<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 James W. Grisham
Frederick B. Whittemore VICE PRESIDENT
VICE-CHAIRMAN OF THE BOARD Michael F. Klein
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
John A. Levin
DIRECTOR
</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
73 Tremont Street
Boston, Massachusetts 02108
---------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank (Domestic)
770 Broadway
New York, New York 10003
---------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644,
Boston, Massachusetts 02102-0644
(617) 575-3120
---------------------------------------------------------
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.
----------
SEMI-ANNUAL REPORT
JUNE 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1996, the total return for The Latin American
Discovery Fund, Inc., based on net asset value per share, was 33.06% compared
with 17.49% for the MSCI Emerging Markets Global Latin America Index. For the
period since commencement of operations on June 23, 1992 through June 30, 1996,
the Fund's total return, based on net asset value per share, was 71.81% compared
with 45.65% for the Index. On June 28, 1996, the closing price of the Fund's
shares on the New York Stock Exchange was 12 5/8 representing an 13.6% discount
to the Fund's net asset value per share.
The table below presents the percentage change in the Morgan Stanley Capital
International indices for each respective country, in U.S. dollar terms, as of
June 30, 1996, for the period presented:
<TABLE>
<CAPTION>
3 MONTHS 6 MONTHS 12 MONTHS
------------- ------------- -------------
<S> <C> <C> <C>
Argentina............ 15.3% 14.8% 36.2%
Brazil............... 15.4 28.4 31.2
Chile................ 11.2 1.7 (13.6)
Colombia............. 7.5 2.9 (17.2)
Mexico............... 4.8 15.6 19.7
Peru................. 9.1 8.8 19.6
Venezuela............ 40.0 56.4 31.3
</TABLE>
courtesy: FAME/Randall-Helms
ARGENTINA
The rally in the Argentine stock market was due primarily to signs of
economic recovery after the strong recession in 1995. Liquidity in the local
financial system is very high and local short term rates are low. The market had
two successful IPOs in the second quarter and inflation is almost nonexistent.
Nevertheless, we are somewhat cautious on the market due to the absence of
strong earnings growth at the corporate level and the potential for rising rates
in the U.S. to spill over into Argentina. The lingering unemployment (17%) is
also acting to restrain somewhat economic growth and complicating fiscal
accounts which are highly dependent on domestic economic activity. On the
positive side, Argentine trade accounts are benefiting enormously from the sharp
rise in agricultural commodity prices.
BRAZIL
In spite of an absence of tangible political progress on the economic reform
front, the stock market had a robust performance. What we have seen, and we
expect to continue to see unfolding for the remainder of the year, is an
increased emphasis on company fundamentals and economic variables and a
decreased emphasis on the political process. This is not to say that the
political process is unimportant nor that it is incapable of delivering either
positive or negative surprises, but rather as a stock market factor it has
receded in importance. We view this process as a healthy sign of the
"maturation" of the market and a symptom of Brazil's emergence as a relatively
stable economy and marketplace. The Real Plan now has two years under its belt,
inflation is benign if not yet slayed, the trade accounts are balanced, and
interest rates are continuing to fall. In short, the Brazilian turnaround is
becoming increasingly entrenched, and the financial markets are recognizing this
relative stability.
Nevertheless, there remains much work to be done, to be sure. The fiscal
accounts are still in deficit at the operational level (though improving), the
state's finances are still problematic, the social security will soon be
bankrupt, tax levels are too high, and so on. The important thing, though, is
that the government has proven itself to be adept at managing the components of
the economy over which it has direct control, even while showing itself to be
somewhat less adept at quickly maneuvering legislation through congress. The
areas that we are particularly encouraged by are those sectors in which the
government owns the monopolies -- i.e. oil and gas, mining, telecommunications,
and electric generation. In each of these extremely important sectors, the
government will either liberalize or privatize the state-run companies that
currently exist. These sectors -- together with ports and railroads, which will
likewise be privatized or liberalized -- form the backbone of economic
development and in Brazil's case will help propel the dramatic economic
restructuring and growth unfolding before our eyes. So even if congress slows
down the reform process to a snail's pace, we are increasingly of the opinion
that the economy can still grow at a reasonable pace.
