The First Iberian Fund, Inc.
Semiannual Report
March 31, 1995
A closed-end investment company seeking long-term capital appreciation through
investment in securities, primarily equity securities, of Spanish and Portuguese
companies.
<PAGE>
The First Iberian Fund, Inc.
Investment objective and policies
* long-term capital appreciation through investment primarily in 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: 617-328-5000 x6406
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
Investment Manager 19
Directors and Officers 19
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 Semiannual Report of The First
Iberian Fund, Inc. (the "Fund"). During the period the Fund's share price
declined, reflecting international and Spanish market movement. The net asset
value (NAV) of the Fund fell 4.9% from $9.01 to $8.57 during the six months
ended March 31, 1995, and its share price on the American Stock Exchange fell
11.7% from $7.50 to $6.63. Over the same period, the Spanish IBEX index dropped
7.7%, while the Portuguese BTA index posted a return of 4.6%.
ECONOMIC AND MARKET ENVIRONMENT
The Spanish market suffered a turbulent six months with politics the main
focus of concern. The Socialist government of Felipe Gonzalez, plagued by
corruption scandals, reached the nadir of its power when it was accused of
financing an anti-Basque terrorist group in the early 1980s. The government
continues to have a tenuous hold on power through the support of the Catalans
with whom it rules in coalition. Much depends on upcoming regional elections in
May. There is a strong probability that the opposition party, the Partido
Popular, will finally break the hold of the longstanding Socialist regime and
win the next national election. Though the opposition is untested, a new
government should provide Spain with an opportunity to implement serious
structural reforms, particularly in the labor market, and may result in a
rerating of the Spanish market.
Political uncertainty had a very negative impact on the market for the
period under review. It raised the risk premium on Spanish assets and increased
the spread between Spanish and German bond yields to over 500 basis points.
Growing concern about the political situation, together with the flight of
international investors to the safety of the Deutschemark, placed tremendous
pressure on the peseta. The currency was forced to devalue by 7% on March 5, the
fourth devaluation since the country joined the European Monetary System in
1989. Markets are increasingly concerned about the Government's ability to meet
its 1996 budget deficit goal of 4.4% of GDP and the Spanish market was penalized
with "peripheral" partners Sweden and Italy for not doing enough to put its
fiscal house in order.
In Spain, economic recovery is underway. We expect GDP growth to accelerate
2.5-2.7% in 1995 supported by an impressive 5.9% increase in investment, strong
industrial production and an upturn in private consumption. Inflation is a
concern in a weak peseta environment. Price pressures, however, may be
restrained by weak consumer demand and moderate wage agreements. The performance
of the budget deficit will be key to inflationary expectations.
Uncertainties following the Mexican crisis hit all emerging markets
including Portugal. A decision by Prime Minister Cavaco Silva not to lead the
ruling PSD party in this year's parliamentary elections further unsettled the
market. Though the opposition Socialist Party may win the next parliamentary
run-off in October, economic policy is not expected to undergo a significant
change. Political uncertainty together with peseta devaluation in Spain forced a
realignment of the Portuguese currency within the European Exchange Rate
Mechanism. The Spanish and Portuguese economies are closely linked and a 7%
devaluation of the peseta was quickly followed by a 3.5% devaluation of the
escudo on March 6. Short term interest rates reached a peak of 11.8% on March 8,
but have settled back to 9.6% today.
The banking sector in Portugal has experienced significant activity in
recent months driven by two large acquisition bids. On December 29, Antonio
Champalimaud, a Portuguese industrialist, announced that he planned to acquire
the 50% held by Spanish bank Banesto in Banco Totta e Acores (BTA). In early
January, Banco Commercial Portugues (BCP) launched a second bid for Banco
Portuguese do Atlantico (BPA) in conjunction with Imperio, Portugal's largest
insurance company. The success of these deals will result in a consolidation of
3
<PAGE>
the Portuguese banking sector with nearly 70% of the market in the hands of
three large players. Another important feature of the market at the present time
and one that is attracting international attention is the upcoming privatization
of Portugal Telecom, the Portuguese telephone monopoly. The company will float
roughly 30% of its capital estimated at $1 billion, a process that will bring
more liquidity into a relatively illiquid market.
