(logo)
Scudder Spain and Portugal Fund, Inc.
Semiannual Report
March 31, 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
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 Statement 11
Financial Highlights 14
Notes to Financial Statements 15
Stockholder Meeting Results 18
Dividend Reinvestment Plan 19
Directors and Officers 21
Investment Manager 21
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 Scudder Spain and Portugal Fund posted a strong total return of 35.44% for
the six-month period ended March 31, 1998.
o The Iberian markets were bolstered by the fact that, as of February, both
Spain and Portugal met all of the convergence criteria for the first round of
European Monetary Union, to take place January 1, 1999.
o Corporate exposure to Latin America has helped fuel the growth of the Iberian
markets over the period, and we believe should continue to do so, as Spanish
and Portuguese companies plan further expansions into Latin America.
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
For the six months ended March 31, 1998, Scudder Spain and Portugal Fund
experienced a total return of 35.44%, reflecting an increase in the Fund's net
asset value from $17.34 to $19.77 and $2.68 per share in dividend distributions.
This performance compares to a 32.95% return for the Spanish stock market as
gauged by the unmanaged Madrid General Index and a return of 43.82% for
Portuguese stocks as measured by the unmanaged BVL Portuguese Index for the same
period. The stock price of the Fund ended the period at $18.19, a 8.0% discount
from net asset value, up from $14.50 six months earlier.
PROPOSED REORGANIZATION
On April 14, 1998, the Board of Directors of the Fund and The Growth Fund of
Spain, Inc. ("Growth Fund of Spain"), another closed-end investment company
managed by Scudder Kemper Investments, Inc. ("Scudder Kemper") that invests
primarily in the equity securities of Spanish companies, approved a merger of
the Growth Fund of Spain with and into the Fund. Upon completion of the merger,
the stockholders of the Growth Fund of Spain will receive full shares of the
Fund (and cash in lieu of fractional shares) equal to the net asset value of
their shares of the Growth Fund of Spain. The merger has been structured to be a
federal income tax-free transaction for the stockholders of both Funds.
Following consummation of the merger, the Fund intends to offer all stockholders
a right to demand in-kind redemption of their shares at net asset value, subject
to limitations to preserve the tax-free status of the merger and to treat the
stockholders of both Funds equally. Stockholders who exercise this in-kind
redemption right would also have the opportunity to exchange the proceeds of the
in-kind redemption for shares of an open-end investment company managed by
Scudder Kemper.
The goal of the in-kind redemption offer is to permit stockholders who prefer an
open-end investment vehicle the opportunity to exchange their in-kind redemption
proceeds for shares of such a vehicle while offering stockholders who prefer to
remain invested in a closed-end vehicle the opportunity to do so without
realizing a taxable event that could be caused by the actions of others. The
significant amount of unrealized capital gains in this portfolio (44.9% of NAV
as of March 31, 1998) prompted us to structure a tax-free merger and the in-kind
redemption offer. The in-kind redemption offer is intended to position only
those stockholders who choose to redeem their shares of the Fund to recognize
capital gains, while causing no recognition of capital gains by the Fund or the
stockholders who remain invested in the Fund.
3
<PAGE>
In the judgment of the Board of Directors of the Fund, the merger followed by
the redemption offer serves the best interests of the Fund and its stockholders
because it is designed to permit a significant amount of the Fund's shares to be
redeemed (in-kind) at net asset value while maintaining the Fund's closed-end
format and avoiding the imposition of a potentially significant tax liability on
those stockholders who do not participate in the redemption offer.
This proposed transaction is the result of extensive deliberations by the Board
of Directors of the Fund and Scudder Kemper. The Board of Directors of the Fund
has, over the years, discussed the significance of the existence of the discount
to net asset value at which the Fund's shares have traded and the impact of the
discount on stockholders. The Board also regularly discusses and considers
various alternative strategies to address the discount, including instituting
share repurchases, combining with other funds, converting to an open-end format,
or liquidating. The Board has, however, consistently concluded that it was in
the best interests of the Fund and its stockholders to maintain the current
closed-end format; because, in the view of the Board and of Scudder Kemper, the
closed-end format is the most appropriate format for participating in the
Spanish and Portuguese equity markets. The Board believes that the long-term
performance of the Fund supports this view, and continues to believe that the
closed-end format is currently appropriate for the Fund and in the best
interests of its stockholders.
