<PAGE>
LEHMAN BROTHERS
LATIN AMERICA
GROWTH FUND, INC.
______________________________________________________
MAP OF
LATIN AMERICA
______________________________________________________
SEMI-ANNUAL REPORT DATED APRIL 30, 1995
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
Page
----
Shareholder Letter ........................................................ 1
Portfolio Highlights ...................................................... 4
Portfolio of Investments .................................................. 5
Statement of Assets and Liabilities ....................................... 7
Statement of Operations ................................................... 8
Statement of Changes in Net Assets ........................................ 9
Financial Highlights ...................................................... 10
Notes to Financial Statements ............................................. 11
Quarterly Results of Operations ........................................... 14
Additional Information (Dividend Reinvestment Plan) ....................... 15
------------------------
This report is sent to the shareholders of the Lehman Brothers Latin America
Growth 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.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
- ------------------------------------------------------------------------------
Dear Shareholder:
It is with great pleasure that we present the first Semi-Annual Report for the
Lehman Brothers Latin America Growth Fund, Inc. (the "Fund") for the six-month
period ended April 30, 1995. The Fund is a diversified, closed-end management
investment company that seeks long-term capital appreciation by investing in
equity securities of Latin American issuers that at the time of purchase have
a market capitalization of less than U.S. $500 million.
* * *
On June 14, 1995, Lehman Brothers Holdings Inc., the parent company of Lehman
Brothers Global Asset Management Limited ("LBGAM Ltd."), the Fund's current
Investment Adviser, announced that an agreement in principle has been reached
to sell the portion of the Adviser's business that is responsible for the
management of the Fund to American Express Financial Corporation ("AEFC"), a
broad-based asset management subsidiary of American Express Company
headquartered in Minneapolis, Minnesota. The change to a proposed new
investment adviser, IDS International Inc., AEFC's London-based subsidiary,
must be submitted to and approved by both the Fund's Board of Directors and
shareholders before it can take effect. If the Board of Directors approves the
change, the Fund will submit proxy materials to shareholders by mid-summer
which will include a description of IDS International Inc. and its
capabilities in the management of the Fund's assets.
Pending approval of a new investment advisory contract, the Board of Directors
approved a sub-investment advisory arrangement with IDS International Inc. on
an interim basis, which took effect as of June 16, 1995. We are pleased to
announce that Mr. Ian King, the Fund's portfolio manager since its inception,
has joined IDS and continues to serve as the Fund's portfolio manager under
the interim arrangement. Assuming a new investment advisory contract with IDS
receives the necessary approvals, Mr. King would continue as portfolio manager
for the Fund. Mr. King's analysis of the economic conditions of the region and
the strategy implemented on behalf of the Fund follows.
MARKET REVIEW
The first six months of the Fund's existence have been highly eventful.
Devaluation and recession, war and civil unrest, presidential elections and
political machinations -- all are events that have beset the region since the
Fund was launched on November 7, 1994. Despite such circumstances, the Fund's
total return (based on its net asset value) was -8.4% since inception through
April 30, 1995, which compares very favorably to the return of the Baring
Securities Latin America Index of -29% over the same period. The primary
reason for such strong relative peformance has been the retention of a
significant portion of the Fund's assets in dollar-based fixed income
securities over a period when Latin American markets had fallen sharply.
MEXICO
The low point of the last six months in Latin America was clearly the two
devaluations of the Mexican peso in December, 1994. Following a steady trickle
of funds out of the country throughout 1994, the flow of money overseas
eventually became a torrent that the Mexican government was unable to control.
Attempts to stem the flow caused the country's foreign exchange reserves to
dwindle to perilously low levels, until the monetary authorities had few
options except to devalue the peso. Unfortunately, the manner in which the
devaluation was carried out did little to bolster the confidence of the
international investment community. Following an initial 15% devaluation, the
Mexican government had no choice but to let the currency float freely. By the
end of December, the peso dropped from a pre-devaluation level of NP3.39 to a
post-devaluation low of NP7.5. As Mexico's equity market tumbled, it dragged
down other markets in the region. It mattered little that the economies of the
various countries in the region were not in the same precarious state as
Mexico's. Latin America was tarred with the same brush and investors
indiscriminately dumped equities and bonds.
