The Latin America Dollar Income
Fund, Inc.
Annual Report
October 31, 1996
A closed-end investment company seeking high current income as its primary
objective and capital appreciation as a secondary objective through investment
principally in dollar-denominated Latin American debt instruments.
<PAGE>
The Latin America Dollar Income
Fund, Inc.
================================================================================
Investment objectives and policies
o primarily high current income and secondarily capital appreciation through
investment principally in dollar-denominated Latin American debt
instruments
Investment characteristics
o closed-end investment company investing principally in a portfolio of
dollar-denominated Latin American debt instruments
o a vehicle for international diversification through participation in the
economies of Latin American countries
General Information
================================================================================
Executive offices
The Latin America Dollar Income Fund, Inc.
345 Park Avenue
New York, NY 10154
For Fund information: 1-800-349-4281
Transfer agent, registrar and dividend
reinvestment plan agent
For account information: 1-800-426-5523
State Street Bank & Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Custodian
Brown Brothers Harriman & Co.
Legal counsel
Willkie Farr & Gallagher
Independent Accountants
Price Waterhouse LLP
New York Stock Exchange Symbol--LBF
Contents
================================================================================
In Brief .................................................................. 3
Letter to Shareholders .................................................... 3
Investment Summary ........................................................ 5
Investment Portfolio ...................................................... 6
Financial Statements ...................................................... 9
Financial Highlights ...................................................... 13
Notes to Financial Statements ............................................. 14
Report of Independent Accountants ......................................... 17
Tax Information ........................................................... 18
Other Information ......................................................... 18
Shareholder Meeting Results ............................................... 19
Directors and Officers ............................................ Back cover
- --------------------------------------------------------------------------------
This report is sent to the shareholders of The Latin America Dollar Income Fund,
Inc. for their information. It is not a prospectus, circular, or representation
intended for use in the purchase or sale of shares of the Fund or of any
securities mentioned in the report.
- --------------------------------------------------------------------------------
2
<PAGE>
In Brief
================================================================================
o Latin American sovereign bonds posted strong gains for the past 12 months
as investors continued to respond positively to a favorable global
environment and improving credit fundamentals in several Latin American
countries.
o Reflecting this favorable environment, The Latin American Dollar Income
Fund posted a 55.81% total return based on net asset value for its most
recent fiscal year ended October 31, 1996. The Fund's total return based on
its share price on the New York Stock Exchange was 27.93% for the same
period.
o The Fund continues to maintain a liquid, diversified portfolio that we
believe is well positioned to benefit from the improving balance sheets of
Latin American countries while earning a high level of current income.
Letter to Shareholders
================================================================================
Dear Shareholders,
Three important trends helped Latin American sovereign bonds perform
extremely well during The Latin American Dollar Income Fund's most recent fiscal
year ended October 31, 1996: a favorable global environment of slow growth and
low interest rates in OECD countries, the improving credit quality of Latin
American countries, and increased investor interest in emerging markets.
The Fund finished the 12-month period with a net asset value ("NAV") of
$15.61, up from $11.20 on October 31, 1995. Adjusting for distributions totaling
$1.50 per share during the period, the Fund posted a strong 55.81% total return
based on NAV. The unmanaged J.P. Morgan Latin Brady Bond Index during the same
period returned 41.21%. Since its inception on July 31, 1992, through October
31, 1996, the Fund's total return based on NAV was 85.59%, compared with the
Index's return of 79.03%.
During the 12 months ended October 31, 1996, the Fund's share price on the
New York Stock Exchange rose from $12.13 to $13.88, contributing to a total
return of 27.93%. The $13.88 price of the shares on October 31, 1996,
represented an 11.1% discount to the Fund's NAV.
Improved Balance Sheets and Fiscal Reform
Following difficult market conditions at the start of 1995, the picture for
Latin American debt has become very positive. Over the past year, investors have
returned to emerging market bonds in great numbers. European funds, pension
funds, insurance companies, local retail investors, emerging country
governments, and even high yield bond funds -- which typically purchase only
domestic corporate bonds -- have been attracted to this market because of nearly
across-the-board improvements in credit fundamentals among many Latin American
countries. In addition, investors seeking higher yields are increasingly looking
to emerging markets because of their high yield relative to U.S. Treasuries.
