-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HFc3Uh4kcqn0Oh8C9g0PIwtlDC3dQxyLqNPH0YCwyvmj5Ldjj83KKp68D4pWL7OV Pr3X0ZihVihDvyCPBnQScQ== 0000950124-99-000031.txt : 19990106 0000950124-99-000031.hdr.sgml : 19990106 ACCESSION NUMBER: 0000950124-99-000031 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER INTERNATIONAL FUND CENTRAL INDEX KEY: 0000350562 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363124258 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03136 FILM NUMBER: 99500955 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: KEMPER INTERNATIONAL FUND INC DATE OF NAME CHANGE: 19870127 N-30D 1 ANNUAL REPORT DATED 10/31/98 1 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1998 LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) [MORNINGSTAR RATINGS LOGO] SEEKING TOTAL RETURN, A COMBINATION OF CAPITAL GROWTH AND INCOME, PRINCIPALLY THROUGH AN INTERNATIONALLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES KEMPER INTERNATIONAL FUND "... We missed the short-term gains offered by this bounce (in Southeast Asia and Latin America) ... our decision for reduced exposure in these economies was a deliberate attempt to steer clear of some fundamentally weak areas. ..." [KEMPER FUNDS LOGO] 2 CONTENTS 3 Economic Overview 5 Performance Update 9 Largest Holdings 10 Portfolio of Investments 15 Report of Independent Auditors 16 Financial Statements 18 Notes to Financial Statements 22 Financial Highlights AT A GLANCE - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND TOTAL RETURNS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED OCTOBER 31, 1998 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH] - --------------------------------------------------------------------------------
CLASS A 0.45 CLASS B -0.37 CLASS C -0.37 LIPPER INTERNATIONAL FUNDS CATEGORY AVERAGE* 4.07
- -------------------------------------------------------------------------------- Returns and rankings are historical and do not guarantee future results. Investment returns and principal values will fluctuate so that shares when redeemed may be worth more or less than original cost. * Lipper Analytical Services, Inc. returns and rankings are based upon changes in net asset value with all dividends reinvested and do not include the effect of sales charges and, if they had, results may have been less favorable.
NET ASSET VALUE - -------------------------------------------------------------------------------- AS OF AS OF 10/31/98 10/31/97 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A $12.10 $12.68 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B $11.90 $12.50 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C $11.91 $12.51 - --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND RANKINGS AS OF 10/31/98 COMPARED TO ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY*
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- 1-YEAR #370 of 489 funds #391 of 489 funds #391 of 489 funds - -------------------------------------------------------------------------------- 5-YEAR #61 of 145 funds N/A N/A - -------------------------------------------------------------------------------- 10-YEAR #18 of 36 funds N/A N/A - -------------------------------------------------------------------------------- 15-YEAR #7 of 12 funds N/A N/A - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DIVIDEND REVIEW - -------------------------------------------------------------------------------- DURING THE YEAR ENDED OCTOBER 31, 1998, KEMPER INTERNATIONAL FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- INCOME DIVIDEND $0.0775 -- -- - -------------------------------------------------------------------------------- LONG-TERM CAPITAL GAIN $0.5500 $0.5500 $0.5500 - --------------------------------------------------------------------------------
Investment in foreign securities presents special risk considerations including fluctuating currency exchange rates, government regulation and differences in liquidity. TERMS TO KNOW YOUR FUND'S STYLE - -------------------------------------------------------------------------------- MORNINGSTAR EQUITY STYLE BOX - -------------------------------------------------------------------------------- Source: Data provided by Morningstar, Inc., Chicago, IL 312-696-6000. The Equity Style Box placement is based on a fund's price-to-earnings and price-to-book ratios relative to the S&P 500, as well as the size of the companies in which it invests, or median market capitalization. Please note that style boxes do not represent an exact assessment of risk and do not represent future performance. The fund's portfolio changes from day-to-day. A longer-term view is represented by the fund's Morningstar category, which is based on its actual investment style as measured by its underlying portfolio holdings over the past three years. Morningstar has placed Kemper Interna- tional Fund in the foreign stock category. Please consult the prospectus for a description of investment policies. INTERNATIONAL MONETARY FUND An organization focused on lowering trade barriers and stabilizing currencies. While helping developing nations pay their debts, the IMF usually imposes tough guidelines aimed at lowering inflation, cutting imports, and raising exports. LIQUIDITY A characteristic of an investment or an asset referring to the ease of convertibility into cash within a reasonably short period of time. 3 ECONOMIC OVERVIEW [SILVIA PHOTO] DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND MANAGERS. SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY. SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS, INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. DEAR SHAREHOLDERS, If you're like most investors, you may be wondering if you should allow yourself to breathe a sigh of relief as 1998 comes to a close. After several months of generally declining stock prices and extreme volatility, the U.S. stock market seems to have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's 500, an unmanaged index generally representative of the U.S. stock market, bounced back into the 1100-point range, up nearly 20 percent from its third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a comparable rise. Investor confidence suddenly overtook the investor uncertainty that had plagued the markets at summer's end. While financial volatility appears to be continuing, the mood for investors definitely has improved. To what can we attribute the change? Simply this -- the cumulative effect of some good news, not the least of which was a long-awaited series of interest rate reductions by the Federal Reserve Board. In September, the Fed reduced the federal funds rate a modest quarter of a percentage point, however, this first cut disappointed some investors who were expecting a more dramatic gesture. Two weeks later, the Fed came back with an additional quarter of a percentage point reduction. This was an unexpected cut that seemed to have a positive effect on Wall Street. In November, a third rate cut of a quarter of a percentage point also boosted investor confidence. Investors were further surprised by better-than-expected corporate earnings reports early in the fourth quarter. Finally, economic data regarding retail sales, employment and home sales suggested continued economic growth and very little prospect of recession. Although there was no good news to be garnered from the sensationalized presidential scandal, as the shock of Kenneth Starr's report wore off, the nation seemed to refocus its attention on other matters. In this sense, another veil of despair was lifted. In many ways, 1998's market activity provides a study in how investor perceptions can upstage economic realities. Certainly, the tumultuous lessons of Russia and Southeast Asia renewed investors' awareness of risk in 1998, which was an important wake-up call. At all times, investors must understand and consider risk. But over the course of 1998, U.S. economic fundamentals have essentially remained strong. In fact, inflation has remained low for the entire year. Economic growth has been solid. Our consumer confidence has remained fairly high, although not quite as high as last year. The nation's budget surplus for 1998 came in at $60 billion, with another budget surplus expected for fiscal 1999. Growth in the nation's gross domestic product (GDP), which represents the total value of all goods and services produced within the U.S. economy, has remained remarkably steady. GDP is expected to have grown at an annualized rate of between 2.5 percent and 3.5 percent for the second half of 1998 and is anticipated to hover around 2 percent for the first half of 1999. The consumer price index (CPI) remains in a range of 1.5 percent to 2 percent. While employment growth has slowed a bit, the slowdown in wage gains may provide the Fed with an incentive to reduce interest rates even further. U.S. corporate profits have generally been flat, so we may see a decrease in capital spending. Banks appear to be only a little less willing to lend, so the threat of a general credit crunch is minimal. Investors may take comfort in the fact that the U.S. markets and economy have withstood the test of 1998's tumultuous third quarter. Similarly, while certain countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering from economic crises, others, including the Philippines, South Korea, Thailand and China, appear to have survived. As long as the Fed and the Group of Seven leading industrial nations (G7) are committed to avoiding recession on national and global levels respectively, investors have a good chance of experiencing a more stable economic environment. At home, there has been somewhat of a slowdown in manufacturing, as reduced U.S. exports reflect foreign economic turmoil. But the global impact of the Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian turmoil has not affected U.S. trade as much as it has lowered import prices and helped reduce global interest rates. 3 4 ECONOMIC OVERVIEW - -------------------------------------------------------------------------------- ECONOMIC GUIDEPOSTS - -------------------------------------------------------------------------------- Economic activity is a key influence on investment performance and shareholder decision-making. Periods of recession or boom, inflation or deflation, credit expansion or credit crunch have a significant impact on mutual fund performance. The following are some significant economic guideposts and their investment rationale that may help your investment decision-making. The 10-year treasury rate and the prime rate are prevailing interest rates. The other data report year-to-year percentage changes. [BAR GRAPH]
