UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-06574

 

The Latin American Discovery Fund, Inc.

(Exact name of registrant as specified in charter)

 

522 Fifth Avenue, New York, New York

 

10036

(Address of principal executive offices)

 

(Zip code)

 

Arthur Lev

522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

201-830-8894

 

 

Date of fiscal year end:

December 31, 2012

 

 

Date of reporting period:

September 30, 2012

 

 



 

Item 1.  Schedule of Investments.

 

The Fund’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:

 



 

The Latin American Discovery Fund, Inc.

Portfolio of Investments

Third Quarter Report

September 30, 2012 (unaudited)

 

 

 

Shares

 

Value
(000)

 

Common Stocks (99.4%)

 

 

 

 

 

Brazil (55.8%)

 

 

 

 

 

Beverages

 

 

 

 

 

Cia de Bebidas das Americas (Preference) ADR

 

172,400

 

$

6,598

 

 

 

 

 

 

 

Commercial Banks

 

 

 

 

 

Banco Bradesco SA (Preference)

 

131,580

 

2,114

 

Banco Bradesco SA ADR

 

256,610

 

4,124

 

Itau Unibanco Holding SA (Preference)

 

179,000

 

2,701

 

Itau Unibanco Holding SA (Preference) ADR

 

158,142

 

2,416

 

 

 

 

 

11,355

 

Food & Staples Retailing

 

 

 

 

 

Raia Drogasil SA

 

102,700

 

1,180

 

 

 

 

 

 

 

Food Products

 

 

 

 

 

BRF - Brasil Foods SA

 

280,202

 

4,839

 

 

 

 

 

 

 

Health Care Providers & Services

 

 

 

 

 

Amil Participacoes SA

 

152,920

 

1,837

 

Diagnosticos da America SA

 

191,100

 

1,150

 

 

 

 

 

2,987

 

Household Durables

 

 

 

 

 

PDG Realty SA Empreendimentos e Participacoes

 

725,480

 

1,367

 

 

 

 

 

 

 

Information Technology Services

 

 

 

 

 

Cielo SA

 

82,240

 

2,052

 

 

 

 

 

 

 

Machinery

 

 

 

 

 

Iochpe-Maxion SA

 

91,300

 

1,198

 

 

 

 

 

 

 

Metals & Mining

 

 

 

 

 

Gerdau SA (Preference)

 

29,000

 

276

 

Gerdau SA ADR

 

128,400

 

1,221

 

Vale SA

 

19,206

 

346

 

Vale SA (Preference)

 

36,912

 

642

 

Vale SA (Preference) ADR

 

389,545

 

6,762

 

Vale SA ADR

 

94,500

 

1,692

 

 

 

 

 

10,939

 

Oil, Gas & Consumable Fuels

 

 

 

 

 

Petroleo Brasileiro SA

 

121,960

 

1,402

 

Petroleo Brasileiro SA (Preference)

 

496,926

 

5,483

 

Petroleo Brasileiro SA ADR

 

192,700

 

4,421

 

Petroleo Brasileiro SA Sponsored ADR

 

86,073

 

1,900

 

Ultrapar Participacoes SA

 

141,500

 

3,183

 

 

 

 

 

16,389

 

Real Estate Management & Development

 

 

 

 

 

BR Malls Participacoes SA

 

158,700

 

2,204

 

 

 

 

 

 

 

Trading Companies & Distributors

 

 

 

 

 

Mills Estruturas e Servicos de Engenharia SA

 

100,500

 

1,452

 

 

 

 

 

62,560

 

 



 

 

 

Shares

 

Value
(000)

 

Chile (10.6%)

 

 

 

 

 

Chemicals

 

 

 

 

 

Sociedad Quimica y Minera de Chile SA ADR

 

57,400

 

$

3,538

 

 

 

 

 

 

 

Commercial Banks

 

 

 

 

 

Banco Santander Chile ADR

 

28,600

 

2,095

 

 

 

 

 

 

 

Food & Staples Retailing

 

 

 

 

 

Cencosud SA

 

346,173

 

2,098

 

 

 

 

 

 

 

Independent Power Producers & Energy Traders

 

 

 

 

 

Empresa Nacional de Electricidad SA

 

