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I N V E S T M E N T M A N A G E M E N T

Morgan StanleyInvestment Management Inc.Adviser

The Latin American DiscoveryFund, Inc.NYSE: LDFAnnual ReportDecember 31, 2016

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For additional Fund information, including the Fund’s net asset value pershare and information regarding the investments comprising the Fund’sportfolio, please call toll free 1 (800) 231-2608 or visit our website atwww.morganstanley.com/im. All investments involve risks, including thepossible loss of principal.

© 2017 Morgan Stanley.

Adviser and AdministratorMorgan Stanley Investment Management Inc.522 Fifth AvenueNew York, New York 10036

CustodianState Street Bank and Trust CompanyOne Lincoln StreetBoston, Massachusetts 02111

Stockholder Servicing AgentComputershare Trust Company, N.A.211 Quality Circle, Suite 210College Station, Texas 77845

Legal CounselDechert LLP1095 Avenue of the AmericasNew York, New York 10036

Counsel to the Independent DirectorsPerkins Coie LLP30 Rockefeller PlazaNew York, New York 10112

Independent Registered Public Accounting FirmErnst & Young LLP200 Clarendon StreetBoston, Massachusetts 02116

CELDFANN

1700597 EXP 2.28.18

DirectorsKathleen A. Dennis

Nancy C. Everett

Jakki L. Haussler

Joseph J. Kearns

Patricia Maleski

Michael E. Nugent,Chair of the Board

W. Allen Reed

Fergus Reid

OfficersJohn H. GernonPresident and PrincipalExecutive Officer

Timothy J. KnierimChief Compliance Officer

Francis J. SmithTreasurer and PrincipalFinancial Officer

Mary E. MullinSecretary

The Latin American Discovery Fund, Inc.

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December 31, 2016

Table of ContentsLetter to Stockholders ................................................................................................................................................................... 3

Portfolio of Investments.................................................................................................................................................................. 5

Statement of Assets and Liabilities.................................................................................................................................................. 7

Statement of Operations ................................................................................................................................................................ 8

Statements of Changes in Net Assets.............................................................................................................................................. 9

Financial Highlights ........................................................................................................................................................................ 10

Notes to Financial Statements ........................................................................................................................................................ 11

Report of Independent Registered Public Accounting Firm................................................................................................................. 21

Portfolio Management .................................................................................................................................................................... 22

Investment Policy........................................................................................................................................................................... 23

Dividend Reinvestment and Cash Purchase Plan ............................................................................................................................... 26

Privacy Notice ............................................................................................................................................................................... 27

Director and Officer Information ...................................................................................................................................................... 31

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December 31, 2016

Letter to Stockholders (unaudited)PerformanceFor the year ended December 31, 2016, The Latin American Discovery Fund, Inc. (the “Fund”) had total returns of 27.66%, basedon net asset value, and 25.92% based on market value per share (including reinvestment of distributions), compared to its benchmark,the MSCI Emerging Markets Latin America Net Index (the “Index”)*, which returned 31.04% (in U.S. dollar terms). OnDecember 31, 2016, the closing price of the Fund’s shares on the New York Stock Exchange was $9.29, representing a 12.9%discount to the Fund’s net asset value per share. Past performance is no guarantee of future results. Please keep in mind that highdouble-digit returns are highly unusual and cannot be sustained.

Factors Affecting Performance• Latin American equities posted a very strong year of performance as political developments in Peru and Brazil as well as a

recovery in commodity prices contributed to more positive sentiment in the region. Peru and Brazil were the best-performingmarkets in the region, up +55.6% and +66.2% in U.S. dollar terms, respectively.i Mexico lagged, down -9.2%, as the currencycame under pressure and volatility picked up in light of Trump’s victory in the U.S. presidential election.

• The Fund’s underweight allocation to Mexico added to returns, given the weak relative performance of the market.

• The combined effect of the Fund’s underweight position in Chile and stock selection there was an additional contributor.

• The Fund’s underweight allocation to Brazil detracted from returns given the market’s strong performance.

• Stock selection in Brazil also detracted driven by the Fund’s positions in an energy company, a steel company and a foodproducer.

Management Strategies• At the end of the period, the Fund was underweight Brazil, Chile and Mexico, neutral weight in Colombia, and overweight Peru,

as well as overweight in off-benchmark market Argentina.

• Mexico’s growth outlook is under pressure, and market volatility has risen in the wake of President Trump’s victory. Grossdomestic product (GDP) growth has been stuck around 2% as lower oil revenues have been a drag, even as consumption hasremained strong. Additional pressure on growth will come from fiscal tightening, which is underway in response to lower oilrevenues, as the government works to stabilize debt and avoid a credit downgrade. Inflation has been well behaved but isexpected to move up to 4 to 4.5% in 2017, and the central bank has been tightening accordingly.ii Politically, President PenaNieto is considered a lame duck and later in the year attention will likely turn to Mexican elections in 2018.

• Political and economic momentum in Brazil is improving. President Temer’s government has pushed forward with fiscalspending and pension reform, which could improve the country’s debt sustainability. Consumer and business confidence has

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December 31, 2016

Letter to Stockholders (unaudited) (cont’d)improved sharply, as the deep recession of the last three years is finally fading and growth expectations improve. Inflationexpectations are falling sharply, paving the way for the central bank to cut interest rates, which could be another support forgrowth to improve.

• The Andean markets have mostly adjusted to lower commodity prices. The importance of oil for Colombia has peaked in ourview and should fade over time, while infrastructure spending becomes a more important driver. Passing the peace plan with theRevolutionary Armed Forces of Colombia, or FARC, as well as the tax reform are additional positives in the near term.Economic growth in Peru has proven resilient as copper production from large mining projects started to kick in last year andwill continue to do so. President Kuzcynski’s new government has been well received amid high expectations for infrastructurespending, which will be key for growth. We remain underweight Chile where we struggle to identify new growth drivers for thateconomy.

• While the downward growth adjustment in Argentina in response to President Macri’s reforms has been sharp, we continue toexpect an improving growth and inflation backdrop in 2017 as the macroeconomic environment normalizes. As years ofunderinvestment from lack of access to credit unwind, investment could pick up and drive growth going forward. The bankingsector in particular is well capitalized and ready to start lending, supporting a compelling outlook for earnings growth in themedium term.

Sincerely,

John H. GernonPresident and Principal Executive Officer January 2017

*The MSCI Emerging Markets Latin America Net Index is a free float-adjusted market capitalization index that is designed to measure equity marketperformance of emerging markets within Latin America. The MSCI Emerging Markets Latin America Net Index consists of the following 5 emerging marketcountry indices: Brazil, Chile, Colombia, Mexico and Peru. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. Itis not possible to invest directly in an index.

i Source: MSCI and FactSet

ii Source: Morgan Stanley Investment Management

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December 31, 2016

Portfolio of Investments

Oil, Gas & Consumable FuelsPetroleo Brasileiro SA (a) 408,006 $ 2,124Petroleo Brasileiro SA (Preference) (a) 801,073 3,660Petroleo Brasileiro SA ADR (a) 26,718 270Ultrapar Participacoes SA 74,801 1,573

7,627Real Estate Management & Development

Multiplan Empreendimentos Imobiliarios SA 55,130 1,006

39,771Chile (6.9%)Electric Utilities

Enersis Americas SA 4,701,268 737Enersis Americas SA ADR 14,050 115

852Multi-line Retail

SACI Falabella 339,850 2,699Real Estate Management & Development

Parque Arauco SA 647,817 1,451 5,002

Colombia (3.6%)Construction Materials

Cementos Argos SA 162,162 641Cemex Latam Holdings SA (a) 143,811 541

1,182Diversified Financial Services

Grupo de Inversiones Suramericana SA 14,800 189Grupo de Inversiones

Suramericana SA (Preference) 96,814 1,193 1,382

2,564Mexico (23.8%)Banks

Grupo Financiero Banorte SAB de CV Series O 620,226 3,055

BeveragesFomento Economico Mexicano

SAB de CV ADR 45,951 3,502

COMMON STOCKS (98.6%)Argentina (2.1%)Banks

BBVA Banco Frances SA ADR 45,858 $ 800Electric Utilities

Pampa Energia SA ADR (a) 21,525 749 1,549

Brazil (54.9%)Banks

Banco Bradesco SA (Preference) 317,275 2,827Banco Bradesco SA ADR 324,406 2,826Itau Unibanco Holding SA (Preference) 600,983 6,250Itau Unibanco Holding SA

(Preference) ADR 193,793 1,992 13,895

BeveragesAmbev SA 64,911 327Ambev SA ADR 486,378 2,388

2,715Capital Markets

BTG Pactual Group (Units) (b) 103,991 465Food & Staples Retailing

Raia Drogasil SA 172,160 3,237Food Products

BRF SA 230,986 3,424Health Care Providers & Services

Qualicorp SA 195,052 1,154Internet Software & Services

MercadoLibre, Inc. 9,207 1,437Machinery

Iochpe-Maxion SA 118,858 426Metals & Mining

Vale SA 19,206 152Vale SA (Preference) 45,850 329Vale SA (Preference) ADR 50,341 347Vale SA ADR 47,049 358

1,186Multi-line Retail

Lojas Americanas SA (Preference) 202,730 1,059Lojas Renner SA 300,686 2,140

3,199

Value Shares (000)

Value Shares (000)

The accompanying notes are an integral part of the financial statements.

