The Argentina Fund, Inc.
Semiannual Report
April 30, 1996
A closed-end investment company seeking long-term capital appreciation through
investments primarily in the equity securities of Argentine issuers.
<PAGE>
The Argentina Fund, Inc.
- ------------------------
Investment objective and policies
o long-term capital appreciation through investment primarily in equity
securities of Argentine issuers
Investment characteristics
o investments in a broad spectrum of Argentine industries
o closed-end investment company
o a vehicle for international diversification through the participation in
the Argentine economy
General Information
- -------------------
Executive Offices
The Argentina Fund, Inc.
345 Park Avenue
New York, NY 10154
For Fund information: 1-800-349-4281
Transfer Agent, Registrar and Dividend
Reinvestment Plan Agent
For account information: 1-800-426-5523
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Legal Counsel
Willkie Farr & Gallagher
Custodian
Brown Brothers Harriman & Co.
Independent Accountants
Coopers & Lybrand L.L.P.
New York Stock Exchange Symbol--AF
Contents
- --------
In Brief 3
Letter to Shareholders 3
Investment Summary 6
Portfolio Summary 7
Investment Portfolio 8
Financial Statements 11
Financial Highlights 14
Notes to Financial Statements 15
Report of Independent Accountants 18
Dividend Reinvestment and
Cash Purchase Plan 19
Investment Manager 21
Advisory Board 22
Directors and Officers 22
This report is sent to the shareholders of The Argentina Fund, Inc. for their
information. It is not a prospectus, circular, or representation intended for
use in the purchase or sale of the Fund or of any securities mentioned in the
report.
2
<PAGE>
In Brief
- --------
o The Argentina Fund provided a strong 31.05% total return in the six-month
period ended April 30, 1996, based on a $2.85 increase in net asset value
per share and a $0.33 per share income distribution. The Fund's stock price
also gained, up 27.92% for the period.
o Following last year's 4.4% decline in economic activity, Argentina's
prospects this year are greatly improved. The country's GDP is expected to
grow 2% to 3%, inflation is under control, exports are rising, foreign
direct investment is increasing, the unemployment rate is falling, and the
exchange rate is stable.
o During the period, the Argentina Fund maintained its focus on companies in
which a foreign multinational holds a strategic stake, as well as companies
managed with a long-range view that includes substantial reinvestment of
cash in the business.
Letter to Shareholders
- ----------------------
Dear Shareholders:
The Argentina Fund enjoyed a 31.05% total investment return during the six
months ended April 30, 1996. The Fund's net asset value was $13.12 per share at
the end of the first semester, compared with $10.27 per share at the close of
fiscal 1995. The unmanaged IFC Argentina Global Total Return Index rose 38.72%
for the six months. The price of the Fund's stock traded on the New York Stock
Exchange was $12.625 on April 30--a 27.92% return for the period--and represents
a 3.77% discount to net asset value.
After a torrid November, December, and January, the rally in Buenos Aires
ran out of steam. We believe this will prove to be a temporary pause in the
market's recovery trajectory. International investors appear to have moved to
the sidelines following the surfacing in March of news of another disagreement
between President Menem and Finance Minister Cavallo, this time over the need
for government intervention to energize the pace of the economy's recovery.
The Road To Recovery
President Menem's impatience with the strength of Argentina's recovery may
be due to his measuring current activity against his government's forecast of 5%
economic growth for 1996. This estimate is likely too optimistic. Most private
sector economists suggest that the economy will grow from 2% to 3% this year
following last year's 4.4% decline. This is not a bleak outlook, considering the
fact that Argentina's convertibility law was sorely tested last year by a major
flight of capital fearing a devaluation. The government stood firm with its
program, and the country has now emerged from this difficult period with
inflation under control, exports rising, foreign direct investment increasing,
the unemployment rate falling, and the exchange rate stable. Last year's
liquidity crisis did lead to a temporary decline in bank lending and capital
investment. However, with liquidity now rebuilt, bank lending should recover and
nurture consumer spending and capital expenditures once again. Economic growth
beyond 1996 should accelerate on the back of rising rates of capital formation.
