PROSPECTUS 3,763,201 Shares of Beneficial Interest
NEW WORLD INVESTMENT FUND
New World Investment Fund (the "Fund') is a non-diversified,
closed-end management investment company organized as a business trust in the
United States under the laws of the Commonwealth of Massachusetts on March 1,
1989, and registered under the Investment Company Act of 1940, as amended. As
of the date of this Prospectus, the Fund had outstanding 11,828,220 shares of
beneficial interest, par value $.001 per share, and its aggregate net assets
were approximately $228,166,364. The Fund seeks, over the long term, a high
level of total return by investing primarily in securities of Latin American
issuers. Under normal market conditions, the Fund invests between 60% and 90%
of its total assets in equity securities of Latin American issuers. The Fund
also may invest in fixed-income securities of Latin American issuers and in
other investment companies or collective investment undertakings that invest in
Latin American equity and/or fixed-income securities. The Fund currently
intends to limit its investments in Latin American securities to securities
issued or traded in the markets of Argentina, Brazil, Chile, Colombia, Mexico,
Peru and Venezuela, although it may invest in additional Latin American markets
in the future.
The Fund's investment adviser is Capital International, Inc. (the
"Adviser").
The Fund is offering 3,763,201 shares of beneficial interest (the
"Shares") to the public in a continuous offering (the "Offering"). The
Offering will continue until all the Shares have been sold. There is no public
trading market for the Fund's shares. It is not currently anticipated that an
active secondary market will develop for any shares of the Fund and as such the
Shares may not be considered readily marketable. In addition, all shareholders
are required to enter into a Shareholders Agreement which imposes certain
limitations and restrictions on the transfer of the Shares. See "Shareholders
Agreement and Restrictions on Transfer."
Investment in Latin America involves certain special considerations,
such as limitations on foreign investment and repatriation of capital, price
volatility, limited liquidity and small market capitalization of the Latin
American securities markets, currency exchange rate fluctuations and
devaluations, high domestic inflation, government involvement in the private
sector, and political uncertainty, which are not typically associated with
investments in the United States. See "Investment Objective and Policies" and
"Special Considerations and Risk Factors."
The address of the Fund is 11100 Santa Monica Boulevard, Los Angeles,
CA 90025, and the Fund's telephone number is (310) 996-6000.
This Prospectus sets forth concisely the information an investor
should know before investing and should be retained for future reference.
Additional information about the Fund has been filed with the U.S. Securities
and Exchange Commission ("SEC") and is available from the Fund upon written or
oral request and without charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
<TABLE>
<CAPTION>
Price to Public (1)(2) Sales Load Proceeds to the Fund(2)(3)
<S> <C> <C> <C>
Per Share $19.29 N/A $19.29
Total(2) $72,592,147 N/A $72,592,147
</TABLE>
(1) The Shares are offered on a best efforts basis by the officers and
Trustees of the Fund. No commission or remuneration will be paid to such
persons in connection with the sale of Shares. The offering price of the
Shares is equal to the net asset value, next determined after the order to
purchase Shares has been received by the Fund. As of November 30, 1995, the
net asset value per share was $19.29.
(2) Assuming all Shares currently registered are sold pursuant to continuous
offering.
(3) Before deducting expenses of the offering borne by the Fund estimated to
be $32,995.92
THE DATE OF THIS PROSPECTUS IS DECEMBER 1, 1995.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) . . . . . . . . . . None
Dividend Reinvestment and Cash Purchase Plan Fees. . . . . . . . . None
Annual Fund Operating Expenses (as a percentage of net assets)
Management Fees* . . . . . . . . . . . . . . . . . . . . . . . . 0.90%
Other Expenses** . . . . . . . . . . . . . . . . . . . . . . . 0.40%
Total Annual Fund Operating Expenses*** . . . . . . . . . . . . . 1.30%
The purposes of the table above is to help you understand all fees
and expenses that you, as a Fund shareholder, would bear directly or
indirectly.
* Effective September 10, 1995, the Investment Adviser's fee, which is payable
monthly, is assessed at the annual rates of 0.90% of the first $400 million of
aggregate net assets and 0.80% of aggregate net assets in excess of $400
million. Prior to September 10, 1995, the Adviser's fee was assessed at the
annual rates of 1.00% on the first $400 million of aggregate net assets and
0.80% of aggregate net assets in excess of $400 million.
** "Other Expenses" are estimated and include non-U.S. taxes paid or accrued on
net investment income as a result of investing in certain foreign countries.
*** The expenses shown in the table are for the current fiscal year and are
based upon the aggregate net assets of the Fund as of June 30, 1995, assuming
all Shares being offered by this Prospectus are sold at net asset value as of
June 30, 1995. Total expenses excluding non-U.S. taxes (as a percentage of net
assets) are estimated at 1.20% for the current fiscal year, which reflects the
new investment advisory rate of 0.90%.
Example
An investor would directly or indirectly pay the following expenses
on a $1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C>
$12 $38 $66 $145
</TABLE>
This "Example" assumes that all dividends and other distributions are
reinvested at net asset value and that the percentage amounts listed under
Annual Fund Operating Expenses remain the same in the years shown. The above
tables and the assumption in the Example of a 5% annual return are required by
regulations of the Securities and Exchange Commission applicable to all
investment companies; the assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Fund.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus.
THE FUND
New World Investment Fund (the "Fund") is a closed-end management investment
company organized as a business trust in the United States under the laws of
the Commonwealth of Massachusetts on March 1, 1989, and registered under the
Investment Company Act of 1940, as amended ("1940 Act"). As of the date of
this Prospectus, the Fund had outstanding 11,828,220 shares of beneficial
interest, par value $.001 per share, and its aggregate net assets were
approximately $228,166,364. The Fund is designed for investors seeking to
invest in securities of Latin American issuers. See "The Fund."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek, over the long term, a high
level
of total return by investing primarily in securities of Latin American issuers.
The Fund's policy, under normal market conditions, is to invest between 60% and
90% of its total assets in equity securities of Latin American issuers. The
Fund may also invest in fixed-income securities of Latin American issuers and
Brady Bonds for liquidity management purposes and when the Fund's investment
adviser believes that such securities may provide a high level of total return.
The Fund intends currently to limit its investments in Latin American
securities to securities issued or traded in the markets of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela, although it may invest in
additional Latin American markets in the future. Under normal conditions, the
Fund may invest up to 10% of its assets outside of Latin America. The Fund
intends to allocate its assets geographically in accordance with its investment
adviser's view of investment opportunities at a given time, but will invest in
the securities of issuers in at least three different countries. As a
fundamental policy, the Fund may not invest more than 50% of its assets in
securities of issuers based in a single country.
The Fund also may invest from time to time in other investment companies or
collective investment undertakings that invest in Latin American equity and/or
fixed-income securities.
The Fund may invest in illiquid or restricted securities and may purchase
securities directly from the issuer and make certain investments, including
purchases of participation interests in bank loans, that may not have all the
characteristics of other equity or debt securities in which the Fund may
invest. The Fund intends, however, to invest primarily in securities that are
listed on bona fide securities exchanges or are actively traded in the
over-the-counter markets and, in any case, will not make additional investments
in securities (or participation interests) that are not readily marketable at
any time when more than 35% of its total assets are invested in such securities
(or participation interests). For temporary defensive purposes the Fund may
reduce its holdings of Latin American equity securities and increase its
holdings of bonds or short-term debt obligations of Latin American or other
issuers and cash (some or all of which may be denominated in U.S. dollars or
other non-Latin American currencies). See "Investment Objective and Policies."
The Fund may also enter into transactions in derivative instruments for risk
management, investment and other purposes including options on securities and
securities indexes, futures contracts with respect to securities, securities
indexes, or currencies, swap agreements, and equity-linked notes. These
instruments may be more volatile than other portfolio instruments held by the
Fund, and there can be no assurance that use of any such instrument will be
successful in reducing portfolio risk or increasing portfolio returns.
Successful use of these instruments by the Fund depends on the ability of the
Adviser to correctly predict future movements in interest rates, security
prices, or other market indicators.
THE OFFERING
The Fund is offering 3,763,201 shares of beneficial interest, par value $.001
each, (the "Shares") to the public in a continuous offering (the "Offering").
The Shares will be offered by the Fund on a continuous basis until all
3,763,201 Shares offered have been sold. Shares may be purchased by notifying
Abbe Shapiro by telephone (310-996-6153) or telecopy (310-996-6200). Assuming
the investor suitability and minimum purchase requirements described herein
have been met and the order has been accepted, the price of Shares will be the
net asset value per Share next determined (on the last business day of each
week and month). Payment, which may be in the form of check or by wire, must
be received on or prior to the third business day following the date on which
the price is determined at the direction of the Fund's officers. At the sole
discretion of Capital International, Inc. (the "Adviser"), investors may be
permitted to purchase Shares by tendering to the Fund securities which are
determined by the Adviser to be appropriate for the Fund's investment
portfolio. See "The Offering."
INVESTOR SUITABILITY REQUIREMENTS AND MINIMUM PURCHASES
The Fund has established suitability standards which require that each
prospective investor that is a "company" (as that term is defined in the 1940
Act) must have total assets in excess of US $5 million. A prospective investor
that is a natural person must be an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended ("1933 Act"). That
is, such person must have an individual net worth in excess of US $1 million or
an individual income in excess of US $200,000 during each of the two most
recent years. The minimum initial purchase pursuant to the Offering (for
companies and natural persons) is $100,000 (approximately 5,184 Shares based on
the offering price at the date of this Prospectus) and $25,000 thereafter.
SHAREHOLDERS AGREEMENT AND RESTRICTIONS ON TRANSFER
All shares of the Fund, including the Shares to be issued in the Offering, are
equal with all other shares with respect to dividends, voting rights,
liquidation rights and other matters. See "Capitalization."
Each current holder of the Fund's shares has entered into a Shareholders
Agreement. Among other things, the Shareholders Agreement provides with respect
to transfers of shares that no Shareholder may transfer any shares to a third
party that is a "company" (as that term is defined in the 1940 Act) unless (i)
the prospective purchaser represents that it has net assets in excess of US $5
million; (ii) it transfers the lesser of its entire holding of shares or a
sufficient number of shares that their current net asset value, in the
aggregate, equals or exceeds the required minimum initial investment
(currently, $100,000); (iii) the Fund receives prior written notification of
the terms of any transfer and of the nature of the proposed transferee(s), and
if requested, the Fund receives evidence of the proposed transfer's compliance
with applicable law; and (iv) the Board of Trustees has not, within up to 30
days following receipt of the required notification from a prospective selling
shareholder, determined that the proposed transfer would have a material
adverse impact on the Fund or any of its shareholders and prohibited the
transfer. If the prospective purchaser is a natural person no shares may be
transferred unless (i) the prospective purchaser satisfies (ii), (iii) and (iv)
above, and (ii) the prospective purchaser has an individual net worth in excess
of US $1 million or an individual income in excess of US $200,000 during each
of the two most recent years. The Shareholders Agreement provides further that
successors in interest of the holders of shares will be bound by its terms, and
will be required to execute the Agreement. All investors purchasing shares
pursuant to the Offering are required to enter into the Shareholders Agreement.
See "Shareholders Agreement and Restrictions on Transfer."
In light of the risks involved in an investment in the Fund and the
unlikelihood that a secondary market will develop for the Shares, Shares should
not be purchased unless the purchaser is capable of bearing the significant
risk of maintaining such an investment for an indefinite period.
TENDER OFFER
The Fund's Board of Trustees presently intends to consider, on approximately a
quarterly basis, whether to authorize the repurchase by the Fund of up to 5% of
the Fund's issued and outstanding shares at the then current net asset value of
such shares. There is no guarantee that the Fund will repurchase any shares or
that shares tendered pursuant to a tender offer made by the Fund will in fact
be purchased. The Fund has received an exemption from the Securities and
Exchange Commission (the "SEC") to permit the Fund to repurchase shares in
connection with tender offers while it is engaged in a continuous distribution
of its shares.
SPECIAL CONSIDERATIONS AND RISK FACTORS
The Fund, like other investors in Latin American securities, will be subject to
general economic and political conditions and risks in the Latin American
countries in which it invests. The Fund's investments in securities of Latin
American issuers involve certain considerations not typically associated with
investments in securities of U.S. companies or of U.S. government entities.
These considerations include, generally: (a) restrictions on investment and
repatriation of invested capital and on the Fund's ability to exchange local
currencies for U.S. dollars; (b) currency devaluations and fluctuations in
currency exchange rates; (c) greater price volatility, substantially less
liquidity, more limited regulation, and significantly smaller market
capitalizations of Latin American securities markets; (d) more pervasive
governmental involvement in the domestic economy; (e) higher rates of
inflation; (f) certain local tax law considerations; and (g) political
uncertainty (h) risks associated with investments in loan participations; (i)
settlement risks and other considerations.
Because of the limited forward market for the purchase of U.S. dollars in most,
if not all, Latin American countries and the limited circumstances in which the
Fund expects to hedge against declines in the value of Latin American
currencies generally, the Fund will be adversely affected by devaluations of
Latin American currencies against the U.S. dollar to the extent the Fund is
invested in securities denominated in currencies experiencing a devaluation.
In addition, accounting, auditing and financial reporting standards in Latin
American countries are different from U.S. standards. As a result, certain
material disclosures may not be made, and less information may be available to
the Fund and other investors than would be the case if the Fund's investments
were restricted to securities of U.S. issuers.
Shares of closed-end investment companies that are publicly traded frequently
trade at a discount from net asset value. This characteristic of shares of a
closed-end fund is a risk separate and distinct from the risk that the Fund's
net asset value will decrease. The Fund's outstanding shares are not, and it
is not expected that the Shares offered hereby will be, publicly traded. See
"Special Considerations and Risk Factors--Market Value and Net Asset Value."
While the Fund expects primarily to invest in Latin American equity securities
of companies that are listed on bona fide securities exchanges or are traded in
over-the-counter ("OTC") markets, it may, subject to local investment
restrictions, invest up to 35% of its assets in securities and participation
interests that are not readily marketable. Such investments may involve a high
degree of business and financial risk. Because of the absence of any liquid
trading market for these investments, the Fund may take longer to liquidate
these positions than is the case for securities of listed companies. In
addition to the relevant financial and business risks, companies not publicly
traded may not be subject to the same disclosure requirements applicable to
companies whose securities are publicly traded. See "Special Considerations
and Risk Factors--Illiquid or Restricted Securities."
The Fund is classified as a "non-diversified" investment company under the 1940
Act, which means that the Fund is not limited by that Act in the proportion of
its assets that may be invested in the securities of a single issuer. The Fund
is, however, subject to certain local laws limiting investments in a single
issuer and intends to comply with the diversification requirements imposed by
the U.S. Internal Revenue Code of 1986, as amended, for qualification as a
regulated investment company. As a non-diversified investment company, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to its portfolio investments than a diversified company might be. See
"Investment Restrictions" and "Tax Considerations."
INVESTMENT ADVISER
Capital International, Inc. (the "Adviser") manages the investment portfolio
and business affairs of the Fund, subject to policies established by the Fund's
Board of Trustees. See "Management of the Fund -- The Investment Adviser."
ADVISORY FEES AND OTHER EXPENSES
The Fund pays the Adviser a monthly fee at an annual rate of 0.90% of the first
$400 million of the Fund's aggregate net assets and 0.80% of such aggregate net
assets in excess of $400 million. This Fee is higher than that paid by most
other U.S. registered investment companies investing solely in securities of
U.S. issuers, but the Adviser believes that it is comparable to that of U.S.
registered investment companies investing in securities of Latin American
issuers. Other Fund expenses are deducted from its assets or income. See
"Management of the Fund."
