KEMPER GLOBAL INTERNATIONAL SERIES, 485APOS, 1998-12-29

KEMPER GLOBAL INTERNATIONAL SERIES
485APOS, 1998-12-29

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Filed electronically with the Securities and Exchange Commission
on December 29, 1998

File No. 811-8395
File No. 333-42337

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

Pre-Effective Amendment No. / /
Post-Effective Amendment No. 3 / X /
-
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /

Amendment No. 5 / X /
-
Kemper Global/International Series, Inc.
----------------------------------------
(Exact Name of Registrant as Specified in Charter)

222 South Riverside Plaza Street, Chicago, IL 60606
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (312) 781-1121
--------------
Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On March 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.

If Appropriate, check the following box:
/ X / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment

<PAGE>

LONG TERM
INVESTING
IN A
SHORT TERM
WORLD

March 1, 1999

Prospectus

Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value

Kemper Global And International Funds
Kemper Asian Growth Fund
Kemper Emerging Markets Growth Fund
Kemper Emerging Markets Income Fund
Kemper Europe Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Growth and Income Fund
Kemper International Fund
Kemper Latin America Fund
Growth Fund Of Spain

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.

<PAGE>

CONTENTS

Global Investing..........................................................3
Investment approach.....................................................3
Principal risk factors..................................................3
ABOUT THE FUNDS..............................................................4
Kemper Asian Growth Fund..................................................4
Kemper Emerging Markets Growth Fund......................................10
Kemper Emerging Markets Income Fund......................................17
Kemper Europe Fund.......................................................24
Kemper Global Blue Chip Fund.............................................30
Kemper Global Discovery Fund.............................................36
Kemper Global Income Fund................................................42
Kemper International Growth and Income Fund..............................48
Kemper International Fund................................................54
Kemper Latin America Fund................................................60
Growth Fund Of Spain.....................................................67
Investment Manager.....................................................73
Portfolio management...................................................74
Year 2000 Readiness....................................................76
Euro Conversion........................................................77
ABOUT YOUR INVESTMENT.......................................................77
Choosing a share class.................................................77
Special features.......................................................79
Buying shares..........................................................81
Selling and exchanging shares..........................................88
Distributions and taxes................................................89
Transaction information................................................91

2
<PAGE>

GLOBAL INVESTING

Investment approach

Although the U.S. market is the single largest in the world, the global market
is three times as large. Each fund has its own goal, investment strategy and
risk profile.

Global funds may offer access to countries and markets that can be very
difficult for investors to invest in on their own. Foreign markets follow their
own economic cycles, so foreign investments can serve to diversify a portfolio
of U.S. investments. At the same time, foreign markets have been more volatile
than the U.S. market. International investments carry additional risks,
including potentially unfavorable currency exchange rates, political
disturbances and incomplete and inaccurate accounting information on companies.

Principal risk factors

There are market and investment risks with any security and the value of an
investment in the funds will fluctuate over time and it is possible to lose
money invested in the funds.

Stock Market. Each stock fund's returns and net asset value will go up and down.
Stock market movements will affect the funds' share prices on a daily basis.
Declines are possible both in the overall stock market or in the types of
securities held by the funds.

Bond Market. Normally the value of a bond fund's investments varies inversely
with changes in interest rates so that in periods of rising interest rates, the
value of a fund's portfolio declines.

Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in large part the funds'
ability to achieve their respective investment objectives.

Foreign Securities. Investing in foreign securities involves other
considerations including limited information, higher brokerage costs, different
accounting standards and thinner trading markets as compared to U.S. markets. In
addition, investing in foreign securities, and to a greater extent emerging
markets, involves special risks including changes in foreign currency exchange
rates and political and economic instability.

3
<PAGE>

ABOUT THE FUNDS

KEMPER ASIAN GROWTH FUND

Investment objective

Kemper Asian Growth Fund seeks long-term capital growth. The fund's investment
objective and policies may be changed without a vote of shareholders.

Investment Strategies

The fund seeks to achieve its investment objective by investing in a diversified
portfolio consisting primarily of equity securities of Asian companies.

Under normal circumstances the fund will invest at least 85% of its total assets
in equity securities of Asian companies. The fund considers an issuer of
securities to be an Asian company if:

o the company is organized under the laws of an Asian country and has a
principal office in an Asian country;

o the company derives 50% or more of its total revenues from business in
Asia; or

o the company's equity securities are traded principally on a stock exchange
in Asia.

Furthermore, the fund will invest at least 65% of its total assets in securities
of Asian companies which possess at least one of the first two criteria
described above.

The fund invests principally in developing or emerging countries. The fund may
invest without limit in emerging Asian countries, such as China, Indonesia,
Korea, Malaysia, Philippines, Thailand and Taiwan. The fund may also invest
without limit in developed Asian countries, such as Hong Kong, Japan and
Singapore. However, the fund will only invest in Japan when warranted by
economic conditions, and then only in limited amounts. From time to time, the
fund may have 40% or more of its assets invested in any major Asian industrial
or developed country which, in the view of the fund's investment manager, poses
no unique investment risk.

The fund's investment manager determines the appropriate distribution of
investments among various Asian countries and geographic regions by considering
numerous factors, including the following:

o prospects for relative economic growth of Asian countries;

o expected levels of inflation;

4
<PAGE>

o relative price levels of the various capital markets;

o government policies influencing business conditions;

o the outlook for currency relationships;

o and the range of individual investment opportunities available to
investors in Asian companies.

Other Investments

The fund may invest in other types of securities including, but not limited to,
equity securities of non-Asian companies, bonds, notes, and other debt
securities of domestic or foreign companies and obligations of domestic or
foreign governments and their political subdivisions. The fund does not
currently intend to invest more than 5% of its net assets in debt securities.

The fund considers Asian equity securities to include shares of closed-end
management investment companies, the assets of which are invested primarily in
equity securities of Asian companies and depository receipts where the
underlying or deposited securities are equity securities of Asian companies.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may invest up to 100% of its assets in
high-grade debt securities, cash and cash equivalents. In such a case, the fund
would not be pursuing its investment objective.

Main Risks

The primary factor affecting this fund's performance is stock market movements
in the region and the countries in which the fund is invested. Foreign
investments, particularly investments in emerging markets, carry added risks due
to inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. In addition,
the investment manager's choice of countries, market sectors or specific
investments may not perform as well as expected, and the fund could underperform
its peers or lose money.

More information about the fund's investments and strategies is provided in the
Statement of Additional Information. Of course, there can be no guarantee that
by following these strategies, the fund will achieve its objective.

5
<PAGE>

KEMPER ASIAN GROWTH FUND

Past performance

The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed and comparing this
information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C MSCI All Country
Asia Free
Ex-Japan Index
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date:

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The Morgan Stanley Combined International All Country Asia Free Japan Index is a
capitalized weighted index that is representative of the equity securities for
the following countries: Hong Kong, Indonesia, Korea (at 20%), Malaysia,
Philippines

6
<PAGE>

free, Singapore free and Thailand. Index returns assume reinvestment of
dividends and unlike the fund's returns, do not reflect any fees or expenses.

7
<PAGE>

KEMPER ASIAN GROWTH FUND

Fee and Expense information

This information is designed to help you understand the costs of investing in
the fund. Each class of shares has a different set of transaction fees, which
will vary based on the length of time you hold shares in the fund and the amount
of your investment. You will find details about fee discounts and waivers in the
Buying shares and Choosing a share class -- Special features sections of this
prospectus.

<TABLE>
<CAPTION>
===============================================================================================
Shareholder fees: Fees paid directly from your investment.
- -----------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % 5.75% None None
of offering price)
- -----------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of redemption None(1) 4% 1%
proceeds)
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends/Distributions
- -----------------------------------------------------------------------------------------------
Redemption Fee (as % of amount redeemed, if applicable) None None None
- -----------------------------------------------------------------------------------------------
Exchange Fee None None None
===============================================================================================
</TABLE>

(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.

<TABLE>
<CAPTION>
===============================================================================================
Annual fund operating expenses: (expenses that are deducted from fund assets)
expressed as a % of the fund's average daily net assets for the year ended _______.
- -----------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fee
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees
- -----------------------------------------------------------------------------------------------
Other Expenses
- ---------------------------------------------------============================================
Total Annual Fund Operating Expenses
- -----------------------------------------------------------------------------------------------
</TABLE>

8
<PAGE>

KEMPER ASIAN GROWTH FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.

- -----------------------------------------------
Fees and expenses if you sold shares after:

Class A Class B Class C
1 Year
- -----------------------------------------------
3 Years
- -----------------------------------------------
5 Years
- -----------------------------------------------
10 Years
===============================================

- -----------------------------------------------
Fees and expenses if you did not sell your
shares:
Class A Class B Class C
1 Year
- ------------------------------------------------
3 Years
- ------------------------------------------------
5 Years
- ------------------------------------------------
10 Years
================================================

9
<PAGE>

KEMPER EMERGING MARKETS GROWTH FUND

Investment objective

Kemper Emerging Markets Growth Fund seeks long-term growth of capital. The
fund's investment objective and policies may be changed without a vote of
shareholders.

Investment strategy

The fund seeks to achieve its investment objective through equity investment in
emerging markets around the globe. Normally, at least 65% of the fund's total
assets will be invested in the equity securities of emerging market issuers.

The investment manager takes a top-down approach to evaluating investments for
the fund, using extensive fundamental and field research. The process begins
with a study of the economic fundamentals of each country and region, as well as
an examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the investment manager to identify industries and companies that
the investment manager believes are most likely to benefit from the political,
social and economic changes taking place in a given region of the world.

Within a market, the investment manager looks for individual companies with
exceptional business prospects, which may be due to market dominance, unique
franchises, high growth potential, or innovative services, products or
technologies. The investment manager seeks to identify companies with favorable
potential for appreciation through growing earnings or greater market
recognition over time. While these companies may be among the largest in their
local markets, they may be small by the standards of U.S. stock market
capitalization.

The fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the following: the International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.

The investment manager may pursue investment opportunities in Asia, Africa,
Latin America, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The fund deems an issuer to be located in an emerging market
if:

o the issuer is organized under the laws of an emerging market country;

o the issuer's principal securities trading market is in an emerging market;
or

10
<PAGE>

o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly through subsidiaries) from assets or
activities located in emerging markets.

Other investments

The fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the investment manager determines that capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities.

Under normal market conditions, the fund may invest up to 35% of its total
assets in equity securities of issuers in the U.S. and other developed markets.

The fund may invest in closed-end investment companies investing primarily in
the emerging markets. Such closed-end company investments will generally only be
made when market access or liquidity considerations restricts direct investment
in the market.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may hold, without limit, debt instruments,
as well as cash and cash equivalents, including foreign and domestic money
market instruments, short-term government and corporate obligations, and
repurchase agreements. In such a case, the fund would not be pursuing its
investment objective.

Main Risks

The primary factor affecting this fund's performance is stock market movements
in the countries in which the fund is invested. Foreign investments,
particularly investments in emerging markets, carry added risks due to
inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. In addition,
the investment manager's choice of countries, market sectors or specific
investments may not perform as well as expected, and the fund could underperform
its peers or lose money.

Because it is classified as "non-diversified", the fund may invest a relatively
high percentage of its assets in a limited number of issuers. Accordingly, the
fund's investment returns are more likely to be impacted by changes in the
market value and returns of any one portfolio holding.

11
<PAGE>

12
<PAGE>

KEMPER EMERGING MARKETS GROWTH FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C IFC Emerging
Markets Investable
For periods ended Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The IFC Emerging Markets Investable Index is an unmanaged capitalization
weighted measure of stock markets in emerging market countries worldwide. Index
returns

13
<PAGE>

assume reinvestment of dividends and, unlike the fund's returns, do not
reflect any fees or expenses.

14
<PAGE>

KEMPER EMERGING MARKETS GROWTH FUND

Fee and Expense information

15
<PAGE>

KEMPER EMERGING MARKETS GROWTH FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

Class A Class B Class C
1 Year
- --------------------------------------------------
3 Years
- --------------------------------------------------
5 Years
- --------------------------------------------------
10 Years
==================================================

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

16
<PAGE>

KEMPER EMERGING MARKETS INCOME FUND

Investment objectives

Kemper Emerging Markets Income Fund has dual investment objectives. The fund's
primary investment objective is to provide investors with high current income.
As a secondary investment objective, the fund seeks long-term capital
appreciation. The fund's investment objectives and policies may be changed
without a vote of shareholders.

Investment strategy

In pursuing its investment objectives, the fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets.

The fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. The fund invests in lower quality securities of emerging
market issuers, some of which have defaulted in the past on certain of their
financial obligations.

Under normal market conditions, the fund invests at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or in debt securities, the return on which is
derived primarily from emerging markets.

o the issuer is organized under the laws of an emerging market country;

o the issuer's principal securities trading market is in an emerging market;
or

o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly from subsidiaries) from assets or
activities located in emerging markets.

17
<PAGE>

Other investments

The fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets.

The fund may invest up to 20% of its total assets in U.S. fixed income
instruments.

The fund may acquire shares of closed-end investment companies that invest
primarily in emerging market debt securities. The fund is authorized to borrow
from banks and other entities in an amount equal to up to 20% of the fund's
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, and may use proceeds of the borrowings
for investment purposes. Borrowing creates leverage, which is a speculative
characteristic.

Risk Management Strategies

In an attempt to eliminate currency risk, the fund invests exclusively in U.S.
dollar-denominated debt securities, or in foreign currency denominated debt
securities that are fully hedged back into the U.S. dollar.

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

The fund will not commit more than 40% of its total assets to issuers in a
single country.

Under unusual circumstances, the fund may invest without limit in U.S. debt
securities, including short-term money market securities. In such a case, the
fund would not be pursuing its investment objective.

Main Risks

This fund involves above-average bond risk. As with most bond funds, the most
significant factor affecting this fund's performance is interest rates. When
interest rates rise, the price of bonds (and bond funds) typically falls in
proportion to their duration. Duration is a measurement based on the estimated
pay-back period or duration of a bond (or portfolio of bonds). It is also
possible that bonds in the fund's portfolio could be downgraded in credit rating
or go into default.

Issuers whose bonds are below investment-grade are often in somewhat shaky
financial health and may be affected by stock market shifts. The prices of their
bonds, therefore, tend to change based on stock market movements to a greater
degree than investment-grade bond prices.

18
<PAGE>

Foreign investments, particularly investments in emerging markets, carry added
risks due to inadequate or inaccurate financial information about companies,
potential political disturbances and fluctuations in currency exchange rates.
The investment manager's choice of countries, market sectors or specific
investments may not perform as well as expected, and the fund could underperform
its peers or lose money.

19
<PAGE>

KEMPER EMERGING MARKETS INCOME FUND

Past performance

Total returns for years ended December 31

- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was ___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C JP Morgan EMBI+
Index
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The unmanaged JP Morgan Emerging Markets Bond Index Plus (EMBI+) tracks total
returns for traded external debt instruments in the emerging markets. Included
in the index are U.S. dollar and other external-currency-denominated Brady
bonds, loans,

20
<PAGE>

Eurobonds, and local market instruments. Index returns assume reinvestment of
dividends and unlike the fund's returns, do not reflect any fees or expenses.

21
<PAGE>

KEMPER EMERGING MARKETS INCOME FUND

Fee and Expense information

22
<PAGE>

KEMPER EMERGING MARKETS INCOME FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

23
<PAGE>

KEMPER EUROPE FUND

Investment objective

Kemper Europe Fund seeks long-term capital growth. The fund's investment
objective and policies may be changed without a vote of shareholders.

Investment Strategies

The fund seeks to achieve its investment objective by investing in a diversified
portfolio consisting primarily of equity securities of European companies.

Under normal circumstances the fund will invest at least 85% of its total assets
in securities of European companies. The fund considers an issuer of securities
to be a European company if:

o the company is organized under the laws of a European country and has a
principal office in a European country;

o the company derives 50% or more of its total revenues from business in
Europe; or

o the company's equity securities are traded principally on a stock exchange
in Europe.

Furthermore, the fund will invest at least 65% of its total assets in securities
of European companies which possess at least one of the first two criteria
described above.

The fund invests principally in developed countries, but may invest up to 25% of
its total assets in developing or "emerging" countries. Currently, the developed
European countries in which the fund may invest without limit include Austria,
France, Germany, the Netherlands, Switzerland, Spain, Italy, Luxembourg, United
Kingdom, Ireland, Belgium, Denmark, Sweden, Norway and Finland. The fund may
invest without limit in other European countries in the future if they become
developed countries. From time to time, the fund may have 25% or more of its
assets invested in any major European industrial or developed country which, in
the view of the investment manager, poses no unique investment risk.

The fund's investment manager determines the appropriate distribution of
investments among various European countries and geographic regions by
considering numerous factors, including the following:

o prospects for relative economic growth of European countries;

o expected levels of inflation;

24
<PAGE>

o relative price levels of the various capital markets;

o government policies influencing business conditions;

o the outlook for currency relationships; and

o the range of individual investment opportunities available to investors in
European companies.

Other Investments

The fund may invest in any other type of security including, but not limited to,
equity securities of non-European companies, bonds, notes, and other debt
securities of domestic or foreign companies and obligations of domestic or
foreign governments and their political subdivisions.

The fund considers European equity securities to include shares of closed-end
management investment companies, the assets of which are invested primarily in
equity securities of European companies and depository receipts where the
underlying or deposited securities are equity securities of European companies.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Main Risks

25
<PAGE>

KEMPER EUROPE FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C FT/S&P World Europe
Index
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The Financial Times/Standard & Poor's Actuaries World Index - Europe is an
unmanaged index that is generally representative of the equity securities of
European

26
<PAGE>

Markets. Index returns assume reinvestment of dividends and unlike the fund's
returns, do not reflect any fees or expenses.

27
<PAGE>

KEMPER EUROPE FUND

Fee and Expense information

28
<PAGE>

KEMPER EUROPE FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

29
<PAGE>

KEMPER GLOBAL BLUE CHIP FUND

Investment objective

Kemper Global Blue Chip Fund seeks long-term growth of capital through a
diversified worldwide portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks. The fund's investment objective and policies may
be changed without a vote of shareholders.

Investment Strategies

In pursuing its investment objective, the fund will emphasize investments in
common stocks of large, well known, high quality companies. Companies of this
general type are often referred to as "blue chip" companies. "Blue Chip"
companies are generally identified by their:

o substantial capitalization;

o established history of earnings and dividends;

o easy access to credit;

o good industry position; and

o superior management structure.

Global "blue chip" companies are believed to generally exhibit less investment
risk and less price volatility, on average, than companies lacking these
characteristics, such as smaller, less seasoned companies. In addition, the
large market of publicly held shares for such companies and the generally high
trading volume in those shares usually results in a relatively high degree of
liquidity for such investments.

In general, the fund will seek to invest in companies that the investment
manager believes will benefit from global economic trends, promising
technologies or products and specific country opportunities resulting from
changing geopolitical, currency or economic relationships.

The fund will invest primarily in developed markets. The fund may be invested
100% in non-U.S. issues, although under normal circumstances, it is expected
that both foreign and U.S. investments will be represented in the fund's
portfolio.

30
<PAGE>

Other Investments

The fund may invest up to 15% of its total assets in developing or emerging
markets. The fund may invest in closed-end investment companies that invest
primarily in emerging market debt securities.

The fund may invest in securities traded over-the-counter. The fund may invest
in high-quality debt securities with credit ratings of Aaa/AAA through Baa/BBB
(and their unrated equivalents) of U.S. and foreign issuers. The fund may also
invest up to 5% of its total assets in debt securities rated Baa/BBB or below
(and their unrated equivalents), often referred to as "junk" bonds of U.S. and
foreign issuers.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may invest up to 100% of its assets in
U.S. issues, high-grade debt securities, cash and cash equivalents. In such a
case, the fund would not be pursuing its investment objective.

Main Risks

The fund's other investment strategies entail other risks:

o Convertible debt securities are subject to some of the same interest rate
risk as bonds; that is, their prices tend to drop when interest rates
rise.

31
<PAGE>

KEMPER GLOBAL BLUE CHIP FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C MSCI World Index

For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The MSCI (Morgan Stanley Capital International) World Index measures performance
of a range of developed country general stock markets, including the United
States,

32
<PAGE>

Canada, Europe, Australia, New Zealand and the Far East. Index returns assume
reinvestment of dividends and unlike the fund's returns, do not reflect any fees
or expenses.

33
<PAGE>

KEMPER GLOBAL BLUE CHIP FUND

Fee and Expense information

34
<PAGE>

KEMPER GLOBAL BLUE CHIP FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

35
<PAGE>

KEMPER GLOBAL DISCOVERY FUND

(This prospectus contains information concerning the Kemper Class A, Class B
and Class C shares of Global Discovery Fund)

Investment objective

The fund seeks above-average capital appreciation over the long term by
investing primarily in the equity securities of small companies throughout the
world. The fund's investment objective and strategies may be changed without a
vote of shareholders.

Investment strategies

The fund invests primarily in a diversified portfolio of equity securities of
small rapidly growing companies that the fund's management believes offer the
potential for above-average returns relative to large companies, yet are
frequently overlooked, and thus, undervalued by the market. These companies are
similar in size to the smallest 20% of world market capitalization as
represented by the Salomon Brothers Broad Market Index - typically these
companies have a market value of between approximately $50 million and $2
billion. However, the fund may invest in companies with smaller market values.
The median market capitalization of the companies in which the fund invests will
not exceed $750 million.

The fund has the flexibility to invest in any region of the world. It can invest
in companies based in emerging markets, typically in the Far East, Latin America
and lesser developed countries in Europe, as well as in firms operating in
developed economies, such as some of those of the United States, Japan and
Western Europe.

The fund's investment manager determines what securities to invest in by
evaluating potential investments from both a macroeconomic and microeconomic
perspective, using fundamental analysis, including field research. In evaluating
the growth potential and relative value of a possible investment, the investment
manager takes into consideration numerous factors, including:

o the depth and quality of management;

o a company's product line, business strategy and competitive position;

o research and development efforts;

o financial strength, including degree of leverage;

o cost structure;

o revenue and earnings growth potential ;

o price-earnings ratios and other stock valuation measures; and

36
<PAGE>

o the attractiveness of the country and region in which a company is
located.

Risk Management Strategies

The fund attempts to manage risk by diversifying widely among regions, market
sectors and individual companies.

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may invest, without limit, in cash and
cash equivalents for temporary defensive purposes. In such a case, the fund
would not be pursuing its investment objective.

Main Risks

The primary factor affecting this fund's performance is stock market movements
in the countries in which the fund is invested. Small companies can be
especially sensitive to market shifts and isolated business reverses. Securities
of small companies are often thinly traded and could be harder to value or sell
at a fair price. Foreign investments, particularly investments in emerging
markets, carry added risks due to inadequate or inaccurate financial information
about companies, potential political disturbances and fluctuations in currency
exchange rates. In addition, the investment manager's choice of countries,
market sectors or specific investments may not perform as well as expected, and
the fund could underperform its peers or lose money.

The use of certain derivatives could magnify losses.

37
<PAGE>

KEMPER GLOBAL DISCOVERY FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C Salomon Brothers
World Equity EMI
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization index made up of holdings selected from a 22 country universe.
Index

38
<PAGE>

returns assume reinvestment of dividends and, unlike fund returns, do not
reflect any fees or expenses.

39
<PAGE>

KEMPER GLOBAL DISCOVERY FUND

Fee and Expense information

40
<PAGE>

KEMPER GLOBAL DISCOVERY FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

41
<PAGE>

KEMPER GLOBAL INCOME FUND

Investment objective

Kemper Global Income Fund seeks to provide high current income consistent with
prudent total return asset management. The fund's investment objective and
policies may be changed without a vote of shareholders.

Investment Strategies

The fund seeks to achieve its investment objective by investing primarily in
investment grade foreign and domestic fixed income securities. The investment
manager also seeks to protect net asset value and to provide investors with a
total return, which is measured by changes in net asset value as well as income
earned.

The fund may invest in securities issued by any issuer and in any currency and
may hold foreign currency. It is currently anticipated that the fund's assets
will be invested principally within Australia, Canada, Japan, New Zealand, the
United States, and Western Europe, and in securities denominated in the
currencies of these countries or denominated in multinational currency units,
such as the Euro.

In managing the fund's portfolio in an effort to reduce volatility and increase
returns, the fund may allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its investment objective based upon the following:

o relative interest rates among currencies;

o the outlook for changes in these interest rates; and

o anticipated changes in worldwide exchange rates.

In considering these factors, a country's economic and political state,
including such factors as inflation rate, growth prospects, global trade
patterns and government policies, will be evaluated.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

As an extreme defensive measure, the fund may invest up to 100% of its assets in
high-grade debt securities, cash and cash equivalents. In such a case, the fund
would not be pursuing its investment objective.

42
<PAGE>

Main Risks

As with most bond funds, the most significant factor affecting this fund's
performance is interest rates. When interest rates rise, the price of bonds (and
bond funds) typically fall in proportion to their duration. Duration is a
measurement based on the estimated pay-back period or duration of a bond (or
portfolio of bonds). It is also possible that bonds in the fund's portfolio
could be downgraded in credit rating or go into default.

The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.

43
<PAGE>

KEMPER GLOBAL INCOME FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C SB World Government
Bond Index
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The Salomon Smith Barney World Government Bond Index is an unmanaged index
comprised of government bonds from eighteen countries (United States, Japan,
United

44
<PAGE>

Kingdom, Germany, France, Canada, the Netherlands, Australia, Switzerland,
Denmark, Austria, Belgium, Finland, Ireland, Italy, Portugal, Spain and Sweden)
with maturities greater than one year. Index returns assume reinvestment of
dividends and, unlike fund returns, do not reflect any fees or expenses.

45
<PAGE>

KEMPER GLOBAL INCOME FUND

Fee and Expense information

46
<PAGE>

KEMPER GLOBAL INCOME FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

47
<PAGE>

KEMPER INTERNATIONAL GROWTH AND INCOME FUND

Investment Objective

Kemper International Growth and Income Fund seeks long-term growth of capital
and current income primarily from foreign equity securities. The fund's
investment objective and policies may be changed without a vote of shareholders.

Investment Strategies

The fund seeks to achieve its investment objective by investing generally in
common stocks of established companies listed on foreign exchanges, which offer
prospects for growth of earnings while paying relatively high current dividends.

At least 80% of the fund's net assets will normally be invested in the equity
securities of established non-U.S. companies. The fund focuses its investments
on the developed foreign countries included in the Morgan Stanley Capital
International World ex-US Index.

Stocks are selected for the fund using a disciplined, multi-part investment
approach with four stages as follows:

o Stage 1: The investment manager analyzes the pool of dividend-paying
foreign securities, primarily from the world's more mature markets,
targeting stocks that have high relative yields compared to the average
for their markets.

o Stage 2: The investment manager identifies what it believes are the most
promising stocks for the fund's portfolio.

o Stage 3: The investment manager diversifies the fund's portfolio among
different industry sectors.

o Stage 4: The investment manager diversifies the fund's portfolio among
different countries.

Other Investments

Under normal conditions, the fund may also invest up to 20% of its net assets in
debt securities convertible into common stock and fixed income securities of
governments, governmental agencies, supranational agencies and private issuers
when the investment manager believes the potential for appreciation and income
will equal or exceed that available from investments in equity securities. These
securities will predominantly be "investment grade" securities which are those
rated Aaa/AAA through Baa/BBB (and their unrated equivalents).

48
<PAGE>

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may invest without limit in cash and cash
equivalents which may include domestic and foreign money market instruments,
short-term government and corporate obligations and repurchase agreements. In
such a case, the fund would not be pursuing its investment objective.

Main Risks

The fund's other investment strategies entail other risks:

o Convertible debt securities are subject to some of the same interest rate
risk as bonds; that is, their prices tend to drop when interest rates
rise.

49
<PAGE>

KEMPER INTERNATIONAL GROWTH AND INCOME FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C MSCI EAFE+Canada
Index
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

50
<PAGE>

The Morgan Stanley Capital International World+Canada Index is an unmanaged
index of global stock markets, excluding the U.S. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees or
expenses.

51
<PAGE>

KEMPER INTERNATIONAL GROWTH AND INCOME FUND

Fee and Expense information

52
<PAGE>

KEMPER INTERNATIONAL GROWTH AND INCOME FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

53
<PAGE>

KEMPER INTERNATIONAL FUND

Investment objective

Kemper International Fund seeks total return, a combination of capital growth
and income, principally through an internationally diversified portfolio of
equity securities. The fund's investment objective and policies may be changed
without a vote of shareholders.

Investment Strategies

In pursuing its investment objective, the fund invests primarily in common
stocks of established non-U.S. companies believed to have potential for capital
growth, income or both.

There is no limitation on the percentage or amount of the fund's assets that may
invested in growth or income, and therefore at any particular time the
investment emphasis may be placed solely or primarily on growth of capital or on
income. In determining whether the fund will be invested for capital growth or
income, the investment manager analyzes the international equity and fixed
income markets and seeks to assess the degree of risk and level of return that
can be expected from each market.

The fund invests primarily in non-U.S. issuers, and under normal circumstances
more than 80% of the fund's total assets will be invested in non-U.S. issuers.
From time to time, the fund may have more than 25% of its assets invested in any
major industrial or developed country which in the view of the investment
manager poses no unique investment risk.

In determining the appropriate distribution of investments among various
countries and geographic regions, the investment manager ordinarily considers
the following factors:

o prospects for relative economic growth among foreign countries;

o expected levels of inflation;

o relative price levels of the various capital markets;

o government policies influencing business conditions;

o the outlook for currency relationships; and

o the range of individual investment opportunities available to the
international investor.

54
<PAGE>

Other Investments

The fund may invest in debt securities that can be converted into common stocks,
also known as convertibles. The fund may also invest in debt securities,
preferred stocks, bonds, notes and other debt securities of companies and
futures contracts.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may invest up to 100% of its assets in
U.S. Government obligations or securities of companies incorporated in and
having their principal activities in the United States for temporary defensive
purposes. In such cases, the fund would not be pursuing its investment
objective. The fund may also establish and maintain reserves for defensive
purposes and to enable the fund to take advantage of buying opportunities. The
fund's reserves may be invested in domestic as well as foreign short-term money
market instruments.

Main Risks

The fund's other investment strategies entail other risks:

o Convertible debt securities are subject to some of the same interest rate
risk as bonds; that is, their prices tend to drop when interest rates
rise.

More information about the fund's investments and strategies of the fund is
provided in the Statement of Additional Information. Of course, there can be no
guarantee that by following these investment strategies, the fund will achieve
its objective.

55
<PAGE>

KEMPER INTERNATIONAL FUND

Past performance

Total returns for years ended December 31

- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C MSCI EAFE Index

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The EAFE Index (Morgan Stanley Capital International Europe, Austral-Asia, Far
East Index) is a generally accepted benchmark for performance of major overseas

56
<PAGE>

markets. Index returns assume reinvestment of dividends and, unlike fund
returns, do not reflect any fees or expenses.

57
<PAGE>

KEMPER INTERNATIONAL FUND

Fee and Expense information

58
<PAGE>

KEMPER INTERNATIONAL FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

59
<PAGE>

KEMPER LATIN AMERICA FUND

Investment Objective

Kemper Latin America Fund seeks long-term capital appreciation through
investment primarily in the securities of Latin American issuers. The fund's
investment objective and strategies may be changed without a vote of
shareholders.

Investment Strategies

The fund pursues its investment objective by investing at least 65% of its total
assets in Latin American equity securities. Latin America is defined as Mexico,
Central America, South America and the islands of the Caribbean.

The fund defines securities of Latin American issuers as follows:

o Securities of companies organized under the laws of a Latin American
country or for which the principal trading market is in Latin America;

o Securities issued or guaranteed by the government of a Latin American
country, its agencies or instrumentalities, political subdivisions or the
central bank of such country;

o Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents assets or
activities located in Latin America; or

o Securities of Latin American issuers, as defined above, in the form of
depositary shares.

In managing its portfolio, the investment manager seeks out investment
opportunities created from changing economic and political trends in Latin
America. These trends are supported by governmental initiatives designed to
promote freer trade and market-oriented economies. The investment manager
believes that active management, based on disciplined fundamental research, will
yield promising investment opportunities for long-term capital appreciation.

In selecting companies for investment, the fund typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profit ability, together
with overall growth prospects. Other considerations generally include quality
and depth of management, government regulation, and availability and cost of
labor and raw materials.

Presently, the fund expects to focus its investments in Argentina, Brazil,
Chile, Colombia, Mexico and Peru.

60
<PAGE>

Other Investments

The fund may invest in debt securities when the investment manager determines
that the capital appreciation of debt securities is likely to equal or exceed
that of equity securities. The fund may also invest in debt securities which are
rated below investment grade (commonly referred to as "junk bonds").

In addition, the fund may invest up to 35% of its total assets in the equity
securities of U.S. and other non-Latin American issuers. In evaluating non-Latin
American investments, the investment manager generally seeks investments where
an issuer's Latin American business activities and the impact of developments in
Latin America may have a positive and significant effect on the issuer's
business results.

The fund may invest in closed-end investment companies investing primarily in
Latin America.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may invest without limit in cash or cash
equivalents and money market instruments, or invest all or a portion of its
assets in securities of U.S. or other non-Latin American issuers. In such a
case, the fund would not be pursuing its investment objective.

Main Risks

The fund's other investment strategies entail other risks:

o Convertible debt securities are subject to some of the same interest rate
risk as bonds; that is, their prices tend to drop when interest rates
rise.

o The use of certain derivatives could magnify losses.

61
<PAGE>

62
<PAGE>

KEMPER LATIN AMERICA FUND

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C IFC Latin America
Investable Return
For periods ended Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

The IFC Latin America Investable Return Index is prepared by the International
Finance Corporation. It is an unmanaged, market capitalization-weighted

63
<PAGE>

representation of stock performance in seven Latin American markets, and
measures the returns of stocks that are legally and practically available to
investors. Index returns assume reinvestment of dividends and, unlike fund
returns, do not reflect any fees or expenses.

64
<PAGE>

KEMPER LATIN AMERICA FUND

Fee and Expense information

65
<PAGE>

KEMPER LATIN AMERICA FUND

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

66
<PAGE>

GROWTH FUND OF SPAIN

Investment Objective

Growth Fund Of Spain seeks long-term capital appreciation. The fund's investment
objective is fundamental and cannot be changed without the approval of a
majority of the fund's outstanding voting securities.

Investment Strategies

The fund seeks to achieve its objective by investing primarily in equity
securities of Spanish companies. A company is deemed Spanish if it is:

o organized under the laws of Spain; or

o traded in the Spanish securities markets and doing business in Spain.

Under normal market conditions, at least 65% of the fund's total assets will be
invested in equity securities of Spanish companies. The fund may invest up to
25% of its total assets in unlisted equity and debt securities, including
convertible debt securities, and in other securities which are not readily
marketable, a significant portion of which may be considered illiquid. The fund
may invest up to 35% of total assets in investment-grade fixed income securities
denominated in Pesetas or U.S. dollars. As an operating policy the investment
manager intends to evaluate investment opportunities throughout the Iberian
Peninsula (i.e., Spain and Portugal).

As a matter of non-fundamental policy, the fund may invest up to 35% of total
assets in equity securities of companies other than Spanish companies, and may
concentrate such investments in whole or in part in equity securities of
companies organized under the laws of Portugal or traded in the Portuguese
securities markets and doing business in Portugal.

Risk Management Strategies

The fund may use certain derivatives (investments whose value is based on
indices or other securities).

Under unusual circumstances, the fund may vary from its investment objective and
may invest, without limit, in high quality debt instruments, such as U.S. and
Spanish government securities. The fund may also at any time invest funds in
U.S. dollar-denominated money market instruments as reserves for expenses and
dividend and other distributions to shareholders. In such a case, the fund would
not be pursuing its investment objective.

67
<PAGE>

Main Risks

The primary factor affecting this fund's performance is stock market movements
in the two primary countries in which the fund is invested. Foreign investments,
particularly investments in emerging markets, carry added risks due to
inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. In addition,
the investment manager's choice of market sectors or specific investments may
not perform as well as expected, and the fund could underperform its peers or
lose money.

The fund's other investment strategies entail other risks:

o Convertible debt securities are subject to some of the same interest rate
risk as bonds; that is, their prices tend to drop when interest rates
rise.

68
<PAGE>

GROWTH FUND OF SPAIN

Past performance

Total returns for years ended December 31
- --------------------------------------------------------------------------------
BAR CHART

- --------------------------------------------------------------------------------

For the period included in the bar chart, the fund's highest return for a
calendar quarter was ___% (cite quarter), and the fund's lowest return for a
calendar quarter was -___% (cite quarter).

Average Annual Total Returns

Class A Class B Class C Madrid Stock
Exchange General
For periods ended Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
Since Class Inception __.__% __.__% __.__% *
Inception Date

- -------------
* Index returns for the life of each class: ___, ___, and ___ for Class A, B,
and C, respectively.

Performance of the Madrid Stock Exchange General Index is based on the return of
the most frequently traded stocks in the Madrid market and represents 85% of the
total

69
<PAGE>

Madrid market capitalization. Index returns assume reinvestment of dividends
and, unlike fund returns, do not reflect any fees or expenses.

70
<PAGE>

GROWTH FUND OF SPAIN

Fee and Expense information

<TABLE>
<CAPTION>
===============================================================================================
Shareholder fees: Fees paid directly from your investment.
- -----------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % 5.75% None None
of offering price)
- -----------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of redemption None(1) 4% 1%
proceeds)
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends/Distributions
- -----------------------------------------------------------------------------------------------
Redemption Fee (as % of amount redeemed, if applicable) 2.00% 2.00% 2.00%
- -----------------------------------------------------------------------------------------------
Exchange Fee None None None
===============================================================================================
</TABLE>

71
<PAGE>

GROWTH FUND OF SPAIN

Example

This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.

- --------------------------------------------------
Fees and expenses if you sold shares after:

- --------------------------------------------------
Fees and expenses if you did not sell your shares:

72
<PAGE>

Investment Manager

The funds retain the investment management firm of Scudder Kemper Investments,
Inc., Two International Place, Boston, MA, to manage their daily investment and
business affairs subject to the policies established by the funds' Boards.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide, managing more than $230 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.

Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-adviser for Kemper Europe Fund,
Kemper Global Income Fund, and Kemper International Fund. Scudder Investments
(U.K.) Limited has served as sub-adviser for mutual funds since December, 1996
and investment adviser for certain institutional accounts since August, 1998.

Each fund pays the investment manager a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are shown below:

Kemper Asian Growth Fund 0.__%

Kemper Emerging Markets Growth Fund 0.__%

Kemper Emerging Markets Income Fund 0.__%

Kemper Europe Fund 0.__%

Kemper Global Blue Chip Fund 0.__%

Kemper Global Discovery Fund 0.__%

Kemper Global Income Fund 0.__%

Kemper International Growth and Income Fund 0.__%

Kemper International Fund 0.__%

Growth Fund Of Spain 0.__%

Kemper Latin America Fund 0.__%

[* Add footnotes as needed for expense caps.]

73
<PAGE>

Portfolio management

The funds are managed by teams of investment professionals who each plays an
important role in a fund's management process. Team members work together to
develop investment strategies and select securities for a fund's portfolio. They
are supported by the investment manager's large staff of economists, research
analysts, traders and other investment specialists who work in the investment
manager's offices across the United States and abroad. The investment manager
believes its team approach benefits fund investors by bringing together many
disciplines and leveraging its extensive resources.

The following investment professionals are associated with the funds as
indicated:

[TO BE COMPLETED]

Kemper Asian Growth Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Theresa Gusman - 19 Joined Scudder Kemper in 19. She began
Lead Manager her investment career in 19.
- --------------------------------------------------------------------------------
Elizabeth J. Allan - 19 Joined Scudder Kemper in 19. She began
Manager her investment career in 19.

Kemper Emerging Markets Growth Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Joyce E. Cornell - 19 Joined Scudder Kemper in 19. She began
Lead Manager her investment career in 19.
- --------------------------------------------------------------------------------
Tara C. Kenney - 19 Joined Scudder Kemper in 19. She began
Manager her investment career in 19.
- --------------------------------------------------------------------------------
Theresa Gusman - 19 Joined Scudder Kemper in 19. She began
Manager her investment career in 19.
- --------------------------------------------------------------------------------
Andre J. DeSimone- 19 Joined Scudder Kemper in 19. She/He
Manager began her/his investment career in 19.

Kemper Emerging Markets Income Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
M. Isabel Saltzman - 19 Joined Scudder Kemper in 19. She began
Lead Manager her/his investment career in 19.
- --------------------------------------------------------------------------------
Susan E. Gray - 19 Joined Scudder Kemper in 19. She began
Manager her/his investment career in 19.

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<PAGE>

Kemper Europe Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Marc Slendebrock - 19 Joined Scudder Kemper in 19. He began
Lead Manager his investment career in 19.

Kemper Global Blue Chip Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Diego Espinosa - 19 Joined Scudder Kemper in 19. He began
Lead Manager his investment career in 19.
- --------------------------------------------------------------------------------
William E. Holzer - 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.
- --------------------------------------------------------------------------------
Nicholas Bratt - 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.

Kemper Global Discovery Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Gerald J. Moran - 1991 Joined Scudder Kemper in 1968. He
Lead Manager began his investment career in 1968.
- --------------------------------------------------------------------------------
Sewall Hodges - 1996 Joined Scudder Kemper in 1995. He
Manager began his investment career in 1985.

Kemper Global Income Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Pankaj Shah - Lead 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.
- --------------------------------------------------------------------------------
Terence C. Prideaux - 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.

Kemper International Growth and Income Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Sheridan Reilly - 19 Joined Scudder Kemper in 19. He began
Lead Manager his investment career in 19.
- --------------------------------------------------------------------------------
Irene Cheng - Manager 19 Joined Scudder Kemper in 19. She began
her investment career in 19.

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<PAGE>

Kemper International Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Stephen P. Dexter - 19 Joined Scudder Kemper in 19. He began
Co-Lead Manager his investment career in 19.
- --------------------------------------------------------------------------------
Marc J. Slendebroeck - 19 Joined Scudder Kemper in 19. He began
Co-Lead Manager his investment career in 19.
- --------------------------------------------------------------------------------
Dennis H. Ferro - 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.

Growth Fund Of Spain

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Joan R. Gregory - 19 Joined Scudder Kemper in 19. She began
Lead Manager her investment career in 19.
- --------------------------------------------------------------------------------
Nicholas Bratt - 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.

Kemper Latin America Fund

Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Tara C. Kenney - 19 Joined Scudder Kemper in 19. She began
Lead Manager her investment career in 19.
- --------------------------------------------------------------------------------
Edmund B. Games, Jr. - 19 Joined Scudder Kemper in 19. He began
Manager his investment career in 19.
- --------------------------------------------------------------------------------
Paul Rogers - Manager 19 Joined Scudder Kemper in 19. He began
his investment career in 19.

Year 2000 Readiness

Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund relies,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to correctly process date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the funds' business and
operations, such as problems with calculating net asset value and difficulties
in implementing a fund's purchase and redemption procedures. The investment
manager has commenced a review of the Year

76
<PAGE>

2000 Issue as it may affect the funds and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
issuers whose securities are held by a fund or on global markets or economies
generally.

Euro Conversion

The planned introduction of a new European currency, the Euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of the Fund's portfolio. Currently, the Euro is
expected to be introduced on January 1, 1999 by eleven European countries that
are members of the European Economic and Monetary Union (EMU). The introduction
of the Euro will require the redenomination of European debt and equity
securities over a period of time, which may result in various accounting
differences and/or tax treatments that otherwise would not likely occur.
Additional questions are raised by the fact that certain other EMU members,
including the United Kingdom, will not officially be implementing the Euro on
January 1, 1999. If the introduction of the Euro does not take place as planned,
there could be negative effects, such as severe currency fluctuations and market
disruptions.

Scudder Kemper is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps. At this
time, however, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a portfolio holding is negative, it
could hurt the portfolio's performance.

ABOUT YOUR INVESTMENT

Choosing a share class

Each fund provides investors with the option of purchasing shares in the
following ways:

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<PAGE>

Class A Shares(1) Offered at net asset value plus a maximum sales charge
of 5.75% of the offering price, or 4.5% of the offering
price in the cases of Kemper Global Income Fund and
Kemper Emerging Markets Income Fund.

Reduced sales charges apply to purchases of $50,000 or
more for all funds except Kemper Global Income Fund and
Kemper Emerging Markets Income Fund. Reduced sales
charges apply to purchases of $100,000 or more for
Kemper Global Income Fund and Kemper Emerging Markets
Income Fund. Class A shares purchased at net asset value
under the Large Order NAV Purchase Privilege may be
subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50%
contingent deferred sales change if redeemed during the
second year of purchase.

Class B Shares(1) Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1 distribution
fee and a contingent deferred sales charge that declines
from 4% to zero on certain redemptions made within six
years of purchase. Class B shares automatically convert
into Class A shares (which have lower ongoing expenses)
six years after purchase.

Class C Shares(1) Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1 distribution
fee and a 1% contingent deferred sales charge on
redemptions made within one year of purchase. Class C
shares do not convert into another class.

(1) Class A, B and C shares of Growth Fund of Spain are subject to a 2%
redemption fee on shares redeemed or exchanged within one year after purchase,
with limited exceptions.

When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.

The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For

78
<PAGE>

more information about these sales arrangements, consult your financial
representative or the Shareholder Service Agent. Be aware that financial
services firms may receive different compensation depending upon which class of
shares they sell.

