<PAGE> 1
THE GROWTH FUND
OF SPAIN, INC.
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED NOVEMBER 30, 1996
"... Despite achieving the highest annual total return (based
on net asset value) in its history, there were a couple of
early decisions that prevented the fund from outperforming the market..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At a Glance
2
Terms to Know
3
Economic Overview
5
Performance Update
7
Largest Holdings
7
Portfolio Statistics
8
Portfolio of Investments
10
Report of Independent Auditors
11
Financial Statements
13
Notes to Financial Statements
16
Financial Highlights
17
Description of Dividend Reinvestment Plan
AT A GLANCE
- -----------------------------------------------------------------------------
TOTAL RETURNS
- -----------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -----------------------------------------------------------------------------
<S> <C> <C>
THE GROWTH FUND
OF SPAIN, INC. 24.12% 22.38%
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -----------------------------------------------------------------------------
AS OF AS OF
11/30/96 11/30/95
- -----------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $15.67 $ 13.33
- -----------------------------------------------------------------------------
MARKET PRICE $12.50 $10.875
- -----------------------------------------------------------------------------
</TABLE>
Statistical Note: Total return measures aggregate change in net asset
value/market value 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
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to reduce the
possibility of a loss on an investment.
INFLATION A continuing rise in the general level of prices of goods and
services. The purchasing power of the monetary unit, such as the dollar,
declines when inflation is present.
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.
VALUE-ADDED TAX (VAT) A consumption tax levied on the value added to a product
at each stage of its manufacturing cycle as well as at the time of purchase by
the ultimate consumer.
2
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL
MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
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.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</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,
inflations 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 family income and retail sales.
* Data as of November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter 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.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[FERRO PHOTO]
DENNIS FERRO BECAME PORTFOLIO CO-MANAGER OF THE FUND IN MARCH 1994, WHEN HE
JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI). HE IS AN EXECUTIVE VICE PRESIDENT
OF ZKI AND A CHARTERED FINANCIAL ANALYST. 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.
EDUARDO SUAREZ HAS BEEN 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.
A YEAR OF RECORD-BREAKING HIGHS IN THE SPANISH STOCK MARKET HELPED THE GROWTH
FUND OF SPAIN, INC. RETURN NEARLY 25% FOR THE PERIOD -- THE HIGHEST ANNUAL
RETURN (BASED ON NET ASSET VALUE) IN THE FUND'S HISTORY. A CAUTIOUS INVESTMENT
STRATEGY EARLY IN THE YEAR, HOWEVER, PREVENTED THE FUND FROM MATCHING THE
PERFORMANCE OF THE MARKET.
Q IN ABSOLUTE TERMS, THE GROWTH FUND OF SPAIN, INC. PRODUCED THE HIGHEST
ANNUAL RETURN (24.12% BASED ON NET ASSET VALUE) IN ITS HISTORY, YET THE MADRID
GENERAL INDEX ROSE EVEN HIGHER (29.63%). WHAT DROVE THE MARKET'S PERFORMANCE AND
WHAT PREVENTED THE FUND FROM FULLY PARTICIPATING?
A After a year of strong performance, the Spanish market hit a historical
high in November. This record-breaking performance was due, in part, to
decreased inflation in the first half of the year resulting from the positive
effects of value-added tax increases enacted in early 1995. Investors did get a
little leery about inflation early in the second half which caused interest
rates to creep up a bit. But, inflation was low and a rate cut by the Bank of
Spain helped both the bond and equity markets. Interest rate-sensitive sectors
- -- a dominant sector in this market overall -- benefited significantly from this
economic environment. Banks, for instance, had a strong first half of the year.
In the second half, continuing efforts to privatize Spanish utilities increased
values after the sector's somewhat lackluster performance in the first six
months.
Despite achieving the highest annual total return (based on net asset
value) in its history, there were a couple of early decisions that prevented
the fund from outperforming the market and the Lipper Analytical Services, Inc.
European Regional Fund category average total return of 29.08%. One of the main
reasons was our cash position in the first half of the year. With about 18% in
cash, we were underinvested at a time when the market was rallying strongly. We
were anticipating a correction in the market at that point and were cautious at
a time when we needed to be more fully invested. We began reducing the cash
balance during the summer months. At the end of the period, it was around 10%.
Another opportunity that we missed was with mid- and small capitalization
companies. They had a good year and we didn't have enough exposure to them.
Overall, our investment strategy was to focus on high quality, interest
rate-sensitive stocks. At the end of the fiscal year, the fund had a nearly 28%
position in banks and just over 30% of equity investments in utilities.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT EFFECT, IF ANY, DID THE VICTORY LAST SPRING OF THE POPULAR PARTY (PP)
OVER THE SOCIALISTS HAVE ON THE MARKET?