FINANCIAL HIGHLIGHTS
The table below provides per share data and ratios for one share of the
Fund for each of the periods shown. This information is supplemented by the
financial statements and accompanying notes which appear elsewhere in this
Prospectus. The financial statements and notes and the financial information
in the table below have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is also included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PER-SHARE DATA AND RATIOS For the Fiscal Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $31.27 $24.89 $20.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .43 .50 .37
Net realized and unrealized (loss) gain on (2.49) 8.83 5.59
investments before non-U.S. taxes
Non-U.S. taxes (.10) (.50) (.01)
Total (loss) income from investment operations (2.16) 8.83 5.95
LESS DISTRIBUTIONS:
Dividends from net investment income (.04) (.21) --
Distributions from net realized gain (9.81) (2.24) (2.04)
Total distributions (9.85) (2.45) (2.04)
Net Asset Value, End of Period $19.26 $31.27 $24.89
Total Return (15.47%) 35.97% 31.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $242 $305 $212
Ratio of expenses to average net assets 1.27% 1.36% 1.40%
Ratio of expenses and non-U.S. taxes 1.40% 1.50% 1.62%
to average net assets
Ratio of net income to average net assets 1.58% 1.43% 1.70%
Portfolio turnover rate 44.19% 21.47% 17.23%
</TABLE>
In conformity with the requirements of Form N-2, financial highlight
information is not provided for the period from the Fund's commencement of
operations prior to the effectiveness of its initial registration statement
under the Securities Act of 1933, as amended.
THE FUND
New World Investment Fund (the "Fund") is a closed-end management
investment company, organized as a business trust under the laws of the
Commonwealth of Massachusetts on March 1, 1989, and registered under the
Investment Company Act of 1940, as amended ("1940 Act"). As of the date of
this Prospectus, the Fund had outstanding 11,828,220 shares of beneficial
interest, par value $.001 per share, and its aggregate net assets were
approximately $228,166,364.
The Fund was organized to take advantage of a perceived growing
potential for foreign portfolio investment in Latin American securities
markets, primarily in Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. While there are risks as well as regulatory, financial, technical
and other barriers to investing in these markets, in the Adviser's opinion,
there are also substantial investment opportunities. For example, a number of
Latin American companies have healthy balance sheets and strong management and
are highly competitive in world markets, yet their securities frequently trade
at price/earnings and price/book value ratios that are below those of companies
traded on more developed securities markets. There also may be attractive
opportunities for equity investments made through the conversion of external
debt to local currency at favorable rates and also for certain
dollar-denominated or indexed fixed-income investments which provide high
yields in real terms. In addition, the low market capitalizations of certain
Latin American securities markets as a percentage of their countries' gross
national products compared to similar ratios in developed markets point to
long-term growth in the Latin American securities markets. Further, policy
makers in Latin America are becoming increasingly receptive to foreign
portfolio investment based on their growing appreciation of the important role
of equity capital and publicly traded debt.
The Fund is intended for investors who seek an opportunity to
participate in potential price appreciation and income opportunities of Latin
American securities. The Fund believes that it will provide an opportunity for
investors to diversify their portfolios by country and industry, thus reducing
the risks associated with downturns in any one industry or market.
Additionally, the Fund will provide an opportunity for international investment
away from the better-known and more developed securities markets. See
"Investment Objectives and Policies." There can be no assurance that the
Fund's objective will be met.
In 1989, the Fund sold 6,250,000 shares of beneficial interest in a
private offering to a limited number of institutional investors. In 1991, the
Fund sold 1,154,964 shares of beneficial interest in a private offering to
three accredited investors, and in 1992, the Fund sold 459,770 shares of
beneficial interest to one accredited investor. In 1993, the Fund sold 442,167
shares of beneficial interest to seven accredited investors. In 1994, the Fund
sold 296,679 shares of beneficial interest to three accredited investors.
Otherwise, since that time, the Fund has not issued any additional shares
except for 6,246,190 shares issued pursuant to reinvestment of dividends and
capital gain distributions. The Fund has, from time to time, repurchased
shares pursuant to tender offers. Consequently, the amount of shares
outstanding does not equal the amount of shares issued.
As of the date of this Prospectus, there were nine holders of shares,
and 11,828,220 shares of the Fund outstanding. The Fund's aggregate net assets
were approximately $228,166,364. If all the 3,763,201 Shares offered by the
Fund in the Offering were sold, the Fund would have 15,591,420 shares
outstanding and approximately $300,758,492 in aggregate net assets (assuming
all Shares had been sold at prices based on the net asset value per share as of
November 30, 1995).
There are currently no outstanding warrants, rights, options or
similar instruments relating to the purchase of the Fund's shares (see
"Capitalization"). The Board of Trustees may from time to time permit the
issuance of shares for reinvestment of dividends or capital gain distributions
or in additional private or public offerings. Apart from the Offering, there
is no present intention to expand the Fund further through additional public or
private offerings. The Fund, however, reserves the right to make such
offerings in the future if it believes that such offerings would be in the best
interests of the Fund and its shareholders. The Fund also expects to continue
its current practice of issuing additional shares for purposes of reinvestment
of dividend and capital gain distributions.
USE OF PROCEEDS
The net proceeds of the Offering paid to the Fund (estimated to be
approximately $72,592,147 based on the price per share as of November 30, 1995,
if all 3,763,201 Shares offered by the Fund under this registration statement
are sold) will be invested in accordance with the policies set forth under
"Investment Objective and Policies." The Fund expects that substantially all
of the proceeds of the Offering will be invested in accordance with its
investment objective within three months after receipt thereof and, in any
case, no more than six months after receipt.
SPECIAL CONSIDERATIONS AND RISK FACTORS
An investment in the Fund involves risks common to all investments in
the international financial markets as well as significant risks not normally
associated with an investment in securities which trade in more developed
securities markets. These risks include: political and social unrest; currency
instability; high rates of domestic inflation; limitations on repatriation of
capital (including the possible imposition of currency blockages); the impact
of the foreign debt burden on the domestic economies; instability and limited
liquidity and regulation of the securities markets; relatively high transaction
and other costs of investment; differences in accounting, auditing and
financial reporting standards and potential difficulties in obtaining
information about issuers and markets; imposition of foreign taxes; and
governmental intervention in the private sector, including restrictions on
foreign investors such as the Fund. These and other risks should be considered
carefully by prospective investors. There can be no assurance that the Fund
will achieve its investment objective. Potential investors in the Fund should
be able to withstand a significant loss, or even a complete loss, of their
investment in the Fund.
POLITICAL AND ECONOMIC FACTORS
While democratic institutions may be stronger in Latin America today
than at any time in the recent past, political stability in countries in that
region is very difficult to assess. Furthermore, in many Latin American
countries, institutions other than major political parties, particularly the
military and trade unions, may have more influence than comparable institutions
in other countries.
Similarly, the economies of Latin American countries differ among
themselves greatly and differ with respect to the economies of Canada, the
United States, Japan, Germany and other countries of Western Europe in terms of
such factors as rates of growth of their economies overall and within certain
sectors, rates of inflation, population growth and demographic trends, the
importance of international trade, the availability of natural resources,
capital reinvestment, balance of payments, and other factors. In particular,
the economies of Latin American countries may be more susceptible to the
negative effects of trade barriers and tariffs and to fluctuations in the
international prices of certain commodities such as oil, copper, and certain
agricultural products. Certain positive economic trends and developments
occurring in the United States, Canada, Japan, Germany or other of the leading
countries of Western Europe may have little, or no impact on the economies of
Latin American countries, while certain negative trends and developments
occurring in these other countries may have a negative impact on Latin American
countries as a result of their sensitivity to external economic forces.
In many Latin American countries, the government has exercised and
continues to exercise substantial influence over many aspects of the private
sector. In some instances, the government owns or controls many companies,
including some of the largest in the country. Consequently, in those
countries, government actions affecting economic conditions could have a
significant impact on private sector companies and, by extension, on market
conditions, prices and yields of securities in the Fund's portfolio. The
Fund's assets held in particular Latin American countries could be adversely
affected by expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other developments.
A great deal of progress has been made in the past few years in
negotiations between Latin American debtors and their foreign creditors in the
context of structural reforms such as privatization, deregulation and
improvement of trade policies and tax systems in Latin American countries.
This has contributed in turn to favorable actions taken by foreign banks,
including new lending to delinquent debtors, the rescheduling of debt
repayments over longer periods, and lending at below market rates. In
addition, foreign banks have implemented larger loss provisions and provided
some debt relief. As a result, the debt "crisis" that began in 1982 has
largely been defused and Latin America is growing and borrowing again.
CURRENCY AND EXCHANGE RATE RISKS
The Fund will invest in securities that are denominated in Latin
American currencies and most of the Fund's income will be received or realized
in Latin American currencies. Because the Fund will be required to compute and
distribute its income in U.S. dollars, changes in the value of the Latin
American currencies in which the Fund's underlying portfolio securities are
denominated will result in corresponding changes in the U.S. dollar value of
the Fund's investments, and of its income and capital gains. Latin American
currencies have historically been unstable and may be subject to frequent
devaluations against the U.S. dollar. While devaluations of the underlying
currencies have tended to coincide with increased valuations of Latin American
securities, these increases may not be sufficient to compensate for the impact
of the devaluations.
Inflation is a chronic problem in Latin America. Elaborate programs
to control inflation through indexation, price controls or other mechanisms
(including the adoption of new domestic currencies) have had only limited
success. In recent years, the major countries in which the Fund intends to
invest have suffered the adverse effects of inflation and currency devaluation.
Fluctuations in exchange rates of Latin American currencies and
inflation may be affected by complex factors such as domestic fiscal policies,
the level of debt owed by Latin American countries to foreign creditors,
international trade balances, levels of foreign direct investment and capital
outflows, and international economic factors such as changes in the prices for
certain commodities in international markets and relative changes in foreign
exchange rates of countries of Western Europe, the United States, Canada and
Japan. Exchange rate fluctuations and inflation also may distort economic
information about Latin American economies and issuers and make analysis of
these issuers and their fundamental investment characteristics more difficult.
RESTRICTIONS ON FOREIGN INVESTMENT
Investment in the securities of issuers based in Latin American
countries by foreign investors such as the Fund may be subject to numerous
restrictions, including prohibitions on direct investment, the requirement of
prior governmental approval for foreign investments, percentage-of-assets
limitations on investments in certain issuers or industries, prohibitions on
investments in certain sectors of the economy, and restrictions on the exercise
of voting rights by foreign investors. The Fund may be required to seek
special approvals to invest in the securities of issuers in certain countries,
and if so, will seek these approvals. The Fund believes that it will be able
to obtain all approvals necessary for it to pursue its investment program.
Certain Latin American countries may restrict the ability of foreign
investors such as the Fund to repatriate investment income, capital and the
proceeds of securities sales by imposing minimum holding periods for such
investments. While some countries have no such restrictions, under current
law, capital invested in Chile may not be repatriated prior to one year from
the date of the investment. In some cases repatriation of capital may also
require governmental registration and/or approval. The Fund could be adversely
affected by delays in granting, or a refusal to grant, any required
governmental approvals for such repatriation, as well as by any revocations of
such approvals, either on a prospective or retroactive basis.
Whether the Fund is successful in repatriating its capital will
ultimately depend on its ability to liquidate its investments when it desires
to do so and to convert the proceeds from such sales, denominated in Latin
American currencies, into U.S. dollars. Latin American countries may restrict
or block the flow of foreign capital out of their countries or impose
restrictions on currency exchange in response to domestic fiscal or monetary
crises. In seeking to convert its holdings of Latin American currencies into
U.S. dollars, the Fund may be limited to dealing with central bank or other
national authorities whose primary interests in supporting the value of Latin
American currencies may be adverse to those of the Fund. If the Fund should be
unable to repatriate its capital due to exchange controls or other restrictions
imposed in a particular country, it may be required to accept an obligation
payable at some future date by the central bank or other governmental authority
of that country.
It is anticipated that it may take between three and six months for
the Fund to complete the investment of the proceeds of the Offering in Latin
American securities, during which time the Fund may invest in short- or
medium-term money market or debt instruments (some or all of which may be
denominated in U.S. dollars or other currencies). These temporary investments
may produce a lower rate of return than equity investments.
If the Fund should be restricted in its ability to repatriate its
income or capital gains it may be unable to qualify as a regulated investment
company under the U.S. Internal Revenue Code of 1986, as amended, and may be
subject to corporate tax at the Fund level. See "Tax Considerations." To the
knowledge of the Adviser, the Fund or investors comparable to the Fund have not
experienced substantial problems in repatriating invested capital or related
income from Latin American sources, although there can be no assurance that
this will be the case in the future.
SECURITIES MARKETS
In general, Latin American securities markets are not as extensively
regulated as are U.S. securities markets, and enforcement of existing
regulations has not been stringent. Consequently, the prices at which the Fund
may acquire investments may be affected by other market participants
anticipating the Fund's investment in particular securities, by trading by
persons in possession of material non-public information under circumstances
that would not be permitted under U.S. law and by securities transactions by
brokers in anticipation of transactions by the Fund in particular securities.
Issuers whose securities are traded in Latin American markets are
generally not subject to the same degree of regulation as those in many other
countries with respect to such matters as uniform accounting, auditing and
financial reporting standards, insider trading rules, takeover bid regulations,
shareholder proxy requirements, the timely disclosure of information and the
amount of information disclosed. Disclosure standards, moreover, tend to vary
greatly from country to country, making analysis of comparative data extremely
difficult. Because of the foregoing, any information furnished with respect to
Latin American issuers may not be as reliable as that furnished with respect to
issuers in more developed securities markets.
Trading volume on Latin American stock exchanges is substantially
less than trading volume on major international stock exchanges. Further,
individual securities of some Latin American companies tend to be less liquid
and more volatile than securities of comparable companies traded in more
developed securities markets. Fixed commissions on Latin American stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund and the Adviser will endeavor to achieve the most favorable
net results on the Fund's portfolio transactions and may, in some cases, be
able to purchase securities directly from an issuer or on other stock exchanges
where commissions are negotiable.
To the extent permitted under applicable local laws and regulations,
the Fund may from time to time invest in Latin American countries other than
Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela, and may invest
up to 10% of its assets outside Latin America, including the Philippines and
Portugal.
The following table sets forth data regarding the stock markets of
Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela for the year
ended December 31, 1994.
<TABLE>
<CAPTION>
1994 STOCK MARKET DATA
Country Number of Listed Domestic Companies Year-End Market Capitalization (US$ mil.) Value Traded Turnover Market
Price/ Earnings Ratio Ten Largest
(US$ mil.) Ratio Stocks as %
of Market Capitalization
<S> <C> <C> <C> <C> <C> <C>
Argentina 156 36,864 11,372 28.1 17.7 41.7
Brazil 544 189,281 189,281 83.4 13.1 34.5
Chile 279 68,195 68,195 9.5 21.4 46.4
Colombia 113 14,028 2,191 17.8 19.5 61.2
Mexico 206 130,246 82,964 44.5 17.1 33.8
Peru 218 8,178 3,080 46.8 43.9 55.2
Venezuela 90 4,111 936 20.2 18.1 80.7
</TABLE>
_______________
Source: International Finance Corporation, Emerging Markets Fact Book, 1995.
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.
INFLATION
Most Latin American countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain Latin
American countries. In an attempt to control inflation, wage and price
controls have been imposed at times in certain countries.