Rule 12b-1 plan

Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and services for those classes. Because
12b-1 fees are paid out of fund assets on an ongoing basis, they will, over
time, increase the cost of investment and may cost more than other types of
sales charges. Long-term shareholders may pay more than the economic equivalent
of the maximum initial sales charges permitted by the National Association of
Securities Dealers, although Kemper Distributors, Inc. believes that it is
unlikely, in the case of Class B shares, because of the automatic conversion
feature of the shares.

Special features

Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.

Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period.

Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.

Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Shares of a Kemper Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Fund, or from a Money Market Fund, may not be exchanged thereafter until they
have been owned for 15 days (the "15 Day Hold Policy").

79
<PAGE>

For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.

80
<PAGE>

Buying shares

Class A Shares -- All funds, except Kemper Global Income Fund and Kemper
Emerging Markets Income Fund

<TABLE>
<CAPTION>
Public Amount of Purchase
Offering Price. Sales Charge Sales Charge as a
Including Sales as a % of % of Net Asset
Charge Offering Price Value*
-------------- -----

<S> <C> <C>
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50 4.71
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00
</TABLE>

* Rounded to nearest one hundredth percent.
**Redemption of shares may be subject to a contingent deferred
sales charge as discussed below.

Class A Shares - Kemper Global Income Fund and Kemper Emerging Markets Income
Fund

<TABLE>
<CAPTION>
Public Amount of Purchase
Offering Price. Sales Charge Sales Charge as a
Including Sales as a % of % of Net Asset
Charge Offering Price Value*
-------------- -----

<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00
</TABLE>

* Rounded to nearest one hundredth percent.
**Redemption of shares may be subject to a contingent deferred
sales charge as discussed below.

NAV Purchases

Class A shares of a fund may be purchased at net asset value
by:

o shareholders in connection with the investment or
reinvestment of income and capital gain dividends

o a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation
plan or a participant-directed qualified retirement plan
which is not sponsored by a K-12 school district,
provided in each case that such plan has not less than
200 eligible employees

o any purchaser with Kemper Funds investment totals of at
least $1,000,000

o unitholders of unit investment trusts sponsored by
Ranson & Associates, Inc. or its predecessors through
reinvestment programs described in the prospectuses of
such trusts that have such programs

81
<PAGE>

o officers, trustees, directors, employees (including
retirees) and sales representatives of a fund, its
investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their
families

82
<PAGE>

Class A Shares (cont.)

o persons who purchase shares through bank trust
departments that process such trades through an
automated, integrated mutual fund clearing program
provided by a third party clearing firm

o registered representatives and employees of
broker-dealers having selling group agreements with
Kemper Distributors

o officers, directors, and employees of service agents of
the funds

o members of the plaintiff class in the proceeding known
as Howard and Audrey Tabankin, et al. v. Kemper
Short-Term Global Income Fund, et. al., Case No. 93 C
5231 (N.D.IL)

o selected employees (including their spouses and
dependent children) of banks and other financial
services firms that provide administrative services
related to the funds pursuant to an agreement with
Kemper Distributors or one of its affiliates

o certain professionals who assist in the promotion of
Kemper Funds pursuant to personal services contracts
with Kemper Distributors, for themselves or members of
their families

o in connection with the acquisition of the assets of or
merger or consolidation with another investment company

o shareholders who owned shares of Kemper Value Series,
Inc. ("KVS") on September 8, 1995, and have continuously
owned shares of KVS (or a Kemper Fund acquired by
exchange of KVS shares) since that date, for themselves
or members of their families

o any trust, pension, profit-sharing or other benefit plan
for only such persons.

o Persons who purchase shares of the fund through Kemper
Distributors as part of an automated billing and wage
deduction program administered by RewardsPlus of America

o through certain investment advisers registered under the
Investment Advisers Act of 1940 and other financial
services firms that adhere to certain standards
established by Kemper Distributors, including a
requirement that such shares be sold for the benefit of
their clients participating in an investment advisory
program under which such clients pay a fee to the
investment advisor or other firm for portfolio
management and other services. Such shares are sold for
investment purposes and on the condition that they will
not be resold except through redemption or repurchase by
the funds

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<PAGE>

Class A Shares (cont.)

Contingent A contingent deferred sales charge may be imposed upon
Deferred Sales redemption of Class A shares purchased under the Large Order
Charge NAV Purchase Privilege as follows: 1% if they are redeemed
within one year of purchase and .50% if redeemed during the
second year following purchase. The charge will not be imposed
upon redemption of reinvested dividends or share appreciation.
The contingent deferred sales charge will be waived in the
event of:

o redemptions under a fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the
account

o redemption of shares of a shareholder (including a
registered joint owner) who has died

o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares
being redeemed becomes totally disabled (as evidenced by
a determination by the federal Social Security
Administration)

o redemptions by a participant-directed qualified
retirement plan or a participant-directed non-qualified
deferred compensation plan or a participant-directed
qualified retirement plan which is not sponsored by a
K-12 school district

o redemptions by employer sponsored employee benefit plans
using the subaccount record keeping system made
available through the Shareholder Service Agent

o redemptions of shares whose dealer of record at the time
of the investment notifies Kemper Distributors that the
dealer waives the commission applicable to such Large
Order NAV Purchase

Rule 12b-1 Fee None

Exchange Class A shares may be exchanged for each other at their
Privilege relative net asset values. Shares of Money Market Funds and
Kemper Cash Reserves Fund acquired by purchase (not including
shares acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange

Class A shares purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of any Kemper
Fund or a Money Market Fund without paying any contingent
deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed

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<PAGE>

Class B Shares

Public Offering Net asset value per share without any sales charge at the time
Price of purchase

Contingent A contingent deferred sales charge may be imposed upon
Deferred Sales redemption of Class B shares. There is no such charge upon
Charge redemption of any share appreciation or reinvested dividends.
The charge is computed at the following rates applied to the
value of the shares redeemed excluding amounts not subject to
the charge.

Year of Redemption First Second Third Fourth Fifth Sixth
After Purchase:
---------------------------------------------------------------
Contingent Deferred 4% 3% 3% 2% 2% 1%
Sales Charge:
---------------------------------------------------------------
The contingent deferred sales charge will be waived:

o for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with
the maximum amount subject to this waiver being based
only upon the shareholder's Kemper IRA accounts)

o for redemptions made pursuant to any IRA systematic
withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal
periodic payments described in Code Section
72(t)(2)(A)(iv) prior to age 59 1/2

o for redemptions made pursuant to a systematic withdrawal
plan (see "Special Features -- Systematic Withdrawal
Plan" below)

o in the event of the total disability (as evidenced by a
determination by the federal Social Security
Administration) of the shareholder (including a
registered joint owner) occurring after the purchase of
the shares being redeemed

o in the event of the death of the shareholder (including
a registered joint owner)

The contingent deferred sales charge will also be waived in
connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the
Shareholder Service Agent:

o redemptions to satisfy participant loan advances (note
that loan repayments constitute new purchases for
purposes of the contingent deferred sales charge and the
conversion privilege)

o redemptions in connection with retirement distributions
(limited at any one time to 10% of the total value of
plan assets invested in a fund

o redemptions in connection with distributions qualifying
under the hardship provisions of the Code

o redemptions representing returns of excess contributions
to such plans

Rule 12b-1 Fee 0.75%

Conversion Class B shares of a fund will automatically convert to Class A
Feature shares of the same fund six years after issuance on the basis
of the relative net asset value per share. Shares purchased
through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's fund
account will be converted to Class A shares on a pro rata
basis.

Exchange Class B shares of a fund and Class B shares of most Kemper
Privilege Funds may be exchanged for each other at their relative net
asset values without a contingent

85
<PAGE>

deferred sales charge.

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<PAGE>

Class C Shares

Public Offering Net asset value per share without any sales charge at the time
Price of purchase

Contingent o A contingent deferred sales charge of 1% may be imposed
Deferred upon redemption of Class C shares redeemed within one
Sales Charge year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share
appreciation. The contingent deferred sales charge will
be waived in the event of:

o redemptions by a participant-directed qualified
retirement plan described in Code Section 401(a) or a
participant-directed non-qualified deferred compensation
plan described in Code Section 457

o redemptions by employer sponsored employee benefit plans
(or their participants) using the subaccount record
keeping system made available through the Shareholder
Service Agent

o redemption of shares of a shareholder (including a
registered joint owner) who has died

o redemptions under a fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the
account

o redemption of shares by an employer sponsored employee
benefit plan that offers funds in addition to Kemper
Funds and whose dealer of record has waived the advance
of the first year administrative service and
distribution fees applicable to such shares and agrees
to receive such fees quarterly

o redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on
an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year
administrative services and distribution fees applicable
to such shares and has agreed to receive such fees
quarterly

Rule 12b-1 Fee 0.75%

Conversion None
Feature

Exchange Class C shares of a fund and Class C shares of most Kemper
Privilege Funds may be exchanged for each other at their relative net
asset values. Class C shares may be exchanged without a
contingent deferred sales charge.

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<PAGE>

Selling and exchanging shares

General

Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.

Share certificates

When certificates for shares have been issued, they must be mailed to or
deposited with the Shareholder Service Agent, along with a duly endorsed stock
power and accompanied by a written request for redemption. Redemption requests
and a stock power must be endorsed by the account holder with signatures
guaranteed. The redemption request and stock power must be signed exactly as the
account is registered including any special capacity of the registered owner.
Additional documentation may be requested, and a signature guarantee is normally
required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.

Repurchases (confirmed redemptions)

A request for repurchase may be communicated by a shareholder through a
securities dealer or other financial services firm to Kemper Distributors, which
each fund has authorized to act as its agent. There is no charge by Kemper
Distributors with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.

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<PAGE>

Reinvestment privilege

Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time.

Distributions and taxes

Dividends and capital gains distributions

Each fund normally distributes dividends of net investment income as follows:
annually for Kemper Asian Growth Fund, Kemper Emerging Markets Growth Fund,
Kemper Europe Fund, Kemper Global Blue Chip Fund, Kemper Global Discovery Fund,
Growth Fund Of Spain, Kemper International Fund, and Kemper Latin America Fund;
semi-annually for Kemper International Growth and Income Fund; monthly for
Kemper Emerging Markets Income Fund and Kemper Global Income Fund. Each fund
distributes any net realized short-term and long-term capital gains at least
annually.

Income and capital gains dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:

(1) To receive income and short-term capital gains dividends in cash and
long-term capital gains dividends in shares of the same class at net asset
value; or

(2) To receive income and capital gains dividends in cash.

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<PAGE>

Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to the
Shareholder Service Agent, you may choose to have dividends of a fund invested
in shares of the same class of another Kemper fund at the net asset value of
that class and fund. To use this privilege, you must maintain a minimum account
value of $1,000 in the fund distributing the dividends. The funds will reinvest
dividend checks (and future dividends) in shares of that same fund and class if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same fund unless you request that such policy not be applied to your account.

Taxes

Generally, dividends from net investment income are taxable to you as ordinary
income. Long-term capital gains distributions, if any, are taxable to you as
long-term capital gains, regardless of how long you have owned your shares.
Short-term capital gains and any other taxable income distributions are taxable
to you as ordinary income. A portion of dividends from ordinary income may
qualify for the dividends-received deduction for corporations.

Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.

A sale or exchange of your shares is a taxable event and may result in a capital
gain or loss which may be long-term or short-term, generally depending on how
long you owned the shares.

A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, is taxable to you.

Each fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year. 976378246In certain years,
you may be able to claim a credit or deduction on your income tax return for
your share of foreign taxes paid by a fund.

Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Any such withheld amounts may be credited against your U.S. federal
income tax liability.

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<PAGE>

Shareholders of a fund may be subject to state, local and foreign taxes on fund
distributions and dispositions of fund shares. You should consult your tax
advisor regarding the particular tax consequences of an investment in a fund.

Transaction information

Share price

Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Market prices are used to determine the value of the funds' assets,
but when reliable market quotations are unavailable, a fund may use procedures
established by its Board of Directors/Trustees.

The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the fund will generally be lower than that of the Class A shares of a fund
because of the higher annual expenses borne by the Class B and Class C shares.

To the extent that the funds invest in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the funds do not price
their shares. As a result, the net asset value per share of the funds may change
at a time when shareholders are not able to purchase or redeem their shares.

Redemption Fee

Upon the redemption of exchange of any class of shares of Growth Fund of Spain
held for less than one year, a fee of 2% of the current net asset value of the
shares will be assessed and retained by the fund for the benefit of the
remaining shareholders. The fee is waived for all shares purchase through
certain retirement plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh
accounts, and other pension, profit-sharing and employee benefit plans. However,
if such shares are purchased through a broker, financial institution or
recordkeeper maintaining an omnibus account for the shares, such waiver may not
apply. In addition this waiver does not apply to any IRA or SEP-IRA accounts.
This fee is intended to encourage long-term investment in the fund, to avoid
transaction and other expenses caused by early redemptions, and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the investment manager or its subsidiaries, and does not
benefit

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<PAGE>

the investment manager in any way. The fund reserves the right to modify the
terms of or terminate this fee at any time.

The fee applies to redemptions from the fund and exchanges to other Kemper
Funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the fund. The fee is applied to the shares being
redeemed or exchanges in the order in which they were purchased. In the event
that a shareholder has acquired shares of the fund in connection with the fund's
acquisition of the assets of or merger or consolidation with another investment
company, the shareholder will generally be permitted to add the period he or she
held shares of the acquired fund to the time he or she has held Class A shares
of the fund in determining the applicability of the redemption fee. In such a
case, the shareholder bears the burden of demonstrating to the fund the period
of ownership of the acquired fund. Proof of ownership for the required period
may be demonstrated by providing copies of brokerage account statements or other
appropriate share records in connection with a redemption under cover of the
redemption and certification form attached to this prospectus.

Processing time

All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by the funds'
transfer agent prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.

Signature guarantees

A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The funds will normally send
you the proceeds within one business day following your request, but may take up
to seven business days (or longer in the case of shares recently purchased by
check).

Purchase restrictions

Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason including when there is
evidence of a pattern of

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frequent purchases and sales made in response to short-term fluctuations in a
fund's share price.

Each fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
fund may temporarily suspend the offering of its shares or a class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders normally are permitted to continue to purchase additional shares
and to have dividends reinvested.

Minimum balances

The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.

Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.

Third party transactions

If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' transfer agent),
that member may charge a fee for that service. This prospectus should be read in
connection with such firms' material regarding their fees and services.

Redemption-in-kind

Each fund reserves the right to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
("redemption in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.

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FINANCIAL HIGHLIGHTS

The tables below are intended to help you understand the funds' financial
performance for the period reflected below. Certain information reflects the
financial results for a single fund share. The total return figures show what an
investor in a fund would have earned (or lost) assuming reinvestment of all
distributions. This information had been audited by Ernst & Young LLP whose
report, along with the funds' financial statements, are included in the funds'
annual reports, which are available upon request by calling Kemper at
1-800-621-1048.

[TO BE COMPLETED]

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<PAGE>

Additional information about the funds may be found in each fund's respective
Statement of Additional Information, the Shareholder Services Guide and in
shareholder reports. Shareholder inquiries may be made by calling the toll-free
telephone number listed below. The Statements of Additional Information contain
information on fund investments and operations. The Shareholder Services Guide
contains information about purchases and sales of fund shares. The semiannual
and annual shareholder reports contain a discussion of the market conditions and
the investment strategies that significantly affected the funds' performance
during the last fiscal year, as well as a listing of portfolio holdings and
financial statements. These and other fund documents may be obtained without
charge from the following sources:

==========================================================================
By Phone: In Person:
- --------------------------------------------------------------------------
Call Kemper at: Public Reference Room
1-800-621-1048 Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
- --------------------------------------------------------------------------
By Mail: By Internet:
- --------------------------------------------------------------------------
Kemper Distributors, Inc. http://www.sec.gov
222 South Riverside Plaza http://www.kemper.com
Chicago, IL 60606-5808
Or
Public Reference Section,
Securities and Exchange Commission,
Washington, D.C. 20549-6009
(a duplication fee is charged)
==========================================================================

The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:

Kemper Asian Growth Fund 811-7731

Kemper Emerging Markets Growth Fund 811-08395

Kemper Emerging Markets Income Fund 811-08395

Kemper Europe Fund 811-7479

Kemper Global Blue Chip Fund 811-08395

Kemper Global Discovery Fund 811-4670

Kemper Global Income Fund 811-5829

Kemper International Growth and Income Fund 811-08395

Kemper International Fund 811-3136

Growth Fund Of Spain 811-08395

Kemper Latin America Fund 811-08395

Printed with SOYINK Printed on recycled paper
xx-xx-xx
(codes)

<PAGE>

KEMPER GLOBAL and INTERNATIONAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999

Kemper Global Blue Chip Fund ("Global Blue Chip Fund")
Kemper International Growth and Income Fund
("International Growth and Income Fund")
Kemper Emerging Markets Income Fund ("Emerging Markets Income Fund")
Kemper Emerging Markets Growth Fund ("Emerging Markets Growth Fund")
Kemper Latin America Fund ("Latin America Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048

This combined Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the Funds listed above (the
"Funds"), each a series of Kemper Global/International Series, Inc. (the
"Corporation"), an open-end management investment company. It should be read in
conjunction with the combined prospectus of the Funds dated March 1, 1999. A
prospectus may be obtained without charge from the Funds, and is also available
along with other related materials on the SEC's Internet Web site
(http://www.sec.gov).

TABLE OF CONTENTS

INVESTMENT RESTRICTIONS........................................................2
INVESTMENT POLICIES AND TECHNIQUES ...........................................10
PORTFOLIO TRANSACTIONS........................................................33
INVESTMENT MANAGER AND UNDERWRITER............................................34
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES.................................43
NET ASSET VALUE...............................................................55
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................57
PERFORMANCE...................................................................63
OFFICERS AND DIRECTORS........................................................66
SHAREHOLDER RIGHTS............................................................68
APPENDIX -- RATINGS OF FIXED INCOME INVESTMENTS...............................71

The financial statements appearing in each Fund's Annual Report to Shareholders
are incorporated herein by reference. The Report for any Fund for which this
Statement of Additional Information is requested accompanies this document.

Scudder Kemper Investments, Inc. (the "Adviser") serves as each Fund's
investment manager.

KEF-13 12/96 (Recycled Logo) printed on recycled paper

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<PAGE>

INVESTMENT RESTRICTIONS

Each Fund has adopted certain fundamental investment restrictions which,
together with the fundamental policies of such Fund, cannot be changed without
approval of a majority of its outstanding voting shares, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). This means the
lesser of the vote of (a) 67% of the shares of the Fund present at a meeting
where more than 50% of the outstanding shares are present in person or by proxy
or (b) more than 50% of the outstanding shares of the outstanding shares of the
Fund.

Global Blue Chip Fund and International Growth and Income Fund each has elected
to be classified as a diversified series of an open-end management, investment
company. Emerging Markets Income Fund, Emerging Markets Growth Fund and Latin
America Fund are non-diversified series of an open-end management, investment
company.

As a matter of fundamental policy, each Fund will not:

a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction
from time to time;

b) issue senior securities, except as permitted under the 1940 Act and
as interpreted or modified by regulatory authority having
jurisdiction, from time to time;

c) purchase physical commodities or contracts relating to physical
commodities;

d) engage in the business of underwriting securities issued by others,
except to the extent that a Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;

e) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that a Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;

f) make loans except as permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority having
jurisdiction, from time to time; or

g) concentrate its investments in a particular industry, as that term
is used in the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation.

As a matter of nonfundamental policy, each Fund will not:

1. For all Funds except for Emerging Markets Income Fund: borrow money in an
amount greater than 5% of its total assets, except (i) for temporary or
emergency purposes and (ii) by engaging in reverse repurchase agreements,
dollar rolls, or other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;

2. For Emerging Markets Income Fund: borrow money in an amount greater than
20% of its total assets, except (i) for temporary or emergency purposes
and (ii) by engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's registration
statement which may be deemed to be borrowings;

3. For all Funds except for Emerging Markets Income Fund: enter into either
of reverse repurchase agreements or dollar rolls in an amount greater than
5% of its total assets;

4. purchase securities on margin or make short sales, except (i) short sales
against the box, (ii) in connection with arbitrage transactions, (iii) for
margin deposits in connection with futures contracts, options or other
permitted investments, (iv) that transactions in futures contracts and
options shall not be deemed to constitute selling securities short, and
(v) that the Fund may obtain such short-term credits as may be necessary
for the clearance of securities transactions;

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<PAGE>

5. purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or
sell put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets;

6. enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial margin
with respect to such futures contracts entered into on behalf of the Fund
and the premiums paid for such options on futures contracts does not
exceed 5% of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing the 5%
limit;

7. purchase warrants if as a result, such securities, taken at the lower of
cost or market value, would represent more than 5% of the value of the
Fund's total assets (for this purpose, warrants acquired in units or
attached to securities will be deemed to have no value); and

8. For all Funds except for International Growth and Income Fund: lend
portfolio securities in an amount greater than 5% of its total assets.

9. For International Growth and Income Fund: lend portfolio securities in an
amount greater than 33 1/3% of its total assets.

INVESTMENT POLICIES AND TECHNIQUES

GENERAL. Kemper Global Blue Chip Fund (the "Global Blue Chip Fund") seeks
long-term growth of capital through a diversified worldwide portfolio of
marketable securities, primarily equity securities, including common stocks,
preferred stocks and debt securities convertible into common stocks. Kemper
International Growth And Income Fund (the "International Growth and Income
Fund") seeks long-term growth of capital and current income primarily from
foreign equity securities. Kemper Emerging Markets Income Fund (the "Emerging
Markets Income Fund") has dual investment objectives. The Fund's primary
investment objective is to provide investors with high current income. As a
secondary objective, the Fund seeks long-term capital appreciation. Kemper
Emerging Markets Growth Fund (the "Emerging Markets Growth Fund") seeks
long-term growth of capital primarily through equity investment in emerging
markets around the globe. Kemper Latin America Fund (the "Latin America Fund")
seeks to provide long-term capital appreciation through investment primarily in
the securities of Latin American issuers.

Each Fund may engage in futures, options and other derivative transactions
("Strategic Transactions and Derivatives") in accordance with its respective
investment objectives and policies. Each such Fund intends to engage in such
transactions if it appears to the Adviser to be advantageous for the Fund to do
so in order to pursue its investment objective(s), to hedge against the effects
of fluctuation in interest rates, and also to hedge against the effects of
market risks, but not for leveraging purposes. The use of futures and options,
and possible benefits and attendant risks, are discussed below, along with
information concerning other investment policies and techniques to create
leveraged exposure in the Fund.

Each Fund's returns and net asset value will fluctuate, and there is no
assurance that any Fund will meet its objectives. Except as otherwise indicated,
a Fund's investment objectives and policies are not fundamental and may be
changed without a vote of shareholders. If there is a change in a Fund's
investment objectives, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs.

Each Fund is designed for long-term investors who can accept international
investment risk in pursuit of additional opportunities that foreign securities
may provide. Since a Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. A Fund's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Fund's investment performance. As with any long-term investment, the value
of shares when sold may be higher or lower than when purchased. In the opinion
of the Adviser, foreign capital markets provide investors with opportunities to
participate in the economic growth taking place outside of the U.S., which
should translate into positive securities market performance over the long term.
In addition, the Adviser believes that international investing offers the
benefits of geographic diversification, which

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<PAGE>

can lower the overall price volatility of an investor's portfolio. Foreign
investing does involve significant risks, as discussed in this prospectus, and
no Fund should be considered a complete investment program.

GLOBAL BLUE CHIP FUND. Global Blue Chip Fund seeks long-term growth of capital
through a diversified worldwide portfolio of marketable securities, primarily
equity securities, including common stocks, preferred stocks and debt securities
convertible into common stocks. The Fund invests in equity securities of
companies which are incorporated in the U.S. and in foreign countries. The Fund
will invest primarily in developed markets, with a maximum of 15% of the Fund's
total assets invested in emerging markets. It also may invest in the debt
securities of U.S. and foreign issuers. Income is an incidental consideration.

In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known companies. Companies of this general type are often
referred to as "Blue Chip" companies. While specific investment and financial
criteria may vary from market to market, Blue Chip companies around the world
are generally identified by the Adviser as having substantial capitalization,
established financial history, ready access to credit, good industry position
and superior management structure. While these companies may be among the
largest in their local markets, they may be small by the standards of U.S. stock
market capitalization. Global Blue Chip companies are believed to generally
exhibit less investment risk and less price volatility, on average, than
companies lacking these characteristics, such as smaller, less-seasoned
companies. In addition, the large market of publicly held shares for such
companies and the generally higher trading volume in those shares generally
result in a relatively high degree of liquidity for such investments.

The Fund invests in companies that the Adviser believes will benefit from global
economic trends, promising technologies or products and specific country
opportunities resulting from changing geopolitical, currency or economic
relationships. The Fund's global framework allows it to take advantage of
investment opportunities created by the growing integration of economies around
the world. The Fund offers investors access to opportunities wherever they
arise, without being constrained by location of a company's headquarters or the
trading market for its shares.

It is expected that investments will be spread broadly around the world with an
emphasis on developed economies and capital markets. The Fund will usually be
invested in securities of issuers located in at least three countries, one of
which may be the U.S. The Fund may be invested 100% in non-U.S. issues, and for
temporary defensive purposes may be invested 100% in U.S. issues, although under
normal circumstances it is expected that both foreign and U.S. investments will
be represented in the Fund's portfolio. It is expected that investments will
include securities of companies of varying sizes, as measured by assets, sales,
income or market capitalization.

The Fund generally invests in equity securities of established companies listed
on U.S. or foreign securities exchanges, but also may invest in securities
traded over-the-counter. It also may invest in debt securities convertible into
common stock, and convertible and non-convertible preferred stock, and
fixed-income securities of governments, governmental agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be predominantly investment-grade
securities, that is, those rated Aaa, Aa, A or Baa by Moody's Investor Services,
Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P")
or those of equivalent quality as determined by the Adviser. The Fund may not
invest more than 5% of its total assets in debt securities rated Baa or below by
Moody's, or BBB or below by S&P or deemed by the Adviser to be of comparable
quality (commonly referred to as "high yield" or "junk" bonds). (See "Special
Risk Factors").

The Fund may invest in zero coupon securities. In addition, fixed-income
securities may be held without limit for temporary defensive purposes when the
Adviser believes market conditions so warrant and for temporary investment. It
is impossible to accurately predict how long such alternative strategies may be
utilized. Similarly, the Fund may invest in cash equivalents (including domestic
and foreign money market instruments, such as bankers' acceptances, certificates
of deposit, commercial paper, short-term government and corporate obligations
and repurchase agreements) for temporary defensive purposes and for liquidity.
The Fund may invest in closed-end investment companies holding foreign
securities, as well as shares of closed-end investment companies that invest
primarily in emerging market debt securities. In addition, the Fund may engage
in strategic transactions, which may include derivatives. (See "Special Risk
Factors").

The Fund may invest in REITs. REITs are sometimes informally characterized as
equity REITs, mortgage REITs and hybrid REITs. Investment in REITs may subject
the Fund to risks associated with the direct ownership of real estate, such as

4
<PAGE>

decreases in real estate values, overbuilding, increased competition and other
risks related to local or general economic conditions, increases in operating
costs and property taxes, changes in zoning laws, casualty or condemnation
losses, possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Fund's investment in REITs. For instance,
during periods of declining interest rates, certain mortgage REITs may hold
mortgages that the mortgagors elect to prepay, which prepayment may diminish the
yield on securities issued by those REITs.

Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders. The value invested in REITs will not exceed 5% of
the value of the Fund's total assets.

INTERNATIONAL GROWTH AND INCOME FUND. International Growth and Income Fund
seeks long-term growth of capital and current income primarily from foreign
equity securities. The Fund invests generally in common stocks of established
companies listed on foreign exchanges, which offer prospects for growth of
earnings while paying relatively high current dividends. The Fund can also
invest in other types of equity securities, including preferred stocks and
securities convertible into common stock. The Fund does not invest in emerging
markets, but instead focuses its investments on the developed foreign countries
included in the Morgan Stanley Capital International World ex-US Index (the
"MSCI").

The Fund's income-oriented strategy, which can help cushion returns in volatile
periods, and its concentration in developed markets, may make it appropriate for
investors seeking lower share price volatility than many other international
equity funds.

While the Fund offers the potential for price appreciation and dividend income,
it also involves various types of risk. The Fund's net asset value can fluctuate
with changes in world securities market levels, political developments,
movements in currencies, investment flows and other factors. (See "Special Risk
Factors").

In pursuing its dual objective, at least 80% of the Fund's net assets will
normally be invested in the equity securities of established non-U.S. companies.
The Fund generally invests in equity securities of established companies listed
on foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.

The Fund intends to diversify investments among several developed foreign
markets and normally to invest in securities of issuers located in at least
three different countries. The Fund will invest predominantly in securities of
issuers in the developed foreign countries included in the MSCI.

Under normal conditions, the Fund may also invest up to 20% of its net assets in
debt securities convertible into common stock and fixed-income securities of
governments, governmental agencies, supranational agencies and private issuers
when the Adviser believes the potential for appreciation and income will equal
or exceed that available from investments in equity securities. These securities
will predominantly be "investment grade" securities, which are those rated Aaa,
Aa, A, or Baa by Moody's or AAA, AA, A or BBB by S&P or if unrated, judged by
the Adviser to be of equivalent quality. The Fund may also invest up to 5% of
its total assets in debt securities which are rated below-investment grade or
unrated but equivalent to those rated below investment-grade (commonly referred
to as "junk bonds"). (See "Special Risk Factors").

The Fund may also hold up to 20% of its net assets in U.S. and foreign fixed
income securities for temporary defensive purposes when the Adviser believes
market conditions so warrant. Similarly, the Fund may invest up to 20% of its
net assets in cash or cash equivalents including domestic and foreign money
market instruments, short-term government and corporate obligations and
repurchase agreements under normal circumstances and without limit for temporary
defensive purposes and to maintain

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<PAGE>

liquidity. It is impossible to accurately predict for how long such alternative
strategies may be utilized. In addition, the Fund may engage in strategic
transactions, which may include derivatives. (See "Special Risk Factors").

The Adviser applies a disciplined, multi-part investment approach for selecting
stocks for the Fund. The first stage of this process involves analyzing the pool
of dividend-paying foreign securities, primarily from the world's more mature
markets, and targeting stocks that have high relative yields compared to the
average for their markets. In the Adviser's opinion, this group of
higher-yielding stocks offers the potential for returns that is greater than or
equal to the average market return, with price volatility that is lower than the
overall market volatility. The Adviser believes that these potentially favorable
risk and return characteristics exist because the higher dividends offered by
these stocks act as a "cushion" when markets are volatile and because the stocks
with higher yields tend to have more attractive valuations (e.g., lower
price-to-earnings ratios and lower price-to-book ratios).

The second stage of portfolio construction involves a fundamental analysis of
each company's financial strength, profitability, projected earnings,
competitive positioning and ability of management. During this step, the
Adviser's research team identifies what it believes are the most promising
stocks for the Fund's portfolio.

The third stage of the investment process involves diversifying the portfolio
among different industry sectors. The key element of this stage is evaluating
how the stocks in different sectors react to economic factors such as interest
rates, inflation, Gross Domestic Product and consumer spending, and then
attaining a proper balance of stocks in these sectors based on the Adviser's
economic forecast.

The fourth and final stage of this ongoing process is diversifying the portfolio
among different countries. The Adviser will seek to have broad country
representation, favoring those countries that it believes have sound economic
conditions and open markets. The Fund's strategy is to manage risk and create
opportunity at each of its four stages in the investment process, starting with
the focus on stocks with high relative yields.

EMERGING MARKETS INCOME FUND. Emerging Markets Income Fund has dual investment
objectives. The Fund's primary investment objective is to provide investors with
high current income. As a secondary objective, the Fund seeks long-term capital
appreciation. In pursuing these goals, the Fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets. Many developing regions of the world have undertaken sweeping political
and economic changes that favor increased business activity and demand for
capital. In the opinion of the Adviser, these changes present attractive
investment opportunities, both in terms of income and appreciation potential,
for long-term investors. In an attempt to eliminate currency risk, the Fund
invests exclusively in U.S. dollar-denominated debt securities, or in foreign
currency denominated debt securities that are fully hedged back into the U.S.
dollar.

The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. While designed to provide a high level of current income,
the Fund may not be appropriate for all income investors. The Fund should not be
viewed as a substitute for a money market or short-term bond fund. The Fund
invests in lower quality securities of emerging market issuers, some of which
have in the past defaulted on certain of their financial obligations.

In seeking high current income and, secondarily, long-term capital appreciation,
the Fund invests, under normal market conditions, at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or in debt securities, the return on which is
derived primarily from emerging markets. The Fund considers "emerging markets"
to include any country that is defined as an emerging or developing economy by
any one of the following: the International Bank for Reconstruction and
Development (i.e., the World Bank), the International Finance Corporation or the
United Nations or its authorities.

The Fund takes a global approach to portfolio management. The Adviser currently
weights its investments toward countries in Latin America, which has offered the
largest and most liquid debt markets of the emerging nations around the globe in
the past few years. However, the Adviser may pursue investment opportunities in
Asia, Africa, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The Fund deems an issuer to be located in an emerging market
if:

o the issuer is organized under the laws of an emerging market
country;

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o the issuer's principal securities trading market is in an emerging
market; or

o at least 50% of the issuer's non-current assets, capitalization,
gross revenue or profit in any one of the two most recent fiscal
years is derived (directly or indirectly from subsidiaries) from
assets or activities located in emerging markets.

The Fund may invest in a wide variety of high-yielding debt obligations,
including sovereign debt securities issued or guaranteed by governments,
government-related entities and central banks based in emerging markets
(including participations in and assignments of portions of loans between
governments and financial institutions); government owned, controlled or
sponsored entities located in emerging markets; entities organized and operated
for the purpose of restructuring investment characteristics of instruments
issued by government or government-related entities in emerging markets; and
debt obligations issued by supranational organizations such as the Asian
Development Bank and the Inter-American Development Bank, among others.

The Fund may also consider for purchase debt securities issued by commercial
banks and companies in emerging markets. The Fund may invest in both fixed- and
floating-rate issues. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments and trust interests. The
Fund may invest regularly in "Brady Bonds," which are debt securities issued
under the framework of the Brady Plan as a mechanism for debtor countries to
restructure their outstanding bank loans. Some "Brady Bonds" have their
principal collateralized by zero coupon U.S. Treasury bonds.

The Fund is not restricted by limits on weighted average portfolio maturity or
the maturity of an individual issue. Debt securities in which the Fund may
invest may have stated maturities from overnight to 30 years or longer. The
weighted average maturity of the Fund's portfolio is actively managed and will
vary from period to period based upon the Adviser's assessment of economic and
market conditions, taking into account the Fund's investment objectives.

In addition to maturity, the Fund's investments are actively managed in terms of
geography and industry allocation. In managing the Fund's portfolio, the Adviser
takes into account such factors as the credit quality of issuers, changes in and
levels of interest rates, projected economic growth rates, capital flows, debt
levels, trends in inflation, and governmental initiatives.

While the Fund is not "diversified" for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act"), it intends to invest in a minimum of three
countries at any one time and will not commit more than 40% of its total assets
to issuers in a single country.

By focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade,
or unrated but equivalent to those rated below investment-grade, by
internationally recognized rating agencies such as S&P or Moody's. Debt
securities rated below BBB by S&P or below Baa by Moody's are considered to be
below investment-grade. These types of high yield/high risk debt obligations
(commonly referred to as "junk bonds") are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and often more
volatility in price than securities in higher rating categories, such as
investment-grade U.S. bonds. On occasion, the Fund may invest up to 5% of its
net assets in non-performing securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. A large portion of the
Fund's bond holdings may trade at substantial discounts from face value. Please
refer to "Special Risk Factors_High yield/high risk securities" for more
information.

The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"), as well as Synthetic Investments.

The Fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets, including up to 20% of total assets in U.S. fixed-income
instruments.

However, for temporary, defensive or emergency purposes, the Fund may invest
without limit in U.S. debt securities, including short-term money market
securities. It is impossible to predict accurately how long such alternative
strategies will be utilized. In

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addition, the Fund may engage in strategic transactions. The Fund may also
acquire shares of closed-end investment companies that invest primarily in
emerging market debt securities.

The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 20% of the Fund's total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing, and
may use the proceeds of the borrowings for investment purposes. Borrowings
create leverage, which is a speculative characteristic. Although the Fund
intends to borrow frequently, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing and the likely investment returns on the securities
purchased with the borrowed moneys. The extent to which the Fund will borrow
will depend upon the availability of credit. No assurance can be given that the
Fund will be able to borrow on terms acceptable to the Fund and the Adviser.

EMERGING MARKETS GROWTH FUND. Emerging Markets Growth Fund seeks long-term
growth of capital primarily through equity investment in emerging markets around
the globe.

The Fund will invest in the Asia-Pacific region, Latin America, less developed
nations in Europe, the Middle East and Africa, focusing investments in countries
and regions where there appear to be the best value and appreciation potential,
subject to considerations of portfolio diversification and liquidity. In the
opinion of the Adviser, many emerging nations around the globe are likely to
continue to experience economic growth rates well in excess of those found in
the U.S., Japan and other developed markets. In the opinion of the Adviser, this
economic growth should translate into strong stock market performance over the
long term.

The Fund's net asset value can fluctuate significantly with changes in stock
market levels, political developments, movements in currencies, investment flows
and other factors.

At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the following: the International Bank for Reconstruction and Development
(i.e., the World Bank), the International Finance Corporation or the United
Nations or its authorities. The Fund intends to allocate its investments among
issuers located in at least three countries at all times, and does not expect to
concentrate in any particular industry. There is no limitation, however, on the
amount the Fund can invest in a specific country or region of the world.

The Fund deems an issuer to be located in an emerging market if:

o the issuer is organized under the laws of an emerging market
country;

o the issuer's principal securities trading market is in an emerging
market; or

o at least 50% of the issuer's non-current assets, capitalization,
gross revenue or profit in any one of the two most recent fiscal
years is derived (directly or indirectly through subsidiaries) from
assets or activities located in emerging markets.

The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.

The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments, and trust interests.

Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of issuers in the U.S. and other developed markets. In
evaluating the appropriateness of such investments for the Fund, the Adviser
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, and may engage
in various strategic transactions, including

8
<PAGE>

derivatives. In addition, to maintain liquidity, the Fund may borrow from banks.
The Fund does not expect to borrow for investment purposes.

For temporary defensive purposes, the Fund may hold, without limit, debt
instruments as well as cash and cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements. It is impossible to accurately predict for how long such
alternative strategies will be utilized. The Fund may also invest in closed-end
investment companies investing primarily in the emerging markets. Such
closed-end investment company investments will generally only be made when
market access or liquidity considerations restrict direct investment in the
market.

The Adviser takes a top-down approach to evaluating investments for the Fund,
using extensive fundamental and field research. The process begins with a study
of the economic fundamentals of each country and region as well as an
examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the Adviser to identify the industries and companies most likely
to benefit from the political, social and economic changes taking place in a
given region of the world.

Within a market, the Adviser looks for individual companies with exceptional
business prospects, which may be due to market dominance, unique franchises,
high growth potential, or innovative services, products or technologies. The
Adviser seeks to identify companies with favorable potential for appreciation
through growing earnings or greater market recognition over time. While these
companies may be among the largest in their local markets, they may be small by
the standards of U.S. stock market capitalization.

LATIN AMERICA FUND. Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin American
issuers.

The Fund seeks to benefit from economic and political trends emerging throughout
Latin America. These trends are supported by governmental initiatives designed
to promote freer trade and market-oriented economies. The Adviser believes that
efforts by Latin American countries to, among other things, reduce government
spending and deficits, control inflation, lower trade barriers, stabilize
currency exchange rates, increase foreign and domestic investment and privatize
state-owned companies, will help support attractive investment returns over
time.

In seeking its objective to provide long-term capital appreciation, the Fund
normally invests at least 65% of its total assets in Latin American equity
securities. For purposes of this prospectus, Latin America is defined as Mexico,
Central America, South America and the islands of the Caribbean. The Fund
defines securities of Latin American issuers as follows:

o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in
Latin America;

o Securities issued or guaranteed by the government of a country in
Latin America, its agencies or instrumentalities, political
subdivisions or the central bank of such country;

o Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit
in any one of the two most recent fiscal years represents (directly
or indirectly through subsidiaries) assets or activities located in
Latin America; or

o Securities of Latin American issuers, as defined above, in the form
of depositary shares.

Although the Fund may participate in markets throughout Latin America, under
present conditions the Fund expects to focus its investments in Argentina,
Brazil, Chile, Colombia, Mexico and Peru. In the opinion of the Adviser, these
six countries offer the most developed capital markets in Latin America. The
Fund may invest in other countries in Latin America when the Adviser deems it
appropriate. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry.

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<PAGE>

The Fund's equity investments include common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
restricted securities and may also be purchased through rights. Securities may
be listed on securities exchanges, traded over-the-counter, or have no organized
market.

The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities. Capital appreciation in debt securities may arise from a favorable
change in relative foreign exchange rates, in relative interest rate levels, or
in the creditworthiness of issuers. Receipt of income from such debt securities
is incidental to the Fund's objective of long-term capital appreciation. Most
debt securities in which the Fund invests are not rated. When debt securities
are rated, it is expected that such ratings will generally be below investment
grade; that is, rated below Baa by Moody's or below BBB by S&P.

The Fund may invest up to 35% of its total assets in the equity securities of
U.S. and other non-Latin American issuers. In this regard, the Fund will focus
on larger, multinational corporations, which generally will comprise as much as
15% of the Fund's total assets. In evaluating non-Latin American investments,
the Adviser generally seeks investments where an issuer's Latin American
business activities and the impact of developments in Latin America may have a
positive and significant effect on the issuer's business results.

In selecting companies for investment, the Fund typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, level of sales or the dividend history of
companies.

The allocation between equity and debt, and among countries in Latin America,
varies based on a number of factors, including: expected rates of economic and
corporate profit growth; past performance and current and comparative valuations
in Latin American capital markets; the level and anticipated direction of
interest rates; changes or anticipated changes in Latin American government
policy; and the condition of the balance of payments and changes in the terms of
trade. The Fund, in seeking undervalued markets or individual securities, also
considers the effects of past economic crises or ongoing financial and political
uncertainties.

To provide for redemptions, or in anticipation of investment in Latin American
securities, the Fund may hold cash or cash equivalents (in U.S. dollars or
foreign currencies) and other short-term securities, including money market
securities denominated in U.S. dollars or foreign currencies. In addition, to
provide for redemptions or distributions, the Fund may borrow from banks. The
Fund does not expect to borrow for investment purposes. The Fund may assume a
defensive position when, due to political or other factors, the Adviser
determines that opportunities for capital appreciation in Latin American markets
would be significantly limited over an extended period or that investing in
those markets poses undue risk to investors. The Fund may, for temporary
defensive purposes, invest up to 100% of its assets in cash and money market
instruments or invest all or a portion of its assets in securities of U.S. or
other non-Latin American issuers when the Adviser deems such a position
advisable in light of economic or market conditions. It is impossible to predict
accurately for how long such alternative strategies may be utilized. The Fund
may also invest in closed-end investment companies investing primarily in Latin
America. In addition, the Fund may invest in loan participations and
assignments, when-issued securities, convertible securities and repurchase
agreements and may engage in strategic transactions. See "Special Risk Factors"
for more information about these investment techniques.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, any foreign bank or with any
domestic or foreign broker/dealer which is recognized as a reporting government
securities dealer, if the creditworthiness of the bank or broker/dealer has been
determined by the Adviser to be at least as high as that of other obligations a
Fund may purchase.

International Growth and Income Fund and Emerging Markets Income Fund may enter
into repurchase agreements with any member bank of the Federal Reserve System
and any broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker-dealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase or to be at least equal to that of issuers of commercial paper rated
within the two highest grades assigned by Moody's Investor Services Inc.
("Moody's") or Standard & Poor's Corporation ("S&P").

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<PAGE>

A repurchase agreement provides a means for a Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., a Fund) acquires a debt security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities is kept at least equal to the repurchase price
on a daily basis. The repurchase price may be higher than the purchase price,
the difference being income to a Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to a Fund, together with the
repurchase price on repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
physically held by the Fund's custodian or in the Federal Reserve Book Entry
system.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation, subject to the repurchase agreement
and is therefore subject to that Fund's investment restrictions applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by a Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for the loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and a Fund has
not perfected a security interest in the Obligation, the Fund may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt instrument purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation, in
which case the Fund may incur a loss if the proceeds to the Fund of the sale to
a third party are less than the repurchase price. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), a Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.

For Global Blue Chip Fund and Emerging Markets Income Fund, a repurchase
agreement with foreign banks may be available with respect to government
securities of the particular foreign jurisdiction, and such repurchase
agreements involve risks similar to repurchase agreements with U.S. entities.

REPURCHASE COMMITMENTS. Emerging Markets Income Fund and Latin America Fund may
enter into repurchase commitments with any party deemed creditworthy by the
Adviser, including foreign banks and broker/dealers, if the transaction is
entered into for investment purposes and the counterparty's creditworthiness is
at least equal to that of issuers of securities which a Fund may purchase. Such
transactions may not provide a Fund with collateral marked-to-market during the
term of the commitment.