IBERIAN MARKETS ARE BOOMING
The Spanish and Portuguese markets have had excellent returns during the past
six months, driven by falling interest rates, the lowest level of inflation in
decades, positive corporate earnings and domestic liquidity, as Spanish and
Portuguese investors pour money into equity markets in an environment where the
return on savings deposits is very low. The perception that Spain and Portugal
would participate in the first round of European Monetary Union (EMU), resulted
in a lower risk premium for the market and provided further support.
In Spain, economic growth is strong, inflation has been stable at around 2%, and
the budget deficit as a percentage of GDP is well within the criteria for
Maastricht. Unemployment, historically very high in Spain, recently fell to the
lowest level since 1992. The Spanish government recently announced that the
marginal personal income tax rate would be reduced from 56% to 48%, a
significant development that we believe should translate into higher disposable
income. The macroeconomic fundamentals in Portugal are also supportive. In
February, it was announced that Portugal met all of the convergence requirements
for EMU, a level of performance that would have been considered very unlikely
just two years ago.
STRATEGY FAVORS GROWTH IN FINANCIAL
SERVICES SECTOR
Performance has been rewarded by an overweighting in the Spanish and Portuguese
banks over the last six months. Financial services is a growth industry in Spain
and Portugal as managements leverage off their efficient distribution
capabilities to deliver high quality growth in earnings. The banking sector is,
in our view, the most liquid way to get exposure to the booming Spanish and
Portuguese economies. In addition, several of the larger Spanish banks such as
Banco Bilbao Vizcaya and Banco Santander, up 52.4% and 52.0%, respectively, over
the period, have made acquisitions in Latin America, which should fuel earnings
further. Improving returns on equity, coupled with declining interest rates,
resulted in spectacular performance for the Portuguese banks. Fund holding Banco
Comercial Portugues rose 68.6% over the period, and has been restructuring by
cutting costs and divesting non-strategic assets. Banco Portugues do
Investimento (BPI), up 68.9%, recently announced the merger of its four brands
4
<PAGE>
into a single brand, becoming the second largest banking network in Portugal.
While we have reduced our holdings in some Spanish banks on valuation grounds,
we believe that strong fundamentals combined with relative valuations continue
to support an overweight position in selected Portuguese and Spanish banks going
forward.
We maintain our positive view of the utility sector in Portugal through our
holding in Electricidade de Portugal (EDP), the dominant utility in the market
and a core holding in the portfolio. The company recently released very positive
results; the restructuring program is on track and management is putting price
pressure on suppliers in addition to reducing headcount. EDP's presence in
Brazil will underpin performance, with growing profits from subsidiary CERJ.
Several other companies were top contributors to the Fund's performance. The
Fund's largest holding, Telefonica de Espana, up 40.2% over the period, is
currently enjoying strong demand in its fixed line and mobile businesses and has
an excellent position in Latin American telecommunications markets. Top
performer Tele Pizza continued to forge ahead, returning 111.5%. The company has
a unique position in the fast growth pizza delivery market, has launched a new
fast food chain, and is projecting rapid sales and earnings growth over the
medium term.
RIDING THE EMU EUPHORIA WITH AN EYE
ON EXTERNAL RISKS
While we no longer anticipate a substantial decline in interest rates, the
Iberian markets are not overvalued in our opinion, and should continue to be
well supported by positive macroeconomic fundamentals and a strong demand for
equities from domestic investors. Any risk to these markets will likely come
from global rather than domestic factors. Insofar as the Spanish economy
achieves real convergence with the rest of Europe, we believe that growth in
Spanish and Portuguese corporate earnings should continue to be above the
European average. This view is reinforced by the exposure of Spanish companies
to the fast growing Latin American markets which represent 15% of corporate
earnings and 20% of market capitalization in Spain. Our focus in the Fund is on
companies with strong fundamentals and good profit growth.
