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Rule 497(d);
Registration Nos. 33-73374, 811-7440
PROSPECTUS
12,000,000 Shares
DIMENSIONAL EMERGING MARKETS FUND INC.
Common Stock
Dimensional Emerging Markets Fund Inc. (the "Fund") is a diversified,
closed-end management investment company. The Fund was established under the
laws of Maryland in 1991. The investment objective of the Fund is to seek long-
term capital growth through investment in "emerging market" equity securities.
Investment in emerging market securities involves certain risks and other
considerations which are not normally involved in investment in securities of
U.S. companies. See "Investment Objective and Policies" and "Risk Factors and
Other Considerations."
The Fund's investment advisor is Dimensional Fund Advisors Inc. (the
"Advisor"). The address of the Fund and of the Advisor is 1299 Ocean Avenue,
11th floor, Santa Monica, California 90401. Telephone: (310) 395-8005.
Shares of the Fund ("Shares") are offered, without a sales charge,
generally to institutional investors and clients of registered investment
advisors. Up to 12,000,000 Shares are being offered hereby. See "Common
Stock." Of the 12,000,000 Shares offered hereby, up to 1,168,034.997 may be
sold by the Fund and up to 10,831,965.003 may be sold by the Fund's existing
shareholder. See "Selling Shareholder."
Prior to this offering there has been no public market for the Shares. It
is not currently anticipated that a secondary market will develop for Shares
even if they are freely transferable without legal restriction, and as such the
Shares would not be considered readily marketable. Shares of closed-end funds
frequently trade at a discount to their net asset value. The risk of loss may
be greater for initial investors expecting to sell their shares in a relatively
short period after completion of the public offering. See "Highlights -- Risk
Factors and Other Considerations" and "Future Actions Relative to Possible
Discount in the Market Price of the Fund's Shares."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER 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.
The Shares offered by the Fund are being offered on a best efforts basis by
the Fund in a continuous offering. Shares may be purchased from the Fund on a
monthly basis.
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No commission or remuneration will be paid by the Fund in connection with the
sale of shares, and no sales load is charged by the Fund to an investor. The
price to investors for shares offered by the Fund will be equal to the net asset
value per share, next determined after receipt of a purchase order, plus a
reimbursement fee which is paid to the Fund. See "Purchase of Shares."
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NET ASSET VALUE REIMBURSEMENT PER SHARE PROCEEDS
PER SHARE FEE** PRICE TO TO
PUBLIC REGISTRANT
OR OTHER
PERSONS
Per Share $16.38* 0.5% of $16.46 ***
Net Asset Value
per share
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* Net asset value as of January 31, 1996.
** Applicable only for sales by the Fund. The shares offered by the
Selling Shareholder are not subject to such reimbursement fee.
*** 100% of the proceeds of sales of newly issued shares will go to the
Registrant, while 100% of the proceeds of sales of shares held by the
Selling Shareholder will go to the Selling Shareholder.
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This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing and should be read carefully
and retained for future reference. Information contained herein is subject to
completion or amendment. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
______________________
The date of this Prospectus is March 20, 1996.
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HIGHLIGHTS
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus.
THE FUND Dimensional Emerging Markets Fund Inc. is registered with the
U.S. Securities and Exchange Commission as a closed-end
diversified management investment company under the Investment
Company Act of 1940 (the "1940 Act"). The Fund was
incorporated in 1991 under the laws of the State of Maryland.
INVESTMENT The investment objective of the Fund is to seek long-term
OBJECTIVE AND capital growth through investment primarily in "emerging
POLICIES market" equity securities. The term "emerging market" as used
in this Prospectus means every country in the world other than
the United States, Canada, Japan, Australia, New Zealand, and
most Western European countries. In determining what
countries have emerging markets, the Fund will consider the
data, analysis and classification of countries published or
disseminated by the International Bank for Reconstruction
and Development (commonly known as the World Bank) and the
International Finance Corporation, in addition to the criteria
described below. Emerging markets approved for investment by
the Fund may not include all such emerging markets. The Fund
intends to invest in emerging market securities that are
listed on a bona fide securities exchange or are actively
traded in an over-the-counter ("OTC") market. Emerging
markets approved for investment by the Fund's Board of
Directors ("Approved Markets") will be limited in number. In
determining whether to approve markets for investment, the
Board of Directors will take into account, among other things,
market liquidity, investor information, government regulation,
including fiscal and foreign exchange repatriation rules and
the availability of other access to these markets by the
Fund's investors. The following countries are currently
designated by the Fund as Approved Markets: Argentina,
Brazil, Chile, Indonesia, Israel, Malaysia, Mexico, Portugal,
Thailand and Turkey. The Fund defines securities to be those
of an Approved Market if they are (a) securities of companies
organized in the Approved Market or for which the principal
trading market is the Approved Market, (b) securities issued
or guaranteed by the government of the Approved Market, its
agencies or instrumentalities, or the central bank of such
country, (c) securities denominated in the currency of an
Approved Market issued by companies to finance operations in
the Approved Market, notwithstanding that the company is not
itself organized under the laws of an emerging market, (d)
securities of companies that derive at least 50% of their
revenues primarily from either goods or services produced in
the Approved Market or sales made in the Approved Market or
(e) Approved Market equity securities
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in the form of depositary shares. See "Investment Objective
and Policies."
RISK FACTORS Investors are advised to consider carefully the special risks
AND OTHER involved in investing in emerging markets, which are in
CONSIDERATIONS addition to the usual risks of investing in developed markets
around the world.
The Fund will seek a broad market coverage of larger companies
within each Approved Market. The Fund will attempt to own
shares of companies whose aggregate overall share of the
Approved Market's total public market capitalization is at
least the upper 40% of such capitalization, and can be as large
as 75%. The Fund may not invest in all such companies or
achieve these approximate market weights, due to constraints
imposed within Approved Markets (E.G., restrictions on
purchases by foreigners, liquidity), or by U.S. laws (E.G.,
industry diversification). The Fund may also further limit the
market coverage in the smallest Approved Markets in order to
limit purchases of small market capitalization companies. The
Fund does not intend normally to purchase or sell securities
based on the prospects for the economy or the securities
markets in each Approved Market or based on the prospects for
the individual issuers whose shares are eligible for purchase.
Investing in equity securities of issuers in a variety of
emerging markets involves certain special considerations, which
may include (1) investment and currency repatriation
restrictions, (2) currency fluctuations, (3) potential unusual
market volatility, (4) government involvement in the private
sector and in commercial enterprises, (5) limited investor
information, (6) illiquid securities markets, (7) certain local
tax law considerations and (8) limited regulation of the
securities markets. For example, the Fund may only repatriate
capital invested in Chile for a period of one year after its
investment upon payment of a higher tax than will be payable
after the one-year period. The foregoing considerations also
may be present in the case of investments in securities of
issuers located in the U.S. or other countries that have
securities markets more established than those in emerging
markets, but they are present to a greater degree in connection
with the Fund's investments in equity securities of issuers in
emerging markets. Unlike the case with other types of
investment companies, the Fund will not take investment
measures seeking to avoid the potentially negative effects of
various of these risks. See "Risk Factors and Other
Considerations."
Emerging Markets may also present greater risks of
nationalization, expropriation, and other confiscation than do
developed markets. Such risks are present in Eastern Europe,
for example, and these and other risks discussed above could
affect adversely the economies of such markets or the Fund's
investment in such markets. Because of the
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special considerations associated with investing in emerging
markets, an investment in the Fund should be considered
speculative.
In addition, to the extent a secondary market for the Shares
develops, investors should be aware that shares of closed-end
investment companies generally trade at a discount from net
asset value. See "Future Actions Relating to Possible Discount
in the Market Price of the Fund's Shares."
There is no assurance that the Fund will achieve its investment
objective. Due to the risks inherent in investing in emerging
markets, an investment in the Fund should be considered
speculative. The Fund should be considered as an investment
for only a portion of an investor's assets and not as a
complete investment program.
BOARD OF The Fund's Board of Directors is responsible for the overall
DIRECTORS supervision of the operations of the Fund. See "Management."
INVESTMENT Dimensional Fund Advisors Inc. (the "Advisor") manages the
ADVISOR AND investment portfolio and business affairs of the Fund subject
OTHER SERVICE to policies established by the Fund's Board of Directors. See
PROVIDERS "Management." PFPC Inc. ("PFPC") provides the Fund with
administrative, dividend disbursing and transfer agency
services. Chase Manhattan Bank, N.A. provides global
custodial services to the Fund. Other service providers may,
as required by local law, serve as local administrators for the
Fund's investments in particular jurisdictions.
ADVISOR'S FEE Pursuant to a waiver by the Advisor, the Fund currently pays
AND OTHER FUND the Advisor a monthly fee at the annual rate of 0.10% of the
EXPENSES aggregate net assets of the Fund. The Advisor's fee under the
Investment Management Agreement is at an annual rate of 0.50%
of the aggregate net assets of the Fund. The Advisor has
voluntarily waived 80% of its fee, but it may discontinue the
waiver at any time. The Fund pays PFPC a monthly fee at the
annual rate of 0.10% of the aggregate net assets of the Fund.
The Fund will also pay its non-U.S. administrators and will
pay other Fund expenses. Costs incurred by the Fund in
connection with its organization were $250,000 and are being
amortized over a 60 month period which commenced in February
1993. See "Management."
INVESTOR Shares are offered, without a sales charge, generally to
SUITABILITY institutional investors such as endowment funds and charitable
REQUIREMENTS foundations, employee welfare plans, trusts and pension and
AND MINIMUM profit-sharing plans and clients of registered investment
PURCHASE advisors ("Eligible Investors"). All investments are subject
to approval of the Advisor, and all investors must complete and
submit the necessary account registration forms as
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well as a subscription agreement.
THE OFFERING Of the 12,000,000 shares of Common Stock ($.01 par value) (the
"Shares") up to 1,168,034.997 are being offered by the Fund and
up to 10,831,965.003 are being offered by State Street Bank and
Trust Company as Trustee of the BellSouth Master Pension Trust
(the "Selling Shareholder"). See "Common Stock" and "Selling
Shareholder."
Shares may be purchased from the Fund as of the last day of
each month on which the New York Stock Exchange (NYSE) is open
for regular trading. The price of Shares will be the net asset
value per Share next determined after receipt of the purchase
order (on the last business day of the NYSE of each month),
plus a reimbursement fee which is equal to 0.5% of such value.
The Fund reserves the right to calculate net asset value and
accept purchases as of any other day in its discretion.
Pricing and sales may be delayed for periods up to 5 business
days under certain limited circumstances. The reimbursement
fee is paid to the Fund and used to defray the costs associated
with investment of the proceeds from the sale of Shares.
