<PAGE> 1
THE GROWTH FUND
OF SPAIN, INC.
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MAY 31, 1996
"Given our expectations of stronger growth in the second half of 1996,
our strategy has been to . . . increase holdings in growth stocks."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
7
Largest Holdings
and Portfolio Statistics
8
Portfolio of
Investments
10
Financial Statements
12
Notes to
Financial Statements
14
Financial Highlights
At A Glance
- -------------------------------------------------------------
Total Returns
- -------------------------------------------------------------
For the six-month period ended May 31, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -------------------------------------------------------------
<S> <C> <C>
THE GROWTH FUND
OF SPAIN, INC. 8.99% 13.07%
- -------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
5/31/96 11/30/95
- -------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $13.76 $13.33
- -------------------------------------------------------------
MARKET PRICE $11.50 $10.88
- -------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------
DISTRIBUTION REVIEW
- -------------------------------------------------------------
During the six-month period, the Growth Fund of Spain made
the following distributions per share:
<TABLE>
<S> <C>
INCOME $0.42
- -------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $0.12
- -------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.17
- -------------------------------------------------------------
</TABLE>
Statistical Note: Total return measures aggregate change in net asset
value/market price assuming reinvestment of dividends. Returns are historical
and do not represent future performance. Market price, net asset value and
returns fluctuate. Additional information concerning performance is contained in
the Financial Highlights appearing at the end of this report.
Terms To Know
CYCLICAL STOCKS The stock of a company whose profits are heavily influenced by
cyclical changes in economic activity. Consequently, its earnings tend to rise
quickly when the economy strengthens and fall quickly when the economy weakens.
Examples include companies in the construction and machinery sectors. The
earnings of noncyclical industries, such as electric utilities and
telecommunications, normally are not as affected directly by economic changes.
GROWTH STOCKS The stock of a company whose earnings growth has consistently
exceeded the growth rate of the overall market and whose growth is expected to
continue or accelerate.
INTEREST RATE-SENSITIVE Referring to a security whose performance is closely
linked to movements in interest rates.
MARKET CORRECTION A reverse movement, usually downward, in the price of a group
of stocks or the overall market. Corrections are to be expected over the long
term.
MADRID STOCK EXCHANGE (MSE) GENERAL INDEX An unmanaged group of the 96 most
frequently traded stocks on the Madrid Stock Exchange. The MSE General Index is
comprised of the following nine sectors: banks and financials,
telecommunications and motorways, construction, utilities, food, investment
companies, metals and machinery, oil and chemicals, and miscellaneous. The Index
does not take into account any fees or expenses related to the individual
securities that it tracks. However, for performance comparisons, the Index is
adjusted to reflect the reinvestment of dividends from its constituent
securities.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for a specified period, assuming the
reinvestment of all dividends. It represents the aggregate percentage change in
the value of an investment in the fund over the period. Total return may be
based upon net asset value or market price.
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $78 BILLION IN ASSETS, INCLUDING $45 BILLION
IN RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN
M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first six months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market has followed a spectacular 1995 with strength so far
this year.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates significantly to control growth. In an environment of stable or gently
rising rates, we would expect corporate earnings to grow at a rate of about 7 to
8 percent -- that's somewhat higher than we believed likely at the start of the
year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In July, the U.S. economy entered its 64th month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
CONSUMERS AND JOB SECURITY
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds
of the new jobs created in the United States in 1994 and 1995 paid better than
the average job. The report found that the rate at which jobs were eliminated
has risen slightly despite strong economic growth of recent years -- however, it
reported that the length of time most workers spent unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the
recent relationship between number of jobs created versus the number of jobs
lost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
12/31/91 (300,000) 40,000
12/31/92 120,000 (30,000)
12/31/93 300,000 70,000
12/31/94 180,000 70,000
12/31/95 (80,000) (40,000)
3/31/96 490,000 (10,000)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
Economic activity is a key influence on investment performance and
shareholder decision-making. Periods of recession or boom, inflation or
deflation, credit expansion or credit crunch have a significant impact on
mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
<TABLE>
<CAPTION>
Now (5/31/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.74 5.71 6.17 7.10
Prime rate(2) 8.25 8.63 9.00 7.25
Inflation rate(3) 2.96 2.60 3.04 2.56
The U.S. dollar(4) 8.51 -2.58 -9.31 0.51
Capital
goods orders(5) 2.93 11.03 12.98 25.11
Industrial production(6) 3.26 1.08 2.80 6.61
Employment growth(7) 2.00 1.92 2.71 3.12
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years, infla-
tion has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters
and the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
Source: Economics Department, Zurich Kemper Investments, Inc.
