(logo)
Scudder Spain and Portugal Fund, Inc.
Annual Report
September 30, 1998
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 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
PricewaterhouseCoopers 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 11
Financial Highlights 14
Notes to Financial Statements 15
Dividend Reinvestment Plan 20
Directors and Officers 22
Investment Manager 22
- --------------------------------------------------------------------------------
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 The Spanish market, as measured by the unmanaged Madrid General Index, fell
14.47% for the six-month period, and the Portuguese market fell 22.90%, as
gauged by the unmanaged BVL Portuguese Index. For the full 12-month period,
the Spanish and Portuguese markets rose 16.64% and 8.16%, respectively.
o The macroeconomic environment in Iberia remains strong, with declining
interest rates, high consumer confidence, and expected 1998 growth of near 4%
for Spain and over 4% for Portugal.
o Spanish corporate exposure to Latin America and Portugal's perception as an
emerging market had a negative impact on returns during the period.
o On October 28, 1998, the Spain and Portugal Fund (the "Fund") announced that
it would proceed with a proposal to liquidate and dissolve the Fund. A proxy
statement has been mailed to shareholders discussing this proposal.
Letter to Shareholders
================================================================================
Dear Shareholders:
The Spanish and Portuguese markets fell 14.47% and 22.90%, respectively, over
the last six months, and were up 16.64% and 8.16%, respectively, on a
twelve-month view. Iberian markets were excessively punished in the recent
global turmoil due to exposure to Latin America on the part of major Spanish
corporations and the perception of Portugal as an "emerging" market. Since
mid-September, sentiment has changed dramatically as rate cuts in the United
States, a rescue plan for the Japanese banks, and the likelihood of Brazil
presenting a serious and coherent austerity package resulted in the
stabilization of global financial markets. Iberian markets have bounced off
their lows and have been among the better performing markets in Europe in recent
weeks.
Despite the global slowdown, the macroeconomic environment in the Iberian
peninsula remains buoyant. In the first half of 1998, the Spanish economy grew
at a rate of 4%, and growth of 3.8% is anticipated for the full year. Spanish
interest rates have been falling and we expect further downward adjustments
prior to the launch of EMU (European Monetary Union). Inflation rose at a
year-on-year rate of 1.6%, and inflation of 1.9% is expected for 1998.
The inflation environment is benign and a slower global growth environment
should offset any potential overheating. Consumer and business confidence are at
record levels driven by job creation and a competitive currency. Household
spending should remain strong in 1999 as a cut in the personal income tax rate
lifts disposable income.
Spain has undergone a considerable amount of deregulation since 1994. Reforms
include the introduction of part-time jobs, the reduction in redundancy
payments, an end to rent control, capital gains and income tax reform, in
addition to the rapid liberalization of key sectors of the economy such as
telecommunications and utilities. Spanish exposure to Latin America represents
approximately 9% of total corporate revenues. While Spanish corporations will
suffer from a slowdown in growth in Latin America, much of this risk has been
discounted in stock prices and stability is returning to Latin American markets
in response to recent policy decisions.
Despite the recent market volatility, Portugal remains on track to exceed 4%
growth in 1998, with inflation of approximately 2.5%. Like Spain, Portugal is
reaping the benefits of currency stability, the result of EMU, and further rate
3
<PAGE>
================================================================================
cuts are anticipated before the end of the year. Private consumption continues
to be strong, supported by falling unemployment and moderate wage growth. The
unemployment rate fell to 4.6% in the second quarter, down from 6.3%, the lowest
level since 1992. The government plans to lower its budget deficit as a
percentage of GDP to 2% in 1999 from an anticipated 2.3% this year. The recent
successful placement of toll motorway operator Brisa marked the last government
privatization for 1998, with new tranches of utility EDP and telecommunications
operator Portugal Telecom anticipated for 1999. The direct impact of volatile
emerging markets will have a minimal impact on Portugal given an exposure to
Latin America and Asia of less than 1% of GDP.