Portugal, the last country in Europe to go into recession, lags in terms of
economic recovery. The downturn has been more severe as a result of the
government's commitment to adhere to the Maastricht convergence criteria
resulting in a tough and successful anti-inflationary stance. While exports are
buoyant, domestic demand lags, investment has been slow to pick up and the
consumer has yet to be enticed back to the stores. With the consumer accounting
for two thirds of GDP, a recovery in private consumption should lend important
support to growth. Transfers from the European Union will double over the next 5
years with 46% of funds dedicated to infrastructure. This should boost GDP by
roughly 0.75% per annum.
THE PORTFOLIO
In the face of great market volatility, we have maintained a cautious
strategy. Our largest weighting continues to be in the banking sector. Though
first quarter earnings were disappointing, the banks should be beneficiaries of
late cycle demand. We recently increased our exposure to Banco Bilbao Vizcaya,
S.A., a bank with strong gearing to economic recovery and excellent cost
control. We also like Banco Popular, a reliable blue chip favored by foreign
investors with good lending recovery prospects. Overall, we believe the banks
offer above-average yields, as well as improving asset quality and lower
provisioning. Spanish banks are well capitalized and trading activities are less
significant than their foreign counterparts.
We remain underweighted in the utility sector. We do not expect
outperformance over the next year in an environment of potentially higher short
term interest rates, peseta devaluation, drought and rumors of regulatory
change. We maintain large positions in high quality utilities such as Endesa and
Hidrocantabrico, companies with strong earnings and dividend growth and a lower
level of peseta denominated debt. In April we increased our exposure to Repsol,
a diversified, high quality oil company and a core holding in the Fund. The
stock has been depressed by an overhang of shares due to a recent government
placement. Strong growth in the natural gas business, improving margins in
chemicals together with substantial cost savings over the next five years should
translate into above average earnings growth.
We were premature in maintaining high exposure to the construction sector.
Our patience has been rewarded by a recent rally in construction stocks,
battered over the past few months on the back of investor concern over proposed
government cutbacks in infrastructure spending. Construction is showing clear
signs of a cyclical recovery, government payment periods have been shortened and
contractor discounts on public works have narrowed. We recently increased our
exposure to the area with the addition of Uralita, a leading manufacturer and
distributor of building materials.
We have also maintained a somewhat cautionary stance in Portugal. Stock
performance was mixed for the period under review. We have had considerable
exposure to the banking sector for some time due to very high representation in
the index. After a period of underperformance, banks have returned to favor in
light of recent activity in the sector. BCP, a holding in the Fund and one of
the most liquid stocks in the market, should benefit from greater critical mass
and cross selling synergies gained from the BPA acquisition. Soares da Costa, a
top performing stock over the period, is Portugal's largest construction company
with high exposure to civil works. The company is well positioned to take
advantage of the growth in infrastructure over the next five years, has an
increasing order backlog and recently strengthened its balance sheet. Jeronimo
Martins, another good performer, is Portugal's largest food retailer. The
company has strong management and works in partnership with several large global
4
<PAGE>
retailers. Jeronimo Martins has grown through acquisitions and a 24% annual
growth rate in earnings is projected over the next five years.
DIVIDEND REINVESTMENT PLAN
We are pleased to advise you of an optional plan for the automatic
reinvestment of your dividends and capital gains 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 617-328-5000 x6406.
