-----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, IBUMfyeClRq3RmzOlxoTabq/e0/h3A+MOra2SXQQJ/c0C1xSgyXQpwR6SIxVnPev GSCga5PNRqod7Z8Q7kA+NA== 0000950137-99-004628.txt : 19991224 0000950137-99-004628.hdr.sgml : 19991224 ACCESSION NUMBER: 0000950137-99-004628 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991223 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: 99779640 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 1 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1999 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 focus on an industry's long-term prospects for change, because change can create opportunities ... These can be both growth and value companies, and we're not restricting ourselves to purely large-cap companies, either. As we uncover opportunities in several niches, the fund is more diversified across sector and market cap than it was last year at this time. ..." [KEMPER FUNDS LOGO] 2 CONTENTS 3 Economic Overview 5 Performance Update 9 Largest Holdings 10 Portfolio of Investments 17 Financial Statements 19 Notes to Financial Statements 23 Financial Highlights 25 Report of Independent Auditors 26 Tax Information AT A GLANCE - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND TOTAL RETURNS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED OCTOBER 31, 1999 (UNADJUSTED FOR ANY SALES CHARGE) - -------------------------------------------------------------------------------- [BAR GRAPH] Class A 23.47% Class B 22.50% Class C 22.49% Lipper International Funds Category Average* 25.56%
- -------------------------------------------------------------------------------- RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. INVESTMENT IN FOREIGN SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING FLUCTUATING CURRENCY EXCHANGE RATES, GOVERNMENT REGULATION AND DIFFERENCES IN LIQUIDITY. *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; IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE.
- -------------------------------------------------------------------------------- NET ASSET VALUE - -------------------------------------------------------------------------------- AS OF AS OF 10/31/99 10/31/98 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A $12.85 $12.10 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B $12.50 $11.90 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C $12.51 $11.91 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND RANKINGS AS OF 10/31/99* - -------------------------------------------------------------------------------- COMPARED WITH ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- 1-YEAR #328 OF #365 OF #366 OF 591 FUNDS 591 FUNDS 591 FUNDS - -------------------------------------------------------------------------------- 5-YEAR #82 OF #117 OF #113 OF 217 FUNDS 217 FUNDS 217 FUNDS - -------------------------------------------------------------------------------- 10-YEAR #23 OF 42 FUNDS N/A N/A - -------------------------------------------------------------------------------- 15-YEAR #1 OF 15 FUNDS N/A N/A - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DIVIDEND REVIEW - -------------------------------------------------------------------------------- DURING THE YEAR ENDED OCTOBER 31, 1999, KEMPER INTERNATIONAL FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- LONG-TERM CAPITAL GAIN $1.81 $1.81 $1.81 - --------------------------------------------------------------------------------
TERMS TO KNOW YOUR FUNDS' STYLE - -------------------------------------------------------------------------------- MORNINGSTAR EQUITY STYLE BOX - -------------------------------------------------------------------------------- [MORNINGSTAR EQUITY STYLE BOX] Source: Data provided by Morningstar, Inc. 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 INTERNATIONAL FUND IN THE FOREIGN STOCK CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES. BOTTOM-UP INVESTMENT STYLE An investment style that assesses the performance of individual companies before considering the impact of economic trends. The companies may be identified from research reports, stock screens or personal knowledge of the products and services. This approach, which is the opposite of "top-down" investing, assumes that individual companies can do well even if the industry as a whole may not be performing well. CYCLICAL STOCK A stock within an industry whose earnings tend to rise quickly when the economy strengthens and fall quickly when the economy weakens. Examples are automobiles, housing, paper and steel. Noncyclical industries, such as food, insurance and drugs, are normally not as directly affected by economic changes. OVER/UNDERWEIGHTING The allocation of assets -- usually by sector, industry or country -- within a portfolio relative to a benchmark index (e.g., the MSCI EAFE index) or an investment universe. RESTRUCTURING Implementation of major corporate changes aimed at greater efficiency and adaptation to changing markets. Cost-cutting initiatives, debt retirement, management realignments and the sale of noncore businesses are all developments frequently associated with corporate restructuring. 3 ECONOMIC OVERVIEW Scudder Kemper Investments, the investment manager for Kemper Funds, is one of the largest and most experienced investment management organizations in the world, managing more than $290 billion in assets for institutional and corporate clients, retirement and pension plans, insurance companies, mutual fund investors and individuals. Scudder Kemper Investments offers a full range of investment counsel and asset management capabilities based on a combination of proprietary research and disciplined, long-term investment strategies. DEAR KEMPER FUNDS SHAREHOLDER: Markets have been aquiver about inflation risks. Growth in the United States continues to exceed most expectations. Labor markets are visibly tight. These are the precursors to inflation -- everybody knows it. Everybody except us, that is. We don't buy it in principle, and reality is proving our theory correct. First, let's look at growth. The traditional economic view is that growth causes inflation. Today, we're seeing exactly the opposite: Low inflation is causing growth. Low inflation keeps interest rates down, and low interest rates spur investment by making borrowing money cheap. Investment allows companies to add capacity, keeping competition fierce. As a result, companies aren't raising prices; they're competing for business by keeping goods attractive and prices low. That's true for the old economy, in which consumers were buying t-shirts, and the new economy, in which consumers are buying Internet services. Everywhere they look, consumers see bargains -- in the malls, in the auto showrooms, at the mortgage companies. As for tight labor markets, the traditional economic view is that tight labor -- i.e., many "help-wanted" signs -- forces companies to pay a premium for talent. That, in turn, forces companies to raise their prices in order to protect their profits. And raising prices results in inflation. In contrast, we believe that tight labor markets won't cause wages to surge. Why? To start with, temporary agencies have proliferated, accounting for 2.2 percent of jobs, up from 0.5 percent in the early 1980s. They get just the right amount and type of labor to the right spot at the right time to get the job done. Immigration also keeps a lid on wage rates, since it replenishes the work force much faster than births. Immigration is at its highest level ever; an amazing 10 percent of the population is foreign-born. Nearly 1 million people enter the United States legally each year, and another 300,000 just show up. When they get here, they look for jobs. And often, they're willing to accept lower-paying jobs than the average citizen. Finally, and perhaps most importantly, wage rates are kept in check by executives' intense profit focus. Payroll is a company's biggest expense. When payroll skyrockets, profits decline -- and that would be bad for a CEO who promised Wall Street double-digit earnings growth from now to the end of time. If investors are disappointed in earnings growth, they sell their stock. And when they sell their stock, the stock options that are an essential part of many executives' compensation are as valuable as scrap paper. Supporting our theory are two distinct and important sets of data released in late October: The Bureau of Economic Analysis released its third-quarter estimate of gross domestic product (GDP), the value of all goods and services produced in the United States, and the Bureau of Labor Statistics released its employment cost index (ECI), which measures what employers pay for their workers' wages, salaries and benefits. GDP grew at a 4.8 percent rate in the third quarter, up sharply from the revised 1.9 percent second-quarter pace and just slightly above the consensus estimate of 4.7 percent. At the same time, however, the ECI rose by 0.8 percent in the July-September period, down from a 1.1 percent increase in the second quarter. The third-quarter gain also was lower than the 0.9 percent increase forecast by economists in a Reuters poll. (The report, by the way, is said to be one of the favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key indicator of inflation pressures in the world's largest economy.) In essence, then, the U.S. economy posted its strongest growth so far this year in the third quarter, while wage costs remained tame. The combination of strong consumer demand and the lowest unemployment in a generation just isn't igniting wage-driven inflation. Nevertheless, the Federal Reserve Board raised the federal funds rate and the discount rate by one quarter of a point (0.25%) each at its Nov. 16 meeting. Do we think the Fed made a bad decision? Actually, no. First, the Fed has to guard against the possibility that the old relationship between growth and inflation will soon reassert itself. Even if the Fed shared our belief that 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]