For our overall strategy, we continue to maintain a liquid, diversified
portfolio that is well positioned to benefit from the improved economic picture
in many Latin American countries while at the same time earning a high level of
current income. Country and security selection remained extremely important for
the Fund as the decoupling of emerging markets from the U.S. Treasury market
continued and investors discriminated more closely among emerging markets
offerings during the period.
The Fund's core holdings are in Brazil (24% of investments), followed by
Venezuela (21%), Argentina (19%), and Mexico (18%). Brazil continues to make
slow but steady progress toward greater fiscal and administrative reform. These
steps are designed to reduce bureaucracy, shrink government expenditures, and
enhance the performance of the country's capital markets. Such progress, along
3
<PAGE>
================================================================================
with continuing tax and social security reform, makes Brazil's debt attractive
for investors.
Similar reforms are occurring in Mexico and Argentina. We increased our
holdings in Mexico over the period as the country's austerity and export
programs began to show results in an increase in bank reserves and a decline in
inflation. Mexico also reduced its debt service during the period by swapping
high interest Brady Bonds for lower coupon debt. In Argentina, progress on
fiscal reform and tax collection continues, but we reduced our holdings in
October because of potential volatility resulting from former Finance Minister
Cavallo's charges of government corruption.
We increased our position in Venezuelan bonds over the course of the period
as that country's prospects continue to brighten. Venezuela has benefited from a
substantial increase in oil revenues stemming from higher energy prices. These
revenues boosted the country's international reserves to $14 billion and enabled
the government to earmark substantial assets for debt service.
During the period we chose to decrease the interest rate sensitivity of the
portfolio because of our concerns over the direction of U.S. interest rates. As
of October 31, 1996 we had reduced fixed-rate instruments to 29% of investments
from 41% 12 months earlier and increased floating rate instruments (in general,
assets with coupons that reset every six months in relation to the London
Interbank Offered Rate, or LIBOR) to 71% of investments from 59% 12 months
before. This strategy worked to the Fund's advantage as floating-rate securities
in the Fund's portfolio outperformed fixed-rate instruments over the annual
period, with average total returns of 42.1% and 37.6 %, respectively. The
majority of Fund assets continue to be invested in dollar-denominated sovereign
debt obligations because of their attractive yields and higher credit quality
versus many emerging market corporate bonds. On October 31, 1996, sovereign
securities represented 96% of debt obligations with the remaining 4% invested in
corporate debt instruments.
Our Outlook
We believe improving credit fundamentals in many of the underlying
countries will remain the prevailing theme in emerging markets for some time to
come. But an ever-widening investor base, a significant yield advantage over
other asset classes, and ample global liquidity, should also continue to create
a positive environment for Latin American debt over the coming months.
Annual Meeting Results
At the July 24, 1996, Annual Meeting, the shareholders elected three
directors, which appeared in your proxy statement. Also, the selection of Price
Waterhouse LLP as the Fund's independent accountants for the fiscal year ended
October 31, 1996, was ratified. Please see table on page 19 for more
information.
We are pleased that you are an investor in The Latin American Dollar Income
Fund. We would be happy to receive any questions or comments. You can reach us
at 1-800-349-4281.
Respectfully,
/s/Lynn S. Birdsong /s/Edmond D. Villani
Lynn S. Birdsong Edmond D. Villani
President Chairman of the Board
4
<PAGE>
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
INVESTMENT SUMMARY AS OF OCTOBER 31, 1996
- -------------------------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER 6.54 -- 11.64 -- 10.54 --
ONE YEAR 27.93 27.93 55.81 55.81 41.21 41.21
THREE YEAR 30.56 9.30 41.50 12.26 35.48 10.62
LIFE OF FUND* 52.09 10.36 85.59 15.64 79.03 14.67
(a) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(b) The unmanaged J.P. Morgan Latin Brady Bond Index tracks the performance
of U.S. dollar-denominated sovereign restructured bonds (mostly Brady
Bonds). Index returns assume reinvested dividends, and unlike Fund returns,
do not reflect any fees or expenses.
