The First Iberian Fund, Inc.
Annual Report
September 30, 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.
================================================================================
o For the 12 months ended September 30, 1996, The First Iberian Fund provided
a net asset value total return of 20.19%. The stock price of the Fund ended
the period at $8.88, up from $7.56 12 months earlier, contributing to a
total return of 18.31% for shares listed on the American Stock Exchange.
o Approximately 75% of portfolio assets were invested in Spanish equities at
the end of the Fund's fiscal period. During the year, we moved from an
underweighted to an overweighted position in Spanish banks.
o Portuguese equities currently constitute 25% of Fund assets. Over the last
twelve months, the Portuguese market has not only provided excellent
returns, but has also seen a substantial improvement in its liquidity,
size, and profile.
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 ......................................... 17
Tax Information ........................................................... 18
Shareholder Meeting Results ............................................... 19
Dividend Reinvestment Plan ................................................ 20
Directors and Officers .................................................... 22
Investment Manager ........................................................ 23
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:
For the 12 months ended September 30, 1996, The First Iberian Fund provided a
total return of 20.19% reflecting an increase in the Fund's net asset value from
$9.68 to $11.54 and $0.07 per share in dividend distributions. This performance
compares to a 15.52% return for the Spanish stock market as gauged by the
unmanaged Madrid General Index and a return of 18.29% for Portuguese stocks as
measured by the unmanaged BVL Portuguese Index for the same period. The stock
price of the Fund ended the period at $8.88, up from $7.56 12 months earlier,
contributing to a total return of 18.31% for shares listed on the American Stock
Exchange.
FALLING INTEREST RATES BOOST SPANISH
EQUITIES
The Spanish market performed well over the period supported by falling interest
rates, new peaks on Wall Street, a flurry of corporate activity, and speculation
that Spain might qualify for the first round of the European Monetary Union
(EMU). In addition, recent budget deficit reduction measures have had a positive
impact on interest rates and market sentiment. Long bond yields have fallen
since the beginning of the year and the spread between Spanish and German bonds
has narrowed to a new low. We saw some market weakness over the summer, as a
number of regulatory changes and austerity measures were introduced by the
government. The market also responded negatively to volatility in the U.S. stock
and bond markets.
Though we remain concerned that regulatory changes such as
utility tariff decreases, the imposition of excise taxes, infrastructure
spending cuts, and a more competitive environment in the wake of deregulation
may have a negative impact on some of the listed companies trading on the
exchange, a number of factors auger well for the market. Spain is attractively
valued within the context of Europe, and increasing interest on the part of
domestic investors is adding liquidity to the market. On the privatization
front, further government sell-downs totaling approximately $9 billion are
expected next year for Telefonica, Repsol, Endesa, Argentaria and Gas Natural,
which should help broaden the investment terrain. A number of upcoming initial
public offerings may encourage other small businesses to come to the market. In
addition, the government has established a tax structure that should encourage
investment in equities. Among the measures is a fixed capital gains tax of 20%,
replacing a system under which investors were paying up to 56% depending on
personal income. Though it is unclear whether Spain will participate in the
first tier of EMU, the political will behind the effort to qualify for early
entry has been very convincing.
STRATEGY FAVORS BANKS OVER UTILITIES IN SPAIN
Approximately 75% of portfolio assets were invested in Spanish equities at the
end of the Fund's fiscal period. During the year, we maintained significant
exposure in Spanish banks for a number of reasons: loan volume has been good,
competition has eased, and the sector is free of regulatory uncertainty. We are
selective within the sector with a preference for banks that have a broad
geographic reach. Banco Bilbao Vizcaya, one of Spain's premier banks with an
efficient distribution network and a diversified portfolio of assets, is the
Fund's largest holding in the sector. Management has been expanding into Latin
America and the company's bottom line is benefiting from consolidation of some
of its businesses. Banco Bilbao Vizcaya is viewed by domestic investors as a
safe haven and our large position in this stock has been rewarded by excellent
performance, with a return of approximately 50% over the period. Our second
largest holding in the sector is Banco Santander. Santander is a first class
bank with a significant expansion strategy, particularly in Latin America.
