<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
THE
GROWTH FUND OF SPAIN, INC.
"...Spain should continue to be well-
supported by positive macroeconomic
fundamentals and a strong demand for
equities from domestic investors..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
PORTFOLIO STATISTICS
LARGEST HOLDINGS
8
PORTFOLIO OF INVESTMENTS
10
FINANCIAL STATEMENTS
12
NOTES TO
FINANCIAL STATEMENTS
14
FINANCIAL HIGHLIGHTS
15
SHAREHOLDERS' MEETING
At A GLANCE
TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
.........................................................
<S> <C> <C> <C> <C>
THE GROWTH FUND
OF SPAIN, INC. 34.60% 39.48%
.........................................................
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
5/31/98 11/30/97
......................................................
<S> <C> <C> <C> <C>
NET ASSET VALUE $23.72 $19.06
......................................................
MARKET PRICE $21.75 $17.00
......................................................
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND INFORMATION FOR THE FUND AS OF MAY
31,1998.
<TABLE>
<S> <C> <C> <C>
INCOME DIVIDEND $0.11
......................................................
SHORT-TERM CAPITAL GAIN $0.43
......................................................
LONG-TERM CAPITAL GAIN $0.93
......................................................
</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
EUROPEAN MONETARY UNION An economic and monetary unification of European
countries to ultimately introduce a single currency and create a more
economically competitive region.
LIQUIDITY A characteristic of an investment or an asset referring to the ease of
convertibility into cash within a reasonably short period of time.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
Dr. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
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 (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</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,
inflation has been as high as 6 percent. 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 May 31, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
FOR THE SIX MONTHS ENDED MAY 31, 1998, THE GROWTH
FUND OF SPAIN, INC. RETURNED 34.60 PERCENT IN NET
ASSET VALUE COMPARED TO A 42.54 PERCENT RETURN OF
THE SPANISH STOCK MARKET*. THE MARKET CONTINUED TO
OFFER EXCELLENT RETURNS DRIVEN BY FALLING INTEREST
RATES, LOW LEVELS OF INFLATION, POSITIVE CORPORATE
EARNINGS AND DOMESTIC LIQUIDITY. FOLLOWING,
PORTFOLIO MANAGEMENT DISCUSSES THE MARKET AND THE
FUND'S POSITIONING IN THIS THRIVING ENVIRONMENT.
Q
FOR INVESTORS, EUROPE IN GENERAL AND SPAIN SPECIFICALLY, HAS BEEN THE
PLACE TO BE DURING THE LAST SIX MONTHS. WHAT ECONOMIC ISSUES ARE DRIVING THIS
OUTSTANDING PERFORMANCE?
A
In Spain, economic growth remained strong with stable inflation and a
budget deficit well within the criteria for participation in the European
Monetary Union (EMU). Unemployment, historically very high in Spain, fell to the
lowest level since 1992. The Spanish government also announced that the marginal
personal income tax rate would be reduced from 56 percent to 48 percent, a
significant development that should translate into higher disposable income.
The most significant factor impacting European economies has been the gradual
pickup of economic growth from near recessionary levels, particularly in France
and Germany. It was only about six months ago that we started to see signs of
life in those economies. A significant economic recovery has been taking place
in the fringe economies for some time, particularly in Spain, the Netherlands,
Ireland, and to some extent Italy, but what we're clearly seeing now is an
acceleration of that trend.
The main catalyst of all this has been the run-up to the start of the EMU,
which is scheduled to begin on January 1, 1999. Spain will be a first wave
participant in the convergence and during the past several years, most
governments increased taxes and lowered expenditures to strengthen their
countries' fiscal positions in order to meet EMU criteria which caused a fairly
significant economic slowdown. As the EMU nears and most countries have brought
their government budgets under control, we are seeing a gradual relaxing of
government policies.
That, combined with the lax monetary policies that central banks put in place
to counter the effects of the tight fiscal policies, has led to a sharp pickup
of economic growth across Europe. But because the level of unemployment in Spain
and throughout Europe is still fairly high, there is no pricing pressure to
raise interest rates in the short term.
At the moment, short-term interest rates are moving into convergence, meaning
countries are bringing their rates in line with Germany and France. In Spain, we
still have some interest rate cuts to go.
* Performance based on the Madrid Stock Exchange (MSE) General Index which is an
unmanaged group of the most frequently traded stocks on the Madrid Stock
Exchange.
PERFORMANCE Update
The Scudder Kemper Investments Global Equity portfolio management team,
responsible for the day-to-day management of the Fund, now includes Joan R.
