PICKING WINNERS.

INVESTING IN LATIN AMERICA IS NEVER EASY, but a select few funds have beaten the pack recently amidst treacherous circumstances. Barclays' WEBS Index Fund for Mexico, Wright's Mexico Fund and Zurich Kemper's Nicholas-Applegate Latin America posted double-digit returns. At the top of our first annual LATIN TRADE Mutual Fund Ranking, the three funds handily outpaced the 4.6% average decline of 58 Latin American funds for the year ending in June 1999, according to Lipper Financial Services. They also outperformed asset class giants, Scudder's $543 million Latin America Fund (up 2.09%) and Fidelity's $401 million Latin America Fund (down 1.34%). LATIN TRADE contributor Todd Shapera talked with this year's top fund managers to get clues about how they pick winners and what stocks are hot.

AGENTS OF CHANGE

Players: Jason Campbell and Ernesto Ramos, portfolio managers

Fund: Nicholas-Applegate Latin American Fund

Performance: 11.15%

Criteria: Fund seeks companies that adapt to change. Their earnings should grow more rapidly than their peers. Management restructuring should be underway with positive prognosis. Firm should be positioned to take advantage of better product prices and cost efficiencies in production. It should also be able to sustain pace of change without putting itself in a precarious position. "We don't want to buy stocks that have been beaten up and have cheap valuations ... and are going to sit there for a long time," says Ramos.

Embraer. The Brazilian aircraft manufacturer is braced need to replace 1,600 regional propeller planes with commuter jets in the United States during the next 10 years. Its order backlog is US$8 billion or five years of production. At the Paris Air Show last summer it received more orders than Boeing and Airbus combined. "Embraer is going to build 70-seat and 108-seat jets to compete with Boeing's 717 and has already pre-sold 175," says Campbell.

Tele Centro Sul. Formerly part of the state-run phone company, the firm is now a private fixed-line operator in southern Brazil. Its service area has extremely low penetration at 11 phones per 100 people, compared to nearby Argentina at almost 30 and United States, 70. Also, company is aggressive in data communication and Internet markets, growing volumes more than 100% per year during the next decade and revenues in excess of 30% annually. Leading shareholders Opportunity Group, a local Brazilian fund manger, and Telecom Italia have hired top-notch management team. "Tele Centro Sul will become a prime telecom in Brazil," says Campbell.

Grupo Televisa. The world's largest producer and broadcaster of Spanish television morphed from a heavy-handed Mexican monopoly with 95% audience share to a sluggish loser and back to a lean mean programming machine. Gilberto Perezalonso, ex-chief financial officer at retailer Cifra, has slashed fat, fine tuned the signal and gotten viewers back to a dominant 80%, from 60%. No more old-fashioned advertiser abuse with annual, up front payments. Now ratings-based system better leverages company's market share and dominance. Presidential elections in July, intense primary season, and no real campaign spending limits mean an advertising windfall. "Televisa will get an extra 25% in sales from political advertising," says Ramos.

CONCERNS: Argentina is not falling apart, but there's nothing exciting either--sort of a yawn. Venezuela is tricky. "The jury is still out on [President Hugo] Chavez and whether he will turn out to be a megalomaniac like [former Argentine President Carlos] Menem, or more like a Fidel Castro," says Ramos. "In Mexico and Brazil politics is the big risk."

Investment Pitch 2000: Rising U.S. interest rates hit the region hard, but since Latin markets posted a high in May 1999 investors haven't recognized improved economic fundamentals and earnings growth. "They haven't focused on good things going on around the region," says Ramos.

Performance: 17.31%

Criteria: Fund seeks quality growth at a reasonable price. It looks at company profitability and stability of profits. More than growth of earnings or dividends, it seeks growth in book value and cash earnings. "We are trying to identify quality companies," says Khandwala.

Telefonos de Mexico (Telmex). The former phone monopoly is now a fearsome fixed-line competitor. It markets aggressively to U.S. Hispanics who call Mexico, generating big bilateral billing on its network. It invested US$100 million in Williams Communications to develop infrastructure and acquired Comm South, a U.S. wireless prepaid service provider. It teamed with Internet company Prodigy--part-owned by Telmex principal Carlos Slim--to increase online clients by offering cut-rate PCs. "And their strategy is simple: if competition comes in, they are going to be aggressive in those markets." says Khandwala.

Grupo Industrial Bimbo. Mexico's largest baker of bread is venturing into the corn tortilla business. Its intricate delivery system and good linkages with retailers provide solid information on changing market trends. The company is also expanding outside their domestic market. With ownership of Mrs. Baird's, a Texas bakery, and a strong presence in California, dollar revenues from the United States represent 20% of total sales.

Kimberly-Clark de Mexico. The paper company is benefiting from recovery of pulp prices. Performance has lagged the index, but it's a financially strong, low risk company. It also has a good credit record and strong balance sheet.

CONCERNS: One of the problems for some Latin markets has been the severe recession, especially in Brazil and Argentina. Going forward, there's some apprehension in Venezuela and in Argentina as to what the peso will do. Historically in Mexico, the peso has always come under pressure going into an election. "This time around. I don't see why it will be different," he says, "although the magnitude of volatility maybe less this time."

Investment Pitch 2000: Within the region, Mexico is doing well. High interest rates have kept inflation under control without stifling economic growth and exports. "One reason is that over 80% of exports go to the U.S.," he says.

