GROWTH FUND OF SPAIN INC, N-1A, 1998-11-30

GROWTH FUND OF SPAIN INC
N-1A, 1998-11-30

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT
NOVEMBER 30, 1998

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. [ ]

THE GROWTH FUND OF SPAIN, INC.
(Exact Name of Registrant as Specified in Charter)

222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (312) 537-7000

Copy to:

PHILIP J. COLLORA DAVID A. STURMS
VICE PRESIDENT VEDDER, PRICE, KAUFMAN & KAMMHOLZ
THE GROWTH FUND OF SPAIN, INC. 222 NORTH LASALLE STREET
222 SOUTH RIVERSIDE PLAZA CHICAGO, ILLINOIS 60601
CHICAGO, ILLINOIS 60606
(Name and Address of Agent for Service) (Name and Address of Agent for Service)

It is proposed that this filing will become effective on December 11, 1998

<PAGE>

Prospectus dated December 11, 1998

SUMMARY ...................................................................1
SUMMARY OF EXPENSES............................................................2
FINANCIAL HIGHLIGHTS...........................................................4
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS................................6
INVESTMENT MANAGER AND UNDERWRITER............................................13
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................15
NET ASSET VALUE...............................................................19
PURCHASE OF SHARES............................................................19
REDEMPTION OR REPURCHASE OF SHARES............................................23
PERFORMANCE ..................................................................27

This prospectus of The Growth Fund of Spain, Inc. (the "Fund"), an open-end
management investment company, contains concisely the information about the Fund
that a prospective investor should know before investing and should be retained
for future reference. A Statement of Additional Information, which contains
additional information about the Fund and the Corporation, dated December 11,
1998, has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by reference. It is available upon request without charge
from the Fund at the address or telephone number on this cover or the firm from
which this prospectus was received. It is also available along with other
related materials on the SEC's Internet Web Site (http://www.sec.gov).

THE FUND WAS A CLOSED-END FUND LISTED ON THE NEW YORK STOCK EXCHANGE, INC.
THE SHAREHOLDERS OF THE FUND HAVE APPROVED A PROPOSAL TO OPEN-END THE FUND AND
REORGANIZE THE FUND AS A NEW SERIES OF KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
THE CONVERSION OF THE FUND TO AN OPEN-END INVESTMENT COMPANY IS EXPECTED TO
OCCUR ON DECEMBER 11, 1998 OR AS SOON AS PRACTICABLE THEREAFTER. THIS PROSPECTUS
PERTAINS TO THE FUND AS AN OPEN-END INVESTMENT COMPANY. THE FUND WILL NOT OFFER
SHARES FOR PURCHASE, AND WILL NOT ACCEPT SUBSCRIPTIONS FOR SUCH SHARES, UNDER
THIS PROSPECTUS.

THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT
IN THE FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

<PAGE>

THE
GROWTH FUND
OF SPAIN, INC.

PROSPECTUS DATED DECEMBER 11, 1998

THE GROWTH FUND
OF SPAIN, INC.

222 South Riverside Plaza, Chicago, Illinois 60606

1-800-621-1048

This prospectus describes The Growth Fund of Spain, Inc., a mutual fund
managed by Scudder Kemper Investments, Inc. (the "Adviser"), whose investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of Spanish companies. The Fund may also invest up to 35% of
its total assets in the securities of non-Spanish companies, which investments
may be concentrated in whole or in part in the equity securities of Portuguese
companies. The Fund was previously a closed-end fund whose shares were traded on
the New York Stock Exchange, Inc. before its shareholders approved a proposal to
open-end the fund.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

INVESTMENT BY THE FUND IN SECURITIES OF SPANISH AND PORTUGUESE COMPANIES
INVOLVES CERTAIN RISKS NOT TYPICALLY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. COMPANIES INCLUDING: CURRENCY FLUCTUATIONS, POTENTIAL PRICE VOLATILITY,
LESS LIQUIDITY AND CONCENTRATION IN THE SPANISH AND PORTUGUESE EQUITIES MARKETS.

<PAGE>

THE GROWTH FUND OF SPAIN, INC.
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048

SUMMARY

INVESTMENT OBJECTIVE. THE GROWTH FUND OF SPAIN, INC. (the "Fund") seeks
long-term capital appreciation by investing primarily in equity securities of
Spanish companies.

The Fund is a non-diversified, open-end management investment company. As
part of its overall investment strategy, the Fund may also invest up to 35% of
its total assets in the securities of non-Spanish companies, which investments
may be concentrated in whole or in part in the equity securities of Portuguese
companies. The Fund may purchase and sell put and call options, engage in
financial futures transactions ("Strategic Transactions"), invest in foreign
securities and engage in related foreign currency transactions.

OPEN-ENDING AND REORGANIZATION. The Fund commenced investment operations on
February 14, 1990 as a closed-end management investment company organized as a
Maryland corporation. At a meeting of the shareholders of the Fund held October
28, 1998, the shareholders voted to approve the conversion of the Fund to an
open-end investment company and the reorganization of the Fund as a new series
of Kemper Global/International Series, Inc. called "The Growth Fund of Spain"
(the "New Fund"), consisting of Class A, Class B, and Class C shares. The
conversion to an open-end investment company occurred on December 11, 1998 after
the close of business. Reorganization of the Fund is to occur immediately after
such conversion. Pursuant to the reorganization agreement between the Fund and
Kemper Global/International Series, Inc., the Fund will transfer all of its
assets to the New Fund in exchange for newly designated Class A shares of the
New Fund and the assumption by the New Fund of the liabilities of the Fund (the
"reorganization agreement"). The New Fund will then distribute the Class A
shares of the New Fund received in the reorganization to its shareholders and
subsequently terminate.

RISK FACTORS. The Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the Adviser. The
following are descriptions of certain risks related to the investments and
techniques that the Fund may use from time to time. For a more complete
discussion of risks involved in an investment in the Fund, see "Special Risk
Factors."

The Fund involves above-average investment risk. It is designed as a
long-term investment and not for short-term trading purposes, and should not be
considered a complete investment program.

There is no assurance that the investment objective of the Fund will be
achieved. The return and net asset value of the Fund will fluctuate. The Fund's
non-diversified status involves greater risk than typical diversified mutual
funds, since the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and therefore may be subject to
greater market and credit risk than a more broadly diversified portfolio.

Investment by the Fund in securities of Spanish and other non-United States
companies involves certain considerations not typically associated with
investing in securities of U.S. companies including: currency fluctuations,
potential price volatility, heightened political and economic risk, less
liquidity and concentration in foreign equities markets. Foreign investments by
the Fund involve risk and opportunity considerations not typically associated
with investing in U.S. companies. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the U.S. dollar falls against such currency. Thus, the U.S. dollar
value of foreign securities in the Fund's portfolio, and the Fund's net asset
value, may change in response to changes in currency exchange rates even though
the value of the foreign securities in local currency terms may not have
changed. The Fund's possible concentration of investments in a single issuer
(i.e., non-diversification) creates greater risk than if its investments were
spread across a more diversified portfolio. There are special risks associated
with options, financial futures and foreign currency transactions and other
derivatives and there is no assurance that use of those investment techniques
will be successful. See "Investment Objective, Policies and Risk Factors."

<PAGE>

PURCHASES AND REDEMPTIONS. Shares of the Fund are not currently offered for
purchase. The New Fund will offer Class A, Class B and Class C shares.

As an open-end fund, the Fund is required to redeem its securities if so
requested by shareholders. To the extent the Fund is required to sell
appreciated securities to pay redemptions, the Fund will realize capital gains
which must be distributed to shareholders each year. Such distributions will be
taxable to shareholders. A significant portion of the value of the Fund's
portfolio is represented by unrealized capital gains. To minimize realization of
capital gains on disposition of portfolio securities in connection with
redemptions, the New Fund will institute a policy requiring that certain
large-scale redemptions be paid in-kind in an attempt to avoid the imposition of
adverse tax consequences on remaining shareholders. This policy will not,
however, lessen the tax effect of other redemptions. The Fund anticipates that
there may be significant redemptions as a result of its conversion to an
open-end fund. If so, the New Fund may realize significant capital gains.

INVESTMENT MANAGER AND UNDERWRITER. Scudder Kemper Investments, Inc. (the
"Adviser") serves as investment manager for the Fund. The Adviser is paid an
investment management fee by the Fund based upon the Fund's average daily net
assets. The Adviser uses BSN Gestion de Patrimonios, S.A., S.G.C. ("BSN") as
sub-adviser. For its services, BSN receives from the Adviser a monthly fee based
on the Fund's average weekly net assets. Since the Fund does not currently offer
shares, the Fund does not have an underwriter. However, Kemper Distributors,
Inc. ("KDI"), a subsidiary of the Adviser, will be principal underwriter and
administrator for the New Fund. KDI will also receive the amount of any
contingent deferred sales charges paid on the redemption of shares. The expenses
of the New 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, but not necessarily higher than the fees charged to funds with
investment objectives similar to that of the New Fund. Certain administrative
services are to be provided to shareholders under an administrative services
agreement with KDI. The New Fund will pay an administrative services fee at an
annual rate of up to 0.25% of average daily net assets of shares of the New
Fund, which KDI pays to financial services firms. See "Investment Manager and
Underwriter."

DIVIDENDS. 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. See "Dividends,
Distributions and Taxes."

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES(1) FUND NEW FUND
---- --------
<S> <C> <C>
Maximum sales charge on purchases (as a percentage of offering price)................................... N/A 5.75%(2)
Maximum sales charge on reinvested dividends............................................................ None None
Redemption fees+........................................................................................ None 2.00%
Exchange fee............................................................................................ None None
Maximum contingent deferred sales charge (as a percentage of redemption
proceeds)............................................................................................. None None(3)
</TABLE>

- - ----------
+ A 2% fee, which is retained by the Fund, is imposed upon redemptions or
exchanges during the first year after purchase, with limited exceptions.
See "Redemption or Repurchase of Shares--Redemption Fee."
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares--Initial Sales Charge Alternative."
(3) The redemption of 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. See
"Purchase of Shares--Initial Sales Charge Alternative."

<PAGE>

ANNUAL FUND OPERATING EXPENSES
(estimated as a percentage of average net assets)

FUND NEW FUND
---- --------
<S> <C> <C>
Management fees..................................................... 1.00% 0.75%
12b-1 fees.......................................................... None None
Other expenses...................................................... 0.85 1.10%
---- ----
Total fund operating expenses....................................... 1.85% 1.85%
==== ====
</TABLE>

EXAMPLE

The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
FUND
Based on the estimated level of total operating expenses listed $96 $112 $152 $262
above, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at
the end of each time period:

You would pay the following expenses on the same investment, $75 $112 $152 $262
assuming no redemption.

NEW FUND
Based on the estimated level of total operating expenses listed $96* $112 $152 $262
above, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at
the end of each time period(4):

You would pay the following expenses on the same investment, $75 $112 $152 $262
assuming no redemption.
</TABLE>

- - ----------
* Assumes that shareholder purchased shares on the first day of the first
year and the 2% redemption fee was applied.

(4) Assumes deduction of the maximum 5.75% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the time
of redemption.

The purpose of the preceding table is to assist investors in understanding
the various costs and expenses that an investor in the New Fund will bear
directly or indirectly. See "Investment Manager and Underwriter" for more
information about the Fund and the New Fund.

The expense ratios shown above are estimates for the Fund's current fiscal
year ending on October 31, 1999 based on the Fund's current fee schedule and
expenses. The fees and expenses of the Fund subsequent to its conversion to
open-end status will differ from the fees and expenses of the Fund when it
operated as a closed-end fund. The fees and expenses of closed-end funds are, in
many cases, lower than those of open-end funds.

Each Example assumes a 5% annual rate of return pursuant to requirements of
the SEC and assumes reinvestment of all dividends and distributions. This
hypothetical rate of return is not intended to be representative of past or
future performance of the Fund. THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.

<PAGE>

FINANCIAL HIGHLIGHTS

The following table shows financial information for the Fund's shares
expressed in terms of one share outstanding throughout the period it was a
closed-end management investment company. The financial highlights are part of
the Fund's financial statements, which are included in its Annual Report to
Shareholders for the fiscal year ended November 30, 1997, and Semiannual Report
to Shareholders for the period ended May 31, 1998 and are incorporated by
reference into the Fund's Statement of Additional Information and this
Prospectus. The financial statements and accompanying notes for the Fund's
fiscal year ended November 30, 1997 have been audited by Ernst & Young LLP,
independent auditors, which together with Ernst & Young LLP's report thereon are
included in the Fund's Annual Report to Shareholders for such fiscal year.
Further information about the Fund's performance is contained in the Fund's
Statement of Additional Information and its Annual Report to Shareholders for
the fiscal year ended November 30, 1997, and Semiannual Report to Shareholders
for the period ended May 31, 1998, which may each be obtained without charge by
calling 1-800-621-1048. Effective as of the Fund's 1998 fiscal year, the Fund's
fiscal year end has been changed to October 31.

<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED NOVEMBER 30,
ENDED MAY 31, -------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $19.06 $15.67 $13.33 $12.40 $10.67
Income from investment operations:
Net investment income........................... .06 .24 .36 .37 .32
Net realized and unrealized gain................ 6.07 4.15 2.69 1.01 1.41
Total from investment operations.................. 6.13 4.39 3.05 1.38 1.73
Less dividends:
Distribution from net investment
income....................................... .11 .17 .42 .45 --
Distribution from net realized gain............. 1.36 .83 .29 -- --
Total dividends................................... 1.47 1.00 .71 .45 --

Net asset value, end of period.................... $23.72 $19.06 $15.67 $13.33 $12.40

TOTAL RETURN
Based on net asset value.......................... 34.60% 29.86% 24.12% 11.62% 16.21%

RATIOS TO AVERAGE NET ASSETS
Expenses.......................................... 1.21 1.22 1.25 1.22 1.23
Net investment income............................. .56% 1.29% 2.46% 2.89% 2.57%

SUPPLEMENTAL DATA
Net assets at end of period....................... $392,061 $315,059 $263,935 $227,997 $213,972
(in thousands)

Portfolio turnover rate (annualized).............. 5% 29% 45% 69% 85%

YEAR ENDED NOVEMBER 30, FEBRUARY 14, 1990
----------------------------- TO NOVEMBER 30
1993 1992 1991 1990
---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $8.99 $11.08 $10.71 $11.12
Income from investment operations:
Net investment income........................... .40 .54 .37 .32
Net realized and unrealized gain................ 1.28 (2.48) .36 (.73)
Total from investment operations.................. 1.68 (1.94) .73 (.41)
Less dividends:
Distribution from net investment
income....................................... -- .15 .36 --
Distribution from net realized gain............. -- -- -- --
Total dividends................................... -- -- -- --

Net asset value, end of period.................... $10.67 $8.99 $11.08 $10.71

TOTAL RETURN
Based on net asset value.......................... 18.69% (17.73)% 7.06% (3.69)%

RATIOS TO AVERAGE NET ASSETS
Expenses.......................................... 1.22 1.22 1.23 1.26
Net investment income............................. 3.97% 4.98% 3.32% 3.46%

SUPPLEMENTAL DATA
Net assets at end of period....................... $184,884 $156,179 $192,986 $186,638
(in thousands)

Portfolio turnover rate (annualized).............. 50% 72% 104% 19%
</TABLE>

NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Each figure includes reinvestment of dividends.
Data for the period ended May 31, 1998 is unaudited.

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS

The following information sets forth the Fund's investment objective and
policies. The Fund's returns and net asset value will fluctuate, and there is no
assurance that the Fund will meet its objective.

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 foregoing 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. 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.

SPECIAL RISK FACTORS. The Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the Adviser. The
following are descriptions of certain risks related to the investments and
techniques that the Fund may use from time to time.

NON-DIVERSIFIED INVESTMENT COMPANY. The Fund is classified as
non-diversified under the Investment Company Act of 1940, as amended (the "1940
Act"), which means that the Fund is not limited by the 1940 Act in the

<PAGE>

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 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").

FOREIGN SECURITIES, IN GENERAL. Investments in foreign securities involve
special considerations, due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets and the likely impact of
foreign taxes on the yield from debt securities. They may also entail certain
other risks, such as the possibility of one or more of the following: imposition
of dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization, military coups or other
adverse political or economic developments; less government supervision and
regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Further, 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., increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Certain markets may require
payment for securities before delivery. The Fund's ability and decision to
purchase and sell portfolio securities may be affected by laws or regulations
relating to the convertibility of currencies and repatriation of assets. Some
countries restrict the extent to which foreigners may invest in their securities
markets.

Some foreign countries also may have managed currencies, which are not free
floating against the U.S. dollar. In addition, there is risk that certain
foreign countries may restrict the free conversion of their currencies into
other currencies. Further, it generally will not be possible to eliminate the
Fund's foreign currency risk through hedging. Any devaluations in the currencies
in which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.

SPANISH AND PORTUGUESE MARKET CHARACTERISTICS. The securities markets of
Spain and Portugal have substantially less volume than the securities markets of
the United States and securities of some companies in Spain and Portugal are
less liquid and more volatile than securities of comparable U.S. companies.
Accordingly, these markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Brokerage commissions
and other transaction costs on securities exchanges in Spain and Portugal are
generally higher than in the United States.

Though foreign investment in the securities markets of Spain and Portugal
is permitted, certain controls and restrictions may apply in certain
circumstances. These controls may at times limit or preclude investment in
certain Spanish or Portuguese companies and may increase the cost and expenses
of the Fund. The right of foreign investors to repatriate both investment income
and capital from Spain and Portugal is recognized. Notwithstanding this right,
such repatriation is regulated in Spain, including in some cases certain
notification requirements. Although restrictions on foreign investment in Spain
and Portugal may in the future make it undesirable to invest in Spain and
Portugal, the Adviser does not believe that any current repatriation controls
would affect its decision to invest in Spain and Portugal.

Companies in Spain and Portugal are subject to accounting, auditing and
financial standards and requirements which are not equivalent to those
applicable to U.S. companies. There is less government supervision and
regulation of Spanish and Portuguese securities exchanges, brokers and listed
companies than exists in the United States. In addition, there may be the
possibility of increased taxation, and political, economic or diplomatic
developments which could adversely affect assets held in Spain and Portugal.
There is also less publicly available information about Spanish and Portuguese
companies and governments compared to reports and ratings published about U.S.
companies and the U.S. Government.

See Appendix B in the Fund's Statement of Additional Information for a more
detailed discussion of Spanish and Portuguese market and economic
characteristics.

<PAGE>

EXCHANGE RATE FLUCTUATIONS. Although the Fund's assets will be invested in
Spanish and Portuguese securities and substantial revenues will be received in
Pesetas or Escudos, the Fund will value its net assets and will make
distributions to its shareholders in U.S. dollars. Accordingly, the U.S. dollar
equivalent of the Fund's net assets, including accrued income and realized
capital gains, will be adversely affected by reductions in the value of such
currency relative to the U.S. dollar. See "Investment Manager and
Underwriter--Euro Conversion" below. The Fund may enter into transactions to
seek to hedge foreign currency exchange rate risks. See "Strategic Transactions
and Derivatives" below.

CORPORATE DISCLOSURE STANDARDS. Issuers of securities in Spain and Portugal
are not subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, tender offer regulation,
shareholder proxy requirements and the timely disclosure of information.
Furthermore, Spanish and Portuguese accounting, auditing and financial reporting
standards are not comparable to U.S. standards and less information is available
to investors in Spanish and Portuguese securities than to investors in U.S.
securities.

INVESTMENT AND REPATRIATION RESTRICTIONS. Regulation of foreign investment
in Spanish companies is relatively limited. In general, only foreign investor
participation which exceeds a 50% interest in a company is subject to a review
procedure by the Ministry of Economy and Finance. Foreign investment in certain
sectors, such as national defense, television, radio, gambling, communications
and air transportation, requires prior governmental approval pursuant to
applicable legislation.

Existing exchange control regulations in Spain permit non-residents to
convert Pesetas to foreign currencies only by means of "foreign currency
convertible Peseta accounts." Non-residents typically acquire Pesetas through
their receipt of proceeds from the sale of investments in Spain. All such
exchange operations are authorized in accordance with the regulations of the
Bank of Spain and some require specific government authorization.

OTHER RISKS OF FOREIGN INVESTMENTS. As in the case of all foreign
investments, the Fund's investments in Spanish and Portuguese securities could
in the future be adversely affected by any increase in taxes or by political,
economic or diplomatic developments.

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.

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.

DEBT SECURITIES, IN GENERAL. The Fund may invest in investment-grade
fixed-income instruments rated in the four highest rating categories by S&P or
Moody's, or, if unrated, are determined to be of equivalent quality. High
quality bonds (rated AAA or AA by S&P or Aaa or Aa by Moody's)
characteristically have a strong capacity to pay interest and repay principal.
Medium investment-grade bonds (rated A or BBB by S&P or A or Baa by Moody's) are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium investment-grade bonds are considered to have
speculative characteristics. 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.

<PAGE>

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities which
may offer higher income than the common stocks into which they are convertible.
The convertible securities in which the Fund may invest are bonds, notes,
debentures and preferred stocks, including 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. Prior to their
conversion, convertible securities may have characteristics similar to both
nonconvertible debt securities and equity securities. While convertible
securities generally offer lower yields than nonconvertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities generally entail less credit risk than the
issuer's common stock. The Fund may be required to permit the issuer of a
convertible security to redeem the security, convert it into the underlying
common stock or sell it to a third party. Thus, the Fund may not be able to
control whether the issuer of a convertible security chooses to convert that
security. If the issuer chooses to do so, this action could have an adverse
effect on the Fund's ability to achieve its investment objective.

In selecting convertible securities for the Fund, the following factors,
among others, will be considered by the Adviser: (1) the Adviser's evaluations
of creditworthiness of the issuers of the securities; (2) the interest or
dividend income generated by the securities; (3) the potential for capital
appreciation of the securities and the underlying common stock; (4) the prices
of the securities relative to the underlying common stocks; (5) the prices of
the securities relative to other comparable securities; (6) whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; (7) diversification of the Fund's portfolio as to issuers and
industries; and (8) whether the securities are rated by Moody's and/or S&P and,
if so, the ratings assigned.

ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities,
which pay no cash income and are sold at substantial discounts from their
maturity value. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their maturity value. Zero coupon securities are subject to greater market value
fluctuations from changing interest rates than debt obligations of comparable
maturities that make current cash distributions of interest.

WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued
or forward delivery basis, for payment and delivery at a later date. The price
and yield are generally fixed on the date of commitment to purchase. During the
period between purchase and settlement, no interest accrues to the Fund. At the
time of settlement, the market value of the security may be more or less than
the purchase price.

REPURCHASE AGREEMENTS. As a means of earning income for periods as short as
overnight, the Fund may enter into repurchase agreements with selected banks and
broker/dealers with respect to its U.S. dollar-denominated debt securities.
Under a repurchase agreement, the Fund acquires securities, subject to the
seller's agreement to repurchase them at a specified time and price. If the
seller under a repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted, or the value of the securities may
decline before the Fund is able to dispose of them. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delays and incur costs, including a decline in
the value of the securities, before being able to sell the securities. The total
amount of all repurchase agreements having a maturity greater than seven days,
plus the total value of all securities held by the Fund which are not readily
marketable, will be limited to 15% of the Fund's net assets. See "Unlisted and
Illiquid Securities" below.

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.

UNLISTED AND ILLIQUID SECURITIES. The Fund is permitted to invest up to 25%
of its total assets in unlisted securities and in securities that are not
readily marketable, a significant portion of which may be considered illiquid.
Under current interpretations of the SEC's staff, the Fund is limited to
investing 15% of its net assets in such securities to the extent they are deemed
to be illiquid. Such unlisted securities may consist of both equity securities
and debt

<PAGE>

securities, including convertible debt securities. There is no requirement to
register the sale of securities with a government agency in Spain and there are
no legal restrictions on resales of such securities, either as to length of time
such securities must be held or manner of resale. However, there may be
contractual restrictions on resale of such securities. The sale price of
unlisted securities may be lower or higher than the Adviser's most recent
estimate of their fair value. Generally, less public information is available
with respect to the issuers of such securities than with respect to companies
whose securities are traded on an exchange. Unlisted securities are more likely
to be issued by emerging, small or family businesses and therefore subject to
greater economic, business and market risks than the listed securities of more
well-established companies.