The telecommunications industry, through monopoly provider Telebras and its
operating subsidiaries, has witnessed a dramatic turnaround in profitability due
to tariff reform implemented by the government. Further, draft legislation is
circulating which will create a regulatory framework for the sector as well as
provide the basis for free competition in the cellular telephone
2
<PAGE>
business. Eventually, we are increasingly of the opinion that the government
will privatize the entire sector, via Telebras.
Electric generation, while slightly more cumbersome to reorganize than
telecommunications, is likewise witnessing positive change. After much delay,
the government successfully privatized Rio-based electric distributor Light.
Profitability is improving, if not robust, due to tariff reform. A regulatory
framework is being established, and steps are being taken to prepare pieces of
the sector for privatization. The timing of a dramatic restructuring of the
industry, however, will likely be more drawn out than with telecommunications.
We expect interest rates to find a bottom sometime in the second half of the
year, as the economy picks up steam and municipal election-related spending
kicks into gear. Corporate profits, while spotty in the private sector and
strong in the tariff-reform led public sector, should gather momentum in the
latter part of the year together with the economy. We expect inflation to
continue benign, the currency to move with inflation differentials, the trade
accounts to remain roughly in balance or slightly deteriorate as the economy
picks up, and the fiscal deficit to persist but improve.
CHILE
After a long period of underperformance the Chilean market has rallied
recently. Expectations are that interest rate tightening is coming to an end as
the torrid pace of economic growth begins to weaken. We are positioned in a
couple of fast growing consumer stocks which are benefiting from strong demand
and who are taking their management skills and setting up operations in
neighboring countries. Andina is a Coca-Cola bottler and Santa Isabel is a
supermarket chain. We are less excited about the growth prospects of the rest of
the stock market.
COLOMBIA
The Colombian market is still in the grips of the political crisis over the
tenure of President Samper. Hopes that he would resign were dashed when the
Colombian Congress found him innocent of knowingly accepting drug money to fund
his 1994 Presidential campaign. The U.S. government has threatened sanctions in
response.
The Central Bank's fight against inflation continues to keep real interest
rates at high levels, though concern over the slowing of the economy prompted a
slight temporary easing in the second quarter. GDP growth has slowed down from
prior years' levels and will likely fall in the 3% to 4% range for the entire
year. We remain optimistic about our holdings in the financial sector, which are
experiencing improving profitability due to good interest rate spreads, cost-
cutting and improved asset quality.
MEXICO
The market rise has been driven by expectations of a strong economic
recovery during the second half of 1996, lower inflation and interest rates, and
a strengthening peso in real terms. Holding the market back somewhat has been a
series of political and business scandals. Year-to-date domestic stocks have
clearly outperformed exporters as signs of an economic recovery begin to emerge.
Unemployment has fallen from 6.4% in January to 5.4% in May, and GDP growth
consensus estimates have risen to 3.7% for 1996. Furthermore, the Mexican
government has returned to the international capital markets and has raised $6.5
billion, refinancing outstanding debts at more attractive rates. Macroeconomic
fundamentals continue to move in a positive direction as inflation for the first
six months of 1996 is at 15.3% versus 32.9% during the first 6 months of 1995.
The trade surplus continues to grow albeit at a slower pace at $3.3 billion for
the first five months of 1996. Foreign exchange reserves remain at $15 billion,
about the same level at which they finished 1995.
The market continues to look attractive as domestically driven companies
should show strong growth in the second half of 1996. Nevertheless, as
democratic opening occurs the possibility of corruption scandals continue to
lurk in the background. Domestic growth will pick-up in the second half as
inflation continues to decline, interest rates remain stable and the peso
continues to strengthen. Under this scenario the Fund is emphasizing interest
rate sensitive banks, consumer companies, and cement stocks. Bancomer should
continue to benefit from falling interest rates, economic recovery, and reduced
risk in the banking system. Femsa holds undervalued assets in the beer,
packaging and retail sectors. Cemex is participating in the recovery of cement
prices and cement demand in Mexico.
PERU
The Peruvian market has recently begun to rebound on waning concerns about
the economy and
3
<PAGE>
renewed interest in the market on the back of a successful July placement of
over US$1 billion of Telefonica del Peru stock in local and international
markets.
