Scudder Kemper Investments, the adviser to the closed-end Scudder Spain and Portugal Fund, has announced it will seek shareholder approval to liquidate the fund. The deadline for shareholder votes on the liquidation is December 1. If approved, liquidation could take place by year-end.

Scudder blamed "arbitrageurs and short-term traders who were not interested in the Fund's investment objective" for the directors' decision to terminate the fund. The fund, whose assets had recently shrunk to $21.4 million, had become too costly to run, Scudder said.

The decision to liquidate comes just two months after Scudder agreed to allow investors who wanted to redeem their shares to do so. Although the board of directors originally authorized a redemption rights plan allowing up to 75 percent of the outstanding shares to be redeemed, when nearly 77 percent of shares were offered up for redemption, the board agreed to the larger amount. Scudder offered an unusual "in-kind" redemption whereby portions of the actual Spanish or Portuguese portfolio securities were divided up among shareholders. Investors could then sell those securities.The recent decision to fully liquidate the fund's remaining assets ends a long struggle between fund management and shareholders, both claiming to have shareholder interests at heart. A major issue has been the fund's persistent discount which ran as high as 23 percent in October of 1996, according to CDA/Wiesenberger. Although the discount has steadily declined since then the discount was still in double digits in November, 1997.

Last year activist shareholders asked that the fund be made open-ended, meaning investors would be allowed to redeem at the net asset value of fund shares. But Scudder's board of directors voted against the proposal.

In an effort to respond to the shareholders' request, Scudder offered its own solution: it would merge the Scudder Spain and Portugal Fund with the parallel Kemper Growth Fund of Spain. This would probably have produced economies of scale for the adviser and eliminated essentially duplicate funds, said Ed Canaday, a Scudder spokesperson. But Scudder withdrew its proposal in response to shareholder protests and concerns about tax implications.

The discount issue first surfaced when shareholders were asked to approve the merger of advisory firms Zurich Kemper with Scudder Stevens & Clark, says Phil Goldstein, principal at Opportunity Partners in Pleasantville, NY and a shareholder activist. At that time, shareholders asked the adviser to find a way to narrow the discount.

Earlier this year Goldstein tried to gain support for a proposal to terminate the fund's advisory contract. He was supported by several other powerful shareholders including City of London and Bankgesellschaft Berlin. Goldstein says that got the attention of management.

Another fund, the Emerging Mexico Fund, has met a similar fate as the Spain and Portugal Fund. Two weeks ago the board of the Emerging Mexico Fund, also a closed-end fund, approved the liquidation of the fund which, according to Lipper Analytical Services, has shown a 40 percent decline in the past year. Shareholders still must vote on the liquidation of the $45 million fund. Santander Management in New York manages the fund.

Shareholders have also recently voted to make the Growth Fund of Spain open-ended. The fund, which is managed by Scudder Kemper and sub-advised by BSN Gestion de Patrimonios, has had a net asset value return in the past year of 52 percent, according to Lipper.

According to CDA/Wiesenberger, since the beginning of 1997, 19 closed-end funds have been made open-ended.

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