NOW (11/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO -------------- ------------ ---------- ----------- 10-year Treasury rate(1) 6.00 5.50 4.80 5.90 Prime rate(2) 8.50 7.75 8.00 8.50 Inflation rate(3)* 2.60 2.30 1.50 2.00 The U.S. dollar(4) -0.7 -0.9 1.20 9.40 Capital goods orders(5)* 12.60 2.50 -0.6 6.40 Industrial production(5)* 3.30 2.90 3.50 6.90 Employment growth(6)* 2.10 2.10 2.30 2.70
(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 10/30/99. SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC. strong consumer demand and low unemployment isn't igniting wage-driven inflation, the organization wouldn't be doing its job if it didn't act in the face of any possibility that inflation might reassert itself. More important, the Fed has to be concerned about the explosion in credit we've seen during the last year. Almost everyone but Uncle Sam has been loading up on debt. Companies have borrowed heavily to fund mergers, share buybacks and new investments. Homeowners have taken out bigger mortgages on their houses and new home equity loans. Equity shareholders have ramped up their margin debt. Financial institutions have issued record amounts of new paper to fund their aggressive growth. The Fed's decision to raise interest rates, thereby making borrowing costlier, should take the frenzy out of this borrowing binge. That is a good thing for future financial stability. Indeed, the early positive market reaction to the Fed's move suggests that the markets share our views that the Fed made the right decision. Thank you for your continued support. We appreciate the opportunity to serve your investment needs. Sincerely, Scudder Kemper Investments Economics Group 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 the economic advisors of Scudder Kemper Investments, Inc. as of November 18, 1999, and may not actually come to pass. this information is subject to change. no part of this material is intended as an investment recommendation. To obtain a Kemper Funds prospectus, download one from www.kemper.com, talk to your financial representative or call Shareholder Services at (800) 621-1048. The prospectus contains more complete information, including management fees and expenses. Please read it carefully before you invest or send money. 4 5 PERFORMANCE UPDATE [CHENG PHOTO] LEAD PORTFOLIO MANAGER IRENE CHENG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1993. PRIOR TO THAT, SHE WORKED IN MERCHANT BANKING AS AN EQUITY ANALYST, AND IN OPERATIONS, FINANCE AND CORPORATE PLANNING. CHENG RECEIVED A BACHELOR'S DEGREE SUMMA CUM LAUDE FROM HARVARD/RADCLIFFE COLLEGE, A MASTER'S DEGREE FROM THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY AND AN M.B.A. FROM HARVARD BUSINESS SCHOOL. [SLENDEBROEK PHOTO] A NATIVE OF THE NETHERLANDS, PORTFOLIO MANAGER MARC SLENDEBROEK JOINED THE FIRM'S LONDON OFFICE IN 1994. HE FOCUSES ON THE EUROPEAN COMPONENT OF THE PORTFOLIO. 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. OVER THE PAST 12 MONTHS, DEVELOPED INTERNATIONAL EQUITY MARKETS HAVE BEEN NOTICEABLY STRENGTHENING. WHILE JAPANESE EQUITIES EXPERIENCED A LONG-AWAITED REBOUND, EUROPE EMBARKED ON AN ECONOMIC RECOVERY. CHALLENGES CERTAINLY REMAIN; LEAD PORTFOLIO MANAGER IRENE CHENG REVIEWS THE PERIOD AND SHARES HER OUTLOOK FOR INTERNATIONAL EQUITY MARKETS. Q WHAT ARE SOME OF THE MAJOR EVENTS THAT SHAPED INTERNATIONAL EQUITY MARKETS OVER THE PAST 12 MONTHS? A The recovery in the global economy has fueled a rally in stock prices in virtually all areas of the world. In recent months, though, the fear that stronger growth will lead to higher interest rates has capped the market's advance and has increased volatility. Last fall, the U.S. Federal Reserve cut interest rates three times to remedy a looming credit crunch. Europe's central bank followed, cutting rates to stimulate slowing gross-domestic-product (GDP) growth. With lower interest rates, liquidity spilled into the world's equity markets, boosting the MSCI World index.* Then, in the first quarter of 1999, early signs of economic turnaround and corporate restructuring lured investors into the Japanese market they had virtually abandoned five years earlier. By the end of the first quarter, the MSCI Japan index+ had risen 12.23 percent. On the other hand, despite high hopes for the introduction of the euro, European markets stumbled just as Japan was picking up. Expectations for the success of the euro had been unrealistically high and the new currency suffered marked depreciation. Although the overall trend in international markets has been positive since our April 30 report, volatility has been high. The cause of the fluctuation seems to be uncertainty about the direction of the global economy. Throughout the summer, market participants continued to weigh the impact of higher interest rates and stronger corporate-earnings growth. In August, the markets absorbed the impact of a U.S. interest-rate increase, then rallied briefly on the belief that no further rate hikes would be forthcoming. By late in the month, however, investors once again focused on the potential for another increase. Despite the volatility, the overall economic backdrop is quite positive today. Japanese equities have continued to rebound, with signs of an economic recovery and the growing influence of corporate restructuring attracting foreign investors and pushing up the value of the yen. Economic growth has been picking up over the course of the year in Europe as well. Still, at this time, we continue to see reasons for caution around the world. Although a pickup in growth should, at long last, put the wind at the back of European businesses, the potential for higher rates on the continent might remain a cause for concern into next year. It remains to be seen how much of Japan's nascent recovery has been driven by government stimulus programs, which cannot be sustained at current levels without harmful increases to the country's debt load. 5 6 PERFORMANCE UPDATE * MSCI WORLD INDEX IS A MORGAN STANLEY INDEX THAT INCLUDES STOCKS TRADED IN EUROPE, AUSTRALIA, THE FAR EAST, PLUS THE U.S., CANADA AND SOUTH AFRICA, WEIGHTED BY CAPITALIZATION. THIS INDEX REPRESENTS ASSET TYPES WHICH ARE SUBJECT TO RISK, INCLUDING LOSS OF PRINCIPAL. INVESTORS CANNOT MAKE INVESTMENTS IN THE INDEX. + MSCI JAPAN INDEX IS A MORGAN STANLEY INDEX THAT INCLUDES STOCKS TRADED ON THE TOKYO STOCK EXCHANGE WEIGHTED BY CAPITALIZATION. THIS INDEX REPRESENTS ASSET TYPES WHICH ARE SUBJECT TO RISK, INCLUDING LOSS OF PRINCIPAL. INVESTORS CANNOT MAKE INVESTMENTS IN THE INDEX. Q WHEN YOU ARE LOOKING FOR STOCKS THAT WILL SUCCEED IN THIS ENVIRONMENT, WHAT ARE YOU CONCENTRATING ON, AND WHERE HAVE YOU FOUND MOST OPPORTUNITIES? A First and foremost, we focus on an industry's long-term prospects for change, because change can create opportunities. The change itself can take many forms. It can mean old companies that are restructuring to meet the needs of the marketplace or operate more efficiently. Or it can be great new growth companies that are supporting a change in the technology industry. These can be both growth and value companies, and we're not restricting ourselves to purely large- cap companies, either. As we uncover opportunities in several niches, the fund is more diversified across sector and market cap than it was last year at this time. Of course, after a stock catches our eye, we look carefully at its specific fundamentals and valuation. At the end of the fiscal year, about one-third of the portfolio was invested in technology and tech-related stocks. That is an overweight (see Terms To Know on page 2) to our benchmark index, and it includes everything from semiconductor stocks to stakes in telecommunication companies that offer alternative ways to deliver voice and