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 10,000,000 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>
Price to Sales Proceeds to
Public/1/ Load/1/ The Fund/3/
Per Share $39.52 $ N/A $39.52
Total /2/ $39.52 $ N/A $813,841,999
</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
10,000,000 Shares currently being registered and 10,593,168 Shares previously
registered by the Fund that remained unsold as of December 18, 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 December 18, 1998, the
net asset value and price per Share was $39.52.
/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 $122,584.
The date of this Prospectus is January 26, 1999.
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* 0.62%
Other Expenses** 0.21%
Total Annual Fund Operating Expenses*** 0.83%
</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 0.75% 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>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C>
$9 $27 $47 $105
</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 10,000,000 Shares currently
registered with the SEC as well as the unsold portion of Shares that were
previously registered (a total of 10,593,168 Shares were unsold as of December
18, 1998). Shares may be purchased by notifying the Fund at
(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 requiring that, as of January 1, 1999, each
investor must be a "qualified purchaser", as that term is defined under Section
2(a)(51) of the Investment Company Act of 1940 (the "1940 Act"). In order to
be a qualified purchaser, an investor must be either (i) a natural person
holding a minimum of $5 million in investments, or (ii) a person, other than a
natural person, that owns and invests on a discretionary basis not less than
$25 million in investments. Prior to January 1, 1999, the Fund's suitability
standards required that each investor that was a "company" (as that term is
defined in the 1940 Act) have total assets in excess of U.S. $5 million, and
that each prospective investor that was a natural person 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 with 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 qualified as an
"accredited investor." Existing Shareholders that held Shares of the Fund
prior to January 1, 1999, and that continue to meet the accredited investor
standard are not required to meet the qualified purchaser standard in order to
acquire additional Shares of the Fund. The minimum initial purchase pursuant
to this offering (for companies and natural persons) is $100,000 (approximately
2,530 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 MANAGER'S FEES AND OTHER EXPENSES 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."
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
market transactions. Purchasers must meet suitability standards that generally
require that (i) the purchaser be a "qualified purchaser" within the meaning of
Section 2(a)(51) of the Investment Company Act of 1940, (ii) own less than 15%
of the Fund's outstanding Shares, and (iii) 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 derived from the financial
statements and accompanying notes which appear elsewhere in this Prospectus.
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report thereon, as is relates to the years 1994 to 1998,
along with the Fund's financial statements is included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Years Ended June 30
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990
Net Asset Value, Beginning $70.87 $57.57 $52.36 $58.75 $44.95 $38.64 $32.73 $32.81 $25.51
of Year
Income from Investment
Operations:
Net investment income 1.56 1.61 1.30 .87 .53 .62 .55 .83 .83
Net realized and (20.69) 14.51 6.49 (.79) 15.29 7.33 8.87 3.89 10.46
unrealized gain (loss) on
investments before
non-U.S. taxes
Non-U.S. taxes .05 (.01) (.01) (.03) (.39) (.06) (.28) (.38) (.02)
Total income from (19.08) 16.11 7.78 .05 15.43 8.01 9.14 4.34 11.27
investment operations
LESS DISTRIBUTIONS:
Dividends from net (2.36) (1.79) (1.30) (.63) (.49) (.56) (.56) (.92) (.85)
investment income
Distributions from net (3.38) (1.02) (1.27) (5.81) (1.14) (1.14) (2.67) (3.50) (3.12)
realized gain
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 $46.05 $70.87 $57.57 $52.36 $58.75 $44.95 $38.64 $32.73 $32.81
Year
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 $12,364 $13,584 $8,451 $5,572 $4,170 $2,574 $1,561 $703 $666
(in millions)
Ratio of expenses to .76% .78% .84% .91% 1.00% 1.01% 1.11% 1.18% 1.25%
average net assets
Ratio of expenses and .80% .78% .85% .94% 1.04% 1.07% 1.18% 1.31% 1.25%
non-U.S. taxes to
average net assets
Ratio of net income to 2.58% 2.74% 2.54% 1.70% .91% 1.82% 1.84% 2.78% 3.21%
average net assets
Average commissions paid .06c .13c .10c .02c .01c .02c .02c N/A N/A
per share/1/
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 "qualified purchaser" (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 November 30, 1998, there were 758 holders of Shares, and 313,858,504
Shares outstanding. The Fund's aggregate net assets were approximately $13.1
billion. If all Shares offered by the Fund pursuant to this Prospectus are
sold, the Fund would have 336,033,114 Shares outstanding and approximately
$13.3 billion in aggregate net assets (assuming all Shares had been sold at
prices based on the net asset value per Share as of December 18, 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 $800
million based on the price per Share as of December 18, 1998 if the 20,593,168
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
November 30, 1998, the Fund had invested approximately 15.5% of its assets in
Brazil and 11.9% 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. Eight 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
Registrant During Past Five
Years
<S> <C> <C>
DIRECTORS
Robert E. Angelica Director President & Chief Investment Officer,
One Oak Way, Room 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, Abu Dhabi Islamic Bank
P.O. Box 303
Abu Dhabi, U.A.E.
Age: 47
Beverly L. Hamilton Director President, ARCO Investment Management Company
555 South Flower Street
Los Angeles, CA 90071
Age: 53
Raymond Kanner Director Senior Investment Manager, IBM
3001 Summer Street Retirement Funds (previously, Manager,
Stamford, CT 06905 IBM Credit Corporation)
Age: 45
Marinus W. Keijzer Director Director, Investment Strategy, Pensioenfonds PGGM
Kroostweg-Noord 149
P.O. Box 117, 3700 AC Zeist
The Netherlands
Age: 59
Hugh G. Lynch Director Managing Director, International Investments,
767 Fifth Avenue, 26th Floor General Motors Investment
New York, NY 10153 Management Corporation
Age: 61
Helmut Mader Director Director, Deutsche Bank AG
A11-22
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
Stanford University University
Stanford, CA 94305
Age: 61
William Robinson Director Director, Aga Khan Fund for Economic Development
38 Beatty Street
Balgowlah Heights
2093 NSW Australia
Age: 60
Patricia A. Small Director Treasurer, The Regents of the University of California
1111 Broadway, Suite 1400
Oakland, CA 94607-9828
Age: 52
Walter P. Stern* Chairman of the Board Chairman of the Board, Capital Group International, Inc.
630 Fifth Avenue and Director
New York, NY 10111
Age: 70
Shaw B. Wagener* Executive Vice President and Director, Capital International, Inc.
333 South Hope Street President and Director
Los Angeles, CA 90071
Age: 39
OTHER OFFICERS Senior Vice President Assistant General Counsel, The Capital Group Companies, Inc.
Roberta A. Conroy and Secretary
11100 Santa Monica Blvd.
Los Angeles, CA 90025
Age: 44
Michael A. Felix Vice President Senior Vice President, Capital International, Inc.
135 S. State College Blvd. and Treasurer
Brea, CA 92821
Age: 37
Hartmut Giesecke Vice President Chairman and Director, Capital International K.K.
1 Raffles Place and Senior Vice President
#24-00 OUB Centre and Director, Capital International, Inc.
Singapore 0104
Age: 60
Peter C. Kelly Vice President Senior Vice President and Director, Capital International, Inc.
