<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1995
SECURITIES ACT FILE NO. 33-61779
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. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7 /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. / /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
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- ---------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
(2) Previously paid.
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.
- --------------------------------------------------------------------------------
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<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
PROSPECTUS (Subject to Completion)
Dated September 5, 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 12, 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 15% and 25% 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 12, 1995 was $13.04 and $ , respectively, and the
last reported sale price of a share of Common Stock on the NYSE on such dates
was $11.875 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>
PROCEEDS TO
SUBSCRIPTION PRICE SALES LOAD(1) THE FUND(2)
------------------------------------------------ ---------------
<S> <C> <C> <C>
Per Share.............................................. $ (3) $ $
Total.................................................. $ $ $ (4)
</TABLE>
------------------------
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 will be 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
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.
<PAGE> 4
- ------------
(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.
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
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<S> <C>
PROSPECTUS SUMMARY.............................................................................. 3
FEE TABLE....................................................................................... 10
FINANCIAL HIGHLIGHTS............................................................................ 11
MARKET AND NET ASSET VALUE INFORMATION.......................................................... 12
CAPITALIZATION AT JULY 31, 1995................................................................. 12
THE FUND........................................................................................ 13
THE OFFER....................................................................................... 13
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................................... 21
INVESTMENT OBJECTIVE AND POLICIES............................................................... 27
INVESTMENT RESTRICTIONS......................................................................... 30
MANAGEMENT OF THE FUND.......................................................................... 32
INVESTMENT PROCEDURES: ARGENTINA, BRAZIL, CHILE AND MEXICO...................................... 41
EXPENSES........................................................................................ 43
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................ 44
NET ASSET VALUE................................................................................. 44
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN....................... 45
TAXATION........................................................................................ 46
COMMON STOCK.................................................................................... 54
DISTRIBUTION ARRANGEMENTS....................................................................... 56
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR............................................. 57
CUSTODIANS...................................................................................... 57
EXPERTS......................................................................................... 58
LEGAL MATTERS................................................................................... 58
ADDITIONAL INFORMATION.......................................................................... 58
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 12, 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."
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 15% and 25% to the last reported sale price on the Business
Day (as defined below under "-- Sale of Rights") 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 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."
3
<PAGE> 6
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."
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'
4
<PAGE> 7
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. 323
or
Call Collect: (212) 805-7000, Ext. 323
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- --------------------------------------------------------- -----------------------------------
<S> <C>
RECORD DATE.............................................. SEPTEMBER 12, 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 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
5
<PAGE> 8
(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, together
with its affiliated investment management companies, 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."
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
6
<PAGE> 9
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 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 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 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 as of September , 1995, 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 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.
7
<PAGE> 10
Accounting, auditing, financial and other 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 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.
8
<PAGE> 11
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 SIX FOR THE
MONTHS ENDED PERIOD JUNE
JUNE 30, YEAR ENDED YEAR ENDED 23, 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....................... $ 17.16 $ 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... (4.97) (0.25) 9.84 1.32
Total from Investment Operations........................... (4.97) (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............................................. (0.14)++ 0.02++ (1.74)+ --
Net Asset Value, End of Period............................. $ 12.05 $ 17.16 $ 23.31 $ 15.23
Per Share Market Value, End of Period...................... $ 11.75 $ 18.25 $ 27.13 $ 13.25
Total Investment Return:
Net Asset Value**........................................ (29.78)% (0.14)% 65.36%+++ 8.01%
Market Value............................................. (35.62)% (8.75)% 121.17%+++ (8.30)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (In Thousands)................... $101,780 $135,273 $180,348 $ 87,685
Ratio of Expenses to Average Net Assets.................... 2.91%*** 2.15% 2.23% 2.73%***
Ratio of Net Investment Income to Average Net Assets....... (0.20)%*** (0.77)% 0.22% (1.02)%***
Portfolio Turnover Rate.................................... 34% 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 year ended December 31, 1993, the Fund
paid no dividends and made no capital gains distributions. For the year
ended December 31, 1994, the Fund paid no dividends 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 (decrease) due to reinvestment of distributions.
+++ 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 16, 1992. In the past, the
Fund's shares have traded both at a premium and at a discount in relation to net
asset value. 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(2)............. $115.125 $14.00 656.6 $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 31, 1995)... 13.00 11.25 1,435.0 13.07 12.35 (12.09)%
</TABLE>
- ---------------
(1) Net asset value per share of the Common Stock as calculated on each Friday
of the period.
(2) From June 16, 1992, the commencement of trading, through June 30, 1992.
The last reported sale price, net asset value per share and percentage
discount to net asset value of the Common Stock on September , 1995 were
$ , $ and %, respectively.
CAPITALIZATION AT AUGUST 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>
12
<PAGE> 15
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'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.
The Fund commenced operations on June 23, 1992, following the issuance of
7,093 shares of Common Stock to the Investment Manager on June 9, 1992 for
$100,000 and the initial public offering on June 16, 1992 of 3,300,000 shares to
the public resulting in aggregate net proceeds to the Fund of approximately
$46,530,000 million. On December 2, 1993, the Fund issued 1,980,000 shares of
Common Stock in connection with a rights offering to Fund shareholders,
resulting in aggregate net proceeds to the Fund of approximately $34,293,600
million. Since commencement of operations through August 31, 1995, the Fund has
also issued 780,892 shares pursuant to its Dividend Reinvestment and Cash
Purchase Plan. At August 31, 1995, the Fund had 8,517,984 shares of Common Stock
outstanding, which are listed and traded on the NYSE under the symbol "LDF". As
of August 31, 1995, the net assets of the Fund were approximately $110 million.
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. As of August 31, 1995,
approximately 55.05%, 27.34% and 6.45% of the Fund's total assets were invested
in Brazil, Mexico and Argentina, respectively. 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 Over-Subscription
Privilege with respect to such Rights. All Rights may be exercised upon receipt
and until 5:00 p.m. on the Expiration Date.
13
<PAGE> 16
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 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 or Notice of Guaranteed Delivery. 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 completed a rights offering in December 1993 pursuant to which
1,980,000 shares of Common Stock were issued with aggregate net proceeds to the
Fund of approximately $34.3 million. The dilutive effect
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<PAGE> 17
of that offering was approximately $1.74 per share outstanding on December 24,
1993, the first date on which the Fund's net asset value was calculated
subsequent to that offering. Due to the increase in assets resulting from the
1993 rights offering, management of the Fund estimates that the Fund's expense
ratio was approximately .25% lower than it otherwise would have been.
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 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 15% and 25% 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 $13.04 and
$ , respectively, and the last reported sale price of a share of the
Common Stock on the NYSE on those dates was $11.875 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.
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<PAGE> 18
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. 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. 323
or
Call Collect (212) 805-7000, Ext. 323
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
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<PAGE> 19
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 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
17
<PAGE> 20
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 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
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<PAGE> 21
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 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
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<PAGE> 22
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.
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."
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<PAGE> 23
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.
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 as of September ,
1995, 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 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 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.
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<PAGE> 24
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.
22
<PAGE> 25
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 Capitalization and Number of Listed Companies: Sao Paulo Stock
Exchange only; Value Traded: Combined Sao Paulo and Rio de Janerio Stock
Exchanges.
(2) Market Capitalization and Number of Listed Companies: Bogota Stock Exchange;
Value traded: Combined Bogota, Medellin and Occidente Stock Exchanges.
(3) Combined Fukuoka, Hiroshima, Kyoto, Nagoya, Niigata, Osaka, Sapporo and
Tokyo Stock Exchanges.
(4) Combined New York Stock Exchange, American Stock Exchange and NASDAQ.
Sources: Emerging Stock Markets Factbook 1995 (International Finance
Corporation), Economatica and 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 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
23
<PAGE> 26
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 1995 (International Finance
Corporation) and WEFA.
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.
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
24
<PAGE> 27
government announced a new economic program and a new accord among the Mexican
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, financial and
other reporting 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 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
25
<PAGE> 28
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. 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."
26
<PAGE> 29
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 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
27
<PAGE> 30
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 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
28
<PAGE> 31
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 U.S. or Latin American governments,
their respective agencies or instrumentalities; (b) bank deposits and bank
obligations (including 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
29
<PAGE> 32
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
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,
30
<PAGE> 33
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, 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).
31
<PAGE> 34
(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 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.
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.
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH THE FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
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>
33
<PAGE> 36
<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>
34
<PAGE> 37
<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. (35)*..... 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, four of the Directors of the Fund owned
a total of 21,810 shares of Common Stock of the Fund of which Mr. Biggs owned
18,713, Mr. Gill owned 934, Mr. Levin owned 2,000, and Mr. Morton owned 163
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.
35
<PAGE> 38
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 U.S. 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 or its affiliates (collectively, the "Fund Complex") for
their services as directors of such investment companies for the fiscal year
ended December 31, 1994.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS TOTAL COMPENSATION NUMBER OF FUNDS
AGGREGATE ACCRUED FROM FUND AND FUND IN FUND COMPLEX
COMPENSATION AS PART OF THE COMPLEX PAID FOR WHICH
NAME OF DIRECTORS FROM FUND FUND'S EXPENSES TO DIRECTORS DIRECTOR SERVES
- ----------------------------------- ------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Barton M. Biggs(1)(2).............. $ 0 None $ 0 6
Allerton Cushman, Jr.(1)(3)........ 0 None 0 1
Warren J. Olsen(1)(2).............. 0 None 0 15
Victor Savanti(3).................. 16,958 None 16,958 1
David B. Gill(2)................... 11,100 None 36,500 3
Andrew McNally IV(3)............... 10,000 None 13,630 2
Fergus Reid(2)(4).................. 9,250 None 30,601 5
</TABLE>
- ---------------
(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
36
<PAGE> 39
"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. Levin and Croghan.
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 the requirements of the 1940 Act and 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 subject to the requirements of the 1940
Act. 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 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. announced on June 29, 1995 that it has signed a
definitive agreement to purchase Miller Anderson
37
<PAGE> 40
& 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, the Investment Manager had together with its affiliated
investment management companies, 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. The Investment Manager is under no restriction and remains free,
at any time, to sponsor and advise new investment vehicles with investment
objectives, policies and restrictions similar or identical to those of the Fund.
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 six years, Mr.
Meyer has been an employee of Morgan Stanley Asset Management Inc. and currently
holds the position of Principal. 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, and 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, 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 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
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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 and the previous management agreement between the Fund and
the Investment Manager, 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 an 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 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,
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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 this merger, which is expected to be completed
in September 1995, 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). In addition, on August 28, 1995, The
Chase Manhattan Corporation and Chemical Banking Corporation announced a
definitive agreement to merge. It is anticipated that this merger will be
completed during the first quarter of 1996 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 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
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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), or the repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors.
Under Article 123 of the Argentine Business Companies Law, in order for
foreign companies to incorporate a local company, they are required to file
their articles of incorporation, by-laws and other corporate documentation and
designate a representative or attorney-in-fact with the Public Registry of
Commerce in Argentina. This requirement has been extended by Inspeccion General
de Justicia ("IGJ", the Buenos Aires City agency in charge of the surveillance
of unlisted companies) to foreign shareholders holding a participation in the
capital of a local company as a prerequisite for such shareholders' votes
approving capital increases or amendments to the by-laws of the local company to
be considered for purposes of registering such capital increases or amendments
with the Public Registry of Commerce. Although the point is not settled, a
number of court decisions have upheld the IGJ position and stated that such
corporate registration will be in order where the foreign shareholder holds a
participation from generally 5% or more of the capital of the local company. The
Comision Nacional de Valores (the Buenos Aires City agency in charge of the
surveillance of listed companies) has not taken a position on the matter as of
yet. The absence of the registration with the Public Registry of Commerce has
not prevented the foreign shareholder from receiving dividends and other
distributions from the local company. The above-mentioned filing can be made at
any time, and there have been no penalties applied in the case of omission or
delay.