NOV 98 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO 10-YEAR TREASURY RATE(1)* 4.53 5.64 6.03 6.53 PRIME RATE(2)* 8.12 8.50 8.50 8.25 INFLATION RATE(3)* 1.49 1.50 2.08 2.99 THE U.S. DOLLAR(4) 0.83 6.86 9.65 3.46 CAPITAL GOODS ORDERS(5)* 2.51 7.47 10.64 9.19 INDUSTRIAL PRODUCTION(5)* 2.12 4.97 6.72 4.93 EMPLOYMENT GROWTH(6) 2.28 2.65 2.70 2.33
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL ASSETS. (2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS. (3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS, INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE LAST FEW YEARS HAS MEANT HIGH REAL RETURNS. (4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE VALUE OF U.S. FIRMS' FOREIGN PROFITS. (5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE. (6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES. * DATA AS OF OCTOBER 31, 1998. SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC. In Europe, the much anticipated Economic and Monetary Union (EMU) is on the move, with a focus on more flexibility and growth potential for the region. European equities may be the beneficiaries of increased spending, as governments seek to foster growth and reduce unemployment. If you're a long-term investor in today's short-term world, go ahead and breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999. It's going to be an interesting year as the EMU emerges, the race for the next presidency heats up and the year 2000 approaches. And, remember: Investors don't like uncertainty, be it economic or political. The threat of impeachment, new acts of terrorism or any other hints of crisis could prompt a downward spike in our markets in the short run. In the long run, the keys to investment performance remain moderate growth, low inflation and limited taxation and regulation. I would like to take this opportunity to thank you for choosing to invest with Kemper Funds. We appreciate the opportunity to serve your investment needs. Sincerely, /s/ John E. Silvia JOHN E. SILVIA MANAGING DIRECTOR SCUDDER KEMPER INVESTMENTS, INC THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF DECEMBER 2, 1998, AND MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION. 4 5 PERFORMANCE UPDATE [DEXTER PHOTO] STEPHEN DEXTER IS A MEMBER OF SCUDDER KEMPER INVESTMENTS, GLOBAL EQUITY GROUP AND IS CO-LEAD PORTFOLIO MANAGER OF KEMPER INTERNATIONAL FUND. STEVE HAS GEOGRAPHIC RESPONSIBILITY FOR LATIN AMERICA, AFRICA, CANADA, ASIA, AUSTRALIA AND NEW ZEALAND. HE JOINED SCUDDER KEMPER INVESTMENTS AS AN EQUITY ANALYST IN 1986 AND HAS TWICE BEEN NAMED "BEST OF THE BUY SIDE" BY INSTITUTIONAL INVESTOR. STEVE RECEIVED A BACHELOR'S DEGREE IN ECONOMICS AND AN M.B.A. IN FINANCE FROM THE UNIVERSITY OF WISCONSIN. HE ALSO GRADUATED FROM THE WISCONSIN APPLIED SECURITIES ANALYSIS PROGRAM. [SLENDEBROEK PHOTO] MARC SLENDEBROEK JOINED THE ORGANIZATION IN 1994 AND IS BASED IN THE OFFICE OF SCUDDER KEMPER'S LONDON BASED AFFILIATE, SCUDDER INVESTMENTS (U.K.) LIMITED. AS CO- LEAD PORTFOLIO MANAGER OF KEMPER INTERNATIONAL FUND HE FOCUSES ON THE EUROPEAN REGION. PRIOR TO JOINING SCUDDER KEMPER INVESTMENTS, MARC WAS WITH KLEINWORT BENSON SECURITIES IN LONDON WHERE HE WAS MANAGER OF DUTCH RESEARCH. HE ALSO WORKED FOR ENSKILDA SECURITIES IN LONDON AS AN EQUITY ANALYST. MARC HOLDS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF LEIDEN, IN THE NETHERLANDS. HE IS FLUENT IN ENGLISH, DUTCH, GERMAN, SWEDISH AND NORWEGIAN. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS. THIS PAST YEAR WAS MARKED BY VOLATILITY IN INTERNATIONAL MARKETS. STRONG COMPANIES FLOUNDERED AND LEVERAGED FIRMS FLOURISHED, SOMETIMES AGAINST COMMON SENSE. WITH A FOCUS ON THE STRONGER, GROWTH-ORIENTED NAMES THAT SEEMED TO TAKE THE WORST OF THE MARKET BEATINGS, KEMPER INTERNATIONAL FUND UNDERPERFORMED THE INDEX FOR THE PERIOD. CO-LEAD PORTFOLIO MANAGERS STEPHEN DEXTER AND MARC SLENDEBROEK DISCUSS THEIR MANAGEMENT APPROACH AND WHY THEY REMAIN COMMITTED TO IT. Q INTERNATIONAL MARKETS HAVE BEEN EXTREMELY VOLATILE THIS PAST YEAR. CAN YOU GIVE A QUICK OVERVIEW OF WHAT THE COMMOTION WAS ALL ABOUT? A Just over a year ago, Japan and other Southeast Asian countries found themselves facing severe financial crises. Dozens of Asian banking systems and finance companies were forced to suspend operations due to bad debt. As these countries struggled against credit concerns and political turmoil, their economies suffered slowing growth and falling corporate profits. Fleeing to safer harbors, investors indiscriminately pulled their dollars from all emerging regions spreading the 'Asian Flu' around the globe. Russia was particularly hard hit. The country defaulted on loans and the government was on the verge of collapse. In an effort to alleviate some of the strain being felt in emerging economies, the International Monetary Fund stepped in with bailout packages for countries that agreed to certain reforms. The emerging market melee did reach developed market shores. During the 12-month period, there were times when even these larger markets swung 10 percent in a single day due largely to shifts in investor sentiment. Banking stocks, for example, saw dramatic drops following the Russian debt default due to investor fears that these large institutions would suffer if loans made in emerging regions went unpaid. Q KEMPER INTERNATIONAL FUND (CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGE) WAS KEEPING PACE WITH ITS BENCHMARK, THE MSCI EAFE INDEX*, THROUGH JULY BUT LOST SIGNIFICANT GROUND IN THE LAST THREE MONTHS OF THE PERIOD. FOR THE 12 MONTHS ENDED OCTOBER 31, THE FUND WAS UP 0.45 PERCENT WHILE THE INDEX WAS UP 9.95 PERCENT. WHAT HAPPENED? A Our earlier performance can be largely attributed to the strength of Europe, which is benefiting from growing corporate profits, increased consumer confidence and a growing equity culture. But markets worldwide took some dramatic turns in the last few months of the period. Nearly all global markets fell sharply in August but then an October rebound allowed recent market dogs to have their day. Latin American and Southeast Asian markets surged; Hong Kong, for example, was up 33 percent in dollar terms for the month. We missed the short-term gains offered by this bounce because of our lesser exposure to these markets compared to the index. We were underweight for a couple of reasons. First of all, Kemper International Fund is never highly exposed to emerging markets as a matter of policy but our decision for reduced exposure in these economies was a deliberate attempt to steer clear of 5 6 PERFORMANCE UPDATE some fundamentally weak areas. We saw and continue to see ongoing political and economic strife and eroding fundamentals in these markets, and it remains an area where we have not been willing to put our investors' money at risk. * The Morgan Stanley Capital International EAFE Index is a generally accepted benchmark of stock market performance in Europe, Australia and the Far East. Q WHY DID WE SEE THESE RISKIER COUNTRIES BOUNCE WHILE MORE STABLE COUNTRIES DROPPED? A Much of the bounce was tied to the Federal Reserve Board's interest rate cuts in September and October. Governments in several key world markets, all who seemed to be operating on the assumption that economically ailing countries would benefit from lower interest rates, then mimicked the U.S. cuts. This show of support for our GLOBAL economy by various world governments reignited investor confidence as they moved from larger, highly liquid investments to less established, cyclical companies with what we view as weaker fundamentals. The fund was basically hit on two levels because of this shift: First, we hold the highly liquid, growth-oriented companies that saw the bout of profit taking, and second, we invest in quality companies and, therefore, avoid the cyclical names. While this was going on in emerging markets, the more developed regions of the world were being hit as investors reacted to expected down-grades in growth forecasts for all markets. Q HOW HAVE YOU MANAGED THE FUND DIFFERENTLY DURING THIS TUMULTUOUS YEAR? A We've always focused on the fundamentals of valuation and growth to try to achieve a strong, long-term track record. We don't change the way we run the fund to suit short-term circumstances. When