Earnings have been understated over the past two years due to the amortization
of goodwill, necessitated by numerous recent acquisitions. However, Santander's
3
<PAGE>
investments are starting to mature and we believe the benefits should begin to
accrue in 1997.
We are underweight in the Spanish utility sector. Utilities have come under
pressure in recent months due to concerns about tariff reductions and about the
impact of competition in the sector in the wake of deregulation measures
stipulated by EMU. We maintain a significant weighting, however, in Endesa, the
largest utility in Spain, with good cost control and strong cash flow. It was
recently announced that Endesa planned to launch a partial takeover bid for two
utilities that would give the company effective control over the Catalan market
and most of Andalucia. The company would also benefit from a greater weight in
distribution, an area more favored than generation by the future tariff
structure.
Our largest holding in the communications sector has been Telefonica, up 36%
over the last 12 months and the best performing Spanish blue chip stock so far
in 1996. Telefonica's diversified activities are expanding rapidly, particularly
the mobile phone businesses in Spain and Latin America, and the stock is
attractively valued versus the company's growth rate. While there are concerns
surrounding the impact on the company of impending competition, we believe they
are already largely reflected in the market and will be offset by the dynamism
of the company's activities.
We trimmed exposure to the Spanish energy sector, where our largest position is
in Repsol. While the stock is attractively valued and management is doing a good
job of controlling costs, Repsol is not well-positioned to benefit from an
increase in the price of oil, given its high exposure to refining and marketing
activities. In addition, there are regulatory uncertainties surrounding the
company.
PORTUGUESE MARKET CONTINUES TO EVOLVE
Portuguese equities currently constitute 25% of Fund assets. Over the last
twelve months, the Portuguese market has not only provided excellent returns,
but has also seen a substantial improvement in its liquidity, size, and profile.
The Socialist government, in power since late 1995, is going from one success to
another and the macroeconomic outlook is positive. The ongoing privatization
process represented by the second tranche of Portugal Telecom in May and the
more recent placement of Cimpor, both substantially oversubscribed, has helped
focus investor attention on the market. Liquidity has been improved by a shift
of domestic investors into equities, and Portugal's expected mid-1997 inclusion
in the Morgan Stanley Capital International indices should provide a sustained
boost to the country's market capitalization. The mix of issuers represented has
improved and Portugal is trading more and more like a developed market. Bond
yields fell dramatically over the period, and Portugal's ambition to be part of
the first tier of EMU has provided additional momentum.
Two of our largest holdings in the Portuguese retail sector, Jeronimo Martins
and Sonae Investimentos, rose 82% and 55% respectively over the period. While
Portugal has been characterized by a depressed consumer market, retailer
earnings have been driven by margin increases, improvements in logistics and
distribution systems, and market share gains. An increasingly important theme
will be the development of international opportunities as competition from
foreign retailers accelerates at home. Portugal Telecom, Portugal's
near-monopoly provider of telephone service, remains an important core holding
in the portfolio. The November initial public offering of Telecel, the second
mobile phone operator in Portugal, should focus additional attention on this
segment of the market. In the construction area, we own cement companies Cimpor
and Semapa. We believe this sector should benefit from a continued flow of
European funds dedicated to infrastructure development, preparations for Expo
1998, and a reversal of the bad weather which hampered the industry in early
1996.
We believe that political and economic trends support a positive investment
outlook for Spain and Portugal. Throughout Europe, growth is moderate and
4
<PAGE>
inflation benign. Monetary conditions are easing and should help support a
broadening of economic growth regionally. At the same time, against a backdrop
of high unemployment, the prospect of more flexible interpretation of the
convergence criteria for joining EMU has emerged. While the outcome for EMU
remains uncertain, the Spanish and Portuguese markets have responded positively
to an increased likelihood of achieving the Maastricht targets. Going forward,
The First Iberian Fund will continue to provide exposure to the exciting
investment opportunities unfolding on the Peninsula.