Payment, which may be in the form of check or by wire, must be
in immediately available funds as of the purchase date to be
eligible for use to purchase Shares. See "Purchase of Shares."
DIVIDENDS AND The Fund intends to distribute annually to its shareholders all
DISTRIBUTIONS of its investment company taxable income, and presently
anticipates the annual distribution of any net realized long-
term capital gains in excess of net realized short-term capital
losses. All such dividends and distributions will be
automatically reinvested in additional, newly issued Shares
priced at their current net asset value, unless shareholders
elect to receive dividends or distributions in cash. In
certain Approved Markets, the remittance out of the country of
dividends, interest, net capital gains and capital is subject
to tax on the remitted amount. Remittances of capital are also
restricted for specified periods. Shareholders electing to
receive cash dividends or distributions will be assessed the
amount of any foreign taxes incurred (if any) with respect to
remittances to pay such cash dividends or distributions. See
"Dividends, Distributions and Reinvestment in Additional
Shares" and "Tax Considerations--Foreign Tax Considerations."
As of the date of this Prospectus, all outstanding shares of
the Fund are owned by State Street Bank and Trust Company as
Trustee of the BellSouth Master Pension Trust. Because of this
concentrated ownership, the Fund may be considered a "personal
holding company" for Federal income tax purposes. However, the
distribution policies of the Fund are intended to meet the
requirements applicable to a
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"regulated investment company" for tax purposes, and as a
result it is not anticipated that the Fund will be subject to
any taxation due to its personal holding company status.
PROPOSED On December 22, 1995, the Board of Directors of the Fund
MERGER approved a plan to merge the Fund into the Emerging Markets
TRANSACTION Series of The DFA Investment Trust Company ("DFAITC"), an open-
end registered investment management company registered with
the SEC, subject to certain conditions precedent. DFAITC
currently offers its shares in eleven series, one of which is
the Emerging Markets Series. The Adviser also acts as
investment adviser to the Emerging Markets Series of DFAITC.
All of the shares of the Emerging Markets Series are registered
with the Commission pursuant to the 1933 Act. The merger
transaction would be accomplished by a statutory merger in
which all of the assets and properties of the Fund would be
merged with and into the Emerging Markets Series of DFAITC, and
the Fund would cease to exist as a separate legal entity (the
"Merger"). Shareholders of the Fund will receive the right to
receive for each share of the Fund's stock a proportionate
number of shares of units of beneficial interest in the
Emerging Markets Series of DFAITC upon surrender of such
shareholders of their shares of the Fund. It is anticipated
that the shareholders of the Fund will need to approve the
Merger. As of the date of this Prospectus, all of the
outstanding shares of the Fund are owned by State Street Bank
and Trust Company, as Trustee for the BellSouth Master Pension
Trust. The Merger is anticipated to be structured as a tax-
free transaction, in which case none of the Fund, DFAITC, or
the shareholders of either entity would recognize gain or loss
in connection therewith. The shareholders would retain the
same tax basis in the DFAITC shares they receive in the Merger
as they held in the Fund's shares prior to the Merger. Certain
of the Fund's appreciated assets are expected to be distributed
to the existing Fund shareholders prior to the Merger. Such
pre-Merger distribution to the shareholders will not subject
such shareholders to federal income tax or result in taxable
income to the Fund.
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SUMMARY OF FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of Offering Price) None
(1)
Dividend Reinvestment and Cash Purchase Plan Fees None(1)
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSET VALUE
ATTRIBUTABLE TO THE SHARES)(2)
ADVISORY FEES 0.10%(3)
Administration Fees 0.10%
Interest Payments on Borrowed Funds None
Other Expenses 0.38%
TOTAL ANNUAL EXPENSES 0.58%
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS(4)
You would pay the
following expenses
on a $1,000
investment,
assuming a 5%
annual return
$11 $23 $37 $77
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(1) Shares are sold by the Fund at a price which is equal to the current net
asset value plus a reimbursement fee of 0.5% of such net asset value. The
amount of the reimbursement fee represents the Fund's estimate of the costs
reasonably anticipated to be associated with the purchase of securities in
approved markets with the proceeds of share sales. Reinvestments of dividends
and capital gains distributions paid by the Fund and in-kind investments by
investors will not be subject to a reimbursement fee.
(2) These expense figures are based upon those incurred by the Fund for the
fiscal year ended November 30, 1995.
(3)Effective March 1, 1994, the Advisor agreed to voluntarily waive a portion of
its fee under the Investment Management Agreement to the extent necessary to
limit the management fee to .10% of the net asset value of the Fund on an
annualized basis. This waiver may be revised or terminated at any time in the
discretion of the Advisor.
(4)It is presently expected that the Fund will seek to terminate and dissolve
after 10 years of operation. SEE "The Fund."
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The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Fund may be greater or
lesser than those shown.
The purpose of this table is to assist an investor in the Fund in
understanding the various costs and expenses that an investor will bear directly
or indirectly. For a more complete description of these costs and expenses, see
"Use of Proceeds," "The Advisor," and "Administrators."
FINANCIAL HIGHLIGHTS
The data set forth under the heading "Financial Highlights" in the Fund's
audited annual report to stockholders for the fiscal year ended November 30,
1995 are incorporated herein by reference and will be furnished upon request.
The data in the Fund's audited annual report are covered by the Report of
Independent Accountants which is contained therein.
THE FUND
Dimensional Emerging Markets Fund Inc. (the "Fund") is a corporation
organized under Maryland law on January 9, 1991 and registered under the 1940
Act as a closed-end diversified management company. The Fund was designed for
institutional investors desiring to achieve international diversification by
participating in the economies of various countries with emerging securities
markets. By investing in emerging markets (as that term is defined below) the
Fund is intended to complement and provide an alternative to certain other
investment companies which invest exclusively in the securities of issuers in a
single country and/or issuers domiciled or doing business primarily in countries
with broader and more-established public securities markets.
The Fund's investment objective is long-term capital appreciation by
investing primarily in emerging market equity securities. This objective is a
fundamental policy of the Fund and cannot be changed without the approval of the
holders of a majority of investment objective will be achieved. The term
"emerging market" as used in this Prospectus means every country in the world
other than the United States, Canada, Japan, Australia, New Zealand, and the
Western European countries of France, Germany, Italy, Switzerland, Netherlands,
Sweden, Belgium, Norway, Spain, Austria, Finland, Denmark and the United
Kingdom. In determining what countries have emerging markets, the Fund will
consider the data, analysis and classification of countries published or
disseminated by the International Bank for Reconstruction (commonly known as the
World Bank) and the International Finance Corporation, in addition to the
criteria described below. Approved Markets may not include all such emerging
markets. The list of Emerging Markets is subject to revision in the discretion
of the Investment Committee of the Fund's Board of Directors.
The Fund was established to seek to take advantage of a perceived growth
potential for investments in emerging markets. While the management of the Fund
believes there may be regulatory, financial, technical and other barriers to the
development of this
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potential, in the opinion of Fund management, substantial investment
opportunities exist in these markets.
The Fund's assets are invested primarily in a limited number of emerging
markets designated by the Fund, in consultation with the Advisor, as "Approved
Markets." The Fund may seek access to securities markets in certain emerging
market countries that are currently effectively closed to foreigners (non-
residents).
In determining whether to approve markets for investment, the Board of
Directors will take into account, among other things, market liquidity,
availability of investor information, government regulation, including fiscal
and foreign exchange repatriation rules, and the availability of other access to
these markets by investors.
It is the policy of the Fund, under normal market conditions, to invest its
assets primarily (at least 65%) in Approved Market equity securities (as defined
in "Investment Objective and Policies"). The Fund will seek a broad market
coverage of larger companies within each Approved Market. The Fund will attempt
to own shares of companies whose aggregate overall share of the Approved
Market's total public market capitalization is at least the upper 40% of such
capitalization, and can be as large as 75%. The Fund may not invest in all such
companies or achieve approximate market weights, due to constraints imposed
within Approved Markets (E.G., restrictions on purchases by foreigners,
liquidity), or by U.S. laws (E.G., industry diversification). The Fund may
also further limit the market coverage in the smallest Emerging Markets in order
to limit purchases of small market capitalization companies. In each Approved
Market, the issuers included in the portfolio will be chosen primarily but not
necessarily exactly or in all cases by basing the amount of each security
purchased on the issuer's relative market capitalization. The Fund's policy of
seeking broad market diversification in this manner means that the Fund and the
Advisor will not generally utilize "fundamental" securities research techniques
in identifying securities selections. The Fund may decline to invest in a
particular Approved Market if it determines that achieving a reasonable
reflection of the relative market capitalizations of the companies within that
Approved Market may not be practicable. For example, shares of companies may
not be available for acquisition by the Fund because of local restrictions which
prohibit or limit ownership by foreign holders such as the Fund.
Although the portion of the Fund's holdings in any Approved Market will
vary from time to time, the Fund will attempt, at least initially, to invest
approximately equal amounts in each Approved Market in which investments are
made. In some cases, where the market capitalization of a particular Approved
Market is relatively small or for other considerations, less may be invested.
These are not fundamental investment restrictions, and actual holdings at any
one time may vary substantially from these expectations based upon various
factors. These factors may include, E.G., the rate of investment in the Fund
and the availability of Share sale proceeds for portfolio investment, the effect
of local regulations in Approved Markets affecting investment opportunities
available to the Fund, and the number of countries at any time designated as
Approved Markets.
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The Fund is currently invested in the following Approved Markets:
Argentina, Brazil, Chile, Indonesia, Israel, Malaysia, Mexico, Portugal,
Thailand and Turkey. Countries that may be approved in the future include but
are not limited to Republic of China (Taiwan), which is effectively closed to
foreign investors at present, and Colombia, Greece, India, Jordan, Nigeria,
Pakistan, Philippines, Venezuela and Zimbabwe. Additional Approved Markets may
be identified and designated as such by the Fund's Board of Directors from time
to time in consultation with the Advisor, and investments in these additional
markets will be made as additional Shares are sold and capital is made available
for new investments. The Fund does not intend generally to reduce investments
in established Approved Market portfolios for the purpose of making investments
in other, newly-approved Approved Markets.
The management of the Fund believes that the Fund may provide investors
with an opportunity to participate in the price appreciation of emerging market
securities. The management of the Fund also believes that the Fund will allow
investors to diversify their portfolios by country and industry, thus reducing
the risks associated with adverse developments in any one industry or market.
Additionally, the Fund will allow for international diversification away from
the more well-known securities of issuers located in countries other than
Approved Markets. HOWEVER, THERE CAN BE NO ASSURANCE THAT THESE GOALS WILL BE
MET.