In an environment where interest rates are low relative to a very strong
economy, the big risk is a pick-up in inflation. With monetary policy in the
hands of the European Central Bank, the option to devalue is no longer available
to national governments. Over the longer term, the larger risk to Spain and
Portugal is if EMU fails. Spain in particular needs to further deregulate its
labor markets and reform its welfare system to improve competitiveness. However,
for the nearer term, we believe that the EMU optimism will continue, and that
the Iberian markets will be supported by a very positive European backdrop.
The Fund has commenced the process of removing its shares of common stock from
listing on the London Stock Exchange. It is anticipated that this process will
be complete in mid-July. Shares of common stock of the Fund will continue to be
listed on the New York Stock Exchange under the symbol "IBF."
Thank you for your continued investment in Scudder Spain and Portugal Fund, Inc.
If you have any questions or comments about your account, please call us at
1-800-349-4281.
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 March 31, 1998
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Historical
Information TOTAL RETURN (%)
Life of Fund ------------------------------------------------
Market Value Net Asset Value (a)
------------------- --------------------
Average Average
Cumulative Annual Cumulative Annual
------------------- --------------------
Current Quarter 34.72 -- 35.60 --
One Year 94.20 94.20 67.15 67.15
Three Year 236.72 49.88 182.95 41.44
Five Year 239.51 27.69 212.65 25.61
Life of Fund* 187.06 11.18 235.52 12.94
- --------------------------------------------------------------------------------
Per Share Information and Returns (a)
Yearly periods ended March 31
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989* 1990 1991 1992 1993 1994 1995 1996 1997 1998
---------------------------------------------------------------------------------------
NET ASSET VALUE... $ 9.55 $ 9.61 $ 9.54 $ 9.09 $ 7.82 $ 9.35 $ 8.57 $10.75 $14.05 $19.77
INCOME DIVIDENDS.. $ .15 $ .17 $ .22 $ .12 $ .18 $ .06 $ -- $ .07 $ .09 $ .03
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .13 $ .79 $ .03 $ .22 $ -- $ -- $ -- $ .18 $ 2.65
TOTAL RETURN (%).. 4.53 2.89 12.58 -2.92 -8.70 20.56 -8.34 26.46 33.86 67.15
</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 March 31, 1998
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Diversification
Portugal 58%
Spain 42%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
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Sectors
Sector breakdown of the Fund's equity securities
Financial 34%
Utilities 14%
Construction 13%
Communications 13%
Consumer Discretionary 11%
Consumer Staples 7%
Energy 4%
Metals & Minerals 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 (50% of Portfolio)