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December 31, 2016

Portfolio of Investments (cont’d)

Country assignments and aggregations are based generally on thirdparty vendor classifications and information, and may be differentfrom the assignments and aggregations under the policies set forthin the Fund’s prospectus and/or statement of additional informationrelating to geographic classifications.(a) Non-income producing security.(b) Consists of one or more classes of securities traded

together as a unit; stocks with attached warrants.(c) At December 31, 2016, the aggregate cost for federal

income tax purposes is approximately $68,882,000. Theaggregate gross unrealized appreciation is approximately$13,518,000 and the aggregate gross unrealizeddepreciation is approximately $9,843,000, resulting in netunrealized appreciation of approximately $3,675,000.

ADR American Depositary Receipt.REIT Real Estate Investment Trust.

Portfolio Composition

Percentage ofClassification Total InvestmentsOther* 35.7%Banks 29.7Oil, Gas & Consumable Fuels 10.5Beverages 8.6Multi-line Retail 8.1Construction Materials 7.4Total Investments 100.0%

* Industries and/or investment types representing less than 5% of totalinvestments.

Mexico (cont’d)Chemicals

Mexichem SAB de CV 643,657 $ 1,460Construction Materials

Cemex SAB de CV ADR (a) 520,319 4,178Equity Real Estate Investment Trusts (REITs)

Concentradora Fibra Hotelera Mexicana SA de CV REIT 635,352 430

Gas UtilitiesInfraestructura Energetica

Nova SAB de CV 179,514 782Hotels, Restaurants & Leisure

Alsea SAB de CV 379,636 1,084Industrial Conglomerates

Alfa SAB de CV 1,480,129 1,832Transportation Infrastructure

Promotora y Operadora de Infraestructura SAB de CV 105,515 881

17,204Panama (2.1%)Airlines

Copa Holdings SA, Class A 16,738 1,520Peru (5.2%)Banks

Credicorp Ltd. 23,855 3,766TOTAL COMMON STOCKS (Cost $67,534) 71,376SHORT-TERM INVESTMENT (1.6%)Investment Company (1.6%)

Morgan Stanley Institutional Liquidity Funds — Government Portfolio — Institutional Class (See Note E) (Cost $1,181) 1,181,143 1,181

TOTAL INVESTMENTS (100.2%) (Cost $68,715) (c) 72,557LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2%) (143)NET ASSETS (100.0%) $72,414

Value Shares (000)


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December 31, 2016

Financial Statements December 31, 2016

(000)

Assets:Investments in Securities of Unaffiliated Issuers, at Value (Cost $67,534) $ 71,376Investment in Security of Affiliated Issuer, at Value (Cost $1,181) 1,181

Total Investments in Securities, at Value (Cost $68,715) 72,557Foreign Currency, at Value (Cost $83) 81Dividends Receivable 389Receivable from Affiliate —@Other Assets 14

Total Assets 73,041

Liabilities:Dividends Declared 453Payable for Advisory Fees 63Payable for Professional Fees 49Payable for Custodian Fees 21Deferred Capital Gain Country Tax 20Payable for Administration Fees 4Payable for Investments Purchased 3Payable for Stockholder Servicing Agent Fees 1Other Liabilities 13

Total Liabilities 627

Net AssetsApplicable to 6,794,073 Issued and Outstanding $0.01 Par Value Shares (100,000,000 Shares Authorized) $ 72,414

Net Asset Value Per Share $ 10.66

Net Assets Consist of:Common Stock $ 68Paid-in-Capital 82,755Accumulated Undistributed Net Investment Income 174Accumulated Net Realized Loss (14,406)Unrealized Appreciation (Depreciation) on:

Investments (Net of $20 of Deferred Capital Gain Country Tax) 3,822Foreign Currency Translations 1

Net Assets $ 72,414

@ Amount is less than $500.

Statement of Assets and Liabilities


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December 31, 2016

Financial Statements (cont’d) Year Ended December 31, 2016

(000)

Investment Income:Dividends from Securities of Unaffiliated Issuers (Net of $136 of Foreign Taxes Withheld) $ 1,553Dividends from Security of Affiliated Issuer (Note E) 5

Total Investment Income 1,558

Expenses:Advisory Fees (Note B) 795Professional Fees 111Administration Fees (Note C) 55Custodian Fees (Note D) 47Stockholder Reporting Expenses 28Stockholder Servicing Agent Fees 8Directors’ Fees and Expenses 4Other Expenses 40

Total Expenses 1,088

Waiver of Advisory Fees (Note B) (69)Waiver of Administration Fees (Note C) (14)Rebate from Morgan Stanley Affiliate (Note E) (2)Reimbursement of Custodian Fees (Note D) (54)

Net Expenses 949

Net Investment Income 609

Realized Gain (Loss):Investments Sold (1,645)Foreign Currency Transactions 17

Net Realized Loss (1,628)

Change in Unrealized Appreciation (Depreciation):Investments (Net of Increase in Deferred Capital Gain Country Tax of $15) 16,787Foreign Currency Translations 6

Net Change in Unrealized Appreciation (Depreciation) 16,793

Net Realized Loss and Change in Unrealized Appreciation (Depreciation) 15,165

Net Increase in Net Assets Resulting from Operations $15,774

Statement of Operations




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December 31, 2016

Financial Statements (cont’d) Year Ended Year Ended December 31, 2016 December 31, 2015

(000) (000)

Increase (Decrease) in Net Assets:Operations:

Net Investment Income $ 609 $ 356Net Realized Loss (1,628) (10,691)Net Change in Unrealized Appreciation (Depreciation) 16,793 (15,738)

Net Increase (Decrease) in Net Assets Resulting from Operations 15,774 (26,073)

Distributions from and/or in Excess of:Net Investment Income (474) (221)

Capital Share Transactions:Repurchase of Shares (22,500 and 11,121 shares) (213) (98)

Total Increase (Decrease) 15,087 (26,392)

Net Assets:Beginning of Period 57,327 83,719

End of Period (Including Accumulated Undistributed Net Investment Income of $174 and $20) $72,414 $ 57,327

Statements of Changes in Net Assets




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December 31, 2016

Financial HighlightsSelected Per Share Data and Ratios Year Ended December 31,

2016(1) 2015 2014 2013 2012Net Asset Value, Beginning of Period $8.41 $12.26 $14.53 $17.23 $15.54

Net Investment Income(2) 0.09 0.05 0.09 0.12 0.14Net Realized and Unrealized Gain (Loss) 2.23 (3.87) (2.20) (2.31) 1.95

Total from Investment Operations 2.32 (3.82) (2.11) (2.19) 2.09

Distributions from and/or in excess of:Net Investment Income (0.07) (0.03) (0.14) (0.10) (0.16)Net Realized Gain — — (0.02) (0.41) (0.28)

Total Distributions (0.07) (0.03) (0.16) (0.51) (0.44)

Anti-Dilutive Effect of Share Repurchase Program 0.00(3) 0.00(3) — 0.00(3) 0.00(3)

Anti-Dilutive Effect of Tender Offer — — — — 0.04

Net Asset Value, End of Period $10.66 $8.41 $12.26 $14.53 $17.23

Per Share Market Value, End of Period $9.29 $7.43 $11.15 $13.06 $15.59

TOTAL INVESTMENT RETURN:(4)Market Value 25.92% (33.04)% (13.45)% (12.92)% 13.64%Net Asset Value 27.66% (31.07)% (14.46)% (12.34)% 13.96%

RATIOS, SUPPLEMENTAL DATA:

Net Assets, End of Period (Thousands) $72,414 $57,327 $83,719 $99,200 $118,037

Ratio of Expenses to Average Net Assets(7) 1.37%(5) 1.53%(5) 1.40%(5) 1.39%(5) 1.53%(5)Ratio of Net Investment Income to Average Net Assets(7) 0.88%(5) 0.49%(5) 0.63%(5) 0.72%(5) 0.84%(5)Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets 0.00%(6) 0.00%(6) 0.00%(6) 0.00%(6) 0.00%(6)Portfolio Turnover Rate 13% 17% 21% 22% 32%

(7) Supplemental Information on the Ratios to Average Net Assets: Ratios Before Expenses Waived by Administrator:

Ratio of Expenses to Average Net Assets 1.57% 1.66% 1.53% 1.47% 1.57%Ratio of Net Investment Income to Average Net Assets 0.68% 0.36% 0.50% 0.64% 0.80%

(1) Refer to Note D in the Notes to Financial Statements for discussion of prior period custodian out-of-pocket expenses that were reimbursedin the current period. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of theFund. The Ratio of Expenses to Average Net Assets and the Ratio of Net Investment Income to Average Net Assets would be unchangedas the reimbursement of custodian fees was offset against current period expense waivers/reimbursements with no impact to netexpenses or net investment income.

(2) Per share amount is based on average shares outstanding.(3) Amount is less than $0.005 per share.(4) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the

Fund during each period, and assumes dividends and distributions, if any, were reinvested. This percentage is not an indication of theperformance of a stockholder’s investment in the Fund based on market value due to differences between the market price of the stockand the net asset value per share of the Fund. Total returns are based upon the market value and net asset value on the last business dayof each period.

(5) The Ratios of Expenses and Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments inMorgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as “Ratio of Rebate fromMorgan Stanley Affiliates to Average Net Assets.”

(6) Amount is less than 0.005%.




