The First Iberian Fund, Inc.
Annual Report
September 30, 1995
A closed-end investment company seeking long-term capital appreciation through
investment primarily in the equity securities of Spanish and Portuguese
companies.
100-6-115
<PAGE>
The First Iberian Fund, Inc.
Investment objective and policies
* long-term capital appreciation through investment primarily in the equity
securities of Spanish and Portuguese companies
Investment characteristics
* a closed-end investment company investing in a broad spectrum of Spanish
and Portuguese companies and industries
* a vehicle for international diversification through participation in
foreign stock markets
General Information
Executive offices
The First Iberian Fund, Inc.
345 Park Avenue
New York, NY 10154
Telephone:
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
Custodian
State Street Bank and Trust Company
Legal counsel
Dechert Price & Rhoads
Independent Accountants
Price Waterhouse LLP
American Stock Exchange Symbol -- IBF
Contents
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
Tax Information 19
Shareholder Meeting Results 20
Dividend Reinvestment Plan 21
Directors and Officers 23
Investment Manager Back cover
This report is sent to the shareholders of The First Iberian Fund, Inc. for
their information. It is not a prospectus, circular, or representation intended
for use in the purchase or sale of shares of the Fund or of any securities
mentioned in the report.
2
<PAGE>
Letter to Shareholders
Dear Shareholders:
We are pleased to provide you with The First Iberian Fund's annual report for
the fiscal year ended September 30, 1995. The Fund's net asset value increased
$0.67 during the 12-month period to $9.68, resulting in a total return of 7.44%.
The stock price also rose, although modestly, providing a 0.84% total return for
shares listed on the American Stock Exchange. Over the same period, the Madrid
index rose 10.84%, while the Portuguese index declined 4.33%.
POLITICAL AND ECONOMIC OVERVIEW
Much of the political dialogue in Spain today revolves around the life
expectancy of the ruling Socialist Party. The Socialists' popularity has been
seriously eroded in the wake of a succession of corruption scandals, and they
have lost the previously unqualified support of the coalition Catalan Party,
which recently refused to support passage of the 1996 budget in Parliament. We
believe it is unlikely that the Socialists will win the next round of general
elections, expected to take place in March 1996. While this may create
uncertainty over the short term, we believe the change in government ultimately
will have a positive impact on the Spanish market.
In 1995, GDP growth in Spain was driven primarily by two factors: investment
and industrial production. We expect growth to stabilize at its current level of
roughly 3% and decline somewhat next year due to high real interest rates, a low
level of consumer confidence, and a stronger peseta, which is slowly eroding
Spain's competitive advantage in the export sector. In the first half of 1995, a
weaker peseta, higher commodity prices, and VAT taxes created some inflationary
pressure. The inflation picture improved in recent months as these trends
reversed, and we expect continued low inflation, with a more stable currency and
low unit labor costs. Positive news on the inflation front together with a more
favorable international rate environment have resulted in a decline in interest
rates. While the country is running a slight current account surplus--the first
since 1986--more rigorous structural measures are needed to cut the budget
deficit further.
In Portugal, September's general elections resulted in a Socialist Party
victory by a much wider margin than anticipated. The new government differs
little from its predecessors in terms of its economic and political agenda and
has made it clear that cutting the budget deficit is its first priority. The
inflation picture remains positive, with a year-end target range of 3.5% to 4.5%
looking achievable. The currency has benefited from good economic fundamentals,
seasonal factors like strong tourism, and low inflation. Interest rates have
fallen, and a budget deficit target of 4% has been set for 1996.
MARKET ENVIRONMENT
Spanish stocks hit a low point in March of this year. Since then, the market
has performed very well, reflecting some of the trends already discussed:
improving inflation, lower interest rates, a stronger peseta, and what appears
to be the beginning of the end of the Socialist Party. Being a peripheral
European economy, Spain is highly sensitive to the U.S. dollar, and a stronger
dollar in recent months also has helped Spain's stock market.
Though the Portuguese market held up well earlier this year in an uncertain
international environment, the trend in recent months has been a lifeless one
with few investors willing to commit. Volume has been thin, with poor results
from the banking sector and political uncertainty prior to the elections
contributing to the unease. Even falling interest rates in Portugal (and indeed
in much of Europe) and a stronger dollar did little to prevent the market from
declining. On a more positive note, several important privatizations resulted in
a 25% increase in market capitalization this year, serving to boost liquidity
and offering investors additional investment opportunities. Given the positive
economic and political backdrop in Portugal, we expect the market to rally over
the next few months.