Interest From Abroad
A good test of the success of an economic stabilization program is the
business community's willingness to invest long-term capital. In this regard,
one of the bullish indicators for the future has been the steady inflow of
equity capital from abroad as foreign direct investment is stimulated by the
government's highly successful privatization program. Even though the program is
3
<PAGE>
winding down, capital continues to enter Argentina from abroad, bringing with it
modern technology, professional management, new jobs, and growth.
Argentina's appeal as a target of direct investment is not difficult to
understand. The country represents a market of 35 million consumers with the
highest per capita income in Latin America and also the highest rate of
literacy. With the convertibility program now firmly established and profitable
business opportunities created by the Mercosur trade agreement, Argentina has
also become an attractive market for the foreign corporation, particularly those
businesses selling consumer goods and services.
Capitalizing On A Trend
The most direct way for a multinational to enter Argentina has been the
purchase of an existing company. This delivers the consumer franchise intact and
immediately. It was the route followed by Nabisco, resulting two years ago in a
capital gain for the Fund's investment in Terrabusi S.A., a traditional
manufacturer of cookies, snacks, and the like. Likewise, several years ago the
French food conglomerate, Danone, purchased majority control of Bagley
S.A.--also an Argentina Fund portfolio investment.
The Argentina Fund has a bias toward the ownership of companies in which a
foreign multinational holds a strategic stake. We believe the presence of a
foreign owner offers certain advantages to investors in the area of technology
transfer, management, accounting conservatism, and dividend payments. Examples
of such companies currently held in the portfolio include Massalin Particulares
(Philip Morris), Nobleza Piccardo (British-American Tobacco), and Quilmes
Industrial, S.A. (Heineken N.V.). These investments are in addition to the
sizable portfolio holdings in privatized companies with important multinational
stakeholders.
A more recent trend has been the entry of multinationals in Argentina on a
de novo basis. Examples would be the construction of new manufacturing plants by
the Brazilian beer giant, Brahma, and the Chilean particle board producer,
Maderas y Sinteticos, S.A. The supermarket business has been radically
transformed by the French grocery company, Carrefour, and the U.S. retailer,
Wal-Mart. In the financial services area, Banco Itau, one of the major Brazilian
banking organizations, has built a retail banking network in Argentina from
scratch. Important investments in the beverage industry have recently been
initiated by two Chilean companies, Embotelladora Andina S.A. (Coca-Cola) and
Compania Cervecerias Unidas S.A. (beer).
A common characteristic of many of these projects is a long-term time
horizon. They have not been initiated on the basis of quarterly earnings
estimates or a one-year forecast of GDP growth. Rather, they reflect
managements' conviction that Argentina's economic stability has created an
environment that allows businesses to invest and reinvest capital intelligently
in order to create long-term value for employees, customers, and stockholders.
This emphasis on the formation of investment value through the retention and
reinvestment of operating cash flow is shared by many corporations in Argentina.
Unfortunately, The Argentina Fund is precluded by the terms of its prospectus
from investing in many of the multinational concerns now entering Argentina
directly. This is due to the small size of their Argentina operations relative
to the parent corporations' total business.
Recent Changes
We believe a portfolio comprised of companies managed with a long-term view
will deliver satisfactory investment returns over time due to the compounding of
the earnings power generated by each year's reinvestment of cash in the
business. Portfolio changes made during the six months ended April 30 should
strengthen the Fund's exposure to companies with such value-enhancing
characteristics. The investment in Buenos Aires Embotelladora S.A. was
eliminated due to concern that the company's leveraged balance sheet might
compromise management's aggressive expansion plans for Brazil. The Fund
4
<PAGE>
increased its investment in Bagley S.A. and the tobacco sector. The commitment
to the telephone industry was focused through the sale of indirect investments
such as Telefonica Prides and a portion of the holding in Nortel, and through
the purchase of additional shares of Telefonica and Telecom. For diversification
reasons, the Fund's substantial investment in Perez Companc was reduced. The
company remains the Argentina Fund's largest equity investment, however, worth
$13.5 million or 12% of the equity portfolio as of April 30.
As always, if you have any questions about the Fund, please do not hesitate
to contact us at 1-800-349-4281. Thank you for continued interest.
Respectfully,
/s/Nicholas Bratt /s/Edmond D. Villani
Nicholas Bratt Edmond D. Villani
President Chairman of the Board
5
<PAGE>
THE ARGENTINA FUND, INC.