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 20.
ANNUAL MEETING ELECTION RESULTS
At the July 24, 1996, Annual Meeting, the shareholders elected four
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, 1996, was also ratified. Please see the table entitled
"Shareholder Meeting Results" on page 19 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/Daniel Pierce
Nicholas Bratt Daniel Pierce
President Chairman of the Board
5
<PAGE>
THE FIRST IBERIAN FUND, INC.
INVESTMENT SUMMARY as of September 30, 1996
- -----------------------------------------------------------------
HISTORICAL
INFORMATION
LIFE OF FUND
TOTAL RETURN (%)
---------------------------------------------
MARKET VALUE MARKET VALUE
---------------------------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------------------------------------------
CURRENT QUARTER 0.71 -- 0.17 --
ONE YEAR 18.31 18.31 20.19 20.19
THREE YEAR 15.45 4.91 41.20 12.19
FIVE YEAR 21.04 3.89 35.23 6.22
LIFE OF FUND* 15.14 1.68 60.98 5.78
- -----------------------------------------------------------------
BAR CHART TITLE: PER SHARE INFORMATION AND RETURNS (A)
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
CHART PERIOD: YEARLY PERIODS ENDED SEPTEMBER 30
CHART DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988* 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------
NET ASSET VALUE... $ 8.75 $10.78 $ 8.80 $ 9.31 $ 7.27 $ 8.24 $ 9.01 $ 9.68 $11.54
INCOME DIVIDENDS.. $ -- $ .25 $ .12 $ .20 $ .15 $ .18 $ -- $ -- $ .07
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .13 $ .82 $ -- $ .22 $ -- $ -- $ --
TOTAL RETURN (%).. -5.91 26.87 -17.13 20.35 -20.43 20.38 9.35 7.44 20.19
</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.
6
<PAGE>
THE FIRST IBERIAN FUND, INC.
PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1996
- ---------------------------------------------------------------------------
PIE CHART TITLE: DIVERSIFICATION
CHART DATA:
Spain 75%
Portugal 25%
----
100%
====
CALLOUT TO PRECEDING CHART:
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
PIE CHART TITLE: SECTORS
CHART DATA:
Sector breakdown of the Fund's equity securities
Financial 28%
Utilities 20%
Communications 11%
Consumer Discretionary 10%
Consumer Staples 7%
Construction 6%
Energy 5%
Metals & Minerals 5%
Manufacturing 3%
Other 5%
----
100%
====
CALLOUT TO PRECEDING CHART:
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (53% of Portfolio)
1. BANCO BILBAO VIZCAYA, SA
Leading financial group
2. COMPANIA TELEFONICA NACIONAL DE ESPANA, SA
Telecommunications services
3. EMPRESA NACIONAL DE ELECTRICIDAD, SA
Electric utility
4. JERONIMO MARTINS SA
Food producer and retailer
5. BANCO SANTANDER, SA
Leading regional bank
6. PORTUGAL TELECOM SA
Telecommunication services
7. IBERDROLA SA
Electric utility
8. GAS NATURAL SDG, SA
Distributor of natural and manufactured gas
9. SEMPA SA
Cement producer
10. SONAE INVESTIMENTOS, S.A.
Leading holding company
7
<PAGE>
The First Iberian Fund, Inc.