3
<PAGE>
PORTFOLIO STRATEGY
The portfolio is heavily weighted in banks and utilities due to the Spanish
market's high sensitivity to interest rates. We have a positive view overall on
the banking sector in Spain with a focus on companies such as Banco Popular and
Banco Bilbao Vizcaya. These banks are well positioned in the domestic market
with strong retail networks. The sector is benefiting as a whole from stronger
loan growth and better performance in the bond market, while the number of
non-performing loans continues to decline. However, we have slowly reduced our
weighting in Banco Santander. Though the bank is a financial powerhouse with a
sound strategy, we are concerned about the quality of recent earnings. Our
portfolio holdings in the financial sector, which represented 28% of assets at
the end of September, also includes Corporation Mapfre and Mapfre Vida,
positioned in the fast-growing insurance industry, where penetration rates are
among the lowest in Europe.
The utility sector performed very well during the year, propelled by positive
news on the regulatory front and a strong bond market. Despite having
significant utility holdings (21% at the end of the period), we remain
underweighted versus the Spanish market due to concerns about a revision in the
tariff system, which may not work in favor of the utilities. We are positioned
in two of the best-performing stocks in the sector: Gas Natural, the monopoly
supplier and distributor of natural gas in Spain; and Aguas de Barcelona, a
leading company in water treatment and waste management with a fast-growing
international franchise.
We are overweighted in the food retail sector, which we view as a defensive
place to be in an uncertain investment environment. Pryca is a leader in
hypermarkets (a cross between a supermarket and a Wal-Mart), with 45 stores now
in operation and a 25% market share. The hypermarket sector is far from
saturation in Spain. With earnings growth of over 20%, Pryca is expected to open
four stores annually over the next three years. Continente is Spain's second
largest hypermarket in terms of sales after Pryca and operates 32 stores. The
company's strategy is to position itself as a strong discounter with a clearly
differentiated image. Cortefiel, a high-quality and innovative clothing
retailer, has lagged the sector due to a very patchy consumer recovery. However,
comparable store sales have turned positive, and its cost base continues to
fall. These factors are beginning to translate into share price performance.
The construction sector, where we have a neutral weighting (9% of portfolio
holdings), has been volatile over the course of the year in response to
potential cuts in government spending on infrastructure. Though the Fund has
small positions in several high-quality contractors, our focus has been on the
area of residential housing, where demand has been strong. For example, we are
positioned in Uralita, Spain's largest manufacturer and distributor of building
materials. We plan to maintain a neutral weighting in the construction sector
until the political picture becomes clearer.
The Fund continues to hold approximately 20% weighting in Portugal, with a
focus on the distribution and cement sectors. Jeronimo Martins is a high-quality
food conglomerate that has forged important strategic links with multinational
partners. The company has successfully expanded by acquisition and is a
long-standing favorite with international investors. Uniao produces four of the
five top brands of beer in Portugal, with flagship 'Super Bock' in the lead.
Uniao dominates 60% of the market and generates strong cash flow. We are
positioned in the cement sector through Semapa, a company with strong earnings
growth, a high dividend yield, and excellent management. Over the course of the
year, we reduced our weighting in the banking sector, where competition is
fierce and interest margins under pressure.
Looking ahead, we are optimistic about market prospects for Spain and
Portugal, where economic fundamentals are good and positive political change
appears to be underway. We believe the portfolio is well positioned to take
advantage of the opportunities arising from Spain and Portugal's improving
economic and political fortunes.
4
<PAGE>
DIVIDEND REINVESTMENT PLAN
We are pleased to advise you of an optional plan for the automatic
reinvestment of your dividends and capital gain distributions in shares of the
Fund. We recommend that you consider enrolling in the Dividend Reinvestment Plan
(the "Plan") to build your investment. For more information on the Plan please
call 1-800-426-5523. The Plan's features are more fully described on page 21.
ANNUAL MEETING ELECTION RESULTS
At the July 12, 1995, Annual Meeting, the shareholders elected two directors,
which appeared in your proxy statement. The selection of Price Waterhouse LLP as
the Fund's independent accountants for the fiscal year ending September 30,
1995, was ratified. Shareholders also approved the continuance of the investment
management agreement between the Fund and Scudder, Stevens & Clark, Inc. Please
see the table entitled "Shareholder Meeting Results" on page 20 for more
information.