COMMON STOCKS. Global Blue Chip Fund, International Growth and Income Fund,
Emerging Markets Growth Fund and Latin America Fund may invest in common stocks.
Common stock is issued by companies to raise cash for business purposes and
represents a proportionate interest in the issuing companies. Therefore, a Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors. An investment in common stock entails greater risk
of becoming valueless than does an investment in fixed-income securities.
Despite the risk of price volatility, however, common stock also offers the
greatest potential for long-term gain on investment, compared to other classes
of financial assets such as bonds or cash equivalents.

DEBT SECURITIES. Each Fund may purchase "investment-grade" bonds, which are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Adviser. Bonds
rated Baa or BBB may have speculative elements as well as investment-grade
characteristics. Securities rated below Baa by Moody's or below BBB by S&P
usually entail greater risk (including the possibility of default or bankruptcy
of the issuers of such securities), generally involve greater volatility of
price and risk of principal and income, and may be less liquid, than securities
in the higher rating categories. Securities rated C by Moody's or D by S&P may
be in default with respect to payment of principal or interest. Such securities
carry a high degree of risk and are considered speculative.(See "Appendix").

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<PAGE>

When the Adviser believes that it is appropriate to do so in order to achieve
the Fund's objective of long-term growth and current income, International
Growth and Income Fund may invest up to 20% of its net assets in debt securities
including bonds of foreign governments, supranational organizations and private
issuers, including bonds denominated in the ECU. The Fund may also invest up to
5% of its total assets in debt securities which are rated below investment-grade
and unrated securities. Portfolio debt investments will be selected on the basis
of, among other things, yield, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk.

Global Blue Chip Fund may not invest more than 5% of its total assets in
securities rated Baa/BBB or below or in unrated securities of equivalent quality
in the Adviser's judgment. The Fund may invest in debt securities which are
rated as low as C by Moody's or D by S&P.

Emerging Markets Income Fund invests predominantly in debt securities that are
rated lower than Baa/BBB and in unrated securities judged to be of equivalent
quality as determined by the Adviser. On occasion, the Fund may invest up to 5%
of its net assets in non-performing securities rated as low as C by Moody's or D
by S&P.

Latin America Fund (subject to a limit of no more than 10% of its total assets
invested in bonds rated B or lower) and Emerging Markets Growth Fund may each
also purchase debt securities which are rated below investment-grade and may
invest in securities which are rated C by Moody's or D by S&P or securities of
comparable quality in the Adviser's judgment.

Emerging Markets Growth Fund will not purchase the securities of any issuer if,
as a result, more than 35% of the Fund's total assets would be invested in below
investment-grade securities or unrated securities of equivalent quality.

The Adviser expects that a significant portion of any of the Emerging Markets
Income Fund's and Emerging Markets Growth Fund's bond investments will be
purchased at a discount to par value. To the extent developments in emerging
markets result in improving credit fundamentals and rating upgrades for
countries in emerging markets, the Adviser believes that there is the potential
for capital appreciation as the improving fundamentals become reflected in the
price of the debt instruments. The Adviser also believes that a country's
sovereign credit rating (with respect to foreign currency-denominated issues)
acts as a "ceiling" on the rating of all debt issuers from that country. Thus,
the ratings of private sector companies cannot be higher than that of their home
countries. The Adviser believes, however, that many companies in emerging market
countries, if rated on a stand alone basis without regard to the rating of the
home country, possess fundamentals that could justify a higher credit rating,
particularly if they are major exporters and receive the bulk of their revenues
in U.S. dollars or other hard currencies. The Adviser seeks to identify such
opportunities and benefit from this type of market inefficiency.

Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Trading in debt obligations ("sovereign debt")
issued or guaranteed by Latin American governments or their agencies or
instrumentalities ("governmental entities") involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
willing or able to repay the principal and/or interest when due in accordance
with the terms of such obligations. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, dependence on expected
disbursements from third parties, the governmental entity's policy towards the
International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including Emerging
Markets Income Fund and Latin America Fund) may be requested to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.

HIGH YIELD, HIGH RISK SECURITIES. Below investment grade securities, commonly
referred to as "junk bonds," (rated below Baa by Moody's and below BBB by S&P)
or unrated securities of equivalent quality in the Adviser's judgment, carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. See the Appendix to this Statement of Additional Information for a
more complete description of the ratings assigned by ratings organizations and
their respective characteristics.

An economic downturn could disrupt the high-yield market and impair the ability
of issuers to repay principal and interest. Also, an increase in interest rates
would likely have a greater adverse impact on the value of such obligations than
on higher quality debt securities. During an economic downturn or period of
rising interest rates, highly leveraged issues may

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<PAGE>

experience financial stress which could adversely affect their ability to
service their principal and interest payment obligations. Prices and yields of
high-yield securities will fluctuate over time and, during periods of economic
uncertainty, volatility of high-yield securities may adversely affect a Fund's
net asset value. In addition, investments in high-yield zero coupon or
pay-in-kind bonds, rather than income-bearing high-yield securities, may be more
speculative and may be subject to greater fluctuations in value due to changes
in interest rates.

The trading market for high-yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of a Fund to accurately value high-yield securities in its portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the values and liquidity of high-yield securities. These securities
may also involve special registration responsibilities, liabilities and costs,
and liquidity and valuation difficulties.

Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of a Fund to retain or dispose of such
security.

Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
recent legislation restricts the issuer's tax deduction for interest payments on
these securities. Such legislation may significantly depress the prices of
outstanding securities of this type. For more information regarding tax issues
related to high-yield securities (see "TAXES").

Global Blue Chip Fund will invest no more than 5% of its total assets in debt
securities rated BBB or Baa or below or in unrated securities. International
Growth and Income Fund will invest no more than 5% of its total assets in debt
securities rated below BBB or Baa or in unrated securities.

Emerging Markets Income Fund invests predominantly in debt securities that are
rated below investment-grade, or unrated but equivalent to those rated below
investment-grade by internationally recognized rating agencies such as S&P or
Moody's.

Emerging Markets Growth Fund may invest in debt securities with varying degrees
of credit quality. The Fund may invest in securities whose quality is comparable
to securities rated as low as D by S&P or C by Moody's. Latin America Fund will
invest no more than 10% of its net assets in securities rated B or lower by
Moody's or S&P, and may invest in securities rated C by Moody's or D by S&P.

ILLIQUID SECURITIES. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," "not readily
marketable," or "illiquid" restricted securities, i.e., which cannot be sold to
the public without registration under the Securities Act of 1933 (the "1933
Act") or the availability of an exemption from registration (such as Rules 144
or 144A) or because they are subject to other legal or contractual delays in or
restrictions on resale.

The absence of a trading market can make it difficult to ascertain a market
value for illiquid securities. Disposing of illiquid securities may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price. Each Fund
may have to bear the extra expense of registering such securities for resale and
the risk of substantial delay in effecting such registration. Also market
quotations are less readily available. The judgment of the Adviser may at times
play a greater role in valuing these securities than in the case of illiquid
securities.

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<PAGE>

1933 Act when selling restricted securities to the public, and in such event a
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer, or the prospectus forming a part of it, is
materially inaccurate or misleading.

ZERO COUPON SECURITIES. Each Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as a Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. Each Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if a Fund is "diversified"
under the 1940 Act.

The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.

When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").

CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.

The convertible securities in which a Fund may invest are either fixed income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market

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<PAGE>

value of convertible securities typically changes as the market value of the
underlying common stocks changes, and, therefore, also tends to follow movements
in the general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.

As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.

Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.

Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"(TM)). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.

INDEXED SECURITIES. Emerging Markets Income Fund may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
Most indexed securities have maturities of three years or less.

Indexed securities differ from other types of debt securities in which the Fund
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

FOREIGN CURRENCIES. Each Fund has foreign currency exposure. In an attempt to
eliminate currency risk, Emerging Markets Income Fund invests exclusively in
U.S. dollar-denominated debt securities, or in foreign currency denominated debt
securities that are fully hedged back into the U.S. dollar. Because investments
in foreign securities usually will involve currencies of foreign countries, and
because a Fund may hold funds in bank deposits in foreign currencies during the
completion of investment programs and may purchase foreign currency, foreign
currency futures contracts, and options on foreign currencies and foreign
currency futures contracts, the value of the assets of a Fund as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and a

15
<PAGE>

Fund may incur costs in connection with conversions between various currencies.
Many Latin American and Asian currencies have experienced significant
devaluation relative to the dollar. Although each Fund values its assets daily
in terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer. Each Fund will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
through entering into options or forward or futures contracts to purchase or
sell foreign currencies.

Because a Fund normally will be invested in foreign securities markets, changes
in the Fund's share price may have a low correlation with movements in the U.S.
markets. A Fund's share price will reflect the movements of both the different
stock and bond markets in which it is invested and of the currencies in which
the investments are denominated; the strength or weakness of the U.S. dollar
against foreign currencies may account for part of the Fund's investment
performance. U.S. and foreign securities markets do not always move in step with
each other, and the total returns from different markets may vary significantly.
The Funds invest in many securities markets around the world in an attempt to
take advantage of opportunities wherever they may arise.

DEPOSITARY RECEIPTS. Each Fund may invest directly in securities of emerging
market country issuers through sponsored or unsponsored American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and other types of Depositary Receipts (which, together with
ADRs, GDRs and IDRs are hereinafter referred to as "Depositary Receipts").
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored Depositary Receipts are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of the Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may be issued by
United States banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
Depositary Receipts in registered form are designed for use in the United States
securities markets and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States. For purposes of each Fund's
investment policies, a Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts may be subject to foreign currency exchange rate
risk. Certain Depositary Receipts may not be listed on an exchange and therefore
may be illiquid securities.

LENDING OF PORTFOLIO SECURITIES. International Growth and Income Fund may lend
portfolio securities. Such loans may be made to registered broker/dealers or
other financial institutions and are required to be secured continuously by
collateral in cash and liquid assets maintained on a current basis at an amount
at least equal to the market value and accrued interest of the securities
loaned. The Fund has the right to call a loan and obtain the securities loaned
on five days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. During the existence of a loan, the Fund will continue to receive the
equivalent of any distributions paid by the issuer on the securities loaned and
will also receive compensation based on investment of the collateral. The risks
in lending securities, as with other extensions of secured credit, consist of a
possible delay in recovery or even a loss of rights in the collateral should the
borrower of the securities fail financially. Loans will only be made to firms
deemed by the Adviser to be in good standing, and will not be made unless, in
the judgment of the Adviser, the consideration to be earned from such loans
would justify the risk. The value of the securities loaned will not exceed 3
1/3% of the value of a Fund's total assets at the time any loan is made. Upon
approval from the Board of Directors, each of the other Funds may seek to
increase its net income by lending portfolio securities.

WHEN-ISSUED SECURITIES. Each Fund may, from time to time, purchase securities on
a "when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by a Fund
to the issuer and no interest accrues to the Fund. To the extent that assets of
a Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued or forward delivery securities may be sold prior to

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<PAGE>

the settlement date, a Fund intends to purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons. At the time a Fund makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. At the
time of settlement, the market value of the when-issued or forward delivery
securities may be more or less than the purchase price. A Fund does not believe
that its net asset value or income will be adversely affected by its purchase of
securities on a when-issued or forward delivery basis.

SYNTHETIC INVESTMENTS. In certain circumstances, the Emerging Markets Income
Fund may wish to obtain the price performance of a security without actually
purchasing the security in circumstances where, for example, the security is
illiquid, or is unavailable for direct investment or available only on less
attractive terms. In such circumstances, the Fund may invest in synthetic or
derivative alternative investments ("Synthetic Investments") that are based upon
or otherwise relate to the economic performance of the underlying securities.
Synthetic Investments may include swap transactions, notes or units with
variable redemption amounts, and other similar instruments and contracts.
Synthetic Investments typically do not represent beneficial ownership of the
underlying security, usually are not collateralized or otherwise secured by the
counterparty and may or may not have any credit enhancements attached to them.
Accordingly, Synthetic Investments involve exposure not only to the
creditworthiness of the issuer of the underlying security, changes in exchange
rates and future governmental actions taken by the jurisdiction in which the
underlying security is issued, but also to the creditworthiness and legal
standing of the counterparties involved. In addition, Synthetic Investments
typically are illiquid.

BRADY BONDS. Each Fund, with the exception of International Growth and Income
Fund, may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Bulgaria, Brazil, Costa Rica,
Dominican Republic, Ecuador, Mexico, Morocco, Nigeria, the Philippines, Poland,
and Uruguay.

Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar) and are actively
traded in over-the-counter secondary markets.

Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds. Interest
payments on many Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.

SOVEREIGN DEBT. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the

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<PAGE>

rescheduling of such debt and to extend further loans to governmental entities.
There is no bankruptcy proceeding by which sovereign debt on which governmental
entities have defaulted may be collected in whole or in part.

LOAN PARTICIPATIONS AND ASSIGNMENTS. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund may invest in fixed- and
floating-rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). Each Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in a Fund's having a contractual
relationship only with the Lender and not with the borrower. Each Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, a Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and a Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, a Fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, a Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
borrower. Each Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.

When a Fund purchases Assignments from Lenders, it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by a Fund as the purchaser of an
Assignment may differ from, and may be more limited than, those held by the
assigning Lender.

Each Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, each Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on a Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for a Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.

FOREIGN SECURITIES. Each Fund is designed for investors who can accept currency
and other forms of international investment risk. In an attempt to eliminate
currency risk, however, Emerging Markets Income Fund invests exclusively in U.S.
dollar-denominated debt securities, or in foreign currency denominated debt
securities that are fully hedged back into the U.S. dollar. The Adviser believes
that diversification of assets on an international basis decreases the degree to
which events in any one country, including the U.S., will affect an investor's
entire investment holdings. In certain periods since World War II, many leading
foreign economies and foreign stock market indices have grown more rapidly than
the U.S. economy and leading U.S. stock market indices, although there can be no
assurance that this will be true in the future.

Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect a Fund's performance. As foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic companies,
there may be less publicly available information about a foreign company than
about a domestic company. Many foreign securities markets, while growing in
volume of trading activity, have substantially less volume than the U.S. market,
and securities of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times, volatility of price can be
greater than in the U.S. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause that Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a Fund
due to subsequent declines in value of the portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. Payment for securities without delivery may be required in
certain foreign markets. Fixed commissions on some foreign securities exchanges
and bid-to-asked spreads in foreign bond

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markets are generally higher than commissions or bid-to-asked spreads on U.S.
markets, although the Fund will endeavor to achieve the most favorable net
results on its portfolio transactions. Further, a Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
securities exchanges, brokers and listed companies than in the U.S. It may be
more difficult for the Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, or diplomatic developments which could affect
United States investments in those countries. Investments in foreign securities
may also entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.

Many of the currencies of Eastern European countries have experienced a steady
devaluation relative to western currencies. Any future devaluation may have a
detrimental impact on any investments made by a Fund in Eastern Europe. The
currencies of most Eastern European countries are not freely convertible into
other currencies and are not internationally traded. A Fund will not invest its
assets in non-convertible fixed income securities denominated in currencies that
are not freely convertible into other currencies at the time the investment is
made.

These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of each Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, none of the Funds will invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.

Trading in securities on European and Far Eastern securities exchanges is
normally completed before the close of regular trading on the Exchange. Trading
on these foreign exchanges may not take place on a day on which there is regular
trading on the Exchange, or may take place on days on which there is no regular
trading on the Exchange. Events materially affecting the value of the Fund's
portfolio securities may occur between the time when these foreign exchanges
close and the time when the Fund's net asset value is calculated.

INVESTING IN EMERGING MARKETS. Each Fund, with the exception of International
Growth and Income Fund, may invest in securities of issuers in emerging markets.
Most emerging securities markets may have substantially less volume and are
subject to less government supervision than U.S. securities markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the U.S.

Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of a Fund is uninvested and no
cash is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.

Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging markets debt obligations and
increase the costs and expenses of a Fund. Certain emerging markets require
prior governmental approval of investments by foreign persons, limit the amount
of investment by foreign persons in a particular company, limit the investment
by foreign persons only to a specific class of securities of a company that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on foreign
investors.

Certain emerging markets require prior governmental approval of investments by
foreign persons, limit the amount of investment by foreign persons in a
particular company, limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes available for purchase by domiciliaries of the

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countries and/or impose additional taxes on foreign investors. Certain emerging
markets may also restrict investment opportunities in securities of issuers in
industries deemed important to national interest.

Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. A Fund could be adversely affected
by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.

In the course of investment in emerging markets, a Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. Political changes in emerging market countries may
affect the willingness of an emerging market country governmental issuer to make
or provide for timely payments of its obligations. The country's economic
status, as reflected, among other things, in its inflation rate, the amount of
its external debt and its gross domestic product, also affect its ability to
honor its obligations. While each Fund manages its assets in a manner that will
seek to minimize the exposure to such risks, and will further reduce risk by
owning the bonds of many issuers, there can be no assurance that adverse
political, social or economic changes will not cause a Fund to suffer a loss of
value in respect of the securities in the Fund's portfolio.

The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the SEC.
Accordingly if a Fund believes that appropriate circumstances exist, it will
promptly apply to the SEC for a determination that an emergency is present.
During the period commencing from the Fund's identification of such condition
until the date of the SEC action, the Fund's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Corporation's Board of Directors.

Volume and liquidity in most foreign markets are less than in the U.S., and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although each Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect a Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The chart below sets forth the risk ratings of selected emerging
market countries' sovereign debt securities.

[To Be Updated]

Sovereign Risk Ratings for Selected Emerging Market Countries as of 1/15/99
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)

Country Moody's Standard & Poor's
------- ------- -----------------

Chile Baa1 A-
Turkey B1 B
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Baa3 BBB-
Colombia Baa3 BBB-
Venezuela Ba2 B+
Morocco NR NR
Argentina Ba3 BB
Brazil B1 BB-
Poland Baa3 BBB-
Ivory Coast NR NR

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A Fund may have limited legal recourse in the event of a default with respect to
certain debt obligations it holds. If the issuer of a fixed-income security
owned by a Fund defaults, the Fund may incur additional expenses to seek
recovery. Debt obligations issued by emerging market country governments differ
from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. A Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is,
therefore, somewhat diminished. Bankruptcy, moratorium and other similar laws
applicable to private issuers of debt obligations may be substantially different
from those of other countries. The political context, expressed as an emerging
market governmental issuer's willingness to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt may not contest
payments to the holders of debt obligations in the event of default under
commercial bank loan agreements. With four exceptions, (Panama, Cuba, Costa Rica
and Yugoslavia), no sovereign emerging markets borrower has defaulted on an
external bond issue since World War II.

Income from securities held by a Fund could be reduced by a withholding tax on
the source or other taxes imposed by the emerging market countries in which the
Fund makes its investments. A Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the Fund or to
entities in which the Fund has invested. The Adviser will consider the cost of
any taxes in determining whether to acquire any particular investments, but can
provide no assurance that the taxes will not be subject to change.

Many emerging markets have experienced substantial, and, in some periods,
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.

Governments of many emerging market countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given country. As a result, governmental actions in the future could have a
significant effect on economic conditions in emerging markets, which in turn,
may adversely affect companies in the private sector, general market conditions
and prices and yields of certain of the securities in a Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have occurred frequently over
the history of certain emerging markets and could adversely affect a Fund's
assets should these conditions recur.

The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.

Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.

To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of emerging markets to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging market country
governmental issuers to make payments on their obligations. In addition, the
cost of servicing emerging market debt obligations can be affected by a change
in international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.

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<PAGE>

INVESTING IN LATIN AMERICA. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.

The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the U.S. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of monitoring
and regulation of the markets and the activities of investors in such markets.

The limited size of many Latin American securities markets and limited trading
volume in the securities of Latin American issuers compared to the volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

Changes in the value of Latin American currencies against the U.S. dollar may
result in corresponding changes in the U.S. dollar value of the Fund's assets
denominated in those currencies.

Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, certain Latin American currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.

The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
a Fund's investment income available for distribution to shareholders.

Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt.

Latin America is a region rich in natural resources such as oil, copper, tin,
silver, iron ore, forestry, fishing, livestock and agriculture. The region has a
large population (roughly 300 million) representing a large domestic market.
Economic growth was strong in the 1960s and 1970s, but slowed dramatically (and
in some instances was negative) in the 1980s as a result of poor economic
policies, higher international interest rates, and the denial of access to new
foreign capital. Although a number of Latin American countries are currently
experiencing lower rates of inflation and higher rates of real growth in gross
domestic product than they have in the past, other Latin American countries
continue to experience significant problems, including high inflation rates and
high interest rates. Capital flight has proven a persistent problem and external
debt has been forcibly restructured. Political turmoil, high inflation, capital
repatriation restrictions, and nationalization have further exacerbated
conditions.

Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect a Fund's investments in this region.

Changes in political leadership, the implementation of market oriented economic
policies, such as privatization, trade reform and fiscal and monetary reform are
among the recent steps taken to renew economic growth. External debt is being
restructured and flight capital (domestic capital that has left the home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable

22
<PAGE>

being a free zone among Mexico, the U.S. and Canada and another zone among four
countries in the southernmost point of Latin America. Currencies are typically
weak, but most are now relatively free floating, and it is not unusual for the
currencies to undergo wide fluctuations in value over short periods of time due
to changes in the market.

INVESTING IN THE PACIFIC BASIN. Economies of individual Pacific Basin countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.

With respect to the Peoples Republic of China and other markets in which a Fund
may participate, there is the possibility of nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments that could adversely impact a Pacific
Basin country or a Fund's investment in the debt of that country.

Trading volume on Pacific Basin stock exchanges outside of Japan, although
increasing, is substantially less than in the U.S. stock market. Further,
securities of some Pacific Basin companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on Pacific Basin
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Fund endeavors to achieve the most favorable net results
on its portfolio transactions and may be able to purchase securities in which a
Fund may invest on other stock exchanges where commissions are negotiable.

Foreign companies, including Pacific Basin companies, are not generally subject
to uniform accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, there may be less publicly available information about such
companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.

Recent conditions in the Pacific Basin region include political uncertainty,
economic overheating, erratic trade policies and extreme currency fluctuations
that have resulted in equity market decline. The conditions that have given rise
to these developments, however, are changeable, and there is no way to predict
if they will continue or the speed at which the economies of that region will
recover.

INVESTING IN EUROPE. Most Eastern European nations, including Hungary, Poland,
Czech Republic, Slovak Republic, and Romania have had centrally planned,
socialist economies since shortly after World War II. A number of their
governments, including those of Hungary, the Czech Republic, and Poland are
currently implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multi-party political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary, and the Czech Republic have small securities markets in operation.
Ethnic and civil conflict currently rage through the former Yugoslavia. The
outcome is uncertain.

Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.

The conditions that have given rise to these developments are changeable, and
there is no assurance that reforms will continue or that their goals will be
achieved.

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<PAGE>

Portugal is a genuinely emerging market which has experienced rapid growth since
the mid-1980s, except for a brief period of stagnation over 1990-91. Portugal's
government remains committed to privatization of the financial system away from
one dependent upon the banking system to a more balanced structure appropriate
for the requirements of a modern economy. Inflation continues to be about three
times the EC average.

Economic reforms launched in the 1980s continue to benefit Turkey in the 1990s.
Turkey's economy has grown steadily since the early 1980s, with real growth in
per capita Gross Domestic Product (the "GDP") increasing more than 6% annually.
Agriculture remains the most important economic sector, employing approximately
55% of the labor force, and accounting for nearly 20% of GDP and 20% of exports.
Inflation and interest rates remain high, and a large budget deficit will
continue to cause difficulties in Turkey's substantial transformation to a
dynamic free market economy.

Like many other Western economies, Greece suffered severely from the global oil
price hikes of the 1970s, with annual GDP growth plunging from 8% to 2% in the
1980s, and inflation, unemployment, and budget deficits rising sharply. The fall
of the socialist government in 1989 and the inability of the conservative
opposition to obtain a clear majority have led to business uncertainty and the
continued prospects for flat economic performance. Once Greece has sorted out
its political situation, it will have to face the challenges posed by the
steadily increasing integration of the EC, including the progressive lowering of
trade and investment barriers. Tourism continues as a major industry, providing
a vital offset to a sizable commodity trade deficit.

Securities traded in certain emerging European securities markets may be subject
to risks due to the inexperience of financial intermediaries, the lack of modern
technology and the lack of a sufficient capital base to expand business
operations. Additionally, former Communist regimes of a number of Eastern
European countries had expropriated a large amount of property, the claims of
which have not been entirely settled. There can be no assurance that a Fund's
investments in Eastern Europe would not also be expropriated, nationalized or
otherwise confiscated. Finally, any change in leadership or policies of Eastern
European countries, or countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies now occurring and adversely affect existing
investment opportunities.

Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These risks
include (i) potentially less social, political and economic stability; (ii) the
small current size of the markets for such securities and the low volume of
trading, which result in less liquidity and in greater price volatility; (iii)
certain national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the countries
of the former Soviet Union.

Investments in such countries involve risks of nationalization, expropriation
and confiscatory taxation. The Communist governments of a number of East
European countries expropriated large amounts of private property in the past,
in many cases without adequate compensation, and there may be no assurance that
such expropriation will not occur in the future. In the event of such
expropriation, a Fund could lose a substantial portion of any investments it has
made in the affected countries. Further, no accounting standards exist in East
European countries. Finally, even though certain East European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to a Fund's shareholders.

INVESTING IN AFRICA. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.

Many of the countries are fraught with political instability. However, there has
been a trend over the past five years toward democratization. Many countries are
moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.

Economically, the Northern Rim countries (including Morocco, Egypt and Algeria)
and Nigeria, Zimbabwe and South Africa are the wealthier countries on the
continent. The market capitalization of these countries has been growing
recently as more

24
<PAGE>

international companies invest in Africa and as local companies start to list on
the exchanges. However, religious and ethnic strife has been a significant
source of instability.

On the other end of the economic spectrum are countries, such as Burkina Faso,
Madagascar and Malawi, that are considered to be among the poorest or least
developed in the world. These countries are generally landlocked or have poor
natural resources. The economies of many African countries are heavily dependent
on international oil prices. Of all the African industries, oil has been the
most lucrative, accounting for 40% to 60% of many countries' GDP. However,
general decline in oil prices has had an adverse impact on many economies.

ECONOMIC GROWTH. Emerging markets are an increasingly important part of the
world's investment activity. In 1985, emerging markets accounted for only 2.7%
of the world's stock market trading value, compared to 17% in 1994.(1) The chief
rationale for investing in emerging markets is the dramatic growth rates that
these economies continue to enjoy. Over the past decade, the annual percentage
change in the economic growth rates of emerging market countries has been
climbing above that of the mature markets, as shown in the chart below.(2)

[To Be Updated]

[GRAPHIC OMITTED]

This growth translates into an average annual percentage change (as measured by
GDP) of 2.53% for mature economies, compared to 3.89% for developing
countries.(3) Emerging market economies are projected to grow at a 6.3% annual
rate -- more than double the expected growth of established countries in Europe,
Asia and North America (2.4%).(4)

Increased integration and faster growth in China, India, Indonesia, Brazil, and
Russia -- five countries that today account for half the world's labor force but
only 8-9 percent of its GDP or international trade -- will likely redraw the
economic map of the world over the next quarter century.

STRATEGIC TRANSACTIONS AND DERIVATIVES. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in a Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, a Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or

- --------
1 International Finance Corporation, 1995.
2 International Monetary Fund, 1995. OECD Economic Outlook, June 1995.
3 International Monetary Fund, 1995. OECD Economic Outlook, June 1995.
4 IMF World Economic Outlook, 1995.

25
<PAGE>

options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). Strategic Transactions may be used without
limit to attempt to protect against possible changes in the market value of
securities held in or to be purchased for a Fund's portfolio resulting from
securities markets or currency exchange rate fluctuations, to protect a Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the fixed-income securities in a Fund's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of a Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of a
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. Each Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not to create leveraged exposure in the Fund.

Strategic Transactions, including derivative contracts have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to a Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Fund can realize on its investments or cause
a Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.

GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving a Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. A Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect a Fund against
an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of

26
<PAGE>

the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

Each Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A Fund
will only sell OTC options (other than OTC currency options) that are subject to
a buy-back provision permitting a Fund to require the Counterparty to sell the
option back to a Fund at a formula price within seven days. Each Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. Each Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing in
illiquid securities.

If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

Each Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during

27
<PAGE>

the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.

Each Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. None of the Funds will sell put options if, as a result, more than
50% of a Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

GENERAL CHARACTERISTICS OF FUTURES. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.

Each Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.

None of the Funds will enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of a Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

CURRENCY TRANSACTIONS. Each Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on

28
<PAGE>

currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows based on
the notional difference among two or more currencies and operates similarly to
an interest rate swap, which is described below. A Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.

Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

None of the Funds will enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.

Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a Fund has or in which a Fund expects to
have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, each Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.

RISKS OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment

29
<PAGE>

that the combined strategies will reduce risk or otherwise more effectively
achieve the desired portfolio management goal, it is possible that the
combination will instead increase such risks or hinder achievement of the
portfolio management objective.

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which a
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. Each Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date. Each Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream a Fund may be obligated to pay. Interest
rate swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of principal.
A currency swap is an agreement to exchange cash flows on a notional amount of
two or more currencies based on the relative value differential among them and
an index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap entitles
the purchaser to receive payments on a notional principal amount from the party
selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.

Each Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Funds believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. None of the Funds will enter into any swap, cap, floor
or collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.

EURODOLLAR INSTRUMENTS. Each Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. Each Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.

RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a Fund to pay
or deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid assets

30
<PAGE>

at least equal to the current amount of the obligation must be segregated with
the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to segregate cash or
liquid assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Fund on an index will require the Fund to own
portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by a Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

Except when a Fund enters into a forward contract for the purchase or sale of a
security denominated in a particular currency, which requires no segregation, a
currency contract which obligates a Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.

OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, a Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.

With respect to swaps, a Fund will accrue the net amount of the excess, if any,
of its obligations over its entitlements with respect to each swap on a daily
basis and will segregate an amount of cash or liquid assets having a value equal
to the accrued excess. Caps, floors and collars require segregation of assets
with a value equal to a Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

NON-DIVERSIFIED INVESTMENT COMPANY. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund is each classified as a
non-diversified investment company under the 1940 Act, which means that each
Fund is not limited by the 1940 Act in the percentage of its assets that it may
invest in the obligations of a single issuer. As a "non-diversified" investment
company, a Fund may be subject to greater market and credit risk than a more
broadly diversified portfolio. The investment of a large percentage of a Fund's
assets in the securities of a small number of issuers may cause a Fund's share
price to fluctuate more than that of a diversified investment company.

WARRANTS. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices

31
<PAGE>

of warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. Each Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.

BORROWING. Each Fund is authorized to borrow money for purposes of liquidity and
to provide for redemptions and distributions. Each Fund will borrow only when
the Adviser believes that borrowing will benefit the Fund after taking into
account considerations such as the costs of the borrowing. Borrowing by each
Fund will involve special risk considerations. Although the principal of each
Fund's borrowings will be fixed, a Fund's assets may change in value during the
time a borrowing is outstanding, thus increasing exposure to capital risk.

In addition, Emerging Markets Income Fund anticipates borrowing
opportunistically up to 20% of its total assets (including the amount borrowed)
for investment purposes. The borrowings would constitute leverage, which is a
speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset and in the yield of the Fund's portfolio. If the
income earned on the assets obtained with borrowed funds exceeds the interest
and other expenses paid on the borrowing, the Fund's net income will be greater
than if borrowings were not used. Conversely, however, if the income on the
assets is insufficient to cover the cost of borrowing, the Fund's net income
will be less than if borrowings were not used.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be
acquired by each Fund, to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by a Fund in shares of other
investment companies may be subject to such duplicate expenses.

INVESTING IN SMALL COMPANIES. There is typically less publicly available
information concerning foreign and smaller companies than for domestic and
larger, more established companies. Some small companies have limited product
lines, distribution channels and financial and managerial resources. Also,
because smaller companies normally have fewer shares outstanding than larger
companies and trade less frequently, it may be more difficult for a Fund to buy
and sell significant amounts of such shares without an unfavorable impact on
prevailing market prices. Some of the companies in which a Fund may invest may
distribute, sell or produce products which have recently been brought to market
and may be dependent on key personnel with varying degrees of experience.

ADDITIONAL INVESTMENT INFORMATION. It is anticipated that, under normal
circumstances, the portfolio turnover rate for Global Blue Chip Fund,
International Growth and Income Fund, Emerging Markets Growth Fund and Latin
America Fund will not exceed 75%. Emerging Markets Income Fund may have a
portfolio turnover rate that exceeds 100%. Higher portfolio turnover involves
correspondingly greater brokerage commissions or other transaction costs. Higher
portfolio turnover (100% or more) may result in the realization of greater net
short-term or long-term capital gains. See "Dividends and Taxes" in the
Statement of Additional Information.

Each Fund has adopted certain fundamental policies which are described in the
Statement of Additional Information and cannot be changed without a vote of
shareholders and which are designed to reduce each Fund's investment risk.
Investment objectives and policies of each Fund that are not incorporated into
any of the fundamental investment restrictions referred to above may be changed
by the Board of Directors of the Fund without shareholder approval.

As a matter of fundamental policy, each Fund may not borrow money except as
permitted under Federal law. Further, as a matter of non-fundamental policy,
each Fund, with the exception of Emerging Markets Income Fund, may not borrow
money in an amount greater than 5% of total assets, except for temporary or
emergency purposes, although each Fund may engage up to 5% of total assets in
reverse repurchase agreements or dollar rolls.

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<PAGE>

As a matter of fundamental policy, each Fund may not make loans except as
permitted under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from time
to time. Each Fund, with the exception of International Growth and Income Fund,
has adopted a non-fundamental policy restricting the lending of portfolio
securities to no more than 5% of total assets.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Funds' Statement of Additional
Information.

PORTFOLIO TRANSACTIONS

Brokerage

Allocation of brokerage may be placed by the Adviser.

The primary objective of the Adviser in placing orders for the purchase and sale
of securities for a Fund's portfolio is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
U.S. national securities exchange transactions) where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through its familiarity with commissions charged
on comparable transactions, as well as by comparing commissions paid by the Fund
to reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.

Each Fund's purchases and sales of fixed-income securities are generally placed
by the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to a Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is authorized when placing
portfolio transactions for a Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.

In selecting among firms believed to meet the criteria for handling a particular
transaction, the Adviser may give consideration to those firms that have sold or
are selling shares of a Fund managed by the Adviser.

Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Funds and not all such information is used by the Adviser
in connection with the Funds. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.

The Directors for the Funds review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable.

Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for the Fund's portfolio whenever necessary, in
management's opinion, to meet the Fund's objective. Under normal investment
conditions, it is anticipated that the portfolio turnover rate in each Fund's
initial fiscal year will not exceed 75%, with the exception of Emerging Markets
Income Fund, which may exceed 100%.

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<PAGE>

The table below shows total brokerage commissions paid by each Fund for the most
recent fiscal period and the percentage thereof that was allocated to firms
based upon research information provided.

[To Be Updated]

<TABLE>
<CAPTION>
Total Amount
Total of Percentage of Total Amount
Brokerage Commissions Total of Percentage
Commissions Paid to Brokerage Commissions Allocated to
Paid in Regular Commissions Paid to Firms Based on
Fund Fiscal 1998* Broker/ Dealers Paid Affiliates Research
---- ------------ --------------- ---- ---------- --------

<S> <C> <C> <C> <C> <C>
Global Blue Chip Fund
International Growth and Income Fund
Emerging Markets Income Fund
Emerging Markets Growth Fund
Latin America Fund
</TABLE>

* For the period from December 31, 1997 (commencement of operations) to October
31, 1998.

INVESTMENT MANAGER AND UNDERWRITER

INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), Two International Place, Boston, Massachusetts, is each Fund's
investment manager.

This organization is one of the most experienced investment management firms in
the United States. It was established as a partnership in 1919 and pioneered the
practice of providing investment counsel to individual clients on a fee basis.
In 1953 the Adviser introduced Scudder International Fund, Inc., the first
mutual fund available in the U.S. investing internationally in securities of
issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Adviser's
predecessor entered into an agreement with Zurich Insurance Company ("Zurich")
pursuant to which the predecessor and Zurich agreed to form an alliance.

Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

Pursuant to an investment management agreement, the Adviser acts as each Fund's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical and administrative
services, and permits any of its officers or employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The investment management agreement provides that each Fund pays the charges and
expenses of its operations, including the fees and expenses of directors (except
those who are affiliates of the Adviser), independent auditors, counsel,
custodian and transfer agent, and the cost of share certificates, reports and
notices to shareholders, brokerage commissions or transaction costs, costs of
calculating net asset value and maintaining all accounting records thereto,
taxes and membership dues. Each Fund bears the expenses of registration of its
shares with the SEC, while Kemper Distributors, Inc. ("KDI"), as principal
underwriter, pays the cost of qualifying and maintaining the qualification of a
Fund's shares for sale under the securities laws of the various states.

At December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich formed a new global organization by combining
Scudder with Zurich Kemper Investments, Inc., a former subsidiary of Zurich and
the former investment manager to each Fund, and Scudder changed its name to
Scudder Kemper Investments,

34
<PAGE>

Inc. As a result of the transaction, Zurich owned approximately 70% of the
Adviser, with the balance owned by the Adviser's officers and employees.

On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services, Inc. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.

Upon consummation of this transaction, each Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved new investment management
agreements with Scudder Kemper, which are substantially identical to the current
investment management agreements, except for the dates of execution and
termination. These agreements became effective upon the termination of the then
current investment management agreements and were approved by shareholders at
special meetings held in December 1998.

Each investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under each agreement.

Certain investments may be appropriate for a Fund and also for other clients
advised by the Adviser. Investment decisions for a Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.

The Investment Management Agreement (the "Agreement") between the Corporation,
on behalf of each Fund, and the Adviser was approved by the Directors of the
Corporation on September 22, 1998. The Agreement is dated September 7, 1998 and
will continue in effect until September 30, 1999 and from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Directors who are not parties to such Agreement or interested
persons of the Adviser or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and by a majority vote either of the Fund's
Directors or of the outstanding voting securities of the Fund. The Agreement may
be terminated at any time without payment of penalty by either party on sixty
days' written notice, and automatically terminates in the event of its
assignment.

Under the Agreement, the Adviser provides each Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be held
or sold by the Fund and what portion of the Fund's assets shall be held
uninvested, subject always to the provisions of the Fund's Articles of
Incorporation and By-Laws, the 1940 Act and the Code and to the Fund's
investment objectives, policies and restrictions and subject, further, to such
policies and instructions as the Directors of the Corporation may from time to
time establish. The Adviser also advises and assists the officers of the
Corporation in taking such steps as are necessary or appropriate to carry out
the decisions of its Directors and the appropriate committees of the Directors
regarding the conduct of the business of a Fund.

The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for each Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Directors and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Funds' transfer agent, pricing agents, custodian, accountants
and others); preparing

35
<PAGE>

and making filings with the SEC and other regulatory agencies; assisting in the
preparation and filing of each Fund's federal, state and local tax returns;
preparing and filing each Fund's federal excise tax returns; assisting with
investor and public relations matters; monitoring the valuation of securities
and the calculation of net asset value; monitoring the registration of shares of
each Fund under applicable federal and state securities laws; maintaining each
Fund's books and records to the extent not otherwise maintained by a third
party; assisting in establishing accounting policies of each Fund; assisting in
the resolution of accounting and legal issues; establishing and monitoring each
Fund's operating budget; processing the payment of each Fund's bills; assisting
each Fund in, and otherwise arranging for, the payment of distributions and
dividends; and otherwise assisting each Fund in the conduct of its business,
subject to the direction and control of the Directors.

The Adviser pays the compensation and expenses of all Directors, officers and
executive employees of the Corporation affiliated with the Adviser and makes
available, without expense to the Corporation, the services of such Directors,
officers and employees of the Adviser as may duly be elected officers or
Directors of the Corporation, subject to their individual consent to serve and
to any limitations imposed by law, and provides the Corporation's office space
and facilities.

The Funds each pay the Adviser an investment management fee, payable monthly, at
the annual rates shown below.

Global Blue Chip Fund...................... 1.00% for the first $250 million
0.95% for the next $750 million
0.90% over $1 billion
International Growth and Income Fund....... 1.00%
Emerging Markets Income Fund............... 1.00%
Emerging Markets Growth Fund............... 1.25%
Latin America Fund......................... 1.25% for the first $250 million
1.20% for the next $750 million
1.15% over $1 billion

For a one-year period, the Adviser has agreed to maintain its annual management
fee for each Fund at the following rates:

Global Blue Chip Fund........................................... 0.85%
International Growth and Income Fund............................ 0.70%
Emerging Markets Income Fund.................................... 0.30%
Emerging Markets Growth Fund.................................... 0.90%
Latin America Fund.............................................. 0.90%

The expenses of the Fund, and of other investment companies investing in foreign
securities can be expected to be higher than for investment companies investing
primarily in domestic securities since the costs of operation are higher,
including custody and transaction costs for foreign securities and investment
management fees.

The Agreement expressly provides that the Adviser shall not be required to pay a
pricing agent of each Fund for portfolio pricing services, if any.

In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Corporation have been represented by Vedder, Price,
Kaufman & Kammholz, as independent counsel at each Fund's expense.

36
<PAGE>

Officers and employees of the Adviser from time to time may have transactions
with various banks, including the Funds' custodian bank. It is the Adviser's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.

None of the officers or Directors of the Corporation may have dealings with the
Corporation as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Corporation.

Employees of the Adviser and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Adviser's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as those of each Fund. Among other things, the Code of Ethics,
which generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

The Adviser may serve as adviser to other funds with similar investment
objectives and policies to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.

PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), 222
South Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of the Adviser, is
the principal underwriter and distributor for the shares of each Fund and acts
as agent of each Fund in the continuous offering of its shares. KDI bears all of
its expenses of providing services pursuant to the distribution agreement,
including the payment of any commissions. Each Fund pays the cost for the
prospectus and shareholder reports to be set in type and printed for existing
shareholders, and KDI pays for the printing and distribution of copies thereof
used in connection with the offering of shares to prospective investors. KDI
also pays for supplementary sales literature and advertising costs.

The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Directors of each Fund, including the Directors who are not interested
persons of each Fund and who have no direct or indirect financial interest in
the agreement. The distribution agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by each Fund or by KDI upon 60 days' notice. Termination by each Fund with
respect to a class may be by vote of a majority of the Board of Directors, or a
majority of the Directors who are not interested persons of each Fund and who
have no direct or indirect financial interest in the distribution agreement, or
a "majority of the outstanding voting securities" of the class of each Fund, as
defined under the 1940 Act. The distribution agreement may not be amended for a
class to increase the fee to be paid by each Fund with respect to such class
without approval by a majority of the outstanding voting securities of such
class of each Fund and all material amendments must in any event be approved by
the Board of Directors in the manner described above with respect to the
continuation of the distribution agreement. The provisions concerning the
continuation, amendment and termination of the distribution agreement are on a
class by class basis.

Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase and
Redemption of Shares," KDI retains the sales charge upon the

37
<PAGE>

purchase of shares and pays out a portion of this sales charge or allows
concessions or discounts to firms for the sale of each Fund's Class A shares.

The following information concerns the underwriting commissions paid in
connection with each Fund's Class A shares for the fiscal period ended October
31, 1998:

[To Be Updated]

<TABLE>
<CAPTION>
Commissions Commissions
Commissions KDI Paid Paid to KDI
Fund Fiscal Year* Retained by KDI to All Firms Affiliated Firms
---- ------------ --------------- ------------ ----------------

<S> <C> <C> <C> <C>
Global Blue Chip Fund 1998

International Growth and Income Fund 1998

Emerging Markets Income Fund 1998

Emerging Markets Growth Fund 1998

Latin America Fund 1998
</TABLE>

* For the period from December 31, 1997 (commencement of operations) to October
31, 1998.

Rule 12b-1 Plans. Since each Fund's 12b-1 Plan (the "Plan") provides for fees
payable as an expense of each of the Class B shares and the Class C shares that
are used by KDI to pay for distribution services for those classes, each
agreement is approved and reviewed separately for the Class B shares and the
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which regulates
the manner in which an investment company may, directly or indirectly, bear the
expenses of distributing its shares. Because 12b-1 fees are paid out of fund
assets on an ongoing basis, they will, over time, increase the cost of the
investment and may cost more than other types of sales charges. As of December
31, 1997, each Fund's Plan has been separated from its distribution agreement

Class B Shares. For its services under each Plan, KDI receives a fee from each
Fund, payable monthly, at the annual rate of 0.75% of each Fund's average daily
net assets of each Fund attributable to its Class B shares. This fee is accrued
daily as an expense of Class B shares. KDI also receives any contingent deferred
sales charges. See "Purchase and Redemption of Shares - Contingent Deferred
Sales Charge - Class B Shares." KDI currently compensates firms for sales of
Class B shares at a commission rate of 3.75%.

Class C Shares. For its services under each Plan, KDI receives a fee from each
Fund, payable monthly, at the annual rate of 0.75% of average daily net assets
of each Fund attributable to its Class C shares. This fee is accrued daily as an
expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or a Fund. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of Shares -
Contingent Deferred Sales Charges - Class C Shares."