Such ebb and flow is to be expected in investing, especially at this point in
the cycle. Attempting to "prepare" for a correction is futile, we believe. Those
whose caution caused them to excuse themselves from the market early this year,
for example, would have forgone its significant gain year to date.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform,
federal budget deficit reduction and health care reform, the incumbent
legislators are running out of time to take action before the November
elections. If there is any suspense by November, it is likely to be in whether
the Republicans can retain control of Congress. Their success would make a
balanced budget and tax reform likely agenda topics for 1997.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
July 2, 1996
4
<PAGE> 5
PERFORMANCE UPDATE
[FERRO PHOTO]
DENNIS FERRO BECAME A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF THE FUND IN
MARCH, 1994, WHEN HE JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI). FERRO HOLDS
AN M.B.A IN FINANCE FROM ST. JOHN'S UNIVERSITY IN NEW YORK AND A BACHELOR'S
DEGREE FROM VILLANOVA UNIVERSITY IN PENNSYLVANIA. HE IS AN EXECUTIVE VICE
PRESIDENT OF ZKI AND A CHARTERED FINANCIAL ANALYST.
EDUARDO SUAREZ HAS BEEN A PORTFOLIO CO-MANAGER OF THE FUND SINCE ITS INCEPTION
IN FEBRUARY, 1990. HE IS THE CHIEF EXECUTIVE OFFICER OF BSN GESTION DE
PATRIMONIOS, S.A., S.G.C. (BSN GESTION). SUAREZ RECEIVED A LAW DEGREE FROM
DEUSTO UNIVERSITY IN 1977 AND A BUSINESS ADMINISTRATION DEGREE FROM ICADE IN
1978.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
THE SPANISH STOCK MARKET CONTINUED TO RALLY AS THE YEAR BEGAN BUT WITH GREATER
VOLATILITY. PORTFOLIO CO-MANAGERS DENNIS FERRO AND EDUARDO SUAREZ DISCUSS THE
MARKET AND THE PERFORMANCE OF THE FUND.
Q. THE STOCK MARKET RALLIED IN THE MONTHS LEADING UP TO THE MARCH 3 GENERAL
ELECTION AND THEN DROPPED 7 PERCENT THE DAY AFTER THE ELECTION. WHAT CAUSED THE
MARKET RALLY AND SUBSEQUENT CORRECTION?
A. The market rallied primarily for two reasons. First, there were strong
expectations that the center-right Partido Popular (PP) would win an absolute
majority in parliament, thereby ending the Socialists' 13-year reign. Second,
the fundamentals of the Spanish stock market were good, particularly a downward
trend in short-term interest rates. Given the expectations for an absolute PP
majority, many investors were disappointed when the PP won with only a simple
majority. Furthermore, it was not clear immediately following the election, if
the PP would be able to form a government without forming a coalition with one
or more of the regional parties. When investors saw signs that a ruling
agreement was feasible, and that fundamental value was still present in the
market, the market rallied again. Consequently, lower than expected short-term
interest rates helped push the market past pre-election levels.
Q. THE NEW GOVERNMENT RECENTLY REVISED ITS GROWTH FORECAST FOR 1996 DOWNWARD
TO 2.3 PERCENT, A WHOLE PERCENTAGE POINT LOWER THAN THE PREVIOUS SOCIALIST
GOVERNMENT. IN YOUR ESTIMATION IS THIS MORE ACCURATE?