Gregory and Nicolas Bratt. They join long-standing portfolio manager Eduardo
Suarez of BSN Gestion de Patrimonios, S.A., S.G.C.
Joan Gregory, a vice president of Scudder Kemper Investments, Inc., is a member
of the Global Equity Group, where she serves as lead portfolio manager of The
Growth Fund of Spain, Inc. and several institutional international portfolios.
Prior to joining Scudder Kemper Investments in 1992, Ms. Gregory worked in U.S.
Trust's international investment department.
Ms. Gregory received a BA degree from University College in Dublin and an MA
degree from Columbia University.
Nick Bratt, a managing director of Scudder Kemper Investments, Inc., is the
director of the Global Equity Group. With over twenty years of experience in
international investment, Mr. Bratt is a member of the portfolio management team
for The Growth Fund of Spain, Inc. Prior to joining Scudder Kemper Investments
in 1976, Mr. Bratt served as a Far East Specialist and International Fund
Manager for Morgan, Grenfell & Co., Ltd. in London. Mr. Bratt received a BA
degree with honors from St. Johns College, Oxford University and an MIA degree
as a Fulbright Scholar from Columbia University.
Eduardo Suarez has been a portfolio manager of The Growth Fund Of Spain, Inc.
since its inception in February 1990. He is the chief executive officer of BSN
Gestion de Patrimonios, S.A., S.G.C., sub-advisor for the fund. 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
sub-
5
ject to change at any time, based on market and other conditions.
<PAGE> 6
Q
THE ASIAN CRISIS RESURFACED AND WAS A DRAG ON U.S. MARKET PERFORMANCE IN THE
SECOND QUARTER OF THIS YEAR. HOW DID IT AFFECT SPAIN DURING THIS SIX-MONTH
PERIOD?
A
Most of Europe was not largely impacted by the events in Asia but Spain did
feel some pressure due to heavy investment in Latin America. Asia's woes were
felt throughout all emerging markets as investors got nervous about currency
strength in all developing regions. Investors have begun to decouple Asia from
the other emerging markets with strong fundamentals and sound economic
policies which should help put Latin America back on track and bolster Spanish
investment in this region.
Q
WHAT INDUSTRY SECTORS DID YOU FOCUS ON DURING THE PERIOD?
A
Financial services continue to lead performance. This is a growth industry in
Spain. Managements are leveraging off their efficient distribution
capabilities to deliver high-quality growth in earnings. The banking sector is
the most liquid way to get exposure to the booming Spanish economy. At roughly
33 percent of the portfolio, this is the largest sector weighting in the fund.
The second largest sector is the utility sector. Privatization efforts
continue to fuel this industry. The government announced plans to fully
privatize ENDESA -- the largest generator of electricity in Spain and a 6
percent exposure in the fund -- selling its remaining 33 percent interest.
ENDESA also announced plans to buy back and cancel 8.2 percent of its own
equity which is expected to lift earnings per share growth by 3 to 4 percent.
Communications make up the fund's third largest weighting at just over 12
percent. At 10 percent, Telefonica makes up a significant portion of the
fund's weighting in this sector. We expect to see continued strong earnings
momentum from this company.
Q
WHILE THE FUND'S MORE THAN 34 PERCENT RETURN FOR THE SIX-MONTHS IS VERY
IMPRESSIVE, IT DID UNDERPERFORM THE MARKET. WHAT KEPT THE GROWTH FUND OF
SPAIN, INC. FROM FULLY PARTICIPATING IN THE CONTINUED SPANISH MARKET RALLY?
A
As was mentioned, the financial sector was the best performer during the
period fueled by merger and acquisition rumors. The smaller, lower quality
banks saw significant jumps as the market assumed they would be likely buyout
targets of the larger, stronger banks. Throughout the six months, the fund has
been overweight in the larger banking names, which caused the fund to miss
some upside as the smaller names rallied. Our focus on the larger, quality
names proved beneficial as the second quarter of the calendar year got
underway, however, and the smaller banks corrected, underperforming the
general index. Our performance was also affected by certain restrictions that
make it difficult for the fund to hold a weighting in this sector equivalent
to the market weighting.
Q
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A
We do not feel that this market is overvalued despite the strength it has been
enjoying. Spain should continue to be well-supported by positive macroeconomic
fundamentals and a strong demand for equities from domestic investors. Any
risk to these markets will likely come from global, rather than domestic,
factors. When the Spanish economy achieves real convergence with the rest of
Europe, growth in corporate earnings should continue to be above the European
average. Our focus in the fund is on companies with strong fundamentals and
good profit growth.