INVESTMENT SUMMARY AS OF APRIL 30, 1996
- -----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER -14.41 -- -0.08 -- -.61 --
FISCAL YEAR
TO DATE 27.92 -- 31.05 -- 38.72 --
ONE YEAR 10.22 10.22 26.97 26.97 34.37 34.37
THREE YEAR 37.45 11.19 50.02 14.48 65.82 18.34
LIFE OF FUND* 18.06 3.74 34.08 6.70 26.56 5.37
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (a)
YEARLY PERIODS ENDED APRIL 30
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
1992* 1993 1994 1995 1996
-----------------------------------------
NET ASSET VALUE... $12.68 $ 9.64 $13.98 $10.60 $13.12
INCOME DIVIDENDS.. $ .06 $ .05 $ .14 $ .27 $ .33
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .09 $ .02 $ .46 $ --
TOTAL RETURN (%).. 13.81 -23.01 46.38 -19.48 26.97
(a) Total investment returns reflects changes in net asset value per
share during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the
Fund based on market price.
(b) IFC Argentina Global Total Return Index U.S.$
* The Fund commenced operations on October 22, 1991. Index return begins
on October 31, 1991.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
6
<PAGE>
THE ARGENTINA FUND, INC.
PORTFOLIO SUMMARY AS OF APRIL 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
Equity Securities 93%
Cash Equivalents 7%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
SECTORS
Sector breakdown of the Fund's Argentine securities
Energy 30%
Financial 16%
Consumer Staples 16%
Communications 12%
Utilities 9%
Construction 6%
Durables 5%
Metals & Minerals 3%
Manufacturing 3%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
1. PEREZ COMPANC S.A.
2. YPF S.A.
3. QUILMES INDUSTRIAL S.A.
4. TELEFONICA DE ARGENTINA
5. INVERSIONES Y REPRESENTACIONES S.A.
6. ASTRA CAPSA
7. BANCO DE GALICIA Y BUENOS AIRES
8. BANCO FRANCES DEL RIO DE LA PLATA
9. COMPANHIA INTERAMERICANA DE AUTOMOVILES
10. LOMA NEGRA CIA. S.A.
7
<PAGE>
<TABLE>
[LOGO] The Argentina Fund, Inc.
Investment Portfolio as of April 30, 1996
==================================================================================================================
<CAPTION>
Principal Market
Industry Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 6.7%
8,031,000 Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 4/30/96 at 5.32%, to be
repurchased at $8,032,187 on 5/1/96,
collateralized by a $7,481,000 U.S. Treasury
Note, 7.5%, 11/15/01 (Cost $8,031,000) ............... 8,031,000
----------
- ------------------------------------------------------------------------------------------------------------------
ARGENTINE CONVERTIBLE DEBT SECURITIES 0.9%
1,000,000 Banco de Galicia y Buenos Aires, Convertible
Bond, 7%, 8/1/02 (Cost $ 744,220) ................... 1,045,000
----------
- ------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 2.3%
Shares
------
COMMUNICATIONS
Telephone/Communications 100,520 Nortel Inversora "A" (ADR) (b) ......................... 791,092
154,500 Nortel Inversora "B" (ADR) (b) ......................... 2,008,500
----------
TOTAL PREFERRED STOCKS (Cost $3,079,082) ............... 2,799,592
----------
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 90.1%
CONSUMER DISCRETIONARY 0.3%
Specialty Retail 93,732 Grimoldi "B" ........................................... 374,971
----------
CONSUMER STAPLES 14.6%
Alcohol & Tobacco 4.7% 277,146 Massalin Particulares .................................. 3,326,135
738,337 Nobleza Piccardo ....................................... 2,399,871
----------
5,726,006
----------
Food & Beverage 9.9% 1,385,018 Bagley y Cia Ltd. S.A."B" .............................. 2,936,576
273,109 Cinba S.A. ............................................. 469,802
38,578 Molinos Rio de la Plata "B" ............................ 401,257
451,000 Quilmes Industrial S.A. ................................ 5,412,000
225,500 Quilmes Industrial S.A. (ADR) .......................... 2,677,813
----------
11,897,448
----------
COMMUNICATIONS 8.8%
Telephone/Communications 86,616 Telecom de Argentina "B" (ADR) ........................ 3,919,374
2,288,000 Telefonica de Argentina "B" ............................ 6,681,728
----------
10,601,102
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
