LATIN AMERICA
GROWTH FUND, INC.
APRIL 30, 1996
SEMI-ANNUAL REPORT
IDS INTERNATIONAL INC.
MEMBER OF IMRO
OFFICES IN LONDON, MINNEAPOLIS,
HONG KONG, SINGAPORE
LATIN AMERICA GROWTH FUND, INC.
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Page
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From the Portfolio Manager 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
Additional Information 15
</TABLE>
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This report is sent to the shareholders of the 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.
LATIN AMERICA GROWTH FUND, INC.
FROM THE PORTFOLIO MANAGER APRIL, 1996
Dear Shareholder,
It is my pleasure to present the semi-annual report for the Latin America
Growth Fund, Inc. (the "Fund") covering the six months ended April 30, 1996.
You will recall that the Fund is a diversified, closed-end management
investment fund designed for investors to participate in the securities markets
in Latin America. The Fund's objective is long-term capital appreciation,
through investments in a broad spectrum of Latin American industries. This
objective and the Fund's policy to invest, under normal market conditions, at
least 80% of its total assets in the equity securities of Latin American issuers
that at the time of purchase have a market capitalization of less than U.S. $500
million, are fundamental policies which cannot be changed without the approval
of the holders of a majority of the Fund's outstanding voting securities.
Because any investment involves risk, achieving this objective cannot be
guaranteed.
During the period under review, the net asset value of the Fund rose by
3.9%. The recovery in the Fund's net asset value performance followed the
traumatic events of the preceding year, when the Mexican devaluation
overshadowed all the markets in the region. While there has been no single event
that has given rise to the recovery of the Latin American markets, the most
important feature has been the return of confidence on the part of both the
domestic and the overseas investor. However, for the most part, this confidence
has confined itself to the largest companies in the markets, meaning that the
smaller companies in which the Fund is invested still have significant potential
for strong performance in the future.
ECONOMIC PERFORMANCE
The anticipation of a recovery in the major economies of the region was one
of the catalysts for the renewed capital flows to Latin America. In turn, this
phenomenon has contributed to the vicious circle of activity, allowing local
policy makers greater freedom in setting monetary policy. Sharp falls in
domestic interest rates, supported by a benign global monetary environment, have
set the stage for recovery. The most encouraging sign has been in the early
indications that increased liquidity in the Latin American financial system is
being diverted to the real economy, promoting renewed activity. Last year it was
evident that these funds were being held in the financial system, in many cases
necessarily to boost the health of the system, rather than being put towards new
investment. Recent economic statistics appear to support the case for a renewal
of growth in industrial production.
LATIN AMERICA INDUSTRIAL PRODUCTION
Line graph shown using plot points below:
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Mar-94 107.92
Apr-94 107.56
May-94 109.80
Jun-94 108.47
Jul-94 107.69
Aug-94 107.98
Sep-94 108.91
Oct-94 111.10
Nov-94 112.16
Dec-94 113.27
Jan-95 112.79
Feb-95 113.31
Mar-95 113.80
Apr-95 112.30
May-95 108.19
Jun-95 104.30
Jul-95 102.46
Aug-95 102.53
Sep-95 101.72
Oct-95 102.88
Nov-95 103.34
Dec-95 104.32
Jan-96 103.78
Feb-96 104.97
Mar-96 105.86
</TABLE>
Composite of Argentina, Brazil and Mexico -- Three Month Moving Average
Source: J.P. Morgan, IDS International Inc.
1
LATIN AMERICA GROWTH FUND, INC.
FROM THE PORTFOLIO MANAGER (continued) APRIL, 1996
It is not surprising that in the recent environment of recession
inflationary pressures have been minimal. It is not expected that inflation will
present any problems over the course of this year, with low capacity utilization
rates and high unemployment the dominant features around the region. The only
exception to this may be CHILE, where consistently strong economic growth may
become capacity constrained this year.
The external accounts of many countries have improved over the last eighteen
months, alleviating some of the pressures that had built so consistently in
1994. This is not the case, however, in PERU, where the current account deficit
remains a relatively high percentage of GDP, although it has recently shown
signs of falling from the peak it reached last year of 6.4%.
