UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-04692
Emerging Markets Growth Fund, Inc.
(Exact Name of Registrant as specified in charter)
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, California 90025
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 996-6000
Date of fiscal year end: June 30, 2005
Date of reporting period: June 30, 2005
Nelson N. Lee
Capital International, Inc.
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, California 90025
(name and address of agent for service)
Copies to:
Rob Helm, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
(Counsel for the Registrant)
<Page>
ITEM 1 - Reports to Stockholders
[logo - Capital International(SM)]
EMERGING MARKETS GROWTH FUND(SM)
Seeks long-term growth of capital by investing in companies operating in
developing countries around the world
[front cover: graphic of world map]
Annual report for the year ended June 30, 2005
DEAR SHAREHOLDERS:
Emerging markets equities posted solid gains in the 12-month period, supported
by robust economic growth in many economies and solid corporate earnings. For
the one-year period ended June 30, 2005, the net asset value of Emerging Markets
Growth Fund rose 34.3% with dividends reinvested. The MSCI Emerging Markets
Index gained 34.4% with net dividends reinvested over the same period.
Emerging markets maintained momentum even against a backdrop of modest equity
returns in the developed markets and slower growth in Japan and many economies
in Europe. Economic expansion in emerging markets was, overall, twice the rate
of growth in the developed markets in calendar year 2004, underscoring the
greater growth opportunities for many emerging markets companies.
MARKETS REVIEW
Energy stocks had the best results, supported by higher crude oil prices.
Domestically oriented sectors such as consumer staples, utilities and financials
also outpaced the broader emerging markets. Technology shares underperformed the
broader market, and materials lagged slightly primarily due to the poor results
of the South African mining companies.
Merger-and-acquisition activity in the period underscored the attractiveness of
emerging markets assets for multinational and Western companies. Spain's
Telefonica outbid two rivals to acquire Cesky Telecom, the incumbent wireline
phone operator in the Czech Republic; Philip Morris International acquired
Indonesian cigarette maker PT Hanjaya Mandala Sampoerna (HM Sampoerna);
Anheuser-Busch increased its stake in China's Tsingtao Brewery; and Standard
Chartered acquired Korea First Bank. In the reverse direction, China's Lenovo
acquired IBM's global personal computer business.
[Begin Sidebar]
EMGF TOTAL RETURNS VS. MSCI EMERGING MARKETS INDEX
FOR PERIODS ENDED 6/30/05 (with distributions reinvested)
MSCI
Emerging Emerging
Markets Markets
Growth Fund Annualized Index* Annualized
12 months +34.3% --% +34.4% --%
3 years +84.1 +22.6 +90.9 +24.0
5 years +22.8 +4.2 +42.9 +7.4
10 years +101.0 +7.2 +50.1 +4.1
Lifetime (since 5/30/86) +1,942.0 +17.1 --+ --+
* 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]
[Begin Sidebar]
PERCENTAGE CHANGES FOR MARKETS AND STOCK PRICES ARE IN U.S. DOLLARS AND ARE FOR
THE 12-MONTH PERIOD ENDED JUNE 30, 2005, UNLESS OTHERWISE NOTED.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF RESULTS IN FUTURE
PERIODS. THE RESULTS SHOWN ARE BEFORE TAXES ON FUND DISTRIBUTIONS AND SALE OF
FUND SHARES. CURRENT AND FUTURE RESULTS MAY BE LOWER OR HIGHER THAN THOSE SHOWN.
SHARE PRICES AND RETURNS WILL VARY, SO INVESTORS MAY LOSE MONEY. INVESTING FOR
SHORT PERIODS MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR
ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. FOR THE MOST
CURRENT INFORMATION AND MONTH-END RESULTS, PLEASE CALL 800/421-0180, EXT. 96245.
INVESTING OUTSIDE THE UNITED STATES, ESPECIALLY IN DEVELOPING MARKETS, IS
SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS, POLITICAL
INSTABILITY, DIFFERING SECURITIES REGULATIONS AND PERIODS OF ILLIQUIDITY, WHICH
ARE DETAILED IN THE FUND'S PROSPECTUS.
[End Sidebar]
Emerging markets currencies in the aggregate appreciated against the U.S. dollar
at a time when most developed market currencies weakened. Latin American
currencies were particularly strong, supported by interest rates that were much
higher than those in developed markets. In Brazil, where the short-term interest
rate reached 19.75%, the real appreciated 32% against the dollar. Currency
appreciation contributed about one-fifth of the dollar-based total return in
emerging markets. South Africa was one of the exceptions, as the rand lost 7% of
its value against the U.S. dollar.
From a regional perspective, Latin American stocks performed the best, paced by
rising oil prices and strong corporate earnings reports. Currency movements also
helped returns in dollar terms. Brazil, Mexico, Colombia and Argentina all
managed to sustain economic growth, supported by exports of oil, materials and
agricultural products. Latin American exports grew despite strong currencies.
Inflation-targeting monetary regimes in Latin America gained credibility, and
higher exports helped shore up government revenues and external current
accounts. Sustained strength in domestic demand and improving operating margins
contributed to the bottom line of many consumer staples and telecommunication
companies. In Argentina, the successful restructuring of more than $100 billion
in defaulted bonds appeared to lift investor sentiment. In Mexico, the
government of President Vicente Fox cleared the way for Andres Manuel Lopez
Obrador, the popular mayor of Mexico City, to enter the 2006 presidential race
by dropping a legal investigation against him relating to a land dispute. The
action was effective in ending street protests and removing an element of
political uncertainty in Mexico.
Asian equities had mixed results. Markets in Indonesia, India and South Korea
rose sharply. Taiwan, China and Thailand made double-digit gains but the returns
were lower than the broad 34% advance of emerging markets. Information
technology stocks are a significant component of South Korean and Taiwanese
equity markets and they had only modest gains during the period, even though the
hardware sector started to show early signs of a recovery the last few months of
the period. Nevertheless, Korean equities rose 35% with the support of
domestically oriented sectors, including utilities, industrials and financials.
Taiwanese stocks had more modest gains. The discount imposed by MSCI on Taiwan's
weighting in the index was eliminated, making Taiwan's weighting the largest of
the emerging markets, following a decision by Taiwanese authorities to eliminate
certain investment restrictions on foreign investors.
[Begin Sidebar]
10 LARGEST EQUITY HOLDINGS
Percent of gain for
Percent of the 12 months
net assets as ended 6/30/05*
of 6/30/05 (in U.S. dollars)
Samsung Electronics 6.8% 14.7%
America Movil 3.1 63.9
Sasol 2.4 74.2
Taiwan Semiconductor 2.2 25.2
Hon Hai Precision 2.2 59.1
Infosys Technologies 2.1 79.1
Kookmin Bank 2.0 45.3
Telekomunikasi Indonesia 1.7 29.9
Cia de Bebidas das Americas-AmBev 1.6 54.0
Itausa 1.6 86.4
Total 25.7%
* 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]
China's efforts to cool overheated areas of its economy such as real estate had
some impact, especially after the government levied a tax on sales of
residential property owned for less than two years. China's economic growth
remained strong at an approximate 9% annualized rate. However, China's equity
market returns on the whole were lower than the emerging markets aggregate.
Meanwhile, India had the best results among the major Asian markets as stocks
rebounded from a slide in May 2004 following the surprise election victory of an
alliance of opposition parties. As the new government followed through with some
economic reforms and corporations turned in solid earnings, equity markets
rallied sharply. The economy expanded 7% in the 2004-05 fiscal year despite
higher oil prices and rising interest rates, consolidating investor confidence.
[Begin Sidebar]
WHERE THE FUND'S ASSETS ARE INVESTED
MSCI EM Value of
Percent of net assets Index(1) holdings
6/30/05
6/30/03 6/30/04 12/31/04 6/30/05 6/30/05 (in thousands)
ASIA-PACIFIC
China 2.6% 3.4% 3.5% 3.6% 7.7% $ 498,066
Hong Kong 1.2 1.1 1.5 1.1 -- 151,342
India 10.5 10.6 10.2 10.3 6.0 1,399,914
Indonesia 3.0 3.0 2.6 2.5 1.7 343,929
Malaysia 2.4 5.4 5.4 5.0 3.6 680,929
Philippines 1.3 .4 .3 .5 .5 64,005
Singapore -- .1 .1 .1 -- 9,178
South Korea 18.6 18.0 17.6 18.0 16.6 2,448,162
Taiwan 6.7 10.0 10.5 12.5 17.7 1,701,339
Thailand 1.9 .7 .6 1.1 2.1 145,591
Vietnam -- .1 .1 .1 -- 10,964
48.2 52.8 52.4 54.8 55.9 7,453,419
LATIN AMERICA
Argentina .8 .6 .6 1.4 .6 187,011
Brazil 11.1 9.8 11.8 12.3 9.5 1,678,673
Chile 1.5 1.4 1.2 .8 1.9 107,474
Colombia .4 .3 .3 .6 .2 81,620
Ecuador -- -- -- -- -- 1,943
Mexico 14.2 9.8 8.7 6.8 6.1 924,848
Panama .1 -- -- -- -- --
Peru .5 .3 .1 .2 .5 29,641
Venezuela .3 .4 .4 .2 .1 30,440
28.9 22.6 23.1 22.3 18.9 3,041,650
EASTERN EUROPE
Bulgaria -- -- -- -- -- 1,156
Croatia .4 .3 .2 .1 -- 13,495
Czech Republic .3 .7 .9 .3 .8 35,333
Hungary 1.5 1.6 .9 .5 1.5 75,115
Kazakhstan -- -- -- -- -- 2,886
Poland 1.3 .7 .4 .4 1.7 55,208
Russia 5.5 6.4 3.2 1.7 4.3 239,367
9.0 9.7 5.6 3.0 8.3 422,560
OTHER MARKETS
Canada(2) .3 .6 .8 .8 -- 108,801
Dominican Republic -- -- -- -- -- 2,724
Egypt .2 .4 .3 1.2 .8 169,618
Israel .3 .8 1.8 2.8 3.4 385,663
Morocco .1 -- .1 .1 .2 8,224
South Africa 5.2 8.0 7.7 7.2 10.0 985,023
Sweden(2) -- -- .1 .1 -- 8,393
Turkey 2.0 1.7 2.5 2.4 1.9 322,354
United Kingdom(2) 1.2 .4 .1 .2 -- 29,926
United States of America(2) .2 .1 .1 .1 -- 15,314
9.5 12.0 13.5 14.9 16.3 2,036,040
Multinational .4 .5 .4 .4 59,350
Other(3) .6 .7 1.4 .7 90,615
Cash & equivalents less liabilities 3.4 1.7 3.6 3.9 528,073
Total net assets 100.0% 100.0% 100.0% 100.0% $13,631,707
(1) MSCI Emerging Markets Index also includes Jordan (0.3% at 6/30/05) and
Pakistan (0.3% at 6/30/05). 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 in emerging markets.
(3) Includes stocks in initial period of acquisition.
[End Sidebar]
[Begin Sidebar]
PERCENT CHANGE IN KEY MARKETS(1)
12 months 6 months
ended 6/30/05 ended 6/30/05
Expressed Expressed Expressed Expressed
in U.S. in local in U.S. in local
dollars currency dollars currency
ASIA-PACIFIC
China 20.2% 19.8% 5.3% 5.3%
India 58.7 50.1 9.3 9.3
Indonesia 64.5 70.8 10.2 15.9
Malaysia 9.4 --(2) -1.7 --(2)
Pakistan 46.3 50.0 30.5 30.9
Philippines 22.4 21.9 5.9 5.5
South Korea 34.8 20.5 11.6 11.4
Taiwan 14.5 7.7 2.1 1.9
Thailand 10.9 12.0 -3.1 3.1
LATIN AMERICA
Argentina 71.6 67.7 25.0 21.7
Brazil 74.4 33.0 12.3 -0.1
Chile 45.7 32.6 9.9 14.5
Colombia 95.9 69.2 14.9 13.6
Mexico 42.4 33.1 10.1 6.5
Peru 18.5 13.2 4.6 4.0
Venezuela -0.1 1.1 -14.3 -12.4
EASTERN EUROPE
Czech Republic 77.6 68.5 11.4 23.9
Hungary 67.7 66.0 13.1 27.6
Poland 41.3 27.7 -2.2 9.0
Russia 14.3 14.5 11.8 12.0
OTHER MARKETS
Egypt 276.8 252.6 105.2 95.8
Israel -0.6 0.9 -1.2 3.5
Jordan 137.2 137.0 58.1 58.0
Morocco 6.0 6.5 -4.9 4.5
South Africa 30.5 40.2 -7.4 9.7
Turkey 66.3 49.6 7.8 6.7
Emerging Markets
Growth Fund 34.3 8.1
(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]
In other areas, investor sentiment in Russia was shaken by government actions
against YUKOS Oil that culminated in the December auction of YUKOS' main oil
producing unit, Yuganskneftegaz, at a price that was widely viewed as far below
the unit's intrinsic market value. The government also assessed YUKOS with back
taxes and penalties that exceeded the company's total revenue for some of the
delinquent years. Investors and Western governments saw the Kremlin's sale of
Yuganskneftegaz as a renationalization of key energy assets. YUKOS' former CEO
Mikhail Khodorkovsky was sentenced to nine years in jail for fraud and tax
evasion.