The following table sets forth data regarding inflation in Argentina,
Brazil, Chile, Colombia, Mexico, Peru and Venezuela for the periods indicated.
<TABLE>
<CAPTION>
CONSUMER PRICE INFLATION: % CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Country 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Argentina 672.1 90.6 131.7 342.8 3,079.3 2,314.0 171.7 24.9 10.6 3.9
Brazil 226.9 145.2 229.7 682.3 1,287.0 2,937.8 440.8 1,008.7 2,146.3 1,238.0
Chile 30.7 19.5 19.9 14.7 17.0 26.0 21.8 15.6 12.6 8.9
Colombia 24.0 18.9 23.3 28.1 25.8 29.1 30.4 27.0 23.0 23.3
Mexico 57.7 86.2 131.8 114.2 20.0 26.7 22.7 15.5 9.7 7.0
Peru 163.2 78.0 86.0 666.2 3,398.5 7,458.4 739.1 73.5 48.6 15.4
Venezuela 11.4 11.5 28.1 29.5 84.5 40.8 34.2 31.4 38.1 70.9
</TABLE>
________________
Sources: International Monetary Fund, International Financial Statistics, 1995.
ILLIQUID OR RESTRICTED SECURITIES
As noted below under "Investment Objective and Policies," the Fund
may invest up to 35% of its total assets in securities that are not readily
marketable. Such restricted or illiquid securities may be subject to
significant limitations which could prevent their sale entirely, result in a
delay of any sale or reduce the amount of proceeds that might otherwise be
realized by the Fund on a sale. These restrictive factors are generally
reflected in the value of such investments. Because the Fund will be limited
in its ability to repatriate its assets invested in such restricted or illiquid
investments, such assets may remain in Latin America for a relatively longer
period of time than capital held in liquid investments. If the Fund were to
cease its operations and dissolve, the Fund's assets would be distributed in
kind pro rata to the Fund's shareholders if applicable restrictions should
prohibit the sale of the Fund's portfolio investments or if the Board of
Trustees should determine that the liquidation of the Fund's investments would
be detrimental to the Fund's shareholders.
ABSENCE OF TRADING MARKET; MARKET VALUE AND NET ASSET VALUE
There is no established public trading market for the Fund's shares.
If such a market were established, it is possible that shares of the Fund would
trade at a discount from net asset value. This characteristic of shares of a
closed-end fund is a risk separate and distinct from the risk that the Fund's
net asset value will decrease. It is not expected that the Fund's shares will
be publicly traded. The Fund cannot predict whether, if the Shares are traded,
they will trade at, below or above net asset value.
NON-DIVERSIFIED STATUS
The Fund is classified as a non-diversified investment company under
the 1940 Act. It is, therefore, not limited under that statute in the
proportion of its assets it may invest in the securities of a single issuer.
The Fund may be subject to local laws in certain Latin American countries
limiting investments in a single issuer. In addition, the Fund intends to
comply with the diversification requirements imposed by the U.S. Internal
Revenue Code of 1986, as amended, in order for it to remain qualified as a
regulated investment company thereunder. As a non-diversified investment
company, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and may, consequently, be subject to
greater risk with respect to its portfolio securities.
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 of or
defects in the systems. In particular, market practice may require that
payment shall be made prior to receipt of the security which is being purchased
or that delivery of a security must be made before payment is received. In
such cases, default by a broker or bank (the "Counterparty") through whom the
relevant transaction is effected might result in a loss being suffered by the
Fund. The Fund will seek, where possible, to use Counterparties whose
financial status is such that this risk is reduced. However, there can be no
certainty that the Fund will be successful in eliminating this risk,
particularly as Counterparties operating in emerging markets frequently lack
the substance or financial resources of those in developed countries. There
may also be a danger that, because of uncertainties in the operation of
settlement systems in individual markets, competing claims may arise in respect
of securities held by or to be transferred to the Fund.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Fund is to seek, over the long-term,
a high level of total return by investing primarily in securities of Latin
American issuers. The Fund intends currently to limit its investments in Latin
American securities to securities issued or traded in the markets of Argentina,
Brazil, Chile, Colombia, Mexico, Peru or Venezuela, although it may invest in
additional Latin American markets in the future. Also, under normal conditions
it may invest up to 10% of its assets outside of Latin America.
An investment in the Fund involves significant risks and special
considerations not typically associated with investments in more developed
securities markets, and no assurance can be given that the Fund will achieve
its investment objective. (See "Special Considerations and Risk Factors" for a
discussion of certain of these risks and special considerations.)
In pursuing its objective of a high level of total return over the
long term, the Fund normally will concentrate its investments in equity
securities, including securities with substantial equity features, such as
convertible bonds or preferred stocks. In addition to equity securities, the
Fund also may purchase interests in bank debt which is structured to be
exchanged at a later date into debt or equity securities. Under normal market
conditions, the Fund will invest between 60% and 90% of its total assets in
equity securities of Latin American issuers. The Fund also may invest in
fixed-income securities of Latin America issuers and Brady Bonds for liquidity
management purposes and when the Adviser believes that such securities may
provide a high level of total return. The Fund intends to diversify its assets
geographically depending on the Adviser's view of investment opportunities at a
given time, but will invest in the securities of issuers in at least three
countries. Consequently, the Fund may, at times, have 25% or more of its
assets invested in securities of issuers located in one country. Nonetheless,
as a fundamental policy, the Fund may not invest more than 50% of its assets in
securities (other than securities issued or guaranteed as to principal and
interest by a government or its agency or instrumentality or by a multinational
agency) of issuers domiciled in a single country. As of November 30, 1995, the
Fund had invested approximately 34% of its assets in Brazil and 27% of its
assets in Mexico.
The Fund may purchase securities directly from the issuer, including
securities offered by private placement, and may make certain investments,
including purchases of participation interests, that may not have all the
characteristics of other equity or debt securities in which the Fund may
invest. The Fund also may purchase loan participation interests that relate to
public or private sector financing arrangements. Securities purchased in
private placements and certain investments or participations in companies may
not be readily marketable because of contractual or other restrictions on
resale ("restricted securities") or because of the absence of a secondary
market ("illiquid securities").
The Fund intends to invest primarily in securities that are listed on
bona fide securities exchanges or are actively traded in over-the-counter
("OTC") markets. These exchanges or OTC markets may be either within or
outside the issuer's domicile country (such as the Eurobond market), and the
securities may be listed or traded in the form of International Depositary
Receipts ("IDRs") or American Depositary Receipts ("ADRs"). The Fund will not
make additional investments in securities (or participation interests) that are
not readily marketable at any time when more than 35% of its total assets are
invested in such securities or participation interests.
Subject to compliance with applicable local laws, the Fund also may
invest in other investment companies or collective investment undertakings that
themselves invest in Latin American equity and/or fixed-income securities.
These may include wholly or substantially owned subsidiaries or other similar
"pass-through" vehicles established by the Fund or the Adviser for the purpose
of conducting the Fund's currency or other investment operations in Latin
America, as may be required by local regulations. Investments in other
pass-through vehicles or investment companies will result in the indirect
payment by Fund shareholders of the fees of these companies, such as
management, distribution or custodial fees, in addition to the fees paid for
these services by the Fund, except that no such additional fees will be paid to
the Adviser. Such investments also may be subject to limitations under the
1940 Act. There can be no assurance that vehicles or funds for investing in
certain Latin American countries will be available for investment. In
addition, special tax considerations may apply. (See "Tax Consideration --
Investment in Foreign Investment Companies"). The Fund does not intend to
invest in such vehicles or funds unless, in the judgment of the Adviser, the
potential benefits of such investment justify the payment of any applicable
premium or sales charge.
The Fund does not expect to trade in securities for short-term gain.
It is anticipated that the Fund's annual portfolio turnover rate will not
exceed 50%. This rate is calculated by dividing the lesser of sales or
purchases of portfolio securities for any given year by the average monthly
value of the Fund's portfolio securities for such year. For purposes of the
calculation, portfolio securities exclude debt securities having a maturity at
the date of purchase of one year or less. Portfolio turnover directly affects
the amount of transaction costs that will be borne by the Fund. In addition,
the sale of securities held by the Fund for not more than one year will give
rise to short-term capital gain or loss for U.S. federal income tax purposes.
The U.S. federal income tax requirement that the Fund derive less than 30% of
its gross income from the sale or other disposition of stock or securities held
less than three months may limit the Fund's ability to dispose of its
securities. See "Tax Considerations."
TEMPORARY INVESTMENTS
The Fund may, for temporary defensive purposes, including during
periods when the values of Latin American currencies are expected to depreciate
or when there are negative developments in the markets for Latin American
securities or in economic or political conditions in Latin America, reduce its
holdings of Latin American equity securities below 60% of its total assets and
increase its holdings of bonds or short-term debt obligations of Latin American
or other issuers and cash (some or all of which may be denominated in U.S.
dollars or other non-Latin American currencies). Diversification requirements
and restrictions on capital repatriation in certain Latin American countries
for certain types of investments may limit the Fund's ability to make defensive
investments during periods when the Adviser judges such investments to be
warranted.
The short-term instruments in which the Fund may invest include (a)
obligations of the U.S. Government, its agencies or instrumentalities
(including repurchase agreements with respect to these securities); (b) bank
obligations of U.S. banks and foreign banks denominated in any currency
(including certificates of deposit, time deposits and bankers' acceptances);
(c) floating rate securities and other instruments denominated in any currency
issued by international development agencies, banks and other financial
institutions, governments and their agencies and instrumentalities; (d)
obligations of corporations located in countries that are members of the
Organization for Economic Cooperation and Development that are denominated in
any currency and that are rated no lower than A-2 by Standard & Poor's
Corporation or P-2 by Moody's Investors Service, Inc. or the equivalent by
another rating service or, if unrated, deemed to be of equivalent quality by
the Adviser; and (e) shares of money market funds that are authorized to invest
in (a) through (d). The Fund also may invest in short- or medium-term money
market or debt instruments (some or all of which may be denominated in U.S.
dollars or other currencies) and foreign currency exchange contracts, futures
contracts or options contracts pending the Fund's investment of its assets in
Latin American securities. The Fund's ability to convert its holdings into
U.S. dollar-denominated instruments may, however, be limited by exchange
controls and/or restrictions on repatriation.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the buyer of a
security simultaneously buys and commits to resell the security to the seller
at an agreed-upon price and date. The Fund will enter into repurchase
agreements on U.S. Government securities with primary government securities
dealers recognized by the Federal Reserve Bank of New York and member banks of
the Federal Reserve System and on securities issued by the governments of Latin
American countries, their agencies or instrumentalities with creditworthy
parties in accordance with procedures established by the Fund's Board of
Trustees. The Fund will only enter into repurchase agreements pursuant to
which the seller is required to maintain the value of the securities subject to
the repurchase agreement at not less than their repurchase price. The Adviser
will monitor and mark to market the value of such securities daily to assure
that the value equals or exceeds the repurchase price. The Adviser will also
monitor the creditworthiness of parties to repurchase agreements under the
general supervision of the Fund's Board of Trustees. Repurchase agreements
involve risks in the event of default or insolvency of the seller, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
SHORT SALES
The Fund may sell securities short "against-the-box." A short sale
"against-the-box" is a short sale in which the Fund owns an equal amount of the
securities sold short or securities convertible into or exchangeable without
payment of further consideration for securities of the same issue as, and equal
in amount to, the securities sold short.
BRADY BONDS
In the 1980s a number of Latin American countries, under the Brady
Plan, underwent a restructuring of their debt obligations to commercial banks,
in an effort to make those debt obligations more manageable. Brady Bonds are
securities created through the exchange of existing commercial bank loans for
new bonds issued under these Brady Plan debt restructurings. Over $150 billion
in principal amount of Brady Bonds have been issued to date, the largest
proportion having been issued by Brazil and Mexico. Investors should recognize
that Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (primarily the U.S. dollar)
and are actively traded in the OTC secondary market for Latin American debt
obligations.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are collateralized in
full as to principal by U.S. Treasury zero coupon bonds having the same
maturity as the bonds. Interest payments on these Brady Bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at that time
and is adjusted at regular intervals thereafter.
EQUITY LINKED NOTES
The Fund may, subject to compliance with applicable regulatory
guidelines, purchase equity linked notes.
An equity linked note is a note whose performance is tied to a single
stock, a stock index or a basket of stocks. Upon maturity of the note,
generally the holder receives a return of principal based on the capital
appreciation of the linked securities. Depending on the terms of the issuance,
equity linked notes may also have a "cap" or "floor" on the maximum principal
amount to be repaid to holders. For example, a note may guarantee the
repayment of the original principal amount, but may cap the maximum payment at
maturity at a certain percentage of the issuance price. Alternatively, the
note may not guarantee a full return on the original principal, but may offer a
greater participation in any capital appreciation of the underlying linked
securities. The terms of an equity linked note may also provide for periodic
interest payments to holders at either a fixed or floating rate. Equity linked
notes will be considered equity securities for purposes of the Fund's
investment objective and policies. Equity linked notes will be considered
equity securities for purposes of the Fund's investment objective and policies.
The price of an equity linked note is derived from the value of the
underlying linked securities. The level and type of risk involved in the
purchase of an equity linked note by the Fund is similar to the risk involved
in the purchase of the underlying Latin America or other emerging market
securities. Such notes therefore may be considered to have speculative
elements. However, equity linked notes are also dependent on the individual
credit of the issuer of the note, which will generally be a trust or other
special purpose vehicle or finance subsidiary established by a major financial
institution for the limited purpose of issuing the note. Like other structured
products, equity linked notes are frequently secured by collateral consisting
of a combination of debt or related equity securities to which payments under
the notes are linked. If so secured, the Fund would look to this underlying
collateral for satisfaction of claims in the event that the issuer of an equity
linked note defaulted under the terms of the note.
Equity linked notes are often privately placed and may not be rated,
in which case the Fund will be more dependent on the ability of the Adviser to
evaluate the creditworthiness of the issuer, the underlying security, any
collateral features of the note, and the potential for loss due to market and
other factors. Ratings of issuers of equity linked notes refer only to the
creditworthiness of the issuer and strength of related collateral arrangements
or other credit supports, and do not take into account, or attempt to rate, any
potential risks of the underlying equity securities. The Fund has no
restrictions on investing in equity linked notes whose issuers are rated below
investment grade (e.g., rated below Baa by Moody's Investors Service, Inc. or
BBB by Standard & Poor's Corporation), or, if unrated, or equivalent quality.
Because rating agencies have not currently rated any issuer higher than the
rating of the country in which it is domiciled, and no Latin American country
other than Colombia is rated investment grade, equity linked notes related to
securities of issuers in such emerging market countries will be considered to
be below investment grade. Depending on the law of the jurisdiction in which
an issuer is organized and the note is issued, in the event of default, the
Fund may incur additional expenses in seeking recovery under an equity linked
note, and may have less legal recourse in attempting to do so.
As with any investment, the Fund can lose the entire amount it has
invested in an equity linked note. The secondary market for equity linked
notes may be limited. The lack of a liquid secondary market may have an
adverse effect on the ability of the Fund to accurately value the equity linked
notes in its portfolio, and may make disposal of such securities more difficult
for the Fund.
The ability of the Fund to invest in equity linked notes may be
limited by the provisions of the U.S. Commodity Exchange Act. Because the
return on equity linked notes is linked to the value of the underlying
securities, the notes may be viewed as having some of the characteristics of
futures contracts with respect to securities, the trading of which by U.S.
persons other than on designated commodity exchanges is prohibited absent an
applicable exclusion or exemption. The CFTC has adopted a statutory
interpretation exempting certain so-called "hybrid instruments" from this
prohibition under certain circumstances.