USE OF PROCEEDS
The Fund is seeking to offer and sell up to 1,168,034.997 Shares to
Eligible Investors. See "Purchase of Shares." The Selling Shareholder may
offer and sell up to 10,831,965.003 Shares. See "Selling Shareholder." Shares
will also be issued pursuant to the reinvestment of dividends and capital gains
distributions by shareholders. See "Dividends, Distributions and Reinvestment
of Shares."
The proceeds of the offering of Shares will be invested in accordance with
the policies set forth under "Investment Objective and Policies." The Fund will
receive no proceeds of any sale of the Selling Shareholder's Shares. Share sale
proceeds may from time to time initially be invested in dollar-denominated money
market instruments pending investment in equity securities of Approved Markets.
See "Investment Objective and Policies." The Fund expects that substantially
all of such proceeds will be invested in accordance with its investment
objective within three months after receipt thereof and, in any case, no more
than six months after receipt.
RISK FACTORS AND OTHER CONSIDERATIONS
Because of the special risks associated with investing in emerging markets,
an investment in the Fund should be considered speculative. Investors are
strongly advised to consider carefully the special risks involved in investing
in emerging markets, which are in addition to the usual risks of investing in
developed foreign markets around the world.
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MARKET WEIGHTING.
The Fund intends to structure its investments in securities in Approved
Markets primarily (although not exactly or completely) by the weighting of an
issuer's relative equity market capitalization in an Approved Market. The Fund
does not intend normally to purchase or sell securities based on the prospects
for the economy or the securities markets in each Approved Market or based on
the prospects for the individual issuers whose shares are eligible for purchase.
As a result, the Fund and the Advisor will not manage the portfolio on the basis
of "fundamental" investment research and the use of particular investment
strategies and tactics seeking to maximize reward and minimize risk. The Fund's
portfolio will generally seek to provide investment returns which reflect the
broad market experience in the Approved Markets.
NON-U.S. INVESTMENTS.
Fund operations will involve a number of investment risks greater than
those normally associated with investments in securities of U.S. domestic
issuers or in securities of issuers domiciled in jurisdictions with public
securities markets more established than those in the Approved Markets. The
Advisor considers the Fund to have a passive investment orientation, and the
Advisor will not seek through particular investment strategies and techniques to
reduce the potential negative effects of these risks. These various risks
include:
1. NON-U.S. INVESTING. The Approved Markets securities are not
expected to be registered with, nor the issuers thereof be subject to, the
reporting requirements of the U.S. Securities and Exchange Commission.
Accordingly, there may be less publicly available information about these
securities and issuers than is available about domestic securities and
issuers. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. The Fund will not be
investing on the basis of "fundamental" research techniques, and the Advisor
will not seek to choose portfolio securities on the basis of traditional
securities and economic analysis. Securities of some foreign companies are
less liquid and their prices may be more volatile than securities of
comparable domestic companies; this is expected to particularly be the case
with securities of Approved Markets.
In addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect the Fund's investments in those countries. It
is expected that various Approved Markets will utilize tax structures and
currency controls that may adversely affect the Fund's ability to freely dispose
of investments or to repatriate earnings or sales proceeds.
Moreover, individual economies in Approved Markets will differ favorably or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, rate of savings and capital reinvestment,
resource self-
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sufficiency and balance of payments positions. Many emerging markets 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 countries with emerging markets. Certain emerging markets
have recently transitioned from or are in the process of transitioning from
centrally controlled economies. There can be no assurance that such transitions
will be successful.
2. INVESTMENT AND CURRENCY REPATRIATION RESTRICTIONS. A number of
emerging securities markets restrict, to varying degrees, foreign investment
in stocks. Repatriation of investment income, capital and the proceeds of
sales by foreign investors may require governmental registration and/or
approval in some emerging countries. For example, capital invested by the
Fund in Chile cannot under current regulations be repatriated for one year.
In some jurisdictions, such restrictions and the imposition of taxes are
intended to discourage shorter-rather than longer-term holdings. While the
Fund will only invest in markets where these restrictions are considered
acceptable to the Advisor, new or additional repatriation restrictions might
be imposed subsequent to the Fund's investment. If such restrictions were
imposed subsequent to the Fund's investment in the securities of a particular
country, the Fund might, among other things, discontinue the purchasing of
securities in that country. Such restrictions will be considered in relation
to the Fund's liquidity needs and all other acceptable positive and negative
factors. Further, some attractive equity securities may not be available to
the Fund because foreign shareholders hold the maximum amount permissible
under current laws. Various restrictions of these types, and others, may
make it particularly difficult to establish the fair market value of
particular securities from time to time. The valuation of securities is the
responsibility of the Fund's Board of Directors, acting in good faith and
with advice from the Advisor and other knowledgeable parties. See
"Determination of Net Asset Value."
3. CURRENCY FLUCTUATIONS. In accordance with its investment objective,
the Fund's assets will be invested in securities of companies in Approved
Markets and substantially all income (other than short-term investments) will
be received by the Fund in foreign currencies. A number of the currencies of
Approved Markets have experienced significant declines against the U.S.
dollar in recent years and devaluation may occur subsequent to investments in
these currencies by the Fund. The value of the assets of the Fund as
measured in U.S. dollars would be affected unfavorably by devaluations in
foreign currencies. Conversely, any weakness of the U.S. dollar against
portfolio security currencies could positively affect Fund returns.
4. POTENTIAL MARKET VOLATILITY. Many of the emerging securities markets
(relative to the U.S. and to larger non-U.S. markets) are relatively small,
have low trading volumes, suffer periods of illiquidity and are characterized
by significant price volatility. Such factors may be even more pronounced in
jurisdictions where securities ownership is divided into separate classes for
domestic and non-domestic owners. These factors are expected to occur in the
Approved Markets.
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In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; that is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended securities purchases
due to settlement problems could cause the Fund to miss investment
opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Directors.
5. GOVERNMENT INVOLVEMENT IN THE PRIVATE SECTOR. Government involvement
in the private sector varies in degree among the emerging securities markets
contemplated for investment by the Fund. Such involvement may, in some
cases, include government ownership of companies in certain commercial
business sectors, wage and price controls or imposition of trade barriers and
other protectionist measures. With respect to any developing country, there
is no guarantee that some future economic or political crisis will not lead
to price controls, forced mergers of companies, expropriation, the creation
of government monopolies, social instability, diplomatic developments, or
other measures which could be detrimental to the Fund's investments. In
Eastern Europe, for example, upon the accession to power of Communist regimes
in the past, the governments of a number of Eastern European countries
expropriated a large amount of property. The claims of many property owners
against those governments were never finally settled. There can be no
assurance that any investments that the Fund might make in those or other
emerging markets would not be expropriated, nationalized or otherwise
confiscated at some time in the future. In such an event, the Fund could
lose its entire investment in the market involved. Moreover, changes in the
leadership or policies of such markets could halt the expansion or reverse
the liberalization of foreign investment policies now occurring in certain of
these markets and adversely affect existing investment opportunities.
6. TAXATION. Taxation of dividends and capital gains received by
non-residents varies among countries with emerging markets and, in some
cases, is high in relation to comparable U.S. rates. Particular tax
structures may have the intended or incidental effect of encouraging long
holding periods for particular securities and/or the reinvestment of earnings
and sales proceeds in the same jurisdiction. In addition, dividends and
interest received by the Fund may be subject to withholdings imposed by
foreign countries and U.S. possessions that would reduce the yield on its
securities. Tax conventions between certain countries and the United States
may reduce or eliminate
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<PAGE>
these foreign taxes, however. In addition, emerging market jurisdictions
typically have less well-defined tax laws and procedures than is the case in the
United States, and such laws may permit retroactive taxation so that the Fund
could in the future become subject to local tax liability that it had not
reasonably anticipated in conducting its investment activities or valuing its
assets.
7. INFLATION. Many emerging markets, for example 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 countries. In an attempt to control
inflation, wage and price controls have been imposed at times in certain
countries. In addition, for companies that keep accounting records in local
currency, inflation accounting rules in some countries require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital growth
through investment primarily in emerging market equity securities. The Fund
will seek to invest in emerging markets designated by the Investment Committee
of the Fund's Board of Directors ("Approved Markets"). The Fund invests its
assets primarily in Approved Market equity securities listed on bona fide
securities exchanges or actively traded on over-the-counter ("OTC") markets.
These exchanges or OTC markets may be either within or outside the issuer's
domicile country, and the securities may be listed or traded in the form of
International Depository Receipts ("IDRs") or American Depository Receipts
("ADRs").
It is the policy of the Fund, under normal market conditions, to invest its
assets primarily (at least 65%) in Approved Market securities. The Fund defines
Approved Market securities to be (a) securities of companies organized in a
country in an Approved Market or for which the principal trading market is in an
Approved Market, (b) securities issued or guaranteed by the government of an
Approved Market country, its agencies or instrumentalities, or the central bank
of such country, (c) securities denominated in the currency of an Approved
Market issued by companies to finance operations in Approved Markets,
notwithstanding that the company is not itself organized under the laws of an
emerging market, (d) securities of companies that derive at least 50% of their
revenues primarily from either goods or services produced in Approved Markets or
sales made in Approved Markets and (e) Approved Markets equity securities in the
form of depositary shares. The Fund's definition of securities of Approved
Markets may include securities of companies that have characteristics and
business relationships common to companies in other countries. As a result, the
value of the securities of such companies may reflect economic and market forces
in such other countries as well as in the Approved Markets.
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<PAGE>
The Fund believes, however, that investment in such companies will be
appropriate in light of the Fund's investment objective because the Advisor will
select only those companies which, in its view, have sufficiently strong
exposure to economic and market forces in Approved Markets such that their value
will tend to reflect developments in Approved Markets to a greater extent than
developments in other regions. For example, the Advisor may invest in companies
organized and located in the United States or other countries outside of
Approved Markets, including companies having their entire production facilities
outside of Approved Markets, when such companies meet the Fund's definition of
Approved Markets securities so long as the Advisor believes at the time of
investment that the value of the company's securities will reflect principally
conditions in Approved Markets.
The Fund may invest a portion of its assets (not to exceed 35%) in
securities of issuers that are not Approved Markets securities, but whose
issuers the Advisor believes derive a substantial proportion, but less than 50%,
of their total revenues from either goods and services produced in, or sales
made in, Approved Markets.
Pending the Fund's investment of new capital in Approved Market equity
securities, it will typically invest in money market instruments or other highly
liquid debt instruments denominated in U.S. dollars (including, without
limitation, repurchase agreements). Investment in repurchase agreements
involves certain risks. For example, if the seller of the underlying securities
defaults on its obligation to repurchase the securities at a time when their
value has declined, the Fund may incur a loss upon disposition. If the seller
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Fund and,
therefore, subject to sale by the trustee in bankruptcy. Finally, it is
possible that the Fund may not be able to substantiate its interest in the
underlying securities. While management acknowledges these risks, it believes
that they can be controlled through stringent security selection criteria and
careful monitoring procedures.