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December 31, 2016

Notes to Financial StatementsThe Latin American Discovery Fund, Inc. (the “Fund”) wasincorporated on November 12, 1991 and is registered as anon-diversified, closed-end management investment companyunder the Investment Company Act of 1940, as amended (the“Act”). The Fund applies investment company accounting andreporting guidance. The Fund’s investment objective is long-term capital appreciation through investments primarily inequity securities of Latin American issuers and by investing,from time to time, in debt securities issued or guaranteed by aLatin American government or governmental entity. To theextent that the Fund invests in derivative instruments that theadviser, Morgan Stanley Investment Management Inc. (the“Adviser”), believes have economic characteristics similar toequity securities of Latin American issuers or debt securitiesissued or guaranteed by a Latin American government orgovernmental entity, such investments will be counted forpurposes of meeting the Fund’s investment objective. To theextent the Fund makes such investments, the Fund will besubject to the risks of such derivative instruments as describedherein.

Effective June 30, 2016, Morgan Stanley InvestmentManagement Limited is no longer a Sub-Adviser to the fund.

A. Significant Accounting Policies: The followingsignificant accounting policies are in conformity with U.S.generally accepted accounting principles (“GAAP”). Suchpolicies are consistently followed by the Fund in the preparationof its financial statements. GAAP may require management tomake estimates and assumptions that affect the reportedamounts and disclosures in the financial statements. Actualresults may differ from those estimates.

1. Security Valuation: (1) An equity portfolio securitylisted or traded on an exchange is valued at its latestreported sales price (or at the exchange official closing priceif such exchange reports an official closing price), and ifthere were no sales on a given day and if there is no officialexchange closing price for that day, the security is valued at

the mean between the last reported bid and asked prices ifsuch bid and asked prices are available on the relevantexchanges; (2) all other equity portfolio securities for whichover-the-counter (“OTC”) market quotations are readilyavailable are valued at the latest reported sales price (or atthe market official closing price if such market reports anofficial closing price), and if there was no trading in thesecurity on a given day and if there is no official closingprice from relevant markets for that day, the security isvalued at the mean between the last reported bid and askedprices if such bid and asked prices are available on therelevant markets. Listed equity securities not traded on thevaluation date with no reported bid and asked pricesavailable on the exchange are valued at the mean betweenthe current bid and asked prices obtained from one ormore reputable brokers or dealers. An unlisted equitysecurity that does not trade on the valuation date and forwhich bid and asked prices from the relevant markets areunavailable is valued at the mean between the current bidand asked prices obtained from one or more reputablebrokers or dealers. In cases where a security is traded onmore than one exchange, the security is valued on theexchange designated as the primary market; (3) certainportfolio securities may be valued by an outside pricingservice/vendor approved by the Fund’s Board of Directors(the “Directors”). The pricing service/vendor may employ apricing model that takes into account, among other things,bids, yield spreads, and/or other market data and specificsecurity characteristics. Alternatively, if a valuation is notavailable from an outside pricing service/vendor, and thesecurity trades on an exchange, the security may be valuedat its latest reported sale price (or at the exchange officialclosing price if such exchange reports an official closingprice), prior to the time when assets are valued. If there areno sales on a given day and if there is no official exchangeclosing price for that day, the security is valued at the meanbetween the last reported bid and asked prices if such bid

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December 31, 2016

Notes to Financial Statements (cont’d)and asked prices are available in the relevant exchanges;(4) when market quotations are not readily available,including circumstances under which the Adviser orSub-Adviser determines that the closing price, last saleprice or the mean between the last reported bid and askedprices are not reflective of a security’s market value,portfolio securities are valued at their fair value asdetermined in good faith under procedures established byand under the general supervision of the Directors.Occasionally, developments affecting the closing prices ofsecurities and other assets may occur between the times atwhich valuations of such securities are determined (that is,close of the foreign market on which the securities trade)and the close of business of the New York Stock Exchange(“NYSE”). If developments occur during such periods thatare expected to materially affect the value of such securities,such valuations may be adjusted to reflect the estimated fairvalue of such securities as of the close of the NYSE, asdetermined in good faith by the Directors or by the Adviserusing a pricing service and/or procedures approved by theDirectors; (5) quotations of foreign portfolio securities,other assets and liabilities and forward contracts stated inforeign currency are translated into U.S. dollar equivalentsat the prevailing market rates prior to the close of theNYSE; and (6) investments in mutual funds, including theMorgan Stanley Institutional Liquidity Funds, are valuedat the net asset value (“NAV”) as of the close of eachbusiness day.

The Directors have responsibility for determining in goodfaith the fair value of the investments, and the Directorsmay appoint others, such as the Fund’s Adviser or avaluation committee, to assist the Directors in determiningfair value and to make the actual calculations pursuant tothe fair valuation methodologies previously approved bythe Directors. Under procedures approved by the Directors,the Fund’s Adviser has formed a Valuation Committee

whose members are approved by the Directors. TheValuation Committee provides administration andoversight of the Fund’s valuation policies and procedures,which are reviewed at least annually by the Directors.These procedures allow the Fund to utilize independentpricing services, quotations from securities and financialinstrument dealers, and other market sources to determinefair value.

The Fund has procedures to determine the fair value ofsecurities and other financial instruments for which marketprices are not readily available. Under these procedures, theValuation Committee convenes on a regular and ad hocbasis to review such securities and considers a number offactors, including valuation methodologies and significantunobservable valuation inputs, when arriving at fair value.The Valuation Committee may employ a market-basedapproach which may use related or comparable assets orliabilities, recent transactions, market multiples, bookvalues, and other relevant information for the investmentto determine the fair value of the investment. An income-based valuation approach may also be used in which theanticipated future cash flows of the investment arediscounted to calculate fair value. Discounts may also beapplied due to the nature or duration of any restrictions onthe disposition of the investments. Due to the inherentuncertainty of valuations of such investments, the fairvalues may differ significantly from the values that wouldhave been used had an active market existed. The ValuationCommittee employs various methods for calibrating thesevaluation approaches including a regular review ofvaluation methodologies, key inputs and assumptions,transactional back-testing or disposition analysis, andreviews of any related market activity.

2. Fair Value Measurement: Financial AccountingStandards Board (“FASB”) Accounting StandardsCodificationTM (“ASC”) 820, “Fair Value Measurement”



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December 31, 2016

Notes to Financial Statements (cont’d)(“ASC 820”), defines fair value as the value that the Fundwould receive to sell an investment or pay to transfer aliability in a timely transaction with an independent buyerin the principal market, or in the absence of a principalmarket, the most advantageous market for the investmentor liability. ASC 820 establishes a three-tier hierarchy todistinguish between (1) inputs that reflect the assumptionsmarket participants would use in valuing an asset orliability developed based on market data obtained fromsources independent of the reporting entity (observableinputs) and (2) inputs that reflect the reporting entity’sown assumptions about the assumptions marketparticipants would use in valuing an asset or liabilitydeveloped based on the best information available in thecircumstances (unobservable inputs) and to establishclassification of fair value measurements for disclosurepurposes. Various inputs are used in determining the valueof the Fund’s investments. The inputs are summarized inthe three broad levels listed below.

• Level 1 – unadjusted quoted prices in active markets foridentical investments

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

• Level 3 – significant unobservable inputs including theFund’s own assumptions in determining the fair value ofinvestments. Factors considered in making thisdetermination may include, but are not limited to,information obtained by contacting the issuer, analysts,or the appropriate stock exchange (for exchange-tradedsecurities), analysis of the issuer’s financial statements orother available documents and, if necessary, availableinformation concerning other securities in similarcircumstances

The inputs or methodology used for valuing securities arenot necessarily an indication of the risk associated withinvesting in those securities and the determination of thesignificance of a particular input to the fair valuemeasurement in its entirety requires judgment andconsiders factors specific to each security.

The following is a summary of the inputs used to value theFund’s investments as of December 31, 2016.

Level 2 Level 1 Other Level 3 Unadjusted significant Significant quoted observable unobservable prices inputs inputs TotalInvestment Type (000) (000) (000) (000)Assets:

Common StocksAirlines $ 1,520 $— $— $ 1,520Banks 21,516 — — 21,516Beverages 6,217 — — 6,217Capital Markets 465 — — 465Chemicals 1,460 — — 1,460Construction

Materials 5,360 — — 5,360Diversified

Financial Services 1,382 — — 1,382

Electric Utilities 1,601 — — 1,601Equity Real Estate

Investment Trusts (REITs) 430 — — 430

Food & Staples Retailing 3,237 — — 3,237

Food Products 3,424 — — 3,424Gas Utilities 782 — — 782Health Care

Providers & Services 1,154 — — 1,154

Hotels, Restaurants & Leisure 1,084 — — 1,084

Industrial Conglomerates 1,832 — — 1,832



14


December 31, 2016

Notes to Financial Statements (cont’d) Level 2 Level 1 Other Level 3 Unadjusted significant Significant quoted observable unobservable prices inputs inputs TotalInvestment Type (000) (000) (000) (000)Assets: (cont’d)

Common Stocks (cont’d)Internet

Software & Services $ 1,437 $— $— $ 1,437

Machinery 426 — — 426Metals & Mining 1,186 — — 1,186Multi-line Retail 5,898 — — 5,898Oil, Gas &

Consumable Fuels 7,627 — — 7,627

Real Estate Management & Development 2,457 — — 2,457

Transportation Infrastructure 881 — — 881

Total Common Stocks 71,376 — — 71,376

Short-Term InvestmentInvestment

Company 1,181 — — 1,181Total Assets $72,557 $— $— $72,557

Transfers between investment levels may occur as themarkets fluctuate and/or the availability of data used in aninvestment’s valuation changes. The Fund recognizestransfers between the levels as of the end of the period. As ofDecember 31, 2016, securities with a total value ofapproximately $37,602,000 transferred from Level 2 toLevel 1. Securities that were valued using other significantobservable inputs at December 31, 2015 were valued usingunadjusted quoted prices at December 31, 2016. AtDecember 31, 2015, the fair value of certain securities wereadjusted due to developments which occurred between thetime of the close of the foreign markets on which they tradeand the close of business on the NYSE which resulted intheir Level 2 classification.

