The Argentina Fund, Inc.
Annual Report
October 31, 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.
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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
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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
Shareholder Meeting Results ............................................... 19
Dividend Reinvestment and
Cash Purchase Plan .................................................... 20
Investment Manager ........................................................ 22
Advisory Board ............................................................ 23
Directors and Officers .................................................... 23
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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.
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2
<PAGE>
In Brief
================================================================================
o The Argentina Fund, Inc. delivered a strong 26.86% total return in the
12-month period ended October 31, 1996 as measured by net asset value. The
Fund's stock price also gained, contributing to a 16.52% return for the
year.
o The resignation of Finance Minister Cavallo was the most important event of
1996, in our view. Convertibility remained intact despite the exit of its
creator, and we were encouraged that the plan survived its second major
test in as many years. The orderly transition helped restore confidence in
the economy and fostered a strong economic recovery in the second half of
the calendar year (growth was 6% in the third quarter). This investment-led
recovery is expected to turn in GDP growth of around 4% next year, along
with continued price and exchange rate stability.
o During the year, the Fund maintained its focus on companies with
attractive, long-term investment opportunities, with an emphasis on the
energy sector. It also placed a particular focus on companies likely to
benefit from regional opportunities created by the Mercosur trading block.
Letter to Shareholders
================================================================================
Dear Shareholders:
The Argentina Fund, Inc., provided a 26.86% total return for the fiscal
year ended October 31, 1996, based on an increase in net asset value (NAV) and a
$0.33 per share income distribution. The Fund's NAV rose $2.43 to $12.70 per
share on October 31, 1996. The unmanaged IFC Argentina Global Total Return
Index, the Fund's benchmark index, gained 25.59% over the same period. The price
of the Fund's shares as quoted on the New York Stock Exchange also rose during
the year, to $11.50 per share from $10.13 on October 31, 1995, contributing to a
return of 16.52%.
Convertibility Survives A Second Challenge
The biggest development of 1996 was the resignation of Finance Minister
Domingo Cavallo. Cavallo was the architect of Convertibility, and he was viewed
by many as its protector within the Menem administration -- particularly after
his strong defense of the plan during the 1995 Tequila crisis. Fears of his
resignation roiled the markets for the better part of 1996, and his exit in July
caused investors to question the administration's commitment to the plan.
Despite the pain occasioned by his resignation, we believe the plan emerged
stronger because of it, planting the seeds for renewed confidence and economic
recovery. Before resigning, Cavallo seemed to function as a lightning rod,
absorbing most of the criticism for the suffering inflicted on Argentina by the
1995-1996 recession. This allowed other members of the administration to
distance themselves from support of Convertibility, which in turn undermined
confidence in the plan. Once this shield was removed, the administration was
forced to strengthen its support. It did so in two important ways: 1) It
appointed an orthodox economist -- Roque Fernandez -- as Cavallo's successor,
calming the markets and signaling a commitment to the plan; and 2) President
Menem stepped into the political vacuum created by Cavallo's resignation and
became increasingly visible in support of his new team's economic policy. With
Menem's support, Roque Fernandez was able to make impressive headway on fiscal
and labor reform in his first months in office.
3
<PAGE>
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Convertibility has now survived two major challenges in as many years. It
is important that the plan pass these tests because its durability convinces
Argentines (and foreign investors) that the plan is bigger than the politics of
the moment -- and that low inflation and reform are likely to outlast the plan's
creators. As this perception grows, the gap between Argentina's orthodox
economic policy and the market's appraisal of risk should fall, taking with it
the country's high real interest rates. Declining rates should in turn foster
capital formation, and with it sustainable economic growth.
Long Term Growth Engines
The current Argentine economic recovery is investment-led, and results in
part from the favorable long-term trends affecting the country. Most important
of these is the integration of Argentina and Brazil into Mercosur. By opening
Argentina up to a market of 180 million consumers, the trading block has made
Argentina the recipient of sizable foreign direct investment in areas such as
energy, petrochemicals, autos, and financial services. A few examples of the
benefits offered by a larger market: The auto industry and other manufacturers
can achieve larger scale and longer production runs through specialization, thus
driving down costs. The oil and gas companies gain a new and growing market for
their excess natural gas supplies. Lastly, multinationals have a greater
incentive to acquire local companies and eventually consolidate them into
regional ones.
A second important growth engine is the reform of Argentina's labor laws.
The reform is proceeding slowly, but it ultimately promises to reduce the
rigidities in the country's labor market. This, in turn, should help increase
productivity and reduce unemployment. The latter is particularly important,
since the country's 17-18% unemployment rate remains the single most contentious
political issue and a drag on consumption.