In addition, the Fund may, for liquidity, or for temporary defensive
purposes during periods in which market or economic or political conditions
warrant, purchase highly liquid debt instruments or hold freely convertible
currencies, although the Fund does not expect the aggregate of all such amounts
to exceed 10% of its net assets under normal circumstances.
The Fund also may invest in shares of other investment companies that
invest in one or more Approved Markets, although it intends to do so only where
access to those markets is otherwise significantly limited and it does not
expect the aggregate amount of such investments to exceed 10% of its assets.
The Fund may also invest in money-market mutual funds for temporary cash
management purposes. If the Fund invests in another investment company, the
Fund's shareholders will bear not only their proportionate share of expenses of
the Fund (including operating expenses and the fees
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<PAGE>
of the Advisor), but also will bear indirectly similar expenses of the
underlying investment company. In some Approved Markets it is necessary or
advisable for the Fund to establish a wholly-owned subsidiary or a trust for the
purpose of investing in the local markets.
The Fund may be prohibited under the 1940 Act from purchasing the
securities of any foreign company that, in its most recent fiscal year, derived
more than 15% of its gross revenues from securities-related activities
("securities-related companies"). In a number of countries, commercial banks
act as securities brokers and dealers, investment advisers and underwriters or
otherwise engage in securities-related activities, which may limit the Fund's
ability to hold securities issued by banks. The Securities and Exchange
Commission ("SEC") has adopted a rule which permits the Fund to invest in
certain of these securities, subject to certain restrictions.
APPROVED MARKETS
The term "emerging market" as used in this Prospectus generally includes
every country in the world other than the United States, Canada, Japan
Australia, New Zealand and most Western European countries. In determining what
countries have emerging markets, the Fund will consider, among other things, the
data, analysis and classification of countries published or disseminated by the
International Bank of Reconstruction (commonly known as the World Bank) and the
International Finance Corporation. Approved emerging markets may not include
all such emerging markets. In determining whether to approve markets for
investment, the Investment Committee of the Board of Directors will take into
account, among other things, market liquidity, investor information, government
regulation, including fiscal and foreign exchange repatriation rules and the
availability of other access to these markets by the Fund's investors.
The following countries are currently designated by the Fund as Approved
Markets: Argentina, Brazil, Chile, Indonesia, Israel, Malaysia, Mexico,
Portugal, Thailand, and Turkey. Countries that may be approved in the future
include but are not limited to Republic of China (Taiwan), which is effectively
closed to foreign investors at present, and Colombia, Greece, India, Jordan,
Nigeria, Pakistan, Philippines, Venezuela and Zimbabwe. The goal is to have
substantial coverage of the larger companies in these markets.
DEFINITION OF MARKET WEIGHT
The Fund will seek a broad market coverage of larger companies within each
Approved Market. The Fund will attempt to own shares of companies whose
aggregate overall share of the Approved Market's total public market
capitalization is at least the upper 40% of such capitalization, and can be as
large as 75%. The Fund may not invest in all such companies or achieve
approximate market weights, due to constraints imposed within Approved Markets
(restrictions on purchases by foreigners, liquidity), or by U.S.
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<PAGE>
law (E.G., industry diversification). The Fund may also further limit the
market coverage in the smaller Emerging Markets in order to limit purchases of
small market capitalization companies.
PORTFOLIO STRUCTURE
The Fund's policy of seeking broad market diversification means that the
Fund and the Advisor will not utilize "fundamental" securities research
techniques in identifying securities selections.
Although the Fund will structure its portfolio primarily by market
capitalization weighting, the structure may not be exact or complete. The
decision to include or exclude the shares of an issuer will be made primarily on
the basis of such issuer's relative market capitalization determined by
reference to other companies located in the same country. Company size is
measured in terms of local reference to other companies located in the same
country. Company size is measured in terms of local currencies in order to
eliminate the effect of variations in currency exchange rates. Even though a
company's stock may meet the applicable market capitalization criterion, it may
not be included in the portfolio for one or more of a number of reasons. For
example, in the Advisor's judgment, the issuer may be considered in extreme
financial difficulty, a material portion of its securities may be closely held
and not likely available to support market liquidity, or if it is a "passive
foreign investment company" (as defined in the Internal Revenue Code of 1986, as
amended). To this extent, there will be the exercise of discretion and
consideration by the Advisor which would not be present in the management of a
portfolio seeking to represent an established index of broadly traded domestic
securities (such as the Standard & Poor's 500 Stock Price Index). The Advisor
will also exercise discretion in determining the allocation of capital as
between Approved Markets.
It is management's belief that equity investments offer, over a long term,
a prudent opportunity for capital appreciation, but, at the same time, selecting
a limited number of such issues for inclusion in the Fund involves greater risk
than including a large number of them. The Advisor does not anticipate that a
significant number of securities which meet the market capitalization criteria
will be selectively excluded from the Fund; however, in a number of
jurisdictions investments may be restricted because of regulations governing
foreign investors.
The Fund does not seek current income as an investment objective and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in the
Fund do pay dividends. It is anticipated, therefore, that the Fund will receive
dividend income. The Fund may lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of realizing additional
income.
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<PAGE>
PORTFOLIO TURNOVER
Securities are held until such time as they are no longer considered an
appropriate holding in light of the Fund's investment objective and policies.
Generally, securities are purchased with the expectation that they will be held
for longer than one year. However, securities may be disposed of at any time
when, in the Advisor's judgment, circumstances warrant their sale. Generally,
securities are not sold to realize short-term profits, but when circumstances
warrant, they may be sold without regard to the length of time held. The
portfolio turnover rate of the Fund ordinarily is anticipated to be low, and not
expected to exceed 20% per year. For the fiscal year ended November 30, 1995
the Fund's portfolio turnover rate was 5.73% (as calculated in accordance with
applicable Securities and Exchange Commission rules).
FOREIGN CURRENCY TRANSACTIONS
For the purpose of converting U.S. dollars to another currency, or vice
versa, or converting one foreign currency to another foreign currency, the Fund
may enter into forward foreign exchange contracts and foreign currency futures
contracts. The Fund will only enter into such a forward or futures contract if
it is expected that the Fund will be able readily to close out such contract.
There can, however, be no assurance that it will be able in any particular case
to do so, in which case the Fund may suffer a loss.
The Fund will not enter into foreign currency transactions in an attempt to
hedge the risks involved in holding assets denominated in a particular currency.
The Fund intends to engage in foreign currency transactions only for the purpose
of facilitating portfolio transactions. Among other things, it is the Advisor's
view that the cost of engaging in hedging transactions frequently equals or
exceeds the expected benefits from the potential reduction in exchange risk.
Moreover, even if it were to attempt to do so, the Fund could not through
hedging transactions eliminate all the risks of holding assets denominated in a
currency, as there may be an imperfect correlation between price movements in
the futures or forward contracts and those of the underlying currencies in which
the Fund's assets are denominated. Also, if the Fund enters into a hedging
transaction in anticipation of a currency movement in a particular direction but
the currency moves in the opposite direction, the transaction would result in a
poorer overall investment result than if the Fund had not engaged in any such
transaction.
The Fund will not enter into forward or futures contracts or maintain an
exposure to such contract where (i) the aggregate amount of initial margin
deposits on the Fund's futures positions would exceed 5% of the value of the
Fund's total assets or (ii) where the consummation of such contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the fund's portfolio securities or other assets denominated in that
currency. Where the Fund is obligated to make deliveries under futures or
forward contracts, to avoid leverage it will "cover" its obligations by
segregating liquid assets such as cash, U.S. Government securities or other
appropriate high-grade debt obligations in an amount sufficient to meet its
obligations.
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<PAGE>
Certain provisions of the Internal Revenue Code may limit the extent to
which the Fund may enter into forward or futures contracts. Such transactions
may also affect for U.S. Federal income tax purposes the character and timing
of income, gain, or loss recognized by the Fund.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy the Fund will not engage in the following
actions, unless authorized by a vote of a majority of its outstanding Shares.
For this purpose, a majority vote of the outstanding Shares of the Fund means
the lesser of (a) 67% or more of the outstanding Shares present at a meeting at
which more than 50% of the outstanding Shares are present or represented by
proxy or (b) more than 50% of the outstanding Shares.
The Fund will not: (1) invest in commodities or write or acquire options
or purchase or sell real estate (including limited partnership interests),
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate and may purchase or sell foreign currency futures contracts and
options, provided that not more than 5% of the Fund's assets are then invested
as initial or variation margin deposits; (2) make loans of cash, except through
the acquisition of publicly-traded debt securities and short-term money market
instruments; (3) invest in the securities of any issuer (except obligations of
the U.S. government and its instrumentalities) if, as a result, more than 5% of
the Fund's total assets, at market, would be invested in the securities of such
issuer, provided that this limitation applies only to 75% of the total assets of
the Fund; (4) purchase or retain securities of an issuer if those officers and
directors of the Fund or the Advisor owning more than 1/2 of 1% of such
securities together own more than 5% of such securities; (5) borrow, except in
connection with a foreign currency transaction, the settlement of a portfolio
trade, or as a temporary measure for extraordinary or emergency purposes and, in
no event, in excess of 33% of the Fund's gross assets valued at the lower of
market or cost; (6) pledge, mortgage, or hypothecate any of its assets to an
extent greater than 10% of its total assets at fair market value, except to
secure borrowings as described in (5) above; (7) engage in the business of
underwriting securities issued by others, except to the extent that the sale of
securities originally acquired for investment purposes may be deemed an
underwriting; (8) invest for the purpose of exercising control over management
of any company; (9) invest more than 5% of its total assets in securities of
companies which have (with predecessors) a record of less than three years'
continuous operation; (10) acquire any securities of companies within one
industry if, as a result of such acquisition, more than 25% of the value of the
Fund's total assets would be invested in securities of companies within such
industry; (11) acquire interests in oil, gas or other mineral exploration,
leases or development programs; (12) purchase warrants, except that the Fund may
acquire warrants as a result of corporate actions involving its holdings of
common stocks; (13) purchase securities on margin or sell short; or (14) acquire
more than 10% of the voting securities of any issuer.
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<PAGE>
Although (2) above prohibits cash loans, the Fund is authorized to lend
portfolio securities and may purchase debt securities customarily purchased by
institutional investors, including purchases of variable amount master demand
notes and repurchase agreements. All loans of portfolio securities will be
effected in accordance with applicable regulatory guidelines and will at all
times be secured by cash collateral or securities issued or guaranteed by the
United States government in an amount that is at least equal to the market
value, determined daily, of the loaned securities.
