The First Iberian Fund, Inc.
Semiannual Report
March 31, 1997
A closed-end investment company seeking long-term capital appreciation through
investment primarily in the equity securities of Spanish and Portuguese
companies.
<PAGE>
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
Contents
- --------------------------------------------------------------------------------
In Brief 2
Letter to Shareholders 3
Investment Summary 5
Portfolio Summary 6
Investment Portfolio 7
Financial Statements 10
Financial Highlights 13
Notes to Financial Statements 14
Directors and Officers Back Cover
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
In Brief
- --------------------------------------------------------------------------------
o For the six months ended March 31, The First Iberian Fund produced a total
return based on net asset value per share of 24.7%, while the total return
based on the price of the Fund's publicly traded shares was 28.4%.
o In Spain, we reduced exposure to the utilities sector early in 1997 due to
concerns about fundamental changes in the regulatory environment, and
committed those funds to the banking sector.
o The Fund's focus on telecommunications stocks in Spain and Portugal was
rewarded by excellent stock performance from holdings of Portugal Telecom
and Telefonica de Espana.
- --------------------------------------------------------------------------------
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 six months ended March 31, The First Iberian Fund produced a total
return based on net asset value per share of 24.7%, versus returns of 15.8% for
the Madrid General Index and 18.2% for the Portuguese BVL general index. The
total return based on the price of the Fund's publicly traded shares was 28.4%
over the period. The Fund's share price now represents a 21% discount to net
asset value.
MARKET PERFORMANCE
The Spanish and Portuguese markets performed well over the six month period,
though returns were somewhat lower for US investors as the dollar strengthened
against the peseta and the escudo. Markets were driven upwards by falling
interest rates, an improving macroeconomic backdrop, and expectations that Spain
and Portugal would qualify for the first round of European Monetary Union. A low
interest rate environment is bringing domestic investors into the equity market
and liquidity has markedly improved. The very successful privatization of the
final government stake in Telefonica de Espana was recently heralded as the
arrival of popular capitalism in Spain, with demand from domestic retail
investors far exceeding supply. Portugal is making impressive strides towards
the European mainstream as its privatization process adds liquidity to the
market. The government placement of part of EPD, the Portuguese utility, in 1997
will result in a virtual doubling of the market capitalization over a four year
period. A further benefit of privatization is a change in the structure of the
Portuguese market, dominated traditionally by financial stocks, to one that
better reflects the underlying economy.
ECONOMIC OVERVIEW
One of the overriding economic and political themes in Europe today is European
Monetary Union (EMU). The discipline imposed by preparation for EMU has resulted
in improved macroeconomic fundamentals in Spain and Portugal, whose governments
recognize that economic convergence with the rest of Europe must form the
backbone of their policies in order to prepare Iberia for the 21st century. GDP
growth is accelerating in both countries, and while anticipated growth of around
3% may appear modest, it is important to emphasize that growth rates in Spain
and Portugal currently exceed those of Germany and France. Inflation is at the
lowest level in decades and is expected to decline further in 1997 with the EMU
process working as an anchor on inflationary expectations while currencies and
prices remain stable. The weight and role of the public sector is a problem that
needs to be addressed in a convincing manner, particularly in Spain. However,
deficits are being reduced and both Spain and Portugal are expected to reach the
official 1997 Maastricht budget deficit targets.
While the rate of unemployment is at a reasonable level in Portugal, high
unemployment in Spain remains one of the biggest problems facing that country
today. This is largely due to structural problems in the labor market. While
there has been some deregulation such as the introduction of part time jobs and
lower redundancy payments, much needs to be done to reduce the cost base of the
Spanish economy. On the positive side, part-time jobs are booming, union power
is weakening, and business confidence is high.