Investment Portfolio as of September 30, 1996
<TABLE>
<CAPTION>
=====================================================================================================
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 100.0%
PORTUGAL 25.0%
Consumer Discretionary 4.2%
Specialty Retail 109,000 Sonae Investimentos, SA .................... 3,159,420
---------
Consumer Staples 6.9%
Alcohol & Tobacco 1.5% 60,000 Uniao Cervejaria, SA ....................... 1,101,449
---------
Food & Beverage 5.4% 45,000 Jeronimo Martins SA ........................ 4,092,754
---------
Communications 4.8%
Telephone/Communications 138,500 Portugal Telecom SA ........................ 3,559,517
---------
Financial 3.2%
Banks 0.3% 17,734 Banco Comercial Portugues .................. 214,179
---------
Insurance 2.9% 110,000 Seguros Tranquilidade ...................... 2,132,689
---------
Media 0.3%
Broadcasting & Entertainment 80,000 TVI Televisao Independente (b) (c) ......... 239,871
---------
Construction 5.6%
Building Materials 91,000 Corticeira Amorim, S.P.G.S. ................ 986,493
230,500 Semapa Cement SA ........................... 3,221,804
---------
4,208,297
---------
SPAIN 75.0%
Consumer Discretionary 5.5%
Apparel & Shoes 1.7% 52,000 Cortefiel, SA .............................. 1,297,066
---------
Department & Chain Stores 3.8% 40,000 Centros Comerciales Continente, SA ......... 829,637
81,500 Centros Comerciales (PRYCA) SA ............. 1,988,501
---------
2,818,138
---------
Communications 6.6%
Telephone/Communications 268,000 Compania Telefonica Nacional de Espana SA .. 4,974,551
---------
Financial 25.3%
Banks 22.6% 59,500 Argentaria Corporacion Bancaria de Espana .. 2,463,538
119,500 Banco Bilbao Vizcaya, SA ................... 5,505,798
20,300 Banco Intercontinental Espanol SA .......... 2,338,236
6,850 Banco Popular Espanol SA ................... 1,258,152
73,000 Banco Santander, SA ........................ 3,795,159
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
The First Iberian Fund, Inc.
Investment Portfolio (continued)
<TABLE>
<CAPTION>
=====================================================================================================
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
100,000 Banco de Valencia SA ....................... 1,587,672
----------
16,948,555
----------
Insurance 2.0% 3,961 Corporacion Mapfre SA (New) (b) (c) (d) .... 180,606
22,066 Mapfre Vida Seguros ........................ 1,305,172
----------
1,485,778
----------
Other Financial Companies 0.7% 210,000 Corporacion Financiera Reunida, SA ......... 554,051
----------
Durables 2.0%
Telecommunications Equipment 120,000 Amper SA (b) ............................... 1,494,280
----------
Manufacturing 3.3%
Containers & Paper 2.4% 35,000 Vidrala SA ................................. 1,811,425
----------
Industrial Specialty 0.9% 8,708 Azkoyen SA ................................. 639,766
----------
Metals & Minerals 5.0%
Steel & Metals 17,800 Acerinox, SA ............................... 2,071,056
250,000 Asturiana de Zinc SA (b) ................... 1,731,652
----------
3,802,708
----------
Energy 5.1%
Oil & Gas Production 1.4% 35,000 Cia Espanola de Petroleos, SA .............. 1,070,511
----------
Oil Companies 3.7% 84,100 Repsol SA .................................. 2,762,098
----------
Transportation 2.2%
Miscellaneous 114,050 Autopistas del Mare Nostrum SA ............. 1,633,217
----------
Utilities 20.0%
Electric Utilities 12.6% 60,000 Electricidad Reunidas de Zaragoza SA ....... 1,583,003
75,750 Empresa Nacional de Electricidad SA 4,456,923
347,000 Iberdrola SA ............................... 3,362,246
----------
9,402,172
----------
Natural Gas Distribution 4.5% 19,000 Gas Natural SDG, SA ........................ 3,353,724
----------
Water Supply 2.9% 57,368 General de Aguas de Barcelona, SA .......... 2,167,652
781 General de Aguas de Barcelona, SA (New)(c) . 29,510
----------
2,197,162
----------
Total Common Stocks (Cost $59,903,711) ..... 74,953,378
----------
=====================================================================================================
Total Investment Portfolio -- 100.0%
(Cost $59,903,711) (a) ................... 74,953,378
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
The First Iberian Fund, Inc.
Investment Portfolio (continued)
================================================================================
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $59,903,711. At September 30,
1996, net unrealized appreciation for all securities based on tax cost was
$15,049,667. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $15,917,531 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$867,864.
(b) Non-income producing security.