data. We're very interested in Internet stocks as well. On the other hand, we have exposure to the older industries of Europe and Japan that are restructuring (see Terms To Know on page 2) to become more competitive. We also have a strong weighting in the Japanese financial sector, both banking and brokerage firms. We are light on European banks, though we have recently increased our European insurance holdings. Keep in mind that because we follow a bottom-up investment (see Terms To Know on page 2) process, the global economic background isn't the first step to our investment process. Our country weightings reflect where we find interesting investment opportunities, rather than a deliberate attempt to invest in or avoid a particular region. Q KEMPER INTERNATIONAL FUND IS UP 23.47 PERCENT (CLASS A SHARES UNADJUSTED FOR SALES CHARGE) FOR THE 12-MONTH PERIOD ENDING OCTOBER 31, 1999. HOW DOES THAT COMPARE WITH THE FUND'S BENCHMARK, THE MSCI EAFE INDEX? A We basically matched the MSCI EAFE,* which returned 23.37 percent, though the race was uneven. Last fall, the fund was defensively positioned and had a very low weighting in Japan, a market that rallied heartily through the first six months of the period. The MSCI EAFE, which holds a sizable Japanese weighting, benefited from that country's performance. By the summer, we had increased Japanese holdings substantially. The Japanese market was strong in the last quarter of the fiscal year, making it the leader among developed markets. Thanks to good sector exposure and strong stock picking, we caught up to the benchmark by fiscal year-end. * MSCI EAFE INDEX (MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE AUSTRAL-ASIA FAR EAST INDEX) IS AN UNMANAGED INDEX GENERALLY ACCEPTED AS A BENCHMARK FOR MAJOR OVERSEAS MARKETS. INVESTORS CANNOT MAKE INVESTMENTS IN THE INDEX. Q WHAT ARE SOME OF THE THEMES DRIVING INTERNATIONAL EQUITIES TODAY? A The portfolio was boosted by many holdings that were the subject of takeover bids, and from many that were lifted when other companies in similar industries announced deals. A case in point is the September announcement of a proposed three-way merger in the Japanese financial industry among Fuji Bank, Industrial Bank of Japan and Dai-Ichi Kangyo Bank. Although Fuji is the only one of the three we own directly, our other holdings in the Japanese financial sector responded strongly based on hopes that meaningful reform has begun. In Europe, consolidation continues to accelerate, and we have benefited from many sides of the deals. Carrefour (a fund holding) recently offered to merge with Promodes, combining two of the biggest players in the food retailing industry. And, in late October, one of the fund's top ten holdings, British cellular operator Orange, agreed to be acquired by the large German telecommunications firm Mannesmann. Cyclicals (see Terms To Know on page 2) have been strong for us in both Europe and Japan. We are more interested in Japanese cyclicals, where expectations have not run very high; investors are more confident about the continuing growth of the European economy, so European cyclicals are priced more fully. Some of our favorite cyclicals include Rio Tinto (the premier global mining 6 7 PERFORMANCE UPDATE company), Siemens in Germany, as well as NEC, Hitachi and Nissan Motors in Japan. Q PLEASE SHARE SOME TOP-PERFORMING HOLDINGS, AND PERHAPS SOME DISAPPOINTMENTS? A As I mentioned, our Japanese holdings have done extremely well for us, particularly in the financial sector. Japanese telecom has also contributed enormously, particularly the cellular telephone company NTT Mobile Communications Network, Inc. I would say that cellular stocks have done well in both Japan and Europe. Japanese technology stocks also soared in the last part of the period. The portfolio has also responded well to the recent consolidation trend in Europe and Japan. As I mentioned earlier, Fuji Bank was recently involved in a three-way merger in the banking industry. Our Sakura Bank holding soared upwards on rumors and then the confirmations that the bank planned to merge with Sumitomo Trust & Banking Co., Ltd. We haven't experienced many disappointments since we repositioned the portfolio in the latter half of the period. Reuters Group, the British news and information service firm, fell significantly. The underlying fundamentals are fine, but the firm had done a poor job of communicating with analysts and suffered because of it. Q WHAT IS YOUR OUTLOOK FOR WORLD MARKETS, AND WHAT MIGHT POSE THREATS TO THIS OUTLOOK? A We remain optimistic about the restructuring and consolidation themes I mentioned earlier. These will continue to provide a strong underpinning for the foreign markets, and will give bottom-up investors the opportunity to take advantage of the positive performance of the many individual companies that are poised to benefit from the ongoing process of secular change. That said, we believe some caution is warranted: global stock markets have come a long way in the past 12 months, and are vulnerable to larger-than-expected jumps in interest rates. 7 8 PERFORMANCE UPDATE AVERAGE ANNUAL TOTAL RETURNS* FOR PERIODS ENDED OCTOBER 31, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
- -------------------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A 16.35% 9.12% 8.70% 12.11% (since 5/21/81) - -------------------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B 19.50 9.31 N/A 9.50 (since 5/31/94) - -------------------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C 22.49 9.47 N/A 9.65 (since 5/31/94) - --------------------------------------------------------------------------------------------
[LINE GRAPH] KEMPER INTERNATIONAL FUND CLASS A Growth of an assumed $10,000 investment in Class A shares from 5/31/81 to 10/31/99
KEMPER INTERNATIONAL U.S. CONSUMER PRICE FUND CLASS A1 MSCI EAFI INDEX+ INDEX++ -------------------- ---------------- ------------------- 5/31/81 9424 10000 10000 9390 9974 10465 9659 9888 10870 12357 12322 11283 11233 13291 11729 17515 20830 12171 12/31/86 25247 35398 12309 26874 44224 12851 31510 56867 13416 37361 63007 14039 34561 48392 14896 37714 54440 15353 35909 47989 15793 12/31/93 48711 63799 16232 46763 68942 16666 52823 76906 17078 61829 81797 17657 67396 83481 17958 72709 100455 18247 10/31/99 82327 113362 18782
[LINE GRAPH] KEMPER INTERNATIONAL FUND CLASS B Growth of an assumed $10,000 investment in Class B shares from 5/31/94 to 10/31/99
KEMPER INTERNATIONAL U.S. CONSUMER PRICE FUND CLASS B1 MSCI EAFE INDEX+ INDEX++ -------------------- ---------------- ------------------- 5/31/94 10000 10000 10000 9761 10063 10149 12/31/95 10929 11226 10400 12677 11940 10753 12/31/97 13684 12186 10936 14614 14663 11112 10/31/99 16360 16547 11438
[LINE GRAPH] KEMPER INTERNATIONAL FUND CLASS C Growth of an assumed $10,000 investment in Class C shares from 5/31/94 to 10/31/99
KEMPER INTERNATIONAL U.S. CONSUMER PRICE FUND CLASS C1 MSCI EAFE INDEX+ INDEX++ -------------------- ---------------- ------------------- 5/31/94 10000 10000 10000 9761 10063 10149 12/31/95 10929 11226 10400 12681 11940 10753 12/31/97 13688 12186 10936 14618 14663 11112 10/31/99 16477 16547 11438
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE 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, ASSUMING REINVESTMENT OF ALL DIVIDENDS AND, FOR CLASS A SHARES, ADJUSTMENT FOR THE MAXIMUM SALES CHARGE OF 5.75% AND FOR CLASS B SHARES, ADJUSTMENT FOR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC) OF 3%, CLASS C SHARES HAVE NO ADJUSTMENT FOR SALES CHARGE. THE MAXIMUM CDSC FOR CLASS B SHARES IS 4%. FOR CLASS C SHARES, THERE IS A 1% CDSC ON CERTAIN REDEMPTIONS WITHIN THE FIRST YEAR OF PURCHASE. SHARE CLASSES INVEST IN THE SAME UNDERLYING PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN REFLECTS ANNUALIZED CHANGES 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 WITH THE MSCI 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 MSCI EAFE INDEX (MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA ASIA, FAR EAST INDEX) IS AN UNMANAGED INDEX GENERALLY ACCEPTED AS A BENCHMARK FOR MAJOR OVERSEAS MARKETS. SOURCE IS WIESENBERGER. ++ THE U.S. 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 WIESENBERGER. 8 9 LARGEST HOLDINGS KEMPER INTERNATIONAL FUND'S TOP 20 HOLDINGS* A comparison of the fund's top 20 holdings on October 31, 1999, with its top 20 holdings on October 31, 1998