OTHER INFORMATION
The Fund's NAV is published every Monday in The Wall Street Journal under the
heading "Closed End Funds." The Fund's NAV is also published in The New York
Times and Barron's.
As a service to overseas shareholders, the Fund's NAV is listed daily in The
Financial Times ("FT"). For your information the NAV of the Fund and other
Scudder managed closed-end funds can be found in the "FT Managed Funds Service"
section under the heading "other offshore funds" below the Scudder, Stevens &
Clark, Inc. banner.
We are pleased that you are an investor in The First Iberian Fund, Inc. We
would be happy to receive any questions or comments. You can reach us at
1-800-349-4281.
Respectfully
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
5
<PAGE>
The First Iberian Fund, Inc.
Investment Summary as of September 30, 1995
- -----------------------------------------------------------------
Historical Information Life of Fund
- -----------------------------------------------------------------
Total Return (%)
-----------------------------------------------
Market Value Net Asset Value (a)
--------------------- ---------------------
Average Average
Cumulative Annual Cumulative Annual
--------------------- ---------------------
Current Quarter 1.68 -- .52 --
One Year .84 .84 7.44 7.44
Three Year 28.52 8.72 41.41 12.24
Five Year 30.67 5.50 35.41 6.25
Life of Fund* -2.68 -.36 33.94 3.99
- -----------------------------------------------------------------
Per Share Information and Returns (a)
- -----------------------------------------------------------------
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.
Yearly periods ended September 30
- ---------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1988* 1989 1990 1991 1992 1993 1994 1995
-----------------------------------------------------------------
Net Asset Value... $ 8.75 $10.78 $ 8.80 $ 9.31 $ 7.27 $ 8.24 $ 9.01 $9.68
Income Dividends.. $ -- $ .25 $ .12 $ .20 $ .15 $ .18 $ -- $ --
Capital Gains
Distributions..... $ -- $ -- $ .13 $ .82 $ -- $ .22 $ -- $ --
Total Return (%).. -5.91 26.87 -17.13 20.35 -20.43 20.38 9.35 7.44
</TABLE>
(a) Total investment returns reflect changes in net asset value per share
during each period and assumes 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.
* The Fund commenced operations on April 20, 1988.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
6
<PAGE>
The First Iberian Fund, Inc.