The table below shows the amount paid in connection with each Fund's 12b-1 Plan
for the 1998 fiscal period:

38
<PAGE>

[To Be Updated]

<TABLE>
<CAPTION>
Contingent Deferred Sales
Distribution Expenses Distribution Paid by Charge Paid
Fund Incurred by KDI Fund to KDI to KDI
Class B Class C Class B Class C Class B Class C

<S> <C> <C> <C> <C> <C> <C>
Global Blue Chip Fund
International Growth and Income Fund
Emerging Markets Income Fund
Emerging Markets Growth Fund
Latin America Fund
</TABLE>

If the Plan for a class is terminated in accordance with its terms, the
obligation of the Fund to make payments to KDI pursuant to such Plan will cease
and the Fund will not be required to make any payments past the termination
date. Thus, there is no legal obligation for the Fund to pay any expenses
incurred by KDI in excess of its fees under a Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under a Plan may or may
not be sufficient to reimburse KDI for its expenses incurred. (See "Principal
Underwriter" for more information.)

Expenses of the Fund and of KDI, in connection with the Rule 12b-1 Plans for the
Class B and Class C shares for the period ended October 31, 1998 are set forth
below. A portion of the marketing, sales and operating expenses shown below
could be considered overhead expenses.

39
<PAGE>

[To Be Updated]
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by Underwriter
Distribution
Fees Paid
Contingent by
Distribution Deferred Commissions Underwriter
Fees Paid by Sales Charges Paid by to Advertising Marketing Misc.
Fiscal Fund to Paid to Underwriter Affiliated and Prospectus and Sales Operating Interest
Fund Year* Underwriter Underwriter to Firms Firms Literature Printing Expenses Expenses Expense

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B Shares

Global Blue 1998
Chip Fund

International 1998
Growth and
Income Fund

Emerging 1998
Markets
Growth Fund

Emerging 1998
Markets
Income Fund

Latin America 1998
Fund

<CAPTION>
Other Distribution Expenses Paid by Underwriter
Distribution
Fees Paid
Contingent by
Distribution Deferred Commissions Underwriter
Fees Paid by Sales Charges Paid by to Advertising Marketing Misc.
Fiscal Fund to Paid to Underwriter Affiliated and Prospectus and Sales Operating Interest
Fund Year* Underwriter Underwriter to Firms Firms Literature Printing Expenses Expenses Expense

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class C Shares

Global Blue 1998
Chip Fund

International 1998
Growth and
Income Fund

Emerging 1998
Markets
Growth Fund

Emerging 1998
Markets
Income Fund

Latin America 1998
Fund
</TABLE>

*For the period from December 31, 1997 (commencement of operations) to October
31, 1998.

40
<PAGE>

ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. For
the services under the administrative agreement, each Fund's pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of each Fund.

KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in a Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding a Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A shares, KDI pays each firm a service fee, payable quarterly, at an
annual rate of up to 0.25% of the net assets in Fund accounts that it maintains
and services attributable to Class A shares, commencing with the month after
investment. With respect to Class B and Class C shares, KDI currently advances
to firms the first-year service fee at a rate of up to 0.25% of the purchase
price of such shares. For periods after the first year, KDI currently intends to
pay firms a service fee at a rate of up to 0.25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or each Fund. Firms to which service fees may be paid may include affiliates
of KDI.

KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for a Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on each Fund's
records and it is intended that KDI will pay all the administrative services fee
that it receives from a Fund to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of a Fund
while this procedure is in effect will depend upon the proportion of Fund assets
that is in accounts for which there is a firm of record. The Board of Directors
of each Fund, in its discretion, may approve basing the fee to KDI on all Fund
assets in the future.

Certain directors or officers of each Fund are also directors or officers of the
Adviser or KDI, as indicated under "Officers and Directors."

The following information concerns the administrative services fees paid by each
Fund to KDI for the fiscal period ended 1998:

[To Be Updated]

<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
Total Service Service Fees Paid by
Fiscal Fees Paid by KDI KDI to
Fund Year* Class A Class B Class C to Firms KDI Affiliated Firms

<S> <C> <C> <C> <C> <C> <C>
Global Blue
Chip Fund

Emerging
Markets
Growth Fund

Emerging
Markets
Income Fund

Emerging
Markets
Growth Fund

Latin America
Fund
</TABLE>

*For the period from December 31, 1997 (commencement of operations) to October
31, 1998.

41
<PAGE>

FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110-4103, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
each Fund and maintaining all accounting records related thereto

Each Fund, with the exception of Emerging Markets Income Fund, pays Scudder Fund
Accounting Corporation an annual fee of 0.065% on the first $150 million, 0.04%
on the next $850 million, and 0.02% over $1 billion. Emerging Markets Income
Fund pays an annual fee of 0.08% on the first $150 million, 0.06% on the next
$850 million and 0.04% over $1 billion. The minimum on all funds is $50,000.
There is a 1.66% multi-class premium imposed on asset fees for these funds.

The following information concerns accounting fees paid by each Fund to SFAC for
the fiscal period ended October 31, 1998.

[To Be Updated]

AccountingFee Portion of Fee
Fiscal Paid by Fund to Unpaid at Fiscal
Fund Year* SFAC Year End

Global Blue Chip Fund 1998

International Growth and 1998
Income Fund

Emerging Markets Income Fund 1998

Emerging Markets Growth Fund 1998

Latin America Fund 1998

* For the period from December 31, 1997 (commencement of operations) to October
31, 1998.

CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers Harriman
& Co., 40 Water Street, Boston, Massachusetts 02109, as custodian has custody of
all securities and cash of each Fund. Pursuant to a services agreement with
Kemper Service Company ("KSvC"), 811 Main Street, Kansas City, Missouri, a
subsidiary of the Adviser, serves as "Shareholder Service Agent" of the Funds
and, as such, performs all of the duties as transfer agent and dividend-paying
agent. For a description of transfer agent and shareholder service agent fees
payable to KSvC and the Shareholder Service Agent, see "Investment Manager and
Underwriter".

The following shows the shareholder service fees Brown Brothers Harriman & Co.
remitted to KSvC for the fiscal period ended October 31, 1998:

42
<PAGE>

[To Be Updated]

Fees Brown Brothers
Fund Fiscal Harriman & Co. Paid
Year* to KSvC

Global Blue Chip Fund 1998

International Growth and 1998
Income Fund

Emerging Markets Income Fund 1998

Emerging Markets Growth Fund 1998

Latin America Fund 1998

* For the period from December 31, 1997 (commencement of operations) to October
31, 1998.

INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. Each Fund's independent
auditors, Ernst & Young, LLP, Sears Tower, 233 South Wacker Drive, Chicago,
Illinois, audit and report on each Fund's annual financial statements, review
certain regulatory reports and each Fund's federal income tax return, and
perform other professional accounting, auditing, tax and advisory services when
engaged to do so by a Fund. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.

PURCHASE, REDEMPTION AND REPURCHASE OF SHARES

PURCHASE OF SHARES

Alternative Purchase Arrangements. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.

The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.

43
<PAGE>

<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information

<S> <C> <C> <C>
Class A Maximum initial sales None Initial sales charge
charge of 5.75% of the waived or reduced for
public offering price certain purchases

Class B Maximum contingent 0.75% Shares convert to Class A
deferred sales charge of shares six years after
4% of redemption issuance
proceeds; declines to
zero after six years

Class C Contingent deferred 0.75% No conversion feature
sales charge of 1% of
redemption proceeds for
redemptions made during
first year after purchase
</TABLE>

The minimum initial investment for each class of each Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.

Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond value of 2% or more of the certificate value is normally required).

Initial Sales Charge Alternative - Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.

<TABLE>
<CAPTION>
Sales Charge Allowed to
As a as a Dealers as a
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price

<S> <C> <C> <C>
Less than $50,000....................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000.......... 4.50 4.71 4.00
$100,000 but less than $250,000......... 3.50 3.63 3.00
$250,000 but less than $500,000......... 2.60 2.67 2.25
$500,000 but less than $1 million....... 2.00 2.04 1.75
$1 million and over..................... 0.00** 0.00** ***
</TABLE>

* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.

Each Fund receives the entire net asset value of all its shares sold. KDI, the
Funds' principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow up to the full applicable sales charge, as shown in
the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
During periods when 90% or more of the sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933.

Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which the Adviser does not serve as investment manager and KDI
does not serve as Distributor ("non-Kemper Fund") provided that: (a) the
investor has previously paid either an initial sales charge in connection with
the purchase of the non-Kemper Fund shares redeemed or a contingent deferred
sales charge in connection with the redemption of the non-Kemper Fund shares,
and (b) the purchase of Fund shares is made within 90 days after the date of
such redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase,

44
<PAGE>

submit a request that the purchase be processed at net asset value pursuant to
this privilege. KDI may in its discretion compensate firms for sales of Class A
shares under this privilege at a commission rate of 0.50% of the amount of Class
A shares purchased. The redemption of the shares of the non-Kemper Fund is, for
Federal income tax purposes, a sale upon which a gain or loss may be realized.

Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Funds
listed under "Special Features - Class A Shares - Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares_Contingent Deferred Sales
Charge_Large Order NAV Purchase Privilege."

KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in a Fund and other Kemper Funds
listed under "Special Features - Class A Shares - Combined Purchases," including
purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
Class A shares of a Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege is also
applicable.

As of February 1, 1996, Class A shares of a Fund or any other Kemper Fund listed
under "Special Features Class A Shares - Combined Purchases" may be purchased at
net asset value in any amount by members of the plaintiff class in the
proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
a Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.

Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.

Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent

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children; (c) shareholders who owned shares of Kemper Value Fund, Inc. ("KVF")
on September 8, 1995, and have continuously owned shares of KVF (or a Kemper
Fund acquired by exchange of KVF shares) since that date, for themselves or
members of their families; (d) any trust, pension, profit-sharing or other
benefit plan for only such persons; (e) persons who purchase such shares through
bank trust departments that process such trades through an automated, integrated
mutual fund clearing program provided by a third party clearing firm; and (f)
persons who purchase shares of the Fund through KDI as part of an automated
billing and wage deduction program administered by RewardsPlus of America for
the benefit of employees of participating employer groups. Class A shares may be
sold at net asset value in any amount to selected employees (including their
spouses and dependent children) of banks and other financial services firms that
provide administrative services related to order placement and payment to
facilitate transactions in shares of the Funds for their clients pursuant to an
agreement with KDI or one of its affiliates. Only those employees of such banks
and other firms who as part of their usual duties provide services related to
transactions in Fund shares may purchase Fund Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisers registered under the 1940 Act and other financial
services firms that adhere to certain standards established by KDI, including a
requirement that such shares be sold for the benefit of their clients
participating in an investment advisory program under which such clients pay a
fee to the investment adviser or other firm for portfolio management and other
services. Such shares are sold for investment purposes and on the condition that
they will not be resold except through redemption or repurchase by the Funds.
The Funds may also issue Class A shares at net asset value in connection with
the acquisition of the assets of or merger or consolidation with another
investment company, or to shareholders in connection with the investment or
reinvestment of income and capital gain dividends.

The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension, profit-
sharing or other employee benefit plan whether or not qualified under Section
401 of the Code; or other organized group of persons whether incorporated or
not, provided the organization has been in existence for at least six months and
has some purpose other than the purchase of redeemable securities of a
registered investment company at a discount. In order to qualify for a lower
sales charge, all orders from an organized group will have to be placed through
a single investment dealer or other firm and identified as originating from a
qualifying purchaser.

Deferred Sales Charge Alternative - Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares - Contingent Deferred
Sales Charge - Class B Shares."

KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."

Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share of the Class B shares. The purpose of the conversion feature is to
relieve holders of Class B shares from the distribution services fee when the
shares have been outstanding long enough for KDI to have been compensated for
distribution related expenses. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.

Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares Contingent Deferred Sales Charge - Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of

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<PAGE>

Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75%
of net assets attributable to Class C shares maintained and serviced by the
firm. KDI is compensated by each Fund for services as distributor and principal
underwriter for Class C shares. See "Investment Manager and Underwriter."

Which Arrangement is Best for You? The decision as to which class of shares
provides the most suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Kemper Funds listed under
"Special Features - Class A Shares - Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.

General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.

KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.

In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Funds. Non cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the
Funds, or other funds underwritten by KDI.

Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt in good order
by KDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). Each Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.

Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or

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<PAGE>

street name as agent for and on behalf of their customers. In such instances,
the Funds' transfer agent will have no information with respect to or control
over the accounts of specific shareholders. Such shareholders may obtain access
to their accounts and information about their accounts only from their firm.
Certain of these firms may receive compensation from the Funds through the
Shareholder Service Agent for recordkeeping and other expenses relating to these
nominee accounts. In addition, certain privileges with respect to the purchase
and redemption of shares or the reinvestment of dividends may not be available
through such firms. Some firms may participate in a program allowing them access
to their clients' accounts for servicing. including, without limitation,
transfers of registration and dividend payee changes; and may perform functions
such as generation of confirmation statements and disbursement of cash
dividends. Such firms, including affiliates of KDI, may receive compensation
from the Funds through the Shareholder Service Agent for these services. This
prospectus should be read in connection with such firms' material regarding
their fees and services.

Each Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, each Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.

Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires each Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. Each Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period. Shareholders should
direct their inquiries to Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105-2005 or to the firm from which they received this prospectus.

PURCHASE AND REDEMPTION OF SHARES

Fund shares are sold at their public offering price, which is the net asset
value next determined after an order is received in proper form plus, with
respect to Class A shares, an initial sales charge. The minimum initial
investment for each class of each Fund is $1,000 and the minimum subsequent
investment is $100 but such minimum amounts may be changed at any time. See the
prospectus for certain exceptions to these minimums. A Fund may waive the
minimum for purchases by directors, directors, officers or employees of a Fund
or the Adviser and its affiliates. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until a Fund determines that it has received payment
of the proceeds of the check. The time required for such a determination will
vary and cannot be determined in advance.

Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of the particular class of the Fund as described in the Funds'
prospectus.

Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions as described in the prospectus are
provided because of anticipated economies of scale in sales and sales-related
efforts.

A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange ("Exchange") is closed
other than customary weekend and holiday closings or during any period in which
trading on the Exchange is restricted, (b) during any period when an emergency
exists as a result of which (i) disposal of each Fund' investments is not
reasonably practicable, or (ii) it is not reasonably practicable for a Fund to
determine the value of its net assets, or (c) for such other periods as the SEC
may by order permit for the protection of the Fund's shareholders.

Although it is each Fund's present policy to redeem in cash, if the Board of
Directors determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the

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<PAGE>

redemption request in whole or in part by a distribution of portfolio securities
in lieu of cash, in conformity with the applicable rules of the SEC, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Directors may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and selling them could receive less than the redemption value of such securities
and in addition would incur certain transaction costs. Such a redemption would
not be so liquid as a redemption entirely in cash.

The conversion of Class B shares of a Fund to Class A shares of a Fund may be
subject to the continuing availability of an opinion of counsel, ruling by the
Internal Revenue Service or other assurance acceptable to a Fund to the effect
that (a) the assessment of the distribution services fee with respect to Class B
shares and not Class A shares does not result in a Fund's dividends constituting
"preferential dividends" under the Code, and (b) that the conversion of Class B
shares to Class A shares does not constitute a taxable event under the Code. The
conversion of Class B shares to Class A shares may be suspended if such
assurance is not available. In that event, no further conversions of Class B
shares would occur, and shares might continue to be subject to the distribution
services fee for an indefinite period that may extend beyond the proposed
conversion date as described in the prospectus.

Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and pre-
authorized telephone redemption transactions for certain institutional accounts.
Shareholders may choose these privileges on the account application or by
contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.

Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through EXPRESS-
Transfer or Bank Direct Deposit may not be redeemed under this privilege of
redeeming shares by telephone request until such shares have been owned for at
least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. Each Fund reserves the right to terminate or modify
this privilege at any time.

Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.

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<PAGE>

Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of a class of
the Fund effective on that day and normally the proceeds will be sent to the
designated account the following business day. Delivery of the proceeds of a
wire redemption of $250,000 or more may be delayed by the Fund for up to seven
days if the Fund or the Shareholder Servicing Agent deems it appropriate under
then-current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. No Fund
is responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. Each Fund currently does not charge
the account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum (including any contingent deferred sales charge). To change
the designated account to receive wire redemption proceeds, send a written
request to the Shareholder Service Agent with signatures guaranteed as described
above or contact the firm through which shares of the Fund were purchased.
Shares purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may
not be redeemed by wire transfer until such shares have been owned for at least
10 days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. Each Fund reserves the right to terminate or
modify this privilege at any time.

Contingent Deferred Sales Charge - Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a participant-
directed qualified retirement plan described in Code Section 403(b)(7) which is
not sponsored by a K-12 school district; (b) redemptions by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under a Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (f) redemptions of shares whose dealer of record at the time
of the investment notifies KDI that the dealer waives the discretionary
commission applicable to such Large Order NAV Purchase.

Contingent Deferred Sales Charge - Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.

Year of Redemption After Purchase Contingent Deferred
Sales Charge
First........................................ 4%
Second....................................... 3%
Third........................................ 3%
Fourth....................................... 2%
Fifth........................................ 2%
Sixth........................................ 1%

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limited to, substantially equal periodic payments described in Internal Revenue
Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in a Fund), (c) redemptions in connection with distributions qualifying
under the hardship provisions of the Internal Revenue Code and (d) redemptions
representing returns of excess contributions to such plans.

Contingent Deferred Sales Charge - Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special Features -
Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any IRA
systematic withdrawal based on the shareholder's life expectancy including, but
not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent, and (g) for redemption of shares by an employer sponsored employee
benefit plan that (i) offers funds in addition to Kemper Funds (i.e., "multi-
manager"), and (ii) whose dealer of record has waived the advance of the first
year administrative service and distribution fees applicable to such shares and
agrees to receive such fees quarterly.

Contingent Deferred Sales Charge - General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of a Fund's Class B shares and that
16 months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.

The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.

Reinvestment Privilege. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Fund listed under "Special Features - Class A Shares -
Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Funds. A shareholder of a Fund or other
Kemper Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares - Initial Sales Charge Alternative -
Class A Shares") or Class B shares or Class C shares and incurs a contingent
deferred sales charge may reinvest up to the full amount redeemed at net asset
value at the time of the reinvestment, in the same class of shares as the case
may be, of a Fund or of other Kemper Funds. The amount of any contingent
deferred sales charge also will be reinvested. These reinvested shares will
retain their original cost and purchase date for purposes of the contingent
deferred sales charge schedule. Also, a holder of Class B shares who has
redeemed shares may reinvest up to the full amount redeemed, less any applicable
contingent deferred sales charge that may have been imposed upon the redemption
of such shares, at net asset value in Class A shares of a Fund or of the other
Kemper Funds listed under "Special Features - Class A Shares - Combined
Purchases." Purchases through

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the reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Funds
available for sale in the shareholder's state of residence as listed under
"Special Features - Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of shares of a
Fund, the reinvestment in shares of a Fund may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. In addition, upon
a reinvestment, the shareholder may not be permitted to take into account sales
charges incurred on the original purchase of shares in computing their taxable
gain or loss. The reinvestment privilege may be terminated or modified at any
time.

Redemption in Kind. Although it is each Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Directors may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and selling them could receive less than the redemption value of such securities
and in addition would incur certain transaction costs. Such a redemption would
not be as liquid as a redemption entirely in cash.

SPECIAL FEATURES

Class A Shares - Combined Purchases. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Plus
Growth Fund, Kemper Value Fund, Inc., Kemper Quantitative Equity Fund, Kemper
Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive
Growth Fund and Kemper Global/International Series, Inc. ("Kemper Funds").
Except as noted below, there is no combined purchase credit for direct purchases
of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California
Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund or
Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Funds" for purposes hereof. For purposes of the Combined Purchases feature
described above as well as for the Letter of Intent and Cumulative Discount
features described below, employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder Service
Agent may include: (a) Money Market Funds as "Kemper Funds", (b) all classes of
shares of any Kemper Fund and (c) the value of any other plan investment, such
as guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.

Class A Shares - Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included in this privilege.

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Class A Shares - Cumulative Discount. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.

Class A Shares - Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.

Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.

Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features- Class A Shares - Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investor's
Municipal Cash Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI.

Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of
calculating the contingent deferred sales charge.

Class B Shares. Class B shares of a Fund and Class B shares of any other Kemper
Fund listed under "Special Features - Class A Shares - Combined Purchases" may
be exchanged for each other at their relative net asset values. Class B shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of calculating the contingent deferred sales
charge that may be imposed upon the redemption of the Class B shares received on
exchange, amounts exchanged retain their original cost and purchase date.

Class C Shares. Class C shares of a Fund and Class C shares of any other Kemper
Fund listed under "Special Features - Class A Shares - Combined Purchases" may
be exchanged for each other at their relative net asset values. Class C shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For determining whether there is a contingent deferred sales
charge that may be imposed upon the redemption of the Class C shares received by
exchange, they retain the cost and purchase date of the shares that were
originally purchased and exchanged.

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Shareholder Service Agent will honor requests by telephone at 1-800-621-1048,
subject to the limitations on liability under "Redemption or Repurchase of
Shares - General." Any share certificates must be deposited prior to any
exchange of such shares. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
exchange privilege. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Exchanges may only be made for funds that
are available for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and Investors Municipal Cash Fund is available for sale only in New York,
Connecticut, New Jersey and Pennsylvania. Except as otherwise permitted by
applicable regulations, 60 days' prior written notice of any termination or
material change will be provided.

Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.

EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares - General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").

Bank Direct Deposit. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
A Fund may immediately terminate a shareholder's Plan in the event that any item
is unpaid by the shareholder's financial institution. The Funds may terminate or
modify this privilege at any time.

Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.

Systematic Withdrawal Plan. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV

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Purchase Privilege and Class C shares in their first year following the
purchase) under a systematic withdrawal plan is 10% of the net asset value of
the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.

The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.

Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:

o Traditional, Roth and Education Individual Retirement Accounts
("IRAs"). This includes Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.

o 403(b)(7) Custodial Accounts. This type of plan is available to
employees of most non-profit organizations.

o Prototype money purchase pension and profit-sharing plans may be
adopted by employers. The maximum annual contribution per
participant is the lesser of 25% of compensation or $30,000.

Brochures describing the above plans as well as model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans and materials for
establishing them are available from the Shareholder Service Agent upon request.
Investors should consult with their own tax advisers before establishing a
retirement plan.

NET ASSET VALUE

The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of a Fund is computed as of the close of regular trading
(the "value time") on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.

Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board.

With respect to the Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.

An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market Inc.
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter

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market, is its most recent sale price. Lacking any sales, the security is valued
at the Calculated Mean. Lacking a Calculated Mean, the security is valued at the
most recent bid quotation.

Debt securities are valued at prices supplied by a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the investment manager of the particular fund may calculate the price
of that debt security, subject to limitations established by the Board.

An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.

If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.

If, in the opinion of the Valuation Committee of the Board of Trustees, the
value of a portfolio asset as determined in accordance with these procedures
does not represent the fair market value of the portfolio asset, the value of
the portfolio asset is taken to be an amount which, in the opinion of the
Valuation Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner which, in the discretion of the Valuation Committee, most fairly
reflects market value of the property on the valuation date.

Following the valuations of securities or other portfolios assets in terms of
the currency in which the market quotation used is expressed ("Local Currency"),
the value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.

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DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS. Each Fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term capital gains over net realized long-term
capital losses. A Fund may follow the practice of distributing the entire excess
of net realized long-term capital gains over net realized short-term capital
losses. However, a Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If a Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")

Each of Emerging Markets Growth Fund, Global Blue Chip Fund and Latin America
Fund normally distributes annual dividends of net investment income. Any net
realized short-term and long-term capital gains for the Funds are distributed at
least annually. International Growth and Income Fund and Emerging Markets Income
Fund distribute net investment income on a semi-annual and monthly basis,
respectively. Income and capital gain dividends of a Fund are automatically
reinvested in additional shares of the Fund, without a sales charge, unless the
investor makes an election otherwise. Distributions of net capital gains
realized during each fiscal year will be made at least annually before the end
of each Fund's fiscal year on October 31. Additional distributions, including
distributions of net short-term capital gains in excess of net long-term capital
losses, may be made, if necessary.

The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same
proportion for each class.

Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:

(1) To receive dividends from income and short-term capital gain in cash
and net capital gain dividends in shares of the same class at net asset value;
or

(2) To receive income and capital gain dividends in cash.

Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested

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in shares of the same class of another Kemper Fund at the net asset value of
such class of such other fund. See "Special Features_Class A Shares_Combined
Purchases" for a list of such other Kemper Funds. To use this privilege of
investing dividends of a Fund in shares of another Kemper Fund, shareholders
must maintain a minimum account value of $1,000 in the Fund distributing the
dividends. The Funds will reinvest dividend checks (and future dividends) in
shares of that same Fund and class if checks are returned as undeliverable.
Dividends and other distributions of a Fund in the aggregate amount of $10 or
less are automatically reinvested in shares of the Fund unless the shareholder
requests that such policy not be applied to the shareholder's account.

TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, generally will not
be liable for federal income taxes to the extent its earnings are distributed.
To so qualify, each Fund must satisfy certain income and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gains in
excess of net long-term capital losses).

Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for each calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.

Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund.

Distributions of investment company taxable income are taxable to shareholders
as ordinary income.

If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by a Fund for reinvestment, requiring federal income
taxes to be paid thereon by the Fund, the Fund intends to elect to treat such
capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains , will be
able to claim a relative share of federal income taxes paid by a Fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between such reported gains and the individual tax credit.

Dividends from domestic corporations may comprise a substantial part of the
gross income of Global Blue Chip Fund, International Growth and Income Fund,
Emerging Markets Growth Fund and Latin America Fund. To the extent that such
dividends constitute a portion of a Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of a Fund with respect to which the dividends are received are
treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.

Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of a Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.

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If shares are held in a tax-deferred account, such as a retirement plan, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a tax-deferred account generally will be subject to tax as ordinary
income only when distributed from that account.

All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.

Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Dividend and interest income received by a Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.

Each Fund may qualify for and make the election permitted under Section 853 of
the Code so that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax return form and may be required
to treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes related
primarily to investment income) Each Fund may make an election under Section 853
of the Code, provided that more than 50% of the value of the total assets of the
Fund at the close of the taxable year consists of securities as foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code, except in the case of certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. Furthermore, the
foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholders, as the case may be, for less than 16 days. (46
days in the case of preferred shares) during the 30-day period (90-day period
for preferred shares) beginning 15 days (45 days for preferred shares) before
the shares become ex-dividend.

Each Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
a Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is

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treated as having been realized ratably over the period during which a Fund held
the PFIC shares. Each Fund will be subject to tax on the portion, if any, of an
excess distribution that is allocated to prior Fund taxable years and an
interest factor will be added to the tax, as if the tax had been payable in such
prior taxable years. Excess distributions allocated to the current taxable year
are characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.

A Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.

Equity options (including covered call options on portfolio stock) written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on a Fund's holding period for the option and, in
the case of an exercise of the option, on a Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or substantially identical security in a Fund's
portfolio. If a Fund writes a call option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as a short-term capital gain or loss. If a call option is exercised, any
resulting gain or loss is short-term or long-term capital gain or loss depending
on the holding period of the underlying security. The exercise of a put option
written by a Fund is not a taxable transaction for a Fund.

Many futures and forward contracts entered into by a Fund and all listed
nonequity options written or purchased by a Fund (including covered call options
written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of a Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in a
Fund's portfolio.

Positions of a Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a Fund's risk of loss with respect to such stock could be treated as
a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.

Positions of a Fund consisting of at least one position not governed by Section
1256 and at least one future, forward, or nonequity option contract which is
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. A Fund will monitor its transactions in options and
futures and may make certain tax elections in connection with these investments.

Notwithstanding any of the foregoing, recent tax law changes may require a Fund
to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt

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instruments. Constructive sale treatment of appreciated financial positions does
not apply to certain transactions closed in the 90-day period ending with the
30th day after the close of a Fund's taxable year, if certain conditions are
met.

Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain futures, forward or options
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contracts and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.

If a Fund holds zero coupon securities or other securities which are issued at a
discount a portion of the difference between the issue price and the face value
of such securities ("original issue discount") will be treated as income to a
Fund each year, even though a Fund will not receive cash interest payments from
these securities. This original issue discount (imputed income) will comprise a
part of the investment company taxable income of a Fund which must be
distributed to shareholders in order to maintain the qualification of a Fund as
a regulated investment company and to avoid federal income tax at a Fund level.
In addition, if a Fund invest in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such an event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.

If a Fund acquires a debt instrument at a market discount, a portion of the gain
recognized (if any) on disposition of such instrument may be treated as ordinary
income.

Each Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss held by the shareholder as a capital asset,
and may be long-term or short-term depending upon the shareholder's holding
period for the shares. A shareholder who has redeemed shares of a Fund or any
other Kemper Mutual Fund listed in the prospectus under "Special Features --
Class A Shares -- Combined Purchases" (other than shares of Kemper Cash Reserves
Fund not acquired by exchange from another Kemper Mutual Fund) may reinvest the
amount redeemed at net asset value at the time of the reinvestment in shares of
the Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described in the prospectus under "Redemption or Repurchase of
Shares -- Reinvestment Privilege." If redeemed shares were held less than 91
days, then the lesser of (a) the sales charge waived on the reinvested shares,
or (b) the sales charge incurred on the redeemed shares, is included in the
basis of the reinvested shares and is not included in the basis of the redeemed
shares. If a shareholder realizes a loss on the redemption or exchange of a
Fund's shares and reinvests in shares of the same Fund within 30 days before or
after the redemption or exchange, the transactions may be subject to the wash
sale rules resulting in a postponement of the

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<PAGE>

recognition of such loss for federal income tax purposes. An exchange of a
Fund's shares for shares of another fund is treated as a redemption and
reinvestment for federal income tax purposes upon which gain or loss may be
recognized.

After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.

When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account. In January of each year a Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should conside`r the U.S. and foreign tax consequences of
ownership of shares of a Fund, including the possibility that such a shareholder
may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from U.S.
sources under the Code.

Shareholders of a Fund may be subject to state, local and foreign taxes on Fund
distributions and disposition of Fund shares. Shareholders should consult their
tax advisers about the application of the provisions of tax law in light of
their particular tax situations.

RETIREMENT PLANS

Shares of the Fund may be purchased as an investment in a number of kinds of
retirement plans, including qualified pension, profit sharing, money purchase
pension, and 401(k) plans, Code Section 403(b) custodial accounts, and
individual retirement accounts.

One of the tax-deferred retirement plan accounts that may hold Fund share is an
individual retirement account ("IRA"). There are three kinds of IRAs that an
individual may establish: traditional IRAs, Roth IRAs and education IRAs. With a
traditional IRA, an individual may be able to make a deductible contribution of
up to $2,000 or, if less, the amount of the individual's earned income for any
taxable year prior to the year the individual reaches age 70 1/2, if neither the
individual nor his or her spouse is an active participant in an employer's
retirement plan. An individual who is (or who has a spouse who is) an active
participant in an employer retirement plan also may be eligible to make
deductible IRA contributions; the amount, if any, of IRA contributions that are
deductible by such an individual is determined by the individual's (and
spouse's, if applicable) adjusted gross income for the year. Even if an
individual is not permitted to make a deductible contribution to an IRA for a
taxable year, however, the individual nonetheless may make nondeductible
contributions up to $2,000, or 100% of earned income if less, for that; year.
One spouse also may contribute up to $2,000 per year to the other spouse's own
IRA, even if the other spouse has earned income of less than $2,000, as long as
the spouse's joint earned income is at least $4,000. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Lump sum
distributions from another qualified retirement plan may be rolled over into a
traditional IRA, also.

With a Roth IRA, an individual may make only nondeductible contributions;
contributions can be made of up to $2,000 or, if less, the amount of the
individual's earned income for any taxable year, but only if the individual's
(and spouse's, if applicable) adjusted gross income for the year is less than
$95,000 for single individuals or $150,000 for married individuals. The maximum
contribution amount phases out and falls to zero between $95,000 and $110,000
for single persons, and

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<PAGE>

between $150,000 and $160,000 for married persons. Contributions to a Roth IRA
may be made even after the individual attains age 70 1/2. No distributions are
required to be taken prior to the death of the original account older.
Distributions from a Roth IRA that satisfy certain requirements will be no
taxable when taken; other distributions of earnings will be taxable. An
individual with adjusted gross income of $100,000 or less generally may elect to
roll over amounts from a traditional IRA to a Roth IRA. The full taxable amount
held in the traditional IRA that is rolled over to a Roth IRA will be taxable in
the year of the rollover, except rollovers made for 1998, which may be included
in taxable income over a four-year period.

An education IRA provides a method for saving for the higher education expenses
of a child; it is not designed for retirement savings. Generally, amounts held
in an education IRA may be used to pay for qualified higher education expenses
at an eligible (post-secondary) educational institution. An individual may
contribute to an education IRA for the benefit of a child under 18 years old if
the individual's income does not exceed certain limits. The maximum contribution
for the benefit of any one child is $500 per year. Contributions are not
deductible, but earnings accumulate tax-free until withdrawal, and withdrawals
used to pay qualified higher education expenses of the beneficiary (or
transferred to an education IRA of a qualified family member) will be taxable.
Other withdrawals will be subject to tax.

In addition, there are special IRA programs available for employers under wich
an employer may establish IRA accounts for its employees in lieu of establishing
more complicated retirement plans, such as qualified profit sharing or 401(k)
plans. Known as SEP-IRAs (Simplified Employee Pension-IRAs) and SIMPLE IRAs,
they permit employers to maintain a retirement program for their employees
without being subject to a number of the record keeping and testing requirements
applicable to qualified plans.

Please call the Fund to obtain information regarding the establishment of IRAs
or other retirement plans. A retirement plan custodian may charge fees in
connection with establishing and maintaining the plan. An investor should
consult with a competent adviser for specific advice concerning his or her tax
status and the possible benefits of establishing one or more retirement plan
accounts. The description above is only very general; there are numerous other
rules applicable to these plans to be considered before establishing one.

PERFORMANCE

The Funds may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B, Class C and Class
I shares. Each of these figures is based upon historical results and is not
representative of the future performance of any class of the shares. A Fund with
fees or expenses being waived or absorbed by Scudder Kemper may also advertise
performance information before and after the effect of the fee waiver or expense
absorption.

A Fund's historical performance or return for a class of shares may be shown in
the form of "average annual total return" and "total return" figures. These
measures of performance are described below. Performance information will be
computed separately for each class. The Adviser has agreed to a reduction of its
management fee for each Fund to the extent specified in the prospectus. See
"Investment Manager and Underwriter." This fee reduction will improve the
performance results of a Fund.

Average annual total return and total return measure both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in a Fund's portfolio. Each
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual total
return for each class of a Fund for a specific period is found by first taking a
hypothetical $1,000 investment ("initial investment") in the class' shares on
the first day of the period, adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "redeemable value" of that
investment at the end of the period. Average annual return quotations will be
determined to the nearest 1/100th of 1%. The redeemable value in the case of
Class B shares or Class C shares include the effect of the applicable contingent
deferred sales charge that may be imposed at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. Average
annual return calculated in accordance with this formula does not take into
account any required payments for federal of state income taxes. Such quotations
for Class B shares of a Fund for periods over six years will reflect conversion
of such shares to Class A of that Fund shares at the end of the sixth year. The
calculation assumes that all income and capital gains dividends paid by a Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Average

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<PAGE>

annual total return may also be calculated in a manner not consistent with the
standard formula described above, without deducting the maximum sales charge or
contingent deferred sales charge.

Average Annual Total Return = (ERV/P)^1/n - 1

Where:

P = a hypothetical initial investment of $1,000
n = Number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.

Average Annual Total Return for Period Ended October 31, 1998*

Fund Class A Shares Class B Shares Class C Shares

Global Blue Chip Fund

International Growth and
Income Fund

Emerging Markets Growth Fund

Emerging Markets Income Fund

Latin America Fund

*Since the Fund's commencement of operations (December 31, 1997).

Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for a Fund's "Financial Highlights" table in each Fund's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("initial
investment") in a Fund's shares on the first day of the period, either adjusting
or not adjusting to deduct the maximum sales charge (in the case of Class A
shares), and computing the "ending value" of that investment at the end of the
period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of a Fund's Class B shares or Class C shares may or may not include
the effect of the applicable contingent deferred sales charge that may be
imposed at the end of the period. The calculation assumes that all income and
capital gains dividends paid by a Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for a
Fund's Class A shares or the contingent deferred sales charge for Class B and
Class C shares would be reduced if such charges were included.

Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund for the
period in question, assuming the reinvestment of all dividends. Thus, these
figures reflect the change in the value of an investment in a Fund during a
specified period. Average annual total return will be quoted for at least the
one-, five- and ten-year periods ending on a recent calendar quarter (or if such
periods have not yet elapsed, at the end of a shorter period corresponding to
the life of a Fund for performance purposes). Average annual total return
figures represent the average annual percentage change over the period in
question. Total return figures represent the aggregate percentage or dollar
value change over the period in question.

A Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. The yields are shown below
based upon the one-month period ended October 31, 1998:

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<PAGE>

A Fund's yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

YIELD = 2[((a - b)/cd + 1)^6 - 1]

Where:

a = Dividends and interest earned during the period,
including amortization of market premium or
accretion of market discount
b = Expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period

Each Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. Each Fund's Class A shares are
sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of a
Fund's Class B shares may be subject to a contingent deferred sales charge that
is 4% in the first year following the purchase, declines by a specified
percentage each year thereafter and becomes zero after six years. Redemption of
a Fund's Class C shares may be subject to a 1% contingent deferred sales charge
in the first year following the purchase. Returns and net asset value will
fluctuate. Factors affecting a Fund's performance include general market
conditions, operating expenses and investment management. Any additional fees
charged by a dealer or other financial services firm would reduce returns
described in this section. Shares of a Fund are redeemable at the then current
net asset value, which may be more or less than original cost.

There are differences and similarities between the investments which a Fund may
purchase and the investments measured by the indices which are described herein.
The Consumer Price Index is generally considered to be a measure of inflation.
The Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index are
indices of common stocks which are considered to be generally representative of
the U.S. stock market. The Financial Times/Standard & Poor's Actuaries World
Index-Europe(TM) is a managed index that is generally representative of the
equity securities of European markets. The foregoing indices are unmanaged. The
net asset value and returns of a Fund will fluctuate.

Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.

Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.

Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.

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OFFICERS AND DIRECTORS

The officers and directors of the Corporation, their birth dates, their
principal occupations and their affiliations, if any, with the Adviser, and KDI,
the principal underwriter, are listed below. All persons named as directors also
serve in similar capacities for other funds advised by the Adviser:

[To Be Updated]

DANIEL PIERCE, (3/18/34)* Chairman of the Board, Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper Investments, Inc.

MARK S. CASADY (9/21/60)* President, Two International Place, Boston,
Massachusetts, Managing Director, Adviser; formerly, Institutional Sales Manager
of an unaffiliated mutual fund distributor.

JAMES E. AKINS (10/15/26) Director (14), 2904 Garfield Terrace, N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer, Energy Adviser for the
White House and United States Ambassador to Saudi Arabia, 1973-76.

ARTHUR R. GOTTSCHALK (2/13/25) Director (14), 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Illinois state Senator; Vice
President, The Reuben H. Donnelly Corp.

FREDERICK T. KELSEY (4/25/27) Director (14), 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Funds, formerly, Trustee
of the Pilot Fund.

FRED B. RENWICK (2/1/30) Director (14), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.

JOHN B. TINGLEFF (5/4/35) Director (14), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.

JOHN G. WEITHERS (8/8/33) Director (14), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University.

PHILIP J. COLLORA (11/15/45)* Vice President, Treasurer and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President and Assistant
Secretary, Adviser.

JOYCE E. CORNELL (3/26/44)* Vice President , Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.

DIEGO ESPINOSA (6/30/62)* Vice President, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.

JERALD K. HARTMAN (3/1/33)* Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.

TARA C. KENNEY (10/7/60)* Vice President, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.

THOMAS W. LITTAUER (4/26/55)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.

ANN M. McCREARY (11/6/56)* Vice President, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper Investments, Inc.

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<PAGE>

KATHRYN L. QUIRK (12/3/52)* Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.

SHERIDAN P. REILLY (2/27/52)* Vice President, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.

M. ISABEL SALTZMAN (12/22/54)* Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.

LINDA J. WONDRACK (9/12/64)* Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.

JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.

BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser

MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).

THOMAS F. McDONOUGH (1/20/47)* Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Adviser.

CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; formerly, Associate, Dechert
Price & Rhoads

ELIZABETH C. WERTH (10/1/47)* Assistant Secretary, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc.

* Interested persons of the Corporation as defined in the 1940 Act.

Compensation of Officers and Directors

The Directors and Officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below show amounts paid or
accrued to those Directors who are not designated "interested persons". The
information in the last column is for calendar year 1997. The Corporation has
not yet adopted a Directors compensation schedule.

[To Be Updated]

<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Kemper Fund
From Kemper Global/ Complex Paid to
Name of Board Members International Series, Inc. Board Members (2)
- --------------------- -------------------------- -----------------

<S> <C> <C>
James E. Akins ....................... - $ 94,300
Arthur R. Gottschalk (1) ............. - $ 102,700
Frederick T. Kelsey (1) .............. - $ 106,800
Fred B. Renwick ...................... - $ 94,300
John B. Tingleff ..................... - $ 94,300
John G. Weithers ..................... - $ 94,300
</TABLE>

(1) Includes deferred fees and interest thereon pursuant to deferred
agreements with certain Kemper funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Zurich Money Funds--Zurich Money
Market Fund.

(2) Includes compensation for service on the boards of 14 Kemper funds with 41
funds portfolios. Each board member currently serves as a board member of
14 Kemper Funds with 46 fund portfolios. Total compensation does not
reflect amounts paid by the Adviser to the directors for meetings

67
<PAGE>

regarding the combination of Scudder and ZKI. Such amounts totaled $_____,
$_____, $_____, $_____, $_____, $_____ and $_____for Messrs. Akins,
Gottschalk, Kelsey, Renwick, Tingleff and Weithers, respectively.

The Directors and Officers as a group owned less than 1% of each Fund's shares
as of the commencement of operations.

SHAREHOLDER RIGHTS

The Funds are series of the Corporation, an open-end management investment
company registered under the 1940 Act. The Corporation was organized as a
corporation under the laws of Maryland on October 2, 1997.

The Corporation may issue an indefinite amount of shares of capital stock, all
having $.001 par value, which may be divided by the Board of Directors into
classes of shares. Initially, 100,000,000 shares have been classified for each
of the Corporation's five series. Currently, each Fund offers three classes of
shares. These are Class A, Class B and Class C shares. The Board of Directors
may authorize the issuance of additional classes and additional series or Funds
if deemed desirable, each with its own investment objectives, policies and
restrictions. Since the Corporation may offer multiple Funds, each is known as a
"series company." Shares of a Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to each such class' Rule 12b-1 Plan. Shares of each class also have
equal rights with respect to dividends, assets and liquidation of such Fund
subject to any preferences (such as resulting from different Rule 12b-1
distribution fees), rights or privileges of any classes of shares of the Fund.
Shares of each Fund are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
Each Fund's activities are supervised by the Corporation's Board of Directors.
The Corporation is not required to hold and has no current intention of holding
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment management contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.

Each Fund's activities are supervised by the Corporation's Board of Directors.
Each Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Directors, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Director as
if Section 16(c) of the 1940 Act were applicable.

Each director serves until the next meeting of shareholders, if any, called for
the purpose of electing directors and until the election and qualification of a
successor or until such director sooner dies, resigns, retires or is removed by
a majority vote of the shares entitled to vote (as described below) or a
majority of the directors.

A majority of the Directors shall be present in person at any regular or special
meeting of the Directors in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Directors present at any such meeting, at which a quorum is
present, shall be the act of the Directors.

Any matter shall be deemed to have been effectively acted upon with respect to a
Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Corporation's Articles of Incorporation. As used in
the Prospectuses and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Funds and all additional
portfolios (e.g., election of directors), means the vote of the lesser of (i)
67% of the Corporation's shares represented at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Corporation's outstanding shares. The term "majority", when
referring to the approvals to be obtained from shareholders in connection with
matters affecting a single Fund or any other single portfolio (e.g., annual
approval of investment management contracts), means the vote of the lesser of
(i) 67% of the shares of the portfolio represented at a meeting if the holders
of more than 50% of the outstanding shares of the portfolio are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
portfolio.

In the event of the liquidation or dissolution of the Corporation, shares of a
Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a proportionate distribution, based upon the
relative net assets of the Funds, of any general assets not attributable to a
Fund that are available for distribution.

Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Corporation.

68
<PAGE>

MASTER/FEEDER STRUCTURE. The Board of Directors may determine, without further
shareholder approval, in the future that the objectives of each Fund would be
achieved more effectively by investing in a master fund in a master/feeder fund
structure. A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities or distribution channels at the feeder fund level. An existing
investment company is able to convert to a feeder fund by selling all of its
investments, which involves brokerage and other transaction costs and the
realization of taxable gain or loss, or by contributing its assets to the master
fund and possibly avoiding transaction costs and, in certain circumstances, the
realization of taxable gain or loss.

ADDITIONAL INFORMATION

Other Information
The CUSIP number of the Class A shares of Global Blue Chip Fund is
487916 10 8
The CUSIP number of the Class B shares of Global Blue Chip Fund is
487916 60 3.
The CUSIP number of the Class C shares of Global Blue Chip Fund is
487916 70 2.

The CUSIP number of the Class A shares of International Growth and
Income Fund is 487916 20 7.
The CUSIP number of the Class B shares of International Growth and
Income Fund is 487916 80 1.
The CUSIP number of the Class C shares of International Growth and
Income Fund is 487916 88 4.

