Scudder Spain
and Portugal
Fund, Inc.
Annual Report
September 30, 1997
A closed-end investment company seeking long-term capital appreciation primarily
through investment in the equity securities of Spanish and Portuguese companies.
<PAGE>
Scudder Spain and Portugal Fund, Inc.
- --------------------------------------------------------------------------------
Investment objective and policies
o long-term capital appreciation primarily 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
Scudder Spain and Portugal 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
New York Stock Exchange Symbol -- IBF
Contents
- --------------------------------------------------------------------------------
In Brief...........................................3
Letter to Shareholders.............................3
Investment Summary.................................6
Portfolio Summary..................................7
Investment Portfolio...............................8
Financial Statements..............................12
Financial Highlights..............................15
Notes to Financial Statements.....................16
Report of Independent Accountants.................19
Tax Information...................................20
Shareholder Meeting Results.......................21
Dividend Reinvestment Plan........................22
Directors and Officers....................Back cover
Investment Manager........................Back cover
This report is sent to the shareholders of Scudder Spain and Portugal 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>
Scudder Spain and Portugal Fund, Inc.
In Brief
- --------------------------------------------------------------------------------
o Reflecting Iberia's positive economic climate and optimism over the prospect
of qualifying for membership in the European Monetary Union (EMU), Scudder
Spain and Portugal Fund posted a total return of 53.89% based on net asset
value for the fiscal year ended September 30, 1997. The Fund's total return
based on the price of the Fund's publicly traded shares was 67.33% over the
same time frame.
o In Spain, the Fund is focused on sectors exposed to the consumer recovery and
to improvements in the economic outlook, such as banking, construction, and
retailers. We expect Portuguese construction companies to benefit from major
infrastructure projects.
o While any delay in EMU membership would hold the potential for bringing about
corrections in the markets, we believe political and economic trends continue
to support a positive outlook for equity investment in both Spain and
Portugal.
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
Reflecting Iberia's positive economic climate and growing optimism over the
prospect of qualifying for the first round of European Monetary Union (EMU),
Scudder Spain and Portugal Fund posted a total return of 53.89% based on net
asset value per share for the fiscal year ended September 30, 1997. This
performance compares to a 48.43% return for the Spanish stock market as gauged
by the unmanaged Madrid General Index and a return of 48.46% for Portuguese
stocks as measured by the unmanaged BVL Portuguese Index for the same period.
The Fund's total return based on market price was 67.33% over the same time
frame, closing the period at $14.50 per share on the NYSE. The Fund's NAV per
share of $17.34 on September 30 represented a 16.38% discount versus market
price.
EMU CONTRIBUTES TO POSITIVE ECONOMIC BACKDROP
We are seeing very strong economic growth in both Spain and Portugal. In Spain,
growth is being driven by exports, private consumption, and a nascent rebound in
construction activity. In Portugal, growth is primarily a function of investment
in infrastructure.
Moreover, both countries are experiencing the lowest inflation in decades, and
we do not anticipate a substantial increase in the foreseeable future. In Spain,
where the structural problems are more obvious, the government is slowly
deregulating the economy by introducing lower tariffs for telephones and
electricity. Long term interest rates have fallen dramatically, from over 11% in
1995 to a little over 6% today.
Unemployment offers a contrasting picture. Spain has the highest level of
unemployment in Europe due to structural problems in the labor market. On a
positive note, jobs are being created in Spain, largely due to the introduction
of part-time jobs and an easing of the high level of redundancy payments for
laid-off workers. Portugal has a more flexible labor market and has suffered
less acutely from unemployment than the rest of Europe.
Neither Spain nor Portugal is having problems meeting the Maastricht budget
deficit target of 3%. We expect an ongoing decline in budget deficits due to a
fall in interest rates and higher economic growth. Both Spain and Portugal's
candidacies for the first round of EMU appear as credible as those of Germany
and France. With the exception of public debt as a percentage of GDP, which is
3
<PAGE>
moving in the right direction, there are few grounds to refuse Spain and
Portugal entry.
The very strong desire on the part of Spain and Portugal to become part of
greater Europe has forced their governments to adhere to the Maastricht
criteria. The result has been an attempt to bring budget deficits under control
and a dramatic decline in inflation and interest rates. For Spain and Portugal,
entry to EMU is a unifying force. Politicians for the most part recognize that
economic convergence with the rest of Europe must form the backbone of
government policy in order to prepare Iberia for the 21st century.