Q
AND WHAT ARE THE RISKS TO THIS OUTLOOK?
A
In an environment where interest rates are low relative to a very strong
economy, the big risk is a pick-up in inflation. With monetary policy in the
hands of the European Central Bank, the option to devalue a local currency is
no longer available to national governments. Over the longer term, the larger
risk to Spain is if EMU fails. Spain needs to further deregulate its labor
markets and reform its welfare system to improve competitiveness. However, for
the nearer term, we believe that the EMU optimism will continue and that a
very positive European backdrop will support the Spanish market.
6
Performance UPDATE
<PAGE> 7
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
ON 5/31/98 ON 11/30/97
<S> <C> <C> <C> <C>
SPANISH EQUITIES 98% 95%
......................................................................................................
SPANISH PESETA TIME DEPOSITS 1 2
......................................................................................................
U.S. CASH EQUIVALENTS 1 3
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
THE FUND'S 10 LARGEST HOLDINGS*
Representing 60.1 percent of the fund's total net assets on May 31, 1998
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
1. BANCO BILBAO VIZCAYA 12.6%
- ---------------------------------------------------------------------------------------------------------
2. TELEFONICA DE ESPANA 9.7%
- ---------------------------------------------------------------------------------------------------------
3. ENDESA 6.1%
- ---------------------------------------------------------------------------------------------------------
4. IBERDROLA 5.1%
- ---------------------------------------------------------------------------------------------------------
5. REPSOL 5.0%
- ---------------------------------------------------------------------------------------------------------
6. FCC 4.8%
- ---------------------------------------------------------------------------------------------------------
7. ARGENTARIA 4.5%
- ---------------------------------------------------------------------------------------------------------
8. VALLEHERMOSO 4.3%
- ---------------------------------------------------------------------------------------------------------
9. BANCO POPULAR ESPANOL 4.2%
- ---------------------------------------------------------------------------------------------------------
10. GAS NATURAL 3.8%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
LARGEST HOLDINGS
7
PORTFOLIO Statistics
<PAGE> 8
THE GROWTH FUND OF SPAIN, INC.
Portfolio of Investments at May 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
BANKING--30.4%
Argentaria 205,000 $ 17,517
Banco Bilbao Vizcaya 985,000 49,538
Banco Central Hispano 421,875 13,797
Banco de Andalucia 22,238 5,085
Banco Pastor, S.A. 40,000 2,221
Banco Popular Espanol 207,751 16,503
Bankinter 220,000 14,467
-----------------------------------------------------------------------
119,128
- ---------------------------------------------------------------------------------------------------------------------------
CHEMICALS AND ENERGY--5.0%
Repsol 350,000 19,476
-----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION AND PROPERTY
DEVELOPMENT--11.4%
Formento de Construcciones y Contratas
(FCC) 376,132 18,966
Grupo Acciona 27,650 7,127
Inmobiliaria Metropolitana Vasco Central
(Metrovascesa) 30,000 1,784
Vallehermoso 442,255 17,010
-----------------------------------------------------------------------
44,887
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS--5.3%
Aldeasa, S.A. 50,000 1,943
Baron de Ley, S.A. 15,000 491
Centros Commerciales Pryca 590,000 10,820
Prosegur, Cia de Seguridad, S.A. 402,415 5,093
Vidrala, S.A. 180,000 2,451
-----------------------------------------------------------------------
20,798
- ---------------------------------------------------------------------------------------------------------------------------
ELECTRIC AND OTHER UTILITIES--24.2%
Cantabrico 122,443 5,745
Compania Sevillana de Electricidad 1,050,000 12,213
Electricas Reunidas de Zaragoza, S.A. 51,944 2,283
Empresa Nacional de Electricidad (ENDESA) 1,000,000 23,990
Fuerzas Electricas de Cataluna (FECSA) 319,184 3,438
Gas Natural 217,823 14,914
Gas y Electricidad (GESA) 57,000 4,671
Iberdrola 1,200,000 19,826
Union Electrica Fenosa 625,000 7,765
-----------------------------------------------------------------------
94,845
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES--2.2%
Alba 70,800 8,562
-----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
METALS AND ENGINEERING--7.2%
Acerinox 65,000 9,687
Azkoyen 61,000 9,393
Zardoya Otis 261,855 9,137
-----------------------------------------------------------------------
28,217
- ---------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS AND
MOTORWAYS--11.9%
Autopistas Concesionaria (ACESA) 525,000 8,500
Telefonica de Espana 850,000 38,030
-----------------------------------------------------------------------
46,530
-----------------------------------------------------------------------
TOTAL COMMON STOCKS--97.6%
(Cost: $184,019) 382,443
-----------------------------------------------------------------------
</TABLE>
8
Portfolio of INVESTMENTS
<PAGE> 9
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
MONEY MARKET
INSTRUMENT--1.1%
Yield--4.26%
Due--June 1998
(Cost: $4,393)
Banco Exterior Internacional (PRINCIPAL
AMOUNT IN SPANISH PESETAS) 661,209,153 $ 4,370
-----------------------------------------------------------------------
TOTAL INVESTMENTS--98.7%
(Cost: $188,412) 386,813
-----------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.3% 5,248
-----------------------------------------------------------------------
NET ASSETS--100% $392,061
-----------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $188,412,000 for federal income tax purposes
at May 31, 1998, the gross unrealized appreciation was $198,760,000, the gross
unrealized depreciation was $359,000 and the net unrealized appreciation on
investments was $198,401,000.