Market
Industry Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL 13.8%
Banks 7.8% 514,406 Banco Frances del Rio de la Plata ...................... 4,923,432
741,644 Banco de Galicia y Buenos Aires "B" .................... 4,435,541
----------
9,358,973
----------
Other Financial Companies
0.9% 1,000,000 BI S.A. "A" (b) ........................................ 1,080,000
----------
Real Estate 5.1% 206,886 Inversiones y Representaciones S.A. (GDR) .............. 6,206,580
----------
DURABLES 4.6%
Automobiles 811,154 Compania Interamericana de Automoviles* ................ 4,705,234
300,000 Mirgor Sacifia (ADR) ................................... 862,500
----------
5,567,734
----------
MANUFACTURING 2.9%
Chemicals 1.7% 729,182 Atanor S.A. "D"* ....................................... 2,027,359
----------
Diversified Manufacturing
1.2% 490,300 Comercial del Plata .................................... 1,466,166
----------
ENERGY 28.5%
Oil & Gas Production 11.2% 2,167,587 Perez Companc S.A. "B" ................................. 13,483,942
----------
Oil Companies 13.9% 2,917,100 Astra CAPSA ............................................ 6,199,550
485,000 YPF S.A. "D" (ADR) ..................................... 10,609,375
----------
16,808,925
----------
Oil/Gas Transmission 3.4% 1,570,000 Transportadora de Gas del Sur "B" ...................... 4,035,364
----------
METALS & MINERALS 2.9%
Steel & Metals 3,057,926 Dalmine Siderca ........................................ 3,547,602
----------
CONSTRUCTION 5.2%
Building Materials 5.0% 369,400 Juan Minetti y Cia "B" ................................. 1,488,853
150,624 Loma Negra Cia. S.A. (b) ............................... 4,518,720
----------
6,007,573
----------
Miscellaneous 0.2% 262,240 Guillermo Decker S.A.* ................................. 222,930
----------
UTILITIES 8.5%
Electric Utilities 6.2% 261,700 Capex S.A. "A" ......................................... 1,923,716
1,229,590 Central Costanera "B" .................................. 4,181,087
96,690 Central Puerto S.A. "B" ................................ 348,124
77,143 Electricidad Argentina S.A."A" (ADR) (b) ............... 1,080,002
----------
7,532,929
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
[LOGO] The Argentina Fund, Inc.
Investment Portfolio (continued)
<CAPTION>
==================================================================================================================
Market
Industry Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural Gas Distribution 2.3% 264,000 MetroGas S.A. "B" (ADR) ................................ 2,772,000
-----------
TOTAL COMMON STOCKS (Cost $96,949,763) ................. 108,717,604
-----------
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $ 108,804,065) (a) ............................. 120,593,196
===========
- ------------------------------------------------------------------------------------------------------------------
<FN>
NOTES TO INVESTMENT PORTFOLIO
* Non-income producing security.
(a) The cost for federal income tax purposes was $108,857,065. At April 30, 1996, net unrealized appreciation
for all securities based on tax cost was $11,736,131. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market value over tax cost of $18,827,164,
and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over
market value of $7,091,033.
(b) Securities valued in good faith by the Valuation Committee of the Board of Directors at fair value amounted
to $9,478,314 (7.8% of net assets). Their values have been estimated by the Board of Directors in the
absence of readily ascertainable market values. However, because of the inherent uncertainty of valuation,
those estimated values may differ significantly from the values that would have been used had a ready market
for the securities existed, and the difference could be material. The cost of these securities at April 30,
1996 aggregated $9,947,805. These securities may also have certain restrictions as to resale.
- ------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
See page 7 for sector diversification.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
[LOGO] The Argentina Fund, Inc.