A. Actually, the new figure is in line with our own forecast. Many analysts
thought the Socialists' growth estimates for 1996 were wishful thinking. The
fact that the new government has revised its estimates downward should have a
positive effect because it is simply more realistic and better reflects investor
sentiment. However, we still think gross domestic product (GDP) growth could
surprise on the upside in 1996 since we expect the economy to gain momentum in
the second half of the year.
Q. THE MONTHS PRIOR TO THE GENERAL ELECTION WITNESSED A SHIFT IN THE GROWTH
FUND OF SPAIN, INC. FROM CYCLICAL ISSUES IN FAVOR OF MORE DEFENSIVE ISSUES LIKE
BANKS AND ELECTRIC UTILITIES. WHY THE SHIFT TOWARDS GROWTH ORIENTED STOCKS AWAY
FROM THESE INTEREST-RATE SENSITIVE ISSUES?
A. Since we believe that growth will improve in the second half of 1996,
growth oriented stocks are more favored. Banks, utilities and consumer stocks
benefit from higher demand.
Q. HOW WILL THE POLICIES OF THE NEW CENTER-RIGHT GOVERNMENT, INTENT ON
LOWERING THE DEFICIT THROUGH SPENDING CUTS AND PRIVATIZATION, AFFECT THE MARKET?
HOW HAVE YOU ADJUSTED YOUR INVESTMENT STRATEGY IN THIS NEW POLITICAL
ENVIRONMENT?
A. Our strategy has been more rooted in macroeconomic factors than in
political events. Given our expectations of
5
<PAGE> 6
PERFORMANCE UPDATE
stronger economic growth in the second half of 1996, our current strategy has
been to decrease exposure to interest rate-sensitive stocks and increase
holdings of growth stocks. The construction sector will continue to suffer from
spending cuts and therefore should be avoided. Privatization will lead to a more
competitive and efficient company landscape and should not be a burden to the
market since most companies will be quite attractive to investors.
Q. AFTER A SLUGGISH YEAR IN 1995, CONSUMER CONSUMPTION APPEARS TO BE PICKING
UP. IS THIS CYCLICAL -- DUE MORE TO TOURISM, FOR EXAMPLE -- OR MORE STRUCTURAL
IN NATURE? HOW WILL INCREASED CONSUMPTION AFFECT THE MARKET?
A. Consumption, rather than capital investment, will be the driving force of
growth in domestic demand. The pick up in demand is a natural consequence of the
recovery of the economy and is not due to one specific factor like tourism.
Consequently, retail companies and banks will become more attractive as demand
increases in these sectors.
Q. WHAT WERE SOME OF THE STRONGER PERFORMING ISSUES IN THE PORTFOLIO DURING
THE PAST SIX MONTHS? WHICH STOCKS HAD SOME OF THE WEAKER PERFORMANCES?
A. The best performing issues in the portfolio were Alba, Telefonica,
Azkoyen, Gas Natural and Sevillana. Cortefiel, Uralita, El Aguila, Aumar, and
Zardoya Otis had some of the weaker performances.
Q. AFTER OUTPERFORMING THE AVERAGE OF ITS SPANISH PEERS IN THE LIPPER
EUROPEAN REGION FUND CATEGORY IN THE PREVIOUS FISCAL YEAR, THE FUND HAS SLIPPED
OVER THE LAST SIX MONTHS. HOW DO YOU EXPLAIN THE RECENT UNDERPERFORMANCE OF THE
FUND VIS-A-VIS ITS PEERS AS WELL AS THE MADRID STOCK EXCHANGE (MSE) GENERAL
INDEX?
A. The better performance of some of our peers is due to the strong
performance of small cap stocks in their portfolios during the period under
consideration. In some cases, our peers' investment strategy is more geared
toward small cap stocks than is The Growth Fund of Spain, Inc. Two stocks in
particular, Viscofan and Alba, contributed to the stronger performance of some
of our peers.
Viscofan collapsed late last year and subsequently recovered. Despite its
50 percent gain, we think that there are no fundamental reasons for the recovery
and believe that its share price will come down again. We did have some shares
of Alba in the portfolio, up to 2 percent, yet it was less than some of our
peers. We do not know if some of our Spanish peers hedged back into dollars
during this period when the dollar appreciated substantially against the Peseta,
but that could have helped their outperformance as well.