1. Compania Telefonica Nacional
de Espana SA
Telecommunication services
2. Portugal Telecom SA
Telecommunication services
3. Empresa Nacional
de Electricidad SA
Electric utility
4. Banco Bilbao Vizcaya SA
Leading financial group
5. Banco Santander SA
Leading regional bank
6. Jeronimo Martins SA
Food producer and retailer
7. Electricidade de Portugal
Electric utility
8. Banco Comercial Portugues
Commercial Bank
9. Tele Pizza, S.A.
Operator of fast-food pizza
restaurants in Spain, Portugal,
Poland, Mexico and Chile
10. Banco Popular Espanol
Bank
7
<PAGE>
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Investment Portfolio as of March 31, 1998 (Unaudited)
================================================================================
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Market
Shares Value($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 100.0%
PORTUGAL 42.1%
CONSUMER DISCRETIONARY 2.2%
Department & Chain Stores 1.6% 26,445 Modelo Continente - SGPS, SA ........................... 2,066,439
----------
Hotels & Casinos 0.6% 47,000 Lusotur-Sociedade Financeira de Turismo(b) ............. 725,292
----------
CONSUMER STAPLES 4.4%
Food & Beverage 126,250 Jeronimo Martins SA .................................... 5,194,019
6,950 Jeronimo Martins SA Warrants (expire 9/15/03)(b) ....... 337,682
----------
5,531,701
----------
COMMUNICATIONS 6.5%
Telephone/Communications 158,300 Portugal Telecom SA .................................... 8,235,613
----------
FINANCIAL 15.9%
Banks 14.6% 146,300 Banco Comercial Portugues .............................. 4,724,713
146,300 Banco Comercial Portugues Rights(b)(c) ................. 468,347
66,630 Banco Espirito Santo ................................... 3,079,020
113,200 Banco Pinto & Sotto Mayor, SA .......................... 2,809,823
81,330 Banco Portugues do Investimento ........................ 3,129,068
84,000 Banco Totta e Acores ................................... 3,114,233
48,000 Espirito Santo Financial Holdings (ADR) ................ 1,257,000
----------
18,582,204
----------
Insurance 1.3% 52,500 Cia. de Seguros Mundial Confiance, SA .................. 1,698,244
----------
MEDIA 0.0%
Broadcasting & Entertainment 20,000 TVI Televisao Independente(b)(c) ....................... 25,350
----------
CONSTRUCTION 7.0%
Building Materials 4.9% 70,500 Cimentos de Portugal SA ................................ 2,484,906
91,060 Corticeira Amorim, S.P.G.S. ............................ 1,394,634
76,200 Semapa Cement SA ....................................... 2,333,688
----------
6,213,228
----------
Miscellaneous 2.1% 177,620 Engil-SGPS ............................................. 2,062,775
32,500 Mota e Companhia, SA ................................... 660,813
----------
2,723,588
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
Market
Shares Value($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION 1.9%
Miscellaneous 53,000 Brisa-Auto Estradas de Portugal, SA(b) ............... 2,421,178
----------
UTILITIES 4.2%
Electric Utilities 207,290 Electricidade de Portugal ............................ 4,811,405
10,000 Electricidade de Portugal (ADR)(b) ................... 467,500
----------
5,278,905
----------
SPAIN 57.9%
CONSUMER DISCRETIONARY 8.9%
Department & Chain Stores 3.8% 60,849 Adolfo Dominguez SA(b) ............................... 2,066,819
27,500 Aldeasa SA ........................................... 974,382
76,450 Centros Comerciales Continente, SA ................... 1,807,478
----------
4,848,679
----------
Home Furnishings 0.0% 120 Sonae Imobiliaria SA(b) .............................. 1,762
----------
Restaurants 4.1% 35,000 Tele Pizza, SA(b) .................................... 5,152,307
----------
Specialty Retail 1.0% 51,600 Cortefiel, SA ........................................ 1,241,333
----------
CONSUMER STAPLES 2.8%
Alcohol & Tobacco 67,000 Baron de Ley, SA(b) .................................. 1,671,584
16,300 Tabacalera, SA "A" ................................... 1,830,270
----------
3,501,854
----------
COMMUNICATIONS 6.6%
Telephone/Communications 190,900 Compania Telefonica Nacional de Espana SA ............ 8,418,481
----------
FINANCIAL 18.3%
Banks 147,300 Banco Bilbao Vizcaya SA .............................. 6,918,181
145,040 Banco Central Hispanoamericano ....................... 4,649,192
145,040 Banco Central Hispanoamericano Rights(b) ............. 114,612
49,900 Banco Popular Espanol ................................ 4,846,266
138,300 Banco Santander SA ................................... 6,892,085
----------
23,420,336
----------
SERVICE INDUSTRIES 0.6%
Miscellaneous Commercial
Services 57,708 Prosegur, Cia de Seguridad SA ........................ 742,864
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
Market
Shares Value($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY 3.6%
Oil Companies 89,030 Repsol SA ......................................... 4,544,547
-----------
METALS & MINERALS 1.8%
Steel & Metals 13,600 Acerinox, SA ...................................... 2,236,044
-----------
CONSTRUCTION 5.7%
Homebuilding 2.2% 53,600 Fomento de Construcciones y Contratas SA .......... 2,835,075
-----------
Miscellaneous 3.5% 21,500 Abengoa SA ........................................ 1,918,175
69,197 OCP Construcciones, SA ............................ 2,509,119
-----------
4,427,294
-----------
UTILITIES 9.6%
Electric Utilities 7.7% 306,190 Empresa Nacional de Electricidad SA ............... 7,365,965
45,000 Iberdrola SA ...................................... 683,947
134,500 Union Electrica Fenosa SA ......................... 1,778,534
-----------
9,828,446
-----------
Natural Gas Distribution 1.9% 37,370 Gas Natural SDG, SA ............................... 2,333,839
-----------
TOTAL COMMON STOCKS (Cost $69,250,672) ............ 127,034,603
-----------
=================================================================================================================
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $69,250,672) (a) ......................... 127,034,603
===========
</TABLE>
(a) The cost for federal income tax purposes was $69,355,605. At March 31,
1998, net unrealized appreciation for all securities based on tax cost was
$57,678,998. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $58,239,553 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$560,555.