* The Fund commenced operations on July 31, 1992.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE FUND.
- -------------------------------------------------------------------------------
DIVERSIFICATION BY COUNTRY (EXCLUDES 5% CASH EQUIVALENTS)
Brazil 24%
Venezuela 21%
Argentina 19%
Mexico 18%
Panama 5%
Ecuador 5%
Costa Rica 4%
Jamaica 3%
Chile 1%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
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5
<PAGE>
<TABLE>
<CAPTION>
The Latin America Dollar Income Fund, Inc.
Investment Portfolio as of October 31, 1996
====================================================================================================================================
Principal Market
Amount ($)(d) Value (U.S.$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Debt -- 7.4%
Argentina -- 4.3% ARP 4,750,000 Letras del Tesoro (Argentine Republic Treasury Bill),
11/15/96 ................................................... 4,741,734
-----------
Chile -- 0.7% CLP 306,637,500 Citibank Time Deposit linked to Chilean Peso, 13%,
5/28/97 .................................................... 725,550
-----------
Mexico -- 2.4% MXN 4,000,000 Certificados de la Tesoreria, 12/19/96 ......................... 482,734
MXN 8,076,920 Certificados de la Tesoreria, 1/9/97 ........................... 958,083
MXN 4,904,650 Certificados de la Tesoreria, 1/16/97 .......................... 578,589
MXN 5,979,020 Certificados de la Tesoreria, 1/23/97 .......................... 701,503
-----------
2,720,909
-----------
Total Short-Term Debt (Cost $8,214,568) ........................ 8,188,193
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Obligations -- 89.5%
Argentina -- 11.6% 2,911,275 Argentine Republic, Bonos de Consolidacion de
Deudas Previsionales Pre 2 (BOCON), Variable
Rate Interest Bond, 5.445%, 4/1/01 ......................... 2,660,987
7,227,500 Argentine Republic, Floating Rate Bond, Series L,
LIBOR plus .8125% (6.625%), 3/31/05 (c) .................... 5,962,687
7,000,000 Argentine Republic, Collateralized Par Bond, Series L,
Step-up Coupon, 5.25%, 3/31/23 ............................. 4,173,750
-----------
12,797,424
-----------
Brazil -- 23.6% 535,714 Federative Republic of Brazil, "Old" New Money
Bond, Floating Rate Bond, LIBOR plus .8125%
(6.438%), 10/15/99 ......................................... 527,678
3,412,500 Federative Republic of Brazil, IDU Bond, Floating Rate
Bond, LIBOR plus .8125% (6.688%), 1/1/01 ................... 3,276,000
5,000,000 Federative Republic of Brazil, Eligible Interest Bond,
LIBOR plus .8125% (6.5%), 4/15/06 .......................... 4,250,000
3,000,000 Federative Republic of Brazil (Bearer), Floating Rate
Interest Reduction Bond, Step-up Coupon,
4.5%, 4/15/09 .............................................. 2,070,000
8,535,655 Federative Republic of Brazil C Bond, 4.5% with 3.5%
Interest Capitalization, 4/15/14 ........................... 5,910,941
13,500,000 Federative Republic of Brazil, Collateralized Discount
Bond, Floating Rate Bond, LIBOR plus .8125%
(6.5%), 4/15/24 (c) ........................................ 9,956,250
-----------
25,990,869
-----------
Costa Rica -- 4.0% 2,000,000 Banco Central de Costa Rica Principal Bond, Series A,
6.25%, 5/21/10 ............................................. 1,580,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Principal Market
Amount ($)(d) Value (U.S.$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,800,000 Banco Central de Costa Rica Principal B, LIBOR plus
.8125% (6.25%), 5/21/15 .................................... 2,793,000
-----------
4,373,000
-----------
Ecuador -- 5.2% 6,608,701 Republic of Ecuador, Past Due Interest Bond, LIBOR
plus .8125, 3% with 3.5% Interest Capitalization,
2/27/15 .................................................... 3,692,612
3,700,867 Republic of Ecuador, Past Due Interest Bond, LIBOR
plus .8125, 3% with 3.5% Interest Capitalization,
2/27/15 .................................................... 2,067,859
-----------
5,760,471
-----------
Jamaica -- 3.4% 4,500,000 Government of Jamaica, Refinancing Agreement,
Tranche B, Floating Rate Bond, LIBOR plus .8125%
(6.3125%), 11/15/04 (c) .................................... 3,735,000