POLITICAL REVIEW AND OUTLOOK
The saga of the survival of Economy Minister Cavallo in ARGENTINA has
continued, causing much debate locally and occasional consternation among
overseas investors. In spite of the apparent rift with President Menem, Cavallo
remains in office. Politics will inevitably remain an issue in Argentina over
the course of this year, but, on current form, Cavallo appears able to hang on
to his office with impressive tenacity.
There has been recurrent nervousness that fiscal and constitutional reform
in BRAZIL will be derailed by vested local interests. On specific occasions
there has been evidence of a behind-the-scenes compromise, which some have
suggested may undermine the momentum behind the reform process. In fact, in such
a diverse political climate it is inevitable that the reform of such complex
systems will take time. It appears that President Cardoso remains firmly in
control of the process, and this is an encouraging signal.
The political landscape in MEXICO may face one of its most severe tests in
next year's congressional elections. Having wielded power for such a long time,
there now may be a real chance that the incumbent Institutional Revolutionary
Party ("PRI") will face a serious challenge to its power base, with the
possibility of no longer having a congressional majority. This is increasingly
likely if the economic recovery falters at any stage. Under these circumstances,
Mexican politics would enter uncharted waters, with the opposition National
Action Party ("PAN") having a real influence on legislation. For the PRI's
political purposes, it is clear that the economic recovery must be safeguarded
at all costs.
THE EQUITY MARKETS
The prospects of economic recovery have seen the Latin American markets
return to favor in 1996, supported by buoyancy in most global asset markets.
Since the level of activity in most of the markets had seen daily volumes fall
to very low levels over the course of the last year, new portfolio flows in 1996
into the region have focused for the most part on the largest and most liquid
stocks, as represented by the Morgan Stanley Capital International ("MSCI")
Latin America Free Index.
MSCI LATIN AMERICA FREE INDEX ($)
Line graph shown using plot points below:
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10-Apr-95 687.07
17-Apr-95 677
24-Apr-95 739.21
1-May-95 750.56
8-May-95 781.55
15-May-95 800.98
22-May-95 814.56
29-May-95 781.84
5-Jun-95 803.5
12-Jun-95 764.75
19-Jun-95 761.13
26-Jun-95 751.19
3-Jul-95 775.03
10-Jul-95 844.85
17-Jul-95 848.45
24-Jul-95 817
31-Jul-95 795.8
7-Aug-95 846.06
14-Aug-95 810.01
21-Aug-95 820.33
28-Aug-95 807.72
4-Sep-95 821.34
11-Sep-95 831.66
18-Sep-95 834.52
25-Sep-95 795.77
2-Oct-95 776.05
9-Oct-95 767.1
16-Oct-95 774.68
23-Oct-95 767.68
30-Oct-95 736.46
6-Nov-95 711.09
13-Nov-95 675.65
20-Nov-95 702.43
27-Nov-95 721.5
4-Dec-95 750.83
11-Dec-95 736.49
18-Dec-95 734.91
25-Dec-95 773.98
1-Jan-96 763.01
8-Jan-96 815.36
15-Jan-96 809.25
22-Jan-96 831.76
29-Jan-96 830.31
5-Feb-96 857.93
12-Feb-96 845.15
19-Feb-96 821.28
26-Feb-96 822.8
4-Mar-96 813.06
11-Mar-96 769.59
18-Mar-96 779.71
25-Mar-96 804.06
1-Apr-96 804.38
8-Apr-96 765.52
15-Apr-96 819.55
22-Apr-96 838.17
29-Apr-96 836.75
6-May-96 830.1
13-May-96 860.82
</TABLE>
2
LATIN AMERICA GROWTH FUND, INC.
FROM THE PORTFOLIO MANAGER (continued) APRIL, 1996
This chart shows how the markets began to recover in November last year,
initially led by ARGENTINA, and then in January MEXICO and BRAZIL contributed to
the rally. At this stage, however, the rises in the market remain for the most
part confined to the larger companies; the stocks of the smaller companies in
which the Fund is invested have only recently shown signs of improvement. As the
recovery in the regional economies and markets gathers pace and broadens, it may
be that the stocks of smaller companies regain some of the ground lost to their
competitors. We believe the Fund may be well-positioned to be a beneficiary of
this phenomenon.