MARKET ENVIRONMENT
Correlation between the equity markets of Spain and Portugal has strengthened
over the period, largely due to the increasing depth and size of the Portuguese
market and the perception that both countries would probably participate in the
first round of EMU.
Iberian markets have gone from strength to strength. In Spain and Portugal,
falling interest rates and domestic liquidity have been the key drivers of
market performance. Privatizations have resulted in heightened visibility for
the Portuguese market, leading to increased foreign participation. The
privatization of EDP, the Portuguese utility, was a seminal event in the
Portuguese market this year, raising the capitalization of the market
substantially. 780,000 investors participated in the offering, the largest in
Portuguese history, and helped raise domestic retail investors' perception of
the equity market. Depth and liquidity have also been added to the markets with
a number of smaller Spanish and Portuguese companies offering their shares for
the first time. A major risk is a change in the interest rate scenario. However,
if Iberia gets into EMU in the first round, performance will be underpinned by
lower short-term interest rates and a reduction of the risk premium as markets
converge with those of "core" Europe.
INVESTMENT THEMES
In Spain, we view favorably those sectors exposed to the consumer recovery and
to improvements in the economic outlook described earlier, specifically,
banking, construction, and retailers.
We like the Spanish banks for a number of reasons, including a positive economic
backdrop that should contribute to strong loan growth over the medium term. The
sector has matured and consolidated substantially, and Spanish banks are among
the most profitable in Europe. The branch network is dense, providing
significant barriers to entry. Several of the larger Spanish banks have
increased their exposure to Latin America over the past few years. Banco
Santander and Banco Bilbao Viscaya, two large holdings of the Fund, have the
highest exposure to Latin America in the sector, which implies both higher risk
and higher profit potential.
The Spanish construction sector has been in the doldrums over the last few years
largely due to slow economic growth and government cutbacks in infrastructure
spending. Given the structural improvement in the budget deficit, we expect a
relaxation in fiscal austerity to result in a significant revival in the sector
beginning in 1998. Construction companies FCC, OCP, and Gines Navarro are
representative of this theme in the portfolio.
With respect to the retail sector, we believe a recovery in private consumption
will be one of the forces driving the continued resurgence of Spain's economy.
Consumer confidence is at a six-year high, there is less uncertainty about
welfare reform, and Spain is one of the few places in Europe experiencing job
creation.
We are wary with respect to Spanish utilities, where we expect considerable
changes in the regulatory framework of the industry beginning in 1998 that would
impact the profitability of the sector.
We have been adding to positions in the Portuguese banking sector over the
period. Portuguese banks are operating in a positive macroeconomic environment,
4
<PAGE>
asset quality has improved, and net interest margins are stabilizing after a
five-year decline.
One of our largest positions in Portugal is Portugal Telecom, the dominant
telecommunications provider in a market that will not be open to competition
until the year 2000. The company has a fast growing cellular business, strong
earnings growth, and is attractively valued versus its peers.
We expect the next three years to be an outstanding period for Portuguese
construction companies, propelled largely by the 1998 EXPO together with major
infrastructure projects. We are seeing a pick up in the residential housing
market, which accounts for over 60% of cement consumption in Portugal.
Fund-holding Semapa has a strong position in the Portuguese cement market, with
an impressive management team and strong cash flow.
In retailing, Sonae Investimentos is attractively valued versus its European
peers. A subsidiary of the company is the eighth largest retailer in Brazil,
where it expects to double sales before the end of the century. Food retailer
Jeronimo Martins, with strong management and earnings, remains a core holding in
Portugal.
In our opinion, political and economic trends continue to support a positive
outlook for equity investment in both Spain and Portugal. Certainly any delay in
EMU would hold the potential for bringing about significant corrections in both
the bond and equity markets, as well as impact currencies. However, we believe
the vulnerability of either country's market to bad news is substantially
reduced by higher growth than the European average, the favorable evolution of
domestic indicators, and by support from local investors. Going forward, Scudder
Spain and Portugal Fund will continue to provide a vehicle for accessing many of
the Peninsula's exciting investment opportunities.