-----------
Mexico -- 15.2% 1,000,000 Nacional Financiera S.N.C., 9.375%, 7/15/02 (c) ................ 970,000
5,750,000 United Mexican States, Collateralized Discount Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series A, LIBOR plus .8125% (6.453%),
12/31/19 ................................................... 4,729,375
1,000,000 United Mexican States, Collateralized Discount Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series B, LIBOR plus ,8125% (6.391%),
12/31/19 ................................................... 822,500
2,000,000 United Mexican States,Collateralized Discount Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series C, LIBOR plus .8125% (7.688%),
12/31/19 ................................................... 2,000,200
2,750,000 United Mexican States, Collateralized Discount Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series D, LIBOR plus .8125% (6.453%),
12/31/19 ................................................... 2,261,875
3,000,000 United Mexican States, Collateralized Par Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series A, 6.25%, 12/31/19 (c) ..................... 2,109,375
4,750,000 United Mexican States, Collateralized Par Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series B, 6.25%, 12/31/19 ......................... 3,339,844
500,000 United Mexican States, 11.5%, 5/15/26 .......................... 499,500
-----------
16,732,669
-----------
Panama -- 5.4% 3,750,000 Republic of Panama, Interest Reduction Bond, Step-up
Coupon, 3.5%, 7/17/14 ...................................... 2,465,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
The Latin America Dollar Income Fund, Inc.
Investment Portfolio as of October 31, 1996 (continued)
====================================================================================================================================
Principal Market
Amount ($)(d) Value (U.S.$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4,750,000 Republic of Panama Past-due Interest Bond,
LIBOR plus .8125%, 4% with 2.5% Interest
Capitalization, 7/17/16 .................................... 3,532,813
-----------
5,998,438
-----------
Venezuela -- 21.1% 1,500,000 Republic of Venezuela, Front Loaded Interest Reduction
Bond, Series A, LIBOR plus .875% (6.625%),
3/31/07 .................................................... 1,248,750
4,250,000 Republic of Venezuela, Front Loaded Interest Reduction
Bond, Series B, LIBOR plus .875% (6.5%), 3/31/07 ........... 3,538,125
22,500,000 Republic of Venezuela, Debt Conversion Bond, Floating
Rate Bond, Series DL, LIBOR plus .875% (6.625%),
12/18/07 (c) ............................................... 18,478,125
-----------
23,265,000
-----------
Total Debt Obligations (Cost $92,335,461) ...................... 98,652,871
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks -- 3.1%
Shares
Argentina 274,190 Nortel Inversora "A" (ADR) (Telecommunication
services) (b) (c) (Cost $2,007,427) ........................ 3,402,698
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $102,557,456) (a) .................................... 110,243,762
===========
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The cost of the investment portfolio for federal income tax purposes was $102,681,439. At October 31, 1996, net unrealized
appreciation for all securities based on tax cost was $7,562,323. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of $7,885,181 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over market value of $322,858.
(b) Security valued in good faith by the Valuation Committee of the Board of Directors. The cost of this security at October 31,
1996 aggregated $2,007,427. (See Note A of the Notes to Financial Statements)
(c) At October 31, 1996, these securities, in part or in full, have been delivered as loan collateral. (See Note D to the Financial
Statements)
(d) Principal amounts are stated in U.S. dollars unless otherwise noted.
</FN>
</TABLE>
Currency Abbreviations
- --------------------------------------------------------------------------------
ARP Argentine Peso MXN Mexican Peso
CLP Chilean Peso
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
The Latin America Dollar Income Fund, Inc.