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 organization and operation of the Managed Portfolio requires
the prior authorization by the Brazilian Securities Commission (Comissao de
Valores Mobiliarios -- "CVM"). The Fund has obtained authorization from the CVM
to establish the Managed Portfolio. The Fund
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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 in securities
issued by publicly-held corporations ("valores mobiliarios"), other than
fixed-income securities, that are 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 2188 of
August 10, 1995 provides that funds entering Brazil through Annex IV Portfolios,
which are not utilized for the acquisition of "valores mobiliarios," must be
invested in (i) Agrarian Debt Notes, which are notes issued by the National
Treasury in order to finance Government expropriation of land for use in farm
reform; (ii) Brazilian Development Fund Bonds, which are bonds issued by the
Brazilian Development Fund to finance domestic development investments in
Brazil; (iii) debentures issued by Siderurgia Brasileira S.A. ("Siderbras"), a
joint-stock company the majority of whose shares are owned by the Government and
which is engaged in the production of steel; and (iv) other forms of investments
expressly authorized by the CVM, or, in certain cases, by 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. Pursuant to article 3
of Central Bank Resolution 2034 of December 17, 1993 ("Resolution 2034"), the
Managed Portfolio may not invest in fixed-income securities with the exception
of debentures issued by Siderbras. Presently, the vehicle used for fixed-income
investments is the Fixed-Yield Fund -- Foreign Capital, created pursuant to
Central Bank Resolution 2034 and Circular 2388 of December 17, 1993.
There is no minimum time during which the Fund must invest assets in Brazil
and no requirement to diversify the Managed Portfolio. The Fund's investment
activities outside of Brazil are not limited in any way by Annex IV
requirements.
Assets held in Brazil by the Managed Portfolio can be exchanged into
non-Brazilian currency 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 exchange Brazilian currency into U.S.
dollars. However, no right or assurance 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
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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 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 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.
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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 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
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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 NYSE 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
NYSE 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.
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.
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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 including requests for
additional information, 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 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
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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 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
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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 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.
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<PAGE> 51
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 U.S. 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 U.S. 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 U.S. 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.
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.
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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 U.S. 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 U.S. 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 U.S. 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.
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, as
of 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 ("BO") of November 1,
1991), as amended by Decree 2424/91 (BO 11-14-91). The Deregulation Decree has
been ratified by Law 24.307 (BO 12-30-93).
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Income of Argentine companies is subject to income tax in Argentina at a
rate of 30%. Dividends are not subject to additional taxes. Therefore, dividends
received by the Fund from shares issued by Argentine companies are tax free.
Argentine-sourced interest income payable to non-residents generally is subject
to withholding tax in Argentina at a rate of 12%, with exceptions for certain
Argentine Sovereign Debt and certain qualified corporate bonds (see below).
Interest on certificates of deposit, time, saving or other types of bank
deposits made by non-residents with licensed financial entities is exempted from
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-residents
(e.g., the Fund) from the sale, exchange or other disposition of equity or debt
securities (including Sovereign Debt) of Argentine issuers are not subject to
tax.
Interest paid on corporate bonds ("Obligaciones Negociables" or "ONs") held
by non-residents is exempted from the withholding income tax provided, among
other things, that ONs are placed in a public offering approved by and
registered with the Argentine Comision Nacional de Valores (Securities
Commission) and that the proceeds from their sale are used for certain specific
purposes. Law 24.441 (BO 1-16-95) has extended this exemption (as well as the
one related to capital gains discussed in the previous paragraph) to payments
made to non-residents (including the Fund) on units, quotas or participations
issued by open or closed-end mutual funds as well as trusts created or amended
under such Law.
Pursuant to the Deregulation Decree, the sale or transfer of equity or debt
securities is no longer subject to a transfer tax. Tax on the purchase or sale
of foreign currencies has also been repealed by the Deregulation Decree.
Law 24.468 (BO 3-23-95) amended Law 23.966 (BO 8-20-91) to (i) expand the
tax base of the personal asset tax (Impuesto a los Bienes Personales or
"Personal Asset Tax" levied on individuals (that had been enacted by the latter)
to include securities and other financial assets, (ii) to reduce the tax rate to
0.5% per year based on year-end market value of the assets and (iii) to create
an irrebuttable presumption of law concerning ultimate ownership by individual
residents of certain non-residents entities holding securities of Argentine
issuers. The Personal Asset Tax, as amended, will be effective on assets held as
of December 31, 1995.
Under Law 24.468, a non-resident legal entity, which directly hold
securities of Argentine-issuers, and that is located in a jurisdiction which
does not apply a registered form-system of securities (as opposed to a
bearer-form system), is presumed to be ultimately owned by an individual
domiciled in Argentina and therefore subject to Personal Asset Tax. The legal
presumption does not apply, however, if such non-resident legal entity is either
(i) an insurance company, (ii) an open ended investment fund, (iii) a pension
fund or (iv) a bank or financial entity which has its headquarters located in a
country where the central bank has adopted the Basel Committee's international
supervisory standards.
Although it is not clear the precise meaning of registered-from
jurisdictions (no regulations have yet been issued in furtherance of Law 24.468,
which are expected to clarify such and other uncertainties arising therefrom),
we believe that the jurisdiction of incorporation of the Fund should qualify for
that status. Alternatively, the Fund should qualify under exception (iv) above.
Consequently, no security of an Argentine issuer held by the Fund should come
within the purview of the Personal Asset Tax.
For an individual or non-resident legal entity subject to the Personal
Asset Tax (a "Taxable Person"), the law imposes a payment obligation upon (i)
the Taxable Person if domiciled in Argentina or (ii) an individual or legal
entity domiciled in Argentina that has a legal relationship with the Taxable
Person in respect of the securities, such as an administrator or custodian, if
the Taxable Person is not domiciled in Argentina. The law does not specify which
individual or entity, if any, is responsible for payment of the Personal Asset
Tax where the Taxable Person is not domiciled in Argentina and has no legal
relationship in respect of the securities with an individual or legal entity
domiciled in Argentina. There are no Argentine inheritance or succession taxes.
Fees for professional services rendered to the Fund by Argentine residents
are subject to a 21% Value Added Tax ("VAT"). Broker's commissions related to
securities transactions and services rendered by financial entities are not
subject to VAT.
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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 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 (BO 2-2-93), the stamp tax was repealed in the
jurisdiction of the city of Buenos Aires, except for the transfer of non-housing
real estate. Certain Argentine Provinces still apply stamp taxes.
No other Argentine federal taxes (i.e., currency gain, estate, sales,
transfer, property, stamp, etc.) are applicable to the Fund or to its
shareholders in connection with the Fund's activities in Argentina except where
such shareholders are domiciled in Argentina.
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. Other income (excluding capital gains), such as interest, premiums,
commissions and profit participation, is subject to 10% withholding tax imposed
at the time the Fund earns 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 above described 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.
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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
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 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.
53
<PAGE> 56
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 August 31,
1995. Shares of the Fund, when issued, will be fully paid and non-assessable 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 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.
The Fund commenced operations on June 23, 1992, following the issuance of
7,093 shares of Common Stock to the Investment Manager on June 9, 1992 for
$100,000 and the initial public offering on June 16, 1992 of 3,300,000 shares to
the public resulting in aggregate net proceeds to the Fund of approximately
$46,530,000 million. On December 2, 1993, the Fund issued 1,980,000 shares of
Common Stock in connection with a rights offering to Fund shareholders,
resulting in aggregate net proceeds to the Fund of approximately $34,293,600
million. Since commencement of operations through August 31, 1995, the Fund has
also issued 780,892 shares pursuant to its Dividend Reinvestment and Cash
Purchase Plan. As of August 31, 1995, the net assets of the Fund were
approximately $110 million.
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, as
determined by the Board of Directors, 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
54
<PAGE> 57
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.
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, among other things, 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.
55
<PAGE> 58
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 or enter into
a share exchange transaction in which the Fund is not the successor corporation,
(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 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.
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<PAGE> 59
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 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,
57
<PAGE> 60
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.
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. The Fund has
been informed that U.S. Trust Corporation, the parent company of the U.S.
Custodian, and The Chase Manhattan Corporation, the parent company of Chase
Bank, have entered into a merger agreement. As a result of this merger, which is
expected to be completed in September 1995, Chase Bank will succeed to the
duties of the U.S. Custodian under the custody agreement dated July 16, 1993
between the Fund and the U.S. Custodian. In addition, on August 28, 1995, The
Chase Manhattan Corporation and Chemical Banking Corporation announced a
definitive agreement to merge. It is anticipated that this merger will be
completed during the first quarter of 1996 and that the merger will not affect
the nature or the quality of the custody services to the Fund.
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
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<PAGE> 61
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.: 51828C-12-2
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. 323 or
collect at (212) 805-7000, Ext. 323
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."
(*) The Over-Subscription Privilege can be exercised by Record Date Shareholders only, as described in the
Prospectus.
/ / 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 #
------------------
</TABLE>
<TABLE>
<C> <S> <C>
- -------------------------------------- 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 Over-Subscription 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 (617) 575-2233
P.O. Box 1889, Mail Stop 45-01-19 Confirm by Telephone
Boston, Massachusetts 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 for 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: ----------------------------------------------
- ------------------------------------------------------------
Name of Nominee Holder
- ------------------------------------------------------------
Address
- ------------------------------------------------------------
City State Zip Code
By: --------------------------------------------------------
Name: -----------------------------------------------------
Title: ------------------------------------------------------
Dated: , 1995
* 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>
<C> <S> <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 years ended December 31, 1993 and 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>
<C> <S> <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>
<C> <S> <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.
*** Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-61779; 811-6574) filed on August 11, 1995.
**** 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
ii
<PAGE> 75
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
At August 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ------------------------------------------------------------------------------- --------------
<S> <C>
Common Stock, $.01 par value................................................... 385
</TABLE>
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)
iii
<PAGE> 76
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)
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 Amendment to its 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 5th day of September, 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. Schaaff, 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
- ------------------------------------- ------------------------------------ -------------------
<C> <S> <C>
/s/ BARTON M. BIGGS Director and Chairman of the Board September 5, 1995
- -------------------------------------
Barton M. Biggs
Director and Vice Chairman
- -------------------------------------
Frederick B. Whittemore
/s/ WARREN J. OLSEN Director and President September 5, 1995
- ------------------------------------- (Principal Executive Officer)
Warren J. Olsen
/s/ PETER J. CHASE Director September 5, 1995
- -------------------------------------
Peter J. Chase
/s/ JOHN W. CROGHAN Director September 5, 1995
- -------------------------------------
John W. Croghan
/s/ DAVID B. GILL Director September 5, 1995
- -------------------------------------
David B. Gill
</TABLE>
v
<PAGE> 78
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ -------------------
<C> <S> <C>
Director
- -------------------------------------
Graham E. Jones
/s/ JOHN A. LEVIN Director September 5, 1995
- -------------------------------------
John A. Levin
/s/ WILLIAM G. MORTON, JR. Director September 5, 1995
- -------------------------------------
William G. Morton, Jr.
/s/ JAMES R. ROONEY Treasurer (Principal Financial and September 5, 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.
*** Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-61779; 811-6574) filed on August 11, 1995.
**** Filed herewith.
***** To be filed by amendment.
<PAGE> 1
Exhibit (b)
THE LATIN AMERICAN DISCOVERY FUND, INC.