Portfolio Summary as of September 30, 1995
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Spain 82%
Portugal 18%
----
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 equity securities
Financial 28%
Utilities 21%
Construction 9%
Communications 8%
Consumer Staples 8%
Energy 7%
Manufacturing 6%
Consumer Discretionary 6%
Service Industries 3%
Other 4%
----
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. BANCO POPULAR ESPANOL
Retail bank
2. BANCO BILBAO VIZCAYA, S.A.
Leading financial group
3. REPSOL, S.A.
Integrated oil, gas, and chemicals company
4. BANCO SANTANDER, S.A.
Leading international and domestic bank
5. COMPANIA TELEFONICA NACIONAL DE ESPANA, S.A.
Telecommunication services
6. HIDROELECTRICA DEL CANTABRICO, S.A.
Electric utility
7. EMPRESA NACIONAL DE ELECTRICIDAD, S.A.
Electric utility
8. GAS NATURAL SDG, S.A.
Distributor of natural and manufactured gas
9. PORTUGAL TELECOM S.A.
Telecommunication services
10. GENERAL DE AGUAS DE BARCELONA, S.A.
Drinking water supplier
7
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Investment Portfolio as of September 30, 1995
=====================================================================================================
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 100.0%
PORTUGAL 18.1%
CONSUMER DISCRETIONARY 1.7%
Specialty Retail 45,000 Sonae Investimentos, S.A. ....................... 1,053,140
----------
CONSUMER STAPLES 3.6%
Alcohol & Tobacco 1.6% 60,000 Uniao Cervejaria, S.A. .......................... 968,929
----------
Food & Beverage 2.0% 25,000 Jeronimo Martins................................. 1,251,834
----------
COMMUNICATIONS 3.5%
Telephone/Communications 110,300 Portugal Telecom S.A. (b) ....................... 2,110,688
----------
FINANCIAL 1.6%
Banks 75,839 Banco Comercial Portugues ....................... 1,007,782
----------
MEDIA 0.7%
Broadcasting &
Entertainment 80,000 TVI Televisao Independente (b)................... 437,392
----------
MANUFACTURING 1.7%
Containers & Paper 1.0% 25,000 Sociedade Portuguesa de Celulose, S.A. (b)....... 595,079
----------
Electrical Products 0.7% 50,000 Empresa Fabril de Maquinas Electricas, S.A. ..... 440,725
----------
CONSTRUCTION 5.3%
Building Materials 3.9% 80,000 Corticeira Amorim, S.P.G.S. ..................... 906,788
162,500 Semapa Cement S.A. (b)........................... 1,468,112
----------
2,374,900
----------
Miscellaneous 1.4% 60,000 Soares da Costa ................................. 876,117
----------
SPAIN 81.9%
CONSUMER DISCRETIONARY 4.5%
Apparel & Shoes 2.4% 52,000 Cortefiel, S.A. ................................. 1,501,699
----------
Department & Chain
Stores 2.1% 63,500 Centros Comerciales (PRYCA) ..................... 1,266,199
----------
CONSUMER STAPLES 4.6%
Food & Beverage 74,000 Centros Continente .............................. 1,774,875
74,000 Viscofan Envolturas Celulosicas S.A. ............ 1,038,586
----------
2,813,461
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
======================================================================================================
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS 4.9%
Telephone/Communications 219,500 Compania Telefonica Nacional de Espana S.A. ....... 3,018,524
----------
FINANCIAL 26.1%
Banks 21.3% 125,500 Banco Bilbao Vizcaya, S.A. ........................ 3,857,790
17,000 Banco Intercontinental Espanol S.A. ............... 1,481,071
29,250 Banco Popular Espanol ............................. 4,547,686
77,625 Banco Santander, S.A. ............................. 3,252,690
----------
13,139,237
----------
Insurance 4.8% 35,067 Corporacion Mapfre S.A. ........................... 1,809,800
20,891 Mapfre Vida Seguros................................ 1,128,878
----------
2,938,678
----------
SERVICE INDUSTRIES 2.6%
Miscellaneous Commercial
Services 62,000 Prosegur, Cia de Seguridad S.A. ................... 1,589,872
----------
DURABLES 0.6%
Automobiles 13,394 Fabrica Automoviles Renault de Espana (b) ......... 400,888
----------
MANUFACTURING 4.8%
Machinery/Components/
Controls 2.6% 1,420 Zardoya Otis S.A. (New) (c) ....................... 134,086
14,200 Zardoya Otis S.A. ................................. 1,469,164
----------
1,603,250
----------
Steel & Metals 2.2% 11,800 Acerinox, S.A. .................................... 1,345,899
----------
ENERGY 7.0%
Oil Companies 15,000 Espanola de Carburos Metalicos, S.A. .............. 629,752
117,100 Repsol, S.A. ...................................... 3,680,096
----------
4,309,848
----------
CONSTRUCTION 3.6%
Building Materials 2.1% 5,684 Fomento de Obras y Construcciones ................. 477,728
73,000 Uralita, S.A. (b).................................. 776,533
----------
1,254,261
----------
Miscellaneous 1.5% 7,800 Cubiertas y M.Z.O.V. .............................. 495,308
36,000 Gines Navarro Construcciones, S.A. ................ 445,559
----------
940,867
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Investment Portfolio as of September 30, 1995
=====================================================================================================
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION 2.2%
Miscellaneous 114,050 Autopistas del Mare Nostrum.................. 1,365,426
----------
UTILITIES 21.0%
Electric Utilities 13.9% 161,000 Cia Sevillana de Electricidad (b)............ 1,044,507
50,750 Empresa Nacional de Electricidad S.A. ....... 2,602,775
180,000 Fuerzas Electricas de Cataluna, S.A., "A" ... 1,097,880
20,000 Gas y Electricidad, S.A. .................... 1,003,074
92,000 Hidroelectrica del Cantabrico ............... 2,790,811
----------
8,539,047
----------
Natural Gas
Distribution 4.1% 20,000 Gas Natural SDG, S.A. ....................... 2,519,010
----------
Water Supply 3.0% 68,989 General de Aguas de Barcelona, S.A. ......... 1,883,497
----------
TOTAL COMMON STOCKS (Cost $52,638,660)....... 61,546,249
----------
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $52,638,660) (a)..................... 61,546,249
==========
<FN>
(a) The cost for federal income tax purposes was $52,844,418. At
September 30, 1995, net unrealized appreciation for all securities based
on tax cost was $8,701,831. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $10,316,481 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $1,614,650.
