The First Iberian Fund, Inc.
Semiannual Report
March 31, 1996
A closed-end investment company seeking long-term capital appreciation through
investment primarily in the equity securities of Spanish and Portuguese
companies.
<PAGE>
The First Iberian Fund, Inc.
Investment objective and policies
o long-term capital appreciation through investment primarily in the equity
securities of Spanish and Portuguese companies
Investment characteristics
o a closed-end investment company investing in a broad spectrum of Spanish
and Portuguese companies and industries
o 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
Brown Brothers Harriman & Co.
Legal counsel
Dechert Price & Rhoads
Independent Accountants
Price Waterhouse LLP
American Stock Exchange Symbol--IBF
Contents
In Brief 3
Letter to Shareholders 3
Other Information 6
Investment Summary 7
Portfolio Summary 8
Investment Portfolio 9
Financial Statements 12
Financial Highlights 15
Notes to Financial Statements 16
Report of Independent Accountants 19
Directors and Officers 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>
In Brief
o The First Iberian Fund's net asset value increased 11.05% over the six
months ended March 31, 1996, to close at $10.75. The stock price of the
Fund rose to $8.38, providing a total return of 11.64% for shares listed on
the American Stock Exchange. Performance for the trailing 12 months was
very favorable as well, with returns of 26.46% and 27.45% based on the
Fund's NAV and AMEX shares, respectively.
o The investment climate in Europe is characterized by modest economic
growth, non-threatening inflation, and low interest rates. Economic
fundamentals are particularly strong in both Spain and Portugal, where
political trends support a positive investment outlook as well.
o In Spain, we have taken advantage of price appreciation to trim positions
in select interest-rate-sensitive stocks, and have begun to build exposure
to companies more sensitive to a pickup in growth as lower interest rates
work their way through the economy. We have consolidated our Portuguese
holdings somewhat by adding to existing positions in two large blue-chip
stocks.
Letter to Shareholders
Dear Shareholders:
We are pleased to provide you with The First Iberian Fund's semiannual
report for the period ended March 31, 1996. The Fund's net asset value increased
11.05% over the six months to close at $10.75. Over the same period, the
unmanaged Madrid General Index rose 10.87% while the unmanaged BTA Portuguese
Index declined by 0.10%. The stock price of the Fund rose to $8.38, providing a
total return of 11.64% for shares listed on the American Stock Exchange.
Performance for the trailing 12 months was very favorable as well, with returns
of 26.46% and 27.45% based on the Fund's NAV and AMEX shares, respectively.
REVIEW OF THE MARKETS
In Spain, stocks have been on a steady upward climb since October of last
year, fueled by falling interest rates, favorable political trends, and strong
returns on Wall Street. Spain's stock market is heavily weighted in banks and
utilities, and is therefore very interest-rate-sensitive. As interest rates fell
in Europe in response to slower growth, the Spanish market powered ahead. The
market was also driven for most of the period by the anticipated victory for the
center-right Partido Popular in the March 3 elections, after 13 years of
Socialist party rule. When the Partido Popular won by a very narrow majority --
opening up the possibility of yet another period of political uncertainty and
watered down economic reform -- the market experienced a correction. However,
investors quickly regained their composure and Spain resumed its rally,
encouraged by a benign inflation and interest rate environment, a stable peseta,
and good corporate earnings prospects. The Spanish market remains among the most
attractively valued in Europe, trading at a price to earnings ratio of twelve
times and supported by a dividend yield of approximately 4%.
After experiencing weakness throughout 1995, Portugal started 1996 on a
strong note based on many of the same factors at work in Spain -- the prospect
of lower interest rates, good corporate earnings, a positive political backdrop
- -- and received an additional boost from a shift by global investors into
emerging markets. In February, the market pulled back when the government
unveiled an ambitious privatization program designed to raise $2.5 billion, as
investors became concerned about an overhang of stock in the market. The
Portuguese market recovered later in the quarter, however, as spectacular
inflation numbers and approval of the budget buttressed an already favorable
3
<PAGE>
climate for investors.
POLITICAL AND ECONOMIC OUTLOOK
General elections on March 3, 1996, presented Spain with an outcome that
was radically different than the one initially anticipated. None of the
political parties achieved a sufficient majority to govern comfortably. The
polls consistently put the opposition party ahead by a wide margin and failed to
capture a large swing in voting intentions during the last week of the campaign,
and in doing so underestimated the strength of nationalism and regionalism in
the country. The real winner in the election was the Catalan party, which,
despite losing a seat, gained in political power, given that its support was
critical. A pact to form a new government has finally been reached, and the
coalition's first test will be to present a credible budget to Parliament.