markets fluctuate as they have these last few months, there are going to be times this management style doesn't look its most appealing. But eventually markets stabilize and widen their scope to focus on the long-term fundamentals. We're facing a different environment where deflation is a major concern rather than inflation. We haven't experienced this since the 1950s. In a deflationary environment, a company cannot simply increase the cost of its products to boost profit margins. We're looking for companies that are aware of this difference and are adjusting to prosper in this new environment. Management needs to know how to cut costs and use the capital they do have at a greater rate. Q WHEN DO YOU EXPECT TO SEE A TRUE TURNAROUND IN THE EMERGING MARKETS? A We don't foresee an immediate recovery. The Asian countries need to administer very tough medicine to their financial and banking sectors to try to stabilize the economic footing of these markets. This means a painful restructuring of the banking system as well as a mass restructuring of corporate debt. In Latin America we must see the implementation of an extremely harsh fiscal plan of restraint adopted in Brazil. There have been many bold announcements of restructuring plans in both Southeast Asia and Latin America but so far there has been little implementation. Until we see true steps taken to create political, economic and currency stability in the emerging markets, we are likely to steer clear of them. We won't attempt to ride a bucking market trend to try to capture some incremental returns. Q WE HAVE TALKED ABOUT WHERE YOU AREN'T INVESTING, BUT COULD YOU TELL US WHERE YOU ARE CONCENTRATING YOUR INVESTMENTS AND HOW YOUR ALLOCATIONS HAVE CHANGED SINCE THE BEGINNING OF THIS PERIOD? A Reflecting our enthusiasm for the European markets, we increased our European holdings to 75 percent from 64 percent one year ago. Europe is the only major non-U.S. region offering ongoing profit growth, strong consumer spending and continued restructuring in industries to maximize profit margins. This mirrors the restructuring that American companies implemented so successfully in the early 1980s. Within Europe our biggest increase was in the United Kingdom. We now hold 21 percent of the fund in the UK, up from 9 percent last year. It has been under-performing the region and, as a result, is offering very attractive stock valuations. The UK has also been cutting interest rates, which should be positive for the economy going forward. Similarly, we increased exposure to France as recent rate cuts are expected to benefit their lagging economy. We've cut our Japanese holdings nearly in half, to 7 percent from 12 percent. Japan was just heading into a recession a year ago. Over the course of the year that recession has only worsened and we don't 6 7 PERFORMANCE UPDATE expect to see significant improvement in the near term. We've also completely exited Southeast Asia, eliminating our 1 percent position there. We hold just over 1 percent of the fund in Latin America, down from a 4.3 percent position last year. Finally, we've lowered our Canadian holdings to 4 percent, down from 6 percent. Canada is obviously a politically stable country and we found some good value and growth stories there, but we sold a few Canadian positions to invest the money in Europe where we see better growth opportunities overall. Q WHAT ABOUT BUSINESS SECTORS -- WHAT KINDS OF COMPANIES WITHIN THESE REGIONS LOOK PROMISING, AND CAN YOU SHARE SOME PERFORMANCE STORIES WITH US? A In Europe, we are still very attracted to corporate services. This area supports the European trend toward corporate restructuring, a trend that has a lot of room to grow. In the UK, Compass Group, which provides sanitary services and catering services, and Rentokil, a provider of a wide range of corporate services, have been very strong performers. We've also benefited from a few telecommunications holdings, particularly Vodafone in the UK, Telefonica de Espana, a Spanish telephone company, and Telecom Italia, a mobile telecommunications provider. We also like the corporate services area in Japan. Bellsystems 24 is a call center company that has done very well for us. Murata Manufacturing, an electronics components manufacturer, has also been a top performer. But we did own some poorer performers as well. Kimberly Clark de Mexico is a very well run consumer products company that we felt could still prosper in a difficult economy but its performance tracked the Mexican market and dropped when emerging markets were hit. Restaurant Brands, the New Zealand franchise-holder of Pizza Hut and Kentucky Fried Chicken also hurt us. In America fast food franchises are relatively recession proof, but we found that in New Zealand people viewed even low-cost dining as a luxury to be eliminated during a recessionary period. Finally, Sony is a company with great management and phenomenal technology that was unfortunately hurt by the global slowdown. The company is still fundamentally very strong so we are holding on to it because, over the long haul, it could reward handsomely. Q WITH THE GLOBAL MARKETS IN SUCH DISARRAY, IS THIS STILL A GOOD TIME FOR INVESTORS TO HOLD INTERNATIONAL EQUITIES? A We think so. One very sound reason for investing abroad is Europe. This region is poised to generate superior economic and profit performance versus the United States in the near future. We are seeing a new shareholder focus among European companies that, historically, did not appreciate the value of rewarding investors. These companies are increasing dividend payments, buying back shares and cleaning up the corporate profiles. They're also streamlining operations to focus on business areas of strength while eliminating peripheral businesses dragging down the bottom line. If you consider the success of U.S. corporations that began restructuring in the early 1980s, you see the potential for European companies. Europe is only a year or two into this process. They have a long, long way to go. A similar restructuring trend seems to be kicking-off in Japan as well. We recognize that volatile market conditions like those seen during the last 12 months, make it difficult to focus on the significant potential that remains in developed international markets. However, we firmly believe the investor who is comfortable riding through some bumpy market patches will be rewarded as huge economic regions such as Europe and Japan finally hit their full stride. 7 8 PERFORMANCE UPDATE - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- FOR PERIODS ENDED OCTOBER 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
LIFE OF 1-YEAR 5-YEAR 10-YEAR CLASS - ----------------------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A -5.31% 6.31% 7.51% 11.49% (since 5/21/81) - ----------------------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B -3.23 N/A N/A 6.55 (since 5/31/94) - ----------------------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C -0.37 N/A N/A 6.94 (since 5/31/94) - -----------------------------------------------------------------------------------------------
[LINE GRAPH] - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A - --------------------------------------------------------------------------------
Kemper International Consumer Fund Class EAFE Price A1 Index+ Index++ 5/21/81 9424 10000 10000 9515 10071 10089 8394 8910 10379 9390 9974 10468 8311 8828 10523 8077 8587 10802 8171 8440 10902 9651 9888 10869 10389 10472 10902 11441 11273 11080 11901 11558 11214 12357 12322 11281 13256 14219 11425 11495 12559 11548 11512 12650 11693 11234 13291 11726 11648 14571 11849 12093 15541 11982 13913 17872 12060 17515 20830 12172 20742 27074 12116 21716 29466 12194 23956 34037 12272 25248 35398 12305 27092 43664 12483 29491 46771 12639 31910 49427 12806 12/31/87 26877 44224 12851 28433 50999 12973 28953 48792 13140 28660 49137 13341 31513 56867 13419 32798 57057 13619 31749 53569 13820 35205 60241 13920 37365 63007 14042 36886 50584 14332 39318 55460 14466 32722 43742 14777 34564 48392 14900 37518 52034 15033 36632 49234 15145 37644 53498 15278 37718 54440 15356 37460 48021 15512 38061 49081 15613 34757 49869 15735 35912 47989 15802 37446 53787 15991 39814 59240 16080 44594 63211 16158 12/31/93 48715 63799 16236 46552 66071 16392 47003 69491 16481 48851 69605 16637 46767 68942 16670 46381 70280 16860 48356 70846 16982 52643 73856 17060 52828 76906 17094 56692 79186 17339 58697 80497 17450 58257 80457 17572 61837 81797 17662 62255 80575 17817 69010 91094 17851 71680 90510 17951 67404 83481 17962 75781 95824 18062 77324 96907 18125 63491 83194 18218 10/31/98 66687 91890 18218
[LINE GRAPH] - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B - --------------------------------------------------------------------------------
Kemper International Consumer Fund Class EAFE Price B1 Index+ Index++ 5/31/94 10000.00 10000.00 10000.00 9877.13 10144.00 10034.00 10236.30 10160.00 10129.00 9761.44 10063.00 10149.00 9660.39 10259.00 10264.00 10054.50 10341.00 10339.00 10913.40 10781.00 10386.00 10929.00 11226.00 10407.00 11701.70 11559.00 10556.00 12088.00 11750.00 10624.00 11966.00 11744.00 10698.00 12/31/96 12677.20 11940.00 10753.00 12720.40 11761.00 10847.00 14069.00 13297.00 10868.00 14576.10 13212.00 10929.00 12/31/97 13684.40 12186.00 10936.00 15332.80 13987.00 10997.00 15626.40 14145.00 11051.00 12803.70 12144.00 11092.00 10/31/98 13235.80 13413.00 11092.00
