PROSPECTUS
EMERGING MARKETS GROWTH FUND, INC.
Common Stock
Emerging Markets Growth Fund, Inc. (the "Fund") was established in March,
1986 in the United States under the laws of the State of Maryland. The Fund is
a diversified, closed-end management investment company. The investment
objective of the Fund is to seek long-term capital growth through investment in
developing country equity securities. Investment in developing country
securities involves certain risks and other considerations which are not
normally involved in investment in securities of U.S. companies. See
"Investment Objective and Policies" and "RISK FACTORS AND OTHER
CONSIDERATIONS." The address of the Fund is 11100 Santa Monica Boulevard, Los
Angeles, California USA 90025. Telephone: (310) 996-6000.
The Fund's investment adviser is Capital International, Inc. (the
"Manager").
The Fund is offering an additional 12,000,000 shares of its common stock,
par value $.01 per share (the "Shares"), pursuant to this Prospectus (the
"Offering"). The Shares will be offered by the Fund on a continuous basis
until all Shares have been sold; provided, however, the Fund will not sell
Shares unless the Fund is sufficiently invested in developing country
securities as determined by the Board. Currently the Fund's management has
been directed by the Board not to sell any shares in any month following a
month-end on which the Fund is not at least approximately 90% invested in
developing country securities, as described in the Prospectus. There has been
no public trading market for the Shares and none is expected to develop.
Accordingly, the Shares should not be considered readily marketable. In
addition, the Fund imposes certain limitations and restrictions on the transfer
of Shares. See "Restrictions on Transfer."
This Prospectus sets forth concisely the information an investor should
know before investing and should be retained for future reference. Additional
information about the Fund has been filed with the U.S. Securities and Exchange
Commission ("SEC") and is available from the Fund upon written or oral request
and without charge.
These securities have not been approved or disapproved by the securities
and exchange commission nor has the commission or any state securities
commission passed upon the accuracy or adequacy of this prospectus.
any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Proceeds to
Price to Load /1/ The Fund /3/
Public /1/
Per Share $38.62 $ N/A $38.62
Total /2/ $38.62 $ N/A $1,032,882,957.06
</TABLE>
/1/ The Shares are offered on a best efforts basis by the officers and
directors of the Fund. No commission or remuneration will be paid to such
persons in connection with the sale of Shares. The Shares being sold include
12,000,000 Shares currently being registered and 17,834,863 Shares previously
registered by the Fund that remained unsold as of October 23, 1998. The price
to public is equal to the net asset value, next determined after the order to
purchase Shares has been received by the Fund. As of October 23, 1998 the net
asset value and price per Share was $38.62.
/2/ Assuming all Shares currently registered are sold pursuant to continuous
offering.
/3/ Before deducting expenses of the offering borne by the Fund estimated to
be $124,475.
The date of this Prospectus is October 23, 1998.
============================================================
T A B L E O F C O N T E N T S
============================================================
Item Page No.
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF FUND EXPENSES 3
PROSPECTUS SUMMARY 4
FINANCIAL HIGHLIGHTS 8
THE FUND 9
USE OF PROCEEDS 10
RISK FACTORS AND OTHER CONSIDERATIONS 10
INVESTMENT OBJECTIVE AND POLICIES 13
MANAGEMENT 23
COMMON STOCK 30
PROPOSED CONVERSION TO OPEN-END INTERVAL STATUS 31
PRINCIPAL SHAREHOLDERS 32
THE OFFERING 32
SHARES ELIGIBLE FOR FUTURE SALE 34
VALUATION 34
DIVIDENDS AND DISTRIBUTIONS 35
REPURCHASE OF SHARES 35
RESTRICTIONS ON TRANSFER 36
PORTFOLIO TRANSACTIONS AND BROKERAGE 37
REPORTS, LISTING AND PUBLICATION OF VALUE 38
TAX CONSIDERATIONS 39
GENERAL INFORMATION 44
CUSTODIAN, DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR 44
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL 44
AVAILABLE INFORMATION 45
</TABLE>
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C>
Sales Load (as a percentage of offering price) None
Dividend Reinvestment and Cash Purchase Plan Fees None
Annual Fund Operating Expenses (as a percentage of net assets)
Management Fees* 0.63%
Other Expenses** 0.18%
-----
Total Annual Fund Operating Expenses*** 0.81%
=====
</TABLE>
The purpose of the table above is to help you understand all fees and
expenses that you, as a Fund shareholder, would bear directly or indirectly.
* The Manager's fee, which is payable monthly, is assessed at the annual rates
of 0.90% of the first $400 million of aggregate net assets; 0.80% of aggregate
net assets from $400 million to $1 billion; 0.70% of aggregate net assets from
$1 billion to $2 billion; 0.65% of aggregate net assets from $2 billion to $4
billion; 0.625% of aggregate net assets from $4 billion to $6 billion; 0.60% of
aggregate net assets from $6 billion to $8 billion; 0.58% of aggregate net
assets from $8 billion to $11 billion; 0.56% of aggregate net assets from $11
billion to $15 billion; 0.54% of aggregate net assets from $15 billion to $20
billion; and 0.52% of aggregate net assets in excess of $20 billion.
** "Other Expenses" are estimated and include non-U.S. taxes paid or accrued
on net investment income as a result of investing in certain foreign countries.
*** The expenses shown in the table are for the current fiscal year and are
based upon the net assets of the Fund after giving effect to the anticipated
net proceeds from sales of Shares being offered by this Prospectus. Total
expenses excluding non-U.S. taxes (as a percentage of net assets) are
anticipated to be 0.77% for the current fiscal year.
Example
An investor would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Three Years Five Years Ten Years
$8 $26 $45 $101
</TABLE>
This "Example" assumes that all dividends and other distributions are
reinvested at net asset value and that the percentage amounts listed under
Annual Fund Operating Expenses remain the same in the years shown. The above
tables and the assumption in the Example of a 5% annual return are required by
regulation of the SEC applicable to all investment companies; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of the Fund's Shares.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus.
THE FUND
Emerging Markets Growth Fund, Inc. (the "Fund") was established in March, 1986
as a corporation in the United States under the laws of the State of Maryland.
The Fund is registered with the SEC as a closed-end diversified management
investment company under the Investment Company Act of 1940 (the "Act").
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital growth
through investment in developing country equity securities. A developing
country security is a security of an issuer that is domiciled and has its
principal place of business in a country which, in the opinion of the Fund's
Board of Directors, is generally considered to be a developing country by the
international financial community, including the International Bank for
Reconstruction and Development ("The World Bank") and the International
Monetary Fund. The Fund intends to invest principally in developing country
securities that are listed on a bona fide securities exchange or are actively
traded in an over-the-counter ("OTC") market and whose issuers are domiciled in
countries that have securities markets approved for investment by the Fund's
Board of Directors ("qualified markets"). In determining whether to approve
markets for investment, the Board of Directors will take into account, among
other things, market liquidity, investor information and government regulation,
including fiscal and foreign exchange repatriation rules. The following
countries currently have qualified markets: Argentina, Brazil, Chile,
Colombia, Greece, Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico,
Pakistan, the People's Republic of China, Peru, the Philippines, Poland,
Portugal, Republic of China (Taiwan), Russia, South Africa, South Korea, Sri
Lanka, Thailand, Turkey and Venezuela. Consistent with the Fund's investment
objective, the Fund also engages in foreign currency hedging transactions. See
"Investment Objective and Policies." The Fund may also enter into transactions
in derivative instruments for risk management, investment and other purposes
including options on securities and securities indexes, futures contracts with
respect to securities, securities indexes, or currencies, swap agreements, and
equity-linked notes. These instruments may be more volatile than other
portfolio instruments held by the Fund, and there can be no assurance that use
of any such instrument will be successful in reducing portfolio risk or
increasing portfolio returns. Successful use of these instruments by the Fund
depends on the ability of Capital International, Inc., the investment adviser
of the Fund (the "Manager") to correctly predict future movements in interest
rates, security prices, or other market indicators.
THE OFFERING
The Shares will be offered by the Fund on a continuous basis until all Shares
offered hereunder have been sold; provided, however, the Fund will not sell
Shares unless the Fund is sufficiently invested in developing country
securities as determined by the Board. Currently, the Fund's management has
been directed by the Board not to sell any Shares in any month following a
month end on which the Fund is not at least approximately 90% invested in
developing country securities. This limitation may be modified at any time by
the Board of Directors of the Fund.
The Shares offered under this Prospectus include 12,000,000 Shares currently
registered with the SEC as well as the unsold portion of Shares that were
previously registered (a total of 17,834,863 Shares were unsold as of October
23, 1998). Shares may be purchased by notifying Abbe Shapiro by telephone
(310-996-6153) or facsimile (310-996-6200). Assuming the investor suitability
and minimum purchase requirements described herein have been met and the order
has been accepted, the price of Shares will be the net asset value per Share
next determined (on the last business day of each week and month). Payment,
which may be in the form of check or by wire, must be received on or prior to
the third business day following the date on which the price is determined at
the direction of the Fund's officers. At the sole discretion of the Manager,
investors may be permitted to purchase Shares by tendering to the Fund
developing country securities which are determined by the Manager to be
appropriate for the Fund's investment portfolio. See "The Offering."
INVESTOR SUITABILITY REQUIREMENTS AND MINIMUM PURCHASES
The Fund has established suitability standards which require that each investor
that is a "company" (as that term is defined in the 1940 Act) must have total
assets in excess of U.S. $5 million. A prospective investor that is a natural
person must be an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, as amended (the "1933 Act"). For example,
an individual with a net worth in excess of U.S. $1 million or an individual
income in excess of U.S. $200,000 during each of the two most recent years with
a reasonable expectation of reaching the same income level in the current year
qualify as "accredited investors." The minimum initial purchase pursuant to
this offering (for companies and natural persons) is $100,000 (approximately
2,589 Shares based on the offering price at the date of this Prospectus) and
$25,000 thereafter. No investor may purchase or otherwise acquire an amount of
Shares that would result in its owning, together with affiliates (as such term
is defined under the Securities Exchange Act of 1934, as amended (the "1934
Act")), more than 15% of the Fund's outstanding Shares (provided that this
limitation shall not apply to the acquisition of Shares by reinvestment of
dividends or capital gain distributions; and provided further, that any
Shareholder of the Fund may purchase its pro rata portion of all Shares
authorized for issuance and sale by the Fund without regard to this
limitation).
BOARD OF DIRECTORS
The Fund's Board of Directors is responsible for the overall supervision of the
operations of the Fund. See "Management."
INVESTMENT ADVISER
Capital International, Inc. manages the investment portfolio and business
affairs of the Fund subject to policies established by the Fund's Board of
Directors. See "Management."
MANAGER'S FEES AND OTHER EXPENSES
The Fund pays the Manager monthly a fee at the annual rate of 0.90% of the
first $400 million of the aggregate net assets of the Fund. The annual rate is
reduced to .80% of the aggregate net assets from $400 million to $1 billion;
and to 0.70% of such aggregate net assets from $1 billion to $2 billion; 0.65%
of aggregate net assets from $2 billion to $4 billion; 0.625% of aggregate net
assets from $4 billion to $6 billion; 0.60% of aggregate net assets from $6
billion to $8 billion; 0.58% of aggregate net assets from $8 billion to $11
billion; 0.56% of aggregate net assets from $11 billion to $15 billion; 0.54%
of aggregate net assets from $15 billion to $20 billion; and 0.52% of aggregate
net assets in excess of $20 billion. The Manager's fee is higher than that
paid by most other U.S. investment companies primarily because of the
additional time and expense required of the Manager in pursuing the Fund's
investment objective of seeking long-term capital growth through investment in
developing country equity securities. In addition, other Fund expenses are
borne by the Fund.
RESTRICTIONS ON TRANSFER
All Shares of the Fund--including the Shares to be issued in this
offering--rank equally with all other Shares with respect to dividends, voting
rights, liquidation rights and other matters. See "Management" and "Common
Stock."
There are significant restrictions placed on transfers of Shares in secondary
transactions. Purchasers must meet suitability standards that generally
require the purchaser to be an "accredited investor" within the meaning of
Regulation D under the 1933 Act, own less than 15% of the Fund's outstanding
Shares, and have an account balance with the Fund of at least $100,000. All
investors purchasing Shares pursuant to this Offering are required to make this
representation and to agree to this restriction. See "Restrictions on
Transfer."
In light of the risks involved in an investment in the Fund and the limited
market for the Shares, Shares should not be purchased unless the purchaser is
capable of bearing the significant risk of maintaining such an investment for
an indefinite period.
TENDER OFFERS
As a closed-end fund, the Fund's Board of Directors presently intends to
consider, on approximately a quarterly basis, whether to authorize the
repurchase by the Fund of up to 5% of the Fund's issued and outstanding Shares
at the then net asset value of such Shares. There is no guarantee that the
Fund will repurchase any Shares or that Shares tendered pursuant to a tender
offer made by the Fund will in fact be purchased. The Fund has received an
exemptive order from the SEC permitting the Fund to repurchase Shares in
connection with tender offers while it is engaged in a continuous distribution
of Shares. However, pursuant to that exemptive order the Fund has agreed to
discontinue the offer and sale of Shares during the last five business days
prior to termination of any tender offer. See "Repurchase of Shares."
RISK FACTORS AND OTHER CONSIDERATIONS
Investing in equity securities of issuers in a variety of developing countries
involves certain special risks considerations, which may include (1) investment
and repatriation restrictions, (2) currency fluctuations, (3) potential unusual
market volatility, (4) government involvement in the private sector, (5)
limited investor information, (6) shallow securities markets, (7) certain local
tax laws, (8) limited regulation of the securities markets, (9) limitations on
obtaining and enforcing judgment against non-U.S. residents, (10) risks
associated with investments in loan participations, (11) settlement risks, and
(12) the risks associated with ownership of Russian securities. Although the
foregoing considerations also may be present in the case of investments in
securities of issuers located in the U.S. or other countries that are members
of the Organization for Economic Cooperation and Development ("OECD"), they are
present to a greater degree in connection with the Fund's investments in equity
securities of issuers in developing countries. See "Risk Factors and Other
Considerations." In addition, to the extent a secondary market for the Shares
develops, investors should be aware that shares of closed-end investment
companies frequently trade at a discount from net asset value. Accordingly,
Shares of the Fund are designed primarily for long-term investors and should
not be considered a vehicle for trading purposes. The net asset value of the
Fund's Shares will fluctuate with price changes of the Fund's portfolio
securities.
FINANCIAL HIGHLIGHTS
The table below provides per share data and ratios for one share of the Fund
for each of the periods shown. This information is supplemented by the
financial statements and accompanying notes which appear elsewhere in this
Prospectus. The financial statements and notes and the financial information
in the table below have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report thereon, as is relates to the years 1994 to 1998, is
also included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Years Ended June 30
1998 1997 1996 1995 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------
Net Asset Value, Beginning
of Year $70.87 $57.57 $52.36 $58.75 $44.95 $38.64 $32.73 $32.81 $25.51
Income from Investment
Operations:
Net investment income 1.56 1.61 1.30 .87 .53 .62 .55 .83 .83
Net realized and
unrealized gain (loss) on
investments before non-
U.S. taxes (20.69) 14.51 6.49 (.79) 15.29 7.33 8.87 3.89 10.46
Non-U.S. taxes .05 (.01) (.01) (.03) (.39) (.06) (.28) (.38) (.02)
------- ------ ----- ----- ----- ----- ----- ----- -----
Total income from investment
operations (19.08) 16.11 7.78 .05 15.43 8.01 9.14 4.34 11.27
------ ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment
income (2.36) (1.79) (1.30) (.63) (.49) (.56) (.56) (.92) (.85)
Distributions from
net realized
gain (3.38) (1.02) (1.27) (5.81) (1.14) (1.14) (2.67) (3.50) (3.12)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (5.74) (2.81) (2.57) (6.44) (1.63) (1.70) (3.23) 4.42 (3.97)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value, End of Year $46.05 $70.87 $57.57 $52.36 $58.75 $44.95 $38.64 $32.73 $32.81
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (27.56)% 29.17% 15.49% (1.22)% 34.33% 21.55% 29.73% 18.08% 45.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions) $12,364 $13,584 $8,451 $5,572 $4,170 $2,574 $1,561 $703 $666
Ratio of expenses to
average net assets .76% .78% .84% .91% 1.00% 1.01% 1.11% 1.18% 1.25%
Ratio of expenses and
non-U.S. taxes to average
net assets .80% .78% .85% .94% 1.04% 1.07% 1.18% 1.31% 1.25%
Ratio of net income to
average net assets 2.58% 2.74% 2.54% 1.70% .91% 1.82% 1.84% 2.78% 3.21%
Average commissions paid per
share /1/ .06 cts .13 cts .10cts .02cts .01cts .02cts .02cts N/A N/A
Portfolio turnover rate 23.41% 23.75% 17.78% 23.75% 18.13% 11.97% 16.03% 26.38% 28.45%
</TABLE>
/1/ Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
separately reflected in the fund's statement of operations. Shares traded on a
principal basis (without commissions), such as most over the counter and
fixed-income transactions, are excluded. Generally, non-U.S. commissions are
lower than U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share prices
of many non-U.S. securities.
THE FUND
Emerging Markets Growth Fund, Inc. (the "Fund") is a corporation organized
under Maryland law on March 10, 1986 for the purpose of investing in developing
country securities (as that term is defined below). The Fund is designed for
institutional investors and "accredited investors" (see "Investor Suitability
Requirements and Minimum Purchases," above) desiring to achieve international
diversification by participating in the economies of various countries with
emerging securities markets. By investing in the securities of several such
markets, the Fund is intended to complement and provide an alternative to
certain other investment companies which invest exclusively in the securities
of issuers in a single country.
The Fund was created to take advantage of a perceived growing potential for
foreign portfolio investment in emerging securities markets. While the
management of the Fund believes there may be regulatory, financial, technical
and other barriers to the development of this potential, in the opinion of Fund
management, substantial investment opportunities exist in these markets. The
management of the Fund believes that the existence of these opportunities is
supported by, among other things:
1) the performance in certain periods of a number of actively traded stocks of
certain issuers in these markets;
2) the relatively low valuations, from time to time, of certain securities in
these markets;
3) a growing desire for and knowledge concerning international
diversification among portfolio investors; and
4) a growing receptiveness to foreign portfolio investment among policy
makers in many developing countries, based on their growing appreciation for
the important role of equity capital and the contribution of securities markets
to a strong financial sector.
The Fund will seek access to securities markets in certain developing
countries that are currently effectively closed to foreigners (non-residents).
It is hoped that the Fund's activities will result in improvement in the terms
of access to various markets.
The management of the Fund believes that the Fund may provide investors
with an opportunity to participate in the price appreciation of developing
country securities. The management of the Fund also believes that the Fund
will allow investors to diversify their portfolios by country and industry,
thus reducing the risks associated with downturns in any one industry or
market. Additionally, the Fund will allow for international diversification
away from the more well-known securities of issuers located in countries that
are members of OECD. HOWEVER, THERE CAN BE NO ASSURANCE THAT THESE OBJECTIVES
WILL BE MET.
CAPITALIZATION
To obtain its initial capitalization of $50,000,000, the Fund in June 1986
sold 5,000,000 Shares at a price of $10.00 each in a private offering to a
limited number of institutional investors. Since that time, the Fund has
issued additional Shares in several private offerings and several public
offerings and pursuant to reinvestment of dividends and capital gain
distributions to its Shareholders.
As of September 30, 1998 there were 740 holders of Shares, and 296,198,252
Shares outstanding. The Fund's aggregate net assets were approximately $10.7
billion. If all Shares offered by the Fund pursuant to this Prospectus are
sold, the Fund would have 326,033,115 Shares outstanding and approximately
$12.6 billion in aggregate net assets (assuming all Shares had been sold at
prices based on the net asset value per Share as of October 23, 1998).
Currently, there are no outstanding warrants, rights, options or similar
features relating to the purchase of the Fund's Shares (see "Common Stock").
The Board of Directors may from time to time permit the issuance of Shares for
reinvestment of dividends or capital gain distributions or in additional
private or public offerings. The Fund reserves the right to make additional
private or public offerings in the future if it believes that such offerings
would be in the best interests of the Fund and the Fund's Shareholders. In
addition, the Fund expects to continue its current practice of issuing
additional Shares for purposes of reinvestment of dividends and capital gain
distributions.
USE OF PROCEEDS
The net proceeds to be paid to the Fund (estimated to be approximately $1
billion based on the price per Share as of October 23, 1998 if the 29,834,863
Shares being offered in this Prospectus are sold) will be invested in
accordance with the policies set forth under "Investment Objective and
Polices." Pending investment in developing country equity securities, it is
expected that the proceeds will be invested in money market instruments or
other highly liquid debt instruments denominated in U.S. dollars or other
freely convertible currencies. See "Investment Objective and Policies." The
Fund expects that substantially all of the proceeds will be invested in
accordance with its investment objective within three months after receipt
thereof and, in any case, no more than six months after receipt.
RISK FACTORS AND OTHER CONSIDERATIONS
The Fund faces a number of investment risks greater than those normally
associated with international investments in securities. These include:
1) INVESTMENT AND REPATRIATION RESTRICTIONS. A number of attractive emerging
securities markets restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
emerging market countries. While the Fund will only invest in markets where
these restrictions are considered acceptable, new or additional repatriation
restrictions might be imposed subsequent to the Fund's investment. If such
restrictions were imposed subsequent to the Fund's investment in the securities
of a particular country, the Fund's response might include, among other things,
applying to the appropriate authorities for a waiver of the restrictions or
engaging in transactions in other markets designed to offset the risks of
decline in that country. Such restrictions will be considered in relation to
the Fund's liquidity needs and all other acceptable positive and negative
factors. Further, some attractive equity securities may not be available to
the Fund because foreign shareholders hold the maximum amount permissible under
current laws.