The CUSIP number of the Class A shares of Emerging Markets Income
Fund is 487916 30 6.
The CUSIP number of the Class B shares of Emerging Markets Income
Fund is 487916 87 6.
The CUSIP number of the Class C shares of Emerging Markets Income
Fund is 487916 86 8.

The CUSIP number of the Class A shares of Emerging Markets Growth
Fund is 487916 40 5.
The CUSIP number of the Class B shares of Emerging Markets Growth
Fund is 487916 85 0.
The CUSIP number of the Class C shares of Emerging Markets Growth
Fund is 487916 84 3.

The CUSIP number of the Class A shares of Latin America Fund is
487916 50 4.
The CUSIP number of the Class B shares of Latin America Fund is
487916 83 5.
The CUSIP number of the Class C shares of Latin America Fund is
487916 82 7.

Each Fund has a fiscal year ending October 31.

Many of the investment changes in a Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of a Fund. These transactions will reflect investment decisions
made by the Adviser in light of a Fund's investment objectives and policies, its
other portfolio holdings and tax considerations, and should not be construed as
recommendations for similar action by other investors.

Costs of $15,000 incurred by each Fund, in conjunction with its organization,
are amortized over the five year period beginning December 31, 1997.

Portfolio securities of each Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, Brown Brothers Harriman & Co.

The law firm of Dechert Price & Rhoads is counsel to the Funds.

The Funds' prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Funds have filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to each Fund and the securities offered hereby. The Registration Statement and
its amendments, are available for inspection by the public at the SEC in
Washington, D.C.

69
<PAGE>

FINANCIAL STATEMENTS

The financial statements, including the investment portfolios of each Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in each Fund's Annual Report to Shareholders dated
October 31, 1998, are incorporated herein by reference and are hereby deemed to
be a part of this Statement of Additional Information.

70
<PAGE>

APPENDIX -- RATINGS OF FIXED INCOME INVESTMENTS

Standard & Poor's Corporation Bond Ratings

AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

CI. The rating CI is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

Moody's Investors Service, Inc. Bond Ratings

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

71
<PAGE>

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

<PAGE>

GROWTH FUND OF SPAIN
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999

Kemper Global/International Series, Inc.
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048

This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for the Growth Fund Of Spain (the "Fund"), a
series of Kemper Global/International Series, Inc. (the "Corporation"), an
open-end management investment company. It should be read in conjunction with
the combined prospectus of the Fund dated March 1, 1999. A prospectus may be
obtained without charge from the Fund and is also available along with other
related materials at the SEC's Internet web site (http://www.sec.gov).

---------

TABLE OF CONTENTS

Page
----

INVESTMENT RESTRICTIONS..........................................2
INVESTMENT POLICIES AND TECHNIQUES...............................3
PORTFOLIO TRANSACTIONS..........................................18
INVESTMENT MANAGER AND UNDERWRITER..............................19
PURCHASE, REDEMPTION OR REPURCHASE OF SHARES....................24
NET ASSET VALUE.................................................38
DIVIDENDS, DISTRIBUTIONS AND TAXES..............................39
PERFORMANCE.....................................................44
OFFICERS AND DIRECTORS..........................................47
SHAREHOLDER RIGHTS..............................................49
FINANCIAL STATEMENTS............................................51
ADDITIONAL INFORMATION..........................................51
APPENDIX A - RATINGS OF FIXED INCOME INVESTMENTS................52
APPENDIX B - INFORMATION ABOUT SPAIN AND PORTUGAL...............54

The financial statements appearing in the Fund's 1998 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document. Scudder Kemper Investments, Inc. (the "Adviser")
serves as the Fund's investment manager.

<PAGE>

INVESTMENT RESTRICTIONS

The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a majority of its outstanding voting shares, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). This
means the lesser of the vote of (a) 67% of the shares of the Fund present at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy or (b) more than 50% of the outstanding shares of the Fund.

The Fund has elected to be classified as a non-diversified series of an open-end
management, investment company.

As a matter of fundamental policy, the Fund will not:

(a) make loans except to the extent that the purchase of portfolio
securities consistent with the Fund's investment objective and
policies or the acquisition of securities subject to repurchase
agreements may be deemed to be loans;

(b) borrow money or issue senior securities, except as permitted under
the 1940 Act and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;

(c) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings or in connection with hedging
and risk management strategies as described under "Investment
Policies and Techniques" herein;

(d) invest in companies for the purpose of exercising control or
participation in management;

(e) make short sales of securities or maintain a short position in any
security except as described under "Investment Policies and
Techniques" herein;

(f) (i) purchase or sell real estate, except that it may purchase and
sell securities of companies which deal in real estate or interests
therein, (ii) purchase or sell commodities or commodity contracts
except that the Fund may enter into foreign currency and stock index
futures contracts and options thereon and may buy or sell forward
currency contracts and options on foreign currencies, (iii) invest
in interests in oil, gas, or other mineral exploration or
development programs, except that it may purchase and sell
securities of companies which deal in oil, gas or other mineral
exploration or development programs, (iv) purchase securities on
margin, except for such short-term credits as may be necessary for
the clearance of transactions as described under the heading
"Investment Policies and Techniques" herein, and (v) act as an
underwriter of securities, except that the Fund may acquire
securities in private placements in circumstances in which, if such
securities were sold, the Fund might be deemed to be an underwriter
within the meaning of the Securities Act of 1933, as amended; and

(g) invest in securities of other investment companies, except as part
of a merger, consolidation or other acquisition, if more than 3% of
the outstanding voting stock of any such investment company would be
held by the Fund, if more than 5% of the total assets of the Fund
would be invested in any such investment company, or if the Fund
would own, in the aggregate, securities of investment companies
representing more than 10% of its total assets.

If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond that specified limit resulting
from a change in values or net assets will not be considered a violation.

As a matter of nonfundamental policy, the Fund will not:

(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements or other investments or
transactions described in the Fund's registration statement which
may be deemed to be borrowings;

2
<PAGE>

(2) enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;

(3) purchase securities on margin, except (i) for margin deposits in
connection with futures contracts, options or other permitted
investments, and (ii) that the Fund may obtain such short-term
credits as may be necessary for the clearance of securities
transactions;

(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;

(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5% limit; and

(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value).

INVESTMENT POLICIES AND TECHNIQUES

General. The Growth Fund Of Spain seeks long-term capital appreciation by
investing primarily in equity securities of Spanish companies. The Fund's
investment objective is fundamental and may not be changed without the approval
of a majority of the Fund's outstanding voting securities. The Fund may also
invest up to 35% of its total assets in the securities of non-Spanish companies,
which investments may be focused in whole or in part in the equity securities of
Portuguese companies.

The Fund is designed for long-term investors who can accept international
investment risk in pursuit of additional opportunities that foreign securities
may provide. Since the Fund normally will be invested primarily in foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. The Fund's share price will reflect the
movements of both the stock and bond markets in which it is invested and the
currency in which the investments are denominated; the strength or weakness of
the U.S. dollar against the Spanish Peseta, the Portuguese Escudos and other
foreign currencies may account for part of the Fund's investment performance. As
with any long-term investment, the value of shares when sold may be higher or
lower than when purchased. In the opinion of the Adviser, Spanish and Portuguese
capital markets provide investors with opportunities to participate in the
economic growth taking place outside the U.S., which should translate into
positive securities market performance over the long term. In addition, the
Adviser believes that international investing offers the benefits of
diversification, which can lower the overall price volatility of an investor's
portfolio. Foreign investing does involve significant risks, as discussed in
this prospectus, and the Fund should not be considered a complete investment
program. The Fund is designed primarily for long-term investment and investors
should not consider it a trading vehicle.

The Fund seeks long-term capital appreciation by investing primarily in
equity securities of companies organized under the laws of Spain or traded in
the Spanish securities markets and doing business in Spain ("Spanish
companies"). Under normal market conditions, at least 65% of the Fund's total
assets will be invested in equity securities of Spanish companies. The Fund is
permitted to invest up to 25% of its total assets in unlisted equity and debt
securities, including convertible debt securities, and in other securities that
are not readily marketable, a significant portion of which may be considered
illiquid (see "Unlisted and Illiquid Securities" below). Investment in Spanish
equity securities that are unlisted or are not readily marketable will be
treated as investments in Spanish equity securities for purposes of the Fund's
fundamental policy of investing at least 65% of its total assets in Spanish
equity securities. The Fund may invest up to 35% of total assets in
investment-grade fixed income instruments denominated in Pesetas or U.S. dollars
as described below. The Fund's investment objective and the foregoing

3
<PAGE>

policies are fundamental and cannot be changed without the approval of a
majority of the Fund's outstanding voting securities. As an operating policy,
the Adviser intends to evaluate investment opportunities present throughout the
Iberian Peninsula (i.e., Spain and Portugal). Accordingly, the Fund may, as a
matter of nonfundamental policy, invest up to 35% of total assets in equity
securities of companies other than Spanish companies, and may concentrate such
investments in whole or in part in equity securities of companies organized
under the laws of Portugal or traded in the Portuguese securities markets and
doing business in Portugal ("Portuguese companies"). Unless otherwise noted, the
Fund's other investment policies described below are not fundamental and may be
changed by the Fund without shareholder approval.

Investment-grade fixed-income instruments are defined to include
securities rated in the four highest rating categories by Standard & Poor's
Ratings Group ("S&P") or by Moody's Investors Service, Inc. ("Moody's"), or, if
such securities are not so rated, securities of equivalent investment quality as
determined by the Adviser, and short-term indebtedness or cash equivalents
denominated in either Pesetas or U.S. dollars.

The Fund may engage in futures, options and other derivative transactions
("Strategic Transactions and Derivatives") in accordance with its investment
objective and policies. The Fund intends to engage in such transactions if it
appears to the Adviser to be advantageous for the Fund to do so in order to
pursue its investment objective, to hedge against the effects of fluctuation in
interest rates, and also to hedge against the effects of market risks, but not
to create leveraged exposure in the Fund. The use of futures and options, and
possible benefits and attendant risks, are discussed below, along with
information concerning other investment policies and techniques.

Temporary Defensive Position. For temporary defensive purposes, e.g., during
periods in which changes in the Spanish securities markets, other economic
conditions or political conditions in Spain warrant, the Fund may vary from its
investment objective and may invest, without limit, in high quality debt
instruments, such as U.S. and Spanish government securities. The Fund may also
at any time invest funds in U.S. dollar-denominated money market instruments as
reserves for expenses and dividend and other distributions to shareholders.

Common Stocks. The Fund may invest in common stocks. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, the Fund participates in the
success or failure of any company in which it holds stock. The market values of
common stock can fluctuate significantly, reflecting the business performance of
the issuing company, investor perception and general economic or financial
market movements. Smaller companies are especially sensitive to these factors.
An investment in common stock entails greater risk of becoming valueless than
does an investment in fixed-income securities. Despite the risk of price
volatility, however, common stock also offers the greatest potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.

Foreign Securities, in General. The Fund is designed for investors who can
accept currency and other forms of international investment risk. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future.

4
<PAGE>

issuers. Similarly, volume and liquidity in most foreign bond markets is less
than in the U.S. and, at times, volatility of price can be greater than in the
U.S. Further, foreign markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems either
could result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Payment for
securities without delivery may be required in certain foreign markets. Fixed
commissions on some foreign securities exchanges and bid-to-asked spreads in
foreign bond markets are generally higher than commissions or bid-to-asked
spreads on U.S. markets, although the Fund will endeavor to achieve the most
favorable net results on its portfolio transactions. Further, the Fund may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for the Fund's agents to keep currently informed
about corporate actions which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In addition, with
respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability, or diplomatic developments
which could affect United States investments in those countries. Investments in
foreign securities may also entail certain risks, such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.

Trading in securities on European securities exchanges is normally
completed before the close of regular trading on the New York Stock Exchange
(the "Exchange"). Trading on these foreign exchanges may not take place on a day
on which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange. Events materially affecting
the value of the Fund's portfolio securities may occur between the time when
these foreign exchanges close and the time when the Fund's net asset value is
calculated.

See Appendix B for a detailed discussion of Spanish and Portuguese market
and economic characteristics.

Depositary Receipts. The Fund may invest directly in securities of foreign
issuers through sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs")
and other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred to as "Depositary Receipts"). Depositary Receipts may
not necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are Depositary Receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
GDRs, IDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by United
States banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a United States corporation. Generally, Depositary
Receipts in registered form are designed for use in the United States securities
markets and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. For purposes of the Fund's
investment policies, the Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts may be subject to foreign currency exchange rate
risk. Certain Depositary Receipts may not be listed on an exchange and therefore
may be illiquid securities.

Foreign Currencies. The Fund has foreign currency exposure. Because investments
in foreign securities usually will involve currencies of foreign countries, and
because the Fund may hold funds in bank deposits in foreign currencies during
the completion of investment programs and may purchase foreign currency, foreign
currency futures contracts, and options on foreign currencies and foreign
currency futures contracts, the value of the assets of the Fund as

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<PAGE>

measured in U.S. dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
options or forward or futures contracts to purchase or sell foreign currencies.

Because the Fund normally will be invested in foreign securities markets,
changes in the Fund's share price may have a low correlation with movements in
the U.S. markets. The Fund's share price will reflect the movements of both the
different stock and bond markets in which it is invested and of the currencies
in which the investments are denominated; the strength or weakness of the U.S.
dollar against foreign currencies may account for part of the Fund's investment
performance. U.S. and foreign securities markets do not always move in step with
each other, and the total returns from different markets may vary significantly.

Debt Securities. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA,
AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or, if unrated, judged
to be of equivalent quality as determined by the Adviser. Bonds rated Baa or BBB
may have speculative elements as well as investment-grade characteristics. (See
"Appendix A.")

Investment in debt securities involves both interest rate and credit risk.
Generally, the value of debt instruments rises and falls inversely with
fluctuations in interest rates. As interest rates decline, the value of debt
securities generally increases. Conversely, rising interest rates tend to cause
the value of debt securities to decrease. Bonds with longer maturities generally
are more volatile than bonds with shorter maturities. The market value of debt
securities also varies according to the relative financial condition of the
issuer.

Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities, including
fixed-income and zero coupon debt securities, which are convertible into common
stock. Investments in convertible securities can provide an opportunity for
capital appreciation and/or income through interest and dividend payments by
virtue of their conversion or exchange features.

The convertible securities in which the Fund may invest include fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

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<PAGE>

securities may default on their obligations. Convertible securities generally
offer lower yields than non-convertible securities of similar quality because of
their conversion or exchange features.

Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs(TM)"). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.

Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS(TM)") and Certificate of Accrual on Treasuries
("CATS(TM)"). The underlying U.S. Treasury bonds and notes themselves are held
in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof. Counsel to
the underwriters of these certificates or other evidences of ownership of the
U.S. Treasury securities have stated that, for federal tax and securities
purposes, in their opinion purchasers of such certificates, such as the Fund,
most likely will be deemed the beneficial holder of the underlying U.S.
Government securities.

7
<PAGE>

corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero coupon
securities that the Treasury sells itself (see "TAXES").

Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.

When-Issued Securities. The Fund may, from time to time, purchase securities on
a "when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. To the extent that
assets of the Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Fund's intention
to be fully invested to the extent practicable and subject to the policies
stated above. While when-issued or forward delivery securities may be sold prior
to the settlement date, the Fund intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
security on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. At the time of settlement, the market value of the when-issued or forward
delivery securities may be more or less than the purchase price. The Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.

Warrants. Subject to nonfundamental investment policy (6), the Fund may invest
in warrants, which are securities permitting, but not obligating, their holders
to subscribe for other securities or commodities. The Fund may invest in
warrants for debt securities or warrants for equity securities that are acquired
as units with debt instruments. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants may be considered to be more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying securities
or commodities and a warrant ceases to have value if it is not exercised prior
to its expiration date. Consistent with the Fund's investment policies as
described above, the Fund may retain in its portfolio any securities received
upon the exercise of a warrant and may also retain in its portfolio any warrant
acquired as a unit with a debt instrument if the warrant begins to trade
separately from the related debt instrument.

Borrowing. The Fund may borrow to the maximum extent permitted under the 1940
Act; however, as a matter of nonfundamental policy, the Fund will not borrow in
an amount exceeding 5% of the value of the total assets of the Fund except for
temporary or emergency purposes and by engaging in reverse repurchase agreements
or other investments or transactions which may be deemed to be borrowings. Such
borrowings are not subject to the asset coverage restrictions set forth below.
The 1940 Act requires the Fund to maintain "asset coverage" of not less than

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<PAGE>

300% of its "senior securities representing indebtedness" as those terms are
defined and used in the 1940 Act. In addition, the Fund may not pay any cash
dividends or make any cash distributions to shareholders if, after the
distribution, there would be less than 300% asset coverage of a senior security
representing indebtedness for borrowing (excluding for this purpose certain
evidences of indebtedness made by a bank or other entity and privately arranged,
and not intended to be publicly distributed). If, as a result of the foregoing
restriction or otherwise, the Fund was unable to distribute at least 90% of its
investment company taxable income in any year, it would lose its status as a
regulated investment company for such year and become liable at the corporate
level for U.S. federal income taxes on its income for such year.

Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to its U.S. dollar-denominated debt securities with member banks of the
Federal Reserve System or with any domestic broker/dealer which is recognized as
a reporting government securities dealer, if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase.

A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a debt security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities is kept at least equal to
the repurchase price on a daily basis. The repurchase price may be higher than
the purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund, together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation itself.
Obligations will be physically held by the Fund's custodian or in the Federal
Reserve Book Entry system.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation, subject to the repurchase
agreement and is therefore subject to the Fund's investment restrictions
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for the loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation, in which case the Fund may incur a loss if the
proceeds to the Fund of the sale to a third party are less than the repurchase
price. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, if
the market value of the Obligation subject to the repurchase agreement becomes
less than the repurchase price (including interest), the Fund will direct the
seller of the Obligation to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will equal or exceed
the repurchase price. It is possible that the Fund will be unsuccessful in
seeking to enforce the seller's contractual obligation to deliver additional
securities.

Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.

Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities, i.e.,

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<PAGE>

which cannot be sold to the public without registration under the Securities Act
of 1933, as amended (the "1933 Act"), or the availability of an exemption from
registration (such as Rules 144 or 144A) or because they are subject to other
legal or contractual delays in or restrictions on resale.

The absence of a trading market can make it difficult to ascertain a
market value for illiquid securities. Disposing of illiquid securities may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
illiquid securities.

Generally speaking, restricted securities may be sold in the U.S. only to
qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.

Investing in Small Companies. The Fund may invest in small companies. There is
typically less publicly available information concerning foreign and smaller
companies than for domestic and larger, more established companies. Some small
companies have limited product lines, distribution channels and financial and
managerial resources. Also, because smaller companies normally have fewer shares
outstanding than larger companies and trade less frequently, it may be more
difficult for the Fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. Some of the companies
in which the Fund may invest may distribute, sell or produce products which have
recently been brought to market and may be dependent on key personnel with
varying degrees of experience.

Indexed Securities. The Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.

Indexed securities differ from other types of debt securities in which the
Fund may invest in several respects. First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments, such
as an interest rate compared with a fixed interest rate or the currency exchange
rates between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar-denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

Short Sales. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund expects to make
short sales both as a form of hedging to offset potential declines in long
positions in similar securities and in order to maintain portfolio flexibility.

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<PAGE>

Currently, under applicable Spanish law short sales of listed Spanish
securities are prohibited. To the extent that such law changes to permit short
sales, the Fund may engage in such transactions. In addition, to the extent that
companies that have their shares listed on a Spanish exchange also have
depository receipts for such shares listed on a non-Spanish exchange, such as
the New York Stock Exchange, which permits short sales of such depository
receipts, the Fund may engage in short sales of such depository receipts.

When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other liquid securities, equivalent in value to the borrowed
securities. The Fund will also be required to deposit similar collateral with
its custodian to the extent necessary so that the value of both collateral
deposits in the aggregate is at all times equal to at least 100% of the current
market value of the security sold short (see "Use of Segregated and Other
Special Accounts"). Depending on arrangements made with the broker-dealer from
which it borrowed the security regarding any payments received by the Fund on
such security, the Fund may not receive any payments (including interest and
dividends) on its collateral deposited with such broker-dealer.

If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.

The Fund will not make a short sale if, after giving effect to such sale,
the market value of all securities sold short exceeds 25% of the value of its
total assets. The Fund may also make short sales "against the box" without
respect to such limitation. In this type of short sale, at the time of the sale,
the Fund owns or has the immediate and unconditional right to acquire at no
additional cost the identical security.

Synthetic Investments. In certain circumstances, the Fund may wish to obtain the
price performance of a security without actually purchasing the security in
circumstances where, for example, the security is illiquid, or is unavailable
for direct investment or available only on less attractive terms. In such
circumstances, the Fund may invest in synthetic or derivative alternative
investments ("Synthetic Investments") that are based upon or otherwise relate to
the economic performance of the underlying securities. Synthetic Investments may
include swap transactions, notes or units with variable redemption amounts, and
other similar instruments and contracts. Synthetic Investments typically do not
represent beneficial ownership of the underlying security, usually are not
collateralized or otherwise secured by the counterparty and may or may not have
any credit enhancements attached to them. Accordingly, Synthetic Investments
involve exposure not only to the creditworthiness of the issuer of the
underlying security, changes in exchange rates and future governmental actions
taken by the jurisdiction in which the underlying security is issued, but also
to the creditworthiness and legal standing of the counterparties involved. In
addition, Synthetic Investments typically are illiquid.

Strategic Transactions and Derivatives. The Fund may, but is not required to,
use various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as

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<PAGE>

swaps, caps, floors or collars, and enter into various currency transactions
such as currency forward contracts, currency futures contracts, currency swaps
or options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). Strategic Transactions may be used without
limit to attempt to protect against possible changes in the market value of
securities held in or to be purchased for the Fund's portfolio resulting from
securities markets or currency exchange rate fluctuations, to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, or
to establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not to create leveraged exposure in the Fund.

Strategic Transactions, including derivative contracts have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be

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<PAGE>

exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.

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<PAGE>

If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.

The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

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<PAGE>

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

The Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of

15
<PAGE>

the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions and
certain short sale transactions, in

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<PAGE>

addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.

OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

Non-Diversified Investment Company. The Fund is classified as non-diversified
under the "1940 Act," which means that the Fund is not limited by the 1940 Act
in the percentage of its assets that it may invest in the obligations of a
single issuer. As a "non-diversified" investment company, the Fund may be
subject to greater market and credit risk than a

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<PAGE>

more broadly diversified portfolio. The investment of a large percentage of the
Fund's assets in the securities of a small number of issuers may cause the
Fund's share price to fluctuate more than that of a diversified investment
company. The Fund will, however, be subject to the diversification requirements
imposed by Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").

Investment Company Securities. Securities of other investment companies may be
acquired by the Fund to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.

PORTFOLIO TRANSACTIONS

Brokerage

Allocation of brokerage may be placed by the Adviser.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission (negotiable in
the case of U.S. national securities exchange transactions) where applicable,
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through its familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.

The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is authorized when placing
portfolio transactions for the Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.

In selecting among firms believed to meet the criteria for handling a
particular transaction, the Adviser may give consideration to those firms that
have sold or are selling shares of the Fund managed by the Adviser.

Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.

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<PAGE>

The Directors for the Fund review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.

[TO BE UPDATED: For the fiscal years ended November 30, 1997, 1996 and
1995, the Fund paid aggregate brokerage commissions of $[x], $[x] and $[x],
respectively.]

[TO BE UPDATED: For the fiscal years ended November 30, 1997, 1996 and
1995, the Fund paid BSN Sociedad de Valores y Bolsa, an affiliate of the Fund's
former sub-adviser, brokerage commissions of $94,000, $251,000 and $324,000,
respectively. Transactions in which the Fund used BSN Sociedad de Valores y
Bolsa as broker comprised 21.56% of the aggregate dollar amount involving
payment of commissions, and 24.1% of the aggregate brokerage commissions paid by
it during the fiscal year ended November 30, 1997.]

The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. Under normal
investment conditions, it is anticipated that the Fund's portfolio turnover rate
will not exceed 100%.

INVESTMENT MANAGER AND UNDERWRITER

Investment Manager. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, Adviser's predecessor entered
into an agreement with Zurich Insurance Company ("Zurich") pursuant to which the
predecessor and Zurich agreed to form an alliance. On December 31, 1997, Zurich
acquired a majority interest in Scudder, and Zurich made its subsidiary Zurich
Kemper Investments, Inc., a part of the predecessor organization. The
predecessor's name has been changed to Scudder Kemper Investments, Inc.

On September 7, 1998, the financial services business of Zurich (including
Zurich's 70% interest in the Adviser) and the financial services businesses of
B.A.T Industries p.l.c. ("B.A.T") formed a new global insurance and financial
services group known as Zurich Financial Services. By way of a dual holding
company structure, current Zurich Shareholders own approximately 57% of the new
organization, with the balance owned by B.A.T's shareholders.

Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the current
investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved by shareholders at a
special meeting which concluded in December 1998.

Pursuant to the investment management agreement, the Adviser acts as the
Fund's investment adviser,

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<PAGE>

manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical, bookkeeping and administrative
services and permits any of its officers or employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The investment management agreement provides that the Fund shall pay the charges
and expenses of its operations, including the fees and expenses of the directors
(except those who are affiliates of the Adviser), independent auditors, counsel,
custodian and transfer agent and the cost of share certificates, reports and
notices to shareholders, brokerage commissions or transaction costs, costs of
calculating net asset value, taxes and membership dues. The Fund bears the
expenses of registration of its shares with the SEC while Kemper Distributors,
Inc. ("KDI"), as principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states.

The Adviser maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Adviser utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for the Fund and for clients of the Adviser,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.

The Investment Management Agreement (the "Agreement") between the
Corporation, on behalf of the Fund, and the Adviser continues from year to year
only if its continuance is approved annually by the vote of a majority of those
Directors who are not parties to such Agreement or interested persons of the
Adviser or the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and by a majority vote either of the Fund's Directors
or of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice, and automatically terminates in the event of its assignment.

Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Articles of
Incorporation and By-Laws, the 1940 Act and the Internal Revenue Code of 1986,
as amended (the "Code"), and to the Fund's investment objective, policies and
restrictions and subject, further, to such policies and instructions as the
Directors of the Corporation may from time to time establish. The Adviser also
advises and assists the officers of the Corporation in taking such steps as are
necessary or appropriate to carry out the decisions of its Directors and the
appropriate committees of the Directors regarding the conduct of the business of
the Fund.

The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Fund's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Directors and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party;

20
<PAGE>

assisting in establishing accounting policies of the Fund; assisting in the
resolution of accounting and legal issues; establishing and monitoring the
Fund's operating budget; processing the payment of the Fund's bills; assisting
the Fund in, and otherwise arranging for, the payment of distributions and
dividends; and otherwise assisting the Fund in the conduct of its business,
subject to the direction and control of the Directors.

The Adviser pays the compensation and expenses of all Directors, officers
and executive employees of the Corporation affiliated with the Adviser and makes
available, without expense to the Corporation, the services of such Directors,
officers and employees of the Adviser as may duly be elected officers or
Directors of the Corporation, subject to their individual consent to serve and
to any limitations imposed by law, and provides the Corporation's office space
and facilities.

Under the Agreement the Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; the calculation of net asset value; taxes and
governmental fees; the fees and expenses of the transfer agent; the cost of
preparing stock certificates and any other expenses including clerical expenses
of issue, redemption or repurchase of shares; the expenses of and the fees for
registering or qualifying securities for sale; the fees and expenses of
Directors, officers and employees of the Corporation who are not affiliated with
the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify its officers and Directors with
respect thereto.

The Agreement expressly provides that the Adviser shall not be required to
pay a pricing agent of the Fund for portfolio pricing services, if any.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Corporation have been represented by Vedder, Price,
Kaufman & Kammholz, as independent counsel at the Fund's expense.

The Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.

None of the officers or Directors of the Corporation may have dealings
with the Corporation as principals in the purchase or sale of securities, except
as individual subscribers or holders of shares of the Corporation.

Employees of the Adviser and certain of its subsidiaries are permitted to
make personal securities transactions, subject to requirements and restrictions
set forth in the Adviser's Code of Ethics. The Code of Ethics contains
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities and the interests of
investment advisory clients such as those of the Fund. Among other things, the
Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, imposes time periods during
which personal transactions may not be made in certain securities, and requires
the submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment advisory
process. Exceptions to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate personnel.

For its services, the Fund pays the Adviser a fee, payable monthly, equal
to an annual rate of 0.75% of the

21
<PAGE>

Fund's first $250 million of average daily net assets, 0.72% of the next $750
million of such net assets, 0.70% of the next $1.5 billion of such net assets,
0.68% of the next $2.5 billion of such net assets, 0.65% of the next $2.5
billion of such net assets, 0.64% of the next $2.5 billion of such net assets,
0.63% of the next $2.5 billion of such net assets, and 0.62% on such net assets
in excess of $12.5 billion. [TO BE UPDATED: For the fiscal year ended October
31, 1998, the investment management fee payable to the Adviser for its services
under the previous investment management agreement was $[x].] For the fiscal
years ended November 30, 1997 and 1996, the investment management fee payable to
the Adviser for its services under the previous investment management agreement
with the Fund amounted to $2,846,000, and $2,374,000, respectively. During those
periods, the Adviser paid BSN Gestion de Patrimonios, S.A., S.G.C. ("BSN
Gestion") a monthly fee of 0.35% of the Fund's average weekly net assets for
investment management services pursuant to a now terminated sub-advisory
agreement between the Adviser and BSN Gestion. For the fiscal years ended
October 31, 1998 and November 30, 1997 and 1996, the sub-advisory fee payable to
BSN Gestion for its services under the sub-advisory agreement was $[x], $[x] and
$[x]. The sub-advisory arrangements with BSN Gestion were discontinued in
connection with the reorganization of the Fund's predecessor entity as a series
of the corporation. See "Shareholder Rights" below.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110--4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation an
annual fee of 0.065% on the first $150 million, 0.04% on the next $850 million,
and 0.02% over $1 billion, plus holding charges and transaction fees for this
service. The Fund is subject to a monthly minimum fee of $4,167. In addition,
there is a 33% multiclass surcharge imposed on the annual fee for the Fund.

SFAC charged the Fund a fee of $[x], $[x] and $[x] for the fiscal years
ended October 31, 1998, November 30, 1997 and 1996, respectively.

The Adviser may serve as adviser to other funds with similar investment
objectives and policies to those of the Fund that may have different
distribution arrangements or expenses, which may affect performance.

Principal Underwriter. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc., 222 South
Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of the Adviser, is the
principal underwriter and distributor for the shares of the Fund and acts as
agent of the Fund in the continuous offering of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. KDI also pays for
supplementary sales literature and advertising costs.

The distribution agreement continues in effect from year to year so long
as such continuance is approved for each class at least annually by a vote of
the Board of Directors of the Fund, including the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. The distribution agreement automatically terminates
in the event of its assignment and may be terminated for a class at any time
without penalty by the Fund or by KDI upon 60 days' notice. Termination by the
Fund with respect to a class may be by vote of a majority of the Board of
Directors, and a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the distribution
agreement, the Fund's Rule 12b-1 distribution plans, or any other agreement
related to the Fund's Rule 12b-1 distribution plans, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act.

Class A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays out a
portion of this sales charge or allows concessions or discounts to firms for the
sale of the Fund's Class A shares.

Rule 12b-1 Plans. The Corporation has adopted on behalf of the Fund, in
accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution
plans pertaining to the Fund's Class B and Class C shares (each a

22
<PAGE>

"Plan"). Under each Plan, the Fund pays KDI a distribution fee, payable monthly,
at the annual rate of 0.75% of the average daily net assets attributable to its
Class B or Class C shares. Under each Plan, KDI may compensate various financial
services firms ("Firms") for sales of Fund shares and may pay other commissions,
fees and concessions to such Firms. The distribution fee compensates KDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials.

Among other things, each Plan provides that KDI will prepare reports for the
Board on a quarterly basis for each class showing amounts paid to the various
Firms and such other information as the Board may reasonably request. Each Plan
will continue in effect indefinitely, provided that such continuance is approved
at least annually by vote of a majority of the Board of Directors, and a
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of the Fund and who have no direct or indirect financial interest in
the operation of the Plan ("Qualified Board Members"), cast at an in-person
meeting called for such purpose, or by vote of at least a majority of the
outstanding voting securities of the applicable class. Any material amendment to
a Plan must be approved by vote of a majority of the Board of Directors, and of
the Qualified Board Members. An amendment to a Plan to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the applicable class must be approved by a majority of the outstanding voting
securities of that class. While each Plan is in effect, the selection and
nomination of Directors who are not "interested persons" of the Corporation
shall be committed to the discretion of the Directors who are not themselves
"interested persons" of the Corporation. If a Plan is terminated (or not
renewed) with respect to either class, the Plan with respect to the other class
may continue in effect unless it also has been terminated (or not renewed).

The Fund's Plans became effective after the end of the most recently completed
fiscal year, therefore, no information is available concerning payments made
under the Plans.

Class B Shares. For its services under the Class B Plan, KDI receives a fee from
the Fund, payable monthly, at the annual rate of 0.75% of average daily net
assets of the Fund attributable to its Class B shares. This fee is accrued daily
as an expense of Class B shares. KDI also receives any contingent deferred sales
charges. See "Purchase, Redemption and Repurchase of Shares --Contingent
Deferred Sales Charge--Class B Shares." KDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.

Class C Shares. For its services under the Class C Plan, KDI receives a fee from
the Fund, payable monthly, at the annual rate of 0.75% of average daily net
assets of the Fund attributable to its Class C shares. This fee is accrued daily
as an expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges. See "Purchase, Redemption and Repurchase of
Shares--Contingent Deferred Sales Charges--Class C Shares."

Administrative Services. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of the Fund.

23
<PAGE>

applicable statute, rule or regulation. With respect to Class A shares, KDI pays
each firm a service fee, payable quarterly, at an annual rate of up to 0.25% of
the net assets in Fund accounts that it maintains and services attributable to
Class A shares, commencing with the month after investment. With respect to
Class B and Class C shares, KDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to 0.25% (calculated monthly and paid quarterly) of the net
assets attributable to Class B and Class C shares maintained and serviced by the
firm. After the first year, a firm becomes eligible for the quarterly service
fee and the fee continues until terminated by KDI or the Fund. Firms to which
service fees may be paid may include affiliates of KDI.

KDI also may provide some of the above services and may retain any portion
of the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on the Fund's
records and it is intended that KDI will pay all the administrative services fee
that it receives from the Fund to firms in the form of service fees. The
effective administrative services fee rate to be charged against all assets of
the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which there is a firm of record. The Board
of Directors of the Fund, in its discretion, may approve basing the fee to KDI
on all Fund assets in the future.

The Fund entered into the administrative services agreement after
completion of the Fund's most recent fiscal year, therefore, no information
about payments under the agreement is available.

Certain directors or officers of the Fund are also directors or officers
of the Adviser or KDI, as indicated under "Officers and Directors."

Custodian, Transfer Agent and Shareholder Service Agent. The Chase Manhattan
Bank, Chase MetroTech Center, Brooklyn, New York 11245, as custodian, has
custody of all securities and cash of the Fund held outside the United States.
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas
City, Missouri 64105, as custodian, and State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody of
all securities and cash held in the United States. Kemper Service Company
("KSC"), a subsidiary of the Adviser, is the Fund's transfer agent and
dividend-paying agent and, as such, generally serves as "Shareholder Service
Agent" of the Fund. KSC receives as transfer agent annual account fees of $10
per account ($18 for retirement accounts) plus set up charges and annual fees
associated with the contingent deferred sales charge (Class B only) and an
asset-based fee of 0.08% plus out-of-pocket expense reimbursement. KSC's fee is
reduced by certain earnings credits in favor of the Fund.

Independent Auditors and Reports To Shareholders. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois, 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.

PURCHASE, REDEMPTION AND REPURCHASE OF SHARES

PURCHASE OF SHARES

Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. Upon the redemption
or

24
<PAGE>

exchange of any class of shares held for less than one year, a fee of 2% of the
current net asset value of the shares will be assessed and retained by the Fund
for the benefit of the remaining shareholders, with limited exceptions (see
"Redemption or Repurchase of Shares--Redemption Fee"). When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.

The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. Each
class has distinct advantages and disadvantages for different investors, and
investors may choose the class that best suits their circumstances and
objectives.

<TABLE>
<CAPTION>
Annual
12b-1 Fees
(as a % of
average daily
Sales Charge net assets) Other Information

<S> <C> <C> <C>
Class A Maximum initial sales charge None Initial sales charge waived
of 5.75% of the public or reduced for certain
offering price purchases

Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of redemption shares six years after
proceeds; declines to zero after issuance
six years

Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>

The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.

Initial Sales Charge Alternative--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.

Sales Charge
as a Allowed to
As a Percentage of Dealers as a
Percentage of Net Asset Percentage of
Amount of Purchase Offering Price Value* Offering Price

Less than $50,000 5.75% 6.10% 5.20%
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over 0.00** 0.00** ***

* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.

25
<PAGE>

The Fund receives the entire net asset value of all its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow up to the full applicable sales charge, as shown in
the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
During periods when 90% or more of the sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933, as amended.

Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in the Fund or other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares-contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."

KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases," including
purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
Class A shares of the Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege is also
applicable.

As of February 1, 1996, Class A shares of the Fund or any other Kemper Fund
listed under "Special Features--Class A Shares--Combined Purchases" may be
purchased at net asset value in any amount by members of the plaintiff class in
the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.

Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.

26
<PAGE>

Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the Fund, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families; (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on September
8, 1995, and have continuously owned shares of KVS (or a Kemper Fund acquired by
exchange of KVS shares) since that date, for themselves or members of their
families; (d) any trust, pension, profit-sharing or other benefit plan for only
such persons; (e) persons who purchase such shares through bank trust
departments that process such trades through an automated, integrated mutual
fund clearing program provided by a third party clearing firm; and (f) persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups. Class A shares may be sold at net
asset value in any amount to selected employees (including their spouses and
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value by certain investment
advisers registered under the 1940 Act and other financial services firms,
acting solely as agents for their clients, that adhere to certain standards
established by KDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program or
agency commission program under which such clients pay a fee to the investment
adviser or other firm for portfolio management or agency brokerage services.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through redemption or repurchase by the Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.

The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.

Deferred Sales Charge Alternative--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."

KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."

Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when the shares
have been outstanding long enough for KDI to have been compensated for
distribution related expenses. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.

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<PAGE>

Purchase of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."

As described in the prospectus, Fund shares are sold at their public offering
price, which is the net asset value next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100 but such minimum amounts may be changed at
any time. The Fund may waive the minimum for purchases by directors, officers or
employees of the Fund or the Adviser and its affiliates. An order for the
purchase of shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance.

Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the particular class of the Fund as described in the Fund's
prospectus.

Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions are provided because of anticipated
economies of scale in sales and sales-related efforts.

The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("Exchange")
is closed other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the SEC may by order permit for the protection of the Fund's shareholders.

REDEMPTION OR REPURCHASE OF SHARES

General. Any shareholder may request that the Fund to redeem his or her shares.
When shares are held for the account of a shareholder by the Fund's transfer
agent, the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.

Any shareholder requesting that the Fund redeem shares with an aggregate value
in excess of the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90 day period will be required to provide the Fund with details of
valid custodial arrangements in Spain, Portugal and the U.S., in addition to
other important information, in order for the

28
<PAGE>

redemption request to be deemed in good order. Failure to provide the required
information will result in the rejection of the redemption request as being
invalid. See "Redemption in-Kind" below.

The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Except with respect to redemptions effected
in-kind pursuant to the Fund's redemption policy set forth below under
"Redemption in-Kind," payment for shares redeemed will be made in cash as
promptly as practicable but in no event later than seven days after receipt of a
properly executed request accompanied by any outstanding share certificates in
proper form for transfer. When the Fund is asked to redeem shares for which it
may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. Upon the redemption or exchange of any class of shares held
less than one year, with limited exceptions, a fee of 2% of the current net
asset value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders (see "Redemption Fee"). The redemption
within two years of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may also be subject to a contingent deferred sales
charge (see "Purchase of Shares-Initial Sales Charge Alternative-Class A
Shares"), the redemption of Class B shares within six years may be subject to a
contingent deferred sales charge (see "Contingent Deferred Sales Charge-Class B
Shares"), and the redemption of Class C shares within the first year following
purchase may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge-Class C Shares").

Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record-keeping system made available through the
Shareholder Service Agent.

Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.

Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodian account
holders, provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.

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<PAGE>

Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.

Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of a class of
the Fund effective on that day and normally the proceeds will be sent to the
designated account the following business day, subject to the Fund's redemption
policy set forth below under "Redemption in-Kind." Once authorization is on
file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048 or in writing, subject to the limitations on liability described
under "General" above. The Fund is not responsible for the efficiency of the
federal wire system or the account holder's financial services firm or bank. The
Fund currently does not charge the account holder for wire transfers. The
account holder is responsible for any charges imposed by the account holder's
firm or bank. There is a $1,000 wire redemption minimum (including any
contingent deferred sales charge). To change the designated account to receive
wire redemption proceeds, send a written request to the Shareholder Service
Agent with signatures guaranteed as described above or contact the firm through
which shares of the Fund were purchased. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this privilege to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. The
Fund reserves the right to terminate or modify this privilege at any time.

Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.

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<PAGE>

Contingent Deferred Sales Charge--Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.

Contingent
Deferred
Year of Redemption After Purchase Sales Charge

First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%

The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features-Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested the Fund), (c) redemptions in connection with distributions qualifying
under the hardship provisions of the Code and (d) redemptions representing
returns of excess contributions to such plans.

Contingent Deferred Sales Charge--Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features-Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Code
Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy
required minimum distributions after age 70 1/2 from an IRA account (with the
maximum amount subject to this waiver being based only upon the shareholder's
Kemper IRA accounts), (f) for any participant-directed redemption of shares held
by employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent, and (g) for
redemption of shares by an employer sponsored employee benefit plan that (i)
offers funds in addition to Kemper Funds (i.e., "multi-manager"), and (ii) whose
dealer of record has waived the advance of the first year administrative service
and distribution fees applicable to such shares and agrees to receive such fees
quarterly.

Contingent Deferred Sales Charge--General. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of

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<PAGE>

reinvested dividends nor the $1,000 of share appreciation is subject to the
charge. The charge would be at the rate of 3% ($300) because it was in the
second year after the purchase was made.

The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.

Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Fund listed under "Special Features-Class A
Shares-Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Funds. A shareholder of the Fund or other
Kemper Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares-Initial Sales Charge
Alternative-Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in the same class of shares as
the case may be, of the Fund or of other Kemper Funds. The amount of any
contingent deferred sales charge also will be reinvested, but the amount of any
redemption fee will not be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge schedule. Also, a holder of Class B shares who has redeemed shares may
reinvest up to the full amount redeemed, less any applicable contingent deferred
sales charge that may have been imposed upon the redemption of such shares, at
net asset value in Class A shares of the Fund or of the other Kemper Funds
listed under "Special Features-Class A Shares-Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Kemper Funds available for sale in the shareholder's state of residence as
listed under "Special Features-Exchange Privilege." The reinvestment privilege
can be used only once as to any specific shares and reinvestment must be
effected within six months of the redemption. If a loss is realized on the
redemption of shares of the Fund, the reinvestment in shares of the Fund may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. In addition, upon a reinvestment, the shareholder may not be
permitted to take into account sales charges incurred on the original purchase
of shares in computing their taxable gain or loss. The reinvestment privilege
may be terminated or modified at any time.

Redemption in-Kind. The Fund has adopted the following redemption policy in an
attempt to avoid the imposition of adverse tax consequences on remaining
shareholders that may be caused by certain large-scale redemptions. In
conformity with Rule 18f-1 under the 1940 Act, it is the Fund's policy to redeem
its shares, with respect to any one shareholder during any 90 day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period. As an operating policy, the Fund will satisfy
redemption requests in excess of such amount by distributing portfolio
securities in lieu of cash. This policy may be modified or terminated at any
time by the Board of Directors. Any securities distributed in-kind would be
valued in accordance with the Fund's policies used to determine net asset value,
and would be selected pursuant to procedures adopted by the Board of Directors
to help ensure that such redemptions are effected in a manner that is fair and
equitable to all shareholders. The redeeming shareholder will bear the risk of
fluctuation in value of the in-kind redemption proceeds after the trade date for
the redemption. Shareholders who receive portfolio securities in redemption of
Fund shares will be required to make arrangements for the transfer of custody of
such securities to the shareholder's account and must communicate relevant
custody information to the Fund prior to the effectiveness of a redemption
request. Redemption requests subject to the Fund's redemption in-kind policy
will not be considered in good order unless such information is provided. As
discussed below, a redeeming shareholder will bear all costs associated with the
in-kind distribution of portfolio securities. Shareholders receiving securities
in-kind may, when selling them, receive less than the redemption value of such
securities and would also incur certain transaction costs. Such a redemption
would not be as liquid as a redemption entirely in cash.