(b) Non-income producing security.
(c) Security valued in good faith by the valuation committee of the Board of
Directors. The cost of this security at September 30, 1995 was
$143,395 (Note A).
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Financial Statements
==============================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $52,638,660) (Note A) ............... $ 61,546,249
Foreign currency holdings, at market (identified cost $806,859) (Note A)..... 832,376
Receivables:
Investments sold .................................................... 1,415,465
Dividends and interest............................................... 21,433
Foreign taxes recoverable............................................ 154,301
-------------
Total assets................................................. 63,969,824
LIABILITIES
Payables:
Investments purchased................................................ $ 707,873
Accrued management fee (Note C)...................................... 52,709
Accrued administrator fee (Note C) .................................. 10,542
Other accrued expenses (Note C) ..................................... 157,125
-------------
Total liabilities ........................................... 928,249
-------------
Net assets, at market value.................................................. $ 63,041,575
=============
NET ASSETS
Net assets consist of:
Undistributed net investment income.................................. $ 406,756
Accumulated net realized loss ....................................... (5,529,227)
Net unrealized appreciation on:
Investments ................................................. 8,907,589
Foreign currency related transactions ....................... 55,223
Common stock................................................. 65,112
Additional paid-in capital................................... 59,136,122
-------------
Net assets, at market value.................................................. $ 63,041,575
=============
NET ASSET VALUE per share ($63,041,575 -:- 6,511,154 shares of common stock
issued and outstanding, $.01 par value, 200,000,000 shares authorized).... $9.68
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Financial Statements (continued)
==============================================================================================================
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of withholding taxes of $283,308) ....................... $ 1,596,708
Interest................................................................ 31,588
-------------
1,628,296
Expenses:
Management fee (Note C)................................................. $ 604,110
Administrator's fee (Note C)............................................ 120,821
Directors' fees and expenses (Note C) .................................. 90,551
Custodian fees ......................................................... 160,817
Auditing ............................................................... 64,225
Reports to shareholders ................................................ 55,994
Services to shareholders................................................ 25,870
Legal................................................................... 5,330
Other................................................................... 72,910 1,200,628
------------- -------------
Net investment income ..................................................... 427,668
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................................ (644,378)
Foreign currency related transactions................................... 220,905 (423,473)
-------------
Net unrealized appreciation during the period on:
Investments ............................................................ 4,364,011
Foreign currency related transactions................................... 34,719 4,398,730
------------- -------------
Net gain on investment transactions........................................ 3,975,257
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $ 4,402,925
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
=========================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income.......................................... $ 427,668 $ 450,741
Net realized gain (loss) from investment transactions.......... (423,473) 4,290,136
Net unrealized appreciation on investment transactions
during the period............................................ 4,398,730 274,418
---------- -----------
Net increase in net assets resulting from operations............. 4,402,925 5,015,295
---------- -----------
INCREASE IN NET ASSETS........................................... 4,402,925 5,015,295
Net assets at beginning of period................................ 58,638,650 53,623,355
---------- -----------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $406,756 and accumulated net investment
loss of $92,587 at September 30, 1995 and September 30, 1994,
respectively) ................................................ $63,041,575 $58,638,650
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Financial Highlights
=================================================================================================================================
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD (A) AND OTHER PERFORMANCE INFORMATION
DERIVED FROM THE FINANCIAL STATEMENTS AND MARKET PRICE DATA.
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992(c) 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 9.01 $ 8.24 $ 7.27 $ 9.31 $ 8.80
------ ------ ------ ------ ------
Net investment income ........................... .07 .07 .22 .27 .27
Net realized and unrealized gain (loss)
on investment transactions.................... .60 .70 1.15 (2.16) 1.26
------ ------ ------ ------ ------
Total from investment operations................... .67 .77 1.37 (1.89) 1.53
------ ------ ------ ------ ------
Less distributions from:
Net investment income.......................... - - (.18) (.15) (.20)
Net realized gains on investment
transactions................................. - - (.22) - (.82)
------ ------ ------ ------ -------
Total distributions................................ - - (.40) (.15) (1.02)
------ ------ ------ ------ ------
Net asset value, end of period..................... $ 9.68 $ 9.01 $ 8.24 $ 7.27 $ 9.31
====== ====== ====== ====== ======
Market value, end of period........................ $ 7.56 $ 7.50 $ 7.75 $ 6.25 $ 8.00
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN
Per share market value (%) .................... .84 (3.23) 31.69 (20.40) 27.73
Per share net asset value (%) (b) ............. 7.44 9.35 20.38 (20.43) 20.35
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)......... 63 59 54 47 61
Ratio of operating expenses (excluding
interest) to average net assets (%).......... 1.99 2.02 2.31 2.45 2.30
Ratio of net investment income to
average net assets (%) ...................... .71 .77 2.87 3.05 2.96
Portfolio turnover rate (%).................... 43 31 29 32 23
<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 assumes 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.