Investors modified their overly pessimistic outlook for the economy, which
recorded negative growth figures for the first quarter, but began turning around
in subsequent months. Visibility into future performance increased with the
signing of an IMF agreement during the second quarter which outlined
conservative economic targets, including a 1% primary fiscal surplus and a
shrinking current account deficit over the next few years. The soft landing
engineered by the government to transition the country into a period of
sustained growth around the 4.5% level appears to have been successful at the
expense of an expected 2% to 3% growth performance for 1996. The government
continues its firm commitment to privatization, currently targeting the oil and
mining sectors, and President Fujimori's popularity remains strong.
Our position in Telefonica del Peru (which increased on July 1) anticipates
20% net income growth each year until 1998, after more than doubling earnings in
1995.
VENEZUELA
The introduction of a free-market economic stabilization plan under IMF
auspices propelled the stock and bond markets. Capital and price controls were
abolished and the currency and interest rates allowed to float freely, marking
the end of a two-year closed-economy experiment that brought about high rates of
inflation and poor economic performance. While we are optimistic about long term
prospects in Venezuela, we recognize that the economy must undergo a lengthy
adjustment process in order for the government to successfully control
inflation, allow for positive real interest rates, set a rational trading range
for the currency and privatize inefficient state enterprises. We are therefore
maintaining our position in Venezuelan fixed income, which we feel will more
immediately benefit from the country's improved ability and willingness to
service debt, while providing an attractive yield.
Overall we are excited about the growth prospects of our companies and the
recovery of the Latin American economies. The markets should continue to perform
well assuming a relatively benign U.S. environment.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Robert L. Meyer
SENIOR PORTFOLIO MANAGER
July 22, 1996
4
<PAGE>
The Latin American Discovery Fund, Inc.
Investment Summary as of June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
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>
FISCAL YEAR TO
DATE 27.85% -- 33.06% -- 17.49% --
ONE YEAR 21.56+ 21.56%+ 37.17+ 37.17%+ 17.43 17.43%
SINCE INCEPTION* 48.47+ 10.33+ 71.81+ 14.40+ 45.65 9.80
</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>
<CAPTION>
YEARS ENDED DECEMBER 31: SIX MONTHS ENDED
1992* 1993 1994 1995 JUNE 30, 1996 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share $15.23 $23.31 $17.16 $10.98 $14.61
Market Value Per Share $13.25 $27.13 $18.25 $9.88 $12.63
Premium/(Discount) -13.0% -16.4% 6.4% -10.0% -13.6%
Income Dividends - - $0.00# - -
Capital Gains Distributions - - $5.74 $0.45 -
Fund Total Return (2) 8.01% 65.36%+ -0.14% -27.61%+ 33.06%
Index Total Return (1)(3)** -2.26% 52.29% -3.69% -13.53% 17.49%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share 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) The Morgan Stanley Capital International Emerging Markets Global Latin
America Index (MSCI EMG Latin America Index) is a broad based market cap
weighted composite index covering at least 60% of markets in Mexico,
Argentina, Brazil, Chile, Colombia, Peru and Venezuela.
