SECURITIES ACT FILE NO. 33-74995
INVESTMENT COMPANY ACT FILE NO. 811-04692
FILED PURSUANT TO RULE 497(c)
)
EMERGING MARKETS GROWTH FUND, INC.
11100 Santa Monica Boulevard
Los Angeles, California 90025-3384
(800) 421-0180 x9246
PROSPECTUS
July 1, 1999
EMERGING MARKETS GROWTH FUND, INC. (THE "FUND") IS AN OPEN-END INTERVAL FUND.
THE FUND REDEEMS ITS SHARES AT MONTHLY INTERVALS. YOU MAY SEND YOUR REDEMPTION
REQUEST TO THE FUND AT ANY TIME. THE FUND ACCEPTS REDEMPTION REQUESTS RECEIVED
IN GOOD ORDER AT, OR PRIOR TO, THE CLOSE OF BUSINESS (5:00 P.M., PACIFIC TIME)
ON THE FIRST BUSINESS DAY OF EACH MONTH (THE "REDEMPTION REQUEST DEADLINE").
YOUR REDEMPTION REQUEST WILL BECOME IRREVOCABLE AT THE REDEMPTION REQUEST
DEADLINE. YOUR SHARES WILL BE REDEEMED AT THE PRICE DETERMINED AS OF THE CLOSE
OF BUSINESS (4:00 P.M. NEW YORK TIME) ON THE LAST BUSINESS DAY OF THE MONTH IN
WHICH YOUR REDEMPTION REQUEST BECAME EFFECTIVE (THE "REDEMPTION PRICING DATE").
THE FUND WILL PAY THE PROCEEDS OF REDEMPTION REQUEST WITHIN SEVEN (7) CALENDAR
DAYS AFTER THE REDEMPTION PRICING DATE. EACH REDEMPTION REQUEST MUST BE IN AN
AMOUNT NOT LESS THAN $25,000 (THE SAME AMOUNT AS THE FUND'S MINIMUM AMOUNT FOR
ADDITIONAL INVESTMENTS). THE FUND MAY DECLARE THE REDEMPTION PRICING DATE TO
BE SOONER THAN THE LAST BUSINESS DAY OF THE MONTH, SUBJECT TO CONDITIONS
DESCRIBED IN THE PROSPECTUS. IF IT DOES, THE FUND WILL PAY REDEMPTION PROCEEDS
WITHIN SEVEN (7) CALENDAR DAYS OF THE ACCELERATED REDEMPTION PRICING DATE.
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM CAPITAL GROWTH BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN DEVELOPING COUNTRIES.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
EMERGING MARKETS GROWTH FUND, INC.
TABLE OF CONTENTS
THE FUND 4
INVESTMENT OBJECTIVE 4
PRINCIPAL INVESTMENT STRATEGIES 4
PRINCIPAL RISKS OF INVESTING WITH THE FUND 5
PAST PERFORMANCE 7
FEES AND EXPENSES 8
TEMPORARY DEFENSIVE STRATEGY 9
WHO MAY INVEST IN THE FUND 10
RESTRICTIONS ON TRANSFERS 10
MANAGEMENT 11
INVESTMENT ADVISER 11
PORTFOLIO MANAGEMENT 11
YEAR 2000 13
PRICING OF FUND SHARES 13
HOW TO PURCHASE SHARES 13
HOW TO REDEEM SHARES 15
REDEMPTION POLICY 15
REDEMPTION PROCEDURE 17
MANDATORY REDEMPTION 17
OPEN-END INTERVAL FUND LIQUIDITY POLICY 17
DIVIDENDS, DISTRIBUTIONS AND TAX CONSEQUENCES 18
DIVIDENDS AND DISTRIBUTIONS 18
TAX CONSEQUENCES 18
FINANCIAL HIGHLIGHTS 19
MORE INFORMATION ABOUT THE FUND 20
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. The Fund was originally organized as a
closed-end investment company. The Fund converted its structure to that of an
open-end interval investment company ("open-end interval fund") on July 1,
1999. As an open-end interval fund, the Fund offers its shareholders the
opportunity to request the redemption of their shares at net asset value. YOU
SHOULD NOTE, HOWEVER, THAT THE FUND IS NOT A TYPICAL OPEN-END INVESTMENT
COMPANY, OR MUTUAL FUND, THAT REDEEMS ITS SHARES ON A DAILY BASIS. INSTEAD,
THE FUND REDEEMS ITS SHARES AT MONTHLY INTERVALS, AS DESCRIBED MORE FULLY BELOW
IN "HOW TO REDEEM SHARES."
The Fund is designed for institutional investors and other "qualified
purchasers" desiring to achieve international diversification by participating
in the economies of various countries with developing, or "emerging" securities
markets.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital growth by
investing primarily in equity securities of issuers in developing countries. A
security of an issuer that is domiciled and has its principal place of business
in a country which is generally considered to be a developing country by the
international financial community is referred to throughout this prospectus as
a "developing country security."
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily 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");
- - that are listed or traded in the form of Global Depositary Receipts, American
Depositary Receipts, or other types of depositary receipts;
- - including, with respect to no more than 10% of the Fund's total assets,
issuers that are not domiciled or do not have their principal place of business
in developing countries, but that have substantial assets (at least 50%) in
developing countries, or derive or expect to derive a substantial proportion
(at least 50%) of their total revenue from goods or services produced in or
sales made in developing countries; and
- - including, with respect to no more than 15% of the Fund's total assets, fixed
income securities of emerging market governments and corporations.
The following countries are considered currently by the Fund's Board of
Directors to be 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, Russia, South Africa, South Korea, Sri Lanka,
Taiwan, Thailand, Turkey, and Venezuela.
In determining whether to approve markets for investment, the Board of
Directors will take into account such considerations as:
- market liquidity;
- the availability of information about the market; and
- the impact of applicable government regulation, including fiscal and
foreign exchange repatriation rules.
In order to attempt to manage certain risks associated with investing in
developing countries, or in order to attempt to increase portfolio returns, the
Fund may, but is not required to, enter into transactions in derivative
instruments.
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.
The decision to utilize any derivative instrument will depend on the
consideration of a number of factors, including the cost of entering into a
particular derivative transaction relative to the likely benefit to be
obtained, and is solely within the discretion of the investment adviser. The
Fund is not obligated to utilize any derivative instrument.
PRINCIPAL RISKS OF INVESTING WITH THE FUND
An investment in the Fund is subject to market risk, which is the risk that
the market value of a security may fluctuate, sometimes rapidly and
unpredictably. In addition, you should be aware that investing in developing
country securities involves certain special risks and considerations. These
risks and considerations include:
- - restrictions placed by the government of a developing country with respect to
investment, exchange controls, and repatriation of the proceeds of investment
in that country;
- - potential fluctuation of a developing country's currency against the U.S.
dollar;
- - potential unusual price volatility in a developing country's securities
markets;
- - government involvement in the private sector, including government ownership
of companies in which the Fund may invest;
- - limited information about a developing market;
- - high levels of tax levied by developing countries on dividends, interest and
capital gains;
- - the potential that securities purchased by the Fund may be fraudulent or
counterfeit;
- - risks related to the documentation, liquidity and transferability of
investments in certain instruments, such as loan participations, that may not
be considered "securities" under local law;
- - settlement risks, including potential requirements for the Fund to render
payment prior to taking possession of portfolio securities in which it invests;
- - the possibility of nationalization, expropriation or confiscatory taxation;
- - favorable or unfavorable differences between individual foreign economies and
the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resources, self-sufficiency, and balance of
payments position;
- - additional costs associated with any investment in non-U.S. securities,
including higher custodial fees than typical U.S. custodial arrangements,
transaction costs of foreign currency conversions and generally higher
commission rates on portfolio transactions than prevail in the U.S. markets;
- - greater social, economic and political instability (including the risk of
war);
- - lack of availability of currency hedging or other risk management techniques
in certain developing countries;
- - the fact that companies in developing countries may be newly organized and
may be smaller and less well seasoned;
- - differences in accounting, auditing and financial reporting standards;
- - the heightened risks associated specifically with establishing record
ownership and custody of Russian and other Eastern European securities; and
- - limitations on obtaining and enforcing judgments against non-U.S. residents.
Although some or all of these considerations may also be relevant to the
investments in securities of issuers located in the U.S. or other developed
countries, they are present to a greater degree in the countries in which the
Fund invests. In light of these risks, you should be aware that you may lose
money investing in the Fund. The likelihood of loss is greater if you invest
for a shorter period of time.
PAST PERFORMANCE
The tables below show the Fund's annual returns and its long-term
performance. The first table shows how the Fund's performance has changed from
year to year. The second table shows the Fund's average annual returns for 1,
5 and 10 years. These performance numbers are compared with the Morgan Stanley
Capital International Emerging Markets Free Index, a broad measure of market
performance for investment companies that invest in developing markets.
You should note that prior to July 1, 1999, the Fund operated as a closed-end
investment company. All performance information shown below for the Fund
reflects the historical expense levels of the Fund as a closed-end investment
company. After its conversion to an open-end interval fund, the Fund may
experience monthly redemption activity, with resulting variations in expense
levels which may have an adverse effect on its performance.
AS WITH ANY INVESTMENT COMPANY, PAST PERFORMANCE SHOULD NOT BE CONSIDERED AN
INDICATION OF FUTURE PERFORMANCE RESULTS.
ANNUAL TOTAL RETURN
[bar chart]
89 94.26%
90 -9.05%
91 63.39%
92 12.32%
93 72.69%
94 -1.52%
95 -7.19%
96 16.37%
97 9.66%
98 -24.88%
Best Quarter 27.95% Period Ending December 31, 1993
Worst Quarter (21.89%) Period Ending September 30, 1998
* The Fund's total return for the period April 1, 1999 to June 30, 1999 is:
20.75 %
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year 5 Year 10 Year
EMGF (24.88%) (2.61%) 17.24%
MSCI Emerging
Markets Free Index (25.34%) (9.27%) 10.95%
</TABLE>
FEES AND EXPENSES
The following table describes fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)*
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Maximum Deferred Sales Charge None
Maximum Sales Charge Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)*
Management Fees .62%
Distribution (12b-1) Fees None
Other Expenses .12%
Total Annual Fund Operating Expenses .74%
</TABLE>
_________________
* Note that the fees and expenses shown above are based on historical data
(i.e., from the most recent fiscal year). During the most recent fiscal year
and up until June 30, 1999, the Fund operated as a closed-end investment
management company.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that:
- - You invest $10,000 in the Fund for the time periods indicated;
- - You redeem all of your shares at the end of each period;
- - Your investment has a 5% return each year; and
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF YEARS 1 year 3 years 5 years 10 years
$78 $243 $423 $943
</TABLE>
Although this Example assumes an investment of $10,000, your initial investment
in the Fund must be at least $100,000.
TEMPORARY DEFENSIVE STRATEGY
The Fund may, for temporary defensive purposes invest up to 100% of its assets
in highly liquid debt instruments or freely convertible currencies, although
the Fund does not expect the aggregate of all such amounts to exceed 20% of its
net assets under normal circumstances. During such periods, the Fund may not
achieve its investment objective. In addition, 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.
WHO MAY INVEST IN THE FUND
The Fund is designed for institutional investors and other "qualified
purchasers" that seek to achieve international diversification by investing in
developing country securities. The Fund has established suitability standards
that require investors to meet strict minimum qualifications in order to invest
in the Fund. If you are a natural person, in order to be considered a
qualified purchaser for purposes of making an initial investment in shares of
the Fund, you must generally own at least $5 million in investments. If you
are an institution, in order to be considered a qualified purchaser for
purposes of making an initial investment in the Fund, you must own, or manage
on behalf of others, at least $25 million in investments.
These suitability standards are stricter than those that were imposed prior to
January 1, 1999. If you were a shareholder of the Fund prior to January 1,
1999, however, you may invest in additional shares of the Fund, even though you
do not meet the new suitability requirements that are described above. 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. 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.
RESTRICTIONS ON TRANSFERS
In order to invest in the Fund, in addition to the qualifications listed
above, you also must agree that you will not transfer any of the Fund's shares
to another party who does not meet these minimum qualifications. These
transfer restrictions apply even if you hold shares of the Fund currently, but
do not meet the more strict suitability requirements. The Fund will enforce
these transfer restrictions, and any transfer carried out in violation of these
restrictions will be void.
MANAGEMENT
INVESTMENT ADVISER
The Fund's investment adviser (the "Manager") is Capital International, Inc.,
whose address is 11100 Santa Monica Boulevard, 15th Floor, Los Angeles,
California 90025-3384. The Fund's Manager was organized under the laws of
California in 1987 and is registered with the U.S. Securities and Exchange
Commission (the "SEC") under the Investment Advisers Act of 1940. The Capital
Group Companies, Inc., 333 South Hope Street, 55th Floor, Los Angeles,
California 90071-1447, owns, directly or indirectly, all of the Manager's
outstanding shares of common stock.
The Manager makes investment decisions and supervises the acquisition and
disposition of securities by the Fund and 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 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 ("NAV") of the Fund's shares as required; and
supplies the Fund with office space.
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. For the period ending June 30,
1999, the Fund paid to the Manager a fee equal to 0.62% of net assets of the
Fund.
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. He is Chairman of
the Board of Capital Group International, Inc., the Manager's immediate parent
company. In addition, he served as Executive Vice President-International from
1985 to 1991, and Chairman of the Board from 1991 to 1998, of The Capital Group
Companies, Inc., the Manager's ultimate 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 has investment
management responsibilities for international and global accounts, as well as
emerging markets.
Koenraad Foulon
Mr. Foulon has served as a Director and Senior Vice President 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
International Research, 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 International
Research, Inc. from 1995 to 1998, and as a portfolio manager for the Fund since
1994. Mr. Kohn joined the Capital organization in 1986.
Nancy J. Kyle
Ms. Kyle has served as a Senior Vice President, a Director and an international
portfolio manager of Capital Guardian Trust Company ("CGTC") since 1992. She
has served as a portfolio counselor 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 counselor
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.
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. The Fund understands, however, that its key service providers -
including the Manager and its affiliates - are taking steps to address this
issue. The Year 2000 problem may, however, adversely affect the issuers and
markets in which the Fund invests. Issuers may incur substantial costs to
address the Year 2000 problem. These issuers may also suffer losses caused by
corporate and governmental data processing errors. These risks may be
particularly acute in certain developing countries in which the Fund may
invest. Emerging markets and financial intermediaries in those markets may
experience operating difficulties which may adversely affect the ability of the
Fund to clear and settle securities transactions. Any of these risks may
adversely affect the Fund's net asset value and total return. The Fund and its
Manager will continue to monitor developments relating to this issue.
PRICING OF FUND SHARES
The Fund calculates its share price, also called net asset value or NAV, as of
4:00 p.m. New York time (which is the normal close of trading on the New York
Stock Exchange), on the last business day of each week, on the last business
day of each month, and on such other days as the Board of Directors may
determine. The value of the Fund's investments is based upon current market
value. In the event that the market price of a particular security is not
available, the price of that security will be determined at fair value in good
faith, based upon procedures established for that purpose by the Board of
Directors. The Fund will not determine NAV on any day during which the New
York Stock Exchange has been closed for trading.
HOW TO PURCHASE SHARES
The Fund may suspend the sale of shares from time to time, as determined by
the Board. Currently, the Fund's management has been directed by the Board of
Directors. In addition, the Board has imposed a limitation on the number of
shares that may be sold by the Fund in any one fiscal year. This limitation,
which also may be modified at any time by the Board of Directors, is 25% of the
outstanding shares as of the prior fiscal year-end.
You may purchase shares by calling the Fund at (310) 996-6000, or by
facsimile at (310) 996-6200. The minimum initial purchase for both
institutions and natural persons is $100,000. Shares of the Fund are offered
for sale on the last business day of the week and on the last business day of
the month. Although you may submit purchase orders on a daily basis, the Fund
will not accept or price your order until the last business day of the week or
the last business day of the month. Assuming the investor suitability and
minimum purchase requirements are met and the order has been accepted, the
price of shares will be the NAV per share next determined (on the last business
day of each week and month). You do not pay any sales or distribution charges
for purchasing shares of the Fund.