2) CURRENCY FLUCTUATIONS. In accordance with its investment objective, the
Fund's assets will be invested in securities of companies in developing
countries and substantially all income will be received by the Fund in foreign
currencies. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years and
devaluation may occur subsequent to investments in these currencies by the
Fund. The value of the assets of the Fund as measured in U.S. dollars would be
adversely affected by devaluations in foreign currencies. Consistent with its
investment objective, the Fund can engage in certain currency hedging
transactions. These transactions involve certain special risks. See
"Investment Objective and Policies--Foreign Currency Hedging Transactions."
3) POTENTIAL MARKET VOLATILITY. Many of the emerging securities markets are
relatively small, have low trading volumes, suffer periods of illiquidity and
are characterized by significant price volatility.
4) GOVERNMENT IN THE PRIVATE SECTOR. Government involvement in the private
sector varies in degree among the emerging securities markets in which the Fund
may invest. Such involvement may, in some cases, include government ownership
of companies in certain sectors, wage and price controls or imposition of trade
barriers and other protectionist measures. With respect to any developing
country, there is no guarantee that some future economic or political crisis
will not lead to price controls, forced mergers of companies, expropriation, or
creation of Government monopolies, to the possible detriment of the Fund's
investments.
5) INVESTOR INFORMATION. The Fund may encounter problems in assessing
investment opportunities in certain emerging securities markets in light of
limitations on available information and different accounting, auditing and
financial reporting standards. In such circumstances, the Manager will seek
alternative sources of information, and to the extent the Manager may not be
satisfied with the sufficiency of the information obtained with respect to a
particular market or security, the Fund will not invest in such market or
security.
6) TAXATION. Taxation of dividends, interest and capital gains received by
non-residents varies among developing countries and, in some cases, is
comparatively high. In addition, developing countries typically have less
well-defined tax laws and procedures and such laws may permit retroactive
taxation so that the Fund could in the future become subject to local tax
liability that it had not reasonably anticipated in conducting its investment
activities or valuing its assets.
7) NET ASSET VALUE DISCOUNT. To the extent an active secondary market for the
Shares develops, investors should be aware that shares of closed-end investment
companies frequently trade at a discount from net asset value. It is
anticipated that the tender offer policy adopted by the Fund's Board of
Directors will restrict the development of a secondary market with shares
trading at a discount (See "Repurchase of Shares"). The net asset value of the
Fund's Shares will fluctuate with price changes of the Fund's portfolio
securities.
8) LITIGATION. The Fund and its Shareholders may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and companies.
9) FRAUDULENT SECURITIES. It is possible, particularly in emerging markets,
that securities purchased by the Fund may subsequently be found to be
fraudulent or counterfeit and as a consequence the Fund could suffer a loss.
10) LOAN PARTICIPATIONS. The Fund may invest, subject to its overall
limitation on debt securities, in loan participations, typically made by a
syndicate of banks to governmental or corporate borrowers for a variety of
purposes. The underlying loans to emerging market governmental borrowers may
be in default and may be subject to restructuring under the Brady Plan. The
underlying loans may be secured or unsecured, and will vary in term and legal
structure. When purchasing such instruments the Fund may assume the credit
risks associated with the original bank lender as well as the credit risks
associated with the borrower. Investments in loan participations present the
possibility that in the U.S., the Fund could be held liable as a co-lender
under emerging legal theories of lender liability. In addition, if the loan is
foreclosed, the Fund could be part owner of any collateral, and could bear the
costs and liabilities of owning and disposing of the collateral. Loan
participations are generally not rated by major rating agencies and may not be
protected by securities laws. Also, loan participations are often considered
to be illiquid.
11) SETTLEMENT RISKS. Settlement systems in emerging markets are generally
less well organized than in developed markets. Supervisory authorities may
also be unable to apply standards which are comparable with those in developed
markets. Thus there may be risks that settlement may be delayed and that cash
or securities belonging to the Fund may be in jeopardy because of failures of
or defects in the systems. In particular, market practice may require that
payment shall be made prior to receipt of the security which is being purchased
or that delivery of a security must be made before payment is received. In
such cases, default by a broker or bank (the "Counterparty") through whom the
relevant transaction is effected might result in a loss being suffered by the
Fund. The Fund will seek, where possible, to use Counterparties whose
financial status is such that this risk is reduced. However, there can be no
certainty that the Fund will be successful in eliminating this risk,
particularly as Counterparties operating in emerging markets frequently lack
the substance or financial resources of those in developed countries. There
may also be a danger that, because of uncertainties in the operation of
settlement systems in individual markets, competing claims may arise in respect
of securities held by or to be transferred to the Fund.
12) RUSSIA. The Russian market is one of the newer emerging markets, and in
certain respects one of the least developed emerging markets. Investments in
Russia will be subject to the risks set forth above as well as certain
heightened risks with regard to the ownership and custody of securities.
Ownership of securities in Russia is evidenced by entries in the books of a
company or its registrar. No certificates representing ownership of Russian
companies will be held by the Fund's custodian or subcustodian or in an
effective central depository system, which would be the case in most emerging
and developed markets. As a result of this system and the lack of effective
state regulation and enforcement, the Fund could lose its registration and
ownership of Russian securities through fraud, negligence or even mere
oversight. The Fund will attempt to ensure that its interest in securities
continues to be recorded by having its custodian obtain extracts of share
registers through regular confirmations, however, such extracts are not legally
enforceable and would not prevent loss or dilution of the Fund's ownership
rights from fraudulent or negligent acts or mere oversights. In certain
situations, management of a company may be able to exert considerable influence
over who can purchase and sell the company's shares by illegally instructing
the registrar to refuse to record transactions in the share register. The
acquisition of ADRs, as described below, depositary receipts and other
securities convertible or exchangeable into Russian securities will not reduce
this risk.
The Fund seeks, as feasible, to reduce these risks by careful management
of its assets. However, there can be no assurance that these efforts will be
successful.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital growth
through investment in developing country equity securities. Developing country
securities are securities whose issuers are domiciled and conduct their
principal business in those countries which, in the opinion of the Board of
Directors, are generally considered to be developing countries by the
international financial community, including The World Bank and the
International Monetary Fund. The Fund invests its assets primarily in
developing country equity securities of issuers that are domiciled and have
their principal places of business in developing countries that have qualified
markets and where the securities are listed on bona fide securities exchanges
or actively traded on over-the-counter ("OTC") markets. These exchanges or OTC
markets may be either within or outside the issuer's domicile country, and the
securities may be listed or traded in the form of International Depositary
Receipts ("IDR's"), American Depositary Receipts ("ADRs") or other types of
depositary receipts. The Fund may invest a portion of its assets (not to
exceed 10%) in securities of issuers that are not domiciled and/or do not have
their principal places of business in developing countries, but that have or
will have substantial assets in developing countries; and/or derive or expect
to derive a substantial proportion of their total revenues from either goods
and services produced in, or sales made in, developing countries.
The Fund may invest, with prior approval of the Board of Directors, in
developing country securities that are not readily marketable due to
contractual or other restrictions on resale or because of the absence of a
secondary market ("illiquid securities") and in securities of issuers that are
not domiciled and/or do not have their principal place of business in
developing countries that have qualified markets ("non-qualified market
developing country securities"). The Fund's Board of Directors currently has
authorized investments by the Fund of up to 10% of the Fund's assets in
aggregate (taken at the time of purchase) (i) in developing country securities
that are not readily marketable due to contractual or other restrictions on
resale or because of the absence of a secondary market ("illiquid securities"),
and (ii) in securities of issuers that are not domiciled and/or do not have
their principal places of business in developing countries that have qualified
markets ("non-qualified market developing country") (or investment companies
that invest solely in issuers described in clause (ii)). The Fund's
investments in securities of issuers described in clause (ii) shall also be
limited to 1% of the Fund's assets (taken at the time of purchase) in any one
issuer and 2% of the Fund's assets (taken at the time of purchase) in the
aggregate in issuers located and having their principal places of business in
any one country. Subject to these considerations and the restrictions set
forth below under "Investment Restrictions," the particular mix of securities
held by the Fund at any time will be determined by the Manager under the
supervision of, and within any guidelines established by, the Board of
Directors.
The Fund seeks a portfolio that is diversified both geographically and by
industry sector. A variety of issuers are evaluated by the Fund's Manager, and
such evaluations generally focus on past performance and comparisons of the
issuer with appropriate market indices, detailed investigation into the current
operations and future plans of the issuer, and other relevant factors.
Pending the Fund's investment of new money in developing country equity
securities, it typically invests in money market instruments or other highly
liquid debt instruments denominated in U.S. dollars or other freely convertible
currencies. In addition, the Fund may, for liquidity, or for temporary
defensive purposes during periods in which market or economic or political
conditions warrant, invest 100% of the Fund's assets in highly liquid debt
instruments or freely convertible currencies, although the Fund does not expect
the aggregate of such amounts to exceed 20% of its net assets under normal
circumstances. Use of these policies may cause the Fund to have at month-end
less than approximately 90% of its assets invested in developing country
securities. The Fund is not authorized by the Board to sell any shares in any
month following a month-end on which the Fund is not at least approximately 90%
invested in developing country securities.
The Fund may invest a portion of its portfolio (not to exceed 15% of total
assets) in long and short-term debt instruments for other than the purposes
described in the preceding paragraph, where the investment is consistent with
the Fund's objective of long-term capital growth. Such investments are
considered by the Fund to be developing country securities, and could involve,
for example, the purchase of bonds issued at a high rate of interest in
circumstances where the government of a developing country employs programs to
reduce inflation, resulting in a decline in interest rates and an increase in
the market value of such bonds. Debt instruments include "loan
participations," which involve the purchase of a "portion" of one or more loans
advanced by a lender (such as a bank) to a corporate or sovereign borrower.
The Fund also may invest in shares of other investment companies that
invest in one or more qualified markets. If the Fund invests in such
investment companies, the Fund's Shareholders will bear not only their
proportionate share of expenses of the Fund (including operating expenses and
the fees of the Manager), but also will bear indirectly similar expenses of the
underlying investment companies.
The Fund may also invest in shares of investment companies for which the
Manager or an affiliate of the Manager serves as investment adviser. The Fund
has received an SEC exemptive order permitting the Fund to invest up to 21/2%
of the Fund's total assets in New Europe East Investment Fund, a closed-end,
Luxembourg investment fund organized by the Manager for the purpose of
investing in securities of companies or commercial operations domiciled in the
countries of East Central Europe and the former Soviet Republics. The Fund has
also received an SEC exemptive order permitting the Fund to invest up to 1% of
the Fund's total assets in New Asia East Investment Fund, a closed-end,
Singapore investment fund organized by the Manager for the purpose of investing
in the South East Asia and China regions. The Board of Directors has recently
approved a proposed investment by the Fund in a global private equity fund to
be organized by the Manager and for which investment an SEC exemptive order
will be sought. There can be no assurance that this exemptive relief will be
granted. With respect to any such investments in investment companies advised
by the Manager or an affiliate thereof, the Manager will waive all fees
attributable to the Fund's holdings in such investment companies. To
effectuate this waiver, the Fund's holdings in any such investment company
would be excluded from the net assets of the Fund in the calculation of the
Manager's fee.
The Fund may invest up to 35% of its assets in a single country. As of
September 30, 1998, the Fund had invested approximately 14.6% of its assets in
Brazil and 12.6% of its assets in Mexico. The Manager is not aware of any
types of investment risks associated with investment in Brazil or Mexico other
than those types of risks discussed in this Prospectus. See, for example,
"Risk Factors And Other Considerations." However, investors should be aware
that, given the extent of the Fund's investment in Brazil and Mexico, adverse
developments in that country could substantially affect the Fund's investment
results.
QUALIFIED MARKETS
The Fund's Board of Directors will, in its discretion and in consultation
with the Manager, select markets for primary investment by the Fund ("qualified
markets") taking into account, among other things, market liquidity,
availability of information and official regulation, including fiscal and
foreign exchange repatriation rules. Currently, the number of qualified
markets is limited. As of the date of this Prospectus, the markets in the
following countries had been approved by the Board of Directors as qualified
markets: Argentina, Brazil, Chile, Colombia, Greece, Hungary, India,
Indonesia, Israel, Jordan, Malaysia, Mexico, Pakistan, the People's Republic of
China, Peru, the Philippines, Poland, Portugal, Republic of China (Taiwan),
Russia, South Africa, South Korea, Sri Lanka, Thailand, Turkey and Venezuela.
The Board of Directors will revise its selection of qualified markets as
additional markets are determined by the Board of Directors as being
appropriate, or as existing markets may no longer be deemed qualified for
investment by the Fund based on the foregoing factors.
FOREIGN CURRENCY HEDGING TRANSACTIONS
For the purpose of hedging foreign currency exchange rate risks, the Fund
may enter into forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks).
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price set at the time of the contract. Foreign currency futures contracts
traded in the United States are traded on regulated exchanges. Parties to
futures contracts must make initial "margin" deposits to secure performance of
the contract, which generally range from 2% to 5% of the contract price. The
parties also pay or receive daily "variation" margin payments as the value of
the futures contract fluctuates thereafter.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
contract. Closing transactions with respect to futures contracts are effected
on an exchange. The Fund will only enter into such a forward or futures
contract if it is expected that the Fund will be able readily to close out such
contract. There can, however, be no assurance that it will be able in any
particular case to do so, in which case the Fund may suffer a loss. Options
are described below under "Options on Securities and Securities Indexes."
The Fund intends to engage in foreign currency hedging transactions to a
limited extent, and only in unusual circumstances and for temporary defensive
purposes would it attempt to hedge all the risks involved in holding assets
denominated in a particular currency. To date, the Fund has engaged in a
limited number of foreign currency hedging transactions. Among other things,
it is the Manager's view that the cost of engaging in hedging transactions
frequently equals or exceeds the expected benefits from the potential reduction
in exchange risk. Moreover, even if it were to attempt to do so, the Fund
could not through hedging transactions eliminate all the risks of holding
assets denominated in a currency, as there may be an imperfect correlation
between price movements in the futures or forward contracts and those of the
underlying currency in which the Fund's assets are denominated. Also, where
the Fund enters into a hedging transaction in anticipation of a currency
movement in a particular direction but the currency moves in the opposite
direction, the transaction would result in a poorer overall investment result
than if the Fund had not engaged in any such transaction. In addition, it may
not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates.
Under regulations of the Commodity Futures Trading Commission ("CFTC"),
the futures trading activities described herein will not result in the Fund
being deemed a "commodity pool," as defined under such regulations, provided
that the Fund adheres to certain restrictions. In particular, the Fund may
purchase and sell futures contracts and options thereon only for bona fide
hedging purposes, as defined under CFTC regulations, and may not purchase or
sell any such futures contracts or options, if, immediately thereafter, the sum
of the amount of initial margin deposits on the Fund's existing futures
positions and premiums paid for outstanding options would exceed 5% of the fair
market value of its net assets. Margin deposits may consist of cash or
securities acceptable to the broker and in accordance with the rules governing
the relevant contract market.
The Fund will not enter into forward or futures contracts or maintain an
exposure to such contracts where the consummation of such contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. Where the Fund is obligated to make deliveries under futures or
forward contracts, to avoid leverage it will "cover" its obligation by
segregating liquid assets such as cash, U.S. Government securities or other
appropriate high-grade debt obligations in an amount sufficient to meet its
obligations.
Certain provisions of the Internal Revenue Code may limit the extent to
which the Fund may enter into forward or futures contracts. Such transactions
may also affect for U.S. Federal income tax purposes the character and timing
of income, gain, or loss recognized by the Fund.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
The Fund may purchase and sell call and put options on individual
securities or on indexes of securities or on foreign currencies. One purpose
of purchasing put options is to protect holdings in an underlying or related
security against a substantial decline in market value. One purpose of
purchasing call options is to protect against substantial increases in prices
of securities the Fund intends to purchase pending its ability to invest in
such securities in an orderly manner. The Fund may sell put or call options it
has previously purchased, which could result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the premium and
other transaction costs paid on the put or call option which is sold. The Fund
may write a call or put option only if the option is "covered" by the Fund
holding a position in the underlying securities or by other means which would
permit satisfaction of the Fund's obligations as writer of the option. Prior
to exercise or expiration, an option may be closed out by an offsetting
purchase or sale of an option of the same series.
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium paid,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligations as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may required to fulfill its obligation as a writer of the option.
Once an option writer has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a
put, remains equal to or greater than the exercise price or, in the case of a
call, remains less than or equal to the exercise price, the Fund will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when the Fund seeks to close out an option position. Furthermore,
if trading restrictions or suspensions are imposed on the options, the Fund may
be unable to close out a position.
Options on non-U.S. securities indexes generally may not be offered or
sold to U.S. persons unless the options have been approved by the CFTC. The
Fund intends to include non-U.S. index options as a part of its investment
strategy as such investments become available for its use.
FINANCIAL FUTURES AND RELATED OPTIONS
In addition to foreign currency futures and related options, the Fund may
enter into other financial futures contracts and purchase and sell related
options thereon. Such investments may be standardized and traded on a U.S. or
foreign exchange or board of trade, or similar entity, or quoted on an
automated quotation system. Under applicable CFTC rules, the Fund may enter
into financial futures contracts traded on non-U.S. exchanges, including
related options, only if the contracts have been approved by the CFTC for offer
and sale to U.S. persons. The Fund intends to make relevant futures and
related options part of its investment strategy as such investments are
approved for use by U.S. persons. The Fund may enter into futures and options
thereon that relate to indexes or other baskets of securities.
The Fund will maintain a segregated account consisting of liquid assets,
such as cash, U.S. Government securities, or other high grade debt obligations
(or, as permitted by applicable regulation, enter into certain offsetting
positions) to cover its obligations under futures contracts and related
options. Under applicable CFTC regulations, the Fund generally may use futures
and related options only for bona fide hedging purposes (as defined in
applicable regulations) and subject to certain limits, other investment and
speculative purposes (as discussed above under "Foreign Currency Hedging
Transactions").
There are several risks associated with the use of futures and futures
options. There can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the portfolio securities being
hedged. An incorrect correlation would result in a loss on both the hedged
securities in the Fund and the hedging vehicle so that portfolio return might
have been greater had hedging not been attempted. There can be no assurance
that a liquid market will exist at a time when the Fund seeks to close out a
futures contract or a futures option position. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and
without a significant trading history. As a result, there is no assurance that
an active secondary market will develop or continue to exist. Lack of a liquid
market for any reason may prevent the Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.
SWAP AGREEMENTS
The Fund may enter into interest rate, equity and currency exchange rate
swap agreements. These transactions would be entered into in an attempt to
obtain a particular return when it is considered desirable to do so, possibly
at a lower cost to the Fund than if the Fund had invested directly in the asset
that yielded the desired return, or when regulatory or other restrictions limit
or prohibit the Fund from investing in the asset directly. Swap agreements are
two party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns
to be exchanged, or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index.
The Fund intends to enter into swap agreements that would calculate the
obligations of the parties to the agreement on a "net basis." Consequently,
the Fund's current obligations (or rights) under a swap agreement would be
equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement
(the "net amount"). In the case of interest rate or currency exchange rate
swap agreements, the Fund's current obligations will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of liquid assets such as cash, U.S. Government securities,
or high grade debt obligations, to avoid any potential leveraging of the Fund's
portfolio. Any swap agreement so covered will not be construed to be "senior
securities" for purposes of the Fund's investment restriction concerning senior
securities.
In a typical equity swap transaction involving a foreign security (or
index of securities), the Fund would agree to pay to a counterparty the
negative return, if any, on the security (or index of securities), plus an
interest factor, in exchange for an amount equal to any positive return on the
same security or index, with both negative and positive returns calculated with
respect to an agreed reference price. The Fund intends to segregate assets
equal to the maximum potential exposure under an equity swap agreement, plus
any net amount owed with respect to the agreement. As such, the Fund does not
believe that its commitments under equity swap agreements constitute senior
securities for purposes of the Fund's investment restrictions concerning senior
securities.
Whether a fund's use of swap agreements will be successful in furthering
its investment objective will depend on the manager's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid investments. Moreover, the Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. The Fund will
enter into swap agreements only with counterparties that meet certain standards
for creditworthiness adopted by the Manager. Certain restrictions imposed on
the Fund by the Internal Revenue Code may limit the Fund's ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect the Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
EQUITY LINKED NOTES
The Fund may, subject to compliance with applicable regulatory guidelines,
purchase equity linked notes.
An equity linked note is a note whose performance is tied to a single
stock, a stock index or a basket of stocks. Upon maturity of the note,
generally the holder receives a return of principal based on the capital
appreciation of the linked securities. Depending on the terms of the issuance,
equity linked notes may also have a "cap" or "floor" on the maximum principal
amount to be repaid to holders. For example, a note may guarantee the
repayment of the original principal amount, but may cap the maximum payment at
maturity at a certain percentage of the issuance price. Alternatively, the
note may not guarantee a full return on the original principal, but may offer a
greater participation in any capital appreciation of the underlying linked
securities. The terms of an equity linked note may also provide for periodic
interest payments to holders at either a fixed or floating rate. Equity linked
notes will be considered equity securities for purposes of the Fund's
investment objective and policies.
The price of an equity linked note is derived from the value of the
underlying linked securities. The level and type of risk involved in the
purchase of an equity linked note by the Fund is similar to the risk involved
in the purchase of the underlying Latin America or other emerging market
securities. Such notes therefore may be considered to have speculative
elements. However, equity linked notes are also dependent on the individual
credit of the issuer of the note, which will generally be a trust or other
special purpose vehicle or finance subsidiary established by a major financial
institution for the limited purpose of issuing the note. Like other structured
products, equity linked notes are frequently secured by collateral consisting
of a combination of debt or related equity securities to which payments under
the notes are linked. If so secured, the Fund would look to this underlying
collateral for satisfaction of claims in the event that the issuer of an equity
linked note defaulted under the terms of the note.
Equity linked notes are often privately placed and may not be rated, in
which case the Fund will be more dependent on the ability of the Adviser to
evaluate the creditworthiness of the issuer, the underlying security, any
collateral features of the note, and the potential for loss due to market and
other factors. Ratings of issuers of equity linked notes refer only to the
creditworthiness of the issuer and strength of related collateral arrangements
or other credit supports, and do not take into account, or attempt to rate, any
potential risks of the underlying equity securities. The Fund has no
restrictions on investing in equity linked notes whose issuers are rated below
investment grade (e.g., rated below Baa by Moody's Investors Service, Inc. or
BBB by Standard & Poor's Corporation), or, if unrated, or equivalent quality.