Fund Strategy
We have continued to capitalize on long-term themes, focusing on companies
benefiting from foreign investment in the country and the development of energy
resources. We added Cresud to the portfolio this year. We are optimistic about
the profit potential of Argentina's extensive agricultural resources, and Cresud
offers a professionally managed entree to this market. The Fund's exposure to
the cement industry was reduced. The potential entry of global cement producers
into this market could pressure prices, particularly in areas of the country
where overcapacity already exists.
Argentina has abundant energy resources (particularly in natural gas), but
a relatively small population. Brazil lacks gas reserves and has a large
population with a growing need for gas-powered electricity generation. In the
past, Argentina did not develop its excess reserves for sale in Brazil for
complex historical and political reasons. The Mercosur agreement has eliminated
most barriers to trade between the two countries, and YPF -- Argentina's leading
gas producer -- will clearly benefit from the growing volume of natural gas sold
to Brazil.
Argentina was among the first countries in the region to privatize on a
wide scale. Throughout Latin America -- particularly in Peru, Venezuela, and
Ecuador -- energy reserves have been underutilized by inefficient,
state-controlled companies. We believe Argentine companies such as Astra and
Perez Companc will benefit from developing oil fields and other natural resource
sites in other countries. The Fund's exposure to energy-related companies stands
at roughly 28% of portfolio holdings.
4
<PAGE>
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Annual Meeting Results
At the October 29, 1996 Annual Meeting, the shareholders elected four
Directors, listed in your proxy statement. The selection of Coopers & Lybrand
L.L.P. as the Fund's independent accountants for the fiscal year ended October
31, 1996 was ratified and a new Investment Advisory, Management and
Administration Agreement between the Fund and Scudder, Stevens & Clark, Inc. was
approved.
A new Sub-Advisory Contract between Scudder, Stevens & Clark, Inc. and
Sociedad General de Negocios y Valores S.A. was also approved. Please see the
table on page 19 for more information.
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 your continued interest in the
Argentina Fund, Inc.
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 OCTOBER 31, 1996
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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 -1.08 -- 3.93 -- -.27 --
ONE YEAR 16.52 16.52 26.86 26.86 25.59 25.59
THREE YEAR -9.45 -3.26 10.32 3.33 5.60 1.83
FIVE YEAR -11.77 -2.47 29.67 5.33 14.58 2.76
LIFE OF FUND* 7.54 1.46 29.79 5.32 14.58 2.76
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PER SHARE INFORMATION AND RETURNS (a)
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A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED OCTOBER 31
1991* 1992 1993 1994 1995 1996
---------------------------------------------------
NET ASSET VALUE... $10.99 $ 9.35 $12.69 $14.53 $10.27 $12.70
INCOME DIVIDENDS.. $ -- $ .06 $ .05 $ .14 $ .27 $ .33
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .09 $ .02 $ .46 $ --
TOTAL
RETURN (%)........ .09 -14.55 37.55 15.58 -24.94 26.86
(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 OCTOBER 31, 1996
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DIVERSIFICATION
Equity Securities 94%
Cash Equivalents 6%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
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SECTORS
Sector breakdown of the Fund's Argentine securities
Energy 30%
Consumer Staples 16%
Financial 15%
Utilities 13%
Communications 11%
Metals & Minerals 5%
Construction 5%
Durables 4%
Other 1%
----
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. INVERSIONES Y REPRESENTACIONES S.A.
5. TELEFONICA DE ARGENTINA
6. ASTRA CAPSA
7. DALMINE SIDERCA
8. BANCO DE GALICIA Y BUENOS AIRES
9. TRANSPORTADORA DE GAS DEL SUR
10. CENTRAL COSTANERA
7
<PAGE>
<TABLE>
[LOGO] The Argentina Fund, Inc.