Redeeming shareholders will bear any costs of delivery and transfer of the
portfolio securities received in an in-kind redemption (generally, certain
transfer taxes and custodial expenses), and such costs will be deducted from
their

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<PAGE>

redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the Fund's name or the nominee names of the Fund's custodians. The actual per
share expenses for redeeming shareholders of effecting an in-kind redemption and
of any subsequent liquidation by the shareholder of the portfolio securities
received will depend on a number of factors, including the number of shares
redeemed, the Fund's portfolio composition at the time and market conditions
prevailing during the liquidation process. The Fund gives no assurances of such
expenses, and shareholders whose redemptions are effected in-kind may bear
expenses in excess of 1% of the net asset value of the shares of the Fund
redeemed. These expenses are in addition to any applicable redemption fee or
contingent deferred sales charge, as described above.

As noted under "Redemption or Repurchase of Shares--General" above, shareholders
redeeming in excess of the lesser of $250,000 or 1% of the net asset value of
the Fund during any 90 day period must provide details of their valid custodial
arrangements in Spain, Portugal and the U.S. in order to facilitate the transfer
and settlement of securities to be distributed to them in-kind. Unless a
shareholder establishes such custodial arrangements and properly notifies the
Fund of those arrangements, that shareholder will effectively be limited to
redeeming the lesser of $250,000 or 1% of the net asset value of the Fund during
any 90 day period. In the event that the shareholder wishes to redeem additional
amounts in cash, that shareholder will have to re-submit such a redemption
request after the expiration of each 90 day period (i.e., redemption requests
for amounts in excess of the permitted amount will not be automatically carried
forward to the next 90 day period).

The Fund has received an exemptive order from the SEC to permit in-kind
redemption transactions to be effected by shareholders who may be deemed to be
affiliated with the Fund because they own 5% or more of the Fund's outstanding
voting securities ("5% shareholders"). Shares of the Fund received by
shareholders in exchange for shares of GSP originally purchased in GSP's initial
public offering are not subject to being redeemed in-kind, contingent upon proof
of such purchase by the shareholder.

For redemptions in excess of the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90 day period, a redemption request will be considered
valid only if accompanied by a properly completed redemption and certification
form [(attached to the prospectus)], which details, among other things, the
shareholder's valid custodial arrangements in Spain, Portugal and the U.S. No
redemption requests subject to in-kind redemption may be made other than by a
written request accompanied by a properly completed redemption and certification
form.

For more information about redemptions in-kind, see "Purchase and Redemption
of Shares--Redemption in-Kind."

SPECIAL FEATURES

Class A Shares--Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Plus
Growth Fund, Kemper Value Series, Inc., Kemper Quantitative Equity Fund, Kemper
Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive
Growth Fund, Kemper Global/International Series, Inc., Kemper U.S. Growth and
Income Fund, Kemper Small Cap Relative Value Fund, Kemper-Dreman Financial
Services Fund, Kemper Value Fund, Kemper Global Discovery Fund, Kemper Classic
Growth Fund and Kemper High Yield Fund II ("Kemper Funds"). Except as noted
below, there is no combined purchase credit for direct purchases of shares of
Zurich Money Funds, Zurich YieldWise Funds, Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Funds" for purposes hereof. For purposes of the Combined Purchases feature
described above as well as for the Letter of Intent and Cumulative Discount
features described below, employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder Service
Agent may include: (a) Money Market Funds as "Kemper Funds", (b) all classes of
shares of any Kemper Fund and (c) the value of any other plan investment, such
as

33
<PAGE>

guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.

Class A Shares--Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included in this privilege.

Class A Shares--Cumulative Discount. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Kemper Funds (computed at the maximum offering price at
the time of the purchase for which the discount is applicable) already owned by
the investor.

Class A Shares--Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.

Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below. Upon the exchange of any class of
shares held for less than one year, a fee of 2% of the current net asset value
of the shares will be assessed and retained by the Fund for the benefit of the
remaining shareholders (see "Redemption or Repurchase of Shares-Redemption Fee"
above). Redemptions with respect to any one shareholder during any 90-day period
in excess of the lesser of $250,000 or 1% of the net asset value at the
beginning of the period are not eligible for the exchange privilege, and will be
effected pursuant to the Fund's redemption policies described above under
"Redemption in-Kind."

Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features-Class A Shares-Combined Purchases"
above may be exchanged for each other at their relative net asset values,
subject to the redemption fee, if applicable. Shares of Money Market Funds and
the Kemper Cash Reserves Fund that were acquired by purchase (not including
shares acquired by dividend reinvestment) are subject to the applicable sales
charge on exchange. Series of Kemper Target Equity Fund are available on
exchange only during the Offering Period for such series as described in the
applicable prospectus. Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Investor's Municipal Cash Fund and Investors Cash
Trust are available on exchange but only through a financial services firm
having a services agreement with KDI.

Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.

Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features-Class A Shares-Combined Purchases"
may be exchanged for each other at their relative net asset values, subject to
the redemption fee, if applicable. Class B shares may be exchanged without a
contingent deferred sales

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charge being imposed at the time of exchange. For purposes of calculating the
contingent deferred sales charge that may be imposed upon the redemption of the
Class B shares received on exchange, amounts exchanged retain their original
cost and purchase date.

Class C Shares. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features-Class A Shares-Combined Purchases"
may be exchanged for each other at their relative net asset values, subject to
the redemption fee, if applicable. Class C shares may be exchanged without a
contingent deferred sales charge being imposed at the time of exchange. For
determining whether there is a contingent deferred sales charge that may be
imposed upon the redemption of the Class C shares received by exchange, they
retain the cost and purchase date of the shares that were originally purchased
and exchanged.

General. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange through another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). For purposes of determining
whether the 15-Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, discretion or advice,
including without limitation accounts administered by a financial services firm
offering market timing, asset allocation or similar services. The total value of
shares being exchanged must at least equal the minimum investment requirement of
the Kemper Fund into which they are being exchanged. Exchanges are made based on
relative dollar values of the shares involved in the exchange. There is no
service fee for an exchange; however, dealers or other firms may charge for
their services in effecting exchange transactions. Exchanges of the Fund for
shares of another Kemper Fund are subject to a 2% redemption fee if the
shareholder has held the Fund shares for less than one year (see "Redemption or
Repurchase of Shares-Redemption Fee"). Exchanges will be effected by redemption
of shares of the fund held and purchase of shares of the other fund. For federal
income tax purposes, any such exchange constitutes a sale upon which a gain or
loss may be realized, depending upon whether the value of the shares being
exchanged is more or less than the shareholder's adjusted cost basis of such
shares. Shareholders interested in exercising the exchange privilege may obtain
prospectuses of the other funds from dealers, other firms or KDI. Exchanges may
be accomplished by a written request to Kemper Service Company, Attention:
Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares--General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
funds that are available for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and Investors Municipal Cash Fund is available for sale only in
certain states. Except as otherwise permitted by applicable regulations, 60
days' prior written notice of any termination or material change will be
provided.

Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund, subject to the redemption fee, if
applicable. If selected, exchanges will be made automatically until the
privilege is terminated by the shareholder or the Kemper Fund. Exchanges are
subject to the terms and conditions described above under "Exchange Privilege,"
except that the $1,000 minimum investment requirement for the Kemper Fund
acquired on exchange is not applicable. This privilege may not be used for the
exchange of shares held in certificated form.

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<PAGE>

Transfer, a shareholder can initiate a transaction by calling Kemper Shareholder
Services toll free at 1-800-621-1048, Monday through Friday, 8:00 a.m. to 3:00
p.m. Chicago time. Shareholders may terminate this privilege by sending written
notice to Kemper Service Company, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable amount of time to act upon the request.
EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").

Bank Direct Deposit. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
The Fund may immediately terminate a shareholder's Plan in the event that any
item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify this privilege at any time.

Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.

Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to IRAs. The minimum periodic payment is $100. The
maximum annual rate at which Class B shares may be redeemed (and Class A shares
purchased under the Large Order NAV Purchase Privilege and Class C shares in
their first year following the purchase) under a systematic withdrawal plan is
10% of the net asset value of the account. Shares are redeemed so that the payee
will receive payment approximately the first of the month. Any income and
capital gain dividends will be automatically reinvested at net asset value. A
sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.

The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.

o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.

o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.

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<PAGE>

o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.

Special Redemption and Exchange Information. Shares of any class of the Fund
held for less than one year are redeemable at a price equal to 98% of the then
current net asset value per share, with limited exceptions. This 2% discount,
referred to in the prospectus and this Statement of Additional Information as a
redemption fee, directly affects the amount a shareholder who is subject to the
fee receives upon exchange or redemption. It is intended to encourage long-term
investment in the Fund, to avoid transaction and other expenses caused by early
redemptions and to facilitate portfolio management. The fee is not a deferred
sales charge, is not a commission paid to the Adviser or its subsidiaries, and
does not benefit the Adviser in any way. The Fund reserves the right to modify
the terms of or terminate this fee at any time.

This redemption fee will not be applied to (a) a redemption of shares held
in certain retirement plans, including 401(k) plans, 403(b) plans, Keogh
accounts, and other pension, profit-sharing and employee benefit plans (however,
this fee waiver does not apply to IRA and SEP-IRA accounts), (b) a redemption of
any shares purchased through the reinvestment of dividends or capital gains
distributions paid by the Fund), or (d) a redemption of shares by the Fund upon
exercise of its right to liquidate accounts (i) falling below the minimum
account size by reason of shareholder redemptions or (ii) when the shareholder
has failed to provide tax identification information. However, if shares are
purchased for a retirement plan account through a broker, financial institution
or recordkeeper maintaining an omnibus account for the shares, such waiver may
not apply.

The fee applies to redemptions from the Fund and exchanges to other Kemper
Funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased. In the event
that a shareholder has acquired shares of the Fund in connection with the Fund's
acquisition of the assets of or merger or consolidation with another investment
company (an "acquired fund"), the shareholder will generally be permitted to add
the period he or she held shares of the acquired fund to the time he or she has
held Class A shares of the Fund in determining the applicability of the
redemption fee. In such a case, the shareholder bears the burden of
demonstrating to the Fund the period of ownership of the acquired fund. [TO BE
UPDATED: Proof of ownership for the required period may be demonstrated by
providing copies of brokerage account statements or other appropriate share
records in connection with a redemption under cover of the redemption and
certification form attached to the prospectus.]

For this purpose and without regard to the shares actually redeemed,
shares will be redeemed as follows: first,

37
<PAGE>

reinvestment shares; second, purchased shares held one year or more: and third,
purchased shares held for less than one year. Finally, if a shareholder enters
into a transaction in Fund shares which, although it may technically be treated
as a redemption and purchase for recordkeeping purposes, does not involve the
termination of economic interest in the Fund, no redemption fee will apply and
applicability of the redemption fee, if any, on any subsequent redemption or
exchange will be determined by reference to the date the shares were originally
purchased, and not the date of the transaction.

The conversion of Class B shares of the Fund to Class A shares of the Fund
may be subject to the continuing availability of an opinion of counsel, ruling
by the Internal Revenue Service ("IRS") or other assurance acceptable to the
Fund to the effect that (a) the assessment of the distribution services fee with
respect to Class B shares and not Class A shares does not result in the Fund's
dividends constituting "preferential dividends" under the Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Code. The conversion of Class B shares to Class A shares may be
suspended if such assurance is not available. In that event, no further
conversions of Class B shares would occur, and shares might continue to be
subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date.

NET ASSET VALUE

The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the Exchange on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.

An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent bid quotation. The value of
an equity security not quoted on Nasdaq, but traded in another
over--the--counter market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.

Debt securities are valued at prices supplied by the Fund's pricing
agent(s) which reflect broker/dealer supplied valuations and electronic data
processing techniques. Money market instruments purchased with an original
maturity of sixty days or less, maturing at par, shall be valued at amortized
cost, which the Board believes approximates market value. If it is not possible
to value a particular debt security pursuant to these valuation methods, the
value of such security is the most recent bid quotation supplied by a bona fide
marketmaker. If it is not possible to value a particular debt security pursuant
to the above methods, the Adviser may calculate the price of that debt security,
subject to limitations established by the Board.

An exchange--traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over--the-- counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over--the--counter market, quotations are taken from the
market in which the security is traded most extensively.

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<PAGE>

If, in the opinion of the Valuation Committee of the Corporation's Board
of Directors, the value of a portfolio asset as determined in accordance with
these procedures does not represent the fair market value of the portfolio
asset, the value of the portfolio asset is taken to be an amount which, in the
opinion of the Valuation Committee, represents fair market value on the basis of
all available information. The value of other portfolio holdings owned by the
Fund is determined in a manner which, in the discretion of the Valuation
Committee, most fairly reflects fair market value of the property on the
valuation date.

Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Dividends. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short--term capital gains over net realized long--term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long--term capital gains over net realized short--term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")

The Fund normally distributes annual dividends of net investment income.
Any net realized short--term and long--term capital gains for the Fund are
distributed at least annually. Income and capital gain dividends of the Fund are
automatically reinvested in additional shares of the Fund, without a sales
charge, unless the investor makes an election otherwise. Distributions of net
capital gains realized during each fiscal year will be made at least annually
before the end of the Fund's fiscal year on October 31. Additional
distributions, including distributions of net short--term capital gains in
excess of net long--term capital losses, may be made, if necessary.

The level of income dividends per share (as a percentage of net asset
value) will be lower for Class B and Class C shares than for Class A shares
primarily as a result of the distribution services fee applicable to Class B and
Class C shares. Distributions of capital gains, if any, will be paid in the same
proportion for each class.

Dividends will be reinvested in shares of the Fund unless shareholders
indicate in writing that they wish to receive them in cash or in shares of other
Kemper Funds as provided in the prospectus.

Taxes. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, generally will not be
liable for federal income taxes to the extent its earnings are distributed. To
so qualify, the Fund must satisfy certain income and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short--term capital gain).

The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of the Fund's ordinary income for each calendar year, at least 98% of
the excess of its capital gains over capital losses (adjusted for certain
ordinary losses) realized during the one--year period ending October 31 during
such year, and all ordinary income and capital gains for prior years that were
not previously distributed.

Investment company taxable income includes dividends, interest and net
short--term capital gains in excess of net long--term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.

If any net realized long--term capital gains in excess of net realized
short--term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital

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<PAGE>

gains as long--term capital gains, will be able to claim a relative share of
federal income taxes paid by the Fund on such gains as a credit against personal
federal income tax liability, and will be entitled to increase the adjusted tax
basis on Fund shares by the difference between such reported gains and the
individual tax credit.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

Properly designated distributions of the excess of net long--term capital
gain over net short--term capital loss are taxable to shareholders as long--term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends--received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long--term capital loss to the extent of any amounts treated as distributions of
long-- term capital gain during such six--month period.

Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.

If shares are held in a tax--deferred account, such as a retirement plan,
income and gain will not be taxable each year. Instead, the taxable portion of
amounts held in a tax-deferred account generally will be subject to tax as
ordinary income only when distributed from that account.

All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.

Distributions by the Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Dividend and interest income received by the Fund from sources outside the
U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
The Fund may qualify for and make the election permitted under Section 853 of
the Code so that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax return form, and may be required
to treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes related
primarily to investment income). The Fund may make an election under Section 853
of the Code, provided that more than 50% of the value of the total assets of the
Fund at the close of the taxable year consists of securities as foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code, except in the case of certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment--type income. Furthermore, the
foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend--paying shares or the shares of the Fund are held by
the Fund or the shareholders, as the case may be, for less than 16 days. (46
days in the case of preferred shares) during the 30--day period (90--day period
for preferred shares) beginning 15 days (45 days for preferred shares) before
the shares become ex--dividend. In addition, if the Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.

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<PAGE>

The Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
the Fund receives a so--called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which the Fund held the PFIC shares. The Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might have
been classified as capital gain.

The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to the Fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.

Equity options (including covered call options on portfolio stock) written
or purchased by the Fund will be subject to tax under Section 1234 of the Code.
In general, no loss is recognized by the Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long--term or short--term) will generally depend, in
the case of a lapse or sale of the option, on the Fund's holding period for the
option and, in the case of an exercise of the option, on the Fund's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or substantially identical security in
the Fund's portfolio. If the Fund writes a call option, no gain is recognized
upon its receipt of a premium. If the option lapses or is closed out, any gain
or loss is treated as a short--term capital gain or loss. If a call option is
exercised, any resulting gain or loss is short--term or long--term capital gain
or loss depending on the holding period of the underlying security. The exercise
of a put option written by the Fund is not a taxable transaction for the Fund.

Many futures and forward contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long--term and 40% short--term, and
on the last trading day of the Fund's fiscal year (and generally, on October 31
for purposes of the 4% excise tax), all outstanding Section 1256 positions will
be marked--to--market (i.e., treated as if such positions were closed out at
their closing price on such day), with any resulting gain or loss recognized as
60% long--term and 40% short--term. Under Section 988 of the Code, discussed
below, foreign currency gain or loss from foreign currency--related forward
contracts, certain futures and options and similar financial instruments entered
into or acquired by the Fund will be treated as ordinary income or loss. Under
certain circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a substantially identical
security in the Fund's portfolio.

Positions of the Fund consisting of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short--term capital losses into
long--term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.

Positions of the Fund consisting of at least one position not governed by
Section 1256 and at least one future,

41
<PAGE>

forward, or nonequity option contract which is governed by Section 1256 which
substantially diminishes the Fund's risk of loss with respect to such other
position will be treated as a "mixed straddle." Although mixed straddles are
subject to the straddle rules of Section 1092 of the Code, certain tax elections
exist for them which reduce or eliminate the operation of these rules. The Fund
will monitor its transactions in options and futures and may make certain tax
elections in connection with these investments.

Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90--day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.

Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain futures, forward or options
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contracts and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

If the Fund holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invests in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such an event, properly
designated dividends of investment company taxable income received from the Fund
by its corporate shareholders, to the extent attributable to such portion of the
accrued original issue discount, may be eligible for the deduction received by
corporations.

If the Fund acquires a debt instrument at a market discount, a portion of
the gain recognized (if any) on disposition of such instrument may be treated as
ordinary income.

The Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non--exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

42
<PAGE>

A shareholder who redeems shares of the Fund (including any in-kind
redemption) will recognize capital gain or loss for federal income tax purposes
measured by the difference between the value of the shares redeemed and the
adjusted cost basis of the shares. Any loss recognized on the redemption of Fund
shares held six months or less will be treated as long--term capital loss to the
extent that the shareholder has received any long--term capital gain dividends
on such shares. A shareholder who has redeemed shares of the Fund or any other
Kemper Mutual Fund listed under "Special Features-Class A Shares-Combined
Purchases" (other than shares of Kemper Cash Reserves Fund not acquired by
exchange from another Kemper Mutual Fund) may reinvest the amount redeemed at
net asset value at the time of the reinvestment in shares of the Fund or in
shares of the other Kemper Mutual Funds within six months of the redemption as
described under "Redemption or Repurchase of Shares-Reinvestment Privilege." If
redeemed shares were held less than 91 days, then the lesser of (a) the sales
charge waived on the reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of the Fund's shares and reinvests in shares of
the Fund within 30 days before or after the redemption or exchange, the
transactions may be subject to the wash sale rules resulting in a postponement
of the recognition of such loss for federal income tax purposes. An exchange of
the Fund's shares for shares of another fund is treated as a redemption and
reinvestment for federal income tax purposes upon which gain or loss may be
recognized.

Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.

Retirement Plans. Shares of the Fund may be purchased as an investment in
a number of kinds of retirement plans, including qualified pension, profit
sharing, money purchase pension, and 401(k) plans, Code Section 403(b) custodial
accounts, and individual retirement accounts.

One of the tax-deferred retirement plan accounts that may hold Fund shares
is an individual retirement account ("IRA"). There are three kinds of IRAs that
an individual may establish: traditional IRAs, Roth IRAs and education IRAs.
With a traditional IRA, an individual may be able to make a deductible
contribution of up to $2,000 or, if less, the amount of the individual's earned
income for any taxable year prior to the year the individual reaches age 70 1/2
if neither the individual nor his or her spouse is an active participant in an
employer's retirement plan. An individual who is (or who has a spouse who is) an
active participant in an employer retirement plan also may be eligible to make
deductible IRA contributions; the amount, if any, of IRA contributions that are
deductible by such an individual is determined by the individual's (and
spouse's, if applicable) adjusted gross income for the year. Even if an
individual is not permitted to make a deductible contribution to an IRA for a
taxable year, however, the individual nonetheless may make nondeductible
contributions up to $2,000, or 100% of earned income if less, for that year. One
spouse also may contribute up to $2,000 per year to the other spouse's own IRA,
even if the other spouse has earned income of less than $2,000, as long as the
spouses' joint earned income is at least $4,000. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Lump sum
distributions from another qualified retirement plan, may be rolled over into a
traditional IRA, also. With a Roth IRA, an individual may make only
nondeductible contributions; contributions can be made of up to $2,000 or, if
less, the amount of the individual's earned income for any taxable year, but
only if the individual's (and spouse's, if applicable) adjusted gross income for
the year is less than $95,000 for single individuals or $150,000 for married
individuals. The maximum contribution amount phases out and falls to zero
between $95,000

43
<PAGE>

and $110,000 for single persons and between $150,000 and $160,000 for married
persons. Contributions to a Roth IRA may be made even after the individual
attains age 70 1/2. Distributions from a Roth IRA that satisfy certain
requirements will not be taxable when taken; other distributions of earnings
will be taxable. An individual with adjusted gross income of $100,000 or less
generally may elect to roll over amounts from a traditional IRA to a Roth IRA.
The full taxable amount held in the traditional IRA that is rolled over to a
Roth IRA will be taxable in the year of the rollover, except rollovers made for
1998, which may be included in taxable income over a four year period. An
education IRA provides a method for saving for the higher education expenses of
a child; it is not designed for retirement savings. Generally, amounts held in
an education IRA may be used to pay for qualified higher education expenses at
an eligible (postsecondary) educational institution. An individual may
contribute to an education IRA for the benefit of a child under 18 years old if
the individual's income does not exceed certain limits. The maximum contribution
for the benefit of any one child is $500 per year. Contributions are not
deductible, but earnings accumulate tax-free until withdrawal, and withdrawals
used to pay qualified higher education expenses of the beneficiary (or
transferred to an education IRA of a qualified family member) will not be
taxable. Other withdrawals will be subject to tax.

In addition, there are special IRA programs available for employers under
which an employer may establish IRA accounts for its employees in lieu of
establishing more complicated retirement plans, such as qualified profit sharing
or 401(k) plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE
IRAs, they permit employers to maintain a retirement program for their employees
without being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.

Information regarding the establishment of IRAs or other retirement plans
is available from the Shareholder Service Agent upon request. A retirement plan
custodian may charge fees in connection with establishing and maintaining the
plan. An investor should consult with a competent adviser for specific advice
concerning his or her tax status and the possible benefits of establishing one
or more retirement plan accounts. The description above is only very general;
there are numerous other rules applicable to these plans to be considered before
establishing one.

Shareholders should consult their tax advisers about the application of
the provisions of tax law in light of their particular tax situations.

PERFORMANCE

The Fund's historical performance or return for a class of shares may be shown
in the form of "average annual total return" and "total return" figures. These
measures of performance are described below. Performance information will be
computed separately for each class.

The Fund may advertise several types of performance information for a
class of shares, including "average annual total return" and "total return."
Performance information will be computed separately for Class A, Class B and
Class C shares. Each of these figures is based upon historical results and is
not representative of the future performance of any class of the Fund.

Average annual total return and total return measure both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio. The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for each class of the Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the class' shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. Average annual
return quotations will be determined to the nearest 1/100th of 1%. The
redeemable value in the case of Class B shares or Class C shares include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the nth root (n representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Average annual return calculated in accordance

44
<PAGE>

with this formula does not take into account any required payments for federal
of state income taxes. Average annual total return does not reflect the effect
of the 2% redemption fee on shares held for less than one year. Such quotations
for Class B shares of the Fund for periods over six years will reflect
conversion of such shares to Class A shares at the end of the sixth year. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Average annual total return may also be calculated in a manner not
consistent with the standard formula described above, without deducting the
maximum sales charge or contingent deferred sales charge.

Average Annual Total Return = (ERV/P)^1/n - 1

Where: P = a hypothetical initial investment of $1,000

n = number of years

ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.

Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of the Fund's Class B shares or Class C shares may
or may not include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Total return may also
be shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge for the Fund's Class A shares or the contingent deferred sales charge for
Class B and Class C shares would be reduced if such charges were included. In
addition, total return does not reflect the effect of the 2% redemption fee on
shares held for less than one year.

The Fund's performance figures are based upon historical results and are
not necessarily representative of future performance. The Fund's Class A shares
are sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of the
Fund's Class B shares may be subject to a contingent deferred sales charge that
is 4% in the first year following the purchase, declines by a specified
percentage each year thereafter and becomes zero after six years. Redemption of
the Fund's Class C shares may be subject to a 1% contingent deferred sales
charge in the first year following the purchase. A 2% redemption fee is assessed
upon the redemption or exchange of any class of shares held for less than one
year. Returns and net asset value will fluctuate. Factors affecting the Fund's
performance include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial services
firm would reduce returns described in this section. Shares of the Fund are
redeemable at the then current net asset value, which may be more or less than
original cost.

There are differences and similarities between the investments which the
Fund may purchase and the investments measured by the indices which are
described herein. The Consumer Price Index is generally considered to be a
measure of inflation. The Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index are indices of common stocks which are considered to be
generally representative of the U.S. stock market. The Financial Times/Standard
& Poor's Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.

Investors may want to compare the performance of the Fund to certificates
of deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed

45
<PAGE>

and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.

Investors also may want to compare the performance of the Fund to that of
U.S. Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.

Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, IBC/Donoghue's Money Fund Averages(R)
(All Taxable). As reported by IBC/Donoghue's, all investment results represent
total return (annualized results for the period net of management fees and
expenses) and one year investment results are effective annual yields assuming
reinvestment of dividends.

The Growth Fund of Spain, Inc. ("GSP") was reorganized as an open-end
series of the Corporation consisting of Class A, Class B, and Class C shares
(the "Reorganization"). GSP consisted of only one class of shares, which had no
Rule 12b-1 fees or sales charges; the shares of GSP outstanding as of December
11, 1998 were exchanged for Class A shares of the Fund, which class also has no
Rule 12b-1 fees but is subject to an administrative services fee. The
performance figures shown below reflect the performance of the Fund prior to the
Reorganization, restated to reflect the sales charge of the Fund's Class A
shares. Different fees and expenses applicable to each of the classes, including
Rule 12b-1 fees applicable to the Class B and C shares (shares of which had not
been issued as of the date of this Statement of Additional Information) and an
administrative services fee applicable to each class, will affect the
performance of those classes.

For purposes of the performance computations for the Fund, it is assumed
that all dividends and capital gains distributions made by the Fund are
reinvested at net asset value in additional shares of the same class during the
designated period. In calculating the ending redeemable value for Class A shares
and assuming complete redemption at the end of the applicable period, the
maximum 5.75% sales charge is deducted from the initial $1,000 payment (for
Class B shares and Class C shares, the applicable CDSC imposed upon redemption
of Class B shares or Class C shares held for the period would be deducted).
Standardized Return quotations for the Fund do not take into account any
applicable redemption fees or required payments for federal or state income
taxes. Standardized Return quotations are determined to the nearest 1/100 of 1%.

The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Initial sales charges, CDSCs and redemption fees
are not taken into account in calculating Non-Standardized Return; a sales
charge or redemption fee, if deducted, would reduce the return.

The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A shares of the Fund based on performance
information for the periods indicated. During the periods covered by the tables,
the Fund was subadvised by BSN Gestion. This subadvisory relationship was
discontinued in connection with the Reorganization.

46
<PAGE>

[TO BE UPDATED]

STANDARDIZED RETURN*
CLASS A

One year ended
October 31, 1998 %

Five years ended
October 31, 1998 %

Inception# to
October 31, 1998 %

NON-STANDARDIZED RETURN**
CLASS A
One year ended
October 31, 1998 %

Five years ended
October 31, 1998 %

Inception# to
October 31, 1998 %

- -------------------------

* The Standardized Return figures for Class A shares reflect the deduction
of the maximum initial sales charge of 5.75%, but do not reflect any
applicable redemption fees and have not been restated to reflect expected
differences in the Fund's expense structure as an open-end investment
company.

** The Non-Standardized Return figures do not reflect the deduction of any
initial sales charge or any applicable redemption fee, and have not been
restated to reflect expected differences in the Fund's expense structure
as an open-end investment company.

# The inception date for The Growth Fund of Spain, Inc. (and,
consequently, of the Fund's Class A shares) was February 14, 1990. [As
of the date of this Statement of Additional Information, the Fund had
not issued any Class B or Class C shares.]

OFFICERS AND DIRECTORS

[TO BE UPDATED]

The officers and directors of the Corporation, their birth dates, their
principal occupations and their affiliations, if any, with the Adviser, and KDI,
the principal underwriter, are as follows:

*DANIEL PIERCE (3/18/34) Director and Chairman of the Board, Two
International Place, Boston, Massachusetts; Managing Director, Scudder Kemper
Investments, Inc.

*MARK S. CASADY (9/21/60) President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.

JAMES E. AKINS (10/15/26) Director, 2904 Garfield Terrace, N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer, Energy Adviser for the
White House and United States Ambassador to Saudi Arabia, 1973-76.

47
<PAGE>

ARTHUR R. GOTTSCHALK (2/13/25) Director, 10642 Brookridge Drive,
Frankfort, Illinois, Retired; formerly, President, Illinois Manufacturers
Association; Trustee, Illinois Masonic Medical Center; Member, Illinois state
Senator; Vice President, The Reuben H. Donnelley Corp.

FREDERICK T. KELSEY (4/25/27) Director, 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Funds, formerly, Trustee
of The Pilot Funds.

FRED B. RENWICK (2/1/30) Director, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.

JOHN B. TINGLEFF (5/4/35) Director, 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.

JOHN G. WEITHERS (8/8/33) Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering, Inc.

*PHILIP J. COLLORA (11/15/45) Vice President and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper
Investments, Inc.

*DIEGO ESPINOSA (6/30/62) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.

*JOAN R. GREGORY (8/4/45) Vice President, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper Investments, Inc.

*JOHN R. HEBBLE (6/27/58) Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.

*MAUREEN E. KANE (2/14/62) Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper Investments, Inc.;
formerly, Assistant Vice President of an unaffiliated investment management
firm; prior thereto, Associate Staff Attorney of an unaffiliated investment
management firm; Associate, Peabody & Arnold (law firm).

*THOMAS W. LITTAUER (4/26/55) Vice President, Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper Investments, Inc.;
formerly, Head of Broker Dealer Division of an unaffiliated investment
management firm during 1997; prior thereto, President of Client Management
Services of an unaffiliated investment management firm from 1991 to 1996.

*BRENDA LYONS (2/21/63), Assistant Treasurer, Treasurer, Two International
Place, Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments,
Inc.

*ANN M. McCREARY (11/6/56) Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.

*CAROLINE PEARSON (4/1/62) Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.;
formerly, Associate, Dechert Price & Rhoads (law firm) 1989 to 1997.

48
<PAGE>

*KATHRYN L. QUIRK (12/3/52) Director and Vice President, 345 Park Avenue,
New York, New York; Managing Director, Scudder Kemper Investments, Inc.

*SHERIDAN P. REILLY (2/27/52) Vice President, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.

*LINDA J. WONDRACK (9/12/64) Vice President, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.

*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc.

* Interested persons of the Corporation as defined in the 1940 Act.

Compensation of Officers and Directors

[TO BE UPDATED]

The Directors and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts estimated
to be paid to or accrued for those Directors who are not designated "interested
persons" by the Corporation during the 1999 fiscal year. The information in the
last column is for calendar year 1998.

[TO BE UPDATED]

Total
Compensation
Estimated Aggregate From Kemper
Compensation From Kemper Fund Complex
Global/International Paid to Board
Name of Board Members Series, Inc. Members(2)
- --------------------- ------------ ----------
James E. Akins....................... $9,216 $106,300
Arthur R. Gottschalk(1).............. $9,216 $121,100
Frederick T. Kelsey(1)............... $9,216 $111,300
Fred B. Renwick...................... $9,216 $106,300
John B. Tingleff..................... $9,216 $106,300
John G. Weithers..................... $9,216 $106,300

- ---------

(2) Includes compensation for service on the boards of 13 Kemper funds with 39
fund portfolios. Each Board Member currently serves as a board member of
15 Kemper Funds with 50 fund portfolios. Total compensation does not
reflect amounts paid by Scudder Kemper Investments, Inc. to the board
members regarding the combination of Scudder, Stevens & Clark, Inc. and
Zurich Kemper Investment, Inc. Such amounts totaled $42,800, $40,100,
$39,000, $42,900, $42,900 and $42,900 for Messrs. Akins, Gottschalk,
Kelsey, Renwick, Tingleff, and Weithers, respectively.

The Directors and Officers as a group owned less than 1% of the Fund's
shares as of the date of this Statement of Additional Information.

SHAREHOLDER RIGHTS

The Corporation may issue an indefinite amount of shares of capital stock, all
having $.001 par value, which may be divided by the Board of Directors into
classes of shares. 100,000,000 shares have been classified for each of the

49
<PAGE>

Corporation's six series. Currently, each series offers three classes of shares.
These are Class A, Class B and Class C shares. The Board of Directors may
authorize the issuance of additional classes and additional series if deemed
desirable, each with its own investment objectives, policies and restrictions.
Since the Corporation may offer multiple funds, each is known as a "series
company." Shares of a fund have equal noncumulative voting rights except that
Class B and Class C shares have separate and exclusive voting rights with
respect to each such class' Rule 12b-1 Plan. Shares of each class also have
equal rights with respect to dividends, assets and liquidation of such fund
subject to any preferences (such as resulting from different Rule 12b-1
distribution fees), rights or privileges of any classes of shares of the fund.
Shares of each fund are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
Each fund's activities are supervised by the Corporation's Board of Directors.
The Corporation is not required to hold and has no current intention of holding
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment management contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.

The Growth Fund of Spain, Inc. ("GSP"), the predecessor of the Fund,
commenced investment operations in 1990 as a closed-end management investment
company organized as a Maryland corporation. At a meeting of the shareholders of
GSP held October 28, 1998, the shareholders voted to approve the conversion of
the Fund to an open-end investment company and the reorganization of GSP as a
new series of the Corporation. Pursuant to the reorganization agreement between
GSP and the Corporation, GSP transferred all of its assets to the Fund in
exchange for Class A shares of the Fund and the assumption by the Fund of the
liabilities of GSP on December 11, 1998. GSP then distributed the Class A shares
of the Fund received in the reorganization to its shareholders.

The Fund's activities are supervised by the Corporation's Board of Directors.
The Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Directors, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Director as
if Section 16(c) of the 1940 Act were applicable.

Each director serves until the next meeting of shareholders, if any,
called for the purpose of electing directors and until the election and
qualification of a successor or until such director sooner dies, resigns,
retires or is removed by a majority vote of the shares entitled to vote (as
described below) or a majority of the directors.

A majority of the Directors shall be present in person at any regular or
special meeting of the Directors in order to constitute a quorum for the
transaction of business at such meeting and, except as otherwise required by
law, the act of a majority of the Directors present at any such meeting, at
which a quorum is present, shall be the act of the Directors.

Any matter shall be deemed to have been effectively acted upon with
respect to the Fund if acted upon as provided in Rule 18f--2 under the 1940 Act,
or any successor rule, and in the Corporation's Articles of Incorporation. As
used in the prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund and all additional portfolios
(e.g., election of directors), means the vote of the lesser of (i) 67% of the
Corporation's shares represented at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy, or (ii) more than 50%
of the Corporation's outstanding shares. The term "majority," when referring to
the approvals to be obtained from shareholders in connection with matters
affecting the Fund or any other single portfolio (e.g., annual approval of
investment management contracts), means the vote of the lesser of (i) 67% of the
shares of the portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the portfolio.

In the event of the liquidation or dissolution of the Corporation, shares
of the Fund are entitled to receive the assets attributable to that Fund that
are available for distribution, and a proportionate distribution, based upon the
relative net assets of the Fund, of any general assets not attributable to the
Fund that are available for distribution.

50
<PAGE>

Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non--assessable by the Corporation.

FINANCIAL STATEMENTS

The financial statements appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended October 31, 1998are incorporated by
reference herein. These financial statements have been incorporated by reference
herein in reliance on the report of Ernst & Young LLP, independent auditors,
given on their authority as experts in auditing and accounting. The principal
business address of Ernst & Young LLP is 233 South Wacker Drive, Chicago,
Illinois 60606.

ADDITIONAL INFORMATION

Other Information

The CUSIP number of the Class A shares of the Growth Fund Of Spain is
487916-81-9.
The CUSIP number of the Class B shares of the Growth Fund Of Spain is
487916-79-3.
The CUSIP number of the Class C shares of the Growth Fund Of Spain is
487916-78-5.

Effective as of the Fund's 1998 fiscal year, the Fund's fiscal year end
has been changed to October 31.

Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the Fund's investment objective and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.

The law firm of Dechert Price & Rhoads is counsel to the Fund.

The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the 1933 Act and reference is hereby
made to the Registration Statement for further information with respect to the
Fund and the securities offered hereby. The Registration Statement and its
amendments, are available for inspection by the public at the SEC in Washington,
D.C.

51
<PAGE>

APPENDIX A - RATINGS OF FIXED INCOME INVESTMENTS

Standard & Poor's Ratings Group Bond Ratings

AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

CI. The rating CI is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

Moody's Investors Service, Inc. Bond Ratings

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt--edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

52
<PAGE>

Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

53
<PAGE>

APPENDIX B - INFORMATION ABOUT SPAIN AND PORTUGAL

I. KINGDOM OF SPAIN

Note: Certain numbers in this Appendix B have been rounded for ease of
presentation. Since most calculations have been made on unrounded figures, the
sum of the component figures in many tables presented may not precisely equal
the totals shown.

Area and Population

The Kingdom of Spain ("Spain") includes 50 provinces, 47 of which are
situated on the mainland of the Iberian Peninsula, with the remaining three
being the Baleares Islands and the two provinces of the Canary Islands. In
addition, the cities of Ceuta and Melilla on the northern coast of Africa are
part of the Spanish territory. The total land area is 504,782 sq. km. As of mid
1997, the population was 39.3 million. The major cities are Madrid, Barcelona,
Valencia and Seville.

Government

Spain is a democratic, constitutional monarchy. In 1975, the current
monarch, Juan Carlos de Borbon, was proclaimed King of Spain. On December 6,
1978, a new Constitution was ratified by national referendum that provides for
the existence of political parties, universal suffrage, parliamentary elections
by secret and direct ballot every four years, and the existence of a Parliament
with two legislative chambers -- the Congress of Deputies, with 350 members and
the Senate with 248 members.

The Constitution defines the authority of the executive, legislative and
judicial powers. The King is commander-in-chief of the armed forces. He names
the Prime Minister, who is the head of Government, after consulting the Congress
of Deputies and Senate, and calls referenda to decide on major political issues.
The Prime Minister is empowered to dissolve parliament and call elections and
govern with the assistance of a Cabinet, which is collectively responsible to
the Congress of Deputies.

Members of the Congress of Deputies and the Senate serve four-year terms,
barring dissolution, and elect their own presidents. Although each house can
initiate legislation, the Congress of Deputies has the power of final approval
on all legislation.

The judicial system is headed by a Supreme Tribunal (Tribunal Supremo)
which is responsible for the final determination of all civil and criminal cases
brought on appeal from the lower courts. The lower courts consist of territorial
courts, provincial courts, regional courts, courts of the first instance and
municipal courts. There is also a Constitution Tribunal which has jurisdiction
to resolve matters affecting constitutional issues.

At the last election in March 1996, the conservative Partido Popular (PP)
narrowly defeated the socialist Partido Socialista Obrero Espanol (PSOE) which
had governed the country since 1982. However, the PP fell 20 seats short of a
parliamentary majority. After some 57 days of negotiations, two conservative
regional parties -- the Catalonian Convergencia i Unio (CiU), and the Basque
Nationalist Party (PNV) -- agreed to support the PP but not to enter a coalition
government. Jose Maria Aznar of the PP became the Prime Minister.

International Organizations

Spain is a member of the United Nations, the International Monetary Fund
(IMF), the World Bank, the Organization for Economic Cooperation and Development
(OECD), the North Atlantic Treaty Organization (NATO), the World Trade
Organization (WTO) and the European Union (EU).

54
<PAGE>

The Economy

After accession to the EU in 1985, foreign capital, particularly direct
investment, poured into Spain attracted by its low labor costs relative to those
in the core European countries. In the five years through 1990, GDP in Spain
grew at an average annual rate of 5.0%, compared with an average of 3.3% for all
of EU. Domestic demand surged, but since the structural reforms needed to
improve supply conditions were slow to take place, bottlenecks arose and
inflation began to surface. Spain became less competitive and GDP slowed to a
rate of 0.7% in 1991 and a decline of 1.2% in 1992. The peseta came under
speculative attack in the Exchange Rate Mechanism crises of 1992 and 1993. The
peseta was devalued 15.6% against the dollar in 1992 and a further 19.4% in
1993. With the resulting improvement in competitiveness, the economy began to
improve.

Among the structural reforms to the Spanish economy was a reduction in
state ownership of business. During the Socialist term in power, Seat, the car
producer was sold to Volkswagen in 1986 and Enasa (trucks) to Iveco, a division
of Fiat. Between 1989 and 1995, shares were floated in such profitable companies
as Repsol, Endesa, the electrical utility, Argentaria, the banking group, and
Telefonica. The state's share in these companies was reduced to 10%, 67%, 25%
and 20% respectively. Among the plans of the center-right government is one in
which they aim to sell off additional state shareholdings worth more than three
trillion pesetas ($23.4 billion) by the year 2000.

One of the most intractable structural problems in Spain is labor
regulation, which has resulted in an official unemployment rate, currently at
20%, or roughly double the EU average. To a large extent the high unemployment
rate is the result of rigid labor laws inherited from the Franco regime. Workers
with permanent job contracts are protected by generous dismissal payments while
new entrants have great difficulty in finding a new job because of the
reluctance of employers to take on additional staff because of the very same
generous dismissal payments. In spite of the introduction of fixed-term
contracts in 1984 and the reforms of 1996 that have reduced the cost of overtime
hours and encouraged part-time contracts, there has been no change in the legal
severance provisions which are still among the highest of the OECD. Justified
layoffs, for both collective and individual dismissals, require a minimum
severance payment ranging from 20 days' wages per year of seniority to a maximum
of 12 months. Unjustified dismissals carry with them 45 days' wages per year of
seniority to a maximum of 42 months, in addition to which the firm must pay up
to 60 days' retroactive wages during the appeals process.

Gross Domestic Product

Gross Domestic Product (GDP) in Spain was approximately $531 billion
dollars in 1997, ranking fifth among the fifteen nations in the European Union.
In terms of per capita income, however, it ranked fourth from the bottom,
exceeding only Portugal, Greece and Turkey.

The following table sets forth selected economic data relating to Spain
for the indicated periods.

Selected Economic Data

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP at current market prices
(billion pesetas) 59,105 60,953 64,789 69,761 73,572 77,786
% Change 7.6% 3.1% 6.3% 7.7% 5.5% 5.7%
GDP at 1990 prices
(billion pesetas) 51,635 51,016 52,098 53,546 54,708 56,672
% Change 0.7% -1.2% 2.1% 2.8% 2.2% 3.6%
CPI (1990=100) 112.2 117.3 122.9 128.6 133.2 135.8
% Change 5.9% 4.5% 4.8% 4.6% 3.6% 2.0%
Industrial Production 96.5 91.9 98.6 103.2 102.5 109.5%
% Change -2.7% -4.8% 7.3% 4.7% -0.7% 6.8%
</TABLE>

55
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Unemployment Rate 18.4% 22.7% 24.2% 22.9% 22.2% 20.8%
General Gov. Deficit / GDP -3.6% -6.8% -6.3% -6.6% 4.4% -3.0%
General Gov. Debt / GDP 48.3% 60.5% 63.0% 65.7% 69.6% 68.1%
Current Account (mil. US$) -21,537 -6,017 -6,922 513 503 2,486
Current Account/GDP -3.7% -1.3% -1.4% 0.1% 0.1% 0.5%
Population (millions) 39.0 39.1 39.2 39.2 39.3 39.3
Average Exchange Rate 102.38 127.26 133.96 124.69 126.66 146.41
GDP in US$ Billions $577.3 $479.0 $483.6 $559.5 $580.9 $531.3
GDP Per Capita $14,770 $12,234 $12,335 $14,247 $14,772 $13,675
</TABLE>

Sources: IMF, International Financial Statistics, August 1998. European
Commission, 1977 Broad Economic Policy Guidelines, No. 64, 1997

Spain produces a wide range of agricultural products, both for domestic
and export markets. Among them are rice, olive oil, wine, feed grains,
vegetables and citrus fruits. In addition, Spain produces an array of forestry
products, including wood for construction and furniture, cork, firewood and
resins. Spain has significant deposits of metals and minerals, including iron
ore, mercury, potash, uranium, tungsten, lead, zinc and pyrites. The main
industries of Spain include iron and steel, aluminum, motor vehicles, electronic
equipment and machinery, chemicals, metal products, coal mining and electricity
generation. Tourism is one of the largest components of the service sector and a
significant source of foreign exchange.

The following table shows the changes in the distribution of GDP by type
of activity between 1986 and 1996.