See accompanying Notes to Financial Statements.
9
PORTFOLIO OF Investments
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investments, at value
(Cost: $188,412) $386,813
- ------------------------------------------------------------------------
Cash (including foreign currency of $4,486 with a cost of
$4,498) 4,542
- ------------------------------------------------------------------------
Receivable for:
Investments sold 211
- ------------------------------------------------------------------------
Dividends and interest 951
- ------------------------------------------------------------------------
TOTAL ASSETS 392,517
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Management fees 328
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 111
- ------------------------------------------------------------------------
Directors' fees and other 17
- ------------------------------------------------------------------------
Total liabilities 456
- ------------------------------------------------------------------------
NET ASSETS $392,061
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $183,418
- ------------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 9,465
- ------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currency 198,390
- ------------------------------------------------------------------------
Undistributed net investment income 788
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $392,061
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($392,061 / 16,530 shares outstanding) $23.72
- ------------------------------------------------------------------------
</TABLE>
10
Financial STATEMENTS
<PAGE> 11
FINANCIAL Statements
STATEMENT OF OPERATIONS
Six months ended May 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Dividends $ 3,495
- ------------------------------------------------------------------------
Interest 146
- ------------------------------------------------------------------------
3,641
- ------------------------------------------------------------------------
Less foreign taxes withheld 534
- ------------------------------------------------------------------------
Total investment income 3,107
- ------------------------------------------------------------------------
Expenses:
Management fee 1,757
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 206
- ------------------------------------------------------------------------
Professional fees 102
- ------------------------------------------------------------------------
Reports to shareholders 28
- ------------------------------------------------------------------------
Directors' fees and other 32
- ------------------------------------------------------------------------
Total expenses 2,125
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 982
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sales of investments and foreign
currency transactions 9,889
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currency 90,431
- ------------------------------------------------------------------------
Net gain on investments 100,320
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $101,302
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, 1998 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1997
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 982 3,670
- --------------------------------------------------------------------------------------------------------
Net realized gain 9,889 20,740
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 90,431 47,441
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 101,302 71,851
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income (1,819) (2,854)
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain (22,481) (13,931)
- --------------------------------------------------------------------------------------------------------
Total dividends to shareholders (24,300) (16,785)
- --------------------------------------------------------------------------------------------------------
Payment for shares repurchased (310 shares for year ended
November 30, 1997) -- (3,942)
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 77,002 51,124
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 315,059 263,935
- --------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$788 and $1,625, respectively) $392,061 315,059
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 12
- --------------------------------------------------------------------------------
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
price 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 priced is lower, in which event such bid
or asked price is used. Financial futures and
options thereon 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. Forward foreign currency contracts and
foreign currency 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.
FOREIGN CURRENCY TRANSLATION. The books and records
of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in Spanish pesetas are
translated into U.S. dollars at the prevailing rate
of exchange. Purchases and sales of investment
securities, income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the
respective dates of the 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, 1998.
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.
12
Notes
to FINANCIAL STATEMENTS
<PAGE> 13
- --------------------------------------------------------------------------------
2
TRANSACTIONS WITH
AFFILIATES The Fund has a management agreement with Scudder
Kemper Investments, Inc. (Scudder Kemper) and pays
a management fee at an annual rate of 1% of average
weekly net assets. The Fund incurred a management
fee of $1,757,000 for the six months ended May 31,
1998.