A The market reacted negatively to the election results because the PP did
not win an absolute majority. With only a simple majority, the PP had to
establish an agreement with the regional Catalan party to work together. One of
the major goals of the government is to cut the budget deficit yet the Catalan
party is not a cost-saving party because it is more regionally focused. A
short-lived post-election slip in the market was largely based on the Catalan
party's lack of interest in cutting public spending. The market gains we saw
later in the year were in reaction to the continuation of the previous
government's policy of reducing budget deficits. Also, the increasing emphasis
on the privatization of several Spanish industries was very positive for the
market. The strong liquidity of domestic institutions buying into Spanish
markets was a boost, as was the initialization of cross holdings -- companies
taking stakes in each other's equity.
Q WHAT WAS YOUR POSITION ON HEDGING DURING THE YEAR?
A We did a very modest amount of hedging in the first quarter with about a
20% hedge on the U.S. dollar. If one establishes a hedge at the beginning of a
rally of the dollar and gets out once it starts to weaken, it can be a strong
position to take. We were somewhat off track with our timing, which hurt
performance some. We took profits in the first quarter and afterward we weren't
hedged at all. Since the peseta is expected to join the single European currency
in the first wave, there is a lot of demand for higher-yielding peseta assets,
adding to its strength vis-a-vis the U.S. dollar.
Q WHAT IS YOUR OUTLOOK FOR THE SPANISH MARKET FOR THE NEXT SEVERAL MONTHS?
A The high levels of the market by the end of the year suggest that a
correction is quite possible in the new year. However, a continuous flow of cash
from domestic funds and the strong confidence in the European Monetary Union
(EMU) give solid support to the market. There has been a very strong drive
toward creating a single currency by 1999. Although the goal is for each country
to have a balanced budget, the EMU will allow a three percent debt to Gross
Domestic Product (GDP) ratio in the first stage. Spain has been disciplined in
reducing its budget deficits, a commitment that has boosted the bond and equity
markets and may continue to do so. In the coming months, we plan to take a less
defensive approach to managing the fund, which should broaden our market
exposure.
6
<PAGE> 7
LARGEST HOLDINGS
THE FUND'S FIVE LARGEST HOLDINGS*
REPRESENTING 34% OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
1. ENDESA (UTILITIES) 9%
- --------------------------------------------------------------------------------
2. BANCO BILBAO-VIZCAYA 8%
(BANKS AND FINANCIALS)
- --------------------------------------------------------------------------------
3. REPSOL (CHEMICALS) 7%
- --------------------------------------------------------------------------------
4. BANKINTER (BANKS AND FINANCIALS) 5%
- --------------------------------------------------------------------------------
5. IBERDROLA (UTILITIES) 5%
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- -----------------------------------------------------------------------------------
<S> <C> <C>
SPANISH EQUITIES 89% 85%
- -----------------------------------------------------------------------------------
SPANISH PESETA TIME DEPOSITS 8 13
- -----------------------------------------------------------------------------------
CASH EQUIVALENTS 3 2
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/96 ON 11/30/95
* Portfolio holdings and composition are subject to change.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
THE GROWTH FUND OF SPAIN, INC.
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKING--24.2% Argentaria 150,000 $ 5,849
Banco Bilbao-Vizcaya 432,500 21,875
Banco Central Hispano 148,490 3,698
Banco de Andalucia 35,130 4,978
Banco Pastor, S.A. 17,500 1,027
Banco Popular Espanol 65,500 12,695
Bankinter 105,000 13,784
------------------------------------------------------------------------
63,906
- -----------------------------------------------------------------------------------------------------------------
CHEMICALS AND ENERGY--7.8% Cristaleria 38,000 2,480
Repsol 487,500 18,051
------------------------------------------------------------------------
20,531
- -----------------------------------------------------------------------------------------------------------------
CONSTRUCTION AND PROPERTY Fomento de Construcciones y Contratas (FCC) 90,000 7,610
DEVELOPMENT--7.3% Inmobiliaria Metropolitana Vasco Central,
(Metrovacesa) 65,000 2,339
Uralita 123,549 916
Vallehermoso 403,049 8,388
------------------------------------------------------------------------
19,253
- -----------------------------------------------------------------------------------------------------------------
CONSUMER GOODS--5.1% Centros Commerciales Pryca 470,000 9,872
Continente 69,958 1,323
Prosegur, CIA de Seguridad, S.A. 100,000 815
Vidrala, S.A. 22,575 1,377
------------------------------------------------------------------------
13,387
- -----------------------------------------------------------------------------------------------------------------
ELECTRIC AND OTHER Cantabrico 205,000 6,910
UTILITIES--26.8% Compania Sevillana de Electricidad 215,000 2,017
Empresa Nacional de Electricidad (ENDESA) 347,500 23,480
Fuerzas Electricas de Cataluna (FECSA) 900,000 7,193
Gas Natural 20,250 4,203
Gas y Electricidad (GESA) 77,500 4,369
Iberdrola 1,190,000 13,738
Union Electrica Fenosa 1,157,500 8,724
------------------------------------------------------------------------
70,634
- -----------------------------------------------------------------------------------------------------------------
FOOD AND TOBACCO--.4% (a)El Aguila 120,627 605
(a)Tele Pizza, S. A. 21,516 523
------------------------------------------------------------------------
1,128
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT AND DIVERSIFIED Alba 32,154 3,027
COMPANIES--1.1%
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
METALS AND Aceronix 40,300 5,135
ENGINEERING--6.7% Azcoyen 50,200 4,167
Zardoya Otis 78,500 8,365
