<PAGE>
THE LATIN AMERICAN DISCOVERY FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Frederick B. Whittemore
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR James W. Grisham
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Joanna M. Haigney
ASSISTANT TREASURER
</TABLE>
--------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
--------------------------------------------------------
U.S. ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
Investor Relations Department
P.O. Box 644, Mail Stop 46-02-09
Boston, Massachusetts 02102-0644
(617) 575-2900
--------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
--------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
--------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
----------
THE
LATIN AMERICAN
DISCOVERY
FUND, INC.
----------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the fourth quarter of 1995, the Fund's total return based on net asset value
per share was -6.52% versus -3.69% for the MSCI EMG Latin America Index (the
"MSCI Index") and -5.24% for the IFC Latin America Total Return Composite Index
(the "IFC Index"). For the year ended December 31, 1995, the Fund's total return
was -27.61% versus -13.53% for the MSCI Index and -15.92% for the IFC Index.
Since inception the Fund's total return based on net asset value per share is
29.12% versus 23.96% for the MSCI Index and 19.52% for the IFC Index.
The negative performance of the Latin markets in the final quarter of 1995
was attributable primarily to peso weakness in Mexico and political infighting
that stalled reforms in Brazil. The markets were also subject to tax-loss
selling. By the end of November, however, the markets stabilized and commenced a
rally driven by short-covering and bottom fishing in view of the region's
improving fundamentals.
The Fund's underperformance was a result of its overweighting of Brazil and
interest sensitive Mexican stocks and its underweighting of Chile and Argentina.
While 1995 was a disappointing year, the Fund's strategy is to invest in Latin
American equities based on secular driving forces which we believe will produce
absolute and relative outperformance over the medium term. To this end, we
believe that Brazil and Mexico will rebound more dramatically than the more
defensive markets such as Chile.
Over the fourth quarter, the MSCI Index for Brazil decreased 11% in U.S.
dollars resulting in a net decrease of 21% for 1995. The government was
successful in breaking the constitutional monopolies in the oil and telecom
sectors. Year-end foreign reserves reached a record level of U.S. $50 billion.
The government engineered a cooling of the economy, slowing GDP growth from
10.4% in the first quarter to 4.5% for the full year. 1995 saw a spectacular
reduction in the inflation rate to 22% for the year from 900% in 1994. All the
while, President Cardoso maintained approval ratings of over 50%.
Nevertheless, the negative sentiment from the Mexico crisis and
disappointment in the pace of reform led to a decline in the Brazilian market
for the year. The market's underperformance has been driven by the tight
monetary policy necessary to control inflation. Real interest rates well over
20% slowed down the economy and kept financial assets out of the equity market.
In the final quarter of the year, a political scandal spooked investors
regarding Cardoso's ability to maintain the momentum for reform.
The key task in 1996 will be the implementation of tax, social security and
administrative changes necessary to reduce the growing fiscal imbalance.
Government expenses on personnel are too high. We believe that with Cardoso's
strong approval ratings, the pro-reform forces will make significant, albeit not
steady progress on these issues throughout 1996. With the fall in inflation and
the desire to reactivate the economy, monetary authorities will likely guide
short-term interest rates markedly lower over the course of the year, and we are
expecting the economy to pick up noticeably in the second half of 1996. Overall,
economic growth should be robust, led by consumption and domestic credit
expansion and, subsequently, investment spending. We are particularly excited by
a) the telecommunications sector, which should demonstrate explosive earnings
growth and is still quite inexpensively valued, b) the beer company Brahma,
which is implementing a huge capacity expansion to keep pace with booming demand
growth, and c) the banking sector, which should benefit by the decline in
interest rates as provisioning levels decline and loan volumes expand, and which
trades at the most attractive valuation levels in Latin America. Thus, the Fund
will continue to overweight Brazilian equities into 1996 with an emphasis on
telecom, banking and beverage stocks.
The Mexican stock market declined 4% in U.S. dollars for the fourth quarter,
resulting in a decrease of 23% for the year. The year's performance was driven
by an economic contraction necessary to stabilize the economy after Mexico's
poorly implemented devaluation at the end of 1994. The Zedillo administration's
stabilization program included tight monetary and fiscal policy that led to a
deep recession over the first three quarters of the year, but managed to prevent
the outbreak of uncontrolled inflation that had followed previous devaluations.
The result was a steep increase in unemployment, a plunge in domestic demand
and, consequently, a financial system crisis. The shock therapy, while painful,
has been effective in stabilizing the economy in the short-term and
restructuring it for a higher level of sustainable growth. Mexico's trade
accounts have turned from an U.S. $18.5 billion deficit in 1994 to an estimated
U.S. $7.3 billion surplus for 1995. The current account is likely to be slightly
2
<PAGE>
positive for the year versus a negative U.S. $28 billion in 1994. Foreign
exchange reserves, which had reached a low of U.S. $3.5 billion in January, grew
to an estimated U.S. $16 billion by year-end, mostly as a result of the U.S. and
IMF support programs.