[LINE GRAPH] - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C - --------------------------------------------------------------------------------
Kemper International Consumer Fund Class EAFE Price C1 Index+ Index++ 5/31/94 10000.00 10000.00 10000.00 9858.00 10144.00 10034.00 10217.00 10160.00 10129.00 9761.00 10063.00 10149.00 9660.00 10259.00 10264.00 10054.00 10341.00 10339.00 10913.00 10781.00 10386.00 10929.00 11226.00 10407.00 11702.00 11559.00 10556.00 12098.00 11750.00 10624.00 11966.00 11744.00 10698.00 12/31/96 12681.00 11940.00 10753.00 12735.00 11761.00 10847.00 14073.00 13297.00 10868.00 14591.00 13212.00 10929.00 12/31/97 13688.00 12186.00 10936.00 15349.00 13987.00 10997.00 15642.00 14145.00 11051.00 12819.00 12144.00 11092.00 10/31/98 13451.00 13236.00 11092.00
Past performance is not a guarantee of future results. Investment returns and principal values will fluctuate so that shares, when redeemed, may be worth more or less than original cost. * Average annual total return and total return measure net investment income and capital gain or loss from portfolio investments over the periods specified, assuming reinvestment of all dividends and, where indicated, adjustment for the maximum sales charge. The maximum sales charge for Class A shares is 5.75%. for Class B shares the maximum contingent deferred sales charge (CDSC) is 4%. Class C shares have no sales charge adjustment, but redemptions within one year of purchase may be subject to a contingent deferred sales charge of 1%. Share classes invest in the same underlying portfolio. Average annual total return reflects annualized change while total return reflects aggregate change. During the periods noted, securities prices fluctuated. For additional information, see the Prospectus and Statement of Additional Information and the Financial Highlights at the end of this report. (1)Performance includes reinvestment of dividends and adjustment for the maximum sales charge for Class A shares and the contingent deferred sales charge in effect at the end of the period for Class B shares. In comparing kemper International Fund Class A shares to the EAFE Index, you should also note that the fund's performance reflects the maximum sales charge, while no such charge is reflected in the performance of the index. + The EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far EAST Index) Is an unmanaged index generally accepted as a benchmark for major overseas markets. Source Is TowersData. ++ The Consumer Price Index is a statistical measure of change, over time, in the prices of goods and services in major expenditure groups for all urban consumers. Source Is TowersData. 8 9 LARGEST HOLDINGS KEMPER INTERNATIONAL FUND'S TOP 20 HOLDINGS* A comparison of the fund's top 20 holdings on October 31, 1998 with its top twenty holdings on October 31, 1997
AT 10/31/98 AT 10/31/97 HOLDINGS PERCENT HOLDINGS PERCENT - -------------------------------------------- -------------------------------- 1. NOVARTIS 3.6% BANK OF IRELAND 3.6% - -------------------------------------------- -------------------------------- 2. BRITISH TELECOM 3.6% ELF AQUITAINE 3.1% - -------------------------------------------- -------------------------------- 3. GROUPE DANONE 3.4% NOVARTIS 3.0% - -------------------------------------------- -------------------------------- 4. GLAXO WELLCOME 3.4% L.M. ERICSSON 2.7% - -------------------------------------------- -------------------------------- 5. VIAG 3.2% BARCLAYS 2.7% - -------------------------------------------- -------------------------------- 6. KONINKLIJKE AHOLD 2.9% GLAXO WELLCOME 2.6% - -------------------------------------------- -------------------------------- 7. VEDIOR 2.8% AEGON 2.3% - -------------------------------------------- -------------------------------- 8. TELEFONICA NACIONAL DE 2.6% PETRO CANADA 2.2% ESPANA - -------------------------------------------- -------------------------------- 9. UNILEVER 2.6% ROCHE HOLDINGS 2.2% - -------------------------------------------- -------------------------------- 10. COMPASS GROUP 2.4% TELECOM ITALIA MOBILE 2.2% - -------------------------------------------- -------------------------------- 11. GETRONICS 2.3% ING GROEP 2.1% - -------------------------------------------- -------------------------------- 12. TELECOM ITALIA 2.2% BRITISH PETROLEUM 2.1% - -------------------------------------------- -------------------------------- 13. GEHE 2.1% TELECOM ITALIA 2.0% - -------------------------------------------- -------------------------------- 14. SOCIETE LYONNAISE DES 2.0% CARREFOUR 1.8% EAUX - -------------------------------------------- -------------------------------- 15. RENTOKIL INITIAL 2.0% PHILIP SERVICES 1.7% - -------------------------------------------- -------------------------------- 16. MANNESMANN 1.9% HUDSON'S BAY CO. 1.6% - -------------------------------------------- -------------------------------- 17. ELECTRIDADE DE PORTUGAL 1.8% VEBA 1.6% - -------------------------------------------- -------------------------------- 18. TELEVISION FRANCAISE 1.7% KONINKLIJKE AHOLD 1.6% - -------------------------------------------- -------------------------------- 19. BAYERISCHE VEREINSBANK 1.7% SONY CORP. 1.6% - -------------------------------------------- -------------------------------- 20. ALCATEL 1.6% BANCO POPULAR 1.5% - -------------------------------------------- --------------------------------
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE. 9 10 PORTFOLIO OF INVESTMENTS KEMPER INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------- EUROPE - -------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM--21.4% BBA Group, PLC MANUFACTURER OF AUTOMOTIVE COMPONENTS AND INDUSTRIAL MATERIALS 701,567 $ 4,339 British Airways, PLC PROVIDER OF PASSENGER AND CARGO AIRLINE SERVICES 560,000 4,068 British Petroleum, PLC MAJOR INTEGRATED WORLD OIL COMPANY 400,000 5,872 British Telecom, PLC TELECOMMUNICATION SERVICES 1,670,353 21,585 Compass Group, PLC INTERNATIONAL CATERING GROUP 1,446,500 14,649 Glaxo Wellcome, PLC PHARMACEUTICAL COMPANY 654,887 20,346 Hays, PLC BUSINESS SERVICES 416,157 6,130 National Westminster Bank BANK 221,151 3,732 (a)Orange PLC OPERATOR OF DIGITAL MOBILE TELEPHONE NETWORK 523,600 4,869 Reed International, PLC PUBLISHER OF SCIENTIFIC, PROFESSIONAL AND BUSINESS TO BUSINESS MATERIALS 921,850 7,800 Rentokil Initial, PLC ENVIRONMENTAL SERVICES COMPANY 1,954,550 12,236 Select Appointments Holdings RECRUITMENT SERVICES FOR TEMPORARY AND PERMANENT STAFF 490,000 4,265 Unilever, PLC MANUFACTURER OF BRANDED AND PACKAGED CONSUMER GOODS, FOOD, DETERGENTS AND PERSONAL CARE PRODUCTS 1,576,990 15,838 Vodafone Group, PLC TELECOMMUNICATIONS SERVICES 569,749 7,606 --------------------------------------------------------------------------- 133,335 - -------------------------------------------------------------------------------------------------------------------- NETHERLANDS--13.7% Aalberts Industries CAPITAL GOODS AND COMPONENTS 239,170 5,722 Aegon Insurance Group, N.V. INSURANCE COMPANY 263 23 Content Beheer RECRUITMENT SERVICES FOR TEMPORARY STAFF 188,000 3,894 Getronics, N.V. PROVIDER OF COMPUTER INSTALLATION AND MAINTENANCE SERVICES 337,998 14,021 ING Groep, N.V. INSURANCE AND FINANCIAL SERVICES 154,930 7,497 Koninklijke Ahold, N.V. INTERNATIONAL FOOD RETAILER 519,096 17,254 Koninklijke Numico, N.V. NUTRITIONAL FOOD MANUFACTURER 203,692 8,013 Laurus, N.V. INTERNATIONAL FOOD RETAILER 65,560 1,649
10 11 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------- (b)Laurus, N.V., scripts INTERNATIONAL FOOD RETAILER 163,900 $ 412 (b)Nedcon Groep, N.V. MANUFACTURER OF RACKING SYSTEMS 68,395 1,684 Unique International, N.V. OPERATOR OF RETAIL CLOTHING STORES, EMPLOYMENT AGENCIES, TECHNICAL TRADE SCHOOLS AND ENGINEERING SERVICES 290,227 8,124 Vedior N.V. CVA TEMPORARY EMPLOYMENT SERVICES 668,287 17,027 --------------------------------------------------------------------------- 85,320 - -------------------------------------------------------------------------------------------------------------------- FRANCE--10.8% AXA S.A. INSURANCE GROUP PROVIDING INSURANCE, FINANCE AND REAL ESTATE SERVICES 59,903 6,770 Alcatel Alsthom MANUFACTURER OF TRANSPORTATION, TELECOMMUNICATION AND ENERGY EQUIPMENT 87,291 9,725 Groupe Danone PRODUCER OF PACKAGED FOODS AND BEVERAGES 77,033 20,366 Sanofi, S.A. RESEARCHER AND MANUFACTURER OF HEALTH CARE PRODUCTS AND BEAUTY AIDS 50,010 7,830 Societe Lyonnaise des Eaux, S.A. WATER UTILITY 68,500 12,266 Television Francaise TELEVISION BROADCASTING 62,600 10,342 --------------------------------------------------------------------------- 67,299 - -------------------------------------------------------------------------------------------------------------------- GERMANY--9.5% Bayerische Vereinsbank A.G. COMMERCIAL BANK 129,900 10,312 Gehe A.G. PHARMACEUTICALS DISTRIBUTOR 166,000 12,476 Mannesmann A.G. DIVERSIFIED CONSTRUCTION AND TECHNOLOGY COMPANY 116,600 11,474 VEBA A.G. ELECTRIC UTILITY, DISTRIBUTOR OF OIL AND CHEMICALS 95,600 5,338 VIAG A.G. PROVIDER OF ELECTRICAL POWER AND NATURAL GAS SERVICES, ALUMINUM PRODUCTS, CHEMICALS, CERAMICS AND GLASS 28,300 19,220 --------------------------------------------------------------------------- 58,820 - -------------------------------------------------------------------------------------------------------------------- ITALY--6.0% (a)AEM, SpA ELECTRIC AND GAS UTILITY 3,240,000 4,408 Assicurazioni Generali, SpA LIFE AND PROPERTY INSURANCE COMPANY 156,425 5,602 Istituto Mobiliare Italiano, SpA BANKING AND FINANCIAL SERVICES 564,000 8,672 Telecom Italia, SpA TELECOMMUNICATIONS, ELECTRONICS AND NETWORK CONSTRUCTION 1,872,000 13,535 Telecom Italia Mobile, SpA CELLULAR TELECOMMUNICATION SERVICES 927,500 5,385 --------------------------------------------------------------------------- 37,602