(c) Securities valued in good faith by the valuation committee of the Board of
Directors. The cost of these securities at September 30, 1996 was $775,928
(Note A).
(d) New share issued during 1996, eligible for a pro rata share of 1996
dividends.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
The First Iberian Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 1996
- --------------------------------------------------------------------------------
ASSETS
Investments, at market (identified cost
$59,903,711) (Note A) ........................... $ 74,953,378
Foreign currency holdings, at market
(identified cost $290,336) (Note A) ............. 288,014
Cash .............................................. 8,359
Receivable for foreign taxes recoverable .......... 95,575
------------
Total assets .................................. 75,345,326
LIABILITIES
Payables:
Accrued management fee (Note C) ................. $ 62,149
Accrued administrator fee (Note C) .............. 12,430
Other accrued expenses (Note C) ................. 143,553
-------
Total liabilities ............................. 218,132
------------
Net assets, at market value ....................... $ 75,127,194
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ............. $ 484,045
Accumulated net realized gain ................... 395,135
Net unrealized appreciation
(depreciation) on:
Investments ................................... 15,049,667
Foreign currency related transactions ......... (2,887)
Common Stock .................................... 65,112
Additional paid-in capital ...................... 59,136,122
------------
Net assets, at market value ....................... $ 75,127,194
============
Net asset value per share ($75,127,194 / 6,511,154
shares of common stock issued and outstanding,
$.01 par value, 200,000,000 shares
authorized) .................................... $11.54
======
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE>
The First Iberian Fund, Inc.
Financial Statements (continued)
================================================================================
- --------------------------------------------------------------------------------
Statement of Operations
Year Ended September 30, 1996
- --------------------------------------------------------------------------------
Investment income
Income:
Dividends (net of foreign taxes
withheld of $392,863) ....................... $ 1,906,251
Interest ...................................... 2,648
------------
1,908,899
Expenses:
Management fee (Note C) ....................... $ 693,672
Administrator's fee (Note C) .................. 138,740
Custodian and accounting fees (Note C) ........ 164,530
Directors' fees and expenses (Note C) ......... 93,033
Auditing ...................................... 76,550
Reports to shareholders ....................... 52,989
Services to shareholders ...................... 31,549
Legal ......................................... 14,531
Other ......................................... 66,341 1,331,935
---------- ------------
Net investment income ........................... 576,964
-----------
Net realized and unrealized gain (loss) on
investment transactions
Net realized gain (loss) from:
Investments ................................... 5,924,363
Foreign currency related transactions ......... (43,898) 5,880,465
----------
Net unrealized appreciation (depreciation)
during the period on:
Investments ................................... 6,142,078
Foreign currency related transactions ......... (58,110) 6,083,968
---------- ------------
Net gain on investment transactions ............. 11,964,433
------------
Net increase in net assets resulting
from operations ................................. $ 12,541,397
============
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
The First Iberian Fund, Inc.
Financial Statements (continued)
================================================================================
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
Increase (Decrease) in Net Assets 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ......................................... $ 576,964 $ 427,668
Net realized gain (loss) from investment transactions ......... 5,880,465 (423,473)
Net unrealized appreciation on investment transactions
during the period ........................................... 6,083,968 4,398,730
----------- ------------
Net increase in net assets resulting from operations ............ 12,541,397 4,402,925
----------- ------------
Distributions to shareholders from net investment income ........ (455,778) --
----------- ------------
Increase in net assets .......................................... 12,085,619 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 $484,045 and 406,756, respectively) .. $75,127,194 $ 63,041,575
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------------
1996 1995 1994 1993 1992(d)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 9.68 $ 9.01 $ 8.24 $ 7.27 $ 9.31
------- ------ ------- ------- --------
Net investment income .................... .09 .07 .07 .22 .27
Net realized and unrealized gain (loss)
on investment transactions ............. 1.84 .60 .70 1.15 (2.16)
------- ------ ------- ------- --------
Total from investment operations .......... 1.93 .67 .77 1.37 (1.89)
------- ------ ------- ------- --------
Less distributions from:
Net investment income ................... (.07) -- -- (.18) (.15)
Net realized gains on investment
transactions ........................... -- -- -- (.22) --
------- ------ ------- ------- --------
Total distributions ....................... (.07) -- -- (.40) (.15)
------- ------ ------- ------- --------
Net asset value, end of period ............ $ 11.54 $ 9.68 $ 9.01 $ 8.24 $ 7.27
======= ====== ======= ======= ========
Market value, end of period ............... $ 8.88 $ 7.56 $ 7.50 $ 7.75 $ 6.25
======= ====== ======= ======= ========
Total Investment Return
Per share market value (%) ............... 18.31 .84 (3.23) 31.69 (20.40)
Per share net asset value (%) (b) ........ 20.19 7.44 9.35 20.38 (20.43)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ... 75 63 59 54 47
Ratio of operating expenses (excluding
interest) to average net assets (%) ..... 1.92 1.99 2.02 2.31 2.45
Ratio of net investment income to
average net assets (%) .................. .83 .71 .77 2.87 3.05
Portfolio turnover rate (%) .............. 66 43 31 29 32
Average commission rate paid (c) ......... $ .0671 $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after September 1, 1996.