Fourth quarter performance was the result of increased currency volatility.
The peso's weakness resulted from the circular interplay of technical and
fundamental factors arising from Mexico's balance sheet. Weak peso demand from
investors led to a weakening outlook for recovery, which in turn further reduced
peso demand which further reduced the outlook for recovery, etc. The vicious
circle was broken by central bank intervention in the currency markets and
continued support by the government for the banking system.
For 1996, the Fund is positioned to take advantage of resumed economic
growth, decreasing interest rates and a stronger peso, in real terms. Sentiment
has begun to improve and valuations are not demanding for an economy emerging
from a depression. While monetary policy is likely to remain tight to control
inflation it will be less restrictive than in 1995. Further, Mexico's debt
profile has improved significantly as debt amortizations for 1996 are projected
at U.S. $10 billion versus U.S. $41 billion in 1995. The banking system rescue
package is estimated to cost between 5-10% of GDP and, thus, will create a drag
on growth for several years, yet the system is likely to resume lending in 1996.
Fears of a generalized financial collapse have faded. The Fund is overweight
bank, cement and construction companies and underweight stocks dependent on
consumer spending. One exception is Femsa, a very attractively valued beer
company (the Dos Equis brand).
The MSCI Index for Argentina increased 17% in U.S. dollars for the fourth
quarter and is up 9% for 1995. Argentina's performance is the result of its
demonstrated commitment to its currency convertibility system. In response to
capital outflows as a consequence of the Mexican crisis, the government bravely
chose fiscal austerity. Inflation for the year came in at 1.8%, a lifetime low
for most Argentines. The currency held firm against the dollar. Due to the
return of confidence and capital flows, economic growth should resume in 1996
after falling 3% in 1995. While bullish about the macrofundamentals, the Fund is
neutral on the market in light of uninspiring earnings growth forecasts for the
listed companies.
The Chilean market decreased 2% in the fourth quarter for a twelve month
decline of 6%. The market was relatively insulated from the general sell-off due
to the country's restrictions on capital repatriation by foreigners and its very
positive macroeconomic fundamentals. However, in light of high relative
valuations and an unpromising outlook on interest rates, currency and earnings
growth, the Fund will continue its underweighting of the market.
Peru increased 3% for the quarter bringing its net full year appreciation to
22%. The country's strong GDP growth and rising global commodities prices helped
offset the selling pressure arising from the Mexico crisis. At this point, the
equities seem fully valued and prospective returns are likely to be weak.
Colombia declined 5% for the fourth quarter bringing its net performance to
a decrease of 28% for 1995. The market's performance was attributable to a
presidential election scandal involving illegal campaign contributions. While
Colombian equities are not expensive, the central bank is likely to maintain a
restrictive monetary policy to combat stubborn inflation.
Venezuela decreased 18% in the quarter leaving the market down 29% for the
year. Faced with dwindling foreign exchange reserves and mounting debt arrears,
Venezuela devalued its currency in response to IMF preconditions for financial
assistance. While the country's role as a major oil supplier provides long-term
support, the country is currently stagnating under a huge fiscal deficit. The
equity market also suffers from continued foreign exchange restrictions.
The performance of Latin American equity markets in 1995 was driven by the
fallout from the Mexican currency crisis. This crisis presented a clear
challenge and raised the question of whether Latin America would continue,
unlike in previous crises, along the path of political and economic
modernization. The answer was a clear "Yes", as orthodox economic policies
prevailed in all countries, save Venezuela, in managing the crisis.
1995 represented an extreme cyclical test of the Latin America story. The
long-term, secular trends driving equity appreciation and earnings growth of
Latin American companies remain intact: 1) sound economic policies continue to
enhance competitiveness, improve living standards and increase political
stability throughout most of the region; 2) accelerating global
3
<PAGE>
trade continues to open new markets to Latin American producers; 3) professional
management of economic resources by the private sector continues to increase the
efficiency of companies in the region. In short, the fundamental outlook remains
positive for Latin American companies to continue to achieve high earnings
growth and, thus, for the stock markets' prospects for continuing to deliver
superior, long-term investment performance.