Because rating agencies have not currently rated any issuer higher than the
rating of the country in which it is domiciled, and no Latin American country
other than Colombia is rated investment grade, equity linked notes related to
securities of issuers in such emerging market countries will be considered to
be below investment grade. Depending on the law of the jurisdiction in which
an issuer is organized and the note is issued, in the event of default, the
Fund may incur additional expenses in seeking recovery under an equity linked
note, and may have less legal recourse in attempting to do so.
As with any investment, the Fund can lose the entire amount it has
invested in an equity linked note. The secondary market for equity linked
notes may be limited. The lack of a liquid secondary market may have an
adverse effect on the ability of the Fund to accurately value the equity linked
notes in its portfolio, and may make disposal of such securities more difficult
for the Fund.
The ability of the Fund to invest in equity linked notes may be limited by
the provisions of the U.S. Commodity Exchange Act. Because the return on
equity linked notes is linked to the value of the underlying securities, the
notes may be viewed as having some of the characteristics of futures contracts
with respect to securities, the trading of which by U.S. persons other than on
designated commodity exchanges is prohibited absent an applicable exclusion or
exemption. The CFTC has adopted a statutory interpretation exempting certain
so-called "hybrid instruments" from this prohibition under certain
circumstances.
POSSIBLE BENEFITS FOR HOST COUNTRIES
The Fund expects that it could become an effective conduit for foreign
portfolio investment on terms favorable to both the investor and the host
country. There are several possible benefits to the host countries from the
Fund's investment activities.
First, the Fund may stimulate the measured flow of funds into these
securities markets from institutional investors representing, in the aggregate,
a vast pool of available equity capital.
Second, the additional demand for stocks represented by the Fund's
investments may contribute to improved stock prices and market liquidity, and
thus encourage more issuers to offer shares to the public (including foreign
investors) in their respective national securities markets. Accordingly, the
Fund may contribute to the achievement of national policy goals such as
widening ownership of the corporate sector, increasing the selection of
financial instruments available to investors, and improving the operation of
local capital markets.
Third, the Fund's investment activities may be useful in balancing any
speculative influences in these markets, and the Fund's need for a continuous
flow of business and economic information and analysis may contribute to
improved standards in these areas.
Fourth, the Fund's investments may bring equity capital to emerging
securities markets in a way that does not interfere with local control over
domestic business, as is often the case with direct investment. The Fund's
ability to affect or control any particular firm, sector or market not only is
restricted by the Fund's policies concerning diversification and avoidance of
management involvement, but also may be limited by government regulation (e.g.,
limitations on maximum percentages of foreign ownership or requirements that
foreign investors hold only non-voting shares).
Finally, the Fund may represent a pioneering effort in linking emerging
securities markets to international capital markets, thus enhancing future
access by issuers in these countries to international markets.
There can, of course, be no assurance that any of the foregoing
expectations will be realized.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy the Fund will not, unless authorized by
a vote of a majority of its outstanding Shares:
1) invest in securities having unlimited liability;
2) issue senior securities (except warrants issued to the Fund's Shareholders
and except as may arise in connection with certain security purchases, all
subject to limits imposed by the 1940 Act), borrow money (except that the Fund
may borrow (a) in connection with hedging a particular currency exposure and
(b) from banks for temporary or emergency purposes, such borrowings not to
exceed 5% of the value of its total assets (excluding the amount borrowed)),
and pledge its assets (except to secure such borrowings);
3) invest in commodities, commodity contracts or land, although it may
purchase and sell securities which are secured by real estate or commodities
and securities of companies which invest or deal in real estate or commodities,
and it may purchase and sell spot or forward currency contracts or currency
futures contracts for hedging purposes or to minimize currency conversion costs
in connection with specific securities transactions;
4) make investments for the purpose of exercising control or management;
5) engage in short sales or maintain a short position, although for tax
purposes it may sell securities short against the box;
6) purchase any security (other than marketable obligations of a national
government or its agencies or instrumentalities) if as a result: (i) more than
35% of its assets would be invested in the securities of companies domiciled in
any one country, or (ii) more than 5% of its total assets would be invested in
the securities of any single issuer, or (iii) 25% or more of its total assets
would be invested in issuers whose primary business is in a single industry;
7) act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under applicable securities laws;
8) make loans, except through repurchase agreements fully collateralized, and
further it may purchase debt securities usually purchased by financial
institutions and it may purchase loan participations; and
9) purchase any securities if as a result the Fund would own more than 10% of
the outstanding voting securities of any one issuer.
In addition to the above restrictions, the Fund also is subject to certain
diversification requirements based on its status as a "diversified" investment
company under the 1940 Act, which also may not be changed without a majority
vote of the Fund's outstanding Shares. Under these requirements, at least 75%
of the value of the Fund's total assets must consist of cash and cash items,
U.S. Government securities, securities of other investment companies, and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the Fund's total assets. Thus, with respect to
75% of the Fund's total assets, the Fund may not invest more than 5% of its
assets in marketable obligations of a foreign national government or its
agencies or instrumentalities.
With respect to item (iii) of investment restriction 6, it is the position
of the staff of the SEC that only obligations of the U.S. Government and its
agencies and instrumentalities may be excluded for purposes of determining
compliance with that restriction and the Fund will only exclude such U.S.
Government securities for this purpose.
Although the Fund is not prohibited under its investment restrictions from
selling securities short against the box or engaging in repurchase agreements,
the Fund has not, since its inception, entered into any of these transactions
and it has no present intent to do so during the coming year. Also, the Fund's
limitation on borrowing does not prohibit "borrowing in connection with hedging
a particular currency exposure;" the only type of borrowing contemplated
thereby is the use of a letter of credit issued on the Fund's behalf in lieu of
depositing initial margin in connection with currency futures contracts, and
the Fund has no present intent to engage in any other types of borrowing
transactions under this authority.
The Fund interprets its fundamental policies on issuing senior securities,
investing in commodities, and effecting short sales as not prohibiting it from
entering into transactions in swap agreements, options and futures on
securities or securities indexes, provided any such positions are covered by
the maintenance of a segregated account consisting of liquid assets, or by
maintenance of an appropriate offsetting position.
Consistent with rules relating to the determination of beneficial
ownership under the 1934 Act, a conversion feature or right to acquire a
security shall be considered to be ownership of the underlying security by the
Fund for the purposes of investment restrictions 6 and 9. With respect to the
limits described in investment restrictions 6 and 9 above, the Fund may make
purchases of securities in excess of such limits pursuant to the exercise of
warrants or rights that would maintain the Fund's pro rata interest in an
issuer or a class of an issuer's securities and provided the Manager has
determined that such exercise is in the best interests of the Fund. The Fund
will dispose of the securities so acquired within a reasonable time after
acquisition (presumptively, within approximately 90 days), unless compliance
with the limits otherwise has been restored.
Notwithstanding any of the above investment restrictions, the Fund may
establish wholly-owned subsidiaries or other similar vehicles for the purpose
of conducting its investment operations in qualified markets, where such
subsidiaries or vehicles are required by local laws or regulations governing
foreign investors such as the Fund. The Fund would "look through" any such
vehicle to determine compliance with its investment restrictions.
MANAGEMENT
The Board of Directors, which is elected by the Shareholders, sets the
overall investment policies and generally oversees the investment activities
and management of the Fund. The By-Laws of the Fund, as amended, (the
"By-laws") provide that Shareholders are required to elect members of the Board
of Directors only to the extent required by the 1940 Act. The Fund does not
intend to hold annual shareholder meetings, although it will do so whenever it
is required to under the 1940 Act or state law or when it is otherwise deemed
necessary or appropriate by the Board. The Manager has the responsibility of
implementing the policies set by the Board and is responsible for the Fund's
day-to-day operations and investment activities. It is expected that both the
Board of Directors and the Manager will cooperate in the effort to achieve the
investment objective, policies and purposes of the Fund. The Manager and the
Shareholders recognize that the main purpose of the Fund is to invest in those
companies domiciled in developing countries which will result in a favorable
financial record for the Fund and which, at the same time, will assist in
expanding the respective securities markets and increasing their liquidity.
While the Fund is a Maryland corporation, certain of its Directors and
officers are not U.S. residents and substantially all of the assets of such
persons are generally located outside the U.S. As a result, it will be
difficult for U.S. investors to effect service of process upon such Directors
or officers within the U.S., or to enforce judgments of courts of the U.S.
predicated upon civil liabilities of such Directors or officers under the
federal securities laws of the U.S. In management's view, it is unlikely that
foreign courts would enforce judgments of U.S. courts predicated upon the civil
liability provisions of the federal securities laws, or, that such courts would
enforce such civil liabilities against foreign Directors or officers in
original actions. The following directors of the Fund are non-U.S. residents:
Khalil Foulathi, Marinus W. Keijzer, Helmut Mader and William Robinson. The
following officer of the Fund is a non-U.S. resident: Hartmut Giesecke.
The Fund pays fees of $10,000 per annum to Directors who are not
affiliated with the Manager, plus $3,000 for each Board of Directors meeting
attended. Certain Directors are prohibited from receiving fees based on their
employer policies. Certain Directors have elected, on a voluntary basis, to
defer all or a portion of their fees through the Fund's deferred compensation
plan. The Fund also pays the expenses of attendance at Board and Committee
meetings for the Directors who are not affiliated with the Manager, and for a
former Director who regularly attends Board meetings. ____ Directors own Fund
Shares, four of whom are affiliated with the Manager. The majority of the
non-affiliated Directors have a business affiliation with an investor that owns
Shares of the Fund. For the Fund's Directors, the minimum initial purchase and
subsequent investment requirements have been waived. Directors and certain of
their family members are permitted to purchase shares of mutual funds advised
by an affiliate of the Manager without paying a sales charge.
<TABLE>
<CAPTION>
Name, Address and Age Position with Principal Occupation During
Registrant Past Five Years
<S> <C> <C>
DIRECTORS
Robert E. Angelica Director President & Chief Investment Officer,
One Oak Way - Rm. 4EA138 AT&T Investment Management Corp.
Berkeley Heights, NJ 07922
Age: 52
Nancy Englander* President and Director Senior Vice President,
11100 Santa Monica Blvd. Capital International, Inc.
Los Angeles, CA 90025
Age: 54
David I. Fisher* Vice Chairman of the Board Chairman of the Board,
11100 Santa Monica Blvd. The Capital Group Companies,Inc.
Los Angeles, CA 90025
Age: 59
Khalil Foulathi Director Managing Director,
P.O. Box 303 Abu Dhabi Islamic Bank
Abu Dhabi, U.A.E. (formerly Executive Director,
Age: 47 Abu Dhabi Investment Authority)
Beverly L. Hamilton Director President, ARCO Investment
515 South Flower Street Management Company
Los Angeles, CA 90071
Age: 53
Raymond Kanner Director Senior Investment Manager,
3001 Summer Street IBM Retirement Funds
Stamford, CT 06905 (previously, Manager,
Age: 45 IBM Credit Corporation)
Marinus W. Keijzer Director Director Investment Strategy,
Kroostweg-Noord 149 Pensioenfonds PGGM
P.O. Box 117, 3700 AC Zeist
The Netherlands
Age: 59
Hugh G. Lynch Director Managing Director,
767 Fifth Avenue International Investments,
New York, NY 10153 General Motors Investment
Age: 61 Management Corporation
Helmut Mader Director Director,
A11-22 Deutsche Bank AG
Taunusanlage 12
60325 Frankfurt
Germany
Age: 56
John G. McDonald Director The IBJ Professor of Finance,
Graduate School of Business Graduate School of Business,
Stanford University Stanford University
Stanford, CA 94305
Age: 61
William Robinson Director Former Director, Aga Khan Fund
5 Jellicoe Street for Economic Development
Balgowlah
NSW Australia
Age: 60
Patricia A. Small Director Treasurer, The Regents of the
1111 Broadway University of California
Suite 1400
Oakland, CA 94607-9828
Age: 52
Walter P. Stern* Chairman of the Board Chairman of the Board,
630 Fifth Avenue Director Capital Group International, Inc.
New York, NY 10111
Age: 70
Shaw B. Wagener* Executive Vice President President and Director,
333 South Hope Street and Director Capital International, Inc.
Los Angeles, CA 90071
Age: 39
OTHER OFFICERS
Roberta A. Conroy Senior Vice President Assistant General Counsel,
11100 Santa Monica Blvd. and Secretary The Capital Group Companies, Inc.
Los Angeles, CA 90025
Age: 44
Michael A. Felix Vice President Senior Vice President,
135 S. State College Blvd. and Treasurer Capital International, Inc.
Brea, CA 92821
Age: 37
Hartmut Giesecke Vice President Chairman and Director,
1 Raffles Place Capital International K.K.
#24-00 OUB Centre and Senior Vice President
Singapore 0104 and Director, Capital
Age: 61 International, Inc.
Peter C. Kelly Vice President Senior Vice President and Director,
11100 Santa Monica Blvd. Capital International, Inc.
Los Angeles, CA 90025
Age: 39
Victor D. Kohn Vice President Executive Vice President,
11100 Santa Monica Blvd. Capital Research International
Los Angeles, CA 90025
Age: 41
Nancy J. Kyle Vice President Senior Vice President -
630 Fifth Avenue International, Capital
New York, NY 10111 Guardian Trust Company
Age: 48
Abbe Shapiro Vice President Assistant Vice President,
11100 Santa Monica Blvd. Capital International, Inc.
Los Angeles, CA 90025
Age: 39
Jennifer L. Butler Assistant Secretary Fund Administrative and
11100 Santa Monica Blvd. Compliance Associate
Los Angeles, CA 90025 (previously Assistant Secretary,
Age: 32 Washington Management Corp.)
</TABLE>
The occupations shown reflect the principal employment of each
individual during the past five years. Corporate positions, in some instances,
may have changed during this period.
* Interested persons within the definition of Section 2(a)(19) of the 1940 Act
due to their affiliations with the Manager.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
Name and Position Aggregate Pension or Retirement Estimated Annual Total Compensation from
Compensation Benefits Accrued As Benefits Upon Fund and Fund Complex Paid
from Fund Part of Fund Expenses Retirement to Directors
John G. McDonald $0 $0 $0 $155,250
</TABLE>
Professor McDonald received $155,250 in total compensation (all of which
was voluntarily deferred compensation) from six funds managed by an affiliate
of Capital International, Inc. for the twelve month period ended June 30, 1998.
THE MANAGER
The Fund's Manager is Capital International, Inc., 11100 Santa Monica
Boulevard, 15th Floor, Los Angeles, California 90025. The Fund's Manager was
organized under the laws of California in 1988 and is registered with the SEC
under the Investment Advisers Act of 1940. The Capital Group Companies, Inc.,
333 South Hope Street, 52nd Floor, Los Angeles, CA 90071, owns (indirectly
through another wholly-owned subsidiary) all of the Manager's outstanding
shares of common stock.
The Manager has full access to the research of other companies affiliated
with The Capital Group Companies, Inc. The investment management and research
staffs of the companies affiliated with The Capital Group Companies, Inc.
operate from offices in Los Angeles, San Francisco, Atlanta, Washington, New
York, Geneva, London, Hong Kong, Singapore and Tokyo. The affiliates of The
Capital Group Companies, Inc. gather extensive information on emerging
countries and potential investments through a number of sources, including
investigations of the operations of particular issuers. These generally
include personal discussions with the issuer's management and on-site
examination of its manufacturing and production facilities.
Under the Investment Advisory and Service Agreement between the Fund and
the Manager (the "Agreement"), the Manager makes investment decisions and
supervises the acquisition and disposition of securities by the Fund, all in
accordance with the Fund's investment objective and policies and under the
general supervision of the Fund's Board of Directors. In addition, the Manager
provides information to the Fund's Board of Directors to assist the Board in
identifying and selecting qualified markets. The Manager also provides and
pays the compensation and travel expenses of the Fund's officers and of the
Directors of the Fund who are affiliated with the Manager; maintains or causes
to be maintained for the Fund all required books and records and furnishes or
causes to be furnished all required reports or other information (to the extent
such books, records, reports and other information are not maintained or
furnished by the Fund's custodian or other agents); determines the net asset
value of the Fund's Shares as required; and supplies the Fund with office
space. The Fund pays all its expenses of operation including, without
limitation, custodian, stock transfer and dividend disbursing fees and expenses
(including fees or taxes relating to stock exchange listing); costs of
preparing, printing and mailing reports, prospectuses, proxy statements and
notices to its shareholders; taxes; expenses of the issuance, sale or
repurchase of Shares (including registration and qualification expenses); legal
and auditing fees and expenses and fees of legal representatives; compensation;
fees and expenses (including travel expenses) of Directors of the Fund who are
not affiliated with the Manager; costs of insurance, including any directors
and officers liability insurance and fidelity bonding; and costs of stationery
and forms prepared exclusively for the Fund.
For its services, the Manager receives from the Fund a fee, payable
monthly in U.S. dollars, at the annual rate of 0.90% of the first $400 million
of aggregate net assets of the Fund. The annual rate is reduced to 0.80% of
the aggregate net assets from $400 million to $1 billion; to 0.70% of the
aggregate net assets from $1 billion to $2 billion; to 0.65% of the aggregate
net assets from $2 billion to $4 billion; to 0.625% of the aggregate net assets
from $4 billion to $6 billion; to 0.60% of the aggregate net assets from $6
billion to $8 billion; to 0.58% of the aggregate net assets from $8 billion to
$11 billion; to 0.56% of the aggregate net assets from $11 billion to $15
billion; to 0.54% of the aggregate net assets from $15 billion to $20 billion;
and to 0.52% of such aggregate net assets in excess of $20 billion as
determined on the last business day of every week and month. In addition, other
Fund expenses are borne by the Fund. During the fiscal years ended June 30,
1998, 1997, and 1996 the management fees amounted to $84,252,000, $64,360,000
and $44,167,000, respectively. Under the Agreement, the Manager and its
affiliates are permitted to provide investment advisory services to other
clients, including clients which may invest in developing country securities.
In addition, under the Agreement, when the Manager deems the purchase or sale
of a security or other asset to be in the best interests of the Fund as well as
other accounts managed by it or its affiliates, it may, to the extent permitted
by applicable laws and regulations, aggregate the securities or other assets to
be sold or purchased for the Fund with those to be sold or purchased for such
other accounts. In that event, allocation of the securities or other assets
purchased or sold, as well as the expense incurred in the transaction, will be
made by the Manager in the manner it considers to be most equitable and
consistent with its obligations to the Fund under the Agreement and to such
other accounts. The Fund recognizes that in some cases this procedure may
adversely affect the size or price of the position obtainable for the Fund's
portfolio or its sale price of securities sold.
The Agreement is effective for a two-year period from the date of
Shareholder approval and will continue in effect from year-to-year thereafter
if approved annually (a) by the Board of Directors of the Fund or by a majority
vote of the outstanding Shares of the Fund, and (b) by a majority of the
Directors who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Agreement may be terminated
without penalty on 60 days written notice at the option of either party or by a
majority vote of the outstanding Shares of the Fund. For this purpose, a
majority vote of the outstanding Shares of the Fund means the lesser of (a) 67%
or more of the outstanding Shares present at a meeting at which more than 50%
of the outstanding Shares are present or represented by proxy or (b) more than
50% of the outstanding Shares.
PERSONAL INVESTING POLICY
Capital International, Inc. and its affiliated companies have adopted a
personal investing policy that is consistent with the recommendations contained
in the report dated May 9, 1994 issued by the Investment Company Institute's
Advisory Group on Personal Investing. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions. This policy has also been
incorporated into the Fund's "code of ethics" which is available from the
Fund's Secretary upon request.
PORTFOLIO MANAGEMENT
The Manager uses a system of multiple portfolio counselors in managing
assets. Under this system the portfolio of the Fund is divided into segments,
and each segment is assigned to an individual counselor, who decides how the
assets in that segment will be invested (within the limits provided by the
Fund's objectives and the Manager's investment committee). In addition, one
segment is designated as a "research portfolio" and is managed by a number of
research professionals. The following individuals serve as portfolio
counselors for the Fund:
Mark E. Denning
Mr. Denning served as a Director of the Manager from 1997 to 1998 and as a
Vice President from 1989 to 1997. He has also served as a Senior Vice
President of Capital Research International since 1992, a Director of Capital
Research International since 1991, and an Investment Research Analyst for
Capital Research International since 1985. Mr. Denning joined the Capital
organization in 1982. He has served as a portfolio counselor for the Fund
since 1990. He also has investment management responsibilities for
international and global accounts, as well as emerging markets.
David I. Fisher
Mr. Fisher has served as a Director of the Manager since 1988, as a Vice
Chairman since 1998, and served as President from 1988 to 1997. He also serves
as Vice Chairman of the Board and a Director of the Fund. In addition, he
served as Executive Vice President-International from 1985 to 1991, and
Chairman of the Board since 1991, of The Capital Group Companies, Inc., the
Manager's parent company. Mr. Fisher joined the Capital organization in 1969.
Mr. Fisher has served as lead portfolio counselor for the Fund since the Fund's
inception in 1986. He also has investment management responsibilities for
international and global accounts, as well as emerging markets.
Koenraad Foulon
Mr. Foulon has served as a Director of the Manager since 1997. In addition, he
has served as a Senior Vice President for Capital International Limited, the
Manager's London-based affiliate, since 1996, and for Capital International,
S.A., the Manager's Geneva-based affiliate, since 1994. He has also served as
a Vice President for Capital Research International, an international research
affiliate of the Manager, since 1992. Mr. Foulon's primary responsibility is
portfolio management for Europe, global emerging markets and private equity.
He has served as a portfolio manager for the Fund since 1994. Mr. Foulon
joined the Capital organization in 1990.
