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: (800) 421-0180 x96245
Date of fiscal year end: June 30, 2004
Date of reporting period: June 30, 2004
Vincent P. Corti
Capital International, Inc.
11100 Santa Monica Boulevard, 15th Floor Los Angeles, California 90025 (name and
address of agent for service)
Copies to:
Rob Helm, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - Capital InternationalSM]
EMERGING MARKETS GROWTH FUNDSM
[front cover: graphic of world map]
Seeks long-term growth of capital by investing in companies operating in
developing countries around the world.
Annual report for the year ended June 30, 2004
DEAR SHAREHOLDERS:
Emerging markets stocks rallied sharply, rising steadily for the first nine
months of the fiscal year before retreating in the last quarter as the specter
of higher U.S. interest rates and signs of a slowdown in China's economy
dampened investor sentiment. For the 12 months ending June 30, 2004, the
Emerging Markets Growth Fund rose 27.9% with dividends reinvested. The MSCI
Emerging Markets Index rose 33.1% with net dividends.
Industrials, energy and materials stocks had the best results in a market driven
partly by liquidity, partly by the strength in commodities prices driven by
Chinese demand and a rebound in the global economy, and partly by energy prices
that remained firm against the backdrop of persistent violence in Iraq and other
parts of the Middle East. The defensive sectors of consumer staples, health care
and utilities lagged the broader emerging markets. The technology and
telecommunications sector results were in the middle and closer to the
benchmark.
MARKETS REVIEW
The powerful rally in emerging markets was wide in its scope. All markets and
sectors had positive returns, although performance varied widely by country. A
sustained recovery in the developed economies and robust domestic demand in many
emerging markets provided a strong tailwind. However, in the last few months of
the period, rising interest rates in the United States appeared to have prompted
leveraged investors to pull investments from emerging markets equities and
bonds, withdrawing some liquidity from markets and reducing some of the gains.
In this environment, defensive areas such as consumer staples that had been
lagging took the lead.
[Begin Sidebar]
EMGF TOTAL RETURNS VS. MSCI EMERGING MARKETS INDEX
for periods ended 6/30/04 (with distributions reinvested)
Emerging MSCI
Markets Emerging
Growth Fund Markets
(EMGF) Annualized Index* Annualized
12 months +27.9 -- +33.1 --
3 years +29.3 +8.9% +43.6 +12.8%
5 years +14.8 +2.8 +16.4 +3.1
10 years +47.8 +4.0 +11.7 +1.1
Lifetime +1,420.0 +16.2 --+ --+
(since 5/30/86)
* Returns shown for the MSCI Emerging Markets Index reflect gross dividends
through December 31, 2000, and net dividends thereafter. The index is
unmanaged and does not reflect sales charges, commissions or expenses.
+ The MSCI Emerging Markets Index did not start until December 31, 1987.
[End Sidebar]
India, China and Thailand led the markets in Asia, while Brazil, Peru and
Colombia registered the strongest gains in Latin America. Markets in Eastern
Europe also rose substantially. Both India and China, two large and rapidly
growing economies in Asia, made substantial equity gains in the 30-40% range.
Both are economies transitioning from government-controlled and planned systems
to market-driven, capitalist economies, each in its unique way. Chinese demand
powered growth in many parts of Asia and, in industries such as metals and raw
materials, around the world -- from Brazil and Chile to South Africa and
Australia. As China reported an annualized GDP growth rate of 10% in 2003, raw
materials and energy prices rose to the highest level in recent years and lifted
the stocks of related companies. However, as both the government and investors
started to worry about inflationary pressures, Chinese authorities attempted to
shift the economy into a lower gear by raising bank loan reserve requirements
and reining in lending in some industries such as construction. Market opinion
remained divided on whether China would be able to calibrate the economy
delicately enough to engineer a soft landing.
[Begin Sidebar]
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 MORE CURRENT INFORMATION AND
MONTH-END RESULTS, PLEASE CALL 800/421-0180, EXT. 96245. INVESTMENTS ARE NOT
FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER
ENTITY. INVESTING OUTSIDE THE UNITED STATES IS SUBJECT TO ADDITIONAL RISKS, SUCH
AS CURRENCY FLUCTUATIONS, POLITICAL INSTABILITY, DIFFERING SECURITIES
REGULATIONS AND PERIODS OF ILLIQUIDITY, WHICH ARE DETAILED IN THE PROSPECTUS.
[End Sidebar]
Nevertheless, the demand for commodities lessened in the spring of 2004 and
related stocks softened. Chinese stocks also gave up some gains at the same
time, but nevertheless ended the period up more than 40%.
India's stock market also rose substantially, supported by privatization of many
state-owned industries, strong earnings and revenue growth. Economic reforms
including sweeping changes in the key finance and energy industries, declining
interest rates and a good agricultural season provided a boost to the economy.
However, investors pulled back in the wake of the upset victory of the
opposition Congress Party in general elections in April and May. Although
technology stocks recovered, stocks in industries such as financials,
industrials, and energy fell sharply on concerns that the new government would
not keep up the pace of privatization and reforms of the previous regime led by
the Bharatiya Janata Party.
In Russia, the tussle between the government of Vladimir Putin and the former
chief of oil giant YUKOS Oil, Mikhail Khodorkovsky, over the issue of back taxes
dragged on for months and markets started pricing in the possibility of the
company declaring bankruptcy. President Putin's tough stance with business
oligarchs appeared to sit well with the public, which re-elected him to a second
term in March by an overwhelming majority. Investors also seemed to like Putin's
strong mandate, hoping that it would give him the necessary political capital to
push the country further along the road to a market economy and lower the high
crime rate afflicting many Russian cities.
[Begin Sidebar]
10 LARGEST EQUITY HOLDINGS
Percent of gain/loss
Percent of for the 12 months
net assets as ended 6/30/04*
of 6/30/04 (in U.S. dollars)
Samsung Electronics 6.9% 38.6%
America Movil 3.4 94.0
Anglo American PLC 2.5 31.9
LUKoil Holding 2.4 32.1
Infosys Technologies 2.4 70.2
Kookmin Bank 2.0 3.1
Sasol 1.9 38.3
Wal-Mart de Mexico 1.9 0.8
Telekomunikasi Indonesia 1.6 40.4
Itausa 1.6 47.8
Total 26.6%
* The percent change reflects the increase or decrease in the market price
per share of respective equity securities held in the portfolio for the
entire period. The actual gain or loss on the total position in the fund
may differ from the percentage shown.
[End Sidebar]
Latin American stocks had mixed results. Brazilian stocks rose substantially,
with commodity exporters like Cia. Vale do Rio Doce (CVRD) and energy producer
Petroleo Brasileiro S.A. - (Petrobras) benefiting from demand from China, and
banks like Itausa seeing their profits supported by a modest growth in economic
activity. Mexican stocks lagged for most of the fiscal year but picked up
momentum in the last few months as the economy benefited from rising exports to
the United States and a modest expansion of domestic activity. Consumer
companies such as Kimberly-Clark de Mexico saw their stocks rise after being
stagnant for many months.
Technology stocks rose early in the fiscal year, peaked in March and April, and
then fell as many market participants concluded that, after a three-year run,
revenues and earnings were near the top of this business cycle and would likely
decline. Samsung Electronics reported record earnings in the last fiscal quarter
and was among the most profitable technology companies of the year. However, the
stock fell in the last fiscal quarter, reflecting the downturn in broad market
sentiment. Most semiconductor and hardware stocks also declined towards the end
of the period; however, investors bet that business would continue to expand for
the software and technology service companies, which saw volume grow
substantially without any meaningful drop in the prices these companies charge
corporations for their services. Software company Infosys Technologies rose 70%
in the period.
[Begin Sidebar]
WHERE THE FUND'S ASSETS ARE INVESTED
Market value
MSCI EM of holdings
Percent of net assets Index (1) 6/30/04
6/30/02 6/30/03 12/31/03 6/30/04 6/30/04 (in thousands)
ASIA-PACIFIC
China 2.5% 2.6% 3.2% 3.4% 8.5% $535,535
Hong Kong .8 1.2 1.0 1.1 -- 169,835
India 9.6 10.5 13.7 10.6 4.9 1,671,602
Indonesia 2.7 3.0 3.0 3.0 1.7 469,528
Malaysia 3.0 2.4 3.2 5.4 4.5 842,747
Philippines 1.4 1.3 .6 .4 .5 70,471
Singapore -- -- -- .1 -- 13,899
South Korea 16.8 18.6 18.5 18.0 18.7 2,842,226
Taiwan 11.3 6.7 10.3 10.0 11.9 1,567,828
Thailand 1.8 1.9 1.3 .7 2.7 115,966
Vietnam -- -- .1 .1 -- 10,255
49.9 48.2 54.9 52.8 53.4 8,309,892
LATIN AMERICA
Argentina .2 .8 .6 .6 .5 94,557
Brazil 9.6 11.1 11.0 9.8 8.0 1,548,933
Chile 1.7 1.5 1.0 1.4 1.9 226,858
Colombia .1 .4 .3 .3 .1 38,582
Ecuador -- -- -- -- -- 6,148
Mexico 15.3 14.2 9.3 9.8 6.3 1,535,750
Panama .1 .1 -- -- -- 5,768
Peru .6 .5 .5 .3 .5 47,269
Uruguay -- -- -- -- -- 1,179
Venezuela .1 .3 .3 .4 .2 64,773
27.7 28.9 23.0 22.6 17.5 3,569,817
EASTERN EUROPE
Bulgaria .1 -- -- -- -- 1,055
Croatia .6 .4 .3 .3 -- 51,191
Czech Republic .4 .3 .4 .7 .7 102,827
Hungary 1.6 1.5 1.1 1.6 1.3 254,701
Kazakhstan -- -- -- -- -- 2,234
Poland 1.6 1.3 .8 .7 1.4 115,499
Russian Federation 6.1 5.5 6.0 6.4 4.5 1,006,362
Ukraine -- -- -- -- -- 7,972
10.4 9.0 8.6 9.7 7.9 1,541,841
OTHER MARKETS
Canada (2) -- .3 .7 .6 -- 94,706
Dominican Republic -- -- -- -- -- 4,012
Egypt .2 .2 .2 .4 .3 64,386
Greece .1 -- -- -- -- --
Israel .7 .3 .5 .8 4.6 124,271
Morocco .1 .1 -- -- .2 8,401
Nigeria .1 -- -- -- -- --
Portugal .1 -- -- -- -- --
South Africa 4.0 5.2 4.8 8.0 14.2 1,254,674
Turkey 2.7 2.0 2.0 1.7 1.5 261,390
United Kingdom (2) -- 1.2 2.3 .4 -- 58,713
United States of America (2) -- .2 .1 .1 -- 16,821
8.0 9.5 10.6 12.0 20.8 1,887,374
Multinational 1.4 .4 .4 .5 72,040
Other (3) .8 .6 .8 .7 111,134
Cash & equivalents
less liabilities 1.8 3.4 1.7 1.7 266,150
TOTAL NET ASSETS 100.0% 100.0% 100.0% 100.0% $15,758,248
(1) MSCI Emerging Markets Index also includes Jordan (0.2% at 6/30/04) and
Pakistan (0.2% at 6/30/04). A dash indicates that the market is not
included in the index. Source: MSCI Red Book.
(2) Includes investments in companies incorporated in the region that have
significant operations outside the region.
(3) Includes stocks in initial period of acquisition.
[End Sidebar]
[Begin Sidebar]
PERCENT CHANGE IN KEY MARKETS (1)
Twelve months Six months
ended 6/30/04 ended 6/30/04
Expressed Expressed Expressed Expressed
in U.S. in local in U.S. in local
dollars currency dollars currency
ASIA-PACIFIC
China 41.8% 41.8% -10.8% -10.3%
India 37.6 36.1 -18.0 -17.3
Indonesia 31.6 50.0 .9 12.7
Malaysia 20.0 -- (2) 3.4 -- (2)
Pakistan 28.6 29.2 4.0 5.3
Philippines 25.1 31.4 8.8 10.1
South Korea 26.8 22.6 1.0 -2.0
Taiwan 22.9 19.5 -2.9 -3.7
Thailand 52.4 48.2 -13.7 -10.9
LATIN AMERICA
Argentina 22.3 28.6 -8.3 -7.5
Brazil 43.5 54.9 -12.3 -5.9
Chile 38.5 25.8 -3.5 3.7
Colombia 79.4 71.5 36.3 32.0
Mexico 31.9 46.0 14.7 17.7
Peru 53.3 53.3 -9.1 -8.9
Venezuela 12.0 82.4 34.2 22.4
EASTERN EUROPE
Czech Republic 51.4 44.0 16.5 18.7
Hungary 73.9 54.6 29.1 28.3
Poland 42.4 34.9 11.4 10.1
Russian Federation 23.8 -- (2) 3.1 -- (2)
OTHER MARKETS
Egypt 82.4 86.5 23.2 23.7
Israel 24.7 28.8 19.1 21.4
Jordan 39.0 39.0 7.4 7.4
Morocco 25.8 20.1 9.4 12.4
South Africa 42.6 17.9 2.8 -4.3
Turkey 65.1 72.8 -8.3 -3.2
Emerging Markets
Growth Fund 27.9 -2.8
(1) Including reinvestment of net dividends. All indexes are compiled by Morgan
Stanley Capital International and are unmanaged.
(2) Index is quoted in U.S. dollars only.
[End Sidebar]
Among the largest emerging markets, South Korea and Taiwan did not keep up with
the broader market, partly due to the mixed performance of technology stocks.
South Korean equities were also held back by political uncertainty and a
lackluster domestic economy suffering from the overhang of a consumer credit
bubble. South Korean President Roh Moo-hyun was impeached and then reinstated by
a Constitutional Court, which stated that his election law violations were not
grave enough to warrant removal from office. In Taiwan, a closely fought
presidential election kept the political situation fluid for many months even as
the domestic economy showed signs of vigor.