Sincerely,
[SIGNATURE]
Barton M. Biggs
CHAIRMAN
[SIGNATURE]
Robert L. Meyer
SENIOR PORTFOLIO MANAGER
February 2, 1996
4
<PAGE>
The Latin American Discovery Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
-------------------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)**
--------------------------- --------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
--------------------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR -38.78%+++ -38.78%+++ -27.61%+++ -27.61%+++ -13.53% -13.53%
SINCE INCEPTION* 16.13+++ 4.34+++ 29.12+++ 7.52+++ 23.96 6.26
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<S> <C> <C> <C> <C>
Years ended December 31:
1992* 1993 1994 1995
Net Asset Value Per Share $15.23 $23.31 $17.16 $10.98
Market Value Per Share $13.25 $27.13 $18.25 $9.88
Premium/(Discount) -13.0% -16.4% 6.4% -10.0%
Income Dividends - - 0.00# -
Capital Gains Distributions - - $5.74 $0.45
Fund Total Return (2) 8.01% 65.36%+++ -0.14% -27.61%+++
Index Total Return (1)(3)** -2.26% 52.29% -3.69% -13.53%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) 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 dividends and distributions, if any, were
reinvested. This return does not include the effect of dilution in
connection with the Rights Offering. 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 per share of the Fund.
(3) Morgan Stanley Capital International Emerging Markets Global Latin America
Index (MSCI EMG Latin America Index)
* The Fund commenced operations on June 23, 1992.
** Unaudited.
# Amount is less than $0.01 per share.
+++Adjusted for Rights Offering.
5
<PAGE>
The Latin American Discovery Fund, Inc.
Portfolio Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 94.8%
Debt Securities 4.3%
Short-Term Investments 0.9%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Telecommunications 24.6%
Banking 19.3%
Utilities - Electrical & Gas 14.0%
Beverage & Tobacco 11.9%
Building Materials & Components 6.3%
Energy Sources 3.6%
Merchandising 3.3%
Broadcasting & Publishing 2.1%
Multi-Industry 2.0%
Metals - Non-Ferrous 1.6%
Other 11.3%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Brazil 51.0%
Mexico 31.1%
Argentina 11.1%
Colombia 3.1%
Venezuela 3.1%
Chile 0.6%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Eletrobras 6.9%
2. Telebras (Preferred) 6.8
3. Telebras ADR 5.0
4. Brahma (Preferred) 5.0
5. G. Bancomer ADR 4.3
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Telmex 'L' ADR 4.3%
7. FEMSA 'B' 4.3
8. Telefonica de Argentina S.A. ADR 3.9
9. Banco Bradesco (Preferred) 3.7
10. Cemex 3.4
---
47.6%
---
---
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 23, 1992* YEAR ENDED
TO DECEMBER 31,
SELECTED PER SHARE DATA AND DECEMBER 31, ------------------------------------------------------------
RATIOS: 1992 1993 1994 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... U.S.$ 14.10 U.S.$ 15.23 U.S.$ 23.31 U.S.$ 17.16
- ---------------------------------------------------------------------------------------------------------------
Offering Costs................ (0.13) (0.06) -- (0.07)
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)....................... (0.06) 0.04 (0.18) 0.05
Net Realized and Unrealized
Gain (Loss) on Investments... 1.32 9.84 (0.25) (4.63)
- ---------------------------------------------------------------------------------------------------------------
Total from Investment
Operations............... 1.26 9.88 (0.43) (4.58)
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income..... -- -- (0.00)# --
Net Realized Gain......... -- -- (5.74) (0.44)
In Excess of Net Realized
Gain..................... -- -- -- (0.01)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions..... -- -- (5.74) (0.45)
- ---------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net
Asset Value from Capital
Share Transactions........... -- (1.74)++ 0.02+ (1.08)++
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD....................... U.S.$ 15.23 U.S.$ 23.31 U.S.$ 17.16 U.S.$ 10.98
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD....................... U.S.$ 13.25 U.S.$ 27.13 U.S.$ 18.25 U.S.$ 9.88
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.............. (8.30)% 121.17%+++ (8.75)% (38.78)%+++
Net Asset Value (1)....... 8.01% 65.36%+++ (0.14)% (27.61)%+++
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS).................. U.S.$87,685 U.S.$180,348 U.S.$135,273 U.S.$127,616
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets................... 2.73%** 2.23% 2.15% 2.17%
Ratio of Net Investment Income
(Loss) to Average Net
Assets....................... (1.02)%** 0.22% (0.77)% 0.31%
Portfolio Turnover Rate....... 8% 56% 70% 122%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
# Amount is less than U.S.$0.01 per share.
+ Increase due to shares issued from reinvestment of distributions.
++ Decrease due to shares issued through Rights Offering.
+++ Adjusted For Rights Offering.
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This return does not include the effect of dilution in
connection with the Rights Offering. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market value due to differences between the market price of the
stock and the net asset value of the Fund.
