<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1995
SECURITIES ACT FILE NO. 33-
INVESTMENT COMPANY ACT FILE NO. 811-6574
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 6 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------------------
THE LATIN AMERICAN DISCOVERY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 296-7100
------------------------------------
HAROLD J. SCHAAFF, JR.
THE LATIN AMERICAN DISCOVERY FUND, INC.
C/O MORGAN STANLEY ASSET MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(Name and Address of Agent for Service)
------------------------------------
With copies to:
<TABLE>
<S> <C>
G. DAVID BRINTON, ESQ. PIERRE DE SAINT PHALLE, ESQ.
ROGERS & WELLS DAVIS POLK & WARDWELL
200 PARK AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10166 NEW YORK, NEW YORK 10017
(212) 878-8000 (212) 450-4000
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
---------------------------------------------------------------------------------------------------
Common Stock, $.01 Par Value.... 3,100,000 shares $12.375 $38,362,500 $13,229
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on the
average of the high and low sales prices reported on the New York Stock
Exchange on August 8, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
------------------------------------------------- --------------------------------------------
<C> <S> <C>
1. Outside Front Cover......................... Front Cover Page
2. Inside Front and Outside Back Cover Page.... Front Cover Page; Inside Front Cover Page;
Outside Back Cover Page
3. Fee Table and Synopsis...................... Prospectus Summary; Fee Table
4. Financial Highlights........................ Financial Highlights
5. Plan of Distribution........................ Cover Page; Prospectus Summary; The Offer;
Distribution Arrangements
6. Selling Shareholders........................ Not Applicable
7. Use of Proceeds............................. The Offer
8. General Description of the Registrant....... Cover Page; Prospectus Summary; The Fund;
The Offer; Risk Factors and Special
Considerations; Investment Objective and
Policies; Investment Restrictions; Common
Stock
9. Management.................................. Management of the Fund; Expenses; Portfolio
Transactions and Brokerage; Dividend
Paying Agent, Transfer Agent and
Registrar; Custodians; Common Stock
10. Capital Stock, Long-Term Debt and Other
Securities................................ Prospectus Summary; The Offer; Dividends and
Distributions; Dividend Reinvestment and
Cash Purchase Plan; Taxation; Financial
Highlights; Common Stock
11. Defaults and Arrears on Senior Securities... Not Applicable
12. Legal Proceedings........................... Not Applicable
13. Table of Contents of the Statement of
Additional Information.................... Not Applicable
14. Cover Page.................................. Not Applicable
15. Table of Contents........................... Not Applicable
16. General Information and History............. The Fund
17. Investment Objective and Policies........... Investment Objective and Policies;
Investment Restrictions
18. Management.................................. Management of the Fund
19. Control Persons and Principal Holders of
Securities................................ Not Applicable
20. Investment Advisory and Other Services...... Management of the Fund; Dividend Paying
Agent; Transfer Agent and Registrar;
Custodians; Expenses; Experts
21. Brokerage Allocation and Other Practices
.......................................... Portfolio Transactions and Brokerage
22. Tax Status.................................. Taxation
23. Financial Statements........................ Incorporation of Financial Statements by
Reference
</TABLE>
---------------
* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus.
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. 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.
PROSPECTUS (Subject to Completion)
Dated August 11, 1995
3,100,000 Shares
The Latin American Discovery Fund, Inc.
COMMON STOCK
------------------------
Issuable Upon Exercise of Rights to Subscribe for Such Shares of Common Stock
------------------------
The Latin American Discovery Fund, Inc. (the "Fund") is issuing to its
shareholders of record as of the close of business on September , 1995 (the
"Record Date") transferable rights ("Rights") entitling the holders thereof to
subscribe for up to an aggregate of 3,100,000 shares (the "Shares") of the
common stock, par value $.01 per share ("Common Stock"), of the Fund (the
"Offer") at the rate of one share of Common Stock for each three Rights held. In
addition, Record Date Shareholders (as defined below) will be entitled to
subscribe, subject to certain limitations and subject to allotment, for any
Shares not acquired by exercise of primary subscription Rights. The number of
Rights to be issued to Record Date Shareholders (as defined below) will be
rounded up to the nearest number of Rights evenly divisible by three. In the
case of shares of Common Stock held of record by Cede & Co. ("Cede"), the
nominee for The Depository Trust Company, or any other depository or nominee (in
each instance, a "Nominee Holder"), the number of Rights issued to such Nominee
Holder will be adjusted to permit rounding up (to the nearest number of Rights
evenly divisible by three) of the Rights to be received by beneficial holders
for whom it is the holder of record only if the Nominee Holder provides to the
Fund on or before the close of business on October , 1995 written
representation of the number of Rights required for such rounding. Shareholders
of record on the Record Date and beneficial holders with respect to whom Nominee
Holders have submitted such written representations are referred to herein as
"Record Date Shareholders." Fractional Shares will not be issued. The Rights are
transferable and the Rights and the Shares will be listed for trading on the New
York Stock Exchange (the "NYSE"). The Fund's Common Stock is traded on the NYSE
under the symbol "LDF." (The Rights will be traded under the symbol "LDF.RT.")
See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE")
WILL BE $ . It is currently estimated that the Subscription Price will
represent a discount of between % and % to the last reported sale price on
the Business Day (as defined herein) prior to the Record Date.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON OCTOBER , 1995,
UNLESS EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION DATE"). The Fund announced
the Offer after the close of trading on the NYSE on August 11, 1995. The net
asset value per share of Common Stock at the close of business on August 11,
1995 and September , 1995 was $ and $ , respectively, and the
last reported sale price of a share of Common Stock on the NYSE on such dates
was $ and $ , respectively.
The Fund is a non-diversified, closed-end management investment company. The
Fund's investment objective is long-term capital appreciation through investment
primarily in equity securities of Latin American issuers and by investing, from
time to time, in debt securities issued or guaranteed by a Latin American
government or governmental entity ("Sovereign Debt"). See "Investment Objective
and Policies." There can be no assurance that the Fund's investment objective
will be achieved. INVESTMENT IN LATIN AMERICA INVOLVES SPECIAL CONSIDERATIONS
AND CERTAIN RISKS THAT ARE NOT TYPICALLY ASSOCIATED WITH INVESTMENT IN THE
UNITED STATES, SUCH AS CONTROLS ON FOREIGN INVESTMENT, GREATER PRICE VOLATILITY,
CURRENCY EXCHANGE RATE FLUCTUATIONS AND GREATER SOCIAL, ECONOMIC AND POLITICAL
UNCERTAINTY. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS." Morgan Stanley Asset
Management Inc. serves as the Fund's Investment Manager. The address of the Fund
is 1221 Avenue of the Americas, New York, New York 10020 (telephone number (212)
296-7100).
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
ESTIMATED PROCEEDS
SUBSCRIPTION PRICE SALES LOAD(1) TO THE FUND(2)
------------------ ------------- ------------------
<S> <C> <C> <C>
Per Share........................................... $ (3) $ $
Total............................................... $ $ $ (4)
</TABLE>
------------
(1) In connection with the Offer, the Fund has agreed to pay to Morgan
Stanley & Co. Incorporated (the "Dealer Manager") and other
broker-dealers included in the selling group to be formed and managed by
the Dealer Manager ("Selling Group Members") a fee of % of the
Subscription Price per Share for each Share either issued upon the
exercise of Rights as a result of their soliciting efforts or purchased
from the Dealer Manager for sale to the public. Certain other
broker-dealers that have executed and delivered a Soliciting Dealer
Agreement and have solicited the exercise of Rights will receive fees
for their soliciting efforts of % of the Subscription Price per
Share, subject generally to a maximum fee based upon the number of
shares of Common Stock held by each such broker-dealer through The
Depository Trust Company on the Record Date. The Fund will pay to the
Dealer Manager a fee for financial advisory and marketing services in
connection with the Offer equal to % of the aggregate Subscription
Price. The Fund has agreed to indemnify the Dealer Manager against
certain liabilities under the Securities Act of 1933, as amended. See
"Distribution Arrangements." Assumes that the exercise of all Rights was
solicited by a Selling Group Member.
(2) Before deduction of expenses incurred by the Fund, estimated at
$ , including up to an aggregate of $ to be paid to the
Dealer Manager in reimbursement of its expenses.
(3) Represents the Subscription Price per Share payable by holders of
Rights. Sales of Shares may be made during the Subscription Period by
the Dealer Manager and other Selling Group Members at prices set by the
Dealer Manager from time to time. See "Distribution Arrangements."
(4) Assumes that all of the Rights are exercised.
------------------------
An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to occur as a result of the Offer because
the Subscription Price per Share is less than the Fund's net asset value per
share, and the number of shares outstanding after the Offer is likely to
increase in a greater percentage than the increase in the size of the Fund's
assets. In addition, as a result of the Offer, Record Date Shareholders who do
not fully exercise their Rights should expect that they will, at the completion
of the Offer, own a smaller proportional interest in the Fund than would
otherwise be the case. See "Risk Factors and Special Considerations."
------------------------
MORGAN STANLEY & CO.
Incorporated
, 1995
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT MANAGER OR THE
DEALER MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY.................................................................... 3
FEE TABLE............................................................................. 10
FINANCIAL HIGHLIGHTS.................................................................. 11
MARKET AND NET ASSET VALUE INFORMATION................................................ 12
CAPITALIZATION AT JULY 31, 1995....................................................... 13
THE FUND.............................................................................. 14
THE OFFER............................................................................. 14
RISK FACTORS AND SPECIAL CONSIDERATIONS............................................... 22
INVESTMENT OBJECTIVE AND POLICIES..................................................... 28
INVESTMENT RESTRICTIONS............................................................... 32
MANAGEMENT OF THE FUND................................................................ 34
INVESTMENT PROCEDURES: ARGENTINA, BRAZIL, CHILE AND MEXICO............................ 42
EXPENSES.............................................................................. 44
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 45
NET ASSET VALUE.......................................................................
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN............. 46
TAXATION.............................................................................. 47
COMMON STOCK.......................................................................... 54
DISTRIBUTION ARRANGEMENTS............................................................. 57
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR................................... 58
CUSTODIANS............................................................................ 58
EXPERTS............................................................................... 59
LEGAL MATTERS......................................................................... 59
ADDITIONAL INFORMATION................................................................ 59
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE.................................... 59
APPENDIX A -- Form of Subscription Certificate........................................ A-1
APPENDIX B -- Form of Notice of Guaranteed Delivery................................... B-1
APPENDIX C -- Form of Nominee Holder Over-Subscription Exercise Form.................. C-1
APPENDIX D -- Description of Various Foreign Currency and Interest Rate Hedges and
Options on Securities and Stock Index Futures Contracts and Related
Options................................................................. D-1
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
included elsewhere in this Prospectus.
TERMS OF THE OFFER
The Latin American Discovery Fund, Inc. (the "Fund") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on September , 1995 (the "Record Date") transferable rights (the "Rights") to
subscribe for up to an aggregate of 3,100,000 shares (the "Shares") of the
common stock, par value $.01 per share (the "Common Stock"), of the Fund (the
"Offer"). Each Record Date Shareholder is being issued one Right for each full
share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. Accordingly, no fractional Shares will be
issued. In the case of Shares held of record by a Nominee Holder (as defined
below under "-- Over-Subscription Privileges"), the number of Rights issued to
such Nominee Holder will be adjusted to permit rounding up (to the nearest
number of Rights evenly divisible by three) of the Rights to be received by
beneficial holders for whom it is the holder of record only if the Nominee
Holder provides to the Fund on or before the close of business on October ,
1995 written representation of the number of Rights required for such rounding.
The Rights entitle the holders thereof (each, a "Rights Holder") to acquire at
the Subscription Price (as hereinafter defined) one Share for each three Rights
held. The Subscription Period commences on September , 1995 and ends at 5:00
p.m., New York time, on October , 1995, unless extended by the Fund and the
Dealer Manager (the "Expiration Date"). The Rights are evidenced by subscription
certificates ("Subscription Certificates") which will be mailed to Record Date
Shareholders except as discussed below under "Foreign Restrictions."
It is currently estimated that the Subscription Price will represent a
discount of between % and % to the last reported sale price on the
Business Day (as defined below under "-- Sale of Rights") prior to the Record
Date. The right of a Rights Holder to acquire during the Subscription Period at
the Subscription Price one Share for each three Rights held is hereinafter
referred to as the "Primary Subscription." All Rights may be exercised
immediately upon receipt and until 5:00 p.m., New York time, on the Expiration
Date. Rights Holders purchasing Shares in the Primary Subscription are
hereinafter referred to as "Exercising Rights Holders."
OVER-SUBSCRIPTION PRIVILEGES
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by others in the Primary Subscription (the
"Over-Subscription Privilege"). Purchasers of Rights who are not Record Date
Shareholders are not eligible to participate in the Over-Subscription Privilege.
For purposes of determining the number of Shares that a Record Date Shareholder
may acquire pursuant to the Offer, broker-dealers whose Shares are held of
record by Cede & Co. ("Cede"), nominee for The Depository Trust Company, or by
any other depository or nominee (in each instance, a "Nominee Holder"), will be
deemed to be the holders of the Rights that are held by Cede or such other
depository or nominee on their behalf. Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed under "The Offer -- Over-Subscription Privilege."
SUBSCRIPTION PRICE
It is currently estimated that the Subscription Price will represent a
discount of between % and % to the last reported sale price on the
Business Day prior to the Record Date. The Subscription Price per Share will be
$ . The Subscription Price is approximately an % discount to the
Fund's net asset value per share on September , 1995 and approximately a
% discount to the last reported sale price of a share of Common Stock on
the NYSE on September , 1995. The Subscription Price is discussed further
under "The Offer -- The Subscription Price." In addition, information with
respect to the high and low sale prices of the Fund's Common Stock on the New
York Stock Exchange Composite Tape, quarterly trading
3
<PAGE> 6
volume on the NYSE, the corresponding high and low net asset value per share and
the premium and discount percentages of the market price of the Fund's Common
Stock to its per share net asset value for each calendar quarter since the
Fund's commencement of operations is summarized under "Market and Net Asset
Value Information."
EXERCISING RIGHTS
Rights will be evidenced by Subscription Certificates (see Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery (see
Appendix B) or a check, to The First National Bank of Boston (the "Subscription
Agent") at the address set forth under "The Offer -- Subscription Agent."
Exercising Rights Holders will have no right to rescind or modify a purchase
after the Subscription Agent has received a completed Subscription Certificate
or Notice of Guaranteed Delivery. See "The Offer -- Exercise of Rights" and "The
Offer -- Payment for Shares." There is no minimum number of Rights that must be
exercised in order for the Offer to close.
SALE OF RIGHTS
The Rights are transferable until the last Business Day prior to the
Expiration Date. The Rights will be listed for trading on the NYSE. The Fund has
used its best efforts to ensure that an adequate trading market for the Rights
will exist by causing the Rights to be listed on the NYSE and by retaining the
Dealer Manager, the Subscription Agent and the Information Agent. The Fund
expects that a market for the Rights will develop and that the value of the
Rights, if any, will be reflected by the market price. Rights may be sold
directly by a Rights Holder, or may be sold through the Subscription Agent if
delivered to the Subscription Agent on or before October , 1995. Trading of
the Rights on the NYSE will be conducted on a when-issued basis commencing on
September , 1995 and on a regular-way basis from September , 1995 through
the last Business Day prior to the Expiration Date. If the Subscription Agent
receives Rights for sale in a timely manner, it will use its best efforts to
sell the Rights through or to the Dealer Manager. Any commissions in connection
with the sale of Rights by the Subscription Agent will be paid by the applicable
selling Rights Holders. Neither the Fund, the Subscription Agent nor the Dealer
Manager will be responsible if Rights cannot be sold, and none of them has
guaranteed any minimum sale price for the Rights. For purposes of this
Prospectus, a "Business Day" means any day on which trading is conducted on the
NYSE. See "The Offer -- Sale of Rights."
Rights Holders are urged to obtain a recent trading price for the Rights on
the NYSE from their broker, bank, financial adviser or the financial press.
Exercising Rights Holders' inquiries should be directed to Shareholder
Communications Corporation, Investor Relations Department. See "Information
Agent" below.
DEALER MANAGER AND SOLICITING FEES
In connection with the Offer, the Fund has agreed to pay to Morgan Stanley
& Co. Incorporated, as Dealer Manager, and each of the Selling Group Members
fees equal to % of the Subscription Price per Share for Shares either
issued upon the exercise of Rights as a result of their soliciting efforts or
purchased from the Dealer Manager for sale to the public. Certain other
broker-dealers that have executed and delivered a Soliciting Dealer Agreement
and have solicited the exercise of Rights will receive fees for their soliciting
efforts of up to % of the Subscription Price per Share, subject generally
to a maximum fee based upon the number of shares of Common Stock held by each
such broker-dealer through The Depository Trust Company on the Record Date. The
Fund will pay to the Dealer Manager a fee equal to % of the aggregate
Subscription Price for Shares of Common Stock issued upon exercise of the Rights
for financial and advisory services, including advice with respect to the
advisability, timing, size and pricing of the Offer, the formation and
management of the Selling Group Members, the coordination of soliciting efforts
among soliciting dealers, the Subscription Agent and the Information Agent and
market-making activities to assure a liquid and orderly market for the Rights
and the Shares. The Fund has also agreed to reimburse the Dealer Manager for its
out-of-pocket expenses in connection with the Offer up to an aggregate of
$ . See "Distribution Arrangements."
4
<PAGE> 7
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholders' accounts until instructions are received to
exercise, sell or transfer the Rights. If no instructions have been received by
12:00 Noon, New York time, three Business Days prior to the Expiration Date, the
Subscription Agent will use its best efforts to sell the Rights of those Foreign
Record Date Shareholders through or to the Dealer Manager. The net proceeds, if
any, from the sale of those Rights by the Dealer Manager will be remitted to the
Foreign Record Date Shareholders on a pro rata basis. See "The Offer -- Foreign
Shareholders."
INFORMATION AGENT
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, Ext. 316
or
Call Collect: (212) 805-7000, Ext. 316
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
RECORD DATE......................................... SEPTEMBER , 1995
SUBSCRIPTION PERIOD................................. SEPTEMBER , 1995 TO OCTOBER , 1995
(UNLESS EXTENDED)
EXPIRATION DATE..................................... OCTOBER , 1995
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM DUE.. OCTOBER , 1995
SUBSCRIPTION CERTIFICATES, ACCOMPANIED BY PAYMENT FOR
SHARES,
OR NOTICES OF GUARANTEED DELIVERY DUE............. OCTOBER , 1995
SUBSCRIPTION CERTIFICATES AND PAYMENT FOR SHARES DUE
PURSUANT
TO NOTICE OF GUARANTEED DELIVERY.................. OCTOBER , 1995
</TABLE>
PURPOSE OF THE OFFER AND USE OF PROCEEDS
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of further investment opportunities in Latin America. The Fund
believes that increasing the size of the Fund should also result in lowering the
Fund's expenses as a proportion of average net assets, although no assurance can
be given that this result will be achieved. At July 31, 1995, the Fund had net
assets of $104,771,203. In addition, the Offer seeks to reward the Fund's
shareholders by giving them the right to purchase additional shares of Common
Stock at a price below market and net asset value without incurring any
commission charge. The distribution to shareholders of transferable Rights which
themselves may have intrinsic value also will afford non-participating
shareholders the potential of receiving a cash payment upon sale of such Rights,
receipt of which may be viewed as compensation for the dilution of their
interest in the Fund.
The net proceeds of the Offer will be invested in accordance with the
Fund's investment objective and policies. See "Investment Objective and
Policies." Assuming all of the Rights are exercised in full and the maximum
solicitation fee is paid to Selling Group Members, the net proceeds are
estimated to be
5
<PAGE> 8
approximately $ million after deducting offering expenses payable by
the Fund estimated to be approximately $ . The Fund anticipates that
the net proceeds of the Offer will be invested in accordance with the Fund's
investment objective and policies within three months of the Expiration Date.
INFORMATION REGARDING THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the U.S. Investment Company Act of 1940, as amended (the "1940
Act"), designed for investors desiring to invest a portion of their assets in
Latin American equity securities. The Fund invests primarily in equity
securities (i) of companies organized in or for which the principal trading
market is in Latin America, (ii) denominated in a Latin American currency issued
by companies to finance operations in Latin America, or (iii) of companies that
alone or on a consolidated basis derive 50% or more of their annual revenues
from either goods produced, sales made or services performed in Latin America
(collectively, "Latin American issuers"), and by investing, from time to time,
in debt securities issued or guaranteed by a Latin American government or
governmental entity ("Sovereign Debt").
The Fund is responsible for all of its operating expenses. If the Offer is
fully subscribed, it is estimated that the Fund's annual normal operating
expenses, including advisory, administration and custodial fees, will be
approximately $ , exclusive of organization expenses which were
$308,000 (which are being amortized over five years) and the expenses of this
Offer, estimated to be $ which will be charged to capital. See
"Expenses."
For the period from June 23, 1992 to December 31, 1992 and the years ended
December 31, 1993 and 1994, the Fund's expenses (exclusive of amortization of
organization expenses) were $961,000, $2,253,000, and $3,951,000, respectively.
The Fund's expense ratio was 2.73% (annualized), 2.23%, and 2.15% (inclusive of
amortization of organization expenses) of the Fund's net assets for the period
from June 23, 1992 to December 31, 1992 and the years ended December 31, 1993
and 1994, respectively.
INFORMATION REGARDING THE INVESTMENT MANAGER
Morgan Stanley Asset Management Inc. (the "Investment Manager"), a wholly
owned subsidiary of Morgan Stanley Group Inc., manages the investments of the
Fund pursuant to an Investment Advisory and Management Agreement with the Fund
(the "Management Agreement"). The Investment Manager emphasizes a global
investment strategy and as of June 30, 1995 the Investment Manager had assets
under management (including assets under fiduciary control) totalling
approximately $52 billion of which approximately $705.3 million was invested in
Latin America. The Investment Manager is a registered investment adviser under
the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act"). See
"Management of the Fund." The Fund pays to the Investment Manager a fee,
computed weekly and payable monthly, at the annual rate of 1.15% of the Fund's
average weekly net assets. This fee is higher than that paid by most other U.S.
investment companies investing exclusively in the securities of U.S. issuers,
primarily because of the additional time and expense required of the Investment
Manager in pursuing the Fund's objective of investing in equity securities of
Latin American issuers and Sovereign Debt. This investment objective entails
additional time and expense because available public information concerning
securities of Latin American issuers is limited in comparison to that available
for U.S. issuers. In addition, available research concerning Latin American
issuers is not comparable to available research concerning U.S. issuers. See
"Management of the Fund."
INFORMATION REGARDING THE U.S. ADMINISTRATOR
The United States Trust Company of New York (the "U.S. Administrator"),
through its affiliate Mutual Funds Service Company, provides administrative
services in the United States to the Fund pursuant to an Administration
Agreement (the "U.S. Administration Agreement") with the Fund. The Fund pays to
the U.S. Administrator an annual administration fee of $65,000 plus 0.08% per
annum of the average weekly net assets of the Fund. See "Management of the Fund
-- Administration -- U.S. Administrator."
6
<PAGE> 9
INFORMATION REGARDING THE BRAZILIAN AND CHILEAN ADMINISTRATORS
Unibanco-Uniao de Bancos Brasileiros S.A. (the "Brazilian Administrator")
provides administrative services to the Fund in Brazil pursuant to an
Administration Agreement (the "Brazilian Administration Agreement") with the
Fund. The Fund pays to the Brazilian Administrator an annual fee equal to 0.125%
of the Fund's average weekly net assets invested in Brazil. See "Management of
the Fund -- Brazilian Administrator."
Bice Chileconsult Agente de Valores S.A. (the "Chilean Administrator")
provides administrative services to the Fund in Chile pursuant to an
Administration Agreement (the "Chilean Administration Agreement") with the Fund.
The Fund pays to the Chilean Administrator an annual fee equal to the greater of
0.25% of the Fund's average weekly net assets invested in Chile or $20,000. See
"Management of the Fund -- Chilean Administrator."
DIVIDEND DISTRIBUTIONS AND REINVESTMENT
The Fund's policy is to distribute to shareholders, at least annually,
substantially all of its net investment income. The Fund may elect to retain for
reinvestment any net realized long-term capital gains. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan" and
"Taxation -- U.S. Federal Income Taxes." Unless the Fund is otherwise instructed
in writing, in the manner described under "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan," shareholders are presumed to have elected
to have all distributions automatically reinvested in shares of the Fund.
INFORMATION REGARDING THE CUSTODIANS
Morgan Stanley Trust Company acts as custodian for the Fund's assets held
outside the United States and employs sub-custodians approved by the Directors
of the Fund in accordance with regulations of the U.S. Securities and Exchange
Commission (the "Commission"). The United States Trust Company of New York acts
as custodian for the Fund's assets held in the United States. See "Custodians."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution
An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to occur as a result of the Offer because
the Subscription Price per Share is less than the Fund's net asset value per
share on the Record Date, and the number of shares outstanding after the Offer
is likely to increase in a greater percentage than the increase in the size of
the Fund's assets. In addition, as a result of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, upon the completion of the Offer, own a smaller proportional interest in
the Fund than would otherwise be the case. Although it is not possible to state
precisely the amount of any such decrease in net asset value, because it is not
known at this time what the net asset value per share will be on the Expiration
Date, such dilution could be substantial. For example, assuming that all Rights
are exercised and that the Subscription Price of $ is % below the
Fund's net asset value of $ per share, the Fund's net asset value per
share (after payment of the financial advisory and soliciting fees and estimated
offering expenses) would be reduced by approximately $ per share. The
distribution to shareholders of transferable Rights which themselves may have
intrinsic value also will afford non-participating shareholders the potential of
receiving a cash payment upon sale of such Rights, receipt of which may be
viewed as compensation for the dilution of their interest in the Fund. No
assurance can be given that a market for the Rights will develop or as to the
value, if any, that such Rights will have.
Certain Risk Factors
Investing in securities of Latin American issuers involves certain risks
and considerations not typically associated with investing in securities of U.S.
issuers, including generally (a) controls on foreign investment and limitations
on repatriation of invested capital and on the Fund's ability to exchange local
currencies for
7
<PAGE> 10
U.S. dollars, (b) greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets, (c) currency
devaluations and other currency exchange rate fluctuations, (d) more substantial
governmental involvement in the economy, (e) higher rates of inflation and (f)
greater social, economic and political uncertainty. Recent events have
illustrated the impact of these risks, as the Mexican Government devalued the
Mexican New Peso on December 20, 1994 and then permitted the Mexican New Peso to
float on December 22, 1994. Such actions had immediate and significant adverse
effects on the Mexican securities markets as well as on the currencies and
securities markets in other Latin American countries. As a consequence, the
Fund's net asset value dropped from $25.42 per share on December 16, 1994 to
$9.70 per share on March 10, 1995. The Mexican New Peso depreciated 47.94%
against the U.S. dollar during such time.
Accounting, auditing and financial reporting standards in Latin American
countries are not equivalent to U.S. standards. As a result, disclosure of
certain material information may not be made and less information may be
available to the Fund and other investors than would be the case if the Fund's
investments were restricted to securities of U.S. issuers. There is also
generally less governmental regulation of the securities industry in Latin
American countries than in the United States. Moreover, it may be more difficult
to obtain a judgment in a court outside the United States. Interest and
dividends paid on securities held by the Fund and gains from the disposition of
such securities may be subject to withholding taxes imposed by Latin American
countries. See "Risk Factors and Special Considerations."
Although the Fund invests primarily in equity securities of publicly traded
Latin American issuers, it may, subject to local investment restrictions, invest
up to 25% of its total assets in unlisted equity securities of Latin American
issuers. Such investments may involve a high degree of business and financial
risk. Because of the absence of any liquid trading market for these investments,
the Fund may take longer to liquidate these positions than is the case for
listed securities. In addition to financial and business risks, issuers whose
securities are not publicly traded may not be subject to the same disclosure
requirements applicable to issuers whose securities are publicly traded. See
"Risk Factors and Special Considerations -- Investments in Unlisted Securities."
The Fund may also invest a portion of its assets in (i) debt securities of
Latin American issuers, (ii) Sovereign Debt, (iii) equity or debt securities of
corporate or governmental issuers located in countries outside Latin America and
(iv) short-term and medium-term debt securities of the type described below
under "Investment Objective and Policies -- Temporary Investments." In addition,
the Fund may enter into options and futures contracts on a variety of
instruments and indexes and forward currency exchange contracts in order to
protect against fluctuation in interest rates, foreign currency exchange risks
and declines in the value of portfolio securities or increases in the costs of
securities to be acquired. Additionally, the Fund may enter into options
transactions on securities for purposes of increasing its investment returns.
Each of these types of transactions involves special risks. See "Investment
Objective and Policies" and Appendix D to this Prospectus.
Net Asset Value Discount; Non-Diversification
Since the Fund's commencement of operations in June 1992, the Common Stock
has traded in the market at both a premium and discount to net asset value.
Officers of the Fund cannot determine the reason why the Common Stock has traded
at a premium or discount to net asset value, nor can they predict whether the
Common Stock will in the future trade at a premium or discount to net asset
value and if so, the level of such premium or discount. Shares of closed-end
investment companies frequently trade at a discount from net asset value. The
risk of the Common Stock trading at a discount is a risk separate from the risk
of a decline in the Fund's net asset value. See "Market and Net Asset Value
Information."
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. As a non-diversified investment company, the Fund may invest a greater
proportion of its assets in the securities of a smaller number of issuers and,
as a result, will be subject to greater risk of loss with respect to its
portfolio securities. However, the Fund intends to continue to comply with the
diversification
8
<PAGE> 11
requirements imposed by the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company. See "Investment
Restrictions" and "Taxation -- U.S. Federal Income Taxes."
ADDITIONAL CONSIDERATIONS
The Fund may use various other investment practices that involve special
considerations, including purchasing and selling options on securities,
financial futures and other financial instruments, entering into financial
futures contracts, interest rate transactions, currency transactions and
repurchase agreements and lending portfolio securities. See "Investment
Objective and Policies" and Appendix D.
In addition, certain special voting provisions of the Fund's Articles of
Incorporation may have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices. See "Common
Stock."
Investors should carefully consider their ability to assume the foregoing
risks before making an investment in the Fund. An investment in the Common Stock
of the Fund may not be appropriate for all investors and should not be
considered as a complete investment program.
9
<PAGE> 12
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load (as a percentage of offering price)(1)(2)............................. %
ANNUAL EXPENSES (as a percentage of net assets attributable to Common Shares):
Management Fees.................................................................. 1.15%
Other Expenses(2)................................................................ 1.00%
Total Annual Expenses.............................................................. 2.15%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD
OF:
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return throughout the
periods(3).............................................. $ $ $ $
</TABLE>
---------------
(1) The Fund has agreed to pay to the Dealer Manager and each Selling Group
Member fees equal to % of the Subscription Price per Share for each Share
either issued upon the exercise of Rights as a result of their soliciting
efforts or purchased from the Dealer Manager for sale to the public.
Certain other broker-dealers that have executed and delivered a Soliciting
Dealer Agreement and have solicited the exercise of Rights will receive
fees for their soliciting efforts of up to % of the Subscription Price
per Share, subject generally to a maximum fee based upon the number of
shares of Common Stock held by each such broker-dealer through The
Depository Trust Company on the Record Date. The Fund will pay to the
Dealer Manager a fee for financial advisory and marketing services in
connection with the Offer equal to % of the aggregate Subscription
Price. These fees will be borne by the Fund and indirectly by all of the
Fund's shareholders, including those who do not exercise their Rights.
Assumes that the exercise of all Rights was solicited by Selling Group
Members. See "Distribution Arrangements."
(2) Does not include expenses of the Fund incurred in connection with the Offer,
estimated at $ .
(3) The Example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that an investor in the Fund will bear directly or
indirectly.
The Example set forth above assumes reinvestment of all dividends and
distributions at net asset value and an annual expense ratio of 2.15%. The table
above and the assumption in the Example of a 5% annual return are required by
regulations of the Commission applicable to all investment companies. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
ANNUAL RATES OF RETURN. Actual expenses or annual rates of return may be more or
less than those assumed for purposes of the Example. In addition, while the
Example assumes reinvestment of all dividends and distributions at net asset
value, participants in the Fund's Dividend Reinvestment and Cash Purchase Plan
may receive shares purchased or issued at a price or value different from net
asset value. See "Dividends and Distributions; Dividend Reinvestment and Cash
Purchase Plan."
The figures provided under "Other Expenses" are based upon estimated
amounts for the current fiscal year. See "Management of the Fund" for additional
information.
10
<PAGE> 13
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
Common Stock outstanding throughout each period presented. This information is
derived from the financial and accounting records of the Fund. The selected per
share data and ratios for the period from June 23, 1992 to December 31, 1992 and
for the years ended December 31, 1993 and 1994 have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
The information should be read in conjunction with the financial statements and
notes contained in the Fund's most recent Annual Report as of December 31, 1994,
which is available upon request from the Fund's Transfer Agent, The First
National Bank of Boston, and incorporated herein by reference.
SELECTED PER SHARE DATA AND RATIOS
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION> FOR THE
FOR THE SIX PERIOD
MONTHS ENDED JUNE 23,
JUNE 30, YEAR ENDED YEAR ENDED 1992* TO
1995 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1994 1993 1992
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................... $ $ 23.31 $ 15.23 $ 14.10
Offering Costs........................................... -- (0.06) (0.13)
Net Investment Income (Loss)............................. (0.18) 0.04 (0.06)
Net Realized and Unrealized Gain (Loss) on Investments... -- (0.25) 9.84 1.32
Total from Investment Operations........................... -- (0.43) 9.88 1.26
Less distributions:........................................ --
Dividends from net investment income..................... -- -- --
Distributions from net realized capital gains............ -- (5.74) -- --
Total Distributions........................................ (5.74) --
(Decrease) Increase in Net Asset Value from capital share
transactions............................................. 0.02++ (1.74)+ --
Net Asset Value, End of Period............................. $ $ 17.16 $ 23.31 $ 15.23
Per Share Market Value, End of Period...................... $ $ 18.25 $ 27.13 $ 13.25
Total Investment Return:
Net Asset Value**........................................ % (0.14)% 65.36%+++ 8.01%
Market Value............................................. % (8.75)% 121.17%+++ (8.30)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (In Thousands)................... $ $135,273 $180,348 $ 87,685
Ratio of Expenses to Average Net Assets.................... %*** 2.15% 2.23% 2.73%***
Ratio of Net Investment Income to Average Net Assets....... %*** (0.77)% 0.22% (1.02)%***
Portfolio Turnover Rate.................................... % 70% 56% 8%
</TABLE>
---------------
* Commencement of operations.
** Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes distributions, if any, were reinvested. During the
period June 23, 1992 to December 31, 1992 there were no dividends or capital
gains distributions. For the years ended December 31, 1993 and 1994, the
Fund paid no dividends and $0.00 and $5.74 in capital gains distributions.
These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund.
*** Annualized.
+ Decrease due to Common Stock issued through rights offering during the year
ended December 31, 1993.
++ Increase due to reinvestment of distributions during the year ended December
31, 1994.
+++ Adjusted for rights offering.
11
<PAGE> 14
MARKET AND NET ASSET VALUE INFORMATION
The Fund's currently outstanding shares of Common Stock are, and the Shares
offered by this Prospectus will be, listed on the NYSE. Shares of the Fund's
Common Stock commenced trading on the NYSE on June 23, 1992.
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no assurance
that this premium will continue after the Offer or that the shares will not
again trade at a discount. Shares of other closed-end investment companies
frequently trade at a discount from net asset value. See "Risk Factors and
Special Considerations."
The following table shows for each of the periods indicated the high and
low closing sale prices of the Fund's Common Stock on the New York Stock
Exchange Composite Tape, quarterly trading volume on the NYSE, the corresponding
high and low net asset value per share and the premium or discount at which the
Fund's shares were trading at the end of each calendar quarter since the
commencement of trading of the Fund's Common Stock.
<TABLE>
<CAPTION>
CLOSING NET ASSET
MARKET PRICE QUARTERLY VALUE(1) PREMIUM/
----------------- TRADING ----------------- (DISCOUNT) TO
CALENDAR QUARTERS HIGH LOW VOLUME HIGH LOW NET ASSET VALUE
-------------------------------- ------ ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
(000'S) (END OF QUARTER)
Period Ended
December 31, 1992
Second Quarter............. $14.75 $14.00 178.0 $13.99 $13.99 0.50%
Third Quarter.............. 14.63 11.50 563.7 14.81 12.93 (9.16)%
Fourth Quarter............. 13.75 11.25 1,423.3 14.42 12.72 (13.00)%
Year Ended
December 31, 1993
First Quarter.............. 14.63 13.38 1,158.5 16.14 14.82 (11.26)%
Second Quarter............. 16.75 14.38 1,430.7 18.01 15.95 (6.79)%
Third Quarter.............. 19.88 16.63 1,975.9 20.34 17.60 0.30%
Fourth Quarter............. 28.00 19.50 3,060.8 24.35 19.66 16.32%
Year Ended
December 31, 1994
First Quarter.............. 29.75 20.75 4,061.6 28.01 23.11 (13.31)%
Second Quarter............. 23.88 19.38 1,626.8 22.80 19.68 (0.07)%
Third Quarter.............. 26.38 20.13 2,359.2 27.85 20.41 (5.13)%
Fourth Quarter............. 26.38 16.50 1,973.5 24.48 17.16 6.35%
Year Ended
December 31, 1995
First Quarter.............. 17.88 8.88 3,521.2 15.55 9.70 11.35%
Second Quarter............. 13.75 10.75 1,873.5 12.97 10.56 (2.49)%
Third Quarter
(through August 8,
1995).................... 13.00 11.63 854.2 13.07 12.35 (8.07)%
</TABLE>
---------------
(1) Net asset value per share of the Common Stock as calculated on each Friday
of the period.
12
<PAGE> 15
The closing market price and net asset value per share of the Common Stock
on September , 1995 were $ and $ respectively.
CAPITALIZATION AT JULY 31, 1995
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
EXCLUSIVE OF
AMOUNT HELD BY
AMOUNT HELD BY THE THE FUND OR FOR
TITLE OF CLASS AMOUNT AUTHORIZED FUND OR FOR ITS ACCOUNT ITS ACCOUNT
--------------------------------- ------------------ ----------------------- ----------------
<S> <C> <C> <C>
Common Stock, $0.01 par value.... 100,000,000 Shares -0- 8,517,984 Shares
</TABLE>
13
<PAGE> 16
THE FUND
The Fund, incorporated in Maryland on November 12, 1991, is a
nondiversified, closed-end management investment company registered under the
1940 Act. The Fund commenced operations on June 23, 1992. The Fund's investment
objective is long-term capital appreciation. The Fund seeks to achieve its
objective by investing primarily in equity securities of Latin American issuers,
as defined below, and by investing, from time to time, in Sovereign Debt. No
assurance can be given that the Fund's investment objective will be realized.
Due to the risks inherent in international investments generally and investments
in securities of Latin American issuers in particular, the Fund should be
considered as a vehicle for investing a portion of an investor's assets in
foreign securities markets and not as a complete investment program.
At all times, except during periods when a temporary defensive investment
strategy is appropriate, as determined by the Investment Manager, the Fund
attempts to maintain substantially all, but not less than 80%, of its total
assets invested in equity securities of Latin American issuers and in Sovereign
Debt. Under normal circumstances, at least 55% of the Fund's total assets are
invested in listed equity securities of Argentine, Brazilian, Chilean and
Mexican issuers. The Fund also actively invests in markets in other Latin
American countries such as Colombia, Peru and Venezuela. The Fund's holdings of
Latin American equity securities consist primarily of listed equity securities;
however, it may invest up to 25% of its total assets in unlisted equity
securities of Latin American issuers, including investments in new and early
stage companies. See "Investment Objective and Policies" and "Risk Factors and
Special Considerations."
THE OFFER
TERMS OF THE OFFER
The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one transferable
Right for each full share of Common Stock owned on the Record Date. The number
of Rights to be issued to Record Date Shareholders will be rounded up to the
nearest number of Rights evenly divisible by three. Accordingly, no fractional
Shares will be issued. In the case of shares held of record by a Nominee Holder,
the number of Rights issued to such Nominee Holder will be adjusted to permit
rounding up (to the nearest number of Rights evenly divisible by three) of the
Rights to be received by beneficial holders for whom it is the holder of record
only if the Nominee Holder provides to the Fund on or before the close of
business on October , 1995 written representation of the number of Rights
required for such rounding. The Rights entitle the holders thereof to acquire at
the Subscription Price one Share for each three Rights held. The Rights are
evidenced by Subscription Certificates, which will be mailed to the Record Date
Shareholders other than Foreign Record Date Shareholders. See "The
Offer -- Foreign Shareholders."
Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on September
, 1995 and ends at 5:00 p.m., New York time, on October , 1995, unless
extended by the Fund and the Dealer Manager. See "-- Expiration of the Offer."
Parties that purchase Rights prior to the Expiration Date may purchase Shares in
the Primary Subscription, but may not participate in the OverSubscription
Privilege with respect to such Rights. All Rights may be exercised upon receipt
and until 5:00 p.m. on the Expiration Date.
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by Exercising Rights Holders in the Primary
Subscription. For purposes of determining the maximum number of Shares a Record
Date Shareholder may acquire pursuant to the Offer, broker-dealers whose Shares
are held of record by Cede, the nominee for The Depository Trust Company, or by
any other depository or nominee will be deemed to be the holders of the Rights
that are held by Cede or such other depository or nominee on their behalf.
Shares acquired pursuant to the Over-Subscription Privilege may be subject to
allotment, which is more fully discussed below under "-- Over-Subscription
Privilege."
Rights will be evidenced by Subscription Certificates (see Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of
14
<PAGE> 17
Guaranteed Delivery or a check, to the Subscription Agent. The method by which
Rights may be exercised and Shares paid for is set forth below under "--
Exercise of Rights" and "-- Payment for Shares." An Exercising Rights Holder
will have no right to rescind or modify a purchase after the Subscription Agent
has received a completed Subscription Certificate. See "Payment for Shares"
below. Shares issued pursuant to an exercise of Rights will be listed on the
NYSE.
The Rights are transferable until the close of business on the last
Business Day prior to the Expiration Date and will be listed for trading on the
NYSE. Assuming a market exists for the Rights, the Rights may be purchased and
sold through usual brokerage channels, or may be sold through the Subscription
Agent if delivered to the Subscription Agent on or before October , 1995.
Although no assurance can be given that a market for the Rights will develop,
trading in the Rights on the NYSE may be conducted until and including the close
of trading on the last Business Day prior to the Expiration Date. The method by
which Rights may be transferred is set forth below under "-- Sale of Rights."