Illiquid securities may have been acquired through private placements
(transactions in which the securities acquired have not been registered with the
SEC). These securities generally offer a higher return than more readily
marketable securities, but carry the risk that the Fund may not be able to
dispose of them at an advantageous time or price. Some restricted securities
purchased by the Fund, however, may be considered liquid despite resale
restrictions since they can be sold to other qualified institutional buyers
under a rule of the SEC (Rule 144A). 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. Upon approval from the Fund's Board of Directors, the Adviser
may determine which Rule 144A securities will be considered liquid.

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 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.

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.

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 highly 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" in the Fund's SAI). 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.

<PAGE>

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. Under 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. As such, investments in
these securities will be limited by the Fund's policy of investing in illiquid
securities.

STRATEGIC TRANSACTIONS AND DERIVATIVES. The 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 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.

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
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.

<PAGE>

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 for leveraging purposes. 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's 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 contracts 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. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.

ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates for the
Fund are listed under "Financial Highlights." The portfolio turnover rate for
the Fund may be higher than the portfolio turnover rate prior to the conversion
to open-end status. It is anticipated that, under normal circumstances the
portfolio turnover rate for the Fund will not exceed 100%. The Fund may
periodically experience a high turnover rate (over 100%). Higher portfolio
turnover involves correspondingly greater brokerage commissions or other
transaction costs. Higher portfolio turnover may also result in the realization
of greater net short-term or long-term capital gains. See "Dividends and Taxes"
in the Statement of Additional Information.

The 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 the Fund's investment risk.
Policies of the Fund that are not incorporated into any of the fundamental
investment restrictions referred to above or that are not specifically
identified as fundamental may be changed by the Board of Directors of the Fund
without shareholder approval.

As a matter of fundamental policy, the Fund may not borrow money except as
permitted under Federal law; however, as a matter of nonfundamental policy, the
Fund will not borrow in an amount not exceeding 5% of total assets 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.

As a matter of fundamental policy, the Fund may not make loans except
through the purchase of debt securities or through repurchase agreements.

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

<PAGE>

INVESTMENT MANAGER AND UNDERWRITER

INVESTMENT MANAGER. The Fund retains the investment management firm of
Scudder Kemper Investments, Inc., a Delaware corporation, to manage the Fund's
daily investment and business affairs subject to the policies established by the
Corporation's Board of Directors. The Directors have overall responsibility for
the management of the Fund under Maryland law.

Under the Investment Management Agreement with the Adviser, dated September
7, 1998, the Fund is responsible for all of its expenses, including fees and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's accounting agent; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering and 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.

For its investment management services, the Fund pays the Adviser an
investment management fee at the annual rate of no more than 1.00% of the Fund's
average daily net assets. This fee is payable monthly at a rate of 1/12 of 1.00%
of the value of the Fund's average weekly net assets. The New Fund will pay the
Adviser an investment management fee, at the annual rate of no more than 0.75%
of the New Fund's average daily net assets. The New Fund's fee will be graduated
so that increases in the Fund's net assets may result in a lower fee. In
addition, the fee will be payable monthly, provided that the New Fund will make
such interim payments as may be requested by the Adviser not to exceed 75% of
the amount of the fee then accrued on the books of the New Fund and unpaid.

The Adviser pays BSN Gestion de Patrimonios, S.A., S.G.C. ("BSN") a monthly
fee of 0.35% of the Fund's average weekly net assets for investment management
services pursuant to a sub-advisory agreement between the Adviser and BSN. The
current sub-advisory agreement is dated September 7, 1998. Under the terms of
the sub-advisor agreement, BSN provides such investment advice, research and
assistance as the Adviser may request with respect to investment by the Fund in
Spanish securities.

The Adviser is headquartered at 345 Park Avenue, New York, New York. BSN is
headquartered at Paseo de la Castellana, 32-Planta G, 28046, Madrid, Spain.

A predecessor of the Adviser, Scudder, Stevens & Clark, Inc. ("Scudder"),
is one of the most experienced investment counsel firms in the U.S. 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, Scudder 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.

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").

On September 7, 1998, the financial services businesses 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.

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.

<PAGE>

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

Joan R. Gregory, Lead Portfolio Manager since 1998, focuses on stock
selection. She joined the Adviser in 1992 and has been involved with investment
in global and international stocks since 1989. Nicholas Bratt, Portfolio
Manager, directs the Fund's general investment strategies. Mr. Bratt has over 20
years of experience in worldwide investing and has been with the Adviser since
1976.

YEAR 2000 READINESS. Like other mutual funds and financial and business
organizations worldwide, the Fund could be adversely affected if computer
systems on which the Fund relies, which primarily include those used by the
Adviser, its affiliates or other service providers, are unable to process
correctly date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to address successfully the Year
2000 Issue could result in interruptions to and other material adverse effects
on the Fund's business and operations. The Adviser has commenced a review of the
Year 2000 Issue as it may affect the Fund 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
companies whose securities are held by the 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), including Spain and Portugal. 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 European Union (EU) 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.

The Adviser 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.

PRINCIPAL UNDERWRITER. The Fund does not currently offer shares. Pursuant
to an underwriting and distribution services agreement (the "distribution
agreement") with Kemper Global/International Series, Inc., Kemper Distributors,
Inc. ("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, a subsidiary
of the Adviser, will be the principal underwriter and distributor of the New
Fund's shares and acts as agent of the New Fund in the sale of its shares. KDI
will bear all of its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. KDI will provide for the
preparation of advertising or sales literature and bears the cost of printing
and mailing prospectuses to persons other than shareholders. KDI will bear the
cost of qualifying and maintaining the qualification of New Fund shares for sale
under the securities laws of the various states and the New Fund will bear the
expense of registering its shares with the SEC. KDI may enter into related
selling group agreements with various broker-dealers, including affiliates of
KDI, that provide distribution services to investors. KDI also may provide some
of the distribution services.

KDI will receive no compensation from the New Fund as principal underwriter
for shares of the New Fund and pays all expenses of distribution of the New
Fund's shares under the distribution agreement not otherwise paid by dealers or
other financial services firms.

<PAGE>

ADMINISTRATIVE SERVICES. The Fund does not currently offer shares. KDI will
provide information and administrative services for shareholders of the New Fund
pursuant to an administrative services agreement with Kemper Global/
International Series, Inc. (the "administrative agreement"). KDI may enter into
related arrangements with broker-dealer firms or other administrative firms
("firms"), that provide services and facilities for their customers or clients
who are investors of the New Fund. Such administrative services and assistance
may include, but are not limited to, establishing and maintaining shareholder
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features, and such other
services as may be agreed upon from time to time and permitted by applicable
statute, rule or regulation. KDI will bear all of its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreements, the New Fund
will pay KDI a fee, payable monthly, at the annual rate of up to 0.25% of
average daily net assets of shares of the New Fund. KDI will then pay each firm
a service fee at an annual rate of up to 0.25% of net assets of shares
maintained and serviced by the firm. Firms to which service fees are paid may
include affiliates of KDI.

A firm becomes eligible for the service fee based upon assets in the New
Fund accounts maintained and serviced by the firm commencing in the month
following the month of purchase and the fee continues until terminated by KDI or
the New Fund. The fees will be calculated monthly and paid quarterly.

CUSTODIAN AND TRANSFER 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, has custody of all securities and cash held in the United States.
Pursuant to a transfer agreement, IFTC is also the Fund's transfer agent and
dividend-paying agent.

FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, 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.

PORTFOLIO TRANSACTIONS. The Adviser and BSN place all orders for purchases
and sales of the Fund's securities. Subject to seeking best execution of orders,
it may consider sales of shares of the Fund and other funds managed by the
Adviser or its affiliates as a factor in selecting broker-dealers. See
"Portfolio Transactions" in the Statement of Additional Information.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund normally distributes annual
dividends of net investment income, and any net realized short-term and
long-term capital gains at least annually. The Fund intends to distribute net
realized capital gains after utilization of capital loss carryforwards, if any,
on or prior to December 31, 1998. Additional distributions may be made at a
later date, if necessary.

According to preference, shareholders may receive distributions in cash or
have them reinvested in additional shares of the Fund. If an investment is in
the form of a retirement plan, all dividends and capital gains distributions
must be reinvested in the shareholder's account.

Income and capital gain dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional shares of the 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 at net asset value; or

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

<PAGE>

Any dividends of the Fund that are reinvested normally will be reinvested
in shares of the Fund. However, upon written request to the Shareholder Service
Agent, a shareholder may elect to have dividends of the Fund invested in shares
of another Kemper Fund at the net asset value of such shares of such other fund.
See "Special Features--Shares--Combined Purchases" for a list of such other
Kemper Funds. To use this privilege of investing dividends of the Fund in shares
of another Kemper Fund, shareholders must maintain a minimum account value of
$1,000 in the Fund distributing the dividends. The Fund will reinvest dividend
checks (and future dividends) in shares of the same Fund if checks are returned
as undeliverable. Dividends and other distributions of the 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.

U.S. FEDERAL INCOME TAXES. The Fund intends 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, asset
diversification and distribution requirements annually. Dividends derived from
net investment income and net short-term capital gains are taxable to
shareholders as ordinary income and properly designated net capital gain
dividends are taxable to shareholders as long-term capital gains, regardless of
how long the shares have been held and whether received in cash or shares.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year declared. A portion of the
dividends paid by the Fund may qualify for the dividends received deduction
available to corporate shareholders.

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, will be taxable to the shareholder. Thus, investors should
consider the tax implications of buying shares just prior to a dividend. The
price of shares purchased at that time includes the amount of the forthcoming
dividend, which nevertheless will be taxable to them.

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 if held by the shareholder as a capital
asset, and will be long-term or short-term, depending upon the shareholder's
holding period for the shares (including an in-kind redemption). Further
information relating to tax consequences is contained in the Statement of
Additional Information. Shareholders of the Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of fund shares.
Shareholders should consult their own tax advisors regarding the particular tax
consequences of an investment in the Fund. The Fund is required by law to
withhold 31% of taxable dividends and redemption proceeds paid to certain
shareholders who do not furnish a correct taxpayer identification number (in the
case of individuals, a social security number) and in certain other
circumstances. Any amounts so withheld are not an additional tax, and may be
applied against the affected shareholder's U.S. federal income tax liability.

The Fund's investment income derived from foreign securities may be subject
to foreign income taxes withheld at the source. Because the amount of the Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance. The Fund may
make the election permitted under Section 853 of the Code. If this election is
made, shareholders may be able to claim a credit or deduction on their income
tax returns for their pro rata portion of qualified taxes paid by the Fund to
foreign countries.

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,
including, when appropriate, information regarding any foreign taxes and
credits, 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.

<PAGE>

Further information relating to tax consequences is contained in the
Statement of Additional Information. Shareholders of the Fund may be subject to
state, local and foreign taxes on Fund distributions and dispositions of fund
shares. Shareholders should consult their own tax advisors regarding the
particular tax consequences of an investment in the Fund.

SPANISH TAXES. The following description of certain Spanish tax matters
represents the opinion of the Fund's Spanish counsel based upon current law and
interpretations thereof. No advance rulings have been obtained from the Spanish
tax authorities and an opinion of counsel is not binding on the Spanish tax
authorities. No assurance can be given that applicable tax laws and
interpretations thereof will not change in the future.

Neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated as residents of Spain or as carrying
on a business in Spain. No Spanish tax, other than tax on dividends, interest,
and capital gains as discussed below, will be applicable to the Fund or the
Fund's shareholders, other than shareholders who are residents of Spain or who
are subject to tax in Spain for reasons other than their status as shareholders
of the Fund.

Under Spanish law, dividends and interest income paid by Spanish resident
entities to holders of shares or securities who are non-residents of Spain are
subject to income tax withheld at source at a rate of 25% on the gross amount of
the income. However, under the Convention for the Avoidance of Double Taxation
signed by Spain and the United States on February 22, 1990 (the "Convention"), a
holder of shares that is a resident of the United States for purposes of the
Convention (and who does not have a fixed base in Spain from which such holder
performs or has performed independent personal services and whose holding is not
effectively connected with a permanent establishment in Spain through which such
holder carries on or has carried on a business) (a "United States resident") who
obtains dividends from a Spanish resident entity generally is subject to the
Convention's reduced rate of 15% of the gross amount of income. If the United
States resident is a corporation and owns at least 25% of the voting stock of
the Spanish resident entity, tax will be levied at a 10% rate. Also under the
Convention, a United States resident that receives interest from a Spanish
resident entity is subject to the Convention reduced rate of 10% of the gross
amount of income.

If the normal 25% rate is initially applied to a United States resident, a
refund for the amount withheld in excess of the Convention-reduced rates can
generally be obtained, subject to applicable procedures.

Under Spanish law, capital gains derived from the disposal of shares or
securities issued by Spanish resident entities are considered to be Spanish
source income subject to income tax at a 35% rate. However, by virtue of the
Convention, no Spanish tax would be levied on capital gains upon the disposal of
shares or securities issued by Spanish resident entities by a United States
resident, provided that such United States resident has not maintained a direct
or indirect holding of 25% or more of the share capital of the Spanish resident
entity during the twelve months preceding the disposition of the securities.

Capital borrowed by the State of Spain or its autonomous entities is deemed
Public Debt under Spanish Law. Interest paid on Public Debt to non-residents of
Spain who are not acting through a permanent establishment in Spain is generally
exempt from taxation in Spain. In addition, capital gains realized by
non-residents not acting through a permanent establishment in Spain on the sale
or disposition of Public Debt is generally exempt from taxation in Spain.

Under Spanish law, transfers of shares are exempt from the stamp duty,
value added tax, and transfer tax. However, the transfer tax exemption will not
apply and the transfer of shares will be subject to transfer tax when (i) at
least 50% of the total assets of the company whose shares are transferred
consist of real estate located in Spain, and (ii) as a result of the transfer,
the acquiror obtains a control position over the company.

Generally, the Spanish taxes described above will be imposed on, and paid
by, the Fund (and not its shareholders). Under U.S. tax law, the Fund may be
able to pass through to its shareholders a credit for such taxes.

PORTUGUESE TAXES. The following description of certain Portuguese tax
matters represents the opinion of the Fund's Portuguese tax counsel based upon
current law and interpretations thereof. No advance ruling has been obtained

<PAGE>

from the Portuguese tax authorities and an opinion of counsel is not binding on
the Portuguese tax authorities. No assurance can be given that applicable tax
laws and interpretation thereof will not change in the future.

Neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated as residents of Portugal or as
carrying on a business in Portugal. No Portuguese taxes other than those
described below, will apply to the Fund or its shareholders, other than
shareholders who are residents of Portugal or who are subject to tax in Portugal
for reasons other than their status as shareholders of the Fund.

The tax regime applicable to Portuguese income obtained by the Fund is
provided by (i) the Portuguese Corporate Income Tax Code; (ii) the Portuguese
Gift and Inheritance Tax Code; and (iii) the Treaty for the Avoidance of Double
Taxation and Prevention of Fiscal Evasion signed by Portugal and the United
States on September 6, 1994 and in force since January 1996 (the "Treaty").

Under Portuguese law, dividends paid by Portuguese entities to holders of
shares who are non-residents of Portugal are subject to income tax withheld at
the source at the general rate of 25% on the gross amount of income. In addition
a further withholding of substitute gift and inheritance tax at the rate of 5%
is levied. However, according to the provisions of the Portuguese Statute of
Fiscal Incentives, 50% of the gross income or dividends paid on shares listed on
the Lisbon Stock Exchange is exempt from withholding tax, resulting in an
effective tax rate of 12.5%. Further, under the Treaty, the rate of withholding
tax on dividends will not exceed 15%, and the rate of withholding with respect
to the substitute gift and inheritance tax on dividends distributed to a United
States resident will not exceed 5%.

However, if a United States resident company for purposes of the Treaty
owns 25% or more of the share capital of a Portuguese resident company for an
uninterrupted period of 2 years prior to the payment of the dividend, the rate
applicable under the Treaty is:

(a) for dividends paid until December 31, 1999, a rate of 10%;

(b) after December 31, 1999, the same rate applicable to the dividends of a
similar nature paid to residents of European Union member States, provided that
in no event shall the applicable rate be lower than 5%.

Interest payments to non-residents of Portugal are subject to a general 20%
withholding tax rate. However, the Treaty provides a reduction to a 10% rate for
United States residents or an exemption if it is a long term loan granted by a
bank or another financial entity that is resident in the United States.

The limitation of Portuguese tax provided by the Treaty can be obtained
either through the refund system or through the reduction at the source, subject
to applicable procedures.

Capital gains derived by a corporate non-resident holder, such as the Fund,
from the disposal of shares or securities issued by Portuguese resident entities
are not subject to Portuguese capital gains tax unless such gains are
effectively connected with a permanent establishment in Portugal. As noted
above, neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated either as residents of Portugal or as
carrying on a business in Portugal.

Interest paid on treasury securities issued by the Portuguese government
and designated as Public Debt Securities by the Ministry of Finance and held by
entities that do not have a residence, place of administration or permanent
establishment in Portugal is generally exempt from taxation in Portugal. In
addition, capital gains realized on the sale or disposition of such Public Debt
Securities by the Fund (as an entity that does not have a residence, place of
administration or permanent establishment in Portugal) are generally exempt from
Portuguese taxation.

Generally, the Portuguese taxes described above will be imposed upon and
paid by the Fund (and not its shareholders). Under U.S. tax law, the Fund may be
able to pass through to its shareholders a credit for such taxes.

<PAGE>

No Portuguese transfer or stamp tax shall be due upon the transfer of
portfolio securities, except for a 4% stamp duty on brokerage fees, bank
settlement fees and commissions, if any, paid on the transfer of securities.

QUALIFICATION FOR SPANISH AND PORTUGUESE TREATY BENEFITS. The Fund has
qualified for treatment as a "United States resident" under the Convention and
the Treaty.

NET ASSET VALUE

The net asset value per share of the Fund is the value of one share and is
determined by dividing the value of the Fund's net assets by the number of
shares outstanding. The net asset value of shares of the Fund is computed as of
the close of regular trading 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, Martin Luther King 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. All other securities may
be valued at fair value as determined in good faith by or under the direction of
the Board of Directors.

PURCHASE OF SHARES

Shares of the Fund are not currently offered for purchase. The New Fund
will consist of Class A, Class B and Class C shares. Pursuant to the
reorganization agreement, the Fund will transfer all of its assets in exchange
for Class A shares of the New Fund. Accordingly, the discussion below only
covers the Class A shares of the New Fund.

PURCHASE ARRANGEMENTS. Class A shares of the New Fund will be sold to
investors subject to an initial sales charge. Upon the redemption or exchange of
any shares held less than one year, a fee of 2% of the current net asset value
of the shares will be assessed and retained by the New Fund for the benefit of
the remaining shareholders, with limited exceptions (see "Redemption or
Repurchase of Shares--Redemption Fee" below).

The minimum initial investment for the New Fund will be $1,000 and the
minimum subsequent investment will be $100. The minimum initial investment for
an Individual Retirement Account will be $250 and the minimum subsequent
investment will be $50. Under an automatic investment plan, such as Bank Direct
Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment will be $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. The public offering price shares for purchasers will
be the net asset value plus a sales charge, as set forth below.

SALES CHARGE AS A ALLOWED TO DEALERS
AS A PERCENTAGE PERCENTAGE OF AS A PERCENTAGE
AMOUNT OF PURCHASE OF OFFERING PRICE NET ASSET VALUE* OF 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>

<PAGE>

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

The New Fund will receive the entire net asset value of all its shares
sold. KDI, the New Fund's principal underwriter, will retain the sales charge on
sales of 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 New Fund may be purchased at net asset value by: (a)
any purchaser provided that the amount invested in the Fund or other specified
Kemper Funds listed is at least $1,000,000; 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 shares 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--Combined Purchases" including purchases pursuant
to the "Combined Purchases," "Letter of Intent" and "Cumulative Discount"
features referred to above. The privilege of purchasing shares of the Fund at
net asset value under the Large Order NAV Purchase Privilege will not available
if another net asset value purchase privilege is also applicable.

As of February 1, 1996, shares of the New Fund or any other specified
Kemper Fund 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.

Shares of the New Fund will be able to 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

<PAGE>

members of their families. KDI in its discretion may compensate financial
services firms for sales of shares under this privilege at a commission rate of
0.50% of the amount of shares purchased.

Shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the New 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 Rewards Plus of America for the benefit
of employees of participating employer groups. 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 New Fund shares may purchase New Fund shares at net asset value under the New
Fund's registration statement. 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 will be able to purchase the New Fund's
shares at net asset value through reinvestment programs described in the
prospectuses of such trusts that have such programs. Shares of the New 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 will be sold for
investment purposes and on the condition that they will not be resold except
through redemption or repurchase by the New Fund. The New Fund may also issue
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 will be 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.

GENERAL. Banks and other financial services firms may provide
administrative services related to order placement and payment to facilitate
transactions in shares of the New 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 the New Fund.

<PAGE>

KDI may, from time to time, pay or allow to firms a 1% commission on the
amount of shares of the New 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.

Orders for the purchase of shares of the New Fund will be confirmed at a
price based on the net asset value of the New 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"). The New Fund will reserve
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.

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 compensation, to firms that sell shares of the
New Fund. 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 New Fund, or
other funds underwritten by KDI.

Investment dealers and other firms will provide varying arrangements for
their clients to purchase and redeem the New Fund's 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 New Fund's shares in nominee or street name as agent for and on behalf
of their customers. In such instances, the New Fund's 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 New Fund 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 New Fund through
the Shareholder Service Agent for these services. This prospectus should be read
in connection with such firms' materials regarding their fees and services.

The New Fund reserves the right to reject purchase orders for any reason.

TAX IDENTIFICATION NUMBER. Be sure to complete the Tax Identification
Number section of the New Fund's application when you open an account. Federal
tax law requires the Fund and the New 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. The New
Fund will reserve the right to reject new account applications without a correct
certified Social Security or tax identification number. The New Funds will also
reserve 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 New 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.

<PAGE>

REDEMPTION OR REPURCHASE OF SHARES

GENERAL. Any shareholder may request that the Fund 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 New Fund redeem shares with an
aggregate value in excess of the lesser of $250,000 or 1% of the net asset value
of the New Fund during any 90 day period will be required to provide the New
Fund with details of valid custodial arrangements in Spain, Portugal and the
U.S., in addition to other important information, in order for the redemption
request to be deemed in good order. Failure to provide required information will
result in the rejection of the redemption request as being invalid. See
"Redemption in Kind" below.

The redemption price for shares will be the net asset value per share 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. In the case of New Fund shares, upon
the redemption or exchange of any 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 New Fund for the benefit of the remaining
shareholders (see "Redemption Fee" below). The redemption within two years of
New Fund 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").

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.

<PAGE>

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 or custodian, guardian and custodian
accounts, 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.

REPURCHASES (CONFIRMED REDEMPTIONS). With regard to New Fund shares, a
request for repurchase may be communicated by a shareholder through a securities
dealer or other financial services firm to KDI, which the New 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 New 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 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 New Fund
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 will be 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

<PAGE>

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.

REDEMPTION FEE. Upon the redemption or exchange of New Fund 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 New Fund for the benefit of the remaining
shareholders. The fee is waived for all shares purchased 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. (Before purchasing shares, please check with your account representative
concerning the availability of the fee waiver.) 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 New 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 New Fund will
reserve the right to modify the terms of or terminate this fee at any time.

The fee will apply to redemptions from the New Fund and exchanges to other
Kemper Funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the New 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 acquires shares of the New Fund in connection with the New
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 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. See
"Purchase and Redemption of Shares--Special Redemption and Exchange Information"
in the Fund's Statement of Additional Information for a more detailed
description of the redemption fee.

REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares of the New
Fund or any other specified Kemper Fund will be able to reinvest up to the full
amount redeemed at net asset value at the time of the reinvestment in shares of
the New Fund or of the other specified Kemper Funds. A shareholder of the New
Fund or other Kemper Fund who redeems shares purchased under the Large Order NAV
Purchase Privilege 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 shares of the 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. Purchases through the reinvestment
privilege are subject to the minimum investment requirements applicable to the
shares being purchased and may only be made for specified Kemper Funds available
for sale in the shareholder's state of residence. 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 New Fund, the reinvestment in shares of the New 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 New Fund will adopt 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 will be the New 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

<PAGE>

net asset value of the New Fund at the beginning of the period. As an operating
policy, the New 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 of the New Fund.
Any securities distributed in-kind would be valued in accordance with the New
Fund's policies used to determine net asset value, and would be selected
pursuant to procedures adopted by its 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 New 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 New 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 redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the New Fund's name or the nominee names of the New 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 New Fund's portfolio composition at the time and market
conditions prevailing during the liquidation process. The New 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 New Fund redeemed. These expenses are in addition to any applicable
redemption fee 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 New 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 New 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 New Fund during any 90 day period. In the event that the
shareholder wishes to redeem additional amounts, 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 New Fund has applied for 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 New Fund because they own 5% or more of the New Fund's
outstanding voting securities ("5% shareholders"). A 5% shareholder receiving an
in-kind redemption prior to receipt of such relief (receipt of which cannot be
guaranteed) could be deemed to be in violation of Section 17(a) of the 1940 Act.
The SEC issued notice of the application on November 17, 1998, which indicates
that an order granting the application would be issued unless the SEC calls for
a hearing; however until such an order has been issued, the New Fund can provide
no assurance to shareholders that with respect to such redemptions in-kind they
will be in compliance with the 1940 Act. Shares of the New 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 New Fund during any 90 day period, a redemption request will be
considered valid only if accompanied by a properly completed redemption and
certification form which details, among other things, the shareholder's valid
custodial arrangements in Spain,

<PAGE>

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" in the Statement of Additional
Information.

PERFORMANCE

The Fund may advertise several types of performance information for shares,
including "average annual total return" and "total return." Each of these
figures is based upon historical results and is not representative of the future
performance of the Fund.

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 the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the 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 any such period has not yet elapsed, at the end of a shorter period
corresponding to the life of the 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.

The Fund's performance may be compared to that of the Consumer Price Index
or various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Composite Stock Price 500 Index, the
Russell 1000(R) Index, the Russell 1000(R) Growth Index, the Wilshire Large
Company Growth Index, the Wilshire 750 Mid Cap Company Growth Index, the
Standard & Poor's/Barra Value Index, Standard & Poor's/Barra Growth Index, the
Russell 1000(R) Value Index, the Europe/Australia/Far East Index, the BVL (Bolsa
de Valores de Lisboa) Index, Madrid Stock Exchange (MSE) General Index, the
Morgan Stanley Capital International World Index, the J.P. Morgan Global Traded
Bond Index, and the Salomon Brothers World Government Bond Index. The
performance of the Fund may also be compared to the performance of other mutual
funds or mutual fund indices with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges.

Information may be quoted from publications such as Morningstar, Inc., The
Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago
Tribune, USA Today, Institutional Investor and Registered Representative. Also,
investors may want to compare the historical returns of various investments,
performance indexes of those investments or economic indicators, including but
not limited to stocks, bonds, certificates of deposit, money market funds and
U.S. Treasury obligations. Bank product performance may be based upon, among
other things, the BANK RATE MONITOR National Index(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R),
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured.

The Fund may depict the historical performance of the securities in which
the Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund. The relative performance of
growth stocks versus value stocks may also be discussed.

Because some or all of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance. Historical

<PAGE>

information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.

The Fund's returns and net asset value will fluctuate. Shares of the Fund
are redeemable by an investor at the then current net asset value. Additional
information concerning the Fund's performance appears in the Statement of
Additional Information. Additional information about the Fund's performance also
appears in its Annual Report to Shareholders and Semi-Annual Report to
Shareholders, each of which is available without charge from the Fund.

<PAGE>

Statement of Additional Information dated December 11, 1998

THE GROWTH FUND OF SPAIN, 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 Fund listed above (the "Fund"), an
open-end management investment company. It should be read in conjunction with
the prospectus of the Fund dated December 11, 1998. A prospectus may be obtained
without charge from the Fund. The Fund was a closed-end fund whose shares were
listed on the New York Stock Exchange, Inc. The shareholders of the Fund have
approved a proposal to open-end the Fund and reorganize it as a series of Kemper
Global/International Series, Inc.

---------

TABLE OF CONTENTS

Page
----
GENERAL INFORMATION AND HISTORY................................................2
INVESTMENT RESTRICTIONS........................................................2
INVESTMENT POLICIES AND TECHNIQUES.............................................3
PORTFOLIO TRANSACTIONS........................................................16
INVESTMENT MANAGER AND UNDERWRITER............................................17
PURCHASE AND REDEMPTION OF SHARES.............................................21
NET ASSET VALUE...............................................................23
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................24
PERFORMANCE ..................................................................29
OFFICERS AND DIRECTORS........................................................31
COMPENSATION OF OFFICERS AND DIRECTORS........................................33
SHAREHOLDER RIGHTS............................................................34
FINANCIAL STATEMENTS..........................................................34
ADDITIONAL INFORMATION........................................................34
APPENDIX A - RATINGS OF FIXED INCOME INVESTMENTS.............................A-1
APPENDIX B - INFORMATION ABOUT SPAIN AND PORTUGAL............................B-1

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

<PAGE>

GENERAL INFORMATION AND HISTORY

The Fund commenced investment operations on February 14, 1990 as a
closed-end management investment company organized as a Maryland corporation. At
a meeting of the shareholders of the Fund held October 28, 1998, the
shareholders voted to approve the conversion of the Fund to an open-end
investment company and the reorganization of the Fund as a new series of Kemper
Global/International Series, Inc. called "The Growth Fund of Spain" (the "New
Fund"), consisting of Class A, Class B, and Class C shares. Pursuant to the
reorganization agreement between the Fund and Kemper Global/International
Series, Inc., the Fund will transfer all of its assets to the New Fund in
exchange for newly designated Class A shares of the New Fund and the assumption
by the New Fund of the liabilities of the Fund (the "reorganization agreement").
The New Fund will then distribute the Class A shares of the New Fund received in
the reorganization to its shareholders and subsequently terminate.

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.

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 Objective,
Policies and Risk Factors" in the prospectus;

(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 Objective, Policies and
Risk Factors" in the prospectus;

(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 Objective,
Policies and Risk Factors" in the prospectus, 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

<PAGE>

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) 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 Fund seeks long-term capital appreciation by investing
primarily in equity securities of Spanish companies. The Fund may also invest up
to 35% of its total assets in the securities of non-Spanish companies, which
investments may be concentrated in whole or in part in the equity securities of
Portuguese companies.

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
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.

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.

<PAGE>

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 the 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 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

<PAGE>

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
currencies, foreign currency futures contracts, and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the 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
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.")

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.

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

<PAGE>

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.

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.

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.

<PAGE>

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").

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.

<PAGE>

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 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. See "Dividends,
Distributions and Taxes" in the Fund's prospectus.

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.

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., which cannot be sold to
the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"),

<PAGE>

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.

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.

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.

<PAGE>

STRATEGIC TRANSACTIONS AND DERIVATIVES. The 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 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 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 for leveraging purposes.

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.

<PAGE>

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 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

<PAGE>

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.

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

<PAGE>

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.

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

<PAGE>

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 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

<PAGE>

("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 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.

<PAGE>

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.

PORTFOLIO TRANSACTIONS

BROKERAGE

Allocation of brokerage may be placed by the Adviser and the sub-adviser,
BSN Gestion de Patrimonios, S.A., S.G.C. ("BSN"). For the purposes of this
section, "Adviser" refers to the Adviser and BSN collectively.

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.

<PAGE>

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.

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.

For the fiscal years ended November 30, 1997, 1996 and 1995, the Fund paid
BSN Sociedad de Valores y Bolsa, an affiliate of BSN, 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. A predecessor of the Advisor, Scudder, Stevens & Clark, Inc.
("Scudder") 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, Scudder 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.

Pursuant to the investment management agreement, the Adviser acts as the
Fund's investment adviser, 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

<PAGE>

and membership dues. The New Fund will bear the expenses of registration of its
shares with the SEC while Kemper Distributors, Inc. ("KDI"), as principal
underwriter will pay the cost of qualifying and maintaining the qualification of
the New 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 Fund and
the Adviser was approved by the shareholders of the Fund on October 28, 1998.
The Agreement is dated September 7, 1998 and will continue in effect until April
1, 1998, 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 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; 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

<PAGE>

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 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

<PAGE>

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. For the fiscal years ended November 30, 1997, 1996 and 1995, 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,
$2,374,000 and $2,139,000, respectively. During those periods, the Adviser paid
BSN Gestion de Patrimonios, S.A., S.G.C. ("BSN") 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.

Scudder Fund Accounting Corporation, 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.

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.

SUB-ADVISER. The Adviser uses the investment management services of BSN
with respect to investments in Spanish securities pursuant to the sub-advisory
agreement between the Adviser and BSN. BSN has acted as sub-adviser for the Fund
since the Fund commenced operations in 1990. The current sub-advisory agreement
is dated September 7, 1998, and was approved by shareholders on October 28,
1998. Under its terms, the sub-advisory agreement will continue until April 1,
1999. However, the sub-advisory agreement will terminate upon the reorganization
of the Fund and BSN will no longer serve as sub-advisor.

Under the terms of the sub-advisory agreement between the Adviser and BSN,
BSN provides such investment advice, research and assistance as the Adviser may
request with respect to investments by the Fund in Spanish securities. For its
services, BSN receives from the Adviser a monthly fee at the annual rate of .35%
of the Fund's average weekly net assets. BSN has agreed to pay the fees and
expenses of any officer, Board member or employee of the Fund affiliated with
BSN, except that the Fund shall bear the travel expenses of directors, officers
or employees of BSN or any of its affiliates to the extent that such expenses
relate to attendance as a Board member at meetings of the Board. During the
fiscal year ended November 30, 1997, the Fund's former investment manager,
Kemper, incurred fees of $996,000 to be paid to BSN.

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

The sub-advisory agreement may be terminated without penalty upon sixty
(60) days' written notice by either party. The sub-advisory agreement will
automatically terminate in the event of the termination of the management
agreement or in the event of its assignment.

PRINCIPAL UNDERWRITER. Shares of the Fund are not currently offered for
purchase. The New Fund will offer Class A, Class B and Class C Shares. Pursuant
to an underwriting and distribution services agreement ("distribution
agreement"), Kemper Distributors, Inc., a subsidiary of the Adviser, will be the
principal underwriter and distributor for the shares of the New Fund and acts as
agent of the Fund in the continuous offering of its shares. KDI will bear all of
its expenses of providing services pursuant to the distribution agreement,
including the payment of any commissions. The New Fund will pay 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 will continue in effect from year to year so
long as such continuance is approved for at least annually by a vote of the
Board of Directors of the New Fund, including the Directors who are not
interested persons of the New Fund and who have no direct or indirect financial
interest in the agreement. The distribution

<PAGE>

agreement will automatically terminate in the event of its assignment and may be
terminated at any time without penalty by the Fund or by KDI upon 60 days'
notice. Termination by the Fund 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
New Fund and who have no direct or indirect financial interest in the
distribution agreement, or a "majority of the outstanding voting securities" of
the New Fund, as defined under the 1940 Act.

ADMINISTRATIVE SERVICES. Administrative services will be provided to the
Fund under an administrative services agreement ("administrative agreement")
with KDI. KDI will bear all its expenses of providing services pursuant to the
administrative agreement between KDI and the New Fund, including the payment of
service fees. For the services under the administrative agreement, the New Fund
will pay KDI an administrative services fee, payable monthly, at an annual rate
of up to 0.25% of average daily net assets of shares of the New Fund.

KDI will enter 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 the New Fund. The
firms will 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 the New 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. KDI will pay each firm a service fee, payable quarterly, at an
annual rate of up to 0.25% of the net assets in the New Fund accounts that it
maintains and services, commencing with the month after investment.

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 New Fund. The effective
administrative services fee rate to be charged against all assets of the New
Fund while this procedure is in effect will depend upon the proportion of New
Fund assets that is in accounts for which there is a firm of record. The Board
of Directors of the New Fund, in its discretion, may approve basing the fee to
KDI on all Fund assets in the future.

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

CUSTODIAN AND TRANSFER 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, has custody of all securities and cash held in the United States.
Pursuant to a transfer agreement, IFTC is also the Fund's transfer agent and
dividend-paying agent.

INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 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 AND REDEMPTION OF SHARES

As described in the prospectus, shares of the Fund are not currently
offered for purchase. The New Fund will consist of Class A, Class B and Class C
shares. Pursuant to the reorganization agreement, the Fund will transfer all of
its assets in exchange for Class A shares of the New Fund. Accordingly, the
discussion below as it relates to the purchase or redemption of the New Fund
shares only covers Class A shares of the New Fund. Such shares of the New Fund
will be sold at their public offering price, which is the net asset value next
determined after an order is received in proper form plus an initial sales
charge. The minimum initial investment for the New Fund will be $1,000 and the
minimum subsequent investment will be $100 but such minimum amounts may be
changed at any time. See the

<PAGE>

prospectus for certain exceptions to these minimums. The New Fund may waive the
minimum for purchases by directors, officers or employees of the New 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 New 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.

Scheduled variations in or the elimination of the initial sales charge for
purchases of shares of the New Fund by certain classes of persons or through
certain types of transactions as described in the prospectus will be provided
because of anticipated economies of scale in sales and sales-related efforts.

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 as described in the Fund's prospectus.

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 IN KIND. Shareholders who receive New Fund portfolio securities
in lieu of cash in redemption of New Fund shares pursuant to the New Fund's
policy on in-kind redemptions as set forth in the Prospectus will be required to
receive the portfolio securities in their own account, all at the shareholders'
expense and risk. In order to retain the portfolio securities distributed
in-kind, a redeeming shareholder must establish cash and securities accounts on
his or her behalf with a bank or broker in Spain and Portugal so that such bank
or broker can re-register the portfolio securities received, and must provide
such information to the Shareholder Service Agent at the time of the redemption
request. Certain information for a U.S. bank or broker will also need to be
provided so that such bank or broker can receive any American Depository
Receipts constituting part of the portfolio securities to be retained by the
shareholders. Redemption requests subject to the New Fund's redemption in-kind
policy will not be considered in good order unless such information is provided.

Redeeming shareholders who receive portfolio securities in-kind will bear
the risks associated with market fluctuations that may affect the price of the
portfolio securities they receive. Accordingly, redeeming shareholders who
receive portfolio securities in-kind may, when they sell such securities,
realize cash equal to a lesser or greater amount than the total value of the
portfolio securities received in redemption of their shares of the New Fund. See
"Redemption or Repurchase of Shares--Redemption in-Kind" in the prospectus.

SPECIAL REDEMPTION AND EXCHANGE INFORMATION. Shares of the New Fund held
for less than one year will be 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 New 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 New Fund will
reserve 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 New Fund or Fund), or (c) a redemption of shares by
the New 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,

<PAGE>

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.

For this purpose and without regard to the shares actually redeemed, shares
will be redeemed as follows: first, 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 New 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 New 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.

NET ASSET VALUE

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.

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.

<PAGE>

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.

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 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 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

<PAGE>

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 or November 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.

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

<PAGE>

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, 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

<PAGE>

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 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 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.

A shareholder who redeems shares of the Fund 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 in the
prospectus under "Special Features-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

<PAGE>

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 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.

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 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, 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
(an 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 person 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 by 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

<PAGE>

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.

Please call the Fund to obtain information regarding the establishment of
IRAs. An IRA plan custodian may charge fees in connection with establishing and
maintaining the IRA. 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 IRAs. 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

As described in the prospectus, the Fund's historical performance or return
may be shown in the form of "average annual total return" and "total return"
figures. These measures of performance are described below.

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 the Fund for a specific period is found by first
taking a hypothetical $1,000 investment ("initial investment") on the first day
of the period, adjusting to deduct the maximum sales charge, 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 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. 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, 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 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 would be reduced if such charges were included.

The Fund's performance figures are based upon historical results and are
not necessarily representative of future performance. Shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. Returns

<PAGE>

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
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.

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 during the designated period.
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 shares of the Fund based on performance information
for the periods indicated.

<PAGE>

STANDARDIZED RETURN

One year ended
May 31, 1998.......................................... 39.05%
Five years ended
May 31, 1998.......................................... 23.70%
Inception# to
May 31, 1998.......................................... 12.57%
NON-STANDARDIZED RETURN**

One year ended
May 31, 1998.......................................... 47.53%
Five years ended
May 31, 1998.......................................... 25.18%
Inception# to
May 31, 1998.......................................... 13.30%

- - ----------
* The Non-Standardized Return figures do not reflect the deduction of any
initial sales charge or CDSC.

# The inception date for The Growth Fund of Spain, Inc. was February 14,
1990.

OFFICERS AND DIRECTORS

The officers and directors of the Fund, their birth dates, their principal
occupations and their affiliations, if any, with the Adviser, are as follows:

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.

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 Fund.

GREGORY L. MELVILLE (7/22/56) Director, Alexanderplatz, 2 D-10178, Berlin,
Germany; Assistant Director, Bankgesellschaft Berlin AG; formerly Vice
President, Salomon Brothers Inc.

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.

<PAGE>

MORITZ A. SELL (10/12/67) Director, Alexanderplatz, 2 D-10178, Berlin,
Germany; Market Strategist, Bankgesellschaft Berlin AG; formerly Analyst,
Barclays de Zoete Wedd; derivatives trader, Canadian Imperial Bank of Commerce.

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.

*MARK S. CASADY (9/21/60) Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.

*PHILIP J. COLLORA (11/15/45) Vice President and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper
Investments, Inc.

*JOAN GREGORY (8/4/45) Vice President, Two International Place, Boston,
Massachusetts, Vice President, Scudder Kemper Investments, Inc.

*JERALD K. HARTMAN (3/1/33) Vice President, Two International Place,
Boston, Massachusetts; Managing Director, 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, 345 Park Avenue, New York, New
York; 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.

*DANIEL PIERCE, (3/18/34) President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.

*KATHRYN L. QUIRK (12/3/52) Director and Vice President, 345 Park Avenue,
New York, New York; Managing Director, Scudder Kemper Investments, Inc.

<PAGE>

STEVEN H. REYNOLDS (9/11/43) Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.

*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside
Plaza, Chicago, Illinois; 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.

- - ----------
* Interested persons of the Fund 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 Fund. The table below shows amounts paid to or
accrued for those Directors who are not designated "interested persons" by the
Fund during the fiscal year ended November 30, 1997. The information in the last
column is for calendar year 1997.

<TABLE>
<CAPTION>
ESTIMATED AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION FROM KEMPER FUND COMPLEX
NAME OF BOARD MEMBERS THE FUND PAID TO BOARD MEMBERS(2)
- - --------------------- -------- ------------------------
<S> <C> <C>
James E. Akins........................... $4,000 $106,300
Arthur R. Gottschalk(1)................... $4,100 $121,100
Frederick T. Kelsey(1).................... $4,100 $111,300
Gregory L. Melville....................... ***
Fred B. Renwick........................... $4,000 $106,300
Moritz A. Sell............................ ***
John B. Tingleff.......................... $4,000 $106,300
John G. Weithers.......................... $4,000 $106,300
</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 13 Kemper funds with 39
funds 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 Investment, 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, Gottschall,
Kelsey, Renwick, Tingleff, and Weithers, respectively.

*** Messrs. Melville and Sell were first elected to the Board at the December
2, 1997 special shareholders meeting, effective December 3, 1997.

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.

<PAGE>

SHAREHOLDER RIGHTS

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.

In the event of the liquidation or dissolution of the Fund, 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.

Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Fund.

FINANCIAL STATEMENTS

The financial statements appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended November 30, 1997, and its Semiannual
Report to Shareholders for the period ended May 31, 1998 are incorporated by
reference herein. The financial statements appearing in the Fund's Annual Report
to Shareholders for the fiscal year ended November 30, 1997 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

Effective as of the Fund's 1998 fiscal year, the Fund's fiscal year 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.

Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodians Chase Manhattan Bank and IFTC.

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.

<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.

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.

A-1

<PAGE>

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.

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.

A-2

<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).

B-1

<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.

<TABLE>
<CAPTION>
SELECTED ECONOMIC DATA

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 escudo)............................. 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%
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)%
</TABLE>

B-2

<PAGE>

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C>
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.

<TABLE>
<CAPTION>
GROSS DOMESTIC PRODUCT BY TYPE OF ACTIVITY

PERCENT DISTRIBUTION
1986 1997
---- ----

<S> <C> <C>
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%
</TABLE>

OECD Quarterly National Accounts, 1998:2P226

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.

B-3

<PAGE>

<TABLE>
<CAPTION>
GEOGRAPHIC BREAKDOWN OF TRADE

EXPORTS IMPORTS
---------------- ------------------
1986 1987 1986 1987
---- ---- ---- ----
(MILLIONS OF US$)

<S> <C> <C> <C> <C>
Total..................... $27,206 $104,134 $35,056 $122,753

(PERCENT OF TOTAL)

European Union............ 62.5% 69.6% 53.4% 65.0%
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%
</TABLE>

Source: IMF, Direction of Trade Statistics 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.

<TABLE>
<CAPTION>
BALANCE OF PAYMENTS

(MILLIONS US$)
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

B-4

<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.

<TABLE>
<CAPTION>
EXCHANGE RATES

END OF CHANGE RELATIVE CHANGE RELATIVE
PERIOD TO US$ AVERAGE TO US$
------ ------ ------- ------

- - ----------
* 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 total of 230 seats in
the early 1990s.

B-5

<PAGE>

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 the European Monetary Union (EMU) and fulfilling
Maastricht criteria as the centerpiece 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 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.

Since joining the EU, Portuguese output increased significantly in the
period from 1986-1990, rising on average at 5% per 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

B-6

<PAGE>

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:

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 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 1993 prices
(billion escudo)............. 15,214.3 14,999.8 15,364.9 15,817.8 16,320.6 16,920.3
% Change +A11.................... 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 99.4 100.8 100.3
% 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, 1997
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 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 is 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.

B-7

<PAGE>

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.

<TABLE>
<CAPTION>
CIVILIAN EMPLOYMENT BY SECTOR

1986 1995
------------------- -------------------
(THOUS) % OF TOTAL (THOUS) % OF TOTAL
------- ---------- ------- ----------

<S> <C> <C> <C> <C>
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
</TABLE>

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:

<TABLE>
<CAPTION>
GEOGRAPHIC BREAKDOWN OF TRADE

EXPORTS IMPORTS
---------------- ------------------
1986 1987 1986 1987
---- ---- ---- ----
(MILLIONS OF US$)

<S> <C> <C> <C> <C>
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%
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%
</TABLE>

Source: IMF, Direction of Trade Yearbook 1998.
(Accessed through Haver Analytics)

B-8

<PAGE>

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:

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>

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.

<TABLE>
<CAPTION>
VALUE OF ESCUDO RELATIVE TO US$

END OF CHANGE RELATIVE CHANGE RELATIVE
PERIOD TO US$ AVERAGE TO US$
------ ------ ------- ------

- - ----------
* End of July
** Average January - July

IMF, International Financial Statistics, September 1998

B-9

<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 these 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:

B-10

<PAGE>

<TABLE>
<CAPTION>
MADRID STOCK EXCHANGE

ECU BILLIONS US $ BILLIONS
NO. OF ------------ -------------
COS. LISTED MKT CAP TRADING MKT CAP TRADING
----------- ------- ------- ------- -------

Bolsa de Madrid, Key Figures, January 1998

The most traded shares are shown below:

<TABLE>
<CAPTION>
MOST TRADED SHARES IN 1997

TRADING VOLUME NO. SHARES
---------------------- ----------
COMPANY SECTOR ECU MIL US$ MIL (MILLION)
------- ------ ------- -------

<S> <C> <C> <C> <C>
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
</TABLE>

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).