<TABLE>
Financial Statements
===========================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $108,804,065) (Note A) . $120,593,196
Cash ........................................................... 691,368
Receivable for investments sold ............................... 293,826
Dividends and interest receivable ............................. 170,905
Deferred organization expenses, net of accumulated
amortization of $161,531 (Note A) ............................ 16,950
------------
Total assets .............................................. 121,766,245
LIABILITIES
Payables:
Investments purchased ....................................... $ 81,393
Accrued management fee (Note C) ............................. 124,347
Other accrued expenses (Note C) ............................. 118,283
--------
Total liabilities ........................................ 324,023
------------
Net assets, at market value ................................... $121,442,222
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ........................ $ 317,119
Net unrealized appreciation (depreciation) on:
Investments .............................................. 11,789,131
Argentine peso related transactions ...................... (113)
Accumulated net realized loss .............................. (4,545,541)
Common stock ............................................... 92,581
Additional paid-in capital ................................. 113,789,045
------------
Net assets, at market value ................................... $121,442,222
============
NET ASSET VALUE per share ($121,442,222 /9,258,146) shares
of common stock issued and outstanding,
$.01 par value, 100,000,000 shares authorized) .............. $ 13.12
============
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
[LOGO] The Argentina Fund, Inc.
<TABLE>
Financial Statements (continued)
=========================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends ................................................ $ 2,147,982
Interest ................................................. 267,276
-----------
2,415,258
Expenses:
Management fee (Note C) .................................. $ 719,868
Directors' fees and expenses (Note C) .................... 30,196
Advisory Board fees and expenses (Note C) ................ 17,500
Custodian and accounting fees (Note C) ................... 141,280
Reports to shareholders .................................. 34,727
Auditing ................................................. 35,057
Amortization of organization expenses (Note A) ........... 17,800
Services to shareholders ................................. 14,652
Legal .................................................... 15,308
Other .................................................... 18,065 1,044,453
-----------
Net investment income ....................................... 1,370,805
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................. 1,448,861
Argentine peso related transactions ..................... (2,941) 1,445,920
Net unrealized appreciation (depreciation) -----------
during the period on:
Investments ............................................. 26,599,035
Argentine peso related transactions ..................... (113) 26,598,922
----------- -----------
Net gain on investment transactions ....................... 28,044,842
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $29,415,647
===========
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
========================================================================================
- -----------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1996 1995
INCREASE (DECREASE) IN NET ASSETS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 1,370,805 $ 2,824,839
Net realized gain (loss) from investment transactions .......... 1,445,920 (5,937,066)
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................... 26,598,922 (29,556,393)
Net increase (decrease) in net assets resulting from operations ... 29,415,647 (32,668,620)
------------ -----------
Distributions to shareholders from:
Net investment income ($.33 and $.27 per share, respectively) .. (3,059,725) (2,484,734)
------------ -----------
Net realized gains from investment transactions
($.46 per share) ............................................. -- (4,187,237)
------------ -----------
Fund share transactions:
Reinvestment of distributions .................................. 178,285 493,154
------------ -----------
INCREASE (DECREASE) IN NET ASSETS ................................. 26,534,207 (38,847,437)
Net assets at beginning of period ................................. 94,908,015 133,755,452
------------ -----------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $317,119 and $2,006,039, respectively) .............. $121,442,222 $94,908,015
============ ===========
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period ......................... 9,244,879 9,202,718
Shares issued to shareholders in reinvestment of distributions 13,267 42,161
------------ -----------
Shares outstanding at end of period ............................... 9,258,146 9,244,879
============ ===========
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
[LOGO] The Argentina Fund, Inc.