In South Africa, the overvalued rand currency eroded margins for mining
companies and other exporters. On the political front, the African National
Congress returned to power with an overwhelming majority, giving President Thabo
Mbeki a broad mandate. South African stocks rose 43% in U.S. dollar terms and
18% in local currency terms. The rand appreciated 21% against the U.S. dollar
during the period.
PORTFOLIO REVIEW
With clear signals that U.S. interest rates were on an upward path and economic
growth in many parts of the developed world would be modest, the fund increased
its investments in companies that derive a major part of their revenues from
domestic markets. Partly, this strategy was implemented by reducing the fund's
exposure to more globally oriented sectors, maintaining investments in consumer
staples, and increasing exposure in areas leveraged to domestic growth, such as
financials.
This strategic focus on more domestically oriented companies was also reflected
in the fund's shift of some assets out of Latin America and into Asia. The mix
of economic growth in Asia has become more balanced between external trade and
domestic demand, which is expected to continue growing in many parts of the
region. Many Asian companies are now equally or more dependent on domestic
demand compared to exports. We shifted assets from some companies in Brazil and
Mexico to markets like Malaysia, Indonesia, China and Taiwan. Nevertheless, the
fund maintains a large exposure in Mexico and in Latin America overall, where
most of our investments are in consumer companies that are less vulnerable to
cyclical changes in the economy and interest rates. The fund trimmed holdings in
Brazil. The country's large external debt makes asset prices vulnerable to the
U.S. interest rate cycle. Moreover, valuations are no longer cheap. We had made
substantial investments in Brazil during the market sell-off leading up to the
presidential election in 2002. We took some profits as the market rallied.
In light of the more risk-averse market environment, the fund also redoubled its
focus on investing in financially strong companies with high levels of cash flow
and the willingness to return that cash to shareholders in the form of share
buybacks or higher dividends.
The fund's largest investments included the areas of telecommunications and
consumer staples, which in the emerging markets are generally companies with
stable cash flows and steady to rising earnings. A combination of good stock
selection and a large overexposure relative to the index saw telecommunications
shares delivering strong results for the fund. For example, America Movil was
among the top contributors to fund returns during the year. It is a wireless
communications provider based in Mexico but has operations in many parts of
Latin America, including Brazil. Telekomunikasi Indonesia was another company
that saw share prices rise.
The fund's exposure to consumer staples hurt the fund's results during the year.
Industries such as mining and energy led the markets as investors sought to
participate in what they saw as a cyclical market recovery. In addition, the
market rally was also partly driven by easy money available at low interest
rates in the United States. That liquidity favored riskier, high beta stocks
over the more staid consumer staples sector.
Our investments in the technology area had mixed results. Stocks of technology
hardware and semiconductor companies had strong results for most of the period
before sliding in the last few months. Samsung Electronics was among the top
contributors to fund returns. Taiwanese technology companies also rose, but
trailed the broader market. Our holdings in Indian technology service companies
had strong gains and held up even in the post-election market decline; Infosys
Technologies was a top contributor to fund returns.
In the area of financials, we rotated out of bank stocks in markets like India,
where we expected interest rates to rise, to bank stocks in Taiwan, where
financial houses had largely gone through a rationalization process, and their
earnings prospects looked promising. We also built up investments in financial
companies in South Korea with the view that the market was discounting an overly
excessive rate of consumer delinquencies. The Korean domestic economy has been
lackluster this year, another factor that has kept financial stocks at depressed
levels. This hurt the fund's performance in the period when compared to the
benchmark.
We also increased our investments in Russian oil companies over the year.
Although shares of oil producers rose substantially through the period, Russian
oil stocks lagged their peers due to the protracted legal and political
imbroglio between the government and the former management of YUKOS Oil. LUKoil
and YUKOS have among the world's largest untapped oil reserves. We bought shares
of both companies on price weakness.
The fund's largest country exposures relative to the EM Index were in India and
Mexico, which helped results during the period. While we still hold large
investments in both countries, we did trim those investments. In India, we
reduced holdings in industries vulnerable to government regulation, such as
energy and financial stocks. In Mexico, we sold our investment in Telefonos de
Mexico, and took some profit in America Movil. The fund's largest underexposures
on a country basis were to South Africa and China, markets that did well in the
fiscal year. We stayed away from many Chinese stocks as we saw the price
increases to be out of proportion to their fundamentals. Although China's
economy grew substantially, as fund managers, we have found it difficult to
capture that growth through the exchange-listed companies.
Our investments in South Africa have been low compared to the index because we
have found better opportunities in mining companies elsewhere. Companies in
South Africa face social challenges such as AIDS and political challenges that
have left us cautious. Nevertheless, we did increase our South African holdings,
including companies like Anglo American PLC that we saw benefiting from strong
Chinese demand for commodities.
OUTLOOK
With the rally of the past year, emerging markets stocks have completed a full
cycle following the sharp decline of 1997-98. Relative valuations have rebounded
to near-1995 levels and emerging markets stocks are now only modestly cheaper
than developed market shares, particularly on a price-to-cash earnings basis.
Hence, future market gains are likely to be driven more by earnings and cash
flow growth than by multiple expansion. In this environment, shares of
financially strong companies are likely to do better than the riskier stocks
that were the leaders in the recent market rally.
It is useful to put the current monetary tightening in the U.S. in context.
Interest rate increases this time around are taking place against the backdrop
of a strong U.S. economy, which is generally a good environment for emerging
markets. However, emerging markets equity returns are likely to be more
discriminating between markets. We started to see this trend toward the end of
the period, when equities in Mexico rose but fell in Russia and India.
Most important, fundamentals are quite good for most emerging markets economies
represented in the index. In Asia, corporate balance sheets are much healthier
than they were in 1997, prior to the Asian financial crisis. Corporate debt
levels are manageable, external debt levels are low and most countries are
running current account surpluses, making them much less vulnerable to U.S.
interest rates compared to the 1990s. Many Asian countries are net creditors of
the United States, with their central banks holding large amounts of U.S.
government debt. Also, many Asian countries are in the early stages of the
current economic growth cycle and expansion is better balanced between
consumer-driven domestic growth and external trade and Europe. Intra-Asia trade
accounts for about 45% of total trade by Asian countries.
China's economy is likely to remain an engine of growth for Asia, as a source of
demand in areas like raw materials, energy and capital equipment on the one
hand, and as a competitive, lower cost manufacturing base on the other. The
country's economy is a unique experiment combining central planning and market
forces. However, as the rapid development of Japan in the post-war period
reminds us, this experiment is unlikely to be run smoothly and will probably
move forward in fits and starts. Also, political risk will remain higher in
emerging markets, as was seen in the brief sell-offs in India following the
elections and in Russia in response to the YUKOS saga. Despite the associated
volatility, we believe long-term returns are likely to remain good, given the
higher aggregate growth rate of emerging markets economies.
We look forward to reporting to you in another six months.
Sincerely,
/s/ Robert Ronus
Robert Ronus
Chairman of the Board
/s/ Shaw B. Wagener
Shaw B. Wagener
President
June 30, 2004
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 $100,000 (1) investment in Emerging Markets Growth Fund (EMGF) grew from
December 31, 1987 -- the inception of the MSCI Emerging Markets Index --through
June 30, 2004, the end of the fund's latest fiscal year.
As you can see, the $100,000 would have grown to $1,095,308. This is
significantly more than the $646,124 generated by the unmanaged MSCI Emerging
Markets Index.
[begin mountain chart]
Year
ended MSCI EM
June 30 EMGF(2) Index (3)
<s> <c> <c>
12/31/1987 100,000 100,000
06/30/1988 (4) 138,053 136,911
12/31/1988 141,980 140,427
06/30/1989 203,614 173,906
12/31/1989 275,812 231,649
06/30/1990 296,302 258,080
12/31/1990 250,848 207,209
06/30/1991 349,859 281,281
12/31/1991 409,863 331,349
06/30/1992 453,884 355,819
12/31/1992 460,360 369,135
06/30/1993 551,713 421,825
12/31/1993 794,977 645,384
06/30/1994 741,137 578,578
12/31/1994 782,904 598,165
06/30/1995 732,096 578,478
12/31/1995 726,601 567,009
06/30/1996 845,474 627,491
12/31/1996 845,574 601,205
06/30/1997 1,092,098 707,935
12/31/1997 927,272 531,555
06/30/1998 791,087 431,270
12/31/1998 696,603 396,860
06/30/1999 953,943 555,079
12/31/1999 1,239,461 660,407
06/30/2000 1,198,460 607,647
12/31/2000 855,467 458,257
06/30/2001 847,207 450,050
12/31/2001 826,143 446,274
06/30/2002 799,378 454,921
12/31/2002 744,120 418,732
06/30/2003 856,488 485,280
12/31/2003 1,127,420 652,453
06/30/2004 1,095,308 646,124
[end mountain chart]
(1) The minimum initial investment for Emerging Markets Growth Fund is
$100,000.
(2) Values are based on a $100,000 investment with distributions reinvested.
(3) Values shown for the MSCI Emerging Markets Index reflect gross dividends
through December 31, 2000, and net dividends thereafter. The index is
unmanaged and does not reflect sales charges, commissions or expenses.
(4) For the period December 31, 1987 (inception of the MSCI Emerging Markets
Index) through June 30, 1988. EMGF began operations on March 10, 1986.
Here are the cumulative total returns and average annual total returns with all
distributions reinvested for periods ended June 30, 2004 -- 10 years: 47.78%, or
3.98% a year; 5 years: 14.81%, or 2.80% a year; 12 months: 27.89%.
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 MORE CURRENT INFORMATION AND
MONTH-END RESULTS, PLEASE CALL 800/421-0180, EXT. 96245.
THE INVESTMENT LANDSCAPE
The geographic concentrations of assets found in Emerging Markets Growth Fund's
(EMGF) portfolio rarely reflect a predetermined decision to concentrate our
investment in a particular country or region. More often, these concentrations
result from buy-and-sell decisions made stock by stock, based on intensive,
proprietary research. While the emphasis of that research is on companies,
EMGF's portfolio managers and analysts also keep a close eye on political and
macroeconomic considerations that can affect our holdings. Here is our view of
the investment landscape in the fund's five largest areas of concentration for
the year ended June 30, 2004. The five account for nearly 60% of net assets.
(Percentage changes for markets and stock prices are in U.S. dollars and are for
the fiscal year ended June 30, 2004, unless otherwise noted.)
SOUTH KOREA (18.0% OF NET ASSETS)
South Korean equities made substantial gains of 27% but still trailed the
stronger results of the emerging markets benchmark. A lackluster domestic
economy, a struggling banking sector and lack of strong political leadership
appeared to curb investor enthusiasm for most assets, including stocks. Exports
were the sole engine of economic growth, expanding nearly 40% year over year in
June, propelled partly by rising trade with China and partly by expanding global
demand for technology.
Technology stocks led by Samsung Electronics had strong gains in the early part
of the period but then fell sharply in the last quarter, ironically the same
quarter that Samsung reported record earnings. Investors worried that earnings
for hardware technology firms, and for semiconductor companies in particular,
could be nearing a cyclical peak.
Consumers struggled to regain a footing after the bursting of a multi-year
consumer lending boom and kept their wallets shut, hurting the domestic economy.
Banks worked towards increasing loan reserves and whittling down their
portfolios of non-performing loans. In this environment, financial stocks
struggled and valuations reflected a highly pessimistic outlook that did not
appear to take into account the ongoing consolidation in the industry. During
the shakeout, LG Card had to be bailed out by a consortium of banks led by a
quasi-government entity, the Korea Development Bank. Other credit card companies
were absorbed either by affiliated companies or other financial institutions.
In an environment of political uncertainty and lack of leadership, capital
investment by corporate Korea was sluggish. South Korean President Roh Moo-hyun
was impeached by Parliament and a few months later reinstated by a
Constitutional Court, which stated that his election law violations were not
grave enough to warrant removal from office. President Roh's Uri Party won a
majority in national legislative elections in April but suffered a setback in
mayoral and gubernatorial elections held in early June. With a fluid political
situation following the impeachment proceedings, the Roh administration failed
to produce a coherent agenda to stimulate the economy.
On the positive side, many companies remained intensely focused on improving
operations, investing in capital expenditures for the next generation of
products and sorting out labor issues. Samsung Electronics strengthened product
lines in its four major divisions, including memory semiconductors, flat-panel
displays, mobile handsets and digital consumer electronics. Companies like
Hyundai Motors continued to expand in overseas markets like China, Europe and
the United States. Overall valuations on the Korean market, at about 12 times
2004 estimated earnings, appear reasonable in absolute terms and relative to the
prevailing interest rate environment.
INDIA (10.6% OF NET ASSETS)
Powered by a rapidly growing economy, expanding earnings, a good monsoon season,
a focused liberalization program and large inflows of foreign portfolio
investments, India's stock market rose steadily in the first half of the
reporting period. Equities reversed course and fell sharply following
parliamentary elections in April/May 2004 that saw a Congress Party-led
coalition unexpectedly replacing the ruling Bharatiya Janata Party government at
the center. Stocks fell nearly 20% over the course of a few days before
recouping some losses. Investors withdrew from markets, concerned that under
pressure from the left parties in its coalition, the new government would
backtrack on the pace and direction of fiscal reforms, including privatization
and deregulation of the banking and energy sectors. Investors also worried that
profligate government spending and introduction of populist subsidies would
increase the already large fiscal deficit.