The tiny markets of Egypt and Jordan had the best returns for the period,
climbing 277% and 137%, respectively. There has been growing investor optimism
about a renewed commitment by the Egyptian government to economic reform, which
was a factor propelling Egyptian stocks. The markets of the Czech Republic,
Hungary and Turkey also had good results. The South African market was hurt by
the poor performance of resource stocks, which have seen operating margins
squeezed by the strong rand.
PORTFOLIO REVIEW
The fund made strong gains in the 12-month period. Results were similar to those
of its benchmark, the MSCI EM Index. Nevertheless, the fund's holdings were
quite different from the index. Fund results relative to the MSCI EM Index
improved in the second half of the reporting period as the steady earning stocks
like consumer staples led the markets while the cyclical materials sector fell
behind. Our large investment in financials was also beneficial. However, the
fund's relatively low exposure to the energy sector worked against it.
The fund emphasized investments in sectors that are closely linked to domestic
economies, including consumer staples and financials. We hold the view that
domestic emerging markets economies will continue to grow faster than developed
economies. We increased our investments in financial and technology stocks,
which became our largest sector investments, together making up 42% of the
fund's holdings. The addition to our technology holdings was based on the view
that the industry will likely see a cyclical upturn in the near term.
Our financial holdings are in markets that we believe are in the early stages of
cyclical growth, including South Korea and Taiwan; in this sector, we are also
invested in strong franchises and well-run businesses in markets like India,
Mexico and Brazil. In the aggregate, our financial holdings had returns of about
50% in the 12-month period. Brazil's Itausa, India's HDFC Bank and South Korea's
Shinhan Financial were among the fund's best-performing stocks.
Consumer staples is another sector that has benefited from domestic growth in
many emerging markets. The M&A activity in Latin America's beverage industry has
started to produce results in the form of increased market share and better
operating margins and earnings. Many of these companies are among the fund's
holdings, including Cia. de Bebidas das Americas-AmBev and Fomento Economico
Mexicano (Femsa). Also, we sold HM Sampoerna shares in the tender offer from
Philip Morris International at a profit.
The decision to hold a relatively low exposure in energy stocks worked against
the fund. The price of crude oil reached a record high in nominal terms,
boosting oil company shares across markets. The bid by China National Offshore
Oil Corporation for Unocal was a reminder of the increasing energy needs of
developing nations and the substantial efforts governments are willing to make
in order to secure energy-related assets. We have been cautious investing in
energy stocks for two reasons. First, in our view, the current price of oil
appears unsustainable. Second, in many cases, gains from higher crude oil prices
are heavily taxed and thus flow to governments rather than to the bottom line of
the oil producers. Our investment in YUKOS Oil was the single largest detractor
to portfolio returns. On the other hand, our investment in Sasol, the South
African energy company, was a contributor to fund returns. Sasol specializes in
converting natural gas to liquid petroleum, and the technology has gained
prominence amid increasing focus by governments and the oil industry on
alternative fuel technologies.
While energy stocks had a strong run, materials lost steam. Our low exposure to
the sector, which has hurt fund results over the last few years, turned in our
favor over the past six months. While we do not hold many investments in base
metals companies, we have substantial investments in the South African producers
of precious metals, including platinum and gold. In fact, our exposure to Sasol,
precious metals and industrial companies has raised our investment in South
Africa, and it is the fifth-largest market in the fund.
Our technology holdings had mixed results. On the whole, having a large exposure
to technology was not rewarding during the period. However, our substantial
investment in Indian information technology service providers worked to the
fund's advantage, as these stocks rebounded sharply from the steep decline they
suffered in the wake of India's general elections in mid-2004. Infosys
Technologies, the large Indian software company, was one of the largest
contributors to portfolio returns.
Looking at countries, our large exposure and selection of investments in India
and Mexico contributed to returns. Both markets outpaced the MSCI EM Index by a
wide margin, and the fund's stocks in these markets also had very solid results.
On the other hand, our investments in Russia and China detracted from results
for the 12-month period.
OUTLOOK
The combination of rising U.S. short-term rates, high oil prices and softening
demand for raw materials has traditionally translated into a more cautious
outlook for emerging markets stocks. Nevertheless, emerging markets equities
have shown good results over the past year, despite a challenging global
environment. We believe this trend is likely to continue, supported by several
factors -- the most significant of which are the faster economic growth rates of
emerging markets compared to the developed world and the significantly improved
financial health of most developing countries compared to just five years ago.
Asian economies have built a base in manufactured goods and technology; South
Africa, Russia and many Latin American economies have benefited from the recent
strength in commodity and oil prices. Rising exports have in turn allowed
governments to build up their current account surpluses and substantial foreign
exchange reserves that protect their currencies against speculative attacks.
Many governments have shown discipline in either reducing budget deficits or
building surpluses and curtailing government spending. This confluence of
factors has created a positive macroeconomic backdrop and a base of support for
private enterprise to flourish, which has translated into strong corporate
profitability. Increasingly, investors worldwide appear to be recognizing the
improved fundamentals and are increasing their participation in these markets
through both direct investment and portfolio investment. As a result, the gap in
valuations between emerging and developed markets has narrowed. In our view, it
could compress further.
Nevertheless, the same macroeconomic factors that have improved the outlook for
emerging markets have also made them a less homogeneous group than before. Since
foreign exchange regimes are mostly floating rate and external financial
accounts are in good shape, emerging markets are far less vulnerable to the
domino effect of unfavorable external events. Hence, local economies, domestic
monetary policies and the quality of corporate activity are increasingly more
important considerations for investors. Differentiating between markets is
critical, both within and across regions. For instance, South Korea and Taiwan
appear to be in the early stages of a cyclical recovery while India and China
are more likely in the late stages of their economic cycles. Similarly, the
metals and mining industry appears to be near or just past a cyclical peak while
many areas of technology appear in the early stages of a cyclical upswing.
Overall, technology has become a more important component of emerging markets,
representing 18% of the MSCI EM Index, while materials is a smaller component at
13%.
While the outlook for emerging markets remains promising, there are some
near-term risks. Mexico and Brazil are scheduled to hold presidential elections
in 2006, and historically their election seasons have often been marked by
political turbulence and market volatility. China and India, two of the
fastest-growing economies in the world, could experience a slowdown. In general,
the so-called carry trade, whereby investors borrow at the low interest rates
prevailing in developed markets and then invest the proceeds in higher yielding
assets in emerging markets, including stocks, bonds, currencies and real estate,
could reverse should rates rise rapidly in developed markets for any reason. Any
sudden decline in liquidity and sharp reversal in these trades has the potential
of a ripple effect in financial markets. While such a probability is low, it is
still a risk in emerging markets. Nevertheless, while any of these risks could
mean a temporary setback for the asset class, we think the overall outlook for
emerging markets is broadly positive.
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, 2005
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 grew from December 31,
1987 -- the inception of the MSCI Emerging Markets Index -- through June 30,
2005, the end of the fund's latest fiscal year.
As you can see, the $100,000 would have grown to $1,471,426. This is
significantly more than the $868,292 generated by the unmanaged MSCI EM Index.
[begin mountain chart]
Year Emerging
ended Markets MSCI EM Original
June 30 Growth Fund(2) Index (3) Investment
12/31/1987 $100,000 $100,000 $100,000
06/30/1988 (4) 138,053 136,912 100,000
12/31/1988 141,980 140,427 100,000
06/30/1989 203,614 173,906 100,000
12/31/1989 275,812 231,650 100,000
06/30/1990 296,302 258,080 100,000
12/31/1990 250,848 207,209 100,000
06/30/1991 349,859 281,281 100,000
12/31/1991 409,863 331,349 100,000
06/30/1992 453,884 355,819 100,000
12/31/1992 460,360 369,135 100,000
06/30/1993 551,713 421,825 100,000
12/31/1993 794,977 645,384 100,000
06/30/1994 741,137 578,578 100,000
12/31/1994 782,904 598,165 100,000
06/30/1995 732,096 578,478 100,000
12/31/1995 726,601 567,009 100,000
06/30/1996 845,474 627,491 100,000
12/31/1996 845,574 601,205 100,000
06/30/1997 1,092,098 707,935 100,000
12/31/1997 927,272 531,555 100,000
06/30/1998 791,087 431,270 100,000
12/31/1998 696,603 396,860 100,000
06/30/1999 953,943 555,079 100,000
12/31/1999 1,239,461 660,407 100,000
06/30/2000 1,198,460 607,647 100,000
12/31/2000 855,467 458,257 100,000
06/30/2001 847,207 450,050 100,000
12/31/2001 826,143 446,274 100,000
06/30/2002 799,378 454,921 100,000
12/31/2002 744,120 418,732 100,000
06/30/2003 856,488 485,280 100,000
12/31/2003 1,127,420 652,453 100,000
06/30/2004 1,095,308 646,124 100,000
12/31/2004 1,361,210 819,176 100,000
06/30/2004 1,471,426 868,292 100,000
[end mountain chart]
(1) The minimum initial investment for EMGF is $100,000.
(2) Values are based on a $100,000 investment with distributions reinvested.
(3) Values shown for the MSCI EM 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 EM Index) through
June 30, 1988. EMGF began operations on May 30, 1986.
[begin sidebar]
TOTAL RETURNS
(with all distributions reinvested for periods ended June 30, 2005)
Cumulative Average annual
total returns total returns
1 year +34.34% --%
5 years +22.77 +4.19
10 years +101.00 +7.23
[eng 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 THE MOST 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
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, the fund'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, 2005. The five account for 60% of net assets.
SOUTH KOREA (18.0% of net assets)
Domestically oriented companies appeared to be the focus of equity investors in
South Korea, where utilities, industrials, financials and energy stocks led the
market 35% higher over the 12-month period. Information technology stocks
lagged, with the stronger Korean won hurting exports.
Domestic economic growth slowed considerably. Gross Domestic Product expanded at
a 2.7% annualized rate in the first quarter of 2005 over the same period a year
ago. Investors appeared to take the view that the first quarter probably
represented the bottom of the cycle as economic indicators showed a steady
pickup in consumer demand.
Valuations of Korean domestic stocks were cheap, with trailing price-to-earnings
multiples in the high single digits in the aggregate. In addition, many Korean
stocks now have attractive dividend yields. The excesses in the banking system
related to the bursting of the consumer credit bubble in late 2003 appear to
have been brought under control, with non-performing loans in steady decline.
The relatively low valuations of Korean banks have attracted foreign investors.
Standard Chartered Bank acquired Korea First Bank following on the heels of
Citigroup's acquisition of KorAm Bank in May 2004. The improvements in asset
quality resulted in better earnings, and financial stocks rose more than 50% in
the reporting period.
Exports decelerated, hurt partly by the 12% appreciation of the Korean won
against the U.S. dollar in the 12-month period. Technology and electronics
consumer goods exports were hit the hardest by the stronger currency, which also
cut into the profit margins of the major technology companies. Samsung
Electronics, the leading technology company, continued to build market share in
most business lines but saw a decline in profitability from the high level of
earnings of the prior few quarters. Earnings dropped in the first quarter of
2005 after reaching a record high annual profit of $10 billion for 2004. Global
demand for technology products was mixed and prices of memory chips softened,
dealing another blow to earnings. Nevertheless, technology firms all along the
supply food chain started replenishing inventory in the spring/summer of 2005 in
a signal that the recent slump in the technology hardware industry may be coming
to an end.