Year 2000 READINESS
Like other registered investment companies and financial business organizations
worldwide, the Fund could be adversely affected if computer systems on which the
Fund relies, which primarily include those used by the Fund's Adviser, its
affiliates or other service providers, are unable to correctly process
date-related information on and after January 1, 2000. This risk is commonly
called the Year 2000 Issue (Y2K). Failure to successfully address the Y2K Issue
could result in interruptions to and other material adverse effects on the
Fund's business and operations. Scudder Kemper Investments has commenced a
review of the Y2K Issue as it may affect the Fund and is taking steps it
believes are reasonably designed to address the Y2K Issue, although there can be
no assurances that these steps will be sufficient. In addition, there can be no
assurances that the Y2K Issue will not have any adverse effect on the companies
whose securities are held by the Fund or on global markets or economies
generally. The foregoing is a year 2000 readiness disclosure under the Year 2000
Information and Readiness Disclosure Act.
EURO CONVERSION
The planned introduction of a new European currency, the Euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of the Fund's portfolio. Currently, the Euro is
expected to be introduced on January 1, 1999 by eleven European countries that
are members of the European and Monetary Union (EMU), including Portugal and
Spain. The introduction of the Euro will require the redenomination of European
debt and equity securities over a period of time, which may result in various
accounting differences and/or tax treatments that otherwise would not likely
occur. Additional questions are raised by the fact that certain other EMU
members, including the United Kingdom, will not officially be implementing the
Euro on January 1, 1999. If the introduction of the Euro does not take place as
planned, there could be negative effects, such as severe currency fluctuations
and market disruptions.
The Adviser is actively working to address Euro-related issues and understands
that other key service providers are taking similar steps. At this time, no one
knows precisely what the degree of impact will be. To the extent that the market
impact or effect on a portfolio holding is negative, it could hurt the
portfolio's performance.
OUTLOOK
Barring a severe global meltdown, Iberia will probably emerge relatively intact
from the recent global crisis and, due to the domestic nature of the Spanish
economy, profit growth will be less affected than other European markets. In
addition, a significant part of the negative shock on Iberia has been offset by
the easier monetary conditions which have remained in place throughout the
recent period of volatility.
4
<PAGE>
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COMPLETION OF REDEMPTION RIGHT
OFFERED TO ALL SHAREHOLDERS
The Fund recently completed a Right to Demand the Redemption of up to 4,883,365
shares of the Fund at net asset value (the "Redemption Right") extended to all
stockholders of the Fund. The Redemption Right was offered to all stockholders
on September 2, 1998 and expired at 5:00 p.m. Eastern time on September 30,
1998.
Pursuant to the terms of the Redemption Right, the Fund accepted all of
the requests for redemptions from stockholders, representing 5,003,654 shares or
approximately 76.84% of the outstanding shares of the Fund. The shares of the
Fund presented for redemption were valued by the Fund at $12.11 per share, the
net asset value per share of the Fund as determined as of the close of the
regular trading session on the New York Stock Exchange on October 1, 1998. A pro
rata portion of Fund portfolio securities (other than short-term fixed income
securities with maturities less than one year, securities with transfer
restrictions and certain illiquid securities) on October 1, 1998 was distributed
from the Fund to participating stockholders in exchange for their shares.
PROPOSAL TO LIQUIDATE AND
DISSOLVE THE FUND
On October 28, 1998, the Board of Directors of the Fund approved a plan to
liquidate and dissolve the Fund. The plan is subject to stockholder approval.
The Directors took this action as a result of a significant reduction in the
Fund's assets due to the recently completed in-kind redemption right offered to
all stockholders and declines in the Spanish and Portuguese equity markets.
The proposal to liquidate and dissolve the Fund, along with other matters, will
be considered by the stockholders at the Fund's annual meeting, which is
scheduled for December 1, 1998. If stockholders approve the liquidation and
dissolution, it is anticipated that the Fund will pay a distribution to
stockholders in liquidation of the Fund by December 31, 1998, although there can
be no assurance that the liquidation distribution will be paid by this date.
The Fund has mailed a proxy statement dated November 6, 1998 to shareholders of
record on October 9,1998. This proxy statement discusses in more detail the
proposal to liquidate and dissolve the Fund, as well as other matters to be
considered by shareholders at the annual meeting.