Respectfully,
/s/Nicholas Bratt /s/Daniel Pierce
Nicholas Bratt Daniel Pierce
President Chairman of the Board
5
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Investment Summary as of September 30, 1997
- --------------------------------------------------------------------------------
Historical
Information TOTAL RETURN (%)
Life of Fund ------------------------------------------------
Market Value Net Asset Value (a)
------------------- --------------------
Average Average
Cumulative Annual Cumulative Annual
------------------- --------------------
Current Quarter 6.42 -- 3.96 --
One Year 67.33 67.33 53.89 53.89
Three Year 99.63 25.91 98.72 25.72
Five Year 154.41 20.53 161.56 21.20
Life of Fund* 92.66 7.18 147.73 10.07
- --------------------------------------------------------------------------------
Per Share Information and Returns (a)
Yearly periods ended September 30
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988* 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 8.75 $10.78 $ 8.80 $ 9.31 $ 7.27 $ 8.24 $ 9.01 $ 9.68 $11.54 $17.34
INCOME DIVIDENDS.. $ -- $ .25 $ .12 $ .20 $ .15 $ .18 $ -- $ -- $ .07 $ .09
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .13 $ .82 $ -- $ .22 $ -- $ -- $ -- $ .18
TOTAL RETURN (%).. -5.91 26.87 -17.13 20.35 -20.43 20.38 9.35 7.44 20.19 53.89
</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.
On July 29, 1997, the Fund adopted its current name. Prior to that date,
the Fund was known as The First Iberian Fund, Inc.
Past results are not necessarily indicative of future performance of the
Fund.
6
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Portfolio Summary as of September 30, 1997
- --------------------------------------------------------------------------------
Diversification
Spain 66%
Portugal 34%
----
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 29%
Utilities 19%
Construction 13%
Communications 11%
Consumer Staples 8%
Consumer Discretionary 7%
Manufacturing 5%
Energy 4%
Metals & Minerals 2%
Other 2%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
Ten Largest Equity Holdings (48% of Portfolio)
1. Compania Telefonica Nacional
de Espana SA
Telecommunication services
2. Empresa Nacional
de Electricidad SA
Electric utility
3. Banco Bilbao Vizcaya SA
Leading financial group
4. Portugal Telecom SA
Telecommunication services
5. Jeronimo Martins SA
Food producer and retailer
6. Banco Santander SA
Leading regional bank
7. Repsol SA
Integrated oil company
8. Semapa Cement SA
Cement producer
9. Banco Comercial Portugues
Commercial Bank
10. Iberdrola SA
Electric utility
7
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Investment Portfolio as of September 30, 1997
<TABLE>
<CAPTION>
============================================================================================================
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS 100.0%
PORTUGAL 33.9%
CONSUMER DISCRETIONARY 2.8%
<S> <C> <C>
Specialty Retail 80,500 Sonae Investimentos, S.A. ............................ 3,182,600
----------
CONSUMER STAPLES 5.3%
Food & Beverage 6,950 Jeronimo Martins SA Warrants (expire 9/15/03)(b) ..... 198,914
75,300 Jeronimo Martins SA .................................. 5,795,849
----------
5,994,763
----------
COMMUNICATIONS 5.3%
Telephone / Communications 138,500 Portugal Telecom SA .................................. 6,007,516
----------
FINANCIAL 9.5%
Banks 211,100 Banco Comercial Portugues ............................ 4,458,042
82,000 Banco Espirito Santo ................................. 2,276,260
101,470 Banco Portugues do Investimento ...................... 2,310,340
79,000 Banco Totta e Acores ................................. 1,666,139
----------
10,710,781
----------
MEDIA 0.2%
Broadcasting & Entertainment 80,000 TVI Televisao Independente(b)(c) ..................... 204,513
----------
MANUFACTURING 0.9%
Containers & Paper 30,200 Sociedade Portuguesa de Celulose, S.A.(b) ............ 1,016,233
----------
CONSTRUCTION 6.7%
Building Materials 4.5% 40,000 Corticeira Amorim, S.P.G.S. .......................... 491,275
181,500 Semapa Cement SA ..................................... 4,464,371
----------
4,955,646
----------
Forest Products 1.3% 174,000 Portucel Industrial Empresa, SA ...................... 1,411,804
----------