Hartmut Giesecke
Mr. Giesecke has served as a Senior Vice President of the Manager since 1992
and a Director of the Manager since 1991. He is also Vice President of the
Fund. He has also served as Senior Vice President and a Director of Capital
Research International, Inc. since 1985, and as President of the Manager's
Tokyo-based affiliate Capital International K.K. from 1986 to 1994, as a
Director since 1986 and as Chairman since 1994. Mr. Giesecke joined
Geneva-based Capital International S.A. in 1972. Mr. Giesecke has served as a
portfolio counselor for the Fund since the Fund's inception in 1986. He also
has investment management responsibilities for international and global
accounts, as well as emerging markets.
Victor D. Kohn
Mr. Kohn has served as a Senior Vice President and Director of the Manager
since 1997 and served as a Vice President of the Manager from 1992 to 1997. He
has also served as a Vice President of the Fund since 1996. In addition, he
has served as Executive Vice President and a Director of Capital Research
International since 1995, and as a portfolio manager for the Fund since 1994.
Mr. Kohn serves as the Emerging Markets Research Manager for the Manager, and
has research responsibilities for South American markets and companies. Mr.
Kohn joined the Capital organization in 1986.
Nancy J. Kyle
Ms. Kyle has served as a Senior Vice President - International, a Director and
an international portfolio manager of Capital Guardian Trust Company ("CGTC")
since 1992. She has served as a portfolio manager for the Fund since 1994 and
as a Vice President of the Fund since 1996. She is also responsible for the
coordination of asset allocation decisions for global balanced portfolios at
CGTC. Prior to joining the Capital organization in 1991, she was a Managing
Director at J.P. Morgan Investment Management Inc. where she was head of the
international equity business in the U.S. and chief international equity
strategist.
Shaw B. Wagener
Mr. Wagener has served as a Director of the Manager since 1991 and as President
of the Manager since 1998. He served as an Executive Vice President of the
Manager from 1993 to 1997. He is also an Executive Vice President and a
Director of the Fund. In addition, he served as Vice President-Investment
Division of Capital Research and Management Company from 1986 to 1993. Mr.
Wagener is also a regional portfolio counselor investing in Latin American
equity and fixed income securities. He joined the Capital organization 1981.
Mr. Wagener has served as a portfolio counselor for the Fund since 1990.
Thomas Wolf
Mr. Wolf has served as a Vice President and a portfolio manager for the Manager
since 1995, for Capital International Limited since 1993, and for Capital
International, S.A. since 1994. He has also served as a portfolio manager for
the Fund since 1994. Prior to joining the Capital organization, Mr. Wolf
served as a vice president and portfolio manager with Pictet International Ltd.
in London from 1987 to 1993.
EXPENSES
The Fund's ratios of expenses (excluding non-U.S. taxes) to average net
assets for the fiscal years ended June 30, 1998, 1997 and 1996 were 0.76%,
0.78% and 0.84%, respectively. The Fund's normal operating expenses may be
higher than those of other investment companies of comparable size. This is
because the fees and expenses generally charged by certain of the Fund's agents
are higher than those charged to investment companies investing exclusively in
the U.S. There are added custodial, communications and other costs associated
with the Fund's activities, and the advisory fees generally are higher due to
the increased advisory effort required in light of the specialized nature of
the Fund's investment activities.
COMMON STOCK
The authorized capital stock of the Fund is 400,000,000 shares of common
stock ($.01 par value) ("shares of common stock"). Shares of the Fund are
fully paid and non-assessable. All Shares of the Fund are equal as to
earnings, assets and voting privileges. The Shares currently have no
conversion, pre-emptive or other subscription rights; rights to purchase Shares
may be issued in the future but any such rights would be subject to certain
restrictions under the 1940 Act, including that they be issued exclusively and
ratably to all holders of Shares and that they expire after not more than 120
days. In the event of liquidation, each share is entitled to its proportion of
the Fund's assets after debts and expenses. See "Risk Factors and Other
Considerations." There are no cumulative voting rights for the election of
directors. See "Management." The shares of common stock are issued in
registered form, and ownership and transfers of the Shares are recorded by the
Fund's transfer agent.
Under Maryland law, and in accordance with the By-Laws of the Fund, the
Fund is not required to hold an annual meeting of its Shareholders in any year
in which the election of directors is not required to be acted upon under the
1940 Act. The By-Laws also provide that each director will serve as a director
for the duration of the existence of the Fund or until such director sooner
dies, resigns or is removed in the manner provided by the By-Laws or as
otherwise provided by statute or the Fund's Articles of Incorporation, as
amended (the "Articles of Incorporation"). Consistent with the foregoing, in
addition to the provisions of the By-Laws, the Fund shall undertake to call a
special meeting of Shareholders for the purpose of voting upon the question of
removal of a director or directors when requested in writing to do so by the
holders of at least 10% of the outstanding Shares of the Fund, and, in
connection with such meeting, to comply with the provisions of section 16 (c)
of the 1940 Act relating to shareholder communications. Holders of a majority
of the outstanding Shares will constitute a quorum for the transaction of
business at such meetings. Attendance and voting at shareholders meetings may
be by proxy, and Shareholders may take action by unanimous written consent in
lieu of holding a meeting.
The Fund's Board of Directors may, in the future, modify the terms of the
Offering. See "The Offering." The Board may also, in accordance with the
Fund's Articles of Incorporation, amend the Fund's transfer restrictions. See
"Restrictions on Transfer." For example, the Board may restrict sales and
transfers to "qualified purchasers." As a closed-end investment company
registered with the SEC, the Fund is required in any offering of its Shares to
sell such Shares at a price which is not less than the current net asset value
per Share (see "Valuation," below), except that sales at a price less than the
current net asset value per Share may be made: (i) in connection with an
offering to all current holders of Shares, (ii) with the consent of the holders
of a majority of the Shares, or (iii) as may be permitted by an order of the
SEC. Any issuance or sale of additional Shares by the Fund at a price less
than the current net asset value per Share would dilute the pro rata interests
in the Fund's assets represented by the Shares outstanding at that time. If
the Fund were to convert to an "open-end" investment company, or to a fund with
limited redeemability, it would be required under the 1940 Act to sell Shares
only at a price based on the current net asset value per Share. See "Proposed
Conversion to Open-End Interval Status."
PROPOSED CONVERSION TO OPEN-END INTERVAL STATUS
The Board has approved a proposal to seek exemptive relief from the SEC to
convert to a fund with limited redeemability. The holders of a majority of the
Fund's Shares approved the conversion of the Fund at their meeting held on June
27, 1997. On October 7, 1998, the SEC issued an exemptive order granting,
subject to certain conditions, exemptive relief to the Fund to permit its
conversion to open-end interval status. The Fund anticipates currently that it
will rely on the exemptive relief granted by the SEC by the first quarter of
its next fiscal year.
One condition of the SEC order requires that all new investors in the
Fund, following its conversion to open-end interval status meet the qualified
purchaser standard set forth in the 1940 Act, and that the Board amend the
Fund's transfer restrictions to permit transfer of the Fund's Shares only to
qualified purchasers. Qualified purchasers, as defined in the 1940 Act,
include natural persons having a minimum of $5 million in investments and
entities that own and invest on a discretionary basis not less than $25 million
in investments. Existing Shareholders prior to the date of the conversion will
be permitted to remain in the Fund, or may redeem their Shares at net asset
value upon conversion if they choose not to remain Shareholders. Those
existing Shareholders may also purchase additional Shares of the Fund through
dividend reinvestment or otherwise, as long as they meet the accredited
investor standard at the time of the purchase of additional Shares. Conversion
of the Fund to open-end interval status may result in the Fund having fewer
assets due to monthly redemptions. In that case, the fixed costs of operating
the Fund would be deducted from a smaller asset base and the loss of economies
of scale might result in a relative increase in other expenses, including the
management fee paid to the Fund's adviser, which features "breakpoints" at
different asset levels.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Shares of common stock of the Shareholders which own beneficially
more than 5% of the outstanding Shares of the Fund as of September 30, 1998:
Beneficial Ownership
<TABLE>
<CAPTION>
Name & Address Number Percentage
of Shares of Outstanding
Common Stock
<S> <C> <C>
The Chase Manhattan Bank, N.A.
as Trustee for the General Motors
Employes Global Group Pension Trust
General Motors Corporation
767 Fifth Avenue
New York, NY 10153 18,964,993 6.4%
</TABLE>
THE OFFERING
The Shares will be offered on a continuous basis until all Shares being
offered pursuant to this Prospectus have been sold; provided, however, the Fund
will not sell Shares unless the Fund is sufficiently invested in developing
country securities as determined by the Board. Currently the Fund's management
has been directed by the Board not to sell any Shares in any month following a
month end on which the Fund is not at least approximately 90% invested in
developing country securities. The current authorization for the issuance of
Shares imposes a limitation on the number of Shares that may be sold by the
Fund in any one fiscal year. This limitation is 25% of the outstanding and
subscribed/reserved Shares as of the prior fiscal year-end. The 90% invested
and 25% maximum offering limitations may be modified at any time by the Board
of Directors of the Fund.
Shares may be purchased by notifying Abbe Shapiro by telephone
(310-996-6000) or facsimile (310-996-6200). Assuming the investor suitability
and minimum purchase requirements described herein have been met and the order
has been accepted, the price of Shares will be the net asset value per Share
next determined (on the last business day of each week and month). Upon
receipt of a purchase order, the Fund will send a confirmation letter to the
investor indicating the name of the purchaser, the dollar amount of the
purchase, the trade date on which the order will be priced and settlement
instructions. On the trade date, once the net asset value has been calculated,
the Fund will notify the purchaser of the purchase price per Share and total
dollar amount of the purchase. Payment must be received on or prior to the
third business day following the date on which the price is determined at the
direction of a Fund officer. Payment for Shares to be sold by the Fund may be
made in the following manner:
Wire: Emerging Markets Growth Fund, Inc.
c/o Wells Fargo Bank (ABA 121000248)
155 Fifth Street
San Francisco, CA 94103
For credit to the account of:
American Funds Service Company
a/c #4600-076178
Emerging Markets Growth Fund, Inc.
Check: Emerging Markets Growth Fund, Inc.
Attn: Abbe Shapiro
11100 Santa Monica Blvd., 15th Floor
Los Angeles, CA 90025-3302
In addition, at the sole discretion of the Manager, investors may be
permitted to purchase Shares by tendering to the Fund developing country
securities which are determined by the Manager to be appropriate for the Fund's
investment portfolio. In determining whether particular securities are
suitable for the Fund's investment portfolio, the Manager will consider the
following factors, among others: the type, quality and value of the securities
being tendered; the extent to which the Fund is already invested in such
securities or in similar securities in terms of industry, geography or other
criteria; the effect the tendered securities would have on the liquidity of the
Fund's investment portfolio and other operational considerations; the Fund's
cash position; and whether the Manager believes that issuing Shares in exchange
for the tendered securities would be in the best interests of the Fund and its
shareholders. The Manager may, out of its own resources, pay compensation to
financial intermediaries or other third parties whose customers or clients
become shareholders of the Fund. Such compensation may be in the form of fees
for services provided or responsibilities assumed by such entities with respect
to the servicing of certain shareholder accounts.
Investors who wish to purchase Shares with securities should send by
facsimile (310-996-6200) to Abbe Shapiro a list of all such securities and the
amount of each security being offered in exchange for Shares. The Fund may
accept all, a portion or none of the tendered securities and will notify
investors as to which, if any, of the securities will be accepted. Investors
will be notified by written communication within five business days as to
whether the Fund will issue Shares in exchange for any of the tendered
securities. If any tendered securities are accepted, investors will receive
Shares based on the market value of the tendered securities and the net asset
value of the Fund's Shares next determined after the decision has been made to
accept securities in exchange for Shares. The tendered securities must be
received on or prior to the fifth business day following the date on which the
price is determined at the direction of the Fund's officers. An investor
should consult with its own tax adviser on the consequences of exchanging
securities for Fund Shares.
The Board may, in the future, modify any terms of the Offering.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Fund would have outstanding
326,033,115 Shares of common stock (if all Shares offered in this Prospectus
are sold). The Shares sold in this offering may be freely traded without
restriction under the 1933 Act. Shareholders are, however, subject to certain
restrictions on transfer. See "Restrictions on Transfer."
The Fund is unable to predict the effect that sales or resales made pursuant
to future registration statements, or otherwise may have on the prevailing
market price for the Fund's Shares, although it is likely that sales of a large
number of Shares would depress such market price.
VALUATION
The net asset value per Share is calculated in U.S. Dollars on the last
business day of each week and each month, and may be calculated at such other
times as the Board of Directors may determine, in the following manner:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Manager to be the broadest and most
representative market, which may be either a securities exchange or the
over-the-counter market. Fixed-income securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the Manager deems it appropriate to do so, such securities
will be valued at the mean quoted bid and asked prices or at prices for
securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the Fund's
Shares into U.S. dollars at the prevailing market rates.
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. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of Shares
outstanding (excluding treasury shares), and the results, rounded to the
nearest cent, is the net asset value per Share.
DIVIDENDS AND DISTRIBUTIONS
The Fund will, from time to time, distribute dividends and realized net
capital gains to Shareholders. See "Tax Considerations". Shareholders will
receive all distributions in cash paid by check in U.S. Dollars mailed directly
to the Shareholder by the Fund's dividend paying agent or, as permitted by the
Board of Directors, may elect to invest distributions in additional Shares
issued by the Fund for this purpose. Shareholders, as permitted by the Board
of Directors, will be given the option to reinvest such distribution in
additional Shares of the Fund or receive cash. In any case, where Shareholders
are permitted to choose between a cash dividend or a stock dividend,
Shareholders will be required, before the declaration of any such dividend, to
provide their election to the Fund in writing. No fees are charged in
connection with a Shareholder's election to receive a stock dividend or in
connection with any other stock dividend.
Shares that are purchased in this offering will be entitled to any
dividends that are declared on Shares of record beginning on the day following
the date on which the net asset value is determined. If requested, Share
certificates will be sent to Shareholders immediately following the date on
which payment for the Shares has been received (the "settlement date").
REPURCHASE OF SHARES
The Fund's Board of Directors currently intends, approximately each
quarter, to consider authorizing the Fund to make tender offers for up to 5% of
the Fund's then outstanding Shares at the then current net asset value of the
Shares. Although such tender offers, if undertaken and completed, will provide
some liquidity for Shareholders, there can be no assurance that such tender
offers will in fact be undertaken or completed or, if completed, that they will
provide sufficient liquidity for all Shareholders who may desire to sell such
Shares. As such, investment in the Shares should be considered illiquid
notwithstanding the possibility that one or more tender offers may be
consummated. The Fund has completed one tender offer for 1,979,192 Shares
(8.5% of the then outstanding Shares) in accordance with a Board authorization
of January 10, 1991, permitting the Fund to tender for up to 10% of its then
outstanding Shares.
Commencement by the Fund of such a tender offer during a period in which
it is simultaneously engaged in a continuous offering of its Shares may be a
violation of rules designed to prevent price manipulation promulgated by the
SEC under the 1934 Act. Accordingly, the Fund applied for and was granted an
exemption by the SEC exempting the Fund from such rules to permit the Fund to
make tender offers for its Shares while simultaneously engaged in the
continuous offering of Shares. Pursuant to that exemptive order the Fund has
agreed to discontinue the offer and sale of Shares during the last five
business days prior to termination of any tender offer. No assurance can be
given that the Fund will be able to maintain such exemption indefinitely. If
the Board of Directors authorizes the Fund to make a tender offer at such time,
if any, that the Fund is unable to rely on such exemption, the Fund intends to
suspend the continuous offering of its Shares during the term of such tender
offer in the manner prescribed by the 1934 Act (or in such other manner as may
be permitted by the staff of the SEC).
In connection with any tender offer, Shareholders will be furnished with a
notice describing the tender offer. Such notice will contain information
Shareholders should consider in deciding whether or not to tender their Shares
and detailed instructions on how to tender their Shares. A tender offer would
be funded by the disposition of portfolio investments. The Fund does not
intend to borrow money to finance a tender offer. The price the Fund will pay
to repurchase its Shares will be equal to the Fund's net asset value on the day
the tender offer expires. During the period that the tender offer is open
Shareholders may ascertain the net asset value (which is calculated on the last
business day of each week and month) by calling Abbe Shapiro at (310) 996-6000.
Although the Board of Directors believes that tender offers for the Shares
generally would increase the liquidity of the Shares, the acquisition of Shares
by the Fund will decrease the total assets of the Fund and, therefore, could
have the effect of increasing the Fund's expense ratio. Because of the nature
of the Fund's investment objective and policies and the Fund's portfolio, the
Manager may encounter some difficulty in disposing of portfolio securities in
order to consummate tender offers. In considering whether to make a tender
offer the Board of Directors would consider, among other things, how many (if
any) Shareholders have indicated an interest in selling their Shares, the
current cash position of the Fund, any potential effect of the repurchase on
the Fund's investment management operations, and whether a tender offer would
be in the best interests of all Shareholders of the Fund. Shareholders
interested in selling Shares pursuant to a prospective tender offer should
notify Abbe Shapiro, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles,
California 90025. Such notification should be in writing and should specify
the number of Shares to be tendered. This information will be considered by
the Board of Directors in considering whether to make a tender offer.
Even if a tender offer has been made, the Directors' current policy (which
may be changed in the future), is that the Fund will not make a tender offer if
(1) in the judgment of the Directors, there is not sufficient liquidity of Fund
assets; (2) such transactions, if consummated, would impair the Fund's status
as a regulated investment company under the Internal Revenue Code (which would
make the Fund a taxable entity, causing the Fund's income to be taxed at the
corporate level in addition to the taxation of Shareholders who receive
dividends from the Fund); or (3) there is, in the judgment of the Directors,
any (a) material legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely affecting the
Fund, (b) declaration of a banking moratorium by federal or state authorities
or any suspension of payment by banks in the United States, (c) limitations
affecting the Fund or the issuers of its portfolio instruments imposed by
federal, state or foreign authorities on the extension of credit by lending
institutions or on the exchange of foreign currency, or (d) other events or
conditions that would have a material adverse effect on the Fund or its
shareholders if tendered Shares were purchased.
RESTRICTIONS ON TRANSFER
At the time it becomes a Shareholder of the Fund, each Shareholder agrees
with respect to transfers of Shares that it will not transfer any Shares to a
third party unless the prospective purchaser meets the suitability standards
set by the Fund, which are currently: (i) each transferee that is a "company"
(as defined in the 1940 Act) must have total assets in excess of U.S. $5
million; (ii) each transferee that is a natural person must be an "accredited
investor" within the meaning of Regulation D under the 1933 Act; (iii) the
transferee must be purchasing at least $25,000 worth of Shares; (iv) after
transfer, the transferee must have an account balance with the Fund of at least
U.S. $100,000; and (v) the transferee must not own upon the transfer of Shares,
either alone or together with any affiliate, more than 15% of the Fund's Shares
(provided that this limitation shall not apply to the acquisition of Shares by
reinvestment of dividends or capital gain distributions; and provided further,
that any Shareholder of the Fund may purchase its pro rata portion of all
Shares authorized for issuance and sale by the Fund without regard to this
limitation). "Transfer" includes any sale, assignment, transfer, encumbrance,
hypothecation, pledge or other disposition of any nature, voluntary or
involuntary, by operation of law or otherwise, of any Shares or of any interest
therein. The Fund and its transfer agent will not effect any transfer of Shares
unless sufficient evidence of compliance with the above requirements has been
provided to the Fund.
With respect to individuals, the term "accredited investor" under
Regulation D includes a person whose net worth exceeds U.S. $1,000,000, a
Director or certain executive Officers of the Fund, and persons who have had,
and expect to continue to have, certain levels of income (U.S. $ 200,000 per
year, or U.S. $300,000 per year with that person's spouse).
The Board of Directors of the Fund may from time to time and without
Shareholder approval modify the standards that prospective purchasers must
meet. Those changes could further limit the liquidity of an investment in the
Fund. In light of the limited market for the Shares and the restrictions on
transfers of the Shares, investors should not purchase Shares unless the
investor has no need for access to the assets so invested and is capable of
bearing the significant risk of maintaining that investment for an indefinite
period.
The Fund has arranged with an unaffiliated broker-dealer to assist
Shareholders who may wish to sell Fund Shares to effect the purchase and sale
of shares to other potential purchasers that meet the Fund's shareholder
eligibility requirements (see above). The Manager is responsible for expenses
associated with the foregoing arrangement.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of securities for the Fund,
the Manager will use its best efforts to obtain the most favorable net results
and execution of the Fund's orders, taking into account all appropriate
factors, including price, dealer spread or commission, if any, size of the
transaction, and difficulty of the transaction. The Manager is authorized to
pay spreads or commissions to brokers or dealers furnishing brokerage and
research services in excess of spreads or commissions which another broker or
dealer may charge for the same transaction. The type of services the Manager
may consider when selecting brokers to effect transactions includes advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities, the availability of securities or purchasers or sellers of
securities, and the furnishing of analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. There is no intention to place portfolio transactions
with particular brokers or dealers or groups thereof.
Although certain research, market and statistical information from brokers and
dealers can be useful to the Fund and to the Manager, it is the opinion of the
Manager that such information is only supplementary to its own research
efforts, since the information must still be analyzed, weighed and reviewed by
the Manager in connection with the Fund. Such information may be useful to the
Manager in providing services to clients other than the Fund, and not all such
information may be used by the Manager in connection with the Fund.
Conversely, such information provided to the Manager by brokers and dealers
through whom other clients of the Manager effect securities transactions may be
useful to the Manager in providing services to the Fund.
The Fund's portfolio turnover rates for the fiscal years ended June 30,
1998, 1997 and 1996 were 23.41%, 23.75% and 17.78%, respectively. The
portfolio turnover rate is expected to be less than 100% each fiscal year.
Brokerage commissions paid on the Fund's portfolio transactions for the fiscal
years ended June 30, 1998, 1997 and 1996 amounted to $24,494,308, $17,306,312
and $15,787,242, respectively.