1,171,324

 

1,899

 

Empresa Nacional de Electricidad SA ADR

 

2,300

 

110

 

 

 

 

 

2,009

 

Multi-line Retail

 

 

 

 

 

SACI Falabella

 

217,321

 

2,190

 

 

 

 

 

11,930

 

Colombia (4.0%)

 

 

 

 

 

Diversified Financial Services

 

 

 

 

 

Grupo de Inversiones Suramericana SA

 

17,100

 

289

 

Grupo de Inversiones Suramericana SA (Preference)

 

91,900

 

1,700

 

 

 

 

 

1,989

 

Food & Staples Retailing

 

 

 

 

 

Almacenes Exito SA

 

82,791

 

1,357

 

 

 

 

 

 

 

Oil, Gas & Consumable Fuels

 

 

 

 

 

Pacific Rubiales Energy Corp.

 

47,616

 

1,138

 

 

 

 

 

4,484

 

Mexico (24.1%)

 

 

 

 

 

Beverages

 

 

 

 

 

Fomento Economico Mexicano SAB de CV ADR

 

49,822

 

4,583

 

 

 

 

 

 

 

Chemicals

 

 

 

 

 

Mexichem SAB de CV

 

815,760

 

3,891

 

 

 

 

 

 

 

Commercial Banks

 

 

 

 

 

Banregio Grupo Financiero SAB de CV

 

180,782

 

682

 

Grupo Financiero Banorte SAB de CV Series O

 

683,699

 

3,864

 

Grupo Financiero Santander Mexico SAB de CV ADR (a)

 

98,500

 

1,349

 

 

 

 

 

5,895

 

Construction & Engineering

 

 

 

 

 

Empresas ICA SAB de CV (a)

 

626,800

 

1,212

 

 

 

 

 

 

 

Construction Materials

 

 

 

 

 

Cemex SAB de CV ADR (a)

 

213,800

 

1,781

 

 

 

 

 

 

 

Food & Staples Retailing

 

 

 

 

 

Wal-Mart de Mexico SAB de CV Series V

 

1,412,800

 

3,979

 

 



 

 

 

Shares

 

Value
(000)

 

Industrial Conglomerates

 

 

 

 

 

Alfa SAB de CV

 

1,022,430

 

$

1,903

 

 

 

 

 

 

 

Media

 

 

 

 

 

Grupo Televisa SAB ADR

 

127,600

 

3,000

 

 

 

 

 

 

 

Multi-line Retail

 

 

 

 

 

El Puerto de Liverpool SAB de CV

 

86,100

 

760

 

 

 

 

 

27,004

 

Panama (2.0%)

 

 

 

 

 

Airlines

 

 

 

 

 

Copa Holdings SA, Class A

 

27,703

 

2,251

 

 

 

 

 

 

 

Peru (2.9%)

 

 

 

 

 

Commercial Banks

 

 

 

 

 

Credicorp Ltd.

 

26,500

 

3,320

 

Total Common Stocks (Cost $83,818)

 

 

 

111,549

 

Short-Term Investment (0.9%)

 

 

 

 

 

Investment Company (0.9%)

 

 

 

 

 

Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (b)  (Cost $955)

 

954,638

 

955

 

Total Investments (100.3%) (Cost $84,773) +

 

 

 

112,504

 

Liabilities in Excess of Other Assets (-0.3%)

 

 

 

(350

)

Net Assets (100.0%)

 

 

 

$

112,154

 

 


(a)

Non-income producing security.

(b)

The Fund invests in the Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (the “Liquidity Funds”), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by the Liquidity Funds with respect to assets invested by the Fund in the Liquidity Funds.

+

At September 30, 2012, the U.S. Federal income tax cost basis of investments was approximately $84,773,000 and, accordingly, net unrealized appreciation for U.S. Federal income tax purposes was approximately $27,731,000 of which approximately $32,735,000 related to appreciated securities and approximately $5,004,000 related to depreciated securities.

ADR

American Depositary Receipt.

 



 

The Latin American Discovery Fund, Inc.