For the purposes of (10) above, utility companies will be divided according
to their services; e.g., gas, gas transmission, electric and gas, electric,
water and telephone will each be considered a separate industry. With respect
to investment restriction (10), it is the position of the staff of the
Securities and Exchange Commission that only obligations of the U.S. Government
may be excluded for purposes of determining compliance with that restriction,
and the Fund will only exclude U.S. Government securities for this purpose.
With regard to non-U.S. debt securities, the SEC takes the position that each
foreign government, and all supranational organizations as a group, shall be
deemed to constitute a separate industry. Therefore, the Fund will effectively
limit its acquisitions of securities such that no more than 25% of the value of
the Fund's total assets would be invested in securities of companies within any
one such industry.
As a non-fundamental policy, the Board of Directors has determined that no
new portfolio securities will be purchased while borrowings in excess of 5% of
total assets remain outstanding.
The Fund's limitation on borrowing does not prohibit "borrowing in
connection with a foreign currency transaction"; the only type of borrowing
contemplated thereby is the use of a letter of credit issued on the Fund's
behalf in lieu of depositing initial margin in connection with currency futures
contracts, and the Fund has no present intent to engage in any other types of
borrowing transactions under this authority.
In addition to the above restrictions, the Fund also is subject to certain
diversification requirements based on its status as a "diversified" investment
company under the 1940 Act, which also may not be changed without a majority
vote of the Fund's outstanding Shares. Under these requirements, at least 75%
of the value of the Fund's total assets must consist of cash and cash items,
U.S. Government securities, securities of other investment companies, and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the Fund's total assets. Thus, with respect to
75% of the Fund's total assets, the Fund may not invest more than 5% of its
assets in marketable obligations of a foreign national government or its
agencies or instrumentalities. The Fund will also be subject to investment
limitations, portfolio diversification requirements and other restrictions
imposed by certain of the countries in which it expects to invest.
From time to time the Fund's institutional shareholders may purchase large
amounts
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<PAGE>
of the Fund's securities, paying large lump sum payments which, due to the
nature of emerging markets, may not be fully investable on a prompt basis by the
Fund. In addition, the Fund may anticipate that a market that is temporarily
unavailable due to local governmental restrictions may be open within a
reasonably short period of time for investments. For example, local governments
often impose temporary investment restrictions on foreign investors, including
the Fund, to control the level of foreign investment. These restrictions are
imposed often with little or no notice but may last only for a short period of
time. As a result of the relatively large purchases made by institutional
investors as well as the occurrence of temporary investment restrictions, it is
possible that on a short-term basis, the Fund occasionally may have up to 35% of
the value of the Fund's total assets invested in the below-described debt
securities, awaiting investment in emerging markets equity securities. Such
debt securities would be limited to the following: (i) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
(ii) corporate debt obligations with either a commercial paper rating of Prime-1
or A-1, or a "high quality" debt security rating (e.g., at least AA) or if
unrated, of comparable quality as determined by the Advisor, (iii) financial
institution obligations including bankers' acceptances and certificates of
deposit of financial institutions with assets greater than $1 billion,
(iv) repurchase agreements relating to securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, (v) debt instruments issued
or guaranteed by foreign governments, their agencies or instrumentalities which
meet the quality standard referred to in (ii) above; and (vi) debt securities of
supranational organizations chartered to promote economic development, such as
the European Coal and Steel Community, the European Economic Community and the
World Bank.
Consistent with rules relating to the determination of beneficial ownership
under the Securities Exchange Act of 1934, a conversion feature or right to
acquire a security shall be considered to be ownership of the underlying
security by the Fund for the purposes of the above investment restrictions.
Notwithstanding any of the above investment restrictions, the Fund may
establish subsidiaries or other similar vehicles for the purpose of conducting
its investment operations in Approved Markets, where such subsidiaries or
vehicles are required by local laws or regulations governing foreign investors
such as the Fund or whose use is otherwise considered by the Fund to be
advisable. The Fund would "look through" any such vehicle to determine
compliance with its investment restrictions.
MANAGEMENT
The Board of Directors, through its Investment Committee, sets the overall
investment policies and generally oversees the investment activities and
management of the Fund. The Advisor has the responsibility of implementing the
policies set by the Board and is responsible for the Fund's day-to-day
operations and investment activities. It is expected that both the Board of
Directors and the Advisor will cooperate in the
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effort to achieve the investment objective, policies and purposes of the Fund.
DIRECTORS
David G. Booth,(5) Director, President and Chairman-Chief Executive
Officer, Santa Monica, CA (age 49). President, Chairman-Chief Executive Officer
and Director, Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty. Limited, Dimensional Investment Group Inc. (registered investment
company), DFA Investment Dimensions Group Inc. (registered investment company).
Trustee, President and Chairman-Chief Executive Officer of The DFA Investment
Trust Company. Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, Director, Chicago, IL (age 48). Director,
Dimensional Investment Group Inc. (registered investment company), DFA
Investment Dimensions Group Inc. (registered investment company). Trustee, The
DFA Investment Trust Company. Leo Melamed Professor of Finance, Graduate School
of Business, University of Chicago.
John P. Gould, Director, Chicago, IL (age 57). Steven G. Rothmeier
Distinguished Service Professor of Economics, Graduate School of Business,
University of Chicago. Director, Dimensional Investment Group Inc. (registered
investment company), DFA Investment Dimensions Group Inc. (registered
investment company). Trustee, The DFA Investment Trust Company and First
Prairie Funds (registered investment company). Director, Harbor Investment
Advisors. Executive Vice President, Lexecon Inc. (economics, law strategy and
finance consulting).
Roger G. Ibbotson, Director, New Haven, CT (age 53). Professor in
Practice of Finance, Yale School of Management. Director, Dimensional
Investment Group Inc. (registered investment company), DFA Investment
Dimensions Group Inc. (registered investment company). Trustee, The DFA
Investment Trust Company. Director, Hospital Fund, Inc. (investment management
services), BIRR Portfolio Analysis, Inc. (software products). Chairman and
President, Ibbotson Associates, Inc. (software, data, publishing and
consulting).
Merton H. Miller, Director, Chicago, IL (age 73). Robert R. McCormick
Distinguished Service Professor Emeritus of Finance, Graduate School of
Business, University of Chicago. Director, Dimensional Investment Group Inc.
(registered investment company), DFA Investment Dimensions Group Inc.
(registered investment company). Trustee, The DFA Investment Trust Company.
Public Director, Chicago Mercantile Exchange.
Michael T. Scardina, Vice President, Chief Financial Officer, Controller
and Treasurer, Santa Monica, CA (age 40). Vice President, Chief Financial
Officer, Controller and Treasurer, Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA
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(5)Interested Director of the Fund.
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Australia Pty. Limited, The DFA Investment Trust Company, DFA Investment
Dimensions Group Inc., Dimensional Fund Advisors Ltd., Dimensional Investment
Group Inc.
Myron S. Scholes, Director, Greenwich, CT (age 55). Limited Partner, Long
Term Capital Management L.P. (money manager) Frank E. Buck Professor of
Finance, Graduate School of Business and Professor of Law, Law School, Senior
Research Fellow, Hoover Institution, (all) Stanford University (on leave).
Director, Dimensional Investment Group Inc. (registered investment company),
DFA Investment Dimensions Group Inc. (registered investment company). Trustee,
The DFA Investment Trust Company. Director, Benham Capital Management Group of
Investment Companies and Smith Breedon Group of Investment Companies. Limited
Partner, Long-Term Capital Management L.P. (money manager).
Cem Severoglu, Vice President, Santa Monica, CA (age 32). Vice President,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty.
Limited, The DFA Investment Trust Company, DFA Investment Dimensions Group Inc.,
Dimensional Fund Advisors Ltd., Dimensional Investment Group Inc.
Jeanne C. Sinquefield, Ph.D., Executive Vice President, Santa Monica, CA
(age 49). Executive Vice President, Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Pty. Limited, The DFA Investment Trust Company,
DFA Investment Dimensions Group Inc., Dimensional Fund Advisors Ltd. and
Dimensional Investment Group Inc.
Rex A. Sinquefield,(6) Director, Chairman and Chief Investment Officer,
Santa Monica, CA (age 51). Chairman-Chief Investment Officer and Director,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty.
Limited, Dimensional Investment Group Inc., DFA Investment Dimensions Group Inc.
Trustee, Chairman-Chief Investment Officer of The DFA Investment Trust Company.
Chairman, Chief Executive Officer and Director, Dimensional Fund Advisors Ltd.
David Plecha, Vice President, Santa Monica, CA (age 34). Vice President,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty.
Limited, The DFA Investment Trust Company, Dimensional Fund Advisors Ltd., DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc.
Eugene Fama, Jr., Vice President, Santa Monica, CA (age 35). Vice
President, Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty. Limited, The DFA Investment Trust Company, Dimensional Fund Advisors Ltd.,
DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc.
Irene R. Diamant, Vice President and Secretary, Santa Monica, CA (age 45).
Vice President and Secretary, Dimensional Fund Advisors Inc., DFA Securities
Inc., The
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(6)Interested Director of the Fund.
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DFA Investment Trust Company, DFA Investment Dimensions Group Inc., Dimensional
Investment Group Inc. Vice President, Dimensional Fund Advisors Ltd., DFA
Australia Pty. Limited.
Maureen Connors, Vice President, Santa Monica, CA (age 59). Vice
President, Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty. Limited, The DFA Investment Trust Company, Dimensional Fund Advisors Ltd.,
DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc.
George Sands, Vice President, Santa Monica, CA (age 40). Vice President,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty.
Limited, The DFA Investment Trust Company, Dimensional Fund Advisors Ltd., DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc. Managing
Director, Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992.
Previously Vice President of Wilshire Associates, Santa Monica, CA.
Arthur Barlow, Vice President, Santa Monica, CA (age 40). Vice President,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty.
Limited, The DFA Investment Trust Company, Dimensional Fund Advisors Ltd., DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc.
Robert Deere, Vice President, Santa Monica, CA (age 38). Vice President,
Dimensional Fund Advisors Inc., DFA Securities Inc., The DFA Investment Trust
Company, Dimensional Fund Advisors Ltd., DFA Investment Dimensions Group Inc.,
Dimensional Investment Group Inc.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
Directors and officers as a group own less than 1% of the Fund's outstanding
stock. During the fiscal year ended November 30, 1995, the directors as a group
received fees from the Fund in the amount of $24,000. Total compensation from
the fund complex for the directors as a group in fiscal year ended November 30,
1995 aggregated $144,000.