<TABLE>
Financial Highlights
===========================================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SIX MONTHS OCTOBER 22,
ENDED YEARS ENDED OCTOBER 31, 1991(b)
APRIL 30, --------------------------------- TO OCTOBER 31,
1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ................. $10.27 $ 14.53 $12.69 $ 9.35 $ 10.99 $10.98(c)
------ ------- ------ ------ ------- ------
Income from investment operations:
Net investment income (a) .......................... .15 .31 .21 .05 .09 .01
Net realized and unrealized gain (loss) on
investment transactions .......................... 3.03 (3.84) 1.83 3.43 (1.67) --
------ ------- ------ ------ ------- ------
Total from investment operations ..................... 3.18 (3.53) 2.04 3.48 (1.58) .01
------ ------- ------ ------ ------- ------
Less distributions from:
Net investment income .............................. (.33) (.27) (.14) (.05) (.06) --
Net realized gains on investment transactions ...... -- (.46) (.02) (.09) -- --
------ ------- ------ ------ ------- ------
Total distributions .................................. (.33) (.73) (.16) (.14) (.06) --
------ ------- ------ ------ ------- ------
Antidilution resulting from offering of
second tranche ..................................... -- -- .04 -- -- --
------ ------- ------ ------ ------- ------
Second tranche offering costs ........................ -- -- (.08) -- -- --
------ ------- ------ ------ ------- ------
Net asset value, end of period ....................... $13.12 $ 10.27 $14.53 $12.69 $ 9.35 $10.99
====== ======= ====== ====== ======= ======
Market value, end of period .......................... $12.63 $ 10.13 $14.63 $14.00 $ 9.63 $14.63
====== ======= ====== ====== ======= ======
TOTAL RETURN
Per share market value (%) ........................... 27.92** (26.48) 5.45 47.41 (33.90) 21.88**
Per share net asset value (%) (d) .................... 31.05** (24.94) 15.58 37.55 (14.55) .09**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ............... 121 95 134 74 54 63
Ratio of operating expenses to average
net assets (%) .................................... 1.88* 1.98 1.87 2.37 2.24 2.55*
Ratio of net investment income to average
net assets (%) .................................... 2.47* 2.71 1.48 .48 .81 2.54*
Portfolio turnover rate (%) .......................... 18.1* 25.0 16.7 32.5 26.5 --
Average commission rate paid (e) ..................... $.0209 -- -- -- -- --
<FN>
- ----------
* Annualized
** Not annualized
(a) Based on monthly average of shares outstanding during the period.
(b) Commencement of operations
(c) Beginning per share amount reflects $12.00 initial public offering price
net of underwriting discount and offering expenses ($1.02 per share).
(d) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(e) Average commission rate paid per share of portfolio securities is
calculated for fiscal years beginning on or after September 1, 1995.
- ---------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
14
<PAGE>
[LOGO] The Argentina Fund, Inc.
Notes to Financial Statements
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
The Argentina Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, closed-end management investment
company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and domestic or foreign broker/dealers whereby the Fund, through
its custodian, receives delivery of the underlying securities, the amount of
which at the time of purchase and each subsequent business day is required to be
maintained at such a level that the market value, depending on the maturity of
the repurchase agreement and the underlying collateral, is equal to at least
100.5% of the resale price.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Argentine peso transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities
at the daily rate of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the daily rate of exchange prevailing
on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments. Net realized and
unrealized gain (loss) from foreign
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[LOGO] The Argentina Fund, Inc.
Notes to Financial Statements
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currency related transactions includes gains and losses between trade and
settlement dates on securities transactions, gains and losses arising from the
sale of Argentine pesos, and gains and losses between the ex and payment dates
on dividends and interest. At April 30, 1996 the exchange rate for the Argentine
peso was U.S. $1 to 0.999885 Argentine peso.
TAXATION. The Fund's policy is to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies, and to
distribute substantially all of its investment company taxable income to its
shareholders. Accordingly, the Fund paid no U.S. federal income taxes, and no
federal income tax provision was required. Under Argentine tax laws, the Fund is
not subject to withholding taxes on dividends. At October 31, 1995, the Fund had
a net tax basis capital loss carryforward of approximately $5,938,000, which may
be applied against any realized net taxable capital gains of each succeeding
year until fully utilized or until October 31, 2003, whichever occurs first.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year, net realized gains from investment
transactions in excess of available capital loss carryforwards, which would be
taxable to the Fund if not distributed, will be distributed to shareholders
annually. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in foreign denominated securities
and certain securities sold at a loss. As a result, net investment income (loss)
and net realized gain (loss) on investment transactions for a reporting period
may differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
OTHER. Investment security transactions are accounted for on a trade-date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
discounts are accreted for both tax and financial reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
---------------------------------
During the six months ended April 30, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $9,454,751 and
$18,525,353, respectively.
C. RELATED PARTIES
---------------
Under the Fund's Investment Advisory, Management and Administration Agreement
(the "Management Agreement") with Scudder, Stevens & Clark, Inc. (the
"Manager"), the Manager directs the investments of the Fund in accordance with
the Fund's investment objectives, policies, and restrictions and under the
direction and control of the Fund's Board of Directors. In addition to portfolio
management services, the Manager provides certain administrative services in
accordance with the Management
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Agreement. The Fund pays to the Manager a monthly fee at an annualized rate of
1.30% of the Fund's average weekly net assets. For the six months ended April
30, 1996, the fee pursuant to such agreement aggregated $719,868.