REPORTS, LISTING AND PUBLICATION OF VALUE
The Fund does not currently believe there will be an active secondary
market for the Shares. To the extent a secondary market does develop,
investors should be aware that the shares of closed-end investment companies
typically trade at a discount from or premium to their net asset value and
frequently trade at a discount from net asset value. Should there ever be a
secondary market for Fund Shares, it cannot be predicted whether the Shares
would sell at a discount from or premium to net asset value.
Shares of the Fund are listed on the Luxembourg Stock Exchange. A legal
notice and the Articles of Incorporation and By-Laws of the Fund are lodged
with the Chief Registrar of the District Court of Luxembourg where such
documents are available for inspection and where copies thereof are available
upon request. While the restrictions on transfer described above under
"Shareholders Agreement and Restrictions on Transfer" remain in effect there
may be little (if any) trading in the Fund's Shares on the Luxembourg Stock
Exchange or elsewhere. Since the Fund's inception, there has been no public
trading of the Fund's Shares.
Financial statements of the Fund are sent to the Shareholders at least
semiannually. At least one of these reports will be audited annually. Reports
will be made available at the office of the Fund's Luxembourg transfer agent,
Banque Internationale a' Luxembourg, S.A. In addition, notices to Shareholders
are published in a Luxembourg newspaper, which is the Luxemburger Wort.
Attached as Appendix A to this Prospectus are the audited financial statements
for the fiscal year ended June 30, 1998.
The Fund's net asset value per Share on September 30, 1998 was $35.97. The
total investment return, assuming dividend and capital gain distributions were
reinvested, from May 30, 1986 (the commencement of operations) through
September 30, 1998 was +758%.
Total return for the period is computed as follows:
An initial investment is divided by the net asset value per Share as of
the first day of the period in order to determine the initial number of Shares
purchased. Subsequent dividends and capital gain distributions are reinvested
at net asset value on the reinvestment date determined by the Board of
Directors. The sum of the initial Shares purchased and Shares acquired through
reinvestment is multiplied by the net asset value per Share as of the end of
the period in order to determine ending value. The ending value is divided by
the initial investment converted to a percentage which equals total return.
The total investment return of the Fund may also be computed and presented
without deducting management fees. This figure is calculated by adding back
the management fee for the month (as a percentage of net assets) to the Fund's
total net return for the month as computed in the manner described above.
TAX CONSIDERATIONS
The Fund is registered as an investment company under the 1940 Act and
intends to qualify and to elect to be taxed as a "regulated investment company"
(or "RIC") under the Internal Revenue Code of 1986, as amended (the "Code").
If the Fund is to qualify for the special tax treatment afforded RICs under the
Code, it must meet various requirements, including (i) that at least 90% of the
Fund's gross income for the taxable year must be derived from dividends,
interest, and gains from the sale or other disposition of stocks, securities or
foreign currencies or from other income derived with respect to its business of
investing in stock, securities or currencies; (ii) that less than 30% of its
gross income must be derived from the sale or disposition of stock, securities,
options, futures, and certain foreign currencies (including certain options,
futures or forward contracts on foreign currencies) held for less than three
months; (iii) that at the end of each quarter of its taxable year, it meets
certain asset diversification requirements, including that not more than 25% of
the value of its assets be invested in the securities of any one issuer and at
least 50% of its assets be represented by cash, U.S. Government securities or
other securities limited in the case of any one issuer to not more than 5% of
the Fund's total assets and to not more than 10% of the outstanding voting
securities of each such issuer; and (iv) that it distribute each year at least
90% of its investment company taxable income (including interest, dividends and
net short-term capital gains in excess of net long-term capital losses).
As a RIC, the Fund generally will not be subject to U.S. federal income
tax on its investment company taxable income and net capital gains (net
long-term capital gains in excess of the sum of net short-term capital losses
and capital loss carryovers from prior years), if any, that it distributes to
shareholders. The Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and net
capital gains. Amounts not distributed on a timely basis in accordance with a
calendar-year distribution requirement are subject to a non-deductible 4%
excise tax. To prevent imposition of the excise tax, the Fund must distribute
during each calendar year an amount equal to the sum of (i) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (ii) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses) for the twelve-month period
ending on October 31 of the calendar year, and (iii) any ordinary income and
capital gains for previous years that were not distributed during those years.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Fund in October, November or December with a
record date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the year
in which the distributions are received. To prevent application of the excise
tax, the Fund intends to make its distributions in accordance with the calendar
year distribution requirement.
If it qualifies for regulated investment company status, the Fund will send
written notices to shareholders annually regarding the tax status of all
distributions made during such year, the amount of undistributed net capital
gains, if any, and any applicable tax credits.
DISTRIBUTIONS
Dividends of investment company taxable income are taxable to a
shareholder as ordinary income whether paid in cash or reinvested in additional
Shares. It is anticipated that the dividends will not qualify for the
dividends-received deduction for a U.S. corporation.
Distributions of net capital gains, if any, which are designated by the
Fund as capital gain dividends are taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the Fund's Shares, and
are not eligible for the dividends-received deduction. The Board of Directors
of the Fund generally intends to distribute any net capital gains. If the Fund
should retain net capital gains, it will be subject to a tax of 35% of the
amount retained. The Fund expects to designate amounts retained, if any, as
undistributed capital gains in a notice to its shareholders who, if subject to
U.S. federal income taxation on long-term capital gains, (i) would be required
to include in income for U.S. federal income tax purposes, as long-term capital
gains, their proportionate Shares of the undistributed amount, and (ii) would
be entitled to credit against their U.S. federal income tax liabilities for
their proportionate Shares of the tax paid by the Fund on the undistributed
amount and to claim refunds to the extent that their credits exceed their
liabilities. For U.S. federal income tax purposes, the adjusted basis of the
Fund Shares owned by a shareholder of the Fund would be increased by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Under the Code, the Fund will account for its income and deduction in U.S.
dollars and thus may realize gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues interest or other
receivables, including security purchases and sales, or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities. Any such gains or
losses generally are treated as ordinary income or ordinary loss. Similarly,
on disposition of debt securities denominated in a foreign currency and on
disposition of forward contracts and certain futures contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses
are referred to under the Code as "Section 988" gains or losses. Section 988
gains may increase the amount of income that the Fund must distribute in order
to qualify for treatment as a RIC and to prevent application of an excise tax
on undistributed income. Alternatively, Section 988 losses may decrease or
eliminate income available for distribution. For example, if foreign exchange
losses of the Fund were to exceed the Fund's other investment company taxable
income during a taxable year, the Fund would not be able to make ordinary
dividend distributions, and distributions made before the losses were realized
would be re-characterized as a return of capital to shareholders for federal
income tax purposes, rather than as an ordinary dividend, thus reducing each
shareholder's basis in his or her Fund Shares, or, if no remaining basis, as
gain from the sale of Fund Shares.
HEDGING TRANSACTIONS
The taxation of equity options (including options on narrow-based stock
indices) and over-the-counter options on debt securities is governed by Code
Section 1234. Pursuant to Code Section 1234, the premium received by the Fund
for selling a put or call option is not included in income at the time of
receipt. If the option expires, the premium is short-term capital gain to the
Fund. If the Fund enters into a closing transaction, the difference between
the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and
any resulting gain or loss will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by the Fund, if the option is sold, any resulting gain or loss will
be a capital gain or loss, and will be short-term or long-term, depending upon
the holding period of the option. If the option expires, the resulting loss is
a capital loss and is short-term or long term, depending upon the holding
period of the option. If the option is exercised, the cost of the option, in
the case of a call option, is added to the basis of the purchased security and,
in the case of a put option, reduces the amount realized on the underlying
security in determining gain or loss.
In the case of Fund transactions involving many futures contracts, certain
foreign currency contracts and listed options on debt securities, currencies
and certain futures contracts and broad-based stock indices, Code Section 1256
generally will require any gain or loss arising from the lapse, closing out or
exercise of such positions to be treated as 60% long-term and 40% short-term
capital gain or loss, regardless of the holding period, although foreign
currency gains and losses (as discussed above) arising from certain of these
positions may be treated as ordinary income and loss. In addition, the Fund
generally will be required to mark to market (i.e., treat as sold for fair
market value) each such position which it holds at the close of each taxable
year (and, for excise tax purposes, on October 31 of each calendar year).
Generally, certain hedging transactions which the Fund may undertake may
result in "straddles" for U.S. federal income tax purposes. The straddle
rules under the Code may affect the character of gains (or losses) realized by
the Fund. In addition, losses realized by the Fund on positions that are part
of a straddle may be deferred under the straddle rules, rather than being taken
into account in calculating the taxable income for the taxable year in which
the losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences to the Fund of
hedging transactions are not entirely clear. The hedging transactions may
increase the amount of ordinary income and short-term capital gain realized by
the Fund which is taxed as ordinary income when distributed to shareholders.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed by the Fund to its shareholders and which will be taxed to
shareholders of the Fund as ordinary income or long-term capital gain, may be
increased or decreased by such hedging transactions.
Certain requirements under the regulated investment company provisions of
the Code may limit the extent to which the Fund will be able to engage in
transactions in options, futures contracts and forward contracts.
SALE OF SHARES
In general, upon the sale or other disposition of Shares of the Fund, a
shareholder may realize a capital gain or loss which will be long-term or
short-term, depending upon the shareholder's holding period for the Shares.
However, if the shareholder sells Fund Shares to the Fund (in a tender offer by
the Fund, for example), proceeds received by the shareholder may, in some
cases, be characterized for tax purposes as dividends. Any loss realized on a
sale or exchange will be disallowed to the extent the Shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending 30 days
after disposition of the Shares. In such a case, the basis of the Shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by
a shareholder on a disposition of Fund Shares held by the shareholder for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with
respect to such Shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within countries other than the
United States ("foreign countries") may be subject to withholding and other
taxes imposed by such countries. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible and intends to elect to "pass-through"
to shareholders the amount of foreign income and similar taxes it has paid.
Pursuant to this election, each of the Fund's shareholders will be required to
include in gross income (in addition to the full amount of the taxable
dividends actually received) its pro rata share of the foreign taxes paid by
the Fund. Each such shareholder will also be entitled either to deduct (as an
itemized deduction) its pro rata share of foreign taxes in computing its
taxable income or to claim a foreign tax credit against its U.S. Federal income
tax liability, subject to limitations. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions, but such a
shareholder may be eligible to claim the foreign tax credit (see below). The
deduction for foreign taxes is not allowable in computing alternative minimum
taxable income. Each shareholder will be notified with 60 days after the close
of the Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income flows through to its shareholders. Any gains
from the sale of securities by the Fund will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency-denominated debt securities, receivables and payables,
will be treated as ordinary income derived from U.S. sources. The limitation
on the foreign tax credit is applied separately to foreign source passive
income (as defined for purposes of the foreign tax credit), including the
foreign source passive income passed through by the Fund. Because of the
limitation, shareholders taxable in the United States may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by the Fund. The foreign tax credit also cannot be used to offset more
than 90% of the alternative minimum tax (as computed under the Code for
purposes of this limitation) imposed on corporations and individuals. If the
Fund is not eligible to elect to "pass through" to its shareholders its foreign
taxes, the foreign taxes it pays generally will reduce investment company
taxable income.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or where the Fund or the shareholder has been notified by the
Internal Revenue Service that the shareholder is subject to backup withholding.
Corporate shareholders and certain other shareholders specified in the Code
generally are exempt from such backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in the Fund
may be different from those described herein. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
INVESTMENT IN FOREIGN INVESTMENT COMPANIES
The Fund currently invests in Chile and may in the future invest in one or
more other countries through vehicles organized under local laws. For U.S.
Federal income tax purposes, the vehicle used may be treated as a controlled
foreign corporation ("CFC"). The income and net capital gains of a CFC will be
includable in the investment company taxable income of the Fund, which the Fund
must distribute to its shareholders. The Fund's investment in any CFC (or in
two or more CFC's in which the Fund owns 20% or more of the voting stock) may
be treated as the security of one issuer for purposes of the 5% and 25% limits
of the diversification requirement.
The Fund may also invest in securities of investment companies which it
does not control which are organized under the laws of a country in which it
may invest. For U.S. federal income tax purposes, these investment companies
will be treated as passive foreign investment companies ("PFIC"). Gain on sale
of PFIC shares, and certain excess distributions received from a PFIC, will be
treated as ordinary income allocable ratably over the Fund's holding period for
its PFIC shares. To the extent attributable to prior taxable years of the
Fund, the gains or income will be taxable to the Fund, rather than its
shareholders, and tax payable by the Fund will be increased by an interest
charge. The Fund may be able to elect with respect to a PFIC to be taxed
currently on the PFIC's income and gains. If its election were made it would
avoid taxation of the income to the Fund and imposition of any interest charge,
and enable the character of the PFIC's income (as net capital gain or ordinary
income) to pass through to the Fund.
Other elections also may become available to the Fund, including one under
which the Fund would treat appreciation in value of PFIC shares as gain
realized at the end of a taxable year, but treated as ordinary income, such
gain, if distributed by the Fund, would not be taxable to the Fund and no
interest charge would be imposed.
The specific consequences of one election normally will differ from the
consequences arising under another election. As a result, the Fund will
consider the ramifications of the election(s) available to it and will make
these elections only as deemed appropriate.
GENERAL INFORMATION
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could
have an adverse impact on the quality of services provided to the Fund and its
shareholders. However, the Fund understands that its key service
providers--including the Manager and its affiliates--are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the Fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The Fund and its Manager will
continue to monitor developments relating to this issue.
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY 10081,
acts as Custodian for the Fund pursuant to a custodian agreement. The
Custodian employs sub-custodians located in countries where the Fund's
portfolio securities are traded.
American Funds Service Company, 135 South State College Blvd., Brea, CA
92821, acts as the Fund's dividend paying agent, transfer agent and registrar
for the Shares. The Fund's Luxembourg transfer agent is Banque Internationale
a' Luxembourg, S.A.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
The accounting firm of PricewaterhouseCoopers LLP, 400 South Hope Street,
Los Angeles, CA 90071, acts as independent accountants for the Fund. The
financial statements for the year ended June 30, 1998 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
serves as legal counsel to the Fund.
At the date of this Prospectus, the Fund was not subject to any pending
litigation and was not aware of any threatened litigation.
AVAILABLE INFORMATION
A Registration Statement on Form N-2, including amendments thereto,
relating to the Shares offered hereby, has been filed by the Fund with the SEC.
This Prospectus does not contain all of the information set forth in the
Registration Statement, including any exhibits and schedules thereto. For
further information with respect to the Fund and the Shares offered hereby,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without
charge at the SEC's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the SEC upon the payment of certain fees
prescribed by the SEC.
APPENDIX A TO PROSPECTUS
AUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 1998:
Statement of Assets and Liabilities as of June 30, 1998 (including investment
portfolio as of June 30, 1998).
Statement of Operations for the fiscal year ended June 30, 1998.
Statement of Changes in Net Assets for the fiscal years ended June 30, 1998 and
June 30, 1997.
Per-Share Data and Ratios for the fiscal years ended June 30, 1994 through June
30, 1998.
Notes to Financial Statements for the fiscal year ended June 30, 1998.
Report of Independent Accountants dated August 14, 1998.
INVESTMENT PORTFOLIO, JUNE 30, 1998
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Equity Securities
---------------------------------
Common Preferred Convertible Percent of
Stocks Stocks Bonds Bonds Net Assets
- -----------------------------------------------------------------------------------------------------------------
Telecommunications 15.29% 4.47% - .08% 19.84%
Banking 7.12 2.56 .04% .03 9.75
Utilities: Electric & Gas 5.09 2.69 - - 7.78
Beverages & Tobacco 5.64 1.88 - - 7.52
Energy Sources 5.02 .92 .01 - 5.95
Electronic Components 4.73 - .05 - 4.78
Merchandising 2.63 .04 - - 2.67
Other Industries 21.30 2.76 .57 6.84 31.47
------ ------ ----- ------ ------
66.82% 15.32% .67% 6.95% 89.76%
====== ====== ===== ======
Short-Term Securities 10.03
Excess of cash and receivables over liabilities .21
-------
Net Assets 100.00%
=======
</TABLE>
EMERGING MARKETS GROWTH FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Portfolio - JUNE 30, 1998
Number of
Shares or Market Percent