Politics aside, the Spanish economy is on course. GDP growth is running in
the 3% range, sustained largely by capital investment. Inflation continues to
decline, and the inflation rate of 3.4% for the 12 months ended March was the
lowest number since 1970. The peseta has been strong, bolstered by capital flows
from around the world as investors seek high yields in peripheral European
markets.
In Portugal, a number of trends point towards a favorable outlook for
equities. The Socialist Party not only won October's general elections, ending a
decade of center-right leadership under the Social Democrats, but was further
strengthened by the January victory of the party candidate in elections for
President of the Republic. Growth of 2.4% is anticipated for 1996, led by
exports and capital investment. Inflation has fallen from the double-digit range
in the early nineties to 2.4% as of the end of March, and is now at its lowest
level since the early 1960s. Moreover, the currency has been remarkably stable
in recent months. Proof of its resilience came with the Spanish general election
in March when the escudo barely budged even as the peseta took a hit. On the
fiscal front, the public deficit fell to 5.2% of GDP in 1995 compared with an
initial forecast of 5.8%. Finally, in March, the broad outlines of a
privatization program emerged, with the partial or total privatization of 22
companies envisaged through a combination of public offerings and private
negotiations with strategic investors.
PORTFOLIO STRATEGY
Early in 1996, we took advantage of price appreciation and did some
selective selling of interest-rate-sensitive Spanish stocks, such as Banco
Santander and the utility Fesca. In turn, we began to build exposure to
companies more sensitive to a pickup in growth as lower interest rates work
their way through the economy. For example, we added to our position in
Acerinox, the fourth largest stainless steel producer in the world and one of
the few stocks trading on the Spanish exchange that is sensitive to economic
growth. We also increased our exposure to the energy sector, with the purchase
of Cepsa, the second largest oil company in Spain with a major focus in refining
and marketing oil products. In 1992, Cepsa announced the discovery of a
potentially large deposit of crude oil in Algeria, and boasts a sizable
petrochemical business. Some smaller Spanish companies were added to the
portfolio as well in the belief that, after a strong movement in blue chip
stocks in 1995, investors looking for value will begin to focus on smaller
companies.
We have consolidated our Portuguese holdings somewhat by adding to existing
positions in Corticiera Amorim and Jeronimo Martins, two large blue-chip stocks.
Corticiera Amorim is the world's largest manufacturer of cork-related products,
is growing earnings at an annual rate of 25%, and is attractively valued.
Jeronimo Martins is a holding company with retailing, consumer products, and
food processing businesses, and is building an important presence
internationally. Among cyclical stocks, we continue to favor cement companies at
the expense of the construction sector, where margins are under pressure. An
example is Cimpor, the second largest cement company in the Iberian Peninsula
4
<PAGE>
with a market share of 20%, and one of the most profitable European companies in
its sector.
The investment climate in Europe is characterized by modest economic
growth, non-threatening inflation, and low interest rates. Economic fundamentals
are particularly strong in both Spain and Portugal, where political trends
support a positive investment outlook as well. We believe that The First Iberian
Fund is well positioned to benefit from the many favorable developments taking
place on the Peninsula.
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>
Other information
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, The Brazil Fund, The Korea
Fund, The Latin America Dollar Income Fund, Scudder New Asia Fund, Scudder New
Europe Fund, and Scudder World Income Opportunities Fund.
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.
NET ASSET VALUE
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.
6
<PAGE>
THE FIRST IBERIAN FUND, INC.
INVESTMENT SUMMARY AS OF MARCH 31, 1996
- -----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ----------------------------------------------
MARKET VALUE NET ASSET VALUE (a)
------------------- --------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- --------------------
CURRENT QUARTER 8.06 -- 5.08 --
FISCAL YEAR TO DATE 11.64 -- 11.96 --
ONE YEAR 27.45 27.45 26.46 26.46
THREE YEAR 28.50 8.72 39.74 11.80
FIVE YEAR -1.81 -.36 23.86 4.37
LIFE OF FUND* 8.65 1.05 49.96 5.22
- -----------------------------------------------------------------
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 MARCH 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989* 1990 1991 1992 1993 1994 1995 1996
----------------------------------------------------------------
NET ASSET VALUE... $ 9.55 $ 9.61 $ 9.54 $ 9.09 $ 7.82 $ 9.35 $ 8.57 $10.75
INCOME DIVIDENDS.. $ .15 $ .17 $ .22 $ .12 $ .18 $ .06 $ -- $ .07
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .13 $ .79 $ .03 $ .22 $ -- $ -- $ --
TOTAL RETURN (%).. 4.53 2.89 12.58 -2.92 -8.70 20.56 -8.34 26.46
</TABLE>
(a) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
* The Fund commenced operations on April 20, 1988.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
7
<PAGE>
THE FIRST IBERIAN FUND, INC.