Miscellaneous 0.9% 62,000 Mota e Companhia, SA ................................. 1,026,442
----------
UTILITIES 3.2%
Electric Utilities 10,000 Electricidade de Portugal(ADR)(b) .................... 343,750
189,490 Electricidade de Portugal ............................ 3,253,996
----------
3,597,746
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------
SPAIN 66.1%
CONSUMER DISCRETIONARY 4.4%
<S> <C> <C>
Department & Chain Stores 1.2% 21,849 Adolfo Dominguez SA(b) ............................... 765,527
----------
27,500 Aldeasa S.A.(b)(c) ................................... 602,432
----------
1,367,959
----------
Restaurants 2.2% 35,000 Tele Pizza, S.A.(b) .................................. 2,438,534
----------
Specialty Retail 1.0% 25,800 Cortefiel, S.A. ...................................... 1,094,085
----------
CONSUMER STAPLES 2.8%
Alcohol & Tobacco 2.4% 80,000 Baron de Ley, S.A.(b) ................................ 1,586,387
16,300 Tabacalera, S.A. "A" ................................. 1,143,304
----------
2,729,691
----------
Food & Beverage 0.4% 10,800 Puleva Union Industrial Agro-Ganadera SA(b) .......... 469,565
----------
COMMUNICATIONS 5.8%
Telephone/Communications 207,900 Compania Telefonica Nacional de Espana S.A. .......... 6,532,130
----------
FINANCIAL 19.3%
Banks 18.7% 198,600 Banco Bilbao Vizcaya SA .............................. 6,113,533
55,070 Banco Central de Espana .............................. 2,298,426
35,370 Banco Intercontinental Espana ........................ 2,037,797
18,714 Banco Pastor SA ...................................... 1,335,192
37,400 Banco Popular Espanol ................................ 2,405,306
176,300 Banco Santander SA ................................... 5,775,487
47,640 Banco de Valencia SA ................................. 997,354
----------
20,963,095
----------
Real Estate 0.6% 22,550 Vallehermoso SA ...................................... 621,647
----------
SERVICE INDUSTRIES 1.4%
Miscellaneous
Commercial Services 126,000 Prosegur, Cia de Seguridad SA ........................ 1,548,938
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING 3.8%
<S> <C> <C>
Containers & Paper 2.2% 44,600 Empresa Nacional de Celulosas SA .................... 821,665
35,998 Vidrala SA .......................................... 1,651,948
-----------
2,473,613
-----------
Industrial Specialty 1.6% 14,500 Azkoyen SA .......................................... 1,795,136
-----------
ENERGY 4.1%
Oil Companies 107,730 Repsol SA ........................................... 4,655,045
-----------
METALS & MINERALS 2.3%
Steel & Metals 13,600 Acerinox, S.A. ...................................... 2,564,748
-----------
CONSTRUCTION 6.7%
Forest Products 0.4% 12,200 Miguel y Costas ..................................... 494,473
-----------
Homebuilding 3.4% 24,900 Fomento de Obras y Construcciones SA ................ 3,836,672
-----------
Miscellaneous 2.9% 21,500 Abengoa SA .......................................... 1,109,064
35,000 Gines Navarro Construcciones, S.A. .................. 1,097,340
11,200 OCP Construcciones, S.A. ............................ 1,077,457
-----------
3,283,861
-----------
UTILITIES 15.5%
Electric Utilities 13.3% 152,670 Cia Sevillana de Electricidad ....................... 1,447,230
291,520 Empresa Nacional de Electricidad SA ................. 6,220,213
24,000 Gas y Electricidad, S.A. ............................ 1,625,511
35,600 Hidroelectrica del Cantabrico ....................... 1,514,437
334,650 Iberdrola SA ........................................ 4,113,906
-----------
14,921,297
-----------
Natural Gas Distribution 2.2% 47,000 Gas Natural SDG, S.A. ............................... 2,474,844
-----------
TOTAL COMMON STOCKS (Cost $75,917,053)............... 112,373,377
-----------
============================================================================================================
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $75,917,053)(a).............................. 112,373,377
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $76,021,986. At September 30,
1997, net unrealized appreciation for all securities based on tax cost was
$36,351,391. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $37,136,253 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$784,862.