FOREIGN CURRENCY TRANSACTIONS
The Fund may attempt to hedge against risks from exchange rate
fluctuations by entering into forward currency exchange contracts, or other
currency exchange-related hedging instruments such as currency options,
currency futures contracts and, to the extent permitted by applicable
regulations, options on such futures contracts. Such investments may be
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. Under applicable
CFTC rules, the Fund may enter into financial futures contracts traded on
non-U.S. exchanges, including related options, only if the contracts have been
approved by the CFTC for offer and sale to U.S. persons. The Fund intents to
make relevant futures and related options part of its investment strategy as
such investments are approved for use by U.S. persons. Currently the only
futures or options on Latin American foreign currencies traded on U.S.
exchanges are Mexican peso futures and Brazillian real futures and options, but
such other instruments trade on foreign exchanges. Successful use by the Fund
of such hedging instruments would be dependent on the ability of the Fund's
investment adviser to predict correctly movements in exchange rates.
Under applicable rules of the U.S. Commodity Futures Trading
Commission ("CFTC"), the Fund may enter into foreign currency futures or
futures options only for bona fide hedging or other permitted purposes. With
respect to positions in futures and related options that do not constitute bona
fide hedging positions, the Fund may not enter into a futures contract or
purchase a futures option if, immediately thereafter, the aggregate initial
margin deposits relating to such futures contracts held by the Fund, plus
premiums paid by it for all open futures option positions, less the amount by
which any such positions are "in-the-money," would exceed 5% of the Fund's
total net assets.
Use of foreign currency-related hedging instruments involves
transaction costs in addition to those associated with foreign currency
conversions. Because of the transaction costs involved and because it may be
extremely difficult to predict movements in exchange rates for Latin American
currencies, the Adviser is unlikely to use foreign currency-related hedging
instruments except in unusual or extraordinary circumstances, or in short-term
transactions in connection with the purchase or sale of portfolio securities by
the Fund or for other temporary purposes such as in connection with the
anticipated payment of dividends by the Fund to its shareholders. The Adviser
is not obligated to attempt to hedge against the Fund's foreign currency
exchange risk exposure, which will be significant.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
The Fund may purchase and sell call and put options on individual
securities or on indexes of securities. One purpose of purchasing put options
is to protect holdings in an underlying or related security against a
substantial decline in market value. One purpose of purchasing call options is
to protect against substantial increases in prices of securities the Fund
intends to purchase pending its ability to invest in such securities in an
orderly manner. The Fund may sell put or call options it has previously
purchased, which could result in a net gain or loss depending on whether the
amount realized on the sale is more or less than the premium and other
transaction costs paid on the put or call option which is sold. The Fund may
write a call or put option only if the option is "covered" by the Fund holding
a position in the underlying securities or by other means which would permit
satisfaction of the Fund's obligations as writer of the option. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase
or sale of an option of the same series.
The purchase and writing of options involves certain risks. During
the option period, the covered call writer has, in return for the premium paid,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligations as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, the Fund will
lose its entire investment in the option. Also, where a put or call option on
a particular security is purchased to hedge against price movements in a
related security, the price of the put or call option may move more or less
than the price of the related security. There can be no assurance that a
liquid market will exist when the Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options,
the Fund may be unable to close out a position.
Options on non-U.S. securities indexes generally may not be offered
or sold to U.S. persons unless the options have been approved by the CFTC. The
Fund intends to include non-U.S. index options as a part of its investment
strategy as such investments become available for its use.
FINANCIAL FUTURES AND RELATED OPTIONS
In addition to foreign currency futures and related options, the Fund
may enter into other financial futures contracts and purchase and sell related
options thereon. Such investments may be standardized and traded on a U.S. or
foreign exchange or board of trade, or similar entity, or quoted on an
automated quotation system. Under applicable CFTC rules, the Fund may enter
into financial futures contracts traded on non-U.S. exchanges, including
related options, only if the contracts have been approved by the CFTC for offer
and sale to U.S. persons. The Fund intends to make relevant futures and
related options part of its investment strategy as such investments are
approved for use by U.S. persons. The Fund may enter into futures and options
thereon that relate to indexes or other baskets of securities.
The Fund will maintain a segregated account consisting of liquid
assets, such as cash, U.S. Government securities, or other high grade debt
obligations (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under futures contracts and
related options. Under applicable CFTC regulations, the Fund generally may use
futures and related options only for bona fide hedging purposes (as defined in
applicable regulations) and subject to certain limits, other investment and
speculative purposes (as discussed above under "Foreign Currency Hedging
Transactions").
There are several risks associated with the use of futures and
futures options. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation would result in a loss on both the
hedged securities in the Fund and the hedging vehicle so that portfolio return
might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to
close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively
new and without a significant trading history. As a result, there is no
assurance that an active secondary market will develop or continue to exist.
Lack of a liquid market for any reason may prevent the Fund from liquidating an
unfavorable position and the Fund would remain obligated to meet margin
requirements until the position is closed.
SWAP AGREEMENTS
The Fund may enter into interest rate, equity and currency exchange
rate swap agreements. These transactions would be entered into in an attempt
to obtain a particular return when it is considered desirable to do so,
possibly at a lower cost to the Fund than if the Fund had invested directly in
the asset that yielded the desired return, or when regulatory or other
restrictions limit or prohibit the Fund from investing in the asset directly.
Swap agreements are two party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard swap transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular
predetermined investments or instruments, which may be adjusted for an interest
factor. The gross returns to be exchanged, or "swapped" between the parties
are generally calculated with respect to a "notional amount," i.e., the return
on or increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index.
The Fund intends to enter into swap agreements that would calculate
the obligations of the parties to the agreement on a "net basis."
Consequently, the Fund's current obligations (or rights) under a swap agreement
would be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). In the case of interest rate or currency
exchange rate swap agreements, the Fund's current obligations will be accrued
daily (offset against amounts owed to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of liquid assets such as cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging
of the Fund's portfolio. Any swap agreement so covered will not be construed
to be "senior securities" for purposes of the Fund's investment restriction
concerning senior securities.
In a typical equity swap transaction involving a foreign security (or
index of securities), the Fund would agree to pay to a counterparty the
negative return, if any, on the security (or index of securities), plus an
interest factor, in exchange for an amount equal to any positive return on the
same security or index, with both negative and positive returns calculated with
respect to an agreed reference price. The Fund intends to segregate assets
equal to the maximum potential exposure under an equity swap agreement, plus
any net amount owed with respect to the agreement. As such, the Fund does not
believe that its commitments under equity swap agreements constitute senior
securities for purposes of the Fund's investment restrictions concerning senior
securities.
Whether a fund's use of swap agreements will be successful in
furthering its investment objective will depend on the adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid investments. Moreover, the Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. The Fund will
enter into swap agreements only with counterparties that meet certain standards
for creditworthiness adopted by the Investment Adviser. 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.
OTHER INVESTMENT TECHNIQUES
New options, futures contracts, other financial products, and various
combinations thereof, continue to be developed. The Fund may invest without
limitation in any such options, contracts and products as may be developed, to
the extent consistent with its investment objective and restrictions set forth
in this prospectus.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy the Fund will not, unless
authorized by a vote of a majority of its outstanding shares:
1) invest in securities having unlimited liability;
2) issue senior securities, except as may arise in connection with certain
security purchases and subject to limits imposed by the Investment Company Act
of 1940, pledge its assets, or borrow money, on a secured or unsecured basis,
except that the Fund may borrow in connection with hedging a particular
currency exposure and except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of cost
or current value) of its total assets (not including the amount borrowed), and
pledge its assets 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 in or deal in real estate or
commodities and it may purchase and sell spot or forward currency contracts,
foreign currency futures contracts, foreign currency options, foreign currency
exchange warrants and other foreign currency exchange-related hedging
instruments for hedging purposes or to minimize currency conversion costs
arising in connection with specific securities transactions or with
administration of the Fund;
4) make investments for the purpose of exercising control or management;
5) engage in short sales or maintain a short position, although it may sell
securities "short against the box";
6) purchase any security (other than securities issued or guaranteed as to
principal and interest by a government or its agency or instrumentality or by a
multinational agency) if as a result: (i) more than 50% of its assets would be
invested in the securities of issuers domiciled in a single country, or (ii)
more than 25% of its assets would be invested in securities of issuers whose
primary business is in a single industry;
7) act as an 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;
however, the making of a loan shall not include the purchase of private or
sovereign debt for investment purposes; and
9) purchase any securities if as a result the Fund would own more than 10% of
the outstanding voting securities of any issuer; for the purposes of this
restriction, a conversion feature or right to acquire a security shall be
considered to be ownership of the underlying security.
Another restriction that is not fundamental, and thus may be changed
by the Board of Trustees without shareholder approval, is that the Fund will
limit its investment in the securities of any one issuer, except for securities
issued or guaranteed as to principal and interest by a government or one of its
agencies or instrumentalities or by a multinational agency, to 5% of its total
assets. Notwithstanding restrictions 6 and 9 above and in the preceding
sentence, the Fund may make purchases of securities in excess of such limits
pursuant to the exercise of warrants or rights that would maintain the Fund's
pro rata interest in an issuer or a class of an issuer's securities and
provided the Fund's investment adviser has determined that such exercise is in
the best interests of the Fund. The Fund generally will dispose of the
securities so acquired within a reasonable time after acquisition, unless
compliance with the limits otherwise has been restored. The staff of the
Securities and Exchange Commission takes the position that securities issued by
a foreign government, its agencies and instrumentalities should be treated as
securities of issuers whose primary business is in a single industry.
Therefore, in implementing investment restriction 6 above, the Fund will not
invest more than 25% of its total assets in the securities of any single
foreign government, its agencies and instrumentalities.
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 U.S.
Government securities, cash or other liquid high-grade debt securities or by
maintenance of an appropriate offsetting position.
Notwithstanding any of the above investment restrictions, the Fund
may establish wholly or substantially owned subsidiaries or other similar
vehicles for the purpose of conducting its investment operations, where such
subsidiaries or vehicles are required by local laws or regulations governing
foreign investors such as the Fund or would otherwise be advantageous for the
Fund. If the Fund establishes any such vehicles, the policy of the Fund will
be to "look through" such vehicles to the underlying assets held by them for
purposes of applying the Fund's investment restrictions.
Each percentage limit set forth above applies at the time of
purchase, and therefore would not be violated by subsequent fluctuations in
relative values of the Fund's securities.
MANAGEMENT OF THE FUND
The Board of Trustees, which is elected by the shareholders, sets the
overall investment policies and generally oversees the investment activities
and management of the Fund. The Fund's investment adviser 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.
The Fund does not currently pay any compensation to its Trustees or
Officers. The Fund pays the expenses of attendance at Board and Committee
meetings for the Trustees who are not affiliated with the Manager. The
majority of the non-affiliated Trustees have a business affiliation with an
investor that owns shares of the Fund. Trustees 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.
The names of the Trustees and officers of the Fund, together with
their positions and principal occupations during the past five years are set
forth below.
<TABLE>
<CAPTION>
Name, Address and Age Position with Registrant Principal Occupation
===================== ======================== During Past Five Years
===============================
<S> <C> <C>
TRUSTEES
Nancy Englander* Chairman of the Board Senior Vice President,
11100 Santa Monica Blvd. and Trustee Capital International, Inc.
Los Angeles, CA 90025
Age: 51
David I. Fisher* President, Trustee and Chairman of the Board,
11100 Santa Monica Blvd. Principal Executive Officer The Capital Group Companies, Inc.
Los Angeles, CA 90025
Age: 56
Marinus W. Keijzer Trustee Chief Economist & Strategist,
Kroostweg-Noord 149 Pensioenfonds PGGM
P.O. Box 117, 3700 AC Zeist
The Netherlands
Age: 57
Hugh G. Lynch Trustee Managing Director,
767 Fifth Avenue International Investments,
New York, NY 10153 General Motors Investment
Age: 57 Management Corporation
Teresa E. Martini Trustee Vice President,
One Oak Way International Equity,
Berkeley Heights, NJ 07922 AT&T Corporation
Age: 39
James K. Peterson Trustee Director of Investment Management,
3001 Summer Street IBM Retirement Fund
Stamford, CT 06905
Age: 54
OFFICERS
Roberta A. Conroy Vice President and Assistant General Counsel,
11100 Santa Monica Blvd. Secretary The Capital Group Companies, Inc.
Los Angeles, CA 90025
Age: 41
Steven N. Kearsley Vice President and Vice President and Treasurer,
135 South State College Blvd. Treasurer Capital Research and Management
Brea, CA 92621 Company
Age: 54
Midori Aoki Vice President Vice President,
630 Fifth Avenue Capital International, Inc.
New York, NY 10111
Age: 41
Victor D. Kohn Vice President Vice President,
11100 Santa Monica Blvd. Capital International, Inc.
Los Angeles, CA 90025
Age: 37
Robert W. Lovelace Vice President Vice President,
11100 Santa Monica Blvd. Capital International, Inc.
Los Angeles, CA 90025
Age: 33
Shaw B. Wagener Vice President Director and Executive Vice
333 South Hope Street President,
Los Angeles, CA 90071 Capital International, Inc.
Age: 36
Vincent P. Corti Assistant Secretary Vice President,
333 South Hope Street Fund Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Age: 39 Company
Michael A. Felix Assistant Treasurer Vice President,
135 South State College Blvd. Capital International, Inc.
Brea, CA 92621
Age: 34
</TABLE>
*"Interested persons" of the Fund as such term is defined under the 1940 Act by
virtue of their affiliation with the Adviser.
The occupation shown reflects the principal employment of each individual
during the past five years. Corporate positions, in some instances, may have
changed during this period.
THE INVESTMENT ADVISER
The Fund's investment adviser is Capital International, Inc. (the
"Adviser"), 11100 Santa Monica Boulevard, Los Angeles, California 90025. The
Adviser is an indirect, wholly owned subsidiary of The Capital Group Companies,
Inc., 333 South Hope Street, Los Angeles, California 90071 USA and is
registered with the U.S. Securities and Exchange Commission under the
Investment Advisers Act of 1940.
The Adviser has full access to the research of other companies
affiliated with The Capital Group Companies, Inc. Affiliates of The Capital
Group Companies, Inc. manage over $190 billion of portfolio investments for a
wide range of domestic and international clients. These portfolios are
invested worldwide in equity and fixed-income securities, including investments
in Latin America. The investment management and research staffs of the
companies affiliated with The Capital Group Companies, Inc. operate from
offices in Los Angeles, San Francisco, Atlanta, Washington, DC, New York,
Geneva, London, Singapore, Hong Kong and Tokyo.
The Adviser manages the Emerging Markets Growth Fund, Inc., a
U.S.-registered investment company created in 1986, and Capital International
Emerging Markets Fund, a Luxembourg-based investment fund, created in 1990,
both of which invest in, among other markets, all of the largest Latin American
markets in which the Fund currently invests. In addition to the research and
investment management expertise this has provided, contacts have been developed
in banking, business and government which provide added insight and which may
be helpful in gaining access to markets where regulatory restrictions impede
investment. Further, it has given the Adviser experience with the overall
regulatory environment, trading and settlement issues and accounting procedures
in the major Latin American markets. In 1994, the Adviser (or its affiliates)
made 442 research visits in these markets. In addition, the Adviser has
established an Advisory Committee made up of individuals who are knowledgeable
about political and economic matters in Latin America.