THE PORTFOLIO
The Fund's portfolio remains well-diversified across a broad range of
economic sectors in six countries in Latin America. The largest single country
exposure is in ARGENTINA, where the Fund has benefited from good performance by
medium-sized companies over the last six months. Conversely, a relatively large
investment in the PERUVIAN equity market has held back the performance of the
Fund to some extent so far this year. There are now signs that this may be
changing, and the continued promotion of Peru by the government as the
privatization process continues should increase the profile of this market.
Over the course of the period under review, there has been little turnover
in the portfolio. Some small illiquid positions in BRAZIL have been realized.
The current emphasis of the Fund is the medium-sized company sector, where
stocks are expected to perform better over the course of this year. Nonetheless,
the strategy of the Fund will continue to emphasize holding positions for the
long term, as the companies in which it invests develop in line with the
emergence of the region.
Sincerely,
/s/ Ian King
IAN KING
Portfolio Manager
3
LATIN AMERICA GROWTH FUND, INC.
PORTFOLIO HIGHLIGHTS APRIL 30, 1996 (UNAUDITED)
ASSET DISTRIBUTION (BY COUNTRY)
Percentages based on total investments
Pie chart divided using figures below:
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Argentina 25.1%
United States 11.2%
Brazil 22.5%
Peru 15.5%
Mexico 17.2%
Chile 5.4%
Colombia 3.1%
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ASSET DISTRIBUTION (BY INSTRUMENT)
Percentages based on total investments
Pie chart divided using figures below:
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Common Stocks 66.3%
Preferred Stocks 22.5%
U.S. Government Agency Obligation 7.3%
Commercial Paper 3.9%
</TABLE>
INDUSTRY BREAKDOWN
Percentages based on total investments
Pie chart divided using figures below:
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Banking/Finance 10.4%
Utility 9.6%
Food and Beverages 9.5%
Transportation 8.4%
Construction & Building Materials 7.3%
U.S. Government Agency Obligation 7.3%
Metals and Mining 6.7%
Household Appliances 6.6%
Capital Goods 3.8%
Automobile and Accessories 4.5%
Other Stocks 22.0%
Commercial Paper 3.9%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
TOP TEN HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
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1. Federal Home Loan Mortgage Corporation, Discount Note 7.3%
2. General Electric Capital Corporation IB 3.9
3. Refrigercao Parana (REFRIPAR) 3.6
4. Marcopolo, Series B 3.4
5. Credicorp Ltd. 3.3
6. Cementos Lima Common 3.1
7. Corporacion Cementaria Argentina (CORCEMAR) 3.1
8. Enrique Ferreyros 3.0
9. Grupo Financiero del Norte, Series B 2.9
10. Banco Wiese, ADR 2.8
----
36.4%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
LATIN AMERICA GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1996 (UNAUDITED)
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<CAPTION>
VALUE
SHARES (NOTE 1)
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<S> <C> <C>
COMMON STOCKS -- 66.4%
ARGENTINA -- 25.1%
500,000 Astra Compania Argentina de Petroleo $ 1,062,622
254,000 Bagley, Series B 538,542
150,000 Capex 1,102,627
300,000 Central Costanera 1,020,117
300,000 Central Puerto, Series B 1,080,124
205,733 Compania Interamericana de Automoviles (CIADEA) 1,193,388
335,000 Corporacion Cementaria Argentina (CORCEMAR)+ 1,474,169
23,000 Disco, ADR 365,125
220,000 Fiplasto+ 759,087
50,000 Grimoldi, Series B 200,023
2,000,000 Indupa 926,107
308,642 Inversiones y Representaciones (IRSA) 932,206
96,000 Juan Minetti 386,925
100,000 Molinos Rio de la Plata+ 1,040,120
-----------
12,081,182
-----------
CHILE -- 5.4%
40,000 Chilquinta, ADR 635,000
74,000 Laboratorios de Chile, ADR 999,000
60,000 Maderas y Sinteticas, ADR (MASISA) 952,500
-----------
2,586,500
-----------
COLOMBIA -- 3.1%
72,000 Carulla 481,333
71,422 Corporacion Financiera del Valle, Series B, ADR (CORFIVALLE) 678,507
300,000 Gran Cadena de Almacenes Colombianos (CADENALCO) 344,617
-----------
1,504,457
-----------
MEXICO -- 17.3%
3,000 Grupo Bufete Industrial, ADR 52,500
50,000 Grupo Casa Autrey, ADR 1,143,750
1,000,000 Grupo Financiero del Norte, Series B 1,391,655
2,000,000 Grupo Industrial Camesa, Series B+ 936,743
500,000 Grupo Posadas, Series L+ 228,802