The underlying Shares also will be listed for trading on the NYSE.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of further investment opportunities in Latin America. The Fund
believes that increasing the size of the Fund should also result in lowering the
Fund's expenses as a proportion of average net assets, although no assurance can
be given that this result will be achieved. The Board of Directors determined to
proceed with the offer of transferable rights after having considered the
dilutive effect of the offering on shareholders who are unwilling to fully
exercise their rights, as well as the alternatives of a secondary offering or
the offer of nontransferable rights. In addition, the Offer seeks to reward the
Fund's shareholders by giving existing shareholders the right to purchase
additional shares of Common Stock at a price below market and net asset value
without incurring any commission charge. The distribution to shareholders of
transferable Rights which themselves may have intrinsic value also will afford
nonparticipating shareholders the potential of receiving a cash payment upon
sale of such Rights, receipt of which may be viewed as compensation for the
possible dilution of their interest in the Fund.
The Investment Manager will benefit from the Offer because the Investment
Manager's fee is based on the weekly average net assets of the Fund. See
"Management of the Fund -- Investment Manager." It is not possible to state
precisely the amount of additional compensation the Investment Manager will
receive as a result of the Offer because it is not known how many Shares will be
subscribed for and because the proceeds of the Offer will be invested in
additional portfolio securities, which will fluctuate in value. However, in the
event that all the Rights are exercised in full and on the basis of the
Subscription Price of $ per Share, the Investment Manager would receive
additional annual advisory fees of approximately $ . Three of the
Fund's Directors who voted to authorize the Offer are affiliated with the
Investment Manager. These three Directors could benefit indirectly from the
Offer because of their affiliations. The other Directors, all of whom voted to
authorize the Offer, are not affiliated with the Investment Manager or the
Dealer Manager. See "Management of the Fund."
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. In addition, following the
expiration of the Offer the Fund may make a secondary offering of its shares of
Common Stock at prices not less than the net asset value of the Fund's shares at
the time of such offer.
USE OF PROCEEDS
If all of the Rights are exercised in full at the Subscription Price of
$ per Share and the maximum solicitation fee is paid to Selling Group
Members, the net proceeds to the Fund would be approximately $ million,
after deducting offering expenses payable by the Fund estimated to be
$ . However, there can be no assurance that all Rights will be
exercised in full. It is anticipated that the net proceeds of the Offer will be
fully invested in investments conforming to the Fund's investment
15
<PAGE> 18
objective and policies within three months of the Expiration Date. Pending such
investment it is anticipated that the proceeds will be invested in certain
short-term and medium-term debt instruments, as described under "Investment
Objective and Policies -- Temporary Investments."
OVER-SUBSCRIPTION PRIVILEGE
Shares not subscribed for in the Primary Subscription will be offered, by
means of the Over-Subscription Privilege, to Record Date Shareholders who have
exercised all Rights issued to them by the Fund and who wish to acquire more
than the number of Shares for which the Rights held by them are exercisable.
Record Date Shareholders should indicate, on the Subscription Certificate which
they submit with respect to the exercise of the Rights held by them, how many
Shares they are willing to acquire pursuant to the Over-Subscription Privilege.
If sufficient Shares remain, all over-subscriptions will be honored in full.
Purchasers of Rights who are not Record Date Shareholders are not eligible to
participate in the Over-Subscription Privilege.
If subscriptions for Shares pursuant to the Over-Subscription Privilege
exceed the Shares available, the available Shares will be allocated among those
Record Date Shareholders who over-subscribe based on the number of Rights
originally issued to them by the Fund so that the number of Shares issued to
Record Date Shareholders who subscribe pursuant to the Over-Subscription
Privilege will generally be in proportion to the number of shares owned by them
in the Fund on the Record Date. The percentage of remaining Shares each
over-subscribing Record Date Shareholder may acquire may be rounded up or down
to result in delivery of whole Shares. The allocation process may involve a
series of allocations in order to assure that the total number of Shares
available for oversubscriptions is distributed on a pro rata basis.
The Subscription Price
It is currently estimated that the Subscription Price will represent a
discount of between % and % to the last reported sale price on the
Business Day prior to the Record Date. The Subscription Price per Share will be
$ . Exercising Rights Holders will have no right to rescind or modify a
purchase after receipt of their completed Subscription Certificates for Shares
by the Subscription Agent. The Fund does not have the right to withdraw the
Offer after the Rights have been distributed.
The Fund announced the Offer after the close of trading on the NYSE on
August 11, 1995. The net asset value per share of Common Stock at the close of
business on August 11, 1995 and on September , 1995 was $ and
$ , respectively, and the last reported sale price of a share of the
Common Stock on the NYSE on those dates was $ and $ ,
respectively. The Subscription Price of $ is approximately an %
discount to the Fund's net asset value per share on September , 1995 and
approximately a % discount to the last reported sale price of a share of
Common Stock on the NYSE on September , 1995.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on October , 1995,
unless extended by the Fund and the Dealer Manager (the "Expiration Date").
Rights will expire on the Expiration Date and may not be exercised thereafter.
SUBSCRIPTION AGENT
The Subscription Agent is The First National Bank of Boston, which will
receive for its administrative, processing, invoicing and other services as
Subscription Agent, a fee estimated to be approximately $ , as well as
reimbursement for all out-of-pocket expenses related to the Offer. The
Subscription Agent is also the Fund's transfer agent, dividend paying agent and
registrar. Questions regarding the Subscription Certificates should be directed
to The First National Bank of Boston, 150 Royall Street, Canton, Massachusetts
02021 (telephone (617) 575-2700); shareholders may also consult their brokers or
nominees.
16
<PAGE> 19
Signed Subscription Certificates (see Appendix A) should be sent by mail, hand,
express mail or overnight courier, together with payment of the Subscription
Price to The First National Bank of Boston, Attention: Shareholder Services
Division, 150 Royall Street, Mail Stop 45-01-19, Canton, Massachusetts 02021.
Subscription Certificates may also be sent by facsimile to (617) 575-2232, with
the original Subscription Certificate to be sent by one of the methods described
above. Facsimiles should be confirmed by telephone to (617) 575-2700.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 773-8481, Ext. 316
or
Call Collect (212) 805-7000, Ext. 316
The Information Agent will receive a fee estimated to be approximately
$ , as well as reimbursement for all out-of-pocket expenses related to
the Offer.
SALE OF RIGHTS
The Rights are transferable until the last Business Day prior to the
Expiration Date. The Rights will be listed on the NYSE under the symbol "LDF.RT"
and may be sold on the NYSE through the usual investment channels. The Fund has
used its best efforts to ensure that an adequate trading market for the Rights
will exist by causing the Rights to be listed on the NYSE and by retaining the
Dealer Manager, the Subscription Agent and the Information Agent. Although there
can be no assurance that such a market for the Rights will develop, trading in
the Rights on the NYSE may be conducted until the close of trading on the last
Business Day prior to the Expiration Date.
Sales through Subscription Agent. Rights Holders who do not wish to
exercise any or all of their Rights may instruct the Subscription Agent to sell
any unexercised Rights. Subscription Certificates representing the Rights to be
sold by the Subscription Agent must be received by the Subscription Agent on or
before October , 1995. Upon the timely receipt by the Subscription Agent of
appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and the Subscription Agent will remit the
proceeds of sale, net of commissions, to the Rights Holders. Rights may be sold
through or to the Dealer Manager on the NYSE or otherwise. If the Rights can be
sold, sales of such Rights will be deemed to have been effected at the
weighted-average price received by the Subscription Agent on the day such Rights
are sold. The selling Rights Holder will pay any brokerage commissions incurred
by the Subscription Agent. The sale price of any Rights sold to the Dealer
Manager will be based upon the then current market price for the Rights less
amounts comparable to the usual and customary brokerage fees. The Subscription
Agent will also attempt to sell all Rights which remain unclaimed as a result of
Subscription Certificates being returned by the postal authorities to the
Subscription Agent as undeliverable as of the fourth Business Day prior to the
Expiration Date. Such sales will be made net of any commissions on behalf of the
nonclaiming Record Date Shareholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such nonclaiming Record Date
Shareholders until such proceeds either are claimed or escheat. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
such Rights, and neither the Fund, the Subscription Agent nor the Dealer Manager
has guaranteed any minimum sale price for the Rights.
Other Transfers. The Rights are transferable until the close of business
on the last Business Day prior to the Expiration Date. The Rights evidenced by a
single Subscription Certificate may be transferred in whole or in part (in a
number evenly divisible by three) by delivering to the Subscription Agent a
Subscription
17
<PAGE> 20
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights. In such event, a new Subscription Certificate evidencing the
balance of the Rights will be issued to the transferring Rights Holder or, if
the transferring Rights Holder so instructs, to an additional transferee.
Rights Holders wishing to transfer all or a portion of their Rights should
allow up to three Business Days prior to the Expiration Date for (i) the
transfer instructions to be received and processed by the Subscription Agent;
(ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any; and (iii) the Rights
evidenced by such new Subscription Certificate to be exercised or sold by the
recipients thereof. Neither the Fund, the Subscription Agent nor the Dealer
Manager shall have any liability to a transferee or transferor of Rights if
Subscription Certificates are not received in time for exercise or sale prior to
the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Fund as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund, the Subscription Agent or the Dealer Manager.
The Rights will be eligible for transfer through, and the exercise of the
Primary Subscription (but not the Over-Subscription Privilege) may be effected
through, the facilities of The Depository Trust Company ("DTC"); Rights
exercised through DTC are referred to as "DTC Exercised Rights." The holder of a
DTC Exercised Right may exercise the Over-Subscription Privilege in respect of
such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration
Date, a Nominee Holder Over-Subscription Form (see Appendix C), together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder
Over-Subscription Form may be obtained from the Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by completing and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment of the Subscription
Price for the Shares as described below under "Payment for Shares." Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 p.m., New York time, on the Expiration Date (unless payment is effected by
means of a Notice of Guaranteed Delivery as described below under "-- Payment
for Shares") at the offices of the Subscription Agent at the address set forth
above. Rights may also be exercised through an Exercising Rights Holder's
broker, who may charge such Exercising Rights Holder a servicing fee.
Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the nominee should complete
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE
Record Date Shareholders who fully exercise all Rights issued to them by
the Fund may participate in the Over-Subscription Privilege by indicating on
their Subscription Certificate the number of Shares they are willing to acquire
pursuant thereto. Persons purchasing Rights who are not Record Date Shareholders
are not eligible to participate in the Over-Subscription Privilege. There is no
limit on the number of Shares that Record Date Shareholders may seek to
subscribe for pursuant to the Over-Subscription Privilege. If sufficient
18
<PAGE> 21
Shares remain after the Primary Subscription, all over-subscriptions will be
honored in full; otherwise the number of Shares issued to each Record Date
Shareholder participating in the Over-Subscription Privilege will be allocated
as described above under "--Over-Subscription Privilege."
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Fund, before any Over-Subscription Privilege may be
exercised as to any particular beneficial owner, as to the aggregate number of
Rights exercised pursuant to the Primary Subscription and the number of Shares
subscribed for pursuant to the Over-Subscription Privilege by such beneficial
owner and that such beneficial owner's Primary Subscription was exercised in
full.
PAYMENT FOR SHARES
Exercising Rights Holders may choose between the following methods of
payment:
(1) An Exercising Rights Holder may send the Subscription Certificate
together with payment for the Shares acquired on Primary Subscription and
any additional Shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders) to the Subscription Agent based
upon the Subscription Price of $ per Share. A subscription will be
accepted when payment, together with the executed Subscription Certificate,
is received by the Subscription Agent at its Shareholders Services
Division; such payment and Subscription Certificates to be received by the
Subscription Agent no later than 5:00 p.m., New York time, on the
Expiration Date. The Subscription Agent will deposit all checks received by
it for the purchase of Shares into a segregated interest-bearing account of
the Fund (the interest from which will belong to the Fund) pending
proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO THE ORDER OF THE LATIN AMERICAN
DISCOVERY FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED
AND BE RECEIVED BY 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent has received a Notice of Guaranteed Delivery (see
Appendix B) by facsimile (telecopy) or otherwise from a bank, a trust
company, or a NYSE member guaranteeing delivery of (i) payment of the full
Subscription Price for the Shares subscribed for in the Primary
Subscription and any additional Shares subscribed for pursuant to the Over-
Subscription Privilege (for Record Date Shareholders), and (ii) a properly
completed and executed Subscription Certificate. The Subscription Agent
will not honor a Notice of Guaranteed Delivery unless a properly completed
and executed Subscription Certificate and full payment for the Shares is
received by the Subscription Agent by the close of business on the third
Business Day after the Expiration Date (the "Protect Period").
Within seven Business Days following the Protect Period, the Subscription
Agent will send to each Exercising Rights Holder (or, if the Common Stock is
held by a Nominee Holder, to such Nominee Holder) the share certificates
representing the Shares purchased pursuant to the Primary Subscription and, if
applicable, the Over-Subscription Privilege, along with a letter explaining the
allocation of Shares pursuant to the Over-Subscription Privilege. Any excess
payment to be refunded by the Fund to a Record Date Shareholder who is not
allocated the full amount of Shares subscribed for pursuant to the
Over-Subscription Privilege will be mailed by the Subscription Agent to such
Record Date Shareholder within ten Business Days after the end of the Protect
Period. An Exercising Rights Holder will have no right to rescind or modify a
purchase after the Subscription Agent has received a properly completed and
executed Subscription Certificate or a Notice of Guaranteed Delivery. All
payments by a Rights Holder must be in U.S. dollars by money order or check
drawn on a bank located in the United States and payable to the order of The
Latin American Discovery Fund, Inc.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment. If an Exercising Rights Holder who
19
<PAGE> 22
acquires Shares pursuant to the Primary Subscription or Over-Subscription
Privilege does not make payment of any amounts due, the Fund and the
Subscription Agent reserve the right to take any or all of the following
actions: (i) find other shareholders or Rights Holders for such subscribed and
unpaid for Shares; (ii) apply any payment actually received by it toward the
purchase of the greatest whole number of Shares which could be acquired by such
holder upon exercise of the Primary Subscription and/or Over-Subscription
Privilege; and/or (iii) exercise any and all other rights or remedies to which
it may be entitled, including, without limitation, the right to set-off against
payments actually received by it with respect to such subscribed Shares.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the nominee should complete
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
DELIVERY OF SHARE CERTIFICATES
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to Exercising Rights Holders as soon as practicable after the Expiration Date
and after all allocations have been effected.
FOREIGN SHAREHOLDERS
Subscription Certificates will not be mailed to Foreign Record Date
Shareholders. The Rights to which such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 12:00 Noon, New York time,
three Business Days prior to the Expiration Date, the Subscription Agent will
use its best efforts to sell the Rights of those Foreign Record Date
Shareholders through or to the Dealer Manager. The net proceeds, if any, from
the sale of those Rights will be remitted to the Foreign Record Date
Shareholders.
20
<PAGE> 23
FEDERAL INCOME TAX CONSEQUENCES
The Offer
The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.
2. The basis of a Right will be (a) to a holder of Common Stock to
whom it is issued and who exercises or sells the Right (i) if the fair
market value of the Right immediately after issuance is less than 15% of
the fair market value of the Common Stock with regard to which it is
issued, zero (unless the holder elects, by filing a statement with his
timely filed federal income tax return for the year in which the Rights are
received, to allocate the basis of the Common Stock between the Right and
the Common Stock based on their respective fair market values immediately
after the Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon their respective fair market values immediately
after the Right is issued; (b) to a holder of Common Stock to whom it is
issued and who allows the Right to expire, zero; and (c) to anyone who
purchases a Right in the market, the purchase price for a Right.
3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the Common Stock with regard to which the
Right is issued.
4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right will be a capital asset in the hands of the person to whom it is
issued if the Common Stock to which the Right relates would be a capital
asset in the hands of that person. If a Right is allowed to expire, there
will be no loss realized unless the Right had been acquired by purchase, in
which case there will be a loss equal to the basis of the Right.
5. If the Right is exercised by the Record Date Shareholder, the basis
of the Common Stock received will include the basis allocated to the Right
and the amount paid upon exercise of the Right.
6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
7. Gain recognized by a foreign shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of Fund
shares. See "Taxation -- U.S. Federal Income Taxes -- Foreign
Shareholders."
The Fund is required to withhold and remit to the U.S. Treasury 31% of
reportable payments paid on an account if the holder of the account is a
taxpayer to which the backup withholding rules apply and has provided the Fund
with either an incorrect taxpayer identification number or no number at all or
fails to certify that he is not subject to such withholding.
The foregoing is only a summary of the applicable U.S. federal income tax
laws and does not include any state or local tax consequences of the Offer.
Exercising Rights Holders should consult their own tax advisers concerning the
tax consequences of this transaction. See "Taxation."
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the Commission, undertaken to suspend the
Offer until it amends this Prospectus if, subsequent to September , 1995 (the
effective date of the Fund's Registration Statement), the Fund's net asset value
declines more than 10% from its net asset value as of that date.
21
<PAGE> 24
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (including
corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") and other plans eligible
for special tax treatment under the Code or subject to Section 4975 of the Code
(collectively, "Plans"), should be aware that additional contributions of cash
to the Plan (other than rollover contributions or trustee-to-trustee transfers
from other Plans) in order to exercise Rights would be treated as Plan
contributions and, when taken together with contributions previously made, may
subject a Plan to excise taxes for excess or nondeductible contributions. In the
case of Plans qualified under Section 401(a) of the Code and certain other
plans, additional cash contributions could cause the maximum contribution
limitations of Section 415 of the Code or other qualification rules to be
violated. Furthermore, it may be a reportable distribution and there may be
other adverse tax consequences if Rights are sold or transferred by a Plan to
another account. A sale of Rights by a Plan account to an unrelated third party
and retention of cash proceeds by the Plan account, or the direct exercise of
Rights by a Plan account, should not be treated as a taxable Plan distribution.
Plans contemplating making additional cash contributions to exercise Rights
should consult with their counsel prior to making such contributions.
Plans and other tax exempt entities, including governmental plans, also
should be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an IRA is used as
security for a loan, the portion so used is also treated as distributed to the
IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules, that may impact the exercise or
transfer of Rights. Due to the complexity of these rules and the penalties for
noncompliance, Plans should consult with their counsel regarding the
consequences of their exercise or transfer of Rights under ERISA and the Code.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund is subject to a number of risks and special
considerations, including the following:
DILUTION
An immediate dilution of the aggregate net asset value of the Common Stock
owned by Record Date Shareholders who do not fully exercise their Rights is
likely to occur as a result of the Offer because the Subscription Price per
Share will be less than the Fund's net asset value per share on the Record Date,
and the number of shares outstanding after the Offer is likely to increase in a
greater percentage than the increase in the size of the Fund's assets. In
addition, as a result of the Offer, Record Date Shareholders who do not fully
exercise their Rights should expect that they will, upon the completion of the
Offer, own a smaller proportional interest in the Fund than would otherwise be
the case. Although it is not possible to state precisely the amount of such a
decrease in value, because it is not known at this time what the net asset value
per share will be on the Expiration Date or what proportion of the Rights will
be exercised, such dilution could be substantial. For example, assuming that all
Rights are exercised and that the Subscription Price of $ is %
below the Fund's net asset value of $ per share, the Fund's net asset
value per share would be reduced by approximately $ per share. The
distribution to shareholders of transferable Rights which themselves may have
intrinsic value will also afford non-participating shareholders the potential of
receiving a cash payment upon sale of such Rights, receipt of which may be
viewed as partial compensation for the dilution of their interest in the Fund.
No assurance can be given that a market for the Rights will develop or as to the
value, if any, that such Rights will have.
22
<PAGE> 25
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in the securities of Latin American issuers is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain Latin American issuers
and increase the costs and expenses of the Fund. Certain countries require
governmental approval prior to investments by foreign persons or limit the
amount of investment by foreign persons in a particular company, or limit
investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than the classes available for
purchase by nationals. Certain countries may restrict investment opportunities
in issuers or industries deemed important to national interests. Some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of sales of securities by foreign investors. In addition, if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose temporary restrictions on foreign capital
remittances abroad. Capital invested by the Fund in Chile currently cannot be
repatriated for one year. Accordingly, the Fund treats investments in countries
with repatriation restrictions as illiquid for purposes of any applicable
limitations under the 1940 Act. As a closed-end investment company, the Fund is
not currently limited in the amount of illiquid securities it may acquire. The
Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. If for any reason
the Fund were unable to distribute an amount equal to substantially all of its
investment company taxable income (as defined for U.S. federal tax purposes)
within applicable time periods, the Fund would cease to qualify for the
favorable tax treatment afforded to regulated investment companies under the
Code. See "Taxation."
Some Latin American countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment is permitted by certain of these Latin
American countries through investment funds which have been specially
authorized. The Fund may invest in these investment funds subject to the
provisions of the 1940 Act as discussed below under "Investment Restrictions."
If the Fund invests in such investment funds, the Fund's shareholders will bear
not only their proportionate share of the expenses of the Fund (including
operating expenses and the fees of the Investment Manager), but also will
indirectly bear similar expenses of the underlying investment funds. See also
"Taxation -- U.S. Federal Income Taxes -- Passive Foreign Investment Companies."
MARKET CHARACTERISTICS
The securities markets of Latin American countries are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many Latin American issuers
may be held by a limited number of persons, which may limit the number of shares
available for investment by the Fund. A limited number of issuers in most, if
not all, Latin American securities markets may represent a disproportionately
large percentage of market capitalization and trading value. In addition, the
application of certain 1940 Act provisions may limit the Fund's ability to
invest in certain Latin American issuers and to participate in public offerings
in Latin America. The limited liquidity of Latin American securities markets may
also affect the Fund's ability to acquire or dispose of securities at the price
and time it wishes to do so. In addition, certain Latin American securities
markets, including those of Argentina, Brazil, Chile and Mexico, are susceptible
to being influenced by large investors trading significant blocks of securities
or by large dispositions of securities resulting from the failure to meet margin
calls when due.
In addition to their smaller size, lesser liquidity and greater volatility,
Latin American securities markets are less developed than U.S. securities
markets. Disclosure and regulatory standards are in many respects less stringent
than U.S. standards. Furthermore, there is a low level of monitoring and
regulation of the markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited. Consequently,
the prices at which the Fund may acquire investments may be affected by other
market participants' anticipation of the Fund's investing, by trading by persons
with material nonpublic information and by securities transactions by brokers in
anticipation of transactions by the Fund in particular securities. Commissions
and other transaction costs on most, if not all, Latin American securities
exchanges generally are higher than in the United States, although the Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions.
23
<PAGE> 26
The following table sets forth data regarding the stock markets of
Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela as of December
31, 1994 in comparison with certain more developed stock markets.
1994 STOCK MARKET DATA
<TABLE>
<CAPTION>
TEN LARGEST
NUMBER OF MARKET VALUE STOCKS AS % OF
LISTED CAPITALIZATION TRADED MARKET
COUNTRY COMPANIES (US$ BN) (US$ BN) CAPITALIZATION
------------------------------------------ --------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Argentina................................. 156 36.86 11.37 66.9
Brazil(1)................................. 544 189.28 109.50 48.3
Chile..................................... 279 68.20 5.26 47.3
Colombia(2)............................... 113 14.03 2.19 45.6
Mexico.................................... 206 130.25 82.96 47.9
Peru...................................... 218 8.18 3.08 95.1
Venezuela................................. 90 4.11 0.94 78.6
Japan(3).................................. 2,205 3,719.91 1,121.44 18.5
United Kingdom............................ 2,070 1,210.25 928.17 22.9
United States(4).......................... 7,770 5,081.81 3,592.67 11.3
</TABLE>
---------------
(1) Market Cap and listings: Sao Paulo Stock Exchange only; Value traded;
Combined Sao Paulo and Rio de Janerio Stock Exchanges.
(2) Market Cap and listing: Bogota stock Exchange; Value traded: Combined
Bogota, Medellin and Occidente Stock Exchanges.
(3) Combined Fukoka, Hiroshima, Kyoto, Nagoya, Hligatya, Osaka, Tokyo and
Sapporo Stock Exchanges.
(4) Combined New York Stock Exchange, American Stock Exchange and NASDAQ.
Sources: IFC - Emerging Stock Markets Factbook 1995, Economatica, WEFA.
FOREIGN CURRENCY CONSIDERATIONS
The Fund's assets are invested primarily in equity securities of Latin
American issuers and substantially all of the income received by the Fund is in
foreign currencies. The Fund computes and distributes its income in U.S.
dollars, and the computation of income is made on the date that the income is
earned by the Fund at the foreign exchange rate in effect on that date. If the
value of the foreign currencies in which the Fund receives its income falls
relative to the U.S. dollar between the earning of the income and the time at
which the Fund converts the foreign currencies to U.S. dollars, the Fund may be
required to liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements. See
"Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan."
Many of the currencies of Latin American countries have experienced steady
devaluations relative to the U.S. dollar, and major adjustments have been made
in certain of them at times. Most recently, the Mexican New Peso has lost 34.75%
of its value against the U.S. dollar since December 20, 1994. This devaluation
has had a significant impact on the values of other Latin America currencies
vis-a-vis the U.S. dollar. As a result, the Fund's net asset value, dropped from
$25.42 per share on December 16, 1994 to $9.70 per share on March 10, 1995. The
liquidation of investments, if required, may have an adverse impact on the
Fund's performance. In addition, if the liquidated investments include
securities that have been held less than three months, such sales may jeopardize
the Fund's status as a regulated investment company under the Code. See
"Taxation -- U.S. Federal Income Taxes."
Since the Fund invests in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates will
affect the value of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments. Further, the Fund may incur costs
in connection with conversions between various currencies. Foreign exchange
dealers realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer normally will
offer
24
<PAGE> 27
to sell a foreign currency to the Fund at one rate, while offering a lesser rate
of exchange should the Fund desire immediately to resell that currency to the
dealer. The Fund conducts its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward, futures or options contracts
to purchase or sell foreign currencies.
The Fund may seek to protect the value of some portion or all of its
portfolio holdings against currency risks by engaging in hedging transactions.
The Fund may enter into forward currency exchange contracts and currency futures
contracts and options on such futures contracts, as well as purchase put or call
options on currencies, in U.S. or foreign markets. In order to hedge against
adverse market shifts, the Fund may purchase put and call options on stocks,
write covered call options on stocks and enter into stock index futures
contracts and related options. For a description of such hedging strategies, see
"Investment Objective and Policies -- Foreign Currency Hedging Transactions,
Options and Futures Contracts" and Appendix D to this Prospectus. There can be
no guarantee that instruments suitable for hedging currency or market shifts
will be available at the time when the Fund wishes to use them. Moreover,
investors should be aware that in most Latin American countries the markets for
certain of these hedging instruments are not highly developed and that in many
Latin American countries no such markets currently exist. Accordingly, little
reliance should be placed on the Fund's ability to hedge its currency or market
risks under current conditions or for the foreseeable future.
INFLATION
Most Latin American countries have experienced substantial, and in some
periods extremely high and volatile, rates of inflation. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain Latin American
countries. In an attempt to control inflation, wage and price controls have been
imposed at times in certain countries.
The following table sets forth data regarding inflation in Argentina,
Brazil, Chile, Colombia, Mexico, Peru and Venezuela for the periods indicated.
CONSUMER PRICE INFLATION: % CHANGE
<TABLE>
<CAPTION>
COUNTRY 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-------------------------- ------ ------ ------ ------ ------ ------- ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina................. 626.7 672.1 90.1 131.3 343.0 3,079.8 2,314.0 84.5 24.9 10.9 3.9
Brazil.................... 197.0 226.9 145.2 229.7 682.3 1,287.0 2,937.8 460.0 991.0 1,911.0 928.0
Chile..................... 19.9 30.7 19.5 19.9 14.7 17.0 26.0 17.8 15.4 12.0 8.9
Colombia.................. 16.1 24.0 18.9 23.3 28.1 25.8 29.1 26.8 27.0 22.0 22.0
Mexico.................... 65.5 57.7 86.2 131.8 114.2 20.0 26.7 18.8 15.5 10.0 7.1
Peru...................... 110.2 163.4 77.9 85.8 667.0 3,398.7 7,481.7 409.5 73.5 47.0 15.4
Venezuela................. 12.2 11.4 11.5 28.1 29.5 84.2 40.8 30.0 31.4 37.0 70.8
</TABLE>
---------------
Sources: Emerging Stock Markets Factbook [1992/1993] (International Finance
Corporation), J.P. Morgan Research, WEFA and Morgan Stanley Research.
POLITICAL AND ECONOMIC FACTORS
The economies of individual Latin American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector. In some
cases, the government owns or controls many companies, including some of the
largest in the country. Accordingly, government actions in the future could have
a significant effect on economic conditions in a Latin American country, which
could affect private sector companies and the Fund, and on market conditions,
prices and yields of securities in the Fund's portfolio. Expropriation,
confiscatory taxation, nationalization, political, economic or social
instability or other developments could adversely affect the assets of the Fund
held in particular Latin American countries.
25
<PAGE> 28
In addition, the inter-relatedness of the economies in Latin America has
deepened over the years, with the effect that economic difficulties in one
country often spread throughout the region. Thus, for example, the currency
devaluation suffered by the Mexican New Peso in late December 1994 caused other
Latin American currencies to be adversely affected, increased fears of inflation
in the region and significantly affected Latin America's securities markets.
Political events often have economic consequences as well, as exemplified by the
resignation of Jaime Serra Puche as Mexico's Finance Minister on December 29,
1994 and the perceived weakening of President Ernesto Zedillo's authority after
being inaugurated. In January 1995, the Mexican Government announced a new
economic program and a new accord among the Government, labor and business to
address the causes and effects of the rapid devaluation of the Mexican New Peso
relative to the U.S. dollar. The situation with respect to the Mexican economic
crisis continues to be very fluid and it is expected that significant volatility
in the valuations for Mexican securities and securities in other Latin American
countries will continue. These events may continue to have long-term effects on
the economies in the region, and no assurance can be given that the Fund's
portfolio will not be further adversely affected by these and similar events.
Certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. Currently, Brazil is the largest
debtor among developing countries followed by Mexico. Since 1982, certain Latin
American countries, including Argentina, Brazil, Chile and Mexico, have
experienced difficulty in servicing their Sovereign Debt obligations in a timely
manner. Many such countries have entered into negotiations with foreign
creditors to restructure such Sovereign Debt and may enter into such
negotiations in the future. Obligations arising from past restructuring
agreements have affected, and those arising from future restructuring agreements
may affect, the economic performance and political and social stability of
certain Latin American countries.
REPORTING STANDARDS
Issuers in Latin America are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits appearing on
the financial statements of a Latin American company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with United States
generally accepted accounting principles. In addition, for companies that keep
accounting records in local currency, inflation accounting rules in some Latin
American 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. Consequently, financial
data may be materially affected by restatements for inflation and may not
accurately reflect the real condition of companies and securities markets. There
is substantially less publicly available information about issuers in Latin
America than there is about U.S. issuers.
INVESTMENTS IN UNLISTED SECURITIES
Although the Fund invests primarily in listed securities, it may, subject
to local investment restrictions, invest up to 25% of its total assets in the
aggregate in unlisted equity securities of Latin American issuers, including
investments in new and early stage companies, which may involve a high degree of
business and financial risk that can result in substantial losses. Because of
the absence of any trading market for these investments, the Fund may take
longer to liquidate these positions than would be the case for publicly traded
securities. Although these securities may be resold in privately negotiated
transactions, the prices on these sales could be less than those originally paid
by the Fund. Further, issuers whose securities are not publicly traded may not
be subject to public disclosure and other investor protection requirements
applicable to publicly traded securities. See "Investment Objective and
Policies -- Non-Publicly Traded Securities."
INVESTMENTS IN LOWER-QUALITY SECURITIES
The Fund may invest up to 20% of its total assets in securities that are
determined by the Investment Manager to be comparable to securities rated below
investment grade by Standard & Poor's, a division of The
26
<PAGE> 29
McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc.
("Moody's"). Such lower-quality securities are regarded as being predominantly
speculative and involve significant risks. For example, lower-quality securities
generally tend to fluctuate in value in response to economic changes (and the
outlook for economic growth), short-term corporate and industry developments and
the market's perception of their credit quality (which may not be based on
fundamental analysis) to a greater extent than investment grade securities which
react primarily to fluctuations in the general level of interest rates (although
lower-quality securities are also affected by changes in interest rates). In the
past, economic downturns or an increase in interest rates have under certain
circumstances caused a higher incidence of default by the issuers of these
securities. To the extent that the issuer of any lower-quality security held by
the Fund defaults, the Fund may incur additional expenses in order to enforce
its rights under such security or to participate in a restructuring of the
obligation. In addition, the prices of lower-quality securities generally tend
to be more volatile and the market less liquid than is the case with investment
grade securities. Adverse economic events can further exacerbate these
tendencies. Consequently, the Fund may at times experience difficulty in
liquidating its investments in such securities at the prices it desires. There
also can be significant disparities in the prices quoted for lower-quality
securities by various dealers which may make valuing such securities by the Fund
more subjective.
The Fund's holdings of lower-quality debt securities will consist
predominantly of Sovereign Debt, much of which trades at substantial discounts
from face value. The Fund may invest in Sovereign Debt to hold and trade in
appropriate circumstances and to participate in Latin American debt to equity
conversion programs. Investment in Sovereign Debt involves a high degree of risk
and such securities are generally considered speculative in nature. The issuer
or governmental authorities that control the repayment of Sovereign Debt may not
be able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A sovereign debtor's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy towards the International Monetary Fund and the
political constraints to which a sovereign debtor may be subject. Sovereign
debtors may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to timely service its debts. In
certain instances, the Fund may invest in Sovereign Debt that is in default as
to payments of principal and/or interest. To the extent the Fund is holding any
non-performing Sovereign Debt, it may incur additional expenses in connection
with any restructuring of the issuer's obligations or in otherwise enforcing its
rights thereunder.
The Fund may experience difficulties in disposing of certain Sovereign Debt
obligations because there may be a thin trading market for such securities. The
lack of a liquid secondary market may have an adverse impact on the market price
of such securities and the Fund's ability to dispose of particular securities
when necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain Sovereign Debt securities also
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund's portfolio and calculating its net asset value.
NET ASSET VALUE DISCOUNT; NON-DIVERSIFICATION
Since the Fund's commencement of operations in June 1992, the Common Stock
has traded in the market at both a discount and premium to net asset value. The
Fund cannot predict whether the Common Stock in the future will trade at a
premium or discount to net asset value and, if so, the level of such premium or
discount. Shares of closed-end investment companies frequently trade at a
discount from net asset value.
27
<PAGE> 30
The risk of the Common Stock trading at a discount is a risk separate from a
decline in the Fund's net asset value. See "Market and Net Asset Value
Information."
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with the diversification requirements imposed by the
Code for qualification as a regulated investment company. See "Taxation -- U.S.
Federal Income Taxes" and "Investment Restrictions."
ADDITIONAL CONSIDERATIONS
The Fund may use various other investment practices that involve special
considerations, including purchasing and selling options on securities,
financial futures, and other financial instruments, entering into financial
futures contracts, interest rate transactions, currency transactions and
repurchase agreements and lending portfolio securities. See "Investment
Objective and Policies" and Appendix D.
In addition, certain special voting provisions of the Fund's Articles of
Incorporation may have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices. See "Common
Stock."
Investors should carefully consider their ability to assume the foregoing
risks before making an investment in the Fund. An investment in the Common Stock
of the Fund may not be appropriate for all investors and should not be
considered as a complete investment program.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. The
Fund seeks to achieve this objective by investing primarily in equity securities
(i) of companies organized in or for which the principal securities trading
market is in Latin America, (ii) denominated in a Latin American currency issued
by companies to finance operations in Latin America, or (iii) of companies that
alone or on a consolidated basis derive 50% or more of their annual revenues
from either goods produced, sales made or services performed in Latin America
(collectively, "Latin American issuers") and by investing, from time to time, in
Sovereign Debt. The Fund's investment objective is a fundamental policy which
may not be changed without the approval of a majority of the Fund's outstanding
voting securities. Income is not a consideration in selecting investments or an
investment objective. As used herein, a "majority of the Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented, and
(ii) more than 50% of the outstanding shares. There is no assurance the Fund
will be able to achieve its investment objective.
Under normal conditions, substantially all, but not less than 80%, of the
Fund's total assets are invested in equity securities of Latin American issuers
and in Sovereign Debt. For purposes of this Prospectus, unless otherwise
indicated, Latin America consists of Argentina, Bolivia, Brazil, Chile,
Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador,
Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and
Venezuela. An equity security is defined as common or preferred stocks
(including convertible preferred stock), bonds, notes or debentures convertible
into common or preferred stock, stock purchase warrants or rights, equity
interests in trusts or partnerships or American, Global or other types of
Depositary Receipts. Determinations as to eligibility will be made by the
Investment Manager based on publicly available information and inquiries made to
the companies. See "Risk Factors and Special Considerations" for a discussion of
the nature of information publicly available for non-U.S. companies.
The Fund's definition of Latin American issuers includes companies that may
have characteristics and business relationships common to companies in other
geographic regions. As a result, the value of the securities of such companies
may reflect economic and market forces applicable to such other regions, as well
as in Latin America. The Fund believes, however, that investment in such
companies is appropriate because
28
<PAGE> 31
the Fund invests only in those companies which, in its view, have sufficiently
strong exposure to economic and market forces in Latin America such that their
value will tend to reflect developments in Latin America to a greater extent
than developments in other regions. For example, the Fund may invest in
companies organized and located in countries outside of Latin America, including
companies having their entire production facilities outside of Latin America,
when such companies meet one of the elements of the Fund's definition of Latin
American issuer and so long as the Fund believes at the time of investment that
the value of the company's securities will reflect principally conditions in
Latin America.
The Fund focuses its investments in listed equity securities in Argentina,
Brazil, Chile and Mexico, the most developed capital markets in Latin America.
The Fund expects, under normal market conditions, to have at least 55% of its
total assets invested in listed equity securities of issuers in these four
countries. In addition, the Fund actively invests in markets in other Latin
American countries such as Colombia, Peru and Venezuela. The Fund is not limited
in the extent to which it may invest in any Latin American country and intends
to invest opportunistically as markets develop. The portion of the Fund's
holdings in any Latin American country will vary from time to time, although the
portion of the Fund's assets invested in Chile may tend to vary less than the
portions invested in other Latin American countries because, with limited
exceptions, capital invested in Chile currently cannot be repatriated for one
year. See "Investment Procedures: Argentina, Brazil, Chile and Mexico -- Chile."
The governments of some Latin American countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatizations"). The Investment Manager believes that
privatizations may offer investors opportunities for significant capital
appreciation and intends to invest assets of the Fund in privatizations in
appropriate circumstances. In certain Latin American countries, the ability of
foreign entities, such as the Fund, to participate in privatizations may be
limited by local law, or the terms on which the Fund may be permitted to
participate may be less advantageous than those for local investors. There can
be no assurance that Latin American governments will continue to sell companies
currently owned or controlled by them or that any privatization programs in
which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use Sovereign Debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Fund may participate in Latin American debt conversion programs. The Investment
Manager will evaluate opportunities to enter into debt conversion transactions
as they arise.
To the extent that the Fund's assets are not invested in equity securities
of Latin American issuers or in Sovereign Debt, the remainder of the assets may
be invested in (i) debt securities of Latin American issuers, (ii) equity or
debt securities of corporate or governmental issuers located in countries
outside Latin America, and (iii) short-term and medium-term debt securities of
the type described below under "Temporary Investments." The Fund's assets may be
invested in debt securities when the Fund believes that, based upon factors such
as relative interest rate levels and foreign exchange rates, such debt
securities offer opportunities for long-term capital appreciation. It is likely
that many of the debt securities in which the Fund will invest will be unrated.
The Fund may invest up to 20% of its total assets in securities that are
determined by the Investment Manager to be comparable to securities rated below
investment grade by S&P or Moody's. Such lower-quality securities are regarded
as being predominantly speculative and involve significant risks.
The Fund's holdings of lower-quality debt securities will consist
predominantly of Sovereign Debt, much of which trades at substantial discounts
from face value and which may include Sovereign Debt comparable to securities
rated as low as D by S&P or C by Moody's. The Fund may invest in Sovereign Debt
to hold and trade in appropriate circumstances, as well as to use to participate
in debt for equity conversion programs. The Fund will only invest in Sovereign
Debt when the Fund believes such investments offer opportunities for long-term
capital appreciation. Investment in Sovereign Debt involves a high degree of
risk and such securities are generally considered to be speculative in nature.
For a discussion of the specific risks associated with
29
<PAGE> 32
investments in lower-quality securities, generally, and Sovereign Debt,
specifically, see "Risk Factors and Special Considerations -- Investments in
Lower-Quality Securities."
The Fund may invest indirectly in securities of Latin American issuers
through sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of Depositary Receipts (which,
together with ADRs and GDRs, are hereinafter referred to as "Depositary
Receipts"). Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the Depositary Receipts. ADRs are Depositary Receipts typically issued by a
United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. GDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts are deemed to be investments in the
underlying securities.
For temporary defensive purposes, the Fund may invest less than 80% of its
total assets in Latin American equity securities and Sovereign Debt, in which
case the Fund may invest in other equity or debt securities or may invest in
debt securities of the kind described under "Temporary Investments" below.
The Fund purchases and holds securities for long-term capital appreciation
and does not trade for short-term gain. The portfolio turnover rate for a year
is calculated by dividing the lesser of sales or purchases of portfolio
securities during that year by the average monthly value of the Fund's portfolio
securities, excluding money market instruments. The rate of portfolio turnover
will not be a limiting factor when the Fund deems it appropriate to purchase or
sell securities for the Fund. However, the U.S. federal tax requirement that the
Fund derive less than 30% of its gross income from the sale or disposition of
securities held less than three months may limit the Fund's ability to dispose
of its securities. See "Taxation -- U.S. Federal Income Taxes." The Fund's
portfolio turnover rates for the years ended December 31, 1993 and 1994 were 56%
and 70%, respectively.
NON-PUBLICLY TRADED SECURITIES
Securities in which the Fund may invest include those that are neither
listed on a stock exchange nor traded over-the-counter. As a result of the
absence of a public trading market for these securities, they may be less liquid
than publicly traded securities. Although these securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Fund or less than what may be considered
the fair value of such securities. Further, issuers whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which may be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. Although as a general matter
there is no limitation on the Fund's investments in non-publicly traded
securities, the Fund does not intend to invest more than 25% of its total assets
in non-publicly traded securities.