Economic conditions in the region have undergone dramatic changes as a result
of the devaluation. The long lasting effects of the currency's devaluation
will be felt by Mexican companies unable to finance their debt. Mexico's most
damaging economic characteristic in both the public and private sectors has
been its reliance on short-term debt. Tens of billions of dollars must be
refinanced this year, and a lack of demand from overseas to provide such
capital may have dire consequences for some private companies which, unlike
Mexico's public sector, have been unable to rely on the U.S. government for
assistance. Add to this an unstable currency, a collapse in consumer demand,
and an inflation rate of over 50%, and the prospects for corporate earnings in
the immediate future look very poor.
The Mexican market continued to fall in early 1995, as foreign investors
withdrew their investments and the question of civil unrest in the state of
Chiapas reared its ugly head again. However, it was clear that trading volume
in the market was so low that when relatively weak demand returned, the
recovery appeared sharp. This proved to be the case in March and April when
the peso recovered to close at NP5.9 and the market returned to near the 2,000
level. Other Latin American markets recovered also, but mainly for different
reasons.
ARGENTINA
In Argentina, the market fell sharply following the Mexican devaluation, as
investors believed that the similarities in the two economies would lead to a
second Latin American devaluation. In reaction to these events, the Argentine
market plummeted to an all-time low on the Merval index of just over 250
before following Mexico's lead by recovering sharply to over 400 -- a rise of
over 60%. Unfortunately, as in most markets throughout the region, volume
dried up to such an extent that it proved difficult to sell when the market
was falling, or buy when the market was rising. This scenario was particularly
true of smaller Argentinean companies in which the Fund invests.
Thus far, the Argentine authorities, led by Economy Minister Cavallo, have
been successful in convincing investors of the positive nature of the
Convertibility Law, which pegs the Argentine peso to the U.S. dollar.
Argentina's current account deficit is lower than Mexico's and each Argentine
peso is supported by one U.S. dollar in reserves. With the Argentine elections
over and with thirty months before the next election, there is every
opportunity for the Argentine government to reinforce the precepts of the
Convertibility Law.
BRAZIL
Brazil, the largest country in the Latin American region, has been able to
bear the brunt of the Mexican crisis relatively well, primarily because of its
strong domestic demand. Brazil's strength during a difficult time was achieved
in spite of a controlled and very slight devaluation of the Brazilian real.
The currency's decline did not precipitate a terminal outflow of funds, as was
the case in Mexico. Indeed, Brazil may well prove to be a victim of its own
success as the power of its domestic demand is so great that inflationary
pressures are building. Key issues facing the Cardoso administration include
its ability to push constitutional and fiscal reform through the Brazilian
Congress in order to keep control of public finances to ease growing price
pressures.
CHILE AND COLOMBIA
While other countries in the region were in turmoil, the Chilean and Colombian
markets remained comparatively stable. Although both markets declined
following the Mexican devaluation, it was not to the same dramatic extent as
other Latin American countries. The main reason for Chile's and Colombia's
display of elasticity was due to the relatively low foreign ownership of
equities in these countries. Conversely, despite Chile's and Colombia's robust
economic conditions, they failed to match the performance of the more
"visible" markets when these markets began to recover.
PERU
Notwithstanding the economic successes of its neighbors, the star performer
last year was Peru. In 1994, its economy grew by 12.6%, while inflation fell
to 15%. Peru's growth rate has slowed in early 1995, but it is still at a
level to be envied by most other nations.
OUTLOOK
In our opinion, the key issue that will determine the short-term direction of
all Latin American markets is whether the Mexican peso and the Bolsa can
sustain their current levels. Most observers are skeptical that current market
prices are discounting an earnings' recovery -- a rebound that is not likely
to be in Mexico's immediate future. In addition, the peso is already higher
than the government's target price for year-end. As a result, we believe that
a period of consolidation is probably overdue in Mexico. A consolidation may
be undermined by foreign investors who, presently, are considerably
underweighted in Mexican equities. Furthermore, with volumes so light, a
sudden surge of optimism may result in a disproportionately large rally in
equity prices and Mexico's currency. Conversely, any bad news about Mexico
will most likely hit the market hard. Therefore, the short-term outlook for
Mexico remains difficult to predict.
We are of the view that other countries, such as Peru, Chile and Colombia,
will continue to experience good economic growth, while Brazil's economy may
slow slightly. As economic growth leads to good corporate profits, we expect
equity valuations to become increasingly attractive. Latin American
developments to watch for in the coming months are: the progress of fiscal
reform in Brazil, which holds the key to keeping the country's inflation down;
the sustainability of economic, and hence earnings growth, in Peru; the
likelihood of constraints placed on Colombian growth by higher interest rates;
and the inexorable strength of the Chilean economy.