A Maryland corporation
BY-LAWS
As Amended, June 26, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Place of Meeting . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Annual Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Special Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Notice of Meetings of Stockholders . . . . . . . . . . . 2
Section 1.5. Record Dates . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Quorum; Adjournment of Meetings . . . . . . . . . . . . 3
Section 1.7. Voting and Inspectors . . . . . . . . . . . . . . . . . 4
Section 1.8. Conduct of Stockholders' Meetings . . . . . . . . . . . 5
Section 1.9. Concerning Validity of Proxies,
Ballots, etc. . . . . . . . . . . . . . . . . . . . . 5
Section 1.10. Action Without Meeting . . . . . . . . . . . . . . . . . 5
ARTICLE II BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . 6
Section 2.1. Function of Directors . . . . . . . . . . . . . . . . . 6
Section 2.2. Number of Directors . . . . . . . . . . . . . . . . . . 6
Section 2.3 Classes of Directors . . . . . . . . . . . . . . . . . 6
Section 2.4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.5. Increase or Decrease in Number
of Directors . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6. Place of Meeting . . . . . . . . . . . . . . . . . . . . 7
Section 2.7. Regular Meetings . . . . . . . . . . . . . . . . . . . . 8
Section 2.8. Special Meetings . . . . . . . . . . . . . . . . . . . . 8
Section 2.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.10. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.11. Executive Committee . . . . . . . . . . . . . . . . . . 9
Section 2.12. Other Committees . . . . . . . . . . . . . . . . . . . . 9
Section 2.13. Telephone Meetings . . . . . . . . . . . . . . . . . . . 10
Section 2.14. Action Without a Meeting . . . . . . . . . . . . . . . . 10
Section 2.15. Compensation of Directors . . . . . . . . . . . . . . . 10
ARTICLE III OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1. Executive Officers . . . . . . . . . . . . . . . . . . . 11
Section 3.2. Term of Office . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3. Powers and Duties . . . . . . . . . . . . . . . . . . . 12
Section 3.4. Surety Bonds . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1. Certificates for Shares . . . . . . . . . . . . . . . . 12
Section 4.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . 12
Section 4.3. Stock Ledgers . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4. Transfer Agents and Registrars . . . . . . . . . . . . . 13
Section 4.5. Lost, Stolen or Destroyed Certificates . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V CORPORATE SEAL; LOCATION OF
OFFICES; BOOKS; NET ASSET VALUE . . . . . . . . . . . 14
Section 5.1. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2. Location of Offices . . . . . . . . . . . . . . . . . . 14
Section 5.3. Books and Records . . . . . . . . . . . . . . . . . . . 14
Section 5.4. Annual Statement of Affairs . . . . . . . . . . . . . . 15
Section 5.5. Net Asset Value . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI FISCAL YEAR AND ACCOUNTANT . . . . . . . . . . . . . . . 15
Section 6.1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.2. Accountant . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . 16
Section 7.1. General . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.2. Indemnification of Directors and Officers . . . . . . . 16
Section 7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX ACTIONS TO ELIMINATE DISCOUNT . . . . . . . . . . . . . 19
ARTICLE X AMENDMENT OF BY-LAWS . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
THE LATIN AMERICAN DISCOVERY FUND, INC.
By-Laws
ARTICLE I
Stockholders
Section 1.1. Place of Meeting. All meetings of the
stockholders should be held at the principal office of the Corporation in the
State of Maryland or at such other place within the United States as may from
time to time be designated by the Board of Directors and stated in the notice
of such meeting.
Section 1.2. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held during the month of June of each
year on such date and at such hour as may from time to time be designated by
the Board of Directors and stated in the notice of such meeting, for the
purpose of electing directors for the ensuing year and for the transaction of
such other business as may properly be brought before the meeting.
Section 1.3. Special Meetings. Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the President, or a majority of the Board of Directors. Special
meetings of stockholders shall also be called by the Secretary upon receipt of
the request in writing signed by stockholders holding not less than 25% of the
votes entitled to be cast thereat. Such request shall state the purpose or
purposes of the proposed meeting and the matters proposed to be acted on at
such proposed meeting. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing such notice of meeting and
upon payment to the Corporation
<PAGE> 5
of such costs, the Secretary shall give notice as required in this Article to
all stockholders entitled to notice of such meeting. No special meeting of
stockholders need be called upon the request of the holders of common stock
entitled to cast less than a majority of all votes entitled to be cast at such
meeting to consider any matter which is substantially the same as a matter
voted upon at any special meeting of stockholders held during the preceding
twelve months.
Section 1.4. Notice of Meetings of Stockholders. Not less
than ten days' and not more than ninety days' written or printed notice of
every meeting of stockholders, stating the time and place thereof (and the
purpose of any special meeting), shall be given to each stockholder entitled to
vote thereat and to each other stockholder entitled to notice of the meeting by
leaving the same with such stockholder or at such stockholder's residence or
usual place of business or by mailing it, postage prepaid, and addressed to
such stockholder at such stockholder's address as it appears upon the books of
the Corporation. If mailed, notice shall be deemed to be given when deposited
in the mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by proxy
or to any stockholder who, in writing executed and filed with the records of
the meeting, either before or after the holding thereof, waives such notice.
Section 1.5. Record Dates. The Board of Directors may fix,
in advance, a record date for the determination of
2
<PAGE> 6
stockholders entitled to notice of or to vote at any stockholders meeting or to
receive a dividend or be allotted rights or for the purpose of any other proper
determination with respect to stockholders and only stockholders of record on
such date shall be entitled to notice of and to vote at such meeting or to
receive such dividends or rights or otherwise, as the case may be; provided,
however, that such record date shall not be prior to ninety days preceding the
date of any such meeting of stockholders, dividend payment date, date for the
allotment of rights or other such action requiring the determination of a
record date; and further provided that such record date shall not be prior to
the close of business on the day the record date is fixed, that the transfer
books shall not be closed for a period longer than 20 days, and that in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall not be less than ten days prior to the date fixed for such
meeting.
Section 1.6. Quorum; Adjournment of Meetings. The presence
in person or by proxy of stockholders entitled to cast a majority of the votes
entitled to be cast thereat shall constitute a quorum at all meetings of the
stockholders, except as otherwise provided in the Articles of Incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the holders of a majority of the stock present in person or
by proxy shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite amount of
stock entitled to vote at such meeting shall be present, to a date not more
than 120 days
3
<PAGE> 7
after the original record date. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 1.7. Voting and Inspectors. At all meetings,
stockholders of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
such stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a
majority of the votes cast at a duly constituted meeting, except as otherwise
provided by statute or by the Articles of Incorporation or by these By-Laws.
At any election of Directors, the Chairman of the meeting may,
and upon the request of the holders of ten percent (10%) of the stock entitled
to vote at such election shall, appoint two
4
<PAGE> 8
inspectors of election who shall first subscribe an oath or affirmation to
execute faithfully the duties of inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed such Inspector.
Section 1.8. Conduct of Stockholders' Meetings. The meetings
of the stockholders shall be presided over by the Chairman of the Board, or if
he is not present, by the President, or if he is not present, by a
vice-president, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor the Assistant Secretary is present,
then the meeting shall elect its Secretary.
Section 1.9. Concerning Validity of Proxies, Ballots, etc.
At every meeting of the stockholders, all proxies shall be received and taken
in charge of and all ballots shall be received and canvassed by the Secretary
of the meeting, who shall decide all questions touching the qualification of
voters, the validity of the proxies and the acceptance or rejection of votes,
unless inspectors of election shall have been appointed by the Chairman of the
meeting, in which event such inspectors of election shall decide all such
questions. Unless a proxy provides otherwise, it is not valid for more than
eleven months after its date.
Section 1.10. Action Without Meeting. Any action to be taken
by stockholders may be taken without a meeting if (1) all
5
<PAGE> 9
stockholders entitled to vote on the matter consent to the action in writing,
(2) all stockholders entitled to notice of the meeting but not entitled to vote
at it sign a written waiver of any right to dissent and (3) said consents and
waivers are filed with the records of the meetings of stockholders. Such
consent shall be treated for all purposes as a vote at the meeting.
ARTICLE II
Board of Directors
Section 2.1. Function of Directors. The business and affairs
of the Corporation shall be conducted and managed under the direction of its
Board of Directors. All powers of the Corporation shall be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by statute.
Section 2.2. Number of Directors. The Board of Directors
shall consist of not more than fourteen Directors nor less than such number of
Directors as may be permitted under Maryland law, as may be determined from
time to time by vote of a majority of the Directors then in office. Directors
need not be stockholders.
Section 2.3 Classes of Directors. The Directors shall be
divided into three classes, designated Class I, Class II and Class III. All
classes shall be as nearly equal in number as possible. The Directors as
initially classified shall hold office for terms as follows: the Class I
Directors shall hold office until the date of the annual meeting of
stockholders in 1992 or until their successors shall be elected and qualified;
the Class II Directors shall hold office until the date of the annual meeting
of stockholders in 1993 or until their successors shall be elected and
6
<PAGE> 10
qualified; and the Class III Directors shall hold office until the date of the
annual meeting of stockholders in 1994 or until their successors shall be
elected and qualified. Upon expiration of the term of office of each class as
set forth above, the Directors in each such class shall be elected for a term
of three years to succeed the Directors whose terms of office expires. Each
Director shall hold office until the expiration of his term and until his
successor shall have been elected and qualified, or until his death, or until
he shall have resigned, or until December 31 of the year in which he shall have
reached seventy-three years of age, or until he shall have been removed as
provided by Statute or the Articles of Incorporation.
Section 2.4. Vacancies. In case of any vacancy in the Board
of Directors through death, resignation or other cause, other than an increase
in the number of Directors, subject to the provisions of law, a majority of the
remaining Directors, although a majority is less than a quorum, by an
affirmative vote, may elect a successor to hold office until the next annual
meeting of stockholders or until his successor is chosen and qualified.
Section 2.5. Increase or Decrease in Number of Directors.
The Board of Directors, by the vote of a majority of the entire Board, may
increase the number of Directors and may elect Directors to fill the vacancies
created by any such increase in the number of Directors until the next annual
meeting of stockholders or until their successors are duly chosen and
qualified. The Board of Directors, by the vote of a majority of the entire
Board, may likewise decrease the number of Directors to a number not less than
that permitted by law.
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Section 2.6. Place of Meeting. The Directors may hold their
meetings within or outside the State of Maryland, at any office or offices of
the Corporation or at any other place as they may from time to time determine.
Section 2.7. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such time and on such notice as the Directors may
from time to time determine.
The annual meeting of the Board of Directors shall be held as
soon as practicable after the annual meeting of the stockholders for the
election of Directors.
Section 2.8. Special Meetings. Special meetings of the Board
of Directors may be held from time to time upon call of the Chairman of the
Board, the President, the Secretary or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting.
Section 2.9. Notices. Unless required by statute or
otherwise determined by resolution of the Board of Directors in accordance with
these By-laws, notices to Directors need not be in writing and need not state
the business to be transacted at or the purpose of any meeting, and no notice
need be given to any Director who is present in person or to any Director who,
in writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Waivers of notice need not
state the purpose or purposes of such meeting.
Section 2.10. Quorum. One-third of the Directors then in
office shall constitute a quorum for the transaction of business,
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provided that if there is more than one Director, a quorum shall in no case be
less than two Directors. If at any meeting of the Board there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum shall have been obtained. The act of the majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Directors, except as may be otherwise specifically provided by
statute or by the Articles of Incorporation or by these By-Laws.
Section 2.11. Executive Committee. The Board of Directors
may appoint from the Directors an Executive Committee to consist of such number
of Directors (not less than two) as the Board may from time to time determine.
The Chairman of the Committee shall be elected by the Board of Directors. The
Board of Directors shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or
all of the powers of the Board of Directors in the management and conduct of
the business and affairs of the Corporation. The Executive Committee may fix
its own rules of procedure, and may meet when and as provided by such rules or
by resolution of the Board of Directors, but in every case the presence of a
majority shall be necessary to constitute a quorum. During the absence of a
member of the Executive Committee, the remaining members may appoint a member
of the Board of Directors to act in his place.
Section 2.12. Other Committees. The Board of Directors
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may appoint from the Directors other committees which shall in each case
consist of such number of Directors (not less than two) and shall have and may
exercise such powers as the Board may determine in the resolution appointing
them. A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies and to discharge any such committee.
Section 2.13. Telephone Meetings. Members of the Board of
Directors or a committee of the Board of Directors may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means, subject to the provisions of the
Investment Company Act, constitutes presence in person at the meeting.
Section 2.14. Action Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be, and such written consent is filed with the minutes of the proceedings
of the Board or such committee.