Under the Investment Advisory and Service Agreement between the Fund
and the Adviser (the "Agreement"), the Adviser 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 Trustees. The Adviser also:
provides and pays the compensation and travel expenses of the Fund's officers
and of the Trustees of the Fund who are affiliated with the Adviser; 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
and determines the net asset value of the Fund's shares as required (to the
extent such books, records, reports, and other information are not maintained
or furnished by the Fund's custodian or other persons); and supplies the Fund
with office space. The Fund pays all its expenses of operation including,
without limitation: custodial, stock transfer and dividend disbursing fees and
expenses (including fees or taxes relating to stock exchange listings); 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 the Fund's legal representatives;
compensation, fees and expenses (including travel expenses) of Trustees of the
Fund who are not affiliated with the Adviser; 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 Adviser receives from the Fund a fee, payable
monthly in U.S. dollars, at an annual rate of 0.90% of the first $400 million
of the Fund's aggregate net assets and 0.80% of such aggregate net assets in
excess of $400 million as determined on the last business day of each week and
month. During the fiscal years ended June 30, 1993, June 30, 1994 and June 30,
1995, the advisory fees amounted to $1,838,000, $2,862,000 and $2,896,000,
respectively. Under the Agreement, the Adviser and its affiliates are
permitted to provide investment advisory services to other clients, including
clients which may invest in Latin American securities. In addition, under the
Agreement, when the Adviser 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 Adviser in
the manner it considers to be most equitable and consistent with its
obligations to the Fund under the Agreement and to such other accounts. The
Fund recognizes that in some cases this procedure may adversely affect the size
or price of the position obtainable for the Fund's portfolio or its sale price
of securities sold.
The existing Agreement was approved by shareholders on September 10,
1992, with an initial term of two years ending September 9, 1994, and was
renewed for a one year period ending September 9, 1995. An amended agreement
was approved and became effective on September 10, 1995 for a one year period
ending September 9, 1996. Under the terms of the amended agreement the
Adviser's fee was lowered from 1.00% to an annual rate of 0.90% on the first
$400 million of the Fund's aggregate net assets. It will continue in effect
from year to year thereafter if approved annually (a) by the Board of Trustees
of the Fund or by a majority vote of the outstanding shares of the Fund, and
(b) by a majority of the Trustees who are not parties to the Agreement or
"interested persons," as defined in the 1940 Act, of any such party. This
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 Fund's outstanding shares
present at a meeting at which more than 50% of the Fund's outstanding shares
are present or represented by proxy or (b) more than 50% of the Fund's
outstanding shares.
While the Fund is a Massachusetts business trust, one of its
Trustees, Marinus W. Keijzer, is not a U.S. resident and substantially all of
his assets are generally located outside the U.S. As a result, it will be
difficult for U.S. investors to effect service of process upon such trustees
within the U.S., or to enforce judgements of courts of the U.S. predicated upon
civil liabilities of such trustees under the federal securities laws of the
U.S. In management's view, it is unlikely that foreign courts would enforce
judgements of U.S. courts predicated upon the civil liability provisions of the
federal securities laws, or, that such courts would enforce such civil
labilities against foreign trustees in original actions.
PORTFOLIO MANAGEMENT
The Adviser 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
determines how the assets in that segment will be invested (within limits
provided by the Fund's objective and policies and the Adviser's investment
committee). In addition, one segment is designated as a "research portfolio"
and is managed by a number of research professionals.
Shaw B. Wagener
Mr. Wagener has served as a Director of the Adviser since 1991 and an Executive
Vice President since 1993. He is also a Vice President of the Fund. In
addition, he has served as Vice President-Investment Division of Capital
Research and Management Company since 1986. Mr. Wagener is also a regional
portfolio manager investing in Latin American equity and fixed income
securities. He joined the Capital organization in 1981. Mr. Wagener has
served as a portfolio counselor for the Fund since 1990.
Victor D. Kohn
Mr. Kohn has served as a Vice President of the Adviser since 1992, and is
currently the Emerging Markets Research Manager of the Adviser. He is also a
Vice President of the Fund. Mr. Kohn's research responsibilities include
Argentina, Chile, and Peru. He joined the Capital organization in 1986 as an
investment research analyst, and was elected an Executive Vice President of
Capital Research International in July 1995.
Robert W. Lovelace
Mr. Lovelace has served as a Vice President of the Adviser since 1989. He is
also a Vice President of the Fund. Mr. Lovelace's research responsibilities
include Mexico and the Philippines. He joined the Capital organization in 1986
as an investment research analyst.
Carmen Guarini
Ms. Guarini has served as an investment analyst for Capital Research
International since 1994 with research responsibility for the Brazillian
market.
Messrs. Kohn and Wagener serve as portfolio counselors for the Fund. Mr.
Lovelace and Ms. Guarini manage a portion of the "research portfolio".
EXPENSES
The Fund's normal annual operating expenses, including the advisory
fee payable to the Adviser, are estimated not to exceed approximately 1.5% of
the Fund's average net assets (assuming approximately $300 million in average
net assets). The Fund's normal operating expenses may be higher than those of
other investment companies of comparable size which do not invest in the Latin
American securities markets due to the generally higher fees and expenses
charged for services required by the Fund in Latin America, and generally
higher custodial, communications and other costs associated with the Fund's
activities. The advisory and service fees payable to the Adviser generally are
higher than the fees of many other investment companies that invest primarily
in securities of U.S. issuers, due to the increased effort required in light of
the specialized nature of the Fund's investment activities. There is no
contractual or other limit on the Fund's expenses, and it is possible that such
expenses may, due to unforeseen circumstances, be significantly higher than the
above estimate.
Costs of this Offering, estimated at approximately $32,995.92 will be
paid by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing the Fund's portfolio transactions, the Adviser will seek
the "best execution" of such orders, considering all relevant factors,
including the execution capabilities required; the importance of speed,
efficiency or confidentiality; familiarity with other parties from whom or to
whom particular securities might be purchased or sold; and other factors. When
it can be done consistently with "best execution," the Adviser will place
portfolio transactions with brokers or dealers that supply market quotations to
the Fund or the Adviser for portfolio evaluation purposes, or who supply
research, market and statistical information to the Fund or the Adviser. In
consideration of these services, the Adviser, in good faith, may cause the Fund
to pay such brokers or dealers a higher commission than other brokers or
dealers may charge.
Pursuant to rules adopted by the U.S. Securities and Exchange
Commission ("SEC"), the Fund may, from time to time, effect securities
transactions through a broker, dealer or other entity that, under applicable
provisions of the 1940 Act, may be deemed an "affiliate" of the Fund or the
Adviser, or affiliates of such persons ("affiliated person"). Applicable
provisions of the 1940 Act and SEC rules prohibit principal transactions with
affiliated persons but permit the Fund to effect certain agency transactions
with such persons under specified conditions and circumstances.
Related provisions of the 1940 Act may also restrict the ability of
the Fund to purchase securities in certain underwritings or offerings in which
an affiliate of the Fund or the Adviser is a "principal underwriter," as that
term is defined in the 1940 Act. If the Fund believed that any such
restriction or prohibition were a significant impediment to its investment
program, the Fund might determine to seek exemptive relief from the SEC with
respect to that restriction. There can be no guarantee that the Fund would be
successful in any such attempt to seek exemptive relief, and therefore the Fund
may not be able to take advantage of certain opportunities which might
otherwise be available if the affiliation did not exist or if the Fund were not
registered under the 1940 Act.
Brokerage commissions paid on the Fund's portfolio transactions for
the fiscal years ended June 30,1995, 1994 and 1993 amounted to $470,723,
$398,000 and $159,000, respectively.
VALUATION
The net asset value per share of the Fund 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 Trustees may determine, in the
following manner:
1) Equity securities which are traded primarily on stock exchanges, including
ADRs and other depositary receipts, are valued at the last sale price on the
primary exchange on which such securities are traded, as of the close of
business on the day the securities are being valued, or, in the absence of any
sales, at the last reported bid price. Equity securities traded primarily in
the over-the-counter market are valued at the last reported sale price.
Long-term bonds and U.S. Treasury notes are valued at prices obtained from a
bond pricing service of a major dealer when such prices are available; however,
when a pricing service is not available or in other circumstances where the
Adviser deems it appropriate to do so, such securities will be valued at the
mean between their representative quoted bid and asked prices (or, if not
available, at such prices for comparable securities). United States Treasury
bills, certificates of deposit, corporate short-term notes and other short-term
investments with original or remaining maturities in excess of 60 days are
valued at the mean of their representative quoted bid and asked prices (or, if
not available, at such prices for comparable securities). Short-term
securities with 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. Shares of other
investment companies may be valued using market quotations or current net asset
values. Securities and assets for which market quotations are not readily
available (including securities that are not readily marketable) or are deemed
not to represent market value are valued at fair value as determined in good
faith by or under direction of the Board. Assets or liabilities initially
expressed in terms of currencies other than the U.S. dollar are translated into
U.S. dollars at the prevailing market rates. The fair value of all other
assets is added to the value of securities to arrive at the total assets.
2) The Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from the total assets.
3) The net assets so obtained are then divided by the total number of shares
outstanding (excluding treasury shares), and the result, rounded to the nearest
cent, is the net asset value per share.
DIVIDENDS AND DISTRIBUTIONS
The Fund will, from time to time, distribute dividends and realized
net capital gains to shareholders. See "Tax Considerations." Shareholders
will receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholder by the Fund's dividend paying agent or, as
permitted by the Board of Trustees, may elect to invest distributions in
additional shares issued by the Fund for this purpose.
REPURCHASE OF SHARES
The Fund's Board of Trustees currently intends, approximately each
quarter, to consider authorizing the Fund to make tender offers for up to 5% of
the Fund's then-outstanding shares at the then-current net asset value of the
shares. Although such tender offers, if undertaken and completed, will provide
some liquidity for shareholders, there can be no assurance that such tender
offers will in fact be undertaken or completed or, if completed, that they will
provide sufficient liquidity for all shareholders who may desire to sell such
shares. As such, investment in the shares should be considered illiquid
notwithstanding the possibility that one or more tender offers may be
consummated.
Commencement by the Fund of such a tender offer during a period in
which it is simultaneously engaged in a continuous offering of its shares may
be a violation of the rules designed to prevent price manipulation promulgated
by the SEC under the Securities Exchange Act of 1934, as amended (the "1934
Act"). Accordingly, the Fund has applied for and received an exemption from
such rules to permit the Fund to make tender offers for its shares while
simultaneously engaged in the continuous offering of shares. No assurance can
be given that the exemption may be maintained indefinitely. If the Board of
Trustees authorizes the Fund to make a tender offer at such time, if any, that
the Fund is unable to rely on the exemption, the Fund intends to suspend the
continuous offering of its shares during the term of such tender offer in the
manner prescribed by the 1934 Act (or in such other manner as may be permitted
by the staff of the SEC).
Although the Board of Trustees believes that tender offers for the
shares generally would increase the liquidity of the shares, the acquisition of
shares by the Fund will decrease the total assets of the Fund and, therefore,
could have the effect of increasing the Fund's expense ratio. Because of the
nature of the Fund's investment objective and policies and the Fund's
portfolio, the Adviser may encounter some difficulty in disposing of portfolio
securities in order to consummate tender offers. In considering whether to
make a tender offer the Board of Trustees would consider, among other things,
how many (if any) Shareholders have indicated an interest in selling their
shares, the current cash position of the Fund, any potential effect of the
repurchase on the Fund's investment management operations, and whether a tender
offer would be in the best interests of all Shareholders of the Fund.
Shareholders interested in selling shares pursuant to a prospective tender
offer should notify Abbe Shapiro, Capital International, Inc., 11100 Santa
Monica Boulevard, Los Angeles, California 90025. Such notification should be
in writing and should specify the number of shares to be tendered. This
information will be considered by the Board of Trustees in considering whether
to make a tender offer.
Even if a tender offer has been made, the Trustees' current policy
(which may be changed in the future), is that the Fund will not make a tender
offer if (i) in the judgment of the Trustees, there is insufficient liquidity
in Fund assets; (ii) such transactions, if consummated, would impair the Fund's
status as a regulated investment company under the Internal Revenue Code of
1986, as amended (which would make the Fund a taxable entity, causing the
Fund's income to be taxed at the corporate level in addition to the taxation of
shareholders who receive dividends from the Fund); or (iii) there is, in the
judgment of the Trustees, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) declaration of a banking moratorium by
federal or state authorities or any suspension of payment by banks in the
United States, (c) limitations affecting the Fund or the issuers of its
portfolio instruments imposed by federal, state or foreign authorities on the
extension of credit by lending institutions or on the exchange of foreign
currency, or (d) other events or conditions that would have a material adverse
effect on the Fund or its shareholders if tendered shares were purchased.
TAX CONSIDERATIONS
The Fund intends to qualify and to elect to be taxed as a "regulated
investment company" (or "RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"). If the Fund is to qualify for the special tax treatment
afforded RICs under the Code, it must meet various requirements, including (i)
that at least 90% of the Fund's gross income for the taxable year must be
derived from dividends, interest, and gains from the sale or other disposition
of stocks, securities or foreign currencies or from other income derived with
respect to its business of investing in stock, securities or currencies; (ii)
that less than 30% of its gross income must be derived from the sale or
disposition of stock, securities, options, futures, and certain foreign
currencies (including certain options, futures or forward contracts on foreign
currencies) held for less than three months; (iii) that at the end of each
quarter of its taxable year, it meets certain asset diversification
requirements, including that not more than 25% of the value of its assets be
invested in the securities of any one issuer and at least 50% of its assets be
represented by cash, U.S. Government securities or other securities limited in
the case of any one issuer to not more than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of each such issuer;
and (iv) that it distribute each year at least 90% of its investment company
taxable income (including interest, dividends and net short-term capital gains
in excess of net long-term capital losses).
As a RIC, the Fund will not be subject to U.S. federal income tax on
its investment company taxable income and net capital gains (net long-term
capital gains in excess of the sum of net short-term capital losses and capital
loss carryovers from prior years), if any, that it distributes to shareholders.
The Fund intends to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and net capital
gains. Amounts not distributed on a timely basis in accordance with a
calendar-year distribution requirement are subject to a non-deductible 4%
excise tax. To prevent imposition of the excise tax, the Fund must distribute
during each calendar year an amount equal to the sum of (i) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (ii) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses) for the twelve-month period
ending on October 31 of the calendar year, and (iii) any ordinary income and
capital gains for previous years that were not distributed during those years.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Fund in October, November or December with a
record date in such a month and is paid by the Fund during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the year
in which the distributions are received. To prevent application of the excise
tax, the Fund intends to make its distributions in accordance with the calendar
year distribution requirement.
If it qualifies for regulated investment company status, the Fund
will send written notices to shareholders annually regarding the tax status of
all distributions made during such year, the amount of undistributed net
capital gains and any applicable tax credits.
DISTRIBUTIONS
Dividends of investment company taxable income are taxable to a
shareholder as ordinary income whether paid in cash or reinvested in additional
shares. It is anticipated that the dividends will not qualify for the
dividends-received deduction for a U.S. corporation.
Distributions of net capital gains, if any, which are designated by
the Fund as capital gain dividends are taxable to shareholders as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. The Board
of Trustees 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 basis of
shares owned by a shareholder of the Fund would be increased by an amount equal
to 65% of the amount of undistributed capital gains included in the
shareholder's income.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities 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 exceed 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, reducing each
shareholder's basis in his Fund shares, or as gain from the sale of Fund
shares.
HEDGING TRANSACTIONS
Generally, certain hedging transactions which the Fund may undertake
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules 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 to shareholders and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased as compared to
a fund that did not engage in such hedging transactions.