60,000 Grupo Radio Centro, ADR 532,500
469,000 Industrias Campos Hermanos, Series B+ 1,161,454
520,000 Sistema Argos, Series B 338,735
150,000 Transportacion Maritima Mexicana, ADR (TMM) 1,256,250
148,600 Tubos de Acero de Mexico, ADR (TAMSA)+ 1,263,100
-----------
8,305,489
-----------
PERU -- 15.5%
200,000 Banco Wiese, ADR 1,350,000
126,952 Cementos Lima Common 1,494,178
57,988 Cementos Norte Pacasmayo 90,511
94,103 Credicorp Ltd. 1,599,757
1,063,000 Enrique Ferreyros 1,434,971
371,181 Indeco Peruana+ 184,769
1,091,254 Industrias Pacocha 690,521
76,808 Minsur Trabajo 622,111
-----------
7,466,818
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TOTAL COMMON STOCKS (COST $31,399,415) 31,944,446
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
LATIN AMERICA GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (continued) APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
PREFERRED STOCKS -- 22.5%
BRAZIL -- 22.5%
52,100,000 Bombril $ 892,798
8,000,000 Casa Anglo 419,334
1,200,000 Celesc, Series B+ 786,251
80,000,000 Ceval 927,373
32,300,000 Continental 2001 559,686
1,200,000 Frigobras 665,289
3,750,000 Iochpe-Maxion 415,806
8,000,000 Marcopolo, Series B 1,645,078
120,000,000 Organizacao Sisternas Aplicas, (OSA) 985,837
2,000,000,000 Randon Participacoes 1,149,136
700,000,000 Refrigeracao Parana (REFRIPAR) 1,742,856
202,000 Renner Herrmann 274,885
4,160,000 Sao Paulo Alpargatas 383,690
-----------
TOTAL PREFERRED STOCKS (COST $16,128,524) 10,848,019
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
----------
<S> <C> <C>
SHORT-TERM INSTRUMENTS -- 11.2%
COMMERCIAL PAPER -- 3.9% (COST $1,879,000)
$ 1,879,000 General Electric Capital Corporation IB, 5.350% due 05/01/1996 1,879,000
-----------
U.S. GOVERNMENT AGENCY OBLIGATION -- 7.3% (COST $3,490,431)
Federal Home Loan Mortgage Corporation, Discount Note, 5.201%++
3,500,000 due 05/20/1996 3,490,431
-----------
TOTAL SHORT-TERM INSTRUMENTS (COST $5,369,431) 5,369,431
-----------
TOTAL INVESTMENTS (COST $52,897,370*) 100.1% 48,161,896
OTHER ASSETS AND LIABILITIES (NET) (0.1) (42,731)
----- -----------
NET ASSETS 100.0% $48,119,165
----- -----------
</TABLE>
* 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.
6
LATIN AMERICA GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1996 (UNAUDITED)
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<S> <C> <C>
ASSETS:
Investments, at value (Cost $52,897,370) (Note 1)
See accompanying schedule $48,161,896
Cash and foreign currency (Cost $120,188) 56,222
Unamortized organization costs (Note 5) 111,897
Dividends receivable 81,911
-----------
TOTAL ASSETS 48,411,926
-----------
LIABILITIES:
Custodian fees payable (Note 2) $115,000
Offering costs payable (Note 4) 52,000
Investment advisory fee payable (Note 2) 47,503
Legal and audit fees payable 27,335
Accrued shareholder reports expense 24,691
Transfer agent fees payable (Note 2) 10,118
Administration fee payable (Note 2) 8,174
Accrued Directors' fees and expenses (Note 2) 4,167
Accrued expenses and other payables 3,773
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TOTAL LIABILITIES 292,761
-----------
NET ASSETS $48,119,165
-----------
NET ASSETS consist of:
Distributions in excess of net investment income $ (42,349)
Accumulated net realized loss on securities, forward foreign currency
contracts and foreign currencies (2,070,124)
Net unrealized depreciation of securities, forward foreign currency
contracts, foreign currencies and net other assets (4,737,231)
Par value of common stock 4,007
Paid-in capital in excess of par value of common stock 54,964,862
-----------
TOTAL NET ASSETS $48,119,165
-----------
NET ASSET VALUE:
Net asset value per share
($48,119,165 / 4,007,169 shares of common stock outstanding) $ 12.01
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
LATIN AMERICA GROWTH FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $21,671) $ 408,292
Interest 189,146
-----------
TOTAL INVESTMENT INCOME 597,438
-----------
EXPENSES:
Investment advisory fee (Note 2) $287,265
Custodian fees (Note 2) 74,682
Administration fee (Note 2) 49,727
Shareholder reports expense 36,149
Directors' fees and expenses (Note 2) 28,434
Transfer agent fees (Note 2) 21,720
Amortization of organization costs (Note 5) 15,455
Other 33,604
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TOTAL EXPENSES 547,036
-----------
NET INVESTMENT INCOME 50,402