Once the Fund receives your purchase order, the Fund will send a confirmation
letter to you 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 NAV has been calculated, the Fund
will notify you of the purchase price per share and the 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
("Settlement Date"). Payment for shares to be sold by the Fund may be wired
using the following wiring instructions:
Wire:
Emerging Markets Growth Fund, Inc.
c/o Wells Fargo Bank (ABA 121000248)
155 Fifth Street
San Francisco, California 94103
For credit to the account of:
American Funds Service Company
a/c #4600-076178
Emerging Markets Growth Fund, Inc.
Alternatively, you may send a check, made payable to Emerging Markets Growth
Fund, Inc., to the following address:
Capital International, Inc.
Attn: Abbe Shapiro
11100 Santa Monica Blvd., 15th Floor
Los Angeles, California 90025-3384
In the unlikely event that the Fund receives your money prior to pricing your
order, the Fund will hold that money on your behalf in an account that is
maintained separately from any of the Fund's other accounts.
In addition, at the sole discretion of the Manager, you may 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. If you wish to
purchase shares with securities, you should send your request by facsimile to
the Fund at (310) 996-6200. The facsimile request should provide 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. You will be notified by written communication within five (5)
business days as to whether the Fund will issue shares in exchange for any of
the tendered securities. If any tendered securities are accepted, you will
receive shares based on the market value of the tendered securities and the NAV
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. You should consult with
your own tax adviser on the consequences of exchanging securities for Fund
shares.
If you so request, the Fund will send you share certificates immediately
following the date on which your payment for the shares has been received and
accepted.
HOW TO REDEEM SHARES
REDEMPTION POLICY
The Fund redeems its shares at monthly intervals. You may send your
redemption request to the Fund at any time. The Fund accepts redemption
requests received in good order at, or prior to, the close of business (5:00
p.m., Pacific Time) on the first business day of each month (the "Redemption
Request Deadline"). Your redemption request will become irrevocable at the
Redemption Request Deadline. You may, however, revoke your redemption request
at any time prior to the Redemption Request Deadline. A redemption request
will not be properly revoked unless the Fund receives, prior to the Redemption
Request Deadline, a written revocation by postal or commercial delivery or by
facsimile at (310) 996-6200. Your shares will be redeemed at the price
determined as of the close of business (4:00 p.m. New York time) on the last
business day of the month in which your redemption request became effective
(the "Redemption Pricing Date"). The Fund will pay the proceeds of your
redemption request within seven (7) calendar days after the Redemption Pricing
Date (the "Redemption Payment Date").
The following example, based upon a redemption request received by the Fund
prior to the close of business on July 15, 1999, is intended to help you
understand the Fund's Redemption Policy.
- - July 15, 1999, prior to 5:00 p.m. Pacific Time -- the Fund receives your
redemption request
- - Monday, August 2, 1999, at 5:00 p.m. Pacific Time (Redemption Request
Deadline)
- your redemption request becomes effective, unless a prior written
revocation has been received by the Fund
- - August 31, 1999, 4:00 p.m. New York Time (the Redemption Pricing Date) --
determination of share price at which your redemption request will be honored
- - September 7, 1999 (Redemption Payment Date) -- last date by which the Fund
must send you the proceeds of your redemption.
The Fund may also declare the Redemption Pricing Date to be sooner than the
last business day of the month. For example, the Fund may accelerate the
Redemption Pricing Date to use the proceeds from sales of new shares to meet
redemption requests, instead of liquidating other Fund assets for that purpose.
However, the Fund may only accelerate the Redemption Pricing Date if several
conditions are met including that the Redemption Payment Date is also
accelerated so that payment occurs no later than seven (7) days after the
accelerated Redemption Pricing Date. The accelerated Redemption Pricing Date
will only occur after the Fund has informed the redeeming shareholders of its
intent to accelerate.
The Fund may suspend the Redemption Pricing Date and the Redemption Payment
Date in any period during which the New York Stock Exchange has been closed for
trading, or trading on the New York Stock Exchange has been restricted due to
certain emergencies. If an emergency suspension of redemptions is in effect on
a Redemption Pricing Date, the Redemption Pricing Date will be the next
business day following the end of the emergency suspension of redemptions for
all pending redemption reuests. Likewise, if a Redemption Payment Date occurs
during an emergency suspension of redemptions, redemption proceeds will be paid
on the next business day following the end of the emergency suspension of
redemptions for all pending redemption payments. The Fund may not otherwise
modify this Redemption Policy unless it receives the approval of a majority of
the Fund's shareholders and the SEC.
REDEMPTION PROCEDURE
You can redeem your shares of the Fund by sending a written request for a
check or wire representing the redemption proceeds to the following address:
Capital International, Inc.
Attn: Abbe Shapiro
11100 Santa Monica Blvd., 15th Floor
Los Angeles, California 90025-3384
You may also send your redemption request by facsimile to Capital
International, Inc., Attn: Abbe Shapiro at 310-996-6200. There are no
shareholder charges for redemptions. You must, however, redeem your shares in
amounts of at least $25,000 (the same amount as the minimum subsequent
investment in the Fund). Your redemption request must be signed by the
shareholder(s) of record. In addition, the Fund requires a signature guarantee
if the redemption requested (i) exceeds $50,000, (ii) requests that the
redemption proceeds be sent to a person or entity other than the shareholder of
record, (iii) requests that the redemption proceeds be sent to an address other
than the address of record, or (iv) requests payment be sent to a record
address that has been changed within the preceding 30 days. The Fund may also
require additional documentation for requests for redemption of shares held in
corporate, partnership or fiduciary accounts.
MANDATORY REDEMPTION
The sale or transfer of shares to persons not meeting the Fund's suitability
standards are void and subject to mandatory redemption by the Fund.
OPEN-END INTERVAL FUND LIQUIDITY POLICY
The Fund has adopted, as a fundamental policy, liquidity procedures designed
to more easily provide for redemptions, although there can be no guarantee of
that result. The Fund's liquidity policy requires that the Fund maintain a
portfolio of securities such that as of each day on which the Fund's assets are
valued for purposes of calculating its net asset value, at least 85% of the
Fund's net assets will either: (a) mature by the next Redemption Payment Date;
or (b) be capable of being sold between the Redemption Request Deadline and the
Redemption Payment Date at approximately the price used in computing the Fund's
net asset value.
In evaluating the liquidity of its portfolio, the Fund makes certain
assumptions as to country, currency, and equity market strength, the
availability of potential purchasers of particular securities the Fund may wish
to sell, recent and longer term price performance of a security in a particular
market, and other factors affecting supply and demand for a security that would
influence the security's liquidity and price. In determining to seek SEC
approval to operate as an open-end interval fund, the Fund further considered
the past behavior of its shareholders in terms of their sensitivity to changes
in the net asset value of the Fund's shares and their desire to purchase
additional shares or to sell their shares to third party purchasers during
periods of price instability. Significant changes in any of these factors,
both issuer-specific and those related more generally to the stability of a
country's economy, currency or equity markets -- some of which may further
affect shareholder decisions whether to purchase or redeem shares of the Fund
-- could adversely affect the price at which the Fund was able to sell a
particular security in its portfolio, with the result that the value received
at the time of such sale would be less than the value of the security prior to
the onset of the intervening events.
DIVIDENDS, DISTRIBUTIONS AND TAX CONSEQUENCES
The following information is meant to be a general summary for U.S. taxpayers.
Please see the SAI for additional information. You should rely on your own tax
adviser for advice about the particular federal, state, local and foreign tax
consequences to you of investing in the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund will generally distribute dividends and realized net gains, if any,
to you annually. You may elect to reinvest dividends and/or capital gains
distributions to purchase additional shares of the Fund or you may elect to
receive them in cash.
TAX CONSEQUENCES
Dividends and capital gains are generally taxable whether they are reinvested
or received in cash--unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the
length of time the Fund holds its assets.
You must provide the Fund with a certified correct taxpayer identification
number (generally your Social Security Number) and certify that you are not
subject to backup withholding. If you fail to do so, the IRS can require the
Fund to withhold 31% of your taxable distributions and redemptions. Federal
law also requires the Fund to withhold 30% of the applicable tax treaty rate
from dividends paid to certain non-resident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period shown. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). Prior to July 1, 1999, the Fund operated as closed-end
investment company; the data in the table below reflects the Fund's operations
as a closed-end investment company. The information for the five years ended
June 30, 1998, has been audited by PricewaterhouseCoopers LLP whose report,
along with the Fund's financial statements, is included in the annual report
which is available upon request.
<TABLE>
<CAPTION>
Per-Share Data and Ratios
07/01/98*
through Years Ended June 30
12/31/98 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning $46.05 $70.87 $57.57 $52.36 $58.75 $44.95
of Period
Income from Investment
Operations:
Net investment income 0.70 1.56 1.61 1.30 .87 .53
Net realized and unrealized (6.20) (20.69) 14.51 6.49 (.79) 15.29
gain (loss) on
investments before non-U.S.
taxes
Non-U.S. taxes -- .05 (.01) (.01) (.03) (.39)
Total income from (5.50) (19.08) 16.11 7.78 .05 15.43
investment operations
LESS DISTRIBUTIONS:
Dividends from net investment --- (2.36) (1.79) (1.30) (.63) (.49)
income
Distributions from net realized --- (3.38) (1.02) (1.27) (5.81) (1.14)
gain
Total distributions --- (5.74) (2.81) (2.57) (6.44) (1.63)
Net Asset Value, End of Year 44.55 $46.05 $70.87 $57.57 $52.36 $58.75
Total Return (11.94) (27.56)% 29.17% 15.49% (1.22)% 34.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 12,798 $12,364 $13,584 $8,451 $5,572 $4,170
millions)
Ratio of expenses to average net 0.37% .76% .78% .84% .91% 1.00%
assets
Ratio of expenses and non-U.S. 0.37% .80% .78% .85% .94% 1.04%
taxes to
average net assets/1/
Ratio of net income to average net 1.36% 2.58% 2.74% 2.54% 1.70% .91%
assets
Portfolio turnover rate 10.97% 23.41% 23.75% 17.78% 23.75% 18.13%
</TABLE>
* Unaudited
/1/ The ratio of expenses and non-U.S. taxes to average net assets may be
higher, in some years significantly, than the ratio of expenses to average net
assets (excluding non-U.S. taxes). This difference is attributable to
fluctuations in the amount of non-U.S. taxes payable by the Fund. These
amounts may fluctuate based upon the taxation policies of the governments of
countries in which the Fund invests. Increased non-U.S. taxes will generally
cause the Fund to bear higher expenses in certain years, which expenses may
adversely affect the Fund's net asset value and, consequently, its performance.
MORE INFORMATION ABOUT THE FUND
Additional information about the Fund, including the Fund's Annual and
Semi-Annual Reports and its Statement of Additional Information, is available
free of charge upon request by dialing (800) 421-0180, x6245.
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT ADVISER ANNUAL/SEMI-ANNUAL REPORT
Capital International, Inc. Additional information about the Fund's
11100 Santa Monica Blvd. investments is available in the Fund's annual and
Los Angeles, California 90025-3384 semi-annual report to shareholders. In the
CUSTODIAN Fund's annual report, you will find a discussion
The Chase Manhattan Bank of the market conditions and investment
One Chase Manhattan Plaza strategies that significantly affected the Fund's
New York, NY 10081 performance during its last fiscal year.
DIVIDEND PAYING AND TRANSFER AGENT STATEMENT OF ADDITIONAL INFORMATION ("SAI")
American Funds Service Company The SAI provides more detailed information
135 South State College Blvd. about the Fund, and is incorporated by reference
Brea, California 92821-5804 (legally considered part of this Prospectus).
LUXEMBOURG TRANSFER AGENT
Banque Internationale a Luxembourg S.A.
</TABLE>
The Fund's SAI and Annual and Semi-annual Reports are also available from the
SEC by:
- - visiting the SEC public reference room (1-800-SEC-0330)
in Washington D.C.
- - sending a duplicating request with the appropriate duplicating fee to the SEC
Public Reference Section, Washington D.C. 20549-6009
- - viewing online or downloading text-only versions of the documents from the
SEC Internet site at http://www.sec.gov
Registration No. 811-4692
EMERGING MARKETS GROWTH FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION DATED
JULY 1, 1999, IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS OF
THE EMERGING MARKETS GROWTH FUND, INC. DATED
JULY 1, 1999, WHICH MAY BE OBTAINED
FREE OF CHARGE UPON REQUEST TO THE
EMERGING MARKETS GROWTH FUND, INC.
11100 SANTA MONICA BOULEVARD
LOS ANGELES, CALIFORNIA 90025-3384
TELEPHONE (800) 421-0180, x6245
This Statement of Additional Information incorporates by reference financial
statements of the Emerging Markets Growth Fund, Inc. from the Fund's most
recent annual and semi-annual reports to shareholders. You can obtain copies
of those reports by calling (800) 421-0180 x6245.
TABLE OF CONTENTS
Page
FUND HISTORY B-1
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS B-1
CERTAIN NON-FUNDAMENTAL POLICIES B-4
RISK FACTORS AND OTHER CONSIDERATIONS B-6
Investment and Repatriation Restrictions B-6
Currency Fluctuations B-7
Potential Market Volatility B-7
Government in the Private Sector B-7
Investor Information B-7
Taxation B-7
Litigation B-8
Fraudulent Securities B-8
Loan Participations B-8
Settlement Risks B-8
Russia B-9
ADDITIONAL INVESTMENT STRATEGIES B-9
Currency Hedging Transactions B-9
Options on Securities and Securities Indexes B-10
Other Financial Futures and Related Options B-11
Swap Agreements B-11
Equity Linked Notes B-12
RISK FACTORS B-13
Currency Hedging Transactions B-13
Other Financial Futures and Related Options B-14
Swap Agreements B-14
Equity Linked Notes B-14
PORTFOLIO TURNOVER B-15
MANAGEMENT B-16
The Board of Directors B-16
COMPENSATION B-20
COMPENSATION TABLE B-20
PRINCIPAL SHAREHOLDERS B-21
INVESTMENT ADVISORY AND OTHER SERVICES B-21
The Manager B-21
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR B-23
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL B-23
PORTFOLIO TRANSACTIONS AND BROKERAGE B-23
CAPITAL STOCK B-24
PURCHASE, REDEMPTION AND PRICING OF SHARES B-25
Purchasing Shares B-25
Pricing of Fund Shares B-25
TAXATION OF THE FUND B-26
Tax Consequences B-26
Distributions B-27
SALE OF SHARES B-28
FOREIGN WITHHOLDING TAXES B-29
BACKUP WITHHOLDING B-29
FOREIGN SHAREHOLDERS B-30
Currency Fluctuations -- "Section 988" Gains or Losses B-30
Hedging Transactions B-31
Constructive Sales B-32
Investment In Foreign Investment Companies B-32
PERFORMANCE INFORMATION B-33
FINANCIAL STATEMENTS B-34
FUND HISTORY
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. The Fund was originally organized as a
closed-end investment company. The Fund converted its status to that of an
open-end interval investment company ("open-end interval fund") effective July
1, 1999. As an open-end interval fund, the Fund offers its shareholders the
opportunity to request the redemption of their shares on a monthly basis at net
asset value, without undue disruption to the Fund's portfolio or interference
with the Fund's investment objective.
The Fund is designed for institutional investors and other "qualified
purchasers" desiring to achieve international diversification by participating
in the economies of various countries with developing, or "emerging" securities
markets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
The Fund is a diversified, open-end interval fund. The Fund intends to
achieve long-term capital growth through investment in developing country
securities. 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.