PORTFOLIO SUMMARY AS OF MARCH 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
Spain 77%
Portugal 23%
----
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
Utilities 23%
Financial 20%
Construction 12%
Communications 10%
Consumer Staples 9%
Consumer Discretionary 9%
Energy 8%
Manufacturing 7%
Transportation 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. REPSOL, SA
Integrated oil, gas, and chemicals company
2. COMPANHIA TELEFONICA NACIONAL DE ESPANA, SA
Telecommunications services
3. GAS NATURAL SDG, SA
Distributor of natural and manufactured gas
4. JERONIMO MARTINS SA
Food producer and retailer
5. IBERDROLA SA
Electric utility
6. BANCO BILBAO VIZCAYA, SA
Leading financial group
7. EMPRESA NACIONAL DE ELECTRICIDAD, SA
Electric utility
8. BANCO POPULAR ESPANOL
Retail bank
9. PORTUGAL TELECOM SA
Telecommunication services
10. GENERAL DE AGUAS DE BARCELONA, SA
Drinking water supplier
8
<PAGE>
The First Iberian Fund, Inc.
Investment Portfolio as of March 31, 1996
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount (U.S.$) (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE BONDS 0.2%
SPAIN
FINANCIAL
Insurance ESP 20,620,000 Corporacion Mapfre, 8.5%, 2/27/99 (d) (Cost $165,211) . 166,136
---------
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 99.8%
Shares
------
PORTUGAL 23.3%
CONSUMER DISCRETIONARY 1.6%
Specialty Retail 45,000 Sonae Investimentos, SA ............................... 1,076,613
---------
CONSUMER STAPLES 6.6%
Alcohol & Tobacco 1.7% 60,000 Uniao Cervejaria, SA .................................. 1,158,537
---------
Food & Beverage 4.9% 45,000 Jeronimo Martins SA ................................... 3,340,185
---------
COMMUNICATIONS 3.6%
Telephone/Communications 110,300 Portugal Telecom SA (c) ............................... 2,491,368
---------
FINANCIAL 1.5%
Banks 75,839 Banco Comercial Portugues ............................. 1,041,717
---------
MEDIA 0.4%
Broadcasting & Entertainment 80,000 TVI Televisao Independente (c) ........................ 275,374
---------
CONSTRUCTION 9.6%
Building Materials 8.3% 90,000 Cimentos de Portugal SA (c) ........................... 1,695,909
182,000 Corticeira Amorim, S.P.G.S. ........................... 2,170,587
162,500 Semapa Cement SA (c) .................................. 1,779,275
---------
5,645,771
---------
Forest Products 1.3% 150,000 Portucel Industrial Empresa, SA (c) ................... 903,816
---------
SPAIN 76.5%
CONSUMER DISCRETIONARY 7.0%
Apparel & Shoes 1.8% 52,000 Cortefiel, SA ......................................... 1,215,002
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
The First Iberian Fund, Inc.