(c) Scudder, Stevens & Clark, Inc. became investment adviser of the Fund on April 1, 1992.
</FN>
</TABLE>
14
<PAGE>
The First Iberian Fund, Inc.
Notes to Financial Statements
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
The First Iberian 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 policies described below are followed consistently
by the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
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 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. The security valued in
good faith by the Valuation Committee of the Board of Directors amounted to
$134,086 (.21% of net assets) and has been noted in the investment portfolio
as of September 30, 1995.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend
and interest income and certain expenses at the rates 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 losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
FEDERAL INCOME TAXES. 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 all of its taxable income to its shareholders. The
Fund accordingly paid no U.S. federal income taxes, and no federal income tax
provision was required. Withholding taxes on foreign interest and dividends
15
<PAGE>
The First Iberian Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
have been provided for in accordance with Spanish and Portuguese tax rates.
At September 30, 1995, the Fund had a net tax basis capital loss carryforward
of approximately $5,071,000, which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
September 30, 2000 ($2,601,000), September 30, 2001 ($2,021,000), September
30, 2002 ($411,000), September 30, 2003 ($38,000),the respective expiration
dates, whichever occurs first.
In addition, from November 1, 1994 through September 30, 1995, the Fund incurred
approximately $253,000 of net realized losses which the Fund intends to elect
to defer and treat as arising in the fiscal year ended September 30, 1996.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, 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. The
differences relate primarily to the deferral of certain losses for tax
purposes. 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.
B. PURCHASES AND SALES OF SECURITIES
---------------------------------
For the year ended September 30, 1995, purchases and sales of investment
securities (excluding short#term investments) aggregated $25,534,016 and
$25,071,089, respectively.
C. RELATED PARTIES
---------------
Under the Investment Management Agreement with Scudder, Stevens & Clark, Inc.
("Scudder"), the Fund has agreed to pay Scudder a fee equal to an annual rate
of 1% of the Fund's average weekly net assets, computed weekly and payable
monthly. For the year ended September 30, 1995, the fee pursuant to such
agreement amounted to $604,110 of which $52,709 is unpaid at September 30,
1995.
Under the Administration Agreement with Scudder, the administration fee is
computed weekly and payable monthly at the annual rate of .20% of the Fund's
average weekly net assets. For the year ended September 30, 1995, the fee
pursuant to such agreement amounted to $120,821 of which $10,542 is unpaid at
September 30, 1995.
Pursuant to both agreements, the investment manager provides continuous
supervision of the investment portfolio and the administrator pays the costs of
compensation of certain officers of the Fund and provides occupancy and certain
clerical and accounting services to the Fund. The Fund bears all other costs
and expenses.
The Fund pays each Director not affiliated with the Manager, $7,500 annually,
plus specified amounts for attended board and committee meetings. Effective
April 1, 1995, the retainer fee was reduced to $6,000. For the year ended
September 30, 1995, Directors' fees and expenses aggregated $90,551, of which
$12,787 is unpaid at September 30, 1995.