11100 Santa Monica Blvd.
Los Angeles, CA 90025
Age: 39
Victor D. Kohn Vice President Executive Vice President, Capital Research International
11100 Santa Monica Blvd.
Los Angeles, CA 90025
Age: 41
Nancy J. Kyle Vice President Senior Vice President -International, Capital Guardian Trust Company
630 Fifth Avenue
New York, NY 10111
Age: 48
Abbe G. Shapiro Vice President Assistant Vice President, Capital International, Inc.
11100 Santa Monica Blvd.
Los Angeles, CA 90025
Age: 39
</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 Estimated Annual Total Compensation
Compensation Retirement Benefits Benefits Upon From Fund and
from Fund Accrued As Part of Retirement Fund Complex Paid
Fund Expenses
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:
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."
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.
A condition of the SEC exemptive order is that all new investors in the
Fund meet the qualified purchaser standard set forth in the 1940 Act. Further,
the Board has amended 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. Shareholders in the Fund as of December
31, 1998, that continue to meet the accredited investor standard will not be
required to be qualified purchasers to acquire additional Shares of the Fund.
Conversion of the Fund to open-end interval status may result in lower asset
levels in the Fund 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 November 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. 23,885,330 7.61%
as Trustee for the General Motors
Employees Global Group Pension
Trust
General Motors Corporation
767 Fifth Avenue
New York, NY 10153
</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 the Fund at (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 90025-3384
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 the Fund 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
336,033,114 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 the Fund 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 the Fund, 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 require currently that: (i) each transferee that is a
natural person must hold a minimum of $5 million in investments; or (ii) each
transferee that is a person, other than a natural person, must own and invest
on a discretionary basis not less than $25 million in investments; (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 November 30, 1998 was $41.71. The
total investment return, assuming dividend and capital gain distributions were
reinvested, from May 30, 1986 (the commencement of operations) through November
30, 1998 was + 894%.
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 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 (iii) 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
may be recharacterized 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.
AUDITED FINANCIAL STATEMENTS
DATED
JUNE 30, 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>
<TABLE>
TEN LARGEST EQUITY HOLDINGS Percent of Gain/Loss
for the Year
Percent of Ended 6/30/98*
Net Assets (in U.S. Dollars)
<S> <C> <C>
Telefonos de Mexico (Telmex) 4.43% +0.59%
Telecomunicacoes Brasileiras (Telebras) 3.30 -28.09
Taiwan Semiconductor Manufacturing 2.30 -32.59
Centrais Eletricas Brasileiras (ELETROBRAS) 1.98 -48.48
Telefonica de Argentina 1.54 -6.30
Banco Itau 1.44 +1.88
Cifra 1.39 -13.19
Turkiye Is Bankasi 1.38 +27.25
Companhia Energetica de Minas Gerais - CEMIG 1.35 -27.94
Yapi ve Kredi Bankasi 1.29 +120.02
</TABLE>
*The percent change reflects the increase or decrease in the market price per
share of respective equity securities held in the portfolio for the entire
period. The actual gain or loss on the total position in the fund may differ
from the percentage shown.
<TABLE>
EMERGING MARKETS GROWTH FUND, INC.
Investment Portfolio - JUNE 30, 1998
Number of
EQUITY - TYPE SECURITIES Shares Market Percent
(common and preferred stocks or Value of Net
and convertible debentures) Principal (000) Assets
Amount
<S> <C> <C> <C>
Argentina - 6.80%
Banco de Galicia y Buenos Aires SA, Class B 2753509 $12,393
Banco de Galicia y Buenos Aires SA, Class B
(American Depositary Receipts) 3059368 55834 .55
Banco Frances del Rio de la Plata SA 740600 5600
Banco Frances del Rio de la Plata SA
(American Depositary Receipts) 2342141 53723 .48
Banco Rio de la Plata, Class B
(American Depositary Receipts) 3726700 39363 .32
BI SA (acquired 10/21/93, cost: $6,130,000) (1) 6130000 6621 .05
Disco SA (American Depositary Receipts) 753000 24096 .19
Hidroneuquen SA (acquired 11/11/93, cost: $29,086,000) (1) 28022311 29086 .23
IRSA Inversiones y Representaciones SA 4084500 12010
IRSA Inversiones y Representaciones SA .23
(Global Depositary Receipts) 564915 16453
Nortel Inversora SA, Class A, preferred
(American Depositary Receipts)
(acquired 11/24/92, cost:$5,562,000) (1)(3) 803868 10675
Nortel Inversora SA, Class B, preferred .43
(American Depositary Receipts)(3) 1688140 41993
Perez Companc, Class B 12811086 64321
Perez Companc, Class B (American Depositary Receipts) 689668 6925 .58
Quilmes Industrial SA, nonvoting, preferred
(American Depositary Shares) 1088800 10616 .09
Sociedad Comercial del Plata SA 1059290 1165 .01
Telecom Argentina STET-France Telecom SA, Class B(3) 2800000 16522
Telecom Argentina STET-France Telecom SA, Class B 1.17
(American Depositary Shares)(3) 4312900 128578
Telefonica de Argentina SA, Class B(3) 4910000 15911
Telefonica de Argentina SA, Class B 1.54
(American Depositary Shares)(3) 5366600 174079
YPF SA, Class D (American Depositary Receipts) 3827500 115064 .93
---------- ----------
841028 6.80
---------- ----------
Brazil - 15.52%
Aracruz Celulose SA, Class B, preferred nominative
(American Depositary Receipts) 533550 6102 .05
Banco Bradesco SA, preferred nominative 11,032,827,214 92059 .74
Banco do Estado de Sao Paulo SA,preferred nominative 409982700 18969 .15
Banco Itau SA, preferred nominative 312,564,300 178377 1.44
Banco Nacional SA, preferred nominative (2) 215940814 -
Banco Nacional SA, ordinary nominative (2) 2500000 - -
Banco Real de Investimento SA, preferred nominative 4650000 17289 .14
Banco Real SA, preferred nominative 10771650 8383 .07
Bompreco SA, Supermercados do Nordeste,
preferred nominative (Global Depositary Receipts) 329000 4688 .04
Brasmotor SA, preferred nominative 50872932 4663 .04
CEN Geradoras, preferred nominative, Class B
(American Depositary Receipts) 722678 5059
CEN Geradoras, ordinary nominative .09
(American Depositary Receipts) 906059 6116
Centrais Eletricas Brasileiras SA-ELETROBRAS, Class B,
preferred nominative (American Depositary Receipts) 7226788 108402
Centrais Eletricas Brasileiras SA - ELETROBRAS,
ordinary nominative 164800000 4845 1.98
Centrais Eletricas Brasileiras SA - ELETROBRAS,
ordinary nominative (American Depositary Receipts) 9060591 131379
Centrais Eletricas de Santa Catarina SA - CELESC, Class B,
preferred nominative 983000 748 .01
CESP-Companhia Energetica de Sao Paulo,
preferred nominative 24700000 686
CESP- Companhia Energetica de Sao Paulo, preferred
nominative (American Depositary Receipts) 1151291 9786 .08
CESP-Companhia Energetica de Sao Paulo,
ordinary nominative 16927984 397
