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LATIN AMERICA
SMALLER COMPANIES FUND, INC.
JULY 31, 1998
QUARTERLY REPORT
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American Express Asset Management
International Inc.
Regulated by IMRO
Affiliated Offices in London, Minneapolis,
Hong Kong, Singapore, Tokyo
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
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FROM THE CHAIRMAN
Dear Shareholder:
As you may be aware, a press release was issued on September 11, 1998
regarding the Latin America Smaller Companies Fund, Inc. (the "Fund"). The text
of the press release follows:
Latin America Smaller Companies Fund, Inc. announces that
the Board of Directors has approved, subject to a majority vote
of the Fund's shareholders, management's proposal for an
orderly liquidation of the Fund. Shareholders will be asked to
vote on the proposal at the next annual meeting, currently
scheduled to be held in February 1999.
Latin America Smaller Companies Fund, Inc., a closed-end
investment company listed on the New York Stock Exchange (under
the symbol "LLF") as well as listed on the Osaka Securities
Exchange, is advised by American Express Asset Management
International Inc.
Further information related to the proposed liquidation will be included in
the proxy materials for the shareholder meeting. While we await the results of a
shareholder vote, the Fund will continue to be managed as necessitated by the
Fund's investment guidelines and current market conditions.
Sincerely,
/s/ Peter LaMaison
PETER LAMAISON
Chairman of the Board
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
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FROM THE PORTFOLIO MANAGER JULY, 1998
Dear Shareholder:
The Latin America Smaller Companies Fund, Inc. (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.
MARKET REVIEW
The pounding that emerging markets have taken over the last quarter saw the
net asset value of a share of the Fund fall by -20.21%. Any potential frailty in
economic structures in an emerging country is being exploited as a justification
for attacking fixed currency regimes, irrespective of the comparative merits of
the underlying economy. In Latin America this has precipitated a homogeneous
fall in the equity markets of the region, dragging down the stocks of larger and
smaller companies alike. The dramatic absolute fall in the Fund's net asset
value is a reflection of this, and it should also be pointed out that the drying
up of liquidity in all the markets of Latin America is making it increasingly
difficult to trade, especially in the shares of smaller companies. Also, as a
result of this any sizeable sale of shares in the stocks of smaller Latin
American companies is having an exaggeratedly negative effect on the prices of
these shares, which in turn impacts the value of the Fund.
ECONOMIC AND POLITICAL REVIEW
ECONOMIC CONDITIONS ARE WEAK AND DETERIORATING...
At the time at which this report is being written it is BRAZIL that is
being put under the greatest pressure. The twin deficits, on the current account
and the fiscal accounts, are being seen as symptoms of an economic frailty that
can be exploited through attacking the currency regime. The potential
implications of a devaluation of the real are wide-ranging, extending well
beyond Latin American borders. The rest of Latin America would certainly be
brought under intense pressure, and the obvious impact would be felt in
ARGENTINA, which relies on Brazil for a large part of its export earnings. The
frailties that have been allowed to develop unchecked in Brazil are principally
down to political considerations. Over the course of the period under review the
government should have acted to control fiscal spending; instead they have
allowed spending to continue unchecked and collection to continue to be poor.
Political expediency has supplanted fiscal necessity, allowing the deficit to
escalate to over 7% of GDP, an extremely high and unsustainable level,
especially if it is to be financed by new government debt issuance. The
implications of devaluation of the real are of even greater concern, with a
possibility that the economy will return to the bad old days of hyperinflation,
as the currency collapses and prices have to rise domestically.
Growth around the Latin American continent, except in Brazil, has continued
to be relatively robust, but is now showing signs of slowing, in some cases
quite dramatically. Whereas industrial production growth during the months of
June and July had been above 5% in MEXICO and Argentina, prospects for the
coming months are for quite a sharp slowdown, especially owing to the need to
keep interest rates at a high level to protect currencies. The other retardant
on growth in almost all countries in the region, although to a lesser or greater
degree, depending on the country, is the very low level of commodity prices.