The Korean central bank lowered interest rates by 50 basis points early in 2005
in an attempt to stimulate the economy, and long-term rates hovered near
all-time lows. Inflation remained relatively tame in the 3% range. On the
political front, President Roh Moo-hyun's URI party suffered a setback in
National Assembly by-elections held in April.
TAIWAN (12.5% of net assets)
Taiwan became the largest emerging market in the benchmark MSCI EM Index at the
beginning of June when the representation of the market was increased to full
weighting of the available float following the removal of investment
restrictions on foreign investors. As of June 30, 2005, Taiwan's stock market
accounted for 18% of the MSCI EM Index. Taiwan has the second-largest country
weighting in the portfolio. In aggregate, Taiwanese stocks rose 15% over the
reporting period. They were held back by the lackluster performance of
technology stocks, which represented 54% of the MSCI EM Taiwan Index. Technology
hardware stocks lagged the strong index gains in the early part of the reporting
period until November. It was only in the second calendar quarter of 2005 that
technology shares rose sharply, but the late spike was not enough to overcome
the earlier losses, and the sector's returns for the year were lower than those
for the benchmark index.
A much-anticipated recovery in corporate spending on technology failed to
materialize. Managements at many technology companies appeared to realize in
mid-2004 that the industry had overbuilt capacity and therefore spent the rest
of 2004 and early 2005 managing down inventories. Major global technology
companies like Taiwan Semiconductor Manufacturing (TSMC), the world's largest
manufacturer of custom-designed computer chips, found themselves warning
investors about their diminished expectations for a recovery in 2005. The
business cycle appears to have bottomed out in the first quarter of calendar
2005, and earnings may have hit a bottom in the second quarter of 2005. By the
spring/summer of 2005, markets appear to have concluded that an upswing in the
technology cycle would come sooner or later, and technology stocks rallied in
the final quarter of the reporting period. Semiconductor stocks rebounded
sharply: TSMC shares rose 25% in the period.
Taiwanese financial stocks were also weak, held back by a slowing economy. GDP
growth slowed in the first quarter of 2005, partly due to a decline in export
growth. Exports were hurt by a weaker U.S. dollar and tepid demand for
electronics goods and computer hardware. In addition to cyclical factors,
Taiwan's economy also faces challenges that are more structural in nature. An
increasing number of manufacturing jobs are moving to mainland China as
Taiwanese corporations seek to benefit from the lower cost structure there. On
the fiscal front, a historically low tax base has left the government with
limited means to shore up the economy in cyclical downturns, and the high fiscal
deficit of around 4% of GDP has been burdened by heavy spending on defense. The
Taipei government said it was exploring options to establish a minimum corporate
tax rate.
On the political front, cross-strait relations appeared brighter after a
delegation of opposition leaders visited mainland China in April. The visit
raised hopes for improved trade and tourism.
BRAZIL (12.3% of net assets)
Brazil was one of the strongest markets in the reporting period, with stocks
rising 74% in U.S. dollar terms. A sharp 32% appreciation of the Brazilian
currency versus the U.S. dollar contributed to returns for U.S. dollar-based
investors.
The central bank maintained an extremely tight monetary policy, steadily raising
the key interest rate to a high of 19.75% in an attempt to ward off inflationary
pressures. The high level of interest rates attracted foreign investors to
Brazil's large and liquid local bond markets, which contributed to the
appreciation of the real. Brazilian banks, which have traditionally been large
investors in local bond markets, also benefited from interest rates that are
high in both nominal and real terms. Consumer and corporate demand for credit
remained strong, contributing to healthy earnings reports throughout the banking
sector. Shares of Unibanco, Itausa and Banco Bradesco rallied. Iron ore producer
Companhia Vale do Rio Doce (CVRD) obtained a large price increase for its
product from a Japanese steel producer. CVRD shares rose nearly 95% in the
period, although they declined in the last quarter amid a global decline in
materials stocks and a slight softening in commodity prices. Energy was another
strong area, and shares of oil producer Petrobras rose more than 80%. However,
industrials and telecommunication service stocks lagged the gains of the broader
market.
Supported by strong global demand for agricultural products and raw materials,
exports rose steadily despite the headwind of an appreciating currency.
Employment grew moderately and consumer demand expanded in what was partly a
cyclical upturn in the economy. Exports increased more than 25% in the first
calendar quarter of 2005 compared to the same period in the previous year,
increasing Brazil's balance of payments surplus to more than $10 billion.
On the macroeconomic front, the government has been adept at managing its
external finances by reducing the stock of outstanding floating rate debt linked
to the exchange rate. It has also reduced the total amount of public sector debt
and built up its foreign exchange reserves to more than $60 billion. Having
substantial reserves makes the country far less vulnerable to external financial
shocks.
Toward the end of the period, the government of President Luiz Inacio Lula da
Silva wrestled with allegations of bribe-taking against certain members of the
ruling coalition. The developments appeared to make it more difficult for the
administration to make further progress on liberalizing the economy.
INDIA (10.3% of net assets)
Indian stocks rose sharply, rebounding from their steep decline of May 2004,
when the upset victory of a Congress Party-led opposition alliance surprised
markets. Stocks began to recover lost ground in the next month, after party
leader Sonia Gandhi stepped aside and let a former finance minister take charge
of the coalition government. New Prime Minister Manmohan Singh promised to
continue the prior government's agenda of economic reform.
The Indian economy maintained momentum, fueled by growth in services, rising
investment in infrastructure and the growing power of the urban consumer.
Disposable income for the urban middle class grew steadily as employment
expanded in both the service and manufacturing sectors. Meanwhile, stable prices
for agricultural commodities such as wheat, sugar, rice and coffee have helped
increase the purchasing power of large sections of the rural population. Despite
the hurdles of high oil prices and a tighter monetary policy, GDP grew 7% in the
2004-05 fiscal year and is forecast to grow at 7% in the 2005-06 fiscal year by
both the government and private economic forecasting groups. Foreign investors
attracted by India's fast-growing economy and many well-managed and high-quality
companies brought large sums of money into India and pushed the Bombay Stock
Exchange to a record high.
Shares of banks and technology companies led the markets. Technology stocks rose
sharply, supported by both revenue and earnings growth. The large information
technology service providers expanded their sales volume by more than 50%.
Management departures at Wipro and Infosys Technologies, the two large software
houses, somewhat dampened investor sentiment toward the end of the reporting
period. However, the companies have a large pool of talent, and overall growth
of the industry remains strong, despite increasing competition from the large
multinational companies.
Meanwhile, bank shares received a boost from mortgage and consumer loan growth
amid increasing demand for credit by the urban middle class. Beneficiaries
included Housing Development Finance Corporation and the State Bank of India,
which have large exposure to consumers.
The end of a feud within the controlling Ambani family boosted shares of the
Reliance group of companies. Management control of the conglomerate was divided
between the two Ambani brothers in a way that left intact the various business
units, especially Reliance Industries, the flagship petrochemicals business. By
the end of the reporting period, Reliance Industries' shares had risen 58% to
become the second-largest stock in the MSCI EM India Index, accounting for 12%
of its market capitalization.
The government moved ahead with some economic reform programs and started to
address the country's shortage of infrastructure by inviting proposals for
private investment in areas such as airports. It also implemented additional
reforms in the electricity sector by simplifying the tariff structure.
Nevertheless, the efforts were marked by loud and protracted negotiations with
its allies, underscoring the risk associated with coalition governments and
highlighting India's often fractious politics.
SOUTH AFRICA (7.2% of net assets)
South African equities rose 31% in U.S. dollar terms even though materials had
less-than-stellar returns. A 7% slide in the rand versus the U.S. dollar also
dampened returns for U.S. dollar-based investors.
South Africa's central bank surprised markets in April with a 50 basis points
cut in the key interest rate, bringing it down to 7%. This action was seen as an
effort to boost a domestic economy that was growing only modestly while
moderating the impact of the rand on the export-oriented mining industry. (The
rand had risen 52% against the U.S. dollar during the 2003 and 2004 calendar
years before losing some value in 2005.) The economy showed some signs of
renewed vigor in the second quarter of 2005. Several retail and
infrastructure-related stocks rallied, including Tiger Brands and household
goods store Steinhoff International.
The materials sector, which makes up a significant part of the South African
market, declined in market capitalization after dual-listed mining giant Anglo
American was moved from the MSCI EM Index to the MSCI UK Index. Nevertheless, at
the end of the reporting period, materials still accounted for 21% of the MSCI
South Africa Index, with financials at 30%. Anglo American's move resulted in
energy company Sasol becoming the largest stock in the South Africa Index. High
energy prices brought renewed attention to alternative fuels, prompting
investors to bid up Sasol shares by 74%.
Materials stocks had modest returns. The strong rand put severe pressure on the
profitability of mining companies in general. In addition, a hostile merger bid
by Harmony Gold Mining for rival Gold Fields pulled down both stocks, thereby
dampening overall returns for the South African gold sector. Harmony ultimately
failed to obtain sufficient support from Gold Fields' shareholders and also
confronted several regulatory hurdles, and the proposed merger collapsed in May.
A merger that proved successful was the bid by the U.K.-based bank Barclays for
ABSA, one of South Africa's commercial banks, which was upheld by the courts. It
will be the largest single foreign investment in South Africa.
In the political arena, President Thabo Mbeki asked his deputy president Jacob
Zuma to resign in June as he faced possible corruption charges, an action that
many observers described as an effort to reinforce a clean image of the
government.
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 143
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 20 analysts covering these countries, compared with four in
1986; 17 of these analysts also manage a portion of the fund. Most of its assets
are managed by seven portfolio managers, compared with two in 1986.
Capital International's research effort focuses heavily on sectors as well as on
individual countries. It is an intensive effort that combines company and
industry analysis with a political and macroeconomic overview, and we believe it
has given the Capital Group organization's family of companies -- and the funds
they manage, including Emerging Markets Growth Fund -- a competitive edge.