PORTFOLIO STRATEGY
In the final quarter of 1996, an overweighted position in the utility sector in
Spain was rewarded by strong price appreciation, as utilities responded to a
falling interest rate environment. We reduced exposure to the sector early in
1997 due to concerns about fundamental changes in the regulatory environment,
and committed those funds to the banking sector, which features strong loan
growth and a trend towards consolidation. We particularly like Banco Bilbao
Viscaya (BBV) and Banco Santander, where managements are expanding into Latin
America. The banking climate is ripe for change in most Latin American
3
<PAGE>
countries. The poor and middle classes have been excluded from banking
services and, as disposable incomes rise, the potential is enormous. To
illustrate, lending and deposit gathering as a percentage of GDP averages around
39% in Latin America versus 144% in Spain. BBV and Banco Santander are investing
in those countries where economic growth is strong, politics are stable, and
there is a pent up demand for financial services.
A focus on telecommunications stocks in Spain and Portugal, where restructuring
benefits, improved financials, and developing market opportunities have had a
positive impact on the bottom line, was rewarded by excellent stock performance
from holdings of Portugal Telecom and Telefonica de Espana. Positions in
Portuguese food retailer Jeronimo Martins and cement company Semapa made a
further positive contribution to performance.
Spain and Portugal are seeing an increasing number of new issues come to the
market and we are participating in those issues where appropriate. Tele Pizza, a
small, newly listed company in Spain, was added to the portfolio over the
period. The company has captured a dominant market share in the fast developing
market for pizza restaurants and home delivery service in Spain. The Spanish
fast food market is growing at a rate of over 30% with the home delivery
segment, representing two-thirds of Tele Pizza's sales, growing even faster. The
company has increased sales per outlet, boasts an efficient cost structure, and
has a strong cash flow which will aid expansion.
We continue to believe that political and economic trends support a positive
outlook for equities in Spain and Portugal. Moderate growth, low inflation and
benign interest rate levels prevail on the European continent, and enhanced
prospects for EMU participation further support the investment environment in
both countries. The First Iberian Fund continues to provide a vehicle for
investors to gain exposure to the expanding opportunities for long-term capital
appreciation to be found on the Peninsula.
Finally, the discount to net asset value at which the Fund trades on the AMEX is
discussed in detail at each Board meeting. We are continually reviewing
discount-closing alternatives in the market and will continue to do so. Although
many funds have tried to close their discounts by implementing one or more of
these techniques, as of this date we have not seen one, other than open ending
the Fund, that has lowered the discount for a sustained period of time. The
Board at this time has opted not to implement any of these techniques and has
decided that the investment objective of this Fund and current portfolio
composition, which includes many smaller and relatively illiquid investments,
are best served in a closed end fund format. The Board is pleased with the
performance of the Fund on both a price and NAV basis over the past year. Also,
we have made great efforts to convey this performance to the brokerage community
and analysts who follow closed-end funds.
Respectfully,
/s/Nicholas Bratt /s/Daniel Pierce
Nicholas Bratt Daniel Pierce
President Chairman of the Board
4
<PAGE>
THE FIRST IBERIAN FUND, INC.
INVESTMENT SUMMARY as of March 31, 1997
================================================================================
HISTORICAL INFORMATION
LIFE OF FUND
<TABLE>
<S> <C> <C> <C> <C> <C>
TOTAL RETURN (%)
------------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (A)
------------------------- ---------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
- --------------------------------------------------------------------------------------
CURRENT QUARTER 1.14 - 2.11 -
ONE YEAR 36.05 36.05 36.86 33.86
THREE YEAR 41.38 12.24 55.16 15.77
FIVE YEAR 53.64 8.97 70.77 11.30
LIFE OF FUND* 47.82 4.45 100.73 8.08
</TABLE>
================================================================================
PER SHARE INFORMATION AND RETURNS (A)
YEARLY PERIODS ENDED MARCH 31
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989* 1990 1991 1992 1993 1994 1995 1996 1997
--------------------------------------------------------------------------------------
NET ASSET VALUE... $ 9.55 $ 9.61 $ 9.54 $ 9.09 $ 7.82 $ 9.35 $ 8.57 $ 10.75 $ 14.05
INCOME DIVIDENDS.. $ .15 $ .17 $ .22 $ .12 $ .18 $ .06 $ - $ .07 $ .09
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ .13 $ .79 $ .03 $ .22 $ - $ - $ - $ .18
TOTAL RETURN (%).. 4.53 2.89 12.58 -2.92 -8.70 20.56 -8.34 26.46 33.86
</TABLE>
(a) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, in 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.