EQUITY - TYPE SECURITIES Principal Value of Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
- -----------------------------------------------------------------------------------------------------
Argentina - 6.80%
Banco de Galicia y Buenos Aires SA, Class B 2,753,509 $12,393
Banco de Galicia y Buenos Aires SA, Class B
(American Depositary Receipts) 3,059,368 55,834 .55
Banco Frances del Rio de la Plata SA 740,600 5,600
Banco Frances del Rio de la Plata SA
(American Depositary Receipts) 2,342,141 53,723 .48
Banco Rio de la Plata, Class B
(American Depositary Receipts) 3,726,700 39,363 .32
BI SA (acquired 10/21/93, cost: $6,130,000) (1) 6,130,000 6,621 .05
Disco SA (American Depositary Receipts) 753,000 24,096 .19
Hidroneuquen SA (acquired 11/11/93, cost: $29,086,000) (1) 28,022,311 29,086 .23
IRSA Inversiones y Representaciones SA 4,084,500 12,010
IRSA Inversiones y Representaciones SA .23
(Global Depositary Receipts) 564,915 16,453
Nortel Inversora SA, Class A, preferred
(American Depositary Receipts)
(acquired 11/24/92, cost:$5,562,000) (1)(3) 803,868 10,675
Nortel Inversora SA, Class B, preferred .43
(American Depositary Receipts)(3) 1,688,140 41,993
Perez Companc, Class B 12,811,086 64,321
Perez Companc, Class B (American Depositary Receipts) 689,668 6,925 .58
Quilmes Industrial SA, nonvoting, preferred
(American Depositary Shares) 1,088,800 10,616 .09
Sociedad Comercial del Plata SA 1,059,290 1,165 .01
Telecom Argentina STET-France Telecom SA, Class B(3) 2,800,000 16,522
Telecom Argentina STET-France Telecom SA, Class B 1.17
(American Depositary Shares)(3) 4,312,900 128,578
Telefonica de Argentina SA, Class B(3) 4,910,000 15,911
Telefonica de Argentina SA, Class B 1.54
(American Depositary Shares)(3) 5,366,600 174,079
YPF SA, Class D (American Depositary Receipts) 3,827,500 115,064 .93
---------- ----------
841,028 6.80
---------- ----------
Brazil - 15.52%
Aracruz Celulose SA, Class B, preferred nominative
(American Depositary Receipts) 533,550 6,102 .05
Banco Bradesco SA, preferred nominative 11,032,827,214 92,059 .74
Banco do Estado de Sao Paulo SA,preferred nominative 409,982,700 18,969 .15
Banco Itau SA, preferred nominative 312,564,300 178,377 1.44
Banco Nacional SA, preferred nominative (2) 215,940,814 -
Banco Nacional SA, ordinary nominative (2) 2,500,000 - -
Banco Real de Investimento SA, preferred nominative 4,650,000 17,289 .14
Banco Real SA, preferred nominative 10,771,650 8,383 .07
Bompreco SA, Supermercados do Nordeste,
preferred nominative (Global Depositary Receipts) 329,000 4,688 .04
Brasmotor SA, preferred nominative 50,872,932 4,663 .04
CEN Geradoras, preferred nominative, Class B
(American Depositary Receipts) 722,678 5,059
CEN Geradoras, ordinary nominative .09
(American Depositary Receipts) 906,059 6,116
Centrais Eletricas Brasileiras SA-ELETROBRAS, Class B,
preferred nominative (American Depositary Receipts) 7,226,788 108,402
Centrais Eletricas Brasileiras SA - ELETROBRAS,
ordinary nominative 164,800,000 4,845 1.98
Centrais Eletricas Brasileiras SA - ELETROBRAS,
ordinary nominative (American Depositary Receipts) 9,060,591 131,379
Centrais Eletricas de Santa Catarina SA - CELESC, Class B,
preferred nominative 983,000 748 .01
CESP-Companhia Energetica de Sao Paulo,
preferred nominative 24,700,000 686
CESP- Companhia Energetica de Sao Paulo, preferred
nominative (American Depositary Receipts) 1,151,291 9,786 .08
CESP-Companhia Energetica de Sao Paulo,
ordinary nominative 16,927,984 397
Companhia Cervejaria Brahma, preferred nominative 142,451,437 88,686
Companhia Cervejaria Brahma, preferred nominative 1.23
(American Depositary Receipts) 5,100,500 63,756
Companhia Cervejaria Brahma, preferred nominative
(American Depositary Receipts) 224,483 124
Companhia Cervejaria Brahma, ordinary nominative 56,147,100 9,957 .08
Companhia de Eletricidade do Estado do Rio de Janeiro
CERJ, ordinary nominative (2) 23,019,820,000 11,346 .09
Companhia de Tecidos Norte de Minas- COTEMINAS
preferred nominative (3) 76,970,466 11,647
Companhia de Tecidos Norte de Minas- COTEMINAS .13
ordinary nominative (Global Depositary Receipts) (3) 535,000 3,946
Companhia Energetica de Minas Gerais-CEMIG,
prefrred nominative 804,718,110 25,050
Companhia Energetica de Minas Gerais-CEMIG,
preferred nominative(American Depositary Receipts) (9) 4,250,580 128,580
1.35
Companhia Energetica de Minas Gerais-CEMIG,
preferred nominative (American Depositary Receipts)
(acquired 6/21/96, cost: $9,501,000) (1)(5) 457,575 13,842
Companhia Paranaense de Energia-COPEL, Class B,
preferred nominative 1,916,814,562 17,900
Companhia Paranaense de Energia- COPEL, Class B, .39
preferred nominative (American Depositary Receipts) 2,096,000 19,388
Companhia Paranaense de Energia -COPEL,
ordinary nominative 1,370,764,600 10,786
Companhia Paulista de Forca @ Luz,
preferred nominative (2) 522,153 41
Companhia Paulista de Forca @ Luz, .19
ordinary nominative (2) 234,091,000 23,887
Companhia Vale do Rio Doce
(American Depositary Receipts) 2,854,037 57,794 .47
Consorcio Real Brasileiro de Administracao SA, Class F,
preferred nominative (3) 1,405,000 2,405 .02
Dixie Toga SA, preferred nominative 1,872,000 793 .01
ELETROPAULO-Eletricidade de Sao Paulo SA,
preferred nominative 34,961,925 2,630 .02
Empresa Nacional de Commercio Redito SA-Encopar,
preferred nominative (3) 61,861,588 155 .00
Empresa Paulista de Transmisao de Energia Eletrica SA-EPTE (2) 34,961,925 124 .00
GP Capital Partners, LP
(acquired 1/28/94, cost: $21,468,000) (1) (3) 27,000 20,641 .17
LIGHT- Servicos de Eletricidade SA, ordinary nominative 114,095,546 35,023 .28
Lojas Americanas SA, ordinary nominative (2) 8,643,000 59 .00
Mesbla SA, preferred nominative (2) 111,674,640 .00
Mesbla SA, ordinary nominative (2) 1,041,447,836 104 .00
Multicanal Participacoes SA, preferred nominative .00
(American Depositary Shares) (2) 1,441,000 7,115 .06
Petroleo Brasileiro SA-PETROBRAS, preferred nominative 611,741,000 113,726 .92
REAL SA Participacoes e Administracao, SA
Class A, preferred nominative 3,000 5 .00
Sadia Concordia SAIC, preferred nominative 4,645,000 2,892 .02
SA White Martins, ordinary nominative 11,903,844 11,014 .09
Souza Cruz SA, ordinary nominative 2,842,000 21,134 .17
Telecomunicacoes Brasileiras SA (Telebras),
preferred nominative 60,052,090 6,532
Telecomunicacoes Brasileiras SA (Telebras),
preferred nominative ( American Depositary Receipts) 3,560,618 388,775 3.30
Telecomunicacoe Brasileiras SA (Telebras),
ordinary nominative 155,290,100 12,353
Telecomunicacoe de Sao Paulo SA- (Telebras),
preferred nominative 273,516,751 64,329
Telecomunicacoes de Sao Paulo SA-Telesp,
ordinary nominative (2) 35,664,592 5,394 .57
Telecomunicacoes de Sao Paulo SA-Telesp,
preferred nominative, rights, expire July 10,1998 (2) 14,400,315 230
Telecomunicacoes de Sao Paulo SA-Telesp Celular, Class B,
preferred nominative (2) 383,782,651 31,857 .27
Telecomunicacoes de Sao Paulo SA- Telesp Celular,
ordinary nominative (2) 35,664,592 1,513
Souza Cruz SA, ordinary nominative
Telecomunicacoes Brasileiras SA (Telebras), 3,332,150 98,298 .80
Usinas Siderurgicas de Minas Gerais SA,
preferred nominative (American Depositary Receipts)
(acquired 9/1/93,cost: $9,774,000) (1) 1,550,305 7,558 .06
---------- ----------
1,919,337 15.52
---------- ----------
Chile - 3.18%
Antofagasta PLC 4,805,530 20,061 .16
Banco Santander Chile, Class A
(American Depositary Receipts) 1,608,500 20,709 .17
Compania Cervecerias Unidas SA
(American Depositary Shares) 916,500 19,361 .16
Compania de Telecomunicaciones de Chile SA
(American Depositary Receipts) 5,402,252 109,733 .89
Distribucion y Servicio D&S SA
(American Depositary Receipts) 1,177,800 17,667 .14
Embotelladora Andina SA, Class A, preferred
(American Depositary Receipts) 2,462,350 43,091
Embotelladora Andina SA, Class B, preferred .55
(American Depositary Receipts) 1,573,200 24,581
Empresa Nacional de Electricidad SA
(American Depositary Receipts) 6,643,509 94,670 .76
Enersis SA (American Depositary Receipts) 765,456 18,706 .15
Gener SA ,(American Depositary Receipts) 248,643 4,538 .04
Laboratorio Chile SA (American Depositary Receipts) 120,400 1,731 .01
Santa Isabel SA (American Depositary Receipts) 878,700 9,666 .08
Sociedad Quimica y Minera de Chile SA, Class B
(American Depositary Receipts) 260,500 8,727 .07
---------- ----------
393,241 3.18
---------- ----------
China - 0.66%
China Eastern Airlines Corp. Ltd., Class H (2) 40,700,000 3,573
China Eastern Airlines Corp. Ltd., Class H, .04
(American Depositary Receipts)(2) 175,700 1,559
China Resources Beijing Land Ltd. 32,392,000 10,454 .09
China Yuchai International Ltd. (2) 913,000 2,340 .02
Guang Dong Electric Power Development Co. Ltd., Class B 3,191,448 1,187 .01
Huaneng Power International, Inc., Class N
(American Depositary Receipts)(2) 718,200 9,651 .08
Jiangsu ExpresswayCo. Ltd.,Class H 44,584,000 8,460 .07
Jiangxi CopperCo. Ltd., Class H 25,403,500 1,671 .01
NG Fung Hong Ltd. 30,059,000 20,760 .17
Quingling Motors Co.,Ltd., Class H 46,042,600 12,779 .10
Tingyi (Cayman Islands) Holding Corp. 67,261,500 4,124 .03
Zhejiang Expressway Co. Ltd., Class H 27,052,000 4,540 .04
---------- ----------
81,098 .66
---------- ----------
Republic of Croatia - 0.84%
PLIVA d.d. (Global Depositary Receipts) 6,399,821 103,997 .84
---------- ----------
103,997 .84
---------- ----------
Czech Republic - 0.34%
SPT Telecom, a.s. (2) 3,049,740 42,139 .34
---------- ----------
Ecuador - 0.02%
La Cemento Nacional CA (Global Depositary Receipts)(3) 15,530 2,407 .02
---------- ----------
Egypt - 0.13%
Al-Ahram Beverages Co. (Global Depositary Receipts) (3) 510,000 16,218 .13
------------- ------------
Ghana - 0.21%
Ashanti Goldfields Co. Ltd. 691,111 5,287
Ashanti Goldfields Co. Ltd. (Global Depositary Receipts) 1,131,500 9,193
Ashanti Goldfields Co. Ltd., .21
5.50% exchangeable note March 15, 2003 $15,970,000 11,978
---------- ----------
26,458 .21
---------- ----------
Greece - 2.10%
Aluminum de Grece SAIC (2)(3) 374,540 22,178 .18
Ergobank SA Reg 671,010 57,402 .47
Hellenic Bottling Co. SA 5,020,620 155,248 1.26
Katselis Sons SA, ordinary 74,110 446 .00
Titan Cement Co. SA, ordinary 366,044 23,968 .19
---------- ----------
259,242 2.10
---------- ----------
Hong Kong - 0.68%
China Resources Enterprise, Ltd. 35,598,000 36,763 .30
China-Hongkong Photo Products Holdings Ltd. 11,996,000 1,688 .01
Legend Holdings Ltd (2) 25,570,000 7,674 .07
New World Infrastructure Ltd. (2) 17,662,497 20,293
New World In 144 A CV 1.00% 04-15-03 (1)
April 15, 2003 (acquired 3/24/98, cost: $24,686,000) (1) 24,670,000 17,762
Siu-Fung Ceramics Holdings Ltd. (2) 7,869,409 0 .30
Tian An China Investments Co. Ltd. 4,293,500 122
---------- ----------
84,302 .68
---------- ----------
Hungary - 0.93%
Gedeon Richter Ltd. 648,200 52,145 .42
Matav RT
Graboplast Textil-es Muborgyarto Rt. 102,200 2,588 .02
MATAV, Hungarian Telecommunications Co. Ltd 7,706,000 44,733 .36
MOL Magyar Olaj-es Gazipari Rt.
(Global Depositary Receipts) 570,100 15,393 .13
---------- ----------
114,859 .93
---------- ----------
India - 5.64%
Asian Paints (India) Ltd. 564,600 3,244 .03
Bajaj Auto Ltd. 4,396,350 59,450
.49
Bajaj Auto Ltd. (Global Depositary Receipts) 54,900 744
Bharat Forge Ltd. 3,250 6 -
Bharat Petroleum (2) 5,535,200 45,898 .37
Bombay Dyeing and Manufacturing Co. Ltd.
(Global Depositary Receipts) 10,100 13 .00
cummins India Ltd. 1,838,000 15,328 .12
East India Hotels Ltd. 869,065 4,506 .04
Essar Steel Ltd. 300 - .00
Flex Industries Ltd. 260,480 73
Flex Industries Ltd., warrants, expire November 23, 1999 116,210 8 .00
Grasim Industries Ltd. 659,480 5,577
Grasim Industries Ltd. (Global Depositary Receipts) 1,714,265 10,757 .13
Hindalco Industries Ltd. (3) 2,670,425 42,140
Hindalco Industries Ltd, (Global Depositary Receipts) (3) 1,302,280 18,232 .49
Hindustan Lever Ltd. 2,024,500 71,791 .58
Hindustan Petroleum Corp. Ltd. (2) 3,515,300 32,286 .26
Housing Development Finance Corp. Ltd. 294,300 20,823 .17
Indian Aluminum Co., Ltd. 2,597,371 7,565 .06
Indian Rayon and Industries Ltd. 1,527,825 7,404
Indian Rayon and Industries Ltd. .08
(Global Depositary Receipts) 597,000 1,881
Indo Gulf Fertilisers and Chemicals Corp. Ltd. 2,155,200 1,804
Indo Gulf Fertilisers and Chemicals Corp. Ltd. .02
(Global Depositary Receipts) 1,770,900 947
Industrial Credit and Investment Corp. of India Ltd. 3,176,760 5,857 .05
Ispat Industries Ltd. 3.00% convertible Eurobond
April 1, 2001 4,624,000 2,220
Ispat Industries Ltd., 3.00% convertible bond April 1,2001 .04
(acquired 3/1/94, cost: $6,258,000) (1) 6,375,000 3,060
I.T.C. Ltd. 13,247 204
Madras Cements Ltd. 22,000 1,859 .02
Mahanagar Telephone Nigam Ltd. 22,903,000 96,593
Mahanagar Telephone Nigam Ltd. .85
(Global Depositary Receipts) 802,700 8,408
Mahindra & Mahindra Ltd. 2,658,516 13,524
Mahindra & Mahindra Ltd. (Global Depositary Receipts) 958,333 4,193
Mahindra & Mahindra Ltd. 5.00% convertible bond .18
July 9,2001 (acquired 7/3/96; cost: $5,952,000) 5,954,000 4,972
Master Gain Scheme (2) 177,000 42
Max India Ltd 315,377 1,030
Max India Ltd. 12.50% nonconvertible debenture .01
March 2, 2004 $41,957 156
Motor Industries Co. Ltd. (3) 201,855 18,301 .15
Nicholas Piramal India Ltd. (9) 1,885,700 15,034 .12
Niko Resources LTD C$ (2) (3) 1,000,000 2,962 .02
Ranbaxy Laboratories Ltd. 1,591,950 20,595
Ranbaxy Laboratories Ltd. (Global Depositary Receipts) 874,525 13,861 .28
Raymond Woollen Mills Ltd. (5) 931,800 1,764
.04
Raymond Woollen Mills Ltd. (Global Depositary Receipts) (9) 1,083,000 3,358
Reliance Industries Ltd. 15,251,000 51,630
.45
Reliance Industries Ltd. (Global Depositary Receipts) 657,150 4,288
Sundaram Finance Ltd. 38,400 213
Tata Engineering and Locomotive Co. Ltd. 4,577,400 17,920
Tata Engineering and Locomotive Co. Ltd. .26
(Global Depositary Receipts) 4,960,191 14,508
United Phospherous Ltd. 822,700 1,957
.02
United Phospherous Ltd. (Global Depositary Receipts) 358,964 898
Videsh Sanchar Nigam Ltd. 986,800 21,929
.22
Videsh Sanchar Nigam Ltd. (Global Depositary Receipts) 473,700 5,069
Zee Telefilms Ltd. (3) 1,010,200 10,986 .09
---------- ----------
697,895 5.64
---------- ----------
Indonesia - 1.20%
PT Aneka Tambang 18,871,000 1,952 .02
APP Fin (VII)Maur Convertible 144A 3.50% 04-30-03 (1)
April 30, 2003 (acquired 4/23/98, cost: $6,180,000) 6,180,000 4,867 .04
Asia Pacific Resources International Holdings Ltd.,
Class A (2) 2,420,969 4,388 .04
Asia Pulp & Paper Co, Ltd. (American Depostary Receipts) 2,514,000 28,282 .23
PT Astra International Inc. 65,123,500 4,491 .04
PT Bank International Indonesia 10,231,459 212
PT Bank Internasional Indonesia , warrants,
expire January 17, 2000 (2) 909,462 4
PT BAT Indonesia 530,000 841 .01
Gulf Indonesia Resources Ltd,(2) 482,500 5,549 .05
PT Hanjaya Mandala Sampoerna 29,535,000 4,125 .03
PT Indah Kiat Pulp/Paper Corp. 158,800,000 30,939 .25
PT Indofood Sukses Makmur 61,335,200 6,133 .05
PT Indo-Rama Synthetics 26,315,500 2,087 .02
PT International Nickel Indonesia 5,069,500 2,727 .02
PT Jaya Real Property 1,549,000 19 .00
PT Lautan Luas Tbk 3,158,000 207 .00
PT Lippo Bank 18,584,000 961 .01
PT Mayora Indah 3,205,500 133 .00
PT Modern Photo Film Co. 10,500,800 597 .00
PT Mulia Industrindo 7,175,572 124 .00
PT Pabrik Kertas Tjiwi Kimia 11,653,272 1,487 .01
Perusahaan Perseroan (Persero) PT Indonesian
satellite Corp. 3,683,500 4,369
Perusahaan Perseroan (Persero) PT Indonesian .19
Satellite Corp. (American Depositary Receipts) 1,757,980 19,557
Perusahaan Perseroan (Persero) PT Telekomunikasi
Indonesia, Class B 42,093,500 12,120
Perusahaan Perseroan (Persero) PT Telekomunikasi .13
Indonesia, Class B (American Depositary Receipts) 729,000 4,237
PT PP London Sumatra Indonesia 12,000,000 952 .01
PT Ramayana Lestari Sentosa Tbk 4,314,000 342 .00
PT Semen Gresik 6,633,500 3,843 .03
PT Tambang Timah (Persero), 2,069,000 945
PT Tambang Timah (Persero) .02
(Global Depositary Receipts) 440,270 1,959
PT United Tractors 3,915,000 122 .00
---------- ----------
148,571 1.20
---------- ----------
Kazakhstan - 0.03%
JSC Kazkommertsbank (American Depositary Receipts) 154,000 3,273 .03
(acquired 9/10/97, cost: $4,024,000) (1)(2) ------------ ----------
Malaysia - 0.89%
Commerce Asset-Holding Bhd. 5,487,240 2,064 .02
Guinness Anchor Bhd. 6,975,000 7,448 .06
Hap Seng Consolidated Bhd. 12,058,000 6,438 .05
Hong Leong Credit Bhd. 1,833,600 1,246
Hong Leong Credit Bhd., .01
warrants, expire December 27, 2001 (2) 174,400 14
Genting Intl PLC(2) 6,864,000 721 .01
IJM Corp. Bhd. 9,902,714 2,644 .02
IOI Corp. Bhd. 18,316,000 9,201 .08
Leader Universal Holdings Bhd. 8,965,000 1,349 .01
Malaysian Airline System Bhd. 2,291,000 762 .01
Malaysian Pacific Industries Bhd 1,116,000 1,327 .01
Nestle (Malaysia) Sdn. Bhd. 4,765,000 21,741 .18
Oriental Holdings Bhd. 3,497,120 5,856 .05
O.Y.L. Industries Bhd. 453,000 990 .01
PPB Oil Palms BHD 4,589,000 3,007 .02
Rothmans of Pall Mall (Malaysia) Bhd. 1,676,000 11,694 .09
Sime Darby Bhd. 23,549,000 16,345 .13
Sime UEP Properties Bhd. 3,017,000 1,743 .01
Star Publications 1,516,000 1,280 .01
Technology Resources Industries Bhd. 615,000 425
UMW Holdings Bhd. 7,147,359 3,226 .03
UMW Holdings Bhd., warrants, expire January 26, 2000 575,159 39 .07
YTL Corp. 12,065,000 9,135 .01
YTL Power International Bhd. (1) (2) 3,152,000 1,729
---------- ----------
110,424 .89
---------- ----------
Mauritius - 0.06%
State Bank of Mauritius 10,927,000 7,315 .06
---------- ----------
Mexico - 9.31%
Apasco, SA de CV 1,647,576 8,718 .07
Carso Global Telecom, SA de CV 2,980,000 9,461 .08
Cemex, SA de CV, Class A 2,956,762 11,133
Cemex, SA de CV, Class B 9,242,251 40,667
Cemex, SA de CV, Class B (American Depositary Receipts) 755,792 6,566
.69
Cemex, SA de CV, ordinary participation certificates 7,275,597 27,353
Cemex , SA de CV, ordinary particiaption certificates
(American Depositary Receipts) 23,892 179
Cifra, SA de CV, Class C(3) 34,106,334 47,415
Cifra, SA de CV, Class V (2)(3) 70,315,202 105,743
Cifra, SA de CV, Class V
(American Depositary Receipts) (2) (3) 1,240,543 18,298 1.39
Coca-Cola FEMSA, SA de CV, Class L
(American Depositary Receipts) 989,400 17,191 .14
Consorcio International Hospital, SA de CV, preferred
preferred (acquired 9/25/97, cost: $4,533,000) (1) (2) 22,665 4,533 .04
Grupo Carso, SA de CV, Class A, ordinary
participation certificates 1,828,100 7,698 .06
Grupo Casa Autrey, SA de CV (American Depositary Receipts) 810,000 5,265 .04
Grupo Financiero Banamex Accival, SA de CV, Class B (2) 5,019,675 9,785
Grupo Financiero Banamex Accival, SA de CV, Class L (2) 6,961,238 11,477
Grupo Financiero Banamex Accival, SA de CV,
7.00% convertible Eurobonds December 15, 1999 103,000 101 .17
Grupo Financiero Banamex Accival, SA de CV,
11.00% convertible July 15, 2003
(acquired 7/12/96, cost: $351,000)(1) $ 371,000 377
Grupo Financiero Bancomer, SA de CV, Class B 37,100,000 13,845
Grupo Financiero Bancomer, SA de CV., Series L2 25.387% .12
convertible subordinated debentures May 16, 2002 MXN5,750,000 713
Grupo Financiero BBV-Probursa, SA de CV, Class B (2) 41,464,331 5,266 .04
Grupo Industrial Emprex, Class B
(formerly Fomento Economico Mexicano, SA de CV) (2) 1,980,400 62,383 .51
Grupo Industrial Maseca, SA de CV, Class B
(American Depositary Receipts) 1,064,700 11,845 .10
Grupo Mexico, SA de CV, Class L (2) 4,862,500 13,352 .11
Grupo Televisa, SA, ordinary participation certificates (2) 263,000 4,922
Grupo Televisa, SA, ordinary participation certificates
(American Depositary Receipts) (2) 1,306,599 49,161 .44
Kimberly-Clark de Mexico, SA de CV, Class A,
ordinary participation certificates 21,833,300 77,585
.64
Kimberly-Clark de Mexico, SA de CV, Class B 350,000 1,821
Pepsi-Gemex, SA de CV, ordinary participation certificates
(Global Depositary Receipts) 662,000 7,985 .07
Telefonos de Mexico, SA de CV, Class A 9,137,500 21,884
Telefonos de Mexico, SA de CV, Class A
(American Depositary Receipts) 71,000 166
Telefonos de Mexico, SA de CV, Class L 13,706,250 32,979
Telefonos de Mexico, SA de CV, Class L 4.43
(American Depositary Receipts) 10,252,275 492,750
TV Azteca SA de CV, (American Depositary Receipts) 1,993,800 21,558 .17
---------- ----------
1,150,175 9.31
---------- ----------
Morocco - 0.31%
Banque Commerciale du Maroc 35,443 3,506 .03
Cimenterie de l'Oriental, Class A 100,641 11,165 .09
ONA SA 56,000 6,782 .05
Societe des Brasseries du Maroc 23,432 7,955 .07
Wafabank, Class A 72,000 8,653 .07
---------- ----------
38,061 .31
---------- ----------
Pakistan - 0.15%
Chakwal Cement Co. Ltd. (Global Depositary Receipts) (2) 891,111 - .00
Engro Chemical Pakistan Ltd. 4,545,490 4,883 .04
Hub Power Co. Ltd. (Global Depositary Receipts) 1,263,328 8,211 .07
Pakistan Telecommunication Corp.
(Global Depositary Receipts) 150,900 4,980 .04
---------- ----------
18,074 .15
---------- ----------
Peru - 1.60%
Cementos Lima SA 641,888 12,007 .10
Compania de Minas Buenaventura SA, Class B 111,975 735
Compania de Minas Buenaventura SA, Class B
(American Depositary Receipts) 1,166,298 15,307 .17
Compania de Minas Buenaventura SA, Class T 963,000 5,381
Credicorp Ltd. 5,152,591 75,678 .61
Minsur SA-Trabajo 3,482,386 6,882 .06
Ontario-Quinta (acquired 8/15/94, cost: $12,900,000) (1) 7,224,130 7,737 .06
Telefonica del Peru,
Class B (American Depositary Shares) 3,603,000 73,636 .60
---------- ----------
197,363 1.60
---------- ----------
Philippines - 2.33%
Ayala Corp., Class B 50,728,110 13,140
Ayala Corp., Class B (Global Depositary Shares) 1,158,696 2,456 .13
Ayala Land, Inc. 117,524,133 33,983
Ayala Land, Inc.,6.00% convertible bond March 19, 2002 PHP260,000,000 4,386 .31
Bacnotan Consolidated Industries, Inc. 567,100 417
Bacnotan Consolidated Industries, Inc., 5.50% convertible
bond June 21, 2004 (acquired 6/8/94, cost: $4,484,000) (1) $4,500,000 1,575 .02
Bank of the Philippine Islands 5,211,800 10,675 .09
Bayan Telecommunications Holding Corp.