As far as underperforming the MSE General Index, our underweight position
in Telefonica -- a very strong performer -- compared to the index, and our
defensive stance of holding cash at around 15 percent of the portfolio's net
assets help explain the fund's relative poor performance on a net asset value
basis. As for Telefonica, we could not increase our position in that stock so as
to match the index due to investment restrictions as specified in the
prospectus. In addition, the sale of cyclical companies at low prices also hurt
our performance relative to the index. However, it is important to remember that
the cash position reduced volatility in key periods.
Q. WHAT IS YOUR OUTLOOK FOR THE GROWTH FUND OF SPAIN, INC.?
A. The outlook for the fund is strongly linked to our outlook for the market.
The market still has room to rise but the rise will be more limited from its
recent levels. As mentioned earlier, there is still value in some interest
rate-sensitive stocks. However, if growth resumes, which we believe it will, the
low interest-rate environment that helps these stocks perform well may
disappear. In addition, the new government may change the tariff framework for
the electric utilities which should prevent further stock price appreciation
until the issue is fully resolved. Consequently, we will continue to look for
value in growth stocks. With growth expected to pickup we still see value in the
market and remain confident that the fund can perform well over the long term.
6
<PAGE> 7
LARGEST HOLDINGS
THE FUND'S FIVE LARGEST HOLDINGS*
Representing 29.38% of the fund's total net assets on May 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------
Holdings Percent
- --------------------------------------------------------
<S> <C> <C>
1. TELEFONICA DE ESPANA 7.65%
(TELECOMMUNICATIONS)
- --------------------------------------------------------
2. BANCO POPULAR ESPANOL 6.23%
(BANKS & FINANCIALS)
- --------------------------------------------------------
3. BANCO BILBAO VIZCAYA 5.49%
(BANKS & FINANCIALS)
- --------------------------------------------------------
4. IBERDROLA (UTILITIES) 5.23%
- --------------------------------------------------------
5. BANKINTER (BANKS & FINANCIALS) 4.78%
- --------------------------------------------------------
</TABLE>
*PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
ON 5/31/96 ON 11/30/95
<S> <C> <C>
SPANISH EQUITIES 84% 85%
- --------------------------------------------------------------------------
SPANISH PESETA TIME DEPOSITS 13 13
- --------------------------------------------------------------------------
U.S. CASH EQUIVALENTS 3 2
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 5/31/96 ON 11/30/95
Spanish equities
Spanish peseta time deposits
U.S. cash equivalents
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
THE GROWTH FUND OF SPAIN
Portfolio of Investments at May 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS AND
FINANCIALS--22.3%
Argentaria 140,000 $ 5,853
Banco Bilbao Vizcaya 340,757 12,859
Banco Central Hispano 148,490 2,977
Banco de Andalucia 35,130 4,769
Banco Popular Espanol 83,776 14,588
Bankinter 109,000 11,202
-------------------------------------------------------------------------------
52,248
- ----------------------------------------------------------------------------------------------------------------
CHEMICALS
AND ENERGY--5.6%
(a) Cristaleria 44,427 2,784
Repsol 300,000 10,239
-------------------------------------------------------------------------------
13,023
- ----------------------------------------------------------------------------------------------------------------
CONSTRUCTION
AND PROPERTY
DEVELOPMENT--8.8%
Fomento de Construcciones y Contratas (FCC) 86,150 6,883
Inmobiliaria Metropolitana Vasco Central,
(Metrovacesa) 120,000 3,881
Uralita 319,614 2,814
Vallehermoso 403,049 7,081
-------------------------------------------------------------------------------
20,659
- ----------------------------------------------------------------------------------------------------------------
CONSUMER GOODS--4.5%
(a) Centros Commerciales Pryca 314,895 7,388
(a) Continente 106,255 2,328
Cortefiel 40,000 903
-------------------------------------------------------------------------------
10,619
- ----------------------------------------------------------------------------------------------------------------
ELECTRIC AND
OTHER UTILITIES--20.5%
Cantabrico 219,646 7,070
Empresa Nacional de Electricidad (ENDESA) 180,000 11,099
Fuerzas Electricas de Cataluna (FECSA) 450,000 3,211
Gas Natural 21,000 3,698
Gas y Electricidad (GESA) 67,723 3,677
Iberdrola 1,210,000 12,248
Union Electrica Fenosa 1,157,500 7,012
-------------------------------------------------------------------------------
48,015
- ----------------------------------------------------------------------------------------------------------------
FOOD AND
TOBACCO--1.5%
(a) El Aguila 348,858 2,040
Tabacalera Espanola 30,000 1,366
-------------------------------------------------------------------------------
3,406
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT
COMPANIES--1.7%
(a) Alba 45,714 3,918
-------------------------------------------------------------------------------
3,918
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
METALS AND
ENGINEERING--7.1%
Aceronix 33,754 $ 3,718
(a) Amper 144,156 1,800
Azcoyen 50,200 3,481
Zardoya Otis 77,041 7,643
-------------------------------------------------------------------------------
16,642
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS
AND MOTORWAYS--12.3%
(a) Aumar 450,000 5,393
Autopistas Concesionarios (ACESA) 515,054 5,533
Compania Telefonica Nacional de Espana 1,000,000 17,917