------------------------------------------------------------------------
17,667
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS AND Aumar 400,000 $ 6,162
MOTORWAYS--9.5% Autopistas Concesionarios (ACESA) 479,125 5,809
Compania Telefonica Nacional de Espana 600,000 13,158
- ---------------------------------------------------------------------------------------------------------------------
25,129
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--88.9%
(Cost: $173,800) $234,662
----------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
Yield--6.75% to 6.88%
Due--December 1996
(PRINCIPAL AMOUNT IN SPANISH PESETAS)
Banco Exterior Internacional 1,212,963,000 9,367
Chase Manhattan--London 700,919,000 5,412
J.P. Morgan & Company Inc. 783,742,000 6,052
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--7.9%
(Cost: $21,031) 20,831
----------------------------------------------------------------------------
TOTAL INVESTMENTS--96.8%
(Cost: $194,831) 255,493
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--3.2% 8,442
----------------------------------------------------------------------------
NET ASSETS--100% $263,935
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $194,831,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation was $62,286,000, the
gross unrealized depreciation was $1,624,000 and the net unrealized appreciation
of investments was $60,662,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE GROWTH FUND OF SPAIN, INC.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The Growth Fund of Spain, Inc. as of
November 30, 1996, the related statements of operations for the year then ended
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal periods since 1992. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Growth Fund of Spain, Inc. at November 30, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the fiscal
periods since 1992, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1997
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $194,831) $255,493
- ------------------------------------------------------------------------
Cash (including foreign currency of $4,949 with a cost of
$5,062) 5,170
- ------------------------------------------------------------------------
Receivable for:
Investments sold 4,385
- ------------------------------------------------------------------------
Dividends and interest 320
- ------------------------------------------------------------------------
TOTAL ASSETS 265,368
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 1,156
- ------------------------------------------------------------------------
Management fee 219
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 48
- ------------------------------------------------------------------------
Directors' fees and other 10
- ------------------------------------------------------------------------
Total liabilities 1,433
- ------------------------------------------------------------------------
NET ASSETS $263,935
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $187,360
- ------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions 13,403
- ------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 60,518
- ------------------------------------------------------------------------
Undistributed net investment income 2,654
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $263,935
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($263,935 / 16,840 shares outstanding) $15.67
- ------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 7,770
- --------------------------------------------------------------------------------
Interest 2,285
- --------------------------------------------------------------------------------
10,055
- --------------------------------------------------------------------------------
Less foreign taxes withheld 1,249
- --------------------------------------------------------------------------------
Total investment income 8,806
- --------------------------------------------------------------------------------
Expenses:
Management fee 2,374
- --------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 275
- --------------------------------------------------------------------------------
Professional fees 190
- --------------------------------------------------------------------------------
Reports to shareholders 64
- --------------------------------------------------------------------------------
Directors' fees and other 54
- --------------------------------------------------------------------------------
Total expenses 2,957
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,849
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- --------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 11,311
- --------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 33,898
- --------------------------------------------------------------------------------
Net gain on investments 45,209
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $51,058
- --------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 5,849 6,184
- -------------------------------------------------------------------------------------------
Net realized gain 11,311 7,448
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation 33,898 9,656
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 51,058 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
(259 shares and 160 shares, respectively) (3,021) (1,496)
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 35,938 14,025
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 227,997 213,972
- -------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment
income of $2,654 and $7,015, respectively) $263,935 227,997
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
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 settlement price
established each day by the exchange on which they
are traded. 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.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required. The Fund
may make an election under the Internal Revenue
Code so that shareholders may claim a tax credit or
deduction for their share of foreign taxes paid by
the Fund.
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.