We believe that the Latin American region could emerge from the current
uncertainty in relatively good shape. The recent crisis in Mexico should put
the economies of Latin America in a better position to weather the economic
storms that surround them.
STRATEGY
The conservative investment policy adopted by LBGAM Ltd. in response to the
problems discussed above, during the first six months of the Fund's life has
served the Fund well. Looking ahead, the exploitation of any weakness in the
markets should continue to benefit the Fund, as the invested assets continue
to increase from the current level of 61%. The Fund will continue to focus on
the Brazilian, Argentine and Peruvian markets, where the prospects for smaller
companies remain bright. As far as sectors are concerned, the Fund will
continue to emphasize diversification across a range of economic groups and
countries within the Fund's focus. These policies have thus far served the
Fund well and we anticipate that they will continue to benefit its
shareholders in the future.
* * *
We appreciate your support of Lehman Brothers Latin America Growth Fund, Inc.
Sincerely,
/s/ Andrew D. Gordon /s/ Kirk D. Hartman
ANDREW D. GORDON KIRK D. HARTMAN
Chairman of the Board of Directors President
June 21, 1995
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
PORTFOLIO HIGHLIGHTS APRIL 30, 1995 (unaudited)
The following 3 tables appear as pi charts in the printed report.
ASSET DISTRIBUTION (BY COUNTRY)
Percentages based on total investment
United States ............................................. 50.2%
Brazil .................................................... 21.2%
Argentina ................................................. 17.6%
Peru ...................................................... 8.0%
Mexico .................................................... 1.7%
Columbia .................................................. 1.3%
ASSET DISTRIBUTION (BY INVESTMENT)
Percentages based on total investment
U.S. Treasury Bill ........................................ 38.6%
Common Stocks ............................................. 36.8%
Preferred Stocks .......................................... 21.2%
Commercial Paper .......................................... 3.4%
INDUSTRY BREAKDOWN
Percentages based on total net assets
U.S. Treasury ............................................. 39.0%
Other Stocks .............................................. 18.4%
Food and Beverages ........................................ 8.9%
Household Appliances ...................................... 5.3%
Oil and Gas ............................................... 4.7%
Capital Goods ............................................. 4.6%
Cement .................................................... 4.4%
Transportation ............................................ 4.3%
Banking/Finance ........................................... 4.1%
Utility ................................................... 4.0%
Commercial Paper and Net Other Assets and Liabilities ..... 2.3%
TOP TEN HOLDINGS
PERCENTAGE OF
NET ASSETS
------------------------------------------------------------------------
1. U.S. Treasury Bill 39.0%
2. General Electric Capital Corporation 3.4%
3. Iochpe-Maxion, SA 2.8%
4. Comercial Del Plata 2.6%
5. Corcemar 2.3%
6. Astra Cia Argentina de Petroleo 2.1%
7. Molinos Rio de La Plata, ORD 2.0%
8. Randon 1.9%
9. Laboratorios de Chile, SA, ADR 1.9%
10. Ferreyros 1.8%
-----
59.8%
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1995 (unaudited)
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------
COMMON STOCKS -- 37.2%
ARGENTINA -- 17.8%
700,000 Astra Cia Argentina de Petroleo $ 1,077,946
230,000 Bagley, SA, Series B 517,474
150,000 Central Costanera 434,978
200,000 Certal Puerto, SA, Class B 779,961
154,300 Ciadea, SA 717,459
600,000 Comercial Del Plata 1,349,933
235,000 Corcemar+ 1,163,192
220,000 Fiplasto+ 615,969
50,000 Grimoldi, Series B 199,990
300,000 Inversiones Y Representaciones 704,965
80,000 Juan Minetti 255,987
136,450 Longvie, SA+ 129,621
200,000 Molinos Rio de La Plata, ORD+ 999,950
56,720 Nobleza Picardo, ORD 186,032
-----------
9,133,457
-----------
COLOMBIA -- 1.3%
60,000 Carulla 665,718
-----------
MEXICO -- 1.7%
500,000 Grupo Posadas SA, Series L+ 186,722
200,000 Industrias Campos Hermanos, SA, Series B+ 252,282
100,000 Jugos Del Valle, SA+ 265,560
300,000 Sistema Argos, SA, Series B 144,149
-----------
848,713
-----------
PERU -- 8.1%
400,000 Banco de Credito 837,976
40,000 Cementos Lima, Series C 859,372
100,000 Cerveceria San Juan 205,037
600,000 Ferreyros 941,386
240,361 Indeco Peruana+ 337,481
663,000 Industrias Pacocha 815,636
13,000 Minsur Trabajo 150,657
-----------
4,147,545
-----------
UNITED STATES -- 8.3%
82,476 Banco Wiese, ADR 742,284
20,000 Chilquinta, SA, ADR 260,000
36,981 Corporacion Financiera Del Valle, Class B, ADR 522,357
30,000 Grupo Radio Centro, ADR 311,250
50,000 Laboratorios de Chile, SA, ADR 956,250
25,000 Maderas Y Sinteticos Sociedad, ADR 437,500
80,000 Tamsa, ADR+ 345,000
100,000 Transportation Maritima Mexico, ADR 675,000
-----------
4,249,641
-----------
TOTAL COMMON STOCK (COST $21,083,271) 19,045,074
See Notes to Financial Statements.