-------------------------------------------------------------------------------
28,843
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--84.3%
(Cost: $159,897) 197,373
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield--7.40% to 7.60%
Due--June 1996
(Principal amount in Spanish Pesetas)
Banco Exterior Internacional 1,170,066,000 9,076
Chase Manhattan--London 1,020,467,000 7,915
Citibank 586,894,000 4,552
J.P. Morgan & Company Inc. 1,097,685,000 8,514
---------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--12.8%
(Cost: $30,057) 30,057
---------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.1%
(Cost: $189,954) 227,430
---------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.9% 6,739
---------------------------------------------------------------------------------
NET ASSETS--100% $234,169
---------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing securities.
Based on the cost of investments of $189,954,000 for federal income tax purposes
the gross unrealized appreciation was $39,493,000, the gross unrealized
depreciation was $2,017,000 and the net unrealized appreciation of investments
was $37,476,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
(in thousands)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $189,954) $227,430
- -------------------------------------------------------------------------------------------------------
Cash (including foreign currency of $6,874 with a cost of $6,901) 7,230
- -------------------------------------------------------------------------------------------------------
Receivable for dividends and interest 352
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 235,012
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 586
- -------------------------------------------------------------------------------------------------------
Management fee 196
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 52
- -------------------------------------------------------------------------------------------------------
Directors' fees and other 9
- -------------------------------------------------------------------------------------------------------
Total liabilities 843
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO 17,022 SHARES OUTSTANDING,
$.01 PAR VALUE, EQUIVALENT TO $13.76 PER SHARE $234,169
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $189,532
- -------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 4,662
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and liabilities in foreign currencies 37,439
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,536
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $234,169
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ($234,169 / 17,022 shares outstanding) $13.76
- -------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 1996
(in thousands)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Dividends $ 3,310
- -------------------------------------------------------------------------------------------------------
Interest 1,369
- -------------------------------------------------------------------------------------------------------
4,679
- -------------------------------------------------------------------------------------------------------
Less foreign taxes withheld 511
- -------------------------------------------------------------------------------------------------------
Total investment income 4,168
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,148
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 131
- -------------------------------------------------------------------------------------------------------
Professional fees 163
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 14
- -------------------------------------------------------------------------------------------------------
Directors' fees and other 34
- -------------------------------------------------------------------------------------------------------
Total expenses 1,490
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,678
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign currency transactions 5,623
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and assets and liabilities in foreign
currencies 10,819
- -------------------------------------------------------------------------------------------------------
Net gain on investments 16,442
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,120
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
Net investment income $ 2,678 6,184
- --------------------------------------------------------------------------------------------------------
Net realized gain 5,623 7,448
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 10,819 9,656
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,120 23,288
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income (7,157) (7,767)
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain (4,942) --
- --------------------------------------------------------------------------------------------------------
Total dividends to shareholders (12,099) (7,767)
- --------------------------------------------------------------------------------------------------------
Payment for shares repurchased (77 shares and
160 shares, respectively) (849) (1,496)
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 6,172 14,025
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 227,997 213,972
- --------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $2,536 and $7,015, respectively) $234,169 227,997
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT ACCOUNTING
POLICIES DESCRIPTION OF FUND. The Fund is registered under
the Investment Company Act of 1940 as a
diversified, closed-end management investment
company.