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 March 31, 1995
- -----------------------------------------------------------------
Historical
Information
Life of Fund
Total Return (%)
---------------------------------------------
Market Value Net Asset Value(a)
------------------- -------------------
Average Average
Cumulative Annual Cumulative Annual
------------------- -------------------
Current Quarter -7.02 -- -2.06 --
Fiscal Year to Date -11.67 -- -4.88 --
One Year -18.46 -18.46 -8.34 -8.34
Three Year -11.39 -3.95 .88 .29
Five Year -18.09 -3.91 10.26 1.97
Life of Fund* -14.75 -2.26 18.58 2.48
- -----------------------------------------------------------------------------
Per Share Information and Returns (a)
Yearly periods ended March 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1989* 1990 1991 1992 1993 1994 1995
------------------------------------------------------
Net Asset Value... $ 9.55 $ 9.61 $ 9.54 $ 9.09 $ 7.82 $ 9.35 $ 8.57
Income Dividends.. $ .15 $ .17 $ .22 $ .12 $ .18 $ .06 $ --
Capital Gains
Distributions..... $ -- $ .13 $ .79 $ .03 $ .22 $ -- $ --
Total Return (%).. 4.53 2.89 12.58 -2.92 -8.70 20.56 -8.34
</TABLE>
(a) Total investment return based on per share net asset value reflects the
effect of changes in net asset value on the performance of the Fund
during each period, and assumes 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
value due to differences between the market price of the stock and the
net asset value of the Fund during each period.
* 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.
- ---------------------------------------------------------------------------
Diversification
Spain 78%
Portugal 22%
----
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 36%
Utilities 16%
Construction 14%
Consumer Staples 11%
Energy 6%
Communications 5%
Consumer Discretionary 4%
Manufacturing 4%
Transportation 2%
Other 2%
----
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, S.A.
Retail bank
2. Banco Santander, S.A.
Leading international and domestic bank
3. Repsol, S.A.
Integrated oil, gas, and chemicals company
4. Empresa Nacional de Electricidad, S.A.
Electric utility
5. Compania Telefonica Nacional de Espana, S.A.
Telecommunication services
6. Hidroelectrica del Cantabrico, S.A.
Electric utility
7. Banco Bilbao Vizcaya, S.A.
Leading financial group
8. Vallehermoso
Real estate developer
9. Argentaria Corporacion Bancaria de Espana
Commercial bank
10. Fomento de Obras y Construcciones
General construction and sanitation company
7
<PAGE>
<TABLE>
THE FIRST IBERIAN FUND, INC.
INVESTMENT PORTFOLIO as of March 31, 1995
=================================================================================================================
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 100.0%
PORTUGAL 22.4%
CONSUMER DISCRETIONARY 1.4%
Specialty Retail 32,000 Sonae Investimentos, S.A. .......................... 763,934
---------
CONSUMER STAPLES 6.1%
Alcohol & Tobacco 1.7% 60,000 Uniao Cervejaria, S.A. ............................. 914,344
---------
Food & Beverage 4.4% 25,000 Jeronimo Martins.................................... 1,126,878
40,000 Modelo Supermercados, S.G.P.S. ..................... 1,257,650
---------
2,384,528
---------
FINANCIAL 5.5%
Banks 75,839 Banco Comercial Portugues........................... 1,053,147
68,850 Banco Portugues do Investimento..................... 1,208,637
33,000 Banco Totta e Acores................................ 695,389
---------
2,957,173
---------
MEDIA 0.9%
Broadcasting & Entertainment 80,000 TVI Televisao Independente.......................... 489,071
---------
MANUFACTURING 4.0%
Containers & Paper 2.9% 50,000 Sociedade Portuguesa de Celulose, S.A. ............. 1,584,699
---------
Electrical Products 1.1% 25,000 Empresa Fabril de Maquinas Electricas, S.A. ........ 297,131
25,000 Empresa Fabril de Maquinas Electricas, S.A. (New)... 288,934
---------
586,065
---------
CONSTRUCTION 4.5%