Whether it be copper in CHILE, gold in PERU, or oil in VENEZUELA and Argentina,
depressed prices are depressing earnings. In the near term this shows no signs
of abating.
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
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FROM THE PORTFOLIO MANAGER (CONTINUED) JULY, 1998
...BUT POLITICIANS WILL TAKE ACTION
In stark contrast to the 1980s there are favorable comparisons being made
between the politicians of Latin America and those in the 'wounded Tigers' of
Asia. Introspective crony capitalism in Asia is now being vilified in favour of
the outward-looking, pro-business regimes of Latin America. This fact alone
should mean that the policy response to the brewing crisis in Brazil and other
Latin American countries should be more positive and more effective.
OUTLOOK
At this stage it is difficult to envisage a concerted recovery in the
stocks of Latin American companies. Our ongoing financial review of conditions
in the region lead us to the conclusion that the companies in which the Fund is
invested are well-capitalized and well-positioned to benefit from any potential
recovery in the economies. Should the region be plunged into depression by the
current crisis this position will have to be reviewed further. Looking further
ahead, the continuation of the current political systems should mean that Latin
America weathers the storm. In the near term, however, ongoing volatility
appears inevitable.
Sincerely,
/s/ Ian King
IAN KING
Portfolio Manager
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
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PORTFOLIO OF INVESTMENTS JULY 31, 1998 (UNAUDITED)
<TABLE>
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SHARES VALUE
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COMMON STOCKS -- 66.2%
ARGENTINA -- 19.3%
4 Astra Cia Argentina De Petroleo S.A. $ 6
750,000 Atanor, S.A. 712,860
319,076 Banco Del Suquia, S.A. 699,130
250,000 Corporacion Cementaria Argentina (CORCEMAR) 1,488,252
932,128 Indupa, S.A. 713,438
164,717 Juan Minetti, S.A. 655,905
1,133,333 Sociedad Comercial del Plata 1,190,601
47,000 Telefonica de Argentina, ADR 1,700,813
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7,161,005
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CHILE -- 6.8%
50,000 Laboratorios de Chile, ADR 675,000
100,000 Maderas y Sinteticas, ADR (MASISA) 718,750
36,000 Vina Concha y Toro, S.A., ADR 1,125,000
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2,518,750
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MEXICO -- 31.0%
269,000 Acer Computec Latino America, S.A.+ 117,632
459,800 Corporacion Interamericana de Entretenimiento S.A., Series
B+ 1,433,250
61,306 Corporacion Interamericana de Entretenimiento S.A., Series L 169,101
600,000 Grupo Elektra, S.A. de C.V. 466,895
1,965,600 Grupo Emp Privado Mexicano, Series B 877,175
1,776,000 Grupo Financiero Bancomer, S.A. de C.V., Series B 589,444
575,000 Grupo Financiero Banorte S.A. de C.V., Series B+ 582,833
61,000 Grupo Iusacell S.A., ADR, Series L+ 979,813
110,000 Grupo Radio Centro, ADR 1,045,000
200,000 Industrias Campos Hermanos, S.A., Series B+ 717,609
345,000 Sanluis Corporacion, S.A. de C.V. 1,384,874
520,000 Sistema Argos, S.A., Series B 445,456
225,000 Transportacion Maritima Mexicana, S.A. de C.V., ADR (TMM) 1,560,938
115,000 Tubos de Acero de Mexico S.A., ADR (TAMSA)+ 1,128,437
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11,498,457
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PERU -- 9.1%
200,000 Banco Wiese, ADR 700,000
42,000 Cementos Lima, S.A. 854,905
711,956 Ferreyros, S.A. 918,339
470,712 Minsur, S.A. 865,770
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3,339,014
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TOTAL COMMON STOCKS (COST $29,268,639) 24,517,226
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</TABLE>
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
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PORTFOLIO OF INVESTMENTS (CONTINUED) JULY 31, 1998 (UNAUDITED)