Scudder Kemper 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 Scudder
Kemper and the Spanish Adviser. For services
provided under the sub-advisory agreement, Scudder
Kemper 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, 1998,
Scudder Kemper incurred fees of $615,000 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 $12,000 for the six months ended May 31,
1998.
Certain officers or directors of the Fund are also
officers or directors of Scudder Kemper. During the
six months ended May 31, 1998, the Fund made no
payments to its officers and incurred directors'
fees of $23,000 to independent directors.
- --------------------------------------------------------------------------------
3
INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $ 8,805
Proceeds from sales 23,807
- --------------------------------------------------------------------------------
4
REPURCHASE OF SHARES The Board of Directors of the Fund has previously
authorized the open market repurchase and
retirement of up to three million shares (1,479,000
repurchased to date) of the Fund's outstanding
stock. The repurchase plan has been temporarily
suspended by the Board of Directors of the Fund.
For the year ended November 30, 1997, 310,000
shares of the Fund were repurchased, at a weighted
average discount to net asset value of 19%.
13
NOTES TO Financial Statements
<PAGE> 14
HIGHLIGHTS FINANCIAL
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, -----------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $19.06 15.67 13.33 12.40 10.67
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .24 .36 .37 .32
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain 6.07 4.15 2.69 1.01 1.41
- -------------------------------------------------------------------------------------------------
Total from investment operations 6.13 4.39 3.05 1.38 1.73
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .11 .17 .42 .45 --
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.36 .83 .29 -- --
- -------------------------------------------------------------------------------------------------
Total dividends 1.47 1.00 .71 .45 --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $23.72 19.06 15.67 13.33 12.40
- -------------------------------------------------------------------------------------------------
Market value, end of period $21.75 17.00 12.50 10.88 10.00
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Based on net asset value 34.60% 29.86 24.12 11.62 16.21
- -------------------------------------------------------------------------------------------------
Based on market value 39.48% 46.49 22.38 13.83 3.90
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.21% 1.22 1.25 1.22 1.23
- -------------------------------------------------------------------------------------------------
Net investment income .56% 1.29 2.46 2.89 2.57
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $392,061 315,059 263,935 227,997 213,972
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5% 29 45 69 85
- -------------------------------------------------------------------------------------------------
</TABLE>
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. Data for the
period ended May 31, 1998 is unaudited.
14
<PAGE> 15
SPECIAL SHAREHOLDERS' MEETING
A special shareholders' meeting was held on December 3, 1997 and adjourned to
December 11, 1998. The Growth Fund of Spain, Inc. shareholders were asked to
vote on four separate issues: election of two members to the Board of Directors,
ratification of Ernst & Young LLP as independent auditors, approval of a new
investment management agreement with Scudder Kemper Investments, Inc. and
approval of a new sub-advisory agreement with BSN Gestion de Patrimonios S.A.,
S.G.C. Following are the results for each issue:
1) Election of Directors
<TABLE>
<CAPTION>
For
<S> <C> <C>
Gregory L. Mellville 8,663,028 (received plurality)
Moritz Sell 8,663,028 (received plurality)
Daniel Pierce 1,772,125
Edmond D. Villani 1,772,125
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
7,033,882 195,292 3,533,457
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
7,839,686 2,911,159 352,237
</TABLE>
4) Approval of a new sub-advisory agreement with BSN Gestion de Patrimonios
S.A., S.G.C. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
7,821,002 2,907,269 374,811
</TABLE>
15
SHAREHOLDERS' Meeting
<PAGE> 16
DIRECTORS
OFFICERS
JAMES E. AKINS
Director
ARTHUR R. GOTTSCHALK
Director
FREDERICK T. KELSEY
Director
GREGORY L. MELVILLE
Director
FRED B. RENWICK
Director
MORITZ SELL
Director
JOHN B. TINGLEFF
Director
JOHN G. WEITHERS
Director
DANIEL PIERCE
President
MARK S. CASADY
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
JOAN GREGORY
Vice President
JOHN R. HEBBLE
Treasurer
JERARD K. HARTMAN
Vice President
THOMAS W. LITTAUER
Vice President
ANN M. MCCREARY
Vice President
STEVEN H. REYNOLDS
Vice President
KATHRYN L. QUIRK
Vice President
LINDA J. WONDRACK
Vice President
CAROLINE PEARSON
Assistant Secretary
MAUREEN KANE
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
<TABLE>
<S> <C>
..........................................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
..........................................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419006
Kansas City, MO 64141
..........................................................................................................
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
..........................................................................................................
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, N.Y. 11245
</TABLE>
KEMPER [LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
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GSP - 3 (7/98) 1050210