The decision by Sonia Gandhi, the victorious Congress Party leader, against
assuming direct leadership as the country's prime minister removed the political
uncertainty that had worried markets immediately after the elections. The
Italian-born widow of slain former Prime Minister Rajiv Gandhi nominated as
prime minister the highly regarded Manmohan Singh, the former finance minister
and Reserve Bank governor. The nomination of another reformist former finance
minister, P. Chidambaram, in that same role, revived hopes that this government
would maintain a balance between the overtly socialist agenda of coalition
partners, and a commitment to rein in government spending and increase revenue
collection. Officials also signaled the new regime remained committed to pushing
ahead with some key reforms and to encouraging foreign direct investment. These
steps seemed to mitigate investor concerns.
On the corporate front, many companies reported strong revenue growth and
stellar earnings in the fiscal period, pushing stocks higher. These included
companies in the industrial, financial, energy, information technology and
pharmaceutical sectors. However, toward the end of the period, investors started
to worry that earnings in many cyclical industries could be approaching a peak,
given higher crude and commodity input prices and rising domestic interest
rates. Many stocks in these industries, including banks, petrochemicals and
refining declined toward the end of the period. Market participants also began
worrying about the possibility of a poor summer monsoon season; a good one is
critical to the agricultural economy and to rural spending.
Areas of the economy that are less vulnerable to government regulation and more
dependent on Western corporate demand, such as technology services, slumped
briefly after the election but then rebounded and held on to gains made in the
fiscal year. Investors took the view that these businesses would continue to
grow on expanding global demand, and increased competition would not necessarily
mean lower pricing power.
TAIWAN (10.0% OF NET ASSETS)
Taiwan's economy showed robust growth in the fiscal year, led initially by
significant expansion in exports and then by a surge in corporate capital
expenditure. Taiwanese securities, however, trailed the emerging markets index
partly due to investors rushing to take profits in technology stocks on concerns
that revenues and profits may be near a peak after a three-year growth cycle.
Shares of technology companies, a major component of the domestic stock market,
fell short of the broader emerging markets gains. Technology stocks, which
comprise slightly more than half the MSCI Taiwan index, rose 11%. Results varied
substantially by company. Shares of AU Optronics, a maker of TFT-LCD panels,
rose by a whopping 129%. However, Taiwan Semiconductor Manufacturing, the
largest global manufacturer of made-to-order semiconductor chips, rose only 8%
as worries about peaking profits were particularly centered around the
semiconductor industry.
Financial stocks, which accounted for another 23% of the index component, rose
40%. Bank earnings were partly fed by consumer credit expansion and mortgage
loan growth. Overall, corporate profitability was strong. Technology companies
saw earnings grow by 39% and revenues by 81% in the first quarter of calendar
2004 over the same period in the previous year, according to broker estimates.
The fundamental long-term outlook for many technology companies remained
positive, as they have invested in the next generation of digital consumer and
other products.
Economic expansion was fuelled by a combination of consumer loan expansion,
mortgage loan growth and a rebound in both manufacturing and services. Domestic
consumption was robust on the back of rising property prices. Property ownership
in Taiwan is high, and hence the wealth effect was widespread. Government
expenditures also provided some stimulus, with an increase in public works.
The country's financial position was relatively strong. Although the budget
deficit is 4% of GDP, the central bank holds enormous foreign exchange reserves,
to which it added during the year as a result of its attempts to keep the local
Taiwan dollar from appreciating.
The political situation was fluid. President Chen Shui-bian won a second term in
office in March elections. His victory by a razor-thin margin was bitterly
contested by the opposition, but a recount supported his party's lead. An
assassination attempt on him and his deputy days before the elections added to
the drama, with the opposition claiming that it was staged to elicit a sympathy
vote. Nonetheless, following the elections, the president tempered his political
rhetoric against mainland China, calming the nerves of political observers and
investors alike.
On the technical front, MSCI announced pending changes to the composition of its
EM Index that will substantially increase Taiwan's weighting in the benchmark
effective November 2004 and May 2005, a move that could potentially attract
greater foreign investor interest.
BRAZIL (9.8% OF NET ASSETS)
Brazilian stocks surged, recovering to more normalized valuations as the
government of President Luiz Inacio Lula Da Silva, which campaigned on a
left-of-center platform, pushed through with fiscal and other economic reforms.
The government followed through with the measures despite opposition from both
the hard-line factions of the ruling Workers' Party and the opposition.
One major success was the Congress's December passage of a social security bill
aimed at saving the government more than $17 billion over the next 20 years.
Social security is a major contributor to the country's nominal public sector
deficit. In another political victory, the government managed to raise the
minimum wage less than what the opposition had demanded. Since social security
and other benefits are indexed to the minimum wage, investors had feared a
larger increase would have adversely impacted the fiscal deficit.
Despite progress on the fiscal front, monetary policy remained relatively tight
in the face of constant inflationary pressures, partly due to the persistent
firmness in global oil prices. The Consumer Price Index, including food and
energy, rose at 7.4% annualized at the end of June 2004. The central bank
maintained the key lending rate at a relatively high 16%, although it came down
10 percentage points from a whopping 26% at the start of the fiscal year.
The economy began to respond, with durable goods sales and exports in the lead
early in the fiscal year, and the more income-sensitive areas of retail, such as
supermarket and clothing sales, growing in the later stages as employment showed
some pick-up. Industrial production expanded in the latter half of the period,
and export volume showed hefty growth, driven partly by strong demand for raw
materials from China. Cia Vale do Rio Doce, which sends the bulk of its iron ore
exports to China, rose more than 60%. Telecommunications stocks such as Telesp
Celular also did well as wireless subscriber growth continued to grow.
Meanwhile, in corporate news, Belgium's Interbrew acquired Brazilian beer
company Cia de Bebidas das Americas (AmBev), making the joint company the
world's largest beer company by volume. It also had a 70% share of Brazil's beer
market.
While many of the economic parameters for Brazil improved, the country's total
external debt remains high. Financial authorities worked actively to change the
mix of the debt and brought down the level of outstanding securities linked to
the U.S. dollar, thus reducing the impact of exchange rates on the debt profile.
Nevertheless, Brazil's borrowing needs remain huge compared to many other
emerging markets, making it more vulnerable to the U.S. interest rate cycle.
MEXICO (9.8% OF NET ASSETS)
Mexican equities rose in the 12-month period, but trailed the broader EM Index.
Although stocks lagged in the first half, they had among the best relative
results in the second half of the fiscal year, as the domestic economy picked up
momentum and investors started to view the less cyclical consumer companies and
telecommunications companies more favorably.
The ruling PAN (National Action Party) led by President Vicente Fox and the
opposition PRI (Institutional Revolutionary Party) remained locked in political
brinkmanship, and there were no major political or economic initiatives taken in
the year. The PAN lost seats in congressional elections held in July 2003,
losing ground to the PRI in the lower house of Congress.
Nevertheless, despite lack of progress in two key areas -- rigid labor laws and
inadequate power supply to industry -- the economy began to show respectable
growth in the last few months of 2003, fuelled by the spillover effect of strong
industrial production and consumer demand in the United States. The fiscal
picture also looked brighter, enhanced by the increase in oil revenues. Economic
expansion started with manufacturing, with a sustained increase in industrial
output over many months, and then expanded to services as the domestic economy
appeared to enter a new cyclical growth phase. In this environment, shares of
consumer companies such as Kimberly-Clark de Mexico and Fomento Economico
Mexicano (Femsa) rose in the first quarter of calendar 2004 after trailing the
market for many months.
The economy also benefited from productivity gains. Growth picked up momentum in
the second half of the fiscal year, with real GDP expanding 3.7% annualized in
the first three months of 2004 over the same period a year ago. However, labor
demands started to increase with the expansion, and union contracts in some
cases were settled at the upper end of union demands. Inflation remained near
the central bank's target, forcing it to keep monetary policy relatively tight.
Corporate profits were quite strong in the aggregate. America Movil, the
wireless service provider, expanded operations to Brazil, Argentina and other
parts of Latin America through acquisitions. It continued to enjoy strong
subscriber growth and reported stellar profits, propelling the stock 94% higher
in the year. The attractive valuations, strong balance sheets and promising
growth prospects of some Mexican companies prompted mergers and acquisitions
activity. Mexican cement company Apasco was absorbed by Swiss parent Holcim and
Spain's Banco Bilbao Vizcaya Argentaria (BBVA) bid for complete ownership of the
Mexican unit of BBVA-Bancomer, Mexico's largest banking group.
ABOUT THE FUND AND ITS ADVISER
Emerging Markets Growth Fund (EMGF) 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.
An affiliate of Capital International, Inc., the fund's current investment
adviser, was selected by the IFC from a number of global investment firms to
manage EMGF. Capital International is one of The Capital Group Companies. These
companies form one of the world's most experienced investment advisory
organizations, with roots dating back to 1931. These companies have been
involved in international investing since the 1950s. Capital International
employs a value-oriented, research-driven approach. Capital International and
its institutional management affiliates maintain a global investment
intelligence network that continues to grow and currently employs more than 135
investment professionals based on three continents. They include analysts and
portfolio managers, born in over 27 countries, who speak a variety of languages.
These professionals travel millions of miles each year, keeping a close watch on
industry trends and government actions and scrutinizing thousands of companies.
As EMGF has grown, its adviser has devoted increased resources to the task of
evaluating and managing investments in developing countries. Currently, the
organization has 34 analysts covering these countries, compared with four in
1986; these analysts also manage a portion of the fund. Most of its assets are
managed by eight portfolio managers, compared with two in 1986; both of the
original managers, incidentally, are still with the fund.
Capital International's research effort focuses heavily on regions 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 our family of companies-- and the funds they manage, including