TEMPORARY INVESTMENTS
During periods in which the Investment Manager believes changes in
economic, financial or political conditions make it advisable, the Fund may, for
temporary defensive purposes, reduce its holdings in equity and other securities
and invest in certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt securities or hold
cash. The short-term and medium-term debt securities in which the Fund may
invest consist of (a) obligations of the United States or Latin American
governments, their respective agencies or instrumentalities; (b) bank deposits
and bank obligations (including
30
<PAGE> 33
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
Latin American banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and Latin American
corporations; and (e) repurchase agreements with banks and broker-dealers with
respect to such securities. During such periods, the Fund intends to invest only
in short-term and medium-term debt securities that the Investment Manager
believes to be of high quality, i.e., subject to relatively low risk of loss of
interest or principal (there is currently no rating system for debt securities
in most Latin American countries).
Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed upon
price and date. Under a repurchase agreement, the seller generally is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. The Investment Manager will monitor the
value of such securities daily to determine that the value equals or exceeds the
repurchase price including accrued interest. Repurchase agreements may involve
risks in the event of default or insolvency of the seller, including possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities.
FOREIGN CURRENCY HEDGING TRANSACTIONS, OPTIONS AND FUTURES CONTRACTS
In order to hedge against foreign currency exchange rate risks, the Fund
may enter into forward foreign currency exchange contracts and foreign currency
futures contracts and may purchase and write (sell) put and call options on
foreign currency and on foreign currency futures contracts. The Fund may also
seek to hedge against interest rate fluctuations affecting portfolio securities
by entering into interest rate futures contracts and options thereon.
The Fund may seek to increase its return or hedge all or a portion of its
portfolio investments through transactions in options on securities. In
addition, the Fund may seek to hedge all or a portion of the investments held by
it, or which it intends to acquire, against adverse market fluctuations by
entering into stock index futures contracts and options thereon.
Under the regulations of the U.S. Commodity Futures Trading Commission
("CFTC"), the Fund will not be considered a "commodity pool," as defined under
such regulations, as a result of entering into the transactions in futures
contracts and related options described above, provided, among other things,
that: (1) such transactions are entered into solely for bona fide hedging
purposes, as defined under CFTC regulations; or (2) the aggregate initial margin
and premiums for any other such transactions entered into does not exceed 5% of
the Fund's total assets (after taking into account any unrealized profits and
losses).
There currently are limited options and futures markets for Latin American
currencies, securities and indexes, and the nature of the strategies adopted by
the Investment Manager and the extent to which those strategies are used depends
on the development of those markets. The Fund only engages in transactions in
options and futures which are traded on a recognized securities or futures
exchange, including non-U.S. exchanges to the extent permitted by the CFTC.
Moreover, when the Fund purchases a futures contract or a call option thereon or
writes a put option thereon, an amount of cash or high quality, liquid
securities is deposited in a segregated account with the Fund's custodian so
that the amount so segregated, plus the amount of initial and variation margin
held in the account of its broker, equals the market value of the futures
contract, thereby assuring that the use of such futures is unleveraged.
For a description of each of the instruments referred to above and an
explanation of certain of the associated risks, limitations on use and possible
strategies the Fund may utilize in connection therewith, see Appendix D to this
Prospectus.
LENDING OF PORTFOLIO SECURITIES
The Fund may from time to time lend securities (but not in excess of 20% of
its total assets) from its portfolio to brokers, dealers and financial
institutions and receive collateral in cash or securities believed by the
31
<PAGE> 34
Investment Manager to be equivalent to securities rated investment grade by S&P
or Moody's which, while the loan is outstanding, will be maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities, including any accrued interest or dividend receivable. Any cash
collateral received by the Fund will be invested in short-term securities, the
income from which will increase the return to the Fund. The Fund will retain all
rights of beneficial ownership as to the loaned portfolio securities, including
voting rights and rights to interest or other distributions, and will have the
right to regain record ownership of loaned securities to exercise such
beneficial rights. Such loans are terminable at any time. The Fund may pay
finders', administrative and custodial fees to persons unaffiliated with the
Fund in connection with the arranging of such loans. The Fund may loan portfolio
securities to the extent such activity does not jeopardize its status as a
regulated investment company under Subchapter M of the Code.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of the Fund that may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (as defined in "Investment Objective and
Policies"). If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes will
not be considered a violation of the restriction. Also, if the Fund receives
from an issuer of securities held by the Fund subscription rights to purchase
securities of that issuer, and if the Fund exercises such subscription rights at
a time when the Fund's portfolio holdings of securities of that issuer would
otherwise exceed the limits set forth in paragraph 1 below, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, the Fund has sold at least as
many securities of the same class and value as it would receive on exercise of
such rights.
As a matter of fundamental policy:
1. The Fund may not invest more than 25% of its total assets in a
particular industry (including for this purpose any securities issued by a
government, other than the U.S. government), except to the extent, and only
for such period of time as, the Board of Directors of the Fund determines
in view of the considerations discussed below that it is appropriate and in
the best interest of the Fund and its shareholders to invest more than 25%
of the Fund's total assets in companies involved in the telecommunications
industry. Since the securities markets of Latin American countries are
emerging markets characterized by a relatively small number of issues, it
is possible that one or more markets may on occasion be dominated by issues
of companies engaged in that industry. In addition, it is possible that
government privatizations in certain Latin American countries, which
currently represent a primary source of new issues in many Latin American
markets and often represent attractive investment opportunities, will occur
in that industry. As a result, the Fund has adopted a policy under which it
may invest more than 25% of its total assets in the securities of issuers
in that industry. The Fund would only take this action if the Board of
Directors determines that the Latin American markets are dominated by the
securities of issuers in such industry and that, in light of the
anticipated return, investment quality, availability and liquidity of the
issues in the industry, the Fund's ability to achieve its investment
objective would, in light of its investment policies and limitations, be
materially adversely affected if the Fund were not able to invest greater
than 25% of its total assets in such industry. In the event the Board of
Directors permits greater than 25% of the Fund's total assets to be
invested in the telecommunications industry, the Fund may be exposed to
increased investment risks peculiar to that industry. The Fund will notify
its shareholders of any decision by the Board of Directors to permit (or
cease) investments of more than 25% of the Fund's total assets in the
telecommunications industry. Such notice will, to the extent applicable,
include a discussion of any increased investment risks peculiar to such
industry to which the Fund may be exposed.
2. The Fund may not make any investment for the purpose of exercising
control or management.
3. The Fund may not buy or sell commodities or commodity contracts or
real estate or interests in real estate, except that it may purchase and
sell futures contracts (and related options) on stock indexes,
32
<PAGE> 35
foreign currencies and interest rates, securities which are secured by real
estate or commodities, and securities of companies which invest or deal in
real estate or commodities.
4. The Fund may not make loans, except through repurchase agreements
to the extent permitted under applicable law and in connection with lending
portfolio securities.
5. The Fund may not act as an underwriter except to the extent that,
in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under applicable securities laws.
6. The Fund may issue senior securities as defined in the 1940 Act and
borrow money in an amount not in excess of 33 1/3% of the Fund's total
assets (not including the amount borrowed).
7. The Fund may purchase securities on margin and engage in short
sales of securities.
As a matter of operating policy, which may be changed by the Fund's Board
of Directors without shareholder vote, the Fund will not:
(a) Purchase securities on margin, except such short-term credits as
may be necessary for clearance of transactions and the maintenance of
margin with respect to futures contracts.
(b) Make short sales of securities or maintain a short position
(except that the Fund may maintain short positions in foreign currency
contracts, options and futures contracts).
(c) Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from a lender (i) for temporary or emergency
purposes, (ii) for such short-term credits as may be necessary for the
clearance or settlement of the transactions, (iii) to finance repurchases
of its shares (see "Common Stock"), in amounts not exceeding 33 1/3% (taken
at the lower of cost or current value) of its total assets (not including
the amount borrowed), or (iv) to pay any dividends required to be
distributed in order for the Fund to maintain its qualification as a
regulated investment company under the Code or otherwise to avoid taxation
under the Code, provided that the Fund may not purchase additional
portfolio securities when its borrowings exceed 5% of its assets. The Fund
may pledge its assets to secure such borrowings.
Unlike fundamental policies, operating policies of the Fund may be changed
by the Directors of the Fund, without a vote of the Fund's shareholders, if the
Directors determine such action is warranted. The Fund will notify its
shareholders of any change in any of the operating policies set forth above.
Such notice shall also include a discussion of the increased risks of investment
in the Fund, if any, associated with such a change.
Under the 1940 Act, the Fund may invest only up to 10% of its total assets
in the aggregate in shares of other investment companies and only up to 5% of
its total assets in any one investment company, provided the investment does not
represent more than 3% of the voting stock of the acquired investment company at
the time such shares are purchased. As a shareholder in any investment company,
the Fund will bear its ratable share of that investment company's expenses, and
would remain subject to payment of the Fund's advisory and administrative fees
with respect to assets so invested. See also "Taxation -- U.S. Federal Income
Taxes -- Passive Foreign Investment Companies."
As a result of legal restrictions or market practices or both, the Fund, as
a U.S. entity, may be precluded from purchasing shares in public offerings by
certain Latin American issuers. Additionally, under the 1940 Act, the Fund may
not purchase any security of which the Investment Manager or any of its
affiliates is a principal underwriter during the public offering of such
security.
In addition to the foregoing restrictions, the Fund is subject to
investment limitations, portfolio diversification requirements and other
restrictions imposed by certain Latin American countries in which it invests.
For a discussion of certain investment restrictions applicable to the Fund, see
"Investment Procedures: Argentina, Brazil, Chile and Mexico" below.
33
<PAGE> 36
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS OF THE FUND
The Directors and officers of the Fund are listed below together with their
ages, respective positions and a brief statement of their principal occupations
during the past five years and, in the case of Directors, their positions with
certain international organizations and publicly held companies.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH THE FUND PAST FIVE YEARS
--------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
BARTON M. BIGGS (62)*............ Director and Chairman Chairman and Director of Morgan
1221 Avenue of the Americas of the Board Stanley Asset Management Inc. and
New York, New York 10020 Morgan Stanley Asset Management
Limited; Managing Director of Morgan
Stanley & Co. Incorporated; Director
of Morgan Stanley Group Inc.; Member
of International Advisory Council of
The Thailand Fund; Director and
officer of various investment
companies managed by Morgan Stanley
Asset Management Inc.
FREDERICK B. WHITTEMORE (64)*.... Director and Vice Advisory Director of Morgan Stanley &
1251 Avenue of the Americas Chairman Co. Incorporated; Chairman for the
New York, New York 10020 United States National Committee for
Pacific Economic Cooperation;
Director and officer of various
investment companies managed by
Morgan Stanley Asset Management Inc.;
Previously Managing Director of
Morgan Stanley & Co. Incorporated.
WARREN J. OLSEN (38)*............ Director and President Principal of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated and Morgan Stanley Asset
New York, New York 10020 Management Inc.; Director and officer
of various investment companies
managed by Morgan Stanley Asset
Management Inc.
PETER J. CHASE (62).............. Director Chairman of CGL, Inc.; Principal,
821-C San Mateo Statements; Director of twelve
Santa Fe, New Mexico 87505 investment companies managed by
Morgan Stanley Asset Management Inc.;
Member of the Investment Advisory
Council of The Thailand Fund;
Consultant, NGV Systems, Inc.;
Previously Chairman of CJS, Inc. and
Principal of Sidney A. Staunton, Inc.
and the Yankee Group.
JOHN W. CROGHAN (64)............. Director Chairman of Lincoln Capital
200 South Wacker Drive Management Company; Director of St.
Chicago, Illinois 60606 Paul Bancorp, Inc. and Lindsay
Manufacturing Co.; Director of twelve
investment companies managed by
Morgan Stanley Asset Management Inc.;
Previously Director of Blockbuster
Entertainment Corporation.
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH THE FUND PAST FIVE YEARS
--------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
DAVID B. GILL (69)............... Director Director of twelve investment
3042 Cambridge Place, N.W. companies managed by Morgan Stanley
Washington, D.C. 20007 Asset Management Inc.; Director of
the Mauritius Fund Limited; Member of
the International Advisory Committee
of Banco Surinvest S.A.; Member of
the International Advisory Council of
The Thailand Fund; International
Adviser to Crown Agents for Overseas
Governments and Administrations;
Member of the Capital Markets
Committee of the Inter-American
Investment Corporation; Member of the
Advisory Council of Korea Development
Investment Corporation; Chairman and
Director of Norinvest Bank;
Previously Director of Capital
Markets Department of the
International Finance Corporation;
Trustee, Batterymarch Finance
Management; Chairman and Director of
Equity Fund of Latin America S.A. and
Commonwealth Equity Fund Limited;
Director of Global Securities, Inc.;
and Member of The International
Advisory Council of Investment
Management Company Chile S.A.
GRAHAM E. JONES (62)............. Director Senior Vice President of BGK
23 Chestnut Street Properties; Trustee of nine funds
Boston, Massachusetts 02108 managed by Weiss, Peck & Greer;
Trustee of eight funds managed by
Morgan Grenfell Capital Management
Incorporated; Director of twelve
investment companies managed by
Morgan Stanley Asset Management Inc.;
Member of the International Advisory
Council of The Thailand Fund;
Previously Chief Financial Officer of
Practice Management Systems, Inc.
JOHN A. LEVIN (56)............... Director President of John A. Levin & Co.,
One Rockefeller Plaza Inc.; Director of thirteen investment
New York, New York 10020 companies managed by Morgan Stanley
Asset Management Inc.
WILLIAM G. MORTON, JR. (58)...... Director Chairman and Chief Executive Officer
1 Boston Place of Boston Stock Exchange; Director of
Boston, Massachusetts 02108 Tandy Corporation; Director of twelve
investment companies managed by
Morgan Stanley Asset Management Inc.
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH THE FUND PAST FIVE YEARS
--------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
JAMES W. GRISHAM (53)*........... Vice President Principal of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated and Morgan Stanley Asset
New York, New York 10020 Management Inc.; Officer of various
investment companies managed by
Morgan Stanley Asset Management Inc.
HAROLD J. SCHAAFF, JR. (34)*..... Vice President Principal of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated; General Counsel and
New York, New York 10020 Secretary of Morgan Stanley Asset
Management Inc.; Officer of various
investment companies managed by
Morgan Stanley Asset Management Inc.
JOSEPH P. STADLER (40)*.......... Vice President Vice President of Morgan Stanley
1221 Avenue of the Americas Asset Management Inc.; Officer of
New York, New York 10020 various investment companies managed
by Morgan Stanley Asset Management
Inc.; Previously with Price
Waterhouse LLP.
VALERIE Y. LEWIS (39)*........... Secretary Vice President of Morgan Stanley
1221 Avenue of the Americas Asset Management Inc.; Officer of
New York, New York 10020 various investment companies managed
by Morgan Stanley Asset Management
Inc.; Previously with Citicorp.
JAMES R. ROONEY (36)*............ Treasurer Assistant Vice President and Manager
73 Tremont Street of Fund Administration, Mutual Funds
Boston, Massachusetts 02108 Service Company; Officer of various
investment companies managed by
Morgan Stanley Asset Management Inc.;
Previously Assistant Vice President
and Manager of Fund Compliance and
Control, Scudder Stevens & Clark Inc.
and Audit Manager, Ernst & Young LLP.
JOANNA M. HAIGNEY (28)*.......... Assistant Treasurer Supervisor, Fund Administration,
73 Tremont Street Mutual Funds Service Company; Officer
Boston, Massachusetts 02108 of various investment companies
managed by Morgan Stanley Asset
Management Inc.; Previously Audit
Supervisor, Coopers & Lybrand LLP.
</TABLE>
---------------
* Interested person of the Fund (as defined in the 1940 Act).
As of the date of this Prospectus, of the Directors of the Fund
owned a total of shares of Common Stock of the Fund of which Mr. Biggs
owned 10,000, Mr. Gill owned 500 and owned shares. The officers
and directors of the Fund, in the aggregate, own less than 1% of the outstanding
shares of the Fund.
Mr. Biggs is a director and officer and Messrs. Olsen, Grisham, Schaaff and
Stadler and Ms. Lewis are officers of the Investment Manager. Mr. Whittemore is
an Advisory Director of Morgan Stanley & Co. Incorporated, an affiliate of the
Investment Manager and a registered broker-dealer, and he is the owner of a
beneficial interest in the Investment Manager. Mr. Rooney and Ms. Haigney are
employees of Mutual Funds Service Company, an affiliate of United States Trust
Company of New York, the Fund's U.S. Administrator.
36
<PAGE> 39
The officers of the Fund, together with the Investment Manager, conduct and
supervise the Fund's daily business operations. The Directors review and
supervise the actions of the officers and the Investment Manager and decide
general policy.
The Fund pays to each of its Directors who is not an officer or employee of
the Investment Manager or its affiliates, in addition to certain out-of-pocket
expenses, an annual fee of $7,000 plus $750 for each meeting of the Board of
Directors or a committee of the Board attended in person. Directors of the Fund,
other than Directors who are affiliates of the Investment Manager, received for
the period from June 23, 1992 to December 31, 1992 and for the years ended
December 31, 1993 and 1994 aggregate remuneration and reimbursement of expenses
of $65,000, $57,000 and $59,000, respectively.
Each of the Directors who is not an "affiliated person" of the Investment
Manager within the meaning of the 1940 Act may enter into a deferred fee
arrangement (the "Fee Arrangement") with the Fund, pursuant to which such
Director defers to a later date the receipt of his Director's fees. The deferred
fees owed by the Fund are credited to a bookkeeping account maintained by the
Fund on behalf of such Director and accrue income from and after the date of
credit in an amount equal to the amount that would have been earned had such
fees (and all income earned thereon) been invested and reinvested either (i) in
shares of the Fund or (ii) at a rate equal to the prevailing rate applicable to
90-day United States Treasury Bills at the beginning of each calendar quarter
for which this rate is in effect, whichever method is elected by a Director.
Under the Fee Arrangement, deferred Directors' fees (including the return
accrued thereon) will become payable in cash upon such Director's resignation
from the Board of Directors in generally equal annual installments over a period
of five years (unless the Fund has agreed to a longer or shorter payment period)
beginning on the first day of the year following the year in which such
Director's resignation occurred. In the event of a Director's death, remaining
amounts payable to him under the Fee Arrangement will thereafter be payable to
his designated beneficiary; in all other events, a Director's right to receive
payments is non-transferable. Under the Fee Arrangement, the Board of Directors
of the Fund, in its sole discretion, has reserved the right, at the request of a
Director or otherwise, to accelerate or extend the payment of amounts in the
deferred fee account at any time after the termination of a Director's service
as a director. In addition, in the event of the liquidation, dissolution or
winding up of the Fund or the distribution of all or substantially all of the
Fund's assets and property to its shareholders (other than in connection with a
reorganization or merger into another Fund advised by the Investment Manager),
all unpaid amounts in the deferred fee account maintained by the Fund will be
paid in a lump sum to Directors participating in the Fee Arrangements on the
effective date thereof.
Currently, Mr. Levin is the only Director who has elected to enter into the
Fee Arrangement with the Fund.
Set forth below is a table showing the aggregate compensation paid by the
Fund to each of its Directors, as well as the total compensation paid to each
Director of the Fund by the Fund and by other investment companies advised by
the Investment Manager (collectively, the "Fund Complex") for their services as
directors of such investment companies for the fiscal year ended December 31,
1994.
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM NUMBER OF FUNDS IN FUND
AGGREGATE COMPENSATION FUND AND FUND COMPLEX COMPLEX FOR WHICH
NAME OF DIRECTORS FROM FUND PAID TO DIRECTORS DIRECTOR SERVES
-------------------------------- ---------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Barton M. Biggs(1)(2)........... $ 0 $ 0 6
Allerton Cushman, Jr.(1)(3)..... 0 0 1
Warren J. Olsen(1)(2)........... 0 0 15
Victor Savanti(3)............... 16,958 16,958 1
David B. Gill(2)................ 11,100 36,500 3
Andrew McNally IV(3)............ 10,000 13,630 2
Fergus Reid(2)(4)............... 9,250 30,601 5
</TABLE>
---------------
37
<PAGE> 40
(1) Mr. Biggs is a director and officer of the Investment Manager, Mr. Cushman
is an officer of affiliates of the Investment Manager and Mr. Olsen is an
officer of the Investment Manager, and therefore are "interested persons"
of the Fund within the meaning of the 1940 Act. As such, Messrs. Biggs,
Cushman and Olsen do not receive any compensation from the Fund or any
other investment company in the Fund Complex for their services as a
director of such investment companies.
(2) As of the date hereof, Messrs. Biggs, Olsen, Gill and Reid, respectively,
serve on 16, 16, 12 and 4 boards of directors of investment companies in
the Fund Complex.
(3) During 1995, Messrs. Cushman, McNally and Savanti resigned from the Fund and
the other investment companies in the Fund Complex on which they served as
directors, and as of the date hereof, they are not directors of any
investment companies in the Fund Complex.
(4) Mr. Reid did not seek re-election to the Board at the Annual Meeting of
Stockholders held during 1995, and thus, he is no longer a Director of the
Fund.
The Fund's Board of Directors has an Audit Committee that is responsible
for reviewing financial and accounting matters. The members of the Audit
Committee are Messrs. Levin, Morton and Jones. The Board of Directors also has a
Valuation Committee, the members of which are Messrs. Olsen and .
The Board of Directors is divided into three classes, each class having a
term of three years. Each year the term of one class expires. The Fund's By-laws
provide that each Director holds office until (i) the expiration of his term and
until his successor has been elected and qualified, (ii) his death, (iii) his
resignation, (iv) December 31 of the year in which he reaches seventy-three
years of age or (v) his removal as provided by statute or the Articles of
Incorporation. See "Common Stock."
The Articles of Incorporation of the Fund contain a provision permitted
under the Maryland General Corporation Law (the "MGCL") which by its terms
eliminates the personal liability of the Fund's directors to the Fund or its
shareholders for monetary damages for breach of fiduciary duty as a director,
subject to certain qualifications described below. The Articles of Incorporation
and the By-Laws of the Fund provide that the Fund will indemnify directors,
officers, employees or agents of the Fund to the fullest extent permitted by the
MGCL. Under Maryland law, a corporation may indemnify any director or officer
made a party to any proceeding by reason of service in that capacity unless it
is established that (1) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (A) was committed in
bad faith or (B) was the result of active and deliberate dishonesty; (2) the
director or officer actually received an improper personal benefit in money,
property or services; or (3) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. The Articles of Incorporation further provide that to the fullest
extent permitted by the MGCL, and subject to the requirements of the 1940 Act,
no director or officer will be liable to the Fund or its shareholders for money
damages. Under Maryland law, a corporation may restrict or limit the liability
of directors or officers to the corporation or its shareholders for money
damages, except to the extent that (1) it is proved that the person actually
received an improper benefit or profit in money, property, or services, or (2) a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Nothing in the
Articles of Incorporation or the By-Laws of the Fund protects or indemnifies a
director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or protects or
indemnifies a director or officer of the Fund against any liability to the Fund
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
THE INVESTMENT MANAGER
The Fund employs Morgan Stanley Asset Management Inc. (the "Investment
Manager") pursuant to an Investment Advisory and Management Agreement, dated as
of June 16, 1994 (the "Management Agreement"), to manage the investment and
reinvestment of the assets of the Fund, subject to the supervision of the
38
<PAGE> 41
Fund's Directors. The Investment Manager's principal address is 1221 Avenue of
the Americas, New York, New York 10020.
The Investment Manager is a wholly owned subsidiary of Morgan Stanley Group
Inc. Morgan Stanley Group Inc. recently announced that it has signed a
definitive agreement to purchase Miller Anderson & Sherrerd, LLP, a U.S.
registered investment adviser located outside of Philadelphia with approximately
$33 billion in assets under management. Closing of the transaction is subject to
certain conditions, and the transaction is expected to close in late 1995.
The Investment Manager provides portfolio management and named fiduciary
services to various closed-end and open-end investment companies, taxable and
nontaxable institutions, international organizations and individuals investing
in United States and international equity and fixed income securities. As of
June 30, 1995, together with its affiliated investment management companies, the
Investment Manager had assets under management (including assets under fiduciary
advisory control) totaling approximately $52 billion.
The Investment Manager is a registered investment adviser under the
Advisers Act. Three of the investment funds advised by the Investment Manager,
The Brazilian Investment Fund, Inc., Morgan Stanley Emerging Markets Fund, Inc.
and Morgan Stanley Emerging Markets Debt Fund, Inc., invest in the markets of
Latin America.
As an investment adviser, the Investment Manager emphasizes a global
investment strategy and benefits from research coverage of a broad spectrum of
equity investment opportunities worldwide. The Investment Manager draws upon the
capabilities of the asset management specialists located in the various offices
of its affiliated investment management companies throughout the world. It also
draws upon the research capabilities of Morgan Stanley Group Inc. and its other
affiliates, as well as the research and investment ideas of other companies
whose brokerage services the Investment Manager utilizes.
Robert Meyer has been the portfolio manager for the Fund since the
commencement of operations on June 23, 1992, and he is primarily responsible for
the day-to-day investment decisions for the Fund. For the past five years, Mr.
Meyer has been an employee of Morgan Stanley Asset Management Inc. and currently
holds the position of Vice President. Mr. Meyer is responsible for all of the
Investment Manager's equity investments in Latin America.
MANAGEMENT AGREEMENT
Under the terms of the Management Agreement, the Investment Manager makes
all investment decisions, prepares and makes available research and statistical
data, supervises the purchase and sale of securities on behalf of the Fund,
including the selection of brokers and dealers to carry out the transactions,
all in accordance with the Fund's investment objective and policies, and
monitors the services provided by the Fund's investment advisers, under the
direction and control of the Fund's Board of Directors. The Investment Manager
is also responsible for maintaining records and furnishing or causing to be
furnished all required records or other information of the Fund to the extent
such records, reports and other information are not maintained or furnished by
the Fund's administrators, custodians or other agents. The Investment Manager
pays the salaries and expenses of the Fund's officers and employees, as well as
the fees and expenses of the Fund's Directors, who are directors, officers or
employees of the Investment Manager or any of its affiliates, except that the
Fund bears travel expenses or an appropriate fraction thereof of officers and
Directors of the Fund who are directors, officers or employees of the Investment
Manager or its affiliates to the extent that such expenses relate to attendance
at meetings of the Fund's Board of Directors or any committee thereof.
The Fund pays all of its other expenses, including among others:
organization expenses (but not the overhead or employee costs of the Investment
Manager); legal fees and expenses of counsel to the Fund; auditing and
accounting expenses; taxes and governmental fees; listing fees; dues and
expenses incurred in
39
<PAGE> 42
connection with membership in investment company organizations; fees and
expenses of the Fund's custodian, sub-custodians, transfer agents and
registrars; fees and expenses with respect to administration, except as may be
provided otherwise pursuant to administration agreements; expenses for portfolio
pricing services by a pricing agent, if any; expenses of preparing share
certificates and other expenses in connection with the issuance, offering and
underwriting of shares issued by the Fund; expenses relating to investor and
public relations; expenses of registering or qualifying securities of the Fund
for public sale; freight, insurance and other charges in connection with the
shipment of the Fund's portfolio securities; brokerage commissions and other
costs of acquiring or disposing of any portfolio holding of the Fund; expenses
of preparation and distribution of reports, notices and dividends to
shareholders; expenses of the dividend reinvestment and cash purchase plan
(except for brokerage expenses paid by participants in such plan); costs of
stationery; any litigation expenses; and costs of stockholders' and other
meetings.
For services under the Management Agreement, the Investment Manager
receives a fee, computed weekly and payable monthly, at an annual rate of 1.15%
of the Fund's average weekly net assets. The Fund's advisory fees are higher
than advisory fees paid by most other U.S. investment companies. Pursuant to the
Management Agreement, the Investment Manager received fees for its investment
management services from the Fund in the amount of $307,000 for the period from
the commencement of the Fund's operations through December 31, 1992 and $787,000
and $1,849,000, respectively, for the years ended December 31, 1993 and 1994.
Under the Management Agreement, the Investment Manager is permitted to
provide investment advisory services to other clients, including clients who may
invest in Latin American securities. Conversely, information furnished by others
to the Investment Manager in the course of providing services to clients other
than the Fund may be useful to the Investment Manager in providing services to
the Fund.
The Management Agreement became effective on June 16, 1994 and continues in
effect until June 16, 1996 and from year to year thereafter provided such
continuance is specifically approved at least annually by (i) a vote of a
majority of those members of the Board of Directors who are not "interested
persons" of the Investment Manager, or the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and (ii) by a majority vote
of either the Fund's Board of Directors or the Fund's outstanding voting
securities. The Management Agreement may be terminated at any time without
payment of penalty by the Fund or by the Investment Manager upon 60 days'
written notice. The Management Agreement will automatically terminate in the
event of its assignment, as defined under the 1940 Act. Prior to the
effectiveness of the Management Agreement, the Investment Manager provided
services to the Fund pursuant to a separate investment management agreement.
The Management Agreement provides that the Investment Manager will not be
liable for any act or omission, error of judgment or mistake of law, or for any
loss suffered by the Fund in connection with matters to which the Management
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager in the
performance of its duties, or from reckless disregard by it of its obligations
and duties under the Management Agreement. In addition, the Fund has agreed to
indemnify the Investment Manager for any losses arising from any action or
claims which may be brought against the Investment Manager in connection with
the performance or nonperformance in good faith of its functions under the
Management Agreement, except losses, costs and expenses resulting from willful
misfeasance, bad faith or gross negligence in the performance of the Investment
Manager's duties or from reckless disregard on the part of the Investment
Manager of its obligations and duties under the Management Agreement.
INVESTMENT ADVISERS
Until June 16, 1994, the Fund had retained four investment advisers (the
"Investment Advisers") to advise it with respect to its investments in
Argentina, Brazil, Chile and Mexico. The Fund's agreements with the Investment
Advisers expired, effective as of June 16, 1994. The Fund, however, may retain
the services of additional advisers or consultants with respect to other Latin
American securities markets in appropriate circumstances. The Investment Manager
also may retain the services of consultants and, with the approval of
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the shareholders and the Board of Directors of the Fund, including a majority of
the Fund's "non-interested" Directors, investment advisers, at no additional
cost to the Fund, when the Investment Manager determines it to be appropriate.
U.S. ADMINISTRATOR
Under an Administration Agreement (the "U.S. Administration Agreement")
between the Fund and United States Trust Company of New York (the "U.S.
Administrator"), the U.S. Administrator provides administrative services in the
United States, through its wholly owned subsidiary, Mutual Funds Service
Company, to the Fund. Such administrative services include maintenance of the
Fund's books and records, calculations of net asset value, preparation and
filing of reports with respect to certain of the Fund's U.S. reporting
requirements, monitoring of custody arrangements with the Fund's Custodians and
other accounting and general administrative services. The Directors of the Fund
supervise and monitor the administrative services provided by the U.S.
Administrator.
The U.S. Administrator is a New York state chartered bank and trust company
which provides corporate management and administrative services to investment
companies. The U.S. Administrator's business address is 770 Broadway, New York,
New York 10003. Mutual Funds Service Company's business address is 73 Tremont
Street, Boston, Massachusetts 02108.
Under the U.S. Administration Agreement, the Fund pays to the U.S.
Administrator an annual administration fee of $65,000 plus 0.08% of the average
weekly net assets of the Fund, computed weekly and payable monthly. Pursuant to
the U.S. Administration Agreement, the U.S. Administrator has received payments
for administrative services for the Fund in the amount of $69,000 for the period
from commencement of the Fund's operations through December 31, 1992 and
$163,000 and $229,000, respectively, for the years ended December 31, 1993 and
1994.
The Fund has been informed that U.S. Trust Corporation, the parent company
of the U.S. Administrator, and The Chase Manhattan Corporation, the parent
company of The Chase Manhattan Bank, N.A. ("Chase Bank"), have entered into a
merger agreement. As a result of the merger, Chase Bank will succeed to the
duties of the U.S. Administrator under the U.S. Administration Agreement. The
Fund has also been informed that Chase Bank will continue to provide
administrative services to the Fund under the U.S. Administration Agreement
through Mutual Funds Service Company, which will become a wholly owned
subsidiary of Chase Bank after the merger (although its name may change). It is
anticipated that the merger will be completed during the summer of 1995 and that
the merger will not affect the nature or the quality of the administrative
services to the Fund.
BRAZILIAN ADMINISTRATOR
The Fund is required under Brazilian law to have a local administrator in
Brazil. Unibanco-Uniao de Bancos Brasileiros S.A. (the "Brazilian
Administrator"), a Brazilian corporation, acts as the Fund's Brazilian
administrator pursuant to an agreement with the Fund (the "Brazilian
Administration Agreement"). Under the Brazilian Administration Agreement, the
Brazilian Administrator performs various services for the Fund, including (1)
effecting the registration of the Fund's foreign capital with the Central Bank
of Brazil and effecting all foreign exchange transactions related to the Fund's
investments in Brazil, (2) obtaining all approvals required by the Fund to make
remittances of income and capital gains and for the repatriation of the Fund's
investments pursuant to Brazilian law, (3) arranging for payment of applicable
taxes levied upon trading of securities, income and capital gains, (4)
furnishing information as to the remittances of income and capital gains and the
liquidation of investments, (5) maintaining the accounting records of the Fund's
portfolio in Brazil, (6) safekeeping documents which evidence payment of taxes
and the fulfillment of foreign exchange obligations, and (7) providing
information and supplying documents to the Central Bank of Brazil, the Brazilian
securities commission or the Brazilian Federal Revenue Office. For its services,
the Brazilian Administrator is paid an annual fee equal to 0.125% of the Fund's
average weekly net assets invested in Brazil, paid monthly. Pursuant to the
Brazilian Administration Agreement, the Brazilian Administrator has received
payments for administrative services for the Fund in the amount of $44,000 and
$89,000, respectively, for the
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years ended December 31, 1993 and 1994. The principal office of the Brazilian
Administrator is located at Avenida Eusebio Matoso, 891, Sao Paulo, S.P.,
Brazil.
CHILEAN ADMINISTRATOR
The Fund has entered into an administration agreement (the "Chilean
Administration Agreement") with Bice Chileconsult Agente de Valores S.A. (the
"Chilean Administrator"), a Chilean corporation, pursuant to which the Chilean
Administrator acts as the Fund's legal representative in Chile. Under the
Chilean Administration Agreement, the Chilean Administrator performs various
services for the Fund, including (1) making and obtaining all exchange control
filings and approvals required for the Fund to effect investment and other
transactions in Chile and to remit moneys and other assets outside of Chile, (2)
obtaining from the relevant authorities in Chile all confirmations or consents
relating to the tax status of the Fund and all tax rebates and other payments
which may be due to the Fund, (3) withholding Chilean taxes payable by the Fund
on sums remitted outside of Chile, (4) maintaining the books, records and
accounts of the Fund relating to its activities in Chile, (5) calculating,
weekly, the net asset value of the Fund's assets in Chile, (6) preparing all
returns, financial statements and other filings required by Chilean laws or
Chilean authorities through instructions or regulations from time to time, and
(7) performing all other administrative duties in Chile required by Chilean law
or Chilean authorities through instructions or regulations to be performed. For
its services, the Chilean Administrator is paid an annual fee by the Fund equal
to the greater of 0.25% of the Fund's average weekly net assets invested in
Chile or $20,000, paid monthly. Pursuant to the Chilean Administration
Agreement, the Chilean Administrator has received payments for administrative
services for the Fund in the amount of $21,000 and $28,000, respectively, for
the years ended December 31, 1993 and 1994. The Chilean Administrator is located
at Teatinos 220, 5th Floor, Santiago, Chile.
DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES
The U.S. Administration Agreement is terminable upon 60 days' notice by
either party. The Brazilian Administration Agreement is terminable upon six
months' notice by either party; the Brazilian Administrator may be replaced only
by an entity authorized to act as a joint manager of a managed portfolio of
bonds and securities under Brazilian law. Unless terminated by the Fund's Board
of Directors upon 60 days' prior written notice, or by the Chilean Administrator
upon 90 days' prior written notice, the Chilean Administration Agreement will
continue automatically from year to year.
The services of the Investment Manager, the U.S. Administrator, the
Brazilian Administrator and the Chilean Administrator are not deemed to be
exclusive, and nothing in the relevant service agreements prevents any of them
or their affiliates from providing similar services to other investment
companies and other clients (whether or not such clients' investment objectives
and policies are similar to those of the Fund) or from engaging in other
activities.
INVESTMENT PROCEDURES: ARGENTINA, BRAZIL, CHILE AND MEXICO
Argentina. Argentina does not presently restrict foreign investment in
Argentine issuers (except for a limited number of designated industries, such as
defense, banking, broadcasting and insurance), or the repatriation of investment
income, capital or the proceeds of sales of securities by foreign investors.
Brazil. The Fund's investments in listed equity securities in Brazil are
made through a managed securities portfolio (the "Managed Portfolio") pursuant
to Annex IV to Monetary Council Resolution 1289 of March 20, 1987, as amended
("Annex IV"). The constitution and operation of the Managed Portfolio depends on
prior authorization by the Brazilian Comissao de Valores Mobiliarios (the
"CVM"). The Fund has obtained authorization from the CVM to establish a Managed
Portfolio. The Fund is required pursuant to Annex IV to register the funds to be
invested in Brazil with the Central Bank of Brazil within five days of actual
investment.
Under Annex IV, which may be changed by the Monetary Council of Brazil at
any time, the assets of the Managed Portfolio may be invested only in securities
issued by publicly-held corporations ("valores
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mobiliarios," except debentures, as a result of the restriction imposed under
Central Bank Resolution 2,028 of November 25, 1993), acquired on the Brazilian
stock exchanges or in the over-the-counter markets organized by the CVM, unless
the acquisition is made by subscription, pursuant to the exercise of rights of
first refusal, or derived from stock dividends. Furthermore, Central Bank
Resolution 2,115 of October 19, 1994 established that funds entering Brazil
through Annex IV Portfolios, not utilized for the acquisition of "valores
mobiliarios," must be allocated to investments in (i) transactions on the
derivatives markets (options, forward and futures securities-referenced markets,
interest and exchange rates) that have as their sole objective protection of
long positions on the spot market, up to the transaction limit (and provided
that they do not result in preset earnings); (ii) Agrarian Debt Notes, Brazilian
Development Fund Bonds and debentures issued by Siderurgia Brasileira S.A.; and
(iii) other forms of investments expressly authorized by the CVM, or, in the
case of financial assets other than "valores mobiliarios," by the CVM jointly
with the Central Bank of Brazil. Pursuant to Annex IV regulations, the Fund may
not lend portfolio securities, except in the case of margin account
transactions, pledge its assets or acquire loan participations in Brazil without
the prior express authorization of the CVM. In addition, the Managed Portfolio
is prohibited from making investments that result in a change of control of a
company that is directly or indirectly controlled by individuals domiciled in
Brazil to individuals or legal entities domiciled outside of Brazil.
There is no minimum time during which the Fund must invest assets in
Brazil. In addition, there is no requirement to diversify the Managed Portfolio,
except that the Managed Portfolio is not permitted to acquire control of
Brazilian companies. The Fund's investment activities outside of Brazil are not
limited by Annex IV requirements.
Assets held in the Managed Portfolio can be converted into foreign exchange
and freely remitted out of Brazil. For purposes of remittance of profits and
capital gains as well as repatriation of capital, investments made by the Fund
are subject to registration with the Central Bank of Brazil which has issued a
certificate of registration in the name of the Fund. Since the Fund has obtained
a certificate of registration, no prior approval of the Central Bank of Brazil
is required for the Fund to remit moneys out of Brazil. For purposes of
remitting dividends, interest, capital gains or capital, the Fund will be
required to convert Brazilian currency into U.S. dollars. However, no right is
given under Annex IV or other Brazilian law or policy to make U.S. dollars
available to the Fund for this purpose. Accordingly, the availability of foreign
exchange for such purposes depends upon the total Brazilian foreign exchange
reserves from time to time as well as any allocation of such reserves.
For a discussion of the Brazilian taxes applicable under Annex IV to the
Managed Portfolio see "Taxation -- Latin American Taxes -- Brazilian Taxes"
below.
Chile. The Fund makes investments in Chile pursuant to the Chilean Foreign
Investment Law Decree -- Law 600 of 1974, as amended ("Decree Law 600"). In
connection therewith, the Fund entered into a foreign investment contract with
the Chilean State (the "Investment Contract"). The Investment Contract permits
the Fund to invest up to the amount specified in such contract in Chile within a
maximum period of three years. The Investment Contract also provides for the
non-discriminatory treatment of the Fund with Chilean investors and certain
repatriation rights, including the right to repatriate capital out of Chile
after one year and the right to remit out of Chile at any time dividends and
interest received as well as net realized capital gains.
The period in which the capital must be invested in Chile (the "Chilean
Investment Period") is negotiated for each Investment Contract, although such
periods may not exceed three years. Subsequent to the Chilean Investment Period,
additional amounts of capital may be brought into Chile under such contract by
extending the three-year term or by way of a new Investment Contract. No capital
or stamp tax is imposed on the Investment Contract. Under Decree Law 600, the
net proceeds of the sale or liquidation of an investment are free from any tax
or charge up to the amount of the authorized investment. Any amount in excess
thereof will be subject to the general income tax law. Any corporate level tax
paid by Chilean corporations ("First Category Tax") which pay dividends to the
Fund is credited against the remittance tax payable by the Fund should it be
subject to the general tax regime. For a further discussion of Chilean tax laws
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<PAGE> 46
applicable to investments made under Decree Law 600, see "Taxation -- Latin
American Taxes -- Chilean Taxes."
The prior approval of the Central Bank of Chile is required to repatriate
capital or remit dividends, interest or net realized capital gains abroad. The
Fund has been advised by Chilean counsel that the Fund is entitled to obtain
such approval, provided that at the time such approval is requested all taxes
required to be paid by the Fund have been remitted to the proper Chilean
authorities.
The Investment Contract provides that the Fund may purchase foreign
currency in the Chilean foreign exchange markets for the purpose of remitting
dividends, interest or net realized capital gains and repatriating capital to
the extent permitted, as described above. However, there is no undertaking by
the Central Bank of Chile that there will be willing vendors of foreign
exchange.
Under current Chilean law and judicial precedents, the Investment Contract
may not be amended by the Chilean State or abrogated by future legislative
changes.
Mexico. The Fund may acquire equity securities listed on the Bolsa
Mexicana de Valores, S.A. de C.V. that are available for investment directly by
foreigners. While foreign investment may represent 100% of the capital stock of
a company in certain cases, more restrictive provisions may be contained in an
issuer's corporate documents, or may be provided by law in the case of companies
engaged in certain industries. Securities available for foreign investment are
generally issued as a separate class of Series B voting stock, which generally
count toward any applicable percentage limit on foreign investment. With the
prior approval of the Ministry of Commerce and Industrial Promotion and the
National Banking and Securities Commission, companies may issue a series of
shares, which are considered "neutral" shares under which foreign investors
obtain the monetary and economic rights with respect to the shares but not the
voting rights and which do not count toward any such limit.