On December 9, 1996, the following per share
dividends were declared, payable December 31, 1996,
to shareholders of record on December 16, 1996:
$0.17 income, $0.32 short-term capital gains and
$0.51 long-term capital gains.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES The Fund has a management agreement with Zurich
Kemper Investments, Inc. (ZKI), and pays a
management fee at an annual rate of 1% of average
weekly net assets. The Fund incurred a management
fee of $2,374,000 for the year ended November 30,
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 year
ended November 30, 1996, ZKI incurred fees of
$831,000 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 $24,000 for the year ended November 30,
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
year ended November 30, 1996, the Fund incurred
custody fees of $187,000 to Banco Santander.
Brokerage commissions paid on securities
transactions to BSN Sociedad de Valores y Bolsa, an
affiliate of the Spanish Adviser, amounted to
$251,000 for the year ended November 30, 1996.
Certain officers or directors of the Fund are also
officers or directors of ZKI. During the year ended
November 30, 1996, the Fund made no payments to its
officers and incurred directors' fees of $23,000 to
independent directors.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $118,599
Proceeds from sales 123,780
- --------------------------------------------------------------------------------
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 (1,169,000 repurchased to
date) of the Fund's outstanding stock. Shares
repurchased during each of the last two fiscal
years are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
------- -------
<S> <C> <C>
Number of shares 259,000 160,000
Weighted average discount to net asset value 9% 14%
</TABLE>
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $13.33 12.40 10.67 8.99 11.08
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .36 .37 .32 .40 .54
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.69 1.01 1.41 1.28 (2.48)
- --------------------------------------------------------------------------------------------------------
Total from investment operations 3.05 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 year $15.67 13.33 12.40 10.67 8.99
- --------------------------------------------------------------------------------------------------------
Market value, end of year $12.50 10.88 10.00 9.63 7.50
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN
- --------------------------------------------------------------------------------------------------------
Based on net asset value 24.12% 11.62 16.21 18.69 (17.73)
- --------------------------------------------------------------------------------------------------------
Based on market value 22.38% 13.88 3.90 28.33 (22.83)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------
Expenses 1.25% 1.22 1.23 1.22 1.22
- --------------------------------------------------------------------------------------------------------
Net investment income 2.46% 2.89 2.57 3.97 4.98
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $263,935 227,997 213,972 184,884 156,179
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 69 85 50 72
</TABLE>
- --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year
ended November 30, 1996 was $.0609.
- --------------------------------------------------------------------------------
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.
16
<PAGE> 17
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment Plan (the "Plan") which is
available to you as a shareholder of THE GROWTH
FUND OF SPAIN, INC. (the "Fund"). If you wish to
participate and your shares are held in your own
name, no further action on your part is required;
you are automatically enrolled in the Plan. If your
shares are held in the name of a brokerage firm,
bank, or other nominee, you must instruct that
nominee to re-register your shares in your name so
that you may participate in the Plan, unless your
nominee has made the Plan available on shares held
by them. Shareholders who so elect will be deemed
to have appointed United Missouri Bank, n.a.
("UMB") as their agent for the Fund under the Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; and (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account. Sources described in clauses
(a) and (b) of the preceding sentence are
hereinafter called "Distributions."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS
HELD IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the Fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
Fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the Fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
- --------------------------------------------------------------------------------
4 ADDITIONAL
INFORMATION Address all notices, correspondence, questions, or
other communications regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
17
<PAGE> 18
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
5 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
6 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 7 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
7 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of
Shares for individual Accounts through the Plan can
be expected to be less than the usual brokerage
charges for such transactions, as UMB will be
purchasing Shares for all participants in blocks
and prorating the lower commission thus attainable.
- --------------------------------------------------------------------------------
8 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraph 12 hereof.
However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
- --------------------------------------------------------------------------------
9 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the Account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
10 SHARES NOT HELD IN
SHAREHOLDER'S
NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
11 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
18
<PAGE> 19
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
12 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 11 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
- --------------------------------------------------------------------------------
13 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of Federal income tax returns. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
19
<PAGE> 20
DIRECTORS & OFFICERS
DIRECTORS OFFICERS
STEPHEN B. TIMBERS DENNIS H. FERRO
President and Director Vice President
JAMES E. ATKINS CHARLES R. MANZONI, J
Director Vice President
ARTHUR R. GOTTSCHALK JOHN E. NEAL
Director Vice President
FREDERICK T. KELSEY STEVEN H. REYNOLDS
Director Vice President
DOMINIQUE P. MORAX PHILIP J. COLLORA
Director Vice President
and Secretary
FRED B. RENWICK JEROME L. DUFFY
Director Treasurer
JOHN B. TINGLEFF
Director
JOHN G. WEITHERS
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
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://www.kemper.com
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