Note: Current period permanent book-tax differences, if any, are not
included in the calculation of net investment income (loss) per share.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- --------------------------------------------------------------
- -------------
Appliances & Household Durables U.S.$ 1,450 1.1%
Banking 24,617 19.3
Beverages & Tobacco 15,147 11.9
Broadcasting & Publishing 2,684 2.1
Building Materials & Components 8,028 6.3
Chemicals 419 0.3
Construction & Housing 2,010 1.6
Energy Sources 4,621 3.6
Food & Household Products 1,209 0.9
Forest Products & Paper 1,407 1.1
Machinery & Engineering 1,064 0.8
Merchandising 4,269 3.3
Metals -- Non-Ferrous 2,018 1.6
Metals -- Steel 715 0.6
Multi-Industry 2,563 2.0
Recreation, Other Consumer Goods 20 0.0
Telecommunications 31,418 24.6
Textiles & Apparel 1,350 1.1
Utilities -- Electrical & Gas 17,794 14.0
Other 4,840 3.8
------------ ------
U.S.$127,643 100.0%
------------ ------
------------ ------
- --------------------------------------------------------------
- -------------
SUMMARY OF TOTAL INVESTMENTS BY
COUNTRY -- DECEMBER 31, 1995 (UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------
- ------------
Argentina U.S.$ 14,242 11.1%
Brazil 65,042 51.0
Chile 750 0.6
Colombia 3,962 3.1
Mexico 39,686 31.1
Venezuela 3,961 3.1
------------ -----
U.S.$127,643 100.0%
------------ -----
------------ -----
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$ 2,484
Interest................................................ 485
Less: Foreign Taxes Withheld............................ (214)
- -------------------------------------------------------------------------------
Total Income.......................................... 2,755
- -------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................... 1,268
Custodian Fees.......................................... 303
U.S. Administrative Fees................................ 162
Annual Meeting and Proxy Expense........................ 126
Professional Fees....................................... 118
Shareholder Reporting Expenses.......................... 85
Brazilian Administrative Fees........................... 74
Amortization of Organization Costs...................... 63
Directors' Fees and Expenses............................ 40
Chilean Administrative Fees............................. 23
Colombian Administrative Fees........................... 21
Transfer Agent Fees..................................... 13
Other Expenses.......................................... 113
- -------------------------------------------------------------------------------
Total Expenses........................................ 2,409
- -------------------------------------------------------------------------------
Net Investment Income............................... 346
- -------------------------------------------------------------------------------
NET REALIZED LOSS
- -------------------------------------------------------------------------------
Investment Securities (net of foreign taxes of
U.S.$1,237 on net realized gains)...................... (20,212)
Foreign Currency Transactions........................... (318)
- -------------------------------------------------------------------------------
Net Realized Loss................................... (20,530)
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investments............................................. (19,788)
Foreign Currency Translations........................... (31)
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation).... (19,819)
- -------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized
Appreciation (Depreciation)................................ (40,349)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... U.S.$(40,003)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss)........ U.S.$ (1,446) U.S.$ 346
Net Realized Gain (Loss)............ 37,694 (20,530)
Change in Unrealized Appreciation
(Depreciation)..................... (39,909) (19,819)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations.................... (3,661) (40,003)
- -------------------------------------------------------------------------------
Distributions:
Net Investment Income............... (11) --
Net Realized Gain................... (45,034) (3,645)
In Excess of Net Realized Gain...... -- (119)
- -------------------------------------------------------------------------------
Total Distributions................. (45,045) (3,764)
- -------------------------------------------------------------------------------
Capital Share Transactions:
Common Stock Issued through Rights
Offering (3,100,000 shares)........ -- 27,075
Reinvestment of Distributions
(147,990 and 632,902 shares,
respectively)...................... 3,631 9,495
Offering Costs on Rights Offering... -- (460)
- -------------------------------------------------------------------------------
Net Increase from Capital Share
Transactions....................... 3,631 36,110