Investment Portfolio as of October 31, 1996
<CAPTION>
========================================================================================================
Principal Market
Industry Amount($) Value($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 2.5%
2,868,000 Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 10/31/96 at 5.52% to be
repurchased at $2,868,440 on 11/1/96,
collateralized by a $2,161,000 U.S. Treasury
Note, 10.375%, 11/15/12 (Cost $2,868,000) ........ 2,868,000
----------
- --------------------------------------------------------------------------------------------------------
SHORT TERM NOTES 3.4%
4,000,000 Federal Home Loan Bank Discount Note,
11/1/96 (Cost $ 4,000,000) ....................... 4,000,000
----------
- --------------------------------------------------------------------------------------------------------
ARGENTINE CONVERTIBLE DEBT SECURITIES 0.8%
1,000,000 Banco de Galicia y Buenos Aires, 7%, 8/1/02
(Cost $ 758,043) ................................. 965,000
----------
- --------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 1.9%
Shares
---------
COMMUNICATIONS
Telephone/Communications 58,545 Nortel Inversora "A" (ADR)(b) ...................... 726,543
154,500 Nortel Inversora "B" (ADR)(b) ...................... 1,545,000
----------
TOTAL PREFERRED STOCKS (Cost $2,698,862) ........... 2,271,543
----------
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.4%
CONSUMER DISCRETIONARY 0.4%
Specialty Retail 103,822 Grimoldi "B"*(b) ................................... 425,734
----------
CONSUMER STAPLES 14.9%
Alcohol & Tobacco 5.1% 574,972 Massalin Particulares .............................. 2,789,033
922,180 Nobleza Piccardo ................................... 3,228,114
----------
6,017,147
----------
Food & Beverage 9.8% 1,488,627 Bagley y Cia Ltd. S.A."B" .......................... 3,498,798
80,000 Buenos Aires Embotelladora S.A. "B" (ADR) .......... 450,000
336,323 Cinba S.A. ......................................... 571,835
1,680 Cresud S.A. Comercial* ............................. 3,008
451,000 Quilmes Industrial S.A. ............................ 4,594,562
225,500 Quilmes Industrial S.A. (ADR) ...................... 2,367,750
----------
11,485,953
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
Market
Industry Shares Value($)
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<S> <C> <C>
COMMUNICATIONS 8.2%
Telephone/Communications 100,616 Telecom de Argentina SA "B" (ADR) .................. 3,798,254
2,498,000 Telefonica de Argentina "B" ........................ 5,821,213
----------
9,619,467
----------
FINANCIAL 13.4%
Banks 7.3% 514,406 Banco Frances del Rio de la Plata .................. 4,501,728
882,556 Banco de Galicia y Buenos Aires "B" ................ 4,051,540
882,556 Banco de Galicia y Buenos Aires "B" Rights* ........ 883
----------
8,554,151
----------
Other Financial Companies
0.9% 1,000,000 BI S.A. "A" (b) .................................... 1,089,300
----------
Real Estate 5.2% 199,886 Inversiones y Representaciones S.A. (GDR) .......... 6,096,523
----------
DURABLES 3.8%
Automobiles 892,269 Compania Interamericana de Automoviles S.A.* ....... 3,997,965
300,000 Mirgor Sacifia (ADR)* .............................. 510,000
----------
4,507,965
----------
MANUFACTURING 1.4%
Chemicals 1,030,894 Atanor S.A. "D"* ................................... 1,701,230
----------
ENERGY 28.3%
Oil & Gas Production 10.0% 1,847,587 Perez Companc S.A. "B" ............................. 11,733,938
----------
Oil Companies 14.3% 3,209,700 Astra CAPSA ........................................ 5,778,327
485,000 YPF S.A. "D" (ADR) ................................. 11,033,750
----------
16,812,077
----------
Oil/Gas Transmission 4.0% 2,006,215 Transportadora de Gas del Sur "B" .................. 4,715,313
----------
METALS & MINERALS 4.5%
Steel & Metals 3,347,926 Dalmine Siderca .................................... 5,324,001
----------
CONSTRUCTION 4.3%
Building Materials 4.1% 120,463 Juan Minetti y Cia "B" ............................. 361,443
150,624 Loma Negra Cia. S.A.* (b) .......................... 4,518,720
----------
4,880,163
----------
Miscellaneous 0.2% 262,240 Guillermo Decker S.A. "B"* (b) ..................... 196,709
----------
UTILITIES 12.2%
Electric Utilities 8.4% 601,700 Capex S.A. "A" ..................................... 4,362,979
1,439,590 Central Costanera "B" .............................. 4,520,991
</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>
77,143 Electricidad Argentina S.A. "A" (ADR)* (b) ........... 1,080,002
-----------
9,963,972
-----------
Natural Gas Distribution
3.8% 482,500 MetroGas S.A. "B" (ADR) .............................. 4,463,125
-----------
TOTAL COMMON STOCKS (Cost $100,327,129) .............. 107,586,768
-----------
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TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $110,652,034) (a) ............................ 117,691,311
===========
- --------------------------------------------------------------------------------------------------------
<FN>
NOTES TO INVESTMENT PORTFOLIO
* Non-income producing security.