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(Notes 1 and 3):
Net realized loss on:
Securities (1,339,113)
Forward foreign currency contracts (4,462)
Foreign currencies (7,197)
-----------
Net realized loss on investments during the period (1,350,772)
-----------
Net change in unrealized appreciation/(depreciation) of:
Securities 3,897,121
Forward foreign currency contracts 23
Foreign currencies and net other assets (151)
-----------
Net unrealized appreciation of investments during the period 3,896,993
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,546,221
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,596,623
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
LATIN AMERICA GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
4/30/96 ENDED
(UNAUDITED) 10/31/95*
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<S> <C> <C>
Net investment income $ 50,402 $ 840,930
Net realized loss on securities, forward foreign currency contracts and foreign
currencies during the period (1,350,772) (856,690)
Net unrealized appreciation/(depreciation) of securities, forward foreign currency
contracts, foreign currencies and net other assets during the period 3,896,993 (8,634,224)
----------- -----------
Net increase/(decrease) in net assets resulting from operations 2,596,623 (8,649,984)
Distributions to shareholders from net investment income (803,558) --
Net increase in net assets from Fund share transactions (Note 4) -- 55,799,992
Offering costs reimbursed/(charged) to paid-in capital (Note 4) 12,575 (936,491)
----------- -----------
Net increase in net assets 1,805,640 46,213,517
----------- -----------
NET ASSETS:
Beginning of period 46,313,525 100,008
----------- -----------
End of period (including (distributions in excess of net investment income)/
undistributed net investment income ($42,349) and $710,807, respectively) $48,119,165 $46,313,525
----------- -----------
</TABLE>
* The Fund commenced operations on November 7, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
9
LATIN AMERICA GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
4/30/96 ENDED
(UNAUDITED) 10/31/95*
----------- ---------
<S> <C> <C>
Net Asset Value, beginning of period $ 11.56 $ 13.95
------- -------
Income from investment operations:
Net investment income 0.01 0.21
Net realized and unrealized gain/(loss) on investments 0.64 (2.37)
------- -------
Total from investment operations 0.65 (2.16)
------- -------
Offering costs reimbursed/(charged) to paid-in capital 0.00# (0.23)
Distributions from net investment income (0.20) --
------- -------
Net Asset Value, end of period $ 12.01 $ 11.56
------- -------
Market Value, end of period $ 10.38 $ 9.50
------- -------
Total return+ 11.18% (36.67)%
------- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $48,119 $46,314
Ratio of operating expenses to average net assets 2.38%** 2.43%**
Ratio of net investment income to average net assets 0.22%** 1.68%**
Portfolio turnover rate 7% 7%
Average commission rate (per share of security)(a) $0.0001 --
</TABLE>
- --------
* 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 based on market
value at period end.
# Amount represents less than $0.01 per share.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
10
LATIN AMERICA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
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 preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. 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, or under
procedures established by, the Fund's Board of Directors.
Repurchase Agreements: The Fund may engage 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.
11
LATIN AMERICA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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
IDS International Inc. ("IDSI") serves as the Fund's investment adviser
pursuant to an investment advisory agreement (the "Advisory Agreement"). IDSI
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 objective and policies. Under the Advisory Agreement, IDSI 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.
First Data Investor Services Group, Inc. ("FDISG") (formerly known as The
Shareholder Services Group, Inc.), 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, FDISG 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 minimum annual fee of $100,000. FDISG 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.