5
<PAGE>
FIRST IBERIAN FUND, INC.
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Spain 61%
Portugal 39%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS
Sector breakdown of the Fund's equity securities
- --------------------------------------------------------------------------
Financial 24%
Communications 15%
Utilities 14%
Construction 12%
Consumer Discretionary 11%
Consumer Staples 8%
Energy 6%
Media 4%
Manufacturing 3%
Other 3%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(54% of Portfolio)
- --------------------------------------------------------------------------
1. PORTUGAL TELECOM SA
Telecommunication services
2. BANCO BILBAO VIZCAYA, SA
Leading financial group
3. JERONIMO MARTINS SA
Food producer and retailer
4. REPSOL SA
Integrated oil company
5. BANCO SANTANDER, SA
Leading regional bank
6. SEMAPA CEMENT SA
Cement producer
7. EMPRESA NACIONAL
DE ELECTRICIDAD SA
Electric utility
8. IBERDROLA SA
Electric utility
9. SONAE INVESTIMENTOS, SA
Leading holding company
10. SEGUROS TRANQUILIDADE SA
Insurance company
6
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Investment Portfolio as of March 31, 1997 (Unaudited)
<CAPTION>
=====================================================================================================
Market
Shares Value($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS 3.3%
PORTUGAL
MEDIA
Broadcasting & Entertainment 359,300 Lusomundo-SGPS, SA (Cost $3,500,668) ........... 2,758,410
---------
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS 96.7%
PORTUGAL 35.5%
CONSUMER DISCRETIONARY 4.5%
Specialty Retail 110,100 Sonae Investimentos, SA ........................ 3,717,688
---------
CONSUMER STAPLES 5.7%
Food & Beverage 83,400 Jeronimo Martins SA ............................ 4,623,115
6,950 Jeronimo Martins SA Warrants (expires 9/15/03) . 123,242
---------
4,746,357
---------
COMMUNICATIONS 11.4%
Cellular Telephones 3.9% 39,500 Telecel-Comunicacoes Pessoais, SA .............. 3,237,319
---------
Telephone/Communications 7.5% 167,000 Portugal Telecom SA ............................ 6,216,338
---------
FINANCIAL 4.3%
Insurance 160,000 Seguros Tranquilidade SA ....................... 3,547,714
---------
MEDIA 0.2%
Broadcasting & Entertainment 80,000 TVI Televisao Independente (b)(c) .............. 219,348
---------
CONSTRUCTION 9.4%
Building Materials 140,000 Cimentos de Portugal SA ........................ 2,920,665
70,300 Corticeira Amorim, S.P.G.S. .................... 745,866
194,500 Semapa Cement SA ............................... 4,113,286
---------
7,779,817
---------
SPAIN 61.2%
CONSUMER DISCRETIONARY 6.7%
Department & Chain Stores 3.0% 11,000 Adolfo Dominguez SA ............................ 429,800
109,000 Centros Comerciales (PRYCA) SA ................. 2,044,594
---------
2,474,394
---------
Restaurants 3.7% 70,000 Tele Pizza, S.A. ............................... 3,047,248
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Investment Portfolio (continued)
<CAPTION>
=====================================================================================================
Market
Shares Value($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS 3.7%
Telephone/Communications 128,550 Compania Telefonica Nacional de Espana SA ...... 3,107,402
----------
CONSTRUCTION 2.3%
Building Materials 2.1% 300,000 Energia e Industrias Aragonesas ................ 1,747,655
----------
Miscellaneous 0.2% 1,486 Cubiertas y MZOV, S.A. ......................... 153,934
----------
CONSUMER STAPLES 2.7%
Alcohol & Tobacco 44,500 Tabacalera, SA "A" ............................. 2,236,418
----------
FINANCIAL 19.6%
Banks 17.6% 90,300 Banco Bilbao Vizcaya, SA ....................... 5,484,155
20,300 Banco Intercontinental Espanol SA .............. 2,751,690
63,200 Banco Santander, SA ............................ 4,361,706
100,000 Banco de Valencia SA ........................... 1,981,950
----------
14,579,501
----------
Insurance 2.0% 3,961 Corporacion Mapfre SA (New)(b) ................. 217,852
22,066 Mapfre Vida Seguros ............................ 1,413,536
----------
1,631,388
----------
MANUFACTURING 2.8%
Containers & Paper 35,000 Vidrala SA ..................................... 2,291,630
----------
METALS & MINERALS 2.3%
Steel & Metals 13,600 Acerinox, SA ................................... 1,920,508
----------
ENERGY 5.5%
Oil Companies 109,910 Repsol SA ...................................... 4,590,119
----------
TRANSPORTATION 2.1%
Miscellaneous 130,000 Autopistas del Mare Nostrum SA ................. 1,785,171
----------
UTILITIES 13.5%
Electric Utilities 9.7% 62,680 Empresa Nacional de Electricidad SA ............ 4,050,741
360,650 Iberdrola SA ................................... 3,982,403
----------
8,033,144
----------
Natural Gas Distribution 3.8% 14,400 Gas Natural SDG, SA ............................ 3,148,583
----------
Water Supply 0.0% 589 General de Aguas de Barcelona, SA (New)(c) ..... 22,034
----------
TOTAL COMMON STOCKS (Cost $54,555,553) ......... 80,233,710
----------
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $58,056,221)(a) ....................... 82,992,120
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $58,056,221. At March 31,