(a) The cost for federal income tax purposes was $111,189,467. At October 31, 1996, net unrealized
appreciation for all securities based on tax cost was $6,501,844. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of market value over tax
cost of $17,632,649, and aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $11,130,805.
(b) Securities valued in good faith by the Valuation Committee of the Board of Directors at fair value
amounted to $9,582,008 (8.1% 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 October 31, 1996 aggregated $10,664,219. These securities
may also have certain restrictions as to resale.
- --------------------------------------------------------------------------------------------------------
See page 7 for sector diversification.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
[LOGO] The Argentina Fund, Inc.
Financial Statements
<CAPTION>
============================================================================================
- --------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $110,652,034)(Note A) .. $117,691,311
Cash ........................................................... 1,148
Dividends and interest receivable .............................. 188,900
------------
Total assets ............................................. 117,881,359
LIABILITIES
Payables:
Accrued management fee (Note C) .............................. $128,655
Other accrued expenses (Note C) .............................. 156,658
--------
Total liabilities ........................................ 285,313
------------
Net assets, at market value .................................... $117,596,046
============
NET ASSETS
Net assets consist of:
Undistributed net investment income .......................... $ 1,322,732
Net unrealized appreciation on investments ................... 7,039,277
Accumulated net realized loss ................................ (4,647,590)
Paid-in capital .............................................. 113,881,627
------------
Net assets, at market value .................................... $117,596,046
============
NET ASSET VALUE per share ($117,596,046 [DIVIDED BY] 9,258,146
shares of common stock issued and outstanding, $.01 par value,
100,000,000 shares authorized) ............................... $12.70
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
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11
<PAGE>
<TABLE>
[LOGO] The Argentina Fund, Inc.
Financial Statements (continued)
<CAPTION>
============================================================================================
- --------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends ...................................... $ 4,120,508
Interest ....................................... 511,483
-----------
4,631,991
Expenses:
Management fee (Note C) ........................ $1,501,434
Custodian and accounting fees (Note C) ......... 325,481
Directors' fees and expenses (Note C) .......... 69,431
Advisory Board fees and expenses (Note C) ...... 32,493
Reports to shareholders ........................ 77,883
Auditing ....................................... 66,439
Amortization of organization expenses (Note A) . 34,750
Services to shareholders ....................... 32,652
Legal .......................................... 23,408
Other .......................................... 33,295 2,197,266
---------- -----------
Net investment income .................................. 2,434,725
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments .................................... 1,290,871
Argentine peso related transactions ............ (5,306) 1,285,565
---------- -----------
Net unrealized appreciation during the period on
investments .......................................... 21,849,181
-----------
Net gain on investment transactions .................... 23,134,746
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $25,569,471
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
<TABLE>
==================================================================================================
- --------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31,
----------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $ 2,434,725 $ 2,824,839
Net realized gain (loss) from investment transactions ....... 1,285,565 (5,937,066)
Net unrealized appreciation (depreciation) on investment
transactions during the period ...................... 21,849,181 (29,556,393)
------------ ------------
Net increase (decrease) in net assets resulting from operations ..... 25,569,471 (32,668,620)
------------ ------------
Distributions to shareholders from:
Net investment income ....................................... (3,059,725) (2,484,734)
Net realized gains from investment transactions ............. -- (4,187,237)
------------ ------------
Fund share transactions:
Reinvestment of distributions ............................... 178,285 493,154
------------ ------------
INCREASE (DECREASE) IN NET ASSETS ................................... 22,688,031 (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 $1,322,732 and $2,006,039, respectively) .......... $117,596,046 $ 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
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
<TABLE>
[LOGO] The Argentina Fund, Inc.
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.
- ----------------------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------- ------ ------ -------
Income from investment operations:
Net investment income(a) ............................. .26 .31 .21 .05 .09
Net realized and unrealized gain (loss) on
investment transactions ...................... 2.50 (3.84) 1.83 3.43 (1.67)
------ ------- ------ ------ -------
Total from investment operations ............................. 2.76 (3.53) 2.04 3.48 (1.58)
------ ------- ------ ------ -------
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 ............................... $12.70 $ 10.27 $14.53 $12.69 $ 9.35
====== ======= ====== ====== =======
Market value, end of period .................................. $11.50 $ 10.13 $14.63 $14.00 $ 9.63
====== ======= ====== ====== =======
TOTAL RETURN
Per share market value (%) ................................... 16.52 (26.48) 5.45 47.41 (33.90)
Per share net asset value (%) (b) ............................ 26.86 (24.94) 15.58 37.55 (14.55)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ....................... 118 95 134 74 54
Ratio of operating expenses to average net assets (%) ........ 1.90 1.98 1.87 2.37 2.24
Ratio of net investment income to average net assets (%) ..... 2.11 2.71 1.48 .48 .81
Portfolio turnover rate (%) .................................. 19.0 25.0 16.7 32.5 26.5
Average commission rate paid (c) ............................. $.0207 $ -- $ -- $ -- $ --
<FN>
(a) Based on monthly average of shares outstanding during the period.