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, 1998
- --------------------------------------------------------------------------------
Historical
Information Total Return (%)
------------------------------------------------
Market Value Net Asset Value (a)
------------------- --------------------
Average Average
Cumulative Annual Cumulative Annual
------------------- --------------------
Current Quarter -14.66 -- -18.35 --
One Year 24.10 24.10 10.03 10.03
Three Year 145.66 34.93 103.51 26.73
Five Year 139.74 19.11 139.08 19.04
Ten Year 185.47 11.06 189.72 11.22
- --------------------------------------------------------------------------------
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>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value... $10.78 $ 8.80 $ 9.31 $ 7.27 $ 8.24 $ 9.01 $ 9.68 $11.54 $17.34 $12.79
Income Dividends.. $ .25 $ .12 $ .20 $ .15 $ .18 $ -- $ -- $ .07 $ .09 $ .03
Capital Gains
Distributions..... $ -- $ .13 $ .82 $ -- $ .22 $ -- $ -- $ -- $ .18 $ 5.95
Total Return (%).. 26.87 -17.13 20.35 -20.43 20.38 9.35 7.44 20.19 53.89 10.03
</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.
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, 1998
- --------------------------------------------------------------------------------
Diversification
Portugal 36%
Spain 64%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
Sectors
Sector breakdown of the Fund's equity securities
Utilities 26%
Financial 24%
Communications 14%
Consumer Staples 12%
Construction 11%
Consumer Discretionary 9%
Service Industries 2%
Transportation 2%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
Ten Largest Equity Holdings (54% of Portfolio)
1. Compania Telefonica Nacional
de Espana SA
Telecommunication services
2. Endesa SA
Electric utility
3. Electricidade de Portugal
Electric utility
4. Iberdrola SA
Electric utility
5. Jeronimo Martins SA
Food producer and retailer
6. Banco Popular Espanol
Bank
7. Banco Espirito Santo e Comercial
de Lisboa, SA
Commercial and investment banking
8. Argentaria SA
Bank
9. BPI -- SGPS, SA
Bank
10. Banco Central Hispanoamericano SA
Provider of commercial and retail
banking services
7
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Investment Portfolio as of September 30, 1998
<TABLE>
<CAPTION>
======================================================================================================================
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 100.0%
PORTUGAL 35.6%
CONSUMER DISCRETIONARY 2.2%
Department & Chain Stores 1.5% 26,445 Modelo Continente -- SGPS, SA .......................... 461,921
26,445 Modelo Continente -- SGPS, SA (Bonus New) (b)........... 446,786
17,818 Modelo Continente -- SGPS, SA (New) (b)................. 326,631
----------
1,235,338
----------
Hotels & Casinos 0.7% 47,000 Lusotur-Sociedade Financeira de Turismo (b) ............ 548,953
----------
CONSUMER STAPLES 7.0%
Alcohol & Tobacco 2.5% 92,600 Uniao Cervejaria, SA ................................... 2,033,323
----------
Food & Beverage 4.5% 93,250 Jeronimo Martins SA .................................... 3,161,248
6,950 Jeronimo Martins SA Warrants (expire 9/15/03) (b) (c) .. 426,169
----------
3,587,417
----------
COMMUNICATIONS 3.2%
Cellular Telephone 19,700 Telecel-Comunicacoes Pessoais, S.A. .................... 2,548,167
----------
FINANCIAL 10.4%
Banks 7.5% 114,484 Banco Espirito Santo e Comercial de Lisboa, SA ........ 3,141,649
50 Banco Portugues do Atlantico (b) ...................... 853
104,680 BPI - SGPS, SA ........................................ 2,889,115
----------
6,031,617
----------
Insurance 2.9% 114,800 Cia. de Seguros Mundial Confiance, SA (b) ............. 2,363,244
----------
Real Estate 0.0% 120 Sonae Imobiliaria SA (b) .............................. 1,780
----------
MEDIA 0.0%
Broadcasting & Entertainment 20,000 TVI Televisao Independente (b) (c) ................... 28,032
----------
CONSTRUCTION 4.6%
Building Materials 4.6% 70,500 Cimentos de Portugal SA .............................. 1,967,585
91,060 Corticeira Amorim, SPGS .............................. 1,177,901
29,200 Semapa - Sociedade de Investimento e Gestao,
SGPS, SA ............................................. 605,367
----------
3,750,853
----------
Miscellaneous 0.0% 4,500 Finpro (b) (c) ...................................... 26,280
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION 1.7%
Miscellaneous 29,800 Brisa-Auto Estradas de Portugal, SA ................... 1,359,173
----------
UTILITIES 6.5%
Electric Utilities 207,290 Electricidade de Portugal ............................. 4,773,233
10,000 Electricidade de Portugal (ADR) ....................... 452,500
----------
5,225,733
----------
SPAIN 64.4%
CONSUMER DISCRETIONARY 7.0%
Department & Chain Stores 3.3% 60,849 Adolfo Dominguez SA (b) ............................... 1,685,188
27,500 Aldeasa SA ............................................ 952,486
----------
2,637,674
----------
Restaurants 2.3% 281,250 TelePizza, SA (b) ..................................... 1,882,862
----------
Specialty Retail 1.4% 51,600 Cortefiel, SA ......................................... 1,087,234
----------
CONSUMER STAPLES 5.1%
Alcohol & Tobacco 67,000 Baron de Ley, SA (b) .................................. 2,266,305
81,500 Tabacalera SA "A" ..................................... 1,817,748
----------
4,084,053
----------
COMMUNICATIONS 10.5%
Telephone/Communications 233,054 Compania Telefonica Nacional de Espana SA ............. 8,507,237
----------
FINANCIAL 13.3%
Banks 12.2% 150,000 Argentaria SA ......................................... 2,986,153
289,510 Banco Central Hispanoamericano SA ..................... 2,682,821