Financial Statements
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $102,557,456) (Note A) .................... $ 110,243,762
Cash .............................................................................. 22,397
Receivables:
Investments sold ............................................................. 5,257,245
Interest ..................................................................... 1,919,568
Deferred organization expenses (Note A) ........................................... 14,856
--------------
Total assets ............................................................ 117,457,828
LIABILITIES
Payables:
Note payable (Note D) ........................................................ $ 19,900,000
Interest payable (Note D) .................................................... 216,587
Investments purchased ........................................................ 2,369,391
Accrued management fee (Note C) .............................................. 96,157
Other accrued expenses (Note C) .............................................. 127,087
--------------
Total liabilities ....................................................... 22,709,222
--------------
Net assets, at market value ....................................................... $ 94,748,606
==============
NET ASSETS Net assets consist of:
Distributions in excess of net investment income ............................. $ (7,699)
Accumulated net realized gain ................................................ 5,087,572
Net unrealized appreciation (depreciation) on:
Investments ............................................................. 7,686,306
Foreign currency related transactions ................................... (54,556)
Paid-in capital .............................................................. 82,036,983
--------------
Net assets, at market value ....................................................... $ 94,748,606
==============
Net asset value per share ($94,748,606 / 6,070,974 shares of common stock
outstanding, $.01 par value, 100,000,000 shares authorized) .................. $ 15.61
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
The Latin America Dollar Income Fund, Inc.
Financial Statements (continued)
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Operations
Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ............................................................. $ 11,808,762
Dividends ............................................................ 466,823
------------
12,275,585
Expenses:
Management fee (Note C) ......................................... $ 984,043
Directors' fees and expenses (Note C) ........................... 91,577
Custodian and accounting fees (Note C) .......................... 179,886
Reports to shareholders ......................................... 55,560
Auditing and tax services ....................................... 85,400
Legal ........................................................... 11,881
Amortization of organization expenses (Note A) .................. 20,054
Services to shareholders ........................................ 22,616
Interest (Note D) ............................................... 1,225,466
Other ........................................................... 23,279 2,699,762
------------ ------------
Net investment income ................................................ 9,575,823
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ..................................................... 17,411,587
Options ......................................................... 82,500
Foreign currency related transactions ........................... (3,516) 17,490,571
------------
Net unrealized appreciation (depreciation) on:
Investments ..................................................... 8,597,759
Foreign currency related transactions ........................... (1,152) 8,596,607
------------ ------------
Net gain on investment transactions .................................. 26,087,178
Net increase in net assets resulting from operations ...................... $ 35,663,001
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
Years Ended October 31,
----------------------------
Increase (Decrease in Net Assets) 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................ $ 9,575,823 $ 9,227,464
Net realized gain (loss) from investment transactions ................ 17,490,571 (14,647,184)
Net unrealized appreciation on investment transactions during
the period ...................................................... 8,596,607 2,291,792
------------ ------------
Net increase (decrease) in net assets resulting from operations ........... 35,663,001 (3,127,928)
------------ ------------
Dividends to shareholders:
From net investment income ........................................... (9,050,902) (7,694,526)
------------ ------------
From net realized gains from investment transactions ................. -- (888,250)
------------ ------------
Tax return of capital ................................................ -- (1,391,841)
------------ ------------
Fund share transactions:
Reinvestment of dividends ............................................ 803,441 1,005,660
------------ ------------
Net increase in net assets from Fund share transactions ................... 803,441 1,005,660
------------ ------------
Increase (decrease) in net assets ......................................... 27,415,540 (12,096,885)
Net assets at beginning of period ......................................... 67,333,066 79,429,951
------------ ------------
Net assets at end of period (including distributions in excess of
net investment income of $7,699 and $638,495, respectively) .......... $ 94,748,606 $ 67,333,066
============ ============
Other Information
Increase in Fund Shares
Shares outstanding at beginning of period ................................. 6,010,387 5,921,667
Shares issued to shareholders in reinvestment of dividends ........... 60,587 88,720
------------ ------------
Shares outstanding at end of period ....................................... 6,070,974 6,010,387
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
The Latin America Dollar Income Fund, Inc.