12
LATIN AMERICA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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 IDSI, FDISG 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 IDSI, FDISG 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 six months ended April 30, 1996 aggregated
$4,849,056 and $2,786,116, respectively.
At April 30, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $4,876,658 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $9,612,132.
4. SHARES OF CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.001 par value). For the six months ended April 30 1996, there were no
share transactions. Changes in shares outstanding for the Fund were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
10/31/95*
SHARES AMOUNT
------ ------
<S> <C> <C>
Initial issuance of shares** 4,000,000 $55,799,992
--------- -----------
Total increase 4,000,000 $55,799,992
--------- -----------
</TABLE>
* The Fund commenced operations on November 7, 1994.
** On October 26, 1994, the Fund sold a total of 7,169 shares to Lehman
Brothers Inc. 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 $936,491.
Underwriting discounts and commissions paid directly to Lehman Brothers
Inc. and other underwriters amounted to $4,200,000. For the six months
ended April 30, 1996, the Fund was reimbursed $12,575 of the original
offering costs of $936,491.
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.
13
LATIN AMERICA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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, 1996, 88.9% 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. CAPITAL LOSS CARRYFORWARD
At October 31, 1995, the Fund had for Federal tax purposes unused capital
losses of $719,352 expiring on October 31, 2003, which can be used to offset
future net capital gains.
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE/(DECREASE)
NET INVESTMENT NET REALIZED AND UNREALIZED IN NET ASSETS
INCOME/(LOSS) GAIN/(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)
July 31, 1995 170 0.04 (523) (0.13) (353) (0.09)
October 31, 1995 28 0.01 (4,763) (1.19) (4,735) (1.18)
January 31, 1996 (2) (0.00)# 3,276 0.82 3,274 0.82
April 30, 1996 52 0.01 (730) (0.18) (678) (0.17)
</TABLE>
- --------------------------------------------------------------------------------
* For the period November 7, 1994 thorugh January 31, 1995.
# Amount represents less than $0.01 per share.
14
LATIN AMERICA GROWTH FUND, INC.
ADDITIONAL INFORMATION (unaudited)
RESULTS OF SHAREHOLDER MEETING
On February 12, 1996, the Fund held an Annual Meeting of Shareholders to
consider (1) the election of five Directors and (2) the ratification of the
selection of Ernst & Young LLP as independent auditors. The results of each
proposal are as follows:
PROPOSAL 1: ELECTION OF DIRECTORS.
<TABLE>
<CAPTION>
NAME FOR AGAINST
---- --- -------
<S> <C> <C>
Peter L. Lamaison 3,254,359 75,360
Philip H. Didriksen, Jr. 3,256,939 72,780
Rodman L. Drake 3,255,759 73,960
Kathleen C. McClave 3,253,659 76,060
Peer Pedersen 3,255,059 74,660
</TABLE>
PROPOSAL 2: SELECTION OF INDEPENDENT AUDITORS
<TABLE>
<S> <C>
Voted:
FOR: 3,306,845
AGAINST: 14,379
ABSTAIN: 8,495
</TABLE>
15
LATIN AMERICA GROWTH FUND, INC.
One Exchange Place
Boston, MA 02109
DIRECTORS AND OFFICERS INVESTMENT ADVISER
Peter L. Lamaison IDS International Inc.
Chairman of the Board 11th Floor Dashwood House
and President 69 Old Broad Street
London EC2M 1QS
Philip H. Didriksen, Jr. United Kingdom
Director
INFORMATION NUMBERS
Rodman L. Drake
Director 1-800-310-8239
1-612-671-2334
Kathleen C. McClave
Director ADMINISTRATOR AND
TRANSFER AGENT
Peer Pedersen
Director First Data Investor Services
Group, Inc.
Ian King One Exchange Place
Vice President Boston, MA 02109-2873
and Investment Officer
SHAREHOLDER SERVICE NUMBER
Patricia L. Bickimer, Esq.
Secretary 1-800-331-1710
Michael Kardok INDEPENDENT AUDITORS
Treasurer
Ernst & Young LLP
FUND COUNSEL 200 Clarendon Street
Boston, MA 02116
Shereff, Friedman, Hoffman &
Goodman CUSTODIAN
919 Third Avenue
New York, NY 10022 Boston Safe Deposit & Trust
Company
One Boston Place
Boston, MA 02108