Section 2.15. Compensation of Directors. No Director shall
receive any stated salary or fees from the Corporation for his services as such
if such Director is, otherwise than by reason
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of being such Director, an interested person (as such term is defined by the
Investment Company Act of 1940, as amended) of the Corporation or of its
investment manager or principal underwriter. Except as provided in the
preceding sentence, Directors shall be entitled to receive such compensation
from the Corporation for their services as may from time to time be voted by
the Board of Directors.
ARTICLE III
Officers
Section 3.1. Executive Officers. The executive officers of
the Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include
a President, a Secretary and a Treasurer. The Board of Directors or the
Executive Committee may also in its discretion appoint one or more Vice-
Presidents, Assistant Secretaries, Assistant Treasurers and other officers,
agents and employees, who shall have such authority and perform such duties as
the Board or the Executive Committee may determine. The Board of Directors may
fill any vacancy which may occur in any office. Any two offices, except those
of President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or these By- Laws to be executed,
acknowledged or verified by two or more officers.
Section 3.2. Term of Office. The term of office of all
officers shall be one year and until their respective successors are chosen and
qualified. Any officer may be removed from office
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at any time with or without cause by the vote of a majority of the whole Board
of Directors. Any officer may resign his office at any time by delivering a
written resignation to the Corporation and, unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 3.3. Powers and Duties. The officers of the
Corporation shall have such powers and duties as shall be stated in a
resolution of the Board of Directors, or the Executive Committee and, to the
extent not so stated, as generally pertain to their respective offices, subject
to the control of the Board of Directors and the Executive Committee.
Section 3.4. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
Commission) to the Corporation in such sum and with such surety or sureties as
the Board of Directors may determine, conditioned upon the faithful performance
of his duties to the Corporation, including responsibility for negligence and
for the accounting of any of the Corporation's property, fund or securities
that may come into his hands.
ARTICLE IV
Capital Stock
Section 4.1. Certificates for Shares. Each stockholder of
the Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by him in such form as the Board may
from time to time prescribe.
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Section 4.2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney or legal representative, upon
surrender and cancellation of certificates, if any, for the same number of
shares, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require; in the case of shares not
represented by certificates, the same or similar requirements may be imposed by
the Board of Directors.
Section 4.3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
offices of the Corporation or, if the Corporation employs a Transfer Agent, at
the offices of the Transfer Agent of the Corporation.
Section 4.4. Transfer Agents and Registrars. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the Corporation, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only on countersignature by such person shall be required.
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Section 4.5. Lost, Stolen or Destroyed Certificates. The
Board of Directors or the Executive Committee or any officer or agent
authorized by the Board of Directors or Executive Committee may determine the
conditions upon which a new certificate of stock of the Corporation of any
class may be issued in place of a certificate which is alleged to have been
lost, stolen or destroyed; and may, in its discretion, require the owner of
such certificate or such owner's legal representative to give bond, with
sufficient surety, to the Corporation and each Transfer Agent, if any, to
indemnify it and each such Transfer Agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE V
Corporate Seal; Location of
Offices; Books; Net Asset Value
Section 5.1. Corporate Seal. The Board of Directors may
provide for a suitable corporate seal, in such form and bearing such
inscriptions as it may determine. Any officer or director shall have the
authority to affix the corporate seal. If the Corporation is required to place
its corporate seal to a document, it shall be sufficient to place the word
"(seal)" adjacent to the signature of the authorized officer of the Corporation
signing the document.
Section 5.2. Location of Offices. The Corporation shall have
a principal office in the State of Maryland. The Corporation may, in addition,
establish and maintain such other offices as the Board of Directors or any
officer may, from time to time,
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determine.
Section 5.3. Books and Records. The books and records of the
Corporation shall be kept at the places, within or without the State of
Maryland, as the directors or any officer may determine; provided, however, that
the original or a certified copy of the by-laws, including any amendments to
them, shall be kept at the Corporation's principal executive office.
Section 5.4. Annual Statement of Affairs. The President or
any other executive officer of the Corporation shall prepare annually a full and
correct statement of the affairs of the Corporation, to include a balance sheet
and a financial statement of operations for the preceding fiscal year. The
statement of affairs should be submitted at the annual meeting of stockholders
and, within 20 days of the meeting, placed on file at the Corporation's
principal office.
Section 5.5. Net Asset Value. The value of the Corporation's
net assets shall be determined at such times and by such method as shall be
established from time to time by the Board of Directors.
ARTICLE VI
Fiscal Year and Accountant
Section 6.1. Fiscal Year. The fiscal year of the Corporation,
unless otherwise fixed by resolution of the Board of Directors, shall begin on
the first day of January and shall end on the last day of December in each year.
Section 6.2. Accountant. The Corporation shall employ an
independent public accountant or a firm of independent public
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accountants as its Accountants to examine the accounts of the Corporation and to
sign and certify financial statements filed by the Corporation. The employment
of the Accountant shall be conditioned upon the right of the Corporation to
terminate the employment forthwith without any penalty by vote of a majority of
the outstanding voting securities at any stockholders' meeting called for that
purpose.
ARTICLE VII
Indemnification and Insurance
Section 7.1. General. The Corporation shall indemnify
directors, officers, employees and agents of the Corporation against judgments,
fines, settlements and expenses to the fullest extent authorized and in the
manner permitted, by applicable federal and state law.
Section 7.2. Indemnification of Directors and Officers. The
Corporation shall indemnify to the fullest extent permitted by law (including
the Investment Company Act of 1940) as currently in effect or as the same may
hereafter be amended, any person made or threatened to be made a party to any
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director or officer of the Corporation or serves or
served at the request of the Corporation any other enterprise as a director or
officer. To the fullest extent permitted by law (including the Investment
Company Act of 1940) as currently in effect or as the same may hereafter be
amended, expenses incurred by any such person in defending any such action,
suit or proceeding
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shall be paid or reimbursed by the Corporation promptly upon receipt by it of
an undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this Article VII shall be
enforceable against the Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to serve as a director or officer
as provided above. No amendment of this Article VII shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Article VII, the term "Corporation" shall
include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprises" shall include any
corporation, partnership, joint venture, trust or employee benefit plan;
service "at the request of the Corporation" shall include service as a director
or officer of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to any employee benefit plan
which such person reasonably believes to be in the interest of the participants
and beneficiaries of such plan shall be deemed to be action not opposed to the
best interests of the Corporation.
Section 7.3. Insurance. subject to the provisions of
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the Investment Company Act of 1940, the Corporation, directly, through third
parties or through affiliates of the Corporation, may purchase, or provide
through a trust fund, letter of credit or surety bond insurance on behalf of
any person who is or was a Director, officer, employee or agent of the
Corporation, or who, while a Director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a Director,
officer, employee, partner, trustee or agent of another foreign or domestic
corporation, partnership joint venture, trust or other enterprise against any
liability asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Corporation would
have the power to indemnify such person against such liability.
ARTICLE VIII
Custodian
The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, foreign or domestic, as may be
designated by the Board of Directors, subject to the provisions of the
Investment Company Act of 1940, as amended, and other applicable laws and
regulations; and the funds and securities held by the Corporation shall be kept
in the custody of one or more such custodians, provided such custodian or
custodians can be found ready and willing to act, and further provided that the
Corporation and/or the Custodians may employ such subcustodians as the Board of
Directors may approve and as shall be permitted by law.
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ARTICLE IX
Actions to Eliminate Discount
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 trade is substantial, as determined by the Board of
Directors, the Board of Directors shall consider, at its next regularly
scheduled quarterly meeting, taking various actions designed to eliminate the
discount, including, but not limited to, periodic repurchases of shares, tender
offer to purchase shares from all shareholders at a price equal to net asset
value or recommending to the shareholders amendments to the Fund's Articles of
Incorporation to convert the Fund to an open-end investment company.
ARTICLE X
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended, added
to or repealed only by majority vote of the entire Board of Directors.
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Exhibit (d)(5)
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as
of September , 1995 between The Latin American Discovery Fund, Inc., a
Maryland corporation (the "Fund"), and The First National Bank of Boston, as
subscription agent (the "Agent"). All terms not defined herein shall have the
meaning given in the prospectus (the "Prospectus") included in the Registration
Statement on Form N-2 (File No. 33-61779) filed by the Fund with the Securities
and Exchange Commission on September , 1995, as amended by any amendment
filed with respect thereto (the "Registration Statement").
WHEREAS, the Fund proposes to make a subscription offer by
issuing certificates or other evidence of subscription rights, in the form
designated by the Fund (the "Subscription Certificates"), to shareholders of
record (the "Record Date Shareholders") of its common stock, par value $0.01
per share ("Common Stock"), as of a record date specified by the Fund (the
"Record Date"), pursuant to which each Record Date Shareholder will have
certain rights (the "Rights") to subscribe for shares of Common Stock, as
described in and upon such terms as are set forth in the Prospectus, a final
copy of which has been or, upon availability will promptly be, delivered to the
Agent; and
WHEREAS, the Fund wishes the Agent to perform certain acts on
behalf of the Fund, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The Fund hereby appoints the Agent to act as
subscription agent in connection with the distribution of Subscription
Certificates and the issuance and exercise of the Rights in accordance with the
terms set forth in this Agreement, and the Agent hereby accepts such
appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and fully
transferable. The Agent shall, in its capacity as Transfer Agent of the Fund,
maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of
determining the rights of holders of Subscription Certificates). Each
Subscription
<PAGE> 2
Certificate shall, subject to the provisions thereof, entitle the Shareholder in
whose name it is recorded to the following:
(1) The right to acquire during the Subscription Period,
as defined in the Prospectus, at the Subscription Price, as defined in
the Prospectus, one share of Common Stock for every three Rights held
(the "Primary Subscription Right"); and
(2) With respect to Record Date Shareholders only, the
right to subscribe for additional shares of Common Stock, subject to
the availability of such shares and to the allotment of such shares as
may be available among Record Date Shareholders who exercise Rights
under the Over-Subscription Privilege ("Over-Subscription Rights") on
the basis specified in the Prospectus; provided that such Record Date
Shareholder has exercised all Primary Subscription Rights issued to
him or her.
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and
conditions therein and herein set forth.
(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Fund Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Fund's Common Stock calculated on the basis of one
Right for each share of Common Stock recorded on the books in the name of each
such Shareholder as of the Record Date. The number of Rights that are issued
to Record Date Shareholders will be rounded up, by the Agent, to the nearest
whole number of Rights evenly divisible by three. In the case of Shares of
Common Stock held of record by a Nominee Holder (as defined in the Prospectus),
the number of Rights issued to such Nominee Holder will be adjusted, by the
Agent, to permit rounding up (to the nearest whole number of Rights evenly
divisible by three) of the Rights to be received by beneficial holders for whom
the Nominee Holder is the holder of record only if the Nominee Holder provides
to the Agent on or before the close of business on the fifth Business Day prior
to the Expiration Date, written representation of the number of Rights required
for such rounding. Each Subscription Certificate shall be dated as of the
Record Date and shall be executed manually or by facsimile signature of a duly
authorized officer of the Fund. No Subscription Certificate shall be valid for
any purpose unless so executed. Should any officer of the Fund whose signature
has been placed upon any Subscription Certificate cease to hold such office at
any time thereafter, such event shall have no effect on the validity of such
Subscription Certificate.
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<PAGE> 3
(c) Upon the written advice of the Fund, signed as by any of its
duly authorized officers, as to the effective date of the Registration
Statement, the Agent shall promptly countersign and deliver the Subscription
Certificates, together with a copy of the Prospectus and any other document as
the Fund deems necessary or appropriate, to all Shareholders with record
addresses in the United States (including its territories and possessions and
the District of Columbia). Delivery shall be by first class mail (without
registration or insurance). The Agent will mail a copy of the Prospectus, a
special notice and other documents as the Fund deems necessary or appropriate,
if any, but not Subscription Certificates to Record Date Shareholders whose
record addresses are outside the United States (including its territories and
possessions and the District of Columbia) ("Foreign Record Date Shareholders").