Gross Domestic Product by Type of Activity

Percent Distribution
1986 1997
Agriculture, Hunting,
Forestry, and Fishing 5.6% 4.3%
Mining, Mfg & Gas 29.2% 28.0%
Construction 6.5% 7.0%
Services 53.2% 55.0%
Adjustments 5.6% 5.8%
100.0% 100.07%

OECD Quarterly National Accounts, 1998:2 P226

Foreign Trade and Balance of Payments

Since accession to EU in 1986, Spain's trade with other EU members has
increased significantly as can be seen in the following table.

Geographic Breakdown of Trade

Exports Imports
1986 1987 1986 1987
(Millions of US$)
Total $27,206 $104,134 $35,056 $122,753
(Percent of Total)
European
Union 62.5% 69.6% 53.4% 65.0%

56
<PAGE>

France 17.9% 18.4% 11.7% 17.5%
Germany 11.7% 13.5% 15.1% 14.8%
Italy 8.0% 9.8% 7.3% 9.4%
Portugal 3.5% 9.0% 1.3% 2.7%
U.K. 8.8% 8.1% 7.7% 8.1%
Other 12.6% 10.8% 10.3% 12.6%
U.S. 9.3% 4.4% 9.8% 6.3%
Japan 1.1% 1.1% 4.9% 2.8%
All Other 27.1% 24.9% 31.8% 25.9%
100.0% 100.0% 100.0% 100.0%

Source: IMF, Direction of Trade Yearbook, 1998.

Spain typically runs a deficit on the balance of trade and the balance on
income (interest and dividend payments). Services and transfers regularly report
surpluses. On the capital account, direct investment has declined from the high
level of 1992. Portfolio investment has tended to be volatile. The overall
balance, however, has improved and the Current Account as a percentage of GDP
has gone from negative 3.7% in 1992 to positive 0.5% in 1997.

Balance of Payments
(Millions US$)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Trade Balance (30,420) (14,946) (14,833) (18,244) (16,027) (13,347)
Balance on Services 12,607 11,108 14,712 17,898 19,789 19,227
Balance on Income (5,790) (3,573) (8,193) (3,878) (5,799) (6,396)
Transfers Net 2,066 1,393 1,388 4,737 2,540 (3,002)
Current Account (21,537) (6,017) (6,927) 513 503 2,486

Direct Investment Net 11,084 5,492 5,528 2,551 1,246 (4,486)
Portfolio Investment Net 9,358 49,212 (22,313) 20,879 (1,308) (6,359)
Equity Securities Net 3,503 5,727 107 3,681 (631) (5,388)
Debt Securities Net 5,855 43,485 (22,420) 17,198 (677) (971)
Other Investments Net (14,483) (54,983) 22,254 (31,045) 20,179 19,534
Capital Acct n.i.e 3,726 3,168 2,722 6,285 6,420 5,965
Errors and Omissions (5,957) (1,681) (1,213) (5,598) (2,764) (5,385)

Overall Balance (17,809) 4,808 50 (6,415) 24,278 11,755
</TABLE>

IFS January 1998:660

57
<PAGE>

Exchange Rates

The following table shows the exchange rate of the peseta relative to the
U.S. dollar at the end of each year and the average for the year. The percent of
depreciation or appreciation is also shown.

Exchange Rates
End of Period Change Average Change
Relative Relative to
to US$ US$

1986 132.40 140.05
1987 109.00 21.5% 123.48 13.4%
1988 113.45 -3.9% 116.49 6.0%
1989 109.72 3.4% 118.38 -1.6%
1990 96.91 13.2% 101.93 16.1%
1991 96.69 0.2% 103.91 -1.9%
1992 114.62 -15.6% 102.38 1.5%
1993 142.21 -19.4% 127.26 -19.6%
1994 131.74 8.0% 133.96 -5.0%
1995 121.41 8.5% 124.69 7.4%
1996 131.28 -7.5% 126.66 -1.6%
1998 151.04* -0.4% 153.14 -4.4%

* July
** January - July
IMF, International Financial Statistics,
September 1998

II. PORTUGUESE REPUBLIC

Area and Population

The Portuguese Republic ("Portugal") is situated in Southwest Europe on
the western portion of the Iberian Peninsula, bounded on the north and east by
Spain and on the south and west by the Atlantic Ocean. The country also
comprises the Azores and Madeira Islands in the Atlantic Ocean. The total area
including the islands is 91,985 sq. Km. (35,515 sq. miles).

The population of Portugal, including the Azores and Madeira Islands, was
9.8 million according to the 1991 census. The population is concentrated along
the Atlantic coast. Lisbon, the capital and largest city and seaport, comprises
some 1.9 million inhabitants and Porto, the second largest city and seaport
comprises 1.l million.

Government

Portugal is a republic governed under a constitution approved in 1976 and
revised in 1982, 1989, 1992 and 1997. The President is elected to a 5-year term,
as head of state. The current president elected in January 1996 is Jorge
Sampaio. Parliament proposes the Prime Minister to the president who then makes
the appointment. The Prime Minister, who is the country's chief administrative
official, presides over a cabinet of ministers. The current Prime Minister is
Antonio Guterres.

Legislative power is vested in a unicameral parliament, the Assembly of
the Republic. Members of the Assembly are elected under a system of proportional
representation and serve 4-year terms. The Assembly had a

58
<PAGE>

total of 230 seats in the early 1990s.

The judicial system is headed by the Supreme Court, which is made up of a
president and 29 judges. Below the Supreme Court are courts of appeal and
ordinary and special district courts. There is also a Constitutional court.

The leading political parties are the Socialist Party (PS), the Social
Democratic Party (CDS), the Popular Party (PP) and the Communist Party (PCP) The
socialist party won the October 1995 election, ending 10 years of government by
the social democrats. Both of the main parties have similar economic policies,
with participation in European Monetary Union (EMU) and fulfilling Maastricht
criteria as the center piece of fiscal and monetary policies.

International Organizations

Portugal is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO) and the European Union (EU).

The Economy

When Portugal joined the European Union (EU) in 1986, the economy was in
need of major restructuring. Inflation, unemployment and the public sector
deficit were high. Moreover the industry sector was antiquated and the State was
heavily involved in the economy. Protectionism, underdeveloped financial markets
and rigidity in labor markets characterized the economy. Monetary policy was
based on capital controls and credit ceilings. Financial institutions were
sheltered from foreign competition and the money market was poorly developed.
The Central Bank, which could not be considered independent, controlled
liquidity through credit ceilings imposed on the overwhelmingly public banking
system. Exchange rate policy was based on a crawling peg aimed at alleviating
the chronic current account deficit which, in 1982 peaked at 12% of GDP. Over
the period from 1976-1985, the compound real effective exchange rate
depreciation of the escudo amounted to 40% while inflation was running at a rate
of 20% annually.

After joining the EU, tax reforms were introduced which lowered effective
marginal rates, broadened the tax base and curtailed opportunities for evasion.
The value added to tax (VAT) was introduced between 1984 and 1986 and the income
tax was subject to a major reform in 1989. Institutional changes strengthened
Central Bank autonomy by cutting off the government's automatic access to Banco
De Portugal credit and making its statutes broadly aligned to the requirements
of the European Union Treaty. Portugal moved from a highly regulated financial
market to financial liberalization.

A far-reaching privatization program was started in 1989. In 1988, public
sector participation in the market economy accounted for close to 19% of total
value added, around 6.5% of employment and almost 15% of total investment.
State-owned enterprises were dominant in financial service, transport, energy,
communications, steel, cement brewing, shipbuilding, pulp and tobacco.
Initially, the program focused on the financial services sector. The stock
exchange was modernized and privatized.

On April 6, 1992, the escudo joined the Exchange Rate Mechanism (ERM) in
the wide fluctuation band (6%) thereby establishing exchange rate stability as
the cornerstone of its monetary policy. Remaining controls on capital movements
were abolished at the end of that year, ahead of the schedule previously agreed
with the EU.

Turmoil in the ERM in 1992 led to widening of bands to 15% in August 1993.
The Central parity of the escudo had to be devalued twice during that period. In
spite of realignments, the new monetary policy based on exchange rate stability
as an intermediate objective has remained a cornerstone of economic policy in
Portugal. In March 1995 the central parity of the escudo within the ERM was
devalued by 3.5%, half the size of the devaluation of the Spanish peseta. This
realignment was not preceded by market pressure on the escudo, but was aimed at
limiting losses in competitiveness relative to partner countries.

59
<PAGE>

Since joining the EU, Portuguese output increased significantly in the
period from 1986-1990, rising on average at 5% a year compared with an average
of 1.6% in the previous five-year period. The rate of inflation, which had been
close to 30% in 1984, was brought down to about 12% in 1990. Output was affected
adversely by the oil shock of 1979-80 and the recession of 1993, but began to
pick up in 1994 and has subsequently continued to grow in each year. Inflation
has continued to abate. The CPI rose 3.2% in 1996 and 2.1% in 1997. At the same
time, the balance of payments has remained strong and the overall general
government deficit fell from above 6% of GDP in 1993 to 3.2% in 1996 and to
2.45% in 1997.

Gross National Product

In 1997, GDP amounted to approximately $102 billion. The European
Commission has stated that, measured in purchasing power parity, Portuguese GDP
per capita rose from 50% of the European Union (EU) average in 1985 to about 70%
in 1996.

The following table sets forth selected economic data relating to Portugal
for the indicated periods:

Selected Economic Data

<TABLE>
<CAPTION>
1992 1993 1994 1995 199 1997
<S> <C> <C> <C> <C> <C> <C>
GDP at current market
prices
(billion escudo) 12,759.0 13,463.1 14,628.9 15,817.7 16,803.6 17,905.2
% Change 12.8% 5.5% 8.7% 8.1% 6.2% 6.6%
GDP at 1995 prices
(billion escudo) 15,214.3 14,999.8 15,364.9 15,817.8 16,320.6 16,920.3
% Change 1.9% -1.4% 2.4% 2.9% 3.2% 3.7%
CPI (1990=100) 121.3 129.6 135.9 141.5 146.0 149.1
% Change 8.9% 6.8% 4.9% 4.1% 3.2% 2.1%
Industrial Production 99.5 95.9 94.8 99.4 100.8 103.3
% Change -1.9% -3.6% -1.1% 4.9% 1.4% 2.5%
Unemployment Rate 4.2% 5.6% 6.9% 7.2% 7.3% 6.8%
General Gov. Deficit / GDP -3.6% -6.9% -5.8% -5.1% -4.0% -2.5%
General Gov. Debt / GDP 60.7% 64.3% 66.7% 66.4% 65.6% 62.4%
Current Account (mil. US$) -184 233 -2,196 -144 -1,491 -1,877
Current Account/GDP -0.2% 0.3% -2.5% -0.1% -1.4% -1.8%
Population (millions) 9.83 9.84 9.84 9.85 9.87 9.88
Average Exchange Rate 135.00 160.80 165.99 151.11 154.24 175.31
GDP in US$ Billions $94.5 $83.7 $88.1 $104.7 $108.9 102.1
GDP Per Capita $9,612 $8,509 $8,956 $10,630 $11,042 $10,342
</TABLE>

Sources: OECD, Quarterly National Account, No. 2, 1998
and IMF, International Financial Statistics, August, 1998;
European Commission, 1977
Broad Economic Policy Guidelines, No. 64, 1997.

While the importance of agriculture in the economy has declined since
accession to the EU, approximately 11% of the labor force is still engaged in
agriculture, having declined from over 20% in 1986. Only Greece among EU members
has a higher proportion of the population currently employed in agriculture.
Approximately 34% of

60
<PAGE>

Portugal's total land area is covered by forest. The country is the world's
largest producer and exporter of cork and cork products and is an increasingly
important supplier of wood pulp. Portugal has substantial reserves of copper
ore, iron ore, pyrites and uranium.

The manufacturing sector accounted for about 24% of GDP and employed about
23% of the labor force in 1993, the latest year for which data are available.
The principal manufacturing industries include metal products, textiles,
chemicals and allied products, wood pulp and cork and base metallurgy. The
construction sector employs approximately 8% of the labor force.

Tertiary production includes retail and wholesale trade, utilities,
finance, transportation and communication, and services. Trade and services have
been the fastest growing sectors of the economy. The growth in tourism is
reflected in the trade sector which includes hotels and restaurants.

The following table shows how employment by industry has changed since
accession to the EU in 1986.

Civilian Employment by Sector
1986 1995
(Thous) % of Total (Thous) % of Total
Agriculture 890.3 21.9% 477.5 11.4%
Mining 27.2 0.7% 16.8 0.4%
Manufacturing 995.3 24.5% 971.9 23.2%
Construction 332.1 8.2% 340.3 8.1%
Electricity, gas and water 31.9 0.8% 34.6 0.8%
Transport and communication 174 4.3% 183.1 4.4%
Trade 598.6 14.7% 819.2 19.5%
Banking, insurance, real estate 127 3.1% 137.4 3.3%
Personal services. 887 21.8% 1213.7 28.9%
Total 4063.4 4194.5

OECD, Economic Survey Portugal
1998:111

External Trade and Balance of Payments

Since accession to EU in 1986, Portugal's trade with other EU members has
increased significantly as illustrated in the following table:

Geographic Breakdown of Trade
Exports Imports
1986 1997 1986 1997

(Millions US$)
Total $7,243 $21,195 $9,646 $35,720
Percent of Total
European Union 75.4% 78.3% 62.1% 76.1%
France 15.2% 13.7% 10.1% 11.1%
Germany 14.7% 21.8% 14.3% 15.6%
Italy 4.0% 4.2% 8.0% 8.6%
Spain 6.9% 14.9% 11.0% 25.5%
U.K. 14.2% 12.0% 7.5% 7.5%

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Other 20.5% 11.6% 11.2% 7.9%
U. S. 7.0% 5.4% 7.0% 2.9%
Japan 0.8% 0.7% 3.6% 2.5%
All Other 16.8% 15.6% 27.4% 18.5%
100.0% 100.0% 100.0% 100.0%

Source: IMF, Direction of Trade Yearbook 1998.
(Accessed through Haver Analytics)

Portugal typically runs a deficit on the balance of trade which is offset,
in part, by tourism receipts and unilateral transfers. Tourism receipts are
expected to increase sharply with Expo 98, which runs from May 22 through
September 30, 1998. Transfers include emigrant remittances and, in recent years,
transfers from EU. The overall balance of payments is shown in the following
table:

Balance of Payments
(Millions US$)

1992 1993 1994 1995 1996 1997
Trade Balance (9,387) (8,050) (8,321) (8,910) (9,340) (9,551)
Balance on Services 765 1,365 1,269 1,613 1,375 1,206
Balance on Income 611 219 (565) (21) (352) (245)
Transfers Net 7,826 6,699 5,421 7,132 6,827 6,712
Current Account (184) 233 (2,196) (144) (1,491) (1,877)

Direct Investment Net 1,186 1,387 983 (3) (57) 71
Portfolio Investment Net (3,064) 1,827 478 (1,083) 1,746 1,133
Equity Securities Net 561 411 496 (338) 958 1,776
Debt Securities Net (3,625) 1,416 (18) (745) (2,704) (643)
Other Investments Net 928 (6,246) (409) 4,110 6,553 2,750
Errors and Omissions 978 (48) (287) (3,181) (2,813) (2,483)

Overall Balance (156) (2,848) (1,430) (300) 445 (407)

IMF, International
Financial Statistics,
September 1998

Exchange Rates

The following table shows the exchange rate of the escudo relative to the
US dollar at the end of each year and the average for the year. The percent of
depreciation or appreciation is also shown.

Value of Escudo Relative to US$

Change Relative to Change
End of Period US$ Average Relative to US$

1986 146.12 149.59
1987 129.87 12.5% 140.88 6.2%
1988 146.37 -11.3% 143.95 -2.1%
1989 149.84 -2.3% 157.46 -8.6%

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1990 133.60 12.2% 142.56 10.5%
1991 134.18 -0.4% 144.48 -1.3%
1992 146.76 -8.6% 135.00 7.0%
1993 176.81 -17.0% 160.80 -16.0%
1994 159.09 11.1% 165.99 -3.1%
1995 149.41 6.5% 151.11 9.9%
1996 156.39 -4.5% 154.24 -2.0%
1997 183.33 -14.7% 175.31 -12.0%
1998 182.15* 0.6% 184.79** -5.0%

* End of July
** Average January - July
IMF, International Financial Statistics, September 1998

63
<PAGE>

III. SPANISH AND PORTUGUESE MARKET INFORMATION

The Spanish Securities Markets

In 1988 the Securities Market Act (known by its Spanish acronym as LVM)
established the framework for the operation of the securities markets in Spain.
The securities markets, and all market participants are supervised by the
National Securities Market Commission ("Comision National de Mercado de Valores"
or "CNMV"), an independent public entity, and the key institution of the Spanish
securities markets. Each of the four Spanish stock exchanges is managed by a
managing company ("Sociedad Rectora"), a private limited liability company
formed and owned by the authorized dealers and broker-dealers ("sociedades de
valores" and "agencias de valores") that are members of the relevant stock
exchange. Each managing company is in turn an equal member of another company,
the "Stock Exchange Company" ("Sociedad de Bolsas"), the main function of which
is to oversee the Automated Quotation System, which is the computerized system
through which trading in equity securities on the Spanish stock exchanges takes
place primarily.

Shares (equity securities), government securities, bonds, treasury bills
and other financial instruments are traded on the exchanges. All transactions
must be effected through an official dealer or broker-dealer member of the
relevant stock exchange, except in certain exceptional cases. Brokerage
commissions are freely fixed by the dealers and broker-dealers. However, they
are overseen by the CNMV, and have to be publicly published and may not exceed
the maximum rates established by the Spanish Government.

In order for securities to be listed for trading on any exchange, the
authorization of the relevant exchange is required. Additionally, trading on the
Automated Quotation System requires previous listing on at least two Spanish
stock exchanges, and authorization of the CNMV with a favorable report of the
Stock Exchange Company. Spanish legislation establishes rules for the exchanges
with respect to listing and disclosure requirements, including examinations of
financial statements.

Equity Markets. Securities are traded on the four exchanges via the
Automated Quotation System ("AQS"), which presently exists in conjunction with
the traditional oral trading on the floor of the exchange. AQS accounts for
almost 90% of all trades. The principal feature of the AQS is the computerized
matching of buy and sell orders at the time of entry of the order. Each order is
executed as soon as a matching order is entered, but can be modified or canceled
until executed.

In a pre-opening session held from 9:00 a.m. to 10:00 a.m. each trading
day, an opening price is established for each security traded on the AQS based
on orders placed at that time. The computerized trading hours are from 10:00
a.m. to 5:00 p.m. (except for some less liquid securities which trade only at
12:00 p.m. and 4:00 p.m.) during which time the trading price of a security is
permitted to vary up to 15% (or 20% with the authorization of the Stock Exchange
Company) of the previous trading day's closing price. If the quoted price
exceeds this limits, trading in the security is suspended until the next trading
day.

Between 5:00 p.m. and 8:00 p.m., trades may occur outside the computerized
system without prior authorization of the Stock Exchange Company, at a price
within the range of 5% above the higher of the average price and closing price
for the day and 5% below the lower of the average price and closing price for
the day, if there are no outstanding bids or offers, as the case may be, on the
system matching or bettering the terms of the proposed off-system transaction,
and if the trade involves more than Ptas. 50 million and more than 20% of the
average daily trading volume of the stock during the preceding three months. In
certain cases, at any time before 8:00 p.m., trades may take place (with the
prior authorization of the Stock Exchange Company) at any price.

The Madrid exchange is the fourth most active in turnover terms in the
European Union after London, Frankfurt and Paris. Based on market
capitalization, the Madrid exchange, valued at $235.1 billion at the end of
1997, ranked twelfth among the exchanges of the world. Market capitalization and
trading value for the past five years are given below:

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<PAGE>

Madrid Stock Exchange

No. of Mkt Cap Trading Mkt Cap Trading
Cos.
Listed
ECU Billions US $ Billions
------------ -------------
1992 400 80.3 64.6 61.9 49.8
1993 379 125.5 99.9 107.1 85.2
1994 378 122.5 132.1 103.1 111.1
1995 366 137.9 120.9 105.4 92.4
1996 361 190.2 182.5 150.0 143.9
1997 388 266.6 376.3 235.1 331.8

Bolsa de Madrid, Key Figures, January 1998

The most traded shares are shown below:

Most Traded Shares in 1997

Company Sector Trading Volume No. Shares
(Million)
ECU Mil US$ Mil
Telefonica Communications 24,205 19,089 3138
Endesa Utilities 13,648 10,763 2526
Repsol Petroleum 11,288 8,902 918
BBV Banking 8,385 6,613 1140
Iberdrola Utilities 8,186 6,456 2337
B.
Santander Banking 7,599 5,993 969
Argentaria Banking 4,602 3,629 300
B. Popular Banking 4,035 3,182 249
BCH Banking 3,127 2,466 630
Banesto Banking 2,300 1,814 834

Bolsa de Madrid, Key Figures, January 1998

Stock Indexes. The main stock price indexes are the Madrid General Index,
the Total Index and the Ibex-35. The Madrid General Index reflects the increase
or decrease in share prices and is corrected for dividends and capital
increases. It has been published since December 1940 and as of 1986 the base has
been December 31, 1985=100. The Total Index measures the overall profitability
of shares based on the price performance, capital increases and dividends
reinvested. It is an indicator of total return. The index is based on December
31, 1985=100. The Ibex-35 index, made up of the 35 most liquid shares that trade
on the continuous market, acts as the underlying asset for the trading of
futures and options on indexes. The index is not corrected for dividends and the
base is December 31, 1989=3000. It has been called Ibex-35 since January 1991;
prior to that time it was known as Fiex. The following table shows the three
indexes for the period 1987-1997 (except with respect to the Madrid Total Index,
with respect to which 1997 figures are not available).

Madrid Stock Price Indexes (End of Year)
Madrid Percent Madrid Percent Percent
General Chg. Total Chg. Ibex-35 Chg.
Index(1) Index(1) Index(2)

1987 227.2 242.8 2,407.1
1988 274.4 20.8% 302.8 24.7% 2,727.5 13.3%
1989 296.6 8.1% 336.8 11.2% 3,000.0 10.0%

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<PAGE>

1990 223.3 -24.7% 260.9 -22.5% 2,248.8 -25.0%
1991 246.2 10.3% 299.9 14.9% 2,603.3 15.8%
1992 214.3 -13.0% 277.8 -7.4% 2,344.6 -9.9%
1993 332.8 55.3% 433.0 55.9% 3,615.2 54.2%
1994 285.0 -14.4% 393.0 -9.2% 3,087.6 -14.6%
1995 320.1 12.3% 454.7 15.7% 3,630.8 17.6%
1996 444.8 39.0% 649.8 42.9% 5,154.8 42.0%
1997 632.5 42.2% 7,255.3 40.7%
1998 652.0*

- -------------------

(1) 12/21/85=100
(2) 12/31/89=3000
* As of September 21, 1998

Bolsa de Madrid, Fact Book 1997 and Financial Times September 22, 1998

As of March 20, 1998, the Madrid General Index was 859.08 up 34.4% from
the end of 1997 and the Ibex 35 was 9797.1, up 35% over the same time period.

New Listing of Equity Securities. In order to be eligible for listing on
any of the Spanish stock exchanges, companies are required to meet certain
requirements, including the following:

(i) General requirements:

- The company must comply with all the rules and regulations to
which it is subject; including its own memorandum and articles of
association.

- The annual company accounts, and if applicable, the consolidated
group accounts, must be audited. However, exceptions to this
requirement may be granted in certain cases.

- The securities must be freely transferable.

- The securities must be registered in book-entry form
("anotaciones en cuenta").

(ii) Specific requirements for shares:

- The company must have a minimum share capital of Pesetas 200
million (without taking into account shareholdings over 25%).

- The company must have enough profits (after tax) to distribute a
dividend of at least 6% of the paid up share capital in the
previous two years or in three non-consecutive years of the
previous five (although no actual distribution is required).
However, exceptions to this requirement may be granted in certain
cases.

- There must be at least 100 shareholders owning individual
interests in the company of less than 25% of its share capital.

Debt Market. The debt instruments principally traded in the Spanish
markets are treasury letters of credit ("Letras del Tesoro"), treasury
promissory notes ("Pagares del Tesoro"), and state bonds and debt instruments
("Bonos y obligaciones del Estado"), a mixture of short, medium and long-term
instruments.

These public debt securities, and also those issued by Autonomous
Communities (i.e., territorial political

66
<PAGE>

sub-divisions of the Spanish State) and local authorities, are primarily traded
in the Public Debt Market ("Mercado de Deuda Publica en Anotaciones") which
operates through a book-entry system run by the Bank of Spain. The Bank of Spain
is empowered to supervise and control the Public Debt Market, Public debt
represented by book entry can also be traded on the Spanish stock exchanges.

The "AIAF" fixed-yield wholesale securities market is an organized but
unofficial wholesale market of securities. This market is sponsored by a private
entity ("AIAF"), governed by its own supervisory body in accordance with its
rules, and under the supervision of the CNMV. Several fixed-yield securities
which could also trade on the Spanish stock exchanges trade on this market.

The capitalization of fixed-income securities has been gradually declining
while trading has risen sharply. The explanation lies in the fact that as of
1993 the book-entry debt of the State and regional governments has been traded
via the Bolsa de Madrid's electronic system, however capitalization of this debt
is not included in that of public sector securities on the Bolsa. Trading and
capitalization of fixed-income securities is shown below.

Fixed-Income Securities
Mkt Cap Trading
(Bil. Ptas.) (Bil. US$) (Bil. Ptas.) (Bil. US$)
1992 4,332 42.3 922 9.0
1993 4,371 34.3 1,758 13.8
1994 3,832 28.6 4,488 33.5
1995 3,532 28.3 4,274 34.3
1996 3,334 26.3 9,540 75.3

Bolsa de Madrid, Fact Book 1997

Futures and Options Market. The futures and options markets are organized
by the holding company Mercado Espanol de Futuros Financieros (MEFF). MEFF's
subsidiary, MEFF Renta Variable, based in Madrid, manages the trading of options
and futures on the Ibex-35 stock index and individual options on certain shares.
MEFF Renta Fija, based in Barcelona, manages the trading of futures and options
on interest rates.

Spanish Foreign Exchange Control

Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Spain in consultation with
the banks authorized to conduct foreign exchange business. Purchases and sales
by bank transfers of foreign currencies are centralized at the Bank of Spain,
which publishes the rates at which it settles transactions.

Foreign investors may freely invest in shares of Spanish companies and
need only obtain prior verification or authorization from the Ministry of
Economy in certain cases. Foreign non-European Union governments, state-owned
entities and state-controlled entities are required to obtain specific consent
from the relevant Spanish authorities to make capital investments in Spain.

Payments and collections derived from foreign investments in Spain are
liberalized, but certain formalities have to be fulfilled and specific
information must be supplied, in certain cases, to the Spanish exchange control
authorities. Generally payments must be channeled through licensed credit
entities.

Spanish Public Finance, State Revenue and Taxation

Each year, the Ministry of Economy and Finance, in collaboration with
other Government Ministries, prepares the State Budget and summary budgets for
autonomous public agencies and the social security system. After submission to
the Council of Ministers, the budget is presented for approval to parliament. If
the budget is not

67
<PAGE>

finally approved by January 1 of each year, the budget of the previous year is
automatically extended.

Spain has a fairy complex tax system with a wide range of direct and
indirect taxes applicable to both individuals and businesses. The majority of
Spanish taxes are imposed by the State, although certain taxes are levied by
local governments. Certain Autonomous Communities, namely the Basque Country and
Navarra, have a particular tax system adopted by their respective local
legislative bodies within the framework of the State tax system.

The Spanish Monetary and Banking System

Government regulation of the Spanish banking industry is administered by
the Bank of Spain, a public law entity which operates as the Spanish autonomous
central bank. In addition, it has the ability to function as a private bank.
Except in its performance of public functions, the Bank of Spain's relations
with third parties are governed by general private law and its actions and
omissions subject to the civil and commercial codes.

Among other responsibilities, the Bank of Spain is responsible for
determining and executing monetary policy with the primary goal of attaining
price stability (while the Bank of Spain's monetary policy must support the
general financial policy of the government, it is not subject to instructions
from the Government or the Ministry of Economy and Finance), maintaining,
administering and managing foreign exchange and precious metal reserves in order
to execute the rate of exchange policy formulated by the Government, promoting
stability, good performance and operation of the financial payment systems,
issuing Spanish currency, rendering treasury services to the Spanish Treasury
and to the Autonomous Communities, and rendering services related to public debt
of the State and the Autonomous Communities

In addition, the Bank of Spain exercises general supervisory control over
all Spanish credit institutions and is entrusted with certain supervisory powers
over Spanish banks, subject to rules and regulations issued by the Ministry of
Economy and Finance. The "Fondos de Garantia de Depositos", which operate under
the guidance of the Bank of Spain, guarantee bank and savings bank deposits up
to EURO 15,000 per depositor. The minimum covered amount for all European Union
member banks will be increased to EURO 20,000 after December 31, 1999.

Spanish Credit Entities

The commercial banking sector in Spain is dominated by four Spanish
banking groups, which, based on statistics of the Spanish Banking Association,
accounted for approximately 68.5% of total deposits at commercial banks at
December 31, 1996.

Spanish savings banks also represent an important source of competition
for retail deposits, mortgage loans and other retail banking products and
services. Since 1988, Spanish savings banks, which have traditionally been
regional institutions, have been permitted to open branches and offices through
Spain. The savings banks are divided into "Cajas de Ahorro", which are partially
controlled by local governments, and "Cajas Rurales", which specialize in the
agricultural sector.

Law 3/1994, of April 14, 1994 conforms Spanish law to the European Unions'
Second Banking Coordination Directive (89-646) (the "Second Banking Directive")
by providing that any financial institution incorporated in and authorized to
conduct business in another member state of the European Union will be permitted
to conduct business in Spain either through branches in Spain or on a
cross-border basis following certain procedures.

Likewise, the European Union's Investment Services Directive. No. 93/22/CE
took effect on December 31, 1995. Although Spain has not yet implemented this
Directive, it could affect financial services in Spain by permitting any
brokerage house incorporated and authorized to operate in the European Union to
offer its services in Spain. A bill of law amending the Securities Market Act
and implementing the Investment Services Directive is pending approval by the
Spanish Parliament.

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<PAGE>

The Portuguese Securities Markets

Background and Development. The Portuguese securities markets officially
opened at the turn of the century with the establishment of the Oporto Stock
Exchange and the Lisbon Stock Exchange (the "Stock Exchanges"). The Stock
Exchanges were closed in 1974 and were reopened in the late 1970s, but it was
not until 1987, when the Portuguese Government passed additional laws designed
to stimulate the capital markets, that activity on the Stock Exchanges increased
substantially. The 1987 legislation consisted mainly of tax incentives, the
relaxation of listing and issuing requirements and a reduction in limitations on
foreign investment.

A series of legislative measures designed to reform the Stock Exchanges
was implemented in July 1991, including the transfer of their ownership from the
Portuguese Government to the brokers and dealers acting on the Stock Exchanges.
In addition, the 1991 legislation (i) established an independent regulatory
authority over the securities market, the Comissao do Mercado de Valores
Mobiliarios (the "CMVM"), to supervise the securities markets, (ii) established
a framework for the regulation of trading practices, tender offers and insider
trading, (iii) required members of the Stock Exchanges to be corporate entities,
(iv) required companies listed on the Stock Exchanges to file annual audited
financial statements and to publish semi-annual financial information, (v)
established a framework for integrating quotations on the Stock Exchanges by
computer, and (vi) provided for the transfer of shares by book-entry.

Equity securities are currently listed only on the Lisbon Stock Exchange.
The Lisbon Stock Exchange is regulated by the Ministry of Finance and the CMVM.
Shares were traded on the Oporto Stock Exchange until May 1994, when it was
closed in preparation for the introduction of the trading of derivative
securities. Trading on the Oporto Stock Exchange is now limited to derivative
instruments.

The official market index of the Lisbon Stock Exchange, published since
February 1991 (the "BVL General Index"), is a weighted average price of shares
listed on the Official Market of the Lisbon Stock Exchange. The exact number of
companies in the index's portfolio may change each day because of new
admissions, exclusions, suspensions and the absence of quotations. Since January
1993, the Lisbon Stock Exchange has calculated a sub-index of the 30 most
frequently traded shares listed on the Official Market, which includes the
Ordinary Shares, and their market capitalization (the "BVL 30"). Two Portuguese
banks, Banco Totta & Acores, S.A. and Banco Portugues do Atlantico, S.A., also
calculate stock market indices.

Regulation of the Exchanges. Each of the two Portuguese stock exchanges
(Lisbon Stock Exchange and Oporto Stock Exchange) is managed by a managing
company ("Associacao de Bolsa"), a private limited liability association formed
and owned by the authorized dealers and brokers ("sociedades financeiras de
corretagem" and "sociedades de corretagem") that are members of the relevant
stock exchange.

The securities markets, and all market participants are supervised by the
Securities Market Commission ("Comissao do Mercado de Valores Mobiliarios"), an
independent public entity.

Shares (equity securities), government securities, bonds, treasury bills,
and other financial instruments are traded on the Lisbon Stock Exchange. Trading
in the Oporto Stock Exchange is now limited to derivative products.

Market Activity. The market capitalization of all securities traded on the
LSE at the end of 1997 was 14,388,729 million escudos or $78,487 million. Of
this total bonds accounted for $38,798 million or 49.4%; stocks, $39,065 million
or 49.8% and other securities, such as participation bonds, investment trust
units and rights, $624 million or 0.8%. The LSE is one of the smaller stock
markets among the developed markets. In terms of the Morgan Stanley Capital
International list of developed markets, Portugal ranked 21 out of 23 in market
capitalization at the end of 1997. Only the Austria and New Zealand stock
markets had smaller capitalizations.

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<PAGE>

The following table shows the market capitalization of securities on the
LSE in the various markets as of the end of 1997.

Mil Esc. Mil. US$ % Distribution

Official Market 13,667,609 74,554 95.0%
Bonds 6,558,200 35,773
Stocks 7,007,975 38,227
Other* 101,434 553
Second Market 597,954 3,262 4.2%
Bonds 553,528 3,019
Stocks 44,426 242
Market without
Quotations 123,167 672 0.9%
Bonds 996 5
Stocks 109,268 596
Other 12,903 70
Subtotal 14,388,728 78,487 100.0%

Addendum:
Bonds 7,112,723 38,798 49.4%
Stocks 7,161,669 39,065 49.8%
Other 114,337 624 0.8%
14,388,729 78,487 100.0%

* Participation bonds, Investment Trust Units and Rights of bonds,
warrants and shares.

Bolsa de Valores de Lisboa: Nota Informativa 1997

Trading in 1997 of all securities amounted to 6,450,409 million escudos or
$36,794 million. Approximately 90% of the trades took place on the Official
Market. Trading in stocks accounted for 63.7% of all trades.

The following table shows the value of trading on the three main markets
in 1997 and for both normal and special sessions.

Lisbon Stock Exchange: Value of Trading in 1997
Mil Esc. Mil. US$ % Distribution
Normal Sessions
Official Market 5,812,687 33,156 90.1%
Bonds 2,175,717 12,411
Stocks 3,598,606 20,527
Other* 38,364 219
Second Market 128,363 732 2.0%
Bonds 102,061 582
Stocks 26,302 150
Market without
Quotations 68,410 390 1.1%

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Bonds 2,131 12
Stocks 45,727 261
Other 20,552 117
Subtotal 6,009,459 34,279 93.2%
Special Sessions
Stocks 440949 2,515 6.8%
Grand Total 6,450,408 36,794

Addendum:
Bonds 2,279,909 13,005 35.3%
Stocks 4,111,584 23,453 63.7%
Other 58,916 336 0.9%
6,450,409 36,794 100.0%

* Participation bonds, Investment Trust Units and Rights of bonds,
warrants and shares.
Bolsa de Valores de Lisboa: Nota Informativa 1997

Stocks. Both market capitalizations and trading values of stocks have
grown rapidly in recent years. The following table showing recent history of the
growth of capitalization and trading value of stocks includes the dramatic rise
in trading that took place in 1997

Lisbon Stock Exchange
No. Market Capitalization Trading Value
Of Cos.
(bil escudos) (bil US $) (bil escudos) (bil US $)
1987 143 1,150.3 8.9 213.9 1.5
1988 171 1,052.3 7.2 163.4 1.1
1989 182 1,588.4 10.6 300.4 1.9
1990 181 1,257.2 9.4 240.4 1.7
1991 180 1,284.3 9.6 406.2 2.8
1992 191 1,353.6 9.2 467.3 3.5
1993 183 2,193.0 12.4 780.3 4.9
1994 195 2,586.8 16.3 874.6 5.3
1995 169 2,743.1 18.4 634.1 4.2
1996 170 3,828.4 24.5 1,102.6 7.1
1997* 159 7,161.7 39.1 3,670.6 20.9

* Data are for Normal Sessions. In 1997 trading value, including Special
Session, was 4,11.6 bil escudos or $23.5 bil.

Lisbon Stock Exchange

Stock Price Indexes. The BVL (Bolsa de Valores de Lisboa) Index has been
the official market index of the LSE since February 18, 1991. It has a base of
1000 at January 5, 1988 and includes all listed shares on the LSE official
market. The exact number of companies in the index can change daily as a result
of admissions, exclusions, suspensions and the absence of quotations. On January
11, 1993, the LSE began to calculate the BVL 30. This index, based on January 4,
1993=1000, includes the shares of 30 companies listed on the main market and is
weighted by their market capitalization and liquidity. These indexes are shown
below in the following table:

Stock Price Indexes
BVL General Index (January 5, 1988=1000)

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<PAGE>

<TABLE>
<CAPTION>
High Date Low Date Close Pct. Chg.
<S> <C> <C> <C> <C> <C> <C>
1988 1,145.10 8-Jan 670.70 21-Oct 722.85
1989 1,041.59 24-Oct 691.11 22-Jun 951.91 31.7%
1990 953.76 4-Jan 627.57 5-Dec 638.30 -32.9%
1991 747.69 18-Mar 605.66 16-Jan 623.63 -2.3%
1992 651.63 11-May 541.60 20-Oct 553.71 -11.2%
1993 848.54 31-Dec 537.20 13-Jan 848.54 53.2%
1994 999.46 18-Feb 801.57 20-Jun 919.95 8.4%
1995 933.32 12-May 842.31 22-Nov 877.69 -4.6%
1996 1,163.54 31-Dec 877.17 2-Jan 1,163.54 32.6%
1997 1,922.72 31-Dec 1,163.47 2-Jan 1,922.72 65.2%
1998* 3,162.51 22-Apr 1,863.70 1-Oct 1,937.83 0.79%
*Through October 6, 1998
</TABLE>

<TABLE>
<CAPTION>
BVL 30 Index (January 4, 1993=1000)
High Date Low Date Close
<S> <C> <C> <C> <C> <C> <C>
1993 1565.16 31-Dec 980.14 13-Jan 1565.16
1994 1863.53 18-Feb 1447.56 20-Jun 1699.54 8.6%
1995 1740.05 12-May 1529.44 22-Nov 1605.30 -5.5%
1996 2165.92 30-Dec 1602.81 2-Jan 2164.50 34.8%
1997 3781.31 29-Dec 2165.57 2-Jan 3757.27 73.6%
1998* 6176.89 2-Oct 3599.08 6-Oct 3747.89 -0.2%
*Through October 6, 1998
Source: Lisbon Stock Exchange
</TABLE>

Stock prices began to rise sharply in 1997 when it became likely that
Portugal might be included in the early admittance to EMU. The rise has
continued and on March 26, the day after the European Commission recommended
Portugal's inclusion in EMU, the BVL 30 was 5556.77 or 47.9% above the close of
1997. Prices have subsequently declined and the index was 3747.89 on October 6,
1998.

The Oporto Stock Exchange has recently launched the PSI-20 which is made
up of the 20 most representative Portuguese official market issues. It aims to
serve a reliable benchmark for the national equity market and to facilitate the
introduction of derivatives based on a single indicator for the equity market.

Most Actively Traded Stocks. The ten most actively traded stocks on
the official market in 1997 are shown below. These ten stocks accounted for
73% of trading on the official market.

No of Value of Trading
Shares
(Millions) (Mil Esc.) Mil. US$)
Portugal Telecom 100 692,198 3,948
EDP-Nominativas 140 446,148 2,545
BCP Nom. e Porta. Reg 95 312,992 1,785
CIMPOR-Cim.Port.SGPS-Nom 69 285,910 1,631
Telecel-Com.Pessoais-Nom 17 240,688 1,373
Banco Espirito Santo (BESCL)Nom Port.Reg 38 161,935 924
Sonae Invest.-SGPS 23 150,396 858
Banco Portugues de Investimento (BPI) 37 124,434 710
Banco Totta & Acores (BTA)-Nom.Port.Reg. 40 122,265 697
Jeronimo Martins & Filho-SGPS 9 91,630 523

72
<PAGE>

Total of above 567 2,628,596 14,994

Grand Total 1,001 3,598,606 20,527

Percent of Grand Total 56.6% 73.0% 73.0%

Bolsa de Valores de Lisboa: Nota Informativa 1997

Price-to-earnings and price-to-book ratios and dividend yields of
Portuguese stocks in the Internal Finance Corporation's Global Indexes are as
follows:

Portugal: IFC Global Index
P/E Ratio P/BV Ratio Dividend
Yield %

1987 22.6 5.4 1.3
1988 18.0 3.7 1.3
1989 19.0 3.4 1.9
1990 11.8 1.7 2.7
1991 10.9 1.3 3.7
1992 9.0 1.0 4.7
1993 18.0 1.7 2.9
1994 20.3 1.8 3.2
1995 14.8 1.4 3.3
1996 18.1 1.7 2.3
1997 22.9 3.1 1.7
July, 28.8 3.6 1.8
1998
IFC: Emerging Markets Data Base, and
Morgan Stanley Capital International,
December 1997.

Equity Market Trading. Listed securities for both exchanges are divided
into three sections. The "Market With Official Quotations" section allows for
the listing of bonds, shares and other securities which meet certain specific
requirements established by the Securities Market Commission, the most important
of which being a significantly diversified shareholding. The "Second Market"
section and the "Market Without Official Quotation" section include the
securities of issuers that do not satisfy the requirements for listing on the
Market with Official Quotations.

Prior to 1991, all shares were traded by an open-outcry procedure; prices
were fixed once or twice a day at the market-clearing price for all bids and
offers tendered. The Official Market, created in July 1991, is a nationwide
market in which most Portuguese securities having the greatest market
capitalization are listed.

In September 1991, the Continuous Trading System, designed to provide
automatic execution of orders and continuous trading through Tradis, a
computerized trading system, was introduced. As of December 31, 1995, all of the
77 equity securities listed on the "Market With Official Quotations" were traded
through the Continuous Trading System. All other securities continue to trade by
the traditional open-outcry procedure, but it is currently planned that they
will be gradually introduced to the Continuous Trading System.

The Continuous Trading System linked the Stock Exchanges prior to the
closure of the Oporto Stock Exchange. The principal feature of the Continuous
Trading System is the computerized matching of buy and sell

73
<PAGE>

orders based, first, on matching sales price and, second, on the time of entry
of the order. Each order is executed as soon as a matching order is entered, but
can be modified or canceled up to execution.

From 9:00 a.m. to 10:00 a.m. on each trading day (from Monday to Friday
excluding public holidays), an opening market clearing price is established for
each security on the Continuous Trading System based on the bids and offers
outstanding.

On any trading day, such opening price may not change more than 30% from
the most recent closing price. If a security has not traded within the
immediately preceding four trading days, the opening price will be fixed by the
market without restriction. Computer matched trading then proceeds on the
Continuous Trading System from 10:00 a.m. until 4:00 p.m. During such time, each
price may not change more than 5% from the prior executed price without a
temporary suspension to reset the market-clearing price.

At present, there are no official market makers or independent specialists
in the Continuous Trading System and therefore orders to buy or sell in excess
of corresponding orders to sell or buy will not be executed.

Only selected brokers and dealers may effect stock exchange transactions.
The market is served by 12 dealers, who may buy and sell for their own accounts
and eight brokers. All trades on the Lisbon Stock Exchange, including through
the Continuous Trading System, must be placed through a brokerage or a dealer
firm. Stock prices are quoted directly in Escudos per share. Any trading of
stock listed on the Continuous Trading System that takes place off-the-market
(i.e., those shares that are not traded during the 10:00 a.m. to 4:00 p.m.
trading hours referred to above) must be cleared through financial institutions.

Pursuant to Portuguese law, dividends are paid to shareholders of record
as of the date established for payment. In order to effect such payment by means
of Portugal's book-entry clearance and settlement system, under current
practice, trading of Shares will be suspended for the four business days
preceding any such dividend payment date.

Clearing and Settlement. One of the most important aspects of the reform
of the Portuguese securities market has been the creation of the Central de
Valores Mobiliarios (the "CVM"), the Portuguese central securities depositary,
the creation of the Sistema de Liquidcao de Ambito Nacional (the "National
Clearing and Settlement System"). Both organizations are owned and managed by
Interbolsa, a non-profit organization owned by the Stock Exchange Associations
of Lisbon and Oporto. The CVM provides a system for the registration and control
of securities, including custody of certificates of securities and registration
of book-entry securities.