Investment Portfolio (continued)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Department & Chain Stores 5.2% 75,000 Centros Comerciales Continente, SA (c) ................ 1,713,129
81,500 Centros Comerciales (PRYCA) SA ........................ 1,851,750
---------
3,564,879
---------
CONSUMER STAPLES 2.1%
Alcohol & Tobacco 30,000 Tabacalera, SA "A" .................................... 1,401,926
---------
COMMUNICATIONS 6.5%
Telephone/Communications 280,000 Compania Telefonica Nacional de Espana SA ............. 4,444,265
---------
FINANCIAL 18.9%
Banks 14.6% 36,000 Argentaria Corporacion Bancaria de Espana ............. 1,522,781
83,500 Banco Bilbao Vizcaya, SA .............................. 3,114,893
15,000 Banco Intercontinental Espanol SA ..................... 1,510,696
15,850 Banco Popular Espanol ................................. 2,737,977
69,418 Banco de Valencia SA .................................. 1,085,050
---------
9,971,397
---------
Insurance 4.3% 35,067 Corporacion Mapfre SA ................................. 1,796,931
20,891 Mapfre Vida Seguros ................................... 1,195,070
---------
2,992,001
---------
MANUFACTURING 6.7%
Containers & Paper 2.9% 35,000 Vidrala SA ............................................ 1,985,256
---------
Industrial Specialty 0.5% 6,000 Azkoyen SA ............................................ 390,605
---------
Steel & Metals 3.3% 19,800 Acerinox, SA .......................................... 2,233,413
---------
ENERGY 8.3%
Oil & Gas Production 1.6% 35,000 Cia Espanola de Petroleos, SA ......................... 1,085,687
---------
Oil Companies 6.7% 121,100 Repsol SA ............................................. 4,566,313
---------
CONSTRUCTION 2.4%
Building Materials 1.0% 73,000 Uralita SA ............................................ 694,034
---------
Miscellaneous 1.4% 7,800 Cubiertas y M.Z.O.V. SA ............................... 495,847
36,000 Gines Navarro Construcciones, SA (c) .................. 451,033
---------
946,880
---------
TRANSPORTATION 2.0%
Miscellaneous 114,050 Autopistas del Mare Nostrum SA ........................ 1,369,170
---------
UTILITIES 22.6%
Electric Utilities 14.3% 161,000 Cia Sevillana de Electricidad ......................... 1,160,980
60,000 Electricidad Reunidas de Zaragoza SA .................. 1,450,268
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
50,750 Empresa Nacional de Electricidad SA ................... 2,907,243
20,000 Gas y Electricidad, SA ................................ 1,063,530
345,000 Iberdrola SA .......................................... 3,182,734
----------
9,764,755
----------
Natural Gas Distribution 5.0% 20,000 Gas Natural SDG, SA ................................... 3,458,083
----------
Water Supply 3.3% 68,989 General de Aguas de Barcelona, SA ..................... 2,217,831
1,379 General de Aguas de Barcelona, SA (New) ............... 41,682
----------
2,259,513
----------
TOTAL COMMON STOCKS (COST $56,191,567) ............................................... 68,276,560
----------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $56,356,778) (a) ............................................................. 68,442,696
==========
</TABLE>
(a) The cost for federal income tax purposes was $56,356,778. At March 31,
1996, net unrealized appreciation for all securities based on tax cost was
$12,085,918. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $13,147,063 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,061,145.
(b) Principal amount is stated in U.S. dollars unless otherwise noted.
(c) Non-income producing security.
(d) Security valued in good faith by the valuation committee of the Board of
Directors. The cost of this security at March 31, 1996 was $165,211 (Note
A).
CURRENCY ABBREVIATIONS
- ----------------------
ESP Spanish Peseta
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
The First Iberian Fund, Inc.
Financial Statements
===============================================================================
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments, at market (identified cost $56,356,778)
(Note A) ............................................. $ 68,442,696
Cash ................................................... 683,351
Receivables:
Investments sold ............................... 1,495,816
Dividends and interest ......................... 6,848
Foreign taxes recoverable ...................... 141,853
------------
Total assets ........................... 70,770,564
LIABILITIES
Payables:
Foreign currency due to custodian, at market ... $545,841
Accrued management fee (Note C) ................ 57,896
Accrued administrator fee (Note C) ............. 11,579
Other accrued expenses (Note C) ................ 174,659
--------
Total liabilities ...................... 789,975
------------
Net assets, at market value ............................ $ 69,980,589
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ............ $ 52,529
Accumulated net realized loss .................. (1,357,943)
Net unrealized appreciation (depreciation) on:
Investments ............................ 12,085,918
Foreign currency related transactions... (1,149)
Common stock ................................... 65,112
Additional paid-in capital ..................... 59,136,122
------------
Net assets, at market value ............................ $ 69,980,589
============
NET ASSET VALUE per share ($69,980,589 divided by
6,511,154 shares of common stock issued and
outstanding, $.01 par value, 200,000,000 shares
authorized) .......................................... $ 10.75
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended March 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of withholding taxes of
$130,852) ................................. $ 743,719
Interest .................................... 3,766
-----------
747,485
Expenses:
Management fee (Note C) ..................... $ 329,945
Administrator's fee (Note C) ................ 65,994
Custodian and accounting fees (Note C) ...... 83,938
Directors' fees and expenses (Note C) ....... 52,468
Auditing .................................... 39,375
Reports to shareholders ..................... 29,099
Services to shareholders .................... 14,336
Legal ....................................... 8,367
Other ....................................... 22,412 645,934
---------- -----------
Net investment income ............................... 101,551
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) from:
Investments ................................. 4,183,407
Foreign currency related transactions ....... (12,123) 4,171,284
----------
Net unrealized appreciation (depreciation) during the
period on:
Investments ................................. 3,178,329
Foreign currency related transactions ....... (56,372) 3,121,957
---------- -----------
Net gain on investment transactions ................. 7,293,241
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $ 7,394,792
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
The First Iberian Fund, Inc.