Delivery to Foreign Record Date Shareholders shall be by air mail (without
registration or insurance) or for those Foreign Record Date Shareholders having
APO or FPO addresses, by first class mail (without registration or insurance).
(d) The Agent shall hold the Rights issued by the Fund to Foreign
Record Date Shareholders 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 Agent will use its best efforts to sell
the Rights of those registered Foreign Record Date Shareholders through or to
the Dealer Manager in accordance with Section 5(b) hereof. The proceeds net of
commissions, if any, to the Dealer Manager from the sale of those Rights will be
remitted to the Foreign Record Date Shareholders.
4. EXERCISE.
(a) Exercising Rights Holders, as defined in the Prospectus, may
acquire Shares on Primary Subscription and Record Date Shareholders may acquire
Shares pursuant to the Over-Subscription Privilege by delivery to the Agent as
specified in the Prospectus of (i) the Subscription Certificate with respect
thereto, duly executed by such Shareholder in accordance with and as provided
by the terms and conditions of the Subscription Certificate, together with (ii)
the purchase price of $____ for each share of Common Stock subscribed for by
exercise of such Rights, in U.S. dollars by money order or check drawn on a
bank in the United States, in each case payable to the order of the Fund.
(b) Rights may be exercised at any time after the date of issuance
of the Subscription Certificates with respect thereto but no later than 5:00
p.m., New York time, on the Expiration Date or such later date as the Fund may
designate to the Agent in writing. For the purpose of determining the time of
the exercise of any Rights, delivery of any material to the Agent shall be
deemed to occur when such materials are received at the Shareholder Services
Division of the Agent specified in the Prospectus.
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<PAGE> 4
(c) Notwithstanding the provisions of Section 4(a) and 4(b)
regarding delivery of an executed Subscription Certificate to the Agent prior
to 5:00 p.m., New York time, on the Expiration Date, if prior to such time the
Agent receives a Notice of Guaranteed Delivery by facsimile (telecopy) or
otherwise from a bank, a trust company or a New York Stock Exchange member
guaranteeing delivery of (i) payment of the full Subscription Price for the
shares of Common Stock subscribed for on Primary Subscription and any
additional shares of Common Stock subscribed for pursuant to the
Over-Subscription Privilege (for Record Date Shareholders), and (ii) a properly
completed and executed Subscription Certificate, then such exercise of Primary
Subscription Rights and Over-Subscription Rights shall be regarded as timely,
subject, however, to receipt of the duly executed Subscription Certificate and
full payment for the Common Stock by the Agent within three Business Days after
the Expiration Date (the "Protect Period").
(d) Within seven Business Days following the end of the Protect
Period, the Agent shall send to each Exercising Rights Holder (or, if shares of
Common Stock on the Record Date are held by Cede & Co. or any other depository
or nominee, to Cede & Co. or such other depository or nominee) the share
certificates representing the shares of Common Stock acquired pursuant to the
Primary Subscription, and, if applicable, the Over-Subscription Privilege. Any
excess payment ("Excess Payment") to be refunded by the Fund to a Record Date
Shareholder who is not allocated the full amount of shares of Common Stock
subscribed for pursuant to the Over- Subscription Privilege, shall be mailed by
the Agent to such Shareholder as described in Section 9(b).
5. TRANSFER OF RIGHTS.
(a) Rights Holders who do not wish to exercise any or all of their
Rights may instruct the Agent to sell any unexercised Rights by delivering to
the Agent at least three Business Days prior to the Expiration Date
Subscription Certificates representing the Rights to be sold with the
appropriate instructions to sell the Rights. Upon timely receipt by the Agent
of appropriate instructions to sell the Rights, the Agent shall use its best
efforts to complete the sale. The Agent shall remit the proceeds of sale, net
of any commissions, to the appropriate Rights Holder. The Agent shall also use
its best efforts to sell all Rights which remain unclaimed as a result of
Subscription Certificates being returned by the postal authorities to the Agent
as undeliverable as of the fourth Business Day prior to the Expiration Date and
Rights of non-U.S. shareholders who do not respond to the Agent by 12:00 Noon,
New York time, three Business Days prior to the Expiration Date. Such sales
will be made, net of any commissions, on behalf of such Shareholders. The
Agent will hold the proceeds from those sales for the benefit of such
Shareholders until such proceeds are either claimed or escheat.
(b) The Agent may retain Morgan Stanley & Co. Incorporated ("MS &
Co.") to act as its broker in carrying out the sale on a
4
<PAGE> 5
best efforts basis of any Rights to be sold pursuant to Sections 3(c) and 5(a),
provided the brokerage fees charged by MS & Co. in connection with any such
sales are not in excess of the usual and customary brokerage fees for such
transactions. The Agent also may sell the Rights to MS & Co. as principal
provided that such sales are made at the then current market price for the
Rights less an amount not in excess of the usual and customary brokerage fee
that would have been payable had such sales been conducted through a broker.
(c) Rights Holders may transfer a portion of the Rights evidenced
by a single Subscription Certificate (but in a whole number evenly divisible by
three) by delivering to the Agent within at least one Business Day prior to the
Expiration Date a Subscription 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, the Agent shall
issue a new Subscription Certificate evidencing the balance of the Rights to
the transferring Rights Holder or, if the transferring Rights Holder so
instructs, to an additional transferee.
6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise
covered by specific instructions herein shall be submitted to an appropriate
officer of the Fund and handled in accordance with his or her instructions.
Such instructions will be documented by the Agent indicating the instructing
officer and the date thereof.
7. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to
persons exercising Primary Subscription Rights, there remain unexercised
Rights, then the Agent shall allot the shares issuable upon exercise of such
unexercised Rights (the "Remaining Shares") to persons exercising the
Over-Subscription Privilege in the amounts of such over-subscriptions. If the
number of shares for which the Over-Subscription Privilege has been exercised
is greater than the Remaining Shares, the Agent shall allocate the Remaining
Shares to the persons exercising the Over-Subscription Privilege 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 of Common Stock owned by them on the Record Date. The percentage of
Remaining Shares each over-subscribing Record Date Shareholder may acquire will
be rounded up or down to result in delivery of whole shares of Common Stock.
The Agent shall advise the Fund immediately upon the completion of the
allocation set forth above as to the total number of shares subscribed and
distributable.
8. DELIVERY OF SHARE CERTIFICATES. The Agent will deliver (i)
certificates representing those shares of Common Stock purchased pursuant to
exercise of Primary Subscription Rights as soon as practicable after the
corresponding Rights have been
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<PAGE> 6
validly exercised and full payment for such shares has been received and
cleared and (ii) certificates representing those shares purchased pursuant to
the exercise of the Over-Subscription Privilege as soon as practicable after
the Expiration Date and after all allocations have been effected.
9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Shareholders in
respect of the exercise of Rights shall be held by the Agent, on behalf of the
Fund, in a segregated, interest-bearing escrow account (the "Escrow Account").
Pending disbursement in the manner described in Section 4(d) above, funds held
in the Escrow Account shall be invested by the Agent at the direction of the
Fund.
(b) The Agent shall deliver all proceeds received in respect of
the exercise of Rights (including interest earned thereon) to the Fund as
promptly as practicable, but in no event later than seven Business Days after
the end of the Protect Period. Proceeds held in respect of any Excess Payment
shall be refunded to Record Date Shareholders entitled to such a refund within
10 Business Days after the end of the Protect Period.
10. REPORTS.
(a) Daily, during the period commencing on the Record Date, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 12:00 Noon, New York time), confirmed by letter, to a designated
officer of the Fund, daily data regarding Rights exercised, the selling price
of Rights, the total number of shares of new Common Stock subscribed for,
payments received therefor, the number of Rights sold and the net proceeds
thereof, bringing forward the figures from the previous day's report in each
case so as to also show the cumulative totals and any such other information as
may be mutually determined by the Fund and the Agent.
(b) The Agent will inform the Dealer Manager 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 the Dealer Manager and, not later than 12:00 Noon, New
York time, on the Expiration Date, will provide the Dealer Manager with a
written statement as to the total number of Rights exercised (separately
setting forth the number of Rights exercised by Record Date Shareholders).
11. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Fund and the Agent as the Agent may in its discretion impose (which
shall, in the case of a mutilated Subscription Certificate include the
surrender and cancellation thereof), issue a new Subscription Certificate of
like denomination in substitution for the Subscription Certificate so lost,
stolen, mutilated or destroyed.
6
<PAGE> 7
12. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to
act as Agent, dated September , 1995, and set forth hereto as Exhibit A. The
Agent agrees that such compensation shall include all services as Transfer
Agent and Registrar provided in connection with the offering of Rights. The
Fund further agrees that it will reimburse the Agent for its reasonable
out-of-pocket expenses incurred in the performance of its duties as such.
13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Fund, whether in
conformity with the provisions of this Agreement or constituting a modification
hereof or a supplement hereto. Without limiting the generality of the
foregoing or any other provision of this Agreement, the Agent, in connection
with its duties hereunder, shall not be under any duty or obligation to inquire
into the validity or invalidity or authority or lack thereof of any instruction
or direction from an officer of the Fund which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss of data
occurring by reason of circumstances beyond the Agent's control, including,
without limitation, acts of civil or military authority, national emergencies,
labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
(b) The Fund will indemnify the Agent and its nominees against,
and hold it harmless from, all liability and expense which may arise out of or
in connection with the services described in this Agreement or the instructions
or directions furnished to the Agent relating to this Agreement by an
appropriate officer of the Fund, except for any liability or expense which
shall arise out of the negligence, bad faith or willful misconduct of the Agent
or such nominees.
14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the
consent or concurrence of the Shareholders in whose names Subscription
Certificates are registered, by supplemental agreement or otherwise, concur
with the Fund in making any changes or corrections in a Subscription
Certificate that it shall have been advised by counsel (who may be counsel for
the Fund) is appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error
therein or herein contained, and which shall not be inconsistent with the
provision of the Subscription Certificate except insofar as any such change may
confer additional rights upon the Shareholders.
7
<PAGE> 8
15. ASSIGNMENT; DELEGATION.
(a) Neither this Agreement nor any rights or obligations hereunder
may be assigned or delegated by either party without the written consent of the
other party.
(b) This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
Nothing in this Agreement is intended or shall be construed to confer upon any
other person any right, remedy or claim or to impose upon any other person any
duty, liability or obligation.
16. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of New York.
17. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the
invalidity, unlawfulness or unenforceability of any term or provision thereof
shall not affect the validity, legality or enforceability of this Agreement or
of any other term or provision hereof.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
19. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
20. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto
shall constitute a legal, valid and binding execution hereof by such party.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
8
<PAGE> 9
22. ADDITIONAL PROVISIONS. Except as specifically modified by this
Agreement, the Agent's rights and responsibilities set forth in the Agreement
for Stock Transfer Services between the Fund and the Agent are hereby ratified
and confirmed and continue in effect.
THE LATIN AMERICAN DISCOVERY
FUND, INC.
By:
------------------------------
Name: Warren J. Olsen
Title: President
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------
Name:
Title:
9
<PAGE> 1
EXHIBIT D-6
SHAREHOLDER
-----------
COMMUNICATIONS CORPORATION
AGREEMENT
This document will constitute the agreement between THE LATIN AMERICAN
DISCOVERY FUND, INC. (the "FUND"), with its principal executive offices at 1221
Avenue of the Americas, New York, NY 10020 and SHAREHOLDER COMMUNICATIONS
CORPORATION ("SCC"), with its principal executive offices at 17 State Street,
New York, NY 10005, relating to a Rights Offering (the "OFFER") of the Fund.
The services to be provided by SCC will be as follows:
(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
Target Group. SCC estimates that it may call between 3,000 to 6,500
of the approximately 11,500 outstanding beneficial and record
shareholders. The estimate number is subject to adjustment and SCC may
actually call more or less shareholders depending on the response to
the OFFER or at the FUND's direction.