* 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 June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 96.3%
Debt Instruments 3.0%
Short-Term Investments 0.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 18.7%
Beverages 14.1%
Broadcasting & Publishing 1.9%
Building Materials & Components 4.9%
Energy Sources 3.0%
Food & Household Products 6.6%
Merchandising 8.3%
Multi-Industry 2.0%
Telecommunications 23.1%
Utilities - Electrical & Gas 10.4%
Other 7.0%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Brazil 45.4%
Mexico 27.9%
Argentina 9.9%
Chile 8.2%
Colombia 5.4%
Venezuela 2.5%
Peru 1.2%
Other -0.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-----------------
<C> <S> <C>
1. Telebras 13.0%
2. Brahma 5.2
3. Eletrobras 5.1
4. Banco de Colombia 4.7
5. Banco Bradesco 4.2
<CAPTION>
PERCENT OF
NET ASSETS
-----------------
<C> <S> <C>
6. Lojas Renner 4.1%
7. Santa Isabel S.A. 4.1
8. Telmex 4.0
9. FEMSA 3.4
10. Cemex 3.3
---
51.1%
---
---
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
COMMON STOCKS (96.9%)
(Unless otherwise noted)
- ---------------------------------------------------------
- ------------
ARGENTINA (9.9%)
BANKING
Banco Del Suquia S.A. 'B' 485,075 U.S.$ 917
+Bansud S.A. 'B' 141,477 1,656
-------------
2,573
-------------
BEVERAGES
Quilmes Industrial S.A. 69,350 711
+Siderar 'A' 358,955 923
+#Siderar ADR 36,455 747
-------------
2,381
-------------
ENERGY SOURCES
YPF ADR 74,150 1,659
-------------
FOOD & HOUSEHOLD PRODUCTS
+Disco S.A. ADR 116,150 2,570
-------------
TELECOMMUNICATIONS
+**Argentine Cellular
Communications 454,000 1,121
Telecom Argentina ADR 35,972 1,686
Telefonica de Argentina S.A. ADR 162,220 4,806
-------------
7,613
-------------
16,796
-------------
- ---------------------------------------------------------
- ------------
BRAZIL (45.4%)
BANKING
++Banco Bradesco (Preferred) 870,015,658 7,106
++Banco Itau (Preferred) 10,244,100 4,163
++**Banco Nacional (Preferred) 95,420,000 5
-------------
11,274
-------------
BEVERAGES
++Brahma (Preferred) 14,891,946 8,885
-------------
ENERGY SOURCES
++Petrobras (Preferred) 28,170,000 3,465
-------------
FOOD & HOUSEHOLD PRODUCTS
++Dixie Toga (Preferred) 985,697 952
-------------
MERCHANDISING
++Casa Anglo Brasileira
(Preferred) 17,064,000 935
++**Lojas Americanas (Preferred) 159,383 23
++Lojas Renner (Preferred) 133,435,000 7,044
#Pao de Acucar GDR 98,383 1,629
#Pao de Acucar GDS 7,600 126
-------------
9,757
-------------
METALS -- NON-FERROUS
++CVRD (Preferred) 75,794 1,468
-------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MULTI-INDUSTRY
++Itausa Investimentos Itau
(Preferred) 1,110,000 U.S.$ 851
-------------
TELECOMMUNICATIONS
Telebras 67,791,000 3,984
++Telebras (Preferred) 142,908,740 9,978
Telebras ADR 116,405 8,105
+Telecom 6,408,256 1,130
-------------
23,197
-------------
TEXTILES & APPAREL
++Coteminas (Preferred) 3,434,000 1,354
-------------
UTILITIES -- ELECTRICAL & GAS
++Cemig S.A. (Preferred) 16,740,000 445
Cemig S.A. ADR 40,100 1,138
+#Cemig S.A. GDR 35,475 949
+CPFL 61,005,000 4,010
+/++Electricidade de Sao Paulo
S.A. 'B' (Preferred) 4,762,000 498
++Eletrobras 'B' (Preferred) 28,425,000 7,645
Eletrobras 'B' 3,304,000 945
+**Light 3,990,000 278
-------------
15,908
-------------
77,111
-------------
- ---------------------------------------------------------
- ------------
CHILE (7.8%)
BEVERAGES
Embotelladora Andina S.A. ADR 130,555 4,798
-------------
FOOD & HOUSEHOLD PRODUCTS
Santa Isabel S.A. ADR 247,855 6,878
-------------
UTILITIES -- ELECTRICAL & GAS
Empresa Nacional Electricidad
S.A. ADR 42,790 920
Enersis S.A. ADR 19,025 590
-------------
1,510
-------------
13,186
-------------
- ---------------------------------------------------------
- ------------
COLOMBIA (4.8%)
BANKING
Banco Ganadero S.A. 11,185 271
Banco Ganadero S.A. ADR 26,740 521
Banco Ganadero S.A. 'C'
(Preferred) 2,131,727 420
Banco de Colombia 15,977,640 6,065
#Banco de Colombia GDR 91,760 803
-------------
8,080
-------------
MULTI-INDUSTRY
Corfivalle 2 --
-------------
8,080
-------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
MEXICO (27.9%)
BANKING
+G. Banacci 'B' 1,066,465 U.S.$ 2,217
+G. Banacci 'L' 645,651 1,226
+#G. Bancomer ADR 619,206 5,341
G. Bancomer 'B' 177,155 77
-------------
8,861
-------------
BEVERAGES
FEMSA 'B' 2,051,710 5,818
Panamerican Beverages, Inc. 'A' 45,599 2,029
-------------
7,847
-------------
BROADCASTING & PUBLISHING
+G. Televisa ADR 103,460 3,181
-------------
BUILDING MATERIALS & COMPONENTS
Apasco 433,095 2,391