16
<PAGE>
<TABLE>
=========================================================================================================================
D. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)
---------------------------------------------------------
<CAPTION>
NET INCREASE
(DECREASE)
NET GAIN (LOSS) IN NET ASSETS
QUARTER INVESTMENT NET INVESTMENT ON INVESTMENT RESULTING
ENDED INCOME INCOME TRANSACTIONS FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER PER PER PER
FISCAL 1995 TOTAL* SHARE* TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ----------- ------ ------ ----- ----- ----- ----- ----- -----
December 31, 1994 $ 283 $ .04 $ (22) $ .00 $(1,636) $ (.25) $(1,658) $ (.25)
March 31, 1995 358 .06 59 .01 (1,238) (.20) (1,179) (.19)
June 30, 1995 473 .07 222 .03 7,212 1.11 7,434 1.14
September 30, 1995 514 .08 169 .03 (363) (.06) (194) (.03)
------ ------ ------ ------ ------- ------ ------- ------
Totals $1,628 $ .25 $ 428 $ .07 $ 3,975 $ .60 $ 4,403 $ .67
------ ------ ------ ------ ------- ------ ------- ------
------ ------ ------ ------ ------- ------ ------- ------
PER PER PER PER
FISCAL 1994 TOTAL* SHARE* TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ----------- ------ ------ ----- ----- ----- ----- ----- -----
December 31, 1993 $ 359 $ .06 $ 69 $ .01 $ 3,282 $ .50 $ 3,351 $ .51
March 31, 1994 381 .05 31 .01 3,867 .59 3,898 .60
June 30, 1994 460 .07 184 .03 (4,726) (.72) (4,542) (.69)
September 30, 1994 438 .07 167 .02 2,141 .33 2,308 .35
------- ------ ------ ------ ------- ------ ------- ------
Totals $1,638 $ .25 $ 451 $ .07 $ 4,564 $ .70 $ 5,015 $ .77
------- ------ ------ ------ ------- ------ ------- ------
------- ------ ------ ------ ------- ------ ------- ------
<FN>
* Net of foreign taxes withheld
</FN>
</TABLE>
17
<PAGE>
The First Iberian Fund, Inc.
Report of Independent Accountants
================================================================================
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF THE FIRST IBERIAN FUND, INC.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The First Iberian Fund, Inc. (the
"Fund") at September 30, 1995, the results of its operations, the changes in
its net assets and the financial highlights for each of the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at September 30, 1995 by correspondence with the custodian and
brokers, and the application of alternative procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts,
November 9, 1995
18
<PAGE>
The First Iberian Fund, Inc.
Tax Information
================================================================================
Pursuant to section 853 of the Internal Revenue Code, the Fund designates
$283,308 ($.04 per share) as foreign taxes paid and $763,864 ($.117 per share)
as foreign source income for the year ended September 30, 1995.
Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
19
<PAGE>
Shareholder Meeting Results
The Annual Meeting of Shareholders of The First Iberian Fund, Inc. was held on
Wednesday, July 12, 1995, at the offices of Scudder, Stevens & Clark, Inc., 25th
Floor, 345 Park Avenue, New York, New York. The three matters voted upon by
Shareholders and the resulting votes for each matter are presented below.
1. The election of two Directors to hold office for a term of three years
or until their respective successors shall have been duly elected and
qualified.
<TABLE>
<S> <C> <C> <C> <C>
Director: Number of Votes:
For Withheld Broker Non-Votes*
Daniel Pierce 4,025,166 218,881 900
Richard M. Hunt 4,027,696 216,351 900
2. Ratification or rejection of the action taken by the Board of Directors
in selecting Price Waterhouse LLP as independent accountants for the
fiscal year ending September 30, 1995.
Number of Votes:
For Against Abstain Broker Non-Votes*
4,199,134 24,958 20,855 0
3. Approval or disapproval of the continuance of the Investment Management Agreement
between the Fund and Scudder, Stevens & Clark, Inc.
Number of Votes:
For Against Abstain Broker Non-Votes*
4,083,569 114,066 47,311 1
</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.
20
<PAGE>
Dividend Reinvestment Plan
The Plan
The Dividend Reinvestment Plan offers shareholders in The First Iberian Fund,
Inc. a prompt and simple way to reinvest their dividends and capital gains
distributions in shares of the Fund. The Fund will declare semiannual dividends
out of net investment income and also expects to distribute, at least annually,
its net realized capital gains.
State Street Bank and Trust Company acts as Plan Agent for shareholders in
administering the Plan.
Participation in the Plan
If you wish to enroll in the Plan, contact the Plan Agent at the address or
telephone number listed on page 22. The Plan Agent will send you a brochure that
contains the Terms and Conditions of the Plan, as well as an authorization form.
If you own shares in your own name, you can participate directly in the Plan.
If you own shares that are held in the name of a brokerage firm, bank, or other
nominee, you should instruct your nominee to participate on your behalf. If you
wish to participate in the Plan, but your brokerage firm, bank, or other nominee
is unable to participate on your behalf, you should request it to re-register
your shares in your own name, which will enable your participation in the Plan.
Your participation in the Plan will begin with the next dividend or capital
gain distribution payable after State Street Bank and Trust Company receives
your authorization, provided it is received prior to the record date. Should
your authorization arrive after the record date, your participation in the Plan
will begin with the following dividend or distribution.