1997, net unrealized appreciation for all securities based on tax cost was
$24,935,899. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $26,446,717 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,510,818.
(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 March 31, 1997 was $602,410
(Note A).
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Financial Statements
<CAPTION>
================================================================================================
- ------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $58,056,221) .................... $82,992,120
Foreign currency holdings, at market (identified cost $6,412,155) ....... 6,516,303
Cash .................................................................... 47,774
Receivable for investments sold ......................................... 2,191,474
Receivable for foreign taxes recoverable ................................ 81,098
Other assets ............................................................ 1,771
-----------
Total assets ............................................ 91,830,540
LIABILITIES
Payables:
Investments purchased ........................................... $154,472
Accrued management fee .......................................... 76,560
Accrued administrator fee ....................................... 15,312
Other accrued expenses .......................................... 112,779
--------
Total liabilities ....................................... 359,123
-----------
Net assets, at market value ............................................. $91,471,417
===========
NET ASSETS
Net assets consist of:
Distributions in excess of net investment income ................ $ (89,824)
Accumulated net realized gain ................................... 7,291,296
Net unrealized appreciation on:
Investments ............................................. 24,935,899
Foreign currency related transactions ................... 132,812
Paid-in capital ................................................. 59,201,234
-----------
Net assets, at market value ............................................. $91,471,417
===========
Net asset value per share ($91,471,417 / 6,511,154 shares of
common stock issued and outstanding, $.01 par value,
unlimited number of shares authorized) .......................... $ 14.05
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $130,616) ............ $ 741,313
Interest ......................................................... 27,812
-----------
769,125
Expenses:
Management fee ................................................... $ 430,652
Administrator's fee .............................................. 86,130
Custodian and accounting fees .................................... 107,707
Directors' fees and expenses ..................................... 54,469
Auditing ......................................................... 34,875
Reports to shareholders .......................................... 16,644
Services to shareholders ......................................... 14,256
Legal ............................................................ 12,269 757,002
--------- -----------
Net investment income ............................................... 12,123
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ...................................................... 8,274,021
Foreign currency related transactions ............................ (205,852) 8,068,169
---------
Net unrealized appreciation during the period on:
Investments ...................................................... 9,886,232
Foreign currency related transactions ............................ 135,699 10,021,931
--------- -----------
Net gain on investment transactions ................................. 18,090,100
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $18,102,223
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Financial Statements (continued)
<CAPTION>
================================================================================================
- ------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ...................................... $ 12,123 $ 576,964
Net realized gain from investment transactions ............. 8,068,169 5,880,465
Net unrealized appreciation on investment transactions
during the period ...................................... 10,021,931 6,083,968
----------- -----------
Net increase in net assets resulting from operations ........... 18,102,223 12,541,397
----------- -----------
Distributions to shareholders from:
Net investment income ...................................... (585,992) (455,778)
----------- -----------
Net realized gains on investment transactions .............. (1,172,008) --
----------- -----------
INCREASE IN NET ASSETS ......................................... 16,344,223 12,085,619
Net assets at beginning of period .............................. 75,127,194 63,041,575
----------- -----------
NET ASSETS AT END OF PERIOD (including distributions in
excess of net investment income of $89,824 and
undistributed net investment income of $484,045) ........... $91,471,417 $75,127,194
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
12
<PAGE>
<TABLE>
The First Iberian Fund, Inc.