INVESTMENT PORTFOLIO
June 30, 2005
Equity securities
SECTOR DIVERSIFICATION Common stocks Preferred stocks Convertible bonds Bonds Percent of net assets
Financials 18.83% 2.06% - % .22% 21.11%
Information technology 20.92 - - - 20.92
Telecommunication services 10.48 2.45 - - 12.93
Consumer staples 7.49 1.63 - - 9.12
Materials 5.60 1.11 .02 - 6.73
Industrials 6.16 - - - 6.16
Consumer discretionary 5.69 .38 - .02 6.09
Energy 4.64 .65 - - 5.29
Utilities 3.18 .75 - .03 3.96
Health care 2.05 - - - 2.05
Other .94 - - .83 1.77
85.98% 9.03% .02% 1.10% 96.13%
Short-term securities 3.06
Excess of cash and receivables over payables (including foreign currency contracts) .81
Net Assets 100.00%
EQUITY SECURITIES Value
(common and preferred stocks) Shares (000)
Argentina - 0.99%
BI SA (acquired 10/21/93, cost: $4,567,000) (1) (2) 4,952,159 $2,031
Grupo Financiero Galicia SA, Class B (2) 5 -
Hidroneuquen SA (acquired 11/11/93, cost: $29,339,000) (1) (2) (3) 28,022,311 900
IRSA Inversiones y Representaciones SA (GDR) (2) 1,102,100 13,446
Nortel Inversora SA, Class B, preferred (ADR) (2) 4,094,500 40,290
Telecom Argentina SA, Class B (ADR) (2) 1,330,146 15,882
Tenaris SA (ADR) 793,900 62,139
134,688
Brazil - 12.06%
ALL - America Latina Logistica, units 1,526,220 45,227
Banco Bradesco SA, preferred nominative (ADR) 54,000 1,911
Banco Itau Holding Financeira SA, preferred nominative 247,202 45,540
Banco Itau Holding Financeira SA, preferred nominative (ADR) 20,100 1,859
Bradespar SA, preferred nominative 756,700 12,988
Celular CRT SA, ordinary nominative 22,557 399
Celular CRT SA, Class A, preferred nominative 1,015,730 20,358
Celular CRT SA, ordinary nominative, rights (2) 29,844 73
Centrais Eletricas Brasileiras SA - ELETROBRAS, ordinary nominative 268,720,000 3,769
Centrais Eletricas Brasileiras SA - ELETROBRAS, ordinary nominative (ADR) 231,980 1,635
Centrais Eletricas Brasileiras SA - ELETROBRAS, Class B, preferred nominative 2,423,118,300 31,299
Cia. de Bebidas das Americas - AmBev, ordinary nominative (ADR) 1,283,002 32,665
Cia. de Bebidas das Americas - AmBev, preferred nominative (ADR) 6,080,510 187,888
Cia. de Concessoes Rodoviarias, ordinary nominative 2,710,300 63,429
Cia. de Saneamento Basico de Estado de Sao Paulo - SABESP (ADR) 2,705,000 40,710
Cia. Energetica de Minas Gerais - CEMIG, preferred nominative 2,104,190,000 66,760
Cia. Energetica de Minas Gerais - CEMIG, preferred nominative (ADR) 143,068 4,557
Cia. Vale do Rio Doce, Class A, preferred nominative (ADR) 4,933,456 125,310
Itausa - Investimentos Itau SA, preferred nominative 101,176,404 219,180
LIGHT-Servicos de Eletricidade SA, ordinary nominative (2) 148,424,000 3,608
Localiza Rent a Car SA, ordinary nominative (2) 2,429,000 13,051
Lojas Renner SA, ordinary nominative (2) 593,000 9,357
Natura Cosmeticos SA, ordinary nominative 1,112,000 35,513
NET Servicos de Comunicacao SA, preferred nominative (2) 134,575,210 36,155
New GP Capital Partners, LP, Class B (acquired 1/28/94, cost: $13,066,000) (1) (3) 27,000 4,692
Petroleo Brasileiro SA - Petrobras, ordinary nominative 791,310 40,936
Petroleo Brasileiro SA - Petrobras, preferred nominative 128,600 5,884
Petroleo Brasileiro SA - Petrobras, preferred nominative (ADR) 1,782,286 82,056
Porto Seguro SA, ordinary nominative 1,969,100 17,634
Tele Centro Oeste Celular Participacoes SA, ordinary nominative 4,987 38
Tele Centro Oeste Celular Participacoes SA, preferred nominative 1,687,295 16,621
Tele Centro Oeste Celular Participacoes SA, preferred nominative (ADR) 6,256,938 63,007
Tele Centro Oeste Celular Participacoes SA, ordinary nominative, rights (2) 40,802 -
Tele Leste Celular Participacoes SA, ordinary nominative (2) 77,179 543
Tele Leste Celular Participacoes SA, preferred nominative (ADR) (2) 705,223 5,607
Tele Leste Celular Participacoes SA, ordinary nominative, rights (2) 256 -
Telemar Norte Leste SA, Class A, preferred nominative 584,768 14,064
Telemig Celular Participacoes SA, ordinary nominative 3,684,267,356 14,218
Telemig Celular Participacoes SA, preferred nominative (ADR) 1,015,658 33,161
Telemig Celular SA, Class G, preferred nominative 38,529 7,558
Tele Norte Celular Participacoes SA, ordinary nominative (2) (3) 9,214,930,561 3,301
Tele Norte Celular Participacoes SA, preferred nominative (ADR) (2) (3) 453,978 2,883
Telesp Celular Participacoes SA, preferred nominative (ADR) (2) 15,554,597 66,418
TIM Participacoes SA, ordinary nominative 8,569,162,466 15,494
TIM Participacoes SA, preferred nominative (ADR) 4,068,553 64,283
Unibanco-Uniao de Bancos Brasileiros SA, units 3,731,700 28,644
Unibanco-Uniao de Bancos Brasileiros SA, units (GDR) 3,327,054 128,491
Usinas Siderurgicas de Minas Gerais SA, Class A, preferred nominative 1,593,298 25,887
1,644,661
Canada - 0.80%
Ivanhoe Mines Ltd. (2) 14,024,100 108,801
Chile - 0.79%
Banco Santander - Chile (ADR) 49,915 1,612
Cia. de Telecomunicaciones de Chile SA (ADR) 1,137,685 11,570
Embotelladora Andina SA, Class A, preferred nominative (ADR) 1,948,400 24,277
Embotelladora Andina SA, Class B, preferred nominative (ADR) 717,173 9,861
Enersis SA 14,980,300 3,137
Enersis SA (ADR) 5,461,400 57,017
107,474
China - 3.65%
Anhui Conch Cement Co. Ltd. (Hong Kong) (3) 40,197,000 37,275
BOE Technology Group Co. Ltd., Class B 22,369,968 6,132
BYD Co. Ltd. (Hong Kong) 6,669,500 14,270
China Life Insurance Co. Ltd. (Hong Kong) (2) 15,152,500 10,239
China Life Insurance Co. Ltd. (ADR) (2) 1,134,500 30,972
China Mengniu Dairy Co. (Hong Kong) 42,345,000 27,999
China Merchants Holdings (International) Co. Ltd. (Hong Kong) 7,791,014 14,994
China Mobile (Hong Kong) Ltd. 6,473,300 23,885
China Netcom Group Corp. (Hong Kong) Ltd. 3,257,200 4,684
China Oilfield Services Ltd. (Hong Kong) 27,123,000 9,925
China Telecom Corp. Ltd. (Hong Kong) 52,576,600 18,769
GOME Electrical Appliances Holding Ltd. (Hong Kong) 19,961,000 17,066
Huaneng Power International, Inc. (Hong Kong) 3,058,400 2,238
Lenovo Group Ltd. (Hong Kong) 129,168,700 37,980
Lianhua Supermarket Holdings Co. Ltd. (Hong Kong) 11,912,000 13,428
NetEase.com, Inc. (ADR) (2) 469,100 26,790
PetroChina Co. Ltd. (Hong Kong) 44,874,100 32,736
Semiconductor Manufacturing International Corp. (Hong Kong) (2) 148,871,000 30,598
Semiconductor Manufacturing International Corp. (ADR) (2) 642,800 6,621
Shanda Interactive Entertainment Ltd. (ADR) (2) 453,000 16,666
SINA Corp. (2) 1,012,400 28,246
Tong Ren Tang Technologies Co. Ltd. (Hong Kong) 1,305,900 2,395
Tsingtao Brewery Co. Ltd. (Hong Kong) 27,397,100 29,212
UBS AG Call Warrants on Beijing Yanjing Brewery Co. Ltd., A Shares, expire
June 15, 2006 (acquired 6/15/05, cost: $21,159,000) (1) (2) 25,560,580 21,895
Weiqiao Textile Co. Ltd. (Hong Kong) 3,990,000 5,568
Wumart Stores, Inc. (Hong Kong) (3) 6,735,000 10,715
Zhejiang Expressway Co. Ltd. (Hong Kong) 6,660,000 4,500
ZTE Corp. (Hong Kong) 4,135,200 12,268
498,066
Colombia - 0.48%
Cia. de Cemento Argos, SA 4,224,264 45,309
Suramericana de Inversiones SA 5,378,411 20,718
66,027
Croatia - 0.10%
PLIVA DD (GDR) 1,060,768 13,495
Czech Republic - 0.26%
Komercni Finance BV 284,500 35,333
Egypt - 1.24%
Commercial International Bank S.A.E. 2,824,333 23,465
Commercial International Bank S.A.E. (GDR) 255,700 2,069
Egyptian Company for Mobile Services S.A.E. 2,163,228 67,415
Orascom Construction Industries Co. 1,595,673 46,400
Orascom Construction Industries Co. (GDR) 99,200 5,654
Orascom Construction Industries Co. (GDR) (acquired 6/29/05, cost: $17,437,000) (1) 329,000 18,753
Vodafone Egypt Telecommunications S.A.E. 393,000 5,862
169,618
Hong Kong - 1.11%
CDC Corp., Class A (2) 71,600 206
Clear Media Ltd. (2) 22,774,000 19,635
Foxconn International Holdings Ltd. (2) 56,559,000 41,811
Hopewell Holdings Ltd. 12,915,100 32,911
Kingway Brewery Holdings Ltd. 29,631,300 10,246
Shangri-La Asia Ltd. 30,295,246 46,533
151,342
Hungary - 0.55%
Gedeon Richter Ltd. 5,300 773
Magyar Tavkozlesi Rt. 5,545,218 23,693
Magyar Tavkozlesi Rt. (ADR) 1,054,000 22,556
National Savings and Commercial Bank Ltd. 834,290 28,093
75,115
India - 10.27%
Apollo Hospitals Enterprise Ltd. 1,666,666 13,459
Bharat Electronics Ltd. 1,414,966 22,460
Bharat Heavy Electricals Ltd. 2,505,145 49,825
Bharat Petroleum Corp. Ltd. 1,408,702 11,857
Bharti Tele-Ventures Ltd. (2) 27,691,720 154,262
Cummins India Ltd. 6,771,594 20,281
Dr. Reddy's Laboratories Ltd. 222,333 3,838
Grasim Industries Ltd. 39 1
HDFC Bank Ltd. 3,963,452 57,415
HDFC Bank Ltd. (ADR) 109,000 5,070
Hindustan Lever Ltd. 15,565,594 58,635
Housing Development Finance Corp. Ltd. 9,668,297 198,228
ICICI Bank Ltd. 3,134,900 30,584
ICICI Bank Ltd. (ADR) 2,800,095 61,182
Indian Petrochemicals Corp. Ltd. 1,514,731 5,960
Infosys Technologies Ltd. 4,822,872 259,570
Infosys Technologies Ltd. (ADR) 419,900 32,530
Jet Airways (India) Ltd. (2) 1,552,722 44,874
Larsen & Toubro Ltd. 4,768 124
Maruti Udyog Ltd. 3,367,800 35,691
National Thermal Power Corp. Ltd. 14,127,500 26,870
Oil & Natural Gas Corp. Ltd. 1,744,698 41,018
Ranbaxy Laboratories Ltd. 3,697,461 89,587
Reliance Energy Ltd. 3,466,596 50,447
Reliance Industries Ltd. 3,515,384 51,761
SET India Ltd. (acquired 5/15/00, cost: $34,131,000) (1) (2) 106,250 5,471
SET Satellite (Singapore) Pte. Ltd. (acquired 5/15/00, cost: $73,162,000) (1) (2) 2,847,112 11,676
Shopper's Stop Ltd. (2) 1,005,300 8,343
Tata Power Co. Ltd. (2) 1,367,400 11,826
Wipro Ltd. 1,264,651 22,169
Zee Telefilms Ltd. 4,164,647 14,900
1,399,914
Indonesia - 2.52%
PT Bank Mandiri (Persero) Tbk 345,968,500 52,780
PT Bank Rakyat Indonesia 27,513,000 8,140
Perusahaan Gas Negara (Persero) Tbk 66,893,000 19,560
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corp. Tbk 43,697,500 24,763
Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, Class B 451,061,702 230,760
PT Ramayana Lestari Sentosa Tbk 86,587,500 7,926
343,929
Israel - 2.83%
Bank Hapoalim Ltd. 16,261,511 50,720
Bank Leumi le-Israel B.M. 21,227,297 53,922
"Bezeq" The Israel Telecommunication Corp. Ltd. (2) 41,352,700 47,242
Check Point Software Technologies Ltd. (2) 52,900 1,047
Orbotech Ltd. (2) (3) 1,720,725 36,978
Partner Communications Co. Ltd. (2) 1,965,467 14,082
Partner Communications Co. Ltd. (ADR) (2) 2,239,700 16,171
Teva Pharmaceutical Industries Ltd. (ADR) 4,877,600 151,888
United Mizrahi Bank Ltd. (2) 3,358,362 13,613
385,663
Kazakhstan - 0.02%
OJSC Kazkommertsbank (ADR) (acquired 9/10/97, cost: $1,466,000) (1) (2) 72,877 2,886
Malaysia - 4.96%
AirAsia Bhd. (2) 63,247,100 27,093
