The Argentina Fund, Inc.
Semiannual Report
April 30, 1997
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 non-diversified closed-end investment company
o a vehicle for international diversification through 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
Boston Equiserve L.P.
Investor Relations Department
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, Inc. continued its run of strong performance with a
21.01% total return over the six-month period ended April 30, 1997, as
measured by the Fund's net asset value. The price of the Fund's publicly
traded shares also increased, contributing to a 17.08% return for the
period.
o The Argentine economy has outpaced consensus forecasts for several calendar
quarters, growing at a 5.7% annualized basis in the first three months of
1997. The country is enjoying an investment-led recovery, complemented by
increased tax revenues and declining interest rates.
o During the period, the Fund reduced its exposure to electric utility
companies in Argentina. Increased competition and lower utility rates after
2000 are expected to reduce the sector's profitability.
Letter to Shareholders
Dear Shareholders:
The Argentina Fund, Inc., finished the first half of its 1997 fiscal year
with a 21.01% total return, based on an increase in net asset value (NAV) and a
$0.33 per share income distribution. The Fund's NAV rose $2.28 over the
six-month period, to $14.98 per share on April 30, 1997. The unmanaged IFC
Argentina Global Total Return Index, the Fund's benchmark index, gained 26.38%
over the same period. The price of the Fund's shares as quoted on the New York
Stock Exchange also rose during the period, to $13.125 per share from $11.50 on
October 31, 1996, which, in addition to the $0.33 income distribution,
contributed to a return of 17.08%. The Fund's share price now reflects a 12.4%
discount to net asset value.
Economic Recovery Steams Ahead
The strength of the Argentine recovery continues to confound forecasters. After
the brief but painful recession of 1995, the economy grew at a rate of 4.4% in
1996 and a remarkable 5.7% (on an annualized basis) in the first quarter of
1997. The consensus estimate for GDP growth in 1997 was upgraded recently to
5.7% from 4.5% late last year, coinciding with a debt upgrade by Standard &
Poor's from BB- to BB. One of the primary drivers of economic growth has been
the return of liquidity after the severe monetary contraction of 1995. The
macroeconomic stability and low inflation resulting from the country's
Convertibility Plan have greatly increased business confidence and encouraged
higher capital spending. Increased foreign investment has contributed to a
strong recovery in industrial production and has fueled a rebound in the stock
market. After declining more than 16% in 1995, gross fixed investment increased
by 7% in 1996 and is forecast to grow by more than 13% this year. The strength
of investment growth since the introduction of Convertibility has been one of
the major factors behind the country's sharp increase in productivity, which in
turn has allowed the economy to expand without an increase in inflation.
(Consumer prices increased 0.1% in 1996.)
Other sources of economic strength include the integration of Argentina with
Brazil through the Southern Common Market free-trade block (Mercosur) -- more
than one quarter of Argentina's exports went to Brazil last year -- and high
returns on investment in Argentina's natural resource sector. The fact that
growth in Argentina increasingly is the result of long-term productive assets,
3
<PAGE>
as opposed to a short-term boom in domestic consumption, has reduced the
market's perception of risk and is leading to a decline in interest rates.
Improved Fiscal Situation
Strengthened economic growth and rising exchange reserves since 1995 have
restored confidence in Argentina's ability to refinance its foreign debt. In
1995, with a widening budget deficit and shrinking liquidity, it was
questionable whether Argentina would be able to refinance maturing foreign
bonds. The recession-induced shortfall in tax revenue coincided with the
establishment of a pension system. With the resumption of healthy growth, tax
revenues have grown significantly, thanks to a temporary increase in the rate of
the value-added tax. These funds have helped reduce the government deficit from
$6.4 billion in 1996 to an estimated $2.8 billion this year. To fund this year's
deficit and meet interest-rate payments, Argentina has raised more than $7
billion in external debt, including a 10-year peso-denominated issue --
testimony to the increased confidence of foreign lenders.
Another plus for Argentina's fiscal situation is the country's current standby
agreement with the International Monetary Fund. This arrangement allows
Argentina to make use of IMF money for balance-of-payment purposes as long as
the country meets fiscal and debt targets.
Pension Fund Growth
Based on the Chilean model, Argentina's private pension system is helping put
the economy on solid long-term footing by increasing internal savings and
investment in local companies. Private pension savings in Argentina amount to
approximately $6.2 billion and are accumulating at a pace of about $200 million
a month. It has been estimated that total pension assets under management could
approach $20 billion by the year 2000. Pension contributors now have roughly 20%
of their savings in the equity market. In the past, an over-reliance on foreign
investors has left the market exceedingly volatile. Increased long-term local
investment in equities bodes well for the Argentine market and should ultimately
provide a floor for stock prices.