The address of each officer is 1299 Ocean Avenue, 11th floor, Santa Monica,
CA 90401.
The Fund does not pay any compensation to its directors or officers
affiliated with the Advisor. Directors who are not affiliated with the Advisor
receive $1,000 per annum and $1,000 for each meeting attended. The Fund also
pays the expenses of attendance at Board and Committee meetings for the non-
interested directors. No director or officer currently owns shares of the Fund.
The Articles of Incorporation and Bylaws of the Fund provide that the Fund
will indemnify directors and officers and may indemnify employees or agents of
the Fund against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund to the
fullest extent permitted by law. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and
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officers will not be liable to shareholders for money damages, except in limited
instances. However, nothing in the Articles of Incorporation or the Bylaws of
the Fund protects or indemnifies a director, officer, employee or agent against
any liability to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
THE ADVISOR
The Advisor was organized in May 1981 and is engaged in the business of
providing investment management services to institutional investors. The
Advisor is located at 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
Assets under management total approximately $14 billion. David G. Booth and
Rex A. Sinquefield, directors and officers of both the Fund and the Advisor,
together own approximately 64% of the Advisor's outstanding stock and may be
deemed controlling persons of the Advisor.
Investment decisions for the Fund are made by the Investment Committee of
the Advisor which meets on a regular basis and also as needed to consider
investment issues. The Investment Committee is composed of certain officers and
directors of the Advisor who are elected annually. During the past five years,
each such person has either been employed by the Advisor as a portfolio manager
or has served as a director or executive officer in connection with the
operations of the Advisor's registered investment company clients.
Under the Investment Management Agreement between the Fund and the Advisor
(the "Agreement"), the Advisor makes investment decisions and supervises the
acquisition and disposition of securities by the Fund, all in accordance with
the Fund's investment objective and policies and under the general supervision
of the Fund's Board of Directors. In addition, the Advisor provides information
to the Fund's Board of Directors to assist the Board in identifying and
selecting qualified markets. The Advisor also provides and pays the
compensation and travel expenses of the Fund's officers and of the directors of
the Fund who are affiliated with the Advisor; maintains or causes to be
maintained for the Fund all required books and records and furnishes or causes
to be furnished all required reports or other information (to the extent such
books, records, reports and other information are not maintained or furnished by
the Fund's custodian or other agents); and supplies the Fund with office space.
The Fund pays all its expenses of operation including, without limitation,
custodian, stock transfer and dividend disbursing fees and expenses (including
fees or taxes relating to stock exchange listing); costs of preparing, printing
and mailing reports, prospectuses, proxy statements and notices to its
shareholders; taxes; expenses of the issuance, sale or repurchase of shares
(including registration and qualification expenses); legal and auditing fees and
expenses and fees of legal representatives; compensation; fees and expenses
(including travel expenses) of directors of the Fund who are not affiliated with
the Advisor; costs of insurance, including any directors and officers liability
insurance and fidelity bonding; and costs of stationery and forms prepared
exclusively for the Fund.
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For its services, the Advisor receives from the Fund a fee, payable
monthly, at the annual rate of 0.50% of the aggregate net assets of the Fund.
However, until further notice, the Advisor will waive a portion of its fee such
that the effective fee will equal the annual rate of 0.10% of the aggregate net
assets of the Fund.
The Agreement, as amended to date, had an initial term to December 22,
1993. In 1993, 1994 and 1995, the Board voted to extend the term for another
year. The Agreement will continue in effect from year-to-year thereafter if
approved annually (a) by the Board of Directors of the Fund or by a majority
vote of the outstanding Shares of the Fund, and (b) by a majority of the
directors who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Agreement may be terminated
without penalty on 60 days' written notice at the option of either party or by a
majority vote of the outstanding Shares of the Fund.
The Fund's normal operating expenses may be higher than those of other
investment companies of comparable size. This is because the fees and expenses
generally charged by certain of the Fund's agents are higher than those charged
to investment companies investing exclusively in the U.S. In some Approved
Markets, such as Chile, local law requires that investors such as the Fund
utilize administrators or other local agents in connection with investment
activity in that Approved Market. These are expenses which would not typically
have to be incurred in connection with investments in the United States or in
certain other non-U.S. securities markets such as Canada and Western Europe.
There are added custodial, communications and other costs associated with the
Fund's activities required in light of the specialized nature of the Fund's
investment activities.
ADMINISTRATORS
PFPC Inc. ("PFPC") serves as the administrative services, dividend
disbursing and transfer agent for the Fund. The services provided by PFPC are
subject to supervision by the executive officers and the Board of Directors of
the Fund, and include day-to-day keeping and maintenance of certain records,
calculation of the net asset value of the Shares, preparation of reports,
liaison with its custodians, and transfer and dividend disbursing agency
services. For its services, the Fund pays PFPC a fee which, on an annual basis,
equals 0.10% of the net assets of the Fund.
The Fund may, as is deemed necessary or appropriate, employ administrators
in other countries in which it invests. Certain emerging market countries
require a local entity to provide administrative services for all direct
investments by foreigners. Where required by local law, the Fund intends to
retain a local entity to provide such administrative services. The local
administrator will be paid a fee by the Fund for its services. Generally, such
services will be contracted for through Chase Manhattan Bank, N.A., the Fund's
custodian, or through a foreign sub-custodian located in the particular country.
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COMMON STOCK
The authorized capital stock of the Fund is 200,000,000 Shares of common
stock ($.01 par value). As of January 31, 1996, 10,831,965.003 Shares were
outstanding. All of such Shares are held by State Street Bank and Trust Company
as Trustee of the BellSouth Master Pension Trust. See "Selling Shareholder."
On account of the fact that this investor presently owns 100% of the outstanding
shares of the Fund, this investor may be considered to be a controlling person
of the Fund in accordance with applicable Securities and Exchange Commission
rules. Under the 1940 Act, an investor is presumed to control a registered
investment company whenever the investor owns more than 25% of the outstanding
voting securities of the company.
Shares of the Fund, when sold and issued as provided herein, will be fully
paid and nonassessable. All Shares of common stock are equal as to earnings,
assets and voting privileges. The Shares currently have no conversion,
preemptive or other subscription rights; rights to purchase Shares may be issued
in the future but any such rights would be subject to certain restrictions under
the 1940 Act, including that they be issued exclusively and ratably to all
holders of Shares and that they expire after not more than 120 days. In the
event of liquidation, each Share is entitled to its proportion of the Fund's
assets after debts and expenses. There are no cumulative voting rights for the
election of Directors. The Shares are issued in registered form, and ownership
and transfers of the Shares are recorded by the Fund's transfer agent.
Under Maryland law, and in accordance with the Articles of Incorporation
and Bylaws of the Fund, the Fund is not required to hold an annual meeting of
its shareholders in any year in which the election of directors or other action
is not required to be acted upon under the 1940 Act. As a result, each director
will serve as a director for an indefinite term. In accordance with the 1940
Act, the Fund will undertake to call a special meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors when
requested in writing to do so by the holders of at least 10% of the outstanding
shares of the Fund and in connection with such meeting to comply with the
provisions of Section 16(c) of the 1940 Act relating to shareholder
communications. Holders of a majority of the outstanding Shares will constitute
a quorum for the transaction of business at such meetings. Attendance and
voting at shareholders' meetings may be by proxy, and shareholders may take
action by unanimous written consent in lieu of holding a meeting.
As a closed-end investment company registered with the U.S. Securities and
Exchange Commission, the Fund is required in any offering of its Shares to sell
such Shares at a price which is not less than the current net asset value per
Share (see "Determination of Net Asset Value" below), except that sales at a
price less than the current net asset value per Share may be made: (i) in
connection with an offering to all current holders of Shares, (ii) with the
consent of the holders of a majority of the Shares, or (iii) as may be permitted
by an order of the Securities and Exchange Commission. 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
26
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by the Shares outstanding at that time.
PURCHASE OF SHARES
The Fund presently has authorized 200,000,000 Shares, 10,831,965.003 of
which have been sold in a nonpublic transaction. Up to 1,168,034.997 Shares are
being offered for sale by the Fund on a continuous basis. The Fund acts as
distributor in its sale of its own shares of stock. It has, however, entered
into an agreement with DFA Securities Inc., a wholly owned subsidiary of the
Advisor, pursuant to which DFA Securities Inc. is responsible for supervising
the sale of Shares by the Fund. No compensation is paid by the Fund to DFA
Securities Inc. under this agreement.
It is management's belief that payment of a reimbursement fee by each
investor, which is used to defray costs associated with investing proceeds of
the sale of their Shares to such investors, where such costs are significant,
will eliminate a dilutive effect such costs would otherwise have on the net
asset value of Shares held by previous investors. Therefore, the Shares are
sold at a price which is equal to the current net asset value of such Shares
plus a reimbursement fee of 0.5% of such net asset value. The amount of the
reimbursement fee represents management's estimate of the costs reasonably
anticipated to be associated with the purchase of securities in Approved Markets
and used by them to defray such costs. Shares sold by the Selling Shareholder
pursuant to this Registration Statement are not subject to the reimbursement
fee. Reinvestments of dividends and capital gains distributions paid by the
Fund and in-kind investments are not subject to a reimbursement fee.
Prospective investors must complete an Account Registration Form and submit
it to:
Dimensional Emerging Markets Fund Inc.
c/o Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th floor
Santa Monica, CA 90401
All investments are subject to approval of the Advisor and all investors
must complete and submit the necessary account registration forms as well as a
subscription agreement. On the purchase date, once the net asset value has been
calculated, PFPC will send a confirmation to the purchaser, which confirmation
will indicate the purchase price per share and total dollar amount of the
purchase. Payment must be received in immediately available funds as of the
purchase date to be eligible for use to purchase Shares. If immediately
available funds are not received by the Fund until after the monthly Share
purchase date, the funds will be returned to the investor without interest. The
investor will then be responsible to retransmit the funds at a later date to
ensure their timely availability on the next succeeding Share purchase date.
The net asset value per Share will ordinarily be determined as of, and the
purchase
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date for purchases of Shares will ordinarily be on, the last business day of
each month on which the New York Stock Exchange is open for trading. The Fund
reserves the right to calculate net asset value and accept purchases as of any
other day in its discretion. In the event the net asset value calculation is
suspended for any of the reasons set forth in "Determination of Net Asset Value"
below, the Fund may delay the purchase date for a period of up to 5 business
days. If at the end of such period, the net asset value calculation is still
suspended, the funds will be returned to the investor without interest.
Investors having an account with a bank that is a member or a correspondent
of a member of the Federal Reserve System may request the bank to transmit
immediately available funds (Federal Funds) by wire to Chase Manhattan Bank,
N.A., Custodian, for the account of Dimensional Emerging Markets Fund Inc.