AmInvestment Group Bhd. (2) 4,371,506 1,887
Astro All Asia Networks PLC (2) 34,113,500 48,666
CIMB Bhd. 4,905,300 7,408
Commerce Asset-Holding Bhd. 37,556,200 49,433
EON Capital Bhd. 11,273,000 15,150
Genting Bhd. 8,344,500 41,282
Hong Leong Bank Bhd. 21,863,400 29,737
IJM Corp. Bhd. 19,150,314 24,587
IOI Corp. Bhd. 9,033,100 24,751
Malakoff Bhd. 6,888,900 13,633
Malayan Banking Bhd. 28,951,750 82,134
Malaysian International Shipping Corp. Bhd. 1,041,100 4,904
Malaysian International Shipping Corp. Bhd., foreign shares 1,525,600 7,186
Maxis Communications Bhd. 39,799,900 100,419
MK Land Holdings Bhd. 21,246,600 6,117
Public Bank Bhd. 24,325,700 42,310
Resorts World Bhd. 7,271,300 17,979
Road Builder (M) Holdings Bhd. 13,010,300 8,080
S P Setia Berhad Group (3) 34,837,100 37,404
Tanjong PLC 4,849,300 16,548
Telekom Malaysia Bhd. 9,110,000 23,773
Tenaga Nasional Bhd. 6,016,000 16,484
Transmile Group Bhd. 6,041,200 16,711
UMW Holdings Bhd. 10,145,196 12,906
676,582
Mexico - 6.74%
America Movil SA de CV, Series A 16,275,000 48,501
America Movil SA de CV, Series L 18,391,840 54,673
America Movil SA de CV, Series L (ADR) 5,374,300 320,362
Cemex, SA de CV, ordinary participation certificates, units 4,820,846 20,467
Cemex, SA de CV, ordinary participation certificates, units (ADR) 372,626 15,807
Coca-Cola FEMSA, SA de CV, Series L (ADR) 857,400 22,901
Consorcio International Hospital, SA de CV, convertible preferred, units
(acquired 9/25/97, cost: $4,827,000) (1) (2) 23,970 -
Empresas ICA Sociedad Controladora, SA de CV (2) 78,185,100 31,792
Fomento Economico Mexicano, SA de CV (ADR) 734,880 43,777
Grupo Financiero Banorte, SA de CV 1,652,868 10,878
Grupo Financiero Inbursa, SA de CV, Series O 465,200 1,006
Grupo IMSA, SA de CV, Series UBC, units 317,100 725
Grupo Industrial Saltillo, SA de CV 2,955,573 4,121
Grupo Modelo, SA de CV, Series C 2,012,000 6,310
Grupo Televisa, SA, ordinary participation certificates (ADR) 1,295,232 80,421
Kimberly-Clark de Mexico, SA de CV, Class A, ordinary participation certificates 12,990,950 44,491
Wal-Mart de Mexico, SA de CV, Series V 50,955,007 206,630
Wal-Mart de Mexico, SA de CV, Series V (ADR) 159,736 6,493
919,355
Morocco - 0.06%
Holcim (Maroc) SA 46,585 6,119
Societe des Brasseries du Maroc 12,332 2,105
8,224
Peru - 0.20%
Cia. de Minas Buenaventura SA (ADR) 235,200 5,407
Credicorp Ltd. 1,091,262 21,705
27,112
Philippines - 0.42%
ABS-CBN Holdings Corp. (Philippine Deposit Receipts) 6,229,500 1,162
Ayala Corp. 2,285,074 12,753
Ayala Land, Inc. 82,485,230 11,435
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. 632,845 9,049
International Container Terminal Services, Inc. (2) 19,533,588 2,636
SM Investments Corp. 2,794,600 12,692
SM Prime Holdings, Inc. 55,082,000 7,338
57,065
Poland - 0.41%
Telekomunikacja Polska SA 8,972,020 55,208
Russia - 1.69%
Baring Vostok Private Equity Fund (acquired 12/15/00, cost: $7,599,000) (1) (3) (4) 8,530,144 12,087
Baring Vostok Private Equity Fund III (acquired 3/30/05, cost:
$1,431,000) (1) (2) (3) (4) 1,431,150 914
JSC MMC "Norilsk Nickel" (ADR) 1,035,070 62,696
LUKoil Holding (ADR) 788,036 28,800
New Century Capital Partners, LP (acquired 12/7/95, cost: $5,484,000) (1) (2) 5,247,900 2,059
OAO Gazprom (ADR) (acquired 10/21/96, cost: $2,654,000) (1) 173,900 6,212
OAO Moscow City Telephone Network 2,490,200 34,365
Sberbank (Savings Bank of the Russian Federation) 105,420 68,637
YUKOS Oil Co. (ADR) (2) 6,655,722 15,069
230,839
Singapore - 0.07%
PEARL Energy Ltd. (2) 9,081,000 9,178
South Africa - 7.23%
Anglo American Platinum Corp. Ltd. 1,212,628 53,845
Anglo American Platinum Corp. Ltd. 6.38% convertible preferred May 31, 2009 119,068 2,415
AngloGold Ashanti Ltd. 343,700 12,115
AngloGold Ashanti Ltd. (ADR) 35,700 1,276
Aveng Ltd. 10,389,700 19,281
AVI Ltd. 2,990,800 5,932
Barloworld Ltd. 5,222,000 73,920
Consol Ltd. (2) 2,990,800 4,724
Edgars Consolidated Stores Ltd. 215,500 9,339
Gold Fields Ltd. 3,447,909 38,896
Gold Fields Ltd. (ADR) 880,700 9,996
Harmony Gold Mining Co. Ltd. 8,870,612 76,569
Harmony Gold Mining Co. Ltd. (ADR) 4,146,392 35,493
Impala Platinum Holdings Ltd. 535,005 47,679
Massmart Holdings Ltd. 4,762,700 32,040
Murray & Roberts Holdings Ltd. 15,269,406 32,095
Mvelaphanda Resources Ltd. (2) (3) 11,141,377 25,295
Nasionale Pers Beperk, Class N 1,426,200 17,638
Network Healthcare Holdings Ltd. (2) 4,717,000 4,345
Sasol Ltd. 11,982,593 323,036
South Africa Capital Growth Fund, LP, Class A (acquired 8/25/95, cost: $893,000)(1)(2) 2,180 274
South Africa Capital Growth Fund, LP, Class D (acquired 8/25/95, cost: $5,387,000)(1)(2) 13,650 1,718
South African Private Equity Fund III, LP (acquired 9/23/98, cost: $23,725,000) (1)(3)(4) 27,594 45,373
SPAR Group Ltd. 3,415,000 12,370
Standard Bank Group Ltd. 8,822,814 85,147
Tiger Brands Ltd. 596,900 10,130
Truworths International Ltd. 1,574,400 4,082
985,023
South Korea - 17.96%
Asiana Airlines, Inc. (2) 3,233,747 13,691
Baiksan OPC Co., Ltd. 560,100 3,357
Cheil Communications Inc. 82,970 15,467
CJ Home Shopping Co., Ltd. 52,679 3,940
Daewoo Heavy Industries & Machinery Co., Ltd. 3,541,130 30,866
Daewoo Securities Co., Ltd. (2) 1,144,180 9,382
GS Engineering & Construction Corp. 996,070 32,516
Hankook Tire Co., Ltd. 3,000,920 35,943
Hynix Semiconductor Inc. (2) 2,400,180 38,934
Hyundai Development Co. 1,280,374 29,868
Hyundai Marine & Fire Insurance Co., Ltd. 1,634,250 10,983
Hyundai Motor Co. 2,531,484 139,430
Hyundai Motor Co., nonvoting preferred 446,848 14,758
INI Steel Co. 1,116,920 15,156
Jusung Engineering Co., Ltd. (2) 1,047,990 13,817
Kia Motors Corp. 5,077,940 66,881
Kookmin Bank 4,909,925 221,780
Kookmin Bank (ADR) 1,081,344 49,288
Kook Soon Dang Brewery Co., Ltd. 782,100 10,467
Korea Electric Power Corp. 3,622,130 109,986
Korea Gas Corp. 1,289,360 36,972
KT Corp. 132,930 5,345
KT&G Corp. 1,120,870 43,712
LG Electronics Inc. 56,440 3,561
LG.Philips LCD Co., Ltd. (2) 308,510 14,214
LG.Philips LCD Co., Ltd. (ADR) (2) 5,670,100 129,619
LS Cable Ltd. (3) 1,629,160 34,615
Nong Shim Co., Ltd. 185,204 53,221
Pulmuone Co., Ltd. 107,720 3,324
Pusan Bank 994,330 8,765
Samsung Electronics Co., Ltd. 1,229,648 580,337
Samsung Electronics Co., Ltd. (GDS) 1,479,454 352,301
Samsung Fire & Marine Insurance Co., Ltd. 705,791 56,740
Samsung SDI Co., Ltd. 137,306 12,800
Samsung Securities Co., Ltd. 386,200 10,296
Shinhan Financial Group Co., Ltd. 5,401,460 139,180
Sungshin Cement Co., Ltd. 367,840 6,935
Woori Finance Holdings Co., Ltd. 9,093,110 89,715
2,448,162
Sweden - 0.06%
Oriflame Cosmetics SA 369,600 8,393
Taiwan - 12.48%
Advanced Semiconductor Engineering Inc. (2) 90,704,964 66,971
Asia Corporate Partners Fund, Class B (acquired 3/12/96, cost: $2,989,000) (1)(2) 39,360 2,161
ASUSTeK Computer Inc. 19,789,237 55,053
AU Optronics Corp. (2) 32,129,000 53,477
AU Optronics Corp. (ADR) (2) 2,029,900 34,387
Cathay Financial Holding Co., Ltd. 30,786,000 61,538
Chi Mei Optoelectronics Corp. 12,555,000 19,380
Chinatrust Financial Holding Co., Ltd. 90,388,169 97,820
Chunghwa Telecom Co., Ltd. 14,478,000 30,083
Delta Electronics Inc. 19,130,120 29,405
EVA Airways Corp. (2) 63,120,000 30,301
Fubon Financial Holding Co., Ltd. 165,138,000 159,549
High Tech Computer Corp. 5,193,888 43,852
Hon Hai Precision Industry Co., Ltd. 51,974,994 268,002
Hon Hai Precision Industry Co., Ltd. (GDR) 2,487,322 25,563
Hotai Motor Co., Ltd. 3,507,000 8,306
MediaTek Incorporation 13,451,673 115,176
Mega Financial Holding Co., Ltd. 84,247,000 54,715
Optimax Technology Corp. 6,365,835 14,620
President Chain Store Corp. 21,518,517 42,301
Quanta Computer Inc. 12,843,899 24,238
Seres Capital (Cayman) (acquired 3/12/96, cost: $12,000) (1) (3) 2 16
Seres Capital (Cayman), nonvoting (acquired 3/12/96, cost: $63,000) (1) (3) 8 80
Siliconware Precision Industries Co., Ltd. 23,715,000 23,051
Taiwan Cement Corp. 52,845,000 32,550
Taiwan Hon Chuan Enterprise Co., Ltd. 5,794,150 5,044
Taiwan Semiconductor Manufacturing Co., Ltd. 165,789,851 284,941
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) 2,303,798 21,011
Test-Rite International Co., Ltd. 14,736,642 10,401
Tong Yang Industry Co., Ltd. (3) 22,244,243 31,273
Unimicron Technology Corp. 24,632,000 20,099
United Microelectronics Corp. (2) 50,145,000 35,975
1,701,339
Thailand - 1.07%
Advanced Info Service PCL 1,952,800 4,590
BEC World PCL 26,480,000 7,375
Electricity Generating PCL 17,865,147 34,500
KASIKORNBANK PCL 17,251,800 23,620
Krung Thai Bank PCL 73,228,600 16,452
Siam Cement PCL 1,185,400 6,850
Siam Cement PCL, nonvoting depositary receipts 2,666,290 14,579
Siam City Bank PCL, nonvoting depositary receipts 9,972,600 5,949
Siam City Cement PCL 3,913,024 26,167
TISCO Finance PCL 4,505,700 2,782
TISCO Finance PCL, nonvoting depositary receipts 4,505,800 2,727
145,591
Turkey - 2.31%
Akbank Turk AS 7,933,500 45,615
Aktas Elektrik Ticaret AS (2) 4,273 -
Anadolu Efes Biracilik ve Malt Sanayii AS 3,816,381 87,687
Koc Holding AS 1,000,201 4,403
Migros Turk TAS 5,876,901 45,639
Tansas Perakende Magazacilik Ticaret AS (2) 7,948,176 10,920
Turkiye Garanti Bankasi AS (2) 13,506,200 58,013
Turkiye Is Bankasi AS, Class C 7,387,675 43,028
Yapi ve Kredi Bankasi AS (2) 5,014,398 19,154
314,459
United Kingdom - 0.22%
Anglo American PLC 998,493 23,334
Oxus Gold PLC (2) 7,720,000 6,592
29,926
United States of America - 0.09%
AsiaInfo Holdings, Inc. (2) 936,540 5,160
Sohu.com Inc. (2) 297,400 6,519
11,679
Venezuela - 0.20%
Cia. An?nima Nacional Telefonos de Venezuela (CANTV), Class D (ADR) 1,400,189 26,520
Vietnam - 0.08%
Vietnam Enterprise Investments Ltd., Redeemable (acquired 9/20/01, cost:
$8,432,000) (1) (2) (3) 7,888,071 10,964
Multinational - 0.44%
Capital International Global Emerging Markets Private Equity Fund, LP
(acquired 6/30/99, cost: $24,775,000) (1) (3) (4) 55,168 33,246
Capital International Private Equity Fund IV, LP (acquired 3/29/05, cost:
$18,462,000) (1) (2) (3) (4) 18,087 16,366
New Asia East Investment Fund Ltd., Class A (acquired 5/23/96, cost: $733,000)(1)(3) 279,240 456
New Asia East Investment Fund Ltd., Class B (acquired 5/23/96, cost: $10,008,000)(1)(3) 3,810,369 6,224
New Europe East Investment Fund Ltd., Class B (acquired 6/4/93, cost: $2,494,000)(1)(2)(3) 436 1,690
Pan Asia Special Opportunities Fund (Cayman) (acquired 10/18/00, cost: $2,314,000)(1)(3) 240,000 1,368
59,350
Miscellaneous - 0.67%
Equity securities in initial period of acquisition 90,615
Total equity securities (cost: $7,768,196,000) 12,952,596
Units or
principal Value