Companhia Cervejaria Brahma, preferred nominative 142451437 88686
Companhia Cervejaria Brahma, preferred nominative 1.23
(American Depositary Receipts) 5100500 63756
Companhia Cervejaria Brahma, preferred nominative
(American Depositary Receipts) 224483 124
Companhia Cervejaria Brahma, ordinary nominative 56147100 9957 .08
Companhia de Eletricidade do Estado do Rio de Janeiro
CERJ, ordinary nominative (2) 23019820000 11346 .09
Companhia de Tecidos Norte de Minas- COTEMINAS
preferred nominative (3) 76970466 11647
Companhia de Tecidos Norte de Minas- COTEMINAS .13
ordinary nominative (Global Depositary Receipts) (3) 535000 3946
Companhia Energetica de Minas Gerais-CEMIG,
prefrred nominative 804718110 25050
Companhia Energetica de Minas Gerais-CEMIG,
preferred nominative(American Depositary Receipts) (9) 4250580 128580
1.35
Companhia Energetica de Minas Gerais-CEMIG,
preferred nominative (American Depositary Receipts)
(acquired 6/21/96, cost: $9,501,000) (1)(5) 457575 13842
Companhia Paranaense de Energia-COPEL, Class B,
preferred nominative 1916814562 17900
Companhia Paranaense de Energia- COPEL, Class B, .39
preferred nominative (American Depositary Receipts) 2096000 19388
Companhia Paranaense de Energia -COPEL,
ordinary nominative 1370764600 10786
Companhia Paulista de Forca @ Luz,
preferred nominative (2) 522153 41
Companhia Paulista de Forca @ Luz, .19
ordinary nominative (2) 234091000 23887
Companhia Vale do Rio Doce
(American Depositary Receipts) 2854037 57794 .47
Consorcio Real Brasileiro de Administracao SA, Class F,
preferred nominative (3) 1405000 2405 .02
Dixie Toga SA, preferred nominative 1872000 793 .01
ELETROPAULO-Eletricidade de Sao Paulo SA,
preferred nominative 34961925 2630 .02
Empresa Nacional de Commercio Redito SA-Encopar,
preferred nominative (3) 61861588 155 .00
Empresa Paulista de Transmisao de Energia Eletrica SA-EPTE (2) 34961925 124 .00
GP Capital Partners, LP
(acquired 1/28/94, cost: $21,468,000) (1) (3) 27000 20641 .17
LIGHT- Servicos de Eletricidade SA, ordinary nominative 114095546 35023 .28
Lojas Americanas SA, ordinary nominative (2) 8643000 59 .00
Mesbla SA, preferred nominative (2) 111674640 .00
Mesbla SA, ordinary nominative (2) 1041447836 104 .00
Multicanal Participacoes SA, preferred nominative .00
(American Depositary Shares) (2) 1441000 7115 .06
Petroleo Brasileiro SA-PETROBRAS, preferred nominative 611741000 113726 .92
REAL SA Participacoes e Administracao, SA
Class A, preferred nominative 3000 5 .00
Sadia Concordia SAIC, preferred nominative 4645000 2892 .02
SA White Martins, ordinary nominative 11903844 11014 .09
Souza Cruz SA, ordinary nominative 2842000 21134 .17
Telecomunicacoes Brasileiras SA (Telebras),
preferred nominative 60052090 6532
Telecomunicacoes Brasileiras SA (Telebras),
preferred nominative (American Depositary Receipts) 3560618 388775 3.30
Telecomunicacoe Brasileiras SA (Telebras),
ordinary nominative 155290100 12353
Telecomunicacoe de Sao Paulo SA- (Telebras),
preferred nominative 273516751 64329
Telecomunicacoes de Sao Paulo SA-Telesp,
ordinary nominative (2) 35664592 5394 .57
Telecomunicacoes de Sao Paulo SA-Telesp,
preferred nominative, rights, expire July 10,1998 (2) 14400315 230
Telecomunicacoes de Sao Paulo SA-Telesp Celular, Class B,
preferred nominative (2) 383782651 31857 .27
Telecomunicacoes de Sao Paulo SA- Telesp Celular,
ordinary nominative (2) 35664592 1513
Souza Cruz SA, ordinary nominative
Telecomunicacoes Brasileiras SA (Telebras), 3332150 98298 .80
Usinas Siderurgicas de Minas Gerais SA,
preferred nominative (American Depositary Receipts)
(acquired 9/1/93,cost: $9,774,000) (1) 1550305 7558 .06
---------- ----------
1919337 15.52
---------- ----------
Chile - 3.18%
Antofagasta PLC 4805530 20061 .16
Banco Santander Chile, Class A
(American Depositary Receipts) 1608500 20709 .17
Compania Cervecerias Unidas SA
(American Depositary Shares) 916500 19361 .16
Compania de Telecomunicaciones de Chile SA
(American Depositary Receipts) 5402252 109733 .89
Distribucion y Servicio D&S SA
(American Depositary Receipts) 1177800 17667 .14
Embotelladora Andina SA, Class A, preferred
(American Depositary Receipts) 2462350 43091
Embotelladora Andina SA, Class B, preferred .55
(American Depositary Receipts) 1573200 24581
Empresa Nacional de Electricidad SA
(American Depositary Receipts) 6643509 94670 .76
Enersis SA (American Depositary Receipts) 765456 18706 .15
Gener SA ,(American Depositary Receipts) 248643 4538 .04
Laboratorio Chile SA (American Depositary Receipts) 120400 1731 .01
Santa Isabel SA (American Depositary Receipts) 878700 9666 .08
Sociedad Quimica y Minera de Chile SA, Class B
(American Depositary Receipts) 260500 8727 .07
---------- ----------
393241 3.18
---------- ----------
China - 0.66%
China Eastern Airlines Corp. Ltd., Class H (2) 40700000 3573
China Eastern Airlines Corp. Ltd., Class H, .04
(American Depositary Receipts)(2) 175700 1559
China Resources Beijing Land Ltd. 32392000 10454 .09
China Yuchai International Ltd. (2) 913000 2340 .02
Guang Dong Electric Power Development Co. Ltd., Class B 3191448 1187 .01
Huaneng Power International, Inc., Class N
(American Depositary Receipts)(2) 718200 9651 .08
Jiangsu ExpresswayCo. Ltd.,Class H 44584000 8460 .07
Jiangxi CopperCo. Ltd., Class H 25403500 1671 .01
NG Fung Hong Ltd. 30059000 20760 .17
Quingling Motors Co.,Ltd., Class H 46042600 12779 .10
Tingyi (Cayman Islands) Holding Corp. 67261500 4124 .03
Zhejiang Expressway Co. Ltd., Class H 27052000 4540 .04
---------- ----------
81098 .66
---------- ----------
Republic of Croatia - 0.84%
PLIVA d.d. (Global Depositary Receipts) 6399821 103997 .84
---------- ----------
103997 .84
---------- ----------
Czech Republic - 0.34%
SPT Telecom, a.s. (2) 3049740 42139 .34
---------- ----------
Ecuador - 0.02%
La Cemento Nacional CA (Global Depositary Receipts)(3) 15530 2407 .02
---------- ----------
Egypt - 0.13%
Al-Ahram Beverages Co. (Global Depositary Receipts) (3) 510000 16218 .13
-----------------------
Ghana - 0.21%
Ashanti Goldfields Co. Ltd. 691111 5287
Ashanti Goldfields Co. Ltd. (Global Depositary Receipts) 1131500 9193
Ashanti Goldfields Co. Ltd., .21
5.50% exchangeable note March 15, 2003 $15,970,000 11978
---------- ----------
26458 .21
---------- ----------
Greece - 2.10%
Aluminum de Grece SAIC (2)(3) 374540 22178 .18
Ergobank SA Reg 671010 57402 .47
Hellenic Bottling Co. SA 5020620 155248 1.26
Katselis Sons SA, ordinary 74110 446 .00
Titan Cement Co. SA, ordinary 366044 23968 .19
---------- ----------
259242 2.10
---------- ----------
Hong Kong - 0.68%
China Resources Enterprise, Ltd. 35598000 36763 .30
China-Hongkong Photo Products Holdings Ltd. 11996000 1688 .01
Legend Holdings Ltd (2) 25570000 7674 .07
New World Infrastructure Ltd. (2) 17662497 20293
New World In 144 A CV 1.00% 04-15-03 (1)
April 15, 2003 (acquired 3/24/98, cost: $24,686,000) (1) 24670000 17762
Siu-Fung Ceramics Holdings Ltd. (2) 7869409 0 .30
Tian An China Investments Co. Ltd. 4293500 122
---------- ----------
84302 .68
---------- ----------
Hungary - 0.93%
Gedeon Richter Ltd. 648200 52145 .42
Matav RT
Graboplast Textil-es Muborgyarto Rt. 102200 2588 .02
MATAV, Hungarian Telecommunications Co. Ltd 7706000 44733 .36
MOL Magyar Olaj-es Gazipari Rt.