B-11

<PAGE>

<TABLE>
<CAPTION>
MADRID STOCK PRICE INDEXES (END OF YEAR)

MADRID MADRID
GENERAL TOTAL IBEX-35
INDEX 1 PERCENT CHG. INDEX 1 PERCENT INDEX 2 PERCENT CHG.
------- ------------ ------- ------- ------- ------------

- - ----------
(1) 12/21/85=100

(2) 12/31/89=3000

*As of September 21, 1998

Bolsa de Madrid, Fact Book 1997 and Financial Times October 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

B-12

<PAGE>

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 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.

<TABLE>
<CAPTION>
FIXED-INCOME SECURITIES

MKT CAP TRADING
------------------------- -------------------------
(BIL. PTAS.) (BIL. US$) (BIL. PTAS.) (BIL. US$)
------------ ---------- ------------ ----------

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.

B-13

<PAGE>

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 finally approved by January 1 of each year, the budget of the
previous year is automatically extended.

Spain has a fairly 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 operates under
the guidance of the Bank of Spain, guarantees 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.

B-14

<PAGE>

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.

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.

B-15

<PAGE>

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.

The following table shows the market capitalization of securities on the
LSE in the various markets as of the end of 1997.

<TABLE>
<CAPTION>
MIL ESC. MIL. US$ % DISTRIBUTION
-------- -------- --------------

<S> <C> <C> <C>
Official...................... 13,667,609 74,554 95.0%
Bonds....................... 6,558,200 35,773
Stocks...................... 7,007,975 38,227
Other*...................... 101,434 553
Second........................ 597,954 3,262 4.2%
Bonds....................... 553,528 3,019
Stocks...................... 44,426 242
Market........................ 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%
</TABLE>

- - ----------
* 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.

B-16

<PAGE>

<TABLE>
<CAPTION>
LISBON STOCK EXCHANGE: VALUE OF TRADING IN 1997

MIL ESC. MIL. US$ % DISTRIBUTION
-------- -------- --------------

<S> <C> <C> <C>
Normal
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%
Bonds....................... 2,131 12
Stocks...................... 45,727 261
Other....................... 20,552 117
Subtotal...................... 6,009,459 34,279 93.2%
SPECIAL SESSIONS
Stocks...................... 440,949 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%
</TABLE>

- - ----------
* 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

B-17

<PAGE>

<TABLE>
<CAPTION>
LISBON STOCK EXCHANGE

NO.
OF COS. MARKET CAPITALIZATION TRADING VALUE
------- --------------------- -------------
(BIL ESCUDOS) (BIL US$) (BIL ESCUDOS) (BIL US$)

- - ----------
* 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:

B-18

<PAGE>

<TABLE>
<CAPTION>
STOCK PRICE INDEXES

BVL GENERAL INDEX (JANUARY 5, 1988=1000)

HIGH DATE LOW DATE CLOSE PCT. CHG.
---- ---- --- ---- ----- ---------

- - ----------
* Through October 6, 1998

<TABLE>
<CAPTION>
BVL 30 INDEX (JANUARY 4, 1993=1000)

HIGH DATE LOW DATE CLOSE PCT. CHG.
---- ---- --- ---- ----- ---------

- - ----------
* Through October 6, 1998

Source: Lisbon Stock Exchange.

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.

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 as 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.

B-19

<PAGE>

<TABLE>
<CAPTION>
NO. OF
SHARES VALUE OF TRADING
------ ----------------
(Millions) (Mil Esc.) Mil. US$)

<S> <C> <C> <C>
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.................. 38 161,935 924
Sonae Invest.-SGPS............................... 23 150,396 858
Banco Portugues de Investimento (BPI)............ 37 124,434 710
Banco Totta & Acores (BTA)....................... 40 122,265 697
Jeronimo Martins & Filho-SGPS.................... 9 91,630 523
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%
</TABLE>

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

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 1998.............. 28.8 3.6 1.8

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 is 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.

B-20

<PAGE>

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 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

B-21

<PAGE>

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;

-- 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,

B-22

<PAGE>

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.

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.

<TABLE>
<CAPTION>
NOMINAL SHORT-TERM INTEREST RATES

1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>

European Commission: European Economy, 1998 No. 65 pp 316-9

B-23

<PAGE>

<TABLE>
<CAPTION>
NET LENDING (=) OR NET BORROWING (-) OF GENERAL GOVERNMENT AS % OF GDP

1992 1993 1994 1995 1996 1997 1998*
---- ---- ---- ---- ---- ---- -----

<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>

*Spring 1988 European Commission's Economic Forecast
European Commission: EUROPEAN ECONOMY, 1988 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 a 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.

B-24

<PAGE>

THE GROWTH FUND OF SPAIN, INC.
FORM N-1A
PART C: OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

a. FINANCIAL STATEMENTS:

(i) Financial Statements included in Part A of the Registration
Statement:

Financial Highlights

(ii) Financial Statements included in Part B of the Registration
Statement:

The Growth Fund of Spain, Inc.:
-------------------------------

Report of Independent Public Accountants Schedule of Investments
at November 30, 1997
Statement of Assets and Liabilities at November 30, 1997
Statement of Operations for the Period Ended November 30, 1997
Statement of Changes in Net Assets for the Period Ended November
30, 1997
Notes to Financial Statements

b. EXHIBITS:

(1) Articles of Amendment and Restatement of Articles of
Incorporation.*

(2) Bylaws.*

(3) Inapplicable.

(4) Inapplicable.

(5.1) Investment Management Agreement.*

(5.2) Sub-Advisory Agreement.*

(6) Inapplicable.

(7) Inapplicable.

(8.1) Custody Agreement.*

(8.2) Foreign Custody Agreement.*

(9) Transfer Agency Agreement.*

(10) Inapplicable.

(11) Inapplicable.

(12) Inapplicable.

(13) Inapplicable.

(14) Inapplicable.

(15) Inapplicable.

<PAGE>

(16) Inapplicable.

(18) Inapplicable.

* Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Inapplicable.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of November 20, 1998, there were 638 holders of record of shares of
the Registrant.

ITEM 27. INDEMNIFICATION.

Article VII of the Registrant's Articles of Amendment and Restatement
of Articles of Incorporation states as follows:

"No officer or director shall be personally liable to the
corporation or its stockholders for money damages by reason of
any breach of fiduciary duty to the corporation or otherwise.
Notwithstanding the foregoing sentence, a director or officer
shall be liable to the extent provided by applicable law (i) for
any transaction for which it is proved that the director or
officer actually received an improper benefit or profit in money,
property, or services, for the amount of the benefit or profit in
money, property, or services actually received, or (ii) pursuant
to a judgment or other final adjudication adverse to the director
or officer, entered in a proceeding based on a finding in the
proceeding that the director's or officer's action, or failure to
act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding;
provided, however, that nothing shall protect any director or
officer against any liability to the corporation or its
stockholders 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."

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 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 an 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.

<PAGE>

ITEM 28. 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 28.

<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.#

Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx

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 Director, 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*

<PAGE>

BUSINESS AND OTHER CONNECTIONS OF BOARD
NAME OF DIRECTORS OF REGISTRANT'S ADVISER
---- ------------------------------------

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.*
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 Vice President, Scudder Kemper Investments, Inc.**

<PAGE>

BUSINESS AND OTHER CONNECTIONS OF BOARD
NAME OF DIRECTORS OF REGISTRANT'S ADVISER
---- ------------------------------------

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 29. PRINCIPAL UNDERWRITERS.

(a) Inapplicable.

(b) Inapplicable.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the Rules promulgated thereunder
will be maintained by Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154. Records relating to the duties of the
Registrant's custodian are maintained by Brown Brothers Harriman & Co.

ITEM 31. MANAGEMENT SERVICES.

Inapplicable.

<PAGE>

ITEM 32. UNDERTAKINGS.

(a) Inapplicable.

(b) Inapplicable.

(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without charge.

<PAGE>

SIGNATURE
---------

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of November, 1998.

THE GROWTH FUND OF SPAIN, INC.

By: /s/ Philip J. Collora
------------------------------
Philip J. Collora,
Vice President

<PAGE>

EXHIBIT INDEX
THE GROWTH FUND OF SPAIN, INC.
FORM N-1A REGISTRATION STATEMENT

(1) Articles of Amendment and Restatement of Articles of Incorporation.*
(2) Bylaws.*
(3) None.
(4) None.
(5.1) Investment Management Agreement.*
(5.2) Sub-Advisory Agreement.*
(6) None.
(7) None.
(8.1) Custody Agreement.*
(8.2) Foreign Custody Agreement.*
(9) Transfer Agency Agreement.*
(10) None.
(11) None.
(12) None.
(13) None.
(14) None.
(15) None.
(16) None.
(18) None.

* Filed herewith.

<PAGE>

EXHIBIT 1

THE GROWTH FUND OF SPAIN, INC.

ARTICLES OF AMENDMENT AND RESTATEMENT
-------------------------------------

These Articles of Amendment and Restatement of The Growth Fund of Spain,
Inc., a Maryland corporation (the "Corporation"), are made as of this 11th day
of December, 1998, and amend and restate in its entirety the Articles of
Incorporation dated December 14, 1989, as amended.

FIRST: The corporation desires to amend and restate the Articles of
Incorporation as currently in effect and as hereinafter amended.

SECOND: The following provisions are all of the provisions of the Articles
of Incorporation currently in effect and as hereinafter amended:

The undersigned incorporator, Robert J. Engling, whose Post Office address
is 120 South LaSalle Street, Chicago, Illinois, being at least 21 years of age,
does hereby form a corporation under the Maryland General Corporation Law.

ARTICLE I
---------

The name of the corporation is The Growth Fund of Spain, Inc. (hereinafter
called the "corporation").

ARTICLE II
----------

The nature of the business and the objects and purposes to be transacted,
promoted or carried on are to engage in the business of an open-end, management
investment company under the Investment Company Act of 1940, as amended,
holding, investing and reinvesting its assets. The general nature of its
business shall be to buy, hold, sell, exchange, pledge and otherwise deal in
notes, stocks, bonds, options or other securities of whatsoever nature; to do
any and all acts and things necessary or incidental thereto to the extent
permitted business corporations under the provisions of the laws of the State of
Maryland as from time to time amended; to borrow money or otherwise obtain
credit and to secure the same by mortgaging, pledging or otherwise subjecting as
security the assets of the corporation; and to sell, hold, purchase, redeem and
reissue the shares of its own capital stock. The corporation shall have the
power to conduct and carry on its business or any part thereof, and to have one
or more offices, and to exercise any or all of its corporate powers and rights
in the State of Maryland, in other states, territories, districts, colonies and
dependencies of the United States, and in any or all foreign countries.

ARTICLE III
-----------

The post office address of the place at which the principal office of the
corporation in this state will be located is 11 East Chase Street, Baltimore,
Maryland 21202. The resident agent of the corporation is The Prentice-Hall
Corporation System, Maryland, a corporation of this state, the post office
address of which is 11 East Chase Street, Baltimore, Maryland 21202.

<PAGE>

ARTICLE IV
----------

The number of directors of the corporation shall be eight (8), which number
may be increased or decreased pursuant to the by-laws of the corporation but
shall never be less than three (3). The election of directors need not be by
ballot. The directors shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified. The number of
directors in office at the time of adoption of these Articles of Amendment and
Restatement is eight and the names of the directors who shall act as such until
their successors are duly elected and qualified are as follows:

James E. Akins
Arthur R. Gottschalk
Frederick T. Kelsey
Gregory L. Melville
Fred B. Renwick
Moritz A. Sell
John B. Tingleff
John G. Weithers

ARTICLE V
---------

The total capital stock to be authorized is as follows:

Class of Stock Par Value Number of Shares Aggregate Par Value
-------------- --------- ---------------- -------------------

Common $.01 50,000,000 $500,000

(a) The board of directors shall have authority by resolution to classify
and reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock.

(b) The following is a description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the common stock of the corporation.

(1) Each share of common stock shall have one vote. Unless otherwise
provided in these Articles of Amendment and Restatement, on any matter submitted
to a vote of stockholders, all shares of all classes and series shall vote
together as a single class; provided, however, that (i) as to any matter with
respect to which a separate vote of any class or series is required by the
Investment Company Act of 1940, as amended and in effect from time to time, or
any rules, regulations or orders issued thereunder, or by the laws of the State
of Maryland, such requirement as to a separate vote by that class or series
shall apply in lieu of a general vote of all classes and series as described
above; and (ii) as to any matter which in the judgment of the board of directors
(which shall be conclusive) does not affect the interest of a particular class
or series, such class or series shall not be entitled to any vote and only the
holders of shares of the one or more affected classes and series shall be
entitled to vote.

(2) Subject to the provisions of law and any preferences of any class
of stock hereafter classified or reclassified, dividends may be paid on the
common stock of the corporation at such time and in such amounts as the board of
directors may deem advisable.

(3) In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of the common stock
shall be entitled, together with the holders of any other class of stock
hereafter classified or reclassified not having a preference on distributions in
the liquidation, dissolution or winding up of the corporation, after payment or
provision for payment of the debts and other liabilities of the corporation and
the amount to which the holders of any class of stock hereafter classified or
reclassified having a preference on

<PAGE>

distributions in the liquidation, dissolution or winding up of the corporation,
to share ratably in the remaining net assets of the corporation.

(4) Each holder of shares of stock shall be entitled to require the
corporation to redeem all or any part of the shares of stock standing in the
name of such holder on the books of the corporation, and all shares of stock
issued by the corporation shall be subject to redemption by the corporation, at
the net asset value thereof, less such redemption fee or other charge, if any,
as may be fixed by the board of directors, subject to the right of the board of
directors to suspend the right of redemption of shares of stock or postpone the
date of payment of such redemption price in accordance with provisions of
applicable law. Payment of the redemption price shall be made in cash or
in-kind, or both, by the corporation at such time and in such manner as may be
determined from time to time by the board of directors.

(c) The board of directors may from time to time issue and sell or
authorize the issuance and sale of the authorized but unissued shares of the
corporation. All shares of stock of the corporation sold shall be sold in such
amounts, and on such terms and conditions, and for such purposes, and for such
amount or kind of consideration as may now or hereafter be permitted by the laws
of the State of Maryland and by these Articles of Amendment and Restatement, as
the board of directors may determine; provided, however, that the value of the
consideration per share to be received by the corporation upon the sale of any
shares of its stock shall not be less than the net asset value per share of such
stock outstanding at the time of such sale, except as otherwise provided in this
Article.

(d) The corporation may issue and sell fractions of shares having pro rata
all the rights of full shares, including without limitation, the right to vote
and receive dividends; and wherever the words "share" or "shares" are used in
these Articles of Amendment and Restatement or in the by-laws, they shall be
deemed to include fractions of shares where the context does not clearly
indicate that only full shares are intended.

(e) No shares need be offered to existing stockholders before being offered
to others. In connection with the acquisition of all or substantially all the
assets of another entity, the board of directors may issue or cause to be issued
shares of the corporation and accept in payment thereof in lieu of cash such
assets of such entity at market value, provided such assets are of the character
in which the board of directors are authorized to invest the funds of the
corporation. No shares shall be sold by the corporation during any period when
the determination of net asset value is suspended.

ARTICLE VI
----------

(a) The net asset value of each share of the corporation outstanding shall
be determined by the board of directors from time to time in accordance with the
provisions of applicable law and in accordance with the corporation's current
prospectus.

(b) The board of directors may suspend the determination of net asset value
for all or any part of any period during which the New York Stock Exchange is
normally closed, or during which trading on the New York Stock Exchange or in
the markets normally utilized by the corporation is restricted by governmental
order, or during which an emergency exists such as would make disposal by the
corporation of securities owned by the corporation unreasonable or
impracticable, or would make determination of the net asset value of the assets
of the corporation impracticable. The determination of whether trading on the
New York Stock Exchange or in the markets normally utilized by the corporation
is restricted or whether such an emergency, as herein provided, exists shall be
by applicable rules and regulations of the Securities and Exchange Commission or
other governmental authority. The suspension shall become effective at such time
as the board of directors shall specify in their declaration or resolution, but
not later than the close of business on the next succeeding business day
following the declaration or resolution. After such suspension becomes
effective, there shall be no determination of net asset value until the board of
directors shall declare the suspension terminated. The suspension shall
terminate in any event on the first day on which the New York Stock Exchange is
open, the restricted trading on the New York Stock Exchange or in the markets
utilized by the corporation has ended or the emergency shall have expired in
accordance with the official ruling of the Securities and Exchange Commission or
other governmental authority or, in the absence of such ruling, upon the
determination of the board of directors.

<PAGE>

(c) The board of directors may delegate any of its powers and duties under
this Article with respect to appraisal of assets and liabilities and
determination of net asset value or with respect to suspension of the
determination of net asset value to an officer or officers or agent or agents of
the corporation designated from time to time by the board of directors.

ARTICLE VII
-----------

No officer or director shall be personally liable to the corporation or its
stockholders for money damages by reason of any breach of fiduciary duty to the
corporation or otherwise. Notwithstanding the foregoing sentence, a director or
officer shall be liable to the extent provided by applicable law (i) for any
transaction for which it is proved that the director or officer actually
received an improper benefit or profit in money, property, or services, for the
amount of the benefit or profit in money, property, or services actually
received, or (ii) pursuant to a judgment or other final adjudication adverse to
the director or officer, entered in a proceeding based on a finding in the
proceeding that the director's or officer's action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding; provided, however, that nothing shall
protect any director or officer against any liability to the corporation or its
stockholders 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.

ARTICLE VIII
------------

The corporation may enter into any contract with any corporation, firm,
partnership, trust or association, although one or more of the board of
directors or officers of the corporation may be an officer, director, partner,
trustee, shareholder or member of, or have an interest in, such other party to
the contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such relationship or interest, nor shall any
person holding such relationship be liable merely by reason of such relationship
or interest for any loss or expense to the corporation under or by reason of
said contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was reasonable and fair
to the corporation. Any contract entered into pursuant to the terms of this
Article shall be consistent with and subject to the requirements of the
Investment Company Act of 1940, including any amendment thereto or other
applicable act of Congress hereafter enacted, with respect to its duration,
termination, authorization, approval, assignment, amendment or renewal.

ARTICLE IX
----------

The corporation reserves the right from time to time to make any amendment
to these Articles of Amendment and Restatement, now or hereafter authorized by
law, including any amendment that alters the contract rights of any outstanding
stock as expressly set forth in these Articles of Amendment and Restatement. As
used herein the term "Articles of Amendment and Restatement" includes any
amendments or supplements hereto.

ARTICLE X
---------

The duration of the corporation shall be perpetual.

THIRD: The amendment to and restatement of the Articles of Amendment and
Restatement as hereinabove set forth have been duly advised by the Board of
Directors and approved by the stockholders of the corporation as required by
law.

FOURTH: The current address of the principal office of the Corporation is
as set forth in Article III of the foregoing amendment and restatement of the
Articles of Amendment and Restatement.

FIFTH: The name and address of the Corporation's current resident agent is
as set forth in Article III of the foregoing amendment and restatement of the
Articles of Amendment and Restatement.

<PAGE>

SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article IV of the foregoing amendment
and restatement of the Articles of Incorporation.

SEVENTH: The undersigned Vice President acknowledges these Articles of
Amendment and Restatement to be the corporate act of the corporation and as to
all matters or facts required to be verified under oath, the undersigned Vice
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its Vice President
and attested by its Assistant Secretary on this 11th day of December, 1998.

ATTEST: THE GROWTH FUND OF SPAIN, INC.

/s/ Elizabeth C. Werth /s/ Philip J. Collora
- - ---------------------------------- ------------------------------(SEAL)
Elizabeth C. Werth Philip J. Collora
Assistant Secretary Vice President

<PAGE>

EXHIBIT 2

BY-LAWS

THE GROWTH FUND OF SPAIN, INC.

SECTION 1. Shareholder Meetings
-------------------------------

1.1 The annual meeting of the shareholders may be held at any place in or
out of the State of Maryland as may be determined by the board of directors and
at the time determined by the board of directors as shall be designated in the
notice of said meeting. The annual meeting of the shareholders shall be held a
date fixed from time to time by the board of directors within the thirty-one
(31) day period ending five (5) months after the end of the corporation's fiscal
year. Any business of the corporation may be transacted at an annual meeting
without being specifically designated in the notice unless otherwise provided by
statute, the corporation's Articles of Incorporation, as amended from time to
time ("Articles") or these bylaws.

1.2 Special meetings of the shareholders may be called at any time by the
chairman of the board, the president or by a majority of the board of directors.
Special meetings of the shareholders shall be called by the secretary upon the
written request of the holders of shares entitled to not less than 25 percent of
all the votes entitled to be cast at such meeting, provided that (a) such
request shall state the purpose of such meeting and the matters proposed to be
acted on, and (b) the shareholders requesting such meeting shall have paid to
the corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the secretary shall determine and specify to such
shareholders. No special meeting need be called, upon the request of the holders
of shares entitled to cast less than a majority of all votes entitled to be cast
at such meeting, to consider any matter that is substantially the same as a
matter voted upon at any meeting of the shareholders held during the preceding
12 months. Business transacted at all special meetings shall be confined to the
subjects stated in the call.

1.3 The secretary shall cause notice of the place, date and hour, and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, to be mailed not less than 10 nor more than 90 days before the date of
the meeting, to each shareholder entitled to vote at such meeting.

1.4 At every shareholders' meeting, each shareholder shall be entitled to
one vote for each share, and a proportionate vote for each portion of a share,
of stock of the corporation validly issued and outstanding and held by such
shareholder, except that no shares held by the corporation shall be entitled to
a vote. Except as otherwise specifically provided in the corporation's Articles
or these by-laws or as required by provisions of the Investment Company Act of
1940, as amended from time to time ("1940 Act"), all matters shall be decided by
a vote of the majority of the votes validly cast.

1.5 The presence at any shareholders' meeting, in person or by proxy, of
shareholders entitled to cast a majority of the votes thereat shall be necessary
and sufficient to constitute a quorum for the transaction of business. In the
absence of a quorum, the holders of a majority of shares entitled to vote at the
meeting and present thereat in person or by proxy, or, if no shareholder
entitled to vote is present thereat in person or by proxy, any officer present
thereat entitled to preside or act as secretary of such meeting, may adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
that might have been transacted at the meeting as originally notified.

1.6 At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing subscribed by such shareholder and bearing a date not more
than eleven (11) months prior to said meeting, which instrument shall be filed
with the secretary of the meeting before being voted.

<PAGE>

SECTION 2. Directors
--------------------

2.1 The number of directors that shall constitute the whole board shall be
not less than three (3) nor more than fifteen (15). The present board consists
of six (6) directors. Hereafter, within the limits specified herein, the number
of directors shall be fixed from time to time by resolution adopted by a
majority of directors then in office. The term of office of the directors shall
be as specified in the corporation's Articles. The directors shall be elected by
the shareholders owning of record a plurality of the stock voting at an annual
meeting of the shareholders or special meeting in lieu thereof called for that
purpose and each director elected shall hold office until his successor shall
have been elected and shall have qualified, or until his death, or until he
shall have resigned or have been removed as provided in these by-laws, or as
otherwise provided by statute or the corporation's Articles. Any vacancy created
by an increase in directors may be filled in accordance with paragraph 2.4 of
this Section 2. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless the
director is specifically removed pursuant to paragraph 2.2 of this Section 2 at
the time of the decrease. Directors need not be shareholders of the corporation.

2.2 Any director of the corporation may be removed by the shareholders with
or without cause by a vote of 75% of the votes entitled to be cast for the
election of directors.

2.3 A director of the corporation may resign at any time by giving written
notice of his resignation to the board of directors, the chairman of the board,
the president or the secretary of the corporation.