Investors who wish to purchase shares of the Fund by check should send their
check to Dimensional Emerging Markets Fund Inc., c/o PFPC Inc., 200 Stevens
Drive, Airport Business Center, Lester, PA 19113. The use of a cashier's check
is recommended, as checks which have not provided immediately available funds as
of the Share purchase date will not be accepted by the Fund for Share sales
purposes.
If accepted by the Fund, Shares may be purchased in exchange for securities
which are eligible for acquisition by the Fund as described in this Prospectus
or in exchange for local currencies in which eligible securities of the Fund are
denominated. Purchases in exchange for securities will not be subject to a
reimbursement fee. Securities and local currencies to be exchanged which are
accepted by the fund will be valued as set forth under "Determination of Net
Asset Value" at the time of the next determination of net asset value after such
acceptance. Shares issued by the Fund in exchange for securities will be issued
at net asset value determined as of the same time. All dividends, interest,
subscription, or other rights pertaining to such securities shall become the
property of the Fund and must be delivered to the Fund by the investor upon
receipt from the issuer. Investors who desire to purchase Shares of the Fund
with local currencies should first contact the Advisor for wire instructions.
The Fund will not accept securities in exchange for shares of the Fund
unless: (1) such securities are, at the time of the exchange, eligible to be
included in the Fund and current market quotations are readily available for
such securities; and (2) neither the type, amount nor value of any such security
being exchanged will cause the Fund to be in violation of any of its investment
policies and restrictions.
A gain or loss for federal income tax purposes will be realized by
investors who are subject to federal taxation upon the exchange depending upon
the cost of the securities or local currency exchanged. Investors interested in
such exchanges should contact their own tax advisers.
Purchases of Shares will be made in full and fractional Shares calculated
to three decimal places. In the interest of economy and convenience,
certificates for Shares will not be issued except at the written request of the
stockholder. Certificates for fractional
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Shares, however, will not be issued.
Shares may also be purchased and sold by individuals through securities
firms which may charge a service fee or commission for such transactions. No
such fee or commission is charged on shares which are purchased or redeemed
directly from the Fund. Investors who are clients of investment advisory
organizations may also be subject to investment advisory fees under their own
arrangements with such organizations.
SELLING SHAREHOLDER
As of the date of this Prospectus, all of the Fund's outstanding Shares are
held by State Street Bank and Trust Company as Trustee of the BellSouth Master
Pension Trust (the "Selling Shareholder"). As of January 31, 1996, the Selling
Shareholder owned beneficially and of record 10,831,965.003 Shares. The Fund
has registered the offering of all of such Shares by the Selling Shareholder in
the offering contemplated hereby. The sale by the Selling Shareholder of all of
such Shares in the offering would reduce the Selling Shareholder's share
ownership interest in the Fund to zero. The Fund has been advised by the
Selling Shareholder that although it may sell some or all of such Shares in the
future, it does not presently intend to sell any of such Shares. The Selling
Shareholder has never held any position or office with the Fund or any of its
affiliates and has never had any other material relationship with the Fund or
any of its affiliates.
FUTURE ACTIONS RELATING TO POSSIBLE DISCOUNT IN THE MARKET PRICE
OF THE FUND'S SHARES
Shares of investment companies frequently trade at a discount from net
asset value but may trade at a premium. The Fund cannot predict whether the
Shares will trade at, below or above net asset value. In fact, it is not
anticipated that an active secondary market will develop for the Shares. The
Common Stock is designed primarily for long-term investors, and investors in the
Common Stock should not view the Fund as a vehicle for trading purposes.
TENDER OFFERS
In recognition of the possibility that the Fund's shares may trade, if at
all, at a discount to net asset value, the Board of Directors of the Fund may
from time to time consider the commencement of an offer to purchase the Shares
of the Fund from all Fund shareholders at a price per share equal to the net
asset value per Share determined at the close of business on the day the offer
terminates ("Tender Offer"), subject to certain conditions. There can be no
assurance that the Fund will commence a Tender Offer at any particular time(s)
or at all.
The fact that the Fund's Shares may be the subject of one or more tender
offers at net asset value may enhance their attractiveness to investors, thereby
reducing the spread between market price and net asset value that might
otherwise exist. Sellers may be less inclined to accept a significant discount
if they have some prospect of being able to
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<PAGE>
receive net asset value in conjunction with a possible tender offer. There can
be no assurance, however, that the prospect of a Tender Offer or a Tender Offer,
if made, will result in the Shares trading at a price equal to their net asset
value. Consummation of a Tender Offer will decrease the Fund's assets and will
have the likely effect of increasing the Fund's expense ratio. Subject to the
Fund's investment restriction with respect to borrowings, the Fund may borrow
money to finance the purchase the Shares pursuant to a Tender Offer and such
borrowings will increase the Fund's expenses. See "Investment Restrictions."
Interest on any such borrowings by the Fund for such purposes may require the
Fund to invest in certain temporary investments in order to meet interest on the
borrowings. In addition, the Fund may have to substantially restructure its
portfolio in order to make such Tender Offer, which would involve trading costs
and may result in losses to the Fund.
OTHER SHARE REPURCHASES
The Fund may from time to time attempt to reduce or eliminate a market
value discount from net asset value by repurchasing Shares when it can do so at
prices below the then current net asset value per share. Although the Board
believes that Share repurchases generally would have a favorable effect on the
market price of the Shares, it should be recognized that the acquisition of
Shares by the Fund will decrease its total assets and therefore may increase the
Fund's expense ratio. In accordance with applicable regulations under the 1940
Act, share repurchases from holders of 5% or more of the Fund's then outstanding
Shares are prohibited.
CONVERSION TO OPEN-END STATUS AND DISSOLUTION OF THE FUND
On December 22, 1995, the Board of Directors of the Fund approved a
plan to merge the Fund into the Emerging Markets Series of DFAITC, an open-end
registered investment management Fund registered with the SEC, subject to
certain conditions precedent. See "Proposed Merger Transaction."
GENERAL
There can be no assurance that repurchases and/or tenders, if undertaken at
all, will result in the Fund's Shares trading at a price that approximates or is
equal to their net asset value. The Fund anticipates that if a market for its
Shares develops, the market price of the Shares will from time to time vary from
net asset value.
REPORTS AND PUBLICATION OF SHARE VALUE
Financial statements of the Fund are sent to the shareholders at least
semiannually, and the annual financial statements will be audited.
Materials published by the Fund may include historical data concerning the
Fund's total return for various periods.
Investment performance is calculated on a total return basis; that is by
including all
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net investment income and any realized and unrealized net capital gains or
losses during the period for which investment performance is reported. If
dividends or capital gains distributions have been paid during the relevant
period the calculation of investment performance will include such dividends and
capital gains distributions as though reinvested in shares of the Fund.
Standard quotations of total return, which include deductions of any applicable
reimbursement fees, are computed in accordance with SEC requirements and are
presented whenever any non-standard quotations are disseminated. Non-
standardized total return quotations may differ from the SEC regulation
computations by covering different time periods and excluding deduction of
reimbursement fees charged to investors and paid to the Fund which would
otherwise reduce returns quotations. Performance data is based on historical
earnings and is not intended to indicate future performance. Rates of return
expressed on an annual basis will usually not equal the sum of returns expressed
for consecutive interim periods due to the compounding of the interim yields.
Rates of return expressed as a percentage of U.S. dollars will reflect
applicable currency exchange rates at the beginning and ending dates of the
investment periods presented. The return expressed in terms of U.S. dollars is
the return one would achieve by investing dollars in the Fund at the beginning
of the period and liquidating the investment in dollars at the end of the
period. Hence, the return expressed as a percentage of U.S. dollars combines
the investment performance of the Fund as well as the performance of the local
currency or currencies of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value per Share is calculated in U.S. Dollars on the last
business day of each month on which the New York Stock Exchange is open for
regular trading, and may be calculated at such other times as the Board of
Directors may determine, in the following manner:
1.Portfolio securities, including ADRs and IDRs, which are traded on stock
exchanges, are valued at the closing price on the exchange on which such
securities are traded, as of the close of business in New York City on the day
the securities are being valued, or, in the absence of any sales, at the current
bid price. 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 as the primary market. Securities traded in the OTC market are valued
at the current bid price in the OTC market prior to the time of valuation.
Securities and assets for which market quotations are not readily available
(including restricted securities which are subject to limitations as to their
sale) are valued at fair value as determined in good faith by or under the
authority of the Board. United States Treasury bills, certificates of deposit
issued by banks, corporate short-term notes and other short-term investments and
bonds and notes are valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities or, if such prices are not available, as established by the Board of
Directors of the Fund. Shares of other investment companies may be valued using
market quotations if the Fund's officers
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determine, under guidelines set forth by the Board, that the market volume and
the depth of the market are sufficient to establish that the market quotation is
appropriate to reflect the accurate fair market value. Where, in the opinion of
the Board of Directors, market quotations do not appropriately reflect fair
market value, shares of other investment companies will be valued at current net
asset value. If the Fund becomes aware, in the ordinary course of business,
that a material development has occurred between the last time when the
principal market for a foreign security has closed, and the next succeeding or
contemporaneous close of business in New York City, the investment committee of
the Board of Directors will determine, in their opinion, if the fair value of
the security should be set at a price other than the last reported closing
price. Assets or liabilities initially expressed in terms of foreign currencies
are translated into U.S. dollars at the prevailing market rates as determined
according to procedures approved by the Board of Directors. 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; and
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
1/100 of a cent, is the net asset value per Share.
The Fund may suspend net asset value calculation: (1) during any period
when the New York Stock Exchange is closed, or trading on the Exchange is
restricted as determined by the Securities and Exchange Commission, (2) during
any period when an emergency exists as defined by the rules of the Securities
and Exchange Commission as a result of which it is not reasonably practicable
for the Fund to dispose of securities owned by it, or fairly to determine the
value of its assets and (3) for such other periods as the Securities and
Exchange Commission may permit.
VALUATION OF CERTAIN APPROVED MARKET SECURITIES
Certain of the Fund's securities holdings in Approved Markets may be
subject to tax, investment and currency repatriation regulations of the Approved
Market that could have a material effect on the valuation of the securities.
For example, the Fund might be subject to different levels of taxation on
current income and realized gain depending upon the Fund's holding period of the
securities. In general, a longer holding period (e.g., 5 years) may result in
the imposition of lower tax rates than a shorter holding period (e.g., 1 year).