AT 10/31/99 AT 10/31/98 HOLDINGS PERCENT HOLDINGS PERCENT - ------------------------------------------- ------------------------------ 1. NTT MOBILE 2.5% NOVARTIS 3.6% COMMUNICATIONS NETWORK - ------------------------------------------- ------------------------------ 2. ELF AQUITAINE 2.3% BRITISH TELECOM 3.6% - ------------------------------------------- ------------------------------ 3. ORANGE 2.0% GROUPE DANONE 3.4% - ------------------------------------------- ------------------------------ 4. NOKIA 1.9% GLAXO WELLCOME 3.4% - ------------------------------------------- ------------------------------ 5. RIO TINTO 1.6% VIAG 3.2% - ------------------------------------------- ------------------------------ 6. MURATA MANUFACTURING 1.6% KONINKLIJKE AHOLD 2.9% CO. - ------------------------------------------- ------------------------------ 7. DAIWA SECURITIES CO. 1.5% VEDIOR 2.8% - ------------------------------------------- ------------------------------ 8. NEC CORP 1.5% TELEFONICA NACIONAL 2.6% DE ESPANA - ------------------------------------------- ------------------------------ 9. FUJITSU 1.4% UNILEVER 2.6% - ------------------------------------------- ------------------------------ 10. SONY 1.4% COMPASS GROUP 2.4% - ------------------------------------------- ------------------------------ 11. NIPPON TELEGRAPH & 1.3% GETRONICS 2.3% TELEPHONE - ------------------------------------------- ------------------------------ 12. SIEMENS 1.3% TELECOM ITALIA 2.2% - ------------------------------------------- ------------------------------ 13. RHONE-POULENC 1.3% GEHE 2.1% - ------------------------------------------- ------------------------------ 14. MANNESMANN AG 1.3% SOCIETE LYONNAISE DES 2.0% EAUX - ------------------------------------------- ------------------------------ 15. SHELL TRANSPORT & 1.2% RENTOKIL INITIAL 2.0% TRADING - ------------------------------------------- ------------------------------ 16. SAKURA BANK 1.2% MANNESMANN 1.9% - ------------------------------------------- ------------------------------ 17. STMICROELECTRONICS 1.2% ELECTRIDADE DE 1.8% PORTUGAL - ------------------------------------------- ------------------------------ 18. SUMITOMO TRUST & 1.2% TELEVISION FRANCAISE 1.7% BANKING CO. - ------------------------------------------- ------------------------------ 19. FUJI BANK 1.2% BAYERISCHE VEREINBANK 1.7% - ------------------------------------------- ------------------------------ 20. TOKYO ELECTRON 1.1% ALCATEL 1.6% - ------------------------------------------- ------------------------------
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE. 9 10 PORTFOLIO OF INVESTMENTS KEMPER INTERNATIONAL FUND Portfolio of Investments as of October 31, 1999 (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET MONEY MARKET INSTRUMENTS--10.0% AMOUNT ($) VALUE - ------------------------------------------------------------------------------------------------------------------ UNITED STATES--2.3% (b) Repurchase Agreement with Chase Manhattan Bank, 5.063%, 11/01/1999 $ 15,106 $ 15,106 --------------------------------------------------------------------------- 15,106 - ------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT AGENCY OBLIGATIONS--7.7% Federal Home Loan Bank Discount Corp., 5.160%, 01/10/1999 50,000 50,000 --------------------------------------------------------------------------- 50,000 - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--90.0% SHARES - ------------------------------------------------------------------------------------------------------------------ AUSTRALIA--1.7% Broken Hill Proprietary Co., Ltd. (PETROLEUM, MINERAL AND STEEL EXPLORATION PRODUCTION) 501,700 5,179 WMC Ltd. (MINERAL EXPLORATION AND PRODUCTION) 889,800 3,814 Woodside Petroleum Ltd. (MAJOR OIL AND GAS PRODUCER) 317,300 1,910 --------------------------------------------------------------------------- 10,903 - ------------------------------------------------------------------------------------------------------------------ CANADA--0.9% Canadian National Railway Co. (RAILROAD OPERATOR) 197,400 5,991 --------------------------------------------------------------------------- 5,991 - ------------------------------------------------------------------------------------------------------------------ FINLAND--2.6% Nokia OYJ (MANUFACTURER OF TELECOMMUNICATION NETWORKS AND EQUIPMENT) 108,200 12,413 Sonera Oyj (TELECOMMUNICATION SERVICES) 142,700 4,295 --------------------------------------------------------------------------- 16,708 - ------------------------------------------------------------------------------------------------------------------ FRANCE--15.8% AXA SA (INSURANCE GROUP PROVIDING INSURANCE, FINANCE AND REAL ESTATE SERVICES) 38,846 5,492 Carrefour SA (HYPERMARKET OPERATOR AND FOOD RETAILER) 29,070 5,394 Christian Dior (FASHION HOUSE) 25,275 4,535 (a)Club Mediterranee SA (OPERATOR OF VACATION RESORTS) 10,591 1,063 Elf Aquitaine (INTERNATIONAL OIL) 102,870 15,184 Etablissements Economiques du Casin Guichard- Perrachon S.A. (OPERATOR OF SUPERMARKETS AND CONVENIENCE STORES) 65,100 5,058 Eurotunnel S.A., Rights (DEVELOPER OF CHANNEL TUNNEL) 4,950,460 157 (a)Eurotunnel SA (Bearer) (CHANNEL TUNNEL CONSORTIUM) 4,950,460 6,368 France Telecom SA (TELECOMMUNICATION SERVICES) 51,353 4,973 LVMH (Louis Vuitton Moet Hennessy) (PRODUCER OF WINES, SPIRITS AND LUXURY PRODUCTS) 10,401 3,147 Lafarge SA (PRODUCER OF CEMENT, CONCRETE AND AGGREGATES) 53,035 5,116
10 11 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------------------------------------------------------------ Pinault-Printemps-Redoute SA (OPERATOR OF DEPARTMENT STORES) 25,261 $ 4,829 Renault SA (MANUFACTURER OF AUTOMOBILES, BUSES INDUSTRIAL AND AGRICULTURAL VEHICLE) 64,709 3,357 Rhodia SA (DRUG MANUFACTURER AND CHEMICALS SPECIALIST) 265,135 5,129 Rhone-Poulenc SA "A" (PHARMACEUTICAL COMPANY) 152,418 8,549 STMicroelectronics (MANUFACTURER OF SEMICONDUCTOR INTEGRATED CIRCUITS) 86,836 7,645 Schneider S.A. (MANUFACTURER OF ELECTRONIC COMPONENTS AND AUTOMATED MANUFACTURING SYSTEMS) 53,513 3,695 Societe BIC SA (MANUFACTURER OF OFFICE SUPPLIES) 104,065 5,102 Societe Television Francaise 1 (TELEVISION BROADCASTING) 2,021 635 Suez Lyonnaise des Eaux (WATER AND ELECTRIC UTILITY) 30,100 4,871 Union des Assurances Federales (INSURANCE GROUP) 24,281 3,133 --------------------------------------------------------------------------- 103,432 - ------------------------------------------------------------------------------------------------------------------ GERMANY--10.1% Allianz AG (MULTI-LINE INSURANCE COMPANY) 16,299 4,975 BASF AG (INTERNATIONAL CHEMICAL PRODUCER) 153,627 6,924 (a)Celanese AG (MANUFACTURER AND DISTRIBUTOR OF INDUSTRIAL CHEMICALS) 15,396 244 Commerzbank AG (BANK) 83,600 3,195 Dresdner Bank AG (BANK) 93,700 4,816 (a)Epcos AG (PRODUCER OF ELECTRONIC COMPONENTS AND INTEGRATED CIRCUITS) 47,239 1,941 Hoechst AG (CHEMICAL PRODUCER) 153,964 6,793 HypoVereinsbank AG (BANK) 67,380 4,433 Karstadt AG (OPERATOR OF DEPARTMENT STORES) 74,500 3,377 Mannesmann AG (Registered) (MANUFACTURER OF PRODUCTION MACHINE AND ASSEMBLY SYSTEMS) 52,000 8,196 SAP AG (pfd.) (COMPUTER SOFTWARE MANUFACTURER) 14,224 6,283 Siemens AG (ELECTRICAL ENGINEERING AND ELECTRONICS COMPANY) 97,146 8,742 VEBA AG (ELECTRIC UTILITY, DISTRIBUTOR OF OIL AND CHEMICALS) 113,360 6,144 --------------------------------------------------------------------------- 66,063
11 12 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------------------------------------------------------------ HONG KONG--1.3% Cheung Kong Holdings Ltd. (REAL ESTATE COMPANY) 349,000 $ 3,179 Citic Pacific Ltd. (DIVERSIFIED HOLDING COMPANY) 1,047,000 2,716 (a)New World China Land Ltd. (PROPERTY DEVELOPMENT) 6,445 3 New World Development Co., Ltd. (PROPERTY INVESTMENT AND DEVELOPMENT COMPANY) 1,289,000 2,439 --------------------------------------------------------------------------- 8,337 - ------------------------------------------------------------------------------------------------------------------ ITALY--3.0% Arnoldo Mondadori Editore SpA (BOOK PUBLISHER) 124,500 2,338 (a)Banca Nazionale del Lavoro (BANK) 1,333,500 4,527 Class Editori SpA (PUBLISHING HOUSE) 141,100 1,192 (a)Finmeccanica SpA (DESIGNER AND DEVELOPER OF COMMERCIAL AND MILITARY AIRCRAFT, SPACE SYSTEM AND AIR DEFENSE SYSTEMS) 330,800 302 Gruppo Editoriale L'Espresso (PUBLISHER) 140,100 3,050 Mediaset SpA (BROADCASTING AND TELEVISION NETWORKS) 337,100 3,373 Seat Pagine Gialle SpA (PUBLISHER OF TELECOMMUNICATIONS DIRECTORIES AND PROVIDER OF ADVERTISING SERVICES) 5,086,400 4,885 --------------------------------------------------------------------------- 19,667 - ------------------------------------------------------------------------------------------------------------------ JAPAN--28.1% Advantest Corp. (PRODUCER OF MEASURING INSTRUMENTS AND SEMICONDUCTOR TESTING DEVICES) 26,400 3,979 Asahi Glass Co., Ltd. (MANUFACTURER OF GLASS PRODUCTS) 417,000 3,319 Benesse Corp. (PROVIDER OF EDUCATIONAL SERVICES) 16,600 3,554 Canon Inc. (PRODUCER OF VISUAL IMAGE AND INFORMATION EQUIPMENT) 109,000 3,087 Daiwa Securities Co., Ltd. (PROVIDER OF BROKERAGE AND OTHER FINANCIAL SERVICES) 928,000 9,915 Fanuc Ltd. (MANUFACTURER OF NUMERICALLY CONTROLLED EQUIPMENT FOR MACHINE TOOLS) 26,200 2,037 Fuji Bank, Ltd. (COMMERCIAL BANK) 540,000 7,413 Fujisawa Pharmaceutical Co. (MANUFACTURER OF MARKETER OF ANTIBIOTICS) 49,000 1,228 Fujitsu Ltd. (MANUFACTURER OF COMPUTERS) 310,000 9,344 Fujitsu Support and Service Inc. (PROVIDER OF INFORMATION SERVICES) 8,000 2,250 Hitachi, Ltd. (MANUFACTURER OF GENERAL ELECTRONIC PRODUCTS) 644,000 6,967 Komatsu Ltd. (MANUFACTURER OF CONSTRUCTION MACHINERY) 181,000 1,053 Matsushita Electric Industrial Co., Ltd. (MANUFACTURER OF CONSUMER ELECTRONIC PRODUCTS) 275,000 5,795