Emerging Markets Growth Fund -- a competitive edge.
INVESTMENT PORTFOLIO
June 30, 2004
Equity securities
Common Preferred Convertible Percent of
SECTOR DIVERSIFICATION stocks stocks bonds Bonds net assets
Financials 17.03% 2.16% -% -% 19.19%
Information technology 18.32% - - - 18.32
Telecommunication services 11.85 2.97 .02 .16 15.00
Consumer staples 9.24 1.69 - .02 10.95
Materials 8.77 1.01 .02 - 9.80
Energy 8.53 .72 - .02 9.27
Consumer discretionary 5.90 .06 - .02 5.98
Industrials 3.50 .11 - - 3.61
Utilities 2.72 - - - 2.72
Health care 1.69 - - - 1.69
Other .77 - - 1.01 1.78
88.32% 8.72% .04% 1.23% 98.31%
Short-term securities 1.63
Excess of cash and receivables (including foreign currency contracts) over payables .06
Net Assets 100.00%
Market Percent
EQUITY SECURITIES value of net
(Common and preferred stocks) Shares (000) assets
Argentina - 0.38%
BI SA (acquired 10/21/93, cost: $4,567,000) (1) (2) 4,952,159 $1,559 0.01%
Grupo Financiero Galicia SA, Class B (2) 5 - -
Hidroneuquen SA (acquired 11/11/93, cost :$29,239,000) (1) (2) (3) 28,022,311 878 -
Nortel Inversora SA, Class B, preferred (ADR) (2) 4,529,300 24,956 0.16
Telecom Argentina STET-France Telecom SA, Class B (ADR) (2) 3,629,346 32,809 0.21
60,202 0.38
Brazil - 9.70%
Aracruz Celulose SA, Class B, preferred nominative (ADR) 76,500 2,499 0.02
Banco Itau Holding Financeira SA, preferred nominative 840,279,800 78,140
Banco Itau Holding Financeira SA, preferred nominative (ADR) 267,300 12,467 0.57
Brasil Telecom Participacoes SA, preferred nominative (ADR) 126,000 3,868 0.02
Celular CRT SA, ordinary nominative 2,255,641 280
Celular CRT SA, Class A, preferred nominative 101,573,000 17,711 0.11
Cia. de Bebidas das Americas - AmBev, ordinary nominative 20,067,000 7,775
Cia. de Bebidas das Americas - AmBev, preferred nominative (ADR) 9,475,010 190,163 1.26
Cia. Vale do Rio Doce, ordinary nominative 409,000 19,215
Cia. Vale do Rio Doce, ordinary nominative (ADR) 653,230 31,061
Cia. Vale do Rio Doce, Class A, preferred nominative (ADR) 3,059,752 119,636 1.08
EMBRAER - Empresa Brasileira de Aeronautica SA, preferred nominative (ADR) 590,699 16,888 0.11
Embratel Participacoes SA, ordinary nominative (2) 108,568,200 493 -
Itausa - Investimentos Itau SA, preferred nominative 214,968,322 249,882 1.59
New GP Capital Partners, LP, Class B (acquired 1/28/94, cost: $16,247,000 ) (1) (2) (3) 27,000 5,684 0.04
Petroleo Brasileiro SA - Petrobras, ordinary nominative 891,310 24,664
Petroleo Brasileiro SA - Petrobras, ordinary nominative (ADR) 78,600 2,206
Petroleo Brasileiro SA - Petrobras, preferred nominative 256,600 6,405
Petroleo Brasileiro SA - Petrobras, preferred nominative (ADR) 4,255,536 107,240 0.89
Tele Celular Sul Participacoes SA, ordinary nominative 4,883,892,647 5,063
Tele Celular Sul Participacoes SA, preferred nominative (ADR) 2,396,400 30,914 0.23
Tele Centro Oeste Celular Participacoes SA, ordinary nominative 14,961,542 52
Tele Centro Oeste Celular Participacoes SA, preferred nominative 5,537,810,700 16,898
Tele Centro Oeste Celular Participacoes SA, preferred nominative (ADR) 7,211,838 66,133 0.53
Telecomunicacoes Brasileiras SA, preferred nominative (ADR) 694,000 20,230 0.13
Telecomunicacoes de Sao Paulo SA, ordinary nominative 94,300,000 1,218
Telecomunicacoes de Sao Paulo SA, preferred nominative 783,360,000 11,413 0.08
Tele Leste Celular Participacoes SA, ordinary nominative (2) 3,858,906,532 860
Tele Leste Celular Participacoes SA, preferred nominative (ADR) (2) 691,343 9,112 0.06
Telemar Norte Leste SA, Class A, preferred nominative 3,274,868,000 56,255 0.36
Telemig Celular Participacoes SA, ordinary nominative 2,502,641,317 5,979
Telemig Celular Participacoes SA, preferred nominative (ADR) 1,015,658 29,962 0.23
Telemig Celular SA, Class G, preferred nominative 38,529 5,350 0.03
Tele Nordeste Celular Participacoes SA, ordinary nominative 3,771,215,288 3,568
Tele Nordeste Celular Participacoes SA, preferred nominative (ADR) 1,300,174 29,904 0.21
Tele Norte Celular Participacoes SA, ordinary nominative (2) (3) 9,214,930,561 2,083
Tele Norte Celular Participacoes SA, preferred nominative (ADR) (3) 453,978 4,109 0.04
Tele Norte Leste Participacoes SA, ordinary nominative 424,902,537 4,581
Tele Norte Leste Participacoes SA, preferred nominative 741,313,676 9,371
Tele Norte Leste Participacoes SA, preferred nominative (ADR) 20,400 260 0.09
Telesp Celular Participacoes SA, preferred nominative (ADR) (2) 16,789,000 132,297 0.84
Unibanco-Uniao de Bancos Brasileiros SA, units (GDS) 7,526,354 148,796 0.94
Usinas Siderurgicas de Minas Gerais SA, Class A, preferred nominative 3,578,298 37,204 0.24
1,527,889 9.70
Canada - 0.60%
Crew Gold Corp. (formerly Crew Development Corp.) (2) 2,455,000 2,112 0.01
Ivanhoe Mines Ltd. (2) (3) 17,189,000 92,594 0.59
94,706 0.60
Chile - 1.44%
Banco Santander - Chile (ADR) 1,774,515 47,380 0.30
Cia. de Telecomunicaciones de Chile SA (ADR) 3,062,885 37,337 0.24
Comercial Siglo XXI SA 8,776,871 10,400 0.06
Embotelladora Andina SA, Class A, preferred nominative (ADR) (3) 3,610,050 43,718
Embotelladora Andina SA, Class B, preferred nominative (ADR) (3) 2,818,973 31,770 0.48
Enersis SA (2) 55,599,900 6,597
Enersis SA (ADR) (2) 8,331,600 49,656 0.36
226,858 1.44
China - 3.40%
Anhui Conch Cement Co. Ltd. (Hong Kong) (3) 39,937,000 44,294 0.28
BYD Co. Ltd. (Hong Kong)(3) 13,299,000 39,304 0.25
China Life Insurance Co. Ltd. (Hong Kong)(2) 80,074,500 47,228
China Life Insurance Co. Ltd. (ADR) (2) 2,429,400 57,553 0.67
China Mengniu Dairy Co. (Hong Kong) (2) 20,137,000 13,168 0.08
China Merchants Holdings (International) Co. Ltd. (Honk Kong) 11,466,014 15,437 0.10
China Mobile (Hong Kong) Ltd. 4,545,300 13,754 0.09
China Oilfield Services Ltd. (Hong Kong) 27,123,000 7,738 0.05
China Petroleum & Chemical Corp. (Hong Kong) 19,074,000 6,970 0.04
China Shipping Development Co. Ltd. (Hong Kong) 10,046,000 5,990 0.04
China Southern Airlines Co. Ltd. (Hong Kong)(2) 5,300,200 2,090 0.01
China Telecom Corp. Ltd. (Hong Kong) 172,387,800 60,231 0.38
Huaneng Power International, Inc. (Hong Kong) 53,348,000 47,539 0.30
Lianhua Supermarket Holdings Co. Ltd. (Hong Kong) 11,034,000 11,106 0.07
NetEase.com, Inc. (ADR) (2) 280,000 11,570 0.07
PetroChina Co. Ltd. (Hong Kong) 31,858,100 14,705 0.09
PICC Property and Casualty Co. Ltd. (Hong Kong) (2) 61,111,600 23,507 0.15
Semiconductor Manufacturing International Corp. (Hong Kong) (2) 85,651,000 18,669 0.12
Shanghai Forte Land Co. Ltd. (Hong Kong) (2) (3) 55,154,000 12,092 0.08
Tong Ren Tang Technologies Co. Ltd. (Hong Kong) (3) 5,529,900 11,805 0.08
Tsingtao Brewery Co. Ltd. (Hong Kong) 23,077,100 20,416 0.13
UBS AG Call Warrants on Beijing Yanjing Brewery Co., Ltd., A Shares,
expire June 14, 2005 (acquired 6/15/04, cost: $3,112,000) (1) (2) 2,291,100 3,009 0.02
Weiqiao Textile Co. Ltd. (Hong Kong) (2) 10,835,000 15,907 0.10
Wumart Stores, Inc. (Hong Kong) (2)(3) 6,460,000 12,424 0.08
Yanzhou Coal Mining Co. Ltd. (Hong Kong) 9,925,000 10,817 0.07
Zhejiang Expressway Co. Ltd. (Hong Kong) 11,540,000 8,212 0.05
535,535 3.40
Colombia - 0.08%
Bancolombia SA (ADR) 1,790,138 11,958 0.08
Croatia - 0.32%
PLIVA DD (GDR) 3,447,183 51,191 0.32
Czech Republic - 0.65%
CESKY TELECOM, AS 8,427,940 102,827 0.65
Egypt - 0.41%
Egyptian Company for Mobile Services S.A.E. 3,870,000 46,653 0.30
Orascom Telecom Holding (2) 340,125 6,280
Orascom Telecom Holding (GDR) (2) 1,236,800 11,453 0.11
64,386 0.41
Hong Kong - 1.08%
ASM Pacific Technology Ltd. 1,625,500 6,096 0.04
China.com Corp., Class A (2) 2,963,600 21,871 0.14
Clear Media Ltd. (2) 22,774,000 18,104 0.12
Harbin Brewery Group Ltd. 13,043,937 9,366 0.06
Hopewell Holdings Ltd. 30,770,000 61,941 0.39
Shangri-La Asia Ltd. 24,068,000 23,453 0.15
SINA Corp. (2) 339,000 11,184 0.07
Texwinca Holdings Ltd. 22,598,700 17,820 0.11
169,835 1.08
Hungary - 1.62%
Magyar Tavkozlesi Rt. 17,714,677 70,938
Magyar Tavkozlesi Rt. (ADR) 1,537,100 31,219 0.65
MOL Magyar Olaj- es Gazipari Rt., Class A 448,802 17,874 0.11
National Savings and Commercial Bank Ltd. 6,590,190 134,670 0.86
254,701 1.62
India - 10.58%
Bajaj Auto Ltd. 277,100 5,330 0.03
Bharat Electronics Ltd. 1,414,966 12,076 0.08
Bharat Heavy Electricals Ltd. 7,780,445 85,043 0.54
Bharat Petroleum Corp. Ltd. 2,574,600 19,913 0.13
Bharti Tele-Ventures Ltd. (2) 11,614,620 34,515 0.22
Cummins India Ltd. (3) 10,446,937 22,497 0.14
Dr. Reddy's Laboratories Ltd. 331,221 5,296 0.03
GlaxoSmithKline Consumer Healthcare Ltd. 1,262,700 6,715 0.04
Grasim Industries Ltd. 39 1 -
HDFC Bank Ltd. 4,500,452 36,209 0.23
Hindustan Lever Ltd. 33,370,027 92,448 0.59
Hindustan Petroleum Corp. Ltd. 817,723 5,982 0.04
Housing Development Finance Corp. Ltd. (3) 16,637,984 187,237 1.19
I.T.C. Ltd. 906,531 17,497 0.11
ICICI Bank Ltd. 11,483,969 61,107
ICICI Bank Ltd. (ADR) 5,499,475 66,544 0.81
Indian Petrochemicals Corp. Ltd. 5,575,188 17,817 0.11
Infosys Technologies Ltd. 3,138,454 377,304 2.39
Larsen & Toubro Ltd. 740,626 11,205 0.07
Maruti Udyog Ltd. (2) 1,443,800 12,669 0.08
Oil & Natural Gas Corp. Ltd. 2,915,037 39,897 0.25
Ranbaxy Laboratories Ltd. 5,297,006 104,862 0.67
Reliance Energy Ltd. (acquired 3/4/04, cost: $ 42,028,000) (1) 2,972,200 33,916
Reliance Energy Ltd. (GDR) (formerly BSES Ltd.) 1,436,800 52,443 0.55
Reliance Industries Ltd. 25,070,512 234,419 1.49
SET India Ltd. (acquired 5/15/00, cost: $34,131,000) (1) (2) 106,250 3,296 0.02
SET Satellite (Singapore) Pte. Ltd. (acquired 5/15/00, cost: $73,162,000) (1) (2) 2,847,112 7,033 0.04
State Bank of India 3,529,430 33,074
State Bank of India (GDR) 892 19 0.21
Sun Pharmaceutical Industries Ltd. 2,960,000 23,628 0.15
UltraTech CemCo Ltd. (2) 592,501 4,449 0.03
Wipro Ltd. 3,792,540 43,918
Wipro Ltd. (ADR) 55 3 0.28
Zee Telefilms Ltd. 3,453,207 9,473 0.06
1,667,835 10.58
Indonesia - 2.98%
PT Astra International Tbk 90,366,384 52,902 0.34
PT Bank Rakyat Indonesia (2) 151,056,000 26,931 0.17
PT Gudang Garam 13,189,500 19,233 0.12
PT Hanjaya Mandala Sampoerna Tbk 184,485,300 100,146 0.64
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corp. Tbk 7,000,500 2,999 0.02
Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, Class B 328,970,351 259,114 1.64
PT Ramayana Lestari Sentosa Tbk 17,317,500 8,203 0.05
469,528 2.98
Israel - 0.79%
"Bezeq" The Israel Telecommunication Corp. Ltd. (2) 41,352,700 42,026 0.27
Orbotech Ltd. (2) 963,025 19,598 0.12
Teva Pharmaceutical Industries Ltd. (ADR) 931,000 62,647 0.40
124,271 0.79
Kazakhstan - 0.01%
OJSC Kazkommertsbank (ADR) (acquired 9/10/97, cost: $1,466,000) (1) (2) 72,877 2,234 0.01
Malaysia - 5.35%
AMMB Holdings Bhd. 20,939,700 18,184 0.12
Astro All Asia Networks PLC (2) 47,119,600 56,792 0.36
British American Tobacco (Malaysia) Bhd. 1,042,300 13,852 0.09
Commerce Asset-Holding Bhd. 23,829,100 30,476 0.19
EON Capital Bhd. 11,273,000 13,706 0.09
Genting Bhd. 9,158,000 36,873 0.23
Hong Leong Bank Bhd. 24,190,000 30,810 0.20
IJM Corp. Bhd. 16,512,714 20,771 0.13
IOI Corp. Bhd. 26,922,500 57,742 0.37
Malayan Banking Bhd. 47,618,450 126,565 0.80
Malaysian Pacific Industries Bhd. 473,800 1,933 0.01
Maxis Communications Bhd. 74,634,300 172,837 1.10
MK Land Holdings Bhd. 24,594,400 16,245 0.10
Public Bank Bhd. 31,744,400 55,135 0.35
Resorts World Bhd. 10,168,400 23,949 0.15
Road Builder (M) Holdings Bhd. 23,013,000 16,412 0.11
S P Setia Berhad Group (3) 34,837,100 36,304 0.23
Tanjong PLC 13,061,800 42,966 0.27
Telekom Malaysia Bhd. 13,477,400 36,531 0.23
UMW Holdings Bhd. (3) 25,827,796 34,664 0.22
842,747 5.35
Mexico - 9.59%
America Movil SA de CV, Series A 16,275,000 29,557
America Movil SA de CV, Series L 21,921,840 39,908
America Movil SA de CV, Series L (ADR) 12,961,100 471,395 3.43
Cemex, SA de CV, ordinary participation certificates, units 2,319,659 13,461
Cemex, SA de CV, ordinary participation certificates, units (ADR) 518,295 15,082 0.18
Coca-Cola FEMSA, SA de CV, Series L (ADR) 752,700 16,702 0.11
Consorcio International Hospital, SA de CV, convertible preferred, units
(acquired 9/25/97, cost: $4,827,000) (1) (2) 23,970 -
Controladora Comercial Mexicana, SA de CV, units 30,217,500 33,347 0.21
Fomento Economico Mexicano, SA de CV (ADR) 4,443,780 203,703
Fomento Economico Mexicano, SA de CV, units 2,131,900 9,767 1.35