While foreigners such as the Fund may not actually acquire listed
securities reserved for Mexican nationals, foreigners including the Fund may
instruct a "neutral" trust to acquire such shares for their accounts. This type
of trust is arranged with a Mexican bank, typically Nacional Financiera, SNC
("Nafin"), a Mexican government development finance bank. Under this system, the
trust will acquire the securities that the Fund has decided to purchase and
Nafin then issues Ordinary Certificates of Participation ("CPOs") that represent
the amount and kind of shares acquired by the trust on behalf of the Fund. As
owner of the CPOs, the Fund would have all of the economic rights incident to
ownership of the securities acquired by the trust on behalf of the Fund, but the
Fund would have no voting rights with respect to such shares. The introduction
of this trust arrangement has enabled foreign investors to invest indirectly in
listed shares reserved for Mexican nationals and has also resulted in the
effective elimination of any differential in price between those shares reserved
for Mexican nationals and shares that may be directly held by non-Mexicans. The
Fund participates in this system through a trust arrangement with Nafin or other
suitable Mexican banks.
EXPENSES
The Fund's annual operating expenses are higher than normal annual
operating expenses of most closed-end investment companies of comparable size
investing in the United States and reflect the specialized nature of the Fund,
the extent of the advisory effort involved, and the costs of communication and
other costs associated with investing in Latin American countries rather than in
the United States. For the period from June 23, 1992 to December 31, 1992 and
the years ended December 31, 1993 and 1994, the Fund's expenses (exclusive of
amortization of organization expenses) were $961,000, $2,253,000 and $3,951,000,
respectively. Expenses of the Offer, estimated at $ , will be charged
to capital. The Fund's annualized expense ratio was 2.73%, 2.23% and 2.15%
(inclusive of amortization of organization expenses) of the Fund's net assets
for the period from June 23, 1992 to December 31, 1992 and the years ended
December 31, 1993 and 1994, respectively.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Manager places orders for securities to be purchased by the
Fund. The primary objective of the Investment Manager in choosing brokers or
dealers for the purchase and sale of securities for the Fund's portfolio is to
obtain the most favorable net results taking into account such factors as price,
commission, size of order, difficulty of execution, and the degree of skill
required of the broker-dealer. The capability and financial condition of the
broker or dealer also may be criteria for the choice of that broker or dealer.
The placing and execution of orders for the Fund also are subject to
restrictions under U.S. securities laws, including certain prohibitions against
trading among the Fund and its affiliates (including the Investment Manager and
its affiliates). The Fund may utilize affiliates of the Investment Manager in
connection with the purchase or sale of securities in accordance with rules
adopted or exemptive orders issued by the Commission when the Investment Manager
believes that the charge for the transaction does not exceed usual and customary
levels. In addition, the Fund may purchase securities in a placement for which
affiliates of the Investment Manager have acted as agent to or for the issuers,
consistent with applicable rules adopted by the Commission or regulatory
authorization, if necessary. The Fund may not purchase securities from or sell
securities to any affiliate of the Investment Manager acting as principal.
The Investment Manager on behalf of the Fund may place brokerage
transactions through brokers, including Morgan Stanley & Co. Incorporated and
its affiliates, who provide it with investment research services, including
market and statistical information and quotations for the Fund's portfolio
evaluation purposes. The terms "investment research" and "market and statistical
information and quotations" include advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities and potential buyers or sellers of securities, as
well as the furnishing of analyses and reports concerning issuers, industries,
securities, economic factors and trends, and portfolio strategy, each and all as
consistent with those services mentioned in Section 28(e) of the U.S. Securities
Exchange Act of 1934, as amended (the "1934 Act").
Research provided to the Investment Manager in advising the Fund is in
addition to and not in lieu of the services required to be performed by the
Investment Manager itself, and the Investment Manager's fees will not be reduced
as a result of the receipt of such supplemental information. It is the opinion
of the management of the Fund that such information is only supplementary to the
Investment Manager's own research efforts, since the information must still be
analyzed, weighed and reviewed by the Investment Manager's staff. Such
information may be useful to the Investment Manager in providing services to
clients other than the Fund, and not all such information will necessarily used
by the Investment Manager in connection with the Fund. Conversely, information
provided to the Investment Manager by brokers and dealers through whom other
clients of the Investment Manager effect securities transactions may prove
useful to the Investment Manager in providing services to the Fund.
The Fund's Board of Directors reviews at least annually the commissions
allocated by the Investment Manager on behalf of the Fund to determine if such
allocations were reasonable in relation to the benefits inuring to the Fund.
NET ASSET VALUE
Net asset value of the Fund is determined no less frequently than the close
of business on the last business day of each week and at such other times as the
Board of Directors may determine, by dividing the value of the net assets of the
Fund (the value of its assets less its liabilities, exclusive of capital stock
and surplus) by the total number of shares of Common Stock outstanding. In
valuing the Fund's assets, all listed equity securities for which market
quotations are readily available are, regardless of purchase price, valued at
the last sales price on the date of determination. Listed securities with no
such sales price and unlisted equity securities are valued at the mean between
the current bid and asked prices, if any, of two reputable brokers. Short-term
investments having a maturity of 60 days or less are valued at amortized cost,
unless the Board of Directors determines that such valuation does not constitute
fair value. Other securities as to which market quotations are readily available
are valued at their market values. All other securities and assets are valued at
fair value as determined in good faith by, or under procedures established by,
the Board of Directors. In
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instances where price cannot be determined in accordance with the above
procedures, or in instances in which the Board of Directors determines it is
impractical or inappropriate to determine price in accordance with the above
procedures, the price is to be fair value as determined in good faith in a
manner as the Board of Directors may prescribe. All Latin American countries'
assets or liabilities not denominated in U.S. dollars are initially valued in
the currency in which they are denominated and then are translated into U.S.
dollars at the prevailing foreign exchange rate. The Fund's obligation to pay
any local tax on remittances from a Latin American country will become a
liability on the date the Fund recognizes income or marks-to-market its assets
and will have the effect of reducing the Fund's net asset value.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to continue to distribute to shareholders, at least
annually, substantially all of its investment company taxable income. See
"Taxation -- U.S. Federal Income Taxes." The Fund may elect to retain for
reinvestment any net realized long-term capital gains.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless the Plan Agent is
otherwise instructed by the shareholder in writing, to have all distributions
automatically reinvested by The First National Bank of Boston, the Plan Agent,
in Fund shares pursuant to the Plan. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholder by The First National Bank of Boston, as paying
agent. Shareholders who do not wish to have distributions automatically
reinvested should notify the Fund, c/o the Plan Agent for The Latin American
Discovery Fund, Inc.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive Common Stock, to be issued by the
Fund. If the market price per share on the valuation date equals or exceeds net
asset value per share on that date, the Fund will issue new shares to
participants at net asset value or, if the net asset value is less than 95% of
the market price on the valuation date, then at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a trading day on the exchange or exchanges on which the Fund's
shares are then listed, the next preceding trading day. If the net asset value
exceeds the market price of Fund shares at such time, the Plan Agent will, as
agent for the participants, buy Fund shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. If the Fund should
declare an income dividend or capital gains distribution payable only in cash,
the Plan Agent will, as agent for the participants, buy Fund shares in the open
market, on the New York Stock Exchange or elsewhere, with the cash in respect of
such dividend or distribution for the participants' accounts on, or shortly
after, the payment date.
Participants in the Plan have the option of making additional payments to
the Plan Agent, annually, in any amount from $100 to $3,000, for investment in
the Fund's Common Stock. The Plan Agent will use all funds received from
participants (as well as any dividends and capital gain distributions received
in cash) to purchase Fund shares in the open market on or about January 15 of
each year. Any voluntary cash payments received more than thirty days prior to
such date will be returned by the Plan Agent, and interest will not be paid on
any uninvested cash payments. To avoid unnecessary cash accumulations, and also
to allow ample time for receipt and processing by the Plan Agent, it is
suggested that participants send in voluntary cash payments to be received by
the Plan Agent approximately ten days before January 15. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than forty-eight hours before such payment is to be
invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
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In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the reinvestment
of dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gains distributions. A participant
will also pay brokerage commissions incurred in purchases from voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change sent to all shareholders at least 90 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Plan Agent by at least 90 days' written notice to
all shareholders. All correspondence concerning the Plan should be directed to
the Plan Agent for The Latin American Discovery Fund, Inc. at The First National
Bank of Boston, Dividend Reinvestment Unit, P.O. Box 1681, Mail Stop 45-01-06,
Boston, Massachusetts 08105-1681.
TAXATION
U.S. FEDERAL INCOME TAXES
The Fund has, to date, qualified and intends to continue to qualify and be
treated as a regulated investment company under the Code. To so qualify, the
Fund must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of the
following assets held for less than three months: (i) stock and securities, (ii)
options, futures and forward contracts (other than options, futures and forward
contracts on foreign currencies), and (iii) foreign currencies (and options,
futures and forward contracts on foreign currencies) which are not directly
related to the Fund's principal business of investing in stocks and securities
(or options and futures with respect to stock or securities); and (c) diversify
its holdings so that, at the end of each quarter, (i) at least 50% of the value
of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stock and securities.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income that it distributes
to its shareholders, provided that at least 90% of its investment company
taxable income for the taxable year is distributed to its shareholders; however,
the Fund will be subject to tax on its income and gains, to the extent that it
does not distribute to its shareholders an
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amount equal to such income and gains. See "Passive Foreign Investment
Companies" below. Investment company taxable income includes dividends, interest
and net short-term capital gains in excess of net long-term capital losses, but
does not include net long-term capital gains in excess of net short-term capital
losses. The Fund intends to continue to distribute annually to its shareholders
substantially all of its investment company taxable income. If necessary, the
Fund intends to borrow money or liquidate assets to make such distributions.
Dividend distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income to the extent of the Fund's current and
accumulated earnings and profits, whether paid in cash or in shares. Since the
Fund will not invest in the stock of domestic corporations, distributions to
corporate shareholders of the Fund will not be entitled to the deduction for
dividends received by corporations. If the Fund fails to satisfy the 90%
distribution requirement or fails to qualify as a regulated investment company
in any taxable year, it will be subject to tax in such year on all of its
taxable income, whether or not the Fund makes any distributions to its
shareholders.
As a regulated investment company, the Fund also will not be subject to
U.S. federal income tax on its net long-term capital gains in excess of net
short-term capital losses and capital loss carryovers from the prior eight
years, if any, that it distributes to its shareholders. If the Fund retains for
reinvestment or otherwise an amount of such net long-term capital gains, it will
be subject to a tax of up to 35% of the amount retained. The Board of Directors
of the Fund will determine at least once a year whether to distribute any net
long-term capital gains in excess of net short-term capital losses and capital
loss carryovers from prior years. The Fund expects to designate amounts retained
as undistributed capital gains in a notice to its shareholders who are
shareholders of record at the close of a taxable year of the Fund and, if
subject to U.S. federal income taxation, (a) will be required to include in
income for U.S. federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, and (b) will be entitled to
credit against their U.S. federal income tax liabilities their proportionate
shares of the tax paid by the Fund on the undistributed amount and to claim
refunds to the extent that their credits exceed their liabilities. For U.S.
federal income tax purposes, the basis of shares owned by a shareholder of the
Fund will be increased by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income. Distributions of net
long-term capital gains, if any, by the Fund are taxable to its shareholders as
long-term capital gains whether paid in cash or in shares and regardless of how
long the shareholder has held the Fund's shares. Such distributions of net
long-term capital gains are not eligible for the dividends received deduction.
Under the Code, net long-term capital gains will be taxed at a rate no greater
than 28% for individuals and 35% for corporations. Shareholders will be notified
annually as to the U.S. federal income tax status of their dividends and
distributions.
Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares equal to such amount.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, the distribution will be taxable even
though it, in effect, represents a return of invested capital. Investors
considering buying shares just prior to a dividend or capital gain distribution
payment date should be aware that, although the price of shares purchased at
that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to the record date for a distribution will receive a
distribution which will be taxable to them. The amount of capital gains realized
and distributed (which from an investment standpoint may represent a partial
return of capital rather than income) in any given year will be the result of
action taken for the best investment of the principal of the Fund, and may
therefore vary from year to year.
Under the Code, the Fund may be subject to a 4% excise tax on a portion of
its undistributed income. To avoid the tax, the Fund must distribute annually at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year and at least 98% of its capital gain net income
for the 12-month period ending, as a general rule, on October 31 of the calendar
year. For this purpose, any income or gain retained by the Fund that is subject
to corporate income tax will be treated as having been distributed at year-end.
In addition, the minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any under distribution
or over distribution, as the case may be, in the
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previous year. For a distribution to qualify under the foregoing test, the
distribution generally must be declared and paid during the year. Any dividend
declared by the Fund in October, November or December of any year and payable to
shareholders of record on a specified date in such a month shall be deemed to
have been received by each shareholder on December 31 of such year and to have
been paid by the Fund not later than December 31 of such year, provided that
such dividend is actually paid by the Fund during January of the following year.
The Fund maintains accounts and calculates income by reference to the U.S.
dollar for U.S. federal income tax purposes. Investments generally are
maintained and income therefrom calculated by reference to the Latin American
countries' currencies, and such calculations do not necessarily correspond to
the Fund's distributable income and capital gains for U.S. federal income tax
purposes as a result of fluctuations in currency exchange rates. Furthermore,
exchange control regulations may restrict the ability of the Fund to repatriate
investment income or the proceeds of sales of securities. These restrictions and
limitations may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirement and to avoid the 4% excise tax.
The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out) which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the 90% and 98% distribution requirements for
avoiding income and excise taxes. The Fund will monitor its transactions, will
make the appropriate tax elections, and will make the appropriate entries in its
books and records when it acquires any foreign currency, option, futures
contract, forward contract, or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company and minimize the imposition of income and excise taxes.
For backup withholding purposes, the Fund may be required to withhold 31%
of reportable payments (which may include dividends, capital gain distributions,
and redemptions) to certain non-corporate shareholders. A shareholder, however,
may avoid becoming subject to this requirement by filing an appropriate form
certifying under penalty of perjury that such shareholder's taxpayer
identification number is correct and that such shareholder is not subject to
backup withholding, or is exempt from backup withholding. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
from payments made to a shareholder may be credited against such shareholder's
federal income tax liability.
Upon the sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and the shareholder's
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands, and will be
long-term if the shareholder's holding period for the shares is more than 12
months and otherwise will be short-term. Any loss realized on a sale or exchange
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through the reinvesting of dividends and capital gains
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions of
long-term capital gains received by the shareholder with respect to such shares.
A repurchase by the Fund of shares generally will be treated as a sale of
the shares by a shareholder, provided that after the repurchase the shareholder
does not own, either directly or by attribution under Section 318 of the Code,
any shares. If, after a repurchase, a shareholder continues to own, directly or
by attribution, any shares, and has not experienced a meaningful reduction in
its proportionate interest in the
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Fund, it is possible that any amounts received in the repurchase by such
shareholder will be taxable as a dividend to such shareholder. If, in addition,
the Fund has made such repurchases as part of a series of redemptions, there is
a risk that shareholders who do not have any of their shares repurchased would
be treated as having received a dividend distribution as a result of their
proportionate increase in the ownership of the Fund.
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign passive investment entities
described in the Code as passive foreign investment companies ("PFIC"), the Fund
will be subject to U.S. federal income tax on a portion of any "excess
distribution" (the Fund's ratable share of distributions in any year that
exceeds 125% of the average annual distribution received by the Fund in the
three preceding years or the Fund's holding period, if shorter, and any gain
from the disposition of such shares) even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such "excess distributions." If the Fund were to invest in a PFIC
and elect to treat the PFIC as a "qualified electing fund" under the Code (and
if the PFIC were to comply with certain reporting requirements), in lieu of the
foregoing requirements the Fund would be required to include in income each year
its pro rata share of the PFIC's ordinary earnings and net realized capital
gains, whether or not such amounts were actually distributed to the Fund.
FOREIGN TAX CREDITS
Income received by the Fund from sources outside the United States will be
subject to withholding and other taxes imposed by Latin American and other
foreign countries. If the Fund qualifies as a regulated investment company, if
certain distribution requirements are satisfied and if more than 50% of the
value of the Fund's total assets at the close of any taxable year consists of
stocks or securities of foreign corporations, which is expected to be the case,
the Fund intends to elect, for U.S. federal income tax purposes, to treat any
Latin American and other foreign country's income or withholding taxes paid by
the Fund that can be treated as income taxes under United States income tax
principles, as paid by its shareholders. The Fund anticipates that it will be
able to treat some, but not all, of the foreign taxes it will have to pay as
foreign income taxes for United States federal income tax purposes. The Fund did
not make this election for its initial taxable year, however, it expects to
qualify for and make this election in some, but not necessarily all, of its
taxable years. In any taxable year that the Fund qualifies for and makes this
election, each shareholder will be required to include in its income an amount
equal to its allocable share of such income taxes paid by the Fund to a Latin
American and other foreign country's government and the shareholders will be
entitled, subject to certain limitations, to credit their portions of these
amounts against their U.S. federal income tax due, if any, or to deduct their
portions from their U.S. taxable income, if any. Shareholders that are exempt
from tax under Section 501(a) of the Code, such as pension plans, generally will
derive no benefit from the Fund's election. However, these shareholders should
not be disadvantaged, because the amount of additional income they are deemed to
receive equal to their allocable share of such foreign countries' income taxes
paid by the Fund generally will not be subject to U.S. federal income tax.
The amount of Latin American and other foreign taxes that may be credited
against a shareholder's U.S. federal income tax liability will generally be
limited, however, to an amount equal to the shareholder's United States federal
income tax rate multiplied by its foreign source taxable income. For this
purpose, the Fund expects that the capital gains it distributes, whether as
dividends or capital gains distributions, will not be treated as foreign source
taxable income. In addition, this limitation must be applied separately to
certain categories of foreign source income, one of which is foreign source
"passive income." For this purpose, foreign source "passive income" includes
dividends, interest, capital gains and certain foreign currency gains. As a
consequence, certain shareholders may not be able to claim a foreign tax credit
for the full amount of their proportionate share of foreign taxes paid by the
Fund. Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether, pursuant to the election described above, the
foreign taxes paid by the Fund will be treated as paid by its shareholders for
that year and, if so, such notification will designate (i) the shareholder's
portion of the foreign taxes paid to such country and (ii) the portion of the
Fund's dividends and distributions that represents income derived from sources
within the country.
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FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a foreign
investor depends, in part, on whether the shareholder's income from the Fund is
"effectively connected" with a United States trade or business carried on by the
shareholder.
If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from the
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
of net realized long-term capital gains, amounts retained by the Fund which are
designated as undistributed capital gains, and gains realized upon the sale of
shares of the Fund will not be subject to United States tax unless a foreign
investor who is a nonresident alien individual is physically present in the
United States for more than 182 days during the taxable year and, in the case of
gain realized upon the sale of Fund shares, unless (i) such gain is attributable
to an office or fixed place of business in the United States or (ii) such
nonresident alien individual has a tax home in the United States and such gain
is not attributable to an office or fixed place of business located outside the
United States. However, a determination by the Fund not to distribute long-term
capital gains may reduce a foreign investor's overall return from an investment
in the Fund, since the Fund will incur a United States federal tax liability
with respect to retained long-term capital gains, thereby reducing the amount of
cash held by the Fund that is available for distribution, and the foreign
investor may not be able to claim a credit or deduction with respect to such
taxes. In the case of a foreign investor who is a nonresident alien individual,
the Fund may be required to withhold U.S. federal income tax at a rate of 31%,
unless the foreign investor files an appropriate form certifying under penalty
of perjury as to such investor's nonresident alien status.
If a foreign investor is a resident alien or if dividends or distributions
from the Fund are effectively connected with a United States trade or business
carried on by the foreign investor, dividends of net investment income,
distributions of net short-term and long-term capital gains, amounts retained by
the Fund that are designated as undistributed capital gains and any gains
realized upon the sale of shares of the Fund will be subject to United States
income tax at the rates applicable to United States citizens or domestic
corporations. If the income from the Fund is effectively connected with a United
States trade or business carried on by a foreign investor that is a corporation,
then such foreign investor also may be subject to the 30% (or lower treaty rate)
branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty and (c) any other tax consequences to
them of an investment in the Fund.
NOTICES
Shareholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will be sent, if appropriate, various written notices after the close of the
Fund's taxable year as to the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that were
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
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LATIN AMERICAN TAXES
Argentine Taxes
The following discussion of Argentine tax laws is based on the advice of
Cardenas, Cassagne & Asociados, Argentine legal counsel to the Fund. This
discussion is based upon the laws of Argentina, and regulations thereunder, and
is subject to any subsequent change in Argentine laws and regulations which may
come into effect after the date of this Prospectus.
Some aspects of Argentine tax law have been amended by a Deregulation
Decree (Decree 2284/91, published in the Official Bulletin of November 1, 1991),
as amended by Decree 2424/91 (published in the Official Bulletin on November 14,
1991), both issued by the National Executive Power. This Decree has been
ratified by Law 24.307 (published in the Official Bulletin on December 30,
1993). In addition, Argentine tax law has been amended by Law 24,073, published
in the Official Bulletin of April 2, 1992.
Pursuant to the Deregulation Decree, as amended, the sale or transfer of
shares or securities is not subject to a transfer tax. Prior to such Decree, if
the sale or transfer took place in Argentina (or was made to an Argentine
resident), a withholding tax of 0.75% of the purchase price (or 0.5% if effected
through an Argentine stock market), would have applied.
Income of Argentine companies is subject to income tax in Argentina at a
rate of 30%. Dividends are not subject to additional taxes. Argentine-sourced
interest income generally is subject to withholding tax in Argentina at a rate
of 12%, with exceptions for certain Argentine government securities and
corporate bonds. Interest on fixed term deposits made with financial entities is
exempted for a 27% withholding tax upon remittance abroad, provided a foreign
tax authority does not benefit from such exemption.
Pursuant to the Deregulation Decree, capital gains derived by non-resident
individuals or foreign companies from the sale, exchange or other disposition of
shares or securities are not subject to tax. Prior to such Decree, a tax was
levied at a rate of 18% on gross proceeds derived from the sale or, at the
option of the taxpayer, at a 36% rate on net profit.
The proceeds from the sale of Argentine government securities are not
subject to tax. Corporate bonds ("Obligaciones Negociables" or "ON") are also
not subject to the tax provided, among other things, that ONs are placed in a
public offering approved and registered with the Argentine Comision Nacional de
Valores (Securities Commission) and the proceeds from their sale are used for
specific purposes.
Tax on the purchase or sale of foreign currencies has been repealed by the
Deregulation Decree. Prior to such Decree, a tax of 0.6% of the amount of
currency was imposed on the purchase and sale of currency.
No Argentine inheritance or succession taxes are applicable to the
ownership, transfer or disposition of shares.
Fees for professional services rendered to the Fund by Argentine residents
are subject to an 18% Value Added Tax ("VAT"). Broker's commissions related to
securities transactions and services rendered by financial entities are not
subject to VAT.
Options, futures and other forward transactions, being relatively new in
the Argentine capital markets, have no clear tax treatment. However, it should
be noted that, in any case, the maximum tax rate applied by Argentine Tax Law to
those transactions for which a specific tax rate has not been provided is 27%.
The Deregulation Decree has exempted from stamp tax transfer instruments
and other instruments issued in connection with publicly traded stock and other
securities. Prior to this Decree, the tax rate was 1% of the value of the
transaction.
Pursuant to Decree 144 published in the Official Bulletin of February 1,
1993, the stamp tax was repealed in the jurisdiction of the city of Buenos
Aires, except for the transfer of real estate not dedicated to housing.
No other Argentine federal taxes (currency gain, estate, sales, transfer,
property, stamp, etc.) are applicable to the Fund or to its shareholders in
connection with the Fund's proposed activities in Argentina.
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Brazilian Taxes
The following discussion of Brazilian tax laws is based upon the advice of
Pinheiro Neto-Advogados, Brazilian counsel to the Fund.
Under Brazilian Law 8981 of January 20, 1995, a 15% withholding tax is
imposed on distribution of dividends and cash bonuses (but not capital gains)
received from investments in securities at the time the Fund receives the
income. Furthermore, other income, excluding capital gains, such as interest,
premiums, commissions and profit participation are subject to 10% withholding
tax imposed at the time the Fund receives the income.
Should the Fund contravene any of the applicable regulations it would
become subject to Brazilian tax rates applicable to other foreign investors,
which are likely to be less favorable than those described above.
Dividends paid by the Fund outside of Brazil are not subject to any
Brazilian taxes.
There are no other Brazilian taxes (currency gain, estate, sales, transfer,
property, stamp, etc.) applicable to the Fund or its shareholders in connection
with the Fund's proposed activities in Brazil.
Chilean Taxes
The following discussion of Chilean tax laws is based upon the advice of
Estudio Arturo Alessandri, Chilean counsel to the Fund, and assumes that the
Fund has been authorized to make investments in Chile pursuant to Decree Law 600
(see "Investment Procedures: Argentina, Brazil, Chile and Mexico").
All amounts earned by the Fund, including interest, dividends or net
realized capital gains, on amounts invested in Chile within the time period
stipulated in the Investment Contract that exceed original invested capital will
be subject to a tax rate which will depend on the regime chosen by the Fund: (a)
an overall income tax rate of 42.0% fixed for 10 years commencing on the date on
which the investment was made, at the end of which period the Fund would become
subject to the general tax regime. The total tax burden is calculated by
applying the rate corresponding to the "First Category Tax" (as defined above)
to the net taxable income and a rate differential necessary to complete the
total tax burden, without the right to deduct any credit; or (b) the Fund could
waive the fixed rate tax scheme and become subject to the general tax regime
established in the Chilean Income Tax Law. Under the general tax regime, the
Fund would be subject to a First Category Tax on accrued income (excluding
dividends in which case the tax is paid by the distributing company). The rate
of this tax was raised from 10% to 15% for the years between 1991 and 1993 and
has remained at 15% since January 1, 1994. In addition, remittances abroad by
the Fund would be subject to a 35% withholding "Additional Tax" against which
the First Category Tax could be credited. Therefore, the aggregate tax burden
for both taxes, calculated as a percentage of pre-tax income, would be 35%. Such
tax is indirectly borne by all shareholders, whether or not a particular
shareholder participates in the Dividend Reinvestment and Cash Purchase Plan or
elects to receive distributions in cash. Investors should be aware that, under
the general tax regime applicable to foreign investors, tax rates, taxable basis
and the manner in which taxes would be applied may be amended by law at any
time. The Fund would be subject to the abovedescribed taxation for the duration
of its operation in Chile and would continue to be unable to repatriate capital
out of Chile during the one year period after the capital is brought into Chile.
The Fund has elected and expects to continue to elect to be taxed under the
general tax regime described under (b) above.
Net realized capital gains for these purposes means realized gains net of
realized losses (without regard to the length of time the securities were held),
including any capital loss carryover but excluding any gains from hedging
transactions. These taxes are retained by the Chilean Administrator at the time
a remittance is effected and are deposited in the Chilean Treasury. The original
amounts of portfolio investments, as well as interest and dividends and gains
thereon, if any, that have not been remitted abroad may be reinvested in Chile
and will not be subject to tax until actually remitted. No other Chilean income
taxes will be payable by the Fund or by a shareholder of the Fund that is not a
Chilean resident. In addition, the protection granted by the Investment Contract
applies to income taxes, which can reasonably be deemed to include capital gains
taxes, but does not refer to other taxes, such as VAT, sales and stamp taxes,
that may be imposed on the Fund or its operations in Chile as a consequence of
changes in general legislation. However, no taxation may affect in a
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discriminatory way the Fund or other foreign investors that have entered into an
investment contract pursuant to the provisions of Decree Law 600. Under current
law, the Fund is not subject to any Chilean inheritance, wealth or estate taxes.
Any borrowing by the Fund in Chile, the proceeds of which are applied in
Chile, including promissory notes, letters of credit, any discount of these
instruments and documentation related to such borrowing, is subject to a 0.1%
stamp tax per month, with a ceiling of 1.2% on an annual basis, during the
period for which such borrowing is outstanding.
Mexican Taxes
The following discussion of Mexican tax laws is based upon the advice of
Arthur Andersen & Co., Mexican tax adviser for the Fund.
Dividends paid to the Fund by a company that has already paid Mexican
corporate tax are not subject to tax. However, if such company has not paid
Mexican corporate tax, then the dividends will be subject to a tax on the gross
amount at a rate of 34%.
Profits derived from the sale of equity securities listed on the Mexico
City Exchange that are either directly available to foreign investors or only
available to foreign investors through a trust are not subject to tax in Mexico.
Gains from off-exchange transactions in both listed and unlisted shares are
subject to a 20% withholding tax on the gross income, or a 30% income tax on the
profits if the foreign investor is in a high tax rate country and has a
representative in Mexico. This 20% withholding tax/30% income tax alternative
tax regime is also applicable to profits derived from equity investments made
under Mexico's Debt Conversion Program.
Interest earned by the Fund from money market instruments that are listed
on the Mexico City Exchange are subject to a withholding tax on the gross amount
at a rate of 4.9%, except on Sovereign Debt, including money market instruments
issued by the Federal Government of Mexico, which is exempt from such tax.
Interest earned on unlisted debt securities is subject to a 4.9% to 15%
withholding tax.
No further Mexican tax will be applicable to the Fund or its shareholders,
other than shareholders, such as residents of Mexico, who are subject to tax in
Mexico for reasons other than their status as shareholders in the Fund.
OTHER TAXATION
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular position.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.01 par value), of which 8,517,984 were outstanding as of July 31,
1995. Shares of the Fund, when issued, will be fully paid and nonassessable and
will have no conversion, preemptive or other subscription rights. Holders of
Common Stock are entitled to one vote per share on all matters to be voted upon
by shareholders and are not able to cumulate their votes in the election of
Directors. Thus, holders of more than 50% of the shares voting for the election
of directors have the power to elect 100% of the directors. All shares are equal
as to assets, earnings and the
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receipt of dividends, if any, as may be declared by the Board of Directors out
of funds available therefor. In the event of liquidation, dissolution or winding
up of the Fund, each share of Common Stock is entitled to receive its proportion
of the Fund's assets remaining after payment of all debts and expenses.
Following the expiration of the Offer, depending upon market conditions,
the Fund may offer additional shares of Common Stock in a secondary offering at
prices not less than the net asset value of the Fund's shares at the time of
such offer. In addition, additional shares may be issued under the Plan. Other
offerings of the Fund's shares will require approval of the Fund's Board of
Directors and may require shareholder approval. Any such additional offerings
would also be subject to the requirements of the 1940 Act, including the
requirement that shares may not be sold at a price below the then current net
asset value (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing shareholders or with the consent of a
majority of the Fund's shares.
The Fund is a closed-end investment company, and as such its shareholders
do not have the right to cause the Fund to redeem their shares of Common Stock.
The Fund, however, may repurchase shares of Common Stock from time to time in
the open market or in private transactions when it can do so at prices at or
below the current net asset value per share on terms that represent a favorable
investment opportunity. Subject to its investment limitations, the Fund may
borrow to finance the repurchase of shares. However, the payment of interest on
such borrowings will increase the Fund's expenses and consequently reduce net
income. In addition, the Fund is required under the 1940 Act to maintain "asset
coverage" of not less than 300% of its "senior securities representing
indebtedness" as such terms are defined in the 1940 Act.
The Fund's shares of Common Stock trade in the open market at a price which
is a function of several factors, including their net asset value and yield. The
shares of closed-end investment companies frequently sell at discount from, but
sometimes at a premium over, their net asset values. See "Risk Factors and
Special Considerations." There can be no assurance that it will be possible for
investors to resell shares of the Fund at or above the price at which shares may
be purchased pursuant to the Offer or that the market price of the Fund's shares
will equal or exceed net asset value. Since the Fund may repurchase its shares
at prices below their net asset value or make a tender offer for its shares, the
net asset value of those shares that remain outstanding will be increased, but
the effect of such repurchases on the market price of the remaining shares
cannot be predicted. The shares are traded on the New York Stock Exchange.
The Fund's By-Laws provide that if, for a quarter following the initial
public offering of shares of the Fund, the average discount from net asset value
at which shares of the Fund's Common Stock have traded is substantial, the Board
of Directors of the Fund will consider, at its next regularly scheduled
quarterly meeting, taking various actions designed to eliminate the discount,
including periodic repurchases of shares, tender offers to purchase shares from
all shareholders at a price equal to net asset value or amendments to the Fund's
Articles of Incorporation to convert the Fund to an open-end investment company.
Any tender by the Fund for shares of its Common Stock would reduce the Fund's
assets and increase its expenses. Shareholders of an open-end investment company
may require the company to redeem their shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. Any amendment to the Articles of Incorporation to convert the Fund
to an open-end investment company would require a favorable vote of shareholders
(as described below) and the amendment would have to be declared advisable by
the Board of Directors prior to its submission to shareholders. In light of the
position of the Commission that illiquid securities and securities subject to
legal or contractual limitations on resale not exceed 15% of the total assets of
a registered open-end investment company, any attempt to convert the Fund to
such a company will have to take into account the percentage of such securities
in the Fund's portfolio at the time, the conditions in the Latin American
countries' securities markets and other relevant factors. The Fund cannot
predict whether, on this basis, it would be able to effect any such conversion
or whether, if relief from the Commission's position were required, it could be
obtained. The Board of Directors has no current intention to propose such a
conversion other than as required by the foregoing By-Laws.
55
<PAGE> 58
Any offer by the Fund to repurchase shares will be made at a price based
upon the net asset value of the shares at the close of business on or within 14
days after the last date of the offer. Each offer will be made and shareholders
notified in accordance with the requirements of the 1934 Act and the 1940 Act,
either by publication or mailing or both. Each offering document will contain
such information as is prescribed by such laws and the rules and regulations
promulgated thereunder. When a repurchase offer is authorized by the Fund's
Board of Directors, a shareholder wishing to accept the offer may be required to
offer to sell all (but not less than all) of the shares owned by such
shareholder (or attributed to him for U.S. federal income tax purposes under
Section 318 of the Code). The Fund will purchase all shares tendered in
accordance with the terms of the offer unless it determines to accept none of
them (based upon one of the conditions set forth below). Persons tendering
shares may be required to pay a service charge to help defray certain costs of
the transfer agent. Any such service charges will not be deducted from the
consideration paid for the tendered shares. During the period of a repurchase
offer, the Fund's shareholders will be able to determine the Fund's current net
asset value (which will be calculated weekly) by use of a toll-free telephone
number.
In the event that the Fund would have to liquidate certain investments to
finance such repurchases of shares, and the portfolio securities to be
liquidated have been held less than three months, such sales may jeopardize the
Fund's status as a regulated investment company under the Code because of the
limitation imposed thereunder that not more than 30% of the Fund's gross income
may be derived from the sale of securities held for less than three months.
The Fund's Articles of Incorporation and By-Laws include provisions that
could limit the ability of others to acquire control of the Fund, to modify the
structure of the Fund or to cause it to engage in certain transactions. These
provisions, described below, also could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of
the Fund in a tender offer or similar transaction. In the opinion of the Fund,
however, these provisions offer several possible advantages. They potentially
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment objective.
The Fund's Articles of Incorporation and By-Laws provide that the Fund's
Board of Directors have the sole power to adopt, alter or repeal the provisions
in the Fund's By-Laws. In addition, the directors are divided into three
classes, each having a term of three years, with the term of one class expiring
each year. In addition, a director may be removed from office only with cause
and only by a majority of the Fund's shareholders, and the affirmative vote of
75% or more of the Fund's outstanding shares is required to amend, alter or
repeal the Fund's Articles of Incorporation relating to removal of directors and
to amendments to the Fund's By-Laws. See "Management of the Fund -- Directors
and Officers of the Fund." These provisions could delay the replacement of a
majority of the directors and have the effect of making changes in the Board of
Directors more difficult than if such provisions were not in place. Furthermore,
the Fund's By-Laws provide that each Director holds office until (i) the
expiration of his term and until his successor has been elected and qualified,
(ii) his death, (iii) his resignation, (iv) December 31 of the year in which he
reaches seventy-three years of age or (v) his removal as provided by statute or
the Articles of Incorporation.
The affirmative vote of the holders of 75% or more of the outstanding
shares is required to (1) convert the Fund from a closed-end to an open-end
investment company, (2) merge or consolidate with any other entity, (3) dissolve
or liquidate the Fund, (4) sell all or substantially all of its assets, (5)
cease to be an investment company registered under the 1940 Act, (6) issue to
any person securities in exchange for property worth $1,000,000 or more,
exclusive of sales of securities in connection with a public offering, issuance
of securities pursuant to a dividend reinvestment plan or other stock dividend
or issuance of securities upon the exercise of any stock subscription rights, or
(7) amend, alter or repeal the above provisions in the Fund's Articles of
Incorporation. However, if such action has been approved or authorized by the
affirmative vote of at least 70% of the entire Board of Directors, the
affirmative vote of only a majority of the outstanding shares would be required
for approval, except in the case of the issuance of securities, in which case no
shareholder vote would be required unless otherwise required by applicable law.
The principal purpose of the above provisions is to increase the Fund's ability
to resist takeover attempts and attempts to change the fundamental nature of the
56
<PAGE> 59
business of the Fund that are not supported by either the Board of Directors or
a large majority of the shareholders. These provisions make it more difficult to
liquidate, take over or open-end the Fund and thereby are intended to discourage
investors from purchasing its shares with the hope of making a quick profit by
forcing the Fund to change its structure. These provisions, however, would apply
to all actions proposed by anyone, including management, and would make changes
in the Fund's structure accomplished through a transaction covered by the
provisions more difficult to achieve. The foregoing provisions also could impede
or prevent transactions in which holders of shares of Common Stock might obtain
prices for their shares in excess of the current market prices at which the
Fund's shares were then trading. Although these provisions could have the effect
of depriving shareholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund, the Fund believes the conversion of the Fund from a
closed-end to an open-end investment company to eliminate the discount may not
be desired by shareholders, who purchased their Common Stock in preference to
stock of the many mutual funds available.
The Fund has held and expects to continue to hold annual meetings as
required by the rules of the NYSE. Under Maryland law and the Fund's By-Laws,
the Fund will call a special meeting of its shareholders upon the written
request of shareholders entitled to cast at least 25% of all the votes at such
meeting. Such request for such a special meeting must state the purpose of the
meeting and the matters proposed to be acted on at it. The secretary of the Fund
shall (i) inform the shareholders who make the request of the reasonably
estimated cost of preparing and mailing a notice of the meeting, and (ii) on
payment of these costs to the Fund notify each shareholder entitled to notice of
the meeting. Notwithstanding the above, under Maryland law and the Fund's
By-Laws, unless requested by shareholders entitled to cast a majority of all the
votes entitled to be cast at the meeting, a special meeting need not be called
to consider any matter which is substantially the same as a matter voted on at
any special meeting of the shareholders held during the preceding 12 months.
DISTRIBUTION ARRANGEMENTS
Morgan Stanley & Co. Incorporated will act as Dealer Manager for the Offer.
The Dealer Manager's principal address is 1251 Avenue of the Americas, New York,
New York 10020. Under the terms and subject to the conditions contained in a
Dealer Manager Agreement dated the date of this Prospectus, the Dealer Manager
will provide financial advisory services and marketing assistance in connection
with the Offer. In addition, the Dealer Manager has agreed with the Fund to form
and manage a group of securities dealers ("Selling Group Members") to (a)
solicit the exercise of Rights and (b) sell to the public Shares purchased by
the Dealer Manager from the Fund as a result of the purchase and exercise of
Rights by the Dealer Manager.
The Fund has agreed to pay the Dealer Manager a fee for financial advisory
and marketing services equal to % of the Subscription Price per Share
issued upon exercise of the Rights. The Fund has also agreed to reimburse the
Dealer Manager for its out-of-pocket expenses in connection with the Offer up to
an aggregate of $ .
In addition, the Fund will indemnify the Dealer Manager with respect to
certain liabilities, including liabilities under the U.S. Securities Act of
1933, as amended.
Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees
equal to % of the Subscription Price per Share to the Dealer Manager
and each Selling Group Member for each Share either issued upon the exercise of
Rights as a result of the Dealer Manager's or Selling Group Member's soliciting
efforts or purchased from the Dealer Manager for sale to the public, and to the
Dealer Manager for each Share issued upon the exercise of Rights but for which
no dealer designation was made on the related Subscription Certificate or for
which no other securities dealer is receiving soliciting fees due to the maximum
fee which is payable to a securities dealer who is not a Selling Group Member.
The Fund has also agreed that, with respect to Rights exercised not as a
result of the selling or soliciting efforts of the Selling Group Members, the
Fund will pay a Soliciting Dealer Fee equal to % of the Subscription
Price per Share to each securities dealer who is not a Selling Group Member but
who is a member of the National Association of Securities Dealers, Inc. and who
has executed and delivered a Soliciting Dealer Agreement and solicited the
exercise of such Rights, subject generally to a maximum fee
57
<PAGE> 60
based upon the number of shares of Common Stock held by such dealer through The
Depository Trust Company on the Record Date.
From the date of this Prospectus, the Dealer Manager and Selling Group
Members may offer and sell shares at prices set by the Dealer Manager from time
to time, which prices may be higher or lower than the Subscription Price. Prior
to the Expiration Date, each of those prices when set will not exceed the higher
of the last sale price or current asked price of the Common Stock on the NYSE,
plus, in each case, an amount equal to an exchange commission, and any offering
price set on any calendar day will not be increased more than once during that
day. Any offering by the Dealer Manager or any Selling Group Member will likely
include Shares acquired through the exercise of the Rights. As a result of those
offerings, the Dealer Manager and Selling Group Members may realize profits or
losses independent of the Dealer Manager's financial advisory fee and any
Selling Group Member fee received by them.
Under applicable law, during the Subscription Period the Dealer Manager may
bid for and purchase Rights for certain purposes. Those purchases will be
subject to certain price and volume limitations when the Common Stock is being
stabilized by the Dealer Manager or when the Dealer Manager owns Rights without
an offsetting short position in the Common Stock. Those limitations provide,
among other things, that subject to certain exceptions, not more than one bid to
purchase Rights may be maintained in any one market at the same price at the
same time and that the initial bid for or purchase of Rights may not be made at
a price higher than the highest current independent bid price on the NYSE. Any
bid price may not be increased, subject to certain exceptions, unless the Dealer
Manager has not purchased any rights for a full Business Day or the independent
bid price for those Rights on the NYSE has exceeded the bid price for a full
Business Day.