Certain requirements under the regulated investment company
provisions of the Code may limit the extent to which the Fund will be able to
engage in transactions in options, futures contracts and forward contracts.
SALE OF SHARES
In general, upon the sale or other disposition of shares of the Fund,
a shareholder may realize a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. However, if the shareholder sells Fund shares to the Fund (in a tender
offer by the Fund, for example), proceeds received by the shareholder may, in
some cases, be characterized for tax purposes as dividends. Any loss realized
on a sale or exchange will be disallowed to the extent the shares disposed of
are replaced within a period of 61 days beginning 30 days before and ending 30
days after disposition of the shares. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by
a shareholder on a disposition of Fund shares held by the shareholder for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with
respect to such shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within countries other than
the United States ("foreign countries") may be subject to withholding and other
taxes imposed by such countries. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible and intends to elect to "pass-through"
to shareholders the amount of foreign income and similar taxes it has paid.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) its pro rata share
of the foreign income and similar taxes paid by the Fund, and will be entitled
either to deduct (as an itemized deduction) its pro rata share of those taxes
in computing its taxable income or to use it as 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.
With respect to the Fund, gains from the sale of securities 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 can be used to
offset only 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.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
INVESTMENT IN FOREIGN INVESTMENT COMPANIES
The Fund currently invests in Chile and may in the future invest in
one or more other countries through vehicles organized under local laws. For
U.S. Federal income tax purposes, the vehicle used may be treated as a
controlled foreign corporation ("CFC"). The income and net capital gains of a
CFC will be includable in the investment company taxable income of the Fund,
which the Fund must distribute to its shareholders. The Fund's investment in
any CFC (or in two or more CFC's in which the Fund owns 20% or more of the
voting stock) may be treated as the security of one issuer for purposes of the
5% and 25% limits of the diversification requirement.
The Fund may also invest in securities of investment companies which
it does not control which are organized under the laws of a country in which it
may invest. For U.S. federal income tax purposes, these investment companies
will be treated as passive foreign investment companies ("PFIC"). Gain on sale
of PFIC shares, and certain excess distributions received from a PFIC, will be
treated as ordinary income allocable ratably over the Fund's holding period for
its PFIC shares. To the extent attributable to prior taxable years of the
Fund, the gains or income will be taxable to the Fund, rather than its
shareholders, and tax payable by the Fund will be increased by an interest
charge. The Fund may be able to elect with respect to a PFIC to be taxed
currently on the PFIC's income and gains. If 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 become available
to the Fund, including one under which the Fund would treat appreciation in
value of PFIC shares as gain realized at the end of a taxable year, and 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.
CAPITALIZATION
The Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated March 1, 1989 and is authorized to issue an
unlimited number of shares of beneficial interest, with a par value of $.001
per share. As of the date of this Prospectus, the Fund had 11,828,220 such
shares of beneficial interest outstanding and held no such shares for its own
account. Shares of the Fund are fully paid and non-assessable. All shares are
equal as to earnings, assets and voting privileges. The shares have no
conversion, pre-emptive or subscription rights. In the event of liquidation of
the Fund, each share of the Fund is entitled to its proportion of the Fund's
net assets. See "Special Considerations and Risk Factors" for a description of
possible restrictions on repatriation of Fund assets. Shares of the Fund are
issued in registered form, and ownership and transfer of the shares are
recorded by the Fund's transfer agent.
The Fund is not required to hold regular meetings of its
shareholders, unless required by provisions of the 1940 Act. 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 written consent in lieu of
holding a meeting.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Fund for acts or obligations of the Fund, which are
binding only on the assets and property of the Fund, and requires that notice
of the disclaimer be given in each contract or obligation entered into or
executed by the Fund or the Trustees. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet
its obligations and thus should be considered remote.
The Fund may sell additional shares in the future, either privately
or in one or more public offerings. A decision by the Board to offer
additional shares, and whether such an offer would be made privately or to the
public, would depend on the considerations which the Board at that time deems
relevant. Such an offer may be made on terms and conditions which differ from
the terms and conditions of the offering or any subsequent offering of shares.
In addition, the Board may seek in the future to make the Fund's shares
redeemable and the Fund an "open-end" investment company (although it has no
present intention to do so).
As a closed-end investment company registered with the SEC, the Fund
is required in any offering of its shares to sell such shares at a price which
is not less than the current net asset value per share (as defined in
"Valuation," above), except that sales at a price less than the current net
asset value per share may be made: (i) in connection with an offering to all
current holders of shares, or (ii) with the consent of the holders of a
majority of the shares, or (iii) as may be permitted by an order of the SEC.
Any issuance or sale of additional shares by the Fund at a price less than the
current net asset value per share would dilute the pro rata interests in the
Fund's assets represented by the shares outstanding at that time. If the Fund
were to convert to an "open-end" investment company, it would be required under
the 1940 Act to sell shares only at a price not less than the current net asset
value per share.
THE OFFERING
The Shares are offered at a price equal to the net asset value per
share of the Fund next determined after receipt by the Fund of an order to
purchase Shares. The minimum subscription and purchase by a single investor
that is not already a shareholder is approximately 5,184 Shares. The Shares
are being offered to a limited number of accredited institutional and
individual investors. Shares will be offered on a continuous basis until all
3,763,201 Shares registered under this registration statement have been sold.
The Fund reserves the right, in its sole discretion, to accept or
reject any subscription, to accept a subscription for fewer than all of the
Shares subscribed for, to accept subscriptions in any order (not necessarily in
the order received). The Fund will notify each investor upon receipt and
acceptance of its subscription.
The terms of the Offering outlined above are qualified in their
entirety by the more detailed provisions of the Shareholders Agreement to be
entered into by all Fund shareholders (the "Shareholders Agreement"). Among
other things, the Shareholders Agreement places restrictions on the transfer of
Shares which may adversely affect the ability of a shareholder to liquidate its
investment in the Fund. The Shareholders Agreement accompanies this
Prospectus. See also "Shareholders Agreement and Restrictions on Transfer."
Shares may be purchased by notifying Abbe Shapiro, Capital
International, Inc., by telephone (310-996-6153) or telecopy (310-996-6200).
Assuming the investor suitability and minimum purchase requirements described
herein have been met and the order has been accepted, the price of Shares will
be the net asset value per Share next determined (on the last business day of
each week and month). Upon receipt of a purchase order, the Fund will send a
confirmation letter to the investor indicating the name of the purchaser, the
dollar amount of the purchase, the trade date on which the order will be priced
and settlement instructions. On the trade date, once the net asset value has
been calculated, the Fund will notify the purchaser of the purchase price per
Share and total dollar amount of the purchase. Payment must be received on or
prior to the third business day following the date on which the price is
determined at the direction of such Fund officers. Payments for Shares to be
sold by the Fund may be made in the following manner:
Wire: New World Investment Fund
c/o Wells Fargo Bank (ABA 121000248)
155 Fifth Street
San Francisco, CA 94106
For credit to the account of:
American Funds Service Company
a/c #4600-076178
New World Investment Fund
Check: New World Investment Fund
Attn: Abbe Shapiro
11100 Santa Monica Blvd., 15th Floor
Los Angeles, CA 90025-3302
In addition, at the sole discretion of the Adviser, investors may be
permitted to purchase Shares by tendering to the Fund Latin American securities
which are determined by the Adviser to be appropriate for the Fund's investment
portfolio. In determining whether particular securities are suitable for the
Fund's investment portfolio, the Adviser 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 Adviser believes that issuing Shares in exchange for
the tendered securities would be in the best interests of the Fund and its
shareholders.
Investors who wish to purchase Shares with securities should send by
telecopy (310-996-6200) to Abbe Shapiro a list of all such securities and the
amount of each security being offered in exchange for Shares. The Fund may
accept all, a portion or none of the tendered securities and will notify
investors as to which, if any, of the securities will be accepted. Investors
will be notified by written communication within five business days as to
whether the Fund will issue Shares in exchange for any of the tendered
securities. If any tendered securities are accepted, investors will receive
Shares based on the market value of the tendered securities and the net asset
value of the Fund's Shares next determined after the decision has been made to
accept securities in exchange for Shares. The tendered securities must be
received on or prior to the fifth business day following the date on which the
price is determined at the direction of the Fund's officers.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Fund would have outstanding
15,591,420 Shares of beneficial interest (if all Shares offered hereby are
sold). The 3,763,201 Shares sold in the Offering may be freely traded without
restriction under the Securities Act of 1933, as amended (the "1933 Act").
Shareholders are, however, subject to contractual restrictions on transfer
pursuant to the Shareholders Agreement. All of the shares issued prior to this
offering not pursuant to a public offering are "restricted securities" within
the meaning of Rule 144 promulgated under the 1933 Act, and may not be sold
without registration or an exemption from registration such as Rule 144 or Rule
144A under the 1933 Act.
In general, under Rule 144, as currently in effect, a person who
holds restricted securities is entitled to sell, within any three-month period,
a number of restricted shares that does not exceed the greater of 1% of the
then-outstanding shares of beneficial interest of the Fund or the average
weekly trading volume during the four calendar weeks preceding such sale,
provided a minimum of two years has elapsed between the later of the date of
acquisition of such shares from the issuer or from an "affiliate" of the
issuer, and any resale of such shares in reliance on Rule 144 for the account
of either the acquirer or any subsequent holder of those shares. A person
which is not deemed an "affiliate" of the issuer and who has beneficially owned
shares for at least three years is entitled to sell such shares under Rule 144
without regard to the above volume limitations.
Rule 144A provides a safe harbor from the registration requirements
of the 1933 Act for the resale of restricted securities to specified
institutions. In general, under Rule 144A, a person is entitled to resell
securities that, when issued, were not of the same class as securities listed
on a United States national securities exchange or quoted in an automated
inter-dealer quotation system in the United States. Such "eligible securities"
may only be sold under Rule 144A to a "qualified institutional buyer" which, in
general, is an institution that in the aggregate owns and invests on a
discretionary basis at least $100 million in securities of issuers that are not
affiliated with the institution.
The foregoing is not intended to be a complete description of Rule
144 or Rule 144A or of the rights of parties to sell shares of beneficial
interest.
The Fund is unable to predict the effect that sales made under Rule
144 or Rule 144A, pursuant to future registration stateme nts, or otherwise,
may have on any of the prevailing market prices for the Fund's shares although
it is likely that sales of a large number of shares would depress such market
price.
SHAREHOLDERS AGREEMENT AND RESTRICTIONS ON TRANSFER
Each potential investor is required to enter into a Shareholders
Agreement. Among other things, the Shareholders Agreement provides that with
respect to transfers of shares no shareholder may transfer any shares to a
third party that is a "company" (as that term is defined in the 1940 Act)
unless (i) the prospective purchaser represents that it has total assets in
excess of US $5 million; (ii) it transfers the lesser of its entire holding of
shares or a sufficient number of shares that their current net asset value, in
the aggregate, equals or exceeds the required minimum initial investment
(currently, $100,000); (iii) the Fund receives prior written notification of
the terms of any transfer and of the nature of the proposed transferee(s), and
if requested, the Fund receives evidence of the proposed transfer's compliance
with applicable law; and (iv) the Board of Trustees has not, within up to 30
days following receipt of the required notification from a prospective selling
shareholder, determined that the proposed transfer would have a material
adverse impact on the Fund or any of its shareholders and prohibited the
transfer. If the prospective purchaser is a natural person, no shares may be
transferred unless (i) the prospective purchaser satisfies (ii), (iii) and (iv)
above, and (ii) the prospective purchaser has an individual net worth in excess
of US $1 million or an individual income in excess of US $200,000 during each
of the two most recent years. The Shareholders Agreement provides further that
successors in interest of the holders of shares will be bound by its terms, and
will be required to execute the Agreement. All investors purchasing Shares
pursuant to the Offering are required to enter into the Shareholders Agreement.
In light of the risks involved in an investment in the Fund and the
unlikelihood that a secondary market will develop for the Shares, Shares should
not be purchased unless the purchaser is capable of bearing the significant
risk of maintaining such an investment for an indefinite period.
REPORTS TO SHAREHOLDERS
Financial statements of the Fund are sent to its shareholders at
least semiannually. At least one of these reports annually will be audited.
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New
York, New York 10036, 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 Boulevard,
Brea, California 92621, acts as the Fund's dividend paying agent, transfer
agent and registrar for its shares.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
The accounting firm of Price Waterhouse 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, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The law firm of Dechert Price & Rhoads, 1500 K Street, NW,
Washington, DC 20005, acts as legal counsel to the Fund.
OFFICIAL DOCUMENTS
The tabular and statistical information contained in this Prospectus
is, unless otherwise indicated, derived from or based upon official documents
or information from international agencies or from governments of various Latin
American countries, government ministries or departments, central banks,
principal stock exchanges or official statistical agencies in those countries.
SUPPLEMENTAL INFORMATION
A person affiliated with the International Finance Corporation
("IFC") serves as an Advisor to the Fund's Board of Trustees. IFC is an
international organization affiliated largely through common ownership with the
International Bank for Reconstruction and Development ("The World Bank") but is
a separate entity with its own operational and legal staff. IFC does not have
access to all information in the possession of The World Bank including
information furnished in confidence by representatives of countries which are
members of The World Bank. IFC's obligations are not guaranteed by The World
Bank or by any of IFC's member countries. IFC's capital is owned exclusively
by its 165member governments. Shareholders should be aware that, in the course
of their regular business activities, both IFC and The World Bank may possess
or come into possession of information directly relevant to investment
decisions made on behalf of the Fund. Shareholders should be aware that both
IFC and The World Bank are obligated not to disclose or otherwise reveal any
such information to third parties, including to the Adviser or Board of
Trustees or officers of the Fund.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Fund's shares of beneficial interest of those of
its shareholders that owned more than 5% of the outstanding shares of the Fund
as of November 30, 1995:
Name and Address Percentage of Shares Beneficially Owned
---------------- ---------------------------------------
The Chase Manhattan Bank, N.A.
as Trustee for the
AT&T Master Pension Trust
One Oak Way - Room 4EC 117
Berkeley Heights, NJ 07922 26.2%
GM U.S. Pension Plans
General Motors Corporation
767 Fifth Avenue
New York, NY 10153 43.7%
The Chase Manhattan Bank, N.A.
as Trustee for the
IBM Retirement Plan Trust
262 Harbor Drive
Stamford, CT 06904 18.9%
AT&T Pension Plan and GM U.S. Pension Plans are deemed to be
"control persons" as that term is defined in the 1940 Act by virtue of their
beneficial ownership of more than 25% of the outstanding shares of the Fund.
As of November 30, 1995, the Fund's Trustees and officers owned in the
aggregate none of the Fund's shares of beneficial interest.
FINANCIAL STATEMENTS
Audited Financial Statements as of June 30, 1995:
- ------------------------------------------------
Statement of Assets and Liabilities as of June 30, 1995 (including investment
portfolio as of June 30, 1995).
Statement of Operations for the fiscal year ended June 30, 1995.
Statement of Changes in Net Assets for the fiscal years ended June 30, 1995 and
June 30, 1994.
Per-Share Data and Ratios for the fiscal years ended June 30, 1990 through June
30, 1995.
Notes to Financial Statements for the fiscal year ended June 30, 1995.
Report of Independent Accountants dated August 10, 1995.