2.4 Subject to the provisions of the 1940 Act, any vacancies in the board
of directors, whether arising from death, resignation, removal or any other
cause except an increase in the number of directors, shall be filled by a vote
of the majority of the board of directors then in office even though that
majority is less than a quorum, provided that no vacancy or vacancies shall be
filled by action of the remaining directors if, after the filling of the vacancy
or vacancies, fewer than two-thirds of the directors then holding office shall
have been elected by the shareholders of the corporation. A majority of the
entire board may fill a vacancy that results from an increase in the number of
directors. In the event that at any time a vacancy exists in an office of a
director that may not be filled by the remaining directors, a special meeting of
the shareholders shall be held for the purpose of filling the vacancy or
vacancies. Any director appointed by the board of directors to fill a vacancy
shall hold office only until the next annual meeting of shareholders of the
corporation and until a successor has been elected and qualifies or until his
earlier resignation or removal. Any director elected by the shareholders to fill
a vacancy shall hold office for the balance of the term of the director whose
death, resignation or removal occasioned the vacancy and until a successor has
been elected and qualifies or until his earlier resignation or removal.

2.5 The property and business of the corporation shall be managed by a
board of directors that may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute, the corporation's
Articles or these by-laws prohibited or directed or required to be exercised or
done by the shareholders.

2.6 The board of directors may hold their meetings and keep the books of
the corporation at the office of the corporation in the City of Chicago, State
of Illinois, or at such other places as they may from time to time determine,
and telephone meetings may be held. The original or duplicate stock ledger shall
be kept at the office of the corporation in the City of Chicago, State of
Illinois or at the office of any transfer agent that may be employed by the
corporation.

2.7 The first meeting of the newly elected board of directors shall be held
at the place of and immediately following the meeting of the shareholders at
which such board of directors was elected, either within or without the State of
Maryland; provided the directors may hold their meeting at such other place and
time as they may determine. No notice of such meeting shall be necessary to the
newly elected directors in order to legally constitute the meeting provided a
quorum shall be present. Regular meetings of the board of directors shall be
held without notice at such time and place, either within or without the State
of Maryland as shall from time to time be determined by the board.

<PAGE>

2.8 Special meetings of the board of directors may be held at any time when
called by the chairman of the board, the president or two (2) or more directors.
Notice of any special meeting shall be given by the secretary or other
officer calling such meeting to each director either in person, in writing, by
telegram or by telephone. Such special meetings shall be held at such time and
place, within or without the State of Maryland, as the notice thereof or waiver
shall specify. Unless otherwise specified in the notice thereof, any and all
business may be transacted at any meeting of the board of directors.

2.9 At all meetings of the board of directors, a majority of the directors
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of the majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute, by the corporation's Articles
or by these by-laws. If a quorum shall not be present at any meeting of the
board of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. At any adjourned meeting at which a quorum is present,
any business may be transacted that might have been transacted at the meeting as
originally called.

2.10 Any action required or permitted to be taken at any meeting of the
board of directors (except voting on an investment advisory agreement) or of any
committee thereof may be taken without a meeting if written consents thereto are
signed by all members of the board or such committee and such written consents
are filed with the minutes of proceedings of the board or such committee.

2.11 Subject to any limitations contained in the corporation's Articles or
these by-laws, the directors shall be entitled to reasonable remuneration from
the corporation for their services as directors in such amount as may from time
to time be fixed by vote of the board of directors.

SECTION 3. Committees
---------------------

3.1 The board of directors may elect from their own number, by resolution
or resolutions passed by a majority of the whole board, an executive committee
to consist of two (2) or more directors, which shall have the power to conduct
the current and ordinary business of the corporation while the board of
directors is not in session. The board of directors may also in the same manner
elect from their own number from time to time other committees, the number
composing such committees and the powers conferred thereon be determined from
the resolution creating the same.

SECTION 4. Notices
------------------

4.1 Whenever, under the provisions of applicable statute, the corporation's
Articles or these by-laws, notice is required to be given to any shareholder or
director, it shall not be construed to mean personal notice unless the context
otherwise provides. Such notice may be given in writing, by mail, by depositing
the same in a post office or letter box, in a postpaid sealed wrapper, addressed
to such shareholder or director at such address as appears on the books of the
corporation, and such notice shall be deemed to be given at the time when the
same shall be thus mailed.

4.2 Whenever any notice is required to be given under the provisions of
applicable statute, the corporation's Articles or by these by-laws, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be equivalent thereto.
Notice of a shareholder meeting need not be given to any shareholder who shall
attend such meeting in person or by proxy.

4.3 Notice of adjournment of a shareholders' meeting to another time (not
more than 120 days after the original record date) or place need not be given,
if such time and place are announced at the meeting.

4.4 Irregularities in the notice or in the giving thereof as well as the
accidental omission to give notice of any meeting to, or the non-receipt of any
such notice by, any of the shareholders shall not invalidate any action taken by
or at any such meeting.

<PAGE>

4.5 No notice of any special meeting need be given to any director who
attends such meeting or to any director who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting), whether
before or after the time of the meeting.

SECTION 5. Officers
-------------------

5.1 The officers of the corporation shall be elected annually by the board
of directors at their first meeting in each calendar year or at such later
meeting in such year as the board of directors shall determine. The board of
directors may elect one of its own members as chairman of the board and shall
elect a president, vice president, secretary and treasurer. The board of
directors may also choose additional vice presidents and one or more assistant
secretaries and assistant treasurers. Two or more offices, when consistent, may
be held by the same person, except that any person holding the office of
president shall not hold the office of vice president. The president of the
corporation shall be a director. All other officers may be, but need not be,
directors.

5.2 The board of directors may appoint such other officers, agents and
representatives of the corporation as shall be deemed necessary, with such
powers for such term and to perform such acts and duties on behalf of the
corporation as the board of directors may see fit to the extent authorized or
permitted by law, the corporation's Articles and these by-laws.

5.3 The chairman of the board, if one shall be elected, shall be the senior
officer of the corporation and shall preside at all meetings of the shareholders
and board of directors and shall perform such other duties as the board of
directors may from time to time prescribe.

5.4 The president shall be the chief executive officer of the corporation
and shall, in the absence of the chairman, preside at all meetings of the
shareholders and board of directors. The president shall have power to sign all
certificates for shares of stock. The president shall perform such other duties
as the board of directors shall from time to time prescribe.

5.5 The vice presidents, in the order of their seniority or as designated
by the board of directors, shall in the absence or disability of the president
perform the duties and exercise the powers of the president and shall perform
such other duties as the board of directors may from time to time prescribe.

5.6 The secretary shall record all votes and proceedings of meetings of the
shareholders and of the board of directors in the corporate records. He shall
give, or cause to be given, notice of all meetings of the shareholders and
meetings of the board of directors when notice thereof is required. The
secretary shall have custody of the corporate seal of the corporation and may
affix the same to any instrument requiring the corporate seal and attest to the
same with his signature. He shall have power to sign all certificates for shares
of stock and shall perform such other duties as the board of directors may from
time to time prescribe.

5.7 The assistant secretaries, in order of their seniority or as directed
by the board of directors, shall in the absence or disability of the secretary
perform the duties and exercise the powers of the secretary and shall perform
such other duties as the board of directors may prescribe.

5.8 The treasurer shall deliver all funds and securities of the corporation
that may come into his hands to such bank or trust company as the board of
directors may designate as custodian. He shall keep such records of the
financial transactions of the corporation as the board of directors shall
prescribe. The treasurer shall have power to sign all certificates for shares of
stock and shall perform such other duties as the board of directors may from
time to time prescribe.

5.9 The assistant treasurers, in order of their seniority or as directed by
the board of directors, shall in the absence or disability of the treasurer
perform the duties and exercise the powers of the treasurer and shall perform
such other duties as the board of directors may prescribe.

<PAGE>

5.10 The officers of the corporation shall hold office until their
successors are chosen and qualified. Any officer may be removed from office by
the affirmative vote of a majority of the board of directors given at any
regular meeting or any special meeting. In addition, any officer or agent
appointed by the board may be removed, either with or without cause, by the
president or by any officer upon whom such power of removal shall have been
conferred by the board of directors. Any officer may resign his office at any
time by delivering a written resignation to the board of directors, the chairman
of the board, the president, the secretary, or any assistant secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
If the office of any officer shall become vacant for any reason, the vacancy may
be filled by the board of directors.

SECTION 6. Record Date
----------------------

6.1 The board of directors may fix in advance a date as a record date for
the determination of the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, provided that such record
date shall not be a date more than 90 nor less than 10 days prior to the date of
the meeting. In such case, only such shareholders as shall be shareholders of
record on the record date so fixed shall be entitled to such notice of, and to
vote at, such meeting or adjournment, notwithstanding any transfer of any shares
on the books of the corporation after any such record date.

6.2 The board of directors may fix in advance a date as a record date for
the determination of the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion or exchange of shares, or for the
purpose of any other lawful action. In such case, only such shareholders as
shall be shareholders of record on the record date so fixed shall be entitled to
receive payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take such other action,
as the case may be, notwithstanding any transfer of any shares on the books of
the corporation after any such record date.

SECTION 7. Stock Certificates
-----------------------------

7.1 The certificates of stock of the corporation shall be in the form
prescribed by the board of directors and shall be signed by the president or a
vice president and the secretary or treasurer or an assistant secretary or an
assistant treasurer. The board of directors may require all certificates for
shares of stock to be signed (1) by a transfer agent or an assistant transfer
agent or (2) by a transfer clerk acting on behalf of the corporation. The
signature of any officer of the corporation and the seal of the corporation
thereon may be facsimiles.

7.2 In the event any officer of the corporation authorized to sign
certificates for shares of stock of the corporation shall die or cease to hold
office, otherwise valid certificates bearing the signature, either real or
facsimile, of such officer will remain valid and may be issued.

7.3 The board of directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation that are alleged to have been lost, mutilated or destroyed upon such
terms and upon such conditions as may be prescribed by the board of directors.

SECTION 8. Custodian
--------------------

8.1 The Corporation shall place and at all times maintain in the custody of
a custodian (including any sub-custodian for the custodian) all funds,
securities and similar investments owned by the corporation. The custodian (and
any sub-custodian) shall be an institution conforming to the requirements of the
1940 Act and the rules of the Securities and Exchange Commission thereunder or
any successor statute as amended from time to time. The custodian shall be
appointed from time to time by the board of directors, which shall fix its
remuneration.

8.2 Upon termination of the Custodian Agreement for inability of the
custodian to continue to serve, the board of directors shall promptly appoint a
successor custodian, but in the event that no successor custodian can be found
who has the required qualifications and is willing to serve, the board of
directors shall call as promptly as possible a

<PAGE>

special meeting of the shareholders to determine whether the corporation shall
function without a custodian or shall be liquidated. If so directed by vote of
the holders of a majority of the outstanding shares of stock entitled to vote of
the corporation, the custodian shall deliver and pay over all property of the
corporation held by it as specified in such vote.

SECTION 9. Powers of the Corporation
------------------------------------

9.1 All corporate powers and authority of the corporation (except as at the
time otherwise provided by statute, by the corporation's Articles or by these
by-laws) shall be vested in and exercised by the board of directors and officers
of the corporation. The corporation may enter into one or more contracts for
exclusive or non-exclusive advisory or management services with any partnership,
corporation, trust, association or other organization (such entity hereinafter
referred to as the "investment adviser"), every such contract to comply with any
provisions governing such a contract contained in the 1940 Act or a rule or
regulation thereunder, or exemptive order granted thereunder, all as from time
to time amended; and any such contract may contain such other terms as the
shareholders or the board of directors may approve, including the granting of
authority to the investment adviser to determine which securities shall be
purchased or sold by the corporation and what portion of its assets shall be
held uninvested, which authority shall include the power to make changes in the
corporation's investments, subject always to the corporation's stated investment
objectives, policies and restrictions as from time to time amended and to the
direction of the board of directors.

9.2 The board of directors shall have authority to appoint an underwriter
or distributor or distributors or an agent or agents for the sale of shares of
common stock of the corporation and to pay such underwriter, distributor or
distributors and agent or agents such compensation as the board of directors
shall deem appropriate, and to enter into such contract or contracts with such
underwriter, distributor or distributors and agent or agents as the board of
directors may in its discretion deem reasonable and proper. Any such contract
may be made with the investment adviser or any firm or corporation in which any
director or directors may be interested.

SECTION 10. Auditors
--------------------

10.1 An auditor shall be selected annually in accordance with the 1940 Act
or any successor statute.

SECTION 11. Fiscal Year
-----------------------

11.1 The fiscal year of the corporation shall end on such date in each year
as the board of directors shall from time to time determine.

SECTION 12. Seal
----------------

12.1 The corporate seal of the corporation shall, subject to alteration by
the board of directors, consist of a flat-faced circular die upon which shall be
engraved or cut the word, "Maryland," together with the name of the corporation
and the year of its incorporation.

SECTION 13. Indemnification
---------------------------

13.1 The corporation shall indemnify each director and officer to the full
extent permitted by Section 2-418 of the Annotated Code of Maryland Corporations
and Associations, or any successor statute, the 1940 Act and the corporation's
Articles.

13.2 With respect to a proceeding against a director or officer brought by
or on behalf of the corporation to obtain a judgment or decree in its favor, the
corporation shall provide the officer or director with the same indemnification,
after the same determination, as it is required to provide with respect to a
proceeding not brought by or on behalf of the corporation.

13.3 The board of directors in its discretion may authorize or provide the
above-described indemnification to an employee or agent.

<PAGE>

13.4 Any indemnification provided by this Section:

(a) Continues as to a director, officer, employee or agent who has
ceased to be such and inures to the benefit of his heirs and personal
representative; and

(b) Does not exclude any other rights to which a person is or may be
entitled by law, any agreement, vote of shareholders or disinterested directors,
or otherwise as to:

(1) Action in his official capacity; and

(2) Action in another capacity while holding the office.

13.5 The indemnification provided by this Section shall be made with
respect to an action, suit or proceeding arising from an act or omission or
alleged act or omission, whether occurring before or after the adoption of this
Section.

13.6 Nothing in this Section protects, or purports to protect, or may be
interpreted or construed to protect, any director or officer against any
liability to the corporation or its security holders 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.

13.7 Each section or portion thereof of this Section shall be deemed
severable from the remainder, and the invalidity of any such section or portion
shall not affect the validity of the remainder of this Section.

SECTION 14. Amendments
----------------------

14.1 Except as provided in paragraph 2 hereof, all by-laws of the
corporation, whether adopted by the board of directors, or the shareholders,
shall be subject to amendment, alteration or repeal, and new by-laws may be
made, by the affirmative vote of a majority of either:

(a) the holders of record of the outstanding shares of stock of the
corporation entitled to vote, at any annual or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new by-law; or

(b) the directors, at any regular or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new by-law.

14.2 Amendment by shareholders only:

(a) No amendment of any section of these by-laws shall be made except
by the shareholders of the corporation if the bylaws provide that such section
may not be amended, altered or repealed except by the shareholders.

(b) From and after the issue of any shares of the capital stock of the
corporation, no amendment of this Section 14 shall be made except by the
shareholders of the corporation.

EXHIBIT 5.1

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

<PAGE>

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 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 expense the portfolio management services described in
Section 2 hereof and the administrative services described in Section 3 hereof.

<PAGE>

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.

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. 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 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

<PAGE>

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.

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 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.

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 Fund.

<PAGE>

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,

THE GROWTH FUND OF SPAIN, INC.

By: /s/ DANIEL PIERCE
------------------------------
President

The foregoing Agreement is hereby accepted as of the date hereof.

SCUDDER KEMPER INVESTMENTS, INC.

By: /s/ STEPHEN BECKWITH
------------------------------
Name

Treasurer
------------------------------
Title

EXHIBIT 5.2

SUB-ADVISORY AGREEMENT
----------------------

SUB-ADVISORY AGREEMENT

AGREEMENT made this 7th day of September, 1998, by and between SCUDDER
KEMPER INVESTMENTS, INC., a Delaware corporation (the "Adviser") and BSN GESTION
DE PATRIMONIOS, S.A., S.G.C., a corporation organized under the laws of Spain
(the "Sub-Adviser").

WHEREAS, THE GROWTH FUND OF SPAIN, INC., a Maryland corporation (the
"Fund"), is a closed-end, diversified management investment company registered
under the United States Investment Company Act of 1940, as amended (the
"Investment Company Act of 1940") the shares of common stock (the "Shares") of
which are registered under the Securities Act of 1933;

WHEREAS, the Fund has retained the Adviser to render to it investment
advisory and management services pursuant to an Investment Management Agreement,
dated September 7, 1998 (the "Management Agreement"); and

WHEREAS, the Adviser desires to retain the Sub-Adviser to render investment
advisory and management services with respect to that portion of the Fund's
portfolio invested in Spanish securities and the Sub-Adviser is willing to
render such services;

NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:

1. APPOINTMENT OF SUB-ADVISER. The Adviser hereby employs the Sub-Adviser
to manage the investment and reinvestment of the assets of the Fund to be
invested in Spanish securities in accordance with the Fund's investment
objectives and policies and limitations, subject to the supervision of the
Adviser and the Board of Directors of the Fund, for the period and upon the
terms herein set forth. The investment of funds hereunder shall be subject to
all applicable restrictions of the Articles of Incorporation and By-Laws of the
Fund as may from time to time be in force.

The Sub-Adviser accepts such employment and agrees during such period to
render such investment management services, to furnish related office facilities
and equipment and clerical, bookkeeping and administrative services for the
Fund, and to assume the obligations herein set forth for the compensation herein
provided. The Sub-Adviser shall for all purposes herein provided be deemed to
be an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund or the
Adviser in any way or otherwise be deemed an agent of the Fund or the Adviser.
It is understood and agreed that the Sub-Adviser, by separate agreements with
the Fund, may also serve the Fund in other capacities.

2. COMPENSATION. For the services and facilities described in Section 1,
the Adviser will pay to the Sub-Adviser at the end of each calendar month, an
investment management fee computed at an annual rate of .35% of the Fund's
average weekly net assets. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate proration on the
basis of the number of days that the Agreement is in effect during the month and
year, respectively.

3. NON-EXCLUSIVITY OF SERVICES. The services of the Sub-Adviser under this
Agreement are not to be deemed exclusive, and the Sub-Adviser shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.

4. NET ASSET VALUE. The net asset value of the Fund shall be calculated in
accordance with the provisions of the Fund's prospectus or at such other time or
times as the Fund's Directors may determine in accordance with the provisions of
the Investment Company Act of 1940. On each day when net asset value is not
calculated, the

<PAGE>

net asset value of the Shares as of the close of business on the last day on
which such calculation was made for the purpose of the foregoing computations.

5. POTENTIAL CONFLICTS OF INTEREST. Subject to applicable statutes and
regulations, it is understood that directors, officers or agents of the Fund are
or may be interested in the Sub-Adviser as officers, directors, agents,
shareholders or otherwise, and that the officers, directors, shareholders and
agents of the Sub-Adviser may be interested in the Fund otherwise than as a
director, officer or agent.

6. STANDARD OF CARE. The Sub-Adviser shall not be liable for any error of
judgment or of law or for any loss suffered by the Fund or the Adviser in
connection with the matters to which this Agreement relates, except loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Sub-Adviser in the performance of its obligations and duties or by reason of
its reckless disregard of its obligations and duties under this Agreement.

7. DURATION AND TERMINATION. This Agreement shall become effective on the
date specified in Section 10 hereof and shall remain in full force until April
1, 1999, unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter, but only as long as such
continuance is specifically approved at least annually in the manner required by
the Investment Company Act of 1940 and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not approved,
the Sub-Adviser may continue to serve in such capacity in the manner and to the
extent permitted by the Investment Company Act of 1940 and the rules and
regulations thereunder.

This Agreement shall automatically terminate in the event of its assignment
or in the event of the termination of the Management Agreement and may be
terminated at any time without the payment of any penalty by the Adviser or by
the Sub-Adviser on sixty (60) days' written notice to the other party.

The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.

Termination of this Agreement shall not affect the right of the Sub-Adviser
to receive payments on any unpaid balance of there compensation described in
Section 2 earned prior to such termination.

8. SURVIVAL. 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.

9. NOTICES. 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 the receipt of such notice.

10. REPRESENTATIONS AND WARRANTIES.

(a) The Sub-Adviser represents and warrants that it has applied for
registration as an investment adviser under the United States Investment
Advisers Act of 1940, as amended (the "Advisers Act").

(b) The Sub-Adviser agrees to use its best efforts to become
registered under the Advisers Act and maintain such registration in effect
during the term of this Agreement.

(c) This Agreement shall become effective on the date that such
registration under the Advisers Act becomes effective with the United
States Securities and Exchange Commission.

(d) The Sub-Adviser further represents and warrants that it is fully
qualified under the laws of Spain to perform its duties hereunder and
agrees to comply with any and all other applicable laws and regulations in
performing its obligations hereunder.

<PAGE>

11. GOVERNING LAW. This Agreement shall be construed in accordance with
applicable United States federal law and the laws of the Commonwealth of
Massachusetts.

12. MISCELLANEOUS.

(a) The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.

(b) Terms not defined herein shall have the meaning set forth in the
Fund's prospectus.

(c) 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 WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.

SCUDDER KEMPER INVESTMENTS, INC.

By: /s/ STEPHEN BECKWITH
------------------------------
Treasurer

BSN GESTION de PATRIMONIOS, S.A.,
S.G.C.

By: /s/ EDUARDO SUAREZ
------------------------------
Managing Director

EXHIBIT 8.1

CUSTODY AGREEMENT
-----------------

AGREEMENT, made the 15th day of November, 1990 by and between The Growth
Fund of Spain, Inc., a Maryland corporation, having its principal place of
business at 120 South LaSalle Street, Chicago, Illinois 60603 ("Fund") and
Investors Fiduciary Trust Company, a trust company organized and existing under
the laws of Missouri, having its principal place of business at Kansas City,
Missouri ("Custodian").

WHEREAS, Fund wants to appoint Investors Fiduciary Trust Company as
Custodian to have custody of a portion of Fund's portfolio securities and moneys
pursuant to this Agreement; and, for purposes related to its foreign investments
held outside the United States, Fund wants another custodian to have custody of
the remainder of Fund's portfolio securities and monies pursuant to a separate
agreement; and

WHEREAS, Investors Fiduciary Trust Company wants to accept such
appointment;

NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:

1. APPOINTMENT OF CUSTODIAN.
------------------------

Fund hereby constitutes and appoints Investors Fiduciary Trust Company as
Custodian of Fund which is to include:

A. Custody of the securities and monies at any time owned by Fund and
received by Custodian; and

B. Performing certain accounting and record keeping functions relating
to its function as Custodian for Fund and each of its Portfolios.

2. DELIVERY OF CORPORATE DOCUMENTS.
-------------------------------

Fund has delivered or will deliver to Custodian prior to the effective date
of this Agreement, copies of the following documents and all amendments or
supplements thereto, properly certified or authenticated:

A. Resolutions of the Board of Directors of Fund appointing Investors
Fiduciary Trust Company as Custodian hereunder and approving the form of this
Agreement; and

B. Resolutions of the Board of Directors of Fund authorized certain
persons to give instructions on behalf of Fund to Custodian and authorizing
Custodian to rely upon written instructions over their signatures.

3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
----------------------------------------

A. Delivery of Assets
------------------

All Fund's securities and moneys, except as permitted by the
Investment Company Act of 1940 ("1940 Act"), will be delivered either to
Custodian or to Banco Santander, pursuant to a separate custody agreement. Fund
will deliver or cause to be delivered to Custodian on the effective date of this
Agreement, or as soon thereafter as practicable, and from time to time
thereafter, portfolio securities acquired by it and monies then owned by it
except as permitted by the 1940 Act or from time to time coming into its
possession during the time this Agreement shall continue in effect. Custodian
shall have no responsibility or liability whatsoever for or on account of
securities or monies not so delivered.

<PAGE>

All securities so delivered to Custodian (other than bearer securities) shall be
registered in the name of Fund or its nominee, or of a nominee of Custodian, or
shall be properly endorsed and in form for transfer satisfactory to Custodian.