Building Materials 2.3% 80,000 Corticeira Amorim, S.P.G.S. ........................ 1,256,831
---------
Miscellaneous 2.2% 60,000 Soares da Costa .................................... 1,202,869
---------
SPAIN 77.6%
CONSUMER DISCRETIONARY 2.7%
Apparel & Shoes 52,000 Cortefiel, S.A. .................................... 1,458,712
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
=================================================================================================================
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES 4.6%
Food & Beverage 63,500 Centros Comerciales (PRYCA)...................... 1,003,556
74,000 Centros Continente............................... 1,473,568
----------
2,477,124
----------
COMMUNICATIONS 5.1%
Telephone/Communications 219,500 Compania Telefonica Nacional de Espana S.A. ..... 2,783,860
----------
FINANCIAL 30.2%
Banks 22.5% 58,900 Argentaria Corporacion Bancaria de Espana........ 1,719,759
90,500 Banco Bilbao Vizcaya, S.A. ..................... 2,302,726
123,541 Banco Espanol de Credito, S.A. (b) .............. 844,433
29,250 Banco Popular Espanol ........................... 3,790,597
100,625 Banco Santander, S.A. ........................... 3,534,398
----------
12,191,913
----------
Insurance 1.9% 22,547 Corporacion Mapfre S.A. ......................... 901,524
1,520 Corporacion Mapfre S.A. ......................... 59,635
1,191 Mapfre Vida Seguros ............................. 50,633
----------
1,011,792
----------
Real Estate 4.0% 157,966 Vallehermoso S.A. ............................... 2,184,437
----------
Miscellaneous 1.8% 21,735 Corporacion Financiera Alba S.A. ................ 994,434
----------
ENERGY 6.4%
Oil Companies 6.4% 15,000 Espanola de Carburos Metalicos, S.A. ............ 568,945
103,100 Repsol, S.A. .................................... 2,924,765
----------
3,493,710
----------
METALS AND MINERALS 1.4%
Steel & Metals 90,375 Asturiana de Zinc, S.A. ......................... 771,276
----------
CONSTRUCTION 9.3%
Building Materials 8.3% 8,500 Construcciones y Auxiliar de Ferrocarriles (b)... 335,836
16,000 Cristaleria Espanola, S.A. ...................... 657,448
6,287 Energia e Industrias Aragonesas ................. 28,019
21,984 Fomento de Obras y Construcciones ............... 1,683,326
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
THE FIRST IBERIAN FUND, INC.
INVESTMENT PORTFOLIO (continued)
=================================================================================================================
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12,000 Portland Valderrivas, S.A. .................. 753,852
110,000 Uralita, S.A. ............................... 1,043,066
----------
4,501,547
----------
Miscellaneous 1.0% 10,500 Cubiertas y M.Z.O.V. ........................ 538,483
----------
TRANSPORTATION 2.2%
Miscellaneous 114,050 Autopistas del Mare Nostrum.................. 1,171,592
----------
UTILITIES 15.7%
Electric Utilities 11.5% 67,750 Empresa Nacional de Electricidad S.A. ....... 2,890,952
92,000 Hidroelectrica del Cantabrico ............... 2,377,242
164,500 Iberdrola S.A. .............................. 974,911
----------
6,243,105
----------
Natural Gas Distribution 3.0% 20,000 Gas Natural SDG, S.A. ....................... 1,646,780
----------
Water Supply 1.2% 804 General de Aguas de Barcelona, S.A. (c)...... 15,661
32,185 General de Aguas de Barcelona, S.A. ......... 635,818
----------
651,479
----------
TOTAL COMMON STOCKS (Cost $52,589,345)....... 54,259,758
----------
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $52,589,345) (a) .................... 54,259,758
==========
<FN>
(a) The cost for federal income tax purposes was $52,589,345. At March 31, 1995, net unrealized appreciation
for all securities based on tax cost was $1,670,413. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost of $8,275,107 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax cost over market value of
$6,604,694.