Bonds and notes amount (000) (000)
Argentina - 0.38%
Multicanal SA:
9.25% February 1, 2002 (5) $2,609 $1,187
10.50% February 1, 2007 (6) 1,244 566
10.50% April 15, 2018 (6) 2,289 1,041
13.125% April 15, 2009 (6) 1,122 511
Republic of Argentina:
0.63% December 31, 2038 (7) ARS93,013 12,555
3.01% August 3, 2012 (7) $1,424 1,273
Payment-in-Kind Bond, 5.83% December 31, 2033 (7) ARS102,929 35,190
52,323
Brazil - 0.25%
Banco BMG SA 8.75% July 1, 2010 (acquired 6/22/05, cost: $6,080,000) (1) $6,080 6,164
Banco Bradesco SA:
8.875% June 3, 2049 (acquired 5/26/05, cost: $7,000,000) (1) 7,000 7,406
17.50% December 10, 2007 BRL5,850 2,545
Federal Republic of Brazil:
11.00% August 17, 2040 $3,785 4,558
Payment-in-Kind Bond, 8.00% April 15, 2014 301 308
Debt Conversion Bond, Series L, 3.125% April 15, 2012 (7) 3,261 3,153
Unibanco-Uniao de Bancos Brasileiros SA 8.70% February 11, 2010 BRL23,880 9,878
34,012
Bulgaria - 0.01%
Republic of Bulgaria 7.50% January 15, 2013 EUR750 1,156
Colombia - 0.11%
Republic of Colombia:
10.00% January 23, 2012 $4,270 4,996
10.375% January 28, 2033 1,755 2,102
10.75% January 15, 2013 385 470
11.75% February 25, 2020 760 1,003
12.00% October 22, 2015 COP15,641,000 7,022
15,593
Dominican Republic - 0.02%
Dominican Republic:
4.375% August 30, 2024 (7) $500 461
9.50% September 27, 2011 820 884
9.50% September 27, 2011 (acquired 5/12/05, cost: $1,318,000) (1) 1,280 1,379
2,724
Ecuador - 0.01%
Republic of Ecuador 8.00% August 15, 2030 (7) 2,320 1,943
Malaysia - 0.03%
Tenaga Nasional Bhd. 2.625% convertible debenture November 20, 2007 3,979 4,347
Mexico - 0.04%
United Mexican States Government:
Series MI10, 8.00% December 19, 2013 MXN494 4,251
Series M20, 8.00% December 7, 2023 156 1,242
5,493
Nigeria - 0.00%
Central Bank of Nigeria, warrants, 0% November 15, 2020 1,000 units -
Peru - 0.02%
Republic of Peru 9.875% February 6, 2015 $2,035 2,529
Philippines - 0.05%
Republic of Philippines 10.625% March 16, 2025 6,176 6,940
Russia - 0.06%
Russian Federation:
5.00% March 31, 2030 (7) 1,150 1,294
5.00% March 31, 2030 (acquired 8/25/00, cost: $3,008,000) (1) (7) 6,430 7,234
8,528
Turkey - 0.06%
Republic of Turkey 20.00% October 17, 2007 TRY9,775 7,895
United States of America - 0.03%
Citigroup Inc. 15.00% July 2, 2010 BRL8,240 3,635
Venezuela - 0.03%
Petrozuata Finance, Inc., Series B, 8.22% April 1, 2017 (acquired 4/12/02,
cost: $104,000) (1) $133 126
Republic of Venezuela:
9.25% September 15, 2027 3,370 3,542
10.75% September 19, 2013 215 252
3,920
Total bonds and notes (cost: $130,455,000) 151,038
Units or
principal Value
Short-term securities amount (000) (000)
Corporate short-term notes - 2.08%
Allied Irish Banks N.A. Inc. 3.13% due 7/6/05 $10,500 10,495
Bank of Ireland 3.13% due 7/5/05 21,900 21,890
Barton Capital Corp. 3.19% due 7/11/05 21,700 21,679
Clipper Receivables Co. LLC 3.40% due 7/1/05 13,300 13,299
Dexia Delaware LLC 3.11% due 7/8/05 16,800 16,788
Old Line Funding LLC 3.20% due 7/11/05 25,000 24,976
Sheffield Receivables Corp. 3.20% due 7/11/05 17,100 17,083
Total Capital S.A. 3.22% due 7/5/05 50,000 49,978
Triple-A One Funding Corp. 3.10% due 7/6/05 17,377 17,368
UBS Finance Delaware LLC 3.37% due 7/1/05 40,100 40,096
USAA Capital Corp. 3.18% due 7/11/05 50,000 49,951
283,603
Federal agency discount notes - 0.98%
Federal Home Loan Bank Discount Corp. 3.06%-3.10% due 7/8-7/11/05 134,000 133,886
Total short-term securities (cost: $417,489,000) 417,489
Total investment securities (cost: $8,316,140,000) 13,521,123
Net unrealized appreciation on foreign currency contracts (8) 7,098
Excess of cash and receivables over payables 103,486
Net assets $13,631,707
(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. securites laws); resale to the public may require
registration in the country where the primary market is located, and no
right to demand registration exists. As of June 30, 2005, the total value
and cost of such securities were $231,821,000 and $336,585,000,
respectively, and the value represented 1.70% 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., Capital International Global Emerging Markets Private
Equity Fund, LP and Capital International Private Equity Fund IV, LP are
also considered affiliates since these issuers have the same investment
adviser as the fund (see note 7 in Notes to Financial Statements).
(4) Excludes an unfunded capital commitment representing an agreement which
obligates the fund to meet capital calls in the future. Capital calls can
only be made if and when certain requirements have been fulfilled; thus,
the timing and the amount of such capital calls cannot readily be
determined.
(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) As of June 30, 2005, the net unrealized foreign currency contracts
receivable consists of the following:
Contract amount U.S. valuation
Unrealized
(depreciation)
Non-U.S. U.S. Amount appreciation
(000) (000) (000) (000)
Sales:
Hungarian Forint to Euro expiring 8/26-10/18/05 HUF8,535,268/EUR33,407 $40,520 $41,453 $(933)
Hungarian Forint to U.S. Dollar expiring 10/18/05 HUF804,951 4,082 3,901 181
Polish Zloty to Euro expiring 8/26-10/18/05 PLN47,346/EUR11,288 13,691 14,121 (430)
Polish Zloty to U.S. Dollar expiring 10/18/05 PLN22,566 6,942 6,726 216
South African Rand to U.S. Dollar expiring 7/25/05-5/8/06 ZAR1,059,838 165,672 157,608 8,064
Foreign currency contracts ---net......... $7,098
See Notes to Financial Statements
Abbreviations
Securities:
ADR - American Depositary Receipts
GDR - Global Depositary Receipts
GDS - Global Depositary Shares
Non-U.S. currency:
ARS - Argentine Peso
BRL - Brazilian Real
COP - Colombian Peso
EUR - Euro
HUF - Hungarian Forint
MXN - Mexican Peso
PLN - Polish Zloty
TRY - New Turkish Lira
ZAR - South African Rand
FINANCIAL STATEMENTS
Statement of assets and liabilities
at June 30, 2005 (dollars in thousands,
except per-share data)
Assets:
Investment securities at market:
Unaffiliated issuers (cost: $7,940,130) $13,167,008
Affiliated issuers (cost: $376,010) 354,115 $13,521,123
Cash 19,132
Cash denominated in non-U.S. currency (cost: $7,361) 7,768
Receivables for--
Sales of investments 69,782
Sales of fund's shares 4,404
Dividends and interest 53,160
Open forward currency contracts 7,098
Non-U.S. taxes 17,791 152,235
13,700,258
Liabilities:
Payables for--
Purchases of investments 58,778
Investment advisory fee 6,986
Directors' compensation 507
Other fees and expenses 1,927
Non-U.S. taxes 353
68,551
Net assets at June 30, 2005 --
Equivalent to $78.50 per share on
173,654,756 shares of $0.01 par value
capital stock outstanding (authorized
capital stock -- 400,000,000 shares) $13,631,707
Net assets consist of:
Capital paid in on shares of capital stock $6,527,858
Undistributed net investment income 2,935
Accumulated net realized gain 1,887,570
Net unrealized appreciation 5,213,344
Net assets at June 30, 2005 $13,631,707
See Notes to Financial Statements
Statement of operations
for the year ended June 30, 2005 (dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. withholding tax of $55,476; $380,016
also includes $20,476 from affiliates)
Interest (net of non-U.S. withholding tax of $210; 22,066 $ 402,082
also includes $139 from affiliates)
Fees and expenses:
Investment advisory services 93,021
Custodian 11,835
Registration statement and prospectus 32
Auditing and legal 573
Reports to shareholders 28
Directors' compensation 434
Other 637
Total expenses before expense reduction 106,560
Expense reduction 126 106,434
Net investment income 295,648
Realized gain and unrealized
appreciation on investments:
Net realized gain before non-U.S. taxes (includes 3,720,581
$75,390 net gain from affiliates)
Non-U.S. taxes (30,933)
Net realized gain on investments 3,689,648
Net change in unrealized appreciation on investment
securities and other assets and liabilities 391,463
Net change in unrealized appreciation
on open forward currency contracts 37,090
Net change in unrealized appreciation 428,553
Non-U.S. taxes 30,695
Net change in unrealized appreciation on
investments 459,248
Net realized gain and net change in unrealized
appreciation on investments 4,148,896
Net increase in net assets resulting
from operations $ 4,444,544
Financial statements
Statement of changes in net assets (dollars in thousands)
Year ended June 30
2005 2004
Operations:
Net investment income $ 295,648 $ 299,844
Net realized gain on investments 3,689,648 2,818,559
Net change in unrealized appreciation
on investments 459,248 1,540,016
Net increase in net assets
resulting from operations 4,444,544 4,658,419
Dividends and distributions paid
to shareholders:
Dividends from net
investment income (236,317) (412,626)
Capital share transactions:
Proceeds from shares sold:
5,015,031 and 19,080,947 shares, respectively 336,855 1,152,989
Proceeds from shares issued in
reinvestment of net investment
income dividends:
3,152,874 and 6,472,738 shares, respectively 213,261 378,267
Cost of shares repurchased:
100,042,798 and 100,778,444 shares, respectively (6,884,884) (6,173,186)
Net decrease in net assets
resulting from capital share
transactions (6,334,768) (4,641,930)
Total decrease in net assets (2,126,541) (396,137)
Net assets:
Beginning of year 15,758,248 16,154,385
End of year
(including undistributed net investment income and
distributions in excess of net investment income:
$2,935 and ($31,819), respectively) $13,631,707 $15,758,248
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 an
independent 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. Various factors may
be reviewed in order to make a good faith determination of a
security's fair value. These factors include, but are not limited to,
the type and cost of the security; contractual or legal restrictions
on resale of the security; relevant financial or business developments
of the issuer; actively traded similar or related securities; related
corporate actions; and changes in overall market conditions. If
significant events occur after the close of markets outside the United
States and before the fund's net asset value is next determined,
appropriate adjustments to closing market prices may be made to
reflect these events. Events of this type may include, but are not
limited to, significant movements in the U.S. market, earthquakes and
other natural disasters, or unanticipated market closures. At June 30,
2005 out of the 417 securities in the fund's portfolio, 239 securities
were fair valued with an aggregate value of $8,585,070,000.