17,000 Banco Pastor SA ....................................... 898,488
49,900 Banco Popular Espanol ................................. 3,147,211
5,912 Banco Santander SA (New) (c) .......................... 86,885
----------
9,801,558
----------
Other Financial Companies 1.1% 73,800 Corp. Financiera Reunida, SA (b) ...................... 894,514
----------
SERVICE INDUSTRIES 2.3%
Miscellaneous Commercial Services 150,908 Prosegur, Cia de Seguridad SA ......................... 1,871,661
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION 6.7%
Homebuilding 2.9% 49,700 Fomento de Construcciones y Contratas SA ............... 2,322,053
----------
Miscellaneous 3.8% 64,500 Abengoa SA ............................................. 1,247,683
63,497 ACS, Actividades de Construccion y Servicios, SA ....... 1,803,269
----------
3,050,952
----------
UTILITIES 19.5%
Electric Utilities 16.3% 306,190 Endesa SA .............................................. 6,904,676
256,000 Iberdrola SA ........................................... 4,266,516
134,500 Union Electrica Fenosa SA .............................. 2,018,851
----------
13,190,043
----------
Natural Gas Distribution 3.2% 37,370 Gas Natural SDG, SA .................................... 2,607,117
----------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $63,702,922)(a) ................................ 80,676,868
==========
</TABLE>
(a) The cost for federal income tax purposes was $63,721,378. At September 30,
1998, net unrealized appreciation for all securities based on tax cost was
$16,955,490. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $21,621,254 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$4,665,764.
(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 $567,366 (0.68% 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, 1998 aggregated $610,700. These securities may
also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Financial Statements
<TABLE>
<CAPTION>
====================================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments, at market (identified cost $63,702,922) ....................... $80,676,868
Cash ....................................................................... 3,058,380
Foreign currency holdings, at market (identified cost $271,633) ............ 272,357
Dividends and interest receivable .......................................... 12,082
Receivable for foreign taxes recoverable ................................... 27,385
Other assets ............................................................... 644
----------
Total assets ........................................................... 84,047,716
LIABILITIES
Payables:
Accrued management fee .................................................. $ 105,454
Other payables and accrued expenses ..................................... 687,287
-----------
Total liabilities ...................................................... 792,741
-----------
Net assets, at market value ................................................ $83,254,975
===========
NET ASSETS
Net assets consist of:
Accumulated net realized gain............................................ $7,101,824
Net unrealized appreciation (depreciation) on:
Investments ............................................................ 16,973,946
Foreign currency related transactions .................................. 2,970
Paid-in capital ......................................................... 59,176,235
-----------
Net assets, at market value ................................................ $83,254,975
===========
NET ASSET VALUE per share ($83,254,975 divided by 6,511,154 shares of common
stock issued and outstanding, $.01 par value, 200,000,000 of shares
authorized)................................................................ $ 12.79
===========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends (net of foreign taxes withheld of $343,180) .................... $ 1,868,843
Interest ................................................................. 31,535
------------
1,900,378
Expenses:
Management fee ........................................................... $ 1,361,424
Administrator's fee ...................................................... 54,518
Custodian and accounting fees ............................................ 289,806
Directors' fees and expenses ............................................. 71,933
Auditing ................................................................. 33,120
Reports to shareholders .................................................. 33,862
Services to shareholders ................................................. 32,595
Legal .................................................................... 77,895
Reorganization expense ................................................... 682,808
Other .................................................................... 123,534 2,761,495
------------ ------------
Net investment loss ....................................................... (861,117)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments .............................................................. 29,723,685
Foreign currency related transactions .................................... (153,962) 29,569,723
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .............................................................. (19,482,378)
Foreign currency related transactions .................................... 23,009 (19,459,369)
------------ ------------
Net gain (loss) on investment transactions ................................ 10,110,354
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .............. $ 9,249,237
============