Grupo IMSA, SA de CV, Series UBC, units 5,867,900 13,359 0.09
Grupo Industrial Bimbo, SA de CV, Series A 5,725,375 12,085 0.08
Grupo Modelo, SA de CV, Series C 4,692,000 11,775 0.07
Grupo Televisa, SA, ordinary participation certificates (ADR) 4,022,832 182,114 1.16
Kimberly-Clark de Mexico, SA de CV, Class A, ordinary participation certificates 46,955,300 128,119 0.81
Organizacion Soriana, SA de CV, Series B 6,095,200 18,130 0.12
Urbi Desarrollos Urbanos, SA de CV (2) 5,268,895 17,009 0.11
Wal-Mart de Mexico, SA de CV, Series V 91,207,530 271,055
Wal-Mart de Mexico, SA de CV, Series V (ADR) 826,032 24,265 1.87
1,510,833 9.59
Morocco - 0.05%
Holcim (Maroc) SA, Class A 46,585 6,359 0.04
Societe des Brasseries du Maroc 12,332 2,042 0.01
8,401 0.05
Peru - 0.28%
Cia. de Minas Buenaventura SA (ADR) 1,236,034 27,316 0.17
Credicorp Ltd. 1,296,462 16,854 0.11
44,170 0.28
Philippines - 0.39%
ABS-CBN Holdings Corp. (Philippine Deposit Receipts) (2) 23,978,100 9,627 0.06
Ayala Corp. 80,778,300 8,216 0.05
Ayala Land, Inc. 97,485,230 10,089 0.06
Bayan Telecommunications Holdings Corp., Class A (acquired 2/12/98,
cost: $1,850,000) (1) (2) 724,790
Bayan Telecommunications Holdings Corp., Class B (acquired 2/12/98,
cost: $616,000) (1) (2) 241,431 -
GLOBE TELECOM, Inc. 678,048 9,921 0.06
International Container Terminal Services, Inc. 19,533,588 1,133 0.01
Philippine Long Distance Telephone Co. (2) 45,210 928
Philippine Long Distance Telephone Co. (ADR) (2) 181,086 3,777
Philippine Long Distance Telephone Co., convertible preferred shares, Series III (GDS) 50,664 2,318 0.05
SM Prime Holdings, Inc. 137,378,800 14,954 0.10
60,963 0.39
Poland - 0.73%
Bank Przemyslowo-Handlowy SA 236,299 26,777
Bank Przemyslowo-Handlowy SA (GDR) 420 23 0.17
Bank Zachodni WBK SA 243,200 5,702 0.04
Telekomunikacja Polska SA 20,082,034 82,997 0.52
115,499 0.73
Russian Federation - 6.25%
Baring Vostok Private Equity Fund (acquired 12/15/00, cost: $13,087,000) (1) (2) (3) (4) 13,087,057 15,457 0.10
JSC MMC "Norilsk Nickel" (ADR) 4,468,070 244,850 1.55
LUKoil Holding (ADR) 3,681,559 384,723 2.44
New Century Capital Partners, LP (acquired 12/7/95, cost: $5,484,000) (1) (2) 5,247,900 2,674 0.02
OAO Gazprom (ADR) 2,330,104 66,874
OAO Gazprom (ADR) (acquired 10/21/96, cost: $5,646,000) (1) 363,900 10,444 0.49
OAO Moscow City Telephone Network 3,007,500 36,090 0.23
Sberbank (Savings Bank of the Russian Federation) 32,520 13,171 0.08
Wimm-Bill-Dann Foods (ADR) (2) 1,735,900 24,216 0.15
YUKOS Oil Co. ( ADR) 5,897,322 187,535 1.19
986,034 6.25
Singapore - 0.09%
Noble Group Ltd. 25,452,000 13,899 0.09
South Africa - 7.96%
Anglo American Platinum Corp. Ltd. 1,152,072 43,597
Anglo American Platinum Corp. Ltd. 6.38% convertible preferred May 31, 2009 (2) 212,268 3,897 0.30
Anglo American PLC 19,513,613 399,377 2.53
Barloworld Ltd. 1,722,000 18,482 0.12
Gold Fields Ltd. 3,237,609 34,050
Gold Fields Ltd. (ADR) 490,000 5,150 0.25
Harmony Gold Mining Co. Ltd. 5,305,800 55,750
Harmony Gold Mining Co. Ltd. (ADR) 1,096,800 11,615 0.43
Impala Platinum Holdings Ltd. 1,283,905 97,378 0.62
Mvelaphanda Resources Ltd. (2) (3) 9,142,000 25,026 0.16
Nasionale Pers Beperk, Class N 1,426,200 10,530 0.07
Nedcor Ltd. 13,359,241 132,732 0.84
Sappi Ltd. 2,502,045 38,155 0.24
Sasol Ltd. 19,445,293 300,917 1.91
South Africa Capital Growth Fund, LP, Class A (acquired 8/25/95, cost: $893,000) (1) 2,180 264
South Africa Capital Growth Fund, LP, Class D (acquired 8/25/95, cost: $5,387,000) (1) 13,650 1,654 0.01
South African Private Equity Fund III, LP (acquired 9/23/98, cost: $25,774,000) (1) (2) (3) (4) 29,008 20,879 0.13
South African Private Equity Fund III, Ltd. (acquired 10/6/00, cost: $1,084,000) (1) (2) 1,325 1,215 0.01
Standard Bank Group Ltd. 7,799,500 54,006 0.34
1,254,674 7.96
South Korea - 18.04%
Baiksan OPC Co., Ltd. 560,100 4,849 0.03
Cheil Communications Inc. 142,870 19,420 0.12
CJ Home Shopping Co., Ltd. 90,009 2,368 0.02
Daewoo Heavy Industries & Machinery Co., Ltd. (2) 3,541,130 23,700 0.15
Daewoo Shipbuilding & Marine Engineering Co., Ltd. 2,279,300 27,529 0.29
Daewoo Shipbuilding & Marine Engineering Co., Ltd. (GDR) 742,490 17,486
ENTERPRISEnetworks Inc. (acquired 5/18/00, cost: $21,675,000) (1) (2) 321,716 -
Hanaro Telecom, Inc. (ADR) (2) 2,021,671 4,852 0.03
Hankook Tire Co., Ltd. 5,707,840 49,913 0.32
Hyundai Development Co. (3) 4,443,274 41,355 0.26
Hyundai Marine & Fire Insurance Co., Ltd. 363,070 12,197 0.08
Hyundai Motor Co. 3,458,374 133,095
Hyundai Motor Co., nonvoting preferred 500,730 9,776 0.91
INI Steel Co. (GDS) 2,152,500 17,164 0.11
Kook Soon Dang Brewery Co., Ltd. 881,800 10,040 0.06
Kookmin Bank (2) 8,908,705 276,903
Kookmin Bank (ADR) (2) 1,302,134 40,861 2.02
Korea Electric Power Corp. 7,553,240 121,637 0.77
Korea Gas Corp. 2,691,370 78,061 0.50
KT Corp. 887,400 29,695
KT Corp. (ADR) 1,262,900 22,783 0.33
KT&G Corp. 2,038,220 47,117 0.30
LG Ad Inc. 136,700 2,266 0.01
LG Cable Ltd. (3) 1,629,160 24,120 0.15
LG Electronics Inc. 601,630 28,545 0.18
LG Engineering & Construction Co., Ltd. (3) 2,589,070 42,703 0.27
Nong Shim Co., Ltd. 229,010 52,048 0.33
Pulmuone Co., Ltd. 227,550 8,087 0.05
Samsung Electronics Co., Ltd. 1,615,479 667,172
Samsung Electronics Co., Ltd. (GDS) 2,060,044 423,854 6.92
Samsung Fire & Marine Insurance Co., Ltd. 2,450,881 156,814 1.00
Samsung SDI Co., Ltd. 835,236 87,863
Samsung SDI Co., Ltd. (GDR) 123,200 3,219 0.58
Samsung Securities Co., Ltd. 1,635,400 26,832 0.17
Shinhan Financial Group Co., Ltd. 12,378,330 180,048
Shinhan Financial Group Co., Ltd. (ADR) 190,950 5,656 1.18
SK Telecom Co., Ltd. 355,852 58,538
SK Telecom Co., Ltd. (ADR) 1,138,712 23,902 0.52
Woori Finance Holdings Co., Ltd. 9,277,000 59,758 0.38
2,842,226 18.04
Taiwan - 9.95%
Advanced Semiconductor Engineering, Inc. (2) (3) 195,145,191 154,628 0.98
Asia Corporate Partners Fund, Class B (acquired 3/12/96, cost: $7,197,000) (1) 39,360 5,230 0.03
ASUSTeK Computer Inc. 37,376,125 85,173 0.54
ASUSTeK Computer Inc. (GDR) 234,356 525
AU Optronics Corp. 23,415,000 35,572 0.23
Benq Corp. 16,225,000 18,366 0.12
Chinatrust Financial Holding Co., Ltd. 84,363,000 94,239 0.60
Delta Electronics, Inc. 26,714,787 33,582 0.21
Fubon Financial Holding Co., Ltd. 121,375,000 105,936 0.67
High Tech Computer Corp. 4,668,240 20,442 0.13
Hon Hai Precision Industry Co., Ltd. 47,704,395 177,630
Hon Hai Precision Industry Co., Ltd. (GDR) 2,162,893 16,222 1.23
Mediatek Incorporation 19,167,850 153,023 0.97
Mega Financial Holding Co., Ltd. 60,732,000 40,162 0.25
President Chain Store Corp. 39,171,217 74,095 0.47
Quanta Computer Inc. 68,468,395 145,829
Quanta Computer Inc. (GDR) 950,750 9,840 0.99
Seres Capital (Cayman) (acquired 3/12/96, cost: $12,000) (1) (3) 2 23
Seres Capital (Cayman), nonvoting (acquired 3/12/96, cost: $63,000) (1) (3) 8 116 -
Siliconware Precision Industries Co., Ltd. (2) 48,480,000 38,125 0.24
SinoPac Holdings 50,943,000 26,708 0.17
Sunplus Technology Co., Ltd. 4,100,000 7,145 0.05
Taiwan Hon Chuan Enterprise Co., Ltd. 7,254,500 7,996 0.05
Taiwan Semiconductor Manufacturing Co., Ltd. 147,549,533 212,732 1.35
Test-Rite International Co., Ltd. 14,583,915 7,298 0.05
Tong Yang Industry Co., Ltd. (3) 21,298,340 34,260 0.22
Vanguard International Semiconductor Corp. (2) 41,470,000 15,442 0.10
VIA Technologies, Inc. 56,936,150 47,489 0.30
1,567,828 9.95
Thailand - 0.74%
Advanced Info Service PCL 8,998,300 19,595 0.12
BEC World PCL 12,836,500 5,653 0.04
Electricity Generating PCL 6,108,747 10,313
Electricity Generating PCL, nonvoting depositary receipts 17,114,300 28,266 0.25
PTT Exploration and Production PCL 1,015,000 6,656 0.04
Siam Cement PCL 2,392,600 14,284
Siam Cement PCL, nonvoting depositary receipts 2,666,290 15,135 0.19
Siam City Cement PCL 3,096,924 16,064 0.10
115,966 0.74
Turkey - 1.60%
Akbank Turk AS 13,493,726,750 49,623 0.31
Aktas Elektrik Ticaret AS (2) 4,273,718 -
Anadolu Efes Biracilik ve Malt Sanayii AS 4,120,061,966 48,095 0.30
Migros Turk TAS 4,921,867,995 23,912 0.15
Tansas Perakende Magazacilik Ticaret AS (2) 4,943,905,900 4,070 0.03
TUPRAS- Turkiye Petrol Rafinerileri AS 1,107,909,400 7,289 0.05
Turkcell Iletisim Hizmetleri AS 249,652,722 3,083 0.02
Turkiye Garanti Bankasi AS (2) 4,619,370,494 13,793 0.09
Turkiye IS Bankasi AS, Class C 22,520,524,124 82,059 0.52
Yapi ve Kredi Bankasi AS (2) 8,745,552,620 20,949 0.13
252,873 1.60
Ukraine - 0.03%
JKX Oil & Gas PLC 2,334,015 5,133 0.03
United Kingdom - 0.37%
Antofagasta PLC 2,918,180 49,783 0.32
Marakand Minerals Ltd. (2) 762,000 458 -
Oxus Gold PLC (2) 7,720,000 8,472 0.05
58,713 0.37
Unites States of America - 0.11%
AsiaInfo Holdings, Inc. (2) 936,540 4,945 0.03
Sohu.com Inc. (2) 597,400 11,876 0.08
16,821 0.11
Venezuela - 0.28%
Cia. Anonima Nacional Telefonos de Venezuela (CANTV), Class D (ADR) 2,174,589 43,818 0.28
Vietnam - 0.06%
Vietnam Enterprise Investments Ltd., Redeemable (acquired 9/20/01,
cost: $8,432,000) (1) (2) (3) 7,888,071 10,255 0.06
Multinational - 0.46%
Capital International Global Emerging Markets Private Equity Fund, LP
(acquired 6/30/99, cost: $33,832,000) (1) (3) (4) 56,000 32,997 0.21
New Asia East Investment Fund Ltd., Class A (acquired 5/23/96, cost: $917,000) (1) (3) 279,240 767
New Asia East Investment Fund Ltd., Class B (acquired 5/23/96, cost: $12,522,000) (1) (3) 3,810,369 10,471 0.07
New Europe East Investment Fund Ltd., Class B (acquired 6/4/93, cost: $21,812,000) (1) (3) 436 22,603 0.15
Pan Asia Special Opportunities Fund (Cayman) (acquired: 10/18/00, cost: $5,914,000) (1) (2) (3) (4) 600,000 5,202 0.03
72,040 0.46
Miscellaneous - 0.71%
Equity securities in initial period of acquisition 111,134 0.71
Total equity securities (cost: $10,502,935,000) 15,297,983 97.08
Units or Market Percent
BONDS AND NOTES principal value of net
amount (000) (000) assets
Argentina - 0.22%
Multicanal SA:
9.25% February 1, 2002 (5) $2,609 965
10.50% February 1, 2007 (6) 1,244 460
10.50% April 15, 2018 (6) 2,289 847
13.125% April 15, 2009 (6) 1,122 415 0.02%
Republic of Argentina:
1.234% August 3, 2012 (7) 4,464 2,964
7.00%/15.50% December 19, 2008 (6) (7) 2,000 550
9.75% September 19, 2027 (6) 4,830 1,340
11.75% April 7, 2009 (6) 1,920 557
Payment-in-Kind Bonds:
12.00% June 19, 2031 (6) 1,118 302
12.25% June 19, 2018 (6) 589 160 0.04
Telecom Argentina STET- France Telecom SA:
0% July 7, 2003 Agent - Bank of Tokyo-Mitsubishi Trust Company/Loan Participation
Agreements (participation - Credit Suisse First Boston International) (5) (8) 12,100 9,922
0% August 18, 2003 Agent - Bayerische Landesbank Girozentrale/Loan Participation
Agreements (participation - Credit Suisse First Boston International) (5) (8) JPY440,908 3,307
0% September 25, 2003 Agent - Bank of America, N.A./Loan Participation Agreements
(participation - Credit Suisse First Boston International) (5) (8) $3,965 3,251
0% October 7, 2003 Agent - Bank of America, N.A./Loan Participation Agreements
(participation - Credit Suisse First Boston International) (5) (8) 3,965 3,251
Series K, 7.25% July 1, 2002 (5) EUR3,205 3,334
Series 1, 8.375% April 8, 2004 (5) 1,145 1,191
Series 2, 9.50% July 2, 2004 (6) 1,480 1,539 0.16
34,355 0.22
Brazil - 0.13%
Federal Republic of Brazil:
10.00% August 7, 2011 $8,750 8,531
10.25% June 17, 2013 370 359
11.00% August 17, 2040 3,785 3,572
Capitalization Payment-in-Kind Bond, 8.00% April 15, 2014 493 453
Debt Conversion Bond, Series L, 2.125% April 15, 2012 (7) 7,624 6,461
MYDFA Trust 2.00% September 15, 2007 (acquired 10/2/96, cost: $1,228,000) (1) (7) 1,289 1,173
New Money Bond, Series L, 2.125% April 15, 2009 (7) 544 495 0.13
21,044 0.13
Bulgaria - 0.01%
Republic of Bulgaria 7.50% January 15, 2013 EUR750 1,055 0.01
Colombia - 0.17%
Republic of Columbia:
10.00% January 23, 2012 $5,140 5,346
10.375% January 28, 2033 8,255 8,049
10.75% January 15, 2013 3,335 3,568
11.375% January 31, 2008 EUR5,975 8,190
11.75% February 25, 2020 $1,340 1,471 0.17
26,624 0.17
Dominican Republic - 0.02%
Dominican Republic:
2.063% August 30, 2024 (7) 500 332
9.04% January 23, 2013 (acquired 1/16/03, cost: $2,400,000) (1) 2,400 1,524
9.50% September 27, 2006 820 566
9.50% September 27, 2006 (acquired 9/20/01, cost: $2,307 000) (1) 2,305 1,590 0.02
4,012 0.02
Ecuador - 0.04%