<PAGE>
-----------
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (continued) APRIL 30, 1995 (unaudited)
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------
PREFERRED STOCKS -- 21.5%
BRAZIL -- 21.5%
35,000,000 Bombril $ 843,835
4,000,000 Casa Anglo 504,110
800,000 Celesc, Series B+ 552,329
50,000,000 Ceval 652,055
32,300,000 Continental, 2001 849,180
1,200,000 Frigobras 940,261
2,750,000 Iochpe-Maxion, SA 1,431,507
4,500,000 Marcopolo, SA, Series B+ 530,137
5,100,000 Mesbla+ 530,959
14,000,000 Metal Leve, SA 452,603
60,000,000 Osa Organizacoa Sistemas Applica, SA 739,397
700,000,000 Randon 981,918
400,000,000 Refrigeracao Parana, SA 876,712
202,000 Renner Herrmann 429,458
4,160,000 Sao Paulo Alpargatas 683,836
-----------
TOTAL PREFERRED STOCKS (COST $12,981,772) 10,998,297
-----------
FACE
VALUE
- ------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS -- 42.4%
COMMERCIAL PAPER -- 3.4% (COST $1,750,000)
$ 1,750,000 General Electric Capital Corporation, 5.900% due
05/01/1995 1,750,000
-----------
U.S. TREASURY BILL -- 39.0% (COST $19,990,767)
20,000,000 U.S. Treasury Bill, 5.540%++ due 05/04/1995 19,990,767
-----------
TOTAL SHORT-TERM INSTRUMENTS (COST $21,740,767) 21,740,767
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $55,805,810*) 101.1 % 51,784,138
OTHER ASSETS AND LIABILITIES (NET) (1.1) (554,978)
- ------------------------------------------------------------------------------
NET ASSETS 100.0 % $51,229,160
- ------------------------------------------------------------------------------
*Aggregate cost for Federal tax purposes.
+Non-income producing securities.
++Interest rate represents annualized yield at date of purchase.
ADR -- American Depositary Receipt.
See Notes to Financial Statements.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1995 (unaudited)
ASSETS:
Investments, at value (Cost $55,805,810) (Note 1)
See accompanying schedule $51,784,138
Cash and foreign currency (Cost $66,213) 66,273
Unamortized organization costs (Note 5) 131,791
Dividends and interest receivable 36,907
- ------------------------------------------------------------------------------
TOTAL ASSETS 52,019,109
- ------------------------------------------------------------------------------
LIABILITIES:
Offering costs payable (Note 4) $299,206
Payable for investment securities purchased 275,000
Custodian fees payable (Note 2) 115,667
Investment advisory fee payable (Note 2) 38,014
Organizational costs payable (Note 5) 10,000
Transfer agent fees payable (Note 2) 6,960
Administration fee payable (Note 2) 6,301
Accrued Directors' fees and expenses (Note 2) 4,583
Accrued expenses and other payables 34,218
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 789,949
- ------------------------------------------------------------------------------
NET ASSETS $51,229,160
- ------------------------------------------------------------------------------
NET ASSETS consist of:
Undistributed net investment income $ 642,835
Accumulated net realized loss on securities,
forward foreign currency contracts and
foreign currencies (183,579)
Net unrealized depreciation of securities,
foreign currencies and net other assets (4,021,783)
Par value of common stock 4,007
Paid-in capital in excess of par value of
common stock 54,787,680
- ------------------------------------------------------------------------------
TOTAL NET ASSETS $51,229,160
- ------------------------------------------------------------------------------
NET ASSET VALUE:
Net asset value per share
($51,229,160 / 4,007,169 shares of common
stock outstanding) $12.78
- ------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 1995* (UNAUDITED)
INVESTMENT INCOME:
Interest $ 912,644
Dividends (net of foreign withholding taxes
of $37,022) 310,931
- ------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,223,575
- ------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $305,687
Custodian fees (Note 2) 116,273
Administration fee (Note 2) 47,968
Directors' fees and expenses (Note 2) 31,083
Transfer agent fees (Note 2) 26,171
Legal and audit fees 25,974
Amortization of organization costs (Note 5) 13,889
Other 13,695
- ------------------------------------------------------------------------------
TOTAL EXPENSES 580,740
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME 642,835
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(Notes 1 and 4):
Net realized gain/(loss) on:
Securities (76,554)
Forward foreign currency contracts (136,047)
Foreign currencies 29,022
- ------------------------------------------------------------------------------
Net realized loss on investments during the
period (183,579)
- ------------------------------------------------------------------------------
Net change in unrealized depreciation of:
Securities (4,021,672)
Foreign currencies and net other assets (111)
- ------------------------------------------------------------------------------
Net unrealized depreciation of investments
during the period (4,021,783)