(acquired 2/12/98, cost: $81,000) (1) (2) 32,281 78
Bayan Telecommunications Holding Corp. convertible
preferred (acquired 12/22/97, cost: $9,000,000) (1) (2) 180,000 9,000 .07
Benpres Holdings Corp. (Global Depositary Receipts) (2) 5,815,194 14,538 .12
C&P Homes, Inc. (2) 47,656,450 2,411 .02
Fil-Estate Land, Inc. (2) 25,300,000 658 .01
Fortune Cement Corp. (2) 42,335,625 2,244 .02
HI Cement Corp. 33,051,900 2,070 .01
International Container Terminal Services, Inc. (2) 13,022,392 1,491
International Container Terminal Services, Inc.,
6.00% convertible bond February 19,2000 .03
(acquired 2/18/93, cost: $4,000,000) (1) $4,000,000 2,400
JG Summit Holdings, Inc., Class B 21,119,513 916
JG Summit Holdings, Inc., Class B
(Global Depositary Shares) 20,000 82 .05
JG Summit Holdings, Inc., 3.50% convertible bond
December 23,2003 (acquired 12/9/93, cost: $9,870,000) (1) $9,870,000 5,182
Keppel Philippines Holdings, Inc., Class B (2) 44,893 1 .00
Manila Electric Co., Class B 5,076,507 13,456 .11
Metropolitan Bank and Trust Co. 2,698,070 15,928 .13
Petron Corp. (2) 8,381,074 889 .01
Philippine Airlines Inc. (2) 53,811,255 - .00
Philippine Long Distance Telephone Co., ordinary (2) 172,500 3,949
Philippine Long Distance Telephone Co., ordinary
(American Depositary Shares) 3,740,516 84,629 .75
Philippine Long Distance Telephone Co., convertible
preferred, Series III (Global Depositary Shares) 87,000 4,002
Philippine National Bank (2) 530,208 633 .00
PR Holdings, Inc., subscription rights
(acquired 7/8/92, cost: $9,835,000) (1) (2) 2,236,600 - .00
San Miguel Corp., Class B 27,858,852 36,921 .30
SM Prime Holdings, Inc. 99,467,000 15,819 .13
Southeast Asia Cement Holdings, Inc. (2) 68,088,782 574 .00
Universal Robina Corp. 29,809,400 3,053 .02
---------- ----------
287,556 2.33
---------- ----------
Poland - 1.27%
@ Entertainment (2) 192,000 2,112
@ Entertainment (1)(2) 461,000 5,071 .06
Bank Handlowy W Warszawie SA 1,577,920 30,114
Bank Handlowy w Warszawie SA .36
(Global Depositary Receipts) 790,072 15,090
Bank Rozwoju Exportu SA 604,700 16,400 .13
Bank Rozwoju Exportu, Rights, expire July 10,1998 (2) 604,700 174
Bid Bank GDANSKI SA
(formerly Bank Inlcjatyw Gospodarczych BIG SA) 1,907,948 2,546 .02
Elektrim SA 2,610,325 31,838
Elektrim SA, 2.0% convertible bond May 30, 2004 DEM9,727,000 6,848 .31
Exbud SA (2) (3) 634,193 7,644 .06
KGHM Polska Miedz (Global Ddepositary Receipts) 3,182,600 25,698 .21
Optimus SA 178,900 3,594 .03
Polifarb Cieszyn Wroclaw 1,967,667 5,082 .04
Zaklady Metali Lekkich Kety SA (2) 292,680 4,410 .04
Zaklady Piwowarskie w Zywcu SA (3) 7,262 875 .01
---------- ----------
24,085,967 157,496 1.27
---------- ----------
Portugal - 1.63%
Portugal Telecom ,SA 1,703,105 90,278
Portugal Telecom, SA (American Depositary Receipts) 951,500 50,370 1.14
TELECEL - Comunicacoes Pessoais, SA 344,300 61,145 .49
TVI-Televisao Independente, SA non voting preferred (2) (3) 26,375 26 .00
---------- ----------
201,819 1.63
---------- ----------
Russian Federation - 3.76%
AO Mosenergo Power Generation and Electrification
Amalgamation 45,000,000 2,250
AO Mosenergo Power Generation and Electrification .19
Amalgamation (American Depositary Shares) 3,418,800 17,094
AO Mosenergo Power Generation and Electrification
Amalgamation (Russian Depositary Trust Certificate) 750 3,750
Ao Torgovy Dom Gum (Russian Depoitary Trust Certificate) 270 4,050 .03
Avalon Oil PLC (2) (9) 5,068,000 3,047 .02
Global Tele-Systems Ltd.,(acquired 2/2/96,
cost: less than $1,000) (1) (2) 2,225,042 104,132 .84
Irkutskenergo (Russian Depositary Trust Certificate) 685 13,426 .11
JSC Moscow City Telephone Network (MGTS) (2) 3,200 1,184
JSC Moscow City Telephone Network (MGTS)
(Russian Depositary Trust Certificate) (2) 1,111 20,554 .18
Kamaz (2) 4,345,000 1,521 .01
Lenenergo 28,336,800 11,476 .09
LUKoil Holding (American Depositary Receipts) 1,593,700 53,548 .43
New Century Capital Partners, LP
(acquired 12/7/95,cost: $5,492,000) (1)(2)(5) 5,256,300 5,492 .05
Nizhny Novgorod Sviazinform
(Russian Depositary Trust Certificate) (2) 70 3,675 .03
Ramco Energy PLC (5) 1,417,000 16,089 .13
RAO Gazprom, (American Depositary Receipts) 1,606,630 17,793
RAO Gazprom (American Depositary Receipts)
(acquired 10/21/96, cost:$38,674,000) (1) (3) 2,322,800 25,725 .35
Russian Telecommunications Development Corp.
(acquired 12/22/93, cost: $3,800,000) (1)(2) 380,000 1,900
Russian Telecommunications Development Corp.,
nonvoting ordinary (acquired 12/22/93, .04
cost: $6,200,000) (1)(2) 620,000 3,100
St. Petersburg Telephone Network JSC (2) 12,913,020 7,851 .06
Star Mining Corp (2) 18,884,400 70.00
StoryFirst Communications Inc., Class B, Senior
convertible preferred (acquired 10/14/97,
cost: $14,848,000) (1) (2) (3) 10,383 14,848 .12
Unified Energy Systems of Russia 1,030,329,500 132,913
Unified Energy System of Russia 1.08
(Global Depositary Receitps) 1,800 24
Xavier Corp US$ (2) (3) 1,350,000 - .00
---------- ------------
465,512 3.76
---------- ------------
Slovakia - 0.09%
VSZ, AS (5) 1,141,427 9,425 .09
---------- ------------
South Africa - 4.48%
African Oxygen Ltd. 6,811,139 11,447 .09
Bidvest Group Ltd.(2) 1,830,860 13,924 .11
Coronation Holdings Ltd., Class N (2) 2,555,338 38,223
Coronation Holdings Ltd. (2) 555,400 8,588 .38
Ellerine Holding Ltd. 2,806,465 15,329 .12
Energy Africa Ltd.(2) 2,294,500 7,616 .06
Gencor LTD 6,725,000 10,342 .08
Hudaco Industries Ltd. 1,452,000 2,367 .02
International Pepsi-Cola Bottler Investments
(aquired 12/18/95, cost: $9,900,000) (1)(2)(3)(5) 100,000 10,000 .08
Iscor Ltd. 113,116,268 21,292 .17
JD Group Ltd. 3,580,723 24,012 .19
Malbak Ltd. 4,609,076 3,099 .03
Metro Cash and Carry Ltd. 39,012,623 24,588 .20
Nasionale Pers Beperk N, Class N 5,466,000 35,828 .29
New Clicks Holding Ltd. 684,267 857 .01
Rembrandt Group Ltd. 3,237,000 20,129 .16
Sage Group Ltd. 1,570,000 6,597 .05
Sasol Ltd. 22,930,686 132,381 1.07
South African Capital Growth Fund, LP, Class A
(acquired 8/25/95, cost: $1,765,000) (1) (5) 1,900 2,464
South Africa Capital Growth Fund, LP, Class D .18
(acquired 8/25/95, cost: $12,681,000) (1) (5) 13,650 17,707
South African Breweries Ltd. 6,081,338 124,693 1.01
South African Druggist Ltd.(3) 4,798,839 22,260 .18
---------- ----------
553,743 4.48
---------- ----------
South Korea - 2.04%
Anam Industrial Co. Ltd. (2) 634,872 1,492 .01
Daehan Asia Trust (International Depositary Receipts) 2,820 1,094 .01
Daehan Korea Trust (International Depositary Receipts) 500 97 .00
Daewoo Securities Co., Ltd., nonvoting preferred 102,440 125
Daewoo Securities Co., Ltd.,ordinary (2) 678,502 2,526 .02
Hansol Paper Co., Ltd. 718,160 3,407 .03
Hyundai Motor Co. 1,486,690 15,084
Hyundai Motor Co., nonvoting preferred
(Global Depositary Receipts) 1,188,250 2,228 .14
Korea Electric Power Corp. 2,340 25 .00
Korea Industrial Leasing Co., Ltd. (2) 241,000 99 .00
Korea Pacific Trust
(International Depositary Receipts) (2) 3,000 1,320 .01
Korea Zinc Co. Ltd. 474,070 3,703 .03
LG Electronics Inc., non-voting preferred
(Global Depositary Receipts) 311,710 475 .01
LG Securities Ltd., preferred (2) 235,890 158 .00
LG Semiconductor Co. (2) 438,680 3,426 .03
Mirae Co 74,727 124 .00
Pohang Iron & Steel Co., Ltd. (2) 77,740 2,576 .02
Samsung Display Devices 908,911 24,879
Samsung Display Devices 0.5% convertible Eurobonds
April 12, 2002 $770,000 805 .21
Samsung Electronics Co., Ltd., nonvoting preferred 156,813 1,889
Samsung Electronics Co., Ltd., nonvoting preferred
(Global Depositary Shares) 485,468 4,127 1.15
Samsung Electronics Co., Ltd. 3,166,306 98,225
Samsung Electronics Co., Ltd.(Global Depositary Shares) 2,427,235 38,533
Samsung Fire & Marine Insurance (2) 31,071 5,194 .04
Seoul Asia Index Trust (2)
(International Depositary Receipts) 80 180 .00
Shinhan Bank (2) 32,000 107 .00
SK Telecom Co., Ltd. 63,426 29,128
SK Telecom Co., Ltd. (American Depositary Receipts) 1,964,982 10,930 .33
Yukong Ltd., warrants, expire June 18, 1999 (2) 8,000 137 .00
---------- ----------
252,093 2.04
---------- ----------
Sri Lanka - 0.06%
Asian Hotels Corp. Ltd. 12,215,000 888 .01
Development Finance Corp of Ceylon (3) 1,788,861 3,695 .03
National Develpoment Bank of Sri Lanka 1,296,600 2,480 .02
---------- ----------
7,063 .06
---------- ----------
Taiwan - 6.49%
Acer Computer Intl. 1,639,500 574 .00
Acer Peripherals Inc. 13,931,406 16,060 .13
Advanced Semiconductor Engineering, Inc. (2) 54,827,766 93,372
Advanced Semiconductor Engineering, Inc.
(Global Depositary Receipts) (2) 482,790 4,285 .79
ASE Test Ltd (2) 1,760,700 54,582 .44
Asia Cement Corp. 24,831,048 23,132 .19
Asia Corporate Partners Fund, Class B
(acquired 3/12/96; cost: $20,027,000) (1)(2)(5) 40,000 18,873 .15
Asustek Computer Inc. (2) 16,977,500 138,880 1.12
Cathay Construction Co. Ltd. 18,804,400 13,193 .11
China Steel Corp. 8,097,500 5,445 .04
Compal Electronics (2) 28,527,800 76,819 .62
Delta Electronics Inc., 0.50% convertible bond
March 6,2004 (acquired 2/27/97, cost: $4,247,000) (1) 4,232,000 4,507 .04
Lite-on Technology 19,338,220 18,015 .15
Nan Ya Plastics Corp.,1.75% Eurobond July 19, 2001 $1,850,000 1,956 .02
Primax Electronics Ltd. 8,530,056 16,637 .14
Seres Capital (Cayman Islands)
(acquired 3/12/96; cost:$25,000) (1)(3) 2 25
Seres Capital (Cayman Islands), nonvoting
(acquired 3/12/96; cost: $125,000) (1)(3) 8.00 125 .00
Siliconware Precision Industries Co., Ltd. 4,624,000 6,717 .06
Taiwan Mask Corp. (2) 5,448,038 14,591 .12
Taiwan Semiconductor Manufacturing Co. Ltd, 137,259,465 283,701
Taiwan Semiconductor Manufacturing Co. Ltd,
convertible Eurobonds July 3, 2002 (acquired 7/4/97, 2.30
cost: $1,044,000) (1)(2) $ 1,000,000 1,103
Ton Yi Industrial Corp. (2) 3,977,631 2,605 .02
Unicap Electronics Industrial Corp. (2) 431,222 596 .00
Wus Printed Circuit Co., Ltd. 1,431,430 2,605 .02
Yangming Marine Transport Corp. (2) 6,890,800 4,313 .03
---------- ----------
802,711 6.49
---------- ----------
Thailand - 0.45%
Bangkok Bank PCL(2) 16,237,460 20,104 .16
Bank of Ayudhya PCL 654,000 84 .00
Charoen Pokphand Feedmill PCL(2) 1,509,900 1,258 .01
Dusit Thani PCL (2) 990,000 943 .01
Electricity Generating Authority of Thailand (2) 10,180,817 15,878
Electricity Generating Authority of Thailand
Local Registered (2) 8,130 10 .13
Post Publishing PCL (2)(3) 2,525,000 2,465 .02
PTT Exploration and Production PCL (2) 1,302,500 9,924 .08
Serm Suk PCL (2) 210,166 1,501
Serm Suk PCL, local registered (2) 64,960 309 .02
Siam Commercial Bank PCL 1,109,466 357
Siam Commercial Bank, warrants (2) 277,366 - .00
Swedish Motors Corp. PCL (2) 1,608,100 92 .00
Thai Farmers Bank PCL 1,182,010 1,048
Thai Farmers Bank PCL
warrants, expire September 15, 2002 (2) 147,851 9 .01
Thai Glass Industries PCL 1,272,200 2,029 .01
Wattachak 3.50% convertible bond December 6, 2003 (2) $6,400,000 - .00
---------- ----------
56,011 .45
---------- ----------
Turkey - 6.04%
Adana Cimento Sanayii TAS, Class A (3) (4) 302,959,339 11,267
Adana Cimento Sanayii, TAS, Class C (3) 104,042,945 498 .10
Aktas Elektrik Ticaret AS 37,154,868 19,540 .16
Ege Biracilik ve Malt Sanayii AS 181,448,538 21,470 .17
Erciyas Biracilik ve Malt Sanayii AS 155,582,000 23,670 .19
Eregli Demir ve Celik Fabrikalari TAS(2) (3) 364,422,000 56,810 .46
Koc Holding AS, ordinary 319,991,538 62,505 .50
Migros Turk TAS 43,223,363 42,215 .34
Nergis Holding 99,999,960 8,640 .07
Netas Northern Electric Telekomunikasyon AS (2) 33,819,300 9,020 .07
Petrol Ofisi AS 200,648,437 51,253 .41
Trakya Cam Sanayii AS (3) 564,604,574 23,330 .19
Turkiye Garanti Bank AS(2) 910,240,000 41,886 .34
Turkiye Is Bankasi AS 4,213,583,149 170,152 1.38
Turkiye Sise ve Cam Fabrikalari AS (9) 1,391,502,947 45,998 .37
Yapi Kredi Bankasi AS (3) 6,224,535,060 158,998 1.29
---------- ----------
747,252 6.04
---------- ----------
Ukraine - 0.07%
JKX Oil & Gas PCL(2) (3) 10,230,233 6,150
JKX Oil & Gas PLC, 7.00% convertible bond June 30, 2001
(acquired 6/6/96 , cost: $2,000,000) (1), (3) 2,000,000 2,000 .07
---------- ----------
8,150 .07
---------- ----------
Venezuela - 0.42%
Compania Anonima Nacional Telefonos de Venezuela
(CANTV), Class D (American Depositary Receipts) 2,092,000 52,300 .42
------------- ------------
Vietnam - 0.03%
Vietnam Frontier Fund
(acquired 7/21/94, cost: $2,293,000) (1)(2)(5) 222,610 1,113 .01
Vietnam Investment Fund, preferred, units
(acquired 8/4/94, cost: $3,206,000) (1)(2)(5) 30 3,206
Vietnam Investment Fund, ordinary, units
(acquired 8/4/94, cost: less than $1,000) (1)(2)(5) 6 -- .02
---------- ----------
4,319 .03
---------- ----------
Multi National - 2.55%
Aminex PLC (acquired 8/1/97, cost: $3,856,000) (1) (2) (5) 3,250,000 2,551 .02
Argosy Mining Corp (2) 424,462 66 .00
Armada Gold Corp C$ (2) (5) 5,315,000 905 .01
Armada Gold Corp. 10.00% convertible bond July 8,2004 (9) CAD800000 380 .00
Billiton PLC 18,156,778 36,079 .29
Cie. Financiere pour l'Europe Centrale SA
(Global Depositary Receipts) (2) 103,195 1,419 .01
Diamondworks Ltd (2) 4,000,000 3,786 .03
Diamondworks Ltd., warrants, expire July 15, 1998 (2) 1,000,000 26 .00
Dragon Oil PLC (2) 6,515,200 4,569 .04
Freeport-McMoRan Copper & Gold Inc., Class A 90,000 1,282 .01
Glencar Mining (PLC) (2) 519,735 339 .00
Marchmont Gold C$ (2) 148,380 10 .00
New Asia East Investment Fund Ltd., Class A
(acquired 5/23/96, cost: $2,936,000) (1) (2) 293,600 2,766
New Asia East Investment Fund Ltd., Class B .33
(acquired 5/23/96, cost: $40,064,000) (1) (2) 4,006,400 37,744
New Europe East Investment Fund Ltd., Class B
(acquired 6/4/93, cost: $38,116,000) (1) (2) 436 72,883 .59
Oliver Gold Corp (2) 75,795 11.00 .00
Panamerican Beverages, Inc., Class A 4,062,800 127,724 1.03
Star Cruises PLC (2) 6,944,200 13,263 .11
Sutton Resources LTD (2) (3) 1,844,500 9569.00
Sutton Resources Ltd., warrants, expire September 30, 1998 (2) (3) 155,000 158.00 .08
------------- -----------
315,530 2.55
---------- ----------
Miscellaneous - 0.51%
Equity securities in initial period of acquisition 62,788 .51
---------- ----------
TOTAL EQUITY SECURITIES (cost: $10,925,487,000) 10,239,245 82.81
---------- ----------
Principal
Amount
(000)
BOND & NOTES
Argentina - 1.93%
Republic of Argentina:
8.75% July 10,2002 ARP15620 13,552 .11
9.75% September 19, 2027 2,930 2,718 .02
11.00% Octpber 9,2006 37,575 39,642 .32
11.375% January 30, 2017 20,600 21,939 .18
11.75% February 12, 2007
(acquired 1/29/97, cost: $33,035,000) (1) ARP33200 31,586 .25
11.75% February 12, 2007 ARP23700 22,548 .18
Bocon PIK 3.2052% April 1,2007 (4) ARS8429 5,721 .05
Series L 6.6875% March 31, 2005 (4) 22,373 19,800 .16
Bonos Del Tesoro 8.75% May 9, 2002 74,750 71,199 .58
CEI Citicorp Holdings, Series B 11.25% February14, 2007 ARS11675 9,692 .08
Republic of Argentina Bearer Bond,
---------- ----------
238,397 1.93
---------- ----------
Brazil - 0.59%
Federal Republic of Brazil:
Capitalization Bond PIK 8.00% April 15, 2014 23,552 17,311 .14
6.6875% April 15,2012 (4) 21,750 15,143 .12
6.875% April 15, 2012 (4) 1,500 1,044 .01
MYDFA Trust:
6.5625% September 15, 2007
(Acquired 10/2/96, cost: $13,346,000) (1) (4) 5,355 12,361 .10
6.6875% September 15,2007 4,290 3,454 .03
NMB Series L 6.625% April 15, 2009 (4) 4,600 3,513 .03
Series EI-L 6.625% April 15, 2006 (4) 17,848 14,680 .12
Multicanal Participacoes SA Class B 12.625% June 18, 2004 .00
MYDFA Trust 6.6875% September 15, 2007
(acquired 10/2/96, cost: $13,797,000) (1) (4) 5,000 5,000 .04
---------- ----------
72,506 .59
---------- ----------
Bulgaria - 0.18%
Republic of Bulgaria:
Interested Arrears bond 6.5625% July28, 2011 5,050.00 3,623 .03
Front Loaded Interest Reduction Bond
Series A 2.25% July28, 2012 28,525 19,005 .15
---------- ----------
22,628 .18
---------- ----------
Ecuador - 0.03%
Republic of Ecuador Past Due Interest Bond 6.625%
February 27, 2015 (4) 6,676 3,835 .03
---------- ----------
3,835 .03
---------- ----------
India - 0.00%
Flex Industries Ltd. 13.50% December 31, 2004 INR29,929 585 .00
---------- ----------
585 .00
---------- ----------
Indonesia - 0.21%
International Finance Co. 10.00% June 1, 2007 1,950 1,521 .01
Indah Kiat International Finance:
10.00% July 1, 2007 9,375 6,656 .06
11.875% June 6, 2002 4,850 3,880 .03
Pindo Deli finance: .00
10.25% October 1, 2002 4,825 3,390 .03
10.75% October 1, 2007 14,290 10,039 .08
---------- ----------
25,486 .21
---------- ----------
Mexico - 1.53%
Banco Nacional de Comercio Exterior, S.N.C.