INVESTMENT VALUATION. Investments are stated at
value. All securities that are traded on a Spanish
securities exchange and for which market quotations
are readily available are valued at the closing
value on the principal exchange on which the
securities are traded on the day of valuation or,
if no such closing price is available, at the last
bid price quoted on such day. If there are no
quotations available for the day of valuation, the
last available closing price will be used. Fixed
income securities are valued by using market
quotations, or independent pricing services that
use prices provided by market makers or estimates
of market values obtained from yield data relating
to instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Exchange traded fixed
income options are valued at the last sale price
unless there is no sale price, in which event
prices provided by market makers are used.
Over-the-counter traded options are valued based
upon current prices provided by market makers.
Financial futures and options thereon are valued at
the settlement price established each day by the
board of trade or exchange on which they are
traded. Forward foreign currency contracts and
foreign currencies are valued at the forward and
current exchange rates, respectively, prevailing on
the day of valuation. Other securities and assets
are valued at fair value as determined in good
faith by the Board of Directors.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in Spanish pesetas
are converted into U.S. dollar values at the mean
between the bid and offered quotations of that
currency against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available, the rate of exchange is
determined in good faith by the Board of Directors.
Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the
rate of exchange prevailing on the respective dates
of such transactions. The Fund includes that
portion of the results of operations resulting from
changes in foreign exchange rates with net realized
and unrealized gain (loss) on investments, as
appropriate.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the
information is available to the Fund. Interest
income is recorded on the accrual basis and
includes discount amortization on money market
instruments. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended May 31, 1996.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of any net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions, such as foreign
currency transactions, differently from generally
accepted accounting principles.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES The Fund has a management agreement with Zurich
Kemper Investments, Inc. (ZKI) (formerly known as
Kemper Financial Services, Inc.), and pays a
management fee at an annual rate of 1% of average
weekly net assets. The Fund incurred a management
fee of $1,148,000 for the six months ended May 31,
1996.
ZKI utilizes the investment management services of
BSN Gestion de Patrimonios, S.A., S.G.C. (the
Spanish Adviser) pursuant to a sub-advisory
agreement entered into between ZKI and the Spanish
Adviser. For services provided under the
sub-advisory agreement, ZKI pays a fee at an annual
rate of .35% of the Fund's average weekly net
assets to the Spanish Adviser. During the six
months ended May 31, 1996, ZKI incurred fees of
$402,000 to the Spanish Adviser.
Pursuant to a services agreement with the Fund's
transfer agent, Kemper Service Company (KSvC) is
the shareholder service agent of the Fund. Under
the agreement, KSvC received shareholder services
fees of $11,000 for the six months ended May 31,
1996.
The Fund has a custodian agreement with Banco
Santander, an affiliate of the Spanish Adviser, for
custody of the Fund's Spanish securities. For the
six months ended May 31, 1996, the Fund incurred
custody fees of $120,000 to Banco Santander.
Brokerage commissions paid on securities
transactions to BSN Sociedad de Valores y Bolsa, an
affiliate of the Spanish Adviser, amounted to
$105,000 for the six months ended May 31, 1996.