Moreover, as a fundamental policy, the Fund will maintain a portfolio of
securities such that as of each day on which the Fund's assets are valued for
purposes of calculating its net asset value, at least 85% of the Fund's assets
will either: (a) mature by the next Redemption Payment Date; or (b) be capable
of being sold between the Redemption Request Deadline and the Redemption
Payment Date (as such terms are defined in the Prospectus) at approximately the
price used in computing the Fund's net asset value. The Redemption Policy, as
described in the Prospectus, also constitutes a fundamental policy of the Fund.
In evaluating the liquidity of its portfolio, the Fund makes certain
assumptions as to country, currency, and equity market strength, the
availability of potential purchasers of particular securities the Fund may wish
to sell, recent and longer term price performance of a security in a particular
market, and other factors affecting supply and demand for a security that would
influence the security's liquidity and price. In determining to seek
Securities and Exchange Commission ("SEC") approval to operate as an open-end
interval fund, the Fund further has considered the past behavior of its
shareholders in terms of their sensitivity to changes in the net asset value of
the Fund's shares and their desire to purchase additional shares or to sell
their shares to third party purchasers during periods of price instability.
Significant changes in any of these factors, both issuer-specific and those
related more generally to the stability of a country's economy, currency or
equity markets -- some of which may further affect shareholder decisions
whether to purchase or redeem shares of the Fund -- could adversely affect the
price at which the Fund was able to sell a particular security in its
portfolio, with the result that the value received at the time of such sale
would be less than the value of the security prior to the onset of the
intervening events.
In addition to the investment restrictions described above, the Fund 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.
These policies apply only at the time a transaction is entered into. Any
subsequent change in the percentage of Fund assets invested in certain
securities or other instruments resulting from market fluctuations or other
changes in the Fund's total assets, will not require the Fund to dispose of an
investment until the Manager determines that it is practicable to sell or close
out the investment without undue market or tax consequences to the Fund.
With respect to investment restrictions 2. and 3., 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.
With respect to item (iii) of investment restriction 6., it is the current
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.
For purposes of applying the terms of investment restrictions number 6. and
9., the Fund makes reasonable determinations as to the identity of individual
issuers of securities in the Fund's portfolio, and as to whether the Fund has
acquired an investment that would have the status of a "voting security" under
U.S. law. Most issuers represented in the Fund's portfolio are organized under
laws other than those of the United States, some of which may permit forms of
organization and equity participation not common in the United States. Because
of this, the Fund may be required to consider a number of factors in order to
reach definitive conclusions as to who is the effective "issuer" of a security
(and as to whether a security is a "voting security"). These factors may
include the relative significance of legal rights and remedies that attached to
an investment; whether the issuer operates alone or as part of a family of
companies engaged in substantially the same or different lines of business;
and, in the case of investments in pooled investment vehicles, whether a
particular investment opportunity is offered by a single issuer or by multiple
issuers, whether they operate under common control, and whether they have the
same objectives and policies.
Consistent with rules relating to the determination of beneficial ownership
under the Securities Exchange Act of 1934, 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 that Capital International, Inc., the Fund's Investment Manager (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.
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. Borrowing by the Fund will be covered in accordance with the
requirements of the 1940 Act.
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.
Although the Fund's day-to-day compliance with its fundamental investment
objectives and policies has been delegated to the Investment Manager, the Board
of Directors oversees the Fund's compliance with its fundamental policies and
objectives.
CERTAIN NON-FUNDAMENTAL POLICIES
Under normal market conditions, the Fund invests no less than 65% of its total
assets in developing country securities. The Fund invests 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"). 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 American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
International Depositary Receipts ("IDR's") 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's Board of Directors will, in its discretion and in consultation with
the Manager, select Qualified Markets for primary investment by the Fund taking
into account, among other factors, market liquidity, availability of
information and official regulation, including fiscal and foreign exchange
repatriation rules. As of the date of this Statement of Additional
Information, 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, the
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 to be appropriate, or as existing markets may no longer be
deemed qualified for investment by the Fund based on the foregoing factors.
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
fundamental restrictions to which the Fund is subject, 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 other companies in its industry or country, detailed investigation
into the current operations and future plans of the issuer, and other relevant
factors.
The Fund may invest a portion of its portfolio (not to exceed 15% of total
assets) in long-and short-term debt instruments, 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
particpations," 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 Fund has also recently received
an SEC exemptive order permitting the Fund to invest up to 1% of the Fund's
total assets in Capital International Global Emerging Markets Private Equity
Fund, L.P., a global private equity fund that has been organized by the
Manager. 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 the securities of issuers in a
single country. As of June 30, 1999 the Fund had invested approximately 14.5%
of its assets in Mexico, 10.7% of its assets in Taiwan and 10.0% of its assets
in Brazil. Investors should be aware that, given the extent of the Fund's
investment in Mexico, Taiwan and Brazil, adverse developments in these
countries could substantially affect the Fund's investment results.
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:
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 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.
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 countries. 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 devaluation in
foreign currencies. Consistent with its investment objective, the Fund can
engage in certain currency hedging transactions. These transactions involve
certain special risks. See "Additional Investment Strategies -- Currency
Hedging Transactions."
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.
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.
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.
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.
LITIGATION
The Fund and its shareholders may encounter substantial difficulties in
obtaining and enforcing judgments against non-U.S. resident individuals and
companies.
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.
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.
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 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. There can be no certainty, however, 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.
RUSSIA
The Russian market is one of the newer emerging markets, and in certain
respects one of the least developed. 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 despository 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, 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. There can be no assurance that these efforts will be successful.
ADDITIONAL INVESTMENT STRATEGIES
CURRENCY HEDGING TRANSACTIONS
For the purpose of hedging currency exchange rate risk, the Fund may enter
into forward currency exchange contracts, currency futures contracts (and
related options) and purchase and sell options on currencies. A forward
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 currency futures contract is a standardized contract for the future delivery
of a specified amount of a currency at a future date at a price set at the time
of the contract. 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. Options on currency futures contracts give the holder of the
option, in return for a premium, the right to take either the long or short
position in a currency futures contract at a specified price. Options on
currencies are exchange-traded or over-the-counter instruments that give the
holder of the option the right to purchase or sell a specified amount of
currency at a specified price.
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 on
currency futures contracts or currency options held by the Fund, to the extent
not exercised, will expire and the Fund would experience a loss to the extent
of any premium paid for the option. The Fund intends to engage in 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.
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, or otherwise 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 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 with liquid assets
in an amount sufficient to meet its obligations.
Such transactions may also affect the character and timing of income, gain, or
loss recognized by the Fund for U.S. federal income tax purposes.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
The Fund may purchase and sell call and put options on individual securities
or indexes of securities. Put options may be used to protect holdings in an
underlying or related security against a substantial decline in market value.
Call options may be used 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.
OTHER FINANCIAL FUTURES AND RELATED OPTIONS
In addition to 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 certain
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 securities indices or other baskets of securities.
The Fund will maintain a segregated account consisting of liquid assets (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) or, subject to certain limits, other investment and speculative
purposes (as discussed above under "Currency Hedging Transactions").
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 typically 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 to avoid any potential
leveraging of the Fund's portfolio. Any swap agreement so covered will not be
construed to be a "senior security" for purposes of the Fund's investment
restriction concerning senior securities.
In a typical equity swap transaction involving a 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 liquid 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 any of its commitments under equity swap agreements would constitute
senior securities for purposes of the Fund's investment restrictions concerning
senior securities.
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 the 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 ability of the Fund to invest in equity linked notes may be limited by
certain provisions of the U.S. federal commodities laws. 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 subject to certain
conditions.
RISK FACTORS ASSOCIATED WITH ADDITIONAL INVESTMENT STRATEGIES
CURRENCY HEDGING TRANSACTIONS
The Fund intends to engage in 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, however, the Fund has engaged in a limited
number of currency hedging transactions. 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 rate 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 particular 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 less favorable 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.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
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 an option, 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.
OTHER FINANCIAL FUTURES AND RELATED OPTIONS
Several risks are 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
Whether the 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 lengthy terms, 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 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 security 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 Manager 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.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended June 30, 1999,
1998 and 1997 were 34.14%, 23.41% and 23.75%, 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, 1999, 1998 and 1997 amounted to $31,819,915, $24,494,308
and $17,306,312, respectively.
MANAGEMENT
THE BOARD OF DIRECTORS
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 Bylaws of the Fund, as amended, (the "Bylaws")
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 United States. 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 United States. 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 name, address and principal occupation during the past five years and
other information with respect to each of the Directors and Officers of the
Fund are as follows:
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION
REGISTRANT DURING PAST FIVE YEARS
<S> <C> <C>
Robert E. Angelica Director President & Chief Investment
295 North Maple Avenue Officer, AT&T Investment
Room 7202M3 Management Corp.
Basking Ridge, NJ 07920-1002
Age: 52
R. Michael Barth Director Chief Executive of FMO, The
2509 AB, The Hague Netherlands Development
Netherlands Finance Company (previously,
Age: 49 Director, Capital Markets
Development Department of
the World Bank)
Nancy Englander* President and Director Senior Vice President,
11100 Santa Monica Blvd. Capital International, Inc.
Los Angeles, CA 90025-3384
Age: 54
David I. Fisher* Vice Chairman of the Board and Director Chairman of the Board,
11100 Santa Monica Blvd. Capital Group International,
Los Angeles, CA 90025-3384 Inc.
Age: 59
Khalil Foulathi Director Executive Director,
P.O. Box 3600 Abu Dhabi Investment Authority
Abu Dhabi, U.A.E.
Age: 47
Beverly L. Hamilton Director President, ARCO Investment
555 Flower Street, BOA 35107 Management Company
Los Angeles, CA 90071-2203
Age: 53
Raymond Kanner Director Director, Global Equities,
3001 Summer Street IBM Retirement Funds
Stamford, CT 06905-4317 (previously, Manager, IBM
Age: 45 Credit Corporation)
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,
767 Fifth Avenue, 26th Floor International Investments,
New York, NY 10153-2697 General Motors Investment
Age: 61 Management Corporation
Helmut Mader Director Former Director,
Taunusanlage 12 Deutsche Bank AG
60325 Frankfurt
Germany
Age: 56
John G. McDonald Director The IBJ Professor of Finance,
Graduate School of Business Graduate School of Business,
Stanford University Stanford University
Stanford, CA 94305-1926
Age: 61
William Robinson Director Director, Deutsche Fund Management
38 Beatty Street Limited, former Director, Aga Khan Fund for
Balgowlah Heights Economic Development
2093 NSW Australia
Age: 60
Patricia A. Small Director Treasurer,
1111 Broadway, Suite 1400 The Regents of the University
Oakland, CA 94607-9828 of California
Age: 53
Walter P. Stern* Chairman of the Board and Director Chairman of the Board,
630 Fifth Avenue Capital International, Inc.
New York, NY 10111-0121
Age: 70
Shaw B. Wagener* Executive Vice President and Director President and Director, Capital
333 South Hope Street International, Inc.
Los Angeles, CA 90071-1447
Age: 39
</TABLE>
OFFICERS (OTHER THAN DIRECTORS)
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION
REGISTRANT DURING PAST FIVE YEARS
<S> <C> <C>
Roberta A. Conroy Senior Vice Assistant General Counsel,
11100 Santa Monica President and The Capital Group
Blvd. Secretary Companies, Inc.
Los Angeles, CA 90025-3384
Age: 44
Michael A. Felix Vice Senior Vice President
135 South State College President Capital International,
Blvd. and Treasurer Inc.
Brea, CA 92821-5804
Age: 38
Hartmut Giesecke Vice Chairman and Director,
1 Raffles Place President Capital International K.K.
#24-00 OUB Centre and Senior Vice President
Singapore 0104 and Director, Capital
Age: 61 International, Inc.
Peter C. Kelly Vice Senior Vice President and
11100 Santa Monica President Director, Capital
Blvd. International, Inc.
Los Angeles, CA 90025-3384
Age: 40
Victor D. Kohn Vice Senior Vice President and
11100 Santa Monica President Director Capital
Blvd. International, Inc.
Los Angeles, CA 90025-3384
Age: 41
Nancy J. Kyle Vice Senior Vice President and
630 Fifth Avenue President Director Capital Guardian
New York, NY 10111-0121 Trust Company
Age: 48
Abbe G. Shapiro Vice Vice President, Capital
11100 Santa Monica President International, Inc.
Blvd.
Los Angeles, CA 90025-3384
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.
COMPENSATION
Effective July 1, 1998, the Fund began to pay 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 employers' 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. Nine Directors own Fund shares, four of whom are affiliated with the
Manager. Each of a majority of the non-affiliated Directors has a business
affiliation with an institutional shareholder in 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.
For the fiscal year ended June 30, 1999, the Fund paid the following
compensation to Directors of the Fund:
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name Aggregate Pension or Estimated Total
Compensation Retirement Annual Compensation
from Fund Benefits Benefits From Fund
As Part of Upon and Fund
Fund Expenses Retirement Complex Paid
to Directors
Robert E. Angelica* $22,000 - - $22,000
R. Michael Barth** $3,000 - - $3,000
Khalil Foulathi $19,000 - - $19,000
Beverly L. Hamilton* $22,000 - - $22,000
Marinus Keijzer* $22,000 - - $22,000
Hugh G. Lynch* $19,000 - - $19,000
Helmut Mader*** $0 - - $22,000
John G. McDonald**** $0 - - $243,000
William Robinson*** $11,000 - - $22,000
Patricia Small*** $0 - - $22,000
</TABLE>
* Compensaion was paid to the Director's employer.
** Mr. Barth became a Director effective June 21, 1999.
*** All compensaion was voluntarily deferred except for Mr. Robinson, who
deferred $11,000, commencing January 1, 1999.
****Professor McDonald received $22,000 from the Fund and $221,000 from seven
funds managed by an affiliate of Capital International, Inc., all of which
was deferred.
The Fund has adopted a deferred compensation plan (the "Plan") that permits
any director of the Fund who so elects to have all or any portion of payment of
the director's compensation from the Fund (including the annual retainer, board
and committee meeting fees) deferred to a future date or to the occurrence of
certain events, such as upon the resignation or retirement of the director.
Payments of deferred compensation made pursuant to the Plan may be paid in a
lump sum or in annual or quarterly installments over a period of years (not to
exceed 20), as specified by the director. Compensation deferred under the Plan
is credited to an account established in the name of each director on the books
of the Fund, to which deferred compensation is credited. Any such deferred
compensation so credited will be deemed to be invested for purposes of future
earnings in one or more investment options, but the deferred compensation
amount payable to the director, as adjusted for any such earnings, remains an
obligation of the Fund.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock of the shareholders that own beneficially
more than 5% of the outstanding shares of the Fund as of June 30, 1999:
BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
Name & Address Number Percentage
of Shares of Outstanding
Common Stock
<S> <C> <C>
The Chase Manhattan Bank, N.A. 19,246,752 5.889%
as Trustee for the General Motors
Employees Global Group Pension Trust
General Motors Corporation
767 Fifth Avenue
New York, NY 10153
</TABLE>
The Directors and officers of the Fund own, in the aggregate, less than 1% of
the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
THE MANAGER
The Fund's Manager is Capital International, Inc., 11100 Santa Monica
Boulevard, 15th Floor, Los Angeles, California 90025-3384. The Fund's Manager
was organized under the laws of California in 1987 and is registered with the
SEC under the Investment Advisers Act of 1940. The Capital Group Companies,
Inc., 333 South Hope Street, 55th Floor, Los Angeles, California 90071-1447,
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, Reno, San Francisco, Chicago, Atlanta,
Washington, New York, Geneva, London, Hong Kong, Montreal, Toronto, Singapore
and Tokyo. The affiliates of The Capital Group Companies, Inc. gather
extensive information on emerging securities markets 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 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 of 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, 1999,
1998 and 1997 the management fees amounted to $83,852,384, $84,252,000, and
$64,360,000, 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.
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.
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,
California 92821-5804, 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, California 90071, acts as independent accountants for the Fund. The
financial statements for the year ended June 30, 1998 have been incorporated by
reference in the Statement of Additional Information and have been so
incorporated 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.