#Cemex CPO 1,481,242 5,255
Cemex CPO ADR 44,732 309
G. Cementos de Chihuahua 'B' 313,840 320
-------------
8,275
-------------
CONSTRUCTION & HOUSING
+Empresas ICA Sociedad
Controladora ADR 98,155 1,362
-------------
FOOD & HOUSEHOLD PRODUCTS
+Gruma S.A. 'B' 167,200 774
-------------
FOREST PRODUCTS & PAPER
Kimberly-Clark de Mexico 'A' 87,150 1,586
-------------
HEALTH & PERSONAL CARE
Farmacias Benavides 'B' 608,520 1,180
-------------
MERCHANDISING
+Cifra 'B' 1,761,140 2,541
+Cifra 'C' 376,725 538
+Sears Roebuck de Mexico S.A. de
C.V. 'B1' 468,490 1,231
-------------
4,310
-------------
MULTI-INDUSTRY
Alfa 'A' 425,571 1,911
+#G. Carso ADR 43,500 616
-------------
2,527
-------------
RECREATION, OTHER CONSUMER GOODS
+G. Mexicano de Videos 'B' ADR 40,000 30
-------------
TELECOMMUNICATIONS
Telmex ADR 201,790 6,760
-------------
TEXTILES & APPAREL
+Controladora Comercial Mexicana
'B' 687,690 638
-------------
47,331
-------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
PERU (1.0%)
TELECOMMUNICATIONS
Telefonica del Peru 'B' 825,930 U.S.$ 1,663
-------------
- ---------------------------------------------------------
- ------------
VENEZUELA (0.1%)
UTILITIES -- ELECTRICAL & GAS
Electricidad de Caracas 282,861 235
-------------
- ---------------------------------------------------------
- ------------
TOTAL COMMON STOCKS
(Cost U.S. $143,120) 164,402
-------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (3.0%)
- ---------------------------------------------------------
- ------------
COLOMBIA (0.6%)
BANKING
#Banco de Colombia (Convertible)
5.20%, 2/1/99 U.S.$ 1,170 1,046
-------------
- ---------------------------------------------------------
- ------------
VENEZUELA (2.4%)
BONDS
+++Republic of Venezuela Debt
Conversion Bond 'L' 6.625%,
12/18/07 5,750 4,068
-------------
- ---------------------------------------------------------
- ------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $4,390) 5,114
-------------
- ---------------------------------------------------------
- ------------
<CAPTION>
SHARES
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENTS (0.4%)
- ---------------------------------------------------------
- ------------
CHILE (0.4%)
INVESTMENT COMPANIES
+Desarrollo Mutual Fund 4,940 92
+Financiero Mutual Fund 437 8
-------------
100
-------------
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
TIME DEPOSIT
Pacto Citicorp A.V. 16.20%,
7/2/96 CLP 270,718 660
-------------
- ---------------------------------------------------------
- ------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S. $758) 760
-------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.2%)
Argentine Peso ARP 4 U.S.$ 4
Chilean Peso CLP 99 --
Colombian Peso COP 11,714 11
Mexican Peso MXP 67 9
Peruvian New Sol PSS 783 320
Venezuelan Bolivar VEB 10,724 23
-------------
(Cost U.S.$412) 367
-------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (100.5%)
(Cost U.S. $148,680) 170,643
-------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS (4.1%)
Receivable for Investments Sold U.S.$ 5,928
Dividends Receivable 886
Deferred Organization Costs 64
Interest Receivable 39
Other Assets 49 6,966
--------------- -------------
- ---------------------------------------------------------
- ------------
LIABILITIES (-4.6%)
Deferred Chilean Taxes (40)
Payable for:
Bank Overdraft (3,859)
Investments Purchased (2,868)
Chilean Taxes (626)
Investment Advisory Fees (153)
Professional Fees (75)
Custodian Fees (57)
Shareholder Reporting Expenses (52)
Administrative Fees (28)
Directors' Fees and Expenses (22)
Other Liabilities (40) (7,780)
--------------- -------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 11,617,984 issued and outstanding
U.S. $0.01 par value shares (100,000,000 shares
authorized) U.S.$ 169,789
------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 14.61
------------
- ---------------------------------------------------------
- ------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
Common Stock U.S.$ 116
Capital Surplus 152,702
Undistributed Net Investment Income 1,041
Accumulated Net Realized Loss (5,981)
Unrealized Appreciation on Investments and Foreign
Currency Translations (net of accrued foreign
tax of U.S.$40 on unrealized appreciation) 21,911
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 169,789
------------
- ---------------------------------------------------------
- ------------
- ---------------------------------------------------------
- ------------
+ -- Non-income producing.