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 and the amount of such capital calls
cannot readily be determined. Unfunded capital commitments are
recorded when capital calls are requested. As of June 30, 2005,
unfunded capital commitments were $61,784,000.
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. During the year ended June 30, 2005, tax law amendments in
India resulted in the abolishment of long-term capital gain taxes on sales
transacted on recognized stock exchanges. As a result, the accrued non-U.S.
taxes on unrealized gains were reduced by $56,903,000 on September 30, 2004, the
enactment date of the tax law amendments.
The receivable for non-U.S. taxes includes $16,604,000 related to India capital
gain 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 $57,746,000 for the year ended June 30, 2005.
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, short-term capital 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 distributions paid to shareholders during the years ended June
30, 2005 and 2004 was ordinary income.
As of June 30, 2005, undistributed ordinary income and currency gains, on a tax
basis, was $160,964,000 and undistributed long-term capital gain was $
1,909,037,000. The undistributed long-term capital gain reflects the utilization
of the accumulated capital loss carryforward of $1,793,464,000. During the year
ended June 30, 2005, the fund realized, on a tax basis, a net capital gain of
$3,702,501,000.
During the year ended June 30, 2005, the fund reclassified $24,577,000 from
undistributed net investment income to accumulated net realized gain to align
financial reporting with tax reporting.
As of June 30, 2005, the cost of investment securities, excluding forward
currency contracts, and cash denominated in non-U.S. currencies for federal
income tax reporting purposes was $8,508,903,000. Net unrealized appreciation on
investments, excluding forward currency contracts, aggregated $5,019,988,000, of
which $5,616,398,000 related to appreciated securities and $596,410,000 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, 2005. This amount was included in other
fees and expenses.
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 expense in the accompanying financial
statements includes $339,000 in current fees (either paid in cash or deferred)
and a net increase of $95,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CII. No affiliated officers and
Directors received any compensation directly from the fund.
5. 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, 2005, the total value of restricted securities was $231,821,000, which
represents 1.70% 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 $4,249,111,000 and $10,732,223,000, respectively, during the year
ended June 30, 2005.
The fund receives an expense reduction in its custodian fee equal to the amount
of interest calculated on certain cash balances held at the custodian bank. For
the year ended June 30, 2005, the custodian fee of $11,835,000 was reduced by
$126,000, rather than paid in cash.
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., Capital
International Global Emerging Markets Private Equity Fund, LP, and Capital
International Private Equity Fund IV, LP are considered affiliates since these
issuers have the same investment adviser as the fund. A summary of the fund's
transactions in the securities of affiliated issuers during the year ended June
30, 2005 is as follows:
Beginning Purchases/ Sales/
Issuer shares Additions Reductions
AFFILIATED ISSUERS:
Anhui Conch Cement 39,937,000 260,000 -
LS Cable 1,629,160 - -
Mvelaphanda Resources 9,142,000 1,999,377 -
Orbotech 963,025 757,700 -
S P Setia Berhad 34,837,100 - -
Tele Norte Celular Participacoes 9,215,384,539 - -
Tong Yang Industry 21,298,340 945,903 -
Wumart Stores 6,460,000 275,000 -
Dividend
and interest
Ending income Value
shares (000) (000)
Anhui Conch Cement 40,197,000 $631 $37,275
LS Cable 1,629,160 1,306 34,615
Mvelaphanda Resources 11,141,377 - 25,295
Orbotech 1,720,725 - 36,978
S P Setia Berhad 34,837,100 1,320 37,404
Tele Norte Celular Participacoes 9,215,384,539 - 6,184
Tong Yang Industry 22,244,243 896 31,273
Wumart Stores 6,735,000 147 10,715
Beginning Purchases/ Sales/
Issuer shares Additions Reductions
AFFILIATED PRIVATE EQUITY FUNDS/PRIVATE PLACEMENTS:
Baring Vostok Private Equity Fund 13,087,057 - 4,556,913
Baring Vostok Private Equity Fund III - 1,431,150 -
Capital International Global Emerging
Markets Private Equity Fund 56,000 3,531 4,363
Capital International Private Equity Fund IV - 18,087 -
Hidroneuquen 28,022,311 - -
New Asia East Investment Fund 4,089,609 - -
New Europe East Investment Fund 436 - -
New GP Capital Partners 27,000 - -
Pan Asia Special Opportunities Fund 600,000 - 360,000
Seres Capital 10 - -
South African Private Equity Fund III 29,008 790 2,204
Vietnam Enterprise Investments 7,888,071 - -
Dividend
and interest
Ending income Value
shares (000) (000)
Baring Vostok Private Equity Fund 8,530,144 96 12,087
Baring Vostok Private Equity Fund III 1,431,150 - 914
Capital International Global Emerging
Markets Private Equity Fund 55,168 242 33,246
Capital International Private Equity Fund IV 18,087 - 16,366
Hidroneuquen 28,022,311 - 900
New Asia East Investment Fund 4,089,609 3 6,680
New Europe East Investment Fund 436 - 1,690
New GP Capital Partners 27,000 88 4,692
Pan Asia Special Opportunities Fund 240,000 300 1,368
Seres Capital 10 58 96
South African Private Equity Fund III 27,594 386 45,373
Vietnam Enterprise Investments 7,888,071 - 10,964
Beginning Purchases/ Sales/
Issuer shares Additions Reductions
UNAFFILIATED ISSUERS:(1)
Advanced Semiconductor Engineering 195,145,191 27,334,773 131,775,000
BYD 13,299,000 - 6,629,500
Cummins India 10,446,937 29,974 3,705,317
Embotelladora Andina 6,429,023 - 3,763,450
GS Engineering & Construction 2,589,070 - 1,593,000
Housing Development Finance 16,637,984 - 6,969,687
Hyundai Development 4,443,274 - 3,162,900
Ivanhoe Mines 17,189,000 - 3,164,900
Shanghai Forte Land 55,154,000 - 55,154,000
Tong Ren Tang Technologies 5,529,900 - 4,224,000
UMW Holdings 25,827,796 - 15,682,600
Dividend
and interest
Ending income Value
shares (000) (000)
Advanced Semiconductor Engineering 90,704,964 - -
BYD 6,669,500 653 -
Cummins India 6,771,594 851 -
Embotelladora Andina 2,665,573 1,673 -
GS Engineering & Construction 996,070 1,331 -
Housing Development Finance 9,668,297 8,701 -
Hyundai Development 1,280,374 616 -
Ivanhoe Mines 14,024,100 - -
Shanghai Forte Land - 85 -
Tong Ren Tang Technologies 1,305,900 307 -
UMW Holdings 10,145,196 925 -
$20,615 $354,115
(1)Affiliated during the period but no longer affiliated at June 30, 2005.
FINANCIAL HIGHLIGHTS
Year ended June 30 (1)
2005 2004 2003 2002 2001
Net asset value, beginning of
year $59.35 $47.41 $44.80 $48.21 $68.69
Income from investment
operations:
Net investment income 1.35 .96 .92 .35 .68
Net realized and unrealized
gain (loss) on investments 18.86 12.24 2.21 (3.07) (20.80)
Total income(loss) from
investment operations 20.21 13.20 3.13 (2.72) (20.12)
Less distributions:
Dividends from
net investment income (1.06) (1.26) (.52) (.69) (.36)
Net asset value, end of year $78.50 $59.35 $47.41 $44.80 $48.21
Total return 34.34% 27.89% 7.14% (5.64)% (29.31)%
Ratios/Supplemental data:
Net assets, end of period
(in millions) $13,632 $15,758 $16,154 $16,258 $17,634
Ratio of expenses to average
net assets .71% .70% .70% .70% .68%
Ratio of net income to average
net assets 1.96% 1.64% 2.14% 1.27% 1.25%
Portfolio turnover rate 29.00% 35.36% 33.70% 26.22% 26.10%
(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, 2005, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
August 12, 2005
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, 2005.
The amount of foreign tax credit passed through to shareholders for the fiscal
year is $77,967,000. Foreign source income earned by the fund for the fiscal
year was $449,269,000.
Individual shareholders are eligible for reduced tax rates on qualified dividend
income. The fund designates $358,726,000 of the dividends received as qualified
dividend income.
INDIVIDUAL SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL MAILED IN JANUARY 2006 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2005 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
EXPENSE EXAMPLE (unaudited)
As a shareholder of the fund, you incur ongoing costs, including investment
advisory services fees and other expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the fund so you can
compare these costs with the ongoing costs of investing in other funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (January 1, 2005 through June 30, 2005).
ACTUAL EXPENSES:
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses paid during period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Beginning account Ending account Expenses paid Annualized
value 1/1/2005 value 6/30/2005 during period(1) expense ratio
Actual return $ 1,000.00 $1,080.95 $3.61 .70%
Hypothetical 5% return before expenses 1,000.00 1,021.32 3.51 .70
(1) Expenses are equal to the fund's annualized expense ratio of .70%,
multiplied by the average account value over the period, multiplied by the
number of days in the period (181), and divided by 365 (to reflect the
one-half year period).
APPROVAL OF RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT
The fund's Board of Directors has approved the renewal of the fund's Investment
Advisory and Service Agreement (the agreement) with Capital International, Inc.
(CII) for an additional one-year term through June 20, 2006, following the
recommendation of the fund's Contracts Committee (the Committee), a committee
comprised of all of the fund's independent Directors. The information, material
factors and the conclusions that formed the basis for the Committee's
recommendation and the Board's subsequent approval are described below.
1. INFORMATION RECEIVED
Materials reviewed
During the course of each year, the independent Directors receive a wide variety
of materials relating to the services provided by CII, including reports on the
fund's investment performance, portfolio composition, portfolio trading
practices, sales, redemptions and shareholder services, as well as other
information relating to the nature, extent and quality of the services provided
by CII to the fund. In addition, supplementary information requested and
reviewed by the Committee included extensive materials regarding the investment
performance of the fund and CII, advisory fee and expense comparisons, financial
and profitability information regarding CII, descriptions of various functions
such as compliance monitoring and portfolio trading practices, and information
about the personnel providing investment management and administrative services
to the fund.
Review process
The Committee received assistance and advice regarding legal and industry
standards from independent legal counsel to the independent Directors. The
Committee discussed the renewal of the agreement with CII representatives and in
a private session with independent legal counsel at which no representatives of
CII were present. In deciding to recommend renewal, the Committee did not
identify any particular information or any single factor that was controlling.
This summary describes the most important factors, but not all of the matters
considered.
2. NATURE, EXTENT AND QUALITY OF SERVICES
CII, its personnel and its resources
The Board and the Committee considered the depth and quality of CII's investment
management process, including: its global research capabilities; the experience,
capability and integrity of its senior management and other personnel; the low
turnover rates of its key personnel; and its commitment to research and its
investment process. The Board and the Committee noted the additions to the
investment personnel and enhancements to the investment process meant to improve
the scope of investment research coverage.
Other services
The Board and the Committee considered CII's policies, procedures and systems to
assure compliance with applicable laws and regulations and its commitment to
these programs; its efforts to keep the Directors informed; and its attention to
matters that may involve conflicts of interest with the fund. The Board and the
Committee also considered the nature, extent, quality and cost of administrative
and shareholder services provided by CII to the fund under the agreement and
other agreements, including the information technology, legal, fund accounting
and fund treasury functions. The Board and the Committee further considered
CII's supervision of the fund's third-party service providers, especially the
fund's custodians and subcustodians.
The Board and the Committee concluded that the nature, extent and quality of the
services provided by CII has benefited and will continue to benefit the fund and
its shareholders.