3. Foreign Currency Translation and Foreign Investments:

The books and records of the Fund are maintained inU.S. dollars. Foreign currency amounts are translated intoU.S. dollars as follows:

— investments, other assets and liabilities at theprevailing rate of exchange on the valuation date;

— investment transactions and investment income at theprevailing rates of exchange on the dates of suchtransactions.

Although the net assets of the Fund are presented at theforeign exchange rates and market values at the close of theperiod, the Fund does not isolate that portion of the resultsof operations arising as a result of changes in the foreignexchange rates from the fluctuations arising from changesin the market prices of securities held at period end.Similarly, the Fund does not isolate the effect of changes inforeign exchange rates from the fluctuations arising fromchanges in the market prices of securities sold during theperiod. Accordingly, realized and unrealized foreigncurrency gains (losses) on investments in securities areincluded in the reported net realized and unrealized gains(losses) on investment transactions and balances.

Net realized gains (losses) on foreign currency transactionsrepresent net foreign exchange gains (losses) from sales andmaturities of foreign currency forward exchange contracts,disposition of foreign currencies, currency gains (losses)realized between the trade and settlement dates onsecurities transactions, and the difference between theamount of investment income and foreign withholdingtaxes recorded on the Fund’s books and the U.S. dollarequivalent amounts actually received or paid. Netunrealized currency gains (losses) from valuing foreigncurrency denominated assets and liabilities at period endexchange rates are reflected as a component of unrealizedappreciation (depreciation) in investments and foreign



15


December 31, 2016

Notes to Financial Statements (cont’d)currency translations in the Statement of Assets andLiabilities. The change in unrealized currency gains (losses)on foreign currency translations for the period is reflectedin the Statement of Operations.

A significant portion of the Fund’s net assets consist ofsecurities denominated in Latin American currencies.Changes in currency exchange rates will affect the value ofsecurities and investment income from such securities.Latin American securities are often subject to greater pricevolatility, limited capitalization and liquidity, and higherrates of inflation than securities of companies based in theUnited States. In addition, Latin American securities maybe subject to substantial governmental involvement in theeconomy and greater social, economic and political uncer-tainty. Such securities may be concentrated in a limitednumber of countries and regions and may vary throughoutthe year.

Governmental approval for foreign investments may berequired in advance of making an investment under certaincircumstances in some countries, and the extent of foreigninvestments in domestic companies may be subject tolimitation in other countries. Foreign ownershiplimitations also may be imposed by the charters ofindividual companies to prevent, among other concerns,violations of foreign investment limitations. As a result, anadditional class of shares (identified as “Foreign” in thePortfolio of Investments) may be created and offered forinvestment. The “local” and “foreign shares” market valuesmay differ. In the absence of trading of the foreign shares insuch markets, the Fund values the foreign shares at theclosing exchange price of the local shares.

4. Indemnifications: The Fund enters into contracts thatcontain a variety of indemnifications. The Fund’smaximum exposure under these arrangements is unknown.However, the Fund has not had prior claims or losses

pursuant to these contracts and expects the risk of loss tobe remote.

5. Dividends and Distributions to Stockholders:

Dividend income and distributions to stockholders arerecorded on the ex-dividend date. Dividends from netinvestment income, if any, are declared and paid annually.Net realized capital gains, if any, are distributed at leastannually.

6. Other: Security transactions are accounted for on thedate the securities are purchased or sold. Realized gains(losses) on the sale of investment securities are determinedon the specific identified cost basis. Interest income isrecognized on the accrual basis. Dividend income anddistributions are recorded on the ex-dividend date (exceptcertain dividends which may be recorded as soon as theFund is informed of such dividends) net of applicablewithholding taxes.

The Fund owns shares of real estate investment trusts(“REITs”) which report information on the source of theirdistributions annually in the following calendar year. Aportion of distributions received from REITs during theyear is estimated to be a return of capital and is recorded asa reduction of their cost.

B. Advisory Fees: The Adviser, a wholly-owned subsidiaryof Morgan Stanley, provides the Fund with advisory servicesunder the terms of an Investment Advisory Agreement,calculated weekly and payable monthly, at an annual rate of1.15% of the Fund’s average weekly net assets. The Adviseragreed to waive 0.10% of its advisory fee. The fee waiver willcontinue for at least one year or until such time as the Directorsact to discontinue all or a portion of such waiver when theydeem that such action is appropriate. For the year endedDecember 31, 2016, approximately $69,000 of advisory feeswere waived pursuant to this arrangement.



16


December 31, 2016

Notes to Financial Statements (cont’d)C. Administration Fees: The Adviser also serves asAdministrator to the Fund and provides administrative servicespursuant to an administrative agreement for an annual fee,accrued daily and paid monthly, of 0.08% of the Fund’s averageweekly net assets. The Adviser has agreed to limit theadministration fee through a waiver so that it will be no greaterthan the previous administration fee of 0.02435% of the Fund’saverage weekly net assets plus $24,000 per annum. This waivermay be terminated at any time. For the year endedDecember 31, 2016, approximately $14,000 of administrationfees were waived pursuant to this arrangement.

Under a Sub-Administration Agreement between theAdministrator and State Street Bank and Trust Company(“State Street”), State Street provides certain administrativeservices to the Fund. For such services, the Administrator paysState Street a portion of the fee the Administrator receives fromthe Fund.

D. Custodian Fees: State Street (the “Custodian”) serves asCustodian for the Fund in accordance with a CustodianAgreement. The Custodian holds cash, securities, and otherassets of the Fund as required by the Act. Custody fees arepayable monthly based on assets held in custody, investmentpurchases and sales activity and account maintenance fees, plusreimbursement for certain out-of-pocket expenses.

In December 2015, the Fund’s Custodian announced that it hadidentified inconsistencies in the way in which clients wereinvoiced for out-of-pocket expenses from 1998 untilNovember 2015. The dollar amount difference between whatwas charged and what should have been charged, plus interest,was paid back to the Fund in September 2016 as areimbursement. The Custodian reimbursed the Fund directly,which was recognized as a change in accounting estimate andwas reflected as “Reimbursement of Custodian Fees” in theStatement of Operations. Pursuant to the expense limitationsdescribed in Note B, the Fund has experienced waiver of

advisory fees during the current period. Accordingly, thereimbursement of out-of-pocket custodian expenses in thecurrent period resulted in the reduction in the current periodwaiver of advisory fees.

E. Security Transactions and Transactions with Affiliates:

For the year ended December 31, 2016, purchases and sales ofinvestment securities for the Fund, other than long-term U.S.Government securities and short-term investments, wereapproximately $9,215,000 and $8,998,000, respectively. Therewere no purchases and sales of long-term U.S. Governmentsecurities for the year ended December 31, 2016.

The Fund invests in the Institutional Class of the MorganStanley Institutional Liquidity Funds (the “Liquidity Funds”),an open-end management investment company managed by theAdviser. Advisory fees paid by the Fund are reduced by anamount equal to its pro-rata share of the advisory andadministration fees paid by the Fund due to its investment inthe Liquidity Funds. For the year ended December 31, 2016,advisory fees paid were reduced by approximately $2,000relating to the Fund’s investment in the Liquidity Funds.

A summary of the Fund’s transactions in shares of the LiquidityFunds during the year ended December 31, 2016 is as follows:

Value ValueDecember 31, Purchases Dividend December 31, 2015 at Cost Sales Income 2016 (000) (000) (000) (000) (000)

$1,327 $7,368 $7,514 $5 $1,181

During the year ended December 31, 2016, the Fund incurredless than $500 in brokerage commissions with MorganStanley & Co., LLC, an affiliate of the Adviser/Administrator,for portfolio transactions executed on behalf of the Fund.

The Fund is permitted to purchase and sell securities(“cross-trade”) from and to other Morgan Stanley Funds as wellas other funds and client accounts for which the Adviser or anaffiliate of the Adviser serves as investment adviser, pursuant to



17


December 31, 2016

Notes to Financial Statements (cont’d)procedures approved by the Directors in compliance withRule 17a-7 under the Act (the “Rule”). Each cross-trade isexecuted at the current market price in compliance withprovisions of the Rule. For the year ended December 31, 2016,the Fund did not engage in any cross-trade transactions.

The Fund has an unfunded Deferred Compensation Plan (the“Compensation Plan”), which allows each independent Directorto defer payment of all, or a portion, of the fees he or shereceives for serving on the Board of Directors. Each eligibleDirector generally may elect to have the deferred amountscredited with a return equal to the total return on one or moreof the Morgan Stanley funds that are offered as investmentoptions under the Compensation Plan. Appreciation/depreciationand distributions received from these investments are recordedwith an offsetting increase/decrease in the deferredcompensation obligation and do not affect the NAV of theFund.