Republic of Ecuador 7.00% August 15, 2030 (7) 8,675 6,148 0.04
India - 0.02%
Hinudstan Lever Ltd. 9.00% January 1, 2005 28,898 units 3,767 0.02
Mexico - 0.16%
Innova, S de RL 12.875% Senior Notes Due April 1, 2007 $235 239 -
United Mexican States Government:
5.375% June 10, 2013 EUR1,125 1,329
7.375% March 13, 2008 1,650 2,203
7.50% March 8, 2010 7,360 9,969
7.50% January 14, 2012 $500 540
7.625% October 1, 2004 EUR7,262 8,938
8.375% January 14, 2011 $1,500 1,699 0.16
24,917 0.16
Nigeria - 0.00%
Central Bank of Nigeria, warrants, 0% November 15, 2020 1,000 units - -
Panama - 0.04%
Republic of Panama:
9.375% January 16, 2023 $3,994 4,094
9.375% April 1, 2029 1,505 1,674 0.04
5,768 0.04
Peru - 0.02%
Republic of Peru:
9.125% February 21, 2012 934 962
9.875% February 6, 2015 2,035 2,137 0.02
3,099 0.02
Philippines - 0.06%
Republic of Philippines:
9.125% February 22, 2010 (acquired 10/22/03, cost: $734,000) (1) EUR600 751
10.625% March 16, 2025 $8,420 8,757 0.06
9,508 0.06
Russian Federation - 0.13%
Gaz Capital SA 8.625% April 28, 2034 (acquired 4/23/04, cost: $1,100,000) (1) 1,100 1,071 0.01
Russian Federation:
5.00% March 31, 2030 (7) 2,500 2,295
5.00% March 31, 2030 (acquired 8/25/00, cost: $6,289,000) (1) (7) 13,855 12,721
8.25% March 31, 2010 1,500 1,633
8.25% March 31, 2010 (acquired 8/25/00, cost: $1,883,000) (1) 2,396 2,608 0.12
20,328 0.13
Turkey - 0.05%
Republic of Turkey:
7.75% April 14, 2005 EUR6,535 8,163
Treasury Bill:
0% August 18, 2004 (9) TRL540,000,000 354 0.05
8,517 0.05
Ukraine - 0.02%
Ukraine Government 7.65% June 11, 2013 (acquired 6/6/03, cost: $2,998,000) (1) $2,965 2,839 0.02
Uruguay - 0.01%
Republic of Uruguay:
7.25% February 15, 2011 385 316
7.50% March 15, 2015 305 226
Capitalization Payment-in-Kind Bond, 7.875% January 15, 2033 995 637 0.01
1,179 0.01
Venezuela - 0.13%
Petrozuata Finance, Inc., Series B, 8.22% April 1, 2017 (acquired 4/12/02, cost: $1,175,000) (1) 1,520 1,436 0.01
Republic of Venezuela:
9.25% September 15, 2027 19,495 16,571
10.75% September 19, 2013 2,985 2,948 0.12
20,955 0.13
Total bonds and notes (cost: $173,640,000) 194,115 1.23
Units or Market Percent
SHORT-TERM SECURITIES principal value of net
amount (000) (000) assets
Corporate short-term notes - 1.00%
Amsterdam Funding Corp. 1.22-1.25% due 7/9-7/16/04 $65,000 $64,974 0.41%
Barton Capital Corp. 1.04-1.16% due 7/2-7/9/04 48,046 48,034 0.30
Clipper Receivables Corp. 1.50% due 7/1/04 15,400 15,399 0.10
Old Line Funding Corp. 1.05% due 7/1/04 3,368 3,368 0.02
Sheffield Receivables Corp. 1.24% due 7/9/04 26,400 26,392 0.17
158,167 1.00
Federal agency discount notes - 0.28%
Federal Home Loan Bank Discount Corp. 1.25% due 7/16/04 43,900 43,876 0.28
U.S. government short-term obligations - 0.26%
U.S. Treasury Bill 1.07% due 7/15/04 40,600 40,582 0.26
Non-U.S. currency - 0.06%
Taiwan New Dollar TWD340,182 10,133 0.06
Non-U.S. government short-term obligations - 0.03%
Turkish Government Treasury Bill 0% due 12/15/04 (9) TRL7,825,000,000 4,726 0.03
Total short-term securities (cost: $257,749,000) 257,484 1.63
Total investment securities (cost: $10,934,324,000) 15,749,582 99.94
Net unrealized depreciation on foreign currency contracts (10) (29,992) (0.19)
Excess of cash and receivables over payables 38,658 0.25
Net assets $15,758,248 100.00
(1) Purchased in a private placement transaction (not including purchases of
securities that were publicly offered in the primary local market but were
not registered under U.S. securities laws); resale to the public may
require registration in the country where the primary market is located,
and no right to demand registration exists. As of June 30, 2004, the total
market value and cost of such securities were $223,573,000 and $401,090,000
respectively, and the market value represented 1.42% of net assets.
(2) Non-income-producing securities.
(3) This issuer represents investment in an affiliate as defined in the
Investment Company Act of 1940. This definition includes, but is not
limited to, issuers in which the fund owns more than 5% of the outstanding
voting securities. New Asia East Investment Fund Ltd., New Europe East
Investment Fund Ltd., and Capital International Global Emerging Markets
Private Equity Fund, LP are also considered affiliates since these
companies have the same investment adviser as the fund.
(4) Includes an unfunded capital commitment representing a binding commitment
made by the fund which may be paid in the future.
(5) Security is currently in default pending restructuring; no principal or
interest payments received on the scheduled dates.
(6) Security is currently in default; no interest payments received on the
scheduled payment dates.
(7) Coupon rate may change periodically.
(8) Participation interests were acquired through the financial institution
indicated parenthetically.
(9) Represents a zero coupon bond that may convert to a coupon-bearing security
at a later date.
(10) As of June 30, 2004, the net unrealized foreign currency contracts payable
consists of the following:
Contract amount U.S. valuation
Unrealized
(depreciation)
Non-U.S. U.S. Amount appreciation
(000) (000) (000) (000)
SALES:
Czech Koruna to Euro expiring 9/1-12/10/04 CZK1,038,029/EUR32,410 $ 39,387 $ 39,483 $ (96)
Mexican Peso to U.S. Dollar expiring 12/22-12/23/04 MXN478,150 40,380 40,310 70
South African Rand to U.S. Dollar expiring 7/16-12/15/04 ZAR2,177,720 314,567 344,533 (29,966)
Foreign currency contracts - net $(29,992)
ABBREVIATIONS
Securities:
ADR = American Depositary Receipts
GDR = Global Depositary Receipts
GDS = Global Depositary Shares
Non-U.S. currency:
CZK - Czech Koruna
EUR - Euro
JPY - Japanese Yen
MXN - Mexican Peso
TRL - Turkish Lira
TWD - Taiwan New Dollar
ZAR - South African Rand
See Notes to Financial Statements
EQUITY SECURITIES ADDED TO THE PORTFOLIO SINCE DECEMBER 31, 2003
AMMB Holdings
Anhui Conch Cement
Baiksan OPC
Bank Rakyat
Barloworld
Benq
Bharat Electronics
Celular CRT
China Mengniu Dairy
Chinatrust Financial Holding
Comercial Siglo XXI
Commerce Asset-Holding
Daewoo Heavy Industries & Machinery
Grupo IMSA
Grupo Modelo
Hindustan Petroleum
Indian Petrochemicals
Indonesian Satellite
Kook Soon Dang Brewery
KT&G
LG Cable
Marakand Minerals
Mega Financial Holding
MK Land Holdings
Mvelaphanda Resources
Nasionale Pers Beperk
NetEase.com
Oil & Natural Gas
Orascom Telecom
PICC Property and Casualty
Public Bank
Sberbank
Semiconductor Manufacturing International
Shanghai Forte Land
Shangri-La Asia
SINA
Sohu.com
Sunplus Technology
Tansas Perakende Magazacilik
Telekom Malaysia
Teva Pharmaceutical Industries
UBS AG Call Warrants on Beijing Yanjing Brewery
UltraTech CemCo
Urbi Desarrollos Urbanos
Vanguard International Semiconductor
Weiqiao Textile
Wumart Stores
EQUITY SECURITIES ELIMINATED FROM THE PORTFOLIO SINCE DECEMBER 31, 2004
Ambit Microsystems
America Telecom
Apasco
Bank of the Philippine Islands
Bank Polska Kasa Opieki
China International Marine Containers (Group)
Compal Electronics
Eregli Demir ve Celik Fabrikalari
Fountain Set (Holdings)
Global Bio-chem Technology Group
Grupo Financiero BBVA Bancomer
Grupo Mexico
IJM Plantations
Industrias Penoles
Jiangsu Expressway
KorAm Bank
Korea Exchange Bank
KT Freetel
LG Card
Metalink
Nova Measuring Instruments
POSCO
Realtek Semiconductor
Sinopec Shanghai Petrochemical
Tata Power
Telkom
UBS AG Call Warrants on Baoshan Iron & Steel
United Microelectronics
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES at June 30, 2004
(dollars in thousands, except per-share data)
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $10,016,826) $14,727,263
Affiliated issuers (cost: $917,498) 1,022,319 $15,749,582
Cash 14,180
Receivables for--
Sales of investments 43,598
Sales of fund's shares 1,500
Dividends and interest 51,303
Non-U.S. taxes 16,785 113,186
15,876,948
LIABILITIES:
Payables for--
Purchases of investments 33,477
Unfunded capital commitments 13,394
Open forward currency contracts 29,992
Investment advisory fee 8,036
Other fees and expenses 1,418
Non-U.S. taxes 32,383
118,700
NET ASSETS AT JUNE 30, 2004
Equivalent to $59.35 per share on 265,529,649 shares of $0.01 par value
capital stock outstanding (authorized capital stock -- 400,000,000 shares) $15,758,248
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $12,862,626
Distributions in excess of net investment income (31,819)
Accumulated net realized loss (1,826,655)
Net unrealized appreciation 4,754,096
NET ASSETS AT JUNE 30, 2004 $15,758,248
See Notes to Financial Statements
STATEMENT OF OPERATIONS for the year ended June 30, 2004
(dollars in thousands)
INVESTMENT INCOME:
Income:
Dividends (net of non-U.S. withholding tax of $44,820;
also includes $50,154 from affiliates) $392,244
Interest (includes $350 from affiliates) 36,177 $ 428,421
Fees and expenses:
Investment advisory services 112,641
Custodian 14,535
Registration statement and prospectus 51
Auditing and legal 398
Reports to shareholders 32
Directors' compensation 344
Other 576 128,577
Net investment income 299,844
REALIZED GAIN AND UNREALIZED APPRECIATION ON INVESTMENTS:
Net realized gain before non-U.S. taxes (includes $9,346 net gain from affiliates) 2,835,460
Non-U.S. taxes (16,901)
Net realized gain on investments 2,818,559
Net change in unrealized appreciation on investment securities and
other assets and liabilities 1,560,367
Net change in unrealized depreciation on open forward currency contracts 6,722
Net change in unrealized appreciation 1,567,089
Non-U.S. taxes (27,073)
Net change in unrealized appreciation on investments 1,540,016
Net realized gain and net change in unrealized appreciation on investments 4,358,575
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,658,419
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
(dollars in thousands) Year ended June 30
2004 2003
OPERATIONS:
Net investment income $ 299,844 $ 311,877
Net realized gain (loss) on investments 2,818,559 (1,718,672)
Net change in unrealized appreciation on investments 1,540,016 2,368,758
Net increase in net assets resulting from operations 4,658,419 961,963
DIVIDENDS AND DISTRIBUTIONS PAID TO SHAREHOLDERS:
Dividends from net investment income (412,626) (180,200)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold: 19,080,947 and 19,286,400 shares, respectively 1,152,989 795,692
Proceeds from shares issued in reinvestment of net investment income dividends:
6,472,738 and 3,939,072 shares, respectively 378,267 164,417
Cost of shares repurchased: 100,778,444 and 45,350,474 shares, respectively (6,173,186) (1,845,514)
Net decrease in net assets resulting from capital share transactions (4,641,930) (885,405)
TOTAL DECREASE IN NET ASSETS (396,137) (103,642)
NET ASSETS:
Beginning of year 16,154,385 16,258,027
End of year (including distributions in excess of net investment
income and undistributed net investment income:($31,819) and $153,077, respectively) $15,758,248 $16,154,385
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Emerging Markets Growth Fund, Inc. (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, interval investment
company ("open-end interval fund"). As an open-end interval fund, the fund
offers its shareholders the opportunity to purchase and redeem shares on a
periodic basis. The fund's investment objective is to seek long-term capital
growth by investing primarily in equity securities of issuers in developing
countries.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official closing
price of, or the last reported sale price on, the principal exchange or
market on which such securities are traded, as of the close of business or,
lacking any sales, at the last available bid price. Bonds and notes are
valued at prices obtained from a pricing service. However, where the
investment adviser deems it appropriate, they will be valued at the mean
quoted bid and asked prices or at prices for securities of comparable
maturity, quality, and type. Short-term securities with original maturities
of one year or less maturing within 60 days are valued at amortized cost,
which approximates market value. Forward currency contracts are valued at
the mean of their representative quoted bid and asked prices. Securities
and assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith under
policies approved by the fund's Board.