AUTOMATIC RETURN

Player: Greg Friedman, senior portfolio manager

Fund: WEBS Mexico Index Fund

Performance: 26.62%

Criteria: Fund seeks to reproduce results of Mexican stock market index. Stocks are not bought and sold according to price or performance. "We have lower turnover and, hence, lower transaction costs," Friedman says.

HOT TIPS

None. "Our goal is to track the index. We aren't looking at [financial] fundamentals when we make decisions," Friedman says. Industries that did well for the 12 months through August included banking, up 124% and building materials up 115%. Also strong, hut a small index component, was energy equipment and services, up 150%. Housing was own 12%, machinery and engineering fell 9%, while financial services and commodities were nearly flat. Shares within the portfolio that did well were Grupo Financiero Bancomer and Grupo Financiero Banorte, each up over 100%, and cement firm Cemex, whose gains exceeded 75%.

Concerns: Mexican Securities and Exchange Commission restrictions lead to incorrect weighting of the portfolio. Even slight deviations cause big differences when there is such a large return for the year. Through August 1999, the fund was up 66.92% and the Mexican index rose 75.29%.

Investment Pitch 2000: "We are not in the business of forecasting where the market will go. Usually, I'm a pretty boring interview," Friedman says.

                    TOP 20 LATIN AMERICAN MUTUAL FUNDS
    Open-End funds ranked by one-year performance as of June 30, 1999.
RK FUND NAME                    NET ASSETS   TOTAL RETURNS IN PERIOD
00                             US $ millions     ENDING JUNE 30
                                                  since 12/31        1 Year
   Lipper Latin American Fund
   Index                                              28.03%          -4.60%
   S & P 500 Index                                    12.39           22.77
1  WEBS Index Fund: Mexico                            50.15           26.62
2  The Wright EquiFund Trust:
   Mexico Fund                     11.1               45.11           17.31
3  Nicholas-Applegate Latin
   America; l                       3.8               38.35           11.15
4  Kemper Latin America Fund;A      1.7               25.81            8.71
5  BT Investment Funds:Latin
   America Equity Fund              9.1               45.01            6.69
6  MSDW Instl Fund: Latin
   America Portfolio; A            22.1               39.02            3.25
7  Van Kampen Latin American
   Fund; A                         34.2               36.08            2.91
8  Scudder Latin America Fund     543.0               22.96            2.09
9  Prudential Latin America
   Equity Fund;Z                    5.1               34.70            1.29
10 ABN AMRO Latin America
   Equity Fund;Common Class        22.7               28.59           -1.01
11 Fidelity Latin America Fund    401.5               30.18           -1.34
12 Merrill Lynch Latin America
   Fund;B                         158.9               31.56           -1.35
13 Templeton Global Inv. Trust
   Latin America; A                16.6               34.86           -3.11
14 T.Rowe Price Latin America
   Fund                           234.4               26.28           -3.81
15 Federated Latin American
   Growth Fund;A                    9.7               27.01           -4.18
16 MSDW Latin American
   Growth Fund; B                 136.8               25.06           -5.01
17 TCW Galileo Latin America
   Equities Fund                    4.4               23.25           -6.86
18 AIM Latin American Growth
   Fund; A                         64.3               28.76           -6.97
19 Evergreen Latin America
   Fund;B                          24.6               23.73           -9.86
20 INVESCO Latin American
   Growth Fund                     29.6               23.85          -13.27
   AVERAGE/TOTAL                1,998.1               28.94           -2.81
RK         MANAGEMENT COMPANY        TOLL-FREE NO.
00 3 Years
       N/A
     29.12
1    13.59 Barclays Global Fund
           Advisors                   800-810-9327
2
     10.74 Wright Investors' Service  800-888-9471
3          Nicholas-Applegate
       N/A Capital Mgmt.              888-460-8710
4      N/A Zurich Kemper
           Investments Inc.           800-621-1048
5
      7.95 Bankers Trust Company      800-730-1313
6          Morgan Stanley Dean
     10.99 Witter Inv.Mgmt.           800-548-7786
7
     10.19 Van Kampen Funds           800-282-4404
8     5.66 Scudder Kemper
           Investments                800-225-2470
9          Prudential Inv. Fund
       N/A Mgmt. LLC.                 800-225-1852
10         ABN Amro Asset
      4.34 Mgmt. Inc.                 800-443-4725
11    3.45 Fidelity Mgmt. &
           Research Co.               800-544-6666
12         Merrill Lynch Asset
      0.45 Mgmt. LP                   800-637-3863
13
     -3.24 Franklin Adv/Templeton     800-237-0738
14
      2.82 T.Rowe Price Associates    800-231-8432
15
     -1.63 Federated Investors        800-245-5051
16         Morgan Stanley Dean
      0.71 Witter Advisors            800-869-6397
17         TCW Funds
      1.41 Management Inc.            800-386-3829
18
     -5.48 AIM Advisors Inc.          800-347-1919
19
      0.48 Evergreen Inv. Services    800-343-2898
20
     -6.68 INVESCO Funds Group Inc.   800-525-8085
      1.02
NOTES: For funds with multiple share classes, only the largest is shown.
N/A: Not applicable; fund is too new.
SOURCES: Lipper, LATIN TRADE.