F. Federal Income Taxes: It is the Fund’s intention tocontinue to qualify as a regulated investment company anddistribute all of its taxable income. Accordingly, no provision forfederal income taxes is required in the financial statements.

The Fund may be subject to taxes imposed by countries in whichit invests. Such taxes are generally based on income and/or capitalgains earned or repatriated. Taxes are accrued based on netinvestment income, net realized gains and net unrealizedappreciation as such income and/or gains are earned. Taxes mayalso be based on transactions in foreign currency and are accruedbased on the value of investments denominated in such currency.

FASB ASC 740-10, “Income Taxes — Overall”, sets forth aminimum threshold for financial statement recognition of thebenefit of a tax position taken or expected to be taken in a taxreturn. Management has concluded there are no significantuncertain tax positions that would require recognition in thefinancial statements. If applicable, the Fund recognizes interestaccrued related to unrecognized tax benefits in “Interest

Expense” and penalties in “Other Expenses” in the Statement ofOperations. The Fund files tax returns with the U.S. InternalRevenue Service, New York and various states. Each of the taxyears in the four-year period ended December 31, 2016, remainssubject to examination by taxing authorities.

The tax character of distributions paid may differ from thecharacter of distributions shown in the Statements of Changes inNet Assets due to short-term capital gains being treated asordinary income for tax purposes. The tax character ofdistributions paid during fiscal years 2016 and 2015 was asfollows:

2016 Distributions 2015 Distributions Paid From: Paid From:

Long-Term Long-Term Ordinary Capital Ordinary Capital Income Gain Income Gain (000) (000) (000) (000)

$474 $— $221 $—

The amount and character of income and gains to be distributedare determined in accordance with income tax regulations whichmay differ from GAAP. These book/tax differences are eitherconsidered temporary or permanent in nature.

Temporary differences are attributable to differing book and taxtreatments for the timing of the recognition of gains (losses) oncertain investment transactions and the timing of thedeductibility of certain expenses.

Permanent differences, primarily due to differing treatments ofgains (losses) related to foreign currency transactions and anondeductible expense, resulted in the following reclassificationsamong the components of net assets at December 31, 2016:

Accumulated Undistributed Accumulated Net Investment Net Realized Paid-in- Income Loss Capital (000) (000) (000)

$19 $(16) $(3)



18


December 31, 2016

Notes to Financial Statements (cont’d)At December 31, 2016, the components of distributableearnings for the Fund on a tax basis were as follows:

Undistributed Ordinary Undistributed Income Long-Term Capital Gain (000) (000)

$176 $—

At December 31, 2016, the Fund had available for federalincome tax purposes unused short term and long term capitallosses of approximately $1,006,000 and $13,230,000respectively, that do not have an expiration date.

To the extent that capital loss carryforwards are used to offsetany future capital gains realized during the carryover period asprovided by U.S. federal income tax regulations, no capital gainstax liability will be incurred by the Fund for gains realized andnot distributed. To the extent that capital gains are offset, suchgains will not be distributed to the stockholders.

G. Other: As permitted by the Fund’s offering prospectus,on September 15, 1998, the Fund commenced a sharerepurchase program for purposes of enhancing stockholder valueand reducing the discount at which the Fund’s shares trade fromtheir NAV. During the year ended December 31, 2016, theFund repurchased 22,500 of its shares at an average discount of11.62% from NAV. Since the inception of the program, theFund has repurchased 2,239,830 of its shares at an averagediscount of 18.50% from NAV. The Directors regularly monitorthe Fund’s share repurchase program as part of their review andconsideration of the Fund’s premium/discount history. TheFund expects to continue to repurchase its outstanding shares atsuch time and in such amounts as it believes will further theaccomplishment of the foregoing objectives, subject to review bythe Directors. You can access information about the monthlyshare repurchase results through Morgan Stanley InvestmentManagement’s website: www.morganstanley.com/im.

At December 31, 2016, the Fund had record owners of 10% orgreater. Investment activities of these shareholders could have amaterial impact on the Fund. The aggregate percentage of suchowners was 56.8%.

H. Results of Annual Meeting of Stockholders

(unaudited): On July 26, 2016, Class III Directors Frank L.Bowman, James F. Higgins and Manuel H. Johnson resignedfrom the Board of Directors of the Fund, as the Fund did notexpect that they would receive the required vote to be re-electedby stockholders of the Fund at the adjourned Meeting. Inaddition, Michael E. Nugent and Fergus Reid resigned as Class IDirectors of the Fund, effective July 26, 2016, in order torealign the class structure of the Fund, and were appointed bythe Board as Class III Directors of the Fund, effective July 27,2016. On July 27, 2016, and annual meeting of the Fund’sstockholders was held for the purpose of voting on the followingmatter, the results of which were as follows:

Election of Directors by all stockholders:

For Against

Jakki L. Haussler 3,686,679 2,604,371

I. Accounting Pronouncements: In December 2016,FASB issued Accounting Standards update 2016-19 —Technical Corrections and Improvements (“ASU 2016-19”),which is effective for interim periods for all entities beginningafter December 15, 2016. ASU 2016-19 includes anamendment to Topic 820, Fair Value Measurement, whichclarifies the difference between a valuation approach and avaluation technique when applying the guidance in that Topic.That amendment also requires an entity to disclose when therehas been a change in either or both a valuation approach and/ora valuation technique. The transition guidance for theamendment must be applied prospectively because it could



19


December 31, 2016

Notes to Financial Statements (cont’d)potentially involve the use of hindsight that includes fair valuemeasurements. Although still evaluating the potential impacts ofASU 2016-19 to the Fund, management expects that the impactof the Fund’s adoption will be limited to additional financialstatement disclosures.

In October 2016, the Securities and Exchange Commission(“SEC”) issued a new rule, Investment Company ReportingModernization, which, among other provisions, amendsRegulation S-X to require standardized, enhanced disclosures,particularly related to derivatives, in investment companyfinancial statements. Compliance with the guidance is effectivefor financial statements filed with the SEC on or after August 1,2017; adoption will have no effect on the Fund’s net assets orresults of operations. Although still evaluating the potentialimpacts of the Investment Company Reporting Modernizationto the Fund, management expects that the impact of the fund’sadoption will be limited to additional financial statementdisclosures.

Federal Tax Notice (unaudited)

For federal income tax purposes, the following information isfurnished with respect to the distributions paid by the Fundduring its taxable year ended December 31, 2016. For corporateshareholders 0.55% of the dividends qualified for the dividendsreceived deduction.

For federal income tax purposes, the following information isfurnished with respect to the Fund’s earnings for its taxable yearended December 31, 2016. When distributed, certain earningsmay be subject to a maximum tax rate of 15% as provided forby the Jobs and Growth Tax Relief Reconciliation Act of 2003.The Fund designated up to a maximum of approximately$590,000 as taxable at this lower rate.

The Fund intends to pass through foreign tax credits ofapproximately $115,000 and has derived net income fromsources within foreign countries amounting to approximately$1,474,000.

In January, the Fund provides tax information to stockholdersfor the preceding calendar year.



20


December 31, 2016

Notes to Financial Statements (cont’d)For More Information About Portfolio Holdings(unaudited)

The Fund provides a complete schedule of portfolio holdings inits semi-annual and annual reports within 60 days of the end ofthe Fund’s second and fourth fiscal quarters. The semi-annualreports and the annual reports are filed electronically with theSecurities and Exchange Commission (SEC) on Form N-CSRSand Form N-CSR, respectively. Morgan Stanley also delivers thesemi-annual and annual reports to Fund stockholders andmakes these reports available on its public website,www.morganstanley.com/im. Each Morgan Stanley fund alsofiles a complete schedule of portfolio holdings with the SEC forthe Fund’s first and third fiscal quarters on Form N-Q. MorganStanley does not deliver the reports for the first and third fiscalquarters to stockholders, nor are the reports posted to theMorgan Stanley public website. You may, however, obtain theForm N-Q filings (as well as the Form N-CSR and N-CSRSfilings) by accessing the SEC’s website, www.sec.gov. You mayalso review and copy them at the SEC’s Public ReferenceRoom in Washington, DC. Information on the operation of theSEC’s Public Reference Room may be obtained by calling theSEC toll free at 1(800) SEC-0330. You can also request copiesof these materials, upon payment of a duplicating fee, byelectronic request at the SEC’s e-mail address([email protected]) or by writing the public reference room ofthe SEC, 100 F Street, NE, Washington, DC 20549-0102.

In addition to filing a complete schedule of portfolio holdingswith the SEC each fiscal quarter, the Fund makes portfolioholdings information available by providing the information onits public website, www.morganstanley.com/im. The Fundprovides a complete schedule of portfolio holdings on the publicwebsite on a monthly basis at least 15 calendar days aftermonth-end and under other conditions as described in theFund’s policy on portfolio holdings disclosure. You may obtaincopies of the Fund’s monthly website postings by calling tollfree 1(800) 231-2608.

Proxy Voting Policy and Procedures and Proxy VotingRecord (unaudited)

A copy of (1) the Fund’s policies and procedures with respect tothe voting of proxies relating to the Fund’s portfolio securities;and (2) how the Fund voted proxies relating to portfoliosecurities during the most recent twelve-month period endedJune 30, is available without charge, upon request, by calling tollfree 1(800) 231-2608 or by visiting our website atwww.morganstanley.com/im. This information is also availableon the SEC’s web site at www.sec.gov.