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 issuers, 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.
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.
CAPITAL STOCK
The authorized capital stock of the Fund is 400,000,000 shares of common stock
($.01 par value). Shares of the Fund are fully paid and non-assessable. All
shares of the Fund are equal as to earnings, assets and voting privileges. In
the event of liquidation, each share is entitled to its proportion of the
Fund's assets after debts and expenses. There are no cumulative voting rights
for the election of directors. 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 Bylaws 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 Bylaws 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 Bylaws 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 Bylaws, the Fund will 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.
PURCHASE AND PRICING OF SHARES
PURCHASING SHARES
The Prospectus describes the manner in which the Fund's shares may be
purchased and redeemed. See "How to Purchase Shares" and "How to Redeem
Shares."
As disclosed in the Prospectus, at the sole discretion of the Manager,
investors may purchase shares by tendering to the Fund developing country
securities that 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.
PRICING OF FUND SHARES
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:
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.
Liabilities, including accruals of taxes and other expense items, are deducted
from total assets.
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.
The Fund will not price shares on any day on which the New York Stock
Exchange is closed for trading.
TAXATION OF THE FUND
TAX CONSEQUENCES
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. Amounts not
distributed on a timely basis in accordance with a calendar-year distribution
requirement are generally 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. For
purposes of the excise tax, income and gains on which a Fund-level tax is
imposed are considered to have been distributed if they are subject to tax in
the taxable year ending in the calendar year for which the excise tax is
determined. 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. The Fund intends
to make distributions as necessary to prevent application of the excise tax;
however, any retention of capital gains could give rise to excise tax
liability.
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
The Fund may, from time to time, distribute dividends and realized net capital
gains to you as long as you hold shares of the Fund. You may receive cash or,
as permitted by the Board of Directors, you will be given the option to
reinvest distributions in additional shares of the Fund. In any case, if you
are permitted to choose between a cash dividend or a stock dividend, you will
be required, before the declaration of any such dividend, to provide your
election to the Fund in writing. If you receive a distribution in cash, it
will be paid by check in U.S. Dollars, and mailed directly to your address of
record by the Fund's dividend paying agent. No fees are charged in connection
with a shareholder's election to receive a stock dividend or in connection with
any other stock dividend.
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 whether they are paid in cash or reinvested in additional
shares, and regardless of how long the shareholder has held the Fund's shares.
Capital gain distributions 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 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 the difference between the amount of
undistributed capital gains included in the shareholder's income and the tax
deemed paid by the shareholder with respect to the Fund shares.
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, 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 within 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.
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 whether they are paid in cash or reinvested in additional
shares, and regardless of how long the shareholder has held the Fund's shares.
Capital gain distributions 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 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 the difference between the amount of
undistributed capital gains included in the shareholder's income and the tax
deemed paid by the shareholder with respect to the Fund shares.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Under the Code, the Fund will account for its income and deduction in U.S.
dollars and thus may realize gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues interest or other
receivables, including security purchases and sales, or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities. Any such gains or
losses generally are treated as ordinary income or ordinary loss. Similarly,
on disposition of debt securities denominated in a foreign currency and on
disposition of forward contracts and certain futures contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses
are referred to under the Code as "Section 988" gains or losses. Section 988
gains may increase the amount of income that the Fund must distribute in order
to qualify for treatment as a RIC and to prevent application of an excise tax
on undistributed income. Alternatively, Section 988 losses may decrease or
eliminate income available for distribution. For example, if foreign exchange
losses of the Fund were to exceed the Fund's other investment company taxable
income during a taxable year, the Fund would not be able to make ordinary
dividend distributions, and distributions made before the losses were realized
would be 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.
CONSTRUCTIVE SALES
Under certain circumstances, the Fund may recognize gain from a constructive
sale of an "appreciated financial position" it holds if it enters into a short
sale, forward contract or other transaction that substantially reduces the risk
of loss with respect to the appreciated position. In that event, the Fund
would be treated as if it had sold and immediately repurchased the property and
would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would be recognized when the
property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions
of the Code. Constructive sale treatment does not apply to transactions closed
in the 90-day period ending with the 30th day after the close of the taxable
year, if certain conditions are met.
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, as if the tax had been payable in such prior taxable years. The Fund
may be able to elect with respect to a PFIC to be taxed currently on the PFIC's
income and gains. If this 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 be 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.
PERFORMANCE INFORMATION
The Fund may from time to time, include its total return in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return for the Fund will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of one, five and ten years, calculated pursuant to the following formula:
P(1+T)/n/= ERV
Where:
P = a hypothetical payment of $1,000
T = the average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end of that 1-, 5-, or
10-year period.
Total return for a period is the percentage change in value during the period
of an investment in the Fund shares. All total return figures reflect the
deduction of the Fund's expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid. The Fund's average
annual total return for the one-, five-, and ten-year periods ending December
31, 1998 were (24.88%), (2.61%) and 17.24%, respectively.
Performance information for the Fund may also be compared to various indexes,
such as the IFC Emerging Market Index, Morgan Stanley Capital International
Emerging Markets Free Index and indexes prepared by other entities or
organizations which track the performance of investment companies or investment
advisers. Unmanaged indexes generally do not reflect deductions for
administrative and management costs and expenses. The Fund, the Manager or any
of their affiliates may also report to shareholders or to the public in
advertisements concerning the performance of the Manager as adviser to clients
other than the Fund, and on the comparative performance or standing of the
Manager in relation to other money managers. Such comparative information may
be compiled or provided by independent ratings services or by news
organizations. Any performance information, whether related to the Fund or to
the Manager, should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the portfolio, and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future.
FINANCIAL STATEMENTS
The Fund's audited financial statements, including the related notes thereto,
dated June 30, 1998, are incorporated by reference in the Statement of
Additional Information from the Fund's Annual Report dated as of June 30, 1998.
The Fund's unaudited financial statements, including the related notes thereto,
are incorporated by reference in the Statement of Additional Information from
the Semi-Annual Report of the Fund dated December 31, 1998. A copy of the
reports delivered with this Statement of Additional Information should be
retained for future reference.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
EMERGING MARKETS GROWTH FUND
Investment Portfolio - December 31, 1998
(Unaudited)
Equity Securities
Common Preferred Convertible Percent of
INDUSTRY DIVERSIFICATION Stocks Stocks Bonds Bonds Net Assets
Telecommunications 16.5 % 3.89 % 0 % 0.05 % 20.44 %
Banking 5.97 2.27 0 0.04 8.28
Beverages & Tobacco 6.13 1.69 0 7.82
Electronic Components 5.29 0 0.04 5.33
Utilities: Electric & Gas 3.05 1.73 0 4.78
Energy Sources 3.57 0.51 0.01 4.09
Merchandising 2.75 0.03 0 2.78
Other Industries 25.72 0.76 0.42 7.5 34.4
68.98 % 10.88 % 0.47 % 7.59 % 87.92
Short-Term Securities 12.24
Excess of liabilities over cash and receivables, including
net unrealized depreciation on foreign currency contracts (.16)
Net Assets 100.00 %
TEN LARGEST EQUITY HOLDINGS Percent of
Net Assets Percent of Gain/Loss for the
Telefonos de Mexico (Telemex) 4.93 % + 1.48 %
Samsung Electronics 2.66 +123.79
Taiwan Semiconductor Manufacturing 2.5 + 6.78
Telefonica de Argentina 1.82 - 13.71
Asustek Computer 1.62 + 14.38
Compania de Telecommunicaciones de Chile 1.57 + 1.85
Cifra 1.56 - 17.07
Banco Itau 1.49 - 14.42
Hellenic Bottling 1.47 - 0.21
Telecom Argentina 1.38 - 7.35
*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>
<TABLE>
<S> <C> <C> <C>
EMERGING MARKETS GROWTH FUND, INC.
Investment Portfolio - DECEMBER 31, 1998
Number of
EQUITY SECURITIES Shares Market Percent
(common and preferred stocks or Value of Net
and convertible debentures) Principal (000) Assets
Amount
Argentina - 6.68%
Banco de Galicia y Buenos Aires SA, Class B 3,001,324 $13,218
Banco de Galicia y Buenos Aires SA, Class B (ADR) 3,917,713 69,050 .64
Banco Frances del Rio de la Plata SA 743,100 5,281
Banco Frances del Rio de la Plata SA (ADR) 1,090,439 22,627 .22
Banco Rio de la Plata SA, Class B (ADR) 5,267,400 68,476 .54
BI SA (acquired 10/21/93, cost: $5,755,000)(1) 6,130,000 6,437 .05
CEI Citicorp Holdings SA, Class B(2) 120,770 375
Disco SA (ADR)(2) 777,900 15,850 .12
Hidroneuquen SA (acquired 11/11/93, cost: $29,086,000)(1,2,3) 28,022,311 29,086 .22
IRSA Inversiones y Representaciones SA(1) 6,534,903 17,923
IRSA Inversiones y Representaciones SA (GDR)(1) 866,987 24,113 .35
IRSA Inversiones y Representaciones SA 4.50% convertible
bond August 2, 2003 (acquired 5/28/97,cost:$3,943,000)(1,3) 3,400,000 3,332
Nortel Inversora SA, Class A, preferred (ADR)
(acquired 11/24/92, cost:$4,944,000)(1) 714,550 9,244
Nortel Inversora SA, Class B, preferred (ADR) 1,712,140 27,394 .29
Perez Companc SA, Class B 5,111,457 21,642
Perez Companc SA, Class B (ADR) 13,881 118 .17
Sociedad Comercial del Plata SA 1,059,290 747 .01
Telecom Argentina STET-France Telecom SA, Class B 2,800,000 15,835
Telecom Argentina STET-France Telecom SA, Class B (ADS) 5,837,200 160,523 1.38
Telefonica de Argentina SA, Class B 4,910,000 14,007
Telefonica de Argentina SA, Class B (ADS) 7,840,900 219,055 1.82
YPF SA, Class D (ADR) 3,979,800 111,185 .87
---------- ----------