Fund Strategy
The Argentina Fund continues to capitalize on several long-term investment
themes, including the development of the country's natural resources and a focus
on companies benefiting from foreign investment.
During the period covered by this report, the Fund's electric utility weighting
was reduced, principally through the sale of Central Costanera, whose favorable
rate contract terminates in 2000. After that year, we expect lower utility rates
and increased competition to trim profits from that sector of the economy. With
the proceeds from the sale of utility stocks, we increased the Fund's weighting
in the telecommunications sector, taking advantage of attractive valuations.
The bankruptcy of Buenos Aires Embotelladora S.A., or Baesa, a leading bottler
of Pepsi in Argentina, had a negligible impact to net asset value as the Fund
had less than half of one percent in the portfolio at the start of the period.
Looking Ahead
The road to economic stability in Argentina, while improving, is far from
secure. The recent surge in productivity has resulted in a wave of bankruptcies
among inefficient producers and a sharp reduction in payrolls. The high
unemployment rate remains one of the government's key political and economic
issues, and labor reform will be at the forefront of debate in the coming
Congressional elections. Although much progress has been made toward economic
self-sufficiency, Argentina is still dependent on global liquidity flows and the
economic strength of Brazil, its largest trading partner.
Nevertheless, we believe the outlook for Argentine equities is good.
International confidence has been restored in the country, and Convertibility
has survived both Mexico's devaluation and the resignation of Finance Minister
Cavallo. Political uncertainty, while still present, should be less
4
<PAGE>
destabilizing going forward. Argentina is enjoying an investment-led recovery,
tax revenues are up, and interest rates are coming down. With greater liquidity,
bank loans to small and medium-sized companies should grow. The expansion of
Argentina's local business community and growing economic activity within
Mercosur should go a long way toward increasing employment and improving the
country's internal savings rate -- the ultimate cure for foreign dependency.
Given the increasing importance of Mercosur to Argentina, the Fund's Board of
Directors has authorized the Fund to invest up to 20% of the total net assets of
the Fund in securities of non-Argentine issuers headquartered or based in
countries that are full or associate members of Mercosur. It is the current
intention of the Investment Manager to invest in such Mercosur-based companies
that are directly or indirectly investing in Argentina.
Finally, the discount to net asset value at which the Fund trades on the NYSE is
discussed in detail at each Board meeting. We are continually reviewing
discount-closing alternatives in the market and will continue to do so. Although
many funds have tried to close their discounts by implementing one or more of
these techniques, as of this date we have not seen one, other than open ending
the Fund, that has lowered the discount for a sustained period of time. The
Board at this time has opted not to implement any of these techniques and has
decided that the investment objective of this Fund and current portfolio
composition, which includes many smaller and relatively illiquid investments,
are best served in a closed-end fund format. The Board is pleased with the
performance of the Fund on both a price and NAV basis over the past year. Also,
we have made great efforts to convey this performance to the brokerage community
and analysts who follow closed-end funds. This has resulted in increased
interest in the Fund and some contraction of the discount during the past year.
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 APRIL 30, 1997
- -------------------------------------------------------------------------------
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 0.00 -- 4.90 -- 3.82 --
ONE YEAR 6.65 6.65 17.13 17.13 23.03 23.03
THREE YEAR -0.55 -0.18 19.76 6.19 31.56 9.56
FIVE YEAR 1.12 0.22 35.29 6.23 21.28 3.93
LIFE OF FUND* 25.91 4.26 57.05 8.51 55.17 8.31
- -------------------------------------------------------------------------------
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 1997
-----------------------------------------------
NET ASSET VALUE... $12.68 $ 9.64 $13.98 $10.60 $13.12 $14.98
INCOME DIVIDENDS.. $ .06 $ .05 $ .14 $ .27 $ .33 $ .33
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .09 $ .02 $ .46 $ -- $ --
TOTAL RETURN (%).. 13.81 -23.01 46.38 -19.48 26.97 17.13
(a) 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.
(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, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
Equity Securities 97%
Cash Equivalents 3%
----
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 23%
Communications 19%
Utilities 16%
Financial 14%
Consumer Staples 13%
Metals & Minerals 6%
Construction 3%
Durables 3%
Other 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. YPF S.A.