(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 $493,697 (0.39% 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 March 31, 1998 aggregated $585,905. 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
MARCH 31, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $69,250,672) ................. $127,034,603
Foreign currency holdings, at market
(identified cost $1,771,633) ...................................... 1,753,513
Dividends receivable ................................................. 127,459
Receivable for foreign taxes recoverable ............................. 35,300
Other assets ......................................................... 941
------------
Total assets ................................................... 128,951,816
LIABILITIES
Payables:
Accrued management fee ............................................ $121,546
Other payables and accrued expenses ............................... 85,141
--------
Total liabilities .............................................. 206,687
------------
Net assets, at market value .......................................... $128,745,129
============
NET ASSETS
Net assets consist of:
Accumulated net investment loss ................................... $ (287,239)
Accumulated net realized gain ..................................... 12,067,660
Net unrealized appreciation (depreciation) on:
Investments .................................................... 57,783,931
Foreign currency related transactions .......................... (20,458)
Paid-in capital ................................................... 59,201,235
------------
Net assets, at market value .......................................... $128,745,129
============
NET ASSET VALUE per share ($128,745,129 6,511,154 shares
of common stock issued and outstanding, $.01 par value,
200,000,000 of shares authorized) ................................. $ 19.77
============
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $127,400) .................. $ 699,818
Interest ............................................................... 10,221
-----------
710,039
Expenses:
Management fee ......................................................... $ 598,210
Administrator's fee .................................................... 54,641
Custodian and accounting fees .......................................... 138,648
Directors' fees and expenses ........................................... 47,960
Auditing ............................................................... 12,075
Reports to shareholders ................................................ 14,098
Services to shareholders ............................................... 17,223
Legal .................................................................. 61,242
Other .................................................................. 17,590 961,687
----------- -----------
Net investment loss ....................................................... (251,648)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................................ 12,422,156
Foreign currency related transactions .................................. (244,931) 12,177,225
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................ 21,327,607
Foreign currency related transactions .................................. (419) 21,327,188
----------- -----------
Net gain on investment transactions ....................................... 33,504,413
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $33,252,765
===========
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================
- -----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1998 SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ..................................... $ (251,648) $ 505,492
Net realized gain from investment transactions ................... 12,177,225 17,645,376
Net unrealized appreciation on investment transactions
during the period ............................................. 21,327,188 21,389,505
------------ ------------
Net increase in net assets resulting from operations ................ 33,252,765 39,540,373
------------ ------------
Distributions to shareholders from:
Net investment income ............................................ (195,333) (585,992)
------------ ------------
Net realized gains on investment transactions .................... (17,221,870) (1,172,008)
------------ ------------
INCREASE IN NET ASSETS .............................................. 15,835,562 37,782,373
Net assets at beginning of period ................................... 112,909,567 75,127,194
------------ ------------
NET ASSETS AT END OF PERIOD (including accumulated net
investment loss of $287,239 and undistributed net
investment income of $159,742, respectively) ..................... $128,745,129 $112,909,567
============ ============
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD (a) AND OTHER PERFORMANCE
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS AND MARKET PRICE DATA.