Financial Statements (continued)
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Cash Flows
Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Investment income received ..................................................... $ 8,712,236
Payment of operating expenses .................................................. (2,638,538)
Proceeds from sales and maturities of investments .............................. 311,316,496
Purchases of investments ....................................................... (310,235,627)
Net purchases of short-term investments ........................................ (3,785,079)
-------------
Cash provided by operating activities ..................................... 3,369,488
-------------
Cash flows from financing activities:
Net increase of loan principal ................................................. 4,900,000
Distributions paid (net of reinvestment of dividends) (Note A) ................. (8,247,461)
-------------
Cash used by financing activities ......................................... (3,347,461)
-------------
Increase in cash .......................................................... 22,027
Cash at beginning of period ............................................... 370
-------------
Cash at end of period ..................................................... $ 22,397
=============
Reconciliation of net increase in net assets from operations to cash provided
by operating activities:
Net increase in net assets resulting from operations ........................... 35,663,001
Amortization of organization costs ............................................. 20,054
Net increase in investments .................................................... (18,959,545)
Net increase in unrealized appreciation on investments ......................... (8,597,759)
Increase in interest receivable ................................................ (278,233)
Increase in receivable for investments sold .................................... (4,361,003)
Decrease in payable for investments purchased .................................. (158,197)
Increase in accrued expenses ................................................... 21,458
Increase in interest payable ................................................... 19,712
-------------
Cash provided by operating activities ..................................... $ 3,369,488
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements and market price data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
July 31, 1992
(commencement
Years Ended October 31, of operations)
---------------------------------------------------------- To October 31,
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period ....... $ 11.20 $ 13.41 $ 16.22 $ 13.45 $ 13.83(b)
---------- ---------- ---------- ---------- ----------
Net investment income .................... 1.59 1.55 1.51 1.53 .25
Net realized and unrealized gain (loss) on
investment transactions ................. 4.32 (2.08) (2.45) 2.74 (.50)
---------- ---------- ---------- ---------- ----------
Total from investment operations ........... 5.91 (.53) (.94) 4.27 (.25)
---------- ---------- ---------- ---------- ----------
Less distributions:
From net investment income ............... (1.50) (1.30) (1.51) (1.49) (.13)
From net realized gains on investment
transactions ............................ -- (.15) (.33) (.01) --
In excess of net realized gains .......... -- -- (.03) -- --
Tax return of capital .................... -- (.23) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions ........................ (1.50) (1.68) (1.87) (1.50) (.13)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............. $ 15.61 $ 11.20 $ 13.41 $ 16.22 $ 13.45
========== ========== ========== ========== ==========
Market value, end of period ................ $ 13.88 $ 12.13 $ 13.25 $ 15.63 $ 15.00
========== ========== ========== ========== ==========
Total Investment Return
Per share market value (%) ................. 27.93 5.78 (3.52) 15.47 .88**
Per share net asset value (%) (c) .......... 55.81 (3.46) (5.94) 33.69 (1.89)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..... 95 67 79 95 77
Ratio of operating expenses (excluding
interest) to average net assets (%) ...... 1.79 1.96 1.83 2.00 2.05*
Ratio of net investment income to average
net assets (%) ........................... 11.66 13.59 10.42 10.71 7.14*
Portfolio turnover rate (%) ................ 322.3(d) 365.9(d) 161.1 93.3 1.8*
</TABLE>
(a) Based on monthly average of shares outstanding during each period.
(b) Beginning per share amount reflects $15.00 initial public offering price
net of underwriting discount and offering expenses ($1.17 per share).
(c) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(d) Economic and market conditions necessitated more active trading, resulting
in a higher portfolio turnover rate.
* Annualized ** Not annualized
13
<PAGE>
The Latin America Dollar Income Fund, Inc.
Notes to Financial Statements
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A. Significant Accounting Policies
The Latin America Dollar Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which quotations reflect broker/dealer- supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors. Securities valued in good
faith by the Valuation Committee of the Board of Directors at fair value
amounted to $3,402,698 (3.6% of net assets) and have been noted in the
investment portfolio as of October 31, 1996. Their values have been estimated by
the Board of Directors in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the difference could be material.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the rates of exchange prevailing on the respective
dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the accrual and payment dates on interest
and foreign withholding taxes.
When-issued and Forward Delivery Securities. The Fund may purchase securities on
a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time.