- ------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (4,205,362)
- ------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,562,527)
- ------------------------------------------------------------------------------
*The Fund commenced operations on November 7, 1994.
See Notes to Financial Statements.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
PERIOD
ENDED
4/30/95*
(UNAUDITED)
- ------------------------------------------------------------------------------
Net investment income $ 642,835
Net realized loss on securities, forward foreign currency
contracts and foreign currencies during the period (183,579)
Net unrealized depreciation on securities, foreign currencies
and net other assets during the period (4,021,783)
- ------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (3,562,527)
Net increase in net assets from Fund share transactions (Note 4) 55,799,992
Offering costs charged to paid-in capital (Note 4) (1,108,313)
- ------------------------------------------------------------------------------
Net increase in net assets 51,129,152
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 100,008
- ------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$642,835 at April 30, 1995) $51,229,160
- ------------------------------------------------------------------------------
*The Fund commenced operations on November 7, 1994.
See Notes to Financial Statements.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD.
PERIOD
ENDED
4/30/95*
(UNAUDITED)
- ------------------------------------------------------------------------------
Net Asset Value, beginning of period $13.95
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16
Net realized and unrealized loss on investments (1.05)
- ------------------------------------------------------------------------------
Total from investment operations (0.89)
- ------------------------------------------------------------------------------
Offering costs charged to paid-in capital (0.28)
- ------------------------------------------------------------------------------
Net Asset Value, end of period $12.78
- ------------------------------------------------------------------------------
Market Value, end of period $12.25
- ------------------------------------------------------------------------------
Total return+ (18.33)%
- ------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $51,229
Ratio of operating expenses to average net assets 2.35%**
Ratio of net investment income to average net assets 2.61%**
Portfolio turnover rate 0%++
- ----------
*The Fund commenced operations on November 7, 1994. Beginning Net Asset Value
results from initial offering price of $15.00 per share less commissions and
offering expenses of $1.05 per share.
**Annualized.
+Total return represents aggregate total return for the period indicated based
on initial market value per share of $15.00 and ending market value per share
of $12.25.
++Amount represents less than 1.00%.
See Notes to Financial Statements.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Lehman Brothers Latin America Growth Fund, Inc. (the "Fund") was incorporated
as a Maryland corporation on June 27, 1994. It is a diversified, closed-end
management investment company registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended. The following
is a summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements.
Portfolio Valuation: In valuing the Fund's assets, all securities for which
market quotations are readily available are valued (i) at the last sale price
prior to the time of determination if there was a sale on the date of
determination, (ii) at the mean between the last current bid and asked prices
if there was no sales price on such date and bid and asked quotations are
available, and (iii) at the bid price if there was no sales price on such date
and only bid quotations are available. Publicly traded government debt
securities are typically traded internationally on the over-the-counter
market, and are valued at the mean between the last current bid and asked
price at the close of business of that market. In instances where a price
determined above is deemed not to represent fair market value, the price is
determined in such manner as the Board of Directors may prescribe. Securities
may be valued by independent pricing services which use prices provided by
market-makers or estimates of market values obtained from yield data relating
to instruments or securities with similar characteristics. Short-term
investments having a maturity of 60 days or less are valued at amortized cost,
unless the Board of Directors determines that such valuation does not
constitute fair value. In valuing assets, prices denominated in foreign
currencies are converted to U.S. dollar equivalents at the current exchange
rate. Securities for which reliable quotations or pricing services are not
readily available and all other securities and assets are valued at fair value
in good faith by, or under procedures established by, the Fund's Board of
Directors.