- -------------------------------------------------------------------------------
Total Decrease...................... (45,075) (7,657)
Net Assets:
Beginning of Year................... 180,348 135,273
- -------------------------------------------------------------------------------
End of Year (including accumulated
net investment loss of U.S.$472
and U.S.$678, respectively)........ U.S.$135,273 U.S.$127,616
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
COMMON STOCKS (94.8%)
(Unless otherwise noted)
- -----------------------------------------------------------------
- -------------
ARGENTINA (11.1%)
BANKING
Banco Del Suquia 637,933 U.S.$ 861
Banco Frances ADS 27,439 737
Banco de Galicia ADR 31,810 656
-------------
2,254
-------------
BEVERAGES & TOBACCO
Quilmes 73,825 1,152
-------------
ENERGY SOURCES
#Capex ADR 159,940 2,339
-------------
TELECOMMUNICATIONS
**+Argentine Cellular
Communications 454,000 2,066
Telecom Argentina S.A. ADR 31,270 1,489
Telefonica de Argentina S.A. ADR 180,360 4,915
-------------
8,470
-------------
14,215
-------------
- -----------------------------------------------------------------
- ------------
BRAZIL (50.8%)
APPLIANCES & HOUSEHOLD DURABLES
//Continental 2001 (Preferred) 27,667,000 342
//Multibras (Preferred) 501,000 371
Refripar 33,267,000 58
//Refripar (Preferred) 340,097,277 679
-------------
1,450
-------------
BANKING
//Banco Bradesco (Preferred) 535,630,524 4,685
***+Banco Bradesco (Rights) 15,967,915 26
//+Banco do Brasil (Preferred) 163,122,000 1,846
//Banco Itau (Preferred) 8,758,100 2,442
//**Banco Nacional (Preferred) 95,420,000 196
-------------
9,195
-------------
BEVERAGES & TOBACCO
//Brahma (Preferred) 15,453,946 6,361
-------------
CHEMICALS
#Rhodia-Ster ADS 46,605 419
-------------
ENERGY SOURCES
//Petrobras (Preferred) 26,723,000 2,282
-------------
FOOD & HOUSEHOLD PRODUCTS
//+Dixie Toga (Preferred) 1,235,000 1,080
//+Dixie Toga (Preferred
Receipts) 147,697 129
-------------
1,209
-------------
MACHINERY & ENGINEERING
//WEG (Preferred) 2,586,000 1,064
-------------
MERCHANDISING
#+Cia Brasileira ADR 113,915 1,139
//Lojas Americanas (Preferred) 159,383 22
+Lojas Arapua GDR 26,763 227
//Lojas Renner (Preferred) 63,471,000 1,698
-------------
3,086
-------------
METALS -- NON-FERROUS
//CVRD (Preferred) 12,255,000 2,018
-------------
METALS -- STEEL
Acesita 151,130,000 715
-------------
MULTI-INDUSTRY
//Itausa Investimentos Itau
(Preferred) 1,150,000 627
-------------
- -----------------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS
Telebras 28,613,000 U.S.$ 1,107
Telebras (Preferred) ADR 135,655 6,427
//Telebras (Preferred) 180,017,740 8,668
Telesp 4,271,000 618
//Telesp (Preferred) 4,375,800 644
-------------
17,464
-------------
TEXTILES & APPAREL
//Coteminas (Preferred) 4,037,000 1,350
-------------
UTILITIES -- ELECTRICAL & GAS
//+CELESC 'B' (Preferred) 1,179,000 570
Cemig (Preferred) ADR 16,820 372
//Cemig (Preferred) 12,893,000 285
#Cemig (Preferred) GDR 72,655 1,607
//CPFL (Preferred) 61,555,000 1,647
Eletrobras 32,330,000 8,749
Eletrobras (Preferred) ADR 8,925 121
//Eletrobras 'B' (Preferred) 10,926,000 2,957
Light 3,990,000 1,277
-------------
17,585
-------------
64,825
-------------
- -----------------------------------------------------------------
- ------------
COLOMBIA (1.7%)
BANKING
Banco de Colombia 5,916,396 2,144
-------------
MULTI-INDUSTRY
Corfivalle 2 --
-------------
2,144
-------------
- -----------------------------------------------------------------
- ------------
MEXICO (31.1%)
BANKING
G. Banacci 'B' 1,642,880 2,758
G. Banacci 'L' 581,066 865
#G. Bancomer ADR 948,565 5,514
+G. Bancomer 'B' 398,700 111
+G. Bancomer 'L' 78,703 21
-------------
9,269
-------------
BEVERAGES & TOBACCO
FEMSA 'B' 2,431,300 5,479
Panamco 'A' 67,355 2,155
-------------
7,634
-------------
BROADCASTING & PUBLISHING
G. Televisa ADR 119,290 2,684
-------------
BUILDING MATERIALS & COMPONENTS
Apasco 650,480 2,671
Cemex CPO 1,333,672 4,402
#+Cemex CPO ADR 144,732 955
-------------
8,028
-------------
CONSTRUCTION & HOUSING
Empresas ICA ADR 196,105 2,010
-------------
FOREST PRODUCTS & PAPER
Kimberly Clark de Mexico 'A' 93,000 1,407
-------------
MERCHANDISING
+Cifra 'B' 1,135,000 1,183
-------------
MULTI-INDUSTRY
Alfa `A' 103,480 1,330
#+G. Carso ADR 56,800 606
-------------
1,936
-------------
RECREATION, OTHER CONSUMER GOODS
+G. Mexicano de Videos 'B' ADR 40,000 20
-------------
TELECOMMUNICATIONS
Telmex 'L' ADR 172,040 5,484
-------------
39,655
-------------
- -----------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
PERU (0.0%)
METALS -- NON-FERROUS
Minas Buenaventura 'C' 3 U.S.$ --
-------------
- -----------------------------------------------------------------
- ------------
VENEZUELA (0.1%)
UTILITIES -- ELECTRICAL & GAS
Electricidad de Caracas 261,103 209
-------------
- -----------------------------------------------------------------
- ------------
TOTAL COMMON STOCKS
(Cost U.S. $125,983) 121,048