Certain officers or directors of the Fund are also
officers or directors of ZKI. During the six months
ended May 31, 1996, the Fund made no payments to
its officers and incurred directors' fees of
$12,000 to independent directors.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $52,813
Proceeds from sales 66,708
- --------------------------------------------------------------------------------
4 REPURCHASE
OF SHARES The Board of Directors of the Fund has authorized
the open market repurchase and retirement of up to
three million shares (987,000 repurchased to date)
of the Fund's outstanding stock. Shares repurchased
during each of the periods are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
----------------- -----------------
<S> <C> <C>
Number of shares 77,000 160,000
Weighted average discount to
net asset value 11% 14%
</TABLE>
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, -------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.33 12.40 10.67 8.99 11.08
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .16 .37 .32 .40 .54
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .98 1.01 1.41 1.28 (2.48)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.38 1.73 1.68 (1.94)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .42 .45 -- -- .15
- -----------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .29 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total dividends .71 .45 -- -- .15
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.76 13.33 12.40 10.67 8.99
- -----------------------------------------------------------------------------------------------------------------------
Market value, end of period $11.50 10.88 10.00 9.63 7.50
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------------
Based on net asset value 8.99% 11.62 16.21 18.69 (17.73)
- -----------------------------------------------------------------------------------------------------------------------
Based on market value 13.07 13.83 3.90 28.33 (22.77)
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------------
Expenses 1.30% 1.22 1.23 1.22 1.22
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 2.33 2.89 2.57 3.97 4.98
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $234,169 227,997 213,972 184,884 156,179
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 54% 69 85 50 72
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the six months
ended May 31, 1996 was $.0599.
- --------------------------------------------------------------------------------
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestment of dividends. These
figures will differ depending upon the level of any discount from or premium to
net asset value at which the Fund's shares trade during the period.
14
<PAGE> 15
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
On May 29, 1996, an annual shareholders' meeting was held. The Growth Fund of
Spain, Inc. shareholders were asked to vote on four separate issues: re-election
of four members to the Board of Directors, ratification of the selection of
Ernst & Young LLP as independent auditors, approval of converting the fund from
a closed-end investment company to an open-end investment company and a
recommendation to the Board to approve and submit for shareholder approval a
fundamental policy to make offers to repurchase the fund's shares at three month
intervals. Following are the results for each issue:
1) Re-election of Directors:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Arthur R. Gottschalk
(Class II) 11,430,696 1,668,887
Dominique P. Morax
(Class I) 11,376,988 1,722,595
Stephen B. Timbers
(Class II) 11,371,748 1,727,835
John G. Weithers
(Class II) 11,430,696 1,668,887
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
12,792,882 234,784 71,917
</TABLE>
3) Converting the fund from a closed-end investment company to an open-end
investment company:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
5,206,907* 2,364,803 5,630,536
</TABLE>
*This represents approximately 30 percent of the fund's outstanding shares;
therefore, the proposal was not approved by the required vote of three-quarters
of the fund's outstanding shares.
4) Recommendation to the Board to approve and submit for shareholder approval a
fundamental policy to make offers to repurchase the fund's shares at three
month intervals:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
4,664,385** 2,769,964 5,767,897
</TABLE>
**Shareholders holding approximately 44 percent of the fund's outstanding shares
voted on this proposal, with approximately 63 percent thereof voting in favor
of this proposal which represents approximately 27 percent of the fund's
outstanding shares. This proposal was approved by the required vote of a
majority of the shares voting on this matter.
Because the proposal was approved, the Board of Directors will consider
whether to submit to shareholders a formal proposal to adopt the interval fund
structure.
15
<PAGE> 16
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL
President and Director Vice President
JAMES E. ATKINS JOHN E. PETERS
Director Vice President
ARTHUR R. GOTTSCHALK STEVEN H. REYNOLDS
Director Vice President
FREDERICK T. KELSEY DENNIS H. FERRO
Director Vice President
DOMINIQUE P. MORAX PHILIP J. COLLORA
Director Vice President
and Secretary
FRED B. RENWICK
Director CHARLES F. CUSTER
Vice President and
JOHN B. TINGLEFF Assistant Secretary
Director
JEROME L. DUFFY
JOHN G. WEITHERS Treasurer
Director
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN BANCO SANTANDER
MADRID, SPAIN
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper
GSP - 3 (7/96) KEMPER LOGO
1018260
Printed in the U.S.A.