(d) Scudder, Stevens & Clark, Inc. became investment adviser of the Fund on
April 1, 1992.
- --------------------------------------------------------------------------------
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 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. These securities valued in
good faith by the Valuation Committee of the Board of Directors amounted to
$449,987 (.60% of net assets) and have been noted in the investment portfolio as
of September 30, 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
15
<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.
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, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $46,723,958 and
$45,371,017, 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, 1996, the fee pursuant to such agreement
amounted to $693,672 of which $62,149 is unpaid at September 30, 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 year ended September 30, 1996, the fee
pursuant to such agreement amounted to $138,740 of which $12,430 is unpaid at
September 30, 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.
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 September 30, 1996, the
amount charged to the Fund by SFAC aggregated $43,734, of which $4,942 is unpaid
at September 30, 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 year
ended September 30, 1996, Directors' fees and expenses aggregated $93,033 of
which $14,340 is unpaid at September 30, 1996.
16
<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, 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 September 30, 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,
November 6, 1996
17
<PAGE>
The First Iberian Fund, Inc.
Tax Information
================================================================================
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$395,135 as capital gain dividends for its fiscal year ended September 30, 1996.
Pursuant to section 853 of the Internal Revenue Code, the Fund designates
$392,863 ($.06 per share) as foreign taxes paid and $967,179 ($.15 per share) as
foreign source income for the year ended September 30, 1996.
18
<PAGE>
Shareholder Meeting Results
================================================================================
The Annual Meeting of Shareholders of The First Iberian Fund, Inc. was held on
Wednesday, July 24, 1996, at the offices of Scudder, Stevens & Clark, Inc., 345
Park Avenue, New York, New York. The two matters voted upon by Shareholders and
the resulting votes for each matter are presented below.
1. The election of four Directors to hold office for a term of three years
or until their respective successors shall have been duly elected and
qualified.
Director: Number of Votes:
--------- ----------------
For Withheld Broker Non-Votes*
--- -------- -----------------
Nicholas Bratt 3,695,470.960 207,174.649 0
Rogerio C.S. Martins 3,677,340.141 225,305.468 0
Jose Pedro Perez Llorca 3,677,840.141 224,805.468 0
Paul J. Elmlinger 3,677,040.141 225,605.468 0
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, 1996.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,693,079.007 192,653.602 16,913.000 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter.
19
<PAGE>
Dividend Reinvestment 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 21. 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.
20
<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
o You will build holdings in the Fund easily and automatically, either at no
brokerage cost or at reduced costs.
o 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.
o 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.
21
<PAGE>
Directors and Officers
================================================================================
DANIEL PIERCE*
Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
PAUL J. ELMLINGER*
Director
RICHARD HUNT
Director
JOSE PEDRO PEREZ LLORCA
Director
ROGERIO C.S. MARTINS
Director
DR. WILSON NOLEN
Director
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.
22
<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.
23