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................ $ (861,117) $ 505,492
Net realized gain (loss) from investment transactions ............... 29,569,723 17,645,376
Net unrealized appreciation (depreciation) on investment transactions
during the period .................................................. (19,459,369) 21,389,505
------------- -------------
Net increase in net assets resulting from operations ................... 9,249,237 39,540,373
------------- -------------
Distributions to shareholders:
From net investment income .......................................... (195,333) (585,992)
------------- -------------
From net realized gains on investment transactions .................. (38,708,496) (1,172,008)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS ...................................... (29,654,592) 37,782,373
Net assets at beginning of period ...................................... 112,909,567 75,127,194
------------- -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $159,742 at September 30, 1997) ........................... $ 83,254,975 $ 112,909,567
============= =============
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<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 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 17.34 $ 11.54 $ 9.68 $ 9.01 $ 8.24
------- ------- ------- ------- -------
Net investment income (loss) ........... (.13) .08 .09 .07 .07
Net realized and unrealized gain (loss)
on investment transactions ............ 1.56 5.99 1.84 .60 .70
------- ------- ------- ------- -------
Total from investment operations ........ 1.43 6.07 1.93 .67 .77
------- ------- ------- ------- -------
Less distributions:
From net investment income ............ (.03) (.09) (.07) -- --
From net realized gains on investment
transactions ......................... (5.95) (.18) -- -- --
------- ------- ------- ------- -------
Total distributions ..................... (5.98) (.27) (.07) -- --
------- ------- ------- ------- -------
Net asset value, end of period .......... $ 12.79 $ 17.34 $ 11.54 $ 9.68 $ 9.01
======= ======= ======= ======= =======
Market value, end of period ............. $ 12.06 $ 14.50 $ 8.88 $ 7.56 $ 7.50
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN
Per share market value (%) ............. 24.10 67.33 18.31 .84 (3.23)
Per share net asset value (%)(b) ....... 10.03 53.89 20.19 7.44 9.35
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . 83 113 75 63 59
Ratio of operating expenses to average
net assets (%) ........................ 2.35 1.74 1.92 1.99 2.02
Ratio of net investment income (loss) to
average net assets (%) ................ (.73) .54 .83 .71 .77
Portfolio turnover rate (%) ............ 60 115 66 43 31
- --------------------------------------------------------------------------------------------------------------------
</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.
14
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Spain and Portugal 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 Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on Nasdaq. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq 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.
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, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. The Fund accordingly paid no U.S. federal income taxes, and no
federal income tax provision was required. Withholding taxes on foreign interest
and dividends have been provided for in accordance with Spanish and Portuguese
tax rates.
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,
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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, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $69,102,318 and
$111,040,135, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and the
The Zurich Insurance Company ("Zurich"), an international insurance and
financial services organization, formed a new global investment organization by
combining Scudder's business with that of Zurich's subsidiary, Zurich Kemper
Investments, Inc. As a result of the transaction, Scudder changed its name to
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"). The
transaction between Scudder and Zurich resulted in the termination of the Fund's
Investment Management and Administration Agreements with Scudder. However, a new
Investment Management Agreement (the "Management Agreement") between the Fund
and Scudder Kemper was approved by the Fund's Board of Directors and by the
Fund's Shareholders. The Management Agreement, which was effective December 31,
1997, is the same in all material respects as the corresponding previous
Investment Management Agreement, except that Scudder Kemper is the new
investment adviser to the Fund. In addition, for ease of administration, the
Management Agreement incorporates, in all material respects, the terms of the
Administration Agreement, and the Administration Agreement terminated as a stand
alone document upon execution of the Management Agreement.
Under the Management Agreement between the Fund and Scudder, which was in effect
prior to December 31, 1997, the Fund 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. Effective December 31, 1997, the Fund agreed to pay Scudder
Kemper a fee equal to an annual rate of 1.2% of the Fund's average weekly net
assets, computed weekly and payable monthly, which is equal to the aggregate fee
rate paid under the previous Investment Management and Administration
Agreements. For the year ended September 30, 1998, the fee pursuant to these
agreements amounted to $1,361,424, of which $105,454 is unpaid at September 30,
1998.