7.25% Februaary 2,2004 77,700 72,649 .59
Grupo Televisa, SA 0/13.25% May 15, 2008 (6) 3,000 2,400 .02
Innova, S. de R.L. 12.875% Senior Notes due April 1, 2007 1,000 1,015 .01
Tubos de Acero de Mexico, SA 13.75% December 8, 1999
(acquired 11/23/94, cost : $1,736,824) 1,750 1,872 .01
United Mexican States Discount Bonds
Series A unit 6.6938% December 31, 2019 (4) 1,750 1,573 .01
Series B 6.617% December 31, 2019(4) 1,000 899 .01
Series C 6.820% December 31, 2019 (4) 3,000 2,696 .02
Series D 6.6016% December 31, 2019 (4) 9,000 8,089 .06
United Mexican States Government
8.625% March 12, 2008 11,000 10,684 .09
9.75% February 6, 2001 17,250 18,130 .15
9.875% January 15, 2007 24,000 25,020 .20
11.375% September 15, 2016 15,930 17,802 .14
11.50% May, 2026 23,675 26,883 .22
---------- ----------
189,712 1.53
---------- ----------
Panama - 0.64%
Republic of Panama:
8.875% September 30, 2007 500 473 .00
Interest Reduction Bonds 3.75% July 17, 2014 .00
(acquired 11/08/95, cost : $7,894,000) (10 (4) 13,864 10,398 .08
Past Due Interest Bond :
6.5625% July 17, 2016 84,247 65,080 .53
6.5625% July 17, 2016 .00
(acquired 6/21/96, cost: $2,938,000) (1) (4) 4,271 3,300 .03
---------- ----------
79,251 .64
---------- ----------
Peru - 0.35%
Front Loaded Interest Reduction Bond 3.25%
3.25% March 7,2017 (acquired 8/5/96, cost : $6,404, 000) (1) (4) 10,900 6,153 .05
Past Due Interest Bonds:
4.00% July 17, 2016 47,750 29,725 .24
4.00% July 17, 2016
(acquired 3/7/97, cost: $14,761,000)(1)(4) 22,235 13,841 .11
---------- ----------
49,719 .40
---------- ----------
Philippines - 0.33%
Republic of Philippines
Front Loaded Interest Reduction Bond Series B 5.00%
June 1, 2008 14,250 12,611 .10
8.75% October 7, 2016 11,500 10,839 .09
8.875% April 15, 2008 17,750 16,973 .14
---------- ----------
40,423 .33
---------- ----------
Poland - 0.15%
Republic of Poland Past Due Interest Bond 4.00%
October 27, 2014(4) 17,000 15,334 .12
Poland Govt Bond PLN 14.0% 02-12-00 Pln12200 3,235 .03
---------- ----------
18,569 .15
---------- ----------
Russian Federation - 0.05%
Russia 12.75% 06-24-28
(acquired 6/18/98, cost: $896,000) 910 811 .01
Russia Principal Loan 6.625% due December 15,2020 (4) 10,784 5,109 .04
---------- ----------
5,920 .05
Korea - 0.03%
Korea Development Bank:
6.5% November 15, 2002 700 588 .01
6.625% November 21, 2003 3,000 2,424 .02
6.75% December 1, 2005 200 161
7.375% September 17, 2004 700 577 .00
---------- ----------
3,750 .03
---------- ----------
Thailand - 0.01%
Advance Agro PCL Senior Unsecured Notes 13.00%
November 15, 2007 (acquired 11/19/97,
cost: $1,127,000) 1,250 1,244 .01
---------- ----------
1,244 .01
---------- ----------
Venezuela - 0.87%
Republic of Venezuela
Front Loaded Interest Reduction
Series A Eurobonds 6.625% March 31, 2007 (4) 10,071 8,369 .07
Series B Eurobonds 6.625% March 31, 2007 (4) 9,428 7,835 .06
Debt Conversion Bonds:
6.8125% December 18, 2007 (4) 73,738 61,409 .50
9.25% September 15, 2027 38,375 29,789 .24
---------- ----------
107,402 .87
---------- ----------
---------- ----------
TOTAL BONDS AND NOTES (cost: $ 875,461,000) 859,427 6.95
---------- ----------
SHORT-TERM SECURITIES
CORPORATE SHORT-TERM NOTES - 7.19%
ABN-AMRO North America Finance Inc. 5.55% due 8/5/98 46,800 $46,543 .38
American Express Credit Corp 5.57% due 8/21/98 22,500 $22,321 .18
Arco British Ltd. 5.56% due 7/17-8/24/98 29,800 29,636 .24
Bayer Corp. 5.53% due 7/7-7/14/98 52,400 52,328 .42
Canada Bills 5.52%-5.53% due7/15-8/14/98 65,000 64,627 .52
Commerzbank U.S. Finance Inc. 5.55% due 7/1/98 26,300 26,296 .21
Daimler-Benz North American Corp.5.55% due 7/9-7/21/98 63,900 63,717 .52
Deutsche Bank Financial Inc.5.55%-5.56% due 7/6-7/23/98 44,665 44,599 .36
Diageo Capital PLC 5.54%-5.55% due 7/24-9/4/98 58,000 57,560 .47
France Telecom, SA 5.56% due 7/24/98 25,605 25,511 .21
Glaxo Wellcome PLC 5.53%-5.54% due 7/16/98 50,000 49,875 .41
Lloyds Bank PLC 5.54% due 7/6/98 30,000 29,973 .24
National Australia Funding(Delaware) Inc. 5.56% due 9/17/98 35,000 34,574 .28
Novartis Finance Corp. 5.53%-5.60% due 7/8-8/24/98 45,000 44,755 .36
Reed Elsevier Inc. 5.56% due 9/9-9/11/98 51,000 50,435 .41
Repsol International Finance Corp. 5.53% due 7/22-8/10/98 55,000 54,729 .44
Societe Generale NA Inc. 5.55%-5.58% due 7/7-8/18/98 29,000 28,826 .23
Svenska Handelsbanken Inc. 5.54% due 7/14-8/11/98 51,200 50,984 .41
Telstra Corp. Ltd. 5.58%-5.59% due 7/30-8/17/98 40,000 39,773 .32
Toyota Motor Credit Corp. 5.56%-5.58% due 8/21-8/27/98 51,000 50,562 .41
Xerox Capital(Europe) PLC 5.57% due 8/13/98 21,500 21,355 .17
---------- ----------
888,979 7.19
---------- ----------
Federal Agency Discount Notes - 0.51%
Fannie Mae 5.45% due 8/24/98 47,700 47,302 .38
Freddie Mac 5.48%-5.50% due 7/2/98 15,400 15,395 .13
5.59%-5.72% due 7/2/98
---------- ----------
62,697 .51
---------- ----------
Certificates of Deposit - 0.48%
Wsdeutch Landesbank Girozentrale 5.57% due 7/23/98 30,000 30,000 .24
---------- ----------
Non-U.S. Government -Short Term Obligations - 2.02%
Polish Government Treasury Bills DUE 12/9/98-3/17/98 PLZ388,830 98,895 .80
Turkey Government Teasury Bills due 7/15-11/4/98 TRL45,092 150,321 1.22
---------- ----------
249,216 2.02
---------- ----------
Non-U.S. Currency - 0.07%
Chilean Peso CHP175,049 374 .00
Taiwanese Dollar NT$288,403 8,396 .07
---------- ----------
8,770 .07
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost:$1,282,630,000) 1,239,662 10.03
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $13,083,356,000) 12,338,334 99.79
Net unrealized appreciation on foreign currency contracts (7) (3,795) (.03)
Excess of cash and receivables over liabilities (6)
(excludes open foreign currency contracts) 29,776 .24
---------- ----------
NET ASSETS $12,364,315 100.00
=========== ==========
1. Purchased in a private placement transaction: resale to the public may require registration, and no right to demand registration
under U.S. law exists. As of June 30, 1998, the total market value and cost of such securities was $545,554,000 and $453,196,000,
respectively, and the market value represented 4.41% of net assets. Such securities, excluding certain convertible bonds and
American Depositary Receipts, are valued at fair value.
2. Non- income-producing securities.
3. The fund owns 5% or more or the outstanding voting securities of this company, which represents investment in an affiliate as
defined in the Investment Company Act of 1940.
4. Coupon rate may change periodically.
5. Includes an unfunded capital commitment representing a binding commitment made by the fund which may be paid in the future.
6. Represents a zero coupon bond which will convert to a coupon-bearing security at a later date.
7. Included in the excess of cash and receivables over liabilities is the net receivable related to open foreign currency
contracts. As of June 30, 1998, the net receivable consists of the following:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Contract Amount U.S. Valuation at 6/30/98
-------------------------------- ----------------------------------
Non-U.S. U.S. Amount Unrealized Appreciation
(000) (000) (000) (Depreciation) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
SALES:
Brazilian real expiring 9/15/98 -10/27/98 BRL1,288,873 $1,044,673 $1,079,420 $(34,747)
British Pounds expiring 3/17/99 Gbp4,906 $7,920 $8,091 (171)
French francs expiring 3/17/99 FRF24,753 4,131 4,143 (12)
German deutschemarks expiring 3/17/99 DEM51,050 28,570 28,652 (82)
Malaysian Ringgits expiring 5/12/99 MYR 169, 253 38,909 36,512 2,397
Mexican Pesos expiring 10/13/98 MXN793,585 86,854 83,854 3,000
South African Rands expiring 1/12/99-6/22/99 ZAR1,506,514 278,290 236,722 41,568
Swiss Francs expiring 3/17/99 CHF6,225 4,400 4,201 199
Taiwan dollars expiring 8/31/98 TWD2,379,478 69,191 68,638 553
Venezuelan Bolivars expiring 1/13/99 VEB 11,325,315 17,949 14,470 3,479
PURCHASE:
Indonesian rupiah expiring 10/7/98 - 2/9/99 IDR337,913,840 38,630 18,651 (19,979)
FOREIGN CURRENCY CONTRACTS - NET $(3,795)
===========
Non-U.S. Currency Symbols:
ARS - Argentine Peso
CAD - Canadian Dollar
CHF - Swiss Franc
CLP - Chilean Peso
DEM - German Deutsche Mark
FRF - French Franc
IDR - Indonesian Rupiah
INR - Indian Rupee
GBP - British Pound
MXN - Mexican Peso
MYR - Malaysian Ringgit
PHP - Philippine Peso
PLN - Polish Zloty
BRL - Brazilian Real
TRL - Turkish Lira
TWD - Taiwan Dollar
VEB - Venezuelan Bolivar
ZAR - South African Rand
</TABLE>
See Notes to Financial Statements
EQUITY SECURITIES ADDED TO THE
PORTFOLIO SINCE DECEMBER 31,1997
- --------------------------------
Aneka Tambang
APP Finance (VI) Mauritius
Argosy Mining
@ Entertainment
Billiton
CEN Geradoras
Compal Electronics
Eletricidade do Estado do Rio de Janeiro - CERJ
Empresa Paulista de Transmisao de Energia
Eletrica - EPTE
Ergobank
EXBUD
Gener
Glencar Mining
KGHM Polska Mied'z
Laboratorio Chile
Legend Holdings
Lite-On Technology
Malaysian Pacific Industries
MATAV, Hungarian Telecommunications
Mirae
Niko Resources
PPB Oil Palms
PTT Exploration and Production
Qingling Motors
Semen Gresik
Star Cruises
Telecomunicacoes de Sao Paulo - Telesp Celular
Turkiye Garanti Bankasi
EQUITY SECURITIES ELIMINATED FROM
THE PORTFOLIO SINCE DECEMBER 31, 1997
- -------------------------------------
Abacan Resource
Acer
Alphatec Electronics
Arab-Malaysian Finance
Ayudhya Jardine CMG Life Assurance
Banco Bansud
Bangkok Insurance
Beijing Datang Power Generation
Chilgener
China North Industries Investment
COFAP - Companhia Fabricadora de Pecas
Compania de Cemento Argos
Daegu Bank
Foodcorp
Gez Investments Holding
Hanil Bank
Harbin Power Equipment
Housing & Commercial Bank
Hyundai Electronics
K.R. Precision
LG Chemical
LG Industrial Systems
Lojas Arapua
Malayan Banking
MBf Capital
Mosel Vitelic
Nakhornthai Integrated Steels
Nedcor
New Straits Times Press (Malaysia)
PT Panin Bank
PT Panin Indonesia
Philippine Commercial International Bank
Renong
Resorts World
PT Semen Cibinong
Shanghai Diesel Engine
Sigma Alimentos
PT Sorini
Tanjong
PT Tigaraksa Satria
U-Ming Marine Transport
United Microelectronics
Zhenhai Refining & Chemical
Emerging Markets Growth Fund, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Statements
Statement of Assets and Liabilities
at June 30, 1998 (dollars in thousands)
- ---------------------------------------------------------------------------------------
Assets:
Investment securities at market (cost $12,338,334
$13,083,356)
Cash 3,607
Receivables for -
Sales of investments $29,404
Sales of fund's shares 20,741
Dividends and accrued interest 70,208 120,353
12,462,294
Liabilities:
Non-U.S. taxes payable 3,649
Payables for -
Purchases of investments 42,290
Unfunded capital commitments 39,567
Open forward currency contracts 3,795
Management services 6,422
Accrued expenses 2,256 94,330
97,979
Net Assets at June 30, 1998 -
Equivalent to $46.05 per share on
268,494,501 shares of $0.01 par value
capital stock outstanding (authorized
capital stock -- 400,000,000 shares) $12,364,315
Emerging Markets Growth Fund, Inc.
Statement of Operations
For the Year Ended June 30, 1998
(dollars in thousands)
Investment Income:
Income:
Dividends $211,314
Interest 247,577 $458,891
Expenses:
Management services fee 84,252
Custodian fee 14,513
Registration statement and prospectus 1,247
Auditing and legal fees 414
Reports to shareholders 41
Taxes other than federal
income tax 235
Other expenses 2,793 103,495
Income before non-U.S. taxes 355,396
Non-U.S. taxes (4,677)
Net investment income 350,719
REALIZED LOSS AND UNREALIZED
DEPRECIATION ON INVESTMENTS:
Realized loss before non-U.S. taxes (43,286)
Non-U.S. taxes (2,504)
Net realized loss (45,790)
Net change in unrealized depreciation on
investments (4,655,464)
Net change in unrealized depreciation
on open forward currency contracts (3,342)
Net unrealized depreciation (4,658,806)
Non-U.S. taxes 14,837 (4,643,969)
Net realized loss and unrealized
depreciation on investments (4,689,759)
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(4,339,040)
Emerging Markets Growth Fund, Inc.
STATEMENT OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
Year Ended June 30
1998 1997
------------ -----------
OPERATIONS:
Net investment income $350,719 $276,260
Net realized gain (loss) on investments (45,790) 480,316
Net unrealized appreciation
(depreciation) on investments (4,643,969) 2,179,832
Net increase (decrease) in net assets
resulting from operations (4,339,040) 2,936,408
DIVIDENDS AND DISTRIBUTIONS PAID
TO SHAREHOLDERS:
Dividends from net
investment income (545,105) (304,645)
Distributions from net realized
gain on investments (722,874) (160,065)
Total dividends and
distributions (1,267,979) (464,710)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
52,680,219 and 37,177,633 shares,respectively 3,164,945 2,214,203
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
24,142,868 and 7,713,936 shares,
respectively 1,222,745 447,083
Net increase in net assets
resulting from capital share
transactions 4,387,690 2,661,286
Total Increase (Decrease) in Net Assets (1,219,329) 5,132,984
Net Assets:
Beginning of period 13,583,644 8,450,660
End of period (including
excess distributions over
net investment income: $270,619
and $39,274, respectively) $12,364,315 $13,583,644
</TABLE>
EMERGING MARKETS GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
1. Emerging Markets Growth Fund, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as a closed-end, diversified management
investment company. The fund's investment objective is to seek long-term
capital growth through investment in developing country equity securities. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following paragraphs summarize the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean of quoted bid and asked prices or at
prices for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day. Forward currency contracts are valued at the mean of
representative quoted bid and asked prices. Assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S. dollars at
the prevailing market rates at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing market rates on the dates of such transactions. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities. 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.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Dividend and
interest income is reported on the accrual basis. Discounts and premiums on
securities purchased are amortized. Dividends and distributions paid to
shareholders are recorded on the ex-dividend date.
Unfunded capital commitments represent agreements which obligate the fund to
meet capital calls in the future. Payment would be made when a capital call is
requested. Capital calls can only be made if and when certain requirements have
been fulfilled; thus, the timing of such capital calls cannot be readily
determined. Unfunded capital commitments are recorded at the amount that would
be paid when and if capital calls are made.
The fund may enter into forward currency contracts, which represent agreements
to exchange currencies of different countries at specified future dates at
specified rates. The fund purchased forward currency contracts to hedge the
foreign exchange exposure in certain securities held by the fund which are
pegged to or denominated in various non-U.S. currencies. The forward currency
contracts protect the fund against movements in these currencies against the
U.S. dollar. The fund's use of forward currency contracts involves market risk
in excess of the amount recognized in the statement of assets and liabilities.
The contracts are recorded in the statement of assets and liabilities at their
net unrealized value. The face or contract amount in U.S. dollars reflects the
total exposure the fund has in that particular contract. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from the possible movements in non-U.S.
exchange rates and securities values underlying these instruments.
2. Investing in securities of issuers in a variety of developing countries
involves certain special investment risks, which may include investment and
repatriation restrictions, currency volatility, government involvement in the
private sector, limited investor information, shallow securities markets,
certain local tax law considerations, and limited regulation of the securities
markets.
Dividend income, and interest income, net realized gain and net unrealized gain
of the fund derived in Chile are subject to certain non-U.S. taxes at rates of
20% and 35%, respectively. Interest income derived in Turkey is subject to
non-U.S. tax at a rate of 13.2%. Net realized gain and net unrealized gain of
the fund derived in India are subject to certain non-U.S. taxes at a rate of
10%. Net realized gain and net unrealized gain of the fund derived in
Venezuela are subject to certain non-U.S. taxes at rates between 15% and 34%.
The fund provides for such non-U.S. taxes on investment income, net realized
gain, and net unrealized gain.
3. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of June 30, 1998, net unrealized depreciation on investments, excluding
forward currency contracts, for federal income tax purposes aggregated
$768,688,000, of which $2,190,583,000 related to appreciated securities and
$2,959,271,000 related to depreciated securities. During the year ended June
30, 1998, the fund realized, on a tax basis, a net capital gain of $370,514,000
on securities transactions. Net gains related to non-U.S. currency
transactions of $164,264,000 were treated as ordinary income for federal income
tax purposes. The cost of portfolio securities, excluding forward currency
contracts, for federal income tax purposes was $13,449,588,000 at June 30,
1998.
4. The fee of $84,252,000 for management services was incurred pursuant to an
agreement with Capital International, Inc. (CII), with which certain officers
and Directors of the fund are affiliated. The Investment Advisory and Service
Agreement provides for monthly fees, accrued weekly, 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. CII is owned by Capital Group International, Inc.,
which is a wholly owned subsidiary of The Capital Group Companies, Inc.
5. As of June 30, 1998, accumulated undistributed net realized loss on
investments was $370,531,000 and additional paid-in capital was
$13,752,774,000. The fund reclassified $36,959,000 from undistributed net
investment income to additional paid-in capital and $47,862,000 from additional
paid-in capital to undistributed net realized gain for the year ended June 30,
1998.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $5,947,960,000 and $2,870,087,000, respectively,
during the year ended June 30, 1998.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $14,513,000 includes $305,000 that was paid by these
credits rather than in cash.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended June 30, 1998, such non-U.S. taxes were $14,861,000. Net realized
currency losses on dividends, interest, withholding taxes reclaimable, and
purchases and sales of non-U.S. equity securities and bonds, on a book basis,
were $34,591,000 for the year ended June 30, 1998.
EMERGING MARKETS GROWTH FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL STATEMENTS
PER-SHARE DATA AND RATIOS
Year Ended June 30
--------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------
Net Asset Value, Beginning of Period $70.87 $57.57 $52.36 $58.75 $44.95
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 1.56 1.61 1.30 0.87 0.53
Net realized and unrealized
gain (loss) on investments
before non-U.S. taxes (20.69) 14.51 6.49 (0.79) 15.29
Non-U.S. taxes 0.05 (0.01) (0.01) (0.03) (0.39)
------- ------ ------ ------ ------
Total income (loss) from
investment operations (19.08) 16.11 7.78 0.05 15.43
------- ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net
investment income (2.36) (1.79) (1.30) (0.63) (0.49)
Distributions from net
realized gains (3.38) (1.02) (1.27) (5.81) (1.14)
------ ------ ------ ------ -------
Total distributions (5.74) (2.81) (2.57) (6.44) (1.63)
------ ------ ------ ------ -------
Net Asset Value, End of Period $46.05 $70.87 $57.57 $52.36 $58.75
====== ======= ======= ======= =======
Total Return (27.56)% 29.17% 15.49% (1.22)% 34.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in millions) $12,364 $13,584 $8,451 $5,572 $4,170
Ratio of expenses to average
net assets .76% .78% .84% .91% 1.00%
Ratio of expenses and non-U.S.
taxes to average net assets .80% .78% .85% .94% 1.04%
Ratio of net income to average
net assets 2.58% 2.74% 2.54% 1.70% .91%
Average commissions paid
per share* .06 cents .13 cents .10 cents .02 cents .01 cents
Portfolio turnover rate 23.41% 23.75% 17.78% 23.75% 18.13%
</TABLE>
*Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
separately reflected in the fund's statement of operations. Shares traded on a
principal basis (without commissions), such as most over-the-counter and
fixed-income transactions are excluded. Generally, non-U.S. commissions are
lower than U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share prices
of many non-U.S. securities.
REPORT OF INDEPENDENT ACCOUNTANTS
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 of
changes in net assets and the per-share data and ratios present fairly, in all
material respects, the financial position of Emerging Markets Growth Fund (the
"Fund") at June 30, 1998, the results of its operations, the changes in its net
assets, and the per-share data and ratios for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and per-share data and ratios (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 generally accepted auditing standards 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, 1998 by correspondence with the
custodian and brokers and application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
/s/PricewaterhouseCoopers, LLP
Los Angeles, California
August 14, 1998
