<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED OCTOBER 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEEKS HIGH CURRENT INCOME AND, AS A SECONDARY
OBJECTIVE, LONG-TERM CAPITAL APPRECIATION.
KEMPER EMERGING
MARKETS INCOME FUND
"... Because of the shakeup and lingering investor fear,
there are some great values to be found in the emerging
market bond arena today, especially in the area of
collateralized assets. Some bonds are actually trading
below their collateral (U.S. Treasury) value. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Country Concentrations
9
Portfolio Statistics
10
Portfolio of Investments
12
Report of Independent Auditors
13
Financial Statements
16
Notes to Financial Statements
20
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS INCOME
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE 10-MONTH PERIOD ENDED OCTOBER 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A -38.39%
CLASS B -38.87%
CLASS C -38.75%
LIPPER EMERGING MARKETS DEBT FUNDS CATEGORY AVERAGE* -24.55%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS 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.
INVESTMENT IN FOREIGN SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING
FLUCTUATING CURRENCY EXCHANGE RATES, GOVERNMENT REGULATION AND DIFFERENCES IN
LIQUIDITