<PAGE>
LATIN AMERICA GROWTH FUND, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
From the Chairman...................................................................... 1
From the Portfolio Manager............................................................. 2
Portfolio Highlights................................................................... 5
Portfolio of Investments............................................................... 6
Statement of Assets and Liabilities.................................................... 8
Statement of Operations................................................................ 9
Statement of Changes in Net Assets..................................................... 10
Financial Highlights................................................................... 11
Notes to Financial Statements.......................................................... 12
Quarterly Results of Operations........................................................ 16
Report of Independent Auditors......................................................... 17
Additional Information................................................................. 18
</TABLE>
------------------------------------
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.
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FROM THE CHAIRMAN
Dear Shareholders:
It is my pleasure to take this opportunity to inform you of recent
decisions made by the Board of Directors for the Latin America Growth Fund, Inc.
(the "Fund"). In an effort to provide the Fund with a higher profile to
stimulate ongoing investor interest, whilst providing up-to-date information to
shareholders, the Board is taking the actions outlined below.
1. The Board is recommending to shareholders to vote in favor of A CHANGE
IN THE FUND'S NAME TO LATIN AMERICA SMALLER COMPANIES FUND, INC. It is the
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. The change to the Fund's name will explicitly reflect the objective of
the Fund and will help clarify its characteristics, whilst more properly
distinguishing the Fund from regional peers, which should result in increasingly
informative industry comparisons.
2. The Board has decided to enroll the Fund for MEMBERSHIP IN THE CLUB.
This service provides an indication of membership in prominent financial
publications with an 800 number through which potential investors can easily
request literature and obtain the latest financial reports.
3. Starting in 1998 QUARTERLY REPORTING will be made available to provide
shareholders and prospective investors with more timely information.
These actions are the result of discussions during which the Board of
Directors has considered the fact that the Fund's common stock has been trading
at a discount. Whilst noting that the Fund's discount is in the range
experienced by similar closed-end funds, the Board has considered possible
actions to take in an effort to reduce or eliminate the discount. An independent
expert was retained to assist in an analysis of possible actions. The analysis
reflected that the discount dilemma has been creatively tackled by closed-end
funds over the years with most actions initiating only short-term if any
positive results on the discount. Although the action of open ending a fund
would have a long-term effect it would present implications that may compromise
the current investment strategy.
The Fund chose the closed-end structure because of the flexibility it can
provide to an investment strategy. An open-end fund requires maintenance of a
cash reserve and/or increased trading activity of fund investments in order to
meet the cash flows generated by the purchases and redemptions of fund shares.
As a closed-end fund, the Fund is able to stay fully invested in stocks
consistent with its investment objectives. We believe that the object of the
Fund to seek growth through investment in shares in relatively small
capitalization Latin American companies can only be achieved effectively through
a closed-end structure. It would be difficult to buy and sell less liquid
securities at efficient prices on short notice to meet the constant cash flow
requirements of an open-end fund. These factors were carefully considered by the
Board as they evaluated potential actions.
The Board's fiduciary obligation is to act in the best interest of the Fund
and all of its shareholders. Thus far, the Board has concluded that, at this
time, it is not in the best interest of the Fund or its shareholders to
undertake any strategy which would significantly alter the fundamental structure
of the Fund. The Board will continue to monitor the Fund's market price and
evaluate what, if any, additional actions may be appropriate.
Sincerely,
/s/ Peter Lamaison
PETER LAMAISON
Chairman of the Board
1
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FROM THE PORTFOLIO MANAGER OCTOBER, 1997
Dear Shareholder:
PERFORMANCE
Over the last twelve months the net asset value of a share of the Latin
America Growth Fund has risen by 5.2%. Events in equity markets around the world
during the month of October eroded a large part of the gains that the Fund had
made during the earlier part of the year. In addition, the stocks of smaller
companies in Latin America have lagged behind their larger counterparts for much
of the last two years. Most notably, it had been the stocks of larger
capitalization BRAZILIAN companies, particularly those where the government is
scheduled to sell its controlling stake, that had led the way. In the first half
of 1997 the index of larger companies stocks in Brazil had risen by nearly 100%
at one point, before falling back dramatically later in the year. The Latin
America Growth Fund has only limited access to this sector of the market, owning
one of the smaller regional electricity companies, CELESC.
Until the volatility of October, there had been evidence of a growing
'smaller companies effect' in MEXICO. This phenomenon usually follows a period
of sustained good performance by larger companies in an equity market, and is
characterised by investment funds seeking new ideas in the smaller companies
sector of the market. Selected smaller companies in which the Fund had stakes,
such as INDUSTRIAS CAMPOS HERMANOS (ICH), a specialty steel company, had
performed exceptionally well. However, no stock was immune from the sell-off in
October, and smaller and larger capitalization stocks fell together.
ECONOMIC REVIEW -- 'ASIAN CONTAGION'
Currency declines around the Asian region eventually had an impact on Latin
America in 1997. The day that the problems of the smaller Asian countries spread
to Hong Kong, the rest of the investment world took notice and countries with
currencies pegged to the dollar came in for speculative attack. The obvious
targets in Latin America were the BRAZILIAN real and the ARGENTINE peso. The
real proved particularly susceptible to attack since it was clearly overvalued
against other major currencies and since the country's current account balance
had been deteriorating for some time. Nonetheless, the Brazilian central bank
has had at its disposal extensive foreign reserves and has thus far proven able
to beat off the speculators. It has also made use of monetary means to attract
capital into the country, pushing up interest rates to punitively high levels.
This is having a dramatic effect on the state of domestic demand, with consumer
spending falling very sharply. It is widely predicted that the Brazilian economy
will slip into recession next year, with obvious negative effects on companies
reliant on the domestic consumer. The Latin America Growth Fund's exposure to
this sector has been reduced in recent months.
ARGENTINA has fared much better than Brazil, although the peso remains a
target for attack. Local interest rates have moved up to add some protection,
but the buffer that Argentina had was in the form of a stronger domestic
economy. Demand had already begun to fall in Brazil when the Asian crisis hit,
but in Argentina industrial production growth had been comparatively strong.
Looking ahead, there will be an impact on the Argentine economy, but it will
certainly not be as marked as in Brazil. Indeed, one of the greatest sources of
weakness for Argentine companies will manifest itself in a fall in demand from
its neighbour.
Against this turbulent backdrop MEXICO has demonstrated its attractions.
Having gone through such a dramatic crisis only three years ago the country has
proven itself well able to withstand some of the attacks that have afflicted
other countries. One of the main reasons for this is that the Mexican peso had
been appreciating for most of the year, but without intervention from the
central bank. Similarly, the currency was allowed to slip when all Latin
American currencies came under attack, but immediately recovered when the
turbulence subsided. The net effect has been only a modest fall in the peso,
something which the authorities had originally been keen to engineer. This has
made the Mexican market even more attractive, since the recent statistics
concerning economic growth
2
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FROM THE PORTFOLIO MANAGER (CONTINUED) OCTOBER, 1997
have shown a surge in industrial activity which is expected to continue well
into 1998. This is one of the reasons why Mexico accounts for the largest
portion of the Latin America Growth Fund.
[BAR CHART]
POLITICAL REVIEW
1997 will be remembered as the year in which the PRI's stranglehold on
MEXICAN politics came to an end. Until the beginning of July the ruling party in
Mexico had the dubious distinction of being the longest-standing political
administration in the post-Soviet age. With the loss of the PRI's overall
majority Mexico welcomed in a new era of political pluralism. After the initial
feeling of euphoria had abated, attention moved to the reality of governing
under the new system. There is little doubt that the Mexican legislature has
little experience of government by negotiation and so the first few votes on
significant issues will be key in establishing the ability of Congress to make
progress. The alternative is inactivity and inertia.
President Menem of ARGENTINA also saw his party's majority disappear in the
October elections. Once again this may have negative implications for the
legislative process in Argentina, but even at this early stage it is the
political jockeying in the run-up to the 1999 presidential elections that is
drawing attention. Notwithstanding this wrangling, it is very positive that none
of the potential candidates has dared criticize the Convertibility Plan, which
remains sacrosanct. This bodes very well for the longer-term health of the
Argentine economy.
In PERU President Fujimori's administration continues to be hit by scandals
and allegations, such that his popularity with the people has fallen to record
low levels. Nonetheless, he remains firmly in control at the moment, although it
seems unlikely that he will be able amend the constitution to stand for a
further term in office in 2000.
In recent history it would have been unheard of to compare Latin American
politics favourably with politics in the Asian 'Tiger' economies. However, the
benefits of decisive, outward-looking political regimes in Latin America have
recently become clear. The policy inertia of Asia is in stark contrast to the
willingness of Latin American governments to take action to avert a deepening
crisis. Immediately following the collapse of the Hong Kong market, for example,
President Cardoso of Brazil pushed through a package of measures designed to
shore up the economy. It is this
3
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FROM THE PORTFOLIO MANAGER (CONTINUED) OCTOBER, 1997
commitment to reform that should enable the region to emerge successfully from
the current turmoil.
OUTLOOK
It is to be expected, therefore, that Latin America will consolidate its
favourable comparisons with Asia as we move into 1998. Growth in Mexico and
Argentina will remain strong, while further reforms, privatizations and
elections will dominate the news in Brazil as the economy recovers later in the
year. The key event of 1998 will most likely be the presidential election in
Brazil, which should see President Cardoso returned to office. This will be of
primary importance, ensuring that a firm hand is at the controls of the largest
economy in the region. As far as markets are concerned, it can be anticipated
that the state sector in Brazil will continue to dominate market activity.
Emphasis in the smaller companies arena will remain in those areas with strong
earnings growth, which will mean particularly Mexican cyclical companies. The
Latin America Growth Fund is well-positioned to benefit from this. However, in
general it can be expected that larger capitalization stocks will be the first
to pick up, before recoveries broaden out, and lead to good performance by the
smaller companies in which the Fund is invested.
Sincerely,
/s/ Ian King
IAN KING
Portfolio Manager
4
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENTAGES
ASSET DISTRIBUTION BASED ON TOTAL
(BY COUNTRY) INVESTMENTS
--------------------------------------------------------------
<S> <C>
United States.................................... 4.9%
Argentina........................................ 13.6%
Colombia......................................... 1.5%
Chile............................................ 8.6%
Mexico........................................... 36.5%
Peru............................................. 16.7%
Brazil........................................... 19.2%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGES
ASSET DISTRIBUTION BASED ON TOTAL
(BY INSTRUMENT) INVESTMENTS
--------------------------------------------------------------
<S> <C>
Common Stocks.................................... 75.9%
Commercial Paper................................. 4.9%
Preferred Stocks................................. 19.2%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGES
BASED ON TOTAL
INDUSTRY BREAKDOWN INVESTMENTS
--------------------------------------------------------------
<S> <C>
Computers........................................ 2.5%
Other Stocks..................................... 2.4%
Commercial Paper................................. 4.9%
Retail........................................... 5.6%
Chemicals........................................ 5.7%
Consumer Goods................................... 2.5%
Leisure.......................................... 1.5%
Telecommunications............................... 3.5%
Pharmaceuticals.................................. 2.5%
Forest Products.................................. 2.4%
Real Estate...................................... 2.0%
Automobiles and Accessories...................... 4.7%
Capital Goods.................................... 3.2%
Household Appliances............................. 3.7%
Metals and Mining................................ 9.4%
Construction and Building Materials.............. 8.9%
Transportation................................... 7.5%
Food and Beverages............................... 9.5%
Utility.......................................... 4.9%
Banking/Finance.................................. 11.1%
Diversified...................................... 1.6%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
TEN LARGEST HOLDINGS NET ASSETS
--------------------------------------------------------------
<S> <C>
1. General Electric Capital Corporation, 4.9%
Commercial Paper
2. Industrias Campos Hermanos, S.A., Series B 4.8
3. Sanluis Corporacion, S.A. de C.V. 4.2
4. Credicorp Ltd. 4.0
5. Perdigao, S.A. 3.8
6. Bombril Cirio, S.A. 3.7
7. Grupo Iusacell, S.A., ADR 3.6
8. Grupo Financiero Banorte S.A. de C.V., Series 3.4
B
9. Cementos Lima, S.A. 3.3
10. Ferreyros, S.A. 3.2
----
38.9%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 76.0%
ARGENTINA -- 13.6%
4 Astra Compania Argentina de Petroleo $ 6
750,000 Atanor, S.A. 1,065,647
286,200 Banco Del Suquia, S.A. 778,935
139,567 Compania Interamericana de Automoviles (CIADEA) 269,529
250,000 Corporacion Cementaria Argentina (CORCEMAR) 1,220,739
932,128 Indupa, S.A. 1,156,539
308,642 Inversiones y Representaciones (IRSA) 1,037,667
164,717 Juan Minetti, S.A. 543,898
533,333 Sociedad Comercial del Plata 789,811
-----------
6,862,771
-----------
CHILE -- 8.6%
183,300 Empresas Telex Chile, ADR 893,588
50,000 Laboratorios de Chile, ADR 1,256,250
100,000 Maderas y Sinteticas, ADR (MASISA) 1,225,000
36,000 Vina Concha y Toro, S.A., ADR 981,000
-----------
4,355,838
-----------
COLOMBIA -- 1.5%
27,000 Cementos Diamante, ADR, Class B++ 364,500
312,000 Gran Cadena de Almacenes Colombianos (CADENALCO) 384,299
-----------
748,799
-----------
MEXICO -- 36.6%
400,000 Acer Computec Latino America, S.A.+ 1,247,761
49,000 Bufete Industrial, S.A., ADR+ 722,750
75,000 Grupo Casa Autrey, ADR 1,284,375
1,200,000 Grupo Elektra, S.A. de C.V. 1,633,433
1,250,000 Grupo Financiero Banorte S.A. de C.V., Series B+ 1,716,418
2,000,000 Grupo Industrial Camesa, S.A., Series B+ 1,194,030
