fees paid to CII’s affiliated transfer agent, and possible ancillary benefits received by the fund in connection with the activities of CII or its affiliates, which are not directly related to the fund. The board and the committee also reviewed CII’s portfolio trading practices, noting that while CII receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the fund, it has not committed to direct any specific dollar amounts of brokerage to these broker-dealers in exchange for such research, and does not give preference to broker-dealers that have sold shares of investment companies advised by it or its affiliates.
7. Conclusions
Based on their review, including their consideration of each of the factors referred to above, the board and the committee concluded that the agreement should be continued for another one-year period.
Board of directors and other officers
“Independent” directors1 | ||
Year first | ||
elected a | ||
Name, age and | director of | |
position with fund | the fund2 | Principal occupation(s) during past five years |
Walter G. Borst, 50 | 2010 | Chairman, Chief Executive Officer, President and |
Chief Investment Officer, General Motors Investment | ||
Management Corporation; Vice President and | ||
Treasurer, General Motors Company; Treasurer, | ||
General Motors Corporation | ||
Gary Bruebaker, 57 | 2011 | Chief Investment Officer, Washington State |
Investment Board | ||
Paul N. Eckley, 57 | 2005 | Senior Vice President, Investments, State Farm |
Insurance Companies | ||
Beverly L. Hamilton, 65 | 1991 | Retired; former President, ARCO Investment |
Chairman of the Board | Management Company | |
(Independent and | ||
Non-Executive) | ||
Raymond Kanner, 59 | 1997 | Managing Director and Chief Investment Officer, |
IBM Retirement Funds | ||
L. Erik Lundberg, 52 | 2005 | Chief Investment Officer, University of Michigan |
Helmut Mader, 70 | 1986 | Managing Director, Mader Capital Resources GmbH |
Vice Chairman of the Board | ||
(Independent and | ||
Non-Executive) | ||
William B. Robinson, 74 | 1986 | Director, Reckson Asset Management Australia |
Limited; former Director, Unwired Australia Group | ||
Limited (Internet service provider) | ||
John P. Rohal, 65 | 2011 | Managing Director, Public Equities, Makena Capital |
Management LLC | ||
Aje K. Saigal, 56 | 2000 | Chief Investment Officer, Chief Executive Officer, |
Nuvest Capital Pte Ltd; former Director of Economics | ||
& Investment Strategy, Government of Singapore | ||
Investment Corporation Pte Ltd | ||
David H. Zellner, 57 | 2010 | Chief Investment Officer, General Board of Pension and Health Benefits of The United Methodist Church |
“Independent” directors1 | ||
Number of | ||
portfolios | ||
in fund | ||
complex3 | ||
Name, age and | overseen by | |
position with fund | director | Other directorships4 held by director |
Walter G. Borst, 50 | 1 | GMAM Absolute Return Strategies Fund, LLC |
Gary Bruebaker, 57 | 1 | None |
Paul N. Eckley, 57 | 1 | None |
Beverly L. Hamilton, 65 | 1 | Oppenheimer Funds (director for 38 portfolios |
Chairman of the Board | in the fund complex) | |
(Independent and | ||
Non-Executive) | ||
Raymond Kanner, 59 | 1 | None |
L. Erik Lundberg, 52 | 1 | None |
Helmut Mader, 70 | 1 | None |
Vice Chairman of the Board | ||
(Independent and | ||
Non-Executive) | ||
William B. Robinson, 74 | 1 | None |
John P. Rohal, 65 | 1 | RS Investments (director for 37 portfolios in the fund |
complex) | ||
Aje K. Saigal, 56 | 1 | None |
David H. Zellner, 57 | 1 | None |
“Interested” directors5 | ||
Year first | ||
elected a | ||
director or | ||
Name, age and | officer of | Principal occupation(s) during past five years and |
position with fund | the fund2 | positions held with affiliated entities of the fund |
Victor D. Kohn, 54 | 1996 | President and Director, Capital International, Inc.; |