(Global Depositary Receipts) 570100 15393 .13
---------- ----------
114859 .93
---------- ----------
India - 5.64%
Asian Paints (India) Ltd. 564600 3244 .03
Bajaj Auto Ltd. 4396350 59450
.49
Bajaj Auto Ltd. (Global Depositary Receipts) 54900 744
Bharat Forge Ltd. 3250 6 -
Bharat Petroleum (2) 5535200 45898 .37
Bombay Dyeing and Manufacturing Co. Ltd.
(Global Depositary Receipts) 10100 13 .00
cummins India Ltd. 1838000 15328 .12
East India Hotels Ltd. 869,065 4506 .04
Essar Steel Ltd. 300 - .00
Flex Industries Ltd. 260480 73
Flex Industries Ltd., warrants, expire November 23, 1999 116210 8 .00
Grasim Industries Ltd. 659480 5577
Grasim Industries Ltd. (Global Depositary Receipts) 1714265 10757 .13
Hindalco Industries Ltd. (3) 2670425 42140
Hindalco Industries Ltd, (Global Depositary Receipts) (3) 1302280 18232 .49
Hindustan Lever Ltd. 2024500 71791 .58
Hindustan Petroleum Corp. Ltd. (2) 3515300 32286 .26
Housing Development Finance Corp. Ltd. 294300 20823 .17
Indian Aluminum Co., Ltd. 2597371 7565 .06
Indian Rayon and Industries Ltd. 1527825 7404
Indian Rayon and Industries Ltd. .08
(Global Depositary Receipts) 597000 1881
Indo Gulf Fertilisers and Chemicals Corp. Ltd. 2155200 1804
Indo Gulf Fertilisers and Chemicals Corp. Ltd. .02
(Global Depositary Receipts) 1770900 947
Industrial Credit and Investment Corp. of India Ltd. 3176760 5857 .05
Ispat Industries Ltd. 3.00% convertible Eurobond
April 1, 2001 4624000 2220
Ispat Industries Ltd., 3.00% convertible bond April 1,2001 .04
(acquired 3/1/94, cost: $6,258,000) (1) 6375000 3060
I.T.C. Ltd. 13247 204
Madras Cements Ltd. 22,000 1859 .02
Mahanagar Telephone Nigam Ltd. 22,903,000 96593
Mahanagar Telephone Nigam Ltd. .85
(Global Depositary Receipts) 802700 8408
Mahindra & Mahindra Ltd. 2658516 13524
Mahindra & Mahindra Ltd. (Global Depositary Receipts) 958333 4193
Mahindra & Mahindra Ltd. 5.00% convertible bond .18
July 9,2001 (acquired 7/3/96; cost: $5,952,000) 5954000 4972
Master Gain Scheme (2) 177000 42
Max India Ltd 315377 1030
Max India Ltd. 12.50% nonconvertible debenture .01
March 2, 2004 $41,957 156
Motor Industries Co. Ltd. (3) 201855 18301 .15
Nicholas Piramal India Ltd. (9) 1885700 15034 .12
Niko Resources LTD C$ (2) (3) 1000000 2962 .02
Ranbaxy Laboratories Ltd. 1591950 20595
Ranbaxy Laboratories Ltd. (Global Depositary Receipts) 874525 13861 .28
Raymond Woollen Mills Ltd. (5) 931800 1764
.04
Raymond Woollen Mills Ltd. (Global Depositary Receipts) (9) 1083000 3358
Reliance Industries Ltd. 15251000 51630
.45
Reliance Industries Ltd. (Global Depositary Receipts) 657150 4288
Sundaram Finance Ltd. 38,400 213
Tata Engineering and Locomotive Co. Ltd. 4,577,400 17920
Tata Engineering and Locomotive Co. Ltd. .26
(Global Depositary Receipts) 4,960,191 14508
United Phospherous Ltd. 822700 1957
.02
United Phospherous Ltd. (Global Depositary Receipts) 358964 898
Videsh Sanchar Nigam Ltd. 986800 21929
.22
Videsh Sanchar Nigam Ltd. (Global Depositary Receipts) 473700 5069
Zee Telefilms Ltd. (3) 1010200 10986 .09
---------- ----------
697895 5.64
---------- ----------
Indonesia - 1.20%
PT Aneka Tambang 18871000 1952 .02
APP Fin (VII)Maur Convertible 144A 3.50% 04-30-03 (1)
April 30, 2003 (acquired 4/23/98, cost: $6,180,000) 6180000 4867 .04
Asia Pacific Resources International Holdings Ltd.,
Class A (2) 2420969 4388 .04
Asia Pulp & Paper Co, Ltd. (American Depostary Receipts) 2514000 28282 .23
PT Astra International Inc. 65123500 4491 .04
PT Bank International Indonesia 10231459 212
PT Bank Internasional Indonesia , warrants,
expire January 17, 2000 (2) 909462 4
PT BAT Indonesia 530000 841 .01
Gulf Indonesia Resources Ltd,(2) 482500 5549 .05
PT Hanjaya Mandala Sampoerna 29535000 4125 .03
PT Indah Kiat Pulp/Paper Corp. 158800000 30939 .25
PT Indofood Sukses Makmur 61335200 6133 .05
PT Indo-Rama Synthetics 26315500 2087 .02
PT International Nickel Indonesia 5069500 2727 .02
PT Jaya Real Property 1549000 19 .00
PT Lautan Luas Tbk 3158000 207 .00
PT Lippo Bank 18584000 961 .01
PT Mayora Indah 3205500 133 .00
PT Modern Photo Film Co. 10500800 597 .00
PT Mulia Industrindo 7175572 124 .00
PT Pabrik Kertas Tjiwi Kimia 11653272 1487 .01
Perusahaan Perseroan (Persero) PT Indonesian
satellite Corp. 3683500 4369
Perusahaan Perseroan (Persero) PT Indonesian .19
Satellite Corp. (American Depositary Receipts) 1757980 19557
Perusahaan Perseroan (Persero) PT Telekomunikasi
Indonesia, Class B 42093500 12120
Perusahaan Perseroan (Persero) PT Telekomunikasi .13
Indonesia, Class B (American Depositary Receipts) 729000 4237
PT PP London Sumatra Indonesia 12000000 952 .01
PT Ramayana Lestari Sentosa Tbk 4314000 342 .00
PT Semen Gresik 6633500 3843 .03
PT Tambang Timah (Persero), 2069000 945
PT Tambang Timah (Persero) .02
(Global Depositary Receipts) 440270 1959
PT United Tractors 3915000 122 .00
---------- ----------
148571 1.20
---------- ----------
Kazakhstan - 0.03%
JSC Kazkommertsbank (American Depositary Receipts) 154000 3273 .03
(acquired 9/10/97, cost: $4,024,000) (1)(2) ---------------------
Malaysia - 0.89%
Commerce Asset-Holding Bhd. 5487240 2064 .02