100,000 Grupo Iusacell, S.A., ADR+ 1,800,000
60,000 Grupo Radio Centro, ADR 765,000
469,000 Industrias Campos Hermanos, S.A., Series B+ 2,408,000
275,000 Sanluis Corporacion, S.A. de C.V. 2,127,761
520,000 Sistema Argos, S.A., Series B 757,493
225,000 Transportacion Maritima Mexicana, S.A. de C.V., ADR (TMM) 1,631,250
60,000 Tubos de Acero de Mexico S.A., ADR (TAMSA)+ 1,211,250
-----------
18,499,521
-----------
PERU -- 15.7%
200,000 Banco Wiese, ADR 1,112,500
79,924 Cementos Lima, S.A. 1,663,243
112,924 Credicorp Ltd. 2,025,574
1,587,956 Ferreyros, S.A. 1,637,671
54,837 Indeco S.A. 13,533
1,091,254 Industrias Pacocha, S.A. 510,458
365,059 Minsur, S.A. 981,558
-----------
7,944,537
-----------
TOTAL COMMON STOCKS (COST $33,570,177) 38,411,466
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS -- 19.2%
BRAZIL -- 19.2%
224,030,001 Bombril Cirio, S.A. $ 1,887,831
1,476,047 Centrais Eletricas de Santa Catarina, S.A., Series B (CELESC) 1,593,266
80,000,000 Ceval Alimentos, S.A. 637,852
700,000,000 Electrolux do Brasil, S.A. 812,735
8,000,000 Marcopolo, S.A. 1,251,757
1,100,000,000 Perdigao, S.A. 1,945,667
2,000,000,000 Randon Participacoes, S.A.+ 907,071
250,000,000 Trikem, S.A.+ 678,035
-----------
TOTAL PREFERRED STOCKS (COST $13,753,438) 9,714,214
-----------
FACE VALUE
- ------------------------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS -- 4.9%
COMMERCIAL PAPER -- 4.9% (COST $2,497,000)
$2,497,000 General Electric Capital Corporation, 5.790% due 11/03/1997 2,497,000
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $49,820,615*)
100.1% 50,622,680
OTHER ASSETS AND LIABILITIES (NET)
(0.1) (68,691)
- -----------------------------------------------------------------------------------------------
NET ASSETS
100.0% $50,553,989
===============================================================================================
</TABLE>
* Aggregate cost for Federal tax purposes is $50,774,724.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
ADR -- American Depositary Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $49,820,615) (Note 1)
See accompanying schedule $50,622,680
Cash and foreign currency (Cost $121,276) 117,824
Dividends and interest receivable 101,099
Unamortized organization costs (Note 5) 63,980
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS 50,905,583
===============================================================================================
LIABILITIES:
Legal and audit fees payable $84,375
Investment advisory fee payable (Note 2) 61,402
Custodian fees payable (Note 2) 28,886
Transfer agent fees payable (Note 2) 24,500
Accrued Directors' fees and expenses (Note 2) 14,400
Administration fee payable (Note 2) 8,448
Accrued expenses and other payables 129,583
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 351,594
===============================================================================================
NET ASSETS $50,553,989
===============================================================================================
NET ASSETS CONSIST OF:
Distributions in excess of net investment income $ (316,556)
Accumulated net realized loss on securities, forward
foreign currency contracts and foreign currencies (4,894,609)
Net unrealized appreciation of securities, foreign
currencies and net other assets 796,285
Par value of common stock 4,007
Paid-in capital in excess of par value of common stock 54,964,862
- -----------------------------------------------------------------------------------------------
TOTAL NET ASSETS $50,553,989
===============================================================================================
NET ASSET VALUE:
Net asset value per share
($50,553,989 / 4,007,169 shares of common stock
outstanding) $12.62
===============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $1,002) $ 1,010,123
Interest 182,695
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,192,818
===============================================================================================
EXPENSES:
Investment advisory fee (Note 2) $670,031
Legal and audit fees 107,825
Custodian fees (Note 2) 102,198
Administration fee (Note 2) 100,000
Transfer agent fees (Note 2) 80,757
Directors' fees and expenses (Note 2) 55,706
Shareholder reports expense 39,626
Amortization of organization costs (Note 5) 31,686
Other 45,781
- -----------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,233,610
- -----------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (40,792)
===============================================================================================
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(Notes 1 and 3):
Net realized loss on:
Securities (2,157,320)
Forward foreign currency contracts (94,696)
Foreign currencies and net other assets (6,886)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments during the year (2,258,902)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of:
Securities 5,505,196
Foreign currencies and net other assets (4,794)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments during
the year 5,500,402
===============================================================================================
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 3,241,500