855,518 6.68
---------- ----------
Botswana - 0.00%
Sechaba Breweries Ltd. 233,900 270 .00
----------
Brazil - 11.71%
Aracruz Celulose SA, Class B, preferred nominative (ADR) 533,550 4,268 .03
Banco Bradesco SA, preferred nominative 9,497,135,214 52,675
Banco Bradesco SA, preferred nominative rights,
expire February 10, 1999(2) 406,626,659 236 .41
Banco do Estado de Sao Paulo SA, preferred nominative 416,041,700 17,220 .13
Banco Itau SA, preferred nominative 390,527,500 190,736 1.49
Banco Nacional SA, preferred nominative(2) 215,940,814 -
Banco Nacional SA, ordinary nominative(2) 2,500,000 - -
Banco Real de Investimento SA, preferred nominative 4,674,000 8,977 .07
Banco Real SA, preferred nominative 10,830,650 10,400 .08
Bompreco SA Supermercados do Nordeste 479,000 3,593 .03
Brasmotor SA, preferred nominative 28,143,932 2,796 .02
Centrais Eletricas Brasileiras SA - ELETROBRAS, Class B,
preferred nominative (ADR) 7,525,674 67,731
Centrais Eletricas Brasileiras SA - ELETROBRAS,
ordinary nominative 47,394,000 816 .90
Centrais Eletricas Brasileiras SA - ELETROBRAS,
ordinary nominative (ADR) 5,847,450 46,780
Centrais Geradoras do Sul do Brasil SA - GERASUL,
preferred nominative, Class B (ADR)(2) 664,678 3,822
Centrais Geradoras do Sul do Brasil SA - GERASUL,
ordinary nominative (2) 66,330,000 87 .06
Centrais Geradoras do Sul do Brasil SA - GERASUL,
ordinary nominative (ADR)(2) 646,609 3,880
Cia. Cervejaria Brahma, preferred nominative 179,628,137 78,513
Cia. Cervejaria Brahma, preferred nominative (ADR) 7,345,200 69,320 1.15
Cia. Cervejaria Brahma, ordinary nominative 224,483 99
Cia. Ciminto Portland Itau, preferred nominative 32,712,300 3,723 .03
Cia de Eletricidade do Estado do Rio de Janeiro - CERJ,
ordinary nominative (2) 54,454,482,525 18,031 .14
Cia. de Tecidos Norte de Minas- COTEMINAS
preferred nominative 93,094,466 10,018
Cia. de Tecidos Norte de Minas- COTEMINAS .10
ordinary nominative (GDR) 535,000 2,475
Cia. Energetica de Minas Gerais-CEMIG,
preferred nominative 807,913,110 15,382
Cia. Energetica de Minas Gerais-CEMIG,
preferred nominative (ADR) 4,230,580 79,852 .81
Cia. Energetica de Minas Gerais-CEMIG,
preferred nominative (ADR)
(acquired 6/21/96, cost: $9,501,000)(1) 457,575 8,637
Cia. Paranaense de Energia-COPEL, Class B,
preferred nominative 2,760,117,562 19,878
Cia. Paranaense de Energia- COPEL, Class B,
preferred nominative (ADR) 3,499,800 24,936 .41
Cia. Paranaense de Energia -COPEL,
ordinary nominative 1,359,819,600 7,767
Cia. Paulista de Forca e Luz - CPFL,
preferred nominative 651,445 43
Cia. Paulista de Forca e Luz - CPFL, .15
ordinary nominative 259,336,000 18,677
Cia. Vale do Rio Doce (ADR) 3,454,037 44,039 .34
Consorcio Real Brasileiro de Administracao SA, Class F,
preferred nominative 1,414,000 2,575 .02
Dixie Toga SA, preferred nominative 2,091,000 623
ELETROPAULO - Eletricidade de Sao Paulo SA,
preferred nominative 35,298,925 1,636 .01
Embratel participacoes SA preferred nominative(2) 552,090 8
Embratel participacoes SA preferred nominative (ADR)(2) 5,370,295 74,849 .59
Embratel participacoes SA ordinary nominative(2) 171,173,600 1,488
Empresa Nacional de Commercio Redito SA - Encopar,
preferred nominative 31,438,488 47 .00
Globa Cabo, preferred nominative (ADR) (2) 1,446,000 3,254 .03
GP Capital Partners, LP
(acquired 1/28/94, cost: $20,809,000)(1,2) 27,000 18,965 .15
LIGHT - Servicos de Eletricidade SA, ordinary nominative 47,495,688 5,780 .05
Mesbla SA, preferred nominative (2) 111,674,640 24
Mesbla SA, ordinary nominative (2) 1,041,447,836 259
Mesbla SA, ordinary nominative, rights(2) 2,289,787,401 114 .00
Petroleo Brasileiro SA - PETROBRAS, preferred nominative 580,236,000 65,805 .51
REAL Concorcio Participacoes preferred nominative(2) 1,414,000 1,939 .02
REAL Holdings Participacoes, preferred nominative(2) 4,674,000 6,949 .06
REALPAR Participacoes Class A, preferred nominative(2) 3,000 4 .00
REAL SA participacoes e Administracao, Class A,
preferred nominative 3,000 5
Sadia Concordia SAIC, preferred nominative 4,882,000 2,506 .02
SA White Martins, ordinary nominative 11,983,844 5,754 .05
Souza Cruz SA, ordinary nominative 2,861,000 18,473 .14
Tele Celular Sul Participacoes SA, preferred nominative(2) 60,052,090 101 .00
Tele Celular Sul Participacoes SA, preferred nominative (ADR)(2) 509,450 8,884 .07
Tele Celular Sul Participacoes SA, ordinary nominative(2) 172,290,100 160 .00
Tele Centro Oeste Celular Participacoes SA,
preferred nominative(2) 552,090 1 .00
Tele Centro Oeste Celular Participacoes SA,
preferred nominative (ADR) (2) 1,686,234 4,953 .04
Tele Centro Oeste Celular Participacoes SA,
ordinary nominative (2) 171,061,600 134 .00
Tele Centro Sul Participacoes SA, preferred nominative (2) 552,090 5 .00
Tele Centro Sul Participacoes SA, preferred nominative (ADR) 940,499 39,325 .32
Tele Centro Sul Participacoes SA, ordinary nominative (2) 171,061,600 1,133
Telecomunicacoes Brasileiras SA (Telebras),
preferred nominative (ADR) 1,430,686 156 .00
Telecomunicacoes Brasileiras SA (Telebras),
ordinary nominative 5,636,300 0
Telecomunicacoes de Sao Paulo SA - Telesp,
preferred nominative 545,908,566 74,430 .59
Telecomunicacoes de Sao Paulo SA - Telesp,
ordinary nominative (2) 35,164,592 793
Telecomunicacoes de Sao Paulo SA - Telesp Celular, Class B,
preferred nominative (2) 613,609,551 26,972
Telecomunicacoes de Sao Paulo SA - Telesp Celular,
ordinary nominative (2) 151,639,592 13,055 .31
Tele Leste Celular Participacoes SA, preferred nominative (2) 552,090 0 .00
Tele Leste Celular Participacoes SA, preferred nominative (ADR) 95,090 2,698 .02
Tele Leste Celular Participacoes SA, ordinary nominative (2) 171,061,600 68
Telemig Celular Participacoes SA, preferred nominative (2) 552,090 1
Telemig Celular Participacoes SA, preferred nominative (ADR) (2) 237,725 5,052
Telemig Celular Participacoes SA, ordinary nominative (2) 171,061,600 120 .10
Telemig Celular Participacoes SA, Class C
preferred nominative (2) 385,195,000 7,557
Tele Nordeste Celular Participacoes SA,
preferred nominative (2) 552,090 1 .00
Tele Nordeste Celular Participacoes SA,
preferred nominative (ADR) (2) 264,325 4,890 .04
Tele Nordeste Celular Participacoes SA,
ordinary nominative (2) 171,061,600 86 .00
Tele Norte Celular Participacoes SA, preferred nominative (2) 552,090 0 .00
Tele Norte Celular Participacoes SA, preferred nominative (ADR) (2) 95,090 2,146 .02
Tele Norte Celular Participacoes SA, ordinary nominative (2) 171,061,600 55 .00
Tele Norte Leste Participacoes SA, preferred nominative (2) 552,090 7 .00
Tele Norte Leste Participacoes SA, preferred nominative (ADR) (2) 4,410,995 54,862 .44
Tele Norte Leste Participacoes SA, ordinary nominative (2) 171,061,600 1,402
Telesp Celular Participacoes SA, preferred nominative (2) 60,052,090 442 .00
Telesp Celular Participacoes SA, preferred nominative (ADR) (2) 1,902,838 33,300 .27
Telesp Celular Participacoes SA, ordinary nominative (2) 171,174,100 737
Telesp Participacoes SA, preferred nominative (2) 552,090 13 .00
Telesp Participacoes SA, preferred nominative (ADR) 3,963,295 87,688 .71
Telesp Participacoes SA, ordinary nominative (2) 162,602,100 2,086
Tele Sudeste Celular Participacoes SA, preferred nominative (2) 552,090 2 .00
Tele Sudeste Celular Participacoes SA, preferred nominative (ADR) 911,299 18,852 .15
Tele Sudeste Celular Participacoes SA, ordinary nominative (2) 171,061,600 481 .00
Unibanco - Uniao de Bancos Brasileiros SA, units (GDR) 5,285,150 76,304 .61
Usinas Siderurgicas de Minas Gerais SA,
preferred nominative (ADR)
(acquired 9/1/93, cost: $7,598,000) (1) 1,224,205 2,601 .02
---------- ----------
1,498,017 11.71
---------- ----------
Chile - 3.72%
Antofagasta Holdings PLC 4,836,130 14,440 .11
Compania Cervecerias Unidas SA (ADS) 1,144,700 22,035 .17
Compania de Telecomunicaciones de Chile SA (ADR) 9,681,805 200,292 1.57
Distribucion y Servicio D&S SA (ADR) 1,711,500 19,682 .15
Embotelladora Andina SA, Class A, preferred (ADR) 3,069,450 44,507
Embotelladora Andina SA, Class B, preferred (ADR) 1,871,400 24,328 .54
Empresa Nacional de Electricidad SA (ADR) 9,099,409 103,506 .81
Enersis SA (ADR) 1,100,456 28,406 .22
Gener SA (ADR) 248,643 3,978 .03
Santa Isabel SA (ADR) 889,500 5,893 .05
Sociedad Quimica y Minera de Chile SA, Class B (ADR) 260,500 8,776 .07
---------- ----------
475,843 3.72
---------- ----------
China - 0.61%
China Eastern Airlines Corp. Ltd., Class H (2) 41,520,000 2,787
China Eastern Airlines Corp. Ltd., Class H (ADR) (2) 175,700 1,098 .03
China Resources Beijing Land Ltd. 35,079,400 8,739 .07
China Telecom (Hong Kong) Ltd. (2) 11,366,000 19,660 .15
China Yuchai International Ltd. (2) 904,300 509 .00
Guang Dong Electric Power Development Co. Ltd., Class B 3,191,448 869 .01
Huaneng Power International, Inc., Class N (ADR) (2) 808,100 11,718 .09
Jiangsu Expressway Co. Ltd.,Class H 4,172,400 910 .01
Jiangxi Copper Co. Ltd., Class H 18,071,500 1,026 .01
Ng Fung Hong Ltd. 32,634,500 29,277 .23
Qingling Motors Co.,Ltd., Class H 9,636,200 1,692 .01
---------- ----------
78,285 .61
---------- ----------
Republic of Croatia - 0.85%
PLIVA d.d. (GDR) 6,589,453 109,385 .85
---------- ----------
109,385 .85
---------- ----------
Czech Republic - 0.54%
CESKE RADIOKOMUNIKACE AS (GDR) (2) 348,400 11,236 .09
SPT TELECOM, a.s. (2) 3,752,840 57,247 .45
---------- ----------
68,483 .54
Ecuador - 0.01%
La Cemento Nacional SA (GDR)(3) 13,030 1,342 .01
---------- ----------
Egypt - 0.12%
AL-Ahram Beverages Co. (GDR)(2,3) 520,000 15,002 .12
------------- ------------
Finland - 0.00%
Sonera (American Depositary Receipts) 0 .00
------------- ------------
Ghana - 0.16%
Ashanti Goldfields Co. Ltd. (GDR) 860,000 8,062
Ashanti Goldfields Co. Ltd. .16
5.50% exchangeable note March 15, 2003 $15,970,000 12,297
---------- ----------
20,359 .16
---------- ----------
Greece - 2.59%
Aluminium de Grece SAIC (3) 377,540 21,973 .17
Ergobank SA 766,310 88,625 .69
Hellenic Bottling Co. SA 6,110,090 188,548 1.47
Katselis Sons SA 5,620 51 .00
Titan Cement Co. SA 427,644 32,819 .26
---------- ----------
332,016 2.59
---------- ----------
Hong Kong - 0.61%
China - Hongkong Photo Products Holdings Ltd. 12,491,900 1,193 .01
China Resources Enterprise, Ltd. 44,785,300 69,950 .54
Legend Holdings Ltd 20,208,100 7,108 .06
Siu-Fung Ceramics Holdings Ltd. (2) 7,869,409 0 .00
---------- ----------
78,251 .61
---------- ----------
Hungary - 1.02%
Gedeon Richter Ltd. 926,500 39,475 .31
Graboplast Textil- es Muborgyarto Rt. 141,200 1,079 .01
MATAV, Hungarian Telecommunications Co. Ltd 12,271,550 70,151 .55
Mezogep (2) 268,700 3,743 .03
MOL Magyar Olaj- es Gazipari Rt. (GDR) 570,100 15,735 .12
---------- ----------
130,183 1.02
---------- ----------
India - 4.82%
Asian Paints (India) Ltd. 544,600 3,654 .03
Bajaj Auto Ltd. 4,808,150 59,082
Bajaj Auto Ltd. (GDR) 441,800 6,737 .51
Bharat Petroleum Corp. Ltd. 4,135,200 22,734 .18
Cadbury India 9,000 101 .00
Carrier Aircon Ltd. 911,500 4,218 .03
Credit Rating Information Services of India 15,000 153 .00
Cummins India Ltd. 1,850,000 13,411 .10
Digital Equipment (India) Ltd. 40,000 142 .00
East India Hotels Ltd. (2) 869,065 4,812 .04
Essar Steel Ltd. 300 - .00
Flex Industries Ltd. 260,480 49 .00
Flex Industries Ltd., warrants, expire November 23, 1999 (2) 116,210 0 .00
Grasim Industries Ltd. 479 2 .00
Grasim Industries Ltd. (GDR) 20 0 .00
Hindalco Industries Ltd. 1,917,095 23,160
Hindalco Industries Ltd, (GDR) 549,226 6,316 .23
Hindustan Lever Ltd. 2,840,400 111,494 .87
Hindustan Petroleum Corp. Ltd. 3,529,300 19,560 .15
Housing Development Finance Corp. Ltd. 294,300 15,114 .12
Indian Aluminium Co., Ltd. 776,520 1,657 .01
Indian Rayon and Industries Ltd. 1,527,825 4,052
Indian Rayon and Industries Ltd. (GDR) 560,300 1,429 .04
Indo Gulf Fertilisers and Chemicals Corp. Ltd. 2,155,200 1,420
Indo Gulf Fertilisers and Chemicals Corp. Ltd.(GDR) 1,770,900 1,195 .02
Industrial Credit and Investment Corp. of India Ltd. 1,330 1 .00
Infosys Technologies Ltd. 11,000 767 .01
Ispat Industries Ltd. 3.00% convertible Eurobond
April 1, 2001 $4,624,000 1,110
Ispat Industries Ltd. 3.00% convertible bond April 1, 2001 .02
(acquired 3/1/94, cost: $6,279,000) (1) $6,375,000 1,530
I.T.C. Ltd. 176,147 3,118 .02
LML Ltd. 41,900 73 .00
Madras Cements Ltd. 22,000 2,126 .02
Mahanagar Telephone Nigam Ltd. (2) 22,227,300 95,993