NEW WORLD INVESTMENT FUND
Investment Portfolio - June 30, 1995
<TABLE>
<CAPTION>
Equity Type Securities
----------- ---------- ------------
Common Preferred Convertible Percent of
INDUSTRY DIVERSIFICATION Stocks Stocks Stocks Bonds
Net Assets
<S> <C> <C> <C> <C> <C> <C>
Telecommunications 11.70% 6.85% -% -% 18.55%
Utilities: Electric & Gas 7.53 3.14 - 0.19 10.86
Building Materials & Components 6.44 1.11 1.12 8.67
-
Banking 5.62 0.10 1.48 7.20
-
Beverages & Tobacco 4.12 1.95 - 6.07
-
Merchandising 3.65 1.27 0.25 5.17
-
Forest Products & Paper 2.71 1.41 - - 4.12
Appliances and Household 0.29 3.15 - 3.44
Durables -
Metals: Steel 1.63 1.65 0.06 - 3.34
Financial Services 2.09 0.39 0.37 2.85
-
Equity Common Trusts 2.49 - - 2.49
-
Industrial Components 0.53 0.95 - 0.69 2.17
Business & Public Services 0.44 1.62 - 2.06
-
Multi-Industry 1.51 - 1.51
- -
Chemicals 1.40 - 1.40
- -
Broadcasting & Publishing 1.05 - 1.05
- -
Energy Sources 1.03 - - 1.03
-
Food & Household Products 0.39 0.45 - 0.84
-
Real Estate 0.80 0.80
- - -
Textiles & Apparel - 0.75 - - 0.75
Machinery & Engineering 0.21 0.34 - 0.55
-
Construction & Housing 0.50 - 0.50
- -
Electrical & Electronics - 0.25 - 0.25
-
Transportation - 0.24 0.24
- -
Health & Personal Care 0.15 - 0.15
- -
Miscellaneous - - - 4.21 4.21
------ ------ ----- ----- ------
56.28% 24.99% 3.30% 1.49% 90.27
Short-Term Securities ====== ====== ===== ===== 9.05
Excess of cash and receivables 0.68
-------
Net Assets 100.00%
</TABLE>
**********
**********
<TABLE>
<CAPTION>
Market Value
Acquisition of Holdings
Percent of Cost 6/30/95
TEN LARGEST EQUITY HOLDINGS Net Assets (in thousands) (in thousands)
---------- -------------- --------------
<S> <C> <C> <C>
Telecomunicacoes Brasileiras 6.06% $2,065 $14,702
Chilgener 4.33 9,091 10,489
Telefonica de Argentina 3.71 9,413 8,992
Telefonos de Mexico 3.61 5,828 8,761
Brasmoter 3.15 3,048 7,627
Panamerican Beverage 2.77 6,302 6,723
CEMEX 2.71 5,155 6,577
Cifra 2.64 869 6,395
Kimberly Clark de Mexico 2.27 1,943 5,503
Banco de Credito Del Peru 2.01 3,232 4,876
------ ------- -------
33.26% $46,946 $80,645
====== ======== ========
</TABLE>
**********
NEW WORLD INVESTMENT FUND
Investment Portfolio - June 30, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Market Percent
EQUITY-TYPE SECURITIES Principal Value of Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
- -------------------------------------------------------- --------- ------- --------
<S> <C> <C> <C>
ARGENTINA - 12.48%
Astra Compania Argentina de Petroleo SA 1,386,000 $ 2,080 .86
Banco de Galicia y Buenos Aires SA, Class B
(American Depositary Receipts) 4,200 66
Banco de Galicia y Buenos Aires SA, .66
7.00% convertible bond August 1, 2002 $2,200,000 1,540
Banco Frances del Rio de la Plata SA
(American Depositary Receipts) 228,000 4,104 1.69
BISA-Bemberg Industrial SA
(acquired 10/31/94, cost: $3,000,000) (1) 3,000,000 3,000 1.24
Hidroneuquen SA (acquired 11/12/93, cost: $2,437,000) (1) (2) 2,353,874 2,437 1.01
IRSA Inversiones y Representaciones SA
(Global Depositary Receipts) (2) 41,650 968 .40
Nortel Inversora SA, Class A, preferred (American Depositary
Receipts)
(acquired 11/24/92, cost: $1,503,000) (1) 211,560 2,097 .87
Sociedad Comercial del Plata SA 133,000 330
SOCIEDAD COMERCIAL DEL PLATA SA (AMERICAN DEPOSITARY .20
RECEIPTS) (ACQUIRED 4/28/95, COST: $147,000) (1)(2) 6,700 166
Telecom Argentina STET-France Telecom SA, Class B 741,000 3,373
Telecom Argentina STET-France Telecom SA, Class B 1.67
(American Depositary Shares) 15,000 683
Telefonica de Argentina SA, Class B 910,000 2,285
Telefonica de Argentina SA, Class B (American Depositary 271,000 6,707 3.71
Shares)
YPF SA, Class D (American Depositary Receipts) 22,400 423 .17
--------- -------
30,259 12.48
--------- -------
-
BRAZIL-29.73%
Aracruz Celulose SA, Class B, preferred nominative 8,799 21
Aracruz Celulose SA (American Depositary Receipts) 34,000 400 .17
Banco Bradesco SA, preferred nominative 29,856,111 253
Banco Bradesco SA, preferred nominative, rights, expire .11
July 13, 1995
539,142 1
Brasmotor SA, preferred nominative 41,276,787 7,627 3.15
Centrais Electricas Brasileiras SA, Class B, preferred 2,989,976 796
nominative
Centrais Electricas Brasileiras SA, ordinary nominative 2,910,967 759 .64
CESP-Companhia Energetica de Sao Paulo, preferred 71,903,400 2,845
nominative (2)
CESP-Companhia Energetica de Sao Paulo, ordinary nominative 3,000,000 98
(2)
CESP-Companhia Energetica de Sao Paulo, preferred nominative 1.41
(American Depositary Receipts) (acquired 8/30/94, 42,112 468
cost: $711,000) (1) (2)
COFAP-Companhia Fabricadora de Pecas, preferred nominative 133,020 1,139 .47
Companhia Cervejaria Brahma, preferred nominative 14,394,421 4,725 1.95
Companhia Cimento Portland Itau, preferred nominative 7,610,000 2,233 .92
Companhia Energetica de Minas Gerais-CEMIG, preferred 117,586,476 2,301
nominative
Companhia Energetica de Minas Gerais-CEMIG, preferred
nominative
(American Depositary Receipts) (acquired 9/22/94,
cost: $1,616,000) (1) (2) 63,583 1,224 1.45
Companhia Metalurgica Barbara, preferred nominative (2) 689,195,763 472 .20
Companhia Siderurgica Belgo-Mineira, preferred nominative 15,391,518 1,363 .56
Companhia Vale do Rio Doce, preferred nominative 17,516,720 2,647
Companhia Vale do Rio Doce, ordinary nominative 885,000 250 1.20
COTEMINAS-Companhia de Tecidos Norte de Minas, preferred 5,835,000 1,839 .76
nominative
Ericsson do Brazil Comercio e Industria SA,
preferred nominative 143,182,500 607 .25
GP Capital Partners, LP (aquired 1/28/94, cost: $3,000,000) 3,000 3,000 1.24
(1) (2) (3)
Industrias Klabin de Papel e Celulose SA, preferred 2,383,084 3,367 1.39
nominative
Lojas Americanas SA, preferred nominative 51,798,049 1,154
Lojas Americanas SA, ordinary nominative 95,125,600 2,166
Lojas Americanas SA, preferred nominative, 1.49
warrants, expire May 3, 1996 (2) 531,552 284
Mecanica Pesada, preferred nominative 190,000 826 .55
Mecanica Pesada, ordinary nominative 70,000 517
Mesbla SA, preferred nominative (2) 32,349,795 1,934 1.05
Mesbla SA, Series 2, 13.25% covertible bond, November 1, 1996 CR$10,270,0 608
00
OSA, PREFERRED NOMINATIVE 90,000,000 1,174 .48
PETROBRAS DISTRIBUIDORA SA-BR, PREFERRED NOMINATIVE 113,693,000 3,930 1.62
RHODIA-STER SA (GLOBAL DEPOSITARY RECEIPTS) 113,100 1,555 .64
SADIA CONCORDIA SA INDUSTRIA E COMERCIO, PREFERRED NOMINATIVE 1,163,000 1,087 .45
TELECOMUNICACOES BRASILEIRAS SA, PREFERRED NOMINATIVE 446,389,313 14,702 6.06
TELECOMUNICACOES DE MINAS GERAIS,ORDINARY NOMINATIVE 4,478,000 181 .07
TELECOMUNICACOES DE SAO PAULO SA-TELESP, PREFERRED NOMINATIVE 15,447,114 1,914
TELECOMUNICACOES DE SAO PAULO SA-TELESP, ORDINARY NOMINATIVE 2,554,000 325 .92
VIDRARARIA SANTA MARINA, ORDINARY NOMINATIVE 308,700 1,275 .53
--------- -------
72,067 29.73
--------- -------
CHILE - 10.66%
BANMEDICA SA 2,362,500 1,076 .44
CAP SA 360,599 2,270 .93
CHILGENER SA (AMERICAN DEPOSITARY RECEIPTS) 331,678 10,489 4.33
COMPANIA CERVECERIAS UNIDAS SA (AMERICAN DEPOSITARY SHARES) 110,000 2,929 1.21
COMPANIA DE TELECOMUNICACIONES DE CHILE SA
(AMERICAN DEPOSITARY RECEIPTS) 18,000 1,465 .60
COMPANIA TECNO INDUSTRIAL SA 9,720,000 703 .29
EMPRESA NACIONAL DE ELECTRICIDAD SA (AMERICAN DEPOSITARY 135,409 3,588 1.48
RECEIPTS)
FORESTAL TERRANOVA 360,599 691 .29
INVERCAP SA 360,599 792 .33
SOCIEDAD QUIMICA Y MINERA DE CHILE SA, CLASS A 386,600 1,833 .76
------- --------
25,836 10.66
------- --------
COLOMBIA - 2.58%
BANCO DE COLOMBIA SA (GLOBAL DEPOSITARY RECEIPTS)
(ACQUIRED 5/26/94, COST: $825,000) (1) 65,000 488
BANCO DE COLOMBIA SA 5.20% CONVERTIBLE BOND FEBRUARY 1, 1999 .73
(ACQUIRED 1/27/94, COST: $1,975,000) (1) $1,700,000 1,275
CEMENTOS DIAMANTE, SA 141,731 978 .40
CEMENTOS PAZ DEL RIO (AMERICAN DEPOSITARY RECEIPTS)
(ACQUIRED 9/21/94, COST: $941,000) (1) (2) 42,000 693 .28
CORPORACION FINANCIERA DEL VALLE SA, CLASS B
(AMERICAN DEPOSITARY RECEIPTS) (ACQUIRED 2/4/93,
COST: $2,010,000) (1) 168,209 2,818 1.17
------- --------
6,252 2.58
------- --------
ECUADOR - 0.70%
LA CEMENTO NACIONAL CA (GLOBAL DEPOSITARY RECEIPTS)
(ACQUIRED 6/21/94, COST: $1,151,000) (1) 7,424 1,708 .70
------- --------
MEXICO - 22.92%
APASCO, SA DE CV, CLASS A 1,025,976 4,078 1.68
BCA QUADRUM, SA, ORDINARY PARTICIPATION CERTIFICATES
(AMERICAN DEPOSITARY RECEIPTS) (2) 180,000 1,170 .48
Bufete Industrial, SA, ordinary participation certificates
(American Depositary Receipts) 74,000 1,203 .50
CEMEX, SA, Class A 67,500 234
CEMEX, SA, Class B 1,003,100 3,625
CEMEX, SA, Class B, 4.25% convertible bond, November 1, 1997 $3,600,000 2,718 2.71
(aquired 9/28/94, cost: $3,626,000) (1)
Cifra, SA de CV, Class B 3,028,930 4,174
Cifra, SA de CV, Class C 1,682,142 2,221 2.64
Embotelladores del Valle de Anahuac, SA de CV, Class B 349,100 330 .14
Gruma, SA de CV, Class B 69,360 198 .08
Grupo Carso, SA de CV, Class A1 467,300 2,561 1.06
Grupo Casa Autrey, SA de CV (American Depositary Receipts) 24,500 364 .15
Grupo Financiero Banamex Accival, SA de CV, Class B 1,355,500 2,085
Grupo Financiero Banamex Accival, SA de CV, Class L 111,560 170
Grupo Financiero Banamex Accival, SA de CV,
7.00% convertible debentures December 15, 1999 $1,030,000 742 1.24
Grupo Financerio Bancomer, SA de CV, Class L
51.00% convertible debentures May 16, 2002 MXP5750000 935 .38
Grupo Financiero Banorte, SA de CV, Classs C 219,500 285 .12
Grupo Televisa, SA, ordinary participation certificates 106,000 1,087
Grupo Televisa, SA, ordinary participation certificates 1.04
(American Depositary Receipts) 71,000 1,447
Internacional de Ceramica, SA de CV, Class B (2) 55,200 91
Internacional de Ceramica, SA de CV .59
(American Depositary Receipts) (2) 170,400 1,342
Kimberly-Clark de Mexico, SA de CV, Class A 410,000 4,718
Kimberly-Clark de Mexico, SA de CV, Class B 70,000 785 2.27
Panamerican Beverages, Inc., Class A 224,100 6,723 2.77
Sigma Alimentos, SA de CV, Class B 110,000 749 .31
Telefonos de Mexico, SA de CV, Class A 1,650,000 2,438
Telefonos de Mexico, SA de CV, Class L 2,475,000 3,657
Telefonos de Mexico, SA de CV, Class L 3.61
(American Depositary Receipts) 90,000 2,666
Tolmex, SA de CV, Class B2 295,700 1,156 .48
Tubos de Acero de Mexico, SA (2) 151,000 738
Tubos de Acero de Mexico, SA
(American Depositary Receipts) (2) 141,200 697
Tubos de Acero de Mexico, SA
7.50% convertible Eurobond, June 12, 1997 $250,000 193 .67
------- --------
55,580 22.92
-------- --------
PERU - 2.80%
Banco de Credito del Peru 2,778,213 4,876 2.01
Cemento Norte Pacasmayo, Class C 400,000 1,044 .43
Ontario-Quinta A.V.V. (acquired 8/15/94, cost: $900,000) (1) 877,083 877 .36
(2)
--------- --------
6,797 2.80
------- --------
PHILIPPINES - 0.91%
Ayala Land, Inc., Class B 843,750 976 .40
Philippine Long Distance Telephone Co.