3. INVESTMENT PERFORMANCE
The Board and the Committee considered whether the fund operated within its
investment objective and its record of compliance with its investment
restrictions. The Board and the Committee reviewed the investment performance of
the fund and compared it to that of the MSCI Emerging Markets Index, as well as
a selected group of funds with a similar investment mandate. The Board and the
Committee reviewed the fund's short-term and long-term investment results on an
absolute and relative basis, including any period of outperformance or
underperformance against the index and the selected funds. The Board and the
Committee noted that the fund continued to outperform the index and a
significant number of the selected funds on a 10- and 15-year basis but that its
performance had lagged on a one-, three- and five-year basis. The Board and the
Committee also noted that CII has made considerable efforts to enhance its
investment process and has implemented changes in response to the fund's recent
underperformance. The Board and the Committee concluded that, although
short-term results have lagged, CII's long-term performance record in managing
the fund, along with other factors, indicates that it is reasonable to conclude
that its continued management is likely to benefit the fund and its
shareholders.
4. ADVISORY FEES AND TOTAL EXPENSES
The Board and the Committee compared the advisory fees and total expenses of the
fund (as a percentage of average net assets) with the average fees and expenses
of the selected group of funds referred to above. The Board and the Committee
observed that the fund's advisory fees and total expenses were significantly
lower than the median fees and expenses of the selected funds.
The Board and the Committee also reviewed information regarding the advisory
fees paid by institutional clients invested in institutional funds managed by
CII with a similar investment mandate. The Board and the Committee concluded
that the fees paid by the fund were comparable to those paid by the
institutional clients invested in those funds.
In addition, the Board and the Committee considered a third-party study of
advisory fees charged to global emerging market mandates.
The Board and the Committee observed that the fees charged under the agreement
are significantly lower than those of other mutual funds with emerging market
mandates, and concluded that the fee levels under the agreement are fair and
reasonable.
5. ADVISER COSTS, LEVEL OF PROFITS AND ECONOMIES OF SCALE
The Board and the Committee reviewed information regarding CII's costs of
providing services to the fund and its other institutional clients, and also
reviewed the resulting level of profits to CII. The Board and the Committee
considered CII's need to invest in technology, infrastructure and staff to
reinforce and offer new services and to accommodate changing regulatory
requirements. The Board and the Committee considered that breakpoints in the
fund's advisory fee structure provide for fee reductions as fund assets
increase, reflecting economies of scale in the cost of operations that are
shared with investors. The Board and the Committee concluded that CII's cost
structure was reasonable and that CII was sharing economies of scale with the
fund and its shareholders, to their benefit.
6. ANCILLARY BENEFITS
The Board and the Committee considered a variety of other benefits received by
CII and its affiliates as a result of CII's relationship with the fund and other
clients of CII, including fees paid to CII's affiliated transfer agent, and
possible ancillary benefits received by the fund in connection with the
activities of CII or its affiliates, which are not directly related to the fund.
The Board reviewed CII's portfolio trading practices, noting that while CII
receives the benefit of research provided by broker-dealers executing portfolio
transactions on behalf of the fund, it does not obtain third-party research or
other services in return for allocating brokerage to executing broker-dealers.
7. CONCLUSIONS
Based on their review, the Board and the Committee concluded that they were
satisfied with the nature, extent and quality of the services being provided to
the fund by CII, and that each of the factors referred to above favored renewal
of the agreement. Based on their review, the Board and the Committee concluded
that the fund's investment advisory fee is reasonable, both in absolute terms
and in comparison with those of other similar funds; that the fund and its
shareholders have received reasonable value in return for those fees; and that
renewal of the agreement is in the best interest of the fund and its
shareholders.
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, 47 1999 President and Chief Investment Officer, Lucent
Asset Management Corp.
Beverly L. Hamilton, 58 1991 Retired President, ARCO Investment Management
Company
David F. Holstein, 50 2001 Managing Director, Global Equities, General Motors
Investment Management Corporation
Raymond Kanner, 52 1997 Director, Global Equity Investments, IBM Retirement
Funds
Helmut Mader, 63 1986 Former Director, Deutsche Bank AG
William B. Robinson, 67 1986 Director, Reckson Asset Management Australia
Limited; Director, Unwired Australia Group Limited
(Internet service provider); Former Director,
Deutsche Asset Management Australia Limited
Gerrit Russelman, 59 2001 Adviser to the Managing Director, Investments,
Pensioenfonds PGGM
Aje K. Saigal, 49 2000 Director, Investment Policy and Strategy,
Government of Singapore Investment Corporation Pte.
Limited
"NON-INTERESTED" DIRECTORS
Number of
portfolios
in fund
complex(2)
overseen by
Name and age Director Other directorships(3) held by Director
Collette D. Chilton, 47 1 None
Beverly L. Hamilton, 58 1 Oppenheimer Funds (Director for 38 portfolios in
the fund complex)
David F. Holstein, 50 1 None
Raymond Kanner, 52 1 None
Helmut Mader, 63 1 None
William B. Robinson, 67 1 None
Gerrit Russelman, 59 1 None
Aje K. Saigal, 49 1 None
"INTERESTED" DIRECTORS(4)
Year first
elected a
Director or
Name, age and officer of Principal occupation(s) during past five years and
position with fund the fund(1) positions held with affiliated entities of the fund
Robert Ronus, 62 2003 Senior Vice President, Capital International, Inc.;
Chairman of the Board Senior Vice President, Capital International
Limited;(5) Vice Chairman of the Board, Capital
Guardian Trust Company;(5) Director, Capital Group
International, Inc.;(5) Director, The Capital Group
Companies, Inc.(6)
David I. Fisher, 65 1986 Vice Chairman of the Board, Capital International,
Vice Chairman of the Board Inc.; Chairman of the Board, Capital Group
International, Inc.;(5) Director, Capital Group
Research, Inc.;(5) Chairman of the Board, Capital
Guardian Trust Company;(5) Vice Chairman of the
Board, Capital International Limited;(5) Director,
Capital International Research, Inc.;(5) Director,
The Capital Group Companies, Inc.(6)
Shaw B. Wagener, 46 1997 Chairman of the Board, Capital International, Inc.;
President Senior Vice President and Director, Capital Group
International, Inc.;(5) Director, Capital Guardian
Trust Company;(5) Director, The Capital Group
Companies, Inc.(6)
Victor D. Kohn, 47 1996 President and Director, Capital International, Inc.;
Executive Vice President Senior Vice President, Capital International
Research, Inc.(5)
Number of
portfolios
in fund
complex(2)
Name, age and overseen by
position with fund Director Other directorships(3) held by Director
Robert Ronus, 62 1 None
Chairman of the Board
David I. Fisher, 65 1 None
Vice Chairman of the Board
Shaw B. Wagener, 46 1 None
President
Victor D. Kohn, 47 1 None
Executive Vice President
Director Emeritus
Walter P. Stern, 76 Vice Chairman of the Board, Capital International,
Chairman Emeritus Inc.; Vice Chairman of the Board, Capital Group
International, Inc.(5)
OTHER OFFICERS
Year first
elected an
Name, age and officer of Principal occupation(s) during past five years and
position with fund the fund(1) positions held with affiliated entities of the fund
Nancy J. Kyle, 55 1996 Vice Chairman of the Board, Capital Guardian Trust
Senior Vice President Company(5)
Michael A. Felix, 44 1993 Senior Vice President and Director, Capital
Vice President and International, Inc.; Senior Vice President,
Treasurer
Treasurer and Director, Capital Guardian Trust Company(5)
Peter C. Kelly, 46 1996 Senior Vice President, Senior Counsel, Secretary
and
Vice President Director, Capital International, Inc.; Senior Vice
President, Senior Counsel and Director, Capital
Guardian Trust Company;(5) Secretary, Capital Group
International, Inc.(5)
Robert H. Neithart, 40 2000 Executive Vice President and Research Director of
Vice President Emerging Markets, and Director, Capital
International Research, Inc.;(5) Vice President,
Capital Strategy Research(5)
Abbe G. Shapiro, 45 1997 Vice President, Capital International, Inc.; Vice
Vice President President, Capital Guardian Trust Company(5)
Lisa B. Thompson, 39 2000 Senior Vice President, Capital International
Research,
Vice President Inc.(5)
Nelson N. Lee, 34 2005 Counsel, Capital International, Inc.; Counsel,
Capital
Secretary Guardian Trust Company(5)
Laurie D. Neat, 34 2005 Senior Compliance Specialist, Capital International,
Assistant Secretary Inc.; Senior Compliance Specialist, Capital
Guardian Trust Company(5)
Jeanne M. Nakagama, 47 2000 Vice President, Capital International, Inc.; Vice
Assistant Treasurer President, Capital Guardian Trust Company(5)
Lee K. Yamauchi, 43 2000 Vice President, Capital International, Inc.; Vice
Assistant Treasurer President, Capital Guardian Trust Company(5)
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, 15TH FLOOR, LOS ANGELES, CA 90025, ATTENTION: FUND
SECRETARY.
The fund's SAI, Proxy Voting Policy and Procedures and proxy voting record for
the 12 months ended June 30 is available free of charge on the U.S. Securities
and Exchange Commission (SEC) website at www.sec.gov or upon request by calling
800/421-0180, ext. 96245.
The fund files a complete list of its portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. This form is available
free of charge on the SEC website or upon request by calling 800/421-0180, ext.
96245. You may also review or, for a fee, copy the form at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling 800/SEC-0330.
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital International, Inc. serves as investment adviser for the fund and
does not act as investment adviser for other U.S. registered investment
companies.
(3) This includes all directorships (other than those in the fund) that are
held by each Director as a director of a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of the Securities Exchange Act
of 1934 or a 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.
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-915-0805P(NLS)
Litho in USA TAG/WS/6391-S4276
(C) 2005 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 310/996-6000 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, 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:
2004 $107,450
2005 $116,000
b) Audit- Related Fees:
2004 none
2005 none
c) Tax Fees:
2004 $129,208
2005 $161,360
The tax fees for 2004 and 2005 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 and
Venezuela. The tax fees for 2004 also consisted of
professional services relating to preparing the local
tax return and acting as tax advisor in Taiwan.
d) All Other Fees:
2004 none
2005 none
Adviser and affiliates (includes only fees for non-audit services
billed to the adviser and affiliates for engagements that relate
directly to the operations and financial reporting of the Registrant
and were subject to the pre-approval policies described below):
a) Not Applicable
b) Audit- Related Fees:
2004 none
2005 none
c) Tax Fees:
2004 none
2005 none
d) All Other Fees:
2004 none
2005 none
The Registrant's Audit Committee will pre-approve all audit and permissible
non-audit services that the Committee considers compatible with maintaining the
auditors' independence. The pre-approval requirement will extend to all
non-audit services provided to the Registrant, the investment adviser, and any
entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the Registrant, if the engagement
relates directly to the operations and financial reporting of the Registrant.
The Committee will not delegate its responsibility to pre-approve these services
to the investment adviser. The Committee may delegate to one or more Committee
members the authority to review and pre-approve audit and permissible non-audit
services. Actions taken under any such delegation will be reported to the full
Committee at its next meeting. The pre-approval requirement is waived with
respect to non-audit services if certain conditions are met. The pre-approval
requirement was not waived for any of the non-audit services listed above
provided to the Registrant, adviser, and affiliates.
Aggregate non-audit fees paid to the Registrant's auditors, including fees for
all services billed to the Registrant and adviser and affiliates that provide
ongoing services to the Registrant were $129,208 for fiscal year 2004 and
$161,360 for fiscal year 2005. The non-audit services represented by these
amounts were brought to the attention of the Committee and considered to be
compatible with maintaining the auditors' independence.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable to this Registrant, insofar as the Registrant is not a listed
issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 - Schedule of Investments
The Schedule of Investments is included in the Annual Report to Shareholders.
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 9 - 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 10 - Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Directors since the Registrant
last submitted a proxy statement to its shareholders. The procedures are as
follows. The Registrant has a Committee on Directors (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 11 - Controls and Procedures
(a) The Registrant's Principal Executive Officer and Principal Financial
Officer have concluded, based on their evaluation of the Registrant's
disclosure controls and procedures (as such term is defined in Rule 30a-3
under the Investment Company Act of 1940), that such controls and
procedures are adequate and reasonably designed to achieve the purposes
described in paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's second fiscal quarter of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12 - Exhibits
(a)(1) The Code of Ethics that is the subject of the disclosure required by Item
2 is attached as an exhibit hereto.
(a)(2) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940 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 26, 2005
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 26, 2005
By /s/ Michael A. Felix
- -----------------------------------
Michael A. Felix, Treasurer and PFO
Date: August 26, 2005