Mahanagar Telephone Nigam Ltd.(GDR) 895,100 11,077 .84
Mahindra & Mahindra Ltd. 2,658,516 10,341
Mahindra & Mahindra Ltd. (GDR) 997,333 3,964
Mahindra & Mahindra Ltd. 5.00% convertible bond .16
July 9, 2001 (acquired 7/3/96; cost: $5,953,000) $5,954,000 5,478
Master Gain Scheme (2) 112,800 24 .00
Max India Ltd. 304,497 1,080
Max India Ltd. 12.50% nonconvertible debenture .01
March 2, 2004 $41,957 203
Motor Industries Co. Ltd. (3) 201,855 17,368 .14
Nicholas Piramal India Ltd. (3) 1,885,700 15,281 .12
Niko Resources Ltd. (2) 1,000,000 3,653 .03
Ranbaxy Laboratories Ltd. 3,199,900 20,258
Ranbaxy Laboratories Ltd.(GDR) 1,769,050 15,745 .28
Raymond Woollen Mills Ltd. 200 0 .00
Reliance Industries Ltd. 15,560,035 43,870
Reliance Industries Ltd. (GDR) 667,150 3,886 .37
Tata Engineering and Locomotive Co. Ltd. 77,400 300 .00
United Phosphorus Ltd. (2) 822,700 2,513
United Phosphorus Ltd. (GDR) 358,964 719 .03
Videsh Sanchar Nigam Ltd. 986,800 18,075
Videsh Sanchar Nigam Ltd. (GDR) 1,824,600 22,579 .32
Zee Telefilms Ltd. (3) 1,017,200 15,323 .12
---------- ----------
616,947 4.82
---------- ----------
Indonesia - 1.78%
APP Finance (VII) Mauritius convertible bond 3.50%
April 30, 2003 (acquired 4/23/98, cost: $6,180,000)(1) $6,180,000 3,368 .03
Asia Pacific Resources International Holdings Ltd., Class A(2) 2,445,269 1,681 .01
Asia Pulp & Paper Co. Ltd. (ADR) (2) 2,744,300 22,469 .18
PT Astra Internasional (2) 94,513,300 12,117 .09
PT Bank Internasional Indonesia 10,231,459 295
PT Bank Internasional Indonesia, warrants,
expire January 17, 2000 (2) 909,462 8 .00
PT BAT Indonesia 531,000 1,021 .01
Gulf Indonesia Resources Ltd. (2) 484,700 3,150 .03
PT Hanjaya Mandala Sampoerna Tbk 29,150,500 19,714 .15
PT Indah Kiat Pulp & Paper Corp. Tbk 183,914,600 51,284 .40
PT Indofood Sukses Makmur Tbk 75,844,400 39,381 .31
PT Indo-Rama Synthetics 32,292,400 5,900 .05
PT International Nickel Indonesia 4,274,500 1,534 .01
PT Jaya Real Property 1,549,000 59 .00
PT Modern Photo Film Co. (2) 10,500,800 673 .01
PT Mulia Industrindo 7,175,572 345 .00
PT Pabrik Kertas Tjiwi Kimia 11,653,272 3,100
PT Pabrik Kertas Tjiwi Kimia warrants expire July 15, 2002 (2) 410,175 49 .02
Perusahaan Perseroan (Persero) PT Indonesian
Satellite Corp. 3,701,500 4,947
Perusahaan Perseroan (Persero) PT Indonesian .24
Satellite Corp. (ADR) 2,102,330 25,622
Perusahaan Perseroan (Persero) PT Telekomunikasi
Indonesia, Class B 42,093,500 14,571
Perusahaan Perseroan (Persero) PT Telekomunikasi .15
Indonesia, Class B (ADR) 729,000 4,739
PT Semen Gresik (GDR) 11,314,600 12,040 .09
PT United Tractors (2) 466,000 30 .00
---------- ----------
228,097 1.78
---------- ----------
---------- ----------
Kazakhstan - 0.01%
JSC Kazkommertsbank (ADR)
(acquired 9/10/97, cost: $4,024,000) (1)(2) 154,000 896 .01
------------ ----------
Kenya - 0.01%
Kenya Commercial Bank 768,000 761 .01
Malaysia - 0.90%
Amway (Malaysia) Holdings Bhd. 1,721,200 2,473 .02
Commerce Asset-Holding Bhd. 372,000 201 .00
Edaran Otomobile Nasional Bhd. 183,000 202 .00
Guinness Anchor Bhd. 7,028,000 4,945 .04
Hap Seng Consolidated Bhd. 13,566,100 6,123 .05
Hong Leong Credit Bhd. 1,833,600 939
Hong Leong Credit Bhd., .01
warrants, expire December 27, 2001 (2) 174,400 16
IJM Corp. Bhd. 10,305,714 4,537 .04
IOI Corp. Bhd. 25,909,500 10,405 .08
Leader Universal Holdings Bhd. 8,535,000 1,651 .01
Malaysian Airline System Bhd. 711,000 272 .00
Malaysian Pacific Industries Bhd 2,132,800 2,043 .02
Nestle (Malaysia) Sdn. Bhd. 5,548,100 15,535 .12
Oriental Holdings Bhd. 3,279,820 3,534 .03
O.Y.L. Industries Bhd. 364,000 637 .00
PPB Oil Palms Bhd. 5,588,800 2,996 .02
Road Builder (M) Holdings Bhd. 2,944,000 1,985 .02
Rothmans of Pall Mall (Malaysia) Bhd. 2,147,500 8,861 .07
Sime Darby Bhd. 23,549,000 18,913 .14
Sime UEP Properties Bhd. 3,461,700 2,296 .02
Star Publications (Malaysia) Bhd. 2,365,000 2,353 .02
Tan Chong Motor Holdings Bhd. 4,937,000 1,119 .01
UMW Holdings Bhd. 6,930,859 5,107 .04
UMW Holdings Bhd., warrants, expire January 26, 2000 (2) 574,819 91
YTL Corp. Bhd. 17,854,900 16,248 .13
YTL Power International Bhd. (2) 3,152,000 1,736 .01
---------- ----------
115,218 .90
---------- ----------
Mauritius - 0.06%
State Bank of Mauritius 10,927,000 7,909 .06
---------- ----------
Mexico - 10.56%
Apasco, SA de CV 2,472,576 8,719 .07
Carso Global Telecom, SA de CV 2,993,300 10,102 .08
Cemex, SA de CV, Class A 2,956,762 6,483
Cemex, SA de CV, Class B 13,254,251 33,280
Cemex, SA de CV, Class B (ADR) 1,451,500 7,076 .48
Cemex, SA de CV, ordinary participation certificates 6,726,075 14,510
Cemex,SA de CV, ordinary participation certificates(ADR) 24,506 104
Cifra, SA de CV, Class C (2) 48,679,034 60,006
Cifra, SA de CV, Class V 97,841,753 118,632 1.56
Cifra, SA de CV, Class V (ADR) 1,701,643 20,420
Coca-Cola FEMSA, SA de CV, Class L (ADR) 1,361,300 18,037 .14
Consorcio International Hospital, SA de CV, convertible
preferred (acquired 9/25/97, cost: $4,827,000) (1) (2) 23,970 5,393 .04
Grupo Carso, SA de CV, Class A, ordinary
participation certificates 1,828,100 6,216 .05
Grupo Financiero Banamex Accival, SA de CV, Class B (2) 2,962,200 3,891
Grupo Financiero Banamex Accival, SA de CV, Class L (2) 5,277,554 6,079
Grupo Financiero Banamex Accival, SA de CV,
7.00% convertible Eurobond December 15, 1999 $103,000 100 .08
Grupo Financiero Banamex Accival, SA de CV,
11.00% convertible July 15, 2003
(acquired 7/12/96, cost: $354,000)(1) $ 371,000 330
Grupo Financiero Bancomer, SA de CV, Class B 37,100,000 7,947
Grupo Financiero Bancomer, SA de CV., Series L2 25.387% .07
convertible subordinated debentures May 16, 2002 (4) MXN5,750,000 566
Grupo Financiero BBV Probursa, SA de CV, Class B (2) 48,650,331 5,604 .04
Grupo Industrial Emprex - B (2) 2,571,800 68,474 .54
Grupo Industrial Maseca, SA de CV, Class B (ADR) 1,083,300 13,474 .11
Grupo Mexico, SA de CV, Class B (2) 4,886,800 12,838 .10
Grupo Televisa, SA, ordinary participation certificates (2) 295,000 3,720
Grupo Televisa, SA, ordinary participation certificates (ADR) (2) 5,818,099 143,635 1.15
Kimberly-Clark de Mexico, SA de CV, Class A,
ordinary participation certificates 38,035,400 121,443 .95
Pepsi-Gemex, SA de CV, ordinary participation
certificates (GDR) 364,500 2,848 .02
Telefonos de Mexico, SA de CV, Class A 9,137,500 22,758
Telefonos de Mexico, SA de CV, Class A (ADR) 71,000 166
Telefonos de Mexico, SA de CV, Class L 13,706,250 33,791 4.93
Telefonos de Mexico, SA de CV, Class L (ADR) 11,826,275 575,792
TV Azteca, SA de CV, (ADR) 2,926,700 19,572 .15
---------- ----------
1,352,006 10.56
---------- ----------
Morocco - 0.29%
Banque Commerciale du Maroc 35,443 3,864 .03
Cimenterie de l'Oriental, Class A 100,641 11,949 .09
ONA SA 56,000 6,516 .05
Societe des Brasseries du Maroc 23,432 6,626 .05
Wafabank, Class A 67,100 8,401 .07
---------- ----------
37,356 .29
---------- ----------
Nigeria - 0.06%
United Bank for Africa (GDR) (2)(3) 425,000 7,506 .06
Pakistan - 0.09%
Chakwal Cement Co. Ltd. (GDR) 891,111 - .00
Engro Chemical Pakistan Ltd. 2,508,890 4,541 .04
Hub Power Co. Ltd. (GDR) 553,328 3,154 .03
Pakistan Telecommunication Corp. (GDR) 104,400 3,132 .02
---------- ----------
10,827 .09
---------- ----------
Peru - 1.33%
Banco Continental (2) 5,909,000 3,184 .02
Cementos Lima SA 641,889 8,343 .07
Compania de Minas Buenaventura SA, Class B 995,485 5,996
Compania de Minas Buenaventura SA, Class B (ADR) 1,264,502 16,439 .18
Credicorp Ltd. (3) 6,475,473 58,279 .46
Minsur SA-Trabajo 3,522,186 5,493 .04
Ontario-Quinta (acquired 8/15/94, cost: $7,400,000) (1) 7,224,130 6,774 .05
Telefonica del Peru SA Class B (ADS) 5,166,100 65,545 .51
---------- ----------
170,053 1.33
---------- ----------
Philippines - 2.76%
Ayala Corp., Class B 82,767,010 29,369
Ayala Corp., Class B (GDS) 1,158,696 2,607 .25
Ayala Land, Inc. 150,740,033 42,790
Ayala Land, Inc. 6.00% convertible bond March 19, 2002 PHP260,000,000 4,267 .37
Bacnotan Consolidated Industries, Inc. 567,100 585
Bacnotan Consolidated Industries, Inc. 5.50% convertible
Eurobond June 21, 2004 $298,000 101 .02
Bacnotan Consolidated Industries, Inc. 5.50% convertible
bond June 21, 2004 (acquired 6/8/94, cost: $4,486,000) (1) $4,500,000 1,530
Bank of the Philippine Islands 10,389,990 22,121 .17
Bayan Telecommunications Holding Corp.
(acquired 2/12/98, cost: $407,000) (1) (2) 174,237 450
Bayan Telecommunications Holding Corp. convertible
preferred (acquired 12/22/97, cost: $9,000,000) (1) (2) 180,000 9,000 .07
Benpres Holdings Corp. (GDR) (2) 6,758,294 20,275 .16
C & P Homes, Inc. (2) 31,688,450 548 .00
Fil-Estate Land, Inc. (2) 25,300,000 470 .00
Fortune Cement Corp. (2) 42,335,625 1,770 .01
HI Cement Corp. 33,051,900 1,518 .01
International Container Terminal Services, Inc. (2) 19,533,588 1,638
International Container Terminal Services, Inc.
6.00% convertible bond February 19,2000 .04
(acquired 2/18/93, cost: $4,000,000) (1) $4,000,000 3,400
JG Summit Holdings, Inc., Class B 18,772,900 1,163
JG Summit Holdings, Inc., Class B (GDS) (2) 20,000 113
JG Summit Holdings, Inc. 3.50% convertible bond .06
December 23, 2003 (acquired 12/9/93, cost: $9,870,000) (1) $9,870,000 6,169
Keppel Philippines Holdings, Inc., Class B (2) 4,081 0 .00
Manila Electric Co., Class B 2,023,584 6,528 .05
Metropolitan Bank and Trust Co. 1,458,670 10,540 .08
Philippine Airlines, Inc. (2) 53,811,255 - .00
Philippine Long Distance Telephone Co., ordinary 464,090 11,977
Philippine Long Distance Telephone Co., ordinary (ADS) 3,791,116 98,332
Philippine Long Distance Telephone Co., convertible .90
preferred, Series III (GDS) 95,200 4,522
PR Holdings, Inc., subscription rights
(acquired 7/8/92, cost: $9,835,000) (1) (2) 2,236,600 - .00
San Miguel Corp., Class B 27,999,852 54,193 .42
SM Prime Holdings, Inc. 70,845,000 13,529 .11
Southeast Asia Cement Holdings, Inc. 72,174,108 894 .01
Universal Robina Corp. 30,222,000 3,393 .03
---------- ----------
353,792 2.76
---------- ----------
Poland - 1.55%
@ Entertainment (2) 142,200 960
@ Entertainment (acquired 8/1/97, cost: $9,584,000)(1,2) 461,000 3,112 .03
Bank Handlowy w Warszawie SA 1,457,496 18,006
Bank Handlowy w Warszawie SA (GDR) 756,121 9,830 .22
Bank Rozwoju Eksportu SA 901,675 20,838 .17
BIG Bank GDANSKI SA 2,584,063 2,322 .02
Elektrim SA 2,610,325 28,300
Elektrim SA, 2.00% convertible bond May 30, 2004 DEM9,890,000 5,930 .27
EXBUD SA (2) (3) 634,193 5,482 .04
KGHM Polska Miedz SA (GDR) (3) 6,423,200 46,086 .36
Optimus SA 156,483 1,518 .01
Polifarb Cieszyn-Wroclaw 1,967,667 4,688 .04
Telekomunikacje Polska SA (GDR) (2) 9,565,700 49,024 .38
Zaklady Metali Lekkich "Kety" SA (2) 163,964 1,548 .01
Zaklady Piwowarskie w Zywcu SA 2,304 276 .00
---------- ----------
197,920 1.55
---------- ----------
Portugal - 0.90%
Portugal Telecom, SA 550,205 25,189
Portugal Telecom, SA (ADR) 622,400 27,775 .41
TELECEL-Comunicacoes Pessoais, SA 306,000 62,456 .49
TVI - Televisao Independente, SA nonvoting preferred (2) 26,375 0 .00
---------- ----------
115,420 .90
---------- ----------
Russian Federation - 1.18%
AO Mosenergo Power Generation and Electrification
Amalgamation 67,500,000 1,350
AO Mosenergo Power Generation and Electrification .08
Amalgamation (ADS) 3,439,500 6,879
AO Mosenergo Power Generation and Electrification
Amalgamation (Russian Depositary Trust Certificate) 750 1,500
AO Torgovy Dom Gum (Russian Depositary Trust Certificate) 270 1,134 .01
Avalon Oil PLC (2) (3) 5,068,000 420 .00
Global Tele-Systems Ltd.,(acquired 2/2/96,
cost: less than $1,000) (1) (2) 262,963 14,660 .11
Irkutskenergo (Russian Depositary Trust Certificate) 645 5,483 .04
JSC Moscow City Telephone Network (MGTS) 14,550 728
JSC Moscow City Telephone Network (MGTS)
(Russian Depositary Trust Certificate) (2) 1,111 2,778 .03
Kamaz (2) 4,345,000 87 .00
Lenenergo (2) 28,336,800 1,417 .01
Lukinter Finance BV 3.50% convertible bond May 6, 2002 $1,128,000 384 .00
LUKoil Holding, preferred (ADR) 84,300 337
LUKoil Holding (ADR) 1,789,600 28,990 .23
New Century Capital Partners, LP
(acquired 12/7/95,cost: $5,492,000) (1)(2)(5) 5,256,300 2,750 .03
Nizhny Novgorod Sviazinform (2) 780,000 234
Nizhny Novgorod Sviazinform
(Russian Depositary Trust Certificate) (2) 74 666 .01
Ramco Energy PLC (2)(3) 1,421,000 5,186 .04
RAO Gazprom (ADR) 1,606,630 13,696
RAO Gazprom (ADR)
(acquired 10/21/96, cost:$38,674,000) (1) 2,322,800 19,802 .26
Russian Telecommunications Development Corp.