(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
March 31, 1995 was $3,129 (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
MARCH 31, 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $52,589,345) (Note A)..................... $54,259,758
Foreign currency holdings, at market (identified cost $1,454,544) (Note A)........ 1,504,325
Cash.............................................................................. 62,018
Receivables:
Dividends and interest......................................................... 52,023
Foreign taxes recoverable...................................................... 126,816
-----------
Total assets................................................................ 56,004,940
===========
LIABILITIES
Payables:
Accrued management fee (Note C)................................................ $ 45,820
Accrued administrator fee (Note C)............................................. 9,164
Other accrued expenses (Note C)................................................ 148,182
--------
Total liabilities .......................................................... 203,166
-----------
Net assets, at market value....................................................... $55,801,774
===========
NET ASSETS
Net assets consist of:
Accumulated net investment loss................................................ $ (55,043)
Accumulated net realized loss ................................................ (5,057,067)
Net unrealized appreciation on:
Investments ................................................................ 1,670,413
Foreign currency related transactions....................................... 43,001
Common stock................................................................... 65,112
Additional paid-in capital..................................................... 59,135,358
-----------
Net assets, at market value.................................................... $55,801,774
===========
Net asset value per share ($55,801,774 / 6,511,154 shares of common stock
issued and outstanding, $.01 par value, 200,000,000 shares authorized)...... $8.57
=====
</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
SIX MONTHS ENDED MARCH 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of withholding taxes of $102,583).................. $ 624,066
Interest ......................................................... 16,746
-----------
640,812
Expenses:
Management fee (Note C)........................................... $ 289,544
Administrator's fee (Note C)...................................... 57,908
Directors' fees and expenses (Note C)............................. 53,453
Custodian fees.................................................... 74,317
Auditing.......................................................... 39,500
Reports to shareholders........................................... 32,098
Services to shareholders.......................................... 9,349
Legal............................................................. 3,450
Other............................................................. 43,649 603,268
----------- -----------
Net investment income............................................... 37,544
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments....................................................... 429,301
Foreign currency related transactions............................. (453,053) (23,752)
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments....................................................... (2,873,165)
Foreign currency related transactions............................. 22,497 (2,850,668)
----------- -----------
Net loss on investment transactions................................. (2,874,420)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $(2,836,876)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
=========================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income...................................................... $ 37,544 $ 450,741
Net realized gain (loss) from investment transactions...................... (23,752) 4,290,136
Net unrealized appreciation (depreciation) on investment transactions
during the period........................................................ (2,850,668) 274,418
----------- -----------
Net increase (decrease) in net assets resulting from operations.............. (2,836,876) 5,015,295
----------- -----------
INCREASE (DECREASE) IN NET ASSETS............................................ (2,836,876) 5,015,295
Net assets at beginning of period............................................ 58,638,650 53,623,355
----------- -----------
NET ASSETS AT END OF PERIOD (including accumulated net investment loss of
$55,043 and of $92,587, respectively)...................................... $55,801,774 $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>
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, ----------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992(C) 1991 1990
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 9.01 $ 8.24 $ 7.27 $ 9.31 $ 8.80 $ 10.78
------- ------ ------ ------- ------ -------
Net investment income ................... .01 .07 .22 .27 .27 .16
Net realized and unrealized gain (loss)
on investment transactions............. (.45) .70 1.15 (2.16) 1.26 (1.89)
------- ------ ------ ------- ------ -------
Total from investment operations (.44) .77 1.37 (1.89) 1.53 (1.73)
------- ------ ------ ------- ------ -------
Less distributions from:
Net investment income.................. -- -- (.18) (.15) (.20) (.12)
Net realized gains on investment
transactions........................... -- -- (.22) -- (.82) (.13)
------- ------ ------ ------- ------ -------
Total distributions........................ -- -- (.40) (.15) (1.02) (.25)
------- ------ ------ ------- ------ -------
Net asset value, end of period............. $ 8.57 $ 9.01 $ 8.24 $ 7.27 $ 9.31 $ 8.80
======= ====== ====== ======= ====== =======
Market value, end of period................ $ 6.63 $ 7.50 $ 7.75 $ 6.25 $ 8.00 $ 7.13
======= ====== ====== ======= ====== =======
TOTAL INVESTMENT RETURN
Per share market value (%)............... (11.67)** (3.23) 31.69 (20.40) 27.73 (51.78)
Per share net asset value (%) (b)........ (4.88)** 9.35 20.38 (20.43) 20.35 (17.13)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)... 56 59 54 47 61 57
Ratio of operating expenses (excluding
interest) to average net assets (%).... 2.08* 2.02 2.31 2.45 2.30 2.18
Ratio of net investment income to
average net assets (%)................. .13* .77 2.87 3.05 2.96 1.53
Portfolio turnover rate (%).............. 17* 31 29 32 23 22
<FN>
(a) Based on monthly average of shares outstanding during the period.