The Manager has entered into a Sub-Advisory Contract (the "Sub-Advisory
Contract") with Sociedad General de Negocios y Valores S.A. (the "Argentine
Adviser") whereby the Argentine Adviser provides such information, investment
recommendations and assistance as the Manager may from time to time reasonably
request. Under the Sub-Advisory Contract, the Manager pays the Argentine Adviser
a monthly fee, equal to an annualized rate of 0.36% of the Fund's average weekly
net assets.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended April 30, 1996, the amount charged to the Fund by SFAC aggregated $42,978,
of which $7,606 is unpaid at April 30, 1996.
The Fund pays each Director not affiliated with the Manager or the Argentine
Adviser $6,000 annually, plus specified amounts for attended board and committee
meetings. For the six months ended April 30, 1996, Directors' fees and expenses
aggregated $30,196.
The Fund's Board of Directors has a board of independent advisors ("Advisory
Board"). Each member of the Advisory Board receives from the Fund an annual fee
of $7,000. The Fund also reimburses Advisory Board members for travel and
out-of-pocket expenses incurred in connection with Advisory Board meetings. For
the six months ended April 30, 1996, Advisory Board fees and expenses aggregated
$17,500.
For the six months ended April 30, 1996, brokerage commissions on investment
transactions amounting to $6,794 were paid by the Fund to Banco General de
Negocios, the parent company of the Argentine Adviser.
D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN ARGENTINA
-----------------------------------------------------
Investing in Argentina may involve considerations not typically associated with
investing in securities issued by U.S. companies such as more volatile prices
and less liquid securities.
Foreign investment in Argentina is regulated by the Foreign Investment Law and
the Economic Emergency Law. In general, there are currently no restrictions on
the movement of funds into and out of Argentina and repatriation of income and
capital gains by the Fund is permitted at any time. Foreign enterprises may
obtain domestic credit with the same rights and under the same conditions as
domestic enterprises. Generally, there are few restrictions on the Fund's
ability, as a foreigner, to invest in Argentine companies. There can be no
guarantee, however, that restrictions would not be imposed in the future if
governmental authorities determine that financial and economic circumstances
justify such restrictions.
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[LOGO] The Argentina Fund, Inc.
Notes to Financial Statements
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TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF THE ARGENTINA FUND, INC.:
We have audited the accompanying statement of assets and liabilities of The
Argentina Fund, Inc. including the investment portfolio, as of April 30, 1996,
the related statement of operations for the six-month period then ended, the
statements of changes in net assets for the six-month period then ended and for
the year ended October 31, 1995, and the financial highlights for the six-month
period ended April 30, 1996, for each of the four years in the period ended
October 31, 1995 and for the period October 22, 1991 (commencement of
operations) to October 31, 1991. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Argentina Fund, Inc. as of April 30, 1996, the results of its operations for the
six-month period then ended, the changes in its net assets for the six-month
period then ended and for the year ended October 31, 1995, and the financial
highlights for the six-month period ended April 30, 1996, for each of the four
years in the period ended October 31, 1995 and for the period October 22, 1991
(commencement of operations) to October 31, 1991 in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
June 3, 1996
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Dividend Reinvestment and Cash Purchase Plan
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The Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
you an automatic way to reinvest your dividends and capital gains distributions
in shares of the Fund. The Plan also provides for cash investments in Fund
shares of $100 to $3,000 semiannually through State Street Bank and Trust
Company, the Plan Agent.
Automatic Participation
Each shareholder of record is automatically a participant in the Plan
unless the shareholder has instructed the Plan Agent in writing otherwise. Such
a notice must be received by the Plan Agent not less than 10 days prior to the
record date for a dividend or distribution in order to be effective with respect
to that dividend or distribution. A notice which is not received by that time
will be effective only with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by State Street Bank and Trust Company, as dividend paying agent.