(acquired 12/22/93, cost: $3,800,000) (1)(2) 380,000 950
Russian Telecommunications Development Corp.,
nonvoting ordinary (acquired 12/22/93, .02
cost: $6,200,000) (1)(2) 620,000 1,550
St. Petersburg Telephone Network JSC (2) 12,913,020 2,583 .02
Star Mining Corp. (2) 18,884,400 35 .00
StoryFirst Communications Inc., Class B, senior
convertible preferred (acquired 10/14/97,
cost: $14,848,000) (1) (2) (3) 10,383 3,115 .02
Unified Energy System of Russia 1,091,686,400 33,296
Unified Energy System of Russia (GDR) 396,200 1,238 .27
Xavier Corp. (2) (3) 1,350,000 - .00
---------- ------------
151,248 1.18
---------- ------------
Slovakia - 0.04%
VSZ, AS (3) 1,146,027 5,568 .04
---------- ------------
South Africa - 4.61%
African Oxygen Ltd. 6,964,047 8,283 .06
Bidvest Group Ltd. 1,867,719 13,550 .11
Coronation Holdings Ltd., Class N 3,327,374 45,228
Coronation Holdings Ltd. 568,632 7,662 .41
Ellerine Holdings Ltd. 920,465 1,986 .02
Energy Africa Ltd.(2) 2,880,800 4,405 .03
Gencor Ltd. 6,804,500 11,446 .09
Hudaco Industries Ltd. 1,472,200 1,286 .01
International Pepsi-Cola Bottler Investments
(aquired 12/18/95, cost:$9,900,000) (1)(2)(3)(5) 100,000 10,000 .08
Iscor Ltd. (3) 129,334,668 23,293 .18
JD Group Ltd. 3,055,811 13,499 .11
Malbak Ltd. 1,324,590 585 .00
Metro Cash and Carry Ltd. 39,711,581 26,315 .21
Nasionale Pers Beperk, Class N 5,508,200 21,526 .17
New Clicks Holdings Ltd. 684,267 663 .01
Rembrandt Group Ltd. 8,398,300 51,370 .40
Sage Group Ltd. 1,631,990 4,575 .04
Sasol Ltd. (3) 32,131,304 121,472 .95
South Africa Capital Growth Fund, LP, Class A
(acquired 8/25/95, cost: $1,861,000) (1) (5) 2,180 1,968
South Africa Capital Growth Fund, LP, Class D .11
(acquired 8/25/95, cost: $11,450,000) (1) (5) 13,650 12,326
South African Breweries Ltd. 9,204,154 155,136 1.20
South African Druggists Ltd.(3) 4,633,039 23,065 .18
South African Private Equity Fund III, LP
(acquired 9/23/98, cost: $30,333,000) (1)(2)(3)(5) 30,333 30,333 .24
---------- ----------
589,972 4.61
---------- ----------
South Korea - 5.32%
Anam Industrial Co. Ltd. (2) 634,872 2,513 .02
Daehan Asia Trust (International Depositary Receipts) 2,820 1,354 .01
Daehan Korea Trust (International Depositary Receipts) 500 137 .00
Daewoo Securities Co., Ltd., ordinary (2) 678,502 10,630 .08
Hansol Paper Co., Ltd. 877,120 10,014 .08
Hansol Paper Co., Ltd. 0.25% convertible bond August 8, 2006 $950,000 789
Hyundai Motor Co. 1,180,610 21,054
Hyundai Motor Co., nonvoting preferred (GDR) 572,600 1,818 .18
Korea Electric Power Corp. 2,340 58 .00
Korea Industrial Leasing Co., Ltd. (2) 241,000 478 .00
Korea Pacific Trust (International Depositary Receipts)(2) 3,000 1,935 .02
Korea Zinc Co. Ltd. 623,320 14,285 .11
LG Electronics Inc., nonvoting preferred (GDR) 311,710 834 .02
LG Semicon Co., Ltd. (2) 177,598 1,983 .02
Mirae Corp. 130,527 351 .00
Pohang Iron & Steel Co., Ltd. 1,209,240 74,746
Pohang Iron & Steel Co., Ltd. (ADR) 21,400 361 .58
Samsung Display Devices (3) 2,110,856 104,312
Samsung Display Devices 0.50% convertible Eurobonds .82
April 12, 2002(3) $770,000 870
Samsung Electronics Co., Ltd., nonvoting preferred 114,143 3,767
Samsung Electronics Co., Ltd., nonvoting preferred (GDS) 518,058 7,835 2.66
Samsung Electronics Co., Ltd. 3,322,382 223,430
Samsung Electronics Co., Ltd.(GDS) 2,716,704 105,272
Seoul Asia Index Trust (International Depositary Receipts) 80 250 .00
SK Telecom Co., Ltd. 89,628 65,849
SK Telecom Co., Ltd. (ADR) 2,555,486 26,034 .72
Yukong Ltd., warrants, expire June 18, 1999 (2) 8,000 151 .00
---------- ----------
681,110 5.32
---------- ----------
Sri Lanka - 0.06%
Asian Hotels Corp. Ltd. 12,215,000 1,295 .01
Development Finance Corp. of Ceylon (3) 1,788,861 3,871 .03
National Develpoment Bank of Sri Lanka 1,296,600 2,426 .02
---------- ----------
7,592 .06
---------- ----------
Taiwan - 7.15%
Acer Computer International Ltd. 84,100 42 .00
Acer Peripherals Inc. 13,931,406 18,881 .15
Advanced Semiconductor Engineering, Inc. (2) 55,960,765 93,935
Advanced Semiconductor Engineering, Inc. (GDR) 918,790 8,499 .80
ASE Test Ltd. (2)(3) 2,388,500 77,328 .60
Asia Cement Corp. 24,831,048 23,388 .18
Asia Corporate Partners Fund, Class B
(acquired 3/12/96; cost: $20,027,000) (1)(2)(5) 40,000 18,684 .15
Asustek Computer Inc. (2) 22,217,503 207,879 1.62
Cathay Construction Co. Ltd. 12,407,620 7,675 .06
China Steel Corp. 4,397,250 2,652 .02
Compal Electronics Inc.(2) 28,527,800 93,112 .73
Delta Electronics Inc., 0.50% convertible bond
March 6, 2004 (acquired 2/27/97, cost: $4,246,000) (1) $4,232,000 4,697 .04
Nan Ya Plastics Corp. 1.75% Eurobond July 19, 2001 $1,850,000 2,100 .02
Primax Electronics Ltd. (2)(3) 9,197,703 10,092 .08
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) 8 125 .00
Taiwan Mask Corp. (2) 8,716,860 11,949 .09
Taiwan Semiconductor Manufacturing Co. Ltd. (2) 141,703,465 312,744
Taiwan Semiconductor Manufacturing Co. Ltd.,(ADR) (2) 560,000 7,945 2.50
Unicap Electronics Industrial Corp. (2) 431,222 653 .01
Wus Printed Circuit Co., Ltd. (2) 3,231,430 7,333 .06
Yangming Marine Transport Corp. (2) 6,890,800 4,734 .04
---------- ----------
914,472 7.15
---------- ----------
Thailand - 0.64%
Charoen Pokphand Feedmill PCL(2) 1,509,900 1,856 .01
Dusit Thani PCL (2) 990,000 1,094 .01
Electricity Generating Authority of Thailand (2) 11,540,947 31,403 .24
Post Publishing PCL (2) 2,525,000 3,208 .03
PTT Exploration and Production PCL (2) 4,537,300 32,087 .25
Serm Suk PCL (2) 210,166 1,173
Serm Suk PCL, local registered (2) 64,960 341 .01
Siam City Cement PCL (2) 4,543,178 10,040 .08
Siam Commercial Bank PCL 1,109,466 667
Siam Commercial Bank, warrants, expire December 31, 2002 (2) 277,366 - .01
Wattachak 3.50% convertible bond December 6, 2003 $6,400,000 - .00
---------- ----------
81,869 .64
---------- ----------
Turkey - 3.93%
Adana Cimento Sanayii TAS, Class A (4) 302,959,339 5,575
Adana Cimento Sanayii, TAS, Class C 104,042,945 347 .05
Aktas Elektrik Ticaret AS 37,562,168 9,773 .08
Ege Biracilik ve Malt Sanayii AS 213,359,138 16,587 .13
Erciyas Biracilik ve Malt Sanayii AS (3) 157,412,000 10,489 .08
Eregli Demir ve Celik Fabrikalari TAS(2) (3) 370,034,000 15,264 .12
Koc Holding AS 322,358,538 28,129 .22
Migros Turk TAS (3) 70,262,162 70,229 .55
Nergis Holding AS 100,564,000 3,127 .02
Netas, Northern Electric Telekomunikasyon AS (2) 177,175,960 3,261 .03
Petrol Ofisi AS 201,130,437 27,124 .21
Sonera Group Oyj (ADR)(acquired 11/10/98,cost: $332,000) (1)(2) 9,400 660 .01
Trakya Cam Sanayii AS (3) 570,514,574 7,060 .06
Turk Dis Ticaret Bankasi (2) 26,252,000 191
Turkiye Garanti Bankasi AS (2) 2,037,343,977 50,424 .39
Turkiye Is Bankasi AS 5,262,480,149 136,927 1.07
Turkiye Sise ve Cam Fabrikalari AS (3) 1,476,729,947 18,275 .14
Yapi ve Kredi Bankasi AS (3) 8,492,877,569 98,363 .77
---------- ----------
501,805 3.93
---------- ----------
Ukraine - 0.02%
JKX Oil & Gas PLC (2) (3) 8,480,233 1,688
JKX Oil & Gas PLC 7.00% convertible bond June 30, 2001
(acquired 6/6/96, cost: $2,000,000) (1),(3) $2,000,000 1,500 .02
---------- ----------
3,188 .02
---------- ----------
Venezuela - 0.16%
Compania Anonima Nacional Telefonos de Venezuela
CANTV, Class D (ADR) 1,139,500 20,297 .16
------------- ------------
Vietnam - 0.03%
Vietnam Frontier Fund
(acquired 7/21/94, cost: $2,293,000) (1)(2) 222,610 1,113 .01
Vietnam Investment Fund, preferred, units
(acquired 8/4/94, cost: $3,206,000) (1)(2)(5) 30 3,206
Vietnam Investment Fund, ordinary, units
(acquired 8/4/94, cost: less than $1,000) (1)(2)(5) 6 - .02
---------- ----------
4,319 .03
---------- ----------
Multinational - 1.92%
Aminex PLC (acquired 8/1/97, cost: $3,856,000) (1) (2) (3) 3,250,000 728 .01
Argosy Mining Corp. (2) 424,462 42 .00
Armada Gold Corp. (2) 5,315,000 260 .00
Armada Gold Corp. 10.00% convertible bond July 8,2004 CAD800,000 36 .00
Asia Pacific Resources International Holdings Ltd. (2)(3) 3,024,800 6,215 .05
Billiton PLC 21,441,500 42,681 .34
Black Swan Gold Mines Ltd. (2) 2,275,000 297 .00
Cie. Financiere pour l'Europe Centrale SA (GDR)(2) 82,995 504 .00
Coca-Cola Beverages PLC 6,480,780 11,395 .09
DiamondWorks Ltd. (2) 3,966,000 543 .00
Dragon Oil PLC (2) 4,881,199 1,336 .01
Eurosov Energy PLC (2) 42,900 20 .00
Freeport-McMoRan Copper & Gold Inc., Class A 91,900 890 .01
Glencar Mining PLC (2) 519,735 315 .00
Goldbelt Resources Ltd. (2) 766,372 15 .00
Kimberley Resources Ltd. (2) 426,221 63 .00
New Asia East Investment Fund Ltd., Class A
(acquired 5/23/96, cost: $2,936,000) (1) (2) (5) 293,600 2,388
New Asia East Investment Fund Ltd., Class B .27
(acquired 5/23/96, cost: $40,064,000) (1) (2) (5) 4,006,400 32,590
New Europe East Investment Fund Ltd., Class B
(acquired 6/4/93, cost: $34,535,000) (1) (2) 436 42,171 .33
Oliver Gold Corp. (2) 75,795 6 .00
Panamerican Beverages, Inc., Class A 4,368,800 95,294 .75
Sibir Energy PLC (2) 7,311,763 546 .00
Sutton Resources Ltd. (2) 1,689,500 7,162 .06
------------- -----------
245,497 1.92
---------- ----------
Miscellaneous - 1.53%
Equity securities in initial period of acquisition 195,586 1.53
---------- ----------
TOTAL EQUITY SECURITIES (cost: $11,915,857,000) 10,280,185 80.33
---------- ----------
Principal
Amount
(000)
BOND & NOTES
Argentina - 1.90
Republic of Argentina:
6.1875% March 31, 2005 (4) $111,907 94841 .74
8.75% July 10, 2002 ARS15,240 12509 .10
11.00% October 9, 2006 $23,225 22993 .18
11.375% January 30, 2017 19,225 19283 .15
11.75% February 12, 2007 ARS36,650 31182 .24
Bonos Del Tesoro 8.75% May 9, 2002 $60,850 .44
CEI Citicorp Holdings SA, Series B, 11.25% February 14, 2007 ARS10,575 .05
---------- ----------
242666 1.90
---------- ----------
Brazil - 0.55%
Federal Republic of Brazil:
Capitalization Bond PIK 8.00% April 15, 2014 $49,519 29,711 .23
Debt Conversion Bonds: 6.1875% April 15, 2012 (4) .10
MYDFA Trust:
6.25% September 15, 2007
(Acquired 10/2/96, cost: $12,888,000) (1) (4) .06
6.25% September 15, 2007 .02
NMB Series L, 6.625% April 15, 2009 (4) .02
Series EI-L, 6.125% April 15, 2006 (4) .09
Multicanal Participacoes SA, Class B, 12.625% June 18, 2004 .03
(acquired 6/10/96, cost: $5,016,000) (1) ---------- ----------
70756 .55
---------- ----------
Bulgaria - 0.16%
Republic of Bulgaria:
Interest Arrears bond 6.565% July 28, 2011 (4) 5,050 3421 .03
Front Loaded Interest Reduction Bond,
Series A, 2.50% July 28, 2012 (4) 29,025 16762 .13
---------- ----------
20183 .16
---------- ----------
Ecuador - 0.02%
Republic of Ecuador Past Due Interest Bond 6.625%
February 27, 2015 (4) 2811 .02
---------- ----------
2811 .02
---------- ----------
India - 0.00%
Flex Industries Ltd. 13.50% December 31, 2004 INR29,929 612 .00
---------- ----------
612 .00
---------- ----------
Indonesia - 0.20%
APP International Finance 11.75% October 1, 2005 2125 1413 .01
Indah Kiat International Finance:
8.875% November 1, 2000 1225 845 .01
10.00% July 1, 2007 14175 7726 .05
11.875% June 15, 2002 4850 3419 .03
12.50% June 15, 2006 1050 701 .01
International Finance Co. 10.00% June 1, 2007 1950 1151 .01
Pindo Deli finance Mauritius Ltd.:
10.25% October 1, 2002 4845 2713 .02
10.75% October 1, 2007 14815 8000 .06
---------- ----------
25968 .20
---------- ----------
Mexico - 1.93%
Banco Nacional de Comercio Exterior, S.N.C.
7.25% Februaary 2, 2004 77,700 71,484 .56
Bancomext Trust 11.25% May 30, 2006 .05
Grupo Televisa, SA 0%/13.25% May 15, 2008 (6) .02
Innova, S. de R.L. 12.875% Senior Notes due April 1, 2007 .01
United Mexican States Discount Bonds
Series A, unit, 6.1156% December 31, 2019 (4) 1,75 1,435 .01
Series C, 6.201% December 31, 2019 (4) .02
Series D, 6.6016% December 31, 2019 (4) .05
United Mexican States Government Bonds:
8.625% March 12, 2008 14,000 13,118 .10
9.75% February 6, 2001 .14
9.875% January 15, 2007 .51
11.375% September 15, 2016 .14
11.50% May 15, 2026 .32
---------- ----------
247631 1.93
---------- ----------
Panama - 1.02%
Republic of Panama:
8.25% April 22, 2008 7440 6994 .06
8.875% September 30, 2007 7970 7531 .06
Interest Reduction Bonds:
3.75% July 17, 2014
(acquired 11/8/95, cost : $8,024,000) (1) (4) 13864 10467 .08
4.00% July 17, 2014 (4) 41215 31117 .24
Past Due Interest Bonds:
6.6875% July 17, 2016 (4) 93830 70373 .55
6.6875% July 17, 2016 .00
(acquired 6/21/96, cost: $3,219,000) (1) (4) 4589 3441 .03
---------- ----------
129923 1.02
---------- ----------
Peru - 0.41%
Republic of Peru:
Front Loaded Interest Reduction Bonds:
3.25% March 7, 2017 (4) 3000 1714 .01
3.25% March 7, 2017 (acquired 8/5/96, cost: $6,489,000) (1) (4) 11050 6312 .05
Past Due Interest Bonds:
4.00% July 17, 2017 (4) 47750 30202 .24
4.00% July 17, 2017
(acquired 3/7/97, cost: $15,065,000)(1)(4) 22460 14206 .11
---------- ----------
52434 .41
---------- ----------
Philippines - 0.35%
Republic of Philippines:
Front Loaded Interest Reduction Bond, Series B, 5.962%
June 1, 2008 (4) 14250 11828 .09
8.75% October 7, 2016 11500 11396 .09
8.875% April 15, 2008 21750 21723 .17
---------- ----------
44947 .35
---------- ----------
Poland - 0.23%
Republic of Poland Past Due Interest Bond 4.00%
October 27, 2014(4) 29000 27188 .21
Poland Government Bond 14.00% February 12, 2000 PLN6,100 1766 .02
---------- ----------
28954 .23
---------- ----------
Russian Federation - 0.01%
Russia 12.75% June 24, 2028
(acquired 6/18/98, cost: $896,000) (1) $910 291 .00
Russia 5.969% December 15, 2015
(acquired 3/7/97, cost: less than $1,000)(1)(4) 1 0 .00
Russia Principal Loan 5.97% December 15, 2020 (4) 10784 701 .01
---------- ----------
992 .01
South Africa - 0.08%
Republic of South Africa 13.00% August 31, 2010 ZAR70,000 10078 .08
South Korea - 0.03%
Korea Development Bank:
6.50% November 15, 2002 700 635
6.625% November 21, 2003 3000 2682 .02
6.75% December 1, 2005 200 175 .00
7.375% September 17, 2004 700 639 .01
---------- ----------
4131 .03
Thailand - 0.01%
Advance Agro PCL 13.00% Senior Unsecured Notes
November 15, 2007 (acquired 11/19/97,cost: $1,133,000) (1) $1,250 1038 .01
---------- ----------
1038 .01
---------- ----------
Venezuela - 0.69%
Republic of Venezuela:
Front Loaded Interest Reduction Bonds:
Series A Eurobond 6.125% March 31, 2007 (4) 9512 6040 .05
Series B Eurobond 6.125% March 31, 2007 (4) 8905 5655 .04
Debt Conversion Bonds:
5.9375% December 18, 2007 (4) 90428 57874 .45
9.25% September 15, 2027 31275 18921 .15
---------- ----------
88490 .69
---------- ----------
---------- ----------
TOTAL BONDS AND NOTES (cost: $ 1,041,807,000) 971,614 7.59
---------- ----------
----------
SHORT-TERM SECURITIES
CORPORATE SHORT-TERM NOTES - 8.20%
Abbey National North America 5.27% due 1/13/99 40,000 39,925 .31
American Honda Finance Corp. 5.23%-5.36% due 1/21-1/29/99 31,057 30,941 .24
Arco British Ltd. 5.15%-5.16% due 2/9-2/24/99 40,000 39,717 .31
Barclays US Fund Corp. 5.10% due 2/18/99 17,400 17,279 .14
Bayer Corp. 5.16%-5.23% due 1/4-1/12/99 32,500 32,459 .25
BMW US Capital Corp. 5.20% due 1/22/99 32,600 32,497 .25
British Gas Capital Inc. 5.29%-5.30% due 1/4-1/11/99 52,800 52,714 .41
Canada Bills 5.13% due 2/11/99 50,000 49,708 .39
Daimler-Benz North America Corp. 5.12% due 3/16-3/19/99 56,100 55,522 .43
Diageo Capital PLC 5.00%-5.30% due 1/19-3/9/99 83,400 82,785 .64
Dresdner US Finance Inc. 5.26% due 1/6/99 10,700 10,690 .08
Electricite de France 5.20% due 2/16/99 1,700 1,689 .01
Export Development Corp. 4.94%-5.30% due 1/7-2/9/99 45,000 44,933 .35
France Telecom, SA 5.10%-5.15% due 2/11-3/9/99 22,650 22,475 .18
Glaxo Wellcome PLC 5.15%-5.24% due 1/25-2/25/99 74,000 73,698 .58
Halifax PLC 5.09%-5.53% due 1/28-2/8/99 75,700 75,340 .59
International Lease Finance Corp. 5.16% due 1/28/99 20,000 19,920 .16
National Australia Funding (Delaware) Inc. 5.13%-5.28% due 1/5-2/2/99 57,200 57,086 .45
Repsol International Finance BV 5.15% due 1/26-2/1/99 87,700 87,297 .68
Rio Tinto America Inc. 5.06%-5.32% due 2/3-3/5/99 40,800 40,501 .32
Shell Finance (U.K.) PLC 5.14%-5.19% due 2/2-2/4/99 48,700 48,467 .38
SmithKline Beecham Corp. 5.11% due 1/20/99 20,000 19,944 .16
Toyota Motor Corp. 5.21%-5.27% due 1/13-1/21/99 60,000 59,856 .47
Xerox Capital (Europe) PLC 5.07%-5.32% due 1/14-3/4/99 54,500 54,079 .42
---------- ----------
1,049,522 8.20
---------- ----------
Federal Agency Discount Notes - 1.25%
Fannie Mae 5.00%-5.12% due 1/4-2/4/99 57,200 57,060 .45
Federal Home Loan Banks Discount Corp. 5.09%-5.18% due 2/5-2/12/99 36,750 36,552 .29
Freddie Mac 4.76%-5.30% due 1/15-2/12/99 67,200 66,874 .51
---------- ----------
160,486 1.25
---------- ----------
Non-U.S. Government-Short Term Obligations - 2.72%
Mexican Cetes Treasury Bills due 3/11-8/5/99 MXN38,736 35,481 .28
Polish Government Treasury Bills due 1/6-3/31/99 PLN389,430 109,270 .85
Turkey Government Bonds, Series CPI, 30.00% due 8/18-9/29/99 TRL3,803,160 14,320 .11
Turkey Government Teasury Bills due 3/17-5/5/99 TRL78,786,650 188,797 1.48
---------- ----------
347,868 2.72
---------- ----------
Non-U.S. Currency - 0.07%
Chilean Peso CHP23,138 49 .00
Malaysian Ringgit MYR1,623 298 .00
Taiwanese Dollar TWD278,256 8,650 .07
---------- ----------
8,997 .07
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost:$1,570,090,000) 1,566,873 12.24
TOTAL INVESTMENT SECURITIES (cost: $14,527,754,000) 12818672 100.16
Net unrealized depreciation on foreign currency contracts (7) -62402 -.49
Excess of cash and receivables over liabilities
(excludes open foreign currency contracts) 41511 .33
---------- ----------
NET ASSETS $12,797,781 100.00
========== ==========
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 December 31, 1998,
the total market value and cost of such
securities was $379,492,000 and $452,768,000,
respectively, and the market value represented
2.97% 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 of 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 that will
convert to a coupon-bearing security at a later date.