Telephone Number Lookups. SCC will obtain the needed telephone
numbers from various types of telephone directories.
Initial Telephone Calls to Provide Information. SCC will begin
telephone calls to the target group as soon as practicable. Most calls
will be made during 10:00 A.M. to 9:00 P.M. on business days and only
during 10:00 A.M. to 5:00 P.M. on Saturdays. No calls will be received
by any shareholder after 9:00 P.M. on any day, in any time zone,
unless specifically requested by the shareholder. SCC will maintain
"800" lines for shareholders to call with questions about the OFFER.
The "800" lines will be staffed Monday through Friday between 9:00
a.m. and 9:00 p.m.
Remails. SCC will coordinate remails of offering materials to the
shareholders who advise us that they have discarded or misplaced the
originally mailed materials.
Reminder/Extension Mailing. SCC will help to coordinate any targeted
or broad-based reminder mailing at the request of the FUND. SCC will
mail only materials supplied by the FUND or approved by the Fund in
advance in writing.
Subscription Reports. SCC will rely upon the transfer agent for
accurate and timely information as to participation in the OFFER.
<PAGE> 2
SHAREHOLDER
-----------
COMMUNICATIONS CORPORATION
(2) BANK/BROKER SERVICING
SCC will contact all banks, brokers and other nominee shareholders
("intermediaries") holding stock as shown on appropriate portions of
the shareholder lists to ascertain quantities of offering materials
needed for forwarding to beneficial owners.
SCC will deliver offering materials by messenger to New York City
based intermediaries and by Federal Express or other means to non-New
York City based intermediaries. SCC will also follow-up by telephone
with each intermediary to insure receipt of the offering materials and
to confirm timely remailing of materials to the beneficial owners.
SCC will maintain frequent contact with intermediaries to monitor
shareholder response and to insure that all liaison procedures are
proceeding satisfactorily. In addition, SCC will contact beneficial
holders directly, if possible, and do whatever may be appropriate or
necessary to provide information regarding the OFFER to this group.
SCC will, as frequently as practicable, report to the Fund with
response from intermediaries.
(3) PROJECT FEE
In consideration for acting as Information Agent SCC will receive a
project fee of $20,000.
(4) ESTIMATED EXPENSES
SCC will be reimbursed by the FUND for its reasonable out-of-pocket
expenses incurred provided that SCC submits to the FUND an expense
report, itemizing such expenses and providing copies of all supporting
bills in respect of such expenses. If the actual expenses incurred are
less than the portion of the estimated high range expenses paid in
advance by the FUND, the FUND will receive from SCC a check payable in
the amount of the difference at the time that SCC sends its final
invoice for the second half of the project fee.
SCC's expenses are estimated as set forth below and the estimates are
based largely on data provided to SCC by the FUND. In the course of
the OFFER the expenses and expense categories may change due to
changes in the OFFER schedule or due to events beyond SCC's control,
such as delays in receiving offering material and related items. In
the event of significant change or new expenses not originally
contemplated, SCC will notify the FUND by phone and/or by letter for
approval of such expenses.
<PAGE> 3
SHAREHOLDER
-----------
COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
Estimated Expenses Low Range High Range
--------- ----------
<S> <C> <C>
Distribution Expenses ........................ $ 2,500 $ 5,000
Telephone # look up
5,800 at $.60 ................................ 3,480 3,480
Outgoing telephone 2,300 to 3,900
initial outgoing telephone calls at $4.00 .... 9,200 15,600
Incoming "800" calls
800 to 1,350 at $3.75 ........................ 3,000 5,062
Miscellaneous, data processing, postage,
deliveries Federal Express and mailgrams ..... 2,500 5,000
------ ------
Total Estimated Expenses ................ $20,680 $34,142
======= =======
</TABLE>
(5) PERFORMANCE
SCC will use its best efforts to achieve the goals of the FUND but SCC
is not guaranteeing a minimum success rate. SCC's Project Fee as
outlined in Section 3 or Expenses as outlined in Section 4 are not
contingent on success or failure of the OFFER.
SCC's strategies revolve around a telephone information campaign. The
purpose of the telephone information campaign is to raise the overall
awareness among shareholders of the OFFER and help shareholders better
understand the transaction. This in turn may result in higher overall
response.
(6) COMPLIANCE
The FUND will be responsible for compliance with any regulations
required by the Securities and Exchange Commission, National
Association of Securities Dealers or any applicable federal or state
agencies.
In rendering the services contemplated by this Agreement, SCC agrees
not to make any representations, oral or written, to any shareholders
or prospective shareholders of the FUND that are not contained in the
FUND's Prospectus, unless previously authorized to do so in writing by
the FUND.
(7) PAYMENT
Payment for one half the project fee ($10,000) and one half the
estimated high range expenses ($17,071) for a total of $27,071 will be
made at the signing of this contract. The balance, if any, will be
paid by the FUND due thirty days after SCC sends its final invoice.
<PAGE> 4
SHAREHOLDER
-----------
COMMUNICATIONS CORPORATION
(8) MISCELLANEOUS
SCC will hold in confidence and will not use nor disclose to third
parties information we receive from the FUND, or information developed
by SCC based upon such information we receive, except for information
which was public at the time of disclosure or becomes part of the
public domain without disclosure by SCC or information which we learn
from a third party which does not have an obligation of
confidentiality to the FUND.
In the event the project is canceled for an indefinite period of time
after the signing of this contract and before the expiration of the
OFFER, SCC will be reimbursed by the FUND for any expenses incurred
and not less than 100% of the project fee.
The FUND agrees to indemnify, hold harmless, reimburse and defend SCC,
and its officers, agents and employees, against all claims or
threatened claims, costs, expenses, liabilities, obligations, losses
or damages (including reasonable legal fees and expenses) of any
nature, incurred by or imposed upon SCC, or any of its officers,
agents or employees, which results, arises out of or is based upon
services rendered to the FUND in accordance with the provisions of to
this AGREEMENT, provided that such services are rendered to the FUND
without any negligence, willful misconduct, bad faith or reckless
disregard on the part of SCC, or its officers, agents and employees.
This agreement will be governed by and construed in accordance with the
laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT
between SCC and the FUND with respect to the agreement herein and cannot be
modified except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this AGREEMENT this ________
day of August 1995.
THE LATIN AMERICAN SHAREHOLDER COMMUNICATIONS
DISCOVERY FUND, INC. CORPORATION
By _______________________________ By /s/ Robert S. Brennan
-----------------------------------
Robert S. Brennan
Senior Account Executive
<PAGE> 1
EXHIBIT J-2
DOMESTIC CUSTODY AGREEMENT
THE LATIN AMERICA DISCOVERY FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
MAY 11, 1994
<PAGE> 2
DOMESTIC CUSTODY AGREEMENT
THE LATIN AMERICA DISCOVERY FUND, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION/PARAGRAPH PAGE
- ----------------- ----
<S> <C>
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 2
4. Delivery and Registration of the Property 3
5. Voting Rights 4
6. Receipt and Disbursement of Money 4
7. Receipt of Securities 5
8. Use of Securities Depository or the Book-Entry System 5
9. Instructions Consistent With The Articles, etc. 6
10. Transactions Not Requiring Instructions 7
11. Transactions Requiring Instructions 10
12. Purchase of Securities 11
13. Sales of Securities 12
14. Records 12
15. Cooperation with Accountants 12
16. Confidentiality 13
17. Equipment Failures 13
18. Right to Receive Advice 13
</TABLE>
-i-
<PAGE> 3
DOMESTIC CUSTODY AGREEMENT
THE LATIN AMERICA DISCOVERY FUND, INC.
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
SECTION/PARAGRAPH PAGE
- ----------------- ----
<S> <C>
19. Compliance with Governmental Rules and Regulations 14
20. Compensation 14
21. Indemnification 14
22. Responsibility of U.S. Trust 15
23. Collection 16
24. Duration and Termination 17
25. Notices 17
26. Further Actions 18
27. Amendments 18
28. Miscellaneous 18
Signatures 19
Attachment A -- Fees and Expenses
Attachment B -- Authorized Persons
</TABLE>
-ii-
<PAGE> 4
DOMESTIC CUSTODY AGREEMENT
THIS AGREEMENT is made as of May 11, 1994, by and between THE LATIN
AMERICA DISCOVERY FUND, INC., a Maryland corporation (the "Fund"), and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and trust
company ("U.S. Trust").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the Fund's
custodian for its assets held within the United States and U.S. Trust is
willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints U.S. Trust to act as custodian
of its portfolio securities, cash and other property held within the United
States on the terms set forth in this Agreement. U.S. Trust accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 20 of this Agreement.
2. Delivery of Documents. The Fund will promptly furnish to U.S. Trust
such copies, properly certified or authenticated, of contracts, documents and
other related information as U.S. Trust may request or require to properly
discharge its duties, including but not limited to the following:
(a) Resolutions of the Fund's Directors authorizing the appointment of
U.S. Trust as Custodian of the portfolio securities, cash and other property of
the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Written
Instructions, as hereinafter defined, on behalf of the Fund;
<PAGE> 5
(c) The Fund's Articles of Incorporation filed with the State Department
of Assessments and Taxation of the State of Maryland and all amendments thereto
(such Articles of Incorporation, as currently in effect and as they shall from
time to time be amended, are herein called the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) Resolutions of the Fund's Directors and/or the Fund's stockholders
approving the Investment Advisory and Management Agreement between the Fund and
Morgan Stanley Asset Management Inc., the Fund's investment adviser (the
"Advisory Agreement");
(f) The Advisory Agreement; and
(g) The Fund's Registration Statement on Form N-2 under the 1940 Act and
the Securities Act of 1933, as amended ("the 1933 Act"), as filed with, and
declared effective by, the Securities and Exchange Commission (the "SEC") and
all exhibits, amendments and supplements thereto, including any opinion of
counsel for the Fund with respect to the validity of the shares of common
stock (the "Shares") of the Fund and the status of such Shares under the 1933
Act as registered with the SEC and under any other applicable federal law
or regulation.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term "Authorized
Person" means the Fund's President, Vice-President, Treasurer and any other
person, whether or not any such person is an officer or employee of the Fund,
duly authorized by the Directors of the Fund to give Written Instructions on
behalf of the Fund and listed on Attachment B hereto, which may be amended from
time to time.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
System" means the Federal Reserve/Treasury book-entry system for United States
and federal agency securities, its successor or successors and its nominee or
nominees.
-2-
<PAGE> 6
(c) "Property". The term "Property", as used in this Agreement, means:
(i) any and all securities, cash, and other property of the Fund which
the Fund may from time to time deposit, or cause to be deposited, with U.S.
Trust or which U.S. Trust may from time to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by U.S. Trust from time to time from or on behalf of the Fund.
(d) "Securities Depository". As used in this Agreement the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Fund's Directors approving deposits by U.S. Trust therein.
(e) "Written Instructions". Means instructions
(i) delivered by mail, tested telegram, cable, telex or facsimile
sending device, and received by U.S. Trust, signed by two Authorized
Persons or by persons reasonably believed by U.S. Trust to be Authorized
Persons; or
(ii) transmitted electronically through the U.S. Trust Asset Management
System or any similar electronic instruction system acceptable to U.S.
Trust.
4. Delivery and Registration of the Property. The Fund will deliver or
cause to be delivered to U.S. Trust all Property owned by it which is held
within the United States, including cash received for the issuance of its
Shares, at all times during the period of this Agreement, except for securities
and monies to be delivered to any subcustodian appointed pursuant to Paragraph
7 hereof. U.S. Trust will not be responsible for such securities and such
monies until actually received by U.S. Trust or by any subcustodian. All
securities delivered to U.S. Trust or to any such subcustodian (other than in
bearer form) shall be registered in the name of the Fund or in the name of a
nominee of the Fund or in the name
-3-
<PAGE> 7
of U.S. Trust or any nominee of U.S. Trust (with or without indication of
fiduciary status) or in the name of any subcustodian or any nominee of such
subcustodian appointed pursuant to Paragraph 7 hereof or shall be properly
endorsed and in form for transfer satisfactory to U.S. Trust.