Guinness Anchor Bhd. 6975000 7448 .06
Hap Seng Consolidated Bhd. 12058000 6438 .05
Hong Leong Credit Bhd. 1833600 1246
Hong Leong Credit Bhd., .01
warrants, expire December 27, 2001 (2) 174400 14
Genting Intl PLC(2) 6864000 721 .01
IJM Corp. Bhd. 9902714 2644 .02
IOI Corp. Bhd. 18316000 9201 .08
Leader Universal Holdings Bhd. 8965000 1349 .01
Malaysian Airline System Bhd. 2291000 762 .01
Malaysian Pacific Industries Bhd 1116000 1327 .01
Nestle (Malaysia) Sdn. Bhd. 4765000 21741 .18
Oriental Holdings Bhd. 3497120 5856 .05
O.Y.L. Industries Bhd. 453000 990 .01
PPB Oil Palms BHD 4589000 3007 .02
Rothmans of Pall Mall (Malaysia) Bhd. 1676000 11694 .09
Sime Darby Bhd. 23549000 16345 .13
Sime UEP Properties Bhd. 3017000 1743 .01
Star Publications 1516000 1280 .01
Technology Resources Industries Bhd. 615000 425
UMW Holdings Bhd. 7147359 3226 .03
UMW Holdings Bhd., warrants, expire January 26, 2000 575159 39 .07
YTL Corp. 12065000 9135 .01
YTL Power International Bhd. (1) (2) 3152000 1729
---------- ----------
110424 .89
---------- ----------
Mauritius - 0.06%
State Bank of Mauritius 10927000 7315 .06
---------- ----------
Mexico - 9.31%
Apasco, SA de CV 1647576 8718 .07
Carso Global Telecom, SA de CV 2980000 9461 .08
Cemex, SA de CV, Class A 2956762 11133
Cemex, SA de CV, Class B 9242251 40667
Cemex, SA de CV, Class B (American Depositary Receipts) 755792 6566
.69
Cemex, SA de CV, ordinary participation certificates 7275597 27353
Cemex , SA de CV, ordinary particiaption certificates
(American Depositary Receipts) 23891.76 179
Cifra, SA de CV, Class C(3) 34106334 47415
Cifra, SA de CV, Class V (2)(3) 70315202 105743
Cifra, SA de CV, Class V
(American Depositary Receipts) (2) (3) 1240543 18298 1.39
Coca-Cola FEMSA, SA de CV, Class L
(American Depositary Receipts) 989400 17191 .14
Consorcio International Hospital, SA de CV, preferred
preferred (acquired 9/25/97, cost: $4,533,000) (1) (2) 22665 4533 .04
Grupo Carso, SA de CV, Class A, ordinary
participation certificates 1828100 7698 .06
Grupo Casa Autrey, SA de CV (American Depositary Receipts) 810000 5265 .04
Grupo Financiero Banamex Accival, SA de CV, Class B (2) 5019675 9785
Grupo Financiero Banamex Accival, SA de CV, Class L (2) 6961238 11477
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 37100000 13845
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) 41464331 5266 .04
Grupo Industrial Emprex, Class B
(formerly Fomento Economico Mexicano, SA de CV) (2) 1980400 62383 .51
Grupo Industrial Maseca, SA de CV, Class B
(American Depositary Receipts) 1064700 11845 .10
Grupo Mexico, SA de CV, Class L (2) 4862500 13352 .11
Grupo Televisa, SA, ordinary participation certificates (2) 263000 4922
Grupo Televisa, SA, ordinary participation certificates
(American Depositary Receipts) (2) 1306599 49161 .44
Kimberly-Clark de Mexico, SA de CV, Class A,
ordinary participation certificates 21833300 77585
.64
Kimberly-Clark de Mexico, SA de CV, Class B 350000 1821
Pepsi-Gemex, SA de CV, ordinary participation certificates
(Global Depositary Receipts) 662000 7985 .07
Telefonos de Mexico, SA de CV, Class A 9137500 21884
Telefonos de Mexico, SA de CV, Class A
(American Depositary Receipts) 71000 166
Telefonos de Mexico, SA de CV, Class L 13706250 32979
Telefonos de Mexico, SA de CV, Class L 4.43
(American Depositary Receipts) 10252275 492750
TV Azteca SA de CV, (American Depositary Receipts) 1993800 21558 .17
---------- ----------
1150175 9.31
---------- ----------
Morocco - 0.31%
Banque Commerciale du Maroc 35443 3506 .03
Cimenterie de l'Oriental, Class A 100641 11165 .09
ONA SA 56000 6782 .05
Societe des Brasseries du Maroc 23432 7955 .07
Wafabank, Class A 72000 8653 .07
---------- ----------
38061 .31
---------- ----------
Pakistan - 0.15%
Chakwal Cement Co. Ltd. (Global Depositary Receipts) (2) 891111 - .00
Engro Chemical Pakistan Ltd. 4545490 4883 .04
Hub Power Co. Ltd. (Global Depositary Receipts) 1263328 8211 .07
Pakistan Telecommunication Corp.
(Global Depositary Receipts) 150900 4980 .04
---------- ----------
18074 .15
---------- ----------
Peru - 1.60%
Cementos Lima SA 641888 12007 .10
Compania de Minas Buenaventura SA, Class B 111975 735
Compania de Minas Buenaventura SA, Class B
(American Depositary Receipts) 1166298 15307 .17
Compania de Minas Buenaventura SA, Class T 963000 5381
Credicorp Ltd. 5152590.8 75678 .61
Minsur SA-Trabajo 3482386 6882 .06
Ontario-Quinta (acquired 8/15/94, cost: $12,900,000) (1) 7224130 7737 .06
Telefonica del Peru,
Class B (American Depositary Shares) 3603000 73636 .60
---------- ----------
197363 1.60
---------- ----------
Philippines - 2.33%
Ayala Corp., Class B 50728110 13140
Ayala Corp., Class B (Global Depositary Shares) 1158696 2456 .13
Ayala Land, Inc. 117524133 33983
Ayala Land, Inc.,6.00% convertible bond March 19, 2002 PHP260,000, 4386 .31
Bacnotan Consolidated Industries, Inc. 567100 417
Bacnotan Consolidated Industries, Inc., 5.50% convertible
bond June 21, 2004 (acquired 6/8/94, cost: $4,484,000) (1) $4,500,000 1575 .02
Bank of the Philippine Islands 5211800 10675 .09
Bayan Telecommunications Holding Corp.