11 12 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------- SWITZERLAND--4.8% Nestle, S.A. FOOD MANUFACTURER 3,520 $ 7,479 Novartis, A.G. PHARMACEUTICAL COMPANY 12,225 22,008 --------------------------------------------------------------------------- 29,487 - -------------------------------------------------------------------------------------------------------------------- SPAIN--3.9% Empresa Nacional de Electricidad S.A. ELECTRIC UTILITY 327,938 8,265 Compania Telefonica Nacional de Espana S.A. TELECOMMUNICATION SERVICES 353,568 15,964 --------------------------------------------------------------------------- 24,229 - -------------------------------------------------------------------------------------------------------------------- SWEDEN--1.9% Astra, A.B. PHARMACEUTICAL COMPANY 184,000 2,985 Gambro, A.B. HEALTHCARE SERVICES AND MEDICAL- TECHNOLOGY PROVIDER 198,000 2,209 (a)Industri-Matematik International Corp. SERVICE SOFTWARE APPLICATIONS 120,000 555 Securitas A.B. INSTALLS SECURITY SYSTEMS AND PROVIDER OF GUARD SERVICES 508,800 6,264 --------------------------------------------------------------------------- 12,013 - -------------------------------------------------------------------------------------------------------------------- PORTUGAL--1.7% Electricidade de Portugal, S.A. ELECTRIC UTILITY 425,162 10,687 --------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- IRELAND--1.5% Bank of Ireland PLC BANK 498,526 9,213 --------------------------------------------------------------------------- TOTAL EUROPEAN COUNTRIES--75.2% 468,005 - -------------------------------------------------------------------------------------------------------------------- PACIFIC REGION - -------------------------------------------------------------------------------------------------------------------- JAPAN--6.7% Bellsystems 24, Inc. TELEMARKETING FIRM 27,000 5,196 Fuji Photo Film Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 162,000 5,943 Fujitsu Support and Services Inc. PROVIDER OF INFORMATION SERVICES AND SUPPORT FOR COMPUTER NETWORK SYSTEMS 60,000 3,015 Murata Manufacturing Co., Ltd. ELECTRONICS COMPONENTS MANUFACTURER 213,000 7,191 Nidec Corp. MANUFACTURER OF SMALL-SCALE MOTORS FOR HARD DISC DRIVES 67,000 6,107 Nikko Securities Co., Ltd. LEADING SECURITIES BROKER AND DEALER 1,630,000 4,929 Sony Corp. CONSUMER ELECTRONIC PRODUCTS MANUFACTURER 83,000 5,277 Uni-Charm Co., Ltd. LEADING MANUFACTURER OF SANITARY NAPKINS AND PAPER DIAPERS 86,700 3,948 --------------------------------------------------------------------------- TOTAL PACIFIC REGION--6.7% 41,606
12 13 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------- COMMONWEALTH COUNTRIES CANADA--3.5% BCE, Inc. TELECOMMUNICATION SERVICES 167,000 $ 5,661 (a)Boardwalk Equities, Inc. REAL ESTATE COMPANY 250,500 2,646 Canadian National Railway RAILROAD OPERATOR 103,400 5,163 Petro-Canada OIL AND GAS COMPANY 645,300 8,228 --------------------------------------------------------------------------- 21,698 - -------------------------------------------------------------------------------------------------------------------- AUSTRALIA--2.0% Leighton Holdings CONSTRUCTION SERVICES AND CONSULTING 1,525,000 5,662 St. George Bank, Ltd. COMMERCIAL BANK 1,059,850 7,069 --------------------------------------------------------------------------- 12,731 - -------------------------------------------------------------------------------------------------------------------- NEW ZEALAND--.3% Restaurant Brands FAST FOOD RESTAURANT CHAIN 4,475,000 1,943 --------------------------------------------------------------------------- TOTAL COMMONWEALTH COUNTRIES--5.8% 36,372 - -------------------------------------------------------------------------------------------------------------------- LATIN AMERICA - -------------------------------------------------------------------------------------------------------------------- MEXICO--1.1% Fomento Economico Mexicano S.A. de C.V. PRODUCER OF BEER AND SOFT DRINKS 1,444,800 3,724 Kimberly Clark de Mexico S.A. de C.V. PRODUCER OF CONSUMER PAPER PRODUCTS 1,075,400 3,117 --------------------------------------------------------------------------- TOTAL LATIN AMERICAN COUNTRIES--1.1% 6,841 --------------------------------------------------------------------------- TOTAL COMMON STOCKS--88.8% (Cost: $523,146) 552,824 --------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------- MONEY MARKET Yield--5.51% to 5.71% INSTRUMENTS--11.2% Due--November 1998 Bell Atlantic $ 13,400 13,392 Federal Home Loan Mortgage Corp. 14,000 13,998 Merita North 22,000 21,991 Other 20,500 20,485 --------------------------------------------------------------------------- TOTAL MONEY MARKET INSTRUMENTS--11.2% (Cost: $69,866) 69,866 --------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO--100% (Cost: $593,012) $622,690 ---------------------------------------------------------------------------
13 14 PORTFOLIO OF INVESTMENTS At October 31, 1998, the fund's portfolio of investments had the following industry diversification (dollars in thousands):
- -------------------------------------------------------------------------------------- VALUE % - -------------------------------------------------------------------------------------- Consumer Cyclicals $ 95,820 15.3 - -------------------------------------------------------------------------------------- Communications 84,946 13.6 - -------------------------------------------------------------------------------------- Consumer Staples 84,626 13.6 - -------------------------------------------------------------------------------------- Health Care 67,854 10.9 - -------------------------------------------------------------------------------------- Finance 66,465 10.7 - -------------------------------------------------------------------------------------- Basic Industries 46,878 7.5 - -------------------------------------------------------------------------------------- Utilities 40,965 6.6 - -------------------------------------------------------------------------------------- Technology 27,874 4.5 - -------------------------------------------------------------------------------------- Energy 14,100 2.3 - -------------------------------------------------------------------------------------- Capital Goods 14,064 2.3 - -------------------------------------------------------------------------------------- Transportation 9,232 1.5 - -------------------------------------------------------------------------------------- TOTAL COMMON STOCKS 552,824 88.8 - -------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS 69,866 11.2 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS $622,690 100.0 - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) Securities valued in good faith by the Valuation Committee of the Board of Trustees at fair value amounted to $2,096,000 (.35% of net assets). Their values have been estimated by the Valuation Committee in the absence of readily ascertainable market values. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the difference could be material. The cost of these securities at October 31, 1998 aggregated $3,434,000. These securities may also have certain restrictions as to resale. Based on the cost of investments of $593,012,000 for federal income tax purposes at October 31, 1998, the gross unrealized appreciation was $65,550,000, the gross unrealized depreciation was $35,872,000 and the net unrealized appreciation on investments was $29,678,000. See accompanying notes to financial statements. 14 15 REPORT OF INDEPENDENT AUDITORS THE BOARD OF TRUSTEES AND SHAREHOLDERS KEMPER INTERNATIONAL FUND We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Kemper International Fund as of October 31, 1998, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the fiscal periods since 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of October 31, 1998, by correspondence with the custodians. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Kemper International Fund at October 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the fiscal periods since 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois December 16, 1998 15 16 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998 (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investments, at value (Cost: $593,012) $622,690 - ------------------------------------------------------------------------ Cash 130 - ------------------------------------------------------------------------ Receivable for: Investments sold 8,768 - ------------------------------------------------------------------------ Fund shares sold 3,309 - ------------------------------------------------------------------------ Dividends 478 - ------------------------------------------------------------------------ TOTAL ASSETS 635,375 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES AND NET ASSETS - ------------------------------------------------------------------------ Payable for: Investments purchased 26,695 - ------------------------------------------------------------------------ Fund shares redeemed 2,671 - ------------------------------------------------------------------------ Management fee 320 - ------------------------------------------------------------------------ Distribution services fee 92 - ------------------------------------------------------------------------ Administrative services fee 100 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 786 - ------------------------------------------------------------------------ Trustees' fees 27 - ------------------------------------------------------------------------ Total liabilities 30,691 - ------------------------------------------------------------------------ NET ASSETS $604,684 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------ Paid-in capital $487,309 - ------------------------------------------------------------------------ Undistributed net realized gain on investments and foreign currency transactions 87,612 - ------------------------------------------------------------------------ Net unrealized appreciation on investments and assets and liabilities in foreign currencies 29,763 - ------------------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $604,684 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ THE PRICING OF SHARES - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($424,431 / 35,064 shares outstanding) $12.10 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $12.84 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($137,224 / 11,529 shares outstanding) $11.90 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($26,337 / 2,212 shares outstanding) $11.91 - ------------------------------------------------------------------------ CLASS I SHARES Net asset value and redemption price per share ($16,692 / 1,373 shares outstanding) $12.16 - ------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 16 17 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998 (IN THOUSANDS) - ------------------------------------------------------------------------ NET INVESTMENT INCOME - ------------------------------------------------------------------------ Dividends $ 10,798 - ------------------------------------------------------------------------ Interest 2,916 - ------------------------------------------------------------------------ 13,714 - ------------------------------------------------------------------------ Less foreign taxes withheld 1,351 - ------------------------------------------------------------------------ Total investment income 12,363 - ------------------------------------------------------------------------ Expenses: Management fee 4,612 - ------------------------------------------------------------------------ Administrative services fee 1,424 - ------------------------------------------------------------------------ Distribution services fee 1,289 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 4,110 - ------------------------------------------------------------------------ Professional fees 108 - ------------------------------------------------------------------------ Reports to shareholders 250 - ------------------------------------------------------------------------ Trustees' fees and other 108 - ------------------------------------------------------------------------ Total expenses 11,901 - ------------------------------------------------------------------------ NET INVESTMENT INCOME 462 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - ------------------------------------------------------------------------ Net realized gain on sales of investments and foreign currency transactions 88,163 - ------------------------------------------------------------------------ Change in net unrealized appreciation on investments and assets and liabilities in foreign currencies (74,800) - ------------------------------------------------------------------------ Net gain on investments 13,363 - ------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,825 - ------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1998 1997 - ------------------------------------------------------------------------------------- OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY - ------------------------------------------------------------------------------------- Net investment income (loss) $ 462 (1,231) - ------------------------------------------------------------------------------------- Net realized gain 88,163 29,101 - ------------------------------------------------------------------------------------- Change in net unrealized appreciation (74,800) 37,579 - ------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 13,825 65,449 - ------------------------------------------------------------------------------------- Net equalization charges -- (309) - ------------------------------------------------------------------------------------- Distribution from net investment income (2,673) (4,092) - ------------------------------------------------------------------------------------- Distribution from net realized gain (25,096) (27,136) - ------------------------------------------------------------------------------------- Total dividends to shareholders (27,769) (31,228) - ------------------------------------------------------------------------------------- Net increase from capital share transactions 30,559 81,914 - ------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 16,615 115,826 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- NET ASSETS - ------------------------------------------------------------------------------------- Beginning of year 588,069 472,243 - ------------------------------------------------------------------------------------- END OF YEAR (including undistributed net investment income of $2,725 for the year ended October 31, 1997) $604,684 588,069 - -------------------------------------------------------------------------------------
17 18 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE FUND Kemper International Fund is an open-end management investment company organized as a business trust under the laws of Massachusetts. The fund currently offers four classes of shares. Class A shares are sold to investors subject to an initial sales charge. Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Class I shares are sold to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Differences in class expenses will result in the payment of different per share income dividends by class. All shares of the fund have equal rights with respect to voting, dividends and assets, subject to class specific preferences. - -------------------------------------------------------------------------------- 2 SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value. Portfolio securities which are traded on U.S. or foreign stock exchanges are valued at the most recent sale price reported on the exchange on which the security is traded most extensively. If no sale occurred, the security is then valued at the calculated mean between the most recent bid and asked quotations. If there are no such bid and asked quotations, the most recent bid quotation is used. Securities quoted on Nasdaq Stock Market (Nasdaq), for which there have been sales, are valued at the most recent sale price reported. If there are no such sales, the value is the most recent bid quotation. Securities which are not quoted on Nasdaq but are traded in another over-the-counter market are valued at the most recent sale price on such market. If no sale occurred, the security is then valued at the calculated mean between the most recent bid and asked quotations. If there are no such bid and asked quotations, the most recent bid quotation shall be used. Forward foreign currency exchange contracts are valued at the prevailing forward exchange rate of the underlying currencies on that day. Portfolio debt securities other than money market securities with an original maturity over sixty days are valued by pricing agents approved by the officers of the fund, which quotations reflect broker/dealer-supplied valuations and electronic data processing techniques. If the pricing agents are unable to provide such quotations, the most recent bid quotation supplied by a bona fide market maker shall be used. Money market instruments purchased with an original maturity of sixty days or less are valued at amortized cost. All other securities are valued at their fair market value as determined in good faith by the Valuation Committee of the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS. The books and records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions. The Fund includes that portion of the results of operations resulting from changes in foreign exchange rates with net realized and unrealized gain (loss) on investments, as appropriate. 18 19 NOTES TO FINANCIAL STATEMENTS Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward foreign currency exchange contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that result from fluctuations in foreign currency exchange rates is not separately disclosed. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the fund. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are reported on an identified cost basis. FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis at net asset value (plus an initial sales charge on most sales of Class A shares). Proceeds payable on redemption of Class B and Class C shares will be reduced by the amount of any applicable contingent deferred sales charge. On each day the New York Stock Exchange is open for trading, the net asset value per share is determined as of the close of the Exchange. The net asset value per share is determined separately for each class by dividing the fund's net assets attributable to that class by the number of shares of the class outstanding. FEDERAL INCOME TAXES. The fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders. Accordingly, the fund paid no federal income taxes and no federal income tax provision was required. DIVIDENDS TO SHAREHOLDERS. The fund declares and pays dividends of net investment income and net realized capital gains annually, which are recorded on the ex-dividend date. Dividends are determined in accordance with income tax principles which may treat certain transactions differently from generally accepted accounting principles. These differences are primarily due to differing treatments for certain transactions such as foreign currency transactions. EQUALIZATION ACCOUNTING. Prior to November 1, 1997, the fund used equalization accounting to keep a continuing shareholder's per share interest in undistributed net investment income unaffected by shareholder activity. This was accomplished by allocating a portion of the proceeds from sales and the cost of redemptions of fund shares to undistributed net investment income. As of November 1, 1997, the fund discontinued using equalization. This change has no effect on the fund's net assets, net asset value per share or distributions to shareholders. Discontinuing the use of equalization accounting will result in simpler financial statements. The cumulative effect of the discontinuance of equalization accounting was to decrease undistributed net investment income and increase paid-in-capital previously reported through October 31, 1997 by $2,011,000. 19 20 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3 TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT. The fund has a management agreement with Scudder Kemper Investments, Inc. (Scudder Kemper) and pays a monthly investment management fee of 1/12 of the annual rate of .75% of the first $250 million of average daily net assets declining to .62% of average daily net assets in excess of $12.5 billion. The fund incurred a management fee of $4,612,000 for the year ended October 31, 1998. ZURICH/B.A.T MERGER. On September 7, 1998, Zurich Insurance Company (Zurich), majority owner of Scudder Kemper, entered into an agreement with B.A.T Industries p.l.c. (B.A.T) pursuant to which the financial services businesses of B.A.T were combined with Zurich's businesses to form a new global insurance and financial services company known as Zurich Financial Services. Upon consummation of the transaction, the fund's investment management agreement with Scudder Kemper was deemed to have been assigned and, therefore, terminated. The Board of Trustees of the fund has approved a new investment management agreement with Scudder Kemper, which is substantially identical to the former investment management agreement, except for the dates of execution and termination. Shareholders approved of the new investment management agreement through a proxy solicitation that concluded in mid-December. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The fund has an underwriting and distribution services agreement with Kemper Distributors, Inc. (KDI). Underwriting commissions paid in connection with the distribution of Class A shares are as follows:
COMMISSIONS COMMISSIONS RETAINED BY ALLOWED BY KDI KDI TO FIRMS ----------- -------------- Year ended October 31, 1998 $105,000 887,000
For services under the distribution services agreement, the fund pays KDI a fee of .75% of average daily net assets of the Class B and Class C shares pursuant to separate Rule 12b-1 plans for the Class B and Class C shares. Pursuant to the agreement, KDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, KDI receives any contingent deferred sales charges (CDSC) from redemptions of Class B and Class C shares. Distribution fees, CDSC and commissions related to Class B and Class C shares are as follows:
DISTRIBUTION FEES COMMISSIONS AND AND CDSC DISTRIBUTION FEES PAID RECEIVED BY KDI BY KDI TO FIRMS ----------------- ---------------------- Year ended October 31, 1998 $1,572,000 1,483,000
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an administrative services agreement with KDI. For providing information and administrative services to Class A, Class B and Class C shareholders, the fund pays KDI a fee at an annual rate of up to .25% of average daily net assets of each class. KDI in turn has various agreements with financial services firms that provide these services and 20 21 NOTES TO FINANCIAL STATEMENTS pays these firms based on assets of fund accounts the firms service. Administrative services fees (ASF) paid are as follows:
ASF PAID BY THE ASF PAID BY KDI FUND TO KDI TO FIRMS --------------- --------------- Year ended October 31, 1998 $1,424,000 1,438,000
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the fund's transfer agent, Kemper Service Company (KSvC) is the shareholder service agent of the fund. Under the agreement, KSvC received shareholder services fees of $2,432,000 for the year ended October 31, 1998. OFFICERS AND TRUSTEES. Certain officers or trustees of the fund are also officers or directors of Scudder Kemper. During the year ended October 31, 1998, the fund made no payments to its officers and incurred trustees' fees of $33,000 to independent trustees. - -------------------------------------------------------------------------------- 4 INVESTMENT TRANSACTIONS For the year ended October 31, 1998, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $681,795 Proceeds from sales 657,925 - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the fund (in thousands):
YEAR ENDED OCTOBER 31, 1998 1997 --------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------ SHARES SOLD ------------------------------------------------------------------------------------ Class A 99,055 $ 1,307,871 14,874 $ 187,364 ------------------------------------------------------------------------------------ Class B 6,108 79,630 8,424 106,475 ------------------------------------------------------------------------------------ Class C 6,453 83,701 1,156 14,610 ------------------------------------------------------------------------------------ Class I 837 11,244 1,171 14,846 ------------------------------------------------------------------------------------ SHARES ISSUED IN REINVESTMENT OF DIVIDENDS ------------------------------------------------------------------------------------ Class A 1,539 18,354 2,001 22,720 ------------------------------------------------------------------------------------ Class B 504 5,970 509 5,790 ------------------------------------------------------------------------------------ Class C 57 669 42 481 ------------------------------------------------------------------------------------ Class I 81 964 101 1,173 ------------------------------------------------------------------------------------ SHARES REDEEMED ------------------------------------------------------------------------------------ Class A (98,869) (1,319,184) (14,522) (184,532) ------------------------------------------------------------------------------------ Class B (5,480) (71,226) (5,205) (66,707) ------------------------------------------------------------------------------------ Class C (5,630) (73,743) (486) (6,267) ------------------------------------------------------------------------------------ Class I (1,023) (13,696) (1,094) (14,039) ------------------------------------------------------------------------------------ CONVERSION OF SHARES ------------------------------------------------------------------------------------ Class A 1,040 13,786 433 5,529 ------------------------------------------------------------------------------------ Class B (1,053) (13,781) (438) (5,529) ------------------------------------------------------------------------------------ NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $ 30,559 $ 81,914 ------------------------------------------------------------------------------------
21 22 FINANCIAL HIGHLIGHTS
------------------------------------------- CLASS A ------------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------------- 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ----------------------------------------------------------------------------------------------- Net asset value, beginning of year $12.68 11.96 10.59 11.13 10.56 - ----------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .04 -- .04 .07 -- - ----------------------------------------------------------------------------------------------- Net realized and unrealized gain .01 1.52 1.50 .05 .86 - ----------------------------------------------------------------------------------------------- Total from investment operations .05 1.52 1.54 .12 .86 - ----------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .08 .12 .12 -- -- - ----------------------------------------------------------------------------------------------- Distribution from net realized gain .55 .68 .05 .66 .29 - ----------------------------------------------------------------------------------------------- Total dividends .63 .80 .17 .66 .29 - ----------------------------------------------------------------------------------------------- Net asset value, end of year $12.10 12.68 11.96 10.59 11.13 - ----------------------------------------------------------------------------------------------- TOTAL RETURN .45% 13.49 14.70 1.69 8.32 - ----------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------------------------- Expenses 1.64% 1.57 1.64 1.57 1.54 - ----------------------------------------------------------------------------------------------- Net investment income .36% .16 .34 .83 .02 - -----------------------------------------------------------------------------------------------