Repurchase Agreements: The Fund engages in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
agreement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right to use the collateral to offset losses incurred. There is potential loss
to the Fund in the event the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities during the period
while the Fund seeks to assert its rights. The Fund's investment adviser,
acting under the supervision of the Fund's Board of Directors, reviews the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
Foreign Currency: The books and records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of
the period, and purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions.
Unrealized gains and losses which result from changes in foreign currency
exchange rates have been included in the unrealized appreciation/
(depreciation) of currencies and net other assets. Net foreign currency gains
and losses resulting from changes in exchange rates include foreign currency
gains and losses between trade date and settlement date on investment
securities transactions, foreign currency transactions and the difference
between the amounts of interest and dividends recorded on the books of the
Fund and the amounts actually received. The portion of foreign currency gains
and losses related to fluctuation in the exchange rates between the initial
purchase trade date and subsequent sale trade date is included in realized
gains and losses on investment securities sold.
Forward Foreign Currency Contracts: The Fund has entered into forward foreign
currency contracts for purposes other than trading in order to reduce its
exposure to fluctuations in foreign currency exchange on its portfolio
holdings. Forward foreign currency contracts are valued at the forward rate
and are marked-to-market daily. The change in market value is recorded by the
Fund as an unrealized gain or loss. When the contract is closed, the Fund
records a realized gain or loss 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.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's investment securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the Fund
could be exposed to risks if the counterparties to the contracts are unable to
meet the terms of their contracts.
Securities Transactions and Investment Income: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Dividend income and interest income may be subject to foreign
withholding taxes.
Dividends and Distributions to Shareholders: The Fund intends to distribute
annually to shareholders substantially all of its net investment income and to
distribute any realized capital gains at least annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and
gains on various investment securities held by the Fund, timing differences
and differing characterization of distributions made by the Fund.
Federal Income Taxes: The Fund intends to qualify as a regulated investment
company, if such qualification is in the best interest of its shareholders, by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by distributing
substantially all of its taxable income to its shareholders. Therefore, no
Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED
PARTY TRANSACTIONS
Lehman Brothers Global Asset Management Limited ("LBGAM"), an indirect wholly-
owned subsidiary of Lehman Brothers Holdings Inc. ("Holdings"), serves as the
Fund's investment adviser pursuant to an investment advisory agreement (the
"Advisory Agreement"). LBGAM provides investment advisory services to the Fund
and is responsible for the management of the Fund's portfolio of investments
in accordance with the Fund's investment objectives and policies. Under the
Advisory Agreement, LBGAM is entitled to receive a monthly fee at an annual
rate of 1.25% of the value of the Fund's average weekly net assets.
The Shareholder Services Group, Inc. ("TSSG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's U.S. Administrator (the "U.S.
Administrator") pursuant to an administration agreement (the "Administration
Agreement"). Under the Administration Agreement, TSSG is entitled to receive a
monthly fee at an annual rate of 0.10% of the value of the Fund's average
weekly net assets, subject to a minimum annual fee of $100,000. TSSG also acts
as the Fund's transfer agent, dividend paying agent and registrar.
The Fund is required under the laws of Brazil, Chile and Colombia to appoint a
local administrator in connection with the Fund's investments in each such
country. Banco Geral, Boston Inversiones Servicios, and Fiducomerico act as
local administrators for the Fund in Brazil, Chile and Colombia, respectively,
pursuant to arrangements established by Boston Safe Deposit and Trust Company
("Boston Safe"), the Fund's custodian.
Boston Safe, an indirect wholly-owned subsidiary of Mellon Bank Corporation,
serves as the Fund's custodian and may employ sub-custodians outside of the
United States.
The Toyo Trust and Banking Company, Limited 4-3, Marunouchi 1-chome, Chiyoda-
ku, Tokyo, Japan, serves as the Fund's dividend paying agent and shareholder
servicing agent for the Fund's common stock that is beneficially owned by
investors in Japan.