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SHARES VALUE
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PREFERRED STOCKS -- 27.0%
BRAZIL -- 27.0%
224,030,001 Bombril Cirio, S.A. $ 900,589
276,047 Centrais Eletricas de Santa Catarina, S.A., Series B
(CELESC) 232,621
80,000,000 Ceval Alimentos, S.A. 330,195
25,000,000 CESP-Companhia Energetica de Sao Paulo+ 722,301
2,100,000,000 Compania de Electricidade do Estado do Rio de Janeiro 1,101,509
55,000 Compania Vale do Rio Doce 1,135,045
800,000 Marcopolo, S.A. 1,307,021
1,100,000,000 Perdigao, S.A. 1,607,980
2,000,000,000 Randon Participacoes, S.A.+ 687,906
7,030,000 Telecomunicacoes do Rio de Janeiro S.A. (TELERJ) 495,083
8,000,000 Telecomunicacoes de Minas Gerais, Series B (TELEMIG) 529,687
8,000,000 Telemig Celular S.A., Series C 378,898
9,000,000 Telerj Celular S.A., Series B 572,682
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TOTAL PREFERRED STOCKS (COST $16,585,288) 10,001,517
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FACE VALUE
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SHORT-TERM INSTRUMENTS -- 6.8%
COMMERCIAL PAPER -- 6.8% -- (COST $2,511,000)
$2,511,000 General Electric Capital Corporation, 5.660%, due 08/03/1998 2,511,000
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</TABLE>
<TABLE>
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TOTAL INVESTMENTS (COST $48,364,927*) 100.0% 37,029,743
OTHER ASSETS AND LIABILITIES (NET)# 0.0 9,627
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NET ASSETS 100.0% $37,039,370
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* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
# Rounds to less than 0.1%.
ADR -- American Depositary Receipt.
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
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QUARTERLY RESULTS OF OPERATIONS JULY 31, 1998 (UNAUDITED)
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NET REALIZED AND UNREALIZED NET INCREASE/(DECREASE)
NET INVESTMENT GAIN/(LOSS) ON IN NET ASSETS
INCOME/(LOSS) INVESTMENTS RESULTING FROM OPERATIONS
TOTAL TOTAL TOTAL
QUARTER ENDED (000) PER SHARE (000) PER SHARE (000) PER SHARE
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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)
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TOTAL.................. $ (41) $(0.01) $ 3,242 $ 0.81 $ 3,201 $ 0.80
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FISCAL YEAR 1998
January 31, 1998......... $(120) $(0.03) $ (7,021) $(1.75) $ (7,141) $(1.78)
April 30, 1998........... 194 0.05 4,056 1.01 4,250 1.06
July 31, 1998............ 98 0.02 (9,456) (2.36) (9,358) (2.34)
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TOTAL.................. $ 172 $ 0.04 $(12,421) $(3.10) $(12,249) $(3.06)
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LATIN AMERICA SMALLER COMPANIES FUND, INC.
One Exchange Place
Boston, MA 02109
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DIRECTORS AND OFFICERS INVESTMENT ADVISER
Peter L. Lamaison American Express Asset Management International Inc.
Chairman of the Board 11th Floor Dashwood House
Philip H. Didriksen, Jr. 69 Old Broad Street
Director London EC2M 1Qs
Rodman L. Drake United Kingdom
Director INVESTOR RELATIONS
Kathleen C. McClave 1-800-310-8239
Director (Recorded Market Commentary)
Peer Pedersen 1-612-671-2334
Director (To request additional information)
Ian King ADMINISTRATOR AND
Vice President TRANSFER AGENT
and Investment Officer First Data Investor Services Group, Inc.
Coleen Downs Dinneen, Esq. One Exchange Place
Secretary Boston, MA 02109-2873
Michael Kardok SHAREHOLDER SERVICE NUMBER
Treasurer 1-800-331-1710
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
FUND COUNSEL CUSTODIAN
Swidler Berlin Shereff Friedman, LLP Boston Safe Deposit & Trust Company
919 Third Avenue One Boston Place
New York, NY 10022 Boston, MA 02108
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