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston (the "Transfer Agent") is the Fund's
dividend paying agent, transfer agent and the registrar for the Fund's Common
Stock. The principal address of the Transfer Agent is 150 Royall Street, Canton,
Massachusetts 02021.
CUSTODIANS
Morgan Stanley Trust Company, an affiliate of the Investment Manager and
Morgan Stanley & Co. Incorporated, is the custodian for the Fund's assets held
outside the United States (the "International Custodian"). The principal
business address of the International Custodian is One Pierrepont Plaza,
Brooklyn, New York 11201.
Under the Custody Agreement between the International Custodian and the
Fund, the International Custodian has agreed to hold all property of the Fund
delivered to it in safekeeping in a segregated account, receive and collect all
income and transaction proceeds with respect to such property, accept and
deliver securities on the purchase, sale, redemption, exchange or conversion
thereof, pay from the Fund's account the purchase price of any securities
acquired by the Fund, as well as any taxes and other expenses payable in
connection with securities transactions, maintain all necessary books and
records with respect to the property of the Fund held by it, provide the Fund
with periodic reports regarding the Fund's account and, in general, attend to
all non-discretionary details in connection with the sale, purchase, transfer
and other dealings with the securities and other property of the Fund held by
it.
For its services the International Custodian receives a fee calculated as a
percentage of Fund assets in its custody, plus an amount for each transaction
effected in the Fund's account. In addition, the International Custodian is
reimbursed by the Fund for any out-of-pocket expenses incurred by it in
connection with the performance of its duties under the Custody Agreement.
Pursuant to the Custody Agreement, the International Custodian received payments
for its services from the Fund in the amount of $170,000 for the period from the
commencement of the Fund's operations through December 31, 1992 and $312,000 and
$575,000 for the years ended December 31, 1993 and 1994, respectively.
The International Custodian may employ one or more sub-custodians outside
the United States that are approved by the Board of Directors in accordance with
regulations under the 1940 Act. The fees and expenses of any such sub-custodians
are paid by the International Custodian.
58
<PAGE> 61
The United States Trust Company of New York (the "U.S. Custodian") is the
custodian for the Fund's assets held in the United States. The principal address
of the U.S. Custodian is 770 Broadway, New York, New York 10003.
EXPERTS
The financial statements of the Fund for the fiscal year ended December 31,
1994 are incorporated by reference into this Prospectus in reliance upon the
report of Price Waterhouse LLP, the Fund's independent accountants, given on the
authority of said firm as experts in auditing and accounting. The address of
Price Waterhouse LLP is 1177 Avenue of the Americas, New York, New York 10036.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed on for the Fund by
Rogers & Wells, New York, New York, and by its special Maryland counsel, Piper &
Marbury L.L.P., Baltimore, Maryland. Certain legal matters will be passed on for
the Dealer Manager by Davis Polk & Wardwell, New York, New York.
It is likely that foreign persons, such as a sub-custodian of the Fund,
will not have assets in the United States that could be attached in connection
with any U.S. action, suit or proceeding.
The books and records of the Fund required under U.S. law are maintained at
the offices of the Fund and its agents in the United States and are subject to
inspection by the Commission.
ADDITIONAL INFORMATION
The Fund has filed with the U.S. Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the U.S. Securities Act
of 1933, as amended, with respect to the Shares offered hereby. Further
information concerning the Shares and the Fund may be found in the Registration
Statement of which this Prospectus constitutes a part. The Registration
Statement may be inspected without charge at the Commission's office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of the fees prescribed by the Commission.
The Fund is subject to the informational requirements of the 1934 Act and
the 1940 Act, and in accordance therewith files reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional office
at Seven World Trade Center, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports and
other information concerning the Fund may also be inspected at the offices of
the Commission.
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Fund's Annual Report, which includes financial statements for the
fiscal year ended December 31, 1994, and Semi-Annual Report, which includes
unaudited financial statements for the six-months ended June 30, 1995, which
accompany this Prospectus, are incorporated herein by reference with respect to
all information other than the information set forth in the Letters to
Shareholders included therein. Any statement contained in the Fund's Annual
Report or Semi-Annual Report that was incorporated herein shall be deemed
modified or superseded for purposes of this Prospectus to the extent a statement
contained in this Prospectus varies from such statement. Any such statement so
modified or superseded shall not, except as so modified or superseded, be deemed
to constitute a part of this Prospectus. The Fund will furnish, without charge,
a copy of its Annual Report or Semi-Annual Report, upon request to The First
National Bank of Boston, Attention: Shareholder Services, 150 Royall Street,
Canton, Massachusetts 02021, telephone (617) 575-2700.
59
<PAGE> 62
SAMPLE ONLY
APPENDIX A
[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE NUMBER:
----------------------------
NUMBER OF RIGHTS:
----------------------------
CUSIP NO.:
----------------------------
THE LATIN AMERICAN DISCOVERY FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Subscription Certificate represents the number of Rights set forth in
the upper right hand corner of this Form. The registered holder hereof (the
"Holder") is entitled to acquire one (1) share of the Common Stock of The Latin
American Discovery Fund, Inc. (the "Fund") for each three (3) Rights held.
To subscribe for shares of Common Stock, the Holder must present to The
First National Bank of Boston, 150 Royall Street, Mail Stop 45-01-19, Canton,
Massachusetts 02021 (the "Subscription Agent"), prior to 5:00 p.m., New York
time, on the Expiration Date, either:
(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States and
payable to the order of The Latin American Discovery Fund, Inc. for an
amount equal to the number of Shares subscribed for in the Primary
Subscription (and, if such Holder is a Record Date Shareholder electing to
exercise the Over-Subscription Privilege, under the Over-Subscription
Privilege) multiplied by the Subscription Price; or
(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate; and (ii) a money
order or check drawn on a bank located in the United States and payable to
the order of The Latin American Discovery Fund, Inc. for an amount equal to
the number of Shares subscribed for in the Primary Subscription (and, if
such Holder is a Record Date Shareholder electing to exercise the
Over-Subscription Privilege, pursuant to the Over-Subscription Privilege)
multiplied by the Subscription Price (which certificate and money order or
check must then be delivered by the close of business on the third Business
Day after the Expiration Date) (the "Protect Period").
If the Holder of this certificate is entitled to subscribe for additional
shares pursuant to the Over-Subscription Privilege, Part B of this Subscription
Certificate must be completed to indicate the maximum number of Shares for which
such privilege is being exercised.
No later than seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the Fund's
Shares are held by Cede & Co., the nominee for The Depository Trust Company, or
any other depository or nominee) (in each instance, a "Nominee Holder"), the
share certificates representing the Shares purchased pursuant to the Primary
Subscription and, if applicable, the Over-Subscription Privilege, along with a
letter explaining the allocation of Shares pursuant to the Over-Subscription
Privilege. Any excess payment to be refunded by the Fund to a Record Date
Shareholder who is not allocated the full amount of Shares subscribed for
pursuant to the Over-Subscription Privilege will be mailed by the Subscription
Agent. An Exercising Rights Holder will have no right to rescind or modify a
purchase after the Subscription Agent has received a properly completed and
executed Subscription Certificate or a Notice of Guaranteed Delivery. Any excess
payment to be refunded by the Fund to a Rights Holder will be mailed by the
Subscription Agent to him as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of Shares
subscribed for, the Fund and the Subscription Agent reserve the right to (i)
find other shareholders or Rights Holders for the subscribed and unpaid for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription and/or Over-Subscription Privilege; and/or
(iii) exercise any and all other rights and/or remedies to which it may be
entitled, including, without limitation, the right to set-off against payments
actually received by it with respect to such subscribed Shares.
This Subscription Certificate may be transferred, in the same manner and
with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
September , 1995, relating to the Rights.
THE LATIN AMERICAN DISCOVERY FUND, INC.
By: THE FIRST NATIONAL BANK OF BOSTON,
as Subscription Agent
By:
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS)
AT THE OFFICE OF THE SUBSCRIPTION AGENT
Any questions regarding this Subscription Certificate and the
Offer may be directed to the Information Agent, Shareholder
Communications Corporation toll free at (800) 733-8481 Ext. 316 or
collect at (212) 805-7000, Ext. 316
A-1
<PAGE> 63
Expiration Date: October , 1995
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
The First National Bank of Boston The First National Bank of Boston BancBoston Trust Co. of New York
P.O. Box 1889 150 Royall Street 55 Broadway - 3rd Floor
MS 45-01-19 Mail Stop 45-01-19 New York, NY 10006
Boston, MA 02105-1889 Canton, Massachusetts 02021
</TABLE>
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount of
Common Stock indicated as the total of A and B below upon the terms
and conditions specified in the Prospectus related hereto, receipt of
which is acknowledged.
TO SELL: If I have checked either the box on line C or the box on
line D, I authorize the sale of Rights by the Subscription Agent
according to the procedures described in the Prospectus. The check
for the proceeds of sale will be mailed to the address of record.
Please check /X/ below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
/ / A. Primary ------------------ + 3 = .000 X $ = $
Subscription (Rights Exercised) ------------------ ------------------ ------------------
(Full Shares of (Subscription (Amount Required)
Common Stock Price)
Requested)
/ / B. Over-Subscription Privilege .000 X $ = $ (*)
------------------ ------------------ ------------------
(Full Shares of (Subscription (Amount Required)
Common Stock Price)
Requested)
Amount of Check or Money Order Enclosed (total of A + B) = $
------------------
Make check payable to the order of "The Latin American Discovery Fund, Inc."
/ / C. Sell any remaining unexercised Rights
/ / D. Sell all of my Rights
E. The following Broker-Dealer is hereby designated as having been instrumental in the exercise of the Rights:
/ / Morgan Stanley & Co. Incorporated Account #
------------------
/ / Other Firm: Account #
------------------
-------------------------------------- Please provide your telephone number Day ( )
Signature of Subscriber(s)/Seller(s) Evening ( )
</TABLE>
SECTION II: TO TRANSFER RIGHTS: (except pursuant to C and D above)
For value received, of the Rights represented by this
Subscription Certificate are assigned to
<TABLE>
<S> <C>
------------------------------------------ ----------------------------------------------------------------
Social Security Number or Tax ID of (Print Full Name of Assignee)
Assignee
------------------------------------------ ----------------------------------------------------------------
Signature(s) of Assignee(s) (Print Full Address including postal Zip Code)
</TABLE>
The signature(s) must correspond with the name(s) as written upon the face of
this Subscription Certificate, in every particular, without alteration.
IMPORTANT: For Transfer, a Signature Guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, as amended, subject to the standards and procedures adopted by the
issuer.
SIGNATURE GUARANTEED BY:
------------------------------------------------------------------------
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
A-2
<PAGE> 64
SAMPLE ONLY
APPENDIX B
[FORM OF NOTICE OF GUARANTEED DELIVERY]
NOTICE OF GUARANTEED DELIVERY OF SUBSCRIPTION RIGHTS AND
THE SUBSCRIPTION PRICE FOR SHARES OF COMMON STOCK OF
THE LATIN AMERICAN DISCOVERY FUND, INC. SUBSCRIBED FOR
IN THE PRIMARY SUBSCRIPTION AND THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offer -- Payment for Shares,"
this form or one substantially equivalent hereto may be used as a means of
effecting subscription and payment for all Shares of The Latin American
Discovery Fund, Inc. Common Stock subscribed for in the Primary Subscription and
the OverSubscription Privilege. Such form may be delivered by hand or sent by
facsimile transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
The First National Bank of Boston
<TABLE>
<S> <C>
By Mail: By Facsimile:
The First National Bank of Boston (617) 575-2232
Shareholder Services Division P.O. Box 1889 (617) 575-2233
Mail Stop 45-01-19 Boston, Massachusetts Confirm by Telephone
02105 (617) 575-2700
By Hand: By Overnight Courier:
BancBoston Trust Company The First National Bank of Boston
of New York Shareholder Services Division
55 Broadway, Third Floor Mail Stop 45-01-19
New York, New York 10006 150 Royall Street
Canton, Massachusetts 02021
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS
SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery guaranteeing delivery of (i) payment in full for all subscribed Shares
and (ii) a properly completed and executed Subscription Certificate (which
certificate and full payment must then be delivered by the close of business on
the third business day after the Expiration Date, as defined in the Prospectus)
to the Subscription Agent prior to 5:00 p.m., New York time, on the Expiration
Date (October , 1995, unless extended). Failure to do so will result in a
forfeiture of the Rights.
B-1
<PAGE> 65
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, guarantees delivery to the Subscription Agent by the close of
business (5:00 p.m., New York time) on the third Business Day after the
Expiration Date (October , 1995, unless extended) of (A) a properly completed
and executed Subscription Certificate and (B) payment of the full Subscription
Price for Shares subscribed for in the Primary Subscription and pursuant to the
Over-Subscription Privilege, if applicable, as subscription for such Shares is
indicated herein or in the Subscription Certificate.
<TABLE>
<S> <C>
---------------------------------------------- ----------------------------------------------
Number of Shares subscribed for pursuant to
Number of Shares subscribed for in the Primary the Over-Subscription Privilege for which
Subscription for which you are guaranteeing you are guaranteeing delivery of Rights and
delivery of Rights and payment payment
Number of Rights to be delivered:
----------------------------------------------
Total Subscription Price payment to be
delivered: $
A. Through DTC
Method of Delivery [circle one] B. Direct to Corporation
</TABLE>
Please note that if you are guaranteeing for Over-Subscription Shares, and
are a DTC participant, you must also execute and forward to The First National
Bank of Boston a Nominee Holder Over-Subscription Exercise Form.
<TABLE>
<S> <C>
---------------------------------------------- ----------------------------------------------
Name of Firm Authorized Signature
---------------------------------------------- ----------------------------------------------
Address Title
---------------------------------------------- ----------------------------------------------
Zip Code (Type or Print)
---------------------------------------------- ----------------------------------------------
Name of Registered Holder (If Applicable)
---------------------------------------------- ----------------------------------------------
Telephone Number Date
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE FUND
WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE
COMMUNICATED BY YOU TO DTC.
PLEASE NOTE THAT IF YOU ARE GUARANTEEING FOR OVER-SUBSCRIPTION SHARES AND ARE
A DTC PARTICIPANT, YOU MUST ALSO EXECUTE AND FORWARD TO THE SUBSCRIPTION AGENT
A NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM.
B-2
<PAGE> 66
SAMPLE ONLY
APPENDIX C
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
THE LATIN AMERICAN DISCOVERY FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
To: The First National Bank of Boston To: BancBoston Trust Company To: The First National Bank of Boston
Shareholder Services Division of New York Shareholder Services Division
P.O. Box 1889 55 Broadway, Third Floor Mail Stop 45-01-19
Mail Stop 45-01-19 New York, New York 10006 150 Royall Street
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
PRIMARY SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION
PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
---------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED SEPTEMBER , 1995 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE FUND.
---------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK TIME, ON OCTOBER , 1995, UNLESS EXTENDED BY THE FUND AND THE
DEALER MANAGER (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it
has either (i) exercised the Primary Subscription Right in respect of Rights
and delivered such exercised Rights to the Subscription Agent by means of
transfer to the Depository Account of the Fund or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the
exercise of the Primary Subscription Right and will deliver the Rights
called for in such Notice of Guaranteed Delivery to the Subscription Agent
by means of transfer to such Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to
the Subscription Agent that such Over-Subscription Privilege is being
exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.(*)
3. The undersigned understands that payment of the Subscription Price of
$ per Share of each share of Common Stock subscribed for pursuant to
the Over-Subscription Privilege must be received by the Subscription Agent
at or before 5:00 p.m., New York time, on the Expiration Date and represents
that such payment, in the aggregate amount of $ either (check
appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above or
/ / is being delivered to the Subscription Agent herewith or
/ / has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check
appropriate box and complete information relating thereto):
/ / uncertified check
/ / certified check
/ / bank draft
/ / money order
------------------------------------------------------------
Depository Primary Subscription Confirmation Number
------------------------------------------------------------
Depository Participant Number
Contact Name
----------------------------------------------
Phone Number:
----------------------------------------------
Dated: , 1995
------------------------------------------------------------
Name of Nominee Holder
------------------------------------------------------------
Address
------------------------------------------------------------
City State Zip Code
By:
--------------------------------------------------------
Name:
------------------------------------------------------
Title:
-----------------------------------------------------
* PLEASE COMPLETE THE BENEFICIAL OWNER CERTIFICATION ON THE BACK HEREOF
CONTAINING THE RECORD DATE POSITION OF PRIMARY RIGHTS OWNED, THE NUMBER OF
PRIMARY SHARES SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF
APPLICABLE, REQUESTED BY EACH SUCH OWNER.
C-1
<PAGE> 67
THE LATIN AMERICAN DISCOVERY FUND, INC.
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights
("Rights") to purchase shares of Common Stock, $0.01 par value ("Common Stock"),
of The Latin American Discovery Fund, Inc. (the "Fund") pursuant to the Rights
offering (the "Offer") described and provided for in the Fund's Prospectus dated
September , 1995 (the "Prospectus") hereby certifies to the Fund and to The
First National Bank of Boston as Subscription Agent for such Offer, that for
each numbered line filled in below the undersigned has exercised, on behalf of
the beneficial owner thereof (which may be the undersigned), the number of
Rights specified on such line in the Primary Subscription (as defined in the
Prospectus) and such beneficial owner wishes to subscribe for the purchase of
additional shares of Common Stock pursuant to the Over-Subscription Privilege
(as defined in the Prospectus), in the amount set forth in the third column of
such line:
<TABLE>
<CAPTION>
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES REQUESTED
IN THE PRIMARY PURSUANT TO THE
RECORD DATE SHARES SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
1) ---------------------------- ---------------------------- ----------------------------
2) ---------------------------- ---------------------------- ----------------------------
3) ---------------------------- ---------------------------- ----------------------------
4) ---------------------------- ---------------------------- ----------------------------
5) ---------------------------- ---------------------------- ----------------------------
6) ---------------------------- ---------------------------- ----------------------------
7) ---------------------------- ---------------------------- ----------------------------
8) ---------------------------- ---------------------------- ----------------------------
9) ---------------------------- ---------------------------- ----------------------------
10) ---------------------------- ---------------------------- ----------------------------
--------------------------------------------- ---------------------------------------------
Name of Nominee Holder Depository Participant Number
--------------------------------------------- ---------------------------------------------
Name: Depository Primary Subscription Confirmation
Numbers(s)
Title:
Dated: , 1995
</TABLE>
C-2
<PAGE> 68
APPENDIX D
DESCRIPTION OF VARIOUS FOREIGN CURRENCY AND INTEREST RATE HEDGES
AND OPTIONS ON SECURITIES AND STOCK INDEX
FUTURES CONTRACTS AND RELATED OPTIONS
FOREIGN CURRENCY HEDGING TRANSACTIONS
Forward Foreign Currency Exchange Contract. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specified amount
of a foreign currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks and
brokers). The Fund has established procedures consistent with the general
statement of policy of the U.S. Securities and Exchange Commission concerning
forward purchases or sales of foreign currencies. Since that policy currently
recommends that an amount of the Fund's assets equal to the amount of the
commitment be held aside or segregated to be used to pay for the commitment, the
Fund will always have cash, cash equivalents or high-quality debt securities
available sufficient to cover any commitments under contracts to purchase or
sell foreign currencies or to limit any potential risk. The segregated account
will be marked to market on a daily basis. While these contracts are not
presently regulated by the U.S. Commodity Futures Trading Commission (the
"CFTC"), the CFTC may in the future assert authority to regulate forward foreign
currency exchange contracts. In such event, the Fund's ability to utilize
forward foreign currency exchange contracts in the manner set forth above may be
restricted.
Foreign Currency Futures Contracts and Related Options. A foreign currency
futures contract is a standardized contract for the future delivery of a
specified amount of a foreign currency at a future date at a price set at the
time of the contract. Foreign currency futures contracts traded in the United
States are traded on regulated exchanges. Parties to a futures contract must
make initial "margin" deposits to secure performance of the contract, which
generally range from 2% to 15% of the contract price. There also are
requirements to make "variation" margin deposits as the value of the futures
contract fluctuates. The Fund may enter into futures contracts for hedging
purposes only. In addition, the Fund may not enter into futures contracts on
foreign currency (or with respect to interest rates or stock indexes (described
below)) or related options if the aggregate amount of initial margin deposits
and premiums on the Fund's futures and related options positions would exceed 5%
of the fair market value of the Fund's total assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. In addition, with respect to long positions in futures contracts on
currency (or with respect to interest rates or stock indexes) or options on
futures, the underlying commodity value of such contracts will not exceed the
sum of cash and cash equivalents segregated for this purpose plus accrued
profits on the contracts held at the futures commission merchant.
The Fund may purchase and write call and put options on foreign currency
futures contracts. An option on a foreign currency futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in a foreign
currency futures contract at a specified exercise price at any time on or before
the expiration date of the option. The potential loss related to the purchase of
an option on a futures contract is limited to the premium paid for the option
(plus transaction costs). Because the value of the option is fixed at the point
of sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily. To the extent the Fund purchases an option on a foreign currency
futures contract any change in the value of such option would be reflected in
the net asset value of the Fund.
Options on Currencies. A put option purchased by the Fund on a currency
gives the Fund the right to sell the currency at the exercise price until the
expiration of the option. A call option purchased by the Fund gives the Fund the
right to purchase a currency at the exercise price until the expiration of the
option.
D-1
<PAGE> 69
Currency Hedging Strategies. The Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts and related
options in several circumstances. For example, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when the Fund anticipates the receipt in a foreign currency of
dividends or interest payments on such a security which it holds, the Fund may
desire to "lock in" the dollar price of the security or the dollar equivalent of
such dividend or interest payment, as the case may be. In addition, when the
Investment Manager believes that the currency of a particular foreign country
may suffer a substantial decline against the dollar, it may enter into a forward
or futures contract to sell, for a fixed amount of dollars, the amount of
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into an offsetting contract. Such offsetting transactions with
respect to forward contracts must be effected with the currency trader who is a
party to the original forward contract. Offsetting transactions with respect to
futures contracts are effected on the same exchange on which the initial
transaction occurred. The Fund will only enter into such futures contracts and
related options if it is expected that there will be a liquid market in which to
close out such contract. There can, however, be no assurance that such a liquid
market will exist in which to close a futures contract or related option or that
the opposite party to the forward contract will agree to the offset, in which
case the Fund may suffer a loss.
The Fund does not intend to enter into such forward or futures contracts to
protect the value of its portfolio securities on a regular basis, and will not
do so if, as a result, the Fund will have more than 20% of the value of its
total assets committed to the consummation of such contracts. The Fund also will
not enter into such forward or futures contracts or maintain a net exposure to
such contracts where the consummation of the 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. Further, the
Fund generally will not enter into a forward or futures contract with a term of
greater than one year. The Fund may attempt to accomplish objectives similar to
those described above with respect to forward and futures contracts for currency
by means of purchasing put or call options on foreign currencies on exchanges.
While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in a
poorer overall performance for the Fund than if it had not engaged in any such
transaction. Moreover, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward, futures or options contracts entered into by the Fund. Such imperfect
correlation may prevent the Fund from achieving the intended hedge or expose the
Fund to risk of foreign exchange loss.
Certain provisions of the Code may limit the extent to which the Fund may
enter into forward or futures contracts or engage in options transactions. These
transactions may also affect the character and timing of income and the amount
of gain or loss recognized by the Fund and its shareholders for U.S. federal
income tax purposes. See "Taxation -- U.S. Federal Income Taxes."
INTEREST RATE FUTURES AND OPTIONS THEREON
Interest Rate Futures Contracts. The Fund may enter into futures contracts
on government debt securities for the purpose of hedging its portfolio against
the adverse effects of anticipated movements in interest rates. For example, the
Fund may enter into futures contracts to sell U.S. Government Treasury Bills
(take a "short position") in anticipation of an increase in interest rates.
Generally, as interest rates rise, the market value of any fixed-income
securities held by the Fund will fall, thus reducing the net asset value of the
Fund. However, the value of the Fund's short position in the futures contracts
will also tend to increase, thus offsetting all or a portion of the depreciation
in the market value of the Fund's fixed-income investments which are being
hedged. The Fund may also enter into futures contracts to purchase government
debt securities (take a "long position") in anticipation of a decline in
interest rates. The Fund might employ this strategy in order to offset entirely
or in part an increase in the cost of any fixed-income securities it intends to
subsequently purchase.
D-2
<PAGE> 70
Options on Futures Contracts. The Fund may purchase and write call and put
options on interest rate futures contracts which are traded on contract markets
and enter into closing transactions with respect to such options to terminate an
existing position. The Fund may use such options in connection with its hedging
strategies. Generally, these strategies would be employed under the same market
and market sector conditions in which the Fund enters into futures contracts. An
option on an interest rate futures contract operates in the same manner as an
option on a foreign currency futures contract (described above), except that it
gives the purchaser the right, in return for the premium paid, to assume a
position in an interest rate futures contract instead of a currency futures
contract. The Fund may purchase put options on futures contracts rather than
taking a short position in the underlying futures contract in anticipation of an
increase in interest rates. Similarly, the Fund may purchase call options on
futures contracts as a substitute for taking a long position in futures
contracts to hedge against the increased cost resulting from a decline in
interest rates of fixed-income securities which the Fund intends to purchase.
The Fund also may write a call option on a futures contract rather than taking a
short position in the underlying futures contract, or write a put option on a
futures contract rather than taking a long position in the underlying futures
contracts. The writing of an option, however, will only constitute a partial
hedge, since the Fund could be required to enter into a futures contract at an
unfavorable price and will in any event be able to benefit only to the extent of
the premium received.
Risk Factors in Transactions in Interest Rate Futures Contracts and Options
Thereon. The Fund's ability to effectively hedge all or a portion of its fixed
income securities through the use of interest rate futures contracts and options
thereon depends in part on the degree to which price movements in the securities
underlying the option or futures contract correlate with price movements of the
fixed-income securities held by the Fund. In addition, disparities in the
average maturity or the quality of the Fund's investments as compared to the
financial instrument underlying an option or futures contract may also reduce
the correlation in price movements. Transactions in options on futures contracts
involve similar risks, as well as the additional risk that movements in the
price of the option will not correlate with movements in the price of the
underlying futures contract.
OPTIONS ON SECURITIES AND STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
Options on Securities. In order to hedge against market shifts, the Fund
may purchase put and call options on securities. In addition, the Fund may seek
to increase its income or may hedge a portion of its portfolio investments
through writing (i.e., selling) covered call options. A put option gives the
holder the right to sell to the writer of the option an underlying security at a
specified price at any time during or at the end of the option period. In
contrast, a call option gives the purchaser the right to buy the underlying
security covered by the option from the writer of the option at the stated
exercise price. A "covered" call option means that so long as the Fund is
obligated as the writer of the option, it will own (i) the underlying securities
subject to the option, or (ii) securities convertible or exchangeable without
the payment of any consideration into the securities subject to the option. As a
matter of operating policy, the value of the underlying securities on which
options will be written at any one time will not exceed 5% of the total assets
of the Fund.
The Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods the Fund
will receive less total return and in other periods greater total return from
writing covered call options than it would have received from its underlying
securities had it not written call options.
The Fund may purchase options on securities (including Sovereign Debt) that
are listed on securities exchanges or traded over the counter. In purchasing a
put option, the Fund will seek to benefit from a decline in the market price of
the underlying security, while in purchasing a call option, the Fund will seek
to benefit from an increase in the market price of the underlying security. If
an option purchased is not sold or exercised when it has remaining value, or if
the market price of the underlying security remains equal to or greater than the
exercise price, in the case of a put, or remains equal to or below the exercise
price, in the case of a call, during the life of the option, the Fund will lose
its investment in the option. For the purchase of an option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price, in the
D-3
<PAGE> 71
case of a put, and must increase sufficiently above the exercise price, in the
case of a call, to cover the premium and transaction costs. Because premiums
paid by the Fund on options are small in relation to the market value of the
investments underlying the options, buying options can result in large amounts
of leverage. The leverage offered by trading in options could cause the Fund's
net asset value to be subject to more frequent and wider fluctuation than would
be the case if the Fund did not invest in options.
Stock Index Futures Contracts and Related Options. The Fund may, for
hedging purposes, enter into stock index futures contracts and purchase and
write put and call options on stock index futures contracts, in each case that
are traded on regulated exchanges, including non-U.S. exchanges to the extent
permitted by the CFTC. A stock index futures contract is an agreement to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the beginning and at the end of the contract period. Successful use
of stock index futures will be subject to the Investment Manager's ability to
predict correctly movements in the direction of the relevant stock market. No
assurance can be given that the Investment Manager's judgment in this respect
will be correct.
The Fund may enter into stock index futures contracts to sell a stock index
in anticipation of or during a market decline to attempt to offset the decrease
in market value of equity securities in its portfolio that might otherwise
result. When the Fund is not fully invested in common stocks and anticipates a
significant market advance, it may enter into futures contracts to purchase the
index in order to gain rapid market exposure that may in part or entirely offset
increases in the cost of common stocks that it intends to purchase. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of common stocks.
The Fund may purchase and write put and call options on stock index futures
contracts in order to hedge all or a portion of its investments and may enter
into closing purchase transactions with respect to written options in order to
terminate existing positions. There is no guarantee that such closing
transactions can be effected. An option on a stock index futures contract
operates in the same manner as an option on a foreign currency futures contract
(described above), except that it gives the purchaser the right, in return for
the premium paid, to assume a position in a stock index futures contract instead
of a currency futures contract.
D-4
<PAGE> 72
THE LATIN AMERICAN DISCOVERY FUND, INC.
<PAGE> 73
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
<TABLE>
<S> <C> <C>
(i) -- Statement of Net Assets as of December 31, 1994*
(ii) -- Statement of Operations for the year ended December 31, 1994*
(iii) -- Statement of Changes in Net Assets for the years ended December 31, 1993 and
1994*
(iv) -- Selected Per Share Data and Ratios for the period from June 23, 1992 to
December 31, 1992 and the year ended December 31, 1993 and 1994 year ended
December 31, 1994*
(v) -- Notes to Financial Statements*
(vi) -- Report of Independent Accountants*
(vii) -- Statement of Net Assets as of June 30, 1995 (unaudited)*
(viii) -- Statement of Operations for the period ended June 30, 1995 (unaudited)*
(ix) -- Statement of Changes in Net Assets for the period ended June 30, 1995
(unaudited)*
(x) -- Selected Per Share Data and Ratios for the period ended June 30, 1995
(unaudited)*
</TABLE>
Statements, schedules and historical information other than those listed
above have been omitted since they are either not applicable, or not required or
the required information is shown in the financial statements or notes thereto.
---------------
* Incorporated by reference.
(2) Exhibits
<TABLE>
<S> <C> <C> <C>
(a) -- Articles of Incorporation*
(b) -- Amended and Restated By-Laws**
(c) -- Not applicable
(d)(1) -- Specimen certificate for Common Stock, par value $.01 per share**
(2) -- Form of Subscription Certificate (included on pages A-1 to A-3 of the
Prospectus forming part of this Registration Statement)
(3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2 of the
Prospectus forming part of this Registration Statement)
(4) -- DTC Participant Over-Subscription Exercise Form (included on page C-1 of
the Prospectus forming part of this Registration Statement)
(5) -- Form of Subscription Agent Agreement****
(6) -- Form of Information Agent Agreement****
(e) -- Dividend Reinvestment and Cash Purchase Plan**
(f) -- Not applicable
(g)(1) -- Investment Advisory and Management Agreement***
(h)(1) -- Form of Dealer Manager Agreement***
(2) -- Form of Soliciting Dealer Agreement***
(3) -- Form of Selling Group Agreement***
(i) -- Not applicable
(j)(1) -- International Custodian Agreement***
(2) -- U.S. Custodian Agreement****
(k)(1) -- Agreement for Stock Transfer Services**
(2) -- U.S. Administration Agreement***
(3) -- Chilean Administration Agreement***
(4) -- Brazilian Administration Agreement***
</TABLE>
i
<PAGE> 74
<TABLE>
<S> <C> <C> <C>
(l)(1) -- Opinion and consent of Rogers & Wells****
(2) -- Opinion and consent of Piper & Marbury L.L.P.****
(3) -- Opinion and consent of Cardenas, Cassagne & Asociados****
(4) -- Opinion and consent of Pinheiro Neto****
(5) -- Opinion and consent of Estudio Arturo Alessandri****
(6) -- Opinion and consent of Arthur Andersen & Co.****
(m) -- Not applicable
(n) -- Report and consent of Price Waterhouse LLP****
(o) -- Not applicable
(p) -- Form of Investment Letter**
(q) -- Not applicable
</TABLE>
---------------
* Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-46136; 811-6574) filed on March 3, 1992.
** Incorporated by reference to Pre-Effective Amendment No. 3 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-46136; 811-6574) filed on
June 11, 1992.
*** Filed herewith.
**** To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits (h)(1),(h)(2) and (h)(3) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
<TABLE>
<S> <C>
Registration fees.................................................................. $13,229
New York Stock Exchange listing fee................................................
Printing (other than stock certificates)...........................................
Fees and expenses of qualification under state securities laws (including fees of
counsel).........................................................................
Accounting fees and expenses.......................................................
Legal fees and expenses............................................................
Dealer Manager expense reimbursement...............................................
Information Agent's fees and expenses..............................................
Subscription Agent's fees and expenses.............................................
NASD fee...........................................................................
Miscellaneous......................................................................
-------
Total......................................................................... $
=======
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
At July 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
------------------------------------------------------------------------------- --------------
<S> <C>
Common Stock, $.01 par value................................................... 386
</TABLE>
ii
<PAGE> 75
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-Laws, the Investment Advisory and Management Agreement and the Dealer
Manager Agreement filed as Exhibit (h)(1) to this Registration Statement provide
for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of Morgan Stanley Asset Management Inc. is
set forth under the caption "Management of the Fund" in the Prospectus forming
part of this Registration Statement.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. set forth in Morgan Stanley Asset Management Inc.s Form ADV
filed with the Securities and Exchange Commission on December 15, 1981 (File No.
801-15757) and as amended through the date hereof is incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Latin American Discovery Fund, Inc.
c/o Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(Fund's Articles of Incorporation and By-Laws)
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(with respect to its services as Investment Manager)
The United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
(with respect to its services as U.S. Administrator)
Unibanco-Uniao de Bancos Brasileiros S.A.
Avenida Eusebio Matoso,
891, Sao Paulo, S.P.
Brazil
(with respect to its services as Brazilian Administrator)
Bice Chileconsult Agente de Valores S.A.
Teatinos 220, 5th Floor
Santiago, Chile
(with respect to its services as Chilean Administrator)
iii
<PAGE> 76
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
(with respect to its services as Custodian for the Fund's foreign assets)
The United States Trust Company of New York
770 Broadway
New York, New York 10003
(with respect to its services as Custodian for the Fund's U.S. assets)
The First National Bank of Boston
150 Royall Street
Canton, Massachusetts 02021
(with respect to its services as Subscription Agent)
ITEM 32. MANAGEMENT SERVICES
Not applicable
ITEM 33. UNDERTAKINGS
(a) The Registrant undertakes to suspend the offering until it amends its
Prospectus contained herein if (1) subsequent to the effective date of this
Registration Statement, its net asset value per share declines more than 10
percent from its net asset value per share as of the effective date of this
Registration Statement or (2) its net asset value increases to an amount greater
than its net proceeds as stated in the Prospectus contained herein.
(b) The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 497(h) under the Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Act each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To comply with the restrictions on indemnification set forth in
Investment Company Act Release No. IC-11330, September 2, 1980.
iv
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 11th day of August, 1995.
THE LATIN AMERICAN DISCOVERY FUND,
INC.
By: /s/ WARREN J. OLSEN
--------------------------------
Warren J. Olsen
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Warren J. Olsen and Harold J. Schaff, Jr., and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all Amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------- ------------------------------------ -------------------
<S> <C> <C>
/s/ BARTON M. BIGGS Director and Chairman of the Board August 11, 1995
-------------------------------------
Barton M. Biggs
Director and Vice Chairman August , 1995
-------------------------------------
Frederick B. Whittemore
/s/ WARREN J. OLSEN Director and President August 11, 1995
------------------------------------- (Principal Executive Officer)
Warren J. Olsen
/s/ PETER J. Director August 8, 1995
CHASE
-------------------------------------
Peter J. Chase
/s/ JOHN W. CROGHAN Director August 11, 1995
-------------------------------------
John W. Croghan
Director August , 1995
-------------------------------------
David B. Gill
</TABLE>
v
<PAGE> 78
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------- ------------------------------------ -------------------
<S> <C> <C>
/s/ GRAHAM E. JONES Director August 11, 1995
-------------------------------------
Graham E. Jones
Director August , 1995
-------------------------------------
John A. Levin
/s/ WILLIAM G. MORTON, JR. Director August 8, 1995
-------------------------------------
William G. Morton, Jr.
/s/ JAMES R. ROONEY Treasurer (Principal Financial and August 11, 1995
------------------------------------- Accounting Officer)
James R. Rooney
</TABLE>
vi
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
----------- --------------------------------------------------------------------- ------------
<S> <C> <C> <C>
(a) -- Articles of Incorporation*...........................................
(b) -- Amended and Restated By-Laws**.......................................
(c) -- Not applicable.......................................................
(d) (1) -- Specimen certificate for Common Stock, par value $.01 per share**....
(2) -- Form of Subscription Certificate (included on pages A-1 to A-3 of the
Prospectus forming part of this Registration Statement)..............
(3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2
of the Prospectus forming part of this Registration Statement).......
(4) -- DTC Participant Over-Subscription Exercise Form (included on page C-1
of the Prospectus forming part of this Registration Statement).......
(5) -- Form of Subscription Agent Agreement****.............................
(6) -- Form of Information Agent Agreement****..............................
(e) -- Dividend Reinvestment and Cash Purchase Plan**.......................
(f) -- Not applicable.......................................................
(g) (1) -- Investment Advisory and Management Agreement***......................
(h) (1) -- Form of Dealer Manager Agreement***..................................
(2) -- Form of Soliciting Dealer Agreement***...............................
(3) -- Form of Selling Group Agreement***...................................
(i) -- Not applicable.......................................................
(j) (1) -- International Custodian Agreement***.................................
(2) -- U.S. Custodian Agreement****.........................................
(k) (1) -- Agreement for Stock Transfer Services**..............................
(2) -- U.S. Administration Agreement***.....................................
(3) -- Chilean Administration Agreement***..................................
(4) -- Brazilian Administration Agreement***................................
(l) (1) -- Opinion and consent of Rogers & Wells****............................
(2) -- Opinion and consent of Piper & Marbury L.L.P.****....................
(3) -- Opinion and consent of Cardenas, Cassagne & Asociados****............
(4) -- Opinion and consent of Pinheiro Neto****.............................
(5) -- Opinion and consent of Estudio Arturo Alessandri****.................
(6) -- Opinion and consent of Arthur Andersen & Co.****.....................
(m) -- Not applicable.......................................................
(n) -- Report and consent of Price Waterhouse LLP****.......................
(o) -- Not applicable.......................................................
(p) -- Form of Investment Letter**..........................................
(q) -- Not applicable.......................................................
</TABLE>
---------------
* Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-46136; 811-6574) filed on March 3, 1992.
** Incorporated by reference to Pre-Effective Amendment No. 3 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-46136; 811-6574) filed on
June 11, 1992.
*** Filed herewith.
**** To be filed by amendment.
<PAGE> 1
INVESTMENT ADVISORY AND
MANAGEMENT AGREEMENT
Agreement, dated and effective as of , 1994,
between THE LATIN AMERICAN DISCOVERY FUND, INC., a Maryland corporation (the
"Fund"), and MORGAN STANLEY ASSET MANAGEMENT INC., a Delaware corporation
(the "Investment Manager").
WITNESSETH: That in consideration of the mutual covenants herein contained,
it is agreed by the parties as follows:
1. The Investment Manager hereby undertakes and agrees, upon the terms and
conditions herein set forth, (i) to make investment decisions for the Fund, to
prepare and make available to the Fund research and statistical data in
connection therewith, and to supervise the acquisition and disposition of
securities by the Fund, including the selection of brokers or dealers to carry
out transactions, all in accordance with the Fund's investment objective and
policies and limitations, as the same are set forth in the prospectus contained
in the Fund's registration statement on Form N-2 filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended (the "1940 Act"), and in accordance
with guidelines and directions from the Fund's Board of Directors; (ii) to
assist the Fund as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Fund's Board of Directors;
(iii) to maintain or cause to be maintained for the Fund all books and records
required under the 1940 Act, to the extent that such books and records are not
maintained or furnished by the administrators, custodians or other agents of the
Fund; (iv) to furnish at the Investment Manager's expense for the use of the
Fund such office space and facilities as the Fund may require for its reasonable
needs, to the extent not furnished by the Fund's administrators, custodians or
other agents, and to furnish at the Investment Manager's expense clerical
services in the United States related to research, statistical and investment
work; and (v) to pay the salaries and expenses of such of the Fund's officers
and employees and any fees and expenses of such of the Fund's Directors who are
directors, officers or employees of the Investment Manager or any of its
affiliates, provided, however, that the Fund, and not the Investment Manager,
shall bear travel expenses or an appropriate fraction thereof of Directors and
officers of the Fund who are directors, officers or employees of the Investment
Manager to the extent that such expenses relate to attendance at meetings of the
Board of Directors of the Fund or any committees thereof. The Investment Manager
shall bear all expenses arising out of its duties hereunder but shall not be
responsible for any expenses of the Fund other than
<PAGE> 2
those specifically allocated to the Investment Manager in this paragraph
1. In particular, but without limiting the generality of the foregoing, the
Investment Manager shall not be responsible for the following expenses of the
Fund: organization expenses (but not the overhead or employee costs of the
Investment Manager); legal fees and expenses of counsel to the Fund; auditing
and accounting expenses; taxes and governmental fees; New York Stock Exchange
listing fees; dues and expenses incurred in connection with membership in
investment company organizations; fees and expenses of the Fund's custodian,
subcustodians, investment advisers, transfer agents and registrars; fees and
expenses with respect to administration, except as may be herein expressly
provided otherwise; expenses for portfolio pricing services by a pricing agent,
if any; expenses of preparing share certificates and other expenses in
connection with the issuance, offering and underwriting of shares issued by the
Fund; expenses relating to investor and public relations; expenses of
registering or qualifying securities of the Fund for public sale; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio holding of the Fund; expenses of preparation and
distribution of reports, notices and dividends to shareholders; expenses of the
dividend reinvestment and cash purchase plan; costs of stationery; any
litigation expenses; and costs of stockholders' and other meetings.