President and Chief | Director, The Capital Group Companies, Inc.6 | |
Executive Officer | ||
Luis Freitas de Oliveira, 45 | 2011 | Director, Capital International, Inc.; Senior Vice |
President, Capital Guardian Trust Company;6 | ||
Chairman, Corporate Manager and Senior Vice | ||
President, Capital International Sàrl6 | ||
Shaw B. Wagener, 53 | 1997 | Chairman of the Board, Capital International, Inc.; |
Chairman of the Board, Capital Group International, | ||
Inc.;6 Senior Vice President, Capital Guardian Trust | ||
Company;6 Director, The Capital Group Companies, | ||
Inc.6 | ||
“Interested” directors5 | ||
Number of | ||
portfolios | ||
in fund | ||
complex3 | ||
Name, age and | overseen by | |
position with fund | director | Other directorships4 held by director |
Victor D. Kohn, 54 | 1 | None |
President and Chief | ||
Executive Officer | ||
Luis Freitas de Oliveira, 45 | 1 | None |
Shaw B. Wagener, 53 | 1 | None |
Chairman emeritus | ||
Walter P. Stern, 83 | Vice Chairman of the Board, Capital International, Inc. |
Other officers | ||
Year first | ||
elected | ||
Name, age and | an officer | Principal occupation(s) during past five years |
position with fund | of the fund2 | and positions held with affiliated entities of the fund |
Walter R. Burkley, 46 | 2011 | Senior Vice President and Senior Counsel - Fund |
Vice President | Business Management Group, Capital Research and | |
Management Company6 | ||
Michael A. Felix, 51 | 1993 | Senior Vice President, Treasurer and Director, |
Vice President | Capital International, Inc.; Senior Vice President, | |
Treasurer and Director, Capital Guardian Trust | ||
Company;6 Senior Vice President and Treasurer, | ||
Capital Guardian (Canada), Inc.;6 Principal Financial | ||
Officer, Capital Group International, Inc.;6 Director, | ||
Capital Group Research, Inc.6 | ||
Peter C. Kelly, 53 | 1996 | Senior Vice President, Senior Counsel, Secretary |
Vice President | and Director, Capital International, Inc.; Senior Vice | |
President, Senior Counsel and Director, Capital | ||
Guardian Trust Company;6 Secretary, Capital Group | ||
International, Inc.6 | ||
Abbe G. Shapiro, 52 | 1997 | Vice President, Capital International, Inc.; Vice |
Vice President | President, Capital Guardian Trust Company;6 Vice | |
President - Institutional Investment Services Division, | ||
The Capital Group Companies, Inc.6 | ||
F. Chapman Taylor, 53 | 2011 | Vice President and Director, Capital International, |
Vice President | Inc.; Senior Vice President, Research Director – | |
Emerging Markets and Director, Capital International | ||
Research, Inc.6 | ||
Lisa B. Thompson, 46 | 2000 | Senior Vice President, Capital Guardian Trust |
Vice President | Company;6 Director, Capital Strategy Research, Inc.;6 | |
Director, The Capital Group Companies, Inc.6 | ||
Laurie D. Neat, 41 | 2005 | Assistant Vice President, Capital International, Inc.; |
Secretary | Assistant Vice President, Capital Guardian Trust | |
Company6 | ||
Bryan K. Nielsen, 39 | 2006 | Vice President, Capital International, Inc.; |
Treasurer | Vice President, Capital Guardian Trust Company6 | |
Dawn J. Duffy, 40 | 2011 | Assistant Vice President, Capital International, Inc. |
Assistant Treasurer |
The fund’s statement of additional information (SAI) includes further details about fund directors. The address for all directors and officers of the fund is 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025, Attention: Secretary.
The fund’s SAI, Proxy Voting Policy and Procedures, and proxy voting record for the 12 months ended June 30 are available free of charge on the U.S. Securities and Exchange Commission (SEC) website at www.sec.gov or upon request by calling 800/421-4989.
The fund files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website or upon request by calling 800/421-4989. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800/SEC-0330.