At the time the Fund makes the commitment to purchase a security on a
when-issued basis or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. During the
period between purchase and settlement, no payment is made by the Fund to the
issuer and no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
14
<PAGE>
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Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies, and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes, and no federal income tax
provision was required.
Distribution of Income and Gains. The Fund's policy is to declare and pay
distributions to shareholders of substantially all net investment income of the
Fund quarterly. Net realized gains from investment transactions in excess of
available capital loss carryforwards, which would be taxable to the Fund if not
distributed, will be distributed to shareholders annually. Distributions to
shareholders are recorded on the ex-dividend date. An additional distribution
may be made to the extent necessary to avoid the payment of a four percent
federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in foreign denominated securities
and certain securities sold at a loss. As a result, net investment income (loss)
and net realized gain (loss) on investment transactions for a reporting period
may differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments.
Statement of Cash Flows. Information on financial transactions which have been
settled through the receipt and disbursement of cash is presented in the
Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is
the amount reported as cash in the Fund's Statement of Assets and Liabilities
and represents the cash position in its custodian bank account at October 31,
1996.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Portfolio securities transactions are accounted for on a trade-date
basis. Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. All discounts are accreted for both tax and
financial reporting purposes. Accretion for the year ended October 31, 1996 was
approximately $3,285,000.
B. Purchases and Sales of Securities
During the year ended October 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $310,077,430 and
$315,664,549, respectively.
C. Related Parties
Under the Fund's Investment Advisory, Management and Administration Agreement
(the "Management Agreement") with Scudder, Stevens & Clark, Inc. (the
"Manager"), the Manager directs the investments of the Fund in accordance with
the Fund's investment objectives, policies, and restrictions and under the
direction and control of the Fund's Board of Directors. In addition to portfolio
management services, the Manager provides certain administrative services in
accordance with the Management Agreement. The Fund pays to the Manager a monthly
fee at an annualized rate of 1.20% of the average weekly net assets of the Fund.
For the year ended October 31, 1996, the fee pursuant to such agreement amounted
to $984,043, of which $96,157
15
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The Latin America Dollar Income Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
is unpaid at October 31, 1996. The Fund pays each Director not affiliated with
the Manager $6,000 annually, plus specified amounts for attended board and
committee meetings. For the year ended October 31, 1996, Directors' fees and
expenses aggregated $91,577. Effective January 15, 1996, Scudder Fund Accounting
Corporation ("SFAC"), a subsidiary of the Manager, assumed responsibility for
determining the daily net asset value per share and maintaining the portfolio
and general accounting records of the Fund. For the year ended October 31, 1996,
the amount charged to the Fund by SFAC aggregated $63,935, of which $6,905 is
unpaid at October 31, 1996.
D. Borrowings
At October 31, 1996 the Fund had two outstanding loans with balances of
$19,000,000 and $900,000, respectively. The interest rates at October 31, 1996
were 6.125% and 6.375%, respectively. The loans are collateralized with certain
portfolio holdings. In accordance with the terms of the loan agreement, the Fund
must maintain a level of collateral to debt between 125 and 150%.
The weighted average outstanding daily balance of bank loans for the year ended
October 31, 1996 was $19,592,721, with a weighted average interest rate of
6.25%. The maximum borrowings outstanding for the year ended October 31, 1996
was $25,191,833. Interest expense for the year ended October 31 was $1,225,466
($.20 per share). Interest paid for the year ended October 31, 1996 was
$1,205,754.
E. Credit Risk
The yields of Latin American debt obligations reflect perceived credit risk, the
need to compete with other local investments in potentially illiquid domestic
financial markets and the difficulty in raising hard currencies to meet external
debt servicing requirements. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Fund.
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<PAGE>
The Latin America Dollar Income Fund, Inc.
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders of The Latin America Dollar Income
Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, cash
flows, and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The Latin America Dollar
Income Fund, Inc. (the "Fund") at October 31, 1996, the results of its
operations, cash flows, the changes in its net assets and the financial
highlights for each of the periods indicated, 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 October 31, 1996 by
correspondence with the custodian 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
Boston, Massachusetts
December 17, 1996
17
<PAGE>
The Latin America Dollar Income Fund, Inc.