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
1998 -----------------------------------------------------
PER SHARE OPERATING PREFORMANCE (UNAUDITED) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $17.34 $11.54 $ 9.68 $9.01 $8.24 $7.27
------ ------ ------ ----- ----- -----
Net investment income (loss) ............... (.04) .08 .09 .07 .07 .22
Net realized and unrealized gain (loss)
on investment transactions ............... 5.15 5.99 1.84 .60 .70 1.15
------ ------ ------ ----- ----- -----
Total from investment operations ............ 5.11 6.07 1.93 .67 .77 1.37
------ ------ ------ ----- ----- -----
Less distributions from:
Net investment income .................... (.03) (.09) (.07) -- -- (.18)
Net realized gains on investment
transactions ............................ (2.65) (.18) -- -- -- (.22)
Total distributions ......................... (2.68) (.27) (.07) -- -- (.40)
====== ====== ====== ===== ===== =====
Net asset value, end of period .............. $19.77 $17.34 $11.54 $9.68 $9.01 $8.24
Market value, end of period ................. $18.19 $14.50 $ 8.88 $7.56 $7.50 $7.75
====== ====== ====== ===== ===== =====
TOTAL INVESTMENT RETURN
Per share market value(%) .................. 49.00** 67.33 18.31 .84 (3.23) 31.69
Per share net asset value(%)(b) ............ 35.44** 53.89 20.19 7.44 9.35 20.38
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ..... 129 113 75 63 59 54
Ratio of operating expenses to average
net assets(%) ............................ 1.77* 1.74 1.92 1.99 2.02 2.38(d)
Ratio of net investment income (loss) to
average net assets(%) .................... (.46)* .54 .83 .71 .77 2.87
Portfolio turnover rate(%) ................. 70* 115 66 43 31 29
Average commission rate paid(c) ............ $.0710 $.0694 $.0671 $ -- $ -- $ --
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</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%.
* Annualized
** Not annualized
14
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Notes to Financial Statements
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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 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.
Portfolio debt securities other than money market instruments 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, 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
15
<PAGE>
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was required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with Spanish and Portuguese tax rates.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and therefore, will be distributed to
shareholders, annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
relate primarily to the deferral of certain losses for tax purposes. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
OTHER. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $38,998,955 and
$58,087,491, 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 agrees 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
16
<PAGE>
================================================================================
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payable monthly, which is equal to the aggregate fee rate paid under the
previous Investment Management and Administration Agreements. For the six months
ended March 31, 1998, the fee pursuant to these agreements amounted to $598,210,
of which $121,546 is unpaid at March 31, 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 assets, computed weekly
and payable monthly. Effective December 31, 1997, this agreement became a part
of the Management Agreement. For the period September 30, 1997 to December 31,
1997, the fee pursuant to this agreement amounted to $54,641.
Pursuant to both agreements, the investment manager provides continuous
supervision of the investment portfolio and the administrator pays the
compensation of certain officers of the Fund and provides occupancy and certain
clerical services to the Fund. The Fund bears all other costs and expenses.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended March 31, 1998, the amount charged to the Fund by SFAC aggregated $40,314
of which $7,356 is unpaid at March 31, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, provides
shareholder communications services for the Fund. For the six months ended
March 31, 1998, the amount charged by SSC aggregated $7,500, of which $1,250 is
unpaid at March 31, 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 six
months ended March 31, 1998, Directors' fees and expenses aggregated $47,960 at
March 31, 1998.
17
<PAGE>
Scudder Spain and Portugal Fund, Inc.
Stockholder Meeting Results
- --------------------------------------------------------------------------------
A Special Meeting of Stockholders (the "Meeting") of Scudder Spain and Portugal
Fund ("Fund") was held on October 21, 1997, at the offices of Scudder Kemper
Investments, Inc. (formerly Scudder Stevens & Clark, Inc.), 25th Floor, 345 Park
Avenue (at 51st Street), New York, New York 10154. At the Meeting, as adjourned
and reconvened, the following matters were voted upon by the stockholders (the
resulting votes for each matter are presented below). With regard to these
proposals, it was recommended that the Meeting be reconvened in order to provide
stockholders with an additional opportunity to return their proxies. The date of
the reconvened meeting at which the matters were decided is noted after the
proposed matter.
1. To approve the new Investment Management, Advisory and Administration
Agreement between the Fund and Scudder Kemper Investments, Inc.
(Approved on November 12, 1997.)
Number of Votes:
----------------
For Against Abstain
--- ------- -------
4,393,747 983,837 24,104
18
<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.
19
<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.
20
<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 GREGORY*
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, Treasurer and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN HEBBLE*
Assistant 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 eight 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., Montgomery Street Income Securities, Inc., Scudder Global
High Income Fund, Inc., Scudder New Asia Fund, Inc., and Scudder New Europe
Fund, Inc.
21