21


December 31, 2016

Report of Independent Registered Public Accounting FirmTo the Stockholders and Board of Directors of


We have audited the accompanying statement of assets and liabilities of The Latin American Discovery Fund, Inc. (the “Fund”),including the portfolio of investments, as of December 31, 2016, and the related statement of operations for the year then ended, thestatements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the fiveyears in the period then ended. 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 the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements andfinancial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control overfinancial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theFund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accountingprinciples used and significant estimates made by management, and evaluating the overall financial statement presentation. Ourprocedures included confirmation of securities owned as of December 31, 2016 by correspondence with the custodian and others orby other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonablebasis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financialposition of The Latin American Discovery Fund, Inc. at December 31, 2016, the results of its operations for the year then ended, thechanges in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in theperiod then ended, in conformity with U.S. generally accepted accounting principles.

Boston, MassachusettsFebruary 28, 2017

Merrill Corp - MS CE Latin American Discovery Fund Annual Report [Funds] 02-28-2017 ED [AUX] | cmashak | 01-Mar-17 04:31 | 17-2621-12.fa | Sequence: 1CHKSUM Content: 34831 Layout: 31936 Graphics: 63324 CLEAN

JOB: 17-2621-12 CYCLE#;BL#: 10; 0 TRIM: 7.5" x 8.75" AS: Merrill New York: 212-620-5600 COMPOSITECOLORS: Black, ~note-color 2 GRAPHICS: Ernst_Young_sig.eps V1.5

22


December 31, 2016

Portfolio Management (unaudited)The Fund is managed within the Latin American Equity team. The team consists of portfolio managers and analysts. The currentmember primarily responsible for the day-to-day management of the Fund’s portfolio is Gaite Ali, a Managing Director of theAdviser.

Ms. Ali has been associated with the Adviser in an investment management capacity since 2007 and began managing the Fund inFebruary 2011. Prior to September 2007, Ms. Ali was with Alliance Bernstein from March 1997 until February 2006.

Merrill Corp - MS CE Latin American Discovery Fund Annual Report [Funds] 02-28-2017 ED [AUX] | cmashak | 01-Mar-17 04:31 | 17-2621-12.fa | Sequence: 2CHKSUM Content: 42184 Layout: 43501 Graphics: No Graphics CLEAN


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December 31, 2016

Investment Policy (unaudited)DerivativesThe Fund may, but it is not required to, use derivative instruments for a variety of purposes, including hedging, risk management,portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of anunderlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, alsoaffect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may haveadditional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by thecounterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments,indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising frommargin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated withother portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques andrisk analyses different from those associated with other portfolio investments. In addition, proposed regulatory changes by theSecurities and Exchange Commission (“SEC”) relating to a mutual fund’s use of derivatives could potentially limit or impact theFund’s ability to invest in derivatives and adversely affect the value or performance of the Fund or its derivative investments.

Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss.Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageousto do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable SEC rules and regulations,or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Adviser seeks to use derivatives tofurther the Fund’s investment objective, there is no assurance that the use of derivatives will achieve this result.

Following is a description of the derivative instruments and techniques that the Fund may use and their associated risks:

Foreign Currency Forward Exchange Contracts. In connection with its investments in foreign securities, the Fund also may enter intocontracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date. A foreign currency forwardexchange contract (“currency contract”) is a negotiated agreement between the contracting parties to exchange a specified amount ofcurrency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that arethe subject of the contract. The Fund may also invest in non-deliverable foreign currency forward exchange contracts (“NDFs”).NDFs are similar to other foreign currency forward exchange contracts, but do not require or permit physical delivery of currencyupon settlement. Instead, settlement is made in cash based on the difference between the contracted exchange rate and the spot foreignexchange rate at settlement. Currency contracts may be used to protect against uncertainty in the level of future foreign currencyexchange rates or to gain or modify exposure to a particular currency. In addition, the Fund may use cross currency hedging or proxyhedging with respect to currencies in which the Fund has or expects to have portfolio or currency exposure. Cross currency hedgesinvolve the sale of one currency against the positive exposure to a different currency and may be used for hedging purposes or toestablish an active exposure to the exchange rate between any two currencies. To the extent hedged by the use of currency contracts,the precise matching of the currency contract amounts and the value of the securities involved will not generally be possible becausethe future value of such securities in foreign currencies will change as a consequence of market movements in the value of those



24


December 31, 2016

Investment Policy (unaudited) (cont’d)securities between the date on which the contract is entered into and the date it matures. Furthermore, such transactions may reduceor preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There isadditional risk that such transactions may reduce or preclude the opportunity for gain if the value of the currency should move in thedirection opposite to the position taken and that currency contracts create exposure to currencies in which the Fund’s securities arenot denominated. The use of currency contracts involves the risk of loss from the insolvency or bankruptcy of the counterparty to thecontract or the failure of the counterparty to make payments or otherwise comply with the terms of the contract.

Futures. A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset,reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease intandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settledthrough either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount onthe settlement date. A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment andeven a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to thederivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return,and the potential loss from futures contracts can exceed the Fund’s initial investment in such contracts. No assurance can be given thata liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by the Fund of margindeposits in the event of bankruptcy of a broker with which the Fund has open positions in the futures contract.

Special Risks Related to Cyber SecurityThe Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorizedmonitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks;unauthorized access to relevant systems; compromises to networks or devices that the Fund and its service providers use to service theFund’s operations; or operational disruption or failures in the physical infrastructure or operating systems that support the Fund andits service providers. Cyber attacks against or security breakdowns of the Fund or its service providers may adversely impact the Fundand its stockholders, potentially resulting in, among other things, financial losses; the inability of Fund stockholders to transactbusiness and the Fund to process transactions; inability to calculate the Fund’s NAV; violations of applicable privacy and other laws;regulatory fines, penalties, reputational damage, reimbursement or other compensation costs; and/or additional compliance costs. TheFund may incur additional costs for cyber security risk management and remediation purposes. In addition, cyber security risks mayalso impact issuers of securities in which the Fund invests, which may cause the Fund’s investment in such issuers to lose value. Therecan be no assurance that the Fund or its service providers will not suffer losses relating to cyber attacks or other information securitybreaches in the future.

Foreign and Emerging Market SecuritiesInvesting in the securities of foreign issuers, particularly those located in emerging market or developing countries, entails the risk thatnews and events unique to a country or region will affect those markets and their issuers. The value of the Fund’s shares may varywidely in response to political and economic factors affecting companies in foreign countries. These same events will not necessarilyhave an effect on the U.S. economy or similar issuers located in the United States. In addition, investments in certain foreign markets



25


December 31, 2016

Investment Policy (unaudited) (cont’d)that have historically been considered stable may become more volatile and subject to increased risk due to ongoing developments andchanging conditions in such markets. Moreover, the growing interconnectivity of global economies and financial markets hasincreased the probability that adverse developments and conditions in one country or region will affect the stability of economies andfinancial markets in other countries or regions.

Investments in foreign markets entail special risks such as currency, political, economic and market risks. There also may be greatermarket volatility, less reliable financial information, higher transaction and custody costs, decreased market liquidity and lessgovernment and exchange regulation associated with investments in foreign markets. Certain foreign markets may rely heavily onparticular industries or foreign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctionsagainst a particular country or countries, organizations, entities and/or individuals, changes in international trading patterns, tradebarriers, and other protectionist or retaliatory measures. Economic sanctions could, among other things, effectively restrict oreliminate the Fund’s ability to purchase or sell securities or groups of securities for a substantial period of time, and may make theFund’s investments in such securities harder to value. Investments in foreign markets may also be adversely affected by governmentalactions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the impositionof punitive taxes. The governments of certain countries may prohibit or impose substantial restrictions on foreign investing in theircapital markets or in certain sectors or industries. In addition, a foreign government may limit or cause delay in the convertibility orrepatriation of its currency which would adversely affect the U.S. dollar value and/or liquidity of investments denominated in thatcurrency. Certain foreign investments may become less liquid in response to market developments or adverse investor perceptions, orbecome illiquid after purchase by the Fund, particularly during periods of market turmoil. When the Fund holds illiquid investments,its portfolio may be harder to value. The risks of investing in emerging market countries are greater than risks associated withinvestments in foreign developed countries. In addition, the Fund’s investments in foreign issuers may be denominated in foreigncurrencies and therefore, to the extent unhedged, the value of the investment will fluctuate with the U.S. dollar exchange rates.

Determination of NAVThe Fund determines the NAV per share as of the close of the NYSE (normally 4:00p.m. Eastern time) on each day that the NYSE isopen for business. Shares generally will not be priced on days that the NYSE is closed. If the NYSE is closed due to inclement weather,technology problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled earlyclosing on a day it has opened for business, the Fund reserves the right to treat such day as a business day and calculate its NAV as ofthe normally scheduled close of regular trading on the NYSE for that day, so long as the Adviser believes there generally remains anadequate market to obtain reliable and accurate market quotations. The Fund may elect to price its shares on days when the NYSE isclosed but the primary securities markets on which the Fund’s securities trade remain open.