===============================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,200,708
===============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/97 10/31/96
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss) $ (40,792) $ 19,353
Net realized loss on securities, forward foreign currency
contracts, foreign currencies and net other assets during
the year (2,258,902) (1,518,848)
Net change in unrealized appreciation of securities, forward
foreign currency contracts, foreign currencies and net other
assets during the year 5,500,402 3,930,107
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,200,708 2,430,612
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (599,586) (803,558)
Distributions in excess of net investment income (287) --
Offering costs reimbursed/(charged) to paid-in capital (Note
4) -- 12,575
- -----------------------------------------------------------------------------------------------
Net increase in net assets 2,600,835 1,639,629
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 47,953,154 46,313,525
- -----------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of ($316,556) and ($106,053),
respectively) $50,553,989 $47,953,154
===============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
10/31/97 10/31/96 10/31/95*
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 11.97 $ 11.56 $ 13.95
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) (0.01) 0.00# 0.21
Net realized and unrealized gain/(loss) on
investments 0.81 0.61 (2.37)
- -------------------------------------------------------------------------------------------------
Total from investment operations 0.80 0.61 (2.16)
- -------------------------------------------------------------------------------------------------
Distributions from net investment income (0.15) (0.20) --
Distributions in excess of net investment income (0.00)# -- --
Offering costs reimbursed/(charged) to paid-in capital -- 0.00# (0.23)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 12.62 $ 11.97 $ 11.56
=================================================================================================
Market Value, end of year $ 10.00 $ 9.75 $ 9.50
=================================================================================================
Total return+ 3.85% 4.49% (36.67)%
=================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $50,554 $47,953 $46,314
Ratio of operating expenses to average net assets 2.30% 2.22% 2.43% **
Ratio of net investment income/(loss) to average net
assets (0.08)% 0.04% 1.68% **
Portfolio turnover rate 39% 22% 7 %
Average commission rate paid (a) $0.0001 $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 and $(0.01) per share.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund. The ratio of commissions paid to principal trades for the year
ended October 31, 1997 and October 31, 1996 were 0.44% and 0.51%
respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 by, 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
12
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
For the year ended October 31, 1997, permanent differences resulting from
book and tax accounting for forward foreign currency contracts and currency
transactions were reclassified from accumulated net realized loss to
distribution in excess of net investment income in the amount of $430,162.
Federal Income Taxes: The Fund's policy is to comply with the provisions
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
American Express Asset Management International Inc. ("AEAMI"), formerly
IDS International Inc., serves as the Fund's investment adviser pursuant to an
investment advisory agreement (the "Advisory Agreement"). AEAMI 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, AEAMI 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., 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, the U.S. Administrator is
entitled to receive a monthly fee at an annual rate of 0.10% of the value of the
13
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Fund's average weekly net assets, subject to minimum annual fee of $100,000.
First Data Investor Services Group, Inc. 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 AEAMI, First Data Investor Services
Group, Inc. 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 AEAMI,
First Data Investor Services Group, Inc. 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 year ended October 31, 1997, aggregated
$19,639,239 and $19,361,128, respectively.
At October 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $7,271,817 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $7,423,861.
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 year ended October 31, 1997, there were no
share transactions. Transactions in shares outstanding for the Fund were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
October 26, 1994* 7,169 $ 100,008
Initial issuance of shares in public
offering** 4,000,000 55,799,992
- -------------------------------------------------------------------------------------------------
Total increase*** 4,007,169 $55,900,000
=================================================================================================
</TABLE>
* 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.