-------------
- -----------------------------------------------------------------
- ------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (4.3%)
- ---------------------------------------------------------
- ------------
COLOMBIA (1.4%)
BANKING
#Banco de Colombia (Convertible)
5.20%, 2/1/99 U.S.$ 2,310 1,755
-------------
- -----------------------------------------------------------------
- -------------
VENEZUELA (2.9%)
BONDS
+++Republic of Venezuela Debt
Conversion Bond 'DL' 6.5625%,
12/18/07 6,750 3,721
-------------
- -----------------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $5,834) 5,476
-------------
- -----------------------------------------------------------------
- ------------
<CAPTION>
SHARES
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENTS (0.6%)
- -----------------------------------------------------------------
- -------------
CHILE (0.6%)
INVESTMENT COMPANIES
+Financiero Mutual Fund 2,292 38
-------------
</TABLE>
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TIME DEPOSIT
DPR Security 6.55%, 2/13/96 CLP 285,000 712
-------------
- -----------------------------------------------------------------
- -------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S. $738) 750
-------------
- -----------------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT
WITH CUSTODIAN (0.3%)
Argentine Peso ARP 27 27
Brazilian Real BRC 211 217
Chilean Peso CLP 147 --
Colombian Peso COP 62,725 63
Mexican Peso MXP 235 31
Venezuelan Bolivar VEB 8,965 31
-------------
(Cost U.S. $403) 369
-------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (100.0%)
(Cost U.S. $132,958) U.S.$127,643
-------------
- -----------------------------------------------------------------
- ------------
<CAPTION>
AMOUNT AMOUNT
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
OTHER ASSETS (1.2%)
Cash U.S.$ 33
Receivable for Investments Sold 898
Dividends Receivable 372
Deferred Organization Costs 96
Interest Receivable 71
Foreign Withholding Tax Reclaim
Receivable 15
Other Assets 37 U.S.$ 1,522
--------------- -------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-1.2%)
Payable For:
Chilean Taxes (634)
Investments Purchased (499)
Investment Advisory Fees (120)
Offering Costs (91)
Professional Fees (66)
Administrative Fees (46)
Custodian Fees (39)
Shareholder Reporting Expenses (37)
Directors' Fees and Expenses (10)
Other Liabilities (7) (1,549)
--------------- -------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 11,617,984 issued and outstanding
U.S. $.01 par value shares (100,000,000 shares
authorized) U.S.$127,616
-------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 10.98
-------------
- -----------------------------------------------------------------
- -------------
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
</TABLE>
- -----------------------------------------------------------------
<TABLE>
<S> <C> <C>
Common Stock U.S.$ 116
Capital Surplus 152,702
Accumulated Net Investment Loss (678)
Accumulated Net Realized Loss (19,196)
Unrealized Depreciation on Investments and Foreign
Currency Translations (net of accrual for foreign
tax of U.S.$6 on unrealized appreciation) (5,328)
- -----------------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$127,616
-------------
- -----------------------------------------------------------------
- ------------
+ -- Non-income producing
+++ -- Variable/floating rate security -- rate disclosed is as of
December 31, 1995.
// -- Non-voting stock
** -- Security valued at fair value -- see note A-1 to financial
statements.
*** -- Security valued at fair value as determined based on the
market value of the underlying security less subscription
costs.
# -- 144A security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
- -------------
DECEMBER 31, 1995 EXCHANGE RATES:
- ---------------------------------------------------------
- ------------
ARP Argentine Peso 1.000 = U.S.$1.00
BRC Brazilian Real 0.972 = U.S.$1.00
CLP Chilean Peso 406.250 = U.S.$1.00
COP Colombian Peso 990.750 = U.S.$1.00
MXP Mexican Peso 7.695 = U.S.$1.00
VEB Venezuelan Bolivar 289.625 = U.S.$1.00
- ---------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ----------
The Latin American Discovery Fund, Inc. (the "Fund") was incorporated on
November 12, 1991 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is long-term capital appreciation through
investments primarily in equity securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all
listed securities, including purchased options, for which market quotations
are readily available are valued at the last sales price on the valuation
date, or if there was no sale on such date, at the mean between the current
bid and asked prices. Securities which are traded over-the-counter are
valued at the average of the mean of current bid and asked prices obtained
from reputable brokers. All non-equity securities as to which market
quotations are readily available are valued at their market values.