B. Safekeeping
-----------

Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time. Custodian will not deliver any such assets to
any person except as permitted by the provisions of this Agreement or any
agreement executed by it according to the terms of this Agreement. Custodian
shall be responsible only for the monies and securities of Fund held directly by
it or its nominees or sub-custodian under this Agreement. Custodian may
participate directly or indirectly through a sub-custodian in the Depository
Trust Company or Treasury/Federal Reserve Book Entry System, the Participants
Trust Company and any other securities depository approved by the Board of
Directors of the Fund, subject to compliance with the provisions of Rule 17f-4
under the 1940 Act including, without limitation, the specific provisions of
subsections (a)(1) through (d)(4) thereof.

C. Registration of Securities
--------------------------

Custodian will hold stocks and other registerable portfolio securities
of Fund registered in the name of Fund or in the name of any nominee of
Custodian for whose fidelity and liabilities Custodian shall be fully
responsible, or in street certificate form, so-called, with or without any
indication of fiduciary capacity. Unless otherwise instructed, Custodian will
register all such portfolio securities in the name of its authorized nominee.

D. Exchange of Securities
----------------------

Upon receipt of instructions, Custodian will exchange, or cause to be
exchanged, portfolio securities held by it for the account of Fund for other
securities or cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares, change of par
value, conversion or otherwise, and will deposit any such securities in
accordance with the terms of any reorganization or protective plan. Without
instructions, Custodian is authorized to exchange securities held by it in
temporary form for securities in definitive form, to effect an exchange of
shares when the par value of the stock is changed, and, upon receiving payment
therefore, to surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall receive
instructions prior to surrendering any convertible security.

E. Purchases or Sales of Investments of Fund
-----------------------------------------

Fund shall, on each business day on which a purchase or sale of a
portfolio security shall be made by it, deliver to Custodian instructions which
shall specify with respect to each such transaction:

(1) The name of the issuer and description of the security;

(2) The number of shares or the principal amount purchased or
sold, and accrued interest, if any;

(3) The trade date;

(4) The settlement date;

(5) The date when the securities sold were purchased by Fund or
other information identifying the securities sold and to be delivered;

(6) The price per unit and the brokerage commission, taxes and
other expenses in connection with the transaction;

(7) The total amount payable or receivable upon such transaction;
and

<PAGE>

(8) The name of the person from whom or the broker or dealer
through whom the transaction was made.

In accordance with such purchase instructions, Custodian shall pay for
out of monies held for the account of Fund, but only insofar as monies are
available therein for such purpose, and receive the portfolio securities so
purchased by or for the account of Fund. Such payment shall be made only upon
receipt by Custodian of the securities so purchased in form for transfer
satisfactory to Custodian.

In accordance with such sales instructions, Custodian will deliver or
cause to be delivered the securities thus designated as sold for the account of
Fund to the broker or other person specified in the instructions relating to
such sale, such delivery to be made only upon receipt of payment therefor in
such form as shall be satisfactory to Custodian, with the understanding that
Custodian may deliver or cause to be delivered securities for payment in
accordance with the customs prevailing among dealers in securities.

F. Purchases or Sales of Options and Futures Transactions
------------------------------------------------------

Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such purchase or sale:

(1) Securities Options

(a) The underlying security;
(b) The price at which purchased or sold;
(c) The expiration date;
(d) The number of contracts;
(e) The exercise price;
(f) Whether opening, exercising, expiring or closing the
transaction;
(g) Whether the transaction involves a put or call;
(h) Whether the option is written or purchased;
(i) Market on which option traded; and
(j) Name and address of the broker or dealer through whom
the sale or purchase was made.

(2) Options on Indices

(a) The index;
(b) The price at which purchased or sold;
(c) The exercise price;
(d) The premium;
(e) The multiple;
(f) The expiration date;
(g) Whether the transaction is an opening, exercising,
expiring or closing transaction;
(h) Whether the transaction involves a put or call;
(i) Whether the option is written or purchased; and
(j) Name and address of the broker or dealer through whom
the sale or purchase was made.

(3) Securities Index Futures Transactions

(a) The last trading date specified in the contract and,
when available, the closing level, thereof;

<PAGE>

(b) The index level on the date the contract is entered
into;
(c) The multiple;
(d) Any margin requirements;
(e) The need for a segregated margin account (in addition to
instructions; and, if not already in the possession of Custodian, Fund
shall deliver a substantially complete and executed custodial
safekeeping account and procedural agreement which shall be
incorporated into this Custody Agreement); and
(f) The name and address of the futures commission merchant
through whom the sale or purchase was made.

(4) Options on Index Futures Contracts

(a) The underlying index futures contract;
(b) The premium;
(c) The expiration date;
(d) The number of options;
(e) The exercise price;
(f) Whether the transaction involves an opening, exercising,
expiring or closing transaction;
(g) Whether the transaction involves a put or call;
(h) Whether the option is written or purchased; and
(i) The market on which the option is traded.

G. Securities Pledged to Secure Loans
----------------------------------

(1) Upon receipt of instructions, Custodian will release or cause
to be released securities held in custody to the pledgee designated in such
instructions by way of pledge or hypothecation to secure any loan incurred
by Fund; provided, however, that the securities shall be released only upon
payment to Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made,
further securities may be released or caused to be released for that
purpose upon receipt of instructions. Upon receipt of instructions,
Custodian will pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing such loan.

(2) Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in such instructions;
provided, however, that the securities shall be released only upon deposit
with Custodian of full cash collateral as specified in such instructions,
and that Fund will retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt of instructions and
the loaned securities, Custodian will release the cash collateral to the
borrower.

H. Routine Matters
---------------

Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase, transfer,
or other dealings with securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time to time by the Board
of Directors of Fund.

I. Demand Deposit Account
----------------------

Custodian will open and maintain a demand deposit account or accounts
in the name of Custodian, subject only to draft or order by Custodian upon
receipt of instructions. All monies received by Custodian from or for the
account of Fund shall be deposited in said account or accounts.

<PAGE>

When properly authorized by a resolution of the Board of Directors of
Fund, Custodian may open and maintain an additional demand deposit account or
accounts in such other banks or trust companies as may be designated in such
resolution, such accounts, however, to be in the name of Custodian and subject
only to its draft or order.

J. Income and Other Payments to Fund
---------------------------------

Custodian will:

(1) collect, claim and receive and deposit for the account of
Fund all income and other payments which become due and payable on or after
the effective date of this Agreement with respect to the securities
deposited under this Agreement, and credit the account of Fund with such
income on the payable date;

(2) execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection with the collection
of bond and note coupons; and

(3) take such other action as may be necessary or proper in
connection with:

(a) the collection, receipt and deposit of such income and
other payments, including but not limited to the presentation for
payment of:

(1) all coupons and other income items requiring
presentation;

(2) all other securities which may mature or be called,
redeemed, retired or otherwise become payable and regarding which
the Custodian has actual knowledge, or notice of which is
contained in publications of the type to which it normally
subscribes for such purpose; and

(b) the endorsement for collection, in the name of Fund, of
all checks, drafts or other negotiable instruments.

Custodian, however, shall not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt of
instructions and upon being indemnified to its satisfaction against the costs
and expenses of such suit or other actions. Custodian will receive, claim and
collect all stock dividends, rights and other similar items and deal with the
same pursuant to instructions. Unless prior instructions have been received to
the contrary, Custodian will, without further instructions, sell any rights held
for the account of Fund on the last trade date prior to the date of expiration
of such rights.

K. Payment of Dividends and Other Distributions
--------------------------------------------

On the declaration of any dividend or other distribution on the shares
of the Fund by the Board of Directors of Fund, Fund shall deliver to Custodian
instructions with respect thereto, including a copy of the Resolution of said
Board of Directors certified by the Secretary or an Assistant Secretary of Fund
wherein there shall be set forth the record date as of which shareholders are
entitled to receive such dividend or distribution, and the amount payable per
share on such dividend or distribution.

On the date specified in such Resolution for the payment of such
dividend or other distribution, Custodian shall pay out of the monies held for
the account of Fund, insofar as the same shall be available for such purposes,
and credit to the account of the Dividend Disbursing Agent for Fund, such amount
as may be necessary to pay the amount per share payable in cash shares of the
Fund issued and outstanding on the record date established by such Resolution.

<PAGE>

L. Shares Purchased by Fund
------------------------

Whenever any shares of the Fund are purchased by Fund, Fund or its
agent shall advise Custodian of the aggregate dollar amount to be paid for such
shares and shall confirm such advice in writing. Upon receipt of such advice,
Custodian shall charge such aggregate dollar amount to the custody account of
Fund and either deposit the same in the account maintained for the purpose of
paying for the purchase of shares or deliver the same in accordance with such
advice.

M. Shares Purchased from Fund
--------------------------

Whenever shares of the Fund are purchased from Fund, Fund will deposit
or cause to be deposited with Custodian the amount received for such shares.
Custodian shall not have any duty or responsibility to determine that Fund
shares purchased from Fund have been added to the proper shareholder account or
accounts or that the proper number of such shares have been added to the
shareholder records.

N. Proxies and Notices
-------------------

Custodian will promptly deliver or mail to Fund all proxies properly
signed, all notices of meetings, all proxy statements and other notices,
requests or announcements affecting or relating to securities held by Custodian
for Fund and will, upon receipt of instructions, execute and deliver or cause
its nominee to execute and deliver such proxies or other authorizations as may
be required. Except as provided by this Agreement or pursuant to instructions
hereafter received by Custodian, neither it nor its nominee shall exercise any
power inherent in any such securities, including any power to vote the same, or
execute any proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect thereto,
or take any other similar action.

O. Disbursements
-------------

Custodian will pay or cause to be paid insofar as funds are available
for the purpose, bills, statements and other obligations of Fund (including but
not limited to obligations in connection with the conversion, exchange or
surrender of securities owned by Fund, interest charges, variation margin,
dividend disbursements, taxes, management fees, administration-distribution
fees, custodian fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other operating expenses
of Fund) pursuant to instructions of Fund setting forth the name of the person
to whom payment is to be made, the amount of the payment, and the purpose of the
payment.

P. Books, Records and Accounts
---------------------------

Custodian acknowledges that all the records it shall prepare and
maintain pursuant to this Agreement shall be the property of Fund and that upon
request of Fund it shall make Fund's records available to it, along with such
other information and data as are reasonably requested by Fund, for inspection,
audit or copying, or turn said records over to Fund.

Custodian shall, within a reasonable time, render to Fund as of the
close of business on each day, a detailed statement of the amounts received or
paid and of securities received or delivered for the account of Fund during said
day. Custodian shall, from time to time, upon request by Fund, render a detailed
statement of the securities and monies held for Fund under this Agreement, and
Custodian shall maintain such books and records as are necessary to enable it do
so and shall permit such persons as are authorized by Fund, including Fund's
independent public accountants, to examine such records or to confirm the
contents of such records; and, if demanded, shall permit federal and state
regulatory agencies to examine said securities, books and records. Upon the
written instructions of Fund or as demanded by federal or state regulatory
agencies, Custodian shall instruct any sub-custodian to permit such persons as
are authorized by Fund to examine the books, records and securities held by such
sub-custodian which relate to Fund.

<PAGE>

Q. Appointment of Sub-Custodian
----------------------------

Notwithstanding any other provisions of this Agreement, all or any of
the monies or securities of Fund may be held in Custodian's own custody or in
the custody of one or more other banks or trust companies acting as
sub-custodians as may be approved by resolutions of Fund's Board of Directors,
evidenced by a copy thereof certified by the Secretary or Assistant Secretary of
Fund. Any such sub-custodian must have the qualifications required for
custodians under the 1940 Act unless exempted therefrom. The sub-custodian may
participate directly or indirectly in the Depository Trust Company or the
Treasury/ Reserve Book Entry System, the Participants Trust Company and any
other securities depository approved by the Board of Directors of the Fund, to
the same extent and subject to the same conditions as Custodian hereunder.
Neither Custodian nor sub-custodian shall be entitled to reimbursement by Fund
for any fees or expenses of any sub-custodian. The appointment of a
sub-custodian shall not relieve Custodian of any of its obligations hereunder.

R. Multiple Portfolios
-------------------

If Fund shall issue shares of more than one Portfolio during the term
hereof, Custodian agrees that all securities and other assets of Fund shall be
segregated by Portfolio and all books and records, account values or actions
shall be maintained, held, made or taken, as the case may be, separately for
each Portfolio.

S. Other Custodian
---------------

Pursuant to instructions, Custodian will transmit securities and
moneys of Fund to Banco Santander as custodian for Fund.

4. INSTRUCTIONS.
------------

A. The term "instructions", as used herein, means written or oral
instructions to Custodian from an authorized person of Fund. Certified copies of
resolutions of the Board of Directors of Fund naming one or more persons
authorized to give instructions in the name and on behalf of Fund may be
received and accepted by Custodian as conclusive evidence of the authority of
any person to so act and may be considered to be in full force and effect (and
Custodian shall be fully protected in acting in reliance thereon) until receipt
by Custodian of notice to the contrary. Unless the resolution authorizing any
person to give instructions specifically requires that the approval of anyone
else shall first have been obtained, Custodian shall be under no obligation to
inquire into the right of the person giving such instructions to do so.
Notwithstanding any of the foregoing provisions of this Section 4, no
authorizations, or instructions received by Custodian from Fund, shall be deemed
to authorize or permit any director, officer, employee, or agent of Fund to
withdraw any of the securities or monies of Fund upon the mere receipt of
instructions from such trustee, officer, employee or agent.

B. No later than the next business day immediately following each oral
instruction referred to herein, Fund shall give Custodian written confirmation
of each such oral instruction. Either party may electronically record any oral
instruction whether given in person or via telephone.

5. LIMITATION OF LIABILITY OF CUSTODIAN.
------------------------------------

A. Custodian shall hold harmless and indemnify Fund from and against
any loss or liability arising out of Custodian's failure to comply with the
terms of this Agreement or arising out of Custodian's negligence, willful
misconduct, or bad faith. Custodian may request and obtain the advice and
opinion of counsel for Fund or of its own counsel with respect to questions or
matters of law, and it shall be without liability to Fund for any action taken
or omitted by it in good faith, in conformity with such advice or opinion.

<PAGE>

B. If Fund requires Custodian in any capacity to take, with respect to
any securities, any action which involves the payment of money by it, or which
in Custodian's opinion might make it or its nominee liable for payment of monies
or in any other way, Custodian shall be and be kept indemnified by Fund in an
amount and form satisfactory to Custodian against any liability on account of
such action.

C. Custodian shall be entitled to receive, and Fund agrees to pay to
Custodian, on demand, reimbursement for such cash disbursements, costs and
expenses as may be agreed upon from time to time by Custodian and Fund.

D. Custodian shall be protected in acting as custodian hereunder upon
any instructions, advice, notice, request, consent, certificate or other
instrument or paper reasonably appearing to it to be genuine and to have been
properly executed and shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained from Fund hereunder, a certificate signed by Fund's President, or
other officer specifically authorized for such purpose.

E. Without limiting the generality of the foregoing, Custodian shall
be under no duty or obligation to inquire into, and shall not be liable for:

(1) The validity of the issue of any securities purchased by or
for Fund, the legality of the purchase thereof or evidence of ownership
required by Fund to be received by Custodian, or the propriety of the
decision to purchase or amount paid therefor;

(2) The legality of the sales of any securities by or for Fund,
or the propriety of the amount paid therefor;

(3) The legality of the issue or sale of any shares of Fund, or
the sufficiency of the amount to be received therefor;

(4) The legality of the purchase of any shares of Fund, or the
propriety of the amount to be paid therefor; or

(5) The legality of the declaration of any dividend by Fund, or
the legality of the issue of any shares of Fund in payment of any share
dividend.

F. Custodian shall not be liable for, or considered to be the
custodian of, any money represented by any check, draft, wire transfer, clearing
house funds, uncollected funds, or instrument for the payment of money received
by it on behalf of Fund, until Custodian actually receives such money, provided
only that it shall advise Fund promptly if it fails to receive any such money in
the ordinary course of business, and use its best efforts and cooperate with
Fund toward the end that such money shall be received.

G. Subject to the obligations of Custodian under Section 3.B. hereof,
Custodian shall not be responsible for loss occasioned by the acts, neglects,
defaults or insolvency of any broker, bank, trust company, or any other person
with whom Custodian may deal in the absence of negligence, misconduct or bad
faith on the part of Custodian.

H. Custodian shall provide Fund for its approval by its Board of
Directors agreements with banks or trust companies which will act as
sub-custodian for Fund pursuant to this Agreement, and, as set forth in Section
3.B. hereof, Custodian shall be responsible for the monies and securities of the
Fund held by it or its nominees or sub-custodians under this Agreement.

<PAGE>

6. COMPENSATION.
------------

Fund shall pay to Custodian such compensation at such times as may from
time to time be agreed upon in writing by Custodian and Fund. Custodian may
charge such compensation against monies held by it for the account of Fund.
Custodian shall also be entitled, notwithstanding the provisions of Sections 5B
or 5C hereof, to charge against any monies held by it for the account of Fund
the amount of any loss, damage, liability or expense for which it shall be
entitled to reimbursement under the provisions of this Agreement. Custodian
shall not be entitled to reimbursement by Fund for any loss or expenses of any
sub-custodian.

7. TERMINATION.
-----------

Either party to this Agreement may terminate the same by notice in writing,
delivered or mailed, postage prepaid, to the other party hereto and received not
less than sixty (60) days prior to the date upon which such termination shall
take effect. Upon termination of this Agreement, Fund shall pay to Custodian
such compensation for its reimbursable disbursements, costs and expenses paid or
incurred to such date and Fund shall use its best efforts to obtain a successor
custodian. Unless the holders of a majority of the outstanding shares of Fund
vote to have the securities, funds and other properties held under this
Agreement delivered and paid over to some other person, firm or corporation
specified in the vote, having not less the Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last published
report, and meeting such other qualifications for custodian as set forth in the
Bylaws of Fund, the Board of Directors of Fund shall, forthwith upon giving or
receiving notice of termination of this Agreement, appoint as successor
custodian a bank or trust company having such qualifications. Custodian, shall,
upon termination of this Agreement, deliver to the successor custodian so
specified or appointed, at custodian's office, all securities then held by
Custodian hereunder, duly endorsed and in form for transfer, and all funds and
other properties of Fund deposited with or held by Custodian hereunder, and
shall cooperate in effecting changes in book-entries at the Depository Trust
Company and the Treasury/Federal Reserve Book-Entry System, the Participants
Trust Company and any other securities depository holding assets of the Fund. In
the event no such vote has been adopted by the shareholders of Fund and no
written order designating a successor custodian shall have been delivered to
Custodian on or before the date when such termination shall become effective,
then Custodian shall deliver the securities, funds and properties of Fund to a
bank or trust company at the selection of Custodian and meeting the
qualifications for custodian, if any, set forth in the Bylaws of Fund and having
not less than Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report. Upon either such
delivery to a successor custodian, Custodian shall have no further obligations
or liabilities under this Agreement. Thereafter such bank or trust company shall
be the successor custodian under this Agreement and shall be entitled to
reasonable compensation for its services. In the event that no such successor
custodian can be found, Fund will submit to its shareholders, before permitting
delivery of the cash and securities owned by Fund to anyone other than a
successor custodian, the question of whether Fund shall be liquidated or shall
function without a custodian. Notwithstanding the foregoing requirement as to
delivery upon termination of this Agreement, Custodian may make any other
delivery of the securities, funds and property of Fund which shall be permitted
by the 1940 Act and Fund's Articles of Incorporation and Bylaws then in effect.
Except as otherwise provided herein, neither this Agreement nor any portion
thereof may be assigned by Custodian without the consent of Fund, authorized or
approved by a resolution of its Board of Directors.

8. NOTICES.
-------

Notices, requests, instructions and other writings received by Fund at 120
South LaSalle Street, Chicago, Illinois 60603 or at such other address as Fund
may have designated by certified resolution of the Board of Directors to
Custodian and notices, requests, instructions and other writings received by
Custodian at its offices at 21 West 10th Street, Kansas City, Missouri 64105, or
to such other address as it may have designated to Fund in writing, shall be
deemed to have been properly given hereunder.

<PAGE>

9. MISCELLANEOUS.
-------------

A. This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of the State of Missouri.

B. All the terms and provisions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the respective successors
and assigns of the parties hereto.

C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and executed by both
parties hereto.

D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.

E. This Agreement shall become effective at the close of business on
the date hereof.

F. 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.

G. If any part, term or provision of this Agreement is by the courts
held to be illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not be affected, and the
rights and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.

H. This Agreement, together with the Fee Schedule, is the entire
contract between the parties relating to the subject matter hereof and
supersedes all prior agreements between the parties.

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective authorized officers, and their respective seals to
be affixed.

THE GROWTH FUND OF SPAIN, INC.

By: /s/ John E. Peters
--------------------------------
Title: Vice President

Attest: /s/ Philip J. Collora
-------------------------
Title: Assist. Sec.

INVESTORS FIDUCIARY TRUST COMPANY

By: /s/ R.A. Winegar
--------------------------------
Title: Chief Operations Officer

Attest: /s/ Cheryl Naegler
-------------------------
Title: Asst. Sec.

EXHIBIT 8.2

FOREIGN CUSTODY AGREEMENT
-------------------------

AGREEMENT dated January 30, 1998 between THE CHASE MANHATTAN BANK (the
"Bank") and The Growth Fund of Spain, Inc. (the "Fund").

1. Custody Account. The Bank agrees to establish and maintain (a) a custody
account in the name of the Fund ("Custody Account") for any and all stocks,
shares, bonds, debentures, notes, mortgages or other obligations for the payment
of money and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same or evidencing
or representing any other rights or interests therein and other similar property
(hereinafter called "Securities") and from time to time received by the Bank or
its subcustodian (as defined in the last sentence of Section 3) for the account
of the Fund, and (b) a deposit account in the name of the Fund ("Deposit
Account") for any and all cash in any currency received by the Bank or its
subcustodian for the account of the Fund, which cash shall not be subject to
withdrawal by draft or check.

2. Maintenance of Securities Abroad. Securities in the Custody Account
shall be held in the country or other jurisdiction as shall be specified from
time to time in Instructions, provided that such country or other jurisdiction
shall be one in which the principal trading market for such Securities is
located or the country or other jurisdiction in which such Securities are to be
presented for payment or are acquired for the Custody Account and cash in the
Deposit Account shall be credited to an account in such amounts and in the
country or other jurisdiction as shall be specified from time to time in
Instructions, provided that such country or other jurisdiction shall be one in
which such cash is the legal currency for the payment of public or private
debts.

3. Eligible Foreign Custodians and Securities Depositories. The Fund's
Board of Trustees authorizes the Bank to hold the Securities in the Custody
Account and the cash in the Deposit Account in custody and deposit accounts,
respectively, which have been established by the Bank with one of its branches,
a branch of a qualified U.S. bank, an eligible foreign custodian or an eligible
foreign securities depository; provided, however, that the Bank has recommended
and the Board has approved the use of, and the Bank's contract with, such
eligible foreign custodian or eligible foreign securities depository by
resolution, and a certified copy of such resolution has been provided to the
Bank. Furthermore, if one of its branches, a branch of a qualified U.S. bank or
an eligible foreign custodian is selected to act as the Bank's subcustodian to
hold any of the Securities or cash, such entity is authorized to hold such
Securities or cash in its account with any eligible foreign securities
depository in which it participates. For purposes of this Agreement (a)
"qualified U.S. bank" shall mean a qualified U.S. bank as defined in Rule 17f-5
under the Investment Company Act of 1940 ("Investment Company Act"); (b)
"eligible foreign custodian" shall mean (i) a banking institution or trust
company incorporated or organized under the laws of a country other than the
United States that is regulated as such by that country's government or an
agency thereof and that has shareholders' equity in excess of $200 million in
U.S. currency (or a foreign currency equivalent thereof), (ii) a majority owned
direct or indirect subsidiary of a qualified U.S. bank or bank holding company
that is incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100 million in
U.S. currency (or a foreign currency equivalent thereof) or (iii) a banking
institution or trust company incorporated or organized under the laws of a
country other than the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is incorporated
or organized under the laws of a country other than the United States which has
such other qualifications as shall be authorized or permitted by a rule,
regulation, interpretation or exemptive order promulgated by or under the
authority of the Securities and Exchange Commission, specified in Instructions
and approved by the Bank; and (c) "eligible foreign securities depository" shall
mean a securities depository or clearing agency, incorporated or organized under
the laws of a country other than the United States, which operates (i) the
central system for handling of securities or equivalent book-entries in that
country or (ii) a transnational system for the central handling of securities or
equivalent book entries.