12 13 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------------------------------------------------------------ Murata Manufacturing Co., Ltd. (MANUFACTURER OF CERAMIC APPLIED ELECTRONIC COMPUTERS) 82,000 $ 10,548 NEC Corp. (MANUFACTURER OF TELECOMMUNICATION AND COMPUTER EQUIPMENT) 489,000 9,905 NSK Ltd. (MANUFACTURER OF BEARINGS AND MOTOR VEHICLE MACHINE PARTS) 377,000 3,022 NTT Mobile Communications Network, Inc. (PROVIDER OF VARIOUS TELECOMMUNICATION SERVICES AND EQUIPMENT) 615 16,354 Nikko Securities Co., Ltd. (SECURITIES BROKER AND DEALER) 657,000 6,181 Nippon Telegraph & Telephone Corp. (PROVIDER OF TELECOMMUNICATION SERVICES) 570 8,755 Nissan Motor Co., Ltd. (MANUFACTURER OF MOTOR VEHICLES) 473,000 2,838 Nomura Securities Co., Ltd. (FINANCIAL ADVISOR, SECURITIES BROKER AND UNDERWRITER) 387,000 6,394 SMC Corp. (MANUFACTURER OF DIRECTIONAL CONTROL DEVICES) 11,100 1,874 Sakura Bank, Ltd. (BANK) 897,000 7,715 Sanwa Bank, Ltd. (BANK) 269,000 4,005 Shin-Etsu Chemical Co., Ltd. (PRODUCER AND DISTRIBUTOR OF SYNTHETIC RESINS AND CHEMICALS) 101,000 4,169 Sony Corp. (MANUFACTURER OF CONSUMER ELECTRONIC PRODUCTS) 58,000 9,053 Sumitomo Trust & Banking Co., Ltd. (COMMERCIAL BANK) 736,000 7,532 TDK Corp. (MANUFACTURER OF MAGNETIC TAPES AND FLOPPY DISCS) 32,600 3,195 THK Co., Ltd. (MANUFACTURER OF LINEAR MOTION SYSTEMS FOR INDUSTRIAL MACHINERY) 57,900 1,895 Teijin Ltd. (MANUFACTURER OF POLYESTER PRODUCTS 467,000 2,385 Tokyo Electron Ltd. (MANUFACTURER OF SEMICONDUCTOR PRODUCTION EQUIPMENT) 89,000 7,399 Toray Industries, Inc. (MANUFACTURER OF SYNTHETIC FIBERS, LEATHER AND POLYESTER FIL) 52,000 287 Toshiba Corp. (MANUFACTURER OF ELECTRIC MACHINERY) 834,000 5,252 Yamanouchi Pharmaceutical Co., Ltd. (PHARMACEUTICAL COMPANY) 90,000 4,086 --------------------------------------------------------------------------- 182,785 - ------------------------------------------------------------------------------------------------------------------ KOREA--0.8% Dacom Corp. (PROVIDER OF DOMESTIC, LONG-DISTANCE SERVICES, AND INTERNET SERVICES IN KOREA) 2,350 288 Samsung Electronics Co., Ltd. (ELECTRONICS MANUFACTURER) 30,510 5,087 --------------------------------------------------------------------------- 5,375
13 14 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------------------------------------------------------------ NETHERLANDS--4.9% AEGON Insurance Group NV (INSURANCE COMPANY) 40,400 $ 3,738 Akzo Nobel NV (PRODUCER AND MARKETER OF HEALTHCARE PRODUCTS, COATINGS, CHEMICALS AND FIBERS) 88,570 3,823 (a)Equant NV (PROVIDER OF INTERNATIONAL DATA NETWORK SERVICES) 54,397 5,305 Fortis (NL) NVBank 84,600 2,919 Gucci Group NV (New York Shares) (Registered) (DESIGNER AND PRODUCER OF PERSONAL LUXURY ACCESSORIES AND APPAREL) 81,800 6,605 Heineken Holding NV "A" (PRODUCER AND DISTRIBUTOR OF BEERS, SPIRITS, WINES AND SOFT DRINKS) 18,980 690 Laurus NV (INTERNATIONAL FOOD RETAILER) 124,520 2,777 (a)United Pan-Europe Communications N.V (TELECOMMUNICATION SERVICES) 35,570 2,741 VNU NV (INTERNATIONAL PUBLISHING COMPANY) 106,820 3,621 --------------------------------------------------------------------------- 32,219 - ------------------------------------------------------------------------------------------------------------------ SINGAPORE--0.5% DBS Group Holdings Ltd. (PROVIDER OF BANKING AND OTHER FINANCING SERVICES) 161,657 1,829 Oversea-Chinese Banking Corp., Ltd. (BANK) 185,850 1,397 --------------------------------------------------------------------------- 3,226 - ------------------------------------------------------------------------------------------------------------------ SPAIN--0.7% (a)Telefonica Publicidad e Informacion S.A. (PUBLISHER OF TELEPHONE DIRECTORIES) 16,346 357 Telefonica SA (PROVIDER OF TELECOMMUNICATION SERVICES) 258,535 4,263 --------------------------------------------------------------------------- 4,620 - ------------------------------------------------------------------------------------------------------------------ SWITZERLAND--2.1% Clariant AG (Registered) (MANUFACTURER OF DYE CHEMICALS) 4,208 1,843 Nestle SA (Registered) (FOOD MANUFACTURER) 2,894 5,588 Novartis AG (Registered) (PHARMACEUTICAL COMPANY) 2,050 3,070 Roche Holdings AG (PC) (PRODUCER OF DRUGS AND MEDICINES) 269 3,232 --------------------------------------------------------------------------- 13,733 - ------------------------------------------------------------------------------------------------------------------ TAIWAN--0.8% (a)Taiwan Semiconductor Manufacturing Co. (MANUFACTURER OF INTEGRATED CIRCUITS) 155,718 5,392 --------------------------------------------------------------------------- 5,392 - ------------------------------------------------------------------------------------------------------------------ UNITED KINGDOM--16.7% BOC Group plc (PRODUCER OF INDUSTRIAL GASES) 221,822 4,780 BP Amoco plc (EXPLORER AND PRODUCER OF OIL AND NATURAL GAS) 695,742 6,763 (a)Billiton PLC (RESOURCE GROUP THAT EXPLORES, PRODUCES AND MARKETS ALUMINUM AND OTHER METAL PRODUCTS) 648,317 2,826
14 15 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------------------------------------------------------------ Carlton Communications PLC (TELEVISION POST PRODUCTION PRODUCT AND SERVICES) 152,905 $ 1,107 General Electric Co., plc (MANUFACTURER OF POWER, COMMUNICATIONS AND DEFENSE EQUIPMENT) 566,403 6,172 Glaxo Wellcome PLC (PHARMACEUTICAL COMPANY) 151,957 4,489 J Sainsbury plc (RETAIL DISTRIBUTOR OF FOOD THROUGH SUPERMARKETS) 895,000 5,381 Marks & Spencer, plc (RETAILER OF CONSUMER GOODS AND FOODS) 1,000,000 4,622 (a) Orange plc (OPERATOR OF DIGITAL MOBILE TELEPHONE NETWORK) 523,600 13,022 Prudential Corp. PLC (PROVIDER OF BROAD RANGE OF FINANCIAL SERVICES) 466,385 7,318 Reed International PLC (PUBLISHER OF SCIENTIFIC, PROFESSIONAL AND BUSINESS TO BUSINESS MATERIALS) 921,850 5,413 Rentokil Initial PLC (ENVIRONMENTAL SERVICES COMPANY) 1,061,406 3,557 Reuters Group plc (INTERNATIONAL NEWS AND INFORMATION AGENCY) 694,448 6,396 Rio Tinto PLC (Registered) (MINING COMPANY) 621,387 10,619 Royal & Sun Alliance Insurance Group plc (INSURANCE COMPANY) 476,142 3,242 Shell Transport & Trading plc (PETROLEUM COMPANY) 1,040,512 7,975 SmithKline Beecham PLC (MANUFACTURER OF ETHICAL DRUGS AND HEALTHCARE PRODUCTS) 312,790 4,039 Standard Chartered PLC (INTERNATIONAL BANKING GROUP OPERATING GLOBALLY) 368,463 5,163 Vodafone Group PLC (PROVIDER OF TELECOMMUNICATION SERVICES) 1,317,100 6,141 --------------------------------------------------------------------------- 109,025 --------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost $496,795) 587,476 --------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO--100% (Cost $561,901) $652,582 ---------------------------------------------------------------------------
15 16 PORTFOLIO OF INVESTMENTS At October 31, 1999, the fund's portfolio of investments had the following industry diversification (dollars in thousands):
VALUE % - ----------------------------------------------------------------------------------------- Financial $113,670 17.4 - ----------------------------------------------------------------------------------------- Manufacturing 101,645 15.6 - ----------------------------------------------------------------------------------------- Technology 85,514 13.1 - ----------------------------------------------------------------------------------------- Communication 73,602 11.3 - ----------------------------------------------------------------------------------------- Consumer Staples 37,541 5.8 - ----------------------------------------------------------------------------------------- Energy 31,832 4.9 - ----------------------------------------------------------------------------------------- Service Industry 29,676 4.6 - ----------------------------------------------------------------------------------------- Consumer Discretionary 24,579 3.8 - ----------------------------------------------------------------------------------------- Metals & Minerals 22,438 3.4 - ----------------------------------------------------------------------------------------- Health 20,144 3.1 - ----------------------------------------------------------------------------------------- Media 11,694 1.7 - ----------------------------------------------------------------------------------------- Constructions 11,640 1.7 - ----------------------------------------------------------------------------------------- Utilities 11,014 1.7 - ----------------------------------------------------------------------------------------- Durables 6,496 1.0 - ----------------------------------------------------------------------------------------- Transportation 5,991 0.9 - ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK 587,476 90.0 - ----------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS 65,106 10.0 - ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS $652,582 100.0 - -----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Non-income producing security. (b) Repurchase agreements are fully collateralized by U.S. Treasury or Government agency securities. The collateral is monitored daily by the fund so that its market value is at least equal to the minimum carrying value of the repurchase agreement. Based on the cost of investments of $561,901,000 for federal income tax purposes at October 31, 1999, the gross unrealized appreciation was $113,103,000, the gross unrealized depreciation was $22,422,000 and the net unrealized appreciation on investments was $90,681,000. See accompanying Notes to Financial Statements. 