(Global Depositary Receipts) 30,000 1,223 .51
Philippine National Bank 281 3 -
------- --------
2,202 .91
------- --------
PORTUGAL - 0.65%
Corticeira Amorim-Sociedade Gestora de Participacoes
Socais, SA 40,700 612 .25
Portugal Telecom (American Depository Receipts) (2) 50,500 960 .40
------- --------
1,572 .65
UNITED STATES - 0.12%
Atlantic Tele-Network, Inc. (2) 36,700 298 .12
------- --------
URUGUAY - 0.75%
Banco Comercial Portugues, SA
(Global Depositary Receipts) 115,000 1,811 .75
------- --------
VENEZUELA - 0.27%
Compania de Inmuebles y Valores Caracas (2) 20,494,000 - -
Fabrica Nacional de Cementos SACA 4,098,800 398 .16
Venezolana de Cementos, SACA, Class A 163,800 231
Venezolana de Cementos, SACA, Class B 23,094 30 .11
-------- --------
659 .27
-------- --------
MISCELLANEOUS - 0.00%
Stocks in initial period of acquisition 1,700,000 3 -
-------- --------
TOTAL EQUITY-TYPE SECURITIES (cost: $164,248,000) 205,044 84.57
-------- --------
Principal
Amount
BONDS AND NOTES (000)
ARGENTINA - 1.34%
Republic of Argentina Bocon PIK 7.268% April 1,2001 (4) $3,750 2,054
Republic of Argentina Bocon PIK 5.861% April 1, 2001 (4) ARP2,250 735 1.15
Bridas Corporation SR 12.50% November 15, 1999 250 230 .09
Central Puerto SA 10.75% convertible Eurobond,
November 2, 1997 250 240 .10
-------- --------
3,259 1.34
-------- --------
BRAZIL - 1.03%
Aracruz Celulose SA Eurobond 9.00% July 22, 1998 150 147 .06
Federal Republic of Brazil Capitalization Bond PIK
8.00% April 15, 2014 780 383 .16
Federal Republic of Brazil Debt Conversion Bond 7.3125%
April 15, 2012 (4) 2,250 1,170 .48
Republic of Minas Gerias Series A 7.875%
Feburary 10, 1999 1,000 790 .33
------- --------
2,490 1.03
------- --------
MEXICO - 1.22%
Banco Nacional de Comercio Exterior S.N.C. Trust convertible 500 362 .15
Eurobond 8.00% August 5, 2003
Ispat Mexicana, SA de CV 10.375%
Senior Notes due March 15, 2001 (1) 500 430 .18
Mc-Cuernavaca Toll Road Trust 9.25% July 25, 2001 799 575 .24
Tubos de Acero de Mexico 13.75% December 8, 1999
(acquired 11/23/94, cost: $1,233,000) (1) 1,250 1,105 .45
United Mexican States MYRA (multi-year restructuring
agreement)/Agent-Citibank, N.A./Loan Participation
Agreements (Participation-Salomon Brothers Inc.)(2,4,5,6) 300 208
United Mexican States MYRA (multi-year restructuring
agreement)/Agent-International Mexican Bank Ltd./ Loan .20
Participation Agreements (Participation-Morgan Guaranty
Trust) (2,4,5,6) 400 278
-------- --------
2,958 1.22
------- --------
PANAMA - 0.35%
Republic of Panama 7.125% May 10, 2002 (4) 400 306
Republic of Panama/Agent-Citibank, N.A./Loan Participation
Agreements (Participation- Citibank, N.A.) (2,4,5,6) 1,784 541 .35
-------- --------
847 .35
-------- --------
PERU - 1.54%
Republic of Peru/Agent-Bankers Trust Company/
Loan Participation Agreements
(Participation-Citibank, N.A.) (2,4,5,6) 975 273 .11
Republic of Peru/Agent-Citibank, N.A./Loan Participation
Agreements (Participation-Citibank, N.A.) (2,4,5,6) 2,583 769 .32
Republic of Peru/Agent-Citibank, N.A./Loan Participation
Agreements (Participation-Morgan Guaranty Trust) (2,4,5,6) 2,661 800 .33
Republic of Peru/Agent-Citibank, N.A./Loan Participation
Agreements (Participation-Salomon Brothers Inc.) (2,4,5,6) 1,851 553 .23
Republic of Peru/Agent-Wells Fargo Bank/Loan Participation
Agreements (Participation-Citibank, N.A.) (2,4,5,6) 820 230 .09
Republic of Peru/Agent-Wells Fargo Bank/Loan Participation
Agreements (Participation-Morgan Guaranty Trust) (2,4,5,6) 3,407 963 .40
Republic of Peru/Agent-Wells Fargo Bank, N.A./Loan
Participation Agreements (Participation-J.P. Morgan) (2,4
5,6) 506 144 .06
-------- --------
3,732 1.54
-------- --------
VENEZUELA - 0.22%
Venezolana de Cementos, SACA
Eurobond 9.25% November 22, 1996 600 528 0.22
TOTAL BONDS AND NOTES (cost: $13,806,000) -------- --------
13,814 5.70
------- --------
SHORT-TERM SECURITIES
Corporate Short-Term Notes - 4.20%
ABN Amro North America Finance, Inc. 5.92% due 7/11/95 6,100 6,089 2.51
Deutsche Bank Financial Inc. 5.88% due 7/6/95 2,000 1,998 .82
UBS Finance (Delaware), Inc. 6.20% due 7/3/95 2,100 2,099 .87
------- --------
10,186 4.20
NON-U.S. CURRENCY - 4.85%
Chilean peso CHP4,386,70 11,751 4.85
3
-------- --------
TOTAL SHORT-TERM SECURITIES (cost: $21,201,000) 21,937 9.05
-------- --------
TOTAL INVESTMENT SECURITIES (cost: $199,255,000) 240,795 99.32
Excess of cash and receivables over liabilities 1,649 .68
-------- --------
NET ASSETS 242,444 100.00
======== ========
</TABLE>
(1) Purchased in a private placement transaction; resale to the
public may require registration and no right to demand
registration under U.S. law exsists. As of June 30, 1995,
the total market value and cost of such securities was
$24,074,000 and $25,439,000 respectively, and the market
value represented 9.93% of net assets.
(2) Non-income-producing securities.
(3) Unfunded capital commitments represent binding
commitments made by the fund which may be paid in the
future. Payment is made when a capital call is requested.
Capital calls can only be made when certain requirements
have been fulfilled; such as the timing of such capital
calls can not be readily determined.
(4) Coupon rate may change periodically.
(5) Security is currently in default.
(6) Participation interests were acquired through the financial
institution indicated parenthetically.
Non-U.S. currency symbols:
ARP - Argentine peso
R$ - Brazilian real
CHP - Chilean peso
MXP - Mexican peso
See Notes to Financial Statements
The description of companies shown in the portfolio, which are obtained from
published reports and other sources believed to be reliable, are supplemental
and are not covered by the Independent Auditor's Report.
Equity-type securities added to the
portfolio since December 31, 1994
- ----------------------------------------------
Bufete Industrial
CEMENTO NORTE PACASMAYO
COMPANIA DE INMUEBLAS Y VALORES CARACAS
COTEMINAS-COMPANHIA DE TECIDOS NORTE DE MINES
GRUPO FINANCERIO BANORTE
OSA
PORTUGAL TELECOM
SADIA CONCORDIA
SIGMA ALIMENTOS
SOCIEDAD COMERCIAL DEL PLATA
TELECOMUNICACOES DE MINAS GERAIS
EQUITY - TYPE SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE DECEMBER 31, 1994
- ----------------------------------------------
BANCO O'HIGGINS
COCA-COLA FEMSA
FOMENTO ECONOMICO MEXICANO
GRUPO EMBOTELLADOR DE MEXICO
GRUPO FINANCIERO SERFIN
GRUPO INDUSTRIAL DURANGO
HYLSAMEX
MANNESMANN
RIPASA SA CELULOSE E PAPEL
NEW WORLD INVESTMENT FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AT JUNE 30, 1995 (dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investment securities at market
(cost: $199,255) 240,795
Cash 582
Receivables for--
Sales of investments 2,732
Dividends and accrued interest 2,209 4,941
-------- --------
246,318
--------
Liabilities:
Non-U.S. taxes payable 261
Payables for--
Purchases of investments 1,432
Unfunded Capital commitments 1,924
Management services 197
Accrued expenses 60 3,613
-------- --------
3,874
--------
Net Assets at June 30, 1995 --
Equivalent to $19.26 per share on
12,588,493 shares of beneficial
interest issued and outstanding,
par value $0.001 per share;
unlimited shares authorized 242,444
========
Statement of Operations for the Year Ended
June 30, 1995 (dollars in thousands)
Investment Income:
Income:
Dividends 4,402
Interest 4,209 8,611
---------
Expenses:
Management services fee 2,896
Custodian fee 569
Auditing and legal fees 88
Reports to shareholders 6
Registration statement and prospectus 3
Taxes other than federal
income tax 13
Other expenses 105 3,680
--------- ---------
Income before non-U.S. taxes 4,931
Non-U.S. taxes (365)
---------
Net investment income 4,566
---------
Realized Gain and Unrealized
Depreciation on Investments:
Realized gain before non-U.S. taxes 53,957
Non-U.S. taxes (5,368)
---------
Net realized gain 48,589
Net change in unrealized
appreciation (depreciation):
Beginning of year 139,418
End of year 41,534
---------
Net unrealized depreciation (97,884)
Non-U.S. taxes.. 3,649 (94,235)
--------- ---------
Net realized gain and unrealized
depreciation on investments.. (45,646)
---------
Net Decrease in Net Assets Resulting
from Operations (41,080)
========
Statement of Changes in Net Assets
(dollars in thousands)
1995 1994
--------- ---------
Operations:
Net investment income 4,566 4,056
Net realized gain on investments 48,589 45,168
Net unrealized appreciation (depreciation)
on investments (94,235) 26,003
--------- ---------
Net increase (decrease) in net assets
resulting from operations (41,080) 75,227
--------- ---------
Dividends and Distributions Paid
to Shareholders:
Dividends from net
investment income (366) (1,837)
Distributions from net realized
gain on investments (89,986) (19,590)
--------- ---------
Total dividends and
distributions (90,352) (21,427)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
738,845 shares - 23,572
Proceeds from shares issued in
reinvestment of net investment
income dividends and
distributions of net realized
gain on investments:
3,415,584 and 671,062 shares,
respectively 90,342 19,991
Cost of shares repurchased:
595,821 and 144,495
shares, respectively (21,892) (3,613)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 68,450 39,950
--------- ---------
Total Increase (Decrease) in Net Assets (62,982) 93,750
Net Assets:
Beginning of year 305,426 211,676
--------- ---------
End of year (including
excess of distributions over net investment
income: $3,784 and $2,448,
respectively) 242,444 305,426
========= =========
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. New World Investment Fund (the "fund") is registered under the Investment
Company Act of 1940 as a closed-end, non-diversified management investment
company. The following paragraphs summarize the significant accounting
policies consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities are stated at market value based upon closing
sales prices reported on recognized securities exchanges on the last business
day of the year or, in the absence of any sales, upon last-reported bid prices
on that date. In cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated by or under the authority
of the Board of Trustees as the primary market. Equity-type securities traded
primarily in the over-the-counter market are valued at the last available sale
prior to the time of valuation, or lacking any sales, at the last reported bid
price. Bonds and notes are valued at prices obtained from a bond-pricing
service provided by a major dealer in bonds, 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 their representative
quoted bid and asked prices or, if such prices are not available, at the mean
of such prices for securities of comparable maturity, quality, and type.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are amortized to maturity based on
their cost to the fund if acquired within 60 days of maturity or, if already
held by the fund on the 60th day, based on the value determined on the 61st
day. Securities for which market quotations are not readily available
(including restricted securities which are subject to limitations as to their
sale), or which are not deemed to represent market value, are valued at fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. 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 on securities purchased are amortized over the life of the respective
securities. The fund does not amortize premiums on securities purchased.
Dividends on distributions paid to shareholders are recorded on the ex-dividend
date.
Investment securities, cash balances, and other assets and liabilities
denominated in non-U.S. currencies are recorded in the financial statements
after translation into U.S. dollars utilizing rates of exchange on the last
business day of the year. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are calculated at the rates
of exchange prevailing on the respective dates of such transactions.
Gains and losses that arise from changes in exchange rates are not segregated
from gains and losses that arise from changes in market prices of investments.
The effects on net investment income arising from changes in exchange rates are
also not segregated.
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.
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 $569,000 includes $46,000 that was paid by these credits
rather than in cash.
2. Investing in securities of issuers in a variety of developing countries
involves certain special investment risks, which may include investment and
repatriation restrictions, currency volatility, government involvement in the
private sector, limited investor information, shallow securities markets,
certain local tax law considerations, and limited regulation of the securities
markets.
Dividend income, and interest income, net realized gains, and net
unrealized gains of the fund derived in Chile are subject to certain non-U.S.
taxes at rates of 20% and 35%, respectively. The fund provides for such
non-U.S. taxes on investment income, net realized gains, and net unrealized
gains.
3. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of June 30, 1995, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $40,195,000, net of accumulated
deferred taxes totaling $1,345,000 on net unrealized appreciation of Chilean
securities, of which $71,143,000 related to appreciated securities and
$29,603,000 related to depreciated securities. There was no difference between
book and tax realized gains on securities transactions for year ended June 30,
1995. The cost of portfolio securities for book and federal income tax
purposes was $199,255,000 at June 30, 1995.
4. The fee of $2,896,000 for management services was paid pursuant to an
agreement with Capital International, Inc. (CII), with which certain officers
and Trustees of the fund are affiliated. The Investment Advisory and Service
Agreement provides for monthly fees, accrued weekly, based on an annual rate of
1.00% on the first $400 million of the fund's net assets, plus 0.80% of such
assets in excess of $400 million. CII is owned by Capital Group International,
Inc., which is a wholly owned subsidiary of The Capital Group Companies, Inc.
5. As of June 30, 1995, accumulated undistributed net realized gain on
investments was $5,137,000 and additional paid-in capital was $200,889,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $117,574,000 and $124,542,000, respectively, during
the year ended June 30, 1995.
Dividend and interest income is recorded net of non-U.S. taxes paid.
For the year ended June 30, 1995, such non-U.S. taxes were $417,000. Net
realized currency losses on dividends, interest, withholding taxes reclaimable,
and sales of non-U.S. bonds and notes were $75,000 for the year ended June
30,1995.
In accordance with SOP 93-2, the fund reclassified $5,461,000 from
undistributed net investment income to additional paid-in capital, and from
additional paid-in capital to undistributed net realized gains, respectively,
for the year ended June 30, 1995.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
Year ended June 30
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year 31.27 24.89 20.98 17.79 12.02
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income .43 .50 .37 .41 .61
Net realized and unrealized
gains (losses) on investments
before non-U.S. taxes (2.49) 8.83 5.59 4.38 6.45
Non-U.S. taxes (.10) (.50) (.01) (.20) (.40)
------- ------- ------- ------- -------
Total income (loss) from investment
operations (2.16) 8.83 5.95 4.59 6.66
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.04) (.21) - (.46) (.52)
Distributions from net
realized gains (9.81) (2.24) (2.04) (.94) (.37)
------- ------- ------- ------- -------
Total distributions (9.85) (2.45) (2.04) (1.40) (.89)
------- ------- ------- ------- -------
Net Asset Value, End of Year 19.26 31.27 24.89 20.98 17.79
======= ======= ======= ======= =======
Total Return (15.47%) 35.97% 31.28% 26.57% 58.82%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $242 $305 $212 $180 $129
Ratio of expenses to average
net assets 1.27% 1.36% 1.40% 1.53% 1.67%
Ratio of expenses and non-U.S.
taxes to average net assets 1.40% 1.50% 1.62% 1.71% 1.87%
Ratio of net income to average
net assets 1.58% 1.43% 1.70% 1.92% 4.59%
Portfolio turnover rate 44.19% 21.47% 17.23% 21.66% 23.25%
</TABLE>
**********
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of New World Investment Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the per-share data and ratios present fairly, in all
material respects, the financial position of New World Investment Fund (the
"Fund") at June 30, 1995, the results of its operations, the changes in its net
assets, and the per-share data and ratios for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and per-share data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
upon our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the
custodian and brokers and application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
Los Angeles, California
August 10, 1995
TAX INFORMATION (UNAUDITED)
The fund makes an election under Internal Revenue Code Section 853 to pass
through foreign taxes paid by the fund to its shareholders. The total amount
of foreign taxes passed through to shareholders for the year ended June 30,
1995 totals $0.80528 per share.
None of the distributions paid by the fund from investment income earned in
the year ended June 30, 1995, qualified for the corporate dividends-received
deduction nor were derived from interest on direct U.S. Treasury obligations.
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the annual
information on the taxability of distributions supplied by the fund.