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 securities 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.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities denominated in
non-U.S. currencies are translated into U.S. dollars at the exchange rates
in effect at the end of the reporting period. Purchases and sales of
investment securities and income and expenses are translated into U.S.
dollars at the exchange rates on the dates of such transactions. In the
accompanying financial statements, the effects of changes in non-U.S.
exchange rates on investment securities and other assets and liabilities
are included with the net realized gain or loss and net change in
unrealized appreciation or depreciation on investments.
UNFUNDED CAPITAL COMMITMENTS - Unfunded capital commitments represent
agreements which obligate the fund to meet capital calls in the future.
Payment would be made when a capital call is requested. Capital calls can
only be made if and when certain requirements have been fulfilled; thus,
the timing of such capital calls cannot readily be determined. Unfunded
capital commitments are recorded at the amount that would be paid when and
if capital calls are made.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange non-U.S. currencies on
specific future dates at predetermined rates. The fund enters into these
contracts to manage its exposure to changes in exchange rates arising from
its investments. Upon entering into these contracts, risks may arise from
the potential inability of counterparties to meet the terms of their
contracts and from possible movements in non-U.S. exchange rates and
securities' values underlying these instruments. The face or contract
amount in U.S. dollars reflects the total exposure the fund has in that
particular contract. On a daily basis, the fund values forward currency
contracts based on the applicable exchange rates and records unrealized
gains or losses. The fund records realized gains or losses at the time the
forward contact is closed or offset by another contract with the same
broker for the same settlement date and currency.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions,
revaluation of currencies, adverse political, social and economic developments,
government involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
Gains realized by the fund on the sale of securities in certain countries are
subject to non-U.S. taxes. The fund records an estimated liability based on
unrealized gains to provide for potential non-U.S. taxes payable upon the sale
of these securities. As of June 30, 2004, accrued non-U.S. taxes on unrealized
gains were $30,695,000, which were included in the payable for non-U.S. taxes.
The receivable for non-U.S. taxes includes $15,701,000 related to India capital
gains taxes that are currently in dispute and under appeal. Potential tax,
interest, and penalty amounts relating to this issue, if any, may be assessed in
the future. Based upon the advice of outside counsel, management believes that
it is likely that this dispute will be resolved in favor of the fund. If this
dispute is ultimately resolved unfavorably, it will not have a material adverse
effect on the fund's financial position or results of operations.
CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends, interest,
withholding taxes reclaimable, forward contracts, and other receivables and
payables, on a book basis, were $85,559,000 for the year ended June 30, 2004.
3. 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.
Distributions are based on net investment income and net realized gains
determined on a tax basis, which may differ from net investment income and net
realized gains for financial reporting purposes. These differences are due
primarily to differing treatment for items such as non-U.S. currency gains and
losses, capital losses related to sales of securities within 30 days of
purchase, and unrealized appreciation or depreciation of certain investments in
non-U.S. securities. 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. The tax character of the distribution paid of $412,626,000
was ordinary income.
As of June 30, 2004, undistributed ordinary income, net of currency losses, on a
tax basis were $103,406,000.
The total non-U.S. currency loss deferral that was realized during the period
November 1, 2003 through June 30, 2004 was $66,822,000. As of June 30, 2004, the
fund had available a capital loss carryforward of $1,795,736,000, expiring 2011.
The capital loss carryforward will be used to offset any capital gains realized
by the fund in the current year or subsequent years through the expiration date.
The fund will not make distributions from capital gains while a capital loss
carryforward remains.
During the year ended June 30, 2004, the fund reclassified $72,114,000 from
distributions in excess of net investment income to accumulated net realized
loss.
As of June 30, 2004, the cost of investment securities, excluding forward
currency contracts, and cash denominated in non-U.S. currencies for federal
income tax reporting purposes was $11,072,568,000. Net unrealized appreciation
on investments, excluding forward currency contracts, aggregated $4,646,319,000,
net of accumulated deferred taxes totaling $30,695,000, of which $5,408,721,000
related to appreciated securities and $762,402,000 related to depreciated
securities.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY SERVICES FEE - The Investment Advisory and Service Agreement
with Capital International, Inc. (CII) provides for monthly management service
fees, accrued weekly. CII is wholly owned by Capital Group International, Inc.,
which is wholly owned by The Capital Group Companies, Inc. These fees are based
on an annual rate of 0.90% on the first $400 million of the fund's net assets;
0.80% of such assets in excess of $400 million but not exceeding $1 billion;
0.70% of such assets in excess of $1 billion but not exceeding $2 billion; 0.65%
of such assets in excess of $2 billion but not exceeding $4 billion; 0.625% of
such assets in excess of $4 billion but not exceeding $6 billion; 0.60% of such
assets in excess of $6 billion but not exceeding $8 billion; 0.58% of such
assets in excess of $8 billion but not exceeding $11 billion; 0.56% of such
assets in excess of $11 billion but not exceeding $15 billion; 0.54% of such
assets in excess of $15 billion but not exceeding $20 billion; and 0.52% of such
assets in excess of $20 billion.
TRANSFER AGENT FEE - The fund has an agreement with American Funds Service
Company (AFS), the transfer agent for the fund. AFS is a wholly owned indirect
subsidiary of The Capital Group Companies, Inc. Under this agreement, the fund
compensates AFS for transfer agency services including shareholder
recordkeeping, communications, and transaction processing. Transfer agent fees
were $2,000 for the year ended June 30, 2004.
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1998, Directors who are unaffiliated with CII may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or the American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Directors' compensation in the accompanying financial statements
includes the current fees (either paid in cash or deferred) and the net increase
or decrease in the value of the deferred amounts. Directors' compensation for
the year ended June 30, 2004 was $344,000, representing $226,000 in current fees
(either paid in cash or deferred) and $118,000 in net increase in the value of
deferred compensation amounts. As of June 30, 2004, the cumulative amount of
these liabilities was $459,000. This amount is included with payables for other
fees and expenses.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CII. No affiliated officers and
Directors received any compensation directly from the fund.
5. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited (for
example, in the U.S., to qualified institutional buyers) or which are otherwise
restricted. These securities are identified in the investment portfolio. As of
June 30, 2004, the total value of restricted securities was $223,573,000, which
represents 1.42% of the net assets of the fund.
6. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $6,299,556,000 and $10,883,398,000, respectively, during the year
ended June 30, 2004.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended June 30, 2004, the custodian fee of $14,535,000 is reported net of
$33,000 reduction.
7. TRANSACTIONS WITH AFFILIATES
If the fund owns more than 5% of the outstanding voting securities of an issuer,
the fund's investment in that issuer represents an investment in an affiliate as
defined in the Investment Company Act of 1940. In addition, New Asia East
Investment Fund Ltd., New Europe East Investment Fund Ltd., and Capital
International Global Emerging Markets Private Equity Fund, 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, 2004 is as follows:
Beginning Purchases/ Sales/ Ending
Issuer shares additions reductions shares
AFFILIATED ISSUERS:
Advanced Semiconductor Engineering 206,961,992 49,911,199 61,728,000 195,145,191
Anhui Conch Cement - 39,937,000 - 39,937,000
BYD 13,299,000 - - 13,299,000
Cummins India 10,446,937 - - 10,446,937
Embotelladora Andina 6,830,323 170,700 572,000 6,429,023
Housing Development Finance 20,930,306 - 4,292,322 16,637,984
Hyundai Development 4,443,274 - - 4,443,274
Ivanhoe Mines 18,100,000 - 911,000 17,189,000
LG Cable - 1,629,160 - 1,629,160
LG Engineering & Construction 2,289,280 299,790 - 2,589,070
Mvelaphanda Resources - 9,142,000 - 9,142,000
S P Setia Berhad - 34,837,100 - 34,837,100
Shanghai Forte Land - 55,154,000 - 55,154,000
Tele Norte Celular Participacoes 9,099,917,203 115,467,336 - 9,215,384,539
Tong Ren Tang Technologies 4,623,900 906,000 - 5,529,900
Tong Yang Industry 20,678,000 620,340 - 21,298,340
UMW Holdings 14,464,678 11,363,118 - 25,827,796
Wumart Stores - 6,460,000 - 6,460,000
AFFILIATED PRIVATE EQUITY FUNDS/PRIVATE PLACEMENTS:
Baring Vostok Private Equity Fund 13,087,057 - - 13,087,057
Capital International Global Emerging
Markets Private Equity Fund 56,000 - - 56,000
Hidroneuquen 28,022,311 - - 28,022,311
New Asia East Investment Fund 4,300,000 - 210,391 4,089,609
New Europe East Investment Fund 436 - - 436
New GP Capital Partners 27,000 - - 27,000
Pan Asia Special Opportunities Fund 600,000 - - 600,000
Seres Capital 10 - - 10
South African Private Equity Fund III, LP 22,535 6,473 - 29,008
Vietnam Enterprise Investments 4,392,828 4,120,000 624,757 7,888,071
UNAFFILIATED ISSUERS (1):
Anadolu Efes Biracilik ve Malt Sanayii 3,837,732,296 4,797,165,370 4,514,835,700 4,120,061,966
AsiaInfo Holdings 3,133,450 - 2,196,910 936,540
Bank Zachodni WBK 2,326,206 - 2,083,006 243,200
China Oilfield Services 100,409,100 - 73,286,100 27,123,000
China.com 5,500,600 - 2,537,000 2,963,600
Harbin Brewery Group 28,832,000 32,161,000 47,949,063 13,043,937
ICICI Bank 29,308,965 3,454,900 15,780,421 16,983,444
Infosys Technologies 3,689,710 356,405 907,661 3,138,454
LG Card 6,113,084 1,618,300 7,731,384 -
LG Card, 3.00% convertible notes, January 21, 2009 - 2,882,100,000 2,882,100,000 -
Migros Turk 4,665,319,198 4,631,374,797 4,374,826,000 4,921,867,995
Orbotech 2,365,525 - 1,402,500 963,025
Philippine Long Distance Telephone 9,697,150 - 9,420,190 276,960
PT Astra International 236,137,384 - 145,771,000 90,366,384
PT Hanjaya Mandala Sampoerna 256,401,300 - 71,916,000 184,485,300
Samsung Fire & Marine Insurance 2,473,491 404,320 426,930 2,450,881
Taiwan Hon Chuan Enterprise 6,090,000 1,164,500 - 7,254,500
VIA Technologies - 78,253,150 21,317,000 56,936,150
Yapi Kredi Koray 1,210,400,000 - 1,210,400,000 -
Yapi ve Kredi Bankasi 49,373,134,320 - 40,627,581,700 8,745,552,620
Dividend Market value
and interest of affiliates
Issuer income (000) at (000)
AFFILIATED ISSUERS:
Advanced Semiconductor Engineering $ $154,628
Anhui Conch Cement 374 44,294
BYD 823 39,304
Cummins India 459 22,497
Embotelladora Andina 2,334 75,488
Housing Development Finance 4,966 187,237
Hyundai Development 1,858 41,355
Ivanhoe Mines - 92,594
LG Cable - 24,120
LG Engineering & Construction 2,256 42,703
Mvelaphanda Resources - 25,026
S P Setia Berhad 577 36,304
Shanghai Forte Land - 12,092
Tele Norte Celular Participacoes 137 6,192
Tong Ren Tang Technologies 287 11,805
Tong Yang Industry 457 34,260
UMW Holdings 891 34,664
Wumart Stores - 12,424
AFFILIATED PRIVATE EQUITY FUNDS/PRIVATE PLACEMENTS:
Baring Vostok Private Equity Fund - 15,457
Capital International Global Emerging
Markets Private Equity Fund 171 32,997
Hidroneuquen - 878
New Asia East Investment Fund 151 11,238
New Europe East Investment Fund 3,786 22,603
New GP Capital Partners - 5,684
Pan Asia Special Opportunities Fund - 5,202
Seres Capital 122 139
South African Private Equity Fund III, LP - 20,879
Vietnam Enterprise Investments - 10,255
UNAFFILIATED ISSUERS (1):
Anadolu Efes Biracilik ve Malt Sanayii 2,063 -
AsiaInfo Holdings - -
Bank Zachodni WBK 17 -
China Oilfield Services 219 -
China.com - -
Harbin Brewery Group 145 -
ICICI Bank 7,412 -
Infosys Technologies 9,179 -
LG Card - -
LG Card, 3.00% convertible notes, January 21, 2009 40 -
Migros Turk 542 -
Orbotech - -
Philippine Long Distance Telephone 177 -
PT Astra International 2,077 -
PT Hanjaya Mandala Sampoerna 5,903 -
Samsung Fire & Marine Insurance 2,086 -
Taiwan Hon Chuan Enterprise 209 -
VIA Technologies 786 -
Yapi Kredi Koray - -
Yapi ve Kredi Bankasi - -
$50,504 $1,022,319
(1) Affiliated during the period but no longer affiliated at June 30, 2004
FINANCIAL HIGHLIGHTS
YEAR ENDED JUNE 30 (1)
2004 2003 2002 2001 2000
Net asset value, beginning of year $47.41 $44.80 $48.21 $68.69 $55.53
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .96 .92 .35 .68 .58
Net realized and unrealized gain (loss) on investments 12.24 2.21 (3.07) (20.80) 13.56
Total income(loss) from investment operations 13.20 3.13 (2.72) (20.12) 14.14
LESS DISTRIBUTIONS:
Dividends from net investment income (1.26) (.52) (.69) (.36) (.98)
Net asset value, end of year $59.35 $47.41 $44.80 $48.21 $68.69
Total return 27.89% 7.14% (5.64)% (29.31)% 25.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $15,758 $16,154 $16,258 $17,634 $22,639
Ratio of expenses to average net assets .70% .70% .70% .68% .71%
Ratio of net income to average net assets 1.64% 2.14% 1.27% 1.25% 1.11%
Portfolio turnover rate 35.36% 33.70% 26.22% 26.10% 35.86%
(1) Starting with the year ended June 30, 2004, 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:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Emerging Markets Growth Fund (the"Fund") at
June 30, 2004, and the results of its operations, the changes in its net assets,
and its financial highlights for each of the periods presented, 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), which 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
August 11, 2004
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year. The information below is provided for the
fund's fiscal year ending June 30, 2004.