** The Fund commenced operations on November 7, 1994.
*** Offering costs of $936,491 were charged to paid-in capital in connection
with the offering of the Fund's shares during the period ended October 31,
1995. Underwriting discounts and commissions paid directly to Lehman
Brothers Inc. and other underwriters amounted to $4,200,000. For the year
ended October 31, 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
14
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
The Fund's prospectus provides that 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.
The Board regularly considers means to reduce the discount at each
quarterly meeting of the Board. The Board has evaluated a number of approaches
including conversion to open-end status. However, in view of the fact that the
Fund is designed for investment in shares of relatively small capitalization
companies in Latin America, the Board currently believes that the interests of
shareholders will be best served by continuing to operate in the present manner
as a closed-end fund.
7. NON-U.S. SECURITIES
At October 31, 1997, 95.1% 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, 1997, the Fund had available for Federal tax purposes unused
capital losses of $719,350 expiring on October 31, 2003, $1,486,195 expiring on
October 31, 2004 and $2,664,807 expiring on October 31, 2005, which can be used
to offset future net capital gains.
15
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET
NET REALIZED AND INCREASE/(DECREASE)
UNREALIZED IN NET ASSETS
NET INVESTMENT GAIN/(LOSS) ON RESULTING FROM
INCOME/(LOSS) INVESTMENTS OPERATIONS
TOTAL TOTAL TOTAL
QUARTER ENDED (000) PER SHARE (000) PER SHARE (000) PER SHARE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR 1996
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)
July 31, 1996............... (7) (0.00)# 405 0.10 398 0.10
October 31, 1996............ (24) (0.01) (540) (0.13) (564) (0.14)
- -----------------------------------------------------------------------------------------------------------
TOTAL..................... 19 0.00# 2,411 0.61 2,430 0.61
===========================================================================================================
FISCAL YEAR 1997
January 31, 1997............ (113) (0.03) 3,399 0.85 3,286 0.82
April 30, 1997.............. 105 0.03 1,721 0.43 1,826 0.46
July 31, 1997............... 80 0.02 6,594 1.64 6,673 1.66
October 31, 1997............ (113) (0.03) (8,472) (2.11) (8,584) (2.14)
- -----------------------------------------------------------------------------------------------------------
TOTAL..................... (41) (0.01) 3,242 0.81 3,201 0.80
===========================================================================================================
</TABLE>
# Amount represents less than $0.01 and $(0.01) per share.
16
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Latin America Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Latin America Growth Fund, Inc., including the schedule of portfolio investments
as of October 31, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the two years in
the period then ended and for the period from November 7, 1994 (Commencement of
operations) to October 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Latin America Growth Fund, Inc. at October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the two years in the period then ended and for the period from November 7, 1994
(Commencement of operations) to October 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
December 12, 1997
17
<PAGE>
LATIN AMERICA GROWTH INC.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
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 First Data Investor 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 distributions in cash will receive all distributions in cash paid by
check in U.S. dollars mailed directly to the shareholder by First Data Investor
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 that 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 the net asset value 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 if 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 confirmations 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
18
<PAGE>
LATIN AMERICA GROWTH INC.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
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 or 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.
19
<PAGE>
LATIN AMERICA GROWTH FUND, INC.
One Exchange Place
Boston, MA 02109
<TABLE>
<S> <C>
DIRECTORS AND OFFICERS INVESTMENT ADVISER
Peter L. Lamaison American Express Asset Management
Chairman of the Board International Inc.
11th Floor Dashwood House
Philip H. Didriksen, Jr. 69 Old Broad Street
Director London EC2M 1Qs
United Kingdom
Rodman L. Drake
Director INFORMATION NUMBERS
1-800-310-8239
Kathleen C. McClave 1-612-671-2334
Director
ADMINISTRATOR AND
Peer Pedersen TRANSFER AGENT
Director
First Data Investor Services Group, Inc.
Ian King One Exchange Place
Vice President Boston, MA 02109-2873
and Investment Officer
SHAREHOLDER SERVICE NUMBER
Christine P. Ritch, Esq. 1-800-331-1710
Secretary
INDEPENDENT AUDITORS
Michael Kardok
Treasurer Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
FUND COUNSEL CUSTODIAN
Shereff, Friedman, Hoffman & Goodman, LLP Boston Safe Deposit & Trust Company
919 Third Avenue One Boston Place
New York, NY 10022 Boston, MA 02108
</TABLE>