The National Clearing and Settlement System is currently the most commonly
used clearing and settlement system in Portugal. Under this system, the broker
inputs trade information on Tradis, the nationwide computerized trading system.
The custodian bank accepts the trade, at the latest, one day after the date of
the trade, becoming the legal party to the transaction until it settles. At the
end of the third day after the trade, the electronic book-entry for the transfer
of the securities takes place in the books of the Bank of Portugal (the "Central
Bank"). This physical settlement is provisional until financial settlement takes
place on the morning of the fourth day after the trade. The net amount due to or
from each participant's account with the Central Bank is posted to the closing
balance of the previous day. Under Portuguese law, physical and financial
settlement of a trade of a security must take place before any further
transaction with respect to such security may be effected. Accordingly, short
selling is not permitted.

Listing of Equity Securities. In order to be eligible for listing on the
Lisbon Stock Exchange--Market with Official Quotations, companies are required
to meet certain requirements.

General Requirements:

- the company must comply with all the rules and regulations to which
it is subject, including its own memorandum and articles of
incorporation;

74
<PAGE>

- the company's annual accounts for the three years preceding the
listing must have been published;

- the company must have at least two years of activity;

- the securities must be freely transferable, and

- the listing must include all the securities of the same kind.

Specific requirements for shares.

- the expected market capitalization must be at least Escudos 500
million;

- 25% of the shares or, at least, 500,000 shares of the same category,
should be held by the public; and

- the company must have an adequate financial and economic position.

Portuguese Exchange Rates, Exchange Control and Other Policies Affecting
Security Holders

Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Portugal in consultation
with the banks authorized to conduct foreign exchange business.

Since January 1, 1993, there have been no exchange controls imposed on the
Escudo by the Portuguese Government. In connection with certain currency
transactions, some formal requirements must be fulfilled and specific
information must be supplied, in certain cases, to the Bank of Portugal.

Foreign investors may freely invest in shares of Portuguese companies and
need no prior verification or authorization with the Portuguese authorities. In
certain cases, information reporting to the supervisory authorities is required.
Some non-European Union regulated entities, such as banks, financial companies
and insurance companies, need prior authorization from the Portuguese
authorities to operate in Portugal.

As Portuguese regulations conform with EU's second Banking Coordination
Directive (86/646) and the Investment Services Directive, N(degree)93/22/CE, any
financial institution incorporated in and authorized to conduct business in
another member state of the EU will be permitted to conduct business in
Portugal.

Monetary and Banking System. Portuguese banking and monetary policy is
administered by the Bank of Portugal, a public law entity that operates as
Portugal's autonomous central bank. Except in its performance of public
functions, the Bank of Portugal's relations with third parties is governed by
private law and its actions are subject to the civil and commercial law codes.

Among other responsibilities, the Bank of Portugal is responsible for
determining and executing monetary policy with the main purpose of attaining
price stability (not being subject to instruction from the Government),
maintaining, administering and managing foreign exchange and precious metal
reserves of Portugal, promoting stability, good performance and operation of the
financial payment system, issuing Portuguese currency, rendering treasury
services to the Portuguese treasury and rendering services related to public
debt to the State.

In addition, the Bank of Portugal exercises, general supervisory control
over all Portuguese credit institutions (including Banks) and financial
companies and may issue regulations concerning financial activities.

75
<PAGE>

IV. SPAIN AND PORTUGAL AND THE EUROPEAN MONETARY UNION

Both Spain and Portugal signed the Accession Treaty to the European Union
(EU) in 1985 and became full members on January 1, 1986. EU membership has
provided a framework to facilitate the implementation of structural reforms
needed to modernize their economies and provide for European integration. In
1989, the government of Spain took the Peseta into the European Monetary System
(EMS) and in 1992, the government of Portugal took the escudo into the EMS.
Structural reforms and progress in both countries on reducing inflation and
their government deficits have led to their admission to the European Monetary
Union (EMU) from its start on January 1, 1999, pursuant to the decision of the
EU Council in May of 1998.

On February 25, 1998, the government of Portugal submitted figures to the
European Commission showing that Portugal complies with the criteria for joining
EMU. The government stated that its budget deficit fell to a low of 2.45% of GDP
in 1997, down from 5.8% in 1996. It also announced inflation of 1.9% and a
public debt of 62% of GDP. At the same time the Spanish government submitted
figures showing that its public deficit was 2.6% of GDP, down from 4.6% in 1996
and 7.3% in 1993. Public debt, although above the objective of 60% of GDP, had
come down from 70.1% to 68.3%. Inflation was reported to have been just over 2%
in 1997, down from 4.3% in 1996.

The following tables show how interest rates in Spain and Portugal have
converged to core EU rates.

Nominal Short-Term Interest Rates

1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Belgium 9.4% 8.2% 5.7% 4.7% 3.2% 3.4%
Germany 9.5% 7.2% 5.3% 4.5% 3.3% 3.3%
France 10.4% 8.6% 5.9% 6.6% 3.9% 3.5%
Netherlands 9.4% 6.9% 5.2% 4.4% 3.0% 3.3%
Portugal 16.2% 13.3% 11.1% 9.8% 7.4% 5.7%
Spain 13.3% 11.7% 8.0% 9.4% 7.5% 5.4%

Nominal Long-Term Interest Rates

1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Belgium 8.6% 7.2% 7.8% 7.5% 6.5% 5.8%
Germany 8.0% 6.4% 6.9% 6.8% 6.2% 5.7%
France 8.6% 6.7% 7.3% 7.5% 6.3% 5.6%
Netherlands 8.1% 6.3% 6.9% 6.9% 6.2% 5.6%
Portugal 15.4% 9.5% 10.4% 11.5% 8.6% 6.4%
Spain 12.2% 10.1% 10.1% 11.3% 8.7% 6.4%

European Commission: European Economy, 1998 No. 65, pp. 316-9

76
<PAGE>

The following tables show net borrowing of governments and gross debt as a
percent of Gross Domestic Product.

Net Lending (+) or Net Borrowing (-) of General Government as % of GDP

1992 1993 1994 1995 1996 1997 1998*

Belgium -6.9% -7.1% -4.9% -3.9% -3.2% -2.1% -1.7%
Germany -2.6% -3.2% -2.4% -3.3% -3.4% 2.7% -2.5%
France -3.9% -5.8% -5.8% -4.9% -4.1% -3.0% -2.9%
Netherlands -3.9% -3.2% -3.8% -4.0% -2.3% -1.4% -1.6%
Portugal -3.0% -6.1% -6.0% -5.7% -3.2% -2.5% -2.5%
Spain -3.8% -6.9% -6.3% -7.3% -4.6% -2.6% -2.2%

General Government Consolidated Gross Debt as Percent of GDP

1992 1993 1994 1995 1996 1997 1998*

Belgium 129.0 135.2 133.5 131.3 126.9 122.2 118.1
Germany 44.1 48.0 50.2 58.0 60.4 61.3 61.2
France 39.8 45.3 48.5 52.7 55.7 58.0 58.1
Netherlands 80.0 81.2 77.9 79.1 77.2 72.1 70.0
Portugal 60.1 63.1 63.8 65.9 65.0 62.0 60.0
Spain 48.0 60.0 62.6 65.5 70.1 68.8 67.4

*Spring 1998 European Commission's Economic Forecast
European Commission: EUROPEAN ECONOMY, 1998 no. 65, pp. 364-5, 368-9

On March 25, 1998, the European Commission reported that all 11
candidates, including Spain and Portugal, seeking admission to EMU had met the
Maastricht convergence criteria and the European Monetary Institute concurred,
although it stressed the challenges that lie ahead. The EU heads of government
and Finance Ministers decided the actual membership of the EMU, announced ERM
central rates used to fix bilateral conversion rates under EMU and nominated the
head of the European Central Bank (ECB) at meeting held on May 1-3, 1998, at
which time it was determined that Spain and Portugal will join the EMU.

There are likely to be periods of uncertainty and confusion. The loss of
an independent monetary policy under EMU may complicate government policy if
economic trends in all of the countries are not synchronized. Spain and
Portugal, countries that have had periods of high inflation, may be particularly
vulnerable.

77
<PAGE>

KEMPER GLOBAL/INTERNATIONAL SERIES, INC.

PART C. OTHER INFORMATION

<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------

<S> <C>
(a)(1) Articles of Incorporation dated October 1, 1997.
(Incorporated by reference to Registrant's Registration Statement on Form
N-1A which was filed on October 3, 1997.)

(a)(2) Articles of Amendment dated December 23, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(a)(3) Articles Supplementary Establishing the Growth Fund of Spain.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)

(b) By-laws.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(c) Specimen Share Certificate.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(d)(1) Investment Management Agreement between the Registrant, on behalf of Kemper
Global Blue Chip Fund, and Scudder Kemper Investments, Inc., dated December
31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(d)(2) Investment Management Agreement between the Registrant, on behalf of Kemper
International Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(d)(3) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Income Fund, and Scudder Kemper Investments, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(d)(4) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Growth Fund, and Scudder Kemper Investments, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(d)(5) Investment Management Agreement between the Registrant, on behalf of Kemper
Latin America Fund, and Scudder Kemper Investments, Inc., dated December 31,
1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

Part C - Page 1
<PAGE>

(d)(6) Investment Management Agreement between the Registrant, on behalf of Kemper
Global Blue Chip Fund, and Scudder Kemper Investments, Inc., dated September
7, 1998. Filed herein.

(d)(7) Investment Management Agreement between the Registrant, on behalf of
Kemper International Growth and Income Fund, and Scudder Kemper Investments,
Inc., dated September 7, 1998. Filed herein.

(d)(8) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Income Fund, and Scudder Kemper Investments, Inc., dated
September 7, 1998. Filed herein.

(d)(9) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Growth Fund, and Scudder Kemper Investments, Inc., dated
September 7, 1998. Filed herein.

(d)(10) Investment Management Agreement between the Registrant, on behalf of Kemper
Latin America Fund, and Scudder Kemper Investments, Inc., dated September 7,
1998. Filed herein.

(d)(11) Investment Management Agreement between the Growth Fund of Spain and Scudder
Kemper Investments, Inc., dated September 7, 1998. Filed herein.

(d)(12) Investment Management Agreement between the Registrant, on behalf of the
Growth Fund of Spain, and Scudder Kemper Investments, Inc., dated November
25, 1998. To be filed by amendment.

(e)(1) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(e)(2) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated August 1, 1998. Filed herein.

(e)(3) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated September 7, 1998. Filed herein.

(f) Inapplicable.

(g)(1) Custodian Agreement between the Registrant and Brown Brothers Harriman &
Co., dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(g)(2) Custodian Agreement between the Registrant, on behalf of the Growth Fund of
Spain, and Chase Manhattan Bank. To be filed by amendment.

(h)(1) Agency Agreement between the Registrant on behalf of Kemper Global Blue
Chip Fund and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(2) Agency Agreement between the Registrant on behalf of Kemper International
Growth and Income Fund and Kemper Service Company, dated December 31, 1997.

Part C - Page 2
<PAGE>

(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(3) Agency Agreement between the Registrant on behalf of Kemper Emerging
Markets Income Fund and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(4) Agency Agreement between the Registrant on behalf of Kemper Emerging Markets
Growth Fund and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(5) Agency Agreement between the Registrant on behalf of Kemper Latin America
Fund and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
1 filed on September 14, 1998.)

(h)(6) Agency Agreement between the Registrant on behalf of the Growth Fund of
Spain and Kemper Service Company, dated November 25, 1998. To be filed by
amendment.

(h)(7) Administrative Services Agreement between the Registrant on behalf of Kemper
Global Blue Chip Fund and Kemper Distributors, Inc., dated December 31,
1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(8) Administrative Services Agreement between the Registrant on behalf of Kemper
International Growth and Income Fund and Kemper Distributors, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(9) Administrative Services Agreement between the Registrant on behalf of Kemper
Emerging Markets Income Fund and Kemper Distributors, Inc., dated December
31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(10) Administrative Services Agreement between the Registrant on behalf of Kemper
Emerging Markets Growth Fund and Kemper Distributors, Inc., dated December
31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(11) Administrative Services Agreement between the Registrant on behalf of Kemper
Latin America Fund and Kemper Distributors, Inc., dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)

(h)(12) Administrative Services Agreement between the Registrant on behalf of
Growth Fund of Spain and Kemper Distributors, Inc., dated November 25,

Part C - Page 3
<PAGE>

1998. (Incorporated by reference to Registrant's Post-Effective Amendment
No. 2 filed on November 27, 1998.)

(h)(13) Fund Accounting Services Agreement between the Registrant on behalf of
Growth Fund of Spain and Scudder Fund Accounting Corporation, dated November
25, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)

(h)(14) Fund Accounting Services Agreement Fee Schedule to Fund Accounting
Services Agreement between the Registrant on behalf of Growth Fund of Spain
and Scudder Fund Accounting Corporation, dated November 25, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)

(h)(15) Agreement and Plan of Reorganization between the Registrant on behalf of its
Growth Fund of Spain and The Growth Fund of Spain, Inc, dated September 11,
1998. To be filed by amendment.

(i) Inapplicable.

(j) Consent and Report of Independent Auditors. To be filed by amendment.

(k) Inapplicable.

(l) Inapplicable.

(m)(1) Rule 12b-1 Plan between Kemper Global Blue Chip Fund (Class B shares) and
Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(2) Rule 12b-1 Plan between Kemper Global Blue Chip Fund (Class C shares) and
Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(3) Rule 12b-1 Plan between Kemper International Growth and Income Fund (Class B
shares) and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(4) Rule 12b-1 Plan between Kemper International Growth and Income Fund (Class C
shares) and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(5) Rule 12b-1 Plan between Kemper Emerging Markets Income Fund (Class B shares)
and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(6) Rule 12b-1 Plan between Kemper Emerging Markets Income Fund (Class C shares)
and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(7) Rule 12b-1 Plan between Kemper Emerging Markets Growth Fund (Class B shares)
and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(8) Rule 12b-1 Plan between Kemper Emerging Markets Growth Fund (Class C shares)
and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(9) Rule 12b-1 Plan between Kemper Latin America Fund (Class B shares) and
Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

Part C - Page 4
<PAGE>

(m)(10) Rule 12b-1 Plan between Kemper Latin America Fund (Class C shares) and
Kemper Distributors, Inc. dated August 1, 1998. Filed herein.

(m)(11) Rule 12b-1 Plan between the Growth Fund of Spain (Class B shares) and Kemper
Distributors, Inc., dated August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)

(m)(12) Rule 12b-1 Plan between the Growth Fund of Spain (Class C shares) and Kemper
Distributors, Inc., dated August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)

(n) Financial Data Schedule. To be filed by amendment.

(o) Kemper Mutual Funds Multi-Distribution System Plan.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
</TABLE>

Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------

None

Item 25. Indemnification.
- -------- ----------------

Article VIII of the Registrant's Agreement and Declaration of
Trust (Exhibit 1 hereto, which is incorporated herein by reference) provides in
effect that the Registrant will indemnify its officers and trustees under
certain circumstances. However, in accordance with Section 17(h) and 17(i) of
the Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.

Part C - Page 5
<PAGE>

Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------

Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.

<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------

<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**

Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#

William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o

Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx

Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##

Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx

Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*

Part C - Page 6
<PAGE>

Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+

Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**

Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg

* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>

Item 27. Principal Underwriters.
- -------- -----------------------

(a)

Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.

(b)

Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.

<TABLE>
<CAPTION>
(1) (2) (3)

Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------

<S> <C> <C>
James L. Greenawalt President

Thomas W. Littauer Director, Chief Executive Officer

Part C - Page 7
<PAGE>

Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------

Kathryn L. Quirk Director, Secretary, Chief Legal
Officer and Vice President

James J. McGovern Chief Financial Officer and Vice
President

Linda J. Wondrack Vice President and Chief Compliance
Officer

Paula Gaccione Vice President

Michael E. Harrington Vice President

Robert A. Rudell Vice President

William M. Thomas Vice President

Elizabeth C. Werth Vice President

Todd N. Gierke Assistant Treasurer

Philip J. Collora Assistant Secretary

Paul J. Elmlinger Assistant Secretary

Diane E. Ratekin Assistant Secretary

Daniel Pierce Director, Chairman

Mark S. Casady Director, Vice Chairman

Stephen R. Beckwith Director

Item 28. Location of Accounts and Records
- -------- --------------------------------

Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.

Item 29. Management Services.
- -------- --------------------

Inapplicable.

Item 30. Undertakings.
- -------- -------------

Inapplicable.

Part C - Page 8
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 23rd day
of December, 1998.

KEMPER GLOBAL/INTERNATIONAL SERIES, INC.

By /s/Mark S. Casady
-----------------
Mark S. Casady, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on December 23, 1998 on behalf of
the following persons in the capacities indicated.

SIGNATURE TITLE
- --------- -----

/s/Daniel Pierce
- -------------------------------------------
Daniel Pierce * Chairman and Trustee

/s/James E. Akins
- -------------------------------------------
James E. Akins* Trustee

/s/Arthur R. Gottschalk
- -------------------------------------------
Arthur R. Gottschalk * Trustee

/s/Frederick T. Kelsey
- -------------------------------------------
Frederick T. Kelsey * Trustee

/s/Fred B. Renwick
- -------------------------------------------
Fred B. Renwick * Trustee

/s/John B. Tingleff
- -------------------------------------------
John B. Tingleff* Trustee

/s/John D. Weithers
- -------------------------------------------
John D. Weithers* Trustee

<PAGE>

/s/Kathryn L. Quirk Trustee
- -------------------------------------------
Kathryn L. Quirk*

/s/ John R. Hebble
- -------------------------------------------
John R. Hebble Treasurer (Principle Financial
and Accounting Officer)

By: /s/ Philip J. Collora
---------------------
Philip J. Collora

* Philip J. Collora signs this document pursuant to powers of
attorney filed with Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A filed on September
14, 1998.

2
<PAGE>

File No. 811-8395
File No. 333-42337

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBITS

FORM N-1A

POST-EFFECTIVE AMENDMENT NO. 3
TO REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AND

AMENDMENT NO. 5

TO REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

KEMPER GLOBAL/INTERNATIONAL SERIES, INC.

<PAGE>

KEMPER GLOBAL/INTERNATIONAL SERIES, INC.

EXHIBIT INDEX

Exhibit (d)(6)
Exhibit (d)(7)
Exhibit (d)(8)
Exhibit (d)(9)
Exhibit (d)(10)
Exhibit (d)(11)
Exhibit (e)(2)
Exhibit (e)(3)
Exhibit (m)(1)
Exhibit (m)(2)
Exhibit (m)(3)
Exhibit (m)(4)
Exhibit (m)(5)
Exhibit (m)(6)
Exhibit (m)(7)
Exhibit (m)(8)
Exhibit (m)(9)
Exhibit (m)(10)

INVESTMENT MANAGEMENT AGREEMENT

Kemper Global/International Series, Inc.
345 Park Avenue
New York, New York 10154

September 7, 1998

Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154

Investment Management Agreement
Kemper Global Blue Chip Fund

Ladies and Gentlemen:

Kemper Global/International Series, Inc. (the "Corporation") has been
established as a Maryland corporation to engage in the business of an investment
company. Pursuant to the Corporation's Articles of Incorporation, as amended
from time-to-time (the "Charter"), the Board of Directors is authorized to issue
the Corporation's shares of common stock, par value $0.001 per share, (the
"Shares") in separate series, or funds. The Board of Directors has authorized
Kemper Global Blue Chip Fund (the "Fund"). Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Directors.

The Corporation, on behalf of the Fund, has selected you to act as the
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Corporation on behalf of the
Fund agrees with you as follows:

1. Delivery of Documents. The Corporation engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Corporation's Registration
Statement on Form N-1A, as amended from time to time, (the "Registration
Statement") filed by the Corporation under the Investment Company Act of 1940,
as amended, (the "1940 Act") and the Securities Act of 1933, as amended. Copies
of the documents referred to in the preceding sentence have been furnished to
you by the Corporation. The Corporation has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Corporation and the Fund:

(a) The Charter dated October 1, 1997 as amended to date.

(b) By-Laws of the Corporation as in effect on the date hereof
(the "By-Laws").

(c) Resolutions of the Directors of the Corporation and the
shareholders of the Fund selecting you as investment manager
and approving the form of this Agreement.

The Corporation will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.

2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Corporation's Board
of

<PAGE>

Directors. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Corporation. You
shall also make available to the Corporation promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Corporation
in complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Corporation are being conducted in a
manner consistent with applicable laws and regulations.

You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.

You shall furnish to the Corporation's Board of Directors periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Corporation's officers or Board of Directors
shall reasonably request.

3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Corporation administrative services on
behalf of the Fund necessary for operating as an open end investment company and
not provided by persons not parties to this Agreement including, but not limited
to, preparing reports to and meeting materials for the Corporation's Board of
Directors and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Fund's transfer agent; assisting in
the preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the

2
<PAGE>

payment of dividends and distributions; and otherwise assisting the Corporation
as it may reasonably request in the conduct of the Fund's business, subject to
the direction and control of the Corporation's Board of Directors. Nothing in
this Agreement shall be deemed to shift to you or to diminish the obligations of
any agent of the Fund or any other person not a party to this Agreement which is
obligated to provide services to the Fund.

4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Directors,
officers and executive employees of the Corporation (including the Fund's share
of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Corporation,
subject to their individual consent to serve and to any limitations imposed by
law. You shall provide at your expense the portfolio management services
described in section 2 hereof and the administrative services described in
section 3 hereof.

You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Directors and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Corporation; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Corporation is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Corporation business) of Directors,
officers and employees of the Corporation who are not affiliated persons of you;
brokerage commissions or other costs of acquiring or disposing of any portfolio
securities of the Fund; expenses of printing and distributing reports, notices
and dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Directors and officers of the Corporation; and
costs of shareholders' and other meetings.

You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Corporation on behalf of the Fund shall have adopted a plan in conformity
with Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.

5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the
Corporation on behalf of the Fund shall pay you in United States Dollars on the
last day of each month the unpaid balance of a fee equal to the excess of 1/12
of 1.00 of 1 percent of the average daily net assets as defined below of the
Fund for such month; provided

3
<PAGE>

that, for any calendar month during which the average of such values exceeds
$250 million , the fee payable for that month based on the portion of the
average of such values in excess of $250 million shall be 1/12 of 0.95 of 1
percent of such portion; and provided that, for any calendar month during which
the average of such values exceeds $1.0 billion, the fee payable for that month
based on the portion of the average of such values in excess of $1.0 billion
shall be 1/12 of 0.90 of 1 percent of such portion; over any compensation waived
by you from time to time (as more fully described below). You shall be entitled
to receive during any month such interim payments of your fee hereunder as you
shall request, provided that no such payment shall exceed 75 percent of the
amount of your fee then accrued on the books of the Fund and unpaid.

The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Charter and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.

You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.

6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.

Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Corporation. Whenever the Fund
and one or more other accounts or investment companies advised by you have
available funds for investment, investments suitable and appropriate for each
shall be allocated in accordance with procedures believed by you to be equitable
to each entity. Similarly, opportunities to sell securities shall be allocated
in a manner believed by you to be equitable. The Fund recognizes that in some
cases this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.

7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Corporation agrees that you
shall not be liable under this Agreement for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall be deemed
to protect or purport to protect you against any liability to the Corporation,
the Fund or its shareholders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and duties
hereunder.

4
<PAGE>

8. Duration and Termination of This Agreement. This Agreement shall remain in
force until April 1, 1999 and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Directors who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Directors of the Corporation, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder and any applicable SEC exemptive order therefrom.

This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Corporation's Board of Directors on 60 days'
written notice to you, or by you on 60 days' written notice to the Corporation.
This Agreement shall terminate automatically in the event of its assignment.

This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.

9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.

10. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.

This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.

If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Corporation, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.

5
<PAGE>

Yours very truly,

Kemper Global/International Series, Inc.,
on behalf of
Kemper Global Blue Chip Fund

By: /s/Mark S. Casady
------------------------------------
President

The foregoing Agreement is hereby accepted as of the date hereof.

Scudder Kemper Investments, Inc.

By: /s/S.R. Beckwith
------------------------------------
Treasurer

INVESTMENT MANAGEMENT AGREEMENT

Kemper Global/International Series, Inc.
345 Park Avenue
New York, New York 10154

September 7, 1998

Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154

Investment Management Agreement
Kemper International Growth and Income Fund

Ladies and Gentlemen:

Kemper Global/International Series, Inc. (the "Corporation") has been
established as a Maryland corporation to engage in the business of an investment
company. Pursuant to the Corporation's Articles of Incorporation, as amended
from time-to-time (the "Charter"), the Board of Directors is authorized to issue
the Corporation's shares of common stock, par value $0.001 per share, (the
"Shares") in separate series, or funds. The Board of Directors has authorized
Kemper International Growth and Income Fund (the "Fund"). Series may be
abolished and dissolved, and additional series established, from time to time by
action of the Directors.

(a) The Charter dated October 1, 1997 as amended to date.

(b) By-Laws of the Corporation as in effect on the date hereof
(the "By-Laws").

(c) Resolutions of the Directors of the Corporation and the
shareholders of the Fund selecting you as investment manager
and approving the form of this Agreement.

<PAGE>

you have knowledge; subject always to policies and instructions adopted by the
Corporation's Board of Directors. In connection therewith, you shall use
reasonable efforts to manage the Fund so that it will qualify as a regulated
investment company under Subchapter M of the Code and regulations issued
thereunder. The Fund shall have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Fund in accordance with the
requirements set forth in this section 2, you shall be entitled to receive and
act upon advice of counsel to the Corporation. You shall also make available to
the Corporation promptly upon request all of the Fund's investment records and
ledgers as are necessary to assist the Corporation in complying with the
requirements of the 1940 Act and other applicable laws. To the extent required
by law, you shall furnish to regulatory authorities having the requisite
authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Corporation are being conducted in a manner consistent
with applicable laws and regulations.

2
<PAGE>

custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Corporation as it may reasonably request in the conduct of the
Fund's business, subject to the direction and control of the Corporation's Board
of Directors. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.

3
<PAGE>

of 1.00 of 1 percent of the average daily net assets as defined below of the
Fund for such month; over any compensation waived by you from time to time (as
more fully described below). You shall be entitled to receive during any month
such interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then accrued
on the books of the Fund and unpaid.

4
<PAGE>

purpose of voting on such approval, and (b) by the Directors of the Corporation,
or by the vote of a majority of the outstanding voting securities of the Fund.
The aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom.

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.

5
<PAGE>

Yours very truly,

Kemper Global/International Series, Inc.,
on behalf of
Kemper International Growth and Income Fund

By: /s/Mark S. Casady
----------------------
President

The foregoing Agreement is hereby accepted as of the date hereof.

Scudder Kemper Investments, Inc.

By: /s/S.R. Beckwith
----------------------
Treasurer

INVESTMENT MANAGEMENT AGREEMENT

Kemper Global/International Series, Inc.
345 Park Avenue
New York, New York 10154

September 7, 1998

Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154

Investment Management Agreement
Kemper Emerging Markets Income Fund

Ladies and Gentlemen:

Kemper Global/International Series, Inc. (the "Corporation") has been
established as a Maryland corporation to engage in the business of an investment
company. Pursuant to the Corporation's Articles of Incorporation, as amended
from time-to-time (the "Charter"), the Board of Directors is authorized to issue
the Corporation's shares of common stock, par value $0.001 per share, (the
"Shares") in separate series, or funds. The Board of Directors has authorized
Kemper Emerging Markets Income Fund (the "Fund"). Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Directors.

(a) The Charter dated October 1, 1997 as amended to date.

(b) By-Laws of the Corporation as in effect on the date hereof
(the "By-Laws").

(c) Resolutions of the Directors of the Corporation and the
shareholders of the Fund selecting you as investment manager
and approving the form of this Agreement.

<PAGE>

3
<PAGE>

4
<PAGE>

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.

Yours very truly,

Kemper Global/International Series, Inc.,
on behalf of
Kemper Emerging Markets Income Fund

By: /s/Mark S. Casady
-------------------------------------
President

5
<PAGE>

The foregoing Agreement is hereby accepted as of the date hereof.

Scudder Kemper Investments, Inc.

By: /s/S.R Beckwith
-------------------------------------
Treasurer

INVESTMENT MANAGEMENT AGREEMENT

Kemper Global/International Series, Inc.
345 Park Avenue
New York, New York 10154

September 7, 1998

Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154

Investment Management Agreement
Kemper Emerging Markets Growth Fund

Ladies and Gentlemen:

Kemper Global/International Series, Inc. (the "Corporation") has been
established as a Maryland corporation to engage in the business of an investment
company. Pursuant to the Corporation's Articles of Incorporation, as amended
from time-to-time (the "Charter"), the Board of Directors is authorized to issue
the Corporation's shares of common stock, par value $0.001 per share, (the
"Shares") in separate series, or funds. The Board of Directors has authorized
Kemper Emerging Markets Growth Fund (the "Fund"). Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Directors.

(a) The Charter dated October 1, 1997 as amended to date.

(b) By-Laws of the Corporation as in effect on the date hereof
(the "By-Laws").

(c) Resolutions of the Directors of the Corporation and the
shareholders of the Fund selecting you as investment manager
and approving the form of this Agreement.

<PAGE>

2
<PAGE>

3
<PAGE>

of 1.25 of 1 percent of the average daily net assets as defined below of the
Fund for such month; over any compensation waived by you from time to time (as
more fully described below). You shall be entitled to receive during any month
such interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then accrued
on the books of the Fund and unpaid.

4
<PAGE>

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.

Yours very truly,

Kemper Global/International Series, Inc.,
on behalf of
Kemper Emerging Markets Growth Fund

By: /s/Mark S. Casady
----------------------
President

5
<PAGE>

The foregoing Agreement is hereby accepted as of the date hereof.

Scudder Kemper Investments, Inc.

By: /s/Stephen R. Beckwith
---------------------------
Treasurer

INVESTMENT MANAGEMENT AGREEMENT

Kemper Global/International Series, Inc.
345 Park Avenue
New York, New York 10154

September 7, 1998

Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154

Investment Management Agreement
Kemper Latin America Fund

Ladies and Gentlemen:

Kemper Global/International Series, Inc. (the "Corporation") has been
established as a Maryland corporation to engage in the business of an investment
company. Pursuant to the Corporation's Articles of Incorporation, as amended
from time-to-time (the "Charter"), the Board of Directors is authorized to issue
the Corporation's shares of common stock, par value $0.001 per share, (the
"Shares") in separate series, or funds. The Board of Directors has authorized
Kemper Latin America Fund (the "Fund"). Series may be abolished and dissolved,
and additional series established, from time to time by action of the Directors.

(a) The Charter dated October 1, 1997 as amended to date.

(b) By-Laws of the Corporation as in effect on the date hereof
(the "By-Laws").

(c) Resolutions of the Directors of the Corporation and the
shareholders of the Fund selecting you as investment manager
and approving the form of this Agreement.

<PAGE>

2
<PAGE>

5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the
Corporation on behalf of the Fund shall pay you in United States Dollars on the
last day of each month the unpaid balance of a fee equal to the excess of 1/12
of 1.25 of 1 percent of the average daily net assets as defined below of the
Fund for such month; provided

3
<PAGE>

that, for any calendar month during which the average of such values exceeds
$250 million , the fee payable for that month based on the portion of the
average of such values in excess of $250 million shall be 1/12 of 1.20 of 1
percent of such portion; and provided that, for any calendar month during which
the average of such values exceeds $1.0 billion, the fee payable for that month
based on the portion of the average of such values in excess of $1.0 billion
shall be 1/12 of 1.15 of 1 percent of such portion; over any compensation waived
by you from time to time (as more fully described below). You shall be entitled
to receive during any month such interim payments of your fee hereunder as you
shall request, provided that no such payment shall exceed 75 percent of the
amount of your fee then accrued on the books of the Fund and unpaid.

4
<PAGE>

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.

5
<PAGE>

Yours very truly,

Kemper Global/International Series, Inc.,
on behalf of
Kemper Latin America Fund

By: /s/Mark S. Casady
-------------------------------------
President

The foregoing Agreement is hereby accepted as of the date hereof.

Scudder Kemper Investments, Inc.

By: /s/S.R. Beckwith
-------------------------------------
Treasurer

INVESTMENT MANAGEMENT AGREEMENT

The Growth Fund of Spain, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606

September 7, 1998

Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154

Investment Management Agreement

Ladies and Gentlemen:

The Growth Fund of Spain, Inc. (the "Fund") has been established as a Maryland
corporation to engage in the business of an investment company. The Fund has
issued shares of common stock (the "Shares").

The Fund has selected you to act as the investment manager of the Fund and to
provide certain other services, as more fully set forth below, and you have
indicated that you are willing to act as such investment manager and to perform
such services under the terms and conditions hereinafter set forth. Accordingly,
the Fund agrees with you as follows:

1. Delivery of Documents. The Fund engages in the business of investing and
reinvesting its assets in the manner and in accordance with its investment
objectives, policies and restrictions. The Fund has furnished you with copies
properly certified or authenticated of each of the following documents related
to the Fund:

(a) The Articles of Incorporation ("Articles"), as amended to date.

(b) By-Laws of the Fund as in effect on the date hereof (the "By- Laws").

(c) Resolutions of the Directors of the Fund and the shareholders of the
Fund selecting you as investment manager and approving the form of this
Agreement.

The Fund will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing.

2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with its investment objectives, policies and restrictions; the
applicable provisions of the Investment Company Act of 1940 (the "1940 Act") and
the Internal Revenue Code of 1986, as amended, (the "Code") relating to
regulated investment companies and all rules and regulations thereunder; and all
other applicable federal and state laws and regulations of which you have
knowledge; subject always to policies and instructions adopted by the Fund's
Board of Directors. In connection therewith, you shall use reasonable efforts to
manage the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Fund. You shall
also make available to the Fund promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Fund in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite

<PAGE>

authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Fund are being conducted in a manner consistent with
applicable laws and regulations.

You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies.
You shall determine what portion of the Fund's portfolio shall be invested in
securities and other assets and what portion, if any, should be held uninvested.

You shall furnish to the Fund's Board of Directors periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Fund's officers or Board of Directors shall reasonably
request.

3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Fund administrative services on behalf of
the Fund necessary for operating as a closed-end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Fund's Board of Directors and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Fund's Registration Statement, and semi-annual
reports on Form N-SAR; overseeing the tabulation of proxies by the Fund's
transfer agent; assisting in the preparation and filing of the Fund's federal,
state and local tax returns; preparing and filing the Fund's federal excise tax
return pursuant to Section 4982 of the Code; providing assistance with investor
and public relations matters; monitoring the valuation of portfolio securities
and the calculation of net asset value; monitoring the registration of Shares of
the Fund under applicable federal and state securities laws; maintaining or
causing to be maintained for the Fund all books, records and reports and any
other information required under the 1940 Act, to the extent that such books,
records and reports and other information are not maintained by the Fund's
custodian or other agents of the Fund; assisting in establishing the accounting
policies of the Fund; assisting in the resolution of accounting issues that may
arise with respect to the Fund's operations and consulting with the Fund's
independent accountants, legal counsel and the Fund's other agents as necessary
in connection therewith; establishing and monitoring the Fund's operating
expense budgets; reviewing the Fund's bills; processing the payment of bills
that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Fund as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Fund's Board of
Directors. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.

4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Directors,
officers and executive employees of the Fund (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your

2
<PAGE>

expense the portfolio management services described in section 2 hereof and the
administrative services described in section 3 hereof.

You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Directors and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Fund; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Fund is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Fund business) of Directors, officers and
employees of the Fund who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
statements of additional information of the Fund and supplements thereto; costs
of stationery; any litigation expenses; indemnification of Directors and
officers of the Fund; and costs of shareholders' and other meetings.

5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Fund
shall pay you in United States Dollars on the last day of each month the unpaid
balance of a fee equal to the excess of (a) 1/12 of 1 percent of the average
weekly net assets of the Fund for such month; over (b) any compensation waived
by you from time to time (as more fully described below). You shall be entitled
to receive during any month such interim payments of your fee hereunder as you
shall request, provided that no such payment shall exceed 75 percent of the
amount of your fee then accrued on the books of the Fund and unpaid.

The net asset value of the Fund shall be calculated at such time or times as the
Directors may determine in accordance with the provisions of the 1940 Act. On
each day when net asset value is not calculated, the net asset value shall be
deemed to be the net asset value as of the close of business on the last day on
which such calculation was made for the purpose of the foregoing computations.

6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies. If any
occasion should arise in which you give any advice to clients of yours
concerning the Shares of the Fund, you shall act solely as investment counsel
for such clients and not in any way on behalf of the Fund.

3
<PAGE>

Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Fund. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.

7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Fund agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Fund or its
shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
1.

8. Duration and Termination of This Agreement. This Agreement shall remain in
force until April 1, 1998, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Directors who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Directors of the Fund, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.

This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Fund's Board of Directors on 60 days' written
notice to you, or by you on 60 days' written notice to the Fund. This Agreement
shall terminate automatically in the event of its assignment.

4
<PAGE>

as from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Fund.

If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.

Yours very truly,

GROWTH FUND OF SPAIN, INC.

By: /s/Daniel Pierce
------------------------------
Daniel Pierce
President

The foregoing Agreement is hereby accepted as of the date hereof.

SCUDDER KEMPER INVESTMENTS, INC.

By: /s/S.R. Beckwith
------------------------------
Treasurer

UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT

AGREEMENT made this 1st day of August, 1998 between KEMPER GLOBAL/
INTERNATIONAL SERIES, INC., a Maryland corporation (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").

In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:

1. The Fund hereby appoints KDI to act as agent for distribution of
shares of the Fund in jurisdictions wherein shares of the Fund may legally be
offered for sale; provided, however, that the Fund in its absolute discretion
may (a) issue or sell shares directly to holders of shares of the Fund upon such
terms and conditions and for such consideration, if any, as it may determine,
whether in connection with the distribution of subscription or purchase rights,
the payment or reinvestment of dividends or distributions, or otherwise; or (b)
issue or sell shares at net asset value to the shareholders of any other
investment company, for which KDI shall act as exclusive distributor, who wish
to exchange all or a portion of their investment in shares of such other
investment company for shares of the Fund. KDI shall appoint various financial
service firms ("Firms") to provide distribution services to investors. The Firms
shall provide such office space and equipment, telephone facilities, personnel,
literature distribution, advertising and promotion as is necessary or beneficial
for providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.

KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.

In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of existing and potential shareholders who may be
clients of such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Fund.

KDI shall use its best efforts with reasonable promptness to sell such
part of the authorized shares of the Fund remaining unissued as from time to
time shall be effectively registered under the Securities Act of 1933
("Securities Act"), at prices determined as hereinafter

<PAGE>

provided and on terms hereinafter set forth, all subject to applicable federal
and state laws and regulations and to the Fund's organizational documents.

2. KDI shall sell shares of the Fund to or through qualified Firms in
such manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.

Shares of any class of any series of the Fund offered for sale or sold
by KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. The price the Fund shall receive for all
shares purchased from it shall be the net asset value used in determining the
public offering price applicable to the sale of such shares. Any excess of the
sales price over the net asset value of the shares of the Fund sold by KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, any may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").

KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.

3. The Fund will use its best efforts to keep effectively registered
under the Securities Act for sale as herein contemplated such shares as KDI
shall reasonably request and as the Securities and Exchange Commission shall
permit to be so registered. Notwithstanding any other provision hereof, the Fund
may terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.

4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.

<PAGE>

5. KDI shall issue and deliver or shall arrange for various Firms to
issue and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.

6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI or of any corporation or association
furnishing investment advisory, managerial or supervisory services to the Fund,
or to any corporation or association, unless such sales are made in accordance
with the then current prospectus relating to the sale of such shares. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.

7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. The Fund will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) of any registration of
the Fund and its shares under the United States securities laws and expenses
incident to the issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent. KDI will pay
all expenses (other than expenses which one or more Firms may bear pursuant to
any agreement with KDI) incident to the sale and distribution of the shares
issued or sold hereunder, including, without limiting the generality of the
foregoing, all (a) expenses of printing and distributing any prospectus and of
preparing, printing and distributing or disseminating any other literature,
advertising and selling aids in connection with the offering of the shares for
sale (except that such expenses need not include expenses incurred by the Fund
in connection with the preparation, typesetting, printing and distribution of
any registration statement or prospectus, report or other communication to
shareholders in their capacity as such), (b) expenses of advertising in
connection with such offering and (c) expenses (other than the Fund's auditing
expenses) of qualifying or continuing the qualification of the shares for sale
and, in connection therewith, of qualifying or continuing the qualification of
the Fund as a dealer or broker under the laws of such states as may be

<PAGE>

designated by KDI under the conditions herein specified. No transfer taxes, if
any, which may be payable in connection with the issue or delivery or shares
sold as herein contemplated or of the certificates for such shares shall be
borne by the Fund, and KDI will indemnify and hold harmless the Fund against
liability for all such transfer taxes.

8. This Agreement shall become effective on the date hereof and shall
continue until April 1, 1999; and shall continue from year to year thereafter
only so long as such continuance is approved in the manner required by the
Investment Company Act.

This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of any series of the Fund
by a vote of (i) a majority of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.

All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.

The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.

KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.

9. KDI will not use or distribute, or authorize the use, distribution
or dissemination by Firms or others in connection with the sale of Fund shares
any statements other than those contained in the Fund's current prospectus,
except such supplemental literature or advertising as shall be lawful under
federal and state securities laws and regulations. KDI will furnish the Fund
with copies of all such material.

10. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.

11. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for

<PAGE>

the receipt of such notice.

12. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.

13. This Agreement is the entire contract between the parties relating
to the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.

[SIGNATURES APPEAR ON NEXT PAGE]

<PAGE>

IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.

KEMPER GLOBAL/INTERNATIONAL SERIES, INC.

By: /s/Mark S. Casady
------------------------------------
Title: President
---------------------------------

ATTEST:

/s/Maureen Kane
- ----------------------------------
Title: Asst. Sec.
---------------------------

KEMPER DISTRIBUTORS, INC.

By: /s/James L. Greenawalt
------------------------------------
Title: President
---------------------------------

ATTEST:

/s/Joan V. Pearson
- ----------------------------------
Title: Executive Assistant
---------------------------

UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT

AGREEMENT made this 7th day of September, 1998 between KEMPER GLOBAL/
INTERNATIONAL SERIES, INC., a Maryland corporation (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").

In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:

1. The Fund hereby appoints KDI to act as agent for
distribution of shares of the Fund in jurisdictions wherein shares of the Fund
may legally be offered for sale; provided, however, that the Fund in its
absolute discretion may (a) issue or sell shares directly to holders of shares
of the Fund upon such terms and conditions and for such consideration, if any,
as it may determine, whether in connection with the distribution of subscription
or purchase rights, the payment or reinvestment of dividends or distributions,
or otherwise; or (b) issue or sell shares at net asset value to the shareholders
of any other investment company, for which KDI shall act as exclusive
distributor, who wish to exchange all or a portion of their investment in shares
of such other investment company for shares of the Fund. KDI shall appoint
various financial service firms ("Firms") to provide distribution services to
investors. The Firms shall provide such office space and equipment, telephone
facilities, personnel, literature distribution, advertising and promotion as is
necessary or beneficial for providing information and distribution services to
existing and potential clients of the Firms. KDI may also provide some of the
above services for the Fund.

<PAGE>

provided and on terms hereinafter set forth, all subject to applicable federal
and state laws and regulations and to the Fund's organizational documents.

<PAGE>

10. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.

11. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for

<PAGE>

the receipt of such notice.

12. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.

13. This Agreement is the entire contract between the parties relating
to the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.

[SIGNATURES APPEAR ON NEXT PAGE]

<PAGE>

IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.

KEMPER GLOBAL/INTERNATIONAL SERIES, INC.

By: /s/Mark S. Casady
------------------------------------
Title: President
---------------------------------

ATTEST:

/s/Maureen Kane
- ----------------------------------
Title: Asst. Sec.
---------------------------

KEMPER DISTRIBUTORS, INC.

By: /s/James L. Greenawalt
------------------------------------
Title: President
---------------------------------

ATTEST:

/s/Joan V. Pearson
- ----------------------------------
Title: Executive Assistant
---------------------------

Fund: Kemper Global/International Series, Inc. (the "Fund")
----------------------------------------
Series: Kemper Global Blue Chip Fund (the "Series")
----------------------------
Class: Class B (the "Class")
-------

AMENDED AND RESTATED 12b-1 PLAN

Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including a majority of the Board members who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.

1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI.

2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.

3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.

4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.

<PAGE>

5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.

6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.

7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.

8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.

(Amended and restated August 1, 1998)

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

Fund: Kemper Global/International Series, Inc. (the "Fund")
----------------------------------------
Series: Kemper International Growth and Income Fund (the "Series")
------------------------------------------------
Class: Class B (the "Class")
-------

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

Fund: Kemper Global/International Series, Inc. (the "Fund")
----------------------------------------
Series: Kemper Emerging Markets Income Fund (the "Series")
-----------------------------------
Class: Class B (the "Class")
-------

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

Fund: Kemper Global/International Series, Inc. (the "Fund")
----------------------------------------
Series: Kemper Emerging Markets Growth Fund (the "Series")
-----------------------------------
Class: Class B (the "Class")
-------

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

Fund: Kemper Global/International Series, Inc.
(the "Fund")
Series: Kemper Latin America Fund (the "Series")
Class: Class B (the "Class")

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)

Fund: Kemper Global/International Series, Inc.
(the "Fund")
Series: Kemper Latin America Fund (the "Series")
Class: Class C (the "Class")

AMENDED AND RESTATED 12b-1 PLAN

<PAGE>

9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.

(Amended and restated August 1, 1998)