The Plan Agent will administer the Plan on the basis of the number of shares
certified from time to time by you as representing the total amount registered
in your name and held for your account by your nominee. Nominees should provide
to the Plan Agent a listing of participating beneficial owners.
How the Plan Works
If you choose to participate in the Plan, your dividends and capital gain
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gain
distribution payable either in cash or in stock of the Fund, and the market
price of shares on the valuation date equals or exceeds the net asset value, the
Fund will issue new shares to you at net asset value, provided that the Fund
will not issue new shares at a discount of more than 5% from the then current
market price. If the market price is lower than the net asset value, or if
dividends or capital gains distributions are payable only in cash, then you will
receive shares purchased on the American Stock Exchange or otherwise on the open
market. If the market price exceeds net asset value before the Plan Agent has
completed its purchases, the average purchase price may exceed net asset value
resulting in fewer shares being acquired than if the Fund had issued new shares.
All reinvestments are in full and fractional shares, carried to three decimal
places.
No Service Fee To Reinvest
There is no direct charge to participants for reinvesting dividends and
capital gain distributions, since the Plan Agent's fees are paid by the Fund.
There are no brokerage charges for shares issued directly by the Fund. Whenever
shares are purchased on the American Stock Exchange or otherwise on the open
market, each participant will pay a pro rata portion of brokerage commissions.
Brokerage charges for purchasing shares through the Plan are expected to be less
than the usual brokerage charges for individual transactions, because the Plan
Agent will purchase stock for all participants in blocks, resulting in lower
commissions for each individual participant.
Brokerage commissions and service fees, if any, will be deducted from amounts
to be invested.
21
<PAGE>
Tax Implications
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gain distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
Amendment or Termination
Either The First Iberian Fund, Inc. or State Street Bank and Trust Company
may amend or terminate the Plan. Participants will receive written notice at
least 90 days before the effective date of any amendment. In the case of
termination, participants will receive written notice at least 90 days before
the record date for the payment of any dividend or capital gain distribution by
the Fund.
You may withdraw from the Plan at any time by written notice to State Street
Bank and Trust Company.
If you withdraw, you will receive without charge stock certificates issued in
your name for all full shares; or, if you wish, State Street Bank and Trust
Company will sell your shares and send you the proceeds, less a service fee of
$2.50 and less brokerage commissions. State Street Bank and Trust Company will
convert any fractional shares you hold at the time of your withdrawal to cash at
the current market price and send you a check for the proceeds.
Participant Benefits
* You will build holdings in the Fund easily and automatically, either at no
brokerage cost or at reduced costs.
* You will receive a detailed account statement from State Street Bank and
Trust Company, your Plan Agent, showing total dividends and distributions,
date of investment, shares acquired and price per share, and total shares
of record held by you and by the Plan Agent for you. You will receive a
proxy for the shares purchased for you by the Plan Agent according to the
Plan.
* As long as you participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will hold the shares it has acquired for you
in safekeeping, in noncertificated form; however, you may request that a
certificate representing your reinvested shares be issued to you. This
convenience provides added protection against loss, theft, or inadvertent
destruction of certificates.
Plan Agent Address and Telephone Number
If you hold shares in your own name, please address all notices,
correspondence, questions, or other communications regarding the Plan to:
State Street Bank and Trust Company
P.O. Box 8209
Boston, MA 02266-8209
1-800-426-5523
If your shares are not held in your name, you should contact your brokerage
firm, bank, or other nominee for more information and to see if your nominee
will participate in the Plan on your behalf.
22
<PAGE>
Directors and Officers
JURIS PADEGS*
Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
RICHARD HUNT
Director
JOSE PEDRO PEREZ LLORCA
Director
ROGERIO C.S. MARTINS
Director
DR. WILSON NOLEN
Director
DANIEL PIERCE*
Director
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
PAMELA A. McGRATH*
Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
CAROL L. FRANKLIN*
Vice President
JOAN GREGORY*
Vice President
JERARD K. HARTMAN*
Vice President
THOMAS F. McDONOUGH*
Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
COLEEN DOWNS DINNEEN*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
23
<PAGE>
Investment Manager
The investment manager of The First Iberian 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 and are traded
on the New York Stock Exchange: The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund, Inc., The Latin America Dollar Income Fund, Inc., Scudder New
Asia Fund, Inc., Scudder New Europe Fund, Inc., and Scudder World Income
Opportunities Fund, Inc.