2. TELECOM ARGENTINA S.A.
3. PEREZ COMPANC S.A.
4. TELEFONICA DE ARGENTINA S.A.
5. METROGAS S.A.
6. CAPEX S.A.
7. BANCO DE GALICIA Y BUENOS AIRES
8. INVERSIONES Y REPRESENTACIONES S.A.
9. BANCO FRANCES DEL RIO DE LA PLATA
10. SIDERAR SAIC
7
<PAGE>
[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
<TABLE>
Investment Portfolio as of April 30, 1997
<CAPTION>
=============================================================================================================
Principal Market
Industry Amount($) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 2.6%
3,643,000 Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 4/30/97 at 5.375% to be
repurchased at $3,643,544 on 5/1/97,
collateralized by a $3,466,000 U.S. Treasury
Bond, 7.75%, 11/30/99 (Cost $3,643,000) ................ 3,643,000
----------
- -------------------------------------------------------------------------------------------------------------
ARGENTINE CONVERTIBLE DEBT SECURITIES 0.8%
1,000,000 Banco de Galicia y Buenos Aires, 7%, 8/1/02
(Cost $772,772) ........................................ 1,152,500
----------
- -------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 1.8%
Shares
---------
COMMUNICATIONS
Telephone/Communications 58,545 Nortel Inversora "A"(ADR)(b) ............................. 726,543
154,500 Nortel Inversora "B"(ADR)(b) ............................. 1,704,135
----------
TOTAL PREFERRED STOCKS (Cost $2,698,862) ................. 2,430,678
----------
- -------------------------------------------------------------------------------------------------------------
COMMON STOCKS 94.8%
CONSUMER DISCRETIONARY 0.3%
Specialty Retail 103,822 Grimoldi "B"*(b) ......................................... 451,691
----------
CONSUMER STAPLES 12.9%
Alcohol & Tobacco 5.8% 574,972 Massalin Particulares(b) ................................. 3,364,074
922,180 Nobleza Piccardo ......................................... 4,749,916
----------
8,113,990
----------
Food & Beverage 7.1% 1,488,627 Bagley y Cia Ltd. S.A. "B"* .............................. 3,052,128
336,323 Cinba S.A.(b) ............................................ 655,925
574,280 Cresud S.A. Comercial* ................................... 1,062,572
486,000 Quilmes Industrial S.A.(b) ............................... 4,495,500
55,500 Quilmes Industrial S.A.(ADR) ............................. 617,438
----------
9,883,563
----------
COMMUNICATIONS 16.8%
Telephone/Communications 295,616 Telecom Argentina S.A.(ADR) .............................. 14,780,800
2,598,000 Telefonica de Argentina S.A. "B" ......................... 8,626,611
----------
23,407,411
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
Market
Industry Shares Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL 12.5%
Banks 7.6% 546,566 Banco Frances del Rio de la Plata ........................ 5,510,184
832,556 Banco de Galicia y Buenos Aires "B" ...................... 5,029,368
-----------
10,539,552
-----------
Other Financial
Companies 0.8% 1,000,000 BI S.A. "A"(b) ........................................... 1,110,300
-----------
Real Estate 4.1% 161,886 Inversiones y Representaciones S.A.(GDR) ................. 5,666,010
-----------
DURABLES 3.4%
Automobiles 957,269 Compania Interamericana de Automoviles S.A.* ............. 3,829,631
350,000 Mirgor Sacifia (ADR)* .................................... 857,500
-----------
4,687,131
-----------
MANUFACTURING 1.7%
Chemicals 1,295,394 Atanor S.A. "D" .......................................... 2,332,047
-----------
ENERGY 22.6%
Oil & Gas
Production 6.5% 1,107,587 Perez Companc S.A. "B" ................................... 8,983,833
-----------
Oil Companies 16.1% 2,259,700 Astra CAPSA .............................................. 3,909,848
670,000 YPF S.A. "D" (ADR) ....................................... 18,508,750
-----------
22,418,598
-----------
METALS & MINERALS 5.8%
Steel & Metals 1,247,926 Dalmine Siderca .......................................... 2,621,025
1,386,628 Siderar "A" SAIC* ........................................ 5,436,370
-----------
8,057,395
-----------
CONSTRUCTION 3.4%
Building Materials 3.3% 150,624 Loma Negra Cia. S.A.*(b) ................................. 4,518,720
-----------
Miscellaneous 0.1% 262,240 Guillermo Decker S.A. "B"*(b) ............................ 209,822
-----------
UTILITIES 15.4%
Electric Utilities 6.1% 665,700 Capex S.A. "A" ........................................... 6,591,386
240,824 Central Costanera "B" .................................... 843,006
77,143 Electricidad Argentina S.A. "A" (ADR)*(b) ................ 1,080,002
-----------
8,514,394
-----------
Natural Gas
Distribution 9.3% 745,367 MetroGas S.A. "B" (ADR)(b) ............................... 7,546,841
30,000 Transportadora de Gas del Sur "B"(ADR) ................... 375,000
2,006,215 Transportadora de Gas del Sur "B" ........................ 5,036,330
-----------
12,958,171
-----------
TOTAL COMMON STOCKS (Cost $104,931,521) .................. 131,852,628
-----------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
<TABLE>
Investment Portfolio (continued)
<CAPTION>
=============================================================================================================
Market
Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $112,046,155)(a) ................................. 139,078,806
===========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO
* Non-income producing security.