(b) Non-income producing security.
(c) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $806,945 (0.72% of net assets). Their
values have been estimated by the Valuation Committee in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at September 30, 1997 aggregated $1,188,337. These securities
may also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at market (identified cost $75,917,053) .......................... $ 112,373,377
Foreign currency holdings, at market (identified cost $1,806,571) ............. 1,800,067
Cash .......................................................................... 13,309
Receivable for foreign taxes recoverable ...................................... 86,836
Other assets .................................................................. 1,237
------------
Total assets ............................................................ 114,274,826
LIABILITIES
Payables:
Investments purchased ..................................................... $ 1,098,443
Accrued management fee .................................................... 87,045
Accrued administrator's fee ............................................... 17,409
Other payables and accrued expenses ....................................... 162,362
------------
Total liabilities ....................................................... 1,365,259
------------
Net assets, at market value.................................................... $112,909,567
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ....................................... $ 159,742
Accumulated net realized gain ............................................. 17,112,305
Net unrealized appreciation (depreciation) on:
Investments .............................................................. 36,456,324
Foreign currency related transactions .................................... (20,039)
Paid-in capital ........................................................... 59,201,235
------------
Net assets, at market value ................................................... $112,909,567
============
NET ASSET VALUE per share ($112,909,567/6,511,154 shares of common stock
issued and outstanding, $.01 par value, 200,000,000 of shares authorized).. $17.34
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of $353,426) ..................... $ 2,087,235
Interest .................................................................. 57,022
-----------
2,144,257
Expenses:
Management fee ............................................................ $ 940,480
Administrator's fee ....................................................... 188,095
Custodian and accounting fees ............................................. 252,862
Directors' fees and expenses .............................................. 91,452
Auditing .................................................................. 42,250
Reports to shareholders ................................................... 45,451
Services to shareholders .................................................. 31,531
Legal ..................................................................... 33,602
Other ..................................................................... 13,042 1,638,765
----------- -----------
Net investment income ....................................................... 505,492
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................................... 17,889,178
Foreign currency related transactions ..................................... (243,802) 17,645,376
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................... 21,406,657
Foreign currency related transactions ..................................... (17,152) 21,389,505
----------- -----------
Net gain on investment transactions ......................................... 39,034,881
-----------
Net increase in net assets resulting from operations .......................... $39,540,373
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS -----------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................... $ 505,492 $ 576,964
Net realized gain from investment transactions .................. 17,645,376 5,880,465
Net unrealized appreciation on investment transactions
during the period ............................................. 21,389,505 6,083,968
------------- ------------
Net increase in net assets resulting from operations .............. 39,540,373 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 ............................................ 37,782,373 12,085,619
Net assets at beginning of period ................................. 75,127,194 63,041,575
------------- ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $159,742 and $484,045, respectively) .................. $ 112,909,567 $ 75,127,194
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE>
Scudder Spain and Portugal 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,
-------------------------------------------------------------
Per Share Operating Performance 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................. $ 11.54 $ 9.68 $ 9.01 $ 8.24 $ 7.27
--------- --------- --------- --------- ---------
Net investment income .............................. .08 .09 .07 .07 .22
Net realized and unrealized gain (loss)
on investment transactions ...................... 5.99 1.84 .60 .70 1.15
--------- --------- --------- --------- ---------
Total from investment operations ..................... 6.07 1.93 .67 .77 1.37
--------- --------- --------- --------- ---------
Less distributions from:
Net investment income ........................... (.09) (.07) -- -- (.18)
Net realized gains on investment
transactions .................................. (.18) -- -- -- (.22)
--------- --------- --------- --------- ---------
Total distributions .................................. (.27) (.07) -- -- (.40)
--------- --------- --------- --------- ---------
Net asset value, end of period ....................... $ 17.34 $ 11.54 $ 9.68 $ 9.01 $ 8.24
========= ========= ========= ========= =========
Market value, end of period .......................... $ 14.50 $ 8.88 $ 7.56 $ 7.50 $ 7.75
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN
Per share market value(%) .......................... 67.33 18.31 .84 (3.23) 31.69
Per share net asset value(%)(b) .................... 53.89 20.19 7.44 9.35 20.38
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ............. 113 75 63 59 54
Ratio of operating expenses to average net assets(%) 1.74 1.92 1.99 2.02 2.38(d)
Ratio of net investment income
to average net assets(%) ......................... .54 .83 .71 .77 2.87
Portfolio turnover rate (%) ........................ 115 66 43 31 29
Average commission rate paid (c) ................... $ .0694 $ .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) Ratio of operating expenses to average net assets excluding interest
expense was 2.31%.