1The term “independent” director refers to a director who is not an “interested person” of the fund within the meaning of the Investment Company Act of 1940. |
2Directors and officers of the fund serve until their resignation, removal or retirement. |
3Capital International, Inc. serves as investment adviser for the fund and does not act as investment adviser for other U.S. registered investment companies. |
4This includes all directorships (other than those in the fund) that are held by each director as a director of a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934 or a company registered as an investment company under the 1940 Act. |
5“Interested persons” within the meaning of the Investment Company Act of 1940, on the basis of their affiliation with the fund’s investment adviser, Capital International, Inc., or its affiliated entities. |
6Company affiliated with Capital International, Inc. |
Result of special meeting of shareholders held November 10, 2011
Shares outstanding on record date (August 12, 2011) | 1,689,451,897.11 | ||||
Total shares voting on November 10, 2011 | 998,846,394.60 | (59.12% of shares outstanding) |
Proposal 1: Election of directors | ||||||||||||||||
Percent | Percent | |||||||||||||||
of shares | of shares | |||||||||||||||
Director | Votes for | voting for | Votes withheld | withheld | ||||||||||||
Walter G. Borst | 998,649,351.38 | 99.98 | % | 197,043.22 | 0.02 | % | ||||||||||
Gary Bruebaker | 998,612,739.37 | 99.98 | 233,655.24 | 0.02 | ||||||||||||
Paul N. Eckley | 998,684,259.87 | 99.98 | 162,134.74 | 0.02 | ||||||||||||
Beverly L. Hamilton | 996,088,216.59 | 99.72 | 2,758,178.02 | 0.28 | ||||||||||||
Raymond Kanner | 996,123,125.07 | 99.73 | 2,723,269.53 | 0.27 | ||||||||||||
Victor D. Kohn | 998,653,751.99 | 99.98 | 192,642.61 | 0.02 | ||||||||||||
L. Erik Lundberg | 998,684,259.87 | 99.98 | 162,134.74 | 0.02 | ||||||||||||
Helmut Mader | 996,142,172.98 | 99.73 | 2,704,221.62 | 0.27 | ||||||||||||
Luis Freitas de Oliveira | 998,582,231.49 | 99.97 | 264,163.12 | 0.03 | ||||||||||||
William B. Robinson | 996,142,172.98 | 99.73 | 2,704,221.62 | 0.27 | ||||||||||||
John P. Rohal | 998,577,830.88 | 99.97 | 268,563.72 | 0.03 | ||||||||||||
Aje K. Saigal | 998,665,211.96 | 99.98 | 181,182.64 | 0.02 | ||||||||||||
Shaw B. Wagener | 998,653,751.99 | 99.98 | 192,642.61 | 0.02 | ||||||||||||
David H. Zellner | 998,649,351.38 | 99.98 | 197,043.22 | 0.02 |
Offices of the fund and of the investment adviser
Capital International, Inc.
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, CA 90025-3302
333 South Hope Street
Los Angeles, CA 90071-1406
400 South Hope Street
Los Angeles, CA 90071-2801
6455 Irvine Center Drive
Irvine, CA 92618
Transfer agent for shareholder accounts
JPMorgan Investor Services Co.
One Beacon Street
Boston, MA 02108
Custodian of assets
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
Counsel
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006-2401
Independent registered public accounting firm
PricewaterhouseCoopers LLP
350 South Grand Avenue
Los Angeles, CA 90071-2889
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
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 investment objectives, risks, charges and expenses. 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.
The Capital Group Companies
Capital International Capital Guardian Capital Research and Management Capital Bank and Trust American Funds
Lit. No. MFGEAR-915-0812P (NLS)
Printed in USA
TAG/AFD/6391-S33222
© 2012 Emerging Markets Growth Fund, Inc.