++ -- Non-voting stock.
+++ -- Variable/floating rate security -- rate disclosed
is as of June 30, 1996.
** -- Security valued at fair value -- see note A-1 to
financial statements.
# -- 144A Security -- certain conditions for public
sale may exist.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
GDS -- Global Depositary Shares.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
JUNE 30, 1996 EXCHANGE RATES:
- ---------------------------------------------------------
ARP Argentine Peso 1.000 = U.S. $1.00
BRC Brazilian Real 1.004 = U.S. $1.00
CLP Chilean Peso 410.350 = U.S. $1.00
COP Colombian Peso 1,067.000 = U.S. $1.00
MXP Mexican Peso 7.583 = U.S. $1.00
PSS Peruvian New Sol 2.443 = U.S. $1.00
VEB Venezuelan Bolivar 469.130 = U.S. $1.00
- ---------------------------------------------------------
- ------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- JUNE
30, 1996 (UNAUDITED)
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- ---------------------------------------------------------
<S> <C> <C>
- ------------
Banking U.S$ 31,834 18.7%
Beverages 23,911 14.1
Broadcasting & Publishing 3,181 1.9
Building Materials & Components 8,275 4.9
Construction & Housing 1,362 0.8
Energy Sources 5,124 3.0
Food & Household Products 11,174 6.6
Forest Products & Paper 1,586 0.9
Health & Personal Care 1,180 0.7
Merchandising 14,067 8.3
Metals -- Non-Ferrous 1,468 0.9
Multi-Industry 3,378 2.0
Recreation, Other Consumer Goods 30 0.0
Telecommunications 39,233 23.1
Textiles & Apparel 1,992 1.2
Utilities -- Electrical & Gas 17,653 10.4
Other 5,195 3.0
--------------- -------------
U.S.$ 170,643 100.5%
--------------- -------------
--------------- -------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$ 2,859
Interest................................................ 457
Less: Foreign Taxes Withheld............................ (214)
- -------------------------------------------------------------------------------
Total Income.......................................... 3,102
- -------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................... 878
Custodian Fees.......................................... 109
U.S Administrative Fees................................. 99
Professional Fees....................................... 68
Shareholder Reporting Expenses.......................... 42
Brazilian Administrative Fees........................... 41
Amortization of Organization Costs...................... 32
Directors' Fees and Expenses............................ 18
Chilean Administrative Fees............................. 12
Colombian Administrative Fees........................... 12
Other Expenses.......................................... 72
- -------------------------------------------------------------------------------
Total Expenses........................................ 1,383
- -------------------------------------------------------------------------------
Net Investment Income............................... 1,719
- -------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities................................... 13,273
Foreign Currency Transactions........................... (58)
- -------------------------------------------------------------------------------
Net Realized Gain................................... 13,215
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................. 27,253
Depreciation on Foreign Currency Translations........... (14)
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation...... 27,239
- -------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 40,454
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... U.S.$42,173
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............... U.S.$ 1,719 U.S.$ 346
Net Realized Gain (Loss)............ 13,215 (20,530)
Change in Unrealized
Appreciation/Depreciation.......... 27,239 (19,819)
- ------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations... 42,173 (40,003)
- ------------------------------------------------------------------------------
Distributions:
Net Realized Gain................... -- (3,645)
In Excess of Net Realized Gain...... -- (119)
- ------------------------------------------------------------------------------
Total Distributions................. -- (3,764)
- ------------------------------------------------------------------------------
Capital Share Transactions:
Common Stock Issued through Rights
Offering (3,100,000 shares)........ -- 27,075
Reinvestment of Distributions
(632,902 shares)................... -- 9,495
Offering Costs on Rights Offering... -- (460)
- ------------------------------------------------------------------------------
Net Increase from Capital Share
Transactions....................... -- 36,110
- ------------------------------------------------------------------------------
Total Increase (Decrease)........... 42,173 (7,657)
Net Assets:
Beginning of Period................. 127,616 135,273