Shares Held by a Nominee
If your shares are held in the name of a brokerage firm, bank, or other
nominee as the shareholder of record, please consult your nominee (or any
successor nominee) to determine whether it is participating in the Plan on your
behalf. Many nominees are generally authorized to receive cash dividends unless
they are specifically instructed by a client to reinvest. If you would like your
nominee to participate in the Plan on your behalf, you should give your nominee
instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution or, if that date is not a New York Stock Exchange trading date, the
next preceding trading date (the "Valuation Date") equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants at
the greater of the following on the Valuation Date: (a) net asset value, or (b)
95% of the market price. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on Valuation Date of new shares issued.
State and local taxes may also apply. If the Fund should declare an income
dividend or net capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, for the participants' account on, or
shortly after, the payment date.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semiannually, in any amount from $100 to $3,000, for
investment in the Fund's shares. The Plan Agent will use all such monies
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15. Any voluntary cash payments received more than
30 days prior to these dates will be returned by the Plan Agent, and interest
will not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately ten days before February 15, or
August 15, as the case may be. A participant may withdraw a voluntary cash
payment by written notice, if the notice is received by the Plan Agent notless
than 48 hours before such payment is to be invested.
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Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by participants for personal and tax records. Shares in the account of
each plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each participant will be able to vote those
shares purchased pursuant to the Plan at a shareholder meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends
or distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage commissions with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
Costs for Cash Purchases
With respect to purchases of Fund shares from voluntary cash payments, the
Plan Agent will charge $0.75 for each such purchase for a participant. Each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases of Fund shares in connection
with voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions, because the Plan Agent will be purchasing stock
for all participants in blocks and pro-rating the lower commission thus
attainable.
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a dividend or distribution. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by giving at least 30 days' written notice to participants in
the Plan.
A participant may terminate his account under the Plan by written notice to
the Plan Agent. If the written notice is received 10 days before the record day
of any distribution, it will be effective immediately. If received after that
date, it will be effective as soon as possible after the reinvestment of the
dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated,
the Plan Agent will deduct a $2.50 fee plus brokerage commissions from the sale
transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: The Argentina Fund, Inc. Dividend Reinvestment and Cash Purchase
Plan, c/o State Street Bank and Trust Company, P.O. Box 8209, Boston, MA
02266-8209, 1-800-426-5523.
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The Argentina Fund, Inc. Investment Manager
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The investment manager of The Argentina Fund, Inc. (the "Fund") is Scudder,
Stevens & Clark, Inc., one of the most experienced investment management and
investment counsel firms in the United States. Established in 1919, the firm
provides investment counsel for individuals, investment companies and
institutions. Scudder has offices throughout the United States and subsidiaries
in London and in Tokyo.
Scudder has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was initially
incorporated in Canada in 1953 as the first foreign investment company
registered with the U.S. Securities and Exchange Commission. Scudder's
investment company clients include nine other open-end investment companies
which invest primarily in foreign securities.
In addition to the Fund, Scudder also manages the assets of seven other
closed-end investment companies that invest in foreign securities: The Brazil
Fund, The Korea Fund, The Latin America Dollar Income Fund, Scudder New Asia
Fund, Scudder World Income Opportunities Fund, and Scudder New Europe Fund are
traded on the New York Stock Exchange and The First Iberian Fund is traded on
the American Stock Exchange.
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Advisory Board
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The Board of Directors has established an advisory board consisting of the
following outside, independent advisors with which the Fund's manager and Board
of Directors consult on economic and political trends and developments affecting
Argentina.
RICARDO H. ARRIAZU
ARNALDO T. MUSICH
MARTIN LAGOS
DR. ADALBERT KRIEGER VASENA
Directors and Officers
- ----------------------
EDMOND D. VILLANI*
Chairman of the Board and Director
NICHOLAS BRATT*
President
JAVIER A. GONZALES FRAGA
Director
RONALDO A. DA FROTA NOGUEIRA
Director
DR. WILSON NOLEN
Director
JURIS PADEGS*
Director and Vice President
DR. SUSAN KAUFMAN PURCELL
Director
JOSE E. ROHM
Director
EDMUND B. GAMES, JR.*
Vice President
JERARD K. HARTMAN*
Vice President
DAVID S. LEE*
Vice President
LUIS R. LUIS*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
PAMELA A. McGRATH*
Treasurer
THOMAS F. McDONOUGH*
Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
COLEEN DOWNS DINNEEN*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
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