Financial Statements (continued)
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................. $ 101,551 $ 427,668
Net realized gain (loss) from investment transactions .. 4,171,284 (423,473)
Net unrealized appreciation on investment transactions
during the period .................................... 3,121,957 4,398,730
------------ ------------
Net increase in net assets resulting from operations ..... 7,394,792 4,402,925
------------ ------------
Distributions to shareholders from net investment income
($.07 per share) ........................................ (455,778) --
------------ ------------
INCREASE IN NET ASSETS ................................... 6,939,014 4,402,925
Net assets at beginning of period ........................ 63,041,575 58,638,650
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed
net investment income of $52,529 and 406,756 at
March 31, 1996 and September 30, 1995,
respectively) .................................... $ 69,980,589 $ 63,041,575
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
The First Iberian Fund, Inc.
Financial Highlights
===============================================================================
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD (B) AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, --------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1996 1995 1994 1993 1992(D) 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 9.68 $ 9.01 $ 8.24 $ 7.27 $ 9.31 $ 8.80
----------- --------- --------- --------- --------- ---------
Net investment income ...................... .02 .07 .07 .22 .27 .27
Net realized and unrealized gain (loss)
on investment transactions.......... 1.12 .60 .70 1.15 (2.16) 1.26
----------- --------- --------- --------- --------- ---------
Total from investment operations ................... 1.14 .67 .77 1.37 (1.89) 1.53
----------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income .............. (.07) -- -- (.18) (.15) (.20)
Net realized gains on investment
transactions ............... -- -- -- (.22) -- (.82)
----------- --------- --------- --------- --------- ---------
Total distributions ................................ (.07) -- -- (.40) (.15) (1.02)
----------- --------- --------- --------- --------- ---------
Net asset value, end of period ..................... $ 10.75 $ 9.68 $ 9.01 $ 8.24 $ 7.27 $ 9.31
=========== ========= ========= ========= ========= =========
Market value, end of period ........................ $ 8.38 $ 7.56 $ 7.50 $ 7.75 $ 6.25 $ 8.00
=========== ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN
Per share market value (%).................. 11.64** .84 (3.23) 31.69 (20.40) 27.73
Per share net asset value (%) (c)........... 11.96** 7.44 9.35 20.38 (20.43) 20.35
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)...... 70 63 59 54 47 61
Ratio of operating expenses (excluding
interest) to average net assets (%). 1.97* 1.99 2.02 2.31 2.45 2.30
Ratio of net investment income to
average net assets (%).............. .31* .71 .77 2.87 3.05 2.96
Portfolio turnover rate (%)................. 84* 43 31 29 32 23
Average commission rate paid (a)............ $ .0677 $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(b) Based on monthly average of shares outstanding during the period.
(c) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(d) Scudder, Stevens & Clark, Inc. became investment adviser of the Fund on
April 1, 1992.
* Annualized
** Not annualized
15
<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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the 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
$166,136 (.24% of net assets) and has been noted in the investment portfolio as
of March 31, 1996.
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
16
<PAGE>
================================================================================
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, 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 six months ended March 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $27,229,730 and
$27,695,020, 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, 1996, the fee pursuant to such agreement
amounted to $329,945 of which $57,896 is unpaid at March 31, 1996.
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, 1996, the fee
pursuant to such agreement amounted to $65,994 of which $11,579 is unpaid at
March 31, 1996.
Pursuant to both agreements, the investment manager provides continuous
supervision of the investment portfolio and the administrator pays the
compensation of certain officers of the Fund and provides occupancy and certain
clerical services to the Fund. The Fund bears all other costs and expenses.
17
<PAGE>
The First Iberian Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
Effective December 21, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, assumed responsibility for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the period December 21, 1995 to March 31, 1996, the
amount charged to the Fund by SFAC aggregated $16,004, of which $4,990 is unpaid
at March 31, 1996.
The Fund pays each Director not affiliated with the Manager, $6,000 annually,
plus specified amounts for attended board and committee meetings. For the six
months ended March 31, 1996, Directors' fees and expenses aggregated $52,468 of
which $13,845 is unpaid at March 31, 1996.
18
<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, 1996, 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, 1996 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,
May 3, 1996
19
<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.