(b) 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.
(c) Average commission rate paid per share of common and preferred stocks is calculated for fiscal years beginning on
or after September 1, 1995.
</FN>
</TABLE>
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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 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
15
<PAGE>
[LOGO] The Argentina Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
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 October 31, 1996 the exchange rate for the
Argentine peso was U.S. $1 to 0.999850 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, 1996, the Fund had
a net tax basis capital loss carryforward of approximately $4,200,000, which may
be applied against any realized net taxable capital gains of each succeeding
year until fully utilized or until October 31, 2003, the expiration date,
whichever occurs first.
DISTRIBUTION OF INCOME AND GAINS. Distribution of net investment income is 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,
passive foreign investment companies, 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 year ended October 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $20,470,246 and
$26,385,724, 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
16
<PAGE>
================================================================================
Directors. In addition to portfolio management services, the Manager provides
certain administrative services in accordance with the Management 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 year ended October 31, 1996, the fee
pursuant to such Management Agreement aggregated $1,501,434.
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 year ended
October 31, 1996, the amount charged to the Fund by SFAC aggregated $89,292, of
which $7,177 is unpaid at October 31, 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 year ended October 31, 1996, Directors' fees and expenses
aggregated $69,431, of which $4,248 is unpaid at October 31, 1996.
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 year ended October 31, 1996, Advisory Board fees and expenses aggregated
$32,493.
For the year ended October 31, 1996, brokerage commissions on investment
transactions amounting to $10,888 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.
17
<PAGE>
[LOGO] The Argentina Fund, Inc.
Report of Independent Accountants
================================================================================
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS 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 October 31, 1996,
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years 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 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
October 31, 1996, by correspondence with the custodian. 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 October 31, 1996, the results of its operations for
the year then ended, the changes 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 the period then ended in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 19, 1996
18
<PAGE>
Shareholder Meeting Results
================================================================================
The Annual Meeting of Shareholders of the Fund was held on October 29,
1996, at the offices of Scudder, Stevens & Clark, Inc., 345 Park Avenue, New
York, New York. The four matters voted upon by Shareholders and the resulting
votes for each matter are presented below.
1. The election of four Directors to hold office for a designated term or
until their respective successors shall have been duly elected and
qualified.
<TABLE>
<CAPTION>
Director: Number of Votes:
--------- ----------------
For Withheld Broker Non-Votes*
--- -------- -----------------
<S> <C> <C> <C>
Edmond D. Villani 6,974,053.111 102,659.470 230
Dr. Wilson Nolen 6,973,502.485 103,210.096 230
Kathryn L. Quirk 6,971,570.829 105,141.752 230
Javier A. Gonzales Fraga 6,972,421.169 104,291.412 230
</TABLE>
2. Ratification or rejection of the action taken by the Board of Directors in
selecting Coopers & Lybrand L.L.P. as independent accountants for the
fiscal year ending October 31, 1996.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C>
6,801,893.705 91,471.226 183,346.650 231
</TABLE>
3. Approval or disapproval of a new Investment Advisory, Management and
Administration Agreement between the Fund and Scudder, Stevens & Clark,
Inc.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C>
5,846,364.418 72,870.431 185,342.732 972,365.000
</TABLE>
4. Approval or disapproval of a new Sub-Advisory Contract between Scudder,
Stevens & Clark, Inc. and Sociedad General de Negocios y Valores S.A.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C>
5,829,417.296 77,435.408 197,724.887 972,365.000
</TABLE>
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
19
<PAGE>
Dividend Reinvestment and Cash Purchase Plan
================================================================================
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.
20
<PAGE>
Dividend Reinvestment and
Cash Purchase Plan (continued)
================================================================================
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.
21
<PAGE>
The Argentina Fund, Inc.
Investment Manager
================================================================================
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.
22
<PAGE>
Advisory Board
================================================================================
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
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
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*
Vice President and Treasurer
THOMAS F. McDONOUGH*
Vice President and Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
KATHRYN L. QUIRK*
Director, Vice President and Assistant Secretary
COLEEN DOWNS DINNEEN*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
23