Short-term securities which mature in 60 days or less are valued at
amortized cost. All other securities and assets for which market values are
not readily available (including investments which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by the Board of Directors ("the Board"), although the actual
calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for U.S. Federal income taxes is required
in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
Capital surplus, accumulated net investment loss and accumulated net
realized loss have been adjusted for current and prior period permanent
book-tax differences. Current period adjustments arose principally from
differing book-tax treatments for foreign currency transactions, net
operating losses, foreign taxes on net realized gains and gains on certain
securities of corporations designated as "passive foreign investment
companies".
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund takes
possession of the underlying securities, the value of which equals or
exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily
basis to determine the adequacy of the collateral. To the extent that
proceeds from the sale of the underlying securities are less than the
repurchase price under the agreement, the Fund may incur a loss. In the
event of default on the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and
records of the Fund are maintained in U.S. dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of
such currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates
of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances.
12
<PAGE>
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward foreign
currency contracts, disposition of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) in the Statement of Net Assets. The change in
unrealized currency gains (losses) for the period is reflected in the
Statement of Operations.
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund
may enter into forward foreign currency contracts to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward foreign currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange
rates. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as unrealized gain or loss. The Fund records
realized gains or losses when the contract is closed equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Risk may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. PURCHASED OPTIONS: The Fund may purchase
options on listed securities or securities that are traded over the counter. In
purchasing a call (put) option, the Fund will seek to benefit from an
increase (decline) in the market price of the underlying security. Risks may
arise in the event of default by the counterparty or unanticipated movements
in the market price of the underlying security, however, the maximum
exposure to loss for any purchased option is limited to the premium
initially paid for the option. Realized gains or losses on purchased options
are included with net gain (loss) on securities sold in the financial
statements.
7. OTHER: Security transactions are accounted for on
the date the securities are purchased or sold. Realized gains and losses on
the sale of investment securities are determined on the specific identified
cost basis. Interest income is recognized on the accrual basis. Dividend
income is recorded on the ex-dividend date (except certain dividends which
may be recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-date. Income
distributions and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are principally due to the
timing of the recognition of losses on securities, the timing of the
deductibility of certain foreign taxes and permanent differences described
in note A-2.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory
Agreement (the "Agreement"). Under the Agreement, the U.S. Adviser is paid a fee
computed weekly and payable monthly at the annual rate of 1.15% of the Fund's
average weekly net assets.
C. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), provides administrative services to the Fund under
an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .08% of the Fund's average weekly net assets, plus $65,000 per annum. In
addition, the Fund is charged certain out of pocket expenses by the
Administrator. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts
as custodian for the Fund's assets held in the United States. Prior to September
1, 1995, Mutual Funds Service Company and United States Trust Company of New
York provided administrative and custodian services, respectively, to the Fund
under the same terms, conditions and fees as stated above.
D. Unibanco-Uniao de Bancos Brasileiros S.A. (the "Brazilian Administrator")
provides administrative services to the Fund under the terms of an
Administration Agreement and is paid a fee computed weekly and payable monthly
at an annual rate of .125% of the Fund's average weekly net assets invested in
Brazil. Bice Chileconsult Agente de Valores S.A. (the "Chilean Administrator")
provides administrative services to the Fund under the terms of a separate
Administration Agreement and is paid an
13
<PAGE>
annual fee, computed weekly and payable monthly equal to the greater of .25% of
the Fund's average weekly net assets invested in Chile or $20,000. Cititrust
S.A. (the "Colombian Administrator") provides administrative services to the
Fund and is paid a fee computed weekly and payable monthly at an annual rate of
$7,000 plus .25% of the Fund's average weekly net assets in excess of $2,800,000
invested in Colombia, up to $45,000 per annum.
E. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custody fees are payable monthly
based on assets under custody, investment purchase and sales activity, plus an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. During the year
ended December 31, 1995, the Fund incurred custodian fees of $297,000 with the
International Custodian, of which $38,000 was payable to the International
Custodian at December 31, 1995. In addition, for the year ended December 31,
1995, the Fund has earned interest income of $5,000 and incurred interest
expense of $60,000, on balances with the International Custodian.
F. During the year ended December 31, 1995, the Fund made purchases and sales
totaling $143,566,000 and $136,838,000, respectively, of investment securities
other than long-term U.S. Government securities and short term investments.