2. The Fund agrees to pay in United States dollars to the Investment
Manager for its services under this Agreement, a fee, computed weekly and
payable monthly, at an annual rate of 1.15% of the Fund's average weekly net
assets.
3. The Investment Manager agrees that it will not make a short sale of any
security of the Fund, or purchase any security of the Fund other than for
investment.
4. Nothing herein shall be construed as prohibiting the Investment Manager
from providing investment advisory services to, or entering into investment
advisory agreements with, other clients (including other registered investment
companies), including clients which may invest in Latin American equity
securities; nor, except as explicitly provided herein, shall anything herein be
construed as constituting the Investment Manager as agent of the Fund.
5. The Investment Manager may rely on information reasonably believed by it
to be accurate and reliable. Neither the Investment Manager nor its officers,
directors, employees, agents or controlling persons (as defined in the 1940 Act)
shall be subject to any liability for any act or omission, error of judgment or
mistake of law, or for any loss suffered by the Fund, in the course of,
connected with or arising out of any services to be rendered hereunder, except
by reason of willful misfeasance, bad faith or gross negligence on the part of
the Investment Manager in the performance of its duties or by reason of reckless
disregard on
2
<PAGE> 3
the part of the Investment Manager of its obligations and duties under this
Agreement. Any person, even though also employed by the Investment Manager, who
may be or become an employee of the Fund shall be deemed, when acting within the
scope of his employment by the Fund, to be acting in such employment solely for
the Fund and not as an employee or agent of the Investment Manager.
The Fund agrees to indemnify and hold harmless the Investment Manager, its
officers, directors, employees, agents, shareholders, or other affiliates (each
an "Indemnified Party"), for any losses, costs and expenses incurred or suffered
by any Indemnified Party arising from any action, proceeding or claims which may
be brought against such Indemnified Party in connection with the performance or
nonperformance in good faith of its functions under this Agreement, except
losses, costs and expenses resulting from willful misfeasance, bad faith or
gross negligence in the performance of such Indemnified Party's duties or from
reckless disregard on the part of such Indemnified Party of such Indemnified
Party's obligations and duties under this Agreement.
6. This Agreement shall remain in effect for a period of two years from the
date hereof, and shall continue in effect thereafter, but only so long as such
continuance is specifically approved at least annually by the affirmative vote
of (i) a majority of the members of the Fund's Board of Directors who are
neither parties to this Agreement nor interested persons of the Fund or of the
Investment Manager or of any entity regularly furnishing investment advisory
services with respect to the Fund pursuant to an agreement with the Investment
Manager, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) a majority of either the Fund's Board of Directors or the
holders of a majority of the outstanding voting securities of the Fund.
This Agreement may nevertheless be terminated at any time without penalty,
on 60 days' written notice, by the Fund's Board of Directors, by vote of holders
of a majority of the outstanding voting securities of the Fund, or by the
Investment Manager. This Agreement shall automatically be terminated in the
event of its assignment, provided, however, that a transaction which does not,
in accordance with the 1940 Act, result in a change of actual control or
management of the Investment Manager's business shall not be deemed to be an
assignment for the purposes of this Agreement.
Termination of this Agreement shall not affect the right of the Investment
Manager to receive payments on any unpaid balance of the compensation described
in paragraph 2 earned prior to such termination.
7. This Agreement may be amended by mutual agreement, but only after
authorization of such amendment by the affirmative vote of (i) the holders of a
majority of the outstanding voting securities of the Fund, and (ii) a majority
of the members of the
3
<PAGE> 4
Fund's Board of Directors who are not interested persons of the Fund or of the
Investment Manager, cast in person at a meeting called for the purpose of voting
on such approval.
8. This Agreement shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act. As used herein, the terms "interested
person," "assignment," and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations thereunder.
9. Any notice hereunder shall be in writing and shall be delivered in
person or by telex or facsimile (followed by mailing such notice, air mail
postage prepaid, on the day on which such telex or facsimile is sent to the
addresses set forth below) to the following addresses or telex or facsimile
numbers:
If to Morgan Stanley Asset Management Inc., to the attention of General
Counsel, 1221 Avenue of the Americas, New York, New York 10020, Telex No.
212-680-1248; Facsimile No. 212-921-5477.
If to the Fund, to the attention of the President, 1221 Avenue of the
Americas, New York, New York 10020, Telex No. 212-680-1248; Facsimile No.
212-921-5477.
or to such other address as to which the recipient shall have informed the
other parties in writing.
Notice given as provided above shall be deemed to have been given, if by
personal delivery, on the day of such delivery, and, if by telex or facsimile
and mail, on the date on which such telex or facsimile and confirmatory letter
are sent.
10. Each party hereto irrevocably submits to the non-exclusive jurisdiction
of the United States District Court for the Southern District of New York or the
Supreme Court of the State of New York, New York County, in any action, suit or
proceeding brought against it and related to or in connection with this
Agreement or the transactions comtemplated hereunder. Each party waives any
objection to the laying of venue of any such suit, action or proceeding in
either such court, and waives any claim that such suit, action or proceeding has
been brought in an inconvenient forum. Each party hereto irrevocably consents to
service of process in connection with any such suit, action or proceeding by
mailing a copy thereof in English by registered or certified mail, postage
prepaid, to their respective addresses as set forth in this Agreement.
11. The Investment Manager represents and warrants that it is duly
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended, and that it will use its
4
<PAGE> 5
reasonable efforts to maintain effective its registration during the term of
this Agreement.
12. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written above.
THE LATIN AMERICAN DISCOVERY FUND, INC.
By: /s/ Warren Olsen
-------------------------------------
Name: Warren Olsen
Title: President
MORGAN STANLEY ASSET MANAGEMENT INC.
By: /s/ Warren Olsen
-------------------------------------
Name: Warren Olsen
Title: Principal
5
<PAGE> 1
EXHIBIT (h)(1)
[ ] Shares of Common Stock
Issuable Upon Exercise of Transferable Rights
THE LATIN AMERICAN DISCOVERY FUND, INC.
COMMON STOCK
PAR VALUE $.01 PER SHARE
DEALER MANAGER AGREEMENT
September [ ], 1995
<PAGE> 2
September [ ], 1995
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
THE LATIN AMERICAN DISCOVERY FUND, INC., a corporation formed under the
laws of the State of Maryland (the "Fund"), is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended (together with the rules and regulations thereunder, the
"Investment Company Act"). The Fund proposes to issue to its shareholders of
record ("Record Date Shareholders") as of September [ ], 1995 (the "Record
Date") rights ("Rights") entitling their holders to subscribe for an aggregate
of [ ] shares ("Shares") of the Fund's Common Stock, par value $.01
per share ("Common Stock").
The Fund appoints Morgan Stanley & Co. Incorporated ("Morgan Stanley") as
the exclusive dealer manager in connection with the offer of Shares
contemplated by the proposed issuance of Rights (the "Offer") and Morgan
Stanley accepts that appointment. The Fund also authorizes Morgan Stanley to
form and manage a group of securities dealers (each, a "Selling Group Member,"
and, collectively, the "Selling Group") to solicit the exercise of Rights and
sell Shares purchased by Morgan Stanley from the Fund through the exercise of
Rights. Morgan Stanley represents and warrants that it is a broker-dealer
registered under the Securities Exchange Act of 1934, as amended (together with
the rules and regulations thereunder, the "Exchange Act"). Morgan Stanley Asset
Management Inc. (the "Investment Manager") manages the investments of the Fund
pursuant to the Investment Advisory and Management Agreement, dated as of June
16, 1992 with the Fund (the "Management Agreement").
<PAGE> 3
In connection with the Offer, each Record Date Shareholder will be issued
one Right for each full share of Common Stock owned on September [ ], 1995.
The number of Rights to be issued to Record Date Shareholders will be rounded
up to the nearest number of Rights evenly divisible by three. No fractional
Rights will be issued. The Rights entitle their holders to acquire one Share
for each three Rights held at a price of $[ ] per Share (the "Subscription
Price"). The period of subscription (the "Subscription Period") commences on
September [ ], 1995 and ends at 5:00 p.m., New York time, on October [ ],
1995 unless extended by the Fund and Morgan Stanley (the "Expiration Date").
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares that
were not otherwise subscribed for by others during the Subscription Period.
Additional terms and conditions of the Offer are set out in the Registration
Statement on Form N-2 (File No. 33- ), as amended (the "Registration
Statement"), filed by the Fund with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act and the Securities Act of 1933,
as amended (together with the rules and regulations thereunder, the "Securities
Act" and, together with the Investment Company Act, the "Acts"). The final
prospectus for the Shares contained in the Registration Statement is
hereinafter referred to as the "Prospectus"; any letters to beneficial owners
of shares of Common Stock, any forms used to exercise Rights, any letters from
the Fund to securities dealers, banks and other nominees, and any newspaper
announcements, press releases and other offering materials and information that
the Fund may use, approve, prepare or authorize in writing for use in
connection with the Offer are hereinafter collectively referred to as the
"Offering Materials".
I.
The Fund and the Investment Manager, jointly and severally, represent and
warrant to Morgan Stanley that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the
knowledge of the Fund or the Investment Manager, threatened by the
Commission.
(b) The Fund has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the State of Maryland,
has the
2
<PAGE> 4
corporate power and authority to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business
requires such qualification, except to the extent that the failure to be
so qualified or be in good standing would not have a material adverse
effect on the Fund. The Fund has no subsidiaries.
(c) The Fund is registered with the Commission as a non-diversified,
closed-end management investment company under the Investment Company Act
and no order of suspension or revocation of such registration has been
issued or proceedings initiated for that purpose or, to the knowledge of
the Fund or the Investment Manager, threatened by the Commission. No
person is serving or acting as an officer or director of, or investment
adviser to, the Fund except in accordance with the provisions of the
Investment Company Act and the Investment Advisers Act of 1940, as
amended, and the rules and regulations of the Commission thereunder (such
act and rules being collectively referred to as the "Advisers Act").
(d) Each of this Agreement and the Subscription Agent Agreement
dated as of September [ ], 1995 (the "Subscription Agent Agreement")
between the Fund and [The First National Bank of Boston] (the
"Subscription Agent"), has been duly authorized, executed and delivered by
the Fund. The Subscription Agent Agreement, assuming due authorization,
execution and delivery by the Subscription Agent, constitutes the legal,
valid and binding obligation of the Fund, enforceable against the Fund in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting creditors' rights generally and by general principles of
equity, regardless of whether considered in a proceeding in equity
or at law.
(e) None of (i) the execution and delivery by the Fund of, and the
performance by the Fund of its obligations under, this Agreement and the
Subscription Agent Agreement, or (ii) the distribution of the Rights and
the allotment, issue and sale of the Shares, contravenes or will
contravene any provision of applicable U.S. law, the Blue Sky laws of the
various foreign jurisdictions or the articles of incorporation or by-laws
of the Fund or any agreement or other
3
<PAGE> 5
instrument binding upon the Fund that is material to the Fund, or any
judgment, order or decree of any government body, agency or court having
jurisdiction over the Fund, whether foreign or domestic. No consent,
approval, authorization, order or permit of, or qualification with, any
government body or agency, self-regulatory organization or court or other
tribunal, whether foreign or domestic, is required for the performance by
the Fund of its obligations under this Agreement and the Subscription
Agent Agreement, except such as have been obtained and as may be required
by the Acts, the Exchange Act, or the securities or Blue Sky laws of the
various states and political subdivisions of the United States and foreign
jurisdictions in connection with the distribution of the Rights and the
issue and sale of the Shares.
(f) The authorized capital stock and the articles of incorporation
and by-laws of the Fund conform in all material respects to the
description thereof contained in the Prospectus, and the Rights and Shares
will conform in all material respects to the descriptions thereof
contained in the Prospectus.
(g) The articles of incorporation and by-laws of the Fund, this
Agreement, the Subscription Agent Agreement, the Management Agreement, the
Administration Agreement between United States Trust Company of New York
and the Fund (the "Administration Agreement"), the Custody Agreement
between Morgan Stanley Trust Company and the Fund (the "International
Custody Agreement") and the Domestic Custody Agreement between U.S. Trust
Company of New York and the Fund (the "Domestic Custody Agreement") (the
Management Agreement, the Administration Agreement, the International
Custody Agreement and the Domestic Custody Agreement are referred to
herein, collectively, as the "Fundamental Agreements"), each as referred
to in the Registration Statement, comply with all applicable provisions of
the Acts, and all approvals of such documents required under the
Investment Company Act by the Fund's shareholders and Board of Directors
have been obtained and are in full force and effect.
(h) The Fundamental Agreements are in full force and effect and
neither the Fund nor, to the Fund's knowledge, any other party to any such
agreement is in default thereunder and, to the knowledge of the Fund, no
event has occurred that with the passage of time or the giving of notice
or both would constitute a default thereunder. The Fund is not currently
in breach of, or
4
<PAGE> 6
in default under, any other written agreement or instrument to which it or
its property is bound or affected.
(i) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable and the form of certificates used to evidence such shares is
in due and proper form and complies with all provisions of applicable law.
(j) The Offer, the Rights and the Shares have been duly authorized
and, when issued, paid for and delivered as described in the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable
and the issuance of the Shares will not be subject to any pre-emptive or
similar rights. No person has rights to the registration of any securities
because of the filing of the Registration Statement.
(k) The Rights and the Shares have been approved for listing on the
New York Stock Exchange, Inc. (the "New York Stock Exchange"), subject to
official notice of issuance.
(l) The Fund is a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code").
(m) There has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, of the fund, or in the investment objective,
investment policies, liabilities, business, prospects or operations of the
Fund from that set forth in the Prospectus and there have been no
transactions entered into by the Fund that are material to the Fund other
than those in the ordinary course of its business or as described in the
Prospectus.
(n) There are no legal or governmental proceedings pending or, to the
knowledge of the Fund or the Investment Manager, threatened against or
affecting the Fund that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described
in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that are not described, filed or
incorporated by reference therein as required.
5
<PAGE> 7
(o) The Fund has all necessary consents, authorizations, approvals,
orders (including exemptive orders), certificates and permits of and from,
and has made all declarations and filings with, all governmental
authorities, self-regulatory organizations and courts and other tribunals,
whether foreign or domestic, to own and use its assets and to conduct its
business in the manner described in the Prospectus, except to the extent
that the failure to obtain or file the foregoing would not have a material
adverse effect on the Fund.
(p) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 497 under the Securities Act, complied when so filed in
all material respects with the Acts.
(q) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement, the Prospectus and the Offering Materials
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Acts and (iii) the Prospectus and the Offering
Materials do not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph (q) do not
apply to statements or omissions in the Registration Statement, the
Prospectus or the Offering Materials based upon information concerning
Morgan Stanley furnished to the Fund in writing by Morgan Stanley
expressly for use therein.
(r) The financial statements of the Fund, together with related
notes and schedules and the summary financial data included in the
Registration Statement and the Prospectus (or incorporated by reference
therein as permitted by the Acts) present fairly the financial position
and results of operations of the Fund as at the dates and for the periods
indicated and have been prepared in conformity with generally accepted
accounting principles. Price
6
<PAGE> 8
Waterhouse LLP, whose report has been incorporated by reference into the
Prospectus, are independent public accountants with respect to the Fund as
required by the Acts.
(s) There are no material restrictions, limitations or regulations
with respect to the ability of the Fund to invest its assets as described
in the Prospectus, other than as described therein.
II.
The Investment Manager represents and warrants to Morgan Stanley that:
(a) The Investment Manager has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to conduct its business as
described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its
business requires such qualification, except to the extent that failure to
be so qualified or be in good standing would not have a material adverse
effect on the Investment Manager.
(b) The Investment Manager is duly registered as an investment
adviser under the Advisers Act, and is not prohibited by the Advisers Act
or the Investment Company Act from acting under the Management Agreement
as an investment adviser to the Fund as contemplated by the Prospectus,
and no order of suspension or revocation of such registration has been
issued or proceedings therefor initiated or, to the knowledge of the
Investment Manager, threatened by the Commission.
(c) Each of this Agreement and the Management Agreement has been duly
authorized, executed and delivered by the Investment Manager and complies
with all applicable provisions of the Acts. The Management Agreement,
assuming due authorization, execution and delivery by the Fund,
constitutes the legal, valid and binding obligation of the Investment
Manager, enforceable against the Investment Manager in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or similar laws
affecting creditors' rights
7
<PAGE> 9
generally and by general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
(d) The execution and delivery by the Investment Manager of, and the
performance by the Investment Manager of its obligations under, this
Agreement do not and will not contravene any provision of applicable law
or the certificate of incorporation or by-laws of the Investment Manager
or any agreement or other instrument binding upon the Investment Manager
that is material to the Investment Manager, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
the Investment Manager. No consent, approval, authorization, order or
permit of, or qualification with, any governmental body or agency,
self-regulatory agency or court or other tribunal, whether foreign or
domestic, is required for the performance by the Investment Manager of its
obligations under this Agreement or the Management Agreement except such
as have been obtained and as may be required by the Acts, the Exchange Act
or the securities or Blue Sky laws of the various states and foreign
jurisdictions in connection with the distribution of the Rights and the
issue and sale of the Shares.
(e) There are no legal or governmental proceedings pending or, to the
knowledge of the Investment Manager, threatened against or affecting the
Investment Manager that are required to be described in the Registration
Statement or the Prospectus and are not so described.
(f) The Investment Manager has all necessary consents, authorizations,
approvals, orders (including exemptive orders), certificates and permits
of and from, and has made all declarations and filings with, all
governmental authorities, self-regulatory organizations and courts and
other tribunals, whether foreign or domestic, to own and use its assets
and to conduct its business in the mannger described in the Prospectus,
except to the extent that the failure to obtain or file the foregoing
would not have a material adverse effect on the Investment Manager.
(g) The Investment Manager has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
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<PAGE> 10
(h) The Management Agreement is in full force and effect and neither
the Investment Manager nor, to the Investment Manager's knowledge, the
Fund is in default thereunder and, to the knowledge of the Investment
Manager, no event has occurred which with the passage of time or the
giving of notice or both would constitute a default under the Management
Agreement.
(i) All information furnished by the Investment Manager for use in
the Registration Statement and Prospectus, including, without limitation,
the description of the Investment Manager, does not, and on the Expiration
Date will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not misleading.
(j) There has not been any material adverse change, or any dvelopment
involving a prospective material adverse change, in the condition,
financial or otherwise, or in the business or operations of the Investment
Manager from that set forth in the Prospectus.
III.
On the basis of the representations and warranties, and subject to the
terms and conditions, set forth in this Agreement:
(a) Morgan Stanley agrees to (1) solicit, in accordance with the
Acts, the Exchange Act and Morgan Stanley's customary practice, the
exercise of Rights, subject to the terms of this Agreement, the
Subscription Agent Agreement and the procedures described in the
Registration Statement, and (2) form and manage the Selling Group to (i)
solicit, in accordance with the Acts, the Exchange Act and Morgan
Stanley's customary practice, the exercise of Rights, subject to the
terms of this Agreement, the Subscription Agent Agreement and the
procedures described in the Registration Statement, and (ii) sell Shares
purchased by Morgan Stanley from the Fund as provided herein. No
securities dealer shall be considered a Selling Group Member until it
shall have entered into a Selling Group Agreement with Morgan Stanley in
substantially the form of Exhibit A hereto.
(b) Morgan Stanley is authorized to buy and exercise Rights and to
sell Shares to the public or to
9
<PAGE> 11
Selling Group Members at the offering price set by Morgan Stanley from time
to time. Sales of Shares by Morgan Stanley or Selling Group Members shall
be at not more than the offering price set by Morgan Stanley from time to
time. Such offering price shall not be increased more than once during any
calendar day and at the time any such price is set shall not be less than
the Subscription Price specified in the Prospectus nor more than greater of
the last sale or the current offering price on the New York Stock Exchange,
plus an exchange commission.
(c) The Fund agrees to furnish, or cause to be furnished, to Morgan
Stanley lists, or copies of those lists, showing the names and addresses
of, and the number of Shares held by, Record Date Shareholders as of the
Record Date, and to use its best efforts to advise Morgan Stanley, or cause
it to be advised, on each day on which trading is conducted on the New York
Stock Exchange (a "Business Day") during the Subscription Period with
respect to any transfers of Rights, and Morgan Stanley agrees to use such
information only in connection with the Offer, and not to furnish the
information to any other person except for Selling Group Members or other
securities brokers and dealers that Morgan Stanley has requested to
solicit exercises of Rights.
(d) The Fund will arrange for the Subscription Agent to inform Morgan
Stanley orally, on each Business Day during the Subscription Period (to be
followed by written confirmation), as to the number of Rights that have
been exercised since its previous daily report to Morgan Stanley under the
provision of this paragraph (d) and, not later than 12:00 noon (New York
City time) on October [ ], 1995 to provide Morgan Stanley with a written
statement as to the total number of Rights exercised (separately setting
forth the number of Rights exercised by Record Date Shareholders).
(e) Morgan Stanley agrees to notify the Fund on or prior to
October [ ], 1995 of the Shares purchased by Morgan Stanley through the
exercise of Rights and sold to the public or to each Selling Group Member
and the total amount of the commissions payable by the Fund pursuant to
Article IV of this Agreement in connection with such sales.
(f) Morgan Stanley agrees to provide to the Fund, in addition to the
services described in paragraph (a) of this Article III, financial advisory
and marketing
10
<PAGE> 12
services in connection with the Offer and general financial advisory
services to the Fund. No advisory fee, other than the fees provided for in
Article IV of this Agreement and reimbursement of Morgan Stanley's
out-of-pocket expenses as described in paragraph (h) of Article VI of this
Agreement, will be payable by the Fund to Morgan Stanley in connection
with the general financial advisory services provided by Morgan Stanley in
accordance with this paragraph unless the Fund requests Morgan Stanley to
provide additional services with respect to a particular transaction
involving the Fund, in which event the fees payable to Morgan Stanley will
be mutually agreed upon by the Fund and Morgan Stanley.
(g) The Fund and Morgan Stanley agree that Morgan Stanley and each
Selling Group Member is an independent contractor with respect to its
solicitation of the exercise of Rights, the purchase of Rights or the sale
of Shares as contemplated by this Agreement and with respect to Morgan
Stanley's performance of financial advisory services to the Fund
contemplated by this Agreement, and Morgan Stanley represents and warrants
that it is not a partner or agent of any other securities broker, dealer
or other person soliciting the exercise of Rights, the purchase of Rights
or the sale of Shares as contemplated by this Agreement, or of the Fund
or any of its affiliates.
(h) In rendering the services contemplated by this Agreement,
neither Morgan Stanley nor any Selling Group Member will be subject to any
liability to the Fund, the Investment Manager or any of their affiliates,
for any act or omission on the part of any securities broker or dealer
(other than itself) or any other person, and neither Morgan Stanley nor
any Selling Group Member will have any liability (whether direct or
indirect, in contract or tort or otherwise) for or in connection with the
performance of its obligations under this Agreement except for any such
liability for losses, claims, damages or liabilities incurred that are
finally judicially determined to have resulted from its bad faith or
gross negligence.
11
<PAGE> 13
IV.
The Fund agrees to pay in New York Clearing House (next day) funds on
October [ ], 1995 (or, if the Expiration Date is extended by the Fund and
Morgan Stanley, on such later date not more than 15 days after the Expiration
Date as the Fund and Morgan Stanley may agree to):
(i) to Morgan Stanley, as compensation for its services to the Fund
as financial and marketing advisor in connection with the Offer, a fee
equal to an amount computed by multiplying (A) [ ], by (B) the
aggregate number of Shares purchased from the Fund in the Offer, by
(C) the Subscription Price;
(ii) to Morgan Stanley for its own account a fee equal to an amount
computed by multiplying (A) [ ], by (B) the sum of the number of
Shares purchased pursuant to each subscription form relating to the Rights
upon which Morgan Stanley is designated (other than Shares purchased by
Morgan Stanley through the exercise of Rights and sold to the public or to
Selling Group Members) plus the number of Shares sold by Morgan Stanley to
the public as indicated in the notice provided by Morgan Stanley to the
Fund pursuant to paragraph (e) of Article III of this Agreement, by (C)
the Subscription Price;
(iii) to Morgan Stanley for the account of each Selling Group Member
a fee equal to an amount computed by multiplying (A) [ ], by (B) the
sum of the number of Shares purchased pursuant to each subscription form
relating to the Rights upon which the Selling Group Member is designated
plus the number of Shares sold by Morgan Stanley to such Selling Group
Member as indicated in the notice provided by Morgan Stanley to the Fund
pursuant to paragraph (e) of Article III of this Agreement, by (C)
the Subscription Price;
(iv) to each securities broker or dealer who has executed the Fund's
Soliciting Dealer Agreement (other than Morgan Stanley or any Selling
Group Member) designated on any subscription form related to the Rights
("Listed Broker") a fee equal to an amount computed by multiplying (A)
[ ], by (B) the number of Shares purchased pursuant to each subscription
form upon which the Listed Broker is designated, by (C) the Subscription
Price, provided that the aggregate fees paid to any Listed Broker (other
than a Listed Broker who is registered as a specialist in the
Rights with
12
<PAGE> 14
The New York Stock Exchange and who has been approved by The New York
Stock Exchange to act as such during the Subscription Period) may not
exceed the product of (i) [ ]% of the Subscription Price per Share,
times (ii) the aggregate number of shares of Common Stock held in such
Listed Broker's participant accounts with The Depository Trust Company on
the Record Date divided by three (subject to appropriate rounding up for
the benefit of beneficial holders as described in the Prospectus); and
(v) to Morgan Stanley a fee equal to an amount computed by
multiplying (A) [ ] by (B) the number of Shares purchased pursuant to
each subscription form upon which neither Morgan Stanley nor any Selling
Group Member or Listed Broker is designated plus the number of Shares
purchased pursuant to subscription forms upon which a Listed Broker is
designated but which are in excess of the limit set forth in clause (ii)
of the proviso in paragraph (iv) of this Article IV, by (C) the
Subscription Price.
V.
The respective obligations of the Fund, the Investment Manager and Morgan
Stanley are subject to the condition that the Registration Statement has become
effective not later than the date hereof.
The obligations of Morgan Stanley hereunder will at all times be subject
to the following further conditions:
(a) All representations, warranties and other statements of the Fund
and the Investment Manager contained herein or in certificates of any
officer of the Fund or the Investment Manager delivered pursuant to this
Agreement are now, and at all times during the Subscription Period will be,
true and correct in all material respects as though expressly made at such
time.
(b) There has not occurred any change, or any development involving
a prospective change, in the condition, financial or otherwise, of the
Fund or the Investment Manager, or in the investment objectives,
investment policies, liabilities, business, prospects or operations of
the Fund from those set forth in the Registration Statement, that, in
Morgan Stanley's reasonable judgment, is material and adverse and that
makes it, in Morgan Stanley's reasonable judgment,
13
<PAGE> 15
impracticable to distribute the Rights and market the Shares on the terms
and in the manner contemplated in the Prospectus.
(c) Morgan Stanley has received separate certificates, dated the
date hereof and signed by an executive officer of each of the Fund and the
Investment Manager in the officer's capacity as such, to the effect that
the respective representations and warranties of the Fund and the
Investment Manager contained in this Agreement are true and correct as of
the date hereof. Each officer signing and delivering such a certificate
may rely upon the best of his knowledge as to proceedings threatened.
(d) The Investment Manager and the Fund at all times during the
Subscription Period have each performed all of their respective
obligations required to be performed hereunder.
(e) Morgan Stanley has received on the date hereof an opinion
of Rogers & Wells, counsel for the Fund, dated the date hereof, to the
effect that:
(i) the Registration Statement is effective under the
Securities Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement is
in effect and no proceedings for such purpose are pending or
threatened by the Commission;
(ii) the Fund has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Maryland, has the corporate power and authority to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its buiness requires such qualification, except
to the extent that the failure to be so qualified or to be in good
standing would not have a material adverse effect on the Fund;
(iii) the Fund is registered with the Commission as a
non-diversified, closed-end management investment company under the
Investment Company Act and, to the best of such counsel's knowledge,
no order of suspension or revocation of such registration has been
issued or proceedings initiated for that purpose or threatened by the
Commission;
14
<PAGE> 16
(iv) each of this Agreement and the Subscription Agent Agreement
has been duly authorized, executed and delivered by the Fund. The
Subscription Agent Agreement constitutes the legal, valid and binding
obligation of the Fund, enforceable against the Fund in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
other similar laws affecting creditors' rights generally and by
general principles of equity, regardless of whether considered in a
proceeding in equity or at law;
(v) none of (A) the execution and delivery by the Fund of, and
the performance by the Fund of its obligations under, this Agreement
or the Subscription Agent Agreement or (B) the distribution of the
Rights and the issue and sale of the Shares contravenes or will
contravene any provision of applicable U.S., State of New York or
State of Maryland law or the articles or incorporation or by-laws of
the Fund or any material agreement or instrument binding upon the
Fund that is known to such counsel, or any judgment, order or decree
of any U.S., State of New York or State of Maryland governmental
body, agency or court having jurisdiction over the Fund that is known
to such counsel. No consent, approval, authorization, permit or order
of, or qualification with, any U.S. or State of New York governmental
body or agency, self-regulatory organization or court or other
tribunal, is required for the performance by the Fund of its
obligations under this Agreement or the Subscription Agent Agreement,
except as may be required by the Acts, the Exchange Act or the
securities or Blue Sky laws of the various states and in connection
with the distribution of the Rights and the issue and sale of the
Shares;
(vi) the authorized capital stock and the articles of
incorporation and by-laws of the Fund conform in all material
respects to the description of them contained in the Prospectus; and
the Rights and Shares conform in all material respects as to legal
matters to the descriptions of them contained in the Prospectus;
15
<PAGE> 17
(vii) the articles of incorporation and by-laws of the Fund,
this Agreement and each of the Fundamental Agreements comply with all
applicable provisions of the Acts, and all approvals of such
documents required under the Investment Company Act by the Fund's
shareholders and Board of Directors have been obtained and are in
full force and effect;
(viii) to the knowledge of such counsel, the Fundamental
Agreements are in full force and effect and, to such counsel's
knowledge, neither the Fund nor any other party to any such agreement
is in default thereunder and, to the knowledge of such counsel, no
event has occurred which with the passage of time or the giving of
notice or both would constitute a default thereunder. To the
knowledge of such counsel, the Fund is not currently in breach of, or
in default under, any other written agreement or instrument to which
it or its property is bound or affected;
(ix) the shares of Common Stock outstanding prior to issuance of
the Shares have been duly authorized and are validly issued, fully
paid and non-assessable, and the form of certificate used to evidence
such shares is in due and proper form and complies with all provisions
of applicable law;
(x) the Offer, the Rights and the Shares have been duly
authorized and, when issued, paid for and delivered as described in
the Registration statement, the Shares will be validly issued, fully
paid and non-assessable and the issuance of the Shares will not be
subject to any pre-emptive or other similar rights;
(xi) the Rights and the Shares have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance;
(xii) the statements in the Prospectus under "The Offer -
Federal Income Tax Consequences," "Taxation - U.S. Federal Income
Taxes" and "Common Stock," insofar as such statements constitute a
summary of the law or legal conclusions, documents or proceedings
referred to therein, are accurate in all material respects and fairly
represent the information called for with respect to such legal
matters, legal conclusions, documents and
16
<PAGE> 18
proceedings and fairly summarize the matters referred to therein;
(xiii) the descriptions, if any, in the Prospectus of U.S. or
State of New York statutes, regulations and legal or governmental
proceedings are accurate in all material respects and fairly
summarize the matters referred to therein;
(xiv) there are no U.S. or State of New York statutes or
regulations, or, to the best of such counsel's knowledge, contracts
or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as
required; and, to the best of such counsel's knowledge, that are no
legal or governmental proceedings pending or threatened that are
required to be described in the Registration Statement or the
Prospectus and are not so described;
(xv) the Registration Statement and the Prospectus and any
supplements or amendments thereto (except for financial statements
and schedules included therein as to which such counsel need not
express any opinion) comply as to form in all material respects with
the Acts; and
(xvi) all advertisements authorized in writing by the Fund for
use in connection with the Offer comply with the requirements of the
Acts.
In addition to the foregoing opinion, such counsel will advise Morgan
Stanley that, in the light of such counsel's understanding of the applicable
law and the experience it has gained through its practice thereunder, nothing
has come to its attention that would lead it to believe that (except for
financial statements, schedules and other financial, economic or statistical
information contained in the Registration Statement or the Prospectus or
incorporated by reference therein, as to which counsel need express no belief)
the Registration Statement, on the date it became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of the time its was first provided to
Morgan Stanley, contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made,
17
<PAGE> 19
not misleading. Counsel will also be permitted to state that because of the
limitations inherent in the independent verification of factual matters and the
character of determinations involved in the registration process, that counsel
does not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration statement or Prospectus.
(f) Morgan Stanley has received on the date hereof an opinion of
Harold J. Schaaff, Jr., general counsel for the Investment Manager, dated
the date hereof, to the effect that:
(i) the Investment Manager has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business requires such
qualification, except to the extent that failure to be so qualified
or be in good standing would not have a material adverse effect on
the Investment Manager;
(ii) the Investment Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers
Act or the Investment Company Act from acting under the Management
Agreement as an investment manager to the Fund as contemplated by the
Prospectus, and no order of suspension or revocation of such
registration has been issued or proceedings initiated for that
purpose or, to the best of such counsel's knowledge, threatened by
the Commission;
(iii) this Agreement has been duly authorized, executed and
delivered by the Investment Manager;
(iv) the execution and delivery by the Investment Manager of,
and the performance by the Investment Manager of its obligations
under, this Agreement will not contravene any provision of applicable
U.S. or State of New York law or the certificate of incorporation or
by-laws of the Investment Manager or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the
Investment Manager that is material to the Investment Manager or, to
the best of such counsel's knowledge, any
18
<PAGE> 20
judgment, order or decree of any U.S. or State of New York
governmental body, agency or court having jurisdiction over the
Investment Manager, and no consent, approval or authorization, or
order of, or qualification with, any U.S. or State of New York
governmental body or agency is required for the performance by the
Investment Manager of its obligations under this Agreement, except
such as may be required by the Acts, the Exchange Act or the
securities or Blue Sly laws of the various states in connection with
the distribution of the Rights and the issue and sale of the Shares;
(v) to the best knowledge of such counsel, there are no actions,
investigations or other proceedings of any nature, whether foreign or
domestic, pending, commenced or threatened, that in any case or in
the aggregate, might result in any material adverse change in the
business of the Investment Manager or that question the validity of
this Agreement or the Management Agreement or the performance by the
Investment Manager of such Agreements; and
(vi) the description of the Investment Manager in the Prospectus
does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) Morgan Stanley has received on the date hereof an opinion of Davis
Polk & Wardwell, counsel to Morgan Stanley, dated the date hereof, covering
the matters referred to in subparagraphs (iv) (but only as to this
Agreement), (vi), (x) and (xii) (but only as to the statements in the
Prospectus under "Common Stock" and "Distribution Arrangements," and only
with respect to matters of U.S. law or legal conclusions) of paragraph (e)
above and the last paragraph of (e) above.
With respect to the last paragraph of (e) and (g) above, Rogers & Wells
and Davis Polk & Wardwell may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified. With respect to paragraphs (e) and (g) above,
19
<PAGE> 21
Rogers & Wells and Davis Polk & Wardwell may rely as to matters governed
by the laws of the State of Maryland upon an opinion of Maryland counsel
for the Fund and to the extent any such counsel deems appropriate, upon
the representations of the Fund contained herein; provided that (A) such
Maryland counsel for the Fund is reasonably satisfactory to Morgan Stanley
and (B) a copy of the opinion so relied upon is delivered to Morgan
Stanley and is in form and substance satisfactory to Morgan Stanley.
(h) Morgan Stanley has received on the date hereof a letter dated the
date hereof, in form and substance satisfactory to Morgan Stanley, from
Price Waterhouse LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information regarding the Fund contained in the
Registration Statement and the Prospectus.
(i) Morgan Stanley has received during the Subscription Period such
further information, certificates and documents as Morgan Stanley may
reasonably request.
(j) All proceedings taken by the Fund and the Investment Manager in
connection with the distribution of Rights and the issue and sale of the
Shares and registration of the Shares under the Acts and the laws of any
foreign jurisdiction will be satisfactory in form and substance to Morgan
Stanley and its counsel.
(k) No proceedings have been instituted or threatened by the
Commission that would adversely affect the Fund's standing as a registered
investment company under the Investment Company Act or the standing of the
Investment Manager as a registered investment adviser under the Advisers
Act.
(l) The Rights and the Shares have been duly authorized for listing
on the New York Stock Exchange, subject only to official notice of
issuance.
In the event that any of the foregoing conditions is at any time not
fulfilled, Morgan Stanley will be entitled to withdraw as dealer manager
for the Offer without any liability or penalty to Morgan Stanley or any
"controlling person" (as defined in Article VII hereof) and without loss
of any right to the payment of any fees pursuant to Section IV earned
prior to the date of such withdrawal and expenses payable hereunder.
20
<PAGE> 22
VI.
In further consideration of the agreements of Morgan Stanley contained in
this Agreement, the Fund covenants and agrees with Morgan Stanley as follows:
(a) To notify Morgan Stanley immediately, and confirm such notice in
writing (i) of the institution of any proceedings pursuant to Section 8(e)
of the Investment Company Act and (ii) of the happening of any event
during the period described in paragraph (d) below that in the judgment of
the Fund makes the Registration Statement or the Prospectus untrue in any
material respect or that requires the making of any change in or addition
to the Registration Statement or the Prospectus in order to make the
statements therein not misleading in any material respect. If at any time
the Commission issues any order suspending the effectiveness of the
Registration Statement or an order pursuant to Section 8(e) of the
Investment Company Act, the Fund will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible moment.
(b) To furnish Morgan Stanley, without charge, five signed copies of
the Registration Statement including exhibits and, during the period
described in paragraph (d) below, as many copies of the Prospectus and any
supplements and amendments thereto as Morgan Stanley may reasonably
request.
(c) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish Morgan Stanley with a copy of each proposed
amendment or supplement, and to file no proposed amendment or supplement
to which Morgan Stanley reasonably objects.
(d) If, during such period as in the opinion of counsel to Morgan
Stanley the Prospectus is required by law to be delivered, any event
occurs as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus was delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with law, forthwith to prepare and furnish, at its own expense, to
Morgan Stanley and to the Selling Group Members and other dealers (whose
names and addresses Morgan Stanley will furnish to the Fund) to which
Rights and/or Shares may have been sold by you and to any other dealers
upon request, either
21
<PAGE> 23
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law.
(e) To use its best efforts to maintain its qualification as a
regulated investment company under Subchapter M of the Code.
(f) To endeavor to qualify the Rights and the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as Morgan
Stanley reasonably requests and to pay all expenses (including reasonable
fees and disbursements of counsel) in connection therewith as well as all
fees payable in connection with the review (if any) of the distribution of
the Rights and the issue and sale of the Shares by the National
Association of Securities Dealers, Inc.; provided, however, that the Fund
shall not be obligated to file any consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified.
(g) To make generally available to the Fund's security holders as
soon as practicable an earning statement covering the twelve-month period
ending October , 1996 that satisfies the provisions of Section 11(a) of
the Securities Act.
(h) To pay (A) all costs, expenses, fees and taxes incident to (i)
the preparation, printing and filing of the Registration Statement and of
each amendment thereto, each preliminary prospectus and the Prospectus and
any amendments or supplements thereto, any any Offering Materials, (ii)
the printing of this Agreement and such other agreements as Morgan Stanley
may reasonably request, (iii) the preparation, issuance and delivery of
the certificates for the Rights and the Shares, including stock transfer
taxes, if any, payable upon the sale, issuance and delivery by the Fund of
the Shares, (iv) the fees and disbursements of the Fund's counsel and
accountants, (v) furnishing such copies of the Registration Statement, the
Prospectus and any related preliminary prospectus, and all amendments and
supplements thereto, as may be reasonably requested for use in connection
with the distribution of the Rights and the issue and sale of the Shares,
(vi) the printing and delivery to Morgan Stanley of copies of the Blue Sky
Survey and (vii) the fees and expenses incurred
22
<PAGE> 24
with respect to the listing of the Rights and the Shares on the New York
Stock Exchange including the listing fees of such Exchange and the
preparation, printing and the filing fees with respect to the distribution
of documents relating thereto, and (B) to Morgan Stanley up to $[ ] as
reimbursement of certain costs and expenses of Morgan Stanley incurred in
connection with the distribution of the Rights and the issue and sale of
the Shares.
VII.
The Fund agrees to indemnify and hold harmless Morgan Stanley and each
person, if any, who controls Morgan Stanley within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (a
"controlling person") from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by Morgan Stanley or any such controlling person in
connection with defending or investigating any such action or claim) (a) caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Fund has furnished any amendments or supplements thereto), or any Offering
Materials, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission based upon
information relating to Morgan Stanley furnished to the Fund in writing by
Morgan Stanley expressly for use therein; provided that the foregoing indemnity
agreement with respect to any preliminary prospectus will not inure to the
benefit of Morgan Stanley or of any person controlling Morgan Stanley, if a
copy of the prospectus (as then amended or supplemented if the Fund has
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of Morgan Stanley to such person, if required by law to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities,
or (b) arising out of or based upon (i) any failure of the Fund to consummate
the Offer, including any failure of the Fund to issue the Rights or issue and
sell the Shares, (ii) any action taken or omitted to be taken by Morgan
Stanley with the consent of the Fund, (iii) any action taken or
23
<PAGE> 25
omitted to be taken by the Fund, (iv) any breach by the Fund of any
representation or warranty, or any failure by the Fund to comply with any
agreement or covenant contained in this Agreement or (v) any of the other
transactions contemplated by the Offer or by Morgan Stanley's performance of
its obligations under this Agreement.
Morgan Stanley agrees to indemnify and hold harmless the Fund, its
directors, and each officer of the Fund who signs the Registration Statement
and each person, if any, who controls the Fund within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus (as amended or supplemented if the
Fund has furnished any amendment or supplements thereto) or any preliminary
prospectus or any Offering Materials, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to Morgan Stanley furnished to the Fund in
writing by Morgan Stanley expressly for use in the Registration statement, the
Prospectus, any amendment or supplement thereto, any preliminary prospectus or
any Offering Materials.
In case any proceeding (including any governmental investigation) is
instituted involving any person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such person (the
"indemnified party") will promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, will retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and will pay the fees and expenses of such counsel related to such proceeding.