 

Notes to the Portfolio of Investments · September 30, 2012 (unaudited)

 

Security Valuation: Securities listed on a foreign exchange are valued at their closing price, except as noted below. Unlisted securities and listed securities not traded on the valuation date for which market quotations are readily available are valued at the mean between the last reported bid and ask prices. Equity securities listed on a U.S. exchange are valued at the latest quoted sales price on the valuation date. Equity securities listed or traded on NASDAQ, for which market quotations are available, are valued at the NASDAQ Official Closing Price. Short-term debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, unless the Fund’s Board of Directors (the “Directors”) determines such valuation does not reflect the securities’ fair value, in which case these securities will be valued at their fair value as determined in good faith under procedures adopted by the Directors.

 

Under procedures approved by the Directors, the Fund’s adviser, Morgan Stanley Investment Management Inc. (the “Adviser”), has formed a Valuation Committee. The Valuation Committee provides administration and oversight of the Fund’s valuation policies and procedures, which are reviewed at least annually by the Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

 

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and adhoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

 

Most foreign markets close before the New York Stock Exchange (“NYSE”). Occasionally, developments that could affect the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If these developments are expected to materially affect the value of the securities, the valuations may be adjusted to reflect the estimated fair value as of the close of the NYSE, as determined in good faith under procedures established by the Directors.

 

Fair Value Measurement: Financial Accounting Standards Board (“FASB”) Accounting Standards Codification TM  (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value

 



 

measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.

 

· Level 1 – unadjusted quoted prices in active markets for identical investments

 

· Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

· Level 3 – significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments.  Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

 

The following is a summary of the inputs used to value the Fund’s investments as of September 30, 2012.

 

Investment Type

 

Level 1
Unadjusted
quoted
prices
(000)

 

Level 2
Other
significant
observable
inputs
(000)

 

Level 3
Significant
unobservable
inputs
(000)

 

Total
(000)

 

Assets:

 

 

 

 

 

 

 

 

 

Common Stocks

 

 

 

 

 

 

 

 

 

Airlines

 

$

2,251

 

$

 

$

 

$

2,251

 

Beverages

 

11,181

 

 

 

11,181

 

Chemicals

 

7,429

 

 

 

7,429

 

Commercial Banks

 

22,665

 

 

 

22,665

 

Construction & Engineering

 

1,212

 

 

 

1,212

 

Construction Materials

 

1,781

 

 

 

1,781

 

Diversified Financial Services

 

1,989

 

 

 

1,989

 

Food & Staples Retailing

 

8,614

 

 

 

8,614

 

Food Products

 

4,839

 

 

 

4,839

 

Health Care Providers & Services

 

2,987

 

 

 

2,987

 

Household Durables

 

1,367

 

 

 

1,367

 

Independent Power Producers & Energy Traders

 

2,009

 

 

 

2,009

 

Industrial Conglomerates

 

1,903

 

 

 

1,903

 

Information Technology Services

 

2,052

 

 

 

2,052

 

Machinery

 

1,198

 

 

 

1,198

 

Media

 

3,000

 

 

 

3,000

 

Metals & Mining

 

10,939

 

 

 

10,939

 

Multi-line Retail

 

2,950

 

 

 

2,950

 

Oil, Gas & Consumable Fuels

 

17,527

 

 

 

17,527

 

Real Estate Management & Development

 

2,204

 

 

 

2,204

 

Trading Companies & Distributors

 

1,452

 

 

 

1,452

 

Total Common Stocks

 

111,549

 

 

 

111,549

 

Short-Term Investment - Investment Company

 

955

 

 

 

955

 

Total Assets

 

$

112,504

 

$

 

$

 

$

112,504

 

 

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Fund recognizes transfers between the levels as of the end of the period. As of September 30, 2012, the Fund did not have any investments transfer between investment levels.

 



 

Item 2.  Controls and Procedures.

 

(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

 

(b)  There were no changes in the Fund’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Item 3.  Exhibits.

 

(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.

 



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

The Latin American Discovery Fund, Inc.

 

/s/ Arthur Lev

 

Arthur Lev

 

Principal Executive Officer

 

November 15, 2012

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Arthur Lev

 

Arthur Lev

 

Principal Executive Officer

 

November 15, 2012

 

 

 

/s/ Francis Smith

 

Francis Smith

 

Principal Financial Officer

 

November 15, 2012

 

 


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