No officer, director, or employee of LBGAM, TSSG or any parent or subsidiary
of those corporations receives any compensation from the Fund for serving as a
director or officer of the Fund. The Fund pays each director who is not a
director, an officer or employee of LBGAM, TSSG or any of their affiliates
$7,000 per annum plus $1,000 for each Regular or Special Board Meeting
attended in person or by telephone, plus related travel and out-of-pocket
expenses.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the period ended April 30, 1995, aggregated $34,022,663, and
$24,346, respectively.
At April 30, 1995, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $1,501,684 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $5,523,356.
4. SHARES OF CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common Stock
($0.001 par value). Changes in shares outstanding for the Fund were as
follows:
PERIOD ENDED
04/30/95*
SHARES AMOUNT
- ------------------------------------------------------------------------------
Initial issuance of shares** 4,000,000 $55,799,992
- ------------------------------------------------------------------------------
Total increase 4,000,000 $55,799,992
- ------------------------------------------------------------------------------
*The Fund commenced operations on November 7, 1994.
**On October 26, 1994, the Fund sold a total of 7,169 shares to Lehman
Brothers and proceeds to the Fund amounted to $100,008. Proceeds to the Fund
on the public offering of 4,000,000 shares of its common stock amounted to
$55,799,992 before offering costs of $1,108,313. Underwriting discounts and
commissions paid directly to Lehman Brothers and other underwriters amounted
to $4,200,000.
5. ORGANIZATION COSTS
The Fund bears all costs in connection with its organization and offering,
including fees and expenses of registering and qualifying its shares for
distribution under Federal and state securities regulations. All such costs
are being amortized on the straight-line method over a period of five years
from the commencement of operations of the Fund. In the event that any of the
initial shares of the Fund are redeemed during such amortization period, the
Fund will be reimbursed for any unamortized organization costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
6. ANTIDISCOUNT MEASURES
If, at any time after the second year following the initial offering of the
Fund's shares of Common Stock, shares of the Fund's Common Stock publicly
trade for a substantial period of time at a significant discount from the
Fund's then current net asset value per share, the Fund's Board of Directors
will consider, at its next regularly scheduled meeting, authorizing various
actions designed to reduce the discount. These actions may include periodic
repurchases of shares, tender offers to purchase shares from all stockholders
at net asset value or recommending to shareholders conversion to an open-end
investment company. No assurance can be given that the Fund's Board of
Directors will convert to an open-end investment company or that repurchases
or tender offers will be made or that if made, they will reduce or eliminate
market discount.
7. NON-U.S. SECURITIES
At April 30, 1995, 50.4% of the Fund's net assets were invested in Latin
American securities. There are significant differences between Latin American
and U.S. securities markets, including, among others, greater price
volatility, less liquidity, smaller market capitalization and less government
supervision and regulation in the Latin American securities markets.
Consequently, acquisitions and dispositions by the Fund of securities in these
markets may be inhibited.
8. SUBSEQUENT EVENT
On June 14, 1995, the Board of Directors authorized an interim sub-investment
advisory agreement (the "Sub-Advisory Agreement") among LBGAM, IDS
International Inc. ("IDSI") and the Fund. Under the Sub-Advisory Agreement,
IDSI has assumed day-to-day investment responsibilities for the Fund pending
the submission to, and approval by, both the Fund's Board of Directors and
shareholders of a proposal that the Fund enter into a new investment advisory
agreement with IDSI. The Fund's current investment advisory agreement with
LBGAM will remain in effect during the interim period.
- ------------------------------------------------------------------------------
<TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<CAPTION>
NET REALIZED AND UNREALIZED NET DECREASE IN NET ASSETS
NET INVESTMENT INCOME LOSS ON INVESTMENTS RESULTING FROM OPERATIONS
TOTAL TOTAL TOTAL
QUARTER ENDED (000) PER SHARE (000) PER SHARE (000) PER SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1995* .................. $264 $0.07 $(3,381) $(0.85) $(3,117) $(0.78)
April 30, 1995 ..................... 379 0.09 (824) (0.20) (445) (0.11)
- -----------------------------------------------------------------------------------------------------------------------------------
*For the period November 7, 1994 through January 31, 1995.