16 17 FINANCIAL STATEMENTS STATEMENT OF ASSETS & LIABILITIES October 31, 1999 (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investment securities, at value, (cost $561,901) $652,582 - ------------------------------------------------------------------------ Receivable for investments sold 2,290 - ------------------------------------------------------------------------ Dividends and interest 929 - ------------------------------------------------------------------------ Receivable for Fund shares sold 14,660 - ------------------------------------------------------------------------ Foreign taxes recoverable 537 - ------------------------------------------------------------------------ Reimbursement from Adviser 5,185 - ------------------------------------------------------------------------ TOTAL ASSETS 676,183 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES - ------------------------------------------------------------------------ Payable for investments purchased 8,676 - ------------------------------------------------------------------------ Due to custodian bank 249 - ------------------------------------------------------------------------ Payable for Fund shares redeemed 7,691 - ------------------------------------------------------------------------ Accrued management fee 368 - ------------------------------------------------------------------------ Other accrued expenses 988 - ------------------------------------------------------------------------ Total liabilities 17,972 - ------------------------------------------------------------------------ NET ASSETS $658,211 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------ Undistributed net investment income (loss) $ 5 - ------------------------------------------------------------------------ Paid-in capital 521,770 - ------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investment securities and foreign currency transactions 95,862 - ------------------------------------------------------------------------ Accumulated net realized gain (loss) 40,574 - ------------------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $658,211 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NET ASSETS VALUE - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($464,213 / 36,136 shares outstanding) $12.85 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $13.63 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($138,518 / 11,084 shares outstanding) $12.50 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($40,895 / 3,270 shares outstanding) $12.51 - ------------------------------------------------------------------------ CLASS I SHARES Net asset value and redemption price ($14,585 / 1,122 shares outstanding) $13.01 - ------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 17 18 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS Year Ended October 31, 1999 (IN THOUSANDS) - ------------------------------------------------------------------------ INVESTMENT INCOME - ------------------------------------------------------------------------ Dividends (net of foreign taxes withheld of $703) $ 7,088 - ------------------------------------------------------------------------ Interest 1,579 - ------------------------------------------------------------------------ 8,667 - ------------------------------------------------------------------------ Expenses: Management fee 4,348 - ------------------------------------------------------------------------ Services to shareholders 2,277 - ------------------------------------------------------------------------ Custodian fees 553 - ------------------------------------------------------------------------ Trustees' fees 30 - ------------------------------------------------------------------------ Reports to shareholders 400 - ------------------------------------------------------------------------ Auditing 110 - ------------------------------------------------------------------------ Legal 40 - ------------------------------------------------------------------------ Registration fees 108 - ------------------------------------------------------------------------ Interest expense 87 - ------------------------------------------------------------------------ Distribution fees 1,224 - ------------------------------------------------------------------------ Administrative services fees 1,374 - ------------------------------------------------------------------------ Other 99 - ------------------------------------------------------------------------ Total expenses before reductions 10,650 - ------------------------------------------------------------------------ Expense reductions (42) - ------------------------------------------------------------------------ Expenses, net 10,608 - ------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) (1,941) - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) - ------------------------------------------------------------------------ Net realized gain (loss) from investment securities and foreign currency related transactions 77,530 - ------------------------------------------------------------------------ Net unrealized appreciation (depreciation) during the period on investment securities and foreign currency related transactions 66,100 - ------------------------------------------------------------------------ Net gain on investment and foreign currency related transactions 143,630 - ------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $141,689 - ------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
YEAR ENDED YEAR ENDED OCTOBER 31, 1999 OCTOBER 31, 1998 - ----------------------------------------------------------------------------------------------------------- OPERATIONS - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) $ (1,941) 462 - ----------------------------------------------------------------------------------------------------------- Net realized gain 77,530 88,163 - ----------------------------------------------------------------------------------------------------------- Change in unrealized appreciation (depreciation) 66,100 (74,800) - ----------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 141,689 13,825 - ----------------------------------------------------------------------------------------------------------- Distributions to shareholders: From net investment income 0 (2,673) - ----------------------------------------------------------------------------------------------------------- From net realized gains (88,457) (26,096) - ----------------------------------------------------------------------------------------------------------- Total dividends to shareholders (88,457) (27,769) - ----------------------------------------------------------------------------------------------------------- Net increase from capital share transactions 295 30,559 - ----------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS 53,527 16,615 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- NET ASSETS - ----------------------------------------------------------------------------------------------------------- Net assets at beginning of year 604,684 588,069 - ----------------------------------------------------------------------------------------------------------- NET ASSETS AT END OF YEAR (including undistributed net investment income of $5 for the year ended October 31, 1999) $658,211 604,684 - -----------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 18 19 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE FUND Kemper International Fund ("the Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company organized as a Massachusetts business trust. The Fund offers multiple classes of shares. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A six years after issuance. Class C shares are offered 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 offered to a limited group of investors, are not subject to initial or contingent deferred sales charge and have lower ongoing expenses than other classes. Investment income, realized and unrealized gains and losses, and certain fund level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class such as distribution services, shareholder services, administrative services and certain other class specific expenses. Differences in class expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class specific arrangements. The Fund's financial statements are prepared in accordance with generally accepted accounting principles which require the use of management estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements. - -------------------------------------------------------------------------------- 2 SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange. 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 the 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, or if no sale occurred, at the calculated mean between the most recent bid and asked quotations on such market. If there are no such bid and asked quotations, the most recent bid quotation shall be used. Portfolio debt securities purchased with an original maturity greater than sixty days are valued by pricing agents approved by the officers of the Trust, whose 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. 19 20 NOTES TO FINANCIAL STATEMENTS 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 exchange rates at period end. 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. 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 results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities. 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. 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. DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment, income, if any, are made annually which are recorded on the ex-dividend date. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from generally accepted accounting principles. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. - -------------------------------------------------------------------------------- 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 $4,348,000 for the year ended October 31, 1999. Scudder Investments (U.K.) Ltd, an affiliate of Scudder Kemper serves as sub-advisor for the fund and is paid by Scudder Kemper for its services. Scudder Kemper pays a monthly sub-advisory fee of 1/12 of the annual rate of .35% of the Fund's net assets. For the year ended October 31, 1999, Scudder Kemper paid $2,063,000 in sub-advisory fees to Scudder 20 21 NOTES TO FINANCIAL STATEMENTS Investments (U.K.) Ltd. In addition, during the year ended October 31, 1999, the Fund has a receivable of $5,185,000 from the Adviser to reimburse the Fund for losses incurred in connection with certain portfolio transactions. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The fund has an underwriting and distribution services agreement with Kemper Distributors, Inc. (KDI). Underwriting commissions retained by KDI in connection with the distribution of Class A for year ended October 31, 1999 are $71,000. 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 and CDSC received by KDI for the year ended October 31, 1999 are $1,656,000 of which $213,000 is unpaid. 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 pays these firms based on assets of fund accounts the firms service. Administrative services fees paid by the fund to KDI for the year ended October 31, 1999 are $1,374,000, of which $216,000 is unpaid. $2,000 was paid by KDI to affiliates. 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 $1,795,000 of which $196,000 is unpaid for the year ended October 31, 1999. OFFICERS AND TRUSTEES. Certain officers or trustees of the fund are also officers or directors of Scudder Kemper. For the year ended October 31, 1999, the fund made no payments to its officers and incurred trustees' fees of $30,000 to independent trustees. - -------------------------------------------------------------------------------- 4 INVESTMENT TRANSACTIONS For the year ended October 31, 1999, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $792,655 Proceeds from sales 896,749 21 22 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the fund (in thousands):
YEAR ENDED OCTOBER 31, 1999 1999 1998 ------------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------ SHARES SOLD Class A 204,101 $ 2,385,886 99,055 $ 1,307,871 ------------------------------------------------------------------------------------ Class B 4,540 52,195 6,108 79,630 ------------------------------------------------------------------------------------ Class C 26,283 302,284 6,453 83,701 ------------------------------------------------------------------------------------ Class I 476 5,899 837 11,244 ------------------------------------------------------------------------------------ SHARES ISSUED IN REINVESTMENT OF DIVIDENDS Class A 5,044 55,843 1,539 18,354 ----------------------------------------------------------------------------------- Class B 1,808 19,579 504 5,970 ----------------------------------------------------------------------------------- Class C 309 3,350 57 669 ----------------------------------------------------------------------------------- Class I 204 2,276 81 964 ----------------------------------------------------------------------------------- SHARES REDEEMED Class A (208,883) (2,452,808) (98,869) (1,319,184) ----------------------------------------------------------------------------------- Class B (5,963) (67,875) (5,480) (71,221) ----------------------------------------------------------------------------------- Class C (25,534) (294,934) (5,630) (73,743) ----------------------------------------------------------------------------------- Class I (931) (11,400) (1,023) (13,696) ----------------------------------------------------------------------------------- CONVERSION OF SHARES Class A 810 9,453 1,040 13,781 ----------------------------------------------------------------------------------- Class B (830) (9,453) (1,053) (13,781) ----------------------------------------------------------------------------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $ 295 $ 30,559 -----------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 6 EXPENSE OFF-SET ARRANGEMENTS The Fund has entered into arrangements with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the period, the Fund's custodian fees were reduced by $42,000 under these arrangements. - -------------------------------------------------------------------------------- 7 LINE OF CREDIT The Fund and several Kemper funds (the "Participants") share in a $750 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated pro rata among each of the Participants. Interest is calculated based on the market rates at the time of the borrowing. The Fund may borrow up to a maximum of 33% percent of its net assets under the agreement. - -------------------------------------------------------------------------------- 8 BORROWINGS The weighted average outstanding daily balance of all loans (based on the number of days the loans were outstanding) was approximately $14,932,000, with an average interest rate of 5.61%. Interest for the year ended October 31, 1999 is $87,000. The maximum borrowings outstanding during the year ended October 31, 1999 is $22,650,000. 22 23 FINANCIAL HIGHLIGHTS
----------------------------------------- CLASS A ----------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------ Net asset value, beginning of year $12.10 12.68 11.96 10.59 11.13 - ------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (.01) .04 -- .04 .07 - ------------------------------------------------------------------------------------ Net realized and unrealized gain 2.57 .01 1.52 1.50 .05 - ------------------------------------------------------------------------------------ Total from investment operations 2.56 .05 1.52 1.54 .12 - ------------------------------------------------------------------------------------ Less dividends: Distribution from net investment income -- .08 .12 .12 -- - ------------------------------------------------------------------------------------ Distribution from net realized gain 1.81 .55 .68 .05 .66 - ------------------------------------------------------------------------------------ Total dividends 1.81 .63 .80 .17 .66 - ------------------------------------------------------------------------------------ Net asset value, end of year $12.85 12.10 12.68 11.96 10.59 - ------------------------------------------------------------------------------------ TOTAL RETURN 23.47%(A) .45 13.49 14.70 1.69 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------ Expenses, before expense reductions 1.59 1.64 1.57 1.64 1.57 - ------------------------------------------------------------------------------------ Expenses, net 1.59% 1.64 1.57 1.64 1.57 - ------------------------------------------------------------------------------------ Net investment income (loss) (.12)% .36 .16 .34 .83 - ------------------------------------------------------------------------------------