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December 31, 2016

Dividend Reinvestment and Cash Purchase Plan (unaudited)Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the Plan), each stockholder will be deemed to have elected, unlessComputershare Trust Company, N.A. (the Plan Agent) is otherwise instructed by the stockholder in writing, to have all distributionsautomatically reinvested in Fund shares. Participants in the Plan have the option of making additional voluntary cash payments to thePlan Agent, annually, in any amount from $100 to $3,000, for investment in Fund shares.

Dividend and capital gain distributions (Distributions) will be reinvested on the reinvestment date in full and fractional shares. If themarket price per share equals or exceeds net asset value per share on the reinvestment date, the Fund will issue shares to participants atnet asset value or, if net asset value is less than 95% of the market price on the reinvestment date, shares will be issued at 95% of themarket price. If net asset value exceeds the market price on the reinvestment date, participants will receive shares valued at marketprice. The Fund may purchase shares of its Common Stock in the open market in connection with dividend reinvestmentrequirements at the discretion of the Board of Directors. Should the Fund declare a Distribution payable only in cash, the Plan Agentwill purchase Fund shares for participants in the open market as agent for the participants.

The Plan Agent’s fees for the reinvestment of a Distribution will be paid by the Fund. However, each participant’s account will becharged a pro rata share of brokerage commissions incurred on any open market purchases effected on such participant’s behalf. Aparticipant will also pay brokerage commissions incurred on purchases made by voluntary cash payments. Although stockholders inthe Plan may receive no cash distributions, participation in the Plan will not relieve participants of any income tax which may bepayable on such dividends or distributions.

In the case of stockholders, such as banks, brokers or nominees, that hold shares for others who are the beneficial owners, the PlanAgent will administer the Plan on the basis of the number of shares certified from time to time by the stockholder as representing thetotal amount registered in the stockholder’s name and held for the account of beneficial owners who are participating in the Plan.

Stockholders who do not wish to have distributions automatically reinvested should notify the Plan Agent in writing. There is nopenalty for non-participation or withdrawal from the Plan, and stockholders who have previously withdrawn from the Plan may rejoinat any time. Requests for additional information or any correspondence concerning the Plan should be directed to the Plan Agent at:

The Latin American Discovery Fund, Inc.Computershare Trust Company, N.A.P.O. Box 30170College Station, Texas 778421(800) 231-2608



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December 31, 2016

Privacy Notice (unaudited)Morgan Stanley Investment Management Inc.An Important Notice Concerning Our U.S. Privacy PolicyWe are required by federal law to provide you with a copy of our privacy policy annually. This policy applies to current and formerindividual investors in funds managed or sponsored by Morgan Stanley Investment Management Inc. (“MSIM”) as well as currentand former individual clients of MSIM. This policy is not applicable to partnerships, corporations, trusts or other non-individualclients or investors. Please note that we may amend this policy at any time, and will inform you of any changes as required by law.

We Respect Your PrivacyWe appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of suchinformation while we help you achieve your financial objectives. This Notice describes what non-public personal information wecollect about you, why we collect it, when we may share it with others and how certain others may use it. It discusses the steps youmay take to limit our sharing of certain information about you to affiliated companies in the Morgan Stanley family of companies(“other Morgan Stanley companies”). It also discloses how you may limit use of certain shared information for marketing purposes byother Morgan Stanley branded companies. Throughout this policy, we refer to the non-public information that personally identifiesyou or your accounts as “personal information.’’

1. What Personal Information Do We Collect About You?We obtain personal information from applications and other forms you submit to us, from your dealings with us, from consumerreporting agencies, from our Web sites and from third parties and other sources.

For example:• We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment

objectives through subscription documents, applications and other forms you submit to us.

• We may obtain information about account balances, your use of account(s) and the types of products and services you prefer toreceive from us through your dealings and transactions with us and other sources.

• We may obtain information about your creditworthiness and credit history from consumer reporting agencies.

• We may collect background information from and through third-party vendors to verify representations you have made and tocomply with various regulatory requirements.

• If you interact with us through our public and private Web sites, we may collect information that you provide directly throughonline communications (such as an e-mail address). We may also collect information about your Internet service provider, yourdomain name, your computer’s operating system and Web browser, your use of our Web sites and your product and servicepreferences, through the use of “cookies.” Please consult the Terms of Use of these sites for more details.



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December 31, 2016

Privacy Notice (unaudited) (cont’d)2. When Do We Disclose Personal Information We Collect About You?We may disclose personal information we collect about you to other Morgan Stanley companies and to non-affiliated third parties.

a. Information We Disclose to Other Morgan Stanley Companies. We may disclose personal information to otherMorgan Stanley companies for a variety of reasons, including to manage your account(s) effectively, to service and process yourtransactions, to let you know about products and services offered by us and other Morgan Stanley companies, to manage ourbusiness, and as otherwise required or permitted by law. Offers for products and services from other Morgan Stanley companiesare developed under conditions designed to safeguard your personal information.

b. Information We Disclose to Non-affiliated Third Parties. We do not disclose personal information that we collect about youto non-affiliated third parties except to those who provide marketing services on our behalf, to financial institutions with whomwe have joint marketing agreements, and as otherwise required or permitted by law. For example, we may disclose personalinformation to nonaffiliated third parties for servicing and processing transactions, to offer our own products and services, toprotect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When weshare personal information with a non-affiliated third party, they are required to limit their use of personal information to theparticular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill thatlimited purpose or as may be permitted or required by law.

3. How Do We Protect the Security and Confidentiality of Personal Information We Collect About You?We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you.We have internal policies governing the proper handling of client information. Third parties that provide support or marketingservices on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respectto such information.

4. How Can You Limit the Sharing of Certain Types of Personal Information With Other MorganStanley Companies?We offer you choices as to whether we share with other Morgan Stanley companies the personal information that was collected todetermine your eligibility for products and services you request (“eligibility information”). Eligibility information does not includeyour identification information or personal information pertaining to our transactions or experiences with you. Please note that, evenif you direct us not to share eligibility information with other Morgan Stanley companies (“opt-out”), we may still share personalinformation, including eligibility information, with those companies in circumstances excluded from the opt-out under applicable law,such as to process transactions or to service your account.



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December 31, 2016

Privacy Notice (unaudited) (cont’d)5. How Can You Limit the Use of Certain Types Of Personal Information by Other Morgan StanleyCompanies for Marketing?By following the opt-out instructions in Section 6 below, you may limit other Morgan Stanley branded companies from marketingtheir products or services to you based on personal information we disclose to them. This information may include, for example, yourincome and account history with us. Please note that, even if you choose to limit Other Morgan Stanley Companies from usingpersonal information about you that we may share with them for marketing their products and services to you, Other Morgan StanleyCompanies may use your personal information that they obtain from us to market to you in circumstances permitted by law, such as ifthe Other Morgan Stanley Company has its own relationship with you.

6. How Can You Send Us an Opt-Out Instruction?If you wish to limit our sharing of eligibility information about you with other Morgan Stanley companies or other Morgan Stanleycompanies’ use of personal information for marketing purposes, as described in this notice, you may do so by:

• Calling us at (800) 231-2608Monday–Friday between 8a.m. and 6p.m.(EST)

• Writing to us at the following address:

Computershare Trust Company, N.A.c/o Privacy CoordinatorP.O. Box 30170College Station, Texas 77842

Your written request should include your name, address, telephone number and account number(s) to which the opt-out applies andwhether you are opting out with respect to sharing of eligibility information (Section 4 above), or if information used for Marketing(Section 5 above) or both. Written opt-out requests should not be sent with any other correspondence. In order to process yourrequest, we require that the request be provided by you directly and not through a third party.

Your opt-out preference will remain in effect with respect to this policy (as it may be amended) until you notify us otherwise. If youhave a joint account, your direction for us not to share this information with other Morgan Stanley companies and for those otherMorgan Stanley companies not to use your personal information for marketing will be applied to all account holders on that account.Please understand that if you limit our sharing or our affiliated companies’ use of personal information, you and any joint accountholder(s) may not receive information about Morgan Stanley products and services, including products or services that could help youmanage your financial resources and achieve your investment objectives.

7. What If an Affiliated Company Becomes a Non-affiliated Third Party?If, at any time in the future, an affiliated company becomes a non-affiliated third party, further disclosures of personal informationmade to the former affiliated company will be limited to those described in Section 2(b) above relating to non-affiliated third parties.



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December 31, 2016

Privacy Notice (unaudited) (cont’d)If you elected under Section 6 to limit disclosures we make to affiliated companies, or use of personal information by affiliatedcompanies, your election will not apply to use by any former affiliated company of your personal information in their possession onceit becomes a non-affiliated third party.

SPECIAL NOTICE TO RESIDENTS OF VERMONTThe following section supplements our policy with respect to our individual clients who have a Vermont address and

supersedes anything to the contrary in the above policy with respect to those clients only.

The state of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collectabout you with affiliated companies and non-affiliated third parties other than in certain limited circumstances. Except as permittedby law, we will not share personal information we collect about you with non-affiliated third parties or other Morgan Stanleycompanies unless you provide us with your written consent to share such information (“opt-in”).

If you wish to receive offers for investment products and services offered by or through other Morgan Stanley companies, pleasenotify us in writing at the following address:

Computershare Trust Company, N.A.c/o Privacy CoordinatorP.O. Box 30170College Station, Texas 77842

Your authorization should include your name, address, telephone number and account number(s) to which the opt-in applies andshould not be sent with any other correspondence. In order to process your authorization, we require that the authorization beprovided by you directly and not through a third party.