The fund makes an election under the Internal Revenue Code Section 853 to pass
through certain non-U.S. taxes paid by the fund to its shareholders as a foreign
tax credit. The amount of foreign tax credit passed through to shareholders for
the fiscal year is $55,105,000. Foreign-source income earned by the fund for the
fiscal year was $395,207,000. Shareholders are entitled to a foreign tax credit
or an itemized deduction, at their discretion. Generally, it is more
advantageous to claim a credit than to take a deduction.
Individual shareholders are eligible for reduced tax rates on qualified dividend
income. For purposes of computing the dividends eligible for reduced tax rates,
$327,167,000 of the dividends paid by the fund from ordinary income earned
during the fiscal year are considered qualified dividend income.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting
SINCE THE INFORMATION ABOVE IS REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION, WHICH WILL BE MAILED IN JANUARY 2005 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2004 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
BOARD OF DIRECTORS AND DIRECTOR EMERITUS
"NON-INTERESTED" DIRECTORS
Year first
elected
a Director
Name and age of the fund (1) Principal occupation(s) during past five years
COLLETTE D. CHILTON, 46 1999 President and Chief Investment Officer, Lucent Asset Management Corp.
KHALIL FOULATHI, 53 1996 Executive Director, Abu Dhabi Investment Authority
BEVERLY L. HAMILTON, 57 1991 Retired President, ARCO Investment Management Company
DAVID F. HOLSTEIN, 49 2001 Managing Director, Global Equities,
General Motors Investment Management Corporation
RAYMOND KANNER, 51 1997 Director, Global Equity Investments, IBM Retirement Funds
HELMUT MADER, 62 1986 Former Director, Deutsche Bank AG
WILLIAM B. ROBINSON, 66 1986 Director, Deutsche Asset Management Australia Limited
GERRIT RUSSELMAN, 58 2001 Adviser to the Managing Director, Investments, Pensioenfonds PGGM
AJE K. SAIGAL, 48 2000 Director, Investment Policy and Strategy, Government of Singapore
Investment Corporation Pte. Limited
"NON-INTERESTED" DIRECTORS
Number of
boards within
the fund
complex (2)
on which
Name and age Director serves Other directorships (3) held by Director
COLLETTE D. CHILTON, 46 1 None
KHALIL FOULATHI, 53 1 Thuraya Telecommunications Company
BEVERLY L. HAMILTON, 57 1 Oppenheimer Funds
DAVID F. HOLSTEIN, 49 1 None
RAYMOND KANNER, 51 1 None
HELMUT MADER, 62 1 None
WILLIAM B. ROBINSON, 66 1 Southern Mining Corporation
GERRIT RUSSELMAN, 58 1 Industri Kapital Limited
AJE K. SAIGAL, 48 1 None
"INTERESTED" DIRECTORS (4)
Year first
elected a
Director or Principal occupation(s) during past five years
Name, age and officer and positions held with affiliated entities or the
position with fund of the fund (1) principal underwriter of the fund
ROBERT RONUS, 61 2003 Vice Chairman of the Board, Capital Guardian Trust Company (5);
Chairman of the Board Non-Executive Chair, The Capital Group Companies, Inc. (6)
NANCY ENGLANDER, 60 (7) 1991 Senior Vice President,
Vice Chairman of the Board Capital International, Inc.
DAVID I. FISHER, 64 1986 Chairman of the Board,
Vice Chairman of the Board Capital Group International, Inc. (5)
SHAW B. WAGENER, 45 1997 Chairman of the Board,
President and Chief Executive Capital International, Inc.
Officer
VICTOR D. KOHN, 46 1996 President and Director,
Executive Vice President Capital International, Inc.
"INTERESTED" DIRECTORS (4)
Number of
boards
within the
fund complex (2)
Name, age and on which Other directorships (3)
position with fund Director serves held by Director
ROBERT RONUS, 61 1 None
Chairman of the Board
NANCY ENGLANDER, 60 (7) 1 None
Vice Chairman of the Board
DAVID I. FISHER, 64 1 None
Vice Chairman of the Board
SHAW B. WAGENER, 45 1 None
President and Chief Executive
Officer
VICTOR D. KOHN, 46 1 None
Executive Vice President
DIRECTOR EMERITUS
WALTER P. STERN
Chairman Emeritus
OTHER OFFICERS
Year first
elected an Principal occupation(s) during past five years and
Name, age and officer of positions held with affiliated entities or the principal
position with fund the fund (1) underwriter of the fund
HARTMUT GIESECKE, 66 1993 Chairman of the Board, Capital International K.K. (5);
Senior Vice President Senior Vice President and Director, Capital International, Inc.
NANCY J. KYLE, 54 1996 Vice Chairman of the Board, Capital Guardian Trust
Senior Vice President Company (5)
MICHAEL A. FELIX, 43 1993 Senior Vice President and Director, Capital
Vice President and International, Inc.
Treasurer
PETER C. KELLY, 45 1996 Senior Vice President, Senior Counsel and Director,
Vice President Capital International, Inc.
ROBERT H. NEITHART, 39 2000 Executive Vice President and Research Director of Emerging Markets,
Vice President and Director, Capital International Research, Inc. (5)
ABBE G. SHAPIRO, 44 1997 Vice President, Capital International, Inc.
Vice President
LISA B. THOMPSON, 38 2000 Executive Vice President and Research Director of Emerging Markets,
Vice President and Director, Capital International Research, Inc. (5)
VINCENT P. CORTI, 48 1986 Vice President -- Fund Business Management Group,
Secretary Capital Research and Management Company (5)
VALERIE Y. LEWIS, 48 1999 Fund Boards Specialist, Capital Research and Management Company (5)
Assistant Secretary
JEANNE M. NAKAGAMA, 46 2000 Vice President, Capital International, Inc.
Assistant Treasurer
LEE K. YAMAUCHI, 42 2000 Vice President, Capital International, Inc.
Assistant Treasurer
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT FUND DIRECTORS. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS
11100 SANTA MONICA BOULEVARD, LOS ANGELES, CA 90025, ATTENTION: FUND SECRETARY.
CAPITAL INTERNATIONAL, INC. (CII) VOTES THE PROXIES OF SECURITIES HELD IN THE
FUND ACCORDING TO CII'S PROXY VOTING POLICY AND PROCEDURES WHICH HAVE BEEN
ADOPTED BY THE FUND'S BOARD OF DIRECTORS.
A COPY OF THE FUND'S SAI, PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING
RECORD FOR THE MOST RECENT 12 MONTH PERIOD ENDED JUNE 30 IS AVAILABLE FREE OF
CHARGE UPON REQUEST BY CALLING 800/421-0180, EXT. 96245. THE SAI, WHICH INCLUDES
THE PROXY VOTING POLICY AND PROCEDURES, AND THE FORM N-PX, WHICH REFLECTS THE
FUND'S PROXY VOTING RECORD, ARE ALSO AVAILABLE ON THE U.S. SECURITIES AND
EXCHANGE COMMISSION'S WEBSITE AT WWW.SEC.GOV.
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital International, Inc. serves as investment adviser for Emerging
Markets Growth Fund, Inc., an open-end "interval" fund, and does not act as
investment adviser for other U.S. registered investment companies.
(3) This includes all directorships (other than those in Emerging Markets
Growth Fund, Inc.) that are held by each Director as a director of a public
company or a U.S. registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act, on the basis of
their affiliation with the fund's investment adviser, Capital
International, Inc. or affiliated entities.
(5) Company affiliated with Capital International, Inc.
(6) Parent company of Capital International, Inc.
(7) Nancy Englander retired on July 15, 2004.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital International, Inc.
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, CA 90025-3302
135 South State College Boulevard
Brea, CA 92821-5823
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006-2401
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
350 South Grand Avenue
Los Angeles, CA 90071-2889
This report is for the information of shareholders of Emerging Markets Growth
Fund, but it may also be used as sales literature when preceded or accompanied
by the current prospectus, which gives details about charges, expenses,
investment objectives and operating policies of the fund.
THE CAPITAL GROUP COMPANIES
Capital International
Capital Guardian
Capital Research and Management
Capital Bank and Trust
American Funds
Lit. No. MFGEAR-915-0804P(NLS)
Litho in USA
TAG/WS/9099-S2229
(C) 2004 Emerging Markets Growth Fund, Inc.
ITEM 2 - Code of Ethics
This Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made by dialing 800/421-0180, extension 96245 or by
writing to the Secretary of the Registrant, 11100 Santa Monica Boulevard, 15th
Floor, Los Angeles, California 90025-3302.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that each member of the Registrant's audit
committee, Khalil Foulathi, David F. Holstein, Raymond Kanner, William B.
Robinson, Gerrit Russelman and Aje K. Saigal, is an "audit committee financial
expert," and "independent," as such terms are defined in this Item. This
designation will not increase each designee's duties, obligations or liability
as compared to his duties, obligations and liability as a member of the Audit
Committee and of the Board; nor will it reduce the responsibility of the other
Audit Committee members. The Board believes each member of the Audit Committee
contributes significantly to the effective oversight of the Registrant's
financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Fees billed by the Registrant's auditors for each of the last two fiscal years,
including fees for non-audit services billed to the adviser and affiliates for
engagements that relate directly to the operations and financial reporting of
the registrant, and a description of the nature of the services comprising the
fees, are listed below:
Registrant:
a) Audit Fees:
2003 $104,325
2004 $107,450
b) Audit- Related Fees: 2003 none 2004 none c) Tax Fees:
2003 $85,553
2004 $141,330
The tax fees consist of professional services relating to: preparing the fund's
federal and state income tax returns; preparing the local tax return and acting
as tax advisor in India, Taiwan, and Venezuela.
d) All Other Fees: 2003 none 2004 none
ITEM 4 - Principal Accountant Fees and Services (continued)
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): b) Audit- Related Fees: 2003 none 2004 none c) Tax
Fees: 2003 none 2004 none d) All Other Fees: 2003 none 2004 none
The Registrant's Audit Committee will pre-approve all audit and permissible
non-audit services that the Committee considers compatible with maintaining the
auditors' independence. The pre-approval requirement will extend to all
non-audit services provided to the Registrant, the investment adviser, and any
entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the registrant, if the engagement
relates directly to the operations and financial reporting of the registrant.
The Committee will not delegate its responsibility to pre-approve these services
to the investment adviser. The Committee may delegate to one or more Committee
members the authority to review and pre-approve audit and permissible non-audit
services. Actions taken under any such delegation will be reported to the full
Committee at its next meeting. The pre-approval requirement is waived with
respect to non-audit services if certain conditions are met. The pre-approval
requireme nt was not waived for any of the services listed above under
paragraphs b, c and d.
Aggregate non-audit fees paid to the Registrant's auditors, including fees for
all services billed to the Registrant and adviser and affiliates that provide
ongoing services to the Registrant were $85,553 for fiscal year 2003 and
$141,330 for fiscal year 2004. 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 Disclosure for Listed Companies
Not applicable.
ITEM 6 - Reserved
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies Not applicable to this Registrant, insofar as
the Registrant is not a closed-end management investment company. ITEM 8 -
Purchases of Equity Securities by Closed-End Management Investment Companies and
Affiliated Purchasers Not applicable to this Registrant, insofar as the
Registrant is not a closed-end management investment company.
ITEM 9 - 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 (formerly the Nominating
Committee) comprised solely of persons who are not considered "interested
persons" of the Registrant within the meaning of the Investment Company Act of
1940. 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. 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 of the Registrant, 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 10 - 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 last fiscal half-year (the Registrant's
second fiscal half-year in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
ITEM 11 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940 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/ Shaw B. Wagener
Shaw B. Wagener, President and PEO
Date: August 27, 2004
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/ Shaw B. Wagener
Shaw B. Wagener, President and PEO
Date: August 27, 2004
By /s/ Michael A. Felix
Michael A. Felix, Treasurer
Date: August 27, 2004