(b) Total investment return based on per share net asset value reflects the effects of changes in net
asset value on the performance of the Fund during each period, and assumes 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 value due to differences
between the market price of the stock and the net asset value of the Fund during each period.
(c) Scudder, Stevens & Clark, Inc. became investment adviser of the Fund on April 1, 1992.
* Annualized
** Not annualized
</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 at fair value
amounted to $15,661 (0.03% of net assets) and has been noted in the investment
portfolio as of March 31, 1995.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the Fund
may enter into forward foreign currency exchange contracts ("contracts").
Additionally, the Fund may enter into contracts to hedge certain other foreign
currency denominated assets. Contracts are recorded at market value. Certain
risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts. Realized and unrealized
gains and losses arising from such transactions are included in net realized
and unrealized gain (loss) from foreign currency related transactions.
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.
15
<PAGE>
THE FIRST IBERIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
================================================================================
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
have been provided for in accordance with Spanish and Portuguese tax rates.
At September 30, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $5,033,000, 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),and September
30, 2002 ($411,000), the respective expiration dates, whichever occurs first.
In addition, from November 1, 1993 through September 30, 1994, the Fund incurred
approximately $93,000 of currency losses which the Fund intends to elect to
defer and treat as arising in the fiscal year ended September 30, 1995.
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 six months ended March 31, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $4,726,921 and
$4,817,436, 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 six months ended March 31, 1995, the fee pursuant to such
agreement amounted to $289,544 of which $45,820 is unpaid at March 31, 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 six months ended March 31, 1995, the fee
pursuant to such agreement amounted to $57,908 of which $9,164 is unpaid at
March 31,1995.
16
<PAGE>
================================================================================
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 six months ended
March 31, 1995, Directors' fees and expenses aggregated $53,453, of which
$11,338 is unpaid at March 31, 1995.
<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
- ----------------------------------------------------------------------------------------------
PER PER PER PER
FISCAL 1995 TOTAL* SHARE* TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------ ------ ------ ----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
------ ----- ---- ----- ------- ----- ------ -----
Totals $ 641 $ .10 $ 37 $ .01 $(2,874) $(.45) $(2,837) $(.44)
====== ===== ==== ===== ======= ===== ======= =====
<CAPTION>
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 March 31, 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 March 31, 1995 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts,
May 12, 1995
18
<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 thr oughout 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 four other open-end investment companies
which invest worldwide.
In addition to the Fund, Scudder also manages the assets of seven other
closed-end investment companies which invest in foreign securities and are
traded on the New York Stock Exchange: The Argentina Fund, Inc. (investing
primarily in securities of Argentine issuers), The Brazil Fund, Inc. (investing
primarily in equity securities of Brazilian issuers), The Korea Fund, Inc.
(investing in a broad spectrum of Korean companies), The Latin America Dollar
Income Fund, Inc. (investing principally in Latin American debt instruments),
Scudder New Asia Fund, Inc. (investing in a broad spectrum of Asian companies),
and Scudder New Europe Fund, Inc. (investing in equity securities traded in
smaller or emerging European securities markets), and Scudder World Income
Opportunities Fund, Inc. (investing in global income and, to a limited extent,
equity securities).
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
WILSON NOLEN
Director
DANIEL PIERCE*
Director
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
PAMELA A. McGRATH*
Vice President and Assistant 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*
Treasurer
COLEEN DOWNS DINNEEN*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
19
<PAGE>