ITEM 2 – Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal Executive Officer and Principal Financial Officer. The Registrant undertakes to provide to any person without charge, upon request, a copy of the Code of Ethics. Such request can be made by calling 800/421-4989 or by writing to the Secretary of the Registrant, c/o Capital International, 333 South Hope Street, Los Angeles, California 90071
ITEM 3 – Audit Committee Financial Expert
The Registrant’s Board has determined that each member of the Registrant’s Audit Committee, Walter G. Borst, Gary Bruebaker, William B. Robinson, John P. Rohal and David H. Zellner, is an “audit committee financial expert” and "independent," as such terms are defined in this Item. This designation will not increase each designee’s duties, obligations or liability as compared to his duties, obligations and liability as a member of the Audit Committee and of the Board, nor will it reduce the responsibility of the other Audit Committee members. The Board believes each member of the Audit Committee contributes significantly to the effective oversight of the Registrant’s financial statements and condition.
ITEM 4 – Principal Accountant Fees and Services
Fees billed by the Registrant’s auditors for each of the last two fiscal years, including fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant, and a description of the nature of the services comprising the fees, are listed below:
Registrant:
a) | Audit Fees: |
2011 $121,000
2012 $126,800
b) | Audit- Related Fees: |
2011 none
2012 none
c) | Tax Fees: |
2011 $77,000
2012 $62,000
The tax fees for 2011 and 2012 consist of professional services relating to: preparing the fund’s federal and state income tax returns (2011: $12,000, 2012: $12,000); preparing the local tax return and routine tax compliance services in India (2011: $50,000, 2012: $35,000); and other tax services in India (2011: $15,000, 2012: $15,000).
d) | All Other Fees: |
2011 none
2012 none
Adviser and affiliates (includes only fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant and were subject to the pre-approval policies described below):
a) | Not applicable |
b) | Audit Related Fees: |
2011 none
2012 none
c) | Tax Fees: |
2011 $10,000
2012 none
d) | All Other Fees: |
2011 none
2012 $5,000
The Registrant’s Audit Committee will pre-approve all audit and permissible non-audit services that the Committee considers compatible with maintaining the auditors’ independence. The pre-approval requirement will extend to all non-audit services provided to the Registrant, the investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. The Committee will not delegate its responsibility to pre-approve these services to the investment adviser. The Committee may delegate to one or more Committee members the authority to review and pre-approve audit and permissible non-audit services. Actions taken under any such delegation will be reported to the full Committee at its next meeting. The pre-approval requirement is waived with respect to non-audit services if certain conditions are met. The pre-approval requirement was not waived for any of the non-audit services listed above provided to the Registrant, adviser, and affiliates.
Aggregate non-audit fees paid to the Registrant’s auditors, including fees for all services billed to the Registrant and the adviser and affiliates that provide ongoing services to the Registrant, were $67,000 for fiscal year 2012 and $87,000 for fiscal year 2011. The non-audit services represented by these amounts were brought to the attention of the Committee and considered to be compatible with maintaining the auditors’ independence.
ITEM 5 – Audit Committee of Listed Registrants
Not applicable to this Registrant, as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 – Schedule of Investments
The Schedule of Investments is included in the Annual Report to Shareholders.
ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, as the Registrant is not a closed-end management investment company.
ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, as the Registrant is not a closed-end management investment company.
ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, as the Registrant is not a closed-end management investment company.
ITEM 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a Committee on Directors comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The Committee periodically reviews such issues as the Board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates independent director candidates to the full Board. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Committee, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee.
ITEM 11 – Controls and Procedures
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. |
(b) | There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12 – Exhibits
(a)(1) | The Code of Ethics that is the subject of the disclosure required by Item 2 is attached as an exhibit hereto. |
(a)(2) | The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EMERGING MARKETS GROWTH FUND, INC. | |
By /s/ Victor D. Kohn | |
Victor D. Kohn, President and Chief Executive Officer | |
Date: August 29, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By /s/ Victor D. Kohn |
Victor D. Kohn, President and Chief Executive Officer |
Date: August 29, 2012 |
By /s/ Bryan K. Nielsen |
Bryan K. Nielsen, Treasurer |
Date: August 29, 2012 |