There were no purchases or sales of long-term U.S. Government securities. During
the year ended December 31, 1995, the Fund placed a portion of its portfolio
transactions with affiliated broker/dealers. Accordingly, the Fund incurred
brokerage commissions of $6,000 with Morgan Stanley & Co. Incorporated, an
affiliate of the U.S. Adviser, for the year ended December 31, 1995.
At December 31, 1995, the U.S. Federal income tax cost basis of securities was
$134,024,000 and accordingly, net unrealized depreciation for U.S. Federal
income tax purposes was $6,750,000, of which $8,848,000 related to appreciated
securities and $15,598,000 related to depreciated securities. At December 31,
1995, the Fund had a capital loss carryforward for U.S. Federal income tax
purposes of approximately $17,727,000 available to offset future capital gains
which will expire on December 31, 2003. To the extent that capital gains are
offset, such gains will not be distributed to shareholders. For the year ended
December 31, 1995, the Fund expects to defer to January 1, 1996 for U.S. Federal
income tax purposes, post-October currency losses of $38,000.
G. In connection with its organization the Fund incurred $308,000 of
organization costs. The organization costs are being amortized on a
straight-line basis over a five year period beginning June 23, 1992, the date
the Fund commenced operations.
H. The Fund issued to its shareholders of record as of the close of business on
September 12, 1995 transferable rights to subscribe for up to an aggregate of
3,100,000 shares of Common Stock of the Fund at a rate of one share of Common
Stock for three Rights held at the subscription price of $9.00 per share. During
September and October 1995, the Fund issued, in total, 3,100,000 shares of
Common Stock on exercise of such Rights. Rights offering costs of $460,000 were
charged directly against the proceeds of the Offering. The Fund was advised that
Morgan Stanley & Co. Incorporated received commissions of $825,000 and
reimbursement of its expenses of $100,000 in connection with its participation
in the Rights Offering.
I. At December 31, 1995, a significant portion of the Fund's net assets consist
of securities denominated in Latin American currencies. Changes in currency
exchange rates will affect the value of and investment income from such
securities. Latin American securities are often subject to greater price
volatility, limited capitalization and liquidity, and higher rates of inflation
than securities of companies based in the United States. In addition, Latin
American securities may be subject to substantial governmental involvement in
the economy and greater social, economic and political uncertainty.
J. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable under the Plan, at December 31, 1995, totaled
$6,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
14
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
U.S. AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
- ------------------------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
------------------- ------------------- ------------------ -------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
-------- --------- -------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....................... $ 591 $ 0.06 $ 797 $ 0.09 $ 474 $ 0.03 $ 893 $ 0.10
Net Investment Income (Loss)............ $ (241) $ (0.02) $ 136 $ 0.02 $ (140) $ (0.01) $ 591 $ 0.06
Net Realized Gain (Loss) and Change in
Unrealized Appreciation
(Depreciation)......................... $(55,403) $ (6.70) $ 13,433 $ 1.59 $10,452 $ 1.26 $ (8,831) $ (0.78)
Net Increase (Decrease) in Net Assets
Resulting from Operations.............. $(55,644) $ (6.72) $ 13,569 $ 1.61 $10,312 $ 1.25 $ (8,240) $ (0.72)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
------------------- ------------------- ------------------ -------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
-------- --------- -------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....................... $ 677 $ 0.09 $ 1,039 $ 0.13 $ 450 $ 0.06 $ 441 $ 0.06
Net Investment Income (Loss)............ $ (318) $ (0.04) $ 124 $ 0.02 $ (547) $ (0.07) $ (705) $ (0.09)
Net Realized Gain (Loss) and Change in
Unrealized Appreciation................ $ 18,466 $ 2.36 $(29,275) $ (3.71) $58,991 $ 7.48 $(50,397) $ (6.38)
Net Increase (Decrease) in Net Assets
Resulting from Operations.............. $ 18,148 $ 2.32 $(29,151) $ (3.69) $58,444 $ 7.41 $(51,102) $ (6.47)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1995, the Fund designates $3,764,000 as
long-term capital gain dividend.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------
To the Shareholders and Board of Directors of
The Latin American Discovery Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Latin American Discovery Fund, Inc. (the "Fund") at December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the three years in the period then ended and for the period June 23,
1992 (commencement of operations) through December 31, 1992, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995, by
correspondence with the custodians and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 9, 1996
16
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless The First National Bank
of Boston (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for 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 on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
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.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
The Latin American Discovery Fund, Inc.
The First National Bank of Boston
Dividend Reinvestment and Cash Purchase Plan
Mail Stop 45-01-06
P.O. Box 1681
Boston, MA 02105-1681
1-800-442-2001
17