Hereinafter the term "subcustodian" will refer to any branch of a qualified
U.S. bank, any eligible foreign custodian or any eligible foreign securities
depository with which the Bank has entered an agreement of the type

<PAGE>

contemplated hereunder regarding Securities and/or cash held in or to be
acquired for the Custody Account or the Deposit Account.

4. Use of Subcustodian. With respect to Securities and other assets which
are maintained by the Bank in the physical custody of a subcustodian pursuant to
Section 3 (as used in this Section 4, the term "Securities" means such
Securities and other assets):

(a) The Bank will identify on its books as belonging to the Fund any
Securities held by such subcustodian.

(b) In the event that a subcustodian permits any of the Securities
placed in its care to be held in an eligible foreign securities depository, such
subcustodian will be required by its agreement with the Bank to identify on its
books such Securities as being held for the account of the Bank as a custodian
for its customers.

(c) Any Securities in the Custody Account held by a subcustodian of
the Bank will be subject only to the instructions of the Bank or its agents; and
any Securities held in an eligible foreign securities depository for the account
of a subcustodian will be subject only to the instructions of such subcustodian.

(d) The Bank will only deposit Securities in an account with a
subcustodian which includes exclusively the assets held by the Bank for its
customers, and the Bank will cause such account to be designated by such
subcustodian as a special custody account for the exclusive benefit of customers
of the Bank.

(e) Any agreement the Bank shall enter into with a subcustodian with
respect to the holding of Securities shall require that (i) the Securities are
not subject to any right, charge, security interest, lien or claim of any kind
in favor of such subcustodian except for their safe custody or administration
and (ii) beneficial ownership of such Securities is freely transferable without
the payment of money or value other than for safe custody or administration;
provided, however, that the foregoing shall not apply to the extent that any of
the above-mentioned rights, charges, etc. result from any compensation or other
expenses arising with respect to the safekeeping of Securities pursuant to such
agreement or from any arrangements made by the Fund with any such subcustodian.

(f) The Bank shall allow independent public accountants of the Fund
such reasonable access to the records of the Bank relating to the Securities
held in the Custody Account as is required by such accountants in connection
with their examination of the books and records pertaining to the affairs of the
Fund. The Bank shall, subject to restrictions under applicable law, also obtain
from any subcustodian with which the Bank maintains the physical possession of
any Securities in the Custody Account an undertaking to permit independent
public accountants of the Fund such reasonable access to the records of such
subcustodian as may be required in connection with their examination of the
books and records pertaining to the affairs of the Fund. The Bank shall furnish
to the Fund such reports (or portions thereof) of the Bank's external auditors
as relate directly to the Bank's system of internal accounting controls
applicable to the Bank's duties under this Agreement. The Bank shall use its
best efforts to obtain and furnish the Fund with similar reports with respect to
each eligible foreign custodian and eligible foreign securities depository
holding Securities of the Fund.

(g) The Bank will supply to the Fund from time to time as mutually
agreed upon a statement in respect to any Securities in the Custody Account held
by a subcustodian, including an identification of the entity having possession
of the Securities, and the Bank will send to the Fund an advice or notification
of any transfers of Securities to or from the Custody Account, indicating, as to
Securities acquired for the Fund, the identity of the entity having physical
possession of such Securities. In the absence of the filing in writing with the
Bank by the Fund of exceptions or objections to any such statement within sixty
(60) days following receipt of the statement, the Fund shall be deemed to have
approved such statement; and in such case or upon written approval of the Fund
of any such statement the Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters and things set
forth in such statement as though such statement had been settled by the decree
of a court of competent jurisdiction in an action in which the Fund and all
person having any equity interest in the Fund were parties.

<PAGE>

(h) The Bank hereby warrants to the Fund that in its opinion, after
due inquiry, the established procedures to be followed by each of its branches,
each branch of a qualified U.S. bank, each eligible foreign custodian and each
eligible foreign securities depository holding the Fund's Securities pursuant to
this Agreement afford protection for such Securities at least equal to that
afforded by the Bank's established procedures with respect to similar securities
held by the Bank (and its securities depositories) in New York.

5. Deposit Account Payments. Subject to the provisions of Section 7, the
Bank shall make, or cause its subcustodians to make, payments of cash credited
to the Deposit Account only:

(a) in connection with the purchase of Securities for the Fund and the
delivery of such Securities to, or the crediting of such Securities to the
account of, the Bank or its subcustodian, each such payment to be made at prices
as confirmed by Instructions (as defined in Section 9 hereof) from Authorized
Persons (as defined in Section 10 hereof);

(b) for the purchase or redemption of shares of the capital stock of
the Fund and the delivery to, or crediting to the account of, the Bank or its
subcustodian of such shares to be so purchased or redeemed;

(c) for the payment for the account of the Fund of dividends,
interest, taxes, management or supervisory fees, capital distributions or
operating expenses;

(d) for the payments to be made in connection with the conversion,
exchange or surrender of Securities held in the Custody Account;

(e) for transmittal either to United Missouri Bank of Kansas City,
National Association, or to Investors Fiduciary Trust Company, Custodian for the
Fund;

(f) for other proper corporate purposes of the Fund; or

(g) upon the termination of this Custody Agreement as hereinafter set
forth.

All payments of cash for a purpose permitted by subsection (a), (b), (c), (d) or
(e) of this Section 5 will be made only upon receipt by the Bank of Instructions
from Authorized Persons which shall specify the purpose for which the payment is
to be made and the applicable subsection of this Section 5. In the case of any
payment to be made for the purpose permitted by subsection (f) of this Section
5, the Bank must first receive a certified copy of a resolution of the Board
adequately describing such payment, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to be made.
Any payment pursuant to subsection (g) of this Section 5 will be made in
accordance with Section 17.

In the event that any payment made under this Section 5 exceeds the funds
available in the Deposit Account, the Bank may, in its discretion, advance the
Fund an amount equal to such excess and such advance shall be deemed a loan from
the Bank to the Fund, payable on demand, bearing interest at the rate of
interest customarily charged by the Bank on similar loans.

If the Bank causes the Deposit Account to be credited on the payable date
for interest, dividends or redemptions, the Fund will promptly return to the
Bank any such amount or property so credited upon oral or written notification
that neither the Bank nor its subcustodian can collect such amount or property
in the ordinary course of business. The Bank or its subcustodian, as the case
may be, shall have no duty or obligation to institute legal proceedings, file a
claim or proof of claim in any insolvency proceeding or take any other action
with respect to the collection of such amount or property beyond its ordinary
collection procedures.

6. Custody Account Transactions. Subject to the provisions of Section 7,
Securities in the Custody Account will be transferred, exchanged or delivered by
the Bank or its subcustodians only:

<PAGE>

(a) upon sale of such Securities for the Fund and receipt by the Bank
or its subcustodian only of payment therefor, each such payment to be in the
amount confirmed by Instructions from Authorized Persons;

(b) when such Securities are called, redeemed or retired, or otherwise
become payable;

(c) in exchange for or upon conversion into other Securities along or
other Securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;

(d) upon conversion of such Securities pursuant to their terms into
other Securities;

(e) upon exercise of subscription, purchase or other similar rights
represented by such Securities;

(f) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;

(g) for the purpose of delivery either to United Missouri Bank of
Kansas City, National Association, or to Investors Fiduciary Trust Company, as
Custodian for the Fund;

(h) for the purpose of redeeming in kind shares of the Fund against
delivery to the Bank or its subcustodian of such shares to be so redeemed;

(i) for other proper trust purposes of the Fund; or

(j) upon the termination of this Custody Agreement as hereinafter set
forth.

All transfers, exchanges or deliveries of Securities in the Custody Account for
a purpose permitted by either subsection (a), (b), (c), (d), (e), (f) or (g) of
this Section 6 will be made, except as provided in Section 8, only upon receipt
by the Bank of Instructions from Authorized Persons which shall specify the
purpose of the transfer, exchange or delivery to be made and the applicable
subsection of this Section 6. In the case of any transfer or delivery to be made
for the purpose permitted by subsection (h) of this Section 6, the Bank must
first receive Instructions from Authorized Persons specifying the shares held by
the Bank or its subcustodian to be so transferred or delivered and naming the
person or persons to whom transfers or delivery of such shares shall be made. In
the case of any transfer, exchange or delivery to be made for the purpose
permitted by subsection (i) of this Section 6, the Bank must first receive a
certified copy of a resolution of the Board adequately describing such transfer,
exchange or delivery, declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom delivery of such Securities shall be made.
Any transfer or delivery pursuant to subsection (j) of this Section 6 will be
made in accordance with Section 17.

7. Custody Account Procedures. With respect to any transaction involving
Securities held in or to be acquired for the Custody Account, the Bank in its
discretion may cause the Deposit Account to be credited on the contractual
settlement date with the proceeds of any sale or exchange of Securities from the
Custody Account and to be debited on the contractual settlement date for the
cost of Securities purchased or acquired for the Custody Account. The Bank may
reverse any such credit or debit if the transaction with respect to which such
credit or debit were made fails to settle within a reasonable period, determined
by the Bank in its discretion, after the contractual settlement date, except
that if any Securities delivered pursuant to this Section 7 are returned by the
recipient thereof, the Bank may cause any such credits and debits to be reversed
at any time. With respect to any transactions as to which the Bank does not
determine so to credit or debit the Deposit Account, the proceeds from the sale
or exchange of Securities will be credited and the cost of such Securities
purchased or acquired will be debited to the Deposit Account on the date such
proceeds or Securities are received by the Bank.

Notwithstanding the preceding paragraph, settlement and payment for
Securities received for, and delivery of Securities out of, the Custody Account
may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering Securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser

<PAGE>

or dealer) against a receipt with the expectation of receiving later payment for
such Securities from such purchaser or dealer.

8. Actions of the Bank. Until the Bank receives instructions from
Authorized Persons to the contrary, the Bank will, or will instruct its
subcustodian, to:

(a) present for payment any Securities in the Custody Account which
are called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Bank or subcustodian is aware of such opportunities for payment, and hold
cash received upon presentation of such Securities in accordance with the
provisions of Sections 2, 3 and 4 of this Agreement;

(b) in respect of Securities in the Custody Account, execute in the
name of the Fund such ownership and other certificates as may be required to
obtain payments in respect thereof;

(d) convert moneys received with respect to Securities of foreign
issue into United States dollars or any other currency necessary to effect any
transaction involving the Securities whenever it is practicable to do so through
customary banking channels, using any method or agency available, including, but
not limited to, the facilities of the Bank, its subsidiaries, affiliates or
subcustodians; and

(e) in the event of any loss of Securities or cash, use its best
efforts to ascertain the circumstances relating to such loss and promptly report
the same to the Fund.

9. Instructions. As used in this Agreement, the term "Instructions" means
instructions of the Fund received by the Bank, via telephone, telex, TWX,
facsimile transmission, bank wire or other teleprocess or electronic instruction
system acceptable to the Bank which the Bank reasonably believes in good faith
to have been given by Authorized Persons or which are transmitted with proper
testing or authentication pursuant to terms and conditions which the Bank may
specify.

Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Fund will hold the
Bank harmless for its failure to send such confirmation in writing, the failure
of such confirmation to conform to the telephone instructions received or the
Bank's failure to produce such confirmation at any subsequent time provided that
the Bank has timely advised the Fund of its failure to send such confirmation in
writing or the failure of such confirmation to conform to the telephone
instructions received. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until cancelled or superseded. If the
Bank requires test arrangements, authentication methods or other security
devices to be used with respect to instructions, any Instructions given by the
Fund thereafter shall be given and processed in accordance with such terms and
conditions for the use of such arrangements, methods or devices as the Bank may
put into effect and modify from time to time. The Fund shall safeguard any
testkeys, identification codes or other security devices which the Bank shall
make available to it. The Bank may electronically record any Instructions given
by telephone, and any other telephone discussions, with respect to the Custody
Account.

10. Authorized Persons. As used in this Agreement, the term "Authorized
Persons" means such officers or such agents of the Fund as have been designated
by a resolution of the Board, a certified copy of which has been provided to the
Bank, to act on behalf of the Fund in the performance of any acts which
Authorized Persons may do under this Agreement. Such persons shall continue to
be Authorized Persons until such time as the Bank receives instructions from
Authorized Persons that any such officer or agent is no longer an Authorized
Person.

11. Nominees. Securities in the Custody Account which are ordinarily held
in registered form may be registered in the name of the Bank's nominee or, as to
any Securities in the possession of an entity other than the Bank,

<PAGE>

in the name of such entity's nominee. The Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such Securities. The Bank
may without notice to the Fund cause any such Securities to cease to be
registered in the name of any such nominee and to be registered in the name of
the Fund. In the event that any Securities registered in the name of the Bank's
nominee or held by one of its subcustodians and registered in the name of such
subcustodian's nominee are called for partial redemption by the issuer of such
Security, the Bank may allot, or cause to be allotted, the called portion to the
respective beneficial holders of such class of security in any manner the Bank
deems to be fair and equitable.

12. Standard of Care. The Bank shall be responsible for the performance of
only such duties as are set forth herein or contained in Instructions given to
the Bank by Authorized Persons which are not contrary to the provisions of this
Agreement. The Bank will use reasonable care with respect to the safekeeping of
Securities in the Custody Account. The Bank shall be liable to the Fund for any
loss which shall occur as the result of the failure of a subcustodian or an
eligible foreign securities depository engaged by such subcustodian to exercise
reasonable care with respect to the safekeeping of such Securities and other
assets to the same extent that the Bank would be liable to the Fund if the Bank
were holding such Securities and other assets in New York. In the event of any
loss to the Fund by reason of the failure of the Bank or its subcustodian or an
eligible foreign securities depository engaged by such subcustodian to utilize
reasonable care, the Bank shall be liable to the Fund to the extent of the
Fund's damages, to be determined based on the market value of the property which
is the subject of the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances. The Bank shall be held to
the exercise of reasonable care in carrying out this Agreement but shall be
indemnified by, and shall be without liability to, the Fund for any action taken
or omitted by the Bank in good faith without negligence. The Bank shall be
entitled to rely, and may act, on advice of counsel (who may be counsel for the
Fund) on all matters and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.

The Bank need not maintain any insurance for the benefit of the Fund.
However, the Bank represents and warrants that it presently maintains a bankers'
blanket bond ("Bond") which provides standard fidelity and non-negligent loss
coverage with respect to securities which may be held by the Bank and securities
which may be held in the offices of foreign banks and foreign securities
depositories which may be utilized by the Bank pursuant to this Agreement. The
Bank agrees that if at any time the Bank for any reason discontinues such
coverage, it shall immediately notify the Fund in writing. The Bank represents
that only the named insured on the Bond, which includes the Bank but not any of
the Bank's customers, is directly protected against loss. The Bank represents
that while it might resist a claim of one of its customers to recover for a loss
not covered by the Bond, as a practical matter, where a claim is brought and
loss is possibly covered by the Bond, the Bank would give notice of the claim to
its insurer, and the insurer would normally determine whether to defend the
claim against the Bank or to pay the claim on behalf of the Bank.

All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Fund. The
Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its subcustodian of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect of
which the Bank has agreed to take action as provided in Section 8 hereof. The
Bank shall not be liable for any action taken in good faith upon Instructions or
upon any certified copy of any resolution of the Board and may rely on the
genuineness of any such documents which it may in good faith believe to be
validly executed. The Bank shall not be liable for any loss resulting from, or
caused by, the direction of the Fund to maintain custody of any Securities or
cash in a foreign country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation, or acts of God.

13. Compliance with Securities and Exchange Commission Rules and Orders. To
the extent that a condition of a rule, regulation, interpretation or exemptive
order promulgated by or under the authority of the Securities and Exchange
Commission applies to the Bank or the Fund each shall be solely responsible to
assure that this Agreement and the maintenance of Securities and cash under this
Agreement complies with any such rule, regulation, interpretation or exemptive
order.

<PAGE>

14. Corporate Action. The Bank or its subcustodian is to forward promptly
to the Fund all communications relative to the Securities in the Custody
Account. Such communications as call for voting or the exercise of rights or
other specific action (including material relative to legal proceedings intended
to be transmitted to security holders) shall be transmitted to the Fund by means
which will permit the Fund to take timely action. The Bank or its subcustodian
will cause its nominee to execute and deliver to the Fund proxies relating to
Securities in the Custody Account registered in the name of such nominee but
without indicating the manner in which such proxies are to be voted. Proxies
relating to bearer Securities will be delivered in accordance with written
instructions from Authorized Persons.

Bank hereby agrees that Bank shall create, maintain, and retain all records
relating to its activities and obligations under this Agreement in such manner
as will meet the obligations of the Fund under the Investment Company Act,
particularly Section 31 thereof and Rules 31a-1, 31a-2 and 31a-3 thereunder, and
applicable Federal, state and foreign tax laws and other laws or administrative
rules or procedures, in each case as currently in effect, which may be
applicable to the Fund. All records so maintained in connection with the
performance of its duties under this Agreement shall be preserved and maintained
as required by regulation and, in the event of termination of the Agreement,
shall be available to the Fund or its agent upon request.

15. Fees and Expenses. The Fund agrees to pay to the Bank from time to time
such compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time including reimbursement of the Bank's
reasonable out-of-pocket or incidental expenses, including legal fees. The Fund
hereby agrees to hold the Bank harmless from any liability or loss resulting
from any taxes or other governmental charges, and any expenses related thereto,
which may be imposed, or assessed with respect to the Custody Account or any
Securities in the Custody Account and also agrees to hold the Bank, its
subcustodians, and their respective nominees harmless from any liability as a
record holder of Securities in the Custody Account. The Bank is authorized to
charge any account of the Fund for such items and the Bank shall have a lien on
Securities in the Custody Account and on cash in the Deposit Account for any
amount owing to the Bank from time to time under this Agreement.

16. Effectiveness. This Agreement shall be effective on the date first
noted above. The Fund will provide to the Bank a certified copy of a resolution
adopted by the Fund's Board of Trustees that (i) approves the subcustodians and
the terms of the custody agreements between the Bank and such subcustodians, and
(ii) states that the Board has determined that the use of such subcustodians is
consistent with the best interests of the Fund and its shareholders.

17. Termination. This Agreement may be terminated by the Fund or the Bank
by 60 days written notice to the other, sent by registered mail, provided that
any termination by the Fund shall be authorized by a resolution of its Board, a
certified copy of which shall accompany such notice of termination, and provided
further, that such resolution shall specify the names of the persons to whom the
Bank shall deliver the Securities in the Custody Account and to whom the cash in
the Deposit Account shall be paid. If notice of termination is given by the
Bank, the Fund shall, within 60 days following the giving of such notice,
deliver to the Bank a certified copy of a resolution of its Board specifying the
names of the persons to whom the Bank shall deliver the Securities in the
Custody Account and to whom the cash in the Deposit Account shall be paid. In
either case the Bank will deliver such Securities and cash to the persons so
specified, after deducting therefrom any amounts which the Bank determines to be
owed to it under Section 15. If within 60 days following the giving of a notice
of termination by the Bank, the Bank does not receive from the Fund a certified
copy of a resolution of the Board specifying the names of the persons to whom
the Bank shall deliver the Securities in the Custody Account and to whom the
cash in the Deposit Account shall be paid, the Bank, at its election, may
deliver such Securities and pay such cash to a bank or rust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or to Authorized Persons, or may continue to hold
such Securities and cash until a certified copy of one or more resolutions as
aforesaid is delivered to the Bank. Concurrently with the delivery of such
Securities, the Bank shall deliver to the Fund, or such other person as the Fund
shall instruct, the records referred to in Section 14 hereof which are in the
possession or control of the Bank. The obligations of the parties hereto
regarding the use of reasonable care, indemnities and payment of fees and
expenses shall survive the termination of this Agreement.

18. Notices. Any notice or other communication from the Fund to the Bank is
to be sent to the office of the Bank at 4 Chase Metrotech Center, 18th Floor,
Brooklyn, New York 11245, Attention Global Custody Division, or

<PAGE>

such other address as may hereafter be given to the Company in accordance with
the notice provisions hereunder, and any notice from the Bank to the Fund is to
be mailed postage prepaid, addressed to the Fund at the address appearing below,
or as it may hereafter be changed on the Bank's records in accordance with
notice hereunder from the Fund.

19. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors and assigns of the Fund and the
Bank.

20. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.

21. Additional Portfolios. If the Fund shall issue shares of more than one
portfolio during the term hereof, the Bank agrees that all securities and other
assets of the Fund shall be segregated by portfolio and all books and records,
account values or actions shall be maintained, held, made or taken, as the case
may be, separately for each portfolio. Other than as encompassed by the
preceding sentence, references in this Agreement to "the Fund" are applicable
either to the entire trust or to a particular portfolio or portfolios, as the
context may make reasonable and appropriate. If the Fund has more than one
portfolio, instructions shall designate the portfolio or portfolios to which
they apply.

THE GROWTH FUND OF SPAIN, INC.

By:___________________________________

Title:________________________________

Address for Record: 222 South Riverside Plaza
Chicago, Illinois 60606

THE CHASE MANHATTAN BANK, N.A.

By:___________________________________

Title:________________________________

EXHIBIT 9

TRANSFER AGREEMENT

THIS AGREEMENT made as of the 3rd day of May, 1991, by and between THE
GROWTH FUND OF SPAIN, INC., a Maryland corporation having its principal place of
business at 120 South LaSalle Street, Chicago, IL 60603 ("Fund"), and INVESTORS
FIDUCIARY TRUST COMPANY, a state chartered trust company organized and existing
under the laws of the State of Missouri, having its principal place of business
at 127 West 10th Street, Kansas City, Missouri 64105 ("IFTC").

WHEREAS, Fund wants to appoint IFTC as Transfer Agent and Dividend
Disbursing Agent, and IFTC wants to accept such appointment;

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:

1. Documents to be Filed with Appointment.

In connection with the appointment of IFTC as Transfer Agent and Dividend
Disbursing Agent for Fund, there will be filed with IFTC the following
documents:

A. A certified copy of the resolutions of the Board of Directors of
Fund appointing IFTC as Transfer Agent and Dividend Disbursing Agent, approving
the form of this Agreement, and designating certain persons to give written
instructions and requests on behalf of Fund.

B. A certified copy of the Articles of Incorporation of Fund and any
amendments thereto.

C. A certified copy of the Bylaws of Fund.

D. Copies of Registration Statements filed with the Securities and
Exchange Commission.

E. Specimens of all forms of outstanding share certificates, in the
forms approved by the Board of Directors of Fund, with a certificate of the
Secretary of Fund, as to such approval.

F. Specimens of the signatures of the officers of the Fund authorized
to sign share certificates and individuals authorized to sign written
instructions and requests on behalf of the Fund.

G. An opinion of counsel for Fund:

(1) With respect to Fund's organization and existence under the
laws of the State of Maryland.

(2) With respect to the status of all shares of Fund covered by
the appointment under the Securities Act of 1933, as amended, and any other
applicable federal or state statute.

(3) To the effect that all issued shares are, and all unissued
shares will be when issued, validly issued, fully paid and non-assessable.

<PAGE>

2. Certain Representations and Warranties of IFTC. IFTC represents and
warrants to Fund that:

A. It is a trust company duly organized and existing and in good
standing under the laws of Missouri.

B. It is duly qualified to carry on its business in the State of
Missouri.

C. It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform the services contemplated in
this Agreement.

D. All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.

E. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.