The Fund may also be subject to certain contractual arrangements with investment
authorities in an Approved Market which require the Fund to maintain minimum
holding periods or to limit the extent of repatriation of income and realized
gains. As a result, the valuation of particular securities at any one time may
depend materially upon the assumptions that the Fund makes at that time
concerning the Fund's anticipated holding period for the securities. Absent
special circumstances as determined by the Board of Directors of the Fund, it is
the present intention of the Fund that the valuation of such securities will be
based upon the assumption that the Fund will hold the
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securities for at least the amount of time necessary to avoid higher tax rates
or penalties and currency repatriation restrictions, which would be imposed in
the event that the Fund held the securities a shorter period of time. However,
the use of such valuation standards will not prevent the Fund from selling such
securities in a shorter period of time if the Advisor considers the earlier sale
to be a more prudent course of action. Revision in valuation of those
securities will be made at the time of the transaction to reflect the actual
sales proceeds inuring to the Fund.
DIVIDENDS, DISTRIBUTIONS AND REINVESTMENT IN ADDITIONAL SHARES
The Fund will, from time to time, distribute dividends and realized net
capital gains to shareholders. The Fund intends to distribute to shareholders
annually substantially all of its investment company taxable income. Investment
company taxable income includes all of the Fund's taxable income minus the
excess, if any, of its net realized long term capital gains over its net
realized short term capital losses (including any capital loss carryovers), plus
or minus certain other required adjustments. The Fund will determine annually
whether to distribute any net realized long term capital gains in excess of net
realized short term capital losses (including any capital loss carryovers),
although it currently expects to do so. See "Tax Considerations." Shareholders
will receive all distributions in additional Shares issued by the Fund for this
purpose priced at the next calculated net asset value, unless a shareholder
elects to receive dividends and/or distributions by wire transfer when requested
or in cash paid by check in U.S. Dollars mailed directly to the shareholder by
The Provident Financial Processing Corporation, the paying agent. Shareholders
must make such election in writing sent to the Fund's dividend paying agent.
Cash dividends and distributions paid to these shareholders will be reduced by
the amount of any foreign taxes incurred with respect to remittances to pay such
cash dividends or distributions. See "Tax Considerations."
The receipt of dividends and distributions in Shares will not relieve
participants of any income tax or withholding tax that may be payable on such
dividends or distributions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of securities for the Fund, the
Advisor will use its best efforts to obtain the most favorable net results and
execution of the Fund's orders, taking into account all appropriate factors,
including price, dealer spread or commission, if any, size of the transaction,
and difficulty of the transaction. Transactions in the U.S. and in some
Approved Markets involve the payment of negotiated brokerage commissions, which
may vary among different brokers. In other Approved Markets, commissions may be
charged in accordance with fixed rate schedules. The cost of securities
purchased from underwriters includes an underwriter's commission or concession,
and the prices at which securities are purchased from and sold to dealers in the
over-the-counter markets include an undisclosed dealer's mark-up or mark-down.
Fixed-income securities are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission. Foreign
security
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settlements may in some instances be subject to delays and related
administrative uncertainties.
The Advisor is authorized to pay commissions to brokers furnishing
brokerage and research services in excess of commissions which another broker or
dealer may charge for the same transaction. The type of services the Advisor
may consider when selecting brokers to effect transactions includes advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or purchasers or sellers of
securities, and the furnishing of analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. Although certain research, market and statistical
information from brokers can be useful to the Fund and to the Advisor, it is the
opinion of the Advisor that such information is only supplementary to its own
research effort, since the information must still be analyzed, weighed and
reviewed by the Advisor in connection with the Fund. Such information may be
useful to the Advisor in providing services to clients other than the Fund, and
not all such information may be used by the Advisor in connection with the Fund.
Conversely, such information provided to the Advisor by brokers and dealers
through whom other clients of the Advisor effect securities transactions may be
useful to the Advisor in providing services to the Fund.
Neither the Fund nor the Advisor has made any commitments to place
brokerage business with particular brokers or dealers. However, the Advisor
does expect to identify one or a small group of brokerage firms in each Approved
Market for regular use. It is anticipated that the availability of brokerage
firms in particular Approved Markets may be substantially less than the
availability of brokerage firms in the United States, Canada or the Western
European countries. The Advisor is of the opinion that it may be necessary or
appropriate in the Approved Markets to identify particular brokerage firms
believed to be particularly knowledgeable and competent in trading in such
markets, and to direct substantially all of the Fund's business to those
brokers.
Under the Agreement, the Advisor and its affiliates are permitted to
provide investment advisory services to other clients, including clients which
may invest in Approved Market securities. In addition, under the Agreement,
when the Advisor 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 Advisor 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 portfolio turnover rate is expected to be less than 20% each fiscal
year. For the period December 1, 1994-November 30, 1995, the Fund's portfolio
turnover rate was 5.73% (as calculated in accordance with applicable Securities
and Exchange Commission rules).
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TAX CONSIDERATIONS
UNITED STATES TAX CONSIDERATIONS
The Fund is registered as an investment company under the 1940 Act and will
seek to continue its registration and to elect to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund did qualify for tax treatment as a "regulated investment
company" for the fiscal year ended November 30, 1995. To qualify for the
special tax treatment afforded regulated investment companies under the Code,
the Fund must annually distribute at least 90% of the sum of its investment
company taxable income (consisting generally of net investment income and
certain short-term capital gains) and its tax-exempt interest income, if any,
and must meet certain diversification of assets rules, as well as other
requirements of the Code. If the Fund qualifies for such tax treatment, it will
not be subject to federal income tax on the part of its investment company
taxable income and its net realized capital gains distributed to shareholders.
If the Fund did not qualify for and elect treatment as a regulated investment
company, the Fund would incur significant federal income tax liabilities so that
the investment returns to Fund shareholders would be correspondingly reduced.
The Fund expects to distribute annually all of its investment company
taxable income and any net realized capital gains. By so doing, the Fund
intends to avoid any excise tax liability and any adverse consequences arising
as a result of its personal holding company status.
The Fund may be required to withhold for federal income taxes 31% of the
taxable distributions payable to certain shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to back-up withholding.
So long as (i) the Fund qualifies for treatment as a regulated investment
company, (ii) the Fund is liable for foreign income taxes, and (iii) more than
50% of the Fund's total assets at the close of its taxable year consist of stock
or securities of foreign corporations, the Fund will elect to "pass through" to
the Fund's shareholders the amount of such foreign taxes paid by the Fund. If
this election is made, information with respect to the amount of the foreign
income taxes that are allocated to the shareholders will be provided to them and
any shareholder subject to tax on dividends from the Fund will be required
(i) to include in ordinary gross income (in addition to the amount of the
taxable dividends actually received) its proportionate share of the foreign
taxes paid by the Fund that are attributable to such dividends; and (ii) either
to deduct its proportionate share of foreign taxes in computing its taxable
income or to claim that amount as a foreign tax credit (subject to applicable
limitations) against U.S. income taxes.
If the Fund purchases shares in certain foreign investment entities, called
"passive
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foreign investment companies" ("PFIC"), the Fund may be subject to U.S. federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. In addition, the Fund will attempt to
monitor transactions in forward foreign exchange and foreign currency futures
contracts so as to minimize adverse tax consequences related to such
transactions.
The Fund provides federal tax information to shareholders annually,
including information about dividends and distributions paid during the
preceding year.
The foregoing general discussion relates solely to the U.S. federal tax
consequences of an investment in the Fund. Distributions may also be subject to
additional or other federal state, local and foreign taxes depending on each
shareholder's particular situation. Each investor should consult with its own
tax advisor concerning the tax consequences of an investment in the Fund.
TAXES IMPOSED IN APPROVED MARKETS
The Fund will be liable in each Approved Market to pay various taxes
relating to its portfolio investments. These taxes may vary materially as
between Approved Markets and may vary materially from similar taxes imposed by
the United States or other more developed markets. For example, some countries
may impose taxes on dividends and interest received and capital gains earned at
the time they are received or earned, and others may impose taxes only on the
remittance of dividends, interest or capital gains out of the country of origin.
Such income may be subject to withholding, and some countries apply
supplementary taxes to profits in excess of a specified percentage return.
Other property, or stamp taxes, may be applicable to the Fund or its
shareholders in connection with the Fund's proposed activities in Approved
Markets.
Tax rates vary among countries with emerging markets and, in some cases,
are high in relation to comparable U.S. rates. Some countries apply special or
different rates of taxes to foreign investors as distinguished from domestic
investors. Particular tax structures may have the intended or incidental effect
of encouraging longer rather than shorter holding periods for particular
securities and/or the reinvestment of earnings and sales proceeds in the same
jurisdiction.
Investors should be aware that the tax regime of any country applicable to
foreign investors, including tax rates, taxable basis and the manner in which
taxes would be applied may be amended by law or regulation at any time. In
addition, emerging market jurisdictions typically have less well-defined tax
laws and procedures than is the case in the United States, and such laws may
permit retroactive taxation so that the Fund could in the future become subject
to local tax liability that it had not reasonably anticipated in conducting its
investment activities or valuing its assets.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. EACH SHAREHOLDER
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IS ADVISED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF AN INVESTMENT IN THE FUND.
GENERAL INFORMATION
DIVIDEND PAYING AGENT, TRANSFER AGENT AND CUSTODIAN
PFPC Inc. acts as dividend paying agent and transfer agent for the Shares.
Chase Manhattan Bank, N.A. 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.
INDEPENDENT ACCOUNTANTS
The accounting firm of Coopers & Lybrand L.L.P. acts as independent
accountants for the Fund.
FURTHER INFORMATION
The law firm of Morrison & Foerster LLP of San Francisco, California acts
as legal counsel to the Fund. Morrison & Foerster LLP also represents the
Advisor in various matters related and unrelated to the business of the Fund.
At the date of this Prospectus, the Fund was not subject to any pending
litigation and was not aware of any threatened litigation.
Further information concerning these securities and their issuer may be
found in the Registration Statement of which this Prospectus constitutes a part
on file with the Securities and Exchange Commission.
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the cover of this Prospectus.
FINANCIAL STATEMENTS AND EXPERTS
The Fund's audited annual report to stockholders for the fiscal year ended
November 30, 1995 are incorporated herein by reference. The Fund's audited
annual report to stockholders for the fiscal year ended November 30, 1995 has
been audited by Coopers & Lybrand L.L.P., independent auditors, as stated in
their reports, and is included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
DIMENSIONAL EMERGING MARKETS FUND INC.
1299 Ocean Avenue
11th floor
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<PAGE>
Santa Monica, CA
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Inc.
200 Stevens Drive,
Airport Business Center
Lester, PA 19113
CUSTODIAN
Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
LEGAL COUNSEL
Morrison & Foerster LLP
345 California Street
San Francisco, CA 94104-2675
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
38