(a) The cost for federal income tax purposes was $112,135,456. At April 30,
1997, net unrealized appreciation for all securities based on tax cost was
$26,943,350. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $31,059,630, and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$4,116,280.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $25,863,553 (18.6% of net assets).
Their values have been estimated by the Valuation Committee 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, 1997 aggregated $25,081,358. These securities may
also have certain restrictions as to resale.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
<TABLE>
Financial Statements
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $112,046,155) ........................ $139,078,806
Cash ......................................................................... 160
Dividends and interest receivable ............................................ 29,779
Other assets ................................................................. 2,227
------------
Total assets ........................................................ 139,110,972
LIABILITIES
Payables:
Accrued management fee ................................................... $133,978
Other accrued expenses ................................................... 129,091
--------
Total liabilities ................................................... 263,069
------------
Net assets, at market value .................................................. $138,847,903
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ...................................... $ 125,111
Net unrealized appreciation on investments ............................... 27,032,651
Accumulated net realized loss ............................................ (2,300,761)
Paid-in capital .......................................................... 113,990,902
------------
Net assets, at market value .................................................. $138,847,903
============
NET ASSET VALUE per share ($138,847,903 (division sign) 9,266,717 shares
of common stock issued and outstanding, $.01 par value, 100,000,000
shares authorized) ....................................................... $14.98
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE>
[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
<TABLE>
Financial Statements (continued)
==============================================================================================================
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends ........................................................... $ 2,829,558
Interest ............................................................ 152,468
-----------
2,982,026
Expenses:
Management fee ...................................................... $ 777,473
Custodian and accounting fees ....................................... 190,190
Directors' fees and expenses ........................................ 37,391
Advisory Board fees and expenses .................................... 12,523
Reports to shareholders ............................................. 28,279
Auditing ............................................................ 33,933
Services to shareholders ............................................ 18,969
Legal ............................................................... 5,478
Other ............................................................... 20,223 1,124,459
---------- -----------
Net investment income .................................................... 1,857,567
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ......................................................... 2,354,358
Argentine peso related transactions ................................. (7,529) 2,346,829
---------- -----------
Net unrealized appreciation during the period on investments ............. 19,993,374
-----------
Net gain on investment transactions ...................................... 22,340,203
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $24,197,770
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
INCREASE (DECREASE) IN NET ASSETS 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................... $ 1,857,567 $ 2,434,725
Net realized gain from investment transactions .......................... 2,346,829 1,285,565
Net unrealized appreciation on investment transactions
during the period................................................... 19,993,374 21,849,181
------------ ------------
Net increase in net assets resulting from operations......................... 24,197,770 25,569,471
------------ ------------
Distributions to shareholders from:
Net investment income ................................................... (3,055,188) (3,059,725)
------------ ------------
Fund share transactions:
Reinvestment of distributions ........................................... 109,275 178,285
------------ ------------
INCREASE IN NET ASSETS ...................................................... 21,251,857 22,688,031
Net assets at beginning of period ........................................... 117,596,046 94,908,015
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $125,111 and $1,322,732, respectively) ........................ $138,847,903 $117,596,046
============ ============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period.................................... 9,258,146 9,244,879
Shares issued to shareholders in reinvestment of distributions........... 8,571 13,267
------------ ------------
Shares outstanding at end of period ......................................... 9,266,717 9,258,146
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
APRIL 30, ------------------------------------------
1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ..................... $12.70 $10.27 $ 14.53 $12.69 $ 9.35 $ 10.99
------ ------ ------- ------ ------ -------
Income from investment operations:
Net investment income(a) ............................. .20 .26 .31 .21 .05 .09
Net realized and unrealized gain (loss) on
investment transactions ......................... 2.41 2.50 (3.84) 1.83 3.43 (1.67)
------ ------ ------- ------ ------ -------