----------------------------------------- CLASS B ----------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------ Net asset value, beginning of year $11.90 12.50 11.81 10.46 11.09 - ------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (.11) (.08) (.12) (.06) (.02) - ------------------------------------------------------------------------------------ Net realized and unrealized gain 2.52 .03 1.51 1.47 .05 - ------------------------------------------------------------------------------------ Total from investment operations 2.41 (.05) 1.39 1.41 .03 - ------------------------------------------------------------------------------------ Less dividends: Distribution from net investment income -- -- .02 .01 -- - ------------------------------------------------------------------------------------ Distribution from net realized gain 1.81 .55 .68 .05 .66 - ------------------------------------------------------------------------------------ Total dividends 1.81 .55 .70 .06 .66 - ------------------------------------------------------------------------------------ Net asset value, end of period $12.50 11.90 12.50 11.81 10.46 - ------------------------------------------------------------------------------------ TOTAL RETURN 22.50%(A) (.37) 12.32 13.59 .84 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------ Expenses, before expense reductions 2.44 2.62 2.57 2.53 2.50 - ------------------------------------------------------------------------------------ Expenses, net 2.43% 2.62 2.57 2.53 2.50 - ------------------------------------------------------------------------------------ Net investment income (loss) (.96)% (.62) (.84) (.55) (.10) - ------------------------------------------------------------------------------------
23 24 FINANCIAL HIGHLIGHTS
-------------------------------------- CLASS C -------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------- Net asset value, beginning of period $11.91 12.51 11.81 10.46 11.09 - --------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.10) (.08) (.09) (.06) (.02) - --------------------------------------------------------------------------------- Net realized and unrealized gain 2.51 .03 1.49 1.47 .05 - --------------------------------------------------------------------------------- Total from investment operations 2.41 (.05) 1.40 1.41 .03 - --------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- -- .02 .01 -- - --------------------------------------------------------------------------------- Distribution from net realized gain 1.81 .55 .68 .05 .66 - --------------------------------------------------------------------------------- Total dividends 1.81 .55 .70 .06 .66 - --------------------------------------------------------------------------------- Net asset value, end of period $12.51 11.91 12.51 11.81 10.46 - --------------------------------------------------------------------------------- TOTAL RETURN 22.49%(A) (.37) 12.45 13.59 .84 - --------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------------- Expense, before expense reductions 2.33% 2.55 2.49 2.50 2.50 - --------------------------------------------------------------------------------- Expenses, net 2.32% 2.55 2.49 2.50 2.50 - --------------------------------------------------------------------------------- Net investment income (loss) (.85)% (.55) (.76) (.52) (.10) - ---------------------------------------------------------------------------------
CLASS I -------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------- Net asset value, beginning of period $12.16 12.72 11.99 10.61 - --------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) .05 .11 .07 .10 - --------------------------------------------------------------------------------- Net realized and unrealized gain 2.61 .03 1.53 1.48 - --------------------------------------------------------------------------------- Total from investment operations 2.66 .14 1.60 1.58 - --------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- .15 .19 .15 - --------------------------------------------------------------------------------- Distribution from net realized gain 1.81 .55 .68 .05 - --------------------------------------------------------------------------------- Total dividends 1.81 .70 .87 .20 - --------------------------------------------------------------------------------- Net asset value, end of period $13.01 12.16 12.72 11.99 - --------------------------------------------------------------------------------- TOTAL RETURN 24.25%(A) 1.18 14.19 15.19 RATIOS TO AVERAGE NET ASSETS Expenses, before expense reductions 1.03% 1.00 1.04 1.10 - --------------------------------------------------------------------------------- Expenses, net 1.02% 1.00 1.04 1.10 - --------------------------------------------------------------------------------- Net investment income (loss) .45% 1.00 .69 .88 - ---------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, - ----------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES - ----------------------------------------------------------------------------------------------- Net assets at end of year (in thousands) $658,211 604,684 588,069 472,243 364,708 - ----------------------------------------------------------------------------------------------- Portfolio turnover rate 140% 105 76 104 114 - -----------------------------------------------------------------------------------------------
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. (a) If the Adviser had not reimbursed the Fund (Note 3), the total return for the year ended October 31, 1999 would have been lower. 24 25 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, 1999, 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 1995. 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, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Kemper International Fund at October 31, 1999, 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 1995 in conformity with generally accepted accounting principles. ERNST & YOUNG LOGO Chicago, Illinois December 15, 1999 25 26 TAX INFORMATION - -------------------------------------------------------------------------------- TAX INFORMATION - -------------------------------------------------------------------------------- The fund paid a distribution of $1.81 per share from net long-term capital gains during the year ended October 31, 1999, of which 100% represent 20% rate gains. Pursuant to Section 852 of the Internal Revenue Code, the fund designates $58,000,000 as capital gain dividends for the year ended October 31, 1999, of which 100% represent 20% rate gains. The fund paid foreign taxes of $955,697 and earned $955,697 of foreign source income during the year ended October 31, 1998. Pursuant to Section 853 of the Internal Revenue Code, the fund designates $.02 per share as foreign taxes paid and $.02 per share as income earned from foreign sources for the year ended October 31, 1999. 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 1-800-621-1043. 26 27 NOTES 27 28 TRUSTEES & OFFICERS TRUSTEES OFFICERS JOHN W. BALLANTINE MARK S. CASADY MAUREEN E. KANE Trustee President Assistant Secretary LEWIS A. BURNHAM PHILIP J. COLLORA CAROLINE PEARSON Trustee Vice President and Assistant Secretary Secretary DONALD L. DUNAWAY BRENDA LYONS Trustee JOHN R. HEBBLE Assistant Treasurer Treasurer ROBERT B. HOFFMAN Trustee ANN M. MCCREARY Vice President DONALD R. JONES Trustee KATHRYN L. QUIRK Vice President THOMAS W. LITTAUER Trustee and Vice President LINDA J. WONDRACK Vice President SHIRLEY D. PETERSON Trustee CORNELIA SMALL Trustee and Vice President WILLIAM P. SOMMERS Trustee - -------------------------------------------------------------------------------- LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ 222 North LaSalle Street Chicago, IL 60601 - -------------------------------------------------------------------------------- SHAREHOLDER KEMPER SERVICE COMPANY SERVICE AGENT P.O. Box 219557 Kansas City, MO 64121 - -------------------------------------------------------------------------------- CUSTODIAN THE CHASE MANHATTAN BANK Chase Metro Center Brooklyn, NY 11245 - -------------------------------------------------------------------------------- TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY 801 Pennsylvania Avenue Kansas City, MO 64105 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS ERNST & YOUNG LLP 233 South Wacker Drive Chicago, IL 60606 - -------------------------------------------------------------------------------- PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606 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(12/23/99) 1096620 -----END PRIVACY-ENHANCED MESSAGE-----