(7) As of December 31,1998, the net payable
consists of the following:
</TABLE>
<TABLE>
Contract U.S.
Amount Valuation at 12/31/98
----------- ----------- -----------
Unrealized
Appreciation
Non-U.S. U.S. Amount (Depreciation)
(000) (000) (000) (000)
- ------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales:
Brazilian Reales
expiring 2/24/99 - 11/3/99 BRL979,648 $651,400 $689,625 ($38,225)
French Francs
expiring 1/13/99 - 3/17/99 FRF25,787 4,331 4,620 (289)
German Deutsche Marks
expiring 1/13/99 - 3/17/99 DEM53,090 29,899 31,903 (2,004)
Mexican Pesos
expiring 3/11/99 MXN139,617 11,351 13,362 (2,011)
South African Rands
expiring 1/20/99 - 10/25/99 ZAR1,560,223 234,239 244,093 (9,854)
Taiwanese Dollars
expiring 9/1/99 TWD2,119,689 57,915 65,520 (7,605)
Thai Bahts
expiring 11/4/99 THB110,063 2,885 2,954 (69)
Venezuelan Bolivares
expiring 1/13/99 VEB5,540 8,780 9,717 (937)
-----------------
(60,994)
Purchase:
Brazilian Reales
expiring 3/1/99* BRL125,488 101,200 99,792 (1,408)
-----------------
Foreign currency contracts - net (62,402)
*The fund entered into a forward
purchase contract to partially close
existing forward sales contracts.
</TABLE>
<TABLE>
<S> <C> <C>
SYMBOLS
SECURITIES
ADR - American Depositary Receipts
ADS - American Depositary Shares
GDR - Depositary Receipts
GDS - Global Depositary Shares
NON - US CURRENCY
ARS - Argentine Peso INR - Indian Rupee TRL - Turkish Lira
BRL - Brazilian Real MXN - Mexican Peso TWD - Taiwan Dollar
CAD - Canadian Dollar MYR - Malaysian Dollar VEB - Venuzuelan Bolivar
CHP - Chilean Peso PHP - Philippine Peso ZAR - South African Rand
DEM - German Deutsche Mark PLN - Polish Zloty
FRF - French Franc THB - Thai Baht
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C>
EQUITY SECURITIES ADDED TO THE PORTFOLIO EQUITY SECURITIES ELIMINATED FROM
SINCE JUNE 30,1998 THE PORTFOLIO SINCE JUNE 30, 1998
Amway (Malaysia) Holdings PT Aneka Tambang
Banco Continental Banco Santander-Chile
Black Swan Gold Mines Bangkok Bank
Cadbury India Bank of Ayudhya
Carrier Aircon Bharat Forge
CEI Citicorp Holdings Bombay Dyeing and Manufacturing
CESKE RADIOKOMUNIKACE Centrais Eletricas de Santa Catarina - CELESC
China Telecom (Hong Kong) CESP-Cia. Energetica de Sao Paulo
Coca-Cola Beverages Empresa Paulista de Transmisao de Energia Eletrica - EPTE
Credit Rating Information Services of India Genting International
Digital Equipment (India) Grupo Casa Autrey
Edaran Otomobil Nasional Laboratorio Chile
Embratel Participacoes PT Lautan Luas
Euroserv Energy LG Securities
Globo Cabo PT Lippo Bank
Goldbelt Resources Lite-0n Technology
Infosys Technologies Lojas Americanas
Kenya Commercial Bank Marchmont Gold
Kimberley Resources PT Mayora Indah
LML Multicanal Participacoes
Lukinter Finance New World Infrastructure
Mezogep Petron
REAL Concorcio Participacoes Philippine National Bank
REAL Holdings Participacoes PT PP London Sumatra Indonesia
REALPAR Participacoes Quilmes Industrial
Road Builder (M) Holdings PT Ramayana Lestari Sentosa
Sechaba Breweries Samsung Fire & Marine Insurance
Siam City Cement Shinhan Bank
Sibir Energy Siliconware Precision Industries
Sonera Group Star Cruises
South African Private Equity Fund III Sundaram Finance
Tan Chong Motor Holdings Swedish Motors
Tele Celular Sul Participacoes PT Tambang Timah (Persero)
Tele Centro Oeste Celular Participacoes Technology Resources Industries
Tele Centro Sul Participacoes Thai Farmers Bank
Telekomunikacje Polska Thai Glass Industries
Tele Leste Celular Participacoes Tian An China Investments
Telemig Celular Participacoes Tingyi (Cayman Islands) Holding
Tele Nordeste Celular Participacoes Ton Yi Industrial
Tele Norte Celular Participacoes Zhejiang Expressway
Tele Norte Leste Participacoes
Telesp Celular Participacoes
Telesp Participacoes
Tele Sudeste Celular Participacoes
Turk Dis Ticaret Bankasi
United Bank for Africa
</TABLE>
<TABLE>
<S> <C> <C>
Emerging Markets Growth Fund
Financial Statements
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1998 (Unaudited)
Assets:
Investment securities at market
(cost: $14,527,754) $12,818,672
Cash 16,154
Non-U.S. taxes receivable 95
Receivables for--
Sales of investments $49,902
Sales of fund's shares 3,137
Dividends and accrued interest 70,216 123,255
---------------- ----------------
12,958,176
----------------
Liabilities:
Payables for--
Purchases of investments 24,455
Unfunded capital commitments 63,486
Open forward currency contracts 62,402
Management services 6,736
Accrued expenses 3,316 160,395
---------------- ----------------
Net Assets at December 31, 1998 --
Equivalent to $40.55 per share on
315,590,376 shares of $0.01 par value
capital stock outstanding (authorized
capital stock -- 400,000,000 shares) $12,797,781
==============
Statement of Operations
for the Six Months Ended December 31, 1998 (dollars in thousands)
(Unaudited)
Investment Income:
Income:
Dividends $98,290
Interest 121,508 $219,798
----------------
Expenses:
Management services fee 37,678
Custodian fee 5,716
Registration statement and prospectus 729
Auditing and legal fees 332
Taxes other than federal income tax 1
Directors' fees 77
Other expenses 516 45,049
---------------- ----------------
Income before non-U.S. taxes 174,749
Non-U.S. taxes 2
----------------
Net investment income 174,747
----------------
Realized Loss and Unrealized
Depreciation on Investments:
Realized loss before non-U.S. taxes (700,108)
Non-U.S. taxes 1
----------------
Net realized loss (700,107)
Net change in unrealized depreciation
on investments (963,121)
Net change in unrealized depreciation
on open forward currency contracts (58,607)
----------------
Net unrealized depreciation (1,021,728)
---------------- ----------------
Net realized loss and unrealized
depreciation on investments (1,721,835)
----------------
Net Decrease in Net Assets Resulting
from Operations ($1,547,088)
==============
Statement of Changes in Net Assets
(dollars in thousands)
Six Months Ended Year Ended
December 31 June 30
1998* 1998
---------------- ----------------
Operations:
Net investment income $174,747 $350,719
Net realized loss on investments (700,107) (45,790)
Net unrealized depreciation
on investments and open foreign currency
contracts (1,021,728) (4,643,969)
---------------- ----------------
Net decrease in net assets
resulting from operations (1,547,088) (4,339,040)
---------------- ----------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net
investment income - (545,105)
Distributions from net realized
gain on investments - (722,874)
---------------- ----------------
Total dividends and
distributions - (1,267,979)
---------------- ----------------
Capital Share Transactions:
Proceeds from shares sold:
47,095,875 and 52,680,219 shares, respectively 1,980,554 3,164,945
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
24,142,868 shares - 1,222,745
---------------- ----------------
Net increase in net assets
resulting from capital share
transactions 1,980,554 4,387,690
---------------- ----------------
Total Increase (Decrease) in Net Assets 433,466 (1,219,329)
Net Assets:
Beginning of period 12,364,315 13,583,644
---------------- ----------------
End of period (including excess distributions
over net investment income: $95,872 and
$270,619, respectively) $12,797,781 $12,364,315
=========== ===========
*Unaudited
See Notes to Financial Statements
</TABLE>
Emerging Markets Growth Fund
Notes to Financial Statements
(unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - 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 their representative quoted bid and asked prices. Securities
and assets for which representative market quotations are not readily available
are valued at fair value as determined in good faith under policies approved by
the Fund's Board.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. 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 non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - 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 TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
UNFUNDED CAPITAL COMMITMENTS - Unfunded capital commitments represent
agreements which obligate the fund to meet capital calls in the future. Payment
would be made when a capital
call is requested. Capital calls can only be made if and when certain
requirements have been fulfilled; thus, the timing of such capital calls cannot
be readily determined. Unfunded capital
commitments are recorded at the amount that would be paid when and if capital
calls are made.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to reduce its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. 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. NON-U.S. INVESTMENT RISK
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.
NON-U.S. TAXATION - Dividend income, interest income and realized gain of the
fund derived in certain countries may be subject to certain non-U.S. taxes at
rates ranging from approximately 10% to 36%. The fund provides for such
non-U.S. taxes on investment income, net realized gain and net unrealized gain
at the appropriate rates for each jurisdiction.
3. FEDERAL INCOME TAXATION
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 December 31, 1998, net unrealized depreciation on investments, excluding
forward currency contracts, for federal income tax purposes aggregated
$1,698,371,000, of which $1,282,989,000 related to appreciated securities and
$2,981,360,000 related to depreciated securities. During the six months ended
December 31, 1998, the fund realized, on a tax basis, a net capital loss of
$562,461,000 on securities transactions. During the same period the fund
recognized, for federal income tax purposes, ordinary net losses $317,793,000
relating to non-U.S. currency transactions. The cost of portfolio securities,
excluding forward currency contracts, for federal income tax purposes was
$14,538,465,000 at December 31, 1998.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $37,678,000 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.
DEFERRED DIRECTORS' FEES - Directors who are unaffiliated with CII may elect to
defer part or all of the fees earned for services as members of the Board.
Amounts deferred are not funded and are general unsecured liabilities of the
fund. As of December 31, 1998, aggregate amounts deferred and earnings thereon
were $31,000. These amounts are included with accrued expenses.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding certain
short-term securities, of $3,078,545,000 and $1,190,332,000, respectively,
during the six months ended December 31, 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 $5,716,000 includes $130,000 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
six months ended December 31, 1998, such non-U.S. taxes were $7,815,000. 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 $22,558,000 for the six months ended December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Six Months Year Ended June 30
Ended
12/31/1998 (1) 1998 1997 1996 1995 1994
Net Asset Value, Beginning of
Period $46.05 $70.87 $57.57 $52.36 $58.75 $44.95
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income 0.70 1.56 1.61 1.30 0.87 0.53
Net realized and unrealized
gain (loss) on investments
before non-U.S. taxes (6.20) (20.69) 14.51 6.49 (.79) 15.29
Non-U.S. taxes - 0.05 (.01) (.01) (.03) (.39)
-------- -------- -------- -------- -------- --------
Total income from
investment operations (5.50) (19.08) 16.11 7.78 0.05 15.43
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net
investment income - (2.36) (1.79) (1.30) (.63) (.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 $40.55 $46.05 $70.87 $57.57 $52.36 $58.75
======= ======= ======= ======= ======= =======
Total Return (11.94) (2) (27.56)% 29.17% 15.49% (1.22)% 34.33%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $12,798.00 $12,364.00 $13,584.00 $8,451.00 $5,572.00 $4,170.00
Ratio of expenses to average
net assets .37% (2) .76% .78% .84% .91% 1.00%
Ratio of expenses and non-U.S.
taxes to average net assets .37% (2) .80% .78% .85% .94% 1.04%
Ratio of net income to average
net assets 1.36% (2) 2.58% 2.74% 2.54% 1.70% .91%
Portfolio turnover rate 10.97% (2) 23.41% 23.75% 17.78% 23.75% 18.13%
(1) Unaudited
(2) Based on operations for
the period shown and, accordingly,
not representative of a full
year's operations.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Los Angeles, and State of California on the 12th day of May, 1999.
EMERGING MARKETS GROWTH FUND, INC.
By: /s/ Roberta A. Conroy
Roberta A. Conroy
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below May 12, 1999 by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
(1) Principal Executive Officer:
/s/ Nancy Englander President
Nancy Englander
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Michael A. Felix Vice President
Michael A. Felix and Treasurer
(3) Directors:
Robert E. Angelica* Director
Nancy Englander* Director
David I. Fisher* Director
Khalil Foulathi* Director
Beverly L. Hamilton* Director
Raymond Kanner* Director
Marinus W. Keijzer* Director
Hugh G. Lynch* Director
Helmut Mader* Director
John G. McDonald* Director
William Robinson* Director
Patricia A. Small* Director
Walter P. Stern* Director
Shaw B. Wagener* Director
</TABLE>
*By: /s/ Roberta A. Conroy
Roberta A. Conroy, Attorney-in-Fact