5. Voting Rights. With respect to all securities owned by the Fund,
however registered, it is understood that the voting and other rights and
powers of such securities shall be exercised by the Fund. U.S. Trust's only
duty shall be to mail to the Fund any documents received, including proxy
statements and offering circulars, with any proxies for securities registered
in a nominee name executed by such nominee. Where warrants, options, tenders or
other securities have fixed expiration dates, the Fund understands that in
order for U.S. Trust to act, U.S. Trust must receive the Fund's
instructions at its offices in New York City, addressed as U.S. Trust may from
time to time request, by no later than noon (New York City time) at least one
business day prior to the last scheduled date to act with respect thereto (or
such earlier date or time as permits the Fund a reasonable period of time in
which to respond after U.S. Trust notifies the Fund of such date or time).
Absent U.S. Trust's timely receipt of such instructions, such instruments will
expire without liability to U.S. Trust.
6. Receipt and Disbursement of Money.
(a) U.S. Trust shall open and maintain a custody account for the
Fund (the "Account") subject only to draft or order by U.S. Trust acting
pursuant to the terms of this Agreement, and shall hold in such Account,
subject to the provisions hereof, all cash received by it from or for the Fund.
U.S. Trust shall make payments of cash to, or for the account of, the Fund
from such cash only (i) for the purchase of securities for the Fund as provided
in paragraph 12 hereof; (ii) upon receipt of Written Instructions, for the
payment of dividends or other distributions of shares, or for the payment of
interest, taxes, administration, distribution or advisory fees or expenses
which are to be borne by the Fund under the terms of this Agreement, any
Advisory Agreement, or any administration agreement of the Fund; (iii) upon
receipt of Written Instructions for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Fund and held
by or to be delivered to U.S. Trust; (iv) to a subcustodian pursuant to
Paragraph 7 hereof; or (v) upon receipt of Written Instructions for other
corporate purposes.
-4-
<PAGE> 8
(b) U.S. Trust is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for
the Fund.
7. Receipt of Securities.
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall hold
all securities and non-cash Property received by it for the Fund. All such
securities and non-cash Property are to be held or disposed of by U.S. Trust
for the Fund pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution authorizing the specific
transaction by the Fund's Directors, U.S. Trust shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise
dispose of any such securities and non-cash Property, except in accordance with
the express terms provided for in this Agreement. In connection with its duties
under this Paragraph 7, U.S. Trust may, at its own expense, enter into
subcustodian agreements with other U.S. banks or trust companies for the
receipt of certain securities and cash to be held by U.S. Trust for the account
of the Fund pursuant to this Agreement; provided that each such bank or trust
company has an aggregate capital, surplus and undivided profits, as shown by
its last published report, of not less than twenty million dollars
($20,000,000) and that such bank or trust company agrees with U.S. Trust to
comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder.
(b) Promptly after the close of business on each day, U.S. Trust shall
furnish the Fund with confirmations and a summary of all transfers to or from
the account of the Fund during said day. Where securities are transferred to
the account of the Fund established at a Securities Depository or the Book
Entry System pursuant to Paragraph 8 hereof, U.S. Trust shall also by
book-entry or otherwise identify as belonging to the Fund the quantity of
securities that belong to the Fund that are part of a fungible bulk of
securities registered in the name of U.S. Trust (or its nominee) or shown in
U.S. Trust's account on the books of a Securities Depository or the Book-Entry
System. From time to time, and at least once monthly, U.S. Trust shall furnish
the Fund with a detailed statement of the Property held for the Fund under this
Agreement.
8. Use of Securities Depository or the Book-Entry System. The Fund
authorizes U.S. Trust, on a continuous and ongoing basis until instructed to
the contrary by Written Instructions actually received by U.S. Trust (i) to
deposit in a Securities Depository or the
-5-
<PAGE> 9
Book-Entry System all securities of the Fund eligible for deposit therein and
(ii) to utilize a Securities Depository or the Book-Entry System to the extent
possible in connection with the performance of its duties hereunder, including
without limitation, settlements of purchases and sales of securities by the
Fund, and deliveries and returns of securities collateral in connection with
borrowings. Without limiting the generality of such use, it is agreed that the
following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by U.S. Trust in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such capacities. U.S.
Trust will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices in the place where the transaction
is settled, unless the Fund has given U.S. Trust Written Instructions to the
contrary.
(b) All Books and records maintained by U.S. Trust which relate to the
Fund's participation in a Securities Depository or the Book-Entry System will
at all times during U.S. Trust's regular business hours be open to the
inspection of the Fund's duly authorized employees or agents, and the Fund
will be furnished with all information in respect of the services rendered
to it as it may require.
9. Instructions Consistent With The Articles, etc. U.S. Trust may
assume that any Written Instructions received hereunder are not in any way
inconsistent with any provision of the Articles or By-Laws of the Fund or
any vote or resolution of the Fund's Directors, or any committee thereof.
U.S. Trust shall be entitled to rely upon any Written Instructions actually
received by U.S. Trust pursuant to this Agreement.
The Fund agrees that U.S. Trust shall incur no liability in acting in
good faith upon Written Instructions given to U.S. Trust. In accord with
instructions from the Fund, as required by accepted industry practice or
as U.S. Trust may elect in effecting the execution of Fund instructions,
any advance of cash or other Property made by U.S. Trust, arising from the
purchase, sale, redemption, transfer or other disposition of Property of
the Fund, or in connection with the disbursement of funds to any party, or
in payment of fees, expenses, claims or liabilities owed to U.S. Trust by
the Fund or to any other party which has secured judgment in a court of
law against the Fund, which creates an overdraft in the accounts or
-6-
<PAGE> 10
over-delivery of Property shall be deemed a loan by U.S. Trust to the Fund,
payable on demand, bearing interest at such rate as is customarily charged by
U.S. Trust for similar loans. The Fund agrees that test arrangements,
authentication methods or other security devices to be used with respect to
instructions which the Fund may give by telephone, telex, TWX, facsimile
transmission, bank wire or through an electronic instruction system, shall be
processed in accordance with terms and conditions for the use of such
arrangements, methods or devices as U.S. Trust may put into effect and modify
from time to time. The Fund shall safeguard any test keys, identification codes
or other security devices which U.S. Trust makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by U.S. Trust or by the Fund as a result of U.S. Trust's acting in
accordance with instructions from any unauthorized person using the proper
security device, unless such loss, liability or damage was incurred as a result
of U.S. Trust's negligence or willful misconduct. U.S. Trust may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Account. In
the event that the Fund uses U.S. Trust's Asset Management System ("AMS"), the
Fund agrees that U.S. Trust will not be responsible for the consequences of the
failure of the AMS to perform for any reason beyond the reasonable control of
U.S. Trust, or the failure of any communications carrier, utility or
communications network. In the event the AMS is inoperable, the Fund agrees
that it will accept the communication of transaction instructions by telephone,
facsimile transmission on equipment compatible to U.S. Trust's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
10. Transactions Not Requiring Written Instructions. U.S. Trust is
authorized and (unless expressly indicated to the contrary) instructed to take
the following actions without Written Instructions:
(a) Collection of Income and Other Payments. U.S. Trust shall:
(i) collect and receive for the account of the Fund, all income and
other payments and distributions, including (without limitation) stock
dividends, rights, warrants and similar items included or to be included in
the Property of the Fund, and promptly advise the Fund of such receipt and
shall credit such income, as collected, to the Fund. From time to time,
U.S. Trust may elect, but shall not be
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so obligated, to credit the Account with interest, dividends or principal
payments on payable or contractual settlement dates, in anticipation of
receiving same from a payor, central depository, broker or other agent
employed by the Fund or U.S. Trust. Any such crediting and posting shall be
at the Fund's sole risk, and U.S. Trust shall be authorized to reverse any
such advance posting in the event U.S. Trust does not receive good funds
from any such payor, central depository, broker or agent of the Fund.
(ii) with respect to securities of foreign issuers held in custody by
U.S. Trust hereunder, if any, effect collection of dividends, interest and
other income, and notify the Fund of any call for redemption, offer of
exchange, right of subscription, reorganization, or other proceedings
affecting such securities, or any default in payments due thereon. It is
understood, however, that U.S. Trust shall be under no responsibility for
any failure or delay in effecting such collections or giving such notice
with respect to securities of foreign issuers, regardless of whether or not
the relevant information is published in any financial service available to
U.S. Trust, unless such failure or delay is due to its negligence or
willful misconduct; provided that this sub-paragraph (ii) shall not be
construed as creating any such responsibility with respect to securities of
non-foreign issuers. Collections of income in foreign currency are, to the
extent possible, to be converted into United States Dollars, unless the
Fund instructs U.S. Trust otherwise in writing, and in effecting such
conversion U.S. Trust may use such methods or agencies as it may see fit,
including the facilities of its own foreign division, at customary rates.
All risk and expense incident to such collection and conversion is for the
account of the Fund and U.S. Trust shall have no responsibility for
fluctuations in exchange rates affecting any such conversion.
(iii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same day as
received.
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(iv) receive and hold for the account of the Fund all securities
received by the Fund as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other rearrangement or
distribution of rights or similar securities issued with respect to any
portfolio securities of the Fund held by U.S. Trust hereunder.
(v) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or otherwise
become payable on the date such securities become payable.
(vi) take any action which may be necessary and proper in connection
with the collection and receipt of Fund income and other payments and the
endorsement for collection of checks, drafts and other negotiable
instruments.
(vii) with respect to domestic securities, exchange securities in
temporary form for securities in definitive form, effect an exchange of the
shares where the par value of stock is changed, and surrender securities at
maturity or when advised of earlier call for redemption against payment
therefor in accordance with accepted industry practice. The Fund
understands that U.S. Trust subscribes to one or more nationally recognized
services that provide information with respect to calls for redemption of
bonds or other corporate actions. U.S. Trust shall not be liable for
failure to redeem any called bond or to take other action if notice of such
call or action was not provided by any service to which it subscribes,
provided that U.S. Trust shall have acted in good faith without negligence
and in accordance with "street practice" (as is customary in industry).
U.S. Trust shall have no duty to notify the Fund of any rights, duties,
limitations, conditions or other information set forth in any security
(including mandatory or optional put, call and similar provisions), but
U.S. Trust shall forward to the Fund any notices or other documents
subsequently received with regard to any such security. When fractional
shares of stock of a declaring corporation are received as a stock
distribution, unless specifically instructed to the contrary in writing,
U.S. Trust is authorized to sell the fraction received and credit the
Fund's account. Unless specifically instructed to the contrary in writing,
U.S. Trust is
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authorized to exchange securities in bearer form for securities in
registered form. If any Property registered in the name of a nominee of
U.S. Trust is called for partial redemption by the issuer of such Property,
U.S. Trust is authorized to allot the called portion to the respective
beneficial holders of the Property in such manner as is deemed by U.S.
Trust to be fair and equitable in its sole discretion.
(b) Miscellaneous Transactions. U.S. Trust is authorized to deliver or
cause to be delivered Property against payment or other consideration or
written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of the Fund in
accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities for
definitive securities; and
(iii) for transfer of securities into the name of the Fund or U.S.
Trust or a nominee of either, or for exchange of securities for a different
number of bonds, certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case,
the new securities are to be delivered to U.S. Trust.
11. Transactions Requiring Instructions. Upon receipt of Written
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may
be exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
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<PAGE> 14
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, against receipt of such certificates of deposit, interim receipts
or other instruments or documents as may be issued to it to evidence such
delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
U.S. Trust of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made, subject to proper
prior authorization, further securities may be released for that purpose; and
pay such loan upon redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing the loan;
(f) Deliver any securities held for the Fund upon the exercise of a
covered call option written by the Fund on such securities; and
(g) Deliver securities held for the Fund pursuant to separate security
lending agreements concerning the lending of the Fund's securities into which
the Fund may enter, from time to time.