Under the Administration Agreement between the Fund and Scudder, which was in
effect prior to December 31, 1997, the Fund agreed to pay Scudder a fee equal to
an annual rate of 0.2% of the Fund's average weekly net
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<PAGE>
assets, computed weekly and payable monthly. Effective December 31, 1997, this
agreement became a part of the Management Agreement. For the period October 1,
1997 to December 31, 1997, the fee pursuant to this agreement amounted to
$54,518.
Pursuant to both agreements, the investment adviser provides continuous
supervision of the investment portfolio and 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.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Directors
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Directors of the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in December.
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 year ended
September 30, 1998, the amount charged to the Fund by SFAC aggregated $85,955,
of which $6,061 is unpaid at September 30, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, provides
shareholder communications services for the Fund. For the year ended September
30, 1998, the amount charged by SSC aggregated $15,000, of which $1,250 is
unpaid at September 30, 1998.
The Fund pays each Director not affiliated with the Adviser an annual retainer,
plus specified amounts for attended board and committee meetings. For the year
ended September 30, 1998, Directors' fees and expenses aggregated $71,933 at
September 30, 1998.
D. Subsequent Event
On October 1, 1998, 76.84% of shareholders of the Fund redeemed their shares in
exchange for a pro rata share of each of the securities (other than fixed income
securities with maturities of less than one year, securities with transfer
restrictions and certain illiquid securities) and cash held in the Fund's
investment portfolio. Pursuant to the terms of the Right to Demand Redemption of
Shares Agreement, dated September 2, 1998, the shares presented for redemption
were valued by the Fund at $12.11 per share, the unaudited net asset value per
share of the Fund as determined as of the close of the regular trading session
on the New York Stock Exchange on October 1, 1998. Scudder Spain and Portugal
Fund's reorganization expenses, as approved by the Fund's Board of Directors,
amounted to $682,808 as of September 30, 1998. In addition, effective October 1,
1998, the Adviser has agreed to maintain expenses at an annual effective rate
equal to 2.00% of average weekly net assets until March 31, 1999.
On October 28, 1998, the Board of Directors of the Fund voted to proceed with a
Plan of Dissolution, Liquidation and Termination (the "Plan"). The Plan is to
become effective only upon the affirmative vote of a majority of the Fund's
stockholders at the Annual Meeting of Stockholders scheduled for December 1,
1998.
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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 investment portfolio, 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") at September 30, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
As discussed in Note D to the financial statements, on October 28, 1998 the
Board of Directors of the Fund approved a Plan of Dissolution, Liquidation and
Termination (the "Plan"). The Plan will become effective only upon the
affirmative vote of a majority of the Fund's stockholders at the Annual Meeting
of Stockholders on December 1, 1998.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 1998
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<PAGE>
Scudder Spain and Portugal Fund, Inc.
Tax Information (Unaudited)
The Fund paid distributions of $3.975 per share from net long-term capital gains
during its year ended September 30, 1998, of which 84% represents 20% rate
gains. Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$28,700,000 as capital gain dividends for its year ended September 30, 1998,
100% of which represents 20% rate gains.
The Fund paid foreign taxes of $343,180 and earned $343,180 of foreign source
income during the year ended September 30, 1998. Pursuant to Section 853 of the
Internal Revenue Code, the Fund designates $0.05 per share as foreign taxes paid
and $0.05 per share as income earned from foreign sources for the year ended
September 30, 1998.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
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<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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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
RICHARD HUNT
Director
JOSE PEDRO PEREZ LLORCA
Director
ROGERIO C.S. MARTINS
Director
DR. WILSON NOLEN
Director
CAROL L. FRANKLIN*
Vice President
JOAN R. GREGORY*
Vice President
JUDITH A. HANNAWAY*
Vice President
JERARD K. HARTMAN*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Vice President and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN HEBBLE*
Treasurer
CAROLINE PEARSON*
Assistant Secretary
*Scudder Kemper Investments, Inc.
Investment Manager
================================================================================
The investment manager of Scudder Spain and Portugal Fund, Inc. (the "Fund")
is Scudder Kemper Investments, 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 six 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., Scudder Global High Income Fund, Inc., Scudder New Asia
Fund, Inc., and Scudder New Europe Fund, Inc.
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