(acquired 2/12/98, cost: $81,000) (1) (2) 32281 78
Bayan Telecommunications Holding Corp. convertible
preferred (acquired 12/22/97, cost: $9,000,000) (1) (2) 180000 9000 .07
Benpres Holdings Corp. (Global Depositary Receipts) (2) 5815194 14538 .12
C&P Homes, Inc. (2) 47,656,450 2411 .02
Fil-Estate Land, Inc. (2) 25300000 658 .01
Fortune Cement Corp. (2) 42335625 2244 .02
HI Cement Corp. 33051900 2070 .01
International Container Terminal Services, Inc. (2) 13022392 1491
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 2400
JG Summit Holdings, Inc., Class B 21119513 916
JG Summit Holdings, Inc., Class B
(Global Depositary Shares) 20000 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 5182
Keppel Philippines Holdings, Inc., Class B (2) 44893 1 .00
Manila Electric Co., Class B 5076507 13456 .11
Metropolitan Bank and Trust Co. 2698070 15928 .13
Petron Corp. (2) 8381074 889 .01
Philippine Airlines Inc. (2) 53811255 - .00
Philippine Long Distance Telephone Co., ordinary (2) 172500 3949
Philippine Long Distance Telephone Co., ordinary
(American Depositary Shares) 3740516 84629 .75
Philippine Long Distance Telephone Co., convertible
preferred, Series III (Global Depositary Shares) 87000 4002
Philippine National Bank (2) 530208 633 .00
PR Holdings, Inc., subscription rights
(acquired 7/8/92, cost: $9,835,000) (1) (2) 2236600 - .00
San Miguel Corp., Class B 27858852 36921 .30
SM Prime Holdings, Inc. 99467000 15819 .13
Southeast Asia Cement Holdings, Inc. (2) 68088782 574 .00
Universal Robina Corp. 29809400 3053 .02
---------- ----------
287556 2.33
---------- ----------
Poland - 1.27%
@ Entertainment (2) 192000 2112
@ Entertainment (1)(2) 461000 5071 .06
Bank Handlowy W Warszawie SA 1577920 30114
Bank Handlowy w Warszawie SA .36
(Global Depositary Receipts) 790072 15090
Bank Rozwoju Exportu SA 604700 16400 .13
Bank Rozwoju Exportu, Rights, expire July 10,1998 (2) 604700 174
Bid Bank GDANSKI SA
(formerly Bank Inlcjatyw Gospodarczych BIG SA) 1907948 2546 .02
Elektrim SA 2610325 31838
Elektrim SA, 2.0% convertible bond May 30, 2004 DEM9,727,000 6848 .31
Exbud SA (2) (3) 634193 7644 .06
KGHM Polska Miedz (Global Ddepositary Receipts) 3182600 25698 .21
Optimus SA 178900 3594 .03
Polifarb Cieszyn Wroclaw 1967667 5082 .04
Zaklady Metali Lekkich Kety SA (2) 292680 4410 .04
Zaklady Piwowarskie w Zywcu SA (3) 7262 875 .01
---------- ----------
24085967 157496 1.27
---------- ----------
Portugal - 1.63%
Portugal Telecom ,SA 1703105 90278
Portugal Telecom, SA (American Depositary Receipts) 951500 50370 1.14
TELECEL - Comunicacoes Pessoais, SA 344300 61145 .49
TVI-Televisao Independente, SA non voting preferred (2) (3) 26375 26 .00
---------- ----------
201819 1.63
---------- ----------
Russian Federation - 3.76%
AO Mosenergo Power Generation and Electrification
Amalgamation 45000000 2250
AO Mosenergo Power Generation and Electrification .19
Amalgamation (American Depositary Shares) 3418800 17094
AO Mosenergo Power Generation and Electrification
Amalgamation (Russian Depositary Trust Certificate) 750 3750
Ao Torgovy Dom Gum (Russian Depoitary Trust Certificate) 270 4050 .03
Avalon Oil PLC (2) (9) 5,068,000 3047 .02
Global Tele-Systems Ltd.,(acquired 2/2/96,
cost: less than $1,000) (1) (2) 2225042 104132 .84
Irkutskenergo (Russian Depositary Trust Certificate) 685 13426 .11
JSC Moscow City Telephone Network (MGTS) (2) 3200 1184
JSC Moscow City Telephone Network (MGTS)
(Russian Depositary Trust Certificate) (2) 1111 20554 .18
Kamaz (2) 4345000 1521 .01
Lenenergo 28336800 11476 .09
LUKoil Holding (American Depositary Receipts) 1593700 53548 .43
New Century Capital Partners, LP
(acquired 12/7/95,cost: $5,492,000) (1)(2)(5) 5256300 5492 .05
Nizhny Novgorod Sviazinform
(Russian Depositary Trust Certificate) (2) 70 3675 .03
Ramco Energy PLC (5) 1,417,000 16089 .13
RAO Gazprom, (American Depositary Receipts) 1606630 17793
RAO Gazprom (American Depositary Receipts)
(acquired 10/21/96, cost:$38,674,000) (1) (3) 2322800 25725 .35
Russian Telecommunications Development Corp.