SPECIAL NOTICE TO RESIDENTS OF CALIFORNIAThe following section supplements our policy with respect to our individual clients who have a California address and

supersedes anything to the contrary in the above policy with respect to those clients only.

In response to a California law, if your account has a California home address, your personal information will not be disclosed tononaffiliated third parties except as permitted by applicable California law, and we will limit sharing such information with ouraffiliates to comply with California privacy laws that apply to us.



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December 31, 2016

Director and Officer Information (unaudited)Independent Directors:

Number of Portfolios in Fund Complex Overseen Position(s) Length of by Name, Age and Address of Held with Time Principal Occupation(s) During Past 5 Years Independent Other DirectorshipsIndependent Director Registrant Served* and Other Relevant Professional Experience Director** Held by Independent Director***

Kathleen A. Dennis (63)c/o Perkins Coie LLPCounsel to the IndependentDirectors30 Rockefeller PlazaNew York, NY 10112

Director SinceAugust2006

President, Cedarwood Associates (mutual fundand investment management consulting) (sinceJuly 2006); Chairperson of the Liquidity andAlternatives Sub-Committee of the InvestmentCommittee (since October 2006) and Director orTrustee of various Morgan Stanley Funds (sinceAugust 2006); formerly, Senior Managing Directorof Victory Capital Management (1993-2006).

91 Director of various non-profitorganizations.

Nancy C. Everett (61)c/o Perkins Coie LLPCounsel to the IndependentDirectors30 Rockefeller PlazaNew York, NY 10112

Director SinceJanuary2015

Chief Executive Officer, Virginia CommonwealthUniversity Investment Company (sinceNovember 2015); Owner, OBIR, LLC (institutionalinvestment management consulting) (sinceJune 2014); formerly, Managing Director,BlackRock Inc. (February 2011-December 2013);and Chief Executive Officer, General MotorsAsset Management (a/k/a Promark GlobalAdvisors, Inc.) (June 2005-May 2010).

91 Member of Virginia CommonwealthUniversity School of BusinessFoundation; formerly, Member ofVirginia Commonwealth UniversityBoard of Visitors (2013-2015);Member of Committee on Directorsfor Emerging Markets Growth Fund,Inc. (2007-2010); Chairperson ofPerformance Equity Management,LLC (2006-2010); and Chairperson,GMAM Absolute Return StrategiesFund, LLC (2006-2010).

Jakki L. Haussler (59)c/o Perkins Coie LLPCounsel to the IndependentDirectors30 Rockefeller PlazaNew York, NY 10112


Chairman and Chief Executive Officer, OpusCapital Group (since January 1996); formerly,Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP(July 1999-December 2010); Director, TheVictory Funds (February 2005-July 2008).

91 Director of Cincinnati Bell Inc. andMember, Audit Committee andCompensation Committee; Directorof Northern Kentucky UniversityFoundation and Member, InvestmentCommittee; Member of ChaseCollege of Law Transactional LawPractice Center Board of Advisors;Director of Best Transport; Directorof Chase College of Law Board ofVisitors; formerly, Member,University of Cincinnati FoundationInvestment Committee; Member,Miami University Board of Visitors(2008-2011); Trustee of VictoryFunds (2005-2008) and Chairman,Investment Committee (2007-2008)and Member, Service ProviderCommittee (2005-2008).



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December 31, 2016

Director and Officer Information (unaudited) (cont’d)Independent Directors (cont’d):


Joseph J. Kearns (74)c/o Kearns & Associates LLC46 E Peninsula Center #385Rolling Hills Estates, CA90274-3712

Director SinceAugust1994

President, Kearns & Associates LLC (investmentconsulting); Chairperson of the Audit Committee(since October 2006) and Director or Trustee ofvarious Morgan Stanley Funds (sinceAugust 1994); formerly, Deputy Chairperson ofthe Audit Committee (July 2003-September 2006)and Chairperson of the Audit Committee ofvarious Morgan Stanley Funds (sinceAugust 1994); CFO of the J. Paul Getty Trust.

93 Director of Electro Rent Corporation(equipment leasing). Prior toDecember 31, 2013, Director of TheFord Family Foundation.

Michael E. Nugent (80)522 Fifth AvenueNew York, NY 10036

Chair ofthe BoardandDirector

Chair ofthe BoardssinceJuly 2006andDirectorsinceJuly 1991

Chair of the Boards of various Morgan StanleyFunds (since July 2006); Chairperson of theClosed-End Fund Committee (since June 2012)and Director or Trustee of various Morgan StanleyFunds (since July 1991); formerly, Chairperson ofthe Insurance Committee (until July 2006);General Partner, Triumph Capital, L.P. (privateinvestment partnership) (1988-2013).

92 None.

Director of Legg Mason, Inc.;formerly, Director of the AuburnUniversity Foundation (2010-2015).

91Chairperson of the Equity Sub-Committee of theInvestment Committee (since October 2006) andDirector or Trustee of various Morgan StanleyFunds (since August 2006); formerly, Presidentand CEO of General Motors Asset Management;Chairman and Chief Executive Officer of the GMTrust Bank and Corporate Vice President ofGeneral Motors Corporation (August 1994-December 2005).

SinceAugust2006

DirectorW. Allen Reed (69)c/o Perkins Coie LLPCounsel to the IndependentDirectors30 Rockefeller PlazaNew York, NY 10112

Patricia Maleski (56)c/o Perkins Coie LLPCounsel to the IndependentDirectors30 Rockefeller PlazaNew York, NY 10112


Management Director, JPMorgan AssetManagement (2013-2016); President, JPMorganFunds (2010-2013), Chief Administrative Officer,JPMorgan Funds (2004-2010), Treasurer,JPMorgan Funds (2003-2004, 2008-2010), andVice President and Board Liaison, JPMorganFunds (2001-2004); Managing Director, J.P.Morgan Investment Management Inc. (2001-2013); Vice President of Finance, Pierpont Group(1996-2001); Vice President, Bank of New York(1995-1996); Senior Audit Manager, PriceWaterhouse, LLP (1982-1995).

91 None.


JOB: 17-2621-12 CYCLE#;BL#: 10; 0 TRIM: 7.5" x 8.75" AS: Merrill New York: 212-620-5600 COMPOSITECOLORS: Black, ~HTML color, ~note-color 2, ~watermark GRAPHICS: none V1.5

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December 31, 2016

Director and Officer Information (unaudited) (cont’d)Independent Directors (cont’d):


* This is the earliest date the Director began serving the Morgan Stanley Funds. Each Director serves an indefinite term, until his or her successor is elected.** The Fund Complex includes (as of December 31, 2016) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley

Investment Management Inc. (the “Adviser”) and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to,Morgan Stanley AIP GP LP).

*** This includes any directorships at public companies and registered investment companies held by the Director at any time during the past five years.

Executive Officers:

Position(s) Held with Length of Name, Age and Address of Executive Officer Registrant Time Served**** Principal Occupation(s) During Past 5 Years

Formerly, Trustee and Director ofcertain investment companies in theJP Morgan Fund Complex managedby JP Morgan InvestmentManagement Inc. (1987-2012).

92Chairman, Joe Pietryka, Inc.; Chairperson of theGovernance Committee and Director or Trusteeof various Morgan Stanley Funds (sinceJune 1992).

SinceJune 1992

DirectorFergus Reid (84)c/o Joe Pietryka, Inc.85 Charles Colman Blvd.Pawling, NY 12564

President and Principal Executive Officer of the Equity and FixedIncome Funds and the Morgan Stanley AIP Funds (sinceSeptember 2013) and the Liquidity Funds and various moneymarket funds (since May 2014) in the Fund Complex; ManagingDirector of the Adviser; Head of Product (since 2006).

Since September2013

President andPrincipalExecutiveOfficer

John H. Gernon (53)522 Fifth AvenueNew York, NY 10036

Managing Director of the Adviser and various entities affiliatedwith the Adviser; Chief Compliance Officer of various MorganStanley Funds and the Adviser (since December 2016) and ChiefCompliance Officer of Morgan Stanley AIP GP LP (since 2014).Formerly, Managing Director and Deputy Chief Compliance Officerof the Adviser (2014-2016); and formerly, Chief ComplianceOfficer of Prudential Investment Management, Inc. (2007-2014).

SinceDecember 2016

ChiefComplianceOfficer

Timothy J. Knierim (58)522 Fifth AvenueNew York, NY 10036

Managing Director of the Adviser and various entities affiliatedwith the Adviser; Treasurer (since July 2003) and PrincipalFinancial Officer of various Morgan Stanley Funds (sinceSeptember 2002).

Treasurer sinceJuly 2003 andPrincipalFinancialOfficer sinceSeptember 2002

Treasurer andPrincipalFinancialOfficer

Francis J. Smith (51)522 Fifth AvenueNew York, NY 10036



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December 31, 2016

Director and Officer Information (unaudited) (cont’d)Executive Officers (cont’d):

Position(s) Held with Length of Name, Age and Address of Executive Officer Registrant Time Served**** Principal Occupation(s) During Past 5 Years

****This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected andqualifies.

Executive Director of the Adviser; Secretary of various MorganStanley Funds (since June 1999).

Since June 1999SecretaryMary E. Mullin (49)522 Fifth AvenueNew York, NY 10036



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