</TABLE>
DIVIDEND REINVESTMENT PLAN
The Fund intends to distribute annually to shareholders substantially all of
its net investment income, and to distribute any net realized capital gains at
least annually. Net investment income for this purpose is income other than
net realized long and short-term capital gains net of expenses. Pursuant to
the Dividend Reinvestment Plan (the "Plan"), shareholders whose shares of
Common Stock are registered in their own names will be deemed to have elected
to have all distributions automatically reinvested by The Shareholder Services
Group, Inc. (the "Plan Agent") in Fund shares pursuant to the Plan unless such
shareholders elect to receive distributions in cash. Shareholders who elect to
receive distribution in cash will receive all distributions in cash paid by
check in U.S. dollars mailed directly to the shareholder by The Shareholder
Services Group, Inc., as dividend paying agent. In the case of shareholders,
such as banks, brokers or nominees, that hold shares for others who are
beneficial owners, the Plan Agent will administer the Plan on the basis of the
number of shares certified from time to time by the shareholders as
representing the total amount registered in such shareholders' names and held
for the account of beneficial owners that have not elected to receive
distributions in cash. Investors who own shares registered in the name of a
bank, broker or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the
Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash, non-
participants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent
in the open market, as provided below. If the market price per share on the
valuation date equals or exceeds net asset per share on that date, the Fund
will issue new shares to participants at net asset value, provided, however,
if the net asset value is less than 95% of the market price on the valuation
date, then such shares will be issued at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a trading day on the exchange on which the Fund's shares are
listed, the next preceding trading day. If net asset value exceeds the market
price of Fund shares at such time, or if the Fund should declare an income
dividend or capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, for
the participant's accounts on, or shortly after, the payment date. If, before
the Plan Agent has completed its purchases, the market price exceeds the net
asset value of a Fund share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in
the acquisition of fewer shares than if the distribution had been paid in
shares issued by the Fund on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the Plan provides
that the Plan Agent is unable to invest the full dividend amount in open-
market purchases during the purchase period or if the market discount shifts
to a market premium during the purchase period, the Plan Agent will cease
making open-market purchases and will receive the uninvested portion of the
dividend amount in newly issued shares at the close of business on the last
purchase date.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for personal and U.S. Federal tax records. Shares in
the account of each Plan participant will be held by the Plan Agent in the
name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions. The Plan Agent's fees for the handling of the reinvestment of
dividends and capital gains distributions will be paid by the Fund. There will
be no brokerage charges with respect to shares issued directly by the Fund as
a result of dividends or capital gains distributions payable either in stock
or in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends and capital gains distributions
made by the participant. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and pro-rating the lower
commission thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any U.S. Federal income tax which may be payable on such
dividends or distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the
Plan as applied to any dividend or distribution paid subsequent to notice of
the termination sent to members of the Plan at least thirty days before the
record date for such dividend or distribution. The Plan also may be amended by
the Fund or Plan Agent, but (except when necessary or appropriate to comply
with applicable law, rules of policies of a regulatory authority) only by at
least thirty days' written notice to participants in the Plan. All
correspondence concerning the Plan should be directed to the Plan Agent at
P.O. Box 1376, Boston, Massachusetts 02104.
<PAGE>
LEHMAN BROTHERS LATIN AMERICA GROWTH FUND, INC.
3 World Financial Center
New York, NY 10285
1-800-861-4171 (U.S. Residents)
1-617-573-9410 (Non U.S. Residents)
DIRECTORS AND OFFICERS INVESTMENT ADVISER
Andrew D. Gordon Lehman Brothers Global Asset
Chairman of the Board Management Limited
Two Broadgate
Philip H. Didricksen, Jr. London, England EC2M 7HA
Director
Rodman L. Drake ADMINISTRATOR AND
Director TRANSFER AGENT
William Kunkler The Shareholder Services Group, Inc.
Director 53 State Street
Boston, MA 02109-2873
Kathleen C. Holmes McClave
Director
INDEPENDENT AUDITORS
Peer Pedersen
Director Ernst & Young LLP
200 Clarendon Street
Kirk D. Hartman Boston, MA 02116
President
Patricia L. Bickimer, Esq. LEGAL COUNSEL
Secretary
Simpson Thacher & Bartlett
Michael Kardok 425 Lexington Avenue
Treasurer New York, NY 10017
CUSTODIAN
Boston Safe Deposit & Trust Company
One Boston Place
Boston, MA 02108
<PAGE>
LEHMAN BROTHERS
(C) LEHMAN BROTHERS INC. ALL RIGHTS RESERVED
MEMBER SIPC