Financial Highlights
<CAPTION>
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1997 -----------------------------------------------------
PER SHARE OPERATING PERFORMANCE (UNAUDITED) 1996 1995 1994 1993 1992(d)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $11.54 $ 9.68 $9.01 $ 8.24 $ 7.27 $ 9.31
------ ------ ----- ------ ------ -------
Net investment income .................... .00 .09 .07 .07 .22 .27
Net realized and unrealized gain (loss)
on investment transactions ............ 2.78 1.84 .60 .70 1.15 (2.16)
------ ------ ----- ------ ------ -------
Total from investment operations ........... 2.78 1.93 .67 .77 1.37 (1.89)
------ ------ ----- ------ ------ -------
Less distributions from:
Net investment income .................. (.09) (.07) -- -- (.18) (.15)
Net realized gains on investment
transactions ........................ (.18) -- -- -- (.22) --
------ ------ ----- ------ ------ -------
Total distributions ........................ (.27) (.07) -- -- (.40) (.15)
------ ------ ----- ------ ------ -------
Net asset value, end of period ............. $14.05 $11.54 $9.68 $ 9.01 $ 8.24 $ 7.27
====== ====== ===== ====== ====== =======
Market value, end of period ................ $11.13 $ 8.88 $7.56 $ 7.50 $ 7.75 $ 6.25
====== ====== ===== ====== ====== =======
TOTAL INVESTMENT RETURN
Per share market value(%) ................ 28.38** 18.31 .84 (3.23) 31.69 (20.40)
Per share net asset value(%)(b) .......... 24.69** 20.19 7.44 9.35 20.38 (20.43)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ... 91 75 63 59 54 47
Ratio of operating expenses (excluding
interest) to average net assets(%) .... 1.77* 1.92 1.99 2.02 2.31 2.45
Ratio of net investment income to
average net assets(%) ................. .03* .83 .71 .77 2.87 3.05
Portfolio turnover rate(%) ............... 76* 66 43 31 29 32
Average commission rate paid(c) .......... $.0657 $.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.
* Annualized
** Not annualized
- -------------------------------------------------------------------------------
13
<PAGE>
The First Iberian Fund, Inc.
Notes to Financial Statements (Unaudited)
================================================================================
- --------------------------------------------------------------------------------
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
$241,382 (.26% of net assets) and have been noted in the investment portfolio as
of March 31, 1997.
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
14
<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 six months ended March 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $31,817,324 and
$41,938,834, 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, 1997, the fee pursuant to such agreement
amounted to $430,652 of which $76,560 is unpaid at March 31, 1997.
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, 1997, the fee
pursuant to such agreement amounted to $86,130 of which $15,312 is unpaid at
March 31, 1997.
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.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended March 31, 1997, the amount charged to the Fund by SFAC aggregated $31,645
of which $5,547 is unpaid at March 31, 1997.
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, 1997, Directors' fees and expenses aggregated $54,469 of
which $8,350 is unpaid at March 31, 1997.
15
<PAGE>
DANIEL PIERCE*
Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
PAUL J. ELMLINGER*
Director, Vice President and Assistant Secretary
RICHARD HUNT
Director
JOSE PEDRO PEREZ LLORCA
Director
ROGERIO C.S. MARTINS
Director
DR. WILSON NOLEN
Director
PAMELA A. McGRATH*
Vice President and 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*
Vice President and Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
*Scudder, Stevens & Clark, Inc.