(acquired 12/22/93, cost: $3,800,000) (1)(2) 380000 1900
Russian Telecommunications Development Corp.,
nonvoting ordinary (acquired 12/22/93, .04
cost: $6,200,000) (1)(2) 620000 3100
St. Petersburg Telephone Network JSC (2) 12913020 7851 .06
Star Mining Corp (2) 18884400 70.00
StoryFirst Communications Inc., Class B, Senior
convertible preferred (acquired 10/14/97,
cost: $14,848,000) (1) (2) (3) 10383 14848 .12
Unified Energy Systems of Russia 1030329500 132913
Unified Energy System of Russia 1.08
(Global Depositary Receitps) 1800 24
Xavier Corp US$ (2) (3) 1350000 - .00
---------- ------------
465512 3.76
---------- ------------
Slovakia - 0.09%
VSZ, AS (5) 1141427 9425 .09
---------- ------------
South Africa - 4.48%
African Oxygen Ltd. 6811139 11447 .09
Bidvest Group Ltd.(2) 1830860 13924 .11
Coronation Holdings Ltd., Class N (2) 2555338 38223
Coronation Holdings Ltd. (2) 555400 8588 .38
Ellerine Holding Ltd. 2806465 15329 .12
Energy Africa Ltd.(2) 2294500 7616 .06
Gencor LTD 6725000 10342 .08
Hudaco Industries Ltd. 1452000 2367 .02
International Pepsi-Cola Bottler Investments
(aquired 12/18/95, cost: $9,900,000) (1)(2)(3)(5) 100000 10000 .08
Iscor Ltd. 113116268 21292 .17
JD Group Ltd. 3580723 24012 .19
Malbak Ltd. 4609076 3099 .03
Metro Cash and Carry Ltd. 39012623 24588 .20
Nasionale Pers Beperk N, Class N 5466000 35828 .29
New Clicks Holding Ltd. 684267 857 .01
Rembrandt Group Ltd. 3237000 20129 .16
Sage Group Ltd. 1570000 6597 .05
Sasol Ltd. 22930686 132381 1.07
South African Capital Growth Fund, LP, Class A
(acquired 8/25/95, cost: $1,765,000) (1) (5) 1900 2464
South Africa Capital Growth Fund, LP, Class D .18
(acquired 8/25/95, cost: $12,681,000) (1) (5) 13650 17707
South African Breweries Ltd. 6081338 124693 1.01
South African Druggist Ltd.(3) 4798839 22260 .18
---------- ----------
553743 4.48
---------- ----------
South Korea - 2.04%
Anam Industrial Co. Ltd. (2) 634872 1492 .01
Daehan Asia Trust (International Depositary Receipts) 2820 1094 .01
Daehan Korea Trust (International Depositary Receipts) 500 97 .00
Daewoo Securities Co., Ltd., nonvoting preferred 102440 125
Daewoo Securities Co., Ltd.,ordinary (2) 678502 2526 .02
Hansol Paper Co., Ltd. 718160 3407 .03
Hyundai Motor Co. 1486690 15084
Hyundai Motor Co., nonvoting preferred
(Global Depositary Receipts) 1188250 2228 .14
Korea Electric Power Corp. 2340 25 .00
Korea Industrial Leasing Co., Ltd. (2) 241000 99 .00
Korea Pacific Trust
(International Depositary Receipts) (2) 3000 1320 .01
Korea Zinc Co. Ltd. 474070 3703 .03
LG Electronics Inc., non-voting preferred
(Global Depositary Receipts) 311710 475 .01
LG Securities Ltd., preferred (2) 235890 158 .00
LG Semiconductor Co. (2) 438680 3426 .03
Mirae Co 74727 124 .00
Pohang Iron & Steel Co., Ltd. (2) 77740 2576 .02
Samsung Display Devices 908911 24879
Samsung Display Devices 0.5% convertible Eurobonds
April 12, 2002 $770,000 805 .21
Samsung Electronics Co., Ltd., nonvoting preferred 156813 1889
Samsung Electronics Co., Ltd., nonvoting preferred
(Global Depositary Shares) 485468 4127 1.15
Samsung Electronics Co., Ltd. 3166306 98225
Samsung Electronics Co., Ltd.(Global Depositary Shares) 2427235 38533
Samsung Fire & Marine Insurance (2) 31071 5194 .04
Seoul Asia Index Trust (2)
(International Depositary Receipts) 80 180 .00
Shinhan Bank (2) 32000 107 .00
SK Telecom Co., Ltd. 63426 29128
SK Telecom Co., Ltd. (American Depositary Receipts) 1964982 10930 .33
Yukong Ltd., warrants, expire June 18, 1999 (2) 8,000 137 .00
---------- ----------
252093 2.04
---------- ----------
Sri Lanka - 0.06%
Asian Hotels Corp. Ltd. 12215000 888 .01
Development Finance Corp of Ceylon (3) 1788861 3695 .03
National Develpoment Bank of Sri Lanka 1296600 2480 .02
---------- ----------
7063 .06
---------- ----------
Taiwan - 6.49%
Acer Computer Intl. 1639500 574 .00
Acer Peripherals Inc. 13931406 16060 .13
Advanced Semiconductor Engineering, Inc. (2) 54827765.76 93372
Advanced Semiconductor Engineering, Inc.
(Global Depositary Receipts) (2) 482790 4285 .79
ASE Test Ltd (2) 1760700 54582 .44
Asia Cement Corp. 24831048 23132 .19
Asia Corporate Partners Fund, Class B
(acquired 3/12/96; cost: $20,027,000) (1)(2)(5) 40000 18873 .15
Asustek Computer Inc. (2) 16977500 138880 1.12
Cathay Construction Co. Ltd. 18804400 13193 .11
China Steel Corp. 8097500 5445 .04
Compal Electronics (2) 28527800 76819 .62
Delta Electronics Inc., 0.50% convertible bond
March 6,2004 (acquired 2/27/97, cost: $4,247,000) (1) 4232000 4507 .04
Lite-on Technology 19338220 18015 .15
Nan Ya Plastics Corp.,1.75% Eurobond July 19, 2001 $1,850,000 1956 .02
Primax Electronics Ltd. 8530056 16637 .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) 8 125 .00
Siliconware Precision Industries Co., Ltd. 4624000 6717 .06
Taiwan Mask Corp. (2) 5448038 14591 .12
Taiwan Semiconductor Manufacturing Co. Ltd, 137259465 283701
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 1103
Ton Yi Industrial Corp. (2) 3977631 2605 .02
Unicap Electronics Industrial Corp. (2) 431222 596 .00
Wus Printed Circuit Co., Ltd. 1431430 2605 .02
Yangming Marine Transport Corp. (2) 6890800 4313 .03
---------- ----------
802711 6.49
---------- ----------
Thailand - 0.45%
Bangkok Bank PCL(2) 16237460 20104 .16
Bank of Ayudhya PCL 654000 84 .00
Charoen Pokphand Feedmill PCL(2) 1509900 1258 .01
Dusit Thani PCL (2) 990000 943 .01
Electricity Generating Authority of Thailand (2) 10180817 15878
Electricity Generating Authority of Thailand
Local Registered (2) 8130 10 .13
Post Publishing PCL (2)(3) 2525000 2465 .02
PTT Exploration and Production PCL (2) 1302500 9924 .08
Serm Suk PCL (2) 210166 1501
Serm Suk PCL, local registered (2) 64960 309 .02
Siam Commercial Bank PCL 1109466 357
Siam Commercial Bank, warrants (2) 277366 - .00
Swedish Motors Corp. PCL (2) 1608100 92 .00
Thai Farmers Bank PCL 1182010 1048
Thai Farmers Bank PCL
warrants, expire September 15, 2002 (2) 147851 9 .01
Thai Glass Industries PCL 1272200 2029 .01
Wattachak 3.50% convertible bond December 6, 2003 (2) $6,400,000 - .00
---------- ----------
56011 .45
---------- ----------
Turkey - 6.04%
Adana Cimento Sanayii TAS, Class A (3) (4) 302959339 11267
Adana Cimento Sanayii, TAS, Class C (3) 104042945 498 .10
Aktas Elektrik Ticaret AS 37154868 19540 .16
Ege Biracilik ve Malt Sanayii AS 181448538 21470 .17
Erciyas Biracilik ve Malt Sanayii AS 155582000 23670 .19
Eregli Demir ve Celik Fabrikalari TAS(2) (3) 364422000 56810 .46
Koc Holding AS, ordinary 319991538 62505 .50
Migros Turk TAS 43223363 42215 .34
Nergis Holding 99999960 8640 .07
Netas Northern Electric Telekomunikasyon AS (2) 33819300 9020 .07
Petrol Ofisi AS 200648437 51253 .41
Trakya Cam Sanayii AS (3) 564604574 23330 .19
Turkiye Garanti Bank AS(2) 910,240,000 41886 .34
Turkiye Is Bankasi AS 4,213,583,149 170152 1.38
Turkiye Sise ve Cam Fabrikalari AS (9) 1,391,502,947 45998 .37
Yapi Kredi Bankasi AS (3) 6,224,535,060 158998 1.29
---------- ----------
747252 6.04