12. Purchase of Securities. Promptly after each purchase of securities
by the Investment Adviser (or any sub-adviser), the Fund shall deliver to U.S.
Trust (as Custodian) Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares or the principal amount purchased and accrued interest, if
any, (c) the dates of purchase and settlement, (d) the purchase price per unit,
(e) the total amount payable upon such purchase and (f) the name of the person
from whom or the broker through whom the purchase was made. U.S. Trust shall
upon receipt of securities purchased by or for the
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<PAGE> 15
Fund pay out of the monies held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Written Instructions.
13. Sales of Securities. Promptly after each sale of securities by the
Investment Adviser, the Fund shall deliver to U.S. Trust (as Custodian) Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the date of sale, (d) the sale
price per unit, (e) the total amount payable to the Fund upon such sale and (f)
the name of the broker through whom or the person to whom the sale was made.
U.S. Trust shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the same conforms to the
total amount payable as set forth in such Written Instructions. Subject to the
foregoing, U.S. Trust may accept payment in such form as shall be satisfactory
to it, and may deliver securities and arrange for payment in accordance with
the customs prevailing among dealers in securities.
14. Records. The books and records pertaining to the Fund which are in
the possession of U.S. Trust shall be the property of the Fund. The Fund, or
the Fund's authorized representatives, shall have access to such books and
records at all times during U.S. Trust's normal business hours, and such books
and records shall be surrendered to the Fund promptly upon request. Upon
reasonable request of the Fund, copies of any such books and records shall be
provided by U.S. Trust to the Fund or the Fund's authorized representative at
the Fund's expense.
15. Cooperation with Accountants. U.S. Trust shall cooperate with the
Fund's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure
that the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's semiannual report on Form N-SAR.
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<PAGE> 16
16. Confidentiality. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential shareholders and relative to the Investment Adviser and
its prior, present or potential customers, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where U.S. Trust may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information
by duly constituted authorities, or when so requested by the Fund. Nothing
contained herein, however, shall prohibit U.S. Trust from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential shareholders of the Fund.
17. Equipment Failures. In the event of equipment failures beyond U.S.
Trust's control, U.S. Trust shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall not have liability
with respect thereto. U.S. Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
back up emergency use of electronic data processing equipment to the extent
appropriate equipment is available.
18. Right to Receive Advice.
(a) Advice of Fund. If U.S. Trust shall be in doubt as to any action to be
taken or omitted by it, it may request, and shall receive, from the Fund
clarification or advice.
(b) Advice of Counsel. If U.S. Trust shall be in doubt as to any question
of law involved in any action to be taken or omitted by U.S. Trust, it may
request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or U.S. Trust, at the option of U.S. Trust).
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<PAGE> 17
(c) Conflicting Advice. In case of conflict between directions or advice
received by U.S. Trust pursuant to subparagraph (a) of this paragraph and
advice received by U.S. Trust pursuant to subparagraph (b) of this paragraph,
U.S. Trust shall be entitled to rely on and follow the advice received pursuant
to the latter provision alone.
(d) Protection of U.S. Trust. U.S. Trust shall be protected in any action
or inaction which it takes or omits to take in reliance on any directions or
advice received pursuant to subparagraph (a) of this section with U.S. Trust,
after receipt of any such directions or advice, in good faith believes to be
consistent with such directions or advice. However, nothing in this paragraph
shall be construed as imposing upon U.S. Trust any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to U.S. Trust's properly taking or omitting
to take such action. Nothing in this subparagraph shall excuse U.S. Trust when
an action or omission on the part of U.S. Trust constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by U.S. Trust of
its duties under this Agreement.
19. Compliance with Governmental Rules and Regulations. The Fund assumes
full responsibility for insuring that the contents of its registration
statement on Form N-2, as filed with, and declared effective by, the SEC, and
all amendments thereto, comply with all applicable requirements of the 1933
Act, the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction.
20. Compensation. As compensation for the services described within this
Agreement and rendered by U.S. Trust during the term of this Agreement, the
Fund will pay to U.S. Trust, in addition to reimbursement of its out-of-pocket
expenses, monthly fees as outlined in Attachment A.
21. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless U.S. Trust and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934, the 1940 Act, and any state or foreign securities and blue sky laws
all as amended from time to time) and expenses, including (without limitation)
attorney's fees and disbursements, arising
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<PAGE> 18
directly or indirectly (a) from the fact that securities included in the
Property are registered in the name of any such nominee or (b) without limiting
the generality of the foregoing clause (a) from any action or thing which U.S.
Trust takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund given in accordance with
the terms of this Agreement, or (ii) upon Written Instructions; provided, that
neither U.S. Trust nor any of its nominees or subcustodians shall be
indemnified against any liability to the Fund or to its Shareholders (or any
expenses incident to such liability) arising out of (x) U.S. Trust's or such
nominee's or subcustodian's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties under this Agreement or any
agreement between U.S. Trust and any nominee or subcustodian or (y) U.S.
Trust's own or its subcustodian's negligent failure to perform its duties under
this Agreement. In the event of any advance of cash for any purpose made by
U.S. Trust resulting from orders or Written Instructions of the Fund, or in the
event that U.S. Trust or its nominee or subcustodian shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in connection
with the performance of this Agreement, except such as may arise from its or
its nominee's or subcustodian's own negligent action, negligent failure to act,
willful misconduct, or reckless disregard of its duties under this Agreement or
any agreement between U.S. Trust and any nominee or subcustodian, the Fund
shall promptly reimburse U.S. Trust for such advance of cash or such taxes,
charges, expenses, assessments, claims or liabilities.
22. Responsibility of U.S. Trust. U.S. Trust shall be under no duty to
take any action on behalf of the Fund except as specifically set forth herein
or as may be specifically agreed to by U.S. Trust in writing. In the
performance of its duties hereunder, U.S. Trust shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement. U.S. Trust shall be responsible for its own negligent failure or
that of any subcustodian it shall appoint to perform its duties under this
Agreement but to the extent that duties, obligations and responsibilities are
not expressly set forth in this Agreement, U.S. Trust shall not be liable for
any act or omission which does not constitute willful misfeasance, bad faith,
or gross negligence on
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<PAGE> 19
the part of U.S. Trust or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, U.S. Trust in connection with its duties
under this Agreement shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any advice, direction, notice or other instrument
which conforms to the applicable requirements of this Agreement, if any, and
which U.S. Trust believes to be genuine, (b) the validity of the issue of any
securities purchased or sold by the Fund, the legality of the purchase or sale
thereof or the propriety of the amount paid or received therefor, (c) the
legality of the issue or sale of any Shares, or the sufficiency of the amount
to be received therefor, (d) the legality of the redemption of any Shares,
or the propriety of the amount to be paid therefor, (e) the legality of
the declaration or payment of any dividend or distribution on Shares, or
(f) delays or errors or loss of data occurring by reason of circumstances
beyond U.S. Trust's control, including acts of civil or military authority,
national emergencies, labor difficulties, fire, mechanical breakdown (except
as provided in Paragraph 17), flood or catastrophe, acts of God, insurrection,
war, riots, or failure of the mail, transportation systems, communication
systems or power supply.
23. Collection. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by U.S. Trust) shall be at the sole risk of the Fund. In any case
in which U.S. Trust does not receive any payment due the Fund within a
reasonable time after U.S. Trust has made proper demands for the same, it shall
so notify the Fund in writing, including copies of all demand letters, any
written responses thereto, and memoranda of all oral responses thereto, and to
telephonic demands, and await instructions from the Fund. U.S. Trust shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. U.S. Trust shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course.
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<PAGE> 20
24. Duration and Termination. This Agreement shall be effective as of
the date hereof and shall continue until termination by the Fund or by U.S.
Trust on 90 day's written notice. Upon any termination of this Agreement,
pending appointment of a successor to U.S. Trust or a vote of the Shareholders
of the Fund to dissolve or to function without a custodian of its cash,
securities or other property, U.S. Trust shall not deliver cash, securities or
other property of the Fund to the Fund, but may deliver them to a bank or trust
company of its own selection, having aggregate capital, surplus and undivided
profits, as shown by its last published report of not less than twenty million
dollars ($20,000,000) as a successor custodian for the Fund to be held under
terms similar to those of this Agreement, provided, however, that U.S. Trust
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by U.S. Trust or on or against U.S. Trust and
until full payment shall have been made to U.S. Trust of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 20 of
this Agreement.
25. Notices. All notices and other communications (collectively referred
to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or
by confirm in telegram, cable, telex, or facsimile sending device. Notices
shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W. 47th
Street, New York, New York, 10036; (b) if to the Fund, at the address of the
Fund, 1221 Avenue of the Americas, New York, New York, 10020; or (c) if to
neither of the foregoing, at such other address as shall have been notified to
the sender of any such Notice or other communication. If the location of the
sender of a Notice and the address of the addressee thereof are, at the time of
sending, more than 100 miles apart, the Notice may be sent by first-class mail,
in which case it shall be deemed to have been given three days after it is
sent, or if sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately, and, if the location
of the sender of a Notice and the address of the addressee thereof are, at
the time of sending, not more than 100 miles apart, the Notice may be sent
by first-class mail, in which case it shall be deemed to have been given
two days after it is sent, or if sent by messenger, it shall be deemed to
have been given on the day it is delivered, or if sent by confirming
telegram, cable, telex or
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<PAGE> 21
facsimile sending device, it shall be deemed to have been given immediately.
All postage, cable, telegram, telex and facsimile sending device charges
arising from the sending of a Notice hereunder shall be paid by the sender.
26. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
27. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
28. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their construction
or effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
above written.
THE LATIN AMERICA DISCOVERY FUND, INC.
ATTEST: /s/ ??? BY: /s/ Warren J. Olsen
-------------------------- ------------------------------
NAME: Warren J. Olsen
TITLE: President
UNITED STATES TRUST COMPANY OF NEW YORK
ATTEST: /s/ Anne J. Marino BY: /s/ Peter C. Arrighetti
-------------------------- ------------------------------
NAME: Peter C. Arrighetti
TITLE: Senior Vice President
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<PAGE> 23
ADMINISTRATION AGREEMENT DATED FEBRUARY 17, 1992
DOMESTIC CUSTODY AGREEMENT DATED MAY 11, 1994
THE LATIN AMERICA DISCOVERY FUND, INC.
ATTACHMENT A
FEES AND EXPENSES
The Fund will be billed monthly for fees and out-of-pocket expenses under
its Domestic Custody Agreement and Administration Agreement with U.S. Trust.
Billings for fees and expenses will be due to U.S. Trust upon receipt and are
based on the following schedules:
ADMINISTRATION FEES
For the services provided pursuant to the U.S. Trust Administration
Agreement, the Fund 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.
DOMESTIC CUSTODY SAFEKEEPING FEES
For the services rendered pursuant to the Domestic Custody Agreement, the
Fund shall pay to U.S. Trust 0.01% of the average daily net assets of the Fund,
computed and payable monthly.
DOMESTIC CUSTODY TRANSACTION FEES
$11.00 PER DTC, PTC, or Federal Reserve Book Entry transaction
$ 5.50 per GNMA transaction
$40.00 per physical transaction
$40.00 per future or option wire
$35.00 per Euroclear transaction
$ 8.00 per outgoing wire transfer
BALANCE CREDITS ON DOMESTIC CUSTODY
Credit on overnight cash balances, less required reserves, will be paid to
the funds at a rate equal to 75% of the 90 day Treasury bill rate.
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses including but not limited to the cost of forms,
statements and confirms, telecommunications facilities, microfiche, proxy
processing, security pricing services (including backup pricing services) the
preparation of Fund Board materials, and mailings will be billed to the Fund on
a monthly basis.
A-1
<PAGE> 24
DOMESTIC CUSTODY AGREEMENT
THE LATIN AMERICA DISCOVERY FUND, INC.
MAY 11, 1994
ATTACHMENT B
AUTHORIZED PERSONS
B-1