- --------------------------------------------------------------------------------
15
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Notes to Financial Statements
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
Scudder Spain and Portugal Fund, Inc. (the "Fund", formerly The First Iberian
Fund, Inc.) 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 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 most recent 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.
Money market instruments purchased with an original 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.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies, and to distribute all of its taxable income to its shareholders. The
Fund accordingly paid no U.S. federal income taxes, and no federal income tax
provision was required.
16
<PAGE>
================================================================================
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, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $105,767,508 and
$107,643,344, 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, 1997, the fee pursuant to such agreement
amounted to $940,480 of which $87,045 is unpaid at September 30, 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 year ended September 30, 1997, the fee
pursuant to such agreement amounted to $188,095 of which $17,409 is unpaid at
September 30, 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.
17
<PAGE>
================================================================================
On June 26, 1997, Scudder entered into an agreement with The Zurich Insurance
Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in
Scudder, and Scudder will form a new global investment organization by combining
with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change its name to
Scudder Kemper Investments, Inc. Subject to the receipt of the required
regulatory and shareholder approvals, the transaction is expected to close in
the fourth quarter of 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
September 30, 1997, the amount charged to the Fund by SFAC aggregated $72,530 of
which $6,569 is unpaid at September 30, 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 year
ended September 30, 1997, Directors' fees and expenses aggregated $91,452, of
which $23,500 is unpaid at September 30, 1997.
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<PAGE>
Scudder Spain and Portugal Fund, Inc.
Report of Independent Accountants
================================================================================
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF SCUDDER SPAIN AND PORTUGAL
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 Scudder Spain and Portugal Fund,
Inc. (the "Fund", formerly The First Iberian Fund, Inc.) at September 30, 1997,
the results of its operations, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, 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, 1997 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 12, 1997
19
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Tax Information
================================================================================
The Fund paid distributions of $0.18 per share from net long-term capital gains
during its Fiscal year ended September 30, 1997. Pursuant to section 852 of the
Internal Revenue Code, the Fund designates $9,396,999 as capital gain dividends
for its fiscal year ended September 30, 1997.
Pursuant to section 853 of the Internal Revenue Code, the Fund designates
$353,426 ($0.05 per share) as foreign taxes paid and $801,895 ($0.12 per share)
as foreign source income for the year ended September 30, 1997.
20
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Stockholder Meeting Results
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of Scudder Spain and Portugal Fund, Inc. (the
"Fund") (formerly known as The First Iberian Fund, Inc.) was held on July 23,
1997, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park
Avenue (at 51st Street), New York, New York 10154. The three matters voted upon
by Stockholders and the resulting votes for each matter are presented below.
1. The election of Directors:
Number of Votes:
----------------
Director For Authority Withheld Broker Non-Votes*
-------- --- ------------------ -----------------
Paul Elmlinger 4,777,388 133,185 0
Wilson Nolen 4,842,042 68,531 0
2. Ratification of the selection of Price Waterhouse LLP as independent
accountants.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,830,326 24,269 55,978 0
3. Approval of an amendment to the Articles of Incorporation of the Fund
changing the name of the Fund to Scudder Spain and Portugal Fund, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,582,651 154,113 29,447 144,362
* 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.
21
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
The Plan
The Dividend Reinvestment Plan offers shareholders in Scudder Spain and
Portugal Fund, Inc. a prompt and simple way to reinvest their dividends and
capital gains distributions in shares of the Fund. The Fund will declare annual
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 New York 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 New York 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.
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<PAGE>
Brokerage commissions and service fees, if any, will be deducted from amounts
to be invested.
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 Scudder Spain and Portugal 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.
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<PAGE>
Scudder Spain and Portugal Fund, Inc.
Directors and Officers
- --------------------------------------------------------------------------------
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.
Investment Manager
- --------------------------------------------------------------------------------
The investment manager of Scudder Spain and Portugal 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.