Tax Information
================================================================================
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$1,258,430 as capital gain dividends for the year ended October 31, 1996.
Other Information
================================================================================
Investment Manager and Administrator
The investment manager and administrator of The Latin America Dollar Income
Fund, Inc. (the "Fund") is Scudder, Stevens & Clark, Inc., one of the most
experienced investment management and investment counsel firms in the United
States. Established in 1919, the firm provides investment counsel for
individuals, investment companies and institutions. Scudder has offices
throughout the United States and subsidiaries in London and Tokyo.
Scudder has been active in international investment management for over 40
years. It manages Scudder International Fund, which was initially incorporated
in Canada in 1953 as the first foreign investment company registered with the
United States Securities and Exchange Commission. Scudder's investment company
clients include seven other open-end investment companies which invest
worldwide.
In addition to the Fund, Scudder also manages the assets of seven other
closed-end investment companies which invest in foreign securities: The
Argentina Fund, The Brazil Fund, The First Iberian Fund, The Korea Fund, Scudder
New Asia Fund, Scudder World Income Opportunities Fund, and Scudder New Europe
Fund.
Dividend Reinvestment and Cash Purchase Plan
We are pleased to advise you of an optional plan for the automatic
reinvestment of your dividends and capital gains distributions in shares of the
Fund. We recommend that you consider enrolling in the Dividend Reinvestment and
Cash Purchase Plan (the "Plan") to build your investment. You may obtain more
detailed information by requesting a copy of the Plan from the Plan Agent. All
correspondence (including notifications) should be directed to: The Latin
America Dollar Income Fund, Inc., Dividend Reinvestment and Cash Purchase Plan,
c/o State Street Bank & Trust Company, P.O. Box 8209, Boston, MA 02266-8209,
1-800-426-5523.
Net Asset Value
The Fund's NAV is published every Monday in The Wall Street Journal under
the heading "Closed End Funds." The Fund's NAV is also published in The New York
Times and Barron's.
As a service to overseas shareholders, the Fund's NAV is listed daily in
The Financial Times ("FT"). The NAV of the Fund, and other Scudder managed
closed-end funds, can be found in the "FT Managed Funds Service" section under
the heading "other off-shore funds" below the Scudder, Stevens & Clark banner.
18
<PAGE>
Shareholder Meeting Results
================================================================================
The Annual Meeting of Shareholders of the Fund was held on July 24, 1996, at the
offices of Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York.
The two matters voted upon by Shareholders and the resulting votes for each
matter are presented below.
1. The election of three Directors to hold office for a term of three years or
until their respective successors shall have been duly elected and
qualified.
<TABLE>
<CAPTION>
Director: Number of Votes:
--------- ----------------
For Withheld Broker Non-Votes*
--- -------- -----------------
<S> <C> <C> <C>
George M. Lovejoy, Jr. 5,642,401.357 53,584.888 2
Dr. Susan Kaufman Purcell 5,640,645.740 55,340.505 2
Edmond D. Villani 5,641,501.357 54,484.888 2
</TABLE>
2. Ratification or rejection of the action taken by the Board of Directors in
selecting Price Waterhouse LLP as independent accountants for the fiscal
year ending October 31, 1996.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C>
5,629,699.257 31,668.000 34,620.988 0
</TABLE>
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
19
<PAGE>
Directors and Officers
================================================================================
EDMOND D. VILLANI*
Chairman of the Board and Director
LYNN S. BIRDSONG*
President and Director
ROBERT J. BOYD
Director
ROBERT J. CALLANDER
Director
GEORGE M. LOVEJOY, JR.
Director
RONALDO A. DA FROTA NOGUEIRA
Director
DR. SUSAN KAUFMAN PURCELL
Director
JERARD K. HARTMAN*
Vice President
DAVID S. LEE*
Vice President
JURIS PADEGS*
Vice President
M. ISABEL SALTZMAN*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Vice President and Secretary
PAMELA A. McGRATH*
Vice President and Treasurer
COLEEN DOWNS DINNEEN*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