F. It is, and will continue to be, registered as a transfer agent
under the Securities Exchange Act of 1934.

3. Certain Representations and Warranties of Fund. Fund represents and
warrants to IFTC that:

A. It is a corporation duly organized and existing and in good
standing under the laws of The State of Maryland.

B. It is an investment company registered under the Investment Company
Act of 1940.

C. All shares of the Fund offered for sale from time to time will be
registered under the Securities Act of 1933 or exempt therefrom.

D. All requisite steps have been or will be taken to register Fund's
shares for sale in all applicable states, including the District of Columbia.

E. Fund is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement.

4. Scope of Appointment.

A. Subject to the conditions set forth in this Agreement, Fund hereby
employs and appoints IFTC as Transfer Agent and Dividend Disbursing Agent
effective the date hereof.

B. IFTC hereby accepts such employment and appointment and agrees that
it will act as Fund's Transfer Agent and Dividend Disbursing Agent.

C. IFTC agrees to provide the necessary facilities, equipment and
personnel to perform its duties and obligations hereunder in accordance with
industry practice.

D. Fund agrees to use all reasonable efforts to deliver to IFTC in
Kansas City, Missouri, as soon as they are available, all of its shareholder
account records.

<PAGE>

E. Subject to the provisions of Section 19 and 20 hereof, IFTC agrees
that it will perform all of the usual and ordinary services of Transfer Agent
and Dividend Disbursing Agent and as agent for the various shareholder accounts,
including, without limitation, the following: issuing, transferring and
cancelling share certificates, maintaining all shareholder accounts, preparing
shareholder meeting lists, mailing proxies, receiving and tabulating proxies,
mailing shareholder reports and prospectuses, withholding federal income taxes,
preparing and mailing checks for disbursement of income dividends and capital
gains distributions, preparing and filing all required U.S. Treasury Department
information returns for all shareholders, preparing and mailing confirmation
forms to shareholders and dealers with respect to all transactions in
shareholder accounts for which confirmations are required and recording
reinvestments of dividends and distributions in Fund shares.

5. Compensation and Expenses.

A. In consideration for the services hereunder provided by IFTC as
Transfer Agent and Dividend Disbursing Agent, Fund will pay to IFTC from time to
time compensation as agreed upon for all services rendered as Agent, and also,
all its reasonable out-of-pocket expenses and other disbursements incurred in
connection with the agency. Such compensation will be set forth in a separate
schedule to be agreed to by Fund and IFTC. The initial agreement regarding
compensation is attached as Exhibit A.

B. Fund agrees to promptly reimburse IFTC for all reasonable
out-of-pocket expenses or advances incurred by IFTC in connection with the
performance of services under this Agreement, including, but not limited to,
postage (and first class mail insurance in connection with mailing share
certificates), envelopes, check forms, continuous forms, forms for reports and
statements, stationery, and other similar items, telephone and telegraph charges
incurred in answering inquiries from dealers or shareholders, microfilm used
each year to record the previous year's transaction in shareholder accounts and
computer tapes used for permanent storage of records and cost of insertion of
materials in mailing envelopes by outside firms. IFTC may, at its option,
arrange to have various service providers submit invoices directly to the Fund
for payment of out-of-pocket expenses reimbursable hereunder.

6. Efficient Operation of IFTC System.

A. In connection with the performance of its services under this
Agreement, IFTC is responsible for the accurate and efficient functioning of its
system at all times, including:

(1) The accuracy of the entries in IFTC's records reflecting
orders and instructions received by IFTC from dealers, shareholders and
Fund.

(2) The timely availability and the accuracy of shareholder
lists, shareholder account verifications, confirmations and other
shareholder account information to be produced from its records or data.

(3) The accurate and timely issuance of dividend and distribution
checks in accordance with instructions received from Fund.

(4) The requiring of proper forms of instructions, signatures and
signature guarantees and any necessary documents supporting the
rightfulness of transfers and other shareholder account transactions, all
in conformance with IFTC's present procedures with such changes as may be
deemed reasonably appropriate by IFTC or as may be reasonably approved by
or on behalf of Fund.

(5) The maintenance of a current duplicate set of Fund's
essential or required records, as agreed upon from time to time by Fund and
IFTC, at a secure distant location, in form available and usable forthwith
in the event of any breakdown or disaster disrupting its main operation.

<PAGE>

7. Indemnification.

A. Fund shall indemnify and hold IFTC harmless from and against any
and all claims, actions, suits, losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or attributable to any action
or omission by IFTC pursuant to this Agreement or in connection with the agency
relationship created by this Agreement, provided that IFTC has acted in good
faith and without negligence and without willful misconduct.

B. IFTC shall indemnify and hold the Fund harmless from and against,
any and all claims, actions, suits, losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable to any
action or omission by IFTC pursuant to this Agreement or in connection with the
agency relationship created by this Agreement, provided that IFTC has not acted
in good faith and without negligence and without willful misconduct.

C. In order that the indemnification provisions contained in this
Section 7 shall apply, upon the assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide indemnification hereunder, the
party seeking indemnification (the "Indemnitee") shall promptly notify the
Indemnifying Party of such assertion, and shall keep such party advised with
respect to all developments concerning such claim. The Indemnifying Party shall
be entitled to assume control of the defense and the negotiations, if any,
regarding settlement of the claim. If the Indemnifying Party assumes control,
the Indemnitee shall have the option to participate in the defense and
negotiations of such claim at its own expense. The Indemnitee shall in no event
confess, admit to, compromise, or settle any claim for which the Indemnifying
Party may be required to indemnify it except with the prior written consent of
the Indemnifying Party, which shall not be unreasonably withheld.

8. Certain Covenants of IFTC and Fund.

A. All requisite steps will be taken by Fund from time to time when
and as necessary to register the Fund's shares for sale in all states in which
Fund's shares shall at the time be offered for sale and require registration. If
at any time Fund will receive notice of any stop order or other proceeding in
any such state affecting such registration or the sale of Fund's shares, or of
any stop order or other proceeding under the Federal securities laws affecting
the sale of Fund's shares, Fund will give prompt notice thereof to IFTC.

B. IFTC hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to Fund for safekeeping of share certificates,
check forms, and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices. Further, IFTC agrees to carry insurance, as specified in Exhibit B
hereto, with insurers reasonably acceptable to Fund and in minimum amounts that
are reasonably acceptable to the Fund, which will not be changed without the
consent of Fund, which consent will not be unreasonably withheld, and which will
be expanded in coverage or increased in amounts from time to time if and when
reasonably requested by Fund. If IFTC determines that it is unable to obtain any
such insurance upon commercially reasonable terms, it shall promptly so advise
Fund in writing. In such event, Fund shall have the right to terminate this
Agreement upon 30 days notice.

C. To the extent required by Section 31 of the Investment Company Act
of 1940 and Rules thereunder, IFTC agrees that all records maintained by IFTC
relating to the services to be performed by IFTC under this Agreement are the
property of Fund and will be preserved and will be surrendered promptly to Fund
on request.

D. IFTC agrees to furnish Fund semi-annual reports of its financial
condition, consisting of a balance sheet, earnings statement and any other
reasonably available financial information reasonably requested by Fund. The
annual financial statements will be certified by IFTC's certified public
accountants.

<PAGE>

E. IFTC represents and agrees that it will use all reasonable efforts
to keep current on the trends of the investment company industry relating to
shareholder services and will use all reasonable efforts to continue to
modernize and improve its system without additional cost to Fund.

F. IFTC will permit Fund and its authorized representatives to make
periodic inspections of its operations at reasonable times during business
hours.

G. If IFTC is prevented from complying, either totally or in part,
with any of the terms or provisions of this Agreement, by reason of fire, flood,
storm, strike, lockout or other labor trouble, riot, war, rebellion, accidents,
acts of God, equipment, utility or transmission failure or damage, and/or any
other cause or casualty beyond the reasonable control of IFTC, whether similar
to the foregoing matters or not, then upon written notice to Fund, the
requirements of this Agreement that are affected by such disability, to the
extent so affected, shall be suspended during the period of such disability;
provided, however, that IFTC shall make reasonable effort to remove such
disability as soon as possible. During such period, Fund may seek alternate
sources of service without liability hereunder; and IFTC will use all reasonable
efforts to assist Fund to obtain alternate sources of service. IFTC shall have
no liability to Fund for nonperformance because of the reasons set forth in this
Section 8.G; but if a disability that, in Fund's reasonable belief, materially
affects IFTC's ability to perform its obligations under this Agreement continues
for a period of 30 days, then Fund shall have the right to terminate this
Agreement upon 10 days written notice to IFTC.

9. Adjustment.

In case of any recapitalization, readjustment or other change in the
structure of Fund requiring a change in the form of share certificates, IFTC
will issue or register certificates in the new form in exchange for, or in
transfer of, the outstanding certificates in the old form, upon receiving the
following:

A. Written instructions from an officer of Fund.

B. Certified copy of the amendment to the Articles of Incorporation or
other document effecting the change.

C. Certified copy of the order or consent of each governmental or
regulatory authority, required by law to the issuance of the shares in the new
form, and an opinion of counsel that the order or consent of no other government
or regulatory authority is required.

D. Specimens of the new certificates in the form approved by the Board
of Directors of Fund, with a certificate of the Secretary of Fund as to such
approval.

E. Opinion of counsel for Fund:

(1) With respect to the status of the shares of Fund in the new
form under the Securities Act of 1933, and any other applicable federal or
state laws.

(2) To the effect that the issued shares in the new form are, and
all unissued shares will be when issued, validly issued, fully paid and
non-assessable.

10. Share Certificates.

Fund will furnish IFTC with a sufficient supply of blank share certificates
and from time to time will renew such supply upon the request of IFTC. Such
certificates will be signed manually or by facsimile signatures of the officers
of Fund authorized by law and Fund's Bylaws to sign share certificates, and if
required, will bear the trust seal or facsimile thereof.

<PAGE>

11. Death, Resignation or Removal of Signing Officer.

Fund will file promptly with IFTC written notice of any change in the
officers authorized to sign share certificates, written instructions or
requests, together with two signature cards bearing the specimen signature of
each newly authorized officer, all as certified by an appropriate officer of the
Fund. In case any officer of Fund who will have signed manually or whose
facsimile signature will have been affixed to blank share certificates will die,
resign, or be removed prior to the issuance of such certificates, IFTC may issue
or register such share certificates as the share certificates of Fund
notwithstanding such death, resignation, or removal, until specifically directed
to the contrary by Fund in writing. In the absence of such direction, Fund will
file promptly with IFTC such approval, adoption, or ratification as may be
required by law.

12. Future Amendments of Articles of Incorporation and Bylaws.

Fund will promptly file with IFTC copies of all material amendments to its
Articles of Incorporation and Bylaws and Registration Statement made after the
date of this Agreement.

13. Instructions, Opinion of Counsel and Signatures.

At any time IFTC may apply to any officer of Fund for instructions, and may
consult with legal counsel for Fund at the expense of Fund, or with its own
legal counsel at its own expense, with respect to any matter arising in
connection with the agency; and it will not be liable for any action taken or
omitted by it in good faith in reliance upon such instructions or upon the
opinion of such counsel. IFTC is authorized to act on the orders, directions or
instructions of such persons as the Board of Directors of Fund shall from time
to time designate by resolution. IFTC will be protected in acting upon any paper
or document, including any orders, directions or instructions, reasonably
believed by it to be genuine and to have been signed by the proper person or
persons; and IFTC will not be held to have notice of any change of authority of
any person so authorized by Fund until receipt of written notice thereof from
Fund. IFTC will also be protected in recognizing share certificates that it
reasonably believes to bear the proper manual or facsimile signatures of the
officers of Fund, and the proper countersignature of any former Transfer Agent
or Registrar, or of a Co-Transfer Agent or Co-Registrar.

14. Papers Subject to Approval of Counsel.

The acceptance by IFTC of its appointment as Transfer Agent and Dividend
Disbursing Agent, and all documents filed in connection with such appointment
and thereafter in connection with the agencies, will be subject to the approval
of legal counsel for IFTC, which approval will not be unreasonably withheld.

15. Certification of Documents.

The required copy of the Articles of Incorporation of Fund and copies of
all amendments thereto will be certified by the appropriate official of The
State of Maryland; and if such Articles of Incorporation and amendments are
required by law to be also filed with a county, city or other officer of
official body, a certificate of such filing will appear on the certified copy
submitted to IFTC. A copy of the order to consent of each governmental or
regulatory authority required by law to the issuance of Fund shares will be
certified by the Secretary or Clerk of such governmental or regulatory
authority, under proper seal of such authority. The copy of the Bylaws and
copies of all amendments thereto and copies of resolutions of the resolutions of
the Board of Directors of Fund will be certified by the Secretary or an
Assistant Secretary of Fund.

16. Records.

IFTC will maintain customary records in connection with its agency, and
particularly will maintain those records required to be maintained pursuant to
sub-paragraph (2)(iv) of paragraph (b) of Rule 31a-1 under the Investment
Company Act of 1940, if any.

<PAGE>

17. Disposition of Books, Records and Cancelled Certificates.

IFTC will send periodically to Fund, or to where designated by the
Secretary or an Assistant Secretary of Fund, all books, documents, and all
records no longer deemed needed for current purposes and share certificates
which have been cancelled in transfer or in exchange, upon the understanding
that such books, documents, records, and share certificates will not destroyed
by Fund without the consent of IFTC (which consent will not be unreasonably
withheld), but will be safely stored for possible future reference.

18. Provisions Relating to IFTC as Transfer Agent.

A. IFTC will make original issues of share certificates upon written
request of an officer of Fund and upon being furnished with a certified copy of
a resolution of the Board of Directors authorizing such original issue, an
opinion of counsel as outlined in paragraphs 1.G or 9.E of this Agreement, the
certificates required by Section 10 of this Agreement and any other documents
required by Section 1 or 9 of this Agreement.

B. Before making any original issue of certificates, Fund will furnish
IFTC with sufficient funds to pay any taxes required on the original issue of
the shares. Fund will furnish IFTC such evidence as may be required by IFTC to
show the actual value of the shares. If no taxes are payable, IFTC will upon
request be furnished with an opinion of outside counsel to that effect.

C. Shares will be transferred and new certificates issued in transfer
upon surrender of the old certificates in form deemed by IFTC properly endorsed
for transfer accompanied by such documents as IFTC may deem necessary to
evidence that authority of the person making the transfer, and bearing
satisfactory evidence of the payment of any applicable share transfer taxes.
IFTC reserves the right to refuse to transfer until it is satisfied that the
endorsement or signature on the certificate or any other document is valid and
genuine, and for that purpose it may require a guarantee of signature by a firm
having membership in the New York Stock Exchange, Midwest Stock Exchange,
American Stock Exchange Securities Corporation, Pacific Coast Stock Exchange, or
any other exchange acceptable to Fund or by a bank or trust company approved by
it. IFTC also reserves the right to refuse to transfer shares until it is
satisfied that the requested transfer is legally authorized, and it will incur
no liability for the refusal in good faith to make transfers which, in its
judgment, are improper or unauthorized, or otherwise not rightful. IFTC may, in
effecting transfers, rely upon Simplification Acts or other statutes which
protect it and Fund in not requiring complete fiduciary documentation.

D. When mail is used for delivery of share certificates, IFTC will
forward share certificates in "nonnegotiable" form as provided by Fund by first
class mail, all such mail deliveries to be covered while in transit to the
addressee by insurance arranged for by IFTC.

E. IFTC will issue and mail subscription warrants and certificates
provided by Fund and representing share dividends, exchanges or split-ups, or
act as Conversion Agent upon receiving written instructions from any officer of
Fund and such other documents as IFTC deems necessary.

F. IFTC will issue, transfer, and split-up certificates upon receiving
written instructions from an officer of Fund and such other documents as IFTC
may deem necessary.

G. IFTC may issue new certificates in place of certificates
represented to have been lost, destroyed, stolen or otherwise wrongfully taken,
upon receiving indemnity satisfactory to IFTC, and may issue new certificates in
exchange for, and upon surrender of, mutilated certificates. Any such issuance
shall be in accordance with the provisions of law governing such matter and any
procedures adopted by the Board of Directors of the Fund of which IFTC has
notice.

<PAGE>

H. IFTC will supply a shareholder's list to Fund properly certified by
an officer of IFTC for any shareholder meeting upon receiving a request from an
officer of Fund. It will also supply lists at such other times as may be
requested by an officer of Fund.

I. Upon receipt of written instructions of an officer of Fund, IFTC
will address and mail notices to shareholders.

J. In case of any request or demand for the inspection of the share
books of Fund or any other books of Fund in the possession of IFTC, IFTC will
endeavor to notify Fund and to secure instructions as to permitting or refusing
such inspection. IFTC reserves the right, however, to exhibit the share books or
other books to any person in case it is advised by its counsel that it may be
held responsible for the failure to exhibit the share books or other books to
such person.

19. Provisions Relating to Dividend Disbursing Agency.

A. IFTC will, at the expense of Fund, provide a special form of check
containing the imprint of any device or other matter desired by Fund. Said
checks must, however, be of a form and size convenient for use by IFTC.

B. If Fund wants to include additional printed matter, financial
statements, etc., with the dividend checks, the same will be furnished IFTC
within a reasonable time prior to the date of mailing of the dividend checks, at
the expense of Fund.

C. If Fund wants its distributions mailed in any special form of
envelopes, sufficient supply of the same will be furnished to IFTC but the size
and form of said envelopes will be subject to the approval of IFTC. If stamped
envelopes are used, they must be furnished by Fund; or, if postage stamps are to
be affixed to the envelopes, the stamps or the cash necessary for such stamps
must be furnished by Fund.

D. IFTC will maintain one or more deposit accounts as Agent for Fund,
into which the funds for payment of dividends, distributions or other
disbursements provided for hereunder will be deposited, and against which checks
will be drawn.

20. Termination of Agreement.

A. This Agreement may be terminated by either party upon receipt of
sixty (60) days written notice form the other party.

B. Fund, in addition to any other rights and remedies, shall have the
right to terminate this Agreement forthwith upon the occurrence at any time of
any of the following events:

(1) Any interruption or cessation of operations by IFTC or its
assigns which materially interferes with the business operation of Fund.

(2) The bankruptcy of IFTC or its assigns or the appointment of a
receiver for IFTC or its assigns.

(3) Any merger, consolidation or sale of substantially all the
assets of IFTC or its assigns.

(4) The acquisition of a controlling interest in IFTC or its
assigns, by any broker, dealer, investment adviser or investment company
except as may presently exist.

<PAGE>

(5) Failure by IFTC or its assigns to perform its duties in
accordance with the Agreement, which failure materially adversely affects
the business operations of Fund and which failure continues for thirty (30)
days after receipt of written notice from Fund.

(6) The registration of IFTC or its assigns as a transfer agent
under the Securities Exchange Act of 1934 is revoked, terminated or
suspended for any reason.

C. In the event of termination, Fund will promptly pay IFTC all
amounts due to IFTC hereunder. Upon termination of this Agreement, IFTC shall
deliver all shareholder and account records pertaining to Fund either to Fund or
as directed in writing by Fund.

21. Assignment.

A. Except for the assignment of responsibilities pursuant to the
Services Agreement ("Services Agreement") between IFTC and Kemper Service
Company ("KSVC"), which Fund has approved, neither this Agreement nor any rights
or obligations hereunder may be assigned by IFTC without the written consent of
Fund; provided, however, no assignment will relieve IFTC of any of its
obligations hereunder.

B. This Agreement including, without limitation, the provisions of
Section 7 will inure to the benefit of and be binding upon the parties and their
respective successors and assigns including KSVC pursuant to the aforesaid
Services Agreement.

C. KSVC is authorized to use the system services of DST Systems, Inc.

22. Confidentiality.

A. Except as provided in the last sentence of Section 18.J hereof, or
as otherwise required by law, IFTC will keep confidential all records of and
information in its possession relating to Fund or its shareholders or
shareholder accounts and will not disclose the same to any person except at the
request or with the consent of Fund.

B. Except as otherwise required by law, Fund will keep confidential
all financial statements and other financial records (other than statements and
records relating solely to Fund's business dealings with IFTC) and all manuals,
systems and other technical information and data, not publicly disclosed,
relating to IFTC's operations and programs furnished to it by IFTC pursuant to
this Agreement and will not disclose the same to any person except at the
request or with the consent of IFTC. Notwithstanding anything to the contrary in
this Section 22.B, if an attempt is made pursuant to subpoena or other legal
process to require Fund to disclose or produce any of the aforementioned
manuals, systems or other technical information and data, the Fund shall give
IFTC prompt notice thereof prior to disclosure or production so that IFTC may,
at its expense, resist such attempt.

23. Survival of Representations and Warranties.

A. All representations and warranties by either party herein contained
will survive the execution and delivery of this Agreement.

24. Miscellaneous.

A. This Agreement is executed and delivered in the State of Illinois
and shall be governed by the laws of said state (except as to paragraph 24.G
hereof which shall be governed by the laws of The State of Maryland).

<PAGE>

B. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and executed by both
parties hereto.

C. 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.

D. This Agreement shall become effective as of the date hereof.

E. 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.

F. If any part, term or provision of this Agreement is held by the
courts held to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid.

G. All parties hereto are expressly put on notice of the Fund's
Articles of Incorporation which is on file with the Secretary of The State of
Maryland, and the limitation of shareholder and trustee liability contained
therein. This Agreement has been executed by and on behalf of the Fund by its
representatives as such representatives and not individually, and the
obligations of the Fund hereunder are not binding upon any of the Directors,
officers or shareholders of the Fund individually but are binding upon only the
assets and property of the Fund. With respect to any claim by IFTC for recovery
of that portion of the compensation and expenses (or any other liability of the
Fund arising hereunder) allocated to a particular Portfolio, whether in
accordance with the express terms hereof or otherwise, IFTC shall have recourse
solely against the assets of that Portfolio to satisfy such claim and shall have
no recourse against the assets of any other Portfolio for such purpose.

H. This Agreement, together with the Fee Schedule, is the entire
contract between the parties relating to the subject matter hereof and
supersedes all prior agreements between the parties.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officer.

THE GROWTH FUND OF SPAIN, INC.

By: /s/ John E. Peters
---------------------------------
Title: Vice President
-------------------------
ATTEST:

/s/ Philip J. Collora
- - ----------------------------------
Title: Assistant Secretary
--------------------------

INVESTORS FIDUCIARY TRUST COMPANY

By: /s/ R.A. Winegar
---------------------------------
Title: Chief Operations Officer
-------------------------
ATTEST:

/s/ Cheryl Naegler
- - ----------------------------------
Title: Assistant Secretary
--------------------------

<PAGE>

EXHIBIT A

FEE SCHEDULE

AGENCY FUNCTION FEE PAYABLE BY FUND

1. Maintenance of open shareholder account. $7.50 per year per account

2. Maintenance of closed shareholder account. $2.50 per year per account

3. Transaction Fee: Certificate Processing. $1.50 per certificate

The out-of-pocket expenses of IFTC will be reimbursed by the Fund in
accordance with the provisions of paragraph 5.A of the Agency Agreement. All
fees will be subject to offset by earning allowances under the Custody Agreement
between the Fund and IFTC.

<PAGE>

EXHIBIT B

IFTC INSURANCE COVERAGE

DESCRIPTION OF POLICY:

BROKERS BLANKET BOND, STANDARD FORM 14

Covering losses caused by dishonesty of employees, physical loss of
securities on or outside of premises while in possession of authorized person,
loss caused by forgery or alteration of checks or similar instruments.

ERRORS AND OMISSIONS INSURANCE

Covering replacement of destroyed records and computer errors and
omissions.

SPECIAL FORGERY BOND

Covering losses through forgery or alteration of checks or drafts of
customers processed by insured but drawn on or against them.

MAIL INSURANCE (APPLIES TO ALL FULL SERVICE OPERATIONS)

Provides indemnity for the following types of securities lost in the mails:

Non-negotiable securities mailed to domestic locations via registered
mail.

Non-negotiable securities mailed to domestic locations via first-class
or certified mail.

Non-negotiable securities mailed to foreign locations via registered
mail.

Negotiable securities mailed to all locations via registered mail.