In any such proceeding, any indemnified party will have the right to retain its
own counsel, but the fees and expenses of such counsel will be at the expense
of such indemnified party have mutually agreed to the retention of such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
the indemnifying party will not, in
24
<PAGE> 26
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for Morgan Stanley and all persons, if any, who
control Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (b) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the Fund,
its directors, its officers who sign the Registration Statement and each
person, if any, who controls the Fund within the meaning of either such
Section. The indemnifying party will pay fees and expenses as they are
incurred. The indemnifying party will not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party will have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it will be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party has not reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party may, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first or second paragraph of
this Article VII is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, will contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Fund on the one hand and Morgan Stanley on the other
hand from the distribution of the Rights and the issue and sale of the
25
<PAGE> 27
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Fund on the one hand and of Morgan Stanley on the other hand in
connection with the statements or omission that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Fund on the one hand and
by Morgan Stanley on the other hand will be deemed to be in the same
respective proportions as the net proceeds from the subscription for the Shares
(before deducting expenses) received by the Fund on the one hand bear to the
amounts received by Morgan Stanley pursuant to Article IV hereof on the other
hand. The relative fault of the parties will be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Fund on the one hand or by Morgan
Stanley on the other hand and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement of
omission.
The Fund and Morgan Stanley agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph will be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Article VII, Morgan
Stanley will not be required to contribute any amount in excess of the amount
by which the total fees received by Morgan Stanley pursuant to Article IV
hereof exceeds the amount of any damages that Morgan Stanley has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article VII are not
exclusive and will not limit any rights or remedies that may otherwise be
available to any indemnified party at law or in equity.
26
<PAGE> 28
The indemnity and contribution provisions contained in this Article VII
and the representations and warranties of the Fund and the Investment Manager
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or (ii) any investigation
made by or on behalf of any indemnified party.
VIII.
This Agreement will be subject to termination by notice given by Morgan
Stanley to the Fund, if (a) after the execution and delivery of this Agreement
(i) trading generally has been suspended or materially limited on the New York
Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) a general moratorium on
commercial banking activities has been declared by either federal or New York
State authorities or (iii) there has occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis that,
in Morgan Stanley's judgment, is material and adverse and (b) in the case of
any of the events specified in clauses (a)(i) through (iii), such event singly
or together with any other such events makes it impracticable in Morgan
Stanley's judgment to proceed with the solicitation of the exercise of the
Rights or to market the Shares on the terms and in the manner comtemplated in
the Prospectus. Termination of this Agreement by Morgan Stanley shall not
preclude the Fund from consummating the Offer at its discretion.
IX.
If the issuance of the Rights and the sale of Shares is not consummated
because of any failure, refusal or inability on the part of the Fund or the
Investment Manager to perform any agreement on its part to be performed, or
because any other condition of the obligations of Morgan Stanley under this
Agreement is not fulfilled, the Fund will reimburse Morgan Stanley for up to
$[ ] for actual out-of-pocket costs and expenses as have been incurred by
Morgan Stanley in connection with this Agreement and the proposed Offer, and
upon demand, the Fund will pay the full amount of those costs and expenses to
Morgan Stanley.
X.
Any notice by the Fund or the Investment Manager to Morgan Stanley will be
sufficient if given in writing, by
27
<PAGE> 29
telegraph or by facsimile addressed to Morgan Stanley at 1251 Avenue of the
Americas, New York, New York 10020 Attention: Corporate Financing Department,
and any notice by Morgan Stanley to the Fund or the Investment Manager will be
sufficient if given in writing, by telegraph or by facsimile addressed to the
Fund at 1221 Avenue of the Americas, New York, New York 10020
Attention [ ]
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
28
<PAGE> 30
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
Very truly yours,
THE LATIN AMERICAN
DISCOVERY FUND, INC.
By__________________________________
MORGAN STANLEY ASSET MANAGEMENT INC.
By__________________________________
Accepted, September [ ], 1995
MORGAN STANLEY & CO. INCORPORATED
By__________________________________
29
<PAGE> 1
EXHIBIT (h)(2)
THE LATIN AMERICAN DISCOVERY FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1995, UNLESS EXTENDED.
To Securities Brokers and Dealers:
The Latin American Discovery Fund, Inc. (the "Fund'") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on , 1995 (the "Record Date") rights ("Rights") to subscribe for an
aggregate of 3,100,000 shares (the "Shares") of common stock, par value $.01 per
share ("Common Stock"), of the Fund upon the terms and subject to the
conditions set forth in the Fund's Prospectus dated September , 1995 (the
"Offer"). Each Record Date Shareholder is being issued one Right for each full
share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. No fractional Rights will be issued. The
Rights are listed for trading on the New York Stock Exchange. The Rights
entitle the Record Date Shareholders and holders of Rights acquired during the
Subscription Period (as hereinafter defined) to acquire at the Subscription
Price (as hereinafter defined) one Share for each three Rights held in the
primary subscription. The Subscription Price is $[ ] per Share. The
Subscription Period commences on [ ], 1995 and ends at 5:00 p.m., New
York time, on [ ], 1995 or such later time and date to which the Offer
may be extended by the Fund and the Dealer Manager (as hereinafter defined)
(the "Expiration Date"). Any Record Date Shareholder who fully exercises all
Rights issued to him is entitled to subscribe for Shares which were not
otherwise subscribed for by others in the primary subscription (the
"Over-Subscription Privilege"). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, as more fully discussed
in the Prospectus.
For the duration of the Offer, the Fund will pay, to the extent described
below, Soliciting Fees (as hereinafter defined) to any qualified broker or
dealer who solicits the exercise of Rights in connection with the Offer and who
complies with the procedures described below (a "Soliciting Dealer"). Upon
timely delivery to The First National Bank of Boston, the Fund's subscription
agent for the Offer (the "Subscription Agent"), of payment for Shares purchased
pursuant to the exercise of Rights and of properly completed and executed
documentation as set forth in this Soliciting Dealer Agreement, a Soliciting
Dealer will be entitled to receive fees equal to [ ]% of the Subscription
<PAGE> 2
Price per Share purchased pursuant to exercise of the Rights (the "Soliciting
Fees"); provided that the aggregate fees paid to any Soliciting Dealer
hereunder (other than a Soliciting Dealer who is registered as a specialist in
the Rights with The New York Stock Exchange and who has been approved by The
New York Stock Exchange to act as such during the Subscription Period) may not
exceed the product of (i) [ ]% of the Subscription Price Per Share, times
(ii) the aggregate number of shares of Common Stock held in such Soliciting
Dealer's participant accounts with The Depository Trust Company on the Record
Date divided by three (subject to appropriate rounding up for the benefit of
beneficial holders as described in the Prospectus). A qualified broker
or dealer is a broker or dealer that is a member of a registered national
securities exchange in the United States or the National Association of
Securities Dealers, Inc. ("NASD") or otherwise eligible to participate under
the NASD Rules.
The Fund hereby agrees to pay the Soliciting Fees payable to the
Soliciting Dealers. Solicitation and other activities by Soliciting Dealers may
be undertaken only in accordance with the applicable rules and regulations of
the Securities and Exchange Commission and only in those states and other
jurisdictions where those solicitations and other activities may lawfully be
undertaken and in accordance with the laws in those states and other
jurisdictions. Compensation will not be paid for solicitations in any state or
other jurisdiction in which, in the opinion of counsel to the Fund or counsel
to Morgan Stanley & Co. Incorporated, the dealer manager in connection with the
Offer (the "Dealer Manager"), compensation may not lawfully be paid. No
Soliciting Dealer will be paid Soliciting Fees with respect to Shares purchased
pursuant to an exercise of Rights for its own account or for the account of any
affiliate of the Soliciting Dealer. No Soliciting Dealer or any other person is
authorized by the Fund or the Dealer Manager to give any information or make
any representations in connection with the Offer other than those contained in
the Prospectus and other authorized solicitation material furnished by the Fund
through the Dealer Manager. No Soliciting Dealer is authorized to act as agent
of the Fund or the Dealer Manager in any connection or transaction. In
addition, nothing contained in this Soliciting Dealer Agreement will constitute
the Soliciting Dealers partners with the Dealer Manager or with one another or
create any association between those parties, or will render the Dealer Manager
or the Fund liable for the obligations of any Soliciting Dealer. The Dealer
Manager will be under no liability to make any payment to any Soliciting
Dealer, and will be subject to no other liabilities to any Soliciting Dealer,
and no obligations of any sort will be implied.
In order for a Soliciting Dealer to receive Soliciting Fees, the
Subscription Agent must have received from that Soliciting Dealer no later than
5:00 p.m., New York time, on the Expiration Date, a properly completed and duly
executed
2
<PAGE> 3
Soliciting Dealer Agreement (or a facsimile thereof), accompanied by either (i)
a properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and full payment for those
Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the
Subscription Agent by the close of business on the third Business Day (as
hereinafter defined) after the Expiration Date of a properly completed and duly
executed Subscription Certificate with respect to Shares purchased pursuant to
the exercise of Rights and full payment for such Shares. Soliciting Fees will
only be paid to a Soliciting Dealer who is designated on the Subscription
Certificate; if no Soliciting Dealer is designated, the Soliciting Fees will be
paid to the Dealer Manager. A "Business Day" means any day on which trading is
conducted on the New York Stock Exchange. In the case of a Notice of Guaranteed
Delivery, Soliciting Fees will only be paid after payment and delivery in
accordance with that Notice of Guaranteed Delivery has been effected.
All questions as to the form, validity and eligibility (including time of
receipt) of the Soliciting Dealer Agreement will be determined by the Fund, in
its sole discretion, which determination will be final and binding. Unless
waived, any irregularities in connection with a Soliciting Dealer Agreement or
delivery of a Soliciting Dealer Agreement must be cured within such time as the
Fund may determine. None of the Fund, the Dealer Manager, Shareholder
Communications Corporation, the Fund's Information Agent for the Offer, or the
Subscription Agent, or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer
Agreement or incur any liability for failure to give that notification.
Execution and delivery of this Soliciting Dealer Agreement and the
acceptance of Soliciting Fees from the Fund by a Soliciting Dealer constitute a
representation and warranty by that Soliciting Dealer to the Fund that: (i) it
has received and reviewed the Prospectus; (ii) in soliciting purchases of
Shares pursuant to the exercise of the Rights, it has complied with the
applicable requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"), the applicable rules and regulations thereunder, any applicable
securities laws of any state or jurisdiction where such solicitations may
lawfully be made, and the applicable rules and regulations of any
self-regulatory organization or registered national securities exchange; (iii)
in soliciting purchases of Shares pursuant to the exercise of the Rights, it
has not published, circulated or used any soliciting materials other than the
Prospectus and any other authorized solicitation material furnished by the
Fund through the Dealer Manager; (iv) it has not purported to act as agent of
the Fund or the Dealer Manager in any connection or transaction relating to the
Offer; (v) the information contained in this Soliciting Dealer Agreement is, to
its best knowledge, true and complete;
3
<PAGE> 4
(vi) it is not affiliated with the Fund; (vii) the Soliciting Fees being paid
to it are not being paid with respect to Shares purchased by it pursuant to an
exercise of Rights for its own account; (viii) it will not remit, directly or
indirectly, any part of Soliciting Fees paid by the Fund pursuant to the terms
of this Soliciting Dealer Agreement to any beneficial owner of Shares purchased
pursuant to the Offer; and (ix) it has agreed to the amount of the Soliciting
Fees and the terms and conditions set forth in this Soliciting Dealer Agreement
with respect to receiving those Soliciting Fees. By returning a Soliciting
Dealer Agreement and accepting Soliciting Fees, a Soliciting Dealer agrees to
indemnify the Fund against losses, claims, damages and liabilities to which the
Fund may become subject as a result of the breach of that Soliciting Dealer's
representations made in this Soliciting Dealer Agreement and described above.
In making the foregoing representations and warranties, Soliciting Dealers are
reminded of the possible applicability of Rule 10b-6 under the Exchange Act if
they have bought, sold, dealt in or traded in any Shares for their own account
since the commencement of the Offer.
Soliciting Fees due to eligible Soliciting Dealers will be paid promptly
after consummation of the Offer. Upon expiration of the Offer, no Soliciting
Fees will be payable to Soliciting Dealers with respect to Shares purchased
thereafter.
This Soliciting Dealer Agreement may be signed in two or more
counterparts, each of which will be an original, with the same effect as if the
signatures were upon the same instrument.
This Soliciting Dealer Agreement will be governed by the internal laws of
the State of New York.
Please list on the Appendix attached to this Agreement and forming part of
this Soliciting Dealer Agreement the number of Shares purchased pursuant to the
exercise of the Rights by each beneficial owner whose purchases you, as a
Soliciting Dealer, have solicited. All amounts beneficially owned by a
beneficial owner, whether in one account or several, and in however many
capacities, must be aggregated for purposes of completing the table in the
Appendix to this Agreement. Any questions as to what constitutes beneficial
ownership should be directed to the Fund. The number of shares not listed in
the Appendix for reasons of inadequate space should be listed on a separate
schedule attached to, and forming part of, this Soliciting Dealer Agreement.
4
<PAGE> 5
Please execute this Soliciting Dealer Agreement below, accepting the
terms and conditions set forth in this Soliciting Dealer Agreement and
confirming that you are a member firm of a registered national securities
exchange or of the NASD or a foreign broker or dealer not eligible for
membership who has conformed to the Rules of Fair Practice of the NASD in
making solicitations of the type being undertaken pursuant to the Offer in the
United States to the same extent as if you were a member of the NASD, and
certifying that you have solicited the purchase of the Shares pursuant to
exercise of the Rights, all as described above, in accordance with the terms
and conditions set forth in this Soliciting Dealer Agreement.
Very truly yours,
______________________________
Warren J. Olsen
President
The Latin American Discovery
Fund, Inc.
ACCEPTED AND CONFIRMED
_______________________________ _______________________________
Printed Firm Name Address
_______________________________ _______________________________
Authorized Signature Area Code and Telephone Number
_______________________________
Name and Title
Dated:_________________________
ALL SOLICITING DEALER AGREEMENTS SHOULD BE RETURNED TO
THE FIRST NATIONAL BANK OF BOSTON BY FACSIMILE (TELECOPIER)
AT (617) 575-2233. FACSIMILE TRANSMISSIONS MAY BE
CONFIRMED BY CALLING (617) 575-2700.
ALL QUESTIONS CONCERNING SOLICITING DEALER AGREEMENTS SHOULD BE
DIRECTED TO SHAREHOLDER COMMUNICATIONS CORPORATION,
TOLL FREE AT (800) 221-5724, OR
CALL COLLECT (212) 809-3600.
5
<PAGE> 6
APPENDIX TO SOLICITING DEALER AGREEMENT
TO BE COMPLETED BY THE SOLICTING DEALER
BENEFICIAL OWNERS NUMBER OF SHARES PURCHASED
----------------- --------------------------
Beneficial Owner No. 1
-------------------------------------------------------------------------------
Beneficial Owner No. 2
-------------------------------------------------------------------------------
Beneficial Owner No. 3
-------------------------------------------------------------------------------
Beneficial Owner No. 4
-------------------------------------------------------------------------------
Beneficial Owner No. 5
-------------------------------------------------------------------------------
Beneficial Owner No. 6
-------------------------------------------------------------------------------
Beneficial Owner No. 7
-------------------------------------------------------------------------------
Beneficial Owner No. 8
-------------------------------------------------------------------------------
Beneficial Owner No. 9
-------------------------------------------------------------------------------
Beneficial Owner No. 10
-------------------------------------------------------------------------------
Beneficial Owner No. 11
-------------------------------------------------------------------------------
Beneficial Owner No. 12
-------------------------------------------------------------------------------
Beneficial Owner No. 13
-------------------------------------------------------------------------------
Beneficial Owner No. 14
-------------------------------------------------------------------------------
Beneficial Owner No. 15
-------------------------------------------------------------------------------
Beneficial Owner No. 16
-------------------------------------------------------------------------------
Beneficial Owner No. 17
-------------------------------------------------------------------------------
Beneficial Owner No. 18
-------------------------------------------------------------------------------
Beneficial Owner No. 19
-------------------------------------------------------------------------------
Beneficial Owner No. 20
-------------------------------------------------------------------------------
TOTAL(1):
-------------------------------------------------------------------------------
----------
(1) Aggregate solicitation fees will be subject to a maximum amount in
accordance with the second paragraph of the Soliciting Dealer Agreement.
6
<PAGE> 1
SELLING GROUP AGREEMENT
September , 1995
Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
We understand that The Latin American Discovery Fund, Inc., a Maryland
corporation (the "Fund"), proposes to issue to its shareholders of record as of
September , 1995 rights ("Rights") entitling their holders to subscribe for
an aggregate of 3,100,000 shares ("Shares") of the Fund's Common Stock, par
value $.01 per share ("Common Stock"). We further understand that the Fund has
appointed you as the exclusive Dealer Manager in connection with the offer of
Shares contemplated by the proposed issuance of Rights (the "Offer").
We hereby express our interest in participating in the Offer as a Selling
Group Member.
We hereby agree with you as follows:
I.
<PAGE> 2
We have received and reviewed the Prospectus dated September , 1995
(the "Prospectus") relating to the Offer and we understand that additional
copies of the Prospectus (or of the Prospectus as it may be subsequently
supplemented or amended, if applicable) and any other solicitation materials
authorized by the Fund relating to the Offer ("Offering Materials") will be
supplied to us in reasonable quantities upon our request therefor to you. We
agree that we will not use any solicitation material other than the Prospectus
(as supplemented or amended, if applicable) and such Offering Materials.
II.
From time to time during the period (the "Subscription Period")
commencing on September , 1995 and ending at 5:00 p.m., New York time, on
, 1995, unless extended by the Fund and you (the "Expiration Date"), we
may solicit the exercise of Rights in connection with the Offer. We will be
entitled to receive fees in the amounts and at the times described in Article
IV of this Agreement with respect to Shares purchased pursuant to the exercise
of Rights and with respect to which The First National Bank of Boston (the
"Subscription Agent") has received, no later than 5:00 p.m., New York time, on
the Expiration Date, either (i) a properly completed and executed Subscription
Certificate (in the form attached to the Prospectus),
2
<PAGE> 3
identifying us as the broker-dealer having been instrumental in the exercise of
such Rights, and full payment for such Shares or (ii) a Notice of Guaranteed
Delivery (in the form attached to the Prospectus) guaranteeing to the
Subscription Agent by the close of business of the third business day after the
Expiration Date of a properly completed and duly executed Subscription
Certificate, similarly identifying us, and full payment for such Shares. We
understand that we will not be paid these fees with respect to Shares purchased
pursuant to an exercise of Rights for our own account or for the account of any
of our affiliates execpt that we may receive such fees with respect to Shares
purchased pursuant to an exercise of Rights for our own account provided that
such Shares are offered and sold by us to our clients. We also understand and
agree that we are not entitled to receive any fees in connection with the
solicitation of the exercise of Rights other than pursuant to the terms of this
Agreement and, in particular, that we will not be entitled to receive any fees
under the Fund's Soliciting Dealer Agreement.
We agree to solicit the exercise of Rights in accordance with the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended, and the rules and regulations under each such
Act, any applicable securities laws of any state
3
<PAGE> 4
or jurisdiction where such solicitations may be lawfully made, the applicable
rules and regulations of any self-regulatory organization or registered
national securities exchange and your customary practice and subject to the
terms of the Subscription Agent Agreement between the Fund and the Subscription
Agent and the procedures described in the Fund's registration statement on
Form N-2 (File No. 33- , as amended (the "Registration Statement").
III.
From time to time during the Subscription Period, we may indicate interest
in purchasing Shares from you as Dealer Manager. We understand that from time
to time you intend to offer Shares obtained by you through the exercise of
Rights to Selling Group Members who have so indicated interest at prices which
shall be determined by you (the "Offering Price"). We agree that with respect to
any such Shares purchased by us from you the sale of such Shares to us shall be
irrevocable and we will offer them to the public at the Offering Price at which
we purchased them from you. Shares not sold by us at such Offering Price may be
offered by us after the next succeeding Offering Price is set at prices not in
excess of the latest Offering Price set by you. You agree that you will set a
new Offering Price prior to 4:00 p.m., New York time, on each business day.
4
<PAGE> 5
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Shares remaining unsold which
were purchased by us from you and, on your request, we will resell to you any
of such Shares remaining unsold at the purchase price thereof if in your
opinion such Shares are needed to make delivery against sales made to other
Selling Group Members.
Any shares purchased hereunder from you shall be subject to regular way
settlement through the facilities of the Depository Trust Company.
IV.
We understand that you will remit to us, on or shortly after ,
1995 (or, if the Expiration Date is extended, on such later date not more than
15 days after the Expiration Date as you may determine), following receipt by
you from the Fund, a fee equal to an amount computed by multiplying (i) [ ],
by (ii) the sum of (a) the number of Shares purchased pursuant to each
Subscription Certificate upon which we are designated, as certified to you by
the Subscription Agent, as a result of our solicitation efforts in accordance
with Article II of this Agreement, plus (b) the number of Shares sold by you to
us in accordance with Article III of this Agreement (less any Shares resold to
you pursuant to the second paragraph thereof), by (iii) the subscription price
of $ Your only obligation with
5
<PAGE> 6
respect to payment of the foregoing fee to us is to remit to us amounts owing
to us and actually received by you from the Fund. Except as aforesaid, you
shall be under no liability to make any payments to us pursuant to this
Agreement.
V.
We agree that you, as Dealer Manager, have full authority to take such
action as may seem advisable to you in respect of all matters pertaining to the
Offer. You are authorized to approve on our behalf any amendments or
supplements to the Registration Statement or the Prospectus.
VI.
We represent that we are a member in good standing of the NASD and, in
making sales of Shares, agree to comply with all applicable rules of the NASD
including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rule of
Fair Practice.
We understand that no action has been taken by you or the Fund to permit
the solicitation of the exercise of Rights or the sale of Shares in any
jurisdiction (other than the United States) where action would be required for
such purpose.
We represent that we have at all times complied with the provisions of
Rule 10b-6 under the Securities Act
6
<PAGE> 7
applicable to the Offer and we agree that we will not, without your approval in
advance, buy, sell, deal or trade in, on a when-issued basis or otherwise, the
Rights or the Shares or any other option to acquire or sell Shares for our own
account or for the accounts of customers, except as provided in Articles II and
III hereof and except that we may buy or sell rights or shares in brokerage
transactions on consolidated orders which have not resulted from activities on
our part in connection with the solicitation of the exercise or Rights and
which are executed by us in the ordinary course of our brokerage business.
We will keep an accurate record of the names and addresses of all
persons to whom we give copies of the Registrtion Statement, the Prospectus,
any preliminary prospectus (or any amendment or supplement thereto) or any
Offering Materials and, when furnished with any subsequent amendment to the
Registration Statement and any subsequent prospectus, we will, upon your
request, promptly forward copies thereof to such persons.
VII.
Nothing contained in this Agreement will constitute the Selling Group
Members partners with the Dealer Manager or with one another or create any
association between those parties, or will render the Dealer Manager or the
Fund liable for the obligations of any Selling Group.
7
<PAGE> 8
Member. The Dealer Manager will be under no liability to make any payment to
any Selling Group Member other than as provided in Article IV of this
Agreement, and will be subject to no other liabilities to any Selling Group
Member, and no obligations of any sort will be implied.
We agree to indemnify and hold harmless you and each other Selling Group
Member and each person, if any, who controls you and any such Selling Group
Member within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against loss or liability caused by any breach by us of
the terms of this Agreement.
VIII.
We agree to pay any transfer taxes which may be assessed and paid on
account of any sales or transfers for our account and a percentage, based upon
the ratio of the fees payable to us pursuant to Article IV of this Agreement to
the aggregate fees payable by the Fund to you and all Selling Group Members
pursuant to Article IV of each Selling Group Agreement, of (i) all expenses
incurred by you in investigating or defending against any claim or proceeding
which is asserted or instituted by any party (including any governmental or
regulatory body) other than a Selling Group Member relating to the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto) or any Offering Materials and (ii) any
8
<PAGE> 9
liability, including attorneys' fees, incurred by you in respect of any such
claim or proceeding, whether such liability shall be the result of a judgment
or as a result of any settlement agreed to by you, other than any such expense
or liability as to which you receive indemnity pursuant to Article VII of this
Agreement or indemnity or contribution from the Fund. Our agreements contained
in this Article VIII shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of any Selling Group
Member or any person controlling any Selling Group Member or by or on behalf of
the Fund, its directors or officers or any person controlling the Fund and
(ii) acceptance of any payment for the Shares.
IX.
All communications to you relating to the Offer will be addressed to the
Syndicate Department, Morgan Stanley & Co. Incorporated, 1251 Avenue of the
Americas, New York, New York 10020, Attention: Christopher R. Zellner.
9
<PAGE> 10
X.
This Agreement will be governed by the internal laws of the State of
New York.
Very truly yours,
_______________________________
[Firm Name]
By_____________________________
Name:
Title:
Confirmed and Accepted
this ___ day of _____________, 1995
MORGAN STANLEY & CO.
INCORPORATED
By___________________________
10
<PAGE> 1
MSTC
CUSTODY AGREEMENT
Custody Agreement, dated as of June 16, 1992, between MORGAN STANLEY TRUST
COMPANY (the "Custodian") and THE LATIN AMERICAN DISCOVERY FUND, INC. (the
"Customer").
1. The Customer hereby appoints the Custodian as custodian of Eligible
Securities (as hereinafter defined) owned or held by the Customer and instructs
the Custodian to establish an account identified as belonging to the Customer
(the "Account"). The Custodian shall have general responsibility for the
safekeeping of such Eligible Securities and any and all monies and other
property (collectively, the "Property") received by the Custodian or any
Subcustodian appointed as described below for the account of the Customer.
"Eligible Securities" means the securities delivered from time to time for
custody in the Account. It is understood that the specific procedures the
Custodian will use in carrying out its responsibilities under this Agreement are
set forth in the procedures manual a copy of which has previously been delivered
to the Customer (the "Procedures Manual"), and which may be amended from time to
time by mutual agreement of the Custodian and the Customer. The Customer
acknowledges that the Procedures Manual constitutes an integral part of this
Agreement.
2. The Customer agrees that the Property held in the Account may be
physically held outside the United States.
<PAGE> 2
3. The Property held in the Account may be held in custody and deposit
accounts that have been established by the Custodian with one or more domestic
or foreign banks, or through the facilities of one or more clearing agencies or
central securities depositories, as listed on Exhibit A hereto (the
"Subcustodians"), as such Exhibit may be amended from time to time by the
Custodian by written notice to the Customer. The Custodian shall provide the
Customer with information and documentation necessary for the Customer to
approve the use of, and the Custodian's contracts with, the Subcustodians. The
Custodian may hold Property for all of its customers with a Subcustodian in a
single account that is identified as belonging to the Custodian for the benefit
of its customers. Any Subcustodian may hold Property in a securities depository
and may utilize a clearing agency. The Custodian shall not be liable for any
loss resulting from the physical presence of any Property in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, exchange controls or acts of war or terrorism. Except as provided
in the previous sentence, the liability of the Custodian for losses incurred by
the Customer in respect of Property held by the Custodian in the Account shall
not be affected by the Custodian's use of Subcustodians.
4. With respect to Property held by a Subcustodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the Customer
any Property held by such Subcustodian for the Custodian's account;
<PAGE> 3
(b) In the event that the Subcustodian holds Property in a securities
depository, clearing agency, such Subcustodian will be required by its agreement
with the Custodian to identify on its books such Property as being held for the
account of the Custodian as a custodian for its customers;
(c) The Custodian shall require that Property held by the Subcustodian for
the Custodian's account be identified on the Subcustodian's books as separate
from any other property held by the Subcustodian and as held solely for the
benefit of customers of the Custodian; and
(d) The Custodian will hold Property through a Subcustodian only if (i)
such Subcustodian and any securities depository or clearing agency in which such
Subcustodian holds Property, or any of their creditors, may not assert any
right, charge, security interest, lien, encumbrance or other claim of any kind
to such Property except a claim of payment for its safe custody or
administration and (ii) beneficial ownership of such Property may be freely
transferred without the payment of money or value other than for safe custody or
administration.
5. The Custodian shall allow the Customer's accountants, officers,
employees, administrators and any person designated by a regulatory authority
having jurisdiction over the Customer reasonable access to the Custodian's
records relating to the Property held by the Custodian as they may reasonably
require in connection with their examination of the Customer's affairs.
<PAGE> 4
The Custodian shall also obtain from any Subcustodian (and will request each
Subcustodian to use reasonable efforts to obtain from any securities depository
or clearing agency in which it deposits Property) an undertaking, to the extent
consistent with the laws of the jurisdiction or jurisdictions to which such
Subcustodian, securities depository or clearing agency is subject, to permit the
Customer's accountants, officers, employees, administrators and any person
designated by a regulatory authority having jurisdiction over the Customer such
reasonable access to the records of such Subcustodian, securities depository or
clearing agency as may be reasonably required in connection with the examination
of the Customer's affairs or to take such other action as the Custodian in its
judgment may deem sufficient to ensure such reasonable access.
6. The Custodian shall provide such reports and other information to the
Customer as the Custodian and the Customer may agree from time to time.
7. The Custodian shall make or cause any Subcustodian to make payments from
monies being held in the Account, except as provided in Section 9 hereof, only
(a) upon the purchase of Eligible Securities for the account of the
Customer and then only upon the delivery of such Eligible Securities;
(b) for payments to be made in connection with the conversion, exchange or
surrender of Eligible Securities in the Account;
(c) upon a request of the Customer that the Custodian return monies being
held in the Account;
<PAGE> 5
(d) upon termination of this Custody Agreement as hereinafter set forth;
and
(e) for any other purpose upon receipt of Authorized Instructions
accompanied by evidence reasonably acceptable to the Custodian as to the
authorization of such payment.
Except as provided in the last sentence of this Section 7, all payments
pursuant to this Section 7 will be made only upon receipt by the Custodian of
Authorized Instructions (as hereinafter defined) of the Customer which shall
specify the purpose for which the payment is to be made. In the event that it is
not possible to make a payment in accordance with Authorized Instructions of the
Customer, the Custodian shall proceed in accordance with the procedures set
forth in the Procedures Manual. Any payment pursuant to subsection (d) of this
Section 7 will be made in accordance with Section 14.
8. Eligible Securities held in the Account will be transferred, exchanged
or delivered by the Custodian or a Subcustodian, except as provided in Section 9
hereof, only
(a) upon sale of such Eligible Securities for the account of the Customer
and then only upon receipt of payment therefor;
(b) upon exercise of conversion, subscription, purchase or other similar
rights represented by such Eligible Securities;
<PAGE> 6
(c) in the case of warrants, rights or similar securities, upon the
surrender thereof in the exercise of such warrants, rights or similar
securities;
(d) for delivery in connection with any loans of securities made by the
Customer, but only against receipt of such collateral as agreed upon from time
to time by the Custodian and the Customer;
(e) upon the termination of this Custody Agreement as hereinafter set
forth; and
(f) for any other purpose upon receipt of Authorized Instructions
accompanied by evidence reasonably acceptable to the Custodian as to the
authorization of such transfer, exchange or delivery.
Except as provided in the last sentence of this Section 8, all transfers,
exchanges or deliveries of Eligible Securities in the Account pursuant to this
Section 8 will be made only upon receipt by the Custodian of Authorized
Instructions of the Customer which shall specify the purpose for which the
transfer, exchange or delivery is to be made. In the event that it is not
possible to transfer Eligible Securities in accordance with Authorized
Instructions of the Customer, the Custodian shall proceed in accordance with the
procedures set forth in the Procedures Manual. Any transfer or delivery pursuant
to subsection (e) of this Section 8 will be made in accordance with Section 14.
<PAGE> 7
9. In the absence of Authorized Instructions from the Customer to the
contrary, the Custodian may, and it may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling Property or
other similar items relating to its duties under this Agreement, provided that
all such payments shall be accounted for to the Customer;
(b) receive and collect all income and principal with respect to Eligible
Securities in the Account and to credit cash receipts to the Account;
(c) exchange securities when the exchange is purely ministerial (including,
without limitation, the exchange of interim receipts or temporary securities for
securities in definitive form and the exchange of warrants, or other documents
of entitlement to securities, for the securities themselves);
(d) surrender Eligible Securities in the Account at maturity or when called
for redemption upon receiving payment therefor;
(e) execute in the Customer's name such ownership and other certificates as
may be required to obtain the payment of income from Eligible Securities held in
the Account;
(f) pay or cause to be paid, from the Customer's account, any and all taxes
and levies in the nature of taxes imposed on Property in the Account by any
governmental authority in connection with transactions in such Property;
<PAGE> 8
(g) endorse for collection, in the name of the Customer, checks, drafts and
other negotiable instruments; and
(h) in general, attend to all nondiscretionary details in connection with
the sale, purchase, transfer and other dealings with the Property except as
otherwise directed by the Customer.
10. "Authorized Instructions": shall mean instructions of the Customer
received by tested telex or telecopy or by such other means as may be agreed in
writing between the Customer and the Custodian. Unless otherwise specified in
this Agreement, the Custodian shall be entitled to act, and shall have no
liability for acting, upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to be genuine and to
have been properly executed by or on behalf of the customer.
11. Eligible Securities held in the Account may be registered in the name
of the Custodian or the Custodian's nominee or, in the case of Eligible
Securities in the custody of an entity other than the Custodian, in the name of
such entity or its nominee. The Customer agrees to hold the Custodian harmless
from any liability to a nominee acting as a holder of record of such Eligible
Securities. The Custodian may without notice to the Customer cause any such
Eligible Securities to cease to be registered in the name of any such nominee
and to be registered in the name of the Customer.
12. The Custodian shall be responsible for the performance of only such
duties as are set forth in this Agreement
<PAGE> 9
or the Procedures Manual or contained in Authorized Instructions given to the
Custodian which are not contrary to the provisions of any relevant law or
regulation or of this Agreement or the Procedures Manual. The Custodian shall
not be liable to the Customer or to any other person for any action taken or
omitted to be taken by it in connection with this Agreement in the absence of
negligence or willful misconduct on the part of the Custodian.
13. The Customer agrees to pay to the Custodian from time to time such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon from time to time and Custodian's out-of-pocket or incidental
expenses. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed, or assessed with respect to
the Account or any Property held therein. The Custodian is and any Subcustodians
are authorized to charge the Account for such items and the Custodian shall have
a lien on any and all Property in the Account for any amount owing to the
Custodian from time to time under this Agreement.
14. This Agreement may be terminated by the Customer or the Custodian by 60
days written notice to the other, sent by registered mail. If notice of
termination is given the Customer shall, within 30 following the giving of such
notice, deliver to the Custodian a statement in writing specifying the successor
custodian or other person to whom the Custodian shall transfer the Property in
the Account. In either event the Custodian, subject to the satisfaction of any
lien it may have, will transfer such
<PAGE> 10
Property to the person so specified. If the Custodian does not receive such
statement, the Custodian, at its election, may transfer such Property to a bank
or trust company established under the laws of the United States or any state
thereof to be held and disposed of pursuant to the provisions of this Agreement
or may continue to hold such Property until such a statement is delivered to the
custodian. In such event the Custodian shall be entitled to fair compensation
for its services during such period as the Custodian remains in possession of
any Property and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect; provided,
however, that the Custodian shall no longer settle any transactions in
securities in the Account.
15. The Custodian, its agents and employees will maintain the
confidentiality of information concerning the Property held in the Account,
including in dealings with affiliates of the Custodian. In the event the
Custodian or any Subcustodian is requested or required to disclose any
confidential information concerning the Property, the Custodian shall promptly
notify the Customer of such request or requirement so that the Customer may seek
a protective order or waive the Custodian's or such Subcustodian's compliance
with this Section 15. In the absence of such a waiver, if the Custodian or such
Subcustodian is compelled, in the opinion of its counsel, to disclose any
confidential information, the Custodian or such Subcustodian may disclose such
information to such persons as, in the opinion of counsel, is so required.
<PAGE> 11
16. Any notice or other communication from the Customer to the Custodian,
unless otherwise provided by this Agreement, shall be sent by certified or
registered mail to Morgan Stanley Trust Company, One Evertrust Plaza, Jersey
City, New Jersey 07302, Attention: John Roberts, Executive Officer, and any
notice from the Custodian to the Customer is to be mailed postage prepaid,
addressed to the Customer at the address appearing below, or as it may hereafter
be changed on the Custodian's records in accordance with notice from the
Customer.
17. The Custodian may assign all of its rights and obligations hereunder to
any other entity which is qualified to act as custodian under the terms of this
Agreement and majority-owned, directly or indirectly, by Morgan Stanley Group
Inc., and upon the assumption of the rights and obligations hereunder by such
entity, such entity shall succeed to all of the rights and obligations of, and
be substituted for the Custodian hereunder as if such entity had been originally
named as custodian herein. The Custodian shall give prompt written notice to the
Customer upon the effectiveness of any such assignment.
This Agreement shall bind the successors and assigns of the Customer and
the Custodian and shall be governed by the laws of the State of New York.
BY /S/ WARREN J. OLSEN
-----------------------------
The Latin American Discovery Fund, Inc.
Authorized Signature(s) & Title(s)
Warren J. Olsen, Principal
Address for record: 1221 Avenue of the Americas
21st Floor
New York, New York 10020
<PAGE> 12
ACCEPTED:
MORGAN STANLEY TRUST COMPANY
BY /S/ ELIZABETH H. ENDMAN
-------------------------------
Authorized Signature
FINANCE DIRECTOR
<PAGE> 13
EXHIBIT A
TO
CUSTODY AGREEMENT
BETWEEN
MORGAN STANLEY TRUST COMPANY
AND
THE LATIN AMERICAN DISCOVERY FUND, INC.
The Custodian may hold the Property held in the Account in custody and
deposit accounts which it has established with the following domestic or foreign
banks, or through the facilities of the following clearing agencies or central
securities depositories:
1) Citibank
<PAGE> 1
U.S. TRUST ADMINISTRATION AGREEMENT
Agreement dated as of June 16, 1992 between THE LATIN AMERICAN DISCOVERY
FUND, INC., a Maryland corporation (the "Fund") and U.S. TRUST COMPANY, a New
York state chartered bank and trust corporation ("U.S. Trust").
WHEREAS, The Latin American Discovery Fund, Inc. has filed a Registration
Statement on Form N-2 to register as an investment company under the Investment
Company Act of 1940 (the "1940 Act") and to offer shares under the Securities
Act of 1933;
WHEREAS, U.S. Trust is a service company which provides management,
administrative, and other services to investment companies and others; and
WHEREAS, the Fund desires to retain U.S. Trust to render certain
management, administrative, and other services for the benefit of the Fund and
U.S. Trust is willing to render such services set forth below;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Appointment of Administrator
The Fund hereby appoints U.S. Trust to act as administrator to provide
certain administrative services for the Fund for the benefit of the Fund for the
period and on the terms set forth in this Agreement. U.S. Trust accepts such
appointment and agrees to render the services and provide, at its own expense,
the office space, furnishings and equipment and the personnel required by it to
perform the services on the terms and for the compensation herein provided. In
connection with such appointment, the Fund will deliver to U.S. Trust copies of
each of the following documents (upon the Fund's receipt thereof) and will
deliver to it all future amendments and supplements, if any:
A. The Articles of Incorporation of the Fund as presently in effect and as
amended from time to time;
B. The Fund's By-Laws as presently in effect as amended from time to time;
C. A copy of the resolution of the Fund's Board of Directors authorizing
this Agreement;
D. Specimens of all forms of outstanding and new
<PAGE> 2
stock certificates in the forms approved from time to time by the Board of
Directors of the Fund with a certificate of the Secretary of the Fund as to such
approval;
E. The Fund's registration statement on Form N-2 as filed with, and
declared effective by, the U.S. Securities and Exchange Commission, and all
amendments thereto;
F. The resolutions of the Board of Directors of the Fund authorizing the
original issue of its shares;
G. A copy of the Investment Advisory and Management Agreement between the
Fund and Morgan Stanley Asset Management Inc. (the "Manager");
H. A copy of the Underwriting Agreement among the U.S. Underwriters, for
whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Smith Barney, Harris Upham & Co.
Incorporated are acting as representatives, the Latin American Underwriters, for
whom Morgan Stanley International, Bear Stearns International, Bice Chileconsult
Agente de Valores S.A., Donaldson, Lufkin & Jenrette Securities Corporation,
Roberts Capital Markets S.A. and Smith Barney, Harris Upham & Co. Incorporated
are acting as representatives and the Fund;
I. A copy of the Agency Agreement among the Fund, the Manager, Roberts
Management S.A., Unibanco Consultoria de Investimentos S/C Ltda., Bice
Chileconsult Finanzas y Servicios Ltda., Impulsora del Fondo Mexico, S.A. de
C.V. and the Agents, for whom Morgan Stanley & Co. Incorporated, Bear, Stearns &
Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney,
Harris Upham & Co., Incorporated are acting as selling agents;
J. A copy of the Custodian Agreement between the Fund and Morgan Guaranty
Trust Company (the "U.S. Custodian Agreement");
K. A copy of the International Custodian Agreement between the Fund and
Morgan Stanley Trust Company (the "International Custodian") (the "International
Custodian Agreement");
L. Copies of the Sub-custodian contract between Morgan Stanley Trust
Company and Citibank, N.A.
M. A copy of the Chilean Administration Agreement among the Fund, the
Manager and Bice Chileconsult Agente de Valores S.A. (the "Chilean
Administration Agreement");
<PAGE> 3
N. A copy of the Brazilian Administration Agreement among the Fund, the
Manager and Unibanco-Uniao de Bancos Brasileiros S.A. (the "Brazilian
Administration Agreement");
O. Copies of the Sub-advisory agreements among the Fund, the Manager and
(i) Roberts Management S.A.; (ii) Unibanco Consultoria de Investimentos S/C
Ltda.; (iii) Bice Chileconsult Finanzas y Servicios Ltda.; and (iv) Impulsora
del Fondo Mexico, S.A de C.V;
P. A copy of the Agreement for Stock Transfer services between the Fund and
The First National Bank of Boston (the "Transfer Agency Agreement");
Q. A copy of the Dividend Reinvestment and cash Purchase Plan adopted by
the Fund; and
R. Copies of the resolutions of the Fund's Board of Directors authorizing:
(1) certain officers and employees of U.S. Trust to give instructions to the
Fund's Custodians pursuant to the Custodian Contracts, and (2) certain officers
and employees of U.S. Trust to give instructions to the Fund's Transfer Agent
pursuant to the Transfer Agent Agreement, and (3) certain officers and employees
of U.S. Trust to sign checks and pay expenses on behalf of the Fund.
2. Representations and Warranties of U.S. Trust
U.S. Trust represents and warrants to the Fund that:
A. It is a New York state chartered bank and trust company, duly organized
and validly existing in good standing under the laws of the State of New York.
B. It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform the services contemplated in
this Agreement.
C. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
D. It has and will continue to have and maintain the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
3. Services Provided by U.S. Trust
U.S. Trust will provide the following services subject to the control and
supervision of the Fund and its Board of Directors, and in compliance with the
objectives, policies and limitations set forth in the Fund's registration
statement, By-Laws and applicable
<PAGE> 4
laws and regulations.
A. General Administration. Under the direction of the Fund and the Fund's
Board of Directors, U.S. Trust shall manage, administer, and conduct all of the
general business activities of the Fund other than those which have been
contracted to third parties by the Fund. The foregoing notwithstanding, U.S.
Trust will as part of its services hereunder provide such monitoring and
supervision of the activities of any third party service providers retained by
the Fund as U.S. Trust and the Fund may separately agree in writing. U.S. Trust
shall provide the personnel and facilities necessary to perform such general
business activities including a treasurer under the supervision of the Fund's
Board of Directors and executive Officers.
B. Accounting. U.S. Trust shall provide the following accounting services
for the benefit of the Fund:
(1) Maintenance of the books and records and accounting controls for the
Fund's assets, including records of all securities transactions;
(2) Weekly calculation of the net asset value for the Fund;
(3) Accounting for dividends and interest received and distributions made
by the Fund;
(4) Preparation and filing of the Fund's U.S. tax returns and annual and
semi-annual reports on Form N-SAR;
(5) The production of transaction data, financial reports and such other
periodic and special reports as the Board of Directors of the Fund may
reasonably request;
(6) The preparation of financial statements for the annual, semi-annual and
quarterly reports and other shareholder communications;
(7) Liaison with the Fund's independent auditors;
(8) Monitoring and administration of arrangements with the Fund's
custodians and depository banks; and
(9) Maintenance of (but not the payment for) the Fidelity Bond required to
be maintained under the 1940 Act and preparation of the filings required in
connection therewith.
<PAGE> 5
C. Other Information. U.S. Trust will furnish for the benefit of the Fund
such other information as is required by law, and such statistical information
as may be reasonably requested by the Fund, including but not limited to
information pursuant to the Fund's Custodian Agreement.
<PAGE> 6
4. Services To Be Obtained Independently By The Fund
The following services and related costs and expenses shall be provided or
obtained independently by the Fund at no expense to U.S. Trust:
A. Organizational expenses;
B. Services of an independent accountant;
C. Services of outside legal counsel (including such counsel's review of
the Fund's registration statement, proxy materials and other reports
and materials prepared by U.S. Trust under this Agreement);
D. Any services contracted for by the Fund directly from parties other
than U.S. Trust, including the services of any other administrators
retained by the Fund;
E. Trading operations and brokerage fees, commissions and transfer taxes
in connection with the purchase and sale of securities for its
investment portfolio;
F. Taxes, insurance premiums and other fees and expenses applicable
to its operation;
G. Investment advisory services;
H. Costs incidental to any meetings of shareholders including, but not
limited to, legal and accounting fees, proxy filing fees and the
preparation, printing and mailing of any proxy materials;
I. Costs incidental to Directors' meetings, including fees and
expenses of Directors;
J. The salary and expenses of any officer or employee of the Fund;
K. Custodian and depository banks, and all services related thereto;
L. Costs incidental to the preparation, printing and distribution of its
registration statement and any amendments thereto, and shareholder
reports;
<PAGE> 7
M. All registration fees and filing fees required under the securities
laws of the United States and state regulatory authorities;
N. Fidelity bond and Director's and Officers' liability insurance;
O. Transfer agency and dividend reinvestment services; and
P. Underwriting or distribution services.
5. Prices, Charges and Instructions
A. The Fund will pay to U.S. Trust, as compensation for the services
provided and the expenses assumed pursuant to this Agreement, as agreed to in a
written fee schedule approved by the parties hereto (see Schedule A).
B. At any time U.S. Trust may apply to any officer of the Fund or
officer of the Manager for instructions, and may consult with legal counsel for
the Fund, or its own outside legal counsel, with respect to any matter arising
in connection with the services to be performed by U.S. Trust under this
Agreement and U.S. Trust shall not be liable and shall be indemnified by the
Fund for any action taken or omitted by it in good faith in reliance upon such
instructions. In carrying out its duties hereunder, U.S. Trust shall be
entitled to act in accordance with instructions of the Fund contained in
documents reasonably believed by U.S. Trust to be genuine and to have been
signed by the proper person or persons and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund.
6. Limitation of Liability and Indemnification
A. U.S. Trust shall be responsible for the performance of only such
duties as are set forth or contemplated herein or contained in any separate
writing contemplated under Section 3.A hereof or in instructions given to it
which are not contrary to this Agreement. U.S. Trust shall have no liability
for any loss or damage resulting from the performance or non-performance of its
duties hereunder unless solely caused by or resulting from gross negligence,
willful misconduct or bad faith of U.S. Trust, its officers and employees.
B. The Fund shall indemnify and hold U.S. Trust harmless from all loss,
cost, damage and expense, including reasonable expenses for counsel, incurred by
U.S. Trust resulting from any claim, demand, action or omission by it in the
performance of its duties hereunder, or as a result of acting upon any
<PAGE> 8
instructions reasonably believed by it to have been executed by a duly
authorized officer of the Fund or of the Fund's investment advisers, provided
that this indemnification shall not apply to actions or omissions of U.S. Trust,
its officers, employees or agents in cases of its or their own negligence or
willful misconduct.
C. The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above, but, if the
Fund elects to assume the defense, such defense shall be conducted by counsel
chosen by the Fund. In the event the Fund elects to assume the defense of any
such suit and retain such counsel, U.S. Trust or any of its affiliated persons,
named as defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless at such time the Fund
specifically authorized in writing the retaining of such counsel at the Fund's
expense.
D. No provisions of this Agreement shall be deemed to protect U.S.
Trust or any of its directors, officers and/or employees, against liability to
the Fund or its shareholders or to the Fund to which it might otherwise be
subject by reason of any fraud, willful misfeasance or gross negligence in the
performance of its duties or the reckless disregard of its obligations under
this Agreement.
7. Confidentiality
U.S. Trust agrees that, except as otherwise required by law, U.S. Trust
will keep confidential all records and information in its possession relating to
the Fund or its shareholders or shareholder accounts and will not disclose the
same to any person except at the request or with the written consent of the
Fund.
8. Compliance with Governmental Rules and Regulations
U.S. Trust assumes no responsibility hereunder for the Fund's complying
with all applicable requirements of the Securities Act of 1933, the Investment
Company Act of 1940 and the Securities Exchange Act of 1934, all as amended, and
any laws, rules and regulations of governmental authorities having jurisdiction,
except to the extent that U.S. Trust specifically assumes any such obligations
under the terms of this Agreement.
U.S. Trust shall maintain and preserve for the periods prescribed, such
records relating to the services to be performed by U.S. Trust under this
Agreement as are required pursuant to the Investment Company Act of 1940 and the
Securities Exchange Act of 1934. All such records shall at all times remain the
respective
<PAGE> 9
properties of the Fund, shall be readily accessible during normal business hours
to the Fund, the Fund and U.S. Trust, and shall be promptly surrendered upon the
termination of this Agreement or otherwise on written request. Records shall be
surrendered in usable machine readable form.
9. Status of U.S. Trust
The services of U.S. Trust to the Fund are not to be deemed exclusive, and
U.S. Trust shall be free to render similar services to others so long as U.S.
Trust's services under this Agreement are not impaired thereby. U.S. Trust shall
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Fund from time to time, have no authority
to act or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
10. Printed Matter Concerning the Fund, or U.S. Trust
Neither the Fund nor U.S. Trust shall publish and circulate any printed
matter which contains any reference to the other party without its prior written
approval, excepting such printed matter as refers in accurate terms to U.S.
Trust's appointment under this Agreement and except as required by applicable
laws.
11. Term, Amendment and Termination
This Agreement will become effective upon the date hereabout written and
shall continue in effect thereafter until terminated by U.S. Trust or the Fund
upon 60 days' prior written notice to the other. This Agreement shall
automatically terminate in the event of its assignment (as defined in the 1940
Act).
12. Notices
Any notice or other communication authorized or required by this Agreement
to be given to any party mentioned herein shall be sufficiently given if
addressed to such party and mailed postage prepaid or delivered to its principal
office.
13. Non-Assignability
This Agreement shall not be assigned by any of the parties hereto without
the prior consent in writing of the other party. U.S. Trust may, without further
consent on the part of the Fund, subcontract for the performance hereof with
subsidiaries or other affiliates of U.S. Trust; provided, however, that U.S.
Trust shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions and shall be
responsible for its choice of subcontractor.
<PAGE> 10
14. Successors
This Agreement shall be binding on and shall inure to the benefit of the
Fund and U.S. Trust, and their respective successors.
15. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
16. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the day and year first above written.
THE LATIN AMERICAN DISCOVERY
FUND, INC.
By:/s/ Warren J. Olsen
---------------------------------------
Warren J. Olsen
President
UNITED STATES TRUST COMPANY OF
NEW YORK
By:/s/ Donald P. Hearn
--------------------------------------
Senior Vice President
<PAGE> 11
SCHEDULE A
TO
U.S. TRUST ADMINISTRATION AGREEMENT DATED AS OF JUNE 16, 1992
between
THE LATIN AMERICAN DISCOVERY FUND, INC.
and
U.S. TRUST COMPANY
FEE SCHEDULE
For the services provided pursuant to the U.S. Trust Administration
Agreement, The Latin American Discovery Fund, Inc. shall pay to U.S. Trust an
annual fee of $65,000 plus .08% per annum of the average weekly net assets of
the Fund, computed weekly and payable monthly.
The Fund will be billed for out-of-pocket expenses including, for example,
security pricing services.
<PAGE> 1
DATED JUNE 16, 1992
THE LATIN AMERICAN DISCOVERY FUND, INC.
-AND -
BICE CHILECONSULT AGENTE DE VALORES S.A.
----------------------------
CHILEAN
ADMINISTRATION AGREEMENT
-----------------------------
<PAGE> 2
AN AGREEMENT MADE AS OF JUNE 16, 1992 BETWEEN: -
(1) THE LATIN AMERICAN DISCOVERY FUND, INC. (the "Fund"), a company
incorporated under the laws of Maryland with an office at 1221 Avenue of the
Americas, New York, New York 10020; and
(2) BICE CHILECONSULT AGENTE DE VALORES S.A. (the "Chilean Administrator"),
a company incorporated under the laws of Chile with an office at Teatinos 220,
5th Floor, Santiago, Chile (the "Chilean Administrator").
WHEREAS:
The Fund desires to appoint the Chilean Administrator to provide
administrative services to the Fund in Chile in accordance with the terms and
conditions hereinafter set forth and the Chilean Administrator is willing to
provide such services.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree
as follows:
1. Interpretation
1.1 In this Agreement the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
"Articles" means the Articles of Incorporation of the Fund as the same may
be amended or supplemented from time to time;
"Auditors" means Price Waterhouse and any successor auditors hereafter
retained by the Fund;
<PAGE> 3
"Business Day" means any day when banks are open for business in New York
City and in Santiago, Chile;
"By-laws" means the By-laws of the Fund, as the same may be amended or
supplemented from time to time;
"Directors" means the Board of Directors of the Fund including any duly
appointed committee thereof;
"Dollars" means the currency of the United States of America;
"Investment Manager" means Morgan Stanley Asset Management Inc. and any
successor investment manager hereafter retained by the Fund;
"Investments" means investments in Chilean companies or other entities in
Chile or such other investments in Chile as the Fund may from time to time be
permitted to make under applicable Laws.
"Laws" means, unless specifically stated otherwise herein, the laws of the
United States and of Chile and any other applicable laws and regulations for the
time being in force;
"Prospectus" means the Prospectus of the Fund, dated June 16, 1992, forming
a part of the Fund's Registration Statement on Form N-2 (File No. 33-46136),
declared effective by the United States Securities and Exchange Commission on
June 16, 1992;
"U.S. Administrator" means U.S. Trust Company or any successor U.S.
administrator hereafter retained by the Fund.
1.2 References to Clauses are to Clauses of this Agreement.
1.3 The headings to the Clauses of this Agreement are for convenience only
and shall not affect the construction or
<PAGE> 4
interpretation hereof.
2. Appointment of the Chilean Administrator
The Fund hereby appoints the Chilean Administrator to act as legal
representative of the Fund in Chile and to provide administrative services to
the Fund in Chile for the period and on the terms set forth in this Agreement.
The Chilean Administrator accepts such appointment and agrees to render such
services and provide, at its own expense, the office space, furnishings and
equipment and the personnel required by it to perform such services, all on the
terms and for the compensation herein provided.
3. Duties of the Chilean Administrator
The Chilean Administrator shall discharge the following responsibilities,
subject to the control of the Fund and the Directors and in compliance with the
objectives, policies and limitations set forth in the Fund's Articles, By-laws
and the Prospectus and in compliance with all applicable Laws:
3.1 General Administration. Under the supervision and control of the Fund
and the Directors, the Chilean Administrator shall act as the Fund's legal
representative in Chile and shall manage, administer, and conduct all of the
general business activities of the Fund in Chile other than those which have
been contracted to third parties by the Fund, including, without limitation, the
following:
(a) making and obtaining all exchange control filings and approvals
required for the Fund to effect investment and other transactions in Chile and
to remit moneys and other assets outside of Chile;
<PAGE> 5
(b) applying to the relevant authorities in Chile for, and obtaining from
such authorities, all confirmations or consents relating to the tax status of
the Fund and all tax rebates and other payments which may be due to the Fund
from time to time in respect of the Investments;
(c) arranging for the withholding of Chilean taxes payable by the Fund on
sums remitted outside of Chile;
(d) maintaining the books, records and accounts of the Fund relating to its
activities in Chile, including records of all investment transactions;
(e) calculating, weekly, the net asset value of the Fund's assets in Chile
and reporting the same to the U.S. Administrator;
(f) accounting for all dividends and interest received by the Fund on its
Investments and all amounts remitted by the Fund in to and out of Chile;
(g) preparing all returns, financial statements and other filings required
by Chilean Laws or Chilean authorities through instructions or regulations from
time to time;
(h) coordinating the foregoing with the Investment Manager, the Auditors
and the U.S. Administrator; and
(i) recommending to the Fund and the Investment Manager whether and, if so,
the manner and amounts in which reserves should be established or maintained by
the Fund to meet liabilities (and depletions of capital) in Chile; and
(j) performing all other administrative duties in Chile required by Chilean
law or Chilean authorities through instructions or regulations to be performed.
<PAGE> 6
3.2 Investment Transactions. Subject to the supervision and control of
the Fund and the Directors, the Chilean Administrator shall, for the account and
in the name of the Fund:
(a) issue orders and instructions with respect to the acquisition and
disposition of Investments; provided, that such orders and instructions shall be
issued only at and in accordance with the direction of the Fund or the
Investment Manager; and
(b) at the direction of the Fund or the Investment Manager, effect foreign
exchange transactions on behalf of the Fund in connection with any purchase or
sale, or for the protection of the value, of the Fund's Investments.
In the execution of its duties under Clauses 3.2(a) and 3.2(b), the Chilean
Administrator shall have no discretion as to the selection of the Investments or
any other assets of the Fund which may form part of the Fund's portfolio from
time to time.
3.3 Transaction Recordkeeping. After each acquisition or disposal of an
Investment, the Chilean Administrator shall provide the Fund or its designee
(which may be the Investment Manager or the U.S. Administrator) with the
following information:
(a) Trade Date;
(b) Whether sale or purchase;
(c) Description of Investment;
(d) Quantity;
(e) Price per unit;
(f) Amount of money to be received or delivered;
(g) Name of the stock brokers and/or the person(s), firms(s) or
company(ies) concerned with the execution of the
<PAGE> 7
purchase or sale;
(h) Settlement date; and
(i) Any other relevant details.
Such information as aforesaid shall be given orally, in writing or by
telex, telecopier, facsimile machine, cable, telegram or other electronic means
without delay and where information is given orally it shall forthwith be
confirmed in writing or by telex, telecopier, facsimile machine, cable, telegram
or other electronic means.
3.4 Voting of Investments. The Chilean Administrator shall exercise all
voting rights conferred by the Investments in such manner as the Directors may
instruct. The Fund shall from time to time upon written request from and at the
expense of the Chilean Administrator execute and deliver or, if appropriate,
cause to be executed and delivered by the Fund's custodian or sub-custodian, to
the Chilean Administrator or its nominees such powers of attorney or proxies
authorizing such attorney or proxies to exercise the voting rights conferred by,
or otherwise act in respect of, all or any part of the Investments.
3.5 Other Information. The Chilean Administrator will prepare and furnish
to the Fund or its designated agents such other reports and information as may
be required under applicable Laws or as may be reasonably requested from time to
time by the Directors.
4. Instructions.
All instructions and directions to the Chilean Administrator hereunder
shall be given in such form and from such person or persons and be subject to
such authentication procedures as the Fund shall from time to time require and
the Chilean
<PAGE> 8
Administrator shall approve. The Chilean Administrator shall not be liable for
any action taken or omitted by it in good faith in reliance upon instructions
and directions properly given in accordance with the procedure agreed hereunder.
5. Fees of the Chilean Administrator
In consideration of the services to be performed by the Chilean
Administrator hereunder, the Chilean Administrator shall be entitled to receive
from the Fund an annual fee, computed weekly and payable monthly in Dollars in
arrears, equal to the greater of .25% of the Fund's average weekly net assets
invested in Chile or $20,000.
6. Expenses
The Chilean Administrator shall be responsible for all out-of-pocket
expenses (including charges for telex, cable, long-distance telephone calls and
postage) incurred by it in connection with the performance of its duties
hereunder, except that, if any officer or employee of the Chilean Administrator
is requested to attend any meeting of the Directors, the reasonable travelling
and hotel expenses of such officer or employee will be reimbursed by the Fund.
7. Limitation of Liability and Indemnification
7.1 The Chilean Administrator shall be responsible for the performance of
only such duties as are set forth or contemplated herein or contained in
instructions given to it which are not contrary to this Agreement. In rendering
the services to be provided hereunder, the Chilean Administrator will act in
good faith in an expeditious manner. The Chilean Administrator shall have no
liability for any loss or damage resulting from the
<PAGE> 9
performance or non-performance of its duties hereunder unless solely caused by
or resulting from the negligence, willful misconduct or bad faith of the Chilean
Administrator, its officers and employees.
7.2 The Fund shall indemnify and hold the Chilean Administrator harmless
from all loss, cost, damage and expense, including reasonable expenses for
counsel, incurred by the Chilean Administrator resulting from any claim, demand,
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
executed by a duly authorized officer of the Fund or of the Fund's Investment
Manager, provided that this indemnification shall not apply to actions or
omissions of the Chilean Administrator, its officers, employees or agents in
cases of its or their own negligence or willful misconduct.
7.3 The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above, but, if the
Fund elects to assume the defense, such defense shall be conducted by counsel
chosen by the Fund and reasonably acceptable to the Chilean Administrator. In
the event the Fund elects to assume the defense of any such suit and retain such
counsel, the Chilean Administrator or any of its affiliated persons, named as
defendant or defendants in the suit, may retain additional counsel but shall
bear the fees and expenses of such counsel unless at such time the Fund
specifically authorized in writing the retaining of such counsel at the Fund's
expense.
<PAGE> 10
7.4 No provision of this Agreement shall be deemed to protect the Chilean
Administrator or any of its directors, officers and/or employees, against
liability to the Fund or its shareholders or to the Fund to which it might
otherwise be subject by reason of any fraud, willful misfeasance or negligence
in the performance of its duties or the reckless disregard of its obligations
under this Agreement.
8. Services of the Chilean Administrator Not to be Exclusive
The services of the Chilean Administrator to the Fund are not to be deemed
exclusive, and the Chilean Administrator shall be free to render similar
services to others so long as the Chilean Administrator's services under this
Agreement are not impaired thereby. The Chilean Administrator shall be deemed to
be an independent contractor.
9. Term, Amendment and Termination
This Agreement will become effective upon the date hereinabove written and
shall continue in effect thereafter until terminated by the Chilean
Administrator upon 90 days' prior written notice to the Fund or the Fund upon 60
days' prior written notice to the Chilean Administrator. Any provision of this
Agreement may be amended only if the parties so agree in writing.
<PAGE> 11
10. Confidentiality
The Chilean Administrator agrees that, except as otherwise required by
applicable Laws, the Chilean Administrator will keep confidential all records
and information in its possession relating to the Fund and will not disclose the
same to any person except at the request or with the written consent of the
Fund.
11. Notices
11.1 Any notice given hereunder shall be given by sending the same by
registered or certified mail, postage prepaid, or by telegram, cable, telex or
telecopier confirmed in each case by a copy sent forthwith by registered or
certified mail, postage prepaid or by delivering the same by hand: such notice
shall be addressed, dispatched or delivered (as the case may be) to the address
of the party to whom it is addressed set forth above.
11.2 Any notice sent as provided in this Clause shall be deemed to have
been given upon receipt. Failure to receive any confirmation of any notice duly
given by telegram, cable, telex, or telecopier shall not invalidate such notice.
Evidence that the notice was properly addressed, stamped and put into the mail
shall be conclusive evidence of mailing.
12. Non-Assignability
This Agreement shall not be assigned by any of the parties hereto without
the prior written consent in writing of the other party.
13. Miscellaneous Provisions
13.1 No failure on the part of any party to exercise, and no delay on its
part in exercising, any right or remedy under this
<PAGE> 12
Agreement will operate as a waiver thereof, nor will any single or partial
exercise of any right or remedy preclude any other or further exercise thereof
or the exercise of any other right or remedy. The rights and remedies provided
in this Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
13.2 The Chilean Administrator hereby acknowledges receipt of the Fund's
Articles and By-laws, as amended to date, and of the Prospectus. The Fund will
provide the Chilean Administrator with notice of any changes to the By-Laws and
Articles or to the investment policies of the Fund.
13.3 The Chilean Administrator will not carry on any business if by so
doing the Chilean Administrator shall cause the Fund or the Investment Manager
to become liable to pay any taxes which they would not otherwise be liable to
pay.
13.4 The illegality, invalidity or unenforceability of any provision of
this Agreement under the law of any jurisdiction shall not affect its legality,
validity or enforceability under the law of any other jurisdiction nor the
legality, validity or enforceability of any other provision. If any provision of
this Agreement is determined by a court of competent jurisdiction to be so broad
as to be unenforceable, such provision shall be automatically reformed and
construed so as to be valid, operative and enforceable to the maximum extent
permitted by Law while most nearly preserving its original intent.
13.5 All books, records and accounts maintained by the Chilean
Administrator by or on behalf of the Fund shall at all times remain the property
of the Fund and shall be readily
<PAGE> 13
accessible during normal business hours to the Fund, its agents, including,
without limitation, the Auditors and the U.S. Administrator, and any other
person designated by the Fund to the Chilean Administrator, including
representatives of the United States Securities and Exchange Commission.
Promptly upon the Fund's request therefor, the Chilean Administrator shall
provide to the Fund or its designee originals or copies (as requested by the
Fund) of all books, records and accounts maintained by the Chilean Administrator
by or on behalf of the Fund.
13.6 Except as otherwise expressly provided herein, the Chilean
Administrator shall not publish or circulate any material which contains
reference to the Fund, without first obtaining the Fund's written consent
thereto.
13.7 This Agreement may be executed in counterparts, each of which will be
deemed an original but all of which together shall constitute one and the same
instrument.
14. Governing Law
14.1 THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK; PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL BE CONSTRUED AS
BEING INCONSISTENT WITH THE INVESTMENT COMPANY ACT OF 1940.
14.2 Each of the parties hereby irrevocably submits to the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York and any court in the State of New York located in the city and county
of New York, and any Appellate Court from any thereof, in any action, suit or
proceeding brought against it and related to or in connection with this
Agreement or the transactions contemplated hereunder or for
<PAGE> 14
recognition or enforcement of any judgment and each of the parties hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard or determined in such New York State Court or,
to the extent permitted by law, in such Federal Court. The parties agree that a
final judgment in any such action, suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. To the extent permitted by applicable law, each of the
parties hereby waives and agrees not to assert by way of motion, as a defense or
otherwise in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be litigated in or by such courts. Each party hereto irrevocably
consents to service of process in connection with any such suit, action or
proceeding by mailing a copy thereof in English by registered or certified mail,
postage prepaid, to their respective principal places of business.
14.3 To the extent that any party hereto may now or hereafter be entitled,
in any jurisdiction in which judicial proceedings may at any time be commenced
with respect to this Agreement, to claim for itself or its revenues or
properties any immunity from suit, court jurisdiction, attachment prior to
judgment, attachment in aid of execution of a judgment, execution of a judgment
or from setoff, banker's lien, counterclaim or any other legal process or remedy
with respect to its obligations under
<PAGE> 15
this Agreement and/or to the extent that in such jurisdiction there may be
attributed to any such party such an immunity (whether or not claimed), the
parties hereto each hereby to the fullest extent permitted by applicable law
irrevocably agrees not to claim, and hereby to the fullest extent permitted by
applicable law expressly waives, any such immunity, including, without
limitation, a complete waiver of immunity pursuant to the United States Foreign
Sovereign Immunities Act.
IN WITNESS WHEREOF, this Agreement has been entered into the day and year
first above written.
THE LATIN AMERICAN DISCOVERY FUND, INC.
By:/s/ Warren J. Olsen
----------------------------------------
Name: Warren J. Olsen
Title: President
BICE CHILECONSULT AGENTE DE VALORES, S.A.
By:/s/ Claudio Baldojino
----------------------------------------
Name: Cluadio Baldojino
Title: Executive Director
<PAGE> 1
EXHIBIT (K)(4)
ADMINISTRATION AGREEMENT
(ANNEX IV OF NATIONAL MONETARY COUNCIL RESOLUTION N. 1289/87 -
PROPRIETARY ACCOUNT)
1. The parties hereto are:
1.1. UNIBANCO - UNIAO DE BANCOS BRASILEIROS S.A., a banking
corporation having its principal place of business at Avenida
Eusebio Matoso, nr. 891, city of Seo Paulo, State of Seo
Paulo, Brazil, holder of Charter nr. I-325, listed in the
General Taxroll under nr. 33.700.394/0001-40, hereinafter
called UNIBANCO;
1.2. THE LATIN AMERICAN DISCOVERY FUND, INC., a corporation
organized under the laws of the State of Maryland and having
its principal place of business at 1221 Avenue of the
Americas, New York, New York 10020, hereinafter called FUND;
1.3. MORGAN STANLEY ASSET MANAGEMENT INC., a corporation organized
under the laws of the State of Delaware having its principal
place of business at 1221 Avenue of the Americas, New York,
New York 10020, hereinafter called MSAM.
2. WHEREAS:
2.1. Resolution n. 1832 of May 31, 1991, approved and included as
an integral part of Resolution no. 1289 of March 20, 1987,
Annex IV which governs the constitution and
administration/management of a securities portfolio held in
Brazil, by institutional investors, such as pension funds,
financial institutions portfolios, insurance companies and
mutual investment funds constituted abroad or other mutual
investment entities duly registered with an organ equivalent
to the Securities and Exchange Commission in their country of
origin or a supernational entity controlling the investment.
2.2. Instruction n. 169 of January 2, 1992 issued by Comisseo de
Valores Mobiliarios, hereinafter called CVM, regulates the
registration with CVM of financial institutions and foreign
institutional investors which intend to establish a securities
portfolio in Brazil in accordance with the aforementioned
Resolution 1832.
<PAGE> 2
2.3. The administration of the securities portfolio held in Brazil
by foreign institutional investors depends on prior
authorization by CVM.
2.4. The FUND, a closed-end, non-diversified management investment
company registered under the United States Investment Company
Act of 1940, as amended, for the purpose of carrying on the
business of securities portfolio management which intends to
establish a securities portfolio in Brazil ("PORTFOLIO") in
the form of a "PROPRIETARY ACCOUNT," pursuant to the
legislation herein mentioned;
2.5. UNIBANCO is a financial institution duly organized in Brazil
and authorized by CVM to carry on the business of management
and administration of securities portfolios as provided in
article 23 of Law n. 6,385 of December 7, 1976 under the
direct supervision and responsibility of a Director and has a
research department specialized in securities analysis.
2.6. The FUND has retained MSAM to manage its assets, including the
PORTFOLIO.
The parties hereinabove named and identified have mutually agreed to make this
"Administration Agreement" (Annex IV of National Monetary Council Resolution n.
1289/87), which shall be governed by the following terms and conditions:
CHAPTER ONE
APPOINTMENT
I
The FUND hereby appoints UNIBANCO as administrator of the PORTFOLIO to procure
an authorization for operation of the PORTFOLIO hereunder, pursuant to subitems
2.2 and 2.3 of this Administration Agreement, and to perform administrative
services, to the extent hereinafter set forth.
CHAPTER TWO
ADMINISTRATION
II
As administrator, UNIBANCO is exclusively responsible for:
1. taking all actions necessary for registration of foreign
<PAGE> 3
capital with the Central Bank of Brazil and effecting (in accordance
with the directions of the Fund or MSAM) all foreign exchange
transactions related to the Fund's investments;
2. obtaining all approvals required by the Fund to make remittances of
income and capital gains and for the repatriation of its investments
as provided for in Chapter Eight hereof;
3. arranging for the payment of taxes by the Fund levied upon trading of
securities, income and capital gains;
4. supplying information in respect of remittances of income and capital
gains and the liquidation of investments, as the case may be;
5. maintaining the accounting records of the PORTFOLIO;
6. safekeeping any and every document evidencing payment of taxes and the
fulfillment of foreign exchange obligations during the legally
required period of time; and
7. providing any and all information and supplying any and all documents
to CVM, the Central Bank of Brazil or the Federal Revenue Office in
connection with the FUND's investments hereunder.
III
UNIBANCO is hereby authorized, and to the fullest extent permitted
under applicable law vested with administrative powers, to take the following
actions with respect to the PORTFOLIO, but only to the extent such actions have
been requested, or are consistent with instructions given, by the Fund or MSAM:
1. direct the FUND's custodian in Brazil, including as to the purchase,
sale, redemption and exchange of securities and other investments, the
receipt of interest, dividends and other income from securities, the
maintenance of securities in custody with financial institutions,
stock exchanges or other authorized depository institutions (see
clause VII) and the withdrawal of such securities from custody;
2. request the transfer of certificates; and
3. perform all other acts necessary for administration of the PORTFOLIO,
and further being empowered to delegate the powers now granted, in
whole or in part.
SOLE PARAGRAPH: The administrative powers provided in
<PAGE> 4
this clause III do not comprise management of the
PORTFOLIO, as defined in clause VI, nor permit
UNIBANCO to have or maintain custody of any assets of
the PORTFOLIO (see clause VII). UNIBANCO shall not
be responsible for any losses incurred by the FUND as
a result of the failure of the FUND's custodian in
Brazil to properly perform its duties as custodian.
IV
In addition to the initial investment amount of the PORTFOLIO, the FUND may
deliver further amounts to UNIBANCO for application in the manner and under the
conditions herein provided for.
SOLE PARAGRAPH: The income earned by the PORTFOLIO, including any profits
resulting from the purchase and sale of securities and rights
derived therefrom shall be reinvested or distributed to the
FUND in accordance with clause XII hereof, in each case as
directed by the FUND or MSAM.
V
The orders for purchase and sale of assets of the PORTFOLIO and pertinent bills
or invoices shall always be issued in the name of the PORTFOLIO.
CHAPTER THREE
MANAGEMENT OF THE PORTFOLIO
VI
The selection of assets of the PORTFOLIO shall be made by MSAM which will carry
out on the FUND's behalf the various kinds of securities transactions in the
stock exchange, futures and over-the-counter markets and margin account
operations, acquire, dispose of, assign, endorse and transfer any assets of the
PORTFOLIO, exercise, negotiate or waive any rights to subscription of equity
securities shares and debentures as well as other operations with securities
which may be then authorized by laws and regulations. In accordance with the
directions of MSAM, UNIBANCO will direct the investment and reinvestment of
cash in Brazil.
<PAGE> 5
SOLE PARAGRAPH: Considering that investments in securities are subject to
market fluctuations, UNIBANCO shall not be liable for any
depreciation of the PORTFOLIO's assets or for any losses in
the event of partial or full disposal of securities of the
PORTFOLIO.
<PAGE> 6
CHAPTER FOUR
CUSTODY
VII
The cash and securities of the PORTFOLIO, fixed-income and equity, shall be
deposited and/or maintained with the FUND's custodian in Brazil.
SOLE PARAGRAPH: The payment of custody services and all expenses arising
therefrom shall be entirely borne by the FUND.
CHAPTER FIVE
REPRESENTATIONS
VIII
The FUND hereby represents that it is aware of the material terms of the
operation regulations and rules of the stock/commodity and futures exchanges
wherein orders resulting herefrom are to be executed.
CHAPTER SIX
EXPENSES
IX
In addition to the compensation provided for in clause X hereinbelow, the FUND
shall bear the following expenses, which shall be charged by UNIBANCO to the
PORTFOLIO:
a. expenses incurred with the constitution of the PORTFOLIO;
b. all and any taxes or fiscal charges which are or may be levied upon
the assets, rights and liabilities of the PORTFOLIO;
c. fees and commissions paid, relating to the PORTFOLIO's purchase and
sale transactions;
d. lawyer's fees, litigation costs and related expenses for the defense
of the FUND's interests in or out of court, including the amount of
any judgment in the event the FUND is defeated;
e. losses caused by fortuitous events or acts of God, not covered by
insurance and not directly attributable to the gross negligence or
willful misconduct of UNIBANCO;
<PAGE> 7
f. expenses charged by issuers with respect to conversion, split-up,
transfer and replacement of securities of the PORTFOLIO;
g. expenses with printing, dispatching and publication of reports, forms
and information herein provided for;
h. fees and expenses of independent auditors;
i. insurance premiums on cash amounts, including any expenses for
transfer of PORTFOLIO's funds among banks; and
j. any expenses relating to the liquidation of the PORTFOLIO.
SOLE PARAGRAPH: The FUND undertakes irrevocably and unconditionally to, in the
event that the current account balance of the PORTFOLIO is not
sufficient to meet the payment of charges resulting from the
operations stipulated herein as well as tax and/or foreign
exchange related liabilities, remit on a timely basis all and
any sums advised to it by UNIBANCO as required to meet the
expenses in question.
CHAPTER SEVEN
COMPENSATION
X
As compensation for its administrative services hereunder, the FUND shall pay
UNIBANCO a fee at an annual rate of .125% of the value of the Fund's average
weekly net assets. The fee shall be payable monthly, in arrears, on the first
business day of each month.
SOLE PARAGRAPH: The parties hereto may review the compensation provided for in
this clause at the end of each twelve (12) month period after
execution of this Agreement, based on proposal submitted by
UNIBANCO to the FUND.
CHAPTER EIGHT
INVESTMENT, REMITTANCES OF INCOME, CAPITAL GAINS AND REPATRIATION OF INVESTMENT
XI
The foreign funds to be invested in the PORTFOLIO shall be determined by the
equivalent amount thereof in cruzeiros available after closing of the foreign
exchange rate, with deduction of the foreign exchange brokerage fees.
<PAGE> 8
SOLE PARAGRAPH: The funds entering Brazil shall be subject to registration as
foreign capital with the Central Bank of Brazil, in accordance
with Chapter III of Annex IV of Resolution n. 1289/87 and
subsequent regulations.
XII
With respect to remittances of income, capital gains and repatriation of
investment, the foreign exchange rules then in force in Brazil shall be
applied.
SOLE PARAGRAPH: If remittances of income, capital gains and repatriation of
investment may not be made, UNIBANCO, after notifying CVM,
will deliver to the FUND the securities of the PORTFOLIO.
CHAPTER NINE
SUBSTITUTION OF ADMINISTRATOR
XIII
UNIBANCO may be replaced in the administration of the PORTFOLIO provided that
the conditions of Article 5a of the Annex IV- Resolution 1289 are met.
CHAPTER TEN
LIMITATION OF LIABILITY AND INDEMNIFICATION
XIV
UNIBANCO shall be responsible for the performance of only such duties as are
set forth or contemplated herein or contained in instructions given to it which
are not contrary to this Agreement. In rendering the services to be provided
hereunder, UNIBANCO will act in good faith in an expeditious manner. UNIBANCO
shall have no liability for any loss or damage resulting from the performance
or non-performance of its duties hereunder unless solely caused by or resulting
from the gross negligence, willful misconduct or bad faith of UNIBANCO, its
officers and employees.
XV
The FUND shall indemnify and hold UNIBANCO harmless from all loss, cost, damage
and expense including reasonable expenses for counsel, incurred by UNIBANCO
resulting from any claim, demand, action or omission by it in the performance
of its duties hereunder, or as a result of action upon any instructions
reasonably believed by it to have been executed by a duly authorized officer of
the FUND or
<PAGE> 9
MSAM, provided that this indemnification shall not apply to actions or
omissions of UNIBANCO, its officers, employees or agents in cases of its or
their own gross negligence or willful misconduct.
XVI
The FUND will be entitled to participate at its own expense in the defense, or,
if it so elects, to assume the defense of any suit brought to enforce any
liability subject to the indemnification provided above, but, if the FUND
elects to assume the defense, such defense shall be conducted by counsel chosen
by the FUND and reasonably acceptable to UNIBANCO. In the event the FUND
elects to assume the defense of any such suit and retain such counsel, UNIBANCO
or any of its affiliated persons, named as defendant or defendants in the suit,
may retain additional counsel but shall bear the fees and expenses of such
counsel unless at such time the FUND specifically authorized in writing the
retaining of such counsel at the FUND's expense.
XVII
No provision of this Agreement shall be deemed to protect UNIBANCO or any of
its directors, officers and/or employees, against liability to the FUND or its
shareholders to which it might otherwise be subject by reason of any fraud,
willful misfeasance or gross negligence in the performance of its duties or the
reckless disregard of its obligations under this Agreement.
CHAPTER ELEVEN
MISCELLANEOUS PROVISIONS
XVIII
The PORTFOLIO will be audited by independent auditors registered with CVM,
whenever requested by CVM.
XIX
The funds invested in the PORTFOLIO shall be subject to book-keeping rules
issued by CVM and compliance with instructions from the Central Bank of Brazil
regarding securities.
XX
Except as to information to be furnished to CVM, Central Bank of Brazil and the
Federal Revenue Service in accordance with item 7 of clause II of this
Agreement or as otherwise required by law, UNIBANCO agrees herein not to
disclose any information whatsoever related to the investments of the
PORTFOLIO.
<PAGE> 10
XXI
In a separate document, which shall be an integral, additional and inseparable
part of this Agreement, the FUND shall, in compliance with the provision of
article 28 of Annex IV of Resolution nr. 1289/87, designate the person to be
maintained in the Country as its representative with powers for receiving
service of process as well as communications and notifications issued by CVM,
the Central Bank of Brazil or the Federal Revenue Office.
XXII
This Agreement shall be executed in both English and Portuguese. In the event
of inconsistencies, as between the parties the English version shall control.
CHAPTER TWELVE
TERM AND AMENDMENT
XXIII
This Agreement shall remain in force and effect for an indefinite period of
time and may be terminated by any party hereto with a six months' prior notice,
except the case mentioned in clause XIII hereto. Any provision of this
Agreement may be amended only if the parties so agree in writing.
CHAPTER THIRTEEN
CHOICE OF JURISDICTION
XXIV
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK; PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL BE CONSTRUED AS BEING
INCONSISTENT WITH THE U.S. INVESTMENT COMPANY ACT OF 1940.
Each of the parties hereby irrevocably submits to the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York and any court in the State of New York located in the city and county
of New York, and any Appellate Court from any thereof, in any action, suit or
proceeding brought against it and related to or in connection with this
Agreement or the transactions contemplated hereunder or for recognition or
enforcement of any judgment and each of the parties hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard or determined in such New York State Court or, to the
extent permitted by law, in such
<PAGE> 11
Federal Court. The parties agree that a final judgment in any such action,
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
To the extent permitted by applicable law, each of the parties hereby waives
and agrees not to assert by way of motion, as a defense or otherwise in any
such suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such courts, that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be
litigated in or by such courts. Each party hereto irrevocably consents to
service of process in connection with any such suit, action or proceeding by
mailing a copy thereof in English by registered or certified mail, postage
prepaid, to their respective principal places of business.
To the extent that any party hereto may now or hereafter be entitled, in any
jurisdiction in which judicial proceedings may at any time be commenced with
respect to this Agreement, to claim for itself or its revenues or properties
any immunity from suit, court jurisdiction, attachment prior to judgment,
attachment in aid of execution of a judgment, execution of a judgment or from
setoff, banker's lien, counterclaim or any other legal process or remedy with
respect to its obligations under this Agreement and/or to the extent that in
such jurisdiction there may be attributed to any such party such an immunity
(whether or not claimed), the parties hereto each hereby to the fullest extent
permitted by applicable law irrevocably agrees not to claim, and hereby to the
fullest extent permitted by applicable law expressly waives, any such immunity,
including, without limitation, a complete waiver of immunity pursuant to the
United States Foreign Sovereign Immunities Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on their behalf in two (2) or more identical counterparts as of this
17th day of May 1992.
UNIBANCO - UNIEO DE BANCOS BRASILEIROS S.A.
By: /s/ Cosar Angusto Sizenando Silva
------------------------------------
Name: Cosar Angusto Sizenando Silva
Title:
THE LATIN AMERICAN DISCOVERY FUND, INC.
<PAGE> 12
By: /s/ Warren J. Olsen
-------------------------------------
Name: Warren J. Olsen
Title: President
MORGAN STANLEY ASSET MANAGEMENT INC.
By: /s/ Warren J. Olsen
-------------------------------------
Name: Warren J. Olsen
Title: Principal
<PAGE> 13
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ____ day of May, 1992, before me personally came
__________________, to me known, who being by me duly sworn, did depose and say
that he is the ______________ of Unibanco - Unieo de Bancos Brasileiros S.A.;
and that he is duly authorized to sign his name thereto on behalf of said
corporation.
_____________________________
Notary Public
Commission Expires:________________________
<PAGE> 14
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ____ day of May, 1992, before me personally came
Warren J. Olsen, to me known, who being by me duly sworn, did depose and say
that he is the ______________ of The Latin American Discovery Fund, Inc.; and
that he is duly authorized to sign his name thereto on behalf of said
corporation.
____________________________
Notary Public
Commission Expires:_______________________
<PAGE> 15
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this ____ day of May, 1992, before me personally came
________________, to me known, who being by me duly sworn, did depose and say
that he is the ______________ of Morgan Stanley Asset Management, Inc.; and
that he is duly authorized to sign his name thereto on behalf of said
corporation.
______________________________
Notary Public
Commission Expires:__________________________