- ------------------------------------------------------------------------------
End of Period (including accumulated
undistributed net investment income
(loss) of U.S.$1,041 and
U.S.$(678), respectively).......... U.S.$169,789 U.S.$127,616
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM JUNE
SIX MONTHS ENDED DECEMBER 31, 23, 1992* TO
SELECTED PER SHARE DATA AND JUNE 30, 1996 ------------------------------------------------------------ DECEMBER 31,
RATIOS: (UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $10.98 U.S.$ 17.16 U.S.$ 23.31 U.S.$ 15.23 U.S.$ 14.10
- ----------------------------------------------------------------------------------------------------------------------------------
Offering Costs................ -- (0.07) -- (0.06) (0.13)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)....................... 0.15 0.05 (0.18) 0.04 (0.06)
Net Realized and Unrealized
Gain (Loss) on Investments... 3.48 (4.63) (0.25) 9.84 1.32
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations............... 3.63 (4.58) (0.43) 9.88 1.26
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income..... -- -- (0.00)# -- --
Net Realized Gains........ -- (0.44) (5.74) -- --
In Excess of Net Realized
Gains.................... -- (0.01) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions..... -- (0.45) (5.74) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net
Asset Value from Capital
Share Transactions........... -- (1.08)++ 0.02+ (1.74)++ --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD....................... U.S.$ 14.61 U.S.$ 10.98 U.S.$ 17.16 U.S.$ 23.31 U.S.$ 15.23
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD....................... U.S.$ 12.63 U.S.$ 9.88 U.S.$ 18.25 U.S.$ 27.13 U.S.$ 13.25
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.............. 27.85% (38.78)%+++ (8.75)% 121.17%+++ (8.30)%
Net Asset Value (1)....... 33.06% (27.61)%+++ (0.14)% 65.36%+++ 8.01%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS) U.S.$ 169,789 U.S.$ 127,616 U.S.$ 135,273 U.S.$ 180,348 U.S.$ 87,685
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets................... 1.81%** 2.17% 2.15% 2.23% 2.73%**
Ratio of Net Investment Income
(Loss) to Average Net
Assets....................... 2.25%** 0.31% (0.77)% 0.22% (1.02)%**
Portfolio Turnover Rate....... 71% 122% 70% 56% 8%
Average Commission Rate (2)... U.S.$ 0.0003 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
</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 net asset value per share 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.
(2) Beginning with fiscal year 1996, the Fund is required to disclose the
average commission rate per share it paid for portfolio trades on which
commissions were charged during the period.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- ----------
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. 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.
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund takes
possession of the underlying securities, with a market value at least equal
to the amount of the repurchase transaction, including principal and 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. 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 counter-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.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward foreign
currency exchange 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
12
<PAGE>
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 EXCHANGE CONTRACTS: The
Fund may enter into forward foreign currency exchange contracts to attempt
to protect securities and related receivables and payables against changes
in future foreign exchange rates. A forward foreign currency exchange
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 call
and put options on listed securities or securities traded over the counter.
The Fund may purchase call options on securities to protect against an
increase in the price of the underlying security. The Fund may purchase put
options on securities to protect against a decline in the value of the
underlying security. Possible losses from purchased options cannot exceed
the total amount invested. 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.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and 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". These differences are also primarily due to differing
book and tax treatments of the timing of the recognition of losses on
securities and the timing of the deductibility of certain foreign taxes.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
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. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), 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. The Chase Manhattan Bank acts as custodian for the Fund's assets
held in the United States.