------------------------------------------- CLASS B ------------------------------------------- YEAR ENDED OCTOBER 31, MAY 31 TO ------------------------------ OCTOBER 31, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.50 11.81 10.46 11.09 10.58 - ------------------------------------------------------------------------------------------------ Income from investment operations: Net investment loss (.08) (.12) (.06) (.02) (.04) - ------------------------------------------------------------------------------------------------ Net realized and unrealized gain .03 1.51 1.47 .05 .55 - ------------------------------------------------------------------------------------------------ Total from investment operations (.05) 1.39 1.41 .03 .51 - ------------------------------------------------------------------------------------------------ Less dividends: Distribution from net investment income -- .02 .01 -- -- - ------------------------------------------------------------------------------------------------ Distribution from net realized gain .55 .68 .05 .66 -- - ------------------------------------------------------------------------------------------------ Total dividends .55 .70 .06 .66 -- - ------------------------------------------------------------------------------------------------ Net asset value, end of period $11.90 12.50 11.81 10.46 11.09 - ------------------------------------------------------------------------------------------------ TOTAL RETURN (NOT ANNUALIZED) (.37)% 12.32 13.59 .84 4.82 - ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ------------------------------------------------------------------------------------------------ Expenses 2.62% 2.57 2.53 2.50 2.58 - ------------------------------------------------------------------------------------------------ Net investment loss (.62)% (.84) (.55) (.10) (.97) - ------------------------------------------------------------------------------------------------
22 23 FINANCIAL HIGHLIGHTS
-------------------------------------------- CLASS C -------------------------------------------- YEAR ENDED OCTOBER 31, MAY 31 TO ------------------------------ OCTOBER 31, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.51 11.81 10.46 11.09 10.58 - ------------------------------------------------------------------------------------------------ Income from investment operations: Net investment loss (.08) (.09) (.06) (.02) (.04) - ------------------------------------------------------------------------------------------------ Net realized and unrealized gain .03 1.49 1.47 .05 .55 - ------------------------------------------------------------------------------------------------ Total from investment operations (.05) 1.40 1.41 .03 .51 - ------------------------------------------------------------------------------------------------ Less dividends: Distribution from net investment income -- .02 .01 -- -- - ------------------------------------------------------------------------------------------------ Distribution from net realized gain .55 .68 .05 .66 -- - ------------------------------------------------------------------------------------------------ Total dividends .55 .70 .06 .66 -- - ------------------------------------------------------------------------------------------------ Net asset value, end of period $11.91 12.51 11.81 10.46 11.09 - ------------------------------------------------------------------------------------------------ TOTAL RETURN (NOT ANNUALIZED) (.37)% 12.45 13.59 .84 4.82 - ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ------------------------------------------------------------------------------------------------ Expenses 2.55% 2.49 2.50 2.50 2.52 - ------------------------------------------------------------------------------------------------ Net investment loss (.55)% (.76) (.52) (.10) (.91) - ------------------------------------------------------------------------------------------------
------------------------------------ CLASS I ------------------------------------ YEAR ENDED OCTOBER 31, JULY 3 TO ---------------------- OCTOBER 31, 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $12.72 11.99 10.61 10.09 - ---------------------------------------------------------------------------------------- Income from investment operations: Net investment income .11 .07 .10 .04 - ---------------------------------------------------------------------------------------- Net realized and unrealized gain .03 1.53 1.48 .48 - ---------------------------------------------------------------------------------------- Total from investment operations .14 1.60 1.58 .52 - ---------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .15 .19 .15 -- - ---------------------------------------------------------------------------------------- Distribution from net realized gain .55 .68 .05 -- - ---------------------------------------------------------------------------------------- Total dividends .70 .87 .20 -- - ---------------------------------------------------------------------------------------- Net asset value, end of period $12.16 12.72 11.99 10.61 - ---------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 1.18% 14.19 15.19 5.15 - ---------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ---------------------------------------------------------------------------------------- Expenses 1.00% 1.04 1.10 .85 - ---------------------------------------------------------------------------------------- Net investment income 1.00% .69 .88 1.32 - ----------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES - ---------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------- 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- Net assets at end of year (in thousands) $604,684 588,069 472,243 364,708 418,282 - ---------------------------------------------------------------------------------------------------------- Portfolio turnover rate 105% 76 104 114 103 - ----------------------------------------------------------------------------------------------------------
NOTES: Total return does not reflect the effect of any sales charges. Per share data were determined based on average shares outstanding for the years ended 1995, 1996 and 1998, respectively. 23 24 FINANCIAL HIGHLIGHTS TAX INFORMATION The fund paid a distribution of $.55 per share from net long-term capital gains during the year ended October 31, 1998, of which 56% represent 20% rate gains. Pursuant to Section 852 of the Internal Revenue Code, the fund designates $88,776,000, as capital gain dividends for the year ended October 31, 1998, of which 100% represent 20% rate gains. The fund paid foreign taxes of $1,351,000 and earned $10,626,000 of foreign source income during the year ended October 31, 1998. Pursuant to Section 853 of the Internal Revenue Code, the fund designates $.0179 per share as foreign taxes paid and $.0954 per share as income earned from foreign sources for the year ended October 31, 1998. Please consult a tax adviser if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your Kemper Fund account, please call 1-800-621-1048. 24 25 NOTES 25 26 NOTES 26 27 NOTES 27 28 TRUSTEES AND OFFICERS TRUSTEES OFFICERS DANIEL PIERCE MARK S. CASADY MAUREEN E. KANE Chairman and Trustee President Assistant Secretary DAVID W. BELIN PHILIP J. COLLORA CAROLINE PEARSON Trustee Vice President and Assistant Secretary Secretary LEWIS A. BURNHAM ELIZABETH C. WERTH Trustee JOHN R. HEBBLE Assistant Secretary Treasurer BRENDA LYONS DONALD L. DUNAWAY THOMAS W. LITTAUER Assistant Treasurer Trustee Vice President ROBERT B. HOFFMAN ANN M. MCCREARY Trustee Vice President DONALD R. JONES KATHRYN L. QUIRK Trustee Vice President SHIRLEY D. PETERSON STEVEN H. REYNOLDS Trustee Vice President WILLIAM P. SOMMERS LINDA J. WONDRACK Trustee Vice President EDMOND D. VILLANI Trustee - --------------------------------------------------------------------------- LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ 222 North LaSalle Street Chicago, IL 60601 - --------------------------------------------------------------------------- SHAREHOLDER KEMPER SERVICE COMPANY SERVICE AGENT P.O. Box 419557 Kansas City, MO 64141 - --------------------------------------------------------------------------- CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY TRANSFER AGENT 801 Pennsylvania Avenue Kansas City, MO 64105 - --------------------------------------------------------------------------- FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK Chase Metro Center Brooklyn, NY 11245 - --------------------------------------------------------------------------- INDEPENDENT AUDITORS ERNST & YOUNG LLP 233 South Wacker Drive Chicago, IL 60606 - --------------------------------------------------------------------------- PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, I www.kemper.com [KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM) Printed on recycled paper in the U.S.A. This report is not to be distributed unless preceded or accompanied by a Kemper Global and International Funds prospectus. KIF - 2(12/98) 1061650 -----END PRIVACY-ENHANCED MESSAGE-----