Total from investment operations ......................... 2.61 2.76 (3.53) 2.04 3.48 (1.58)
------ ------ ------- ------ ------ -------
Less distributions from:
Net investment income ................................ (.33) (.33) (.27) (.14) (.05) (.06)
Net realized gains on investment transactions ........ -- -- (.46) (.02) (.09) --
------ ------ ------- ------ ------ -------
Total distributions ...................................... (.33) (.33) (.73) (.16) (.14) (.06)
------ ------ ------- ------ ------ -------
Antidilution resulting from offering of
second tranche .................................. -- -- -- .04 -- --
------ ------ ------- ------ ------ -------
Second tranche offering costs ............................ -- -- -- (.08) -- --
------ ------ ------- ------ ------ -------
Net asset value, end of period ........................... $14.98 $12.70 $ 10.27 $14.53 $12.69 $ 9.35
====== ====== ======= ====== ====== =======
Market value, end of period .............................. $13.13 $11.50 $ 10.13 $14.63 $14.00 $ 9.63
====== ====== ======= ====== ====== =======
TOTAL RETURN
Per share market value (%) ............................... 17.08** 16.52 (26.48) 5.45 47.41 (33.90)
Per share net asset value (%)(b) ......................... 21.01** 26.86 (24.94) 15.58 37.55 (14.55)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 139 118 95 134 74 54
Ratio of operating expenses to average
net assets(%) ........................................ 1.75* 1.90 1.98 1.87 2.37 2.24
Ratio of net investment income to average
net assets(%) ........................................ 2.89* 2.11 2.71 1.48 .48 .81
Portfolio turnover rate(%) ............................... 47.0* 19.0 25.0 16.7 32.5 26.5
Average commission rate paid(c) .......................... $.0195 $.0207 -- -- -- --
------ ------ ------- ------ ------ -------
</TABLE>
* Annualized
** Not Annualized
(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 ending on or after October 31, 1996.
- --------------------------------------------------------------------------------
14
<PAGE>
[The Argentina Fund, Inc. 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 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 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, is equal to at least 100.5% of the repurchase 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 currency related transactions includes gains
and
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[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
Notes to Financial Statements (continued)
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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, 1997 the
exchange rate for the Argentine peso was U.S. $1 to 0.999855 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, would be
taxable to the Fund if not distributed, and, therefore, 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.
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
For the six months ended April 30, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $27,481,841 and
$25,231,808, 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 Agreement. The Fund pays to the Manager a monthly
fee at an annualized rate of 1.20% of the Fund's
16
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average weekly net assets. For the six months ended April 30, 1997, the fee
pursuant to such Management Agreement aggregated $777,473.
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 0.26% 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, 1997, the amount charged to the Fund by SFAC aggregated $51,781,
of which $9,041 is unpaid at April 30, 1997.
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, 1997, Directors' fees and expenses
aggregated $37,391, of which $450 is unpaid at April 30, 1997.
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, 1997, Advisory Board fees and expenses aggregated
$12,523.
For the six months ended April 30, 1997, brokerage commissions on investment
transactions amounting to $14,132 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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[The Argentina Fund, Inc. LOGO] The Argentina Fund, Inc.
Report of Independent Accountants
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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 April 30, 1997,
the related statement of operations for the six months then ended, the
statements of changes in net assets for the six months then ended and for the
year ended October 31,1996, and the financial highlights for the six months
ended April 30, 1997 and for each of the five years in the period ended October
31, 1996. 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, 1997, 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 April 30, 1997, the results of its operations for the
six months then ended, the changes in its net assets for the six months then
ended and for the year ended October 31, 1996, and the financial highlights for
the six months ended April 30, 1997 and for each of the five years in the period
ended October 31, 1996 in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
June 6, 1997
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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.
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<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.
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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.
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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. GONZALEZ FRAGA
Director
RONALDO A. DA FROTA NOGUEIRA
Director
MR. WILSON NOLEN
Director
DR. SUSAN KAUFMAN PURCELL
Director
JOSE E. ROHM
Director
KATHRYN L. QUIRK*
Director, Vice President and Assistant Secretary
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
EDMUND B. GAMES, JR.*
Vice President
JERARD K. HARTMAN*
Vice President
DAVID S. LEE*
Vice President
LUIS R. LUIS*
Vice President
PAMELA A. McGRATH*
Vice President and Treasurer
THOMAS F. McDONOUGH*
Vice President and Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
*Scudder, Stevens & Clark, Inc.
22