---------- ----------
Ukraine - 0.07%
JKX Oil & Gas PCL(2) (3) 10,230,233 6150
JKX Oil & Gas PLC, 7.00% convertible bond June 30, 2001
(acquired 6/6/96 , cost: $2,000,000) (1), (3) 2,000,000 2000 .07
---------- ----------
8150 .07
---------- ----------
Venezuela - 0.42%
Compania Anonima Nacional Telefonos de Venezuela
(CANTV), Class D (American Depositary Receipts) 2,092,000 52300 .42
---------- ----------
Vietnam - 0.03%
Vietnam Frontier Fund
(acquired 7/21/94, cost: $2,293,000) (1)(2)(5) 222610 1113 .01
Vietnam Investment Fund, preferred, units
(acquired 8/4/94, cost: $3,206,000) (1)(2)(5) 30 3206
Vietnam Investment Fund, ordinary, units
(acquired 8/4/94, cost: less than $1,000) (1)(2)(5) 6 - .02
---------- ----------
4319 .03
---------- ----------
Multi National - 2.55%
Aminex PLC (acquired 8/1/97, cost: $3,856,000) (1) (2) (5) 3250000 2551 .02
Argosy Mining Corp (2) 424462 66 .00
Armada Gold Corp C$ (2) (5) 5315000 905 .01
Armada Gold Corp. 10.00% convertible bond July 8,2004 (9) CAD800000 380 .00
Billiton PLC 18,156,778 36079 .29
Cie. Financiere pour l'Europe Centrale SA
(Global Depositary Receipts) (2) 103195 1419 .01
Diamondworks Ltd (2) 4000000 3786 .03
Diamondworks Ltd., warrants, expire July 15, 1998 (2) 1000000 26 .00
Dragon Oil PLC (2) 6515200 4569 .04
Freeport-McMoRan Copper & Gold Inc., Class A 90000 1282 .01
Glencar Mining (PLC) (2) 519735 339 .00
Marchmont Gold C$ (2) 148380 10 .00
New Asia East Investment Fund Ltd., Class A
(acquired 5/23/96, cost: $2,936,000) (1) (2) 293600 2766
New Asia East Investment Fund Ltd., Class B .33
(acquired 5/23/96, cost: $40,064,000) (1) (2) 4006400 37744
New Europe East Investment Fund Ltd., Class B
(acquired 6/4/93, cost: $38,116,000) (1) (2) 436 72883 .59
Oliver Gold Corp (2) 75795 11.00 .00
Panamerican Beverages, Inc., Class A 4062800 127724 1.03
Star Cruises PLC (2) 6944200 13263 .11
Sutton Resources LTD (2) (3) 1844500 9569.00
Sutton Resources Ltd., warrants, expire September 30, 1998 (2) (3) 155000 158.00 .08
----------------------
315530 2.55
---------- ----------
Miscellaneous - 0.51%
Equity securities in initial period of acquisition 62788 .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 13552 .11
9.75% September 19, 2027 2,930 2718 .02
11.00% Octpber 9,2006 37575 39642 .32
11.375% January 30, 2017 20,600 21939 .18
11.75% February 12, 2007
(acquired 1/29/97, cost: $33,035,000) (1) ARP33200 31586 .25
11.75% February 12, 2007 ARP23700 22548 .18
Bocon PIK 3.2052% April 1,2007 (4) ARS8429 5721 .05
Series L 6.6875% March 31, 2005 (4) 22,373 19800 .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,
---------- ----------
238397 1.93
---------- ----------
Brazil - 0.59%
Federal Republic of Brazil:
Capitalization Bond PIK 8.00% April 15, 2014 23,552 17,311 .14
Debt Conversion Bonds:
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) 15,355 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
---------- ----------
72506 .59
---------- ----------
Bulgaria - 0.18%
Republic of Bulgaria:
Interested Arrears bond 6.5625% July28, 2011 5,050 3623 .03
Front Loaded Interest Reduction Bond
Series A 2.25% July28, 2012 28,525 19005 .15
---------- ----------
22628 .18
---------- ----------
Ecuador - 0.03%
Republic of Ecuador Past Due Interest Bond 6.625%
February 27, 2015 (4) .03
---------- ----------
3835 .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 1950 1521 .01
Indah Kiat International Finance:
10.00% July 1, 2007 9375 6656 .06
11.875% June 6, 2002 4850 3880 .03
Pindo Deli finance: .00
10.25% October 1, 2002 4825 3390 .03
10.75% October 1, 2007 14290 10039 .08
---------- ----------
25486 .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 3235 .03
-------------------
18569 .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 Developmen 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
-------------------
CORPORATE SHORT-TERM NOTES - 0.00%
Wsdeutch Lndbk YK CD 5.70% 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 PLZ388,8 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 CHP175,04 374 .00
Taiwanese Dollar NT$288,40 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) 12,338,33 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 12,364,31 100.00
===================
NET ASSETS including Forward Contracts
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 public may require 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>
<S> <C> <C> <C> <C>
Contract U.S. Valuation
Amount at 6/30/98
Non-U.S. U.S. Amount
Sales: Unrealized
Appreciation
(Depreciation)
Brazilian real expiring
9/15/98 -10/27/98 BRL1,288,873$1,044,67 $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 4,133 ($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/Z2/99 AR1,506,514 278,290 236,722 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 56,638 553
Venezuelan Bolivars expiring 1/13/99 VEB 11,325,315 17,949 14,470 3,479
16,184
Purchase:
Indonesian rupiah expiring 10/7/98 -
2/9/99 IDR337,913,840 38,630 18,651 ($19,979)
Foreign currency contracts - net ($3,795)
CHP - Chilean Peso
DEM- German Deutsche Mark
INR - Indian Rupee
MXN -Mexican Peso
MYR - Malaysian Dollar
NT$ - New Taiwanese Dollar
PHP - Philippine Peso
PLZ - Polish Zloty
R$ - Brazilian Real
ZAR - South African Rand
R$ - Brazilian Real
See Notes to Financial Statements
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C> <C>
Emerging Markets Growth Fund, Inc.
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 (0.01) (0.01) (0.03) (0.39)
Total income (loss) from
investment operations (19.08) 16.11 7.78 .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* .06c .13c .10c .02c .01c
Portfolio turnover rate 23.41% 23.75% 17.78% 23.75% 18.13%
*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.
</TABLE>
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
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Dividends and Distributions per Share
To Payment From Net From Net Realized Short- From Net Realized
Shareholders Date Investment term Gains Long-term Gains
of Record Income
12/12/97 12/15/97 $1.54 $0.81 $2.57*
06/19/98 06/22/98 $0.82 ---- ----
</TABLE>
*Includes $1.32 long-term capital gains taxed at a rate of 28%.
The fund makes an election under the Internal Revenue Code Section 853 to pass
through non-U.S. taxes paid by the fund to its shareholders. The amount of
non-U.S. taxes for the fiscal year ended June 30, 1998 is $0.07494 on a
per-share basis. Shareholders are entitled to a foreign tax credit or an
itemized deduction, at their option. Generally, it is more advantageous to
claim a credit rather than to take a deduction.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, none of the
dividends paid by the fund from net investment income represent qualifying
dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 0.21% of the dividends
paid by the fund from net investment income were derived from interest on
direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