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 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
13
<PAGE>
to the Fund and is paid a fee computed weekly and payable monthly at an annual
rate of .25% of the Fund's average weekly net assets invested in Colombia.
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 six
months ended June 30, 1996, the Fund incurred custodian fees of $106,000 with
the International Custodian, of which $55,000 was payable to the International
Custodian at June 30, 1996. In addition, for the six months ended June 30, 1996,
the Fund has incurred interest expense of $20,000, on balances with the
International Custodian.
F. During the six months ended June 30, 1996, the Fund made purchases and sales
totaling $107,554,000 and $106,615,000, 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 six months ended June 30, 1996, the Fund placed a portion of its portfolio
transactions with affiliated broker/dealers. Accordingly, the Fund incurred
brokerage commissions of $9,000 with Morgan Stanley & Co. Incorporated, an
affiliate of the U.S. Adviser, for the six months ended June 30, 1996.
At June 30, 1996, the U.S. Federal income tax cost basis of securities was
$148,268,000 and accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $22,008,000, of which $30,865,000 related to appreciated
securities and $8,857,000 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. 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 June 30, 1996, totaled
$12,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
14
<PAGE>
K. SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of the Stockholders of The Latin American Discovery Fund,
Inc. was held on June 5, 1996. The following is a summary of each proposal
presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
- ------------------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase........................................ 8,279,681 221,882 --
David B. Gill............................................... 8,283,767 217,796 --
Warren J. Olsen............................................. 8,265,631 235,932 --
2. To ratify the selection of Price Waterhouse LLP as independent public accountants of the
Fund.................................................................................... 8,314,420 168,476 18,667
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS* (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED GAIN NET INCREASE (DECREASE)
(LOSS) AND CHANGE IN
UNREALIZED IN NET ASSETS RESULTING
INVESTMENT NET INVESTMENT APPRECIATION/
INCOME INCOME (LOSS) DEPRECIATION FROM OPERATIONS
-------------------- --------------------- ----------------------- -----------------------
QUARTER ENDED AMOUNT PER SHARE AMOUNT PER SHARE AMOUNT PER SHARE AMOUNT PER SHARE
- ------------------------------ -------- ---------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996................. $ 1,630 $ 0.14 $ 952 $ 0.08 $ 21,893 $ 1.88 $ 22,845 $ 1.96
March 31, 1996................ 1,472 0.13 767 0.07 18,561 1.60 19,328 1.67
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
Total..................... $ 3,102 $ 0.27 $ 1,719 $ 0.15 $ 40,454 $ 3.48 $ 42,173 $ 3.63
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
December 31, 1995............. $ 893 $ 0.10 $ 591 $ 0.06 $ (8,831) $ (0.78) $ (8,240) $ (0.72)
September 30, 1995............ 474 0.03 (140) (0.01) 10,452 1.26 10,312 1.25
June 30, 1995................. 797 0.09 136 0.02 13,433 1.59 13,569 1.61
March 31, 1995................ 591 0.06 (241) (0.02) (55,403) (6.70) (55,644) (6.72)
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
Total $ 2,755 $ 0.28 $ 346 $ 0.05 $ (40,349) $ (4.63) $ (40,003) $ (4.58)
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
December 31, 1994............. $ 441 $ 0.06 $ (705) $ (0.09) $ (50,397) $ (6.38) $ (51,102) $ (6.47)
September 30, 1994............ 450 0.06 (547) (0.07) 58,991 7.48 58,444 7.41
June 30, 1994................. 1,039 0.13 124 0.02 (29,275) (3.71) (29,151) (3.69)
March 31, 1994................ 677 0.09 (318) (0.04) 18,466 2.36 18,148 2.32
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
Total..................... $ 2,607 $ 0.34 $(1,446) $ (0.18) $ (2,215) $ (0.25) $ (3,661) $ (0.43)
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
-------- ----- -------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Expressed in thousands of U.S. dollars except per share amounts.
15
<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 Boston Equiserve (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.
Boston Equiserve
Dividend Reinvestment and Cash Purchase Plan
P.O. Box 1681
Boston, MA 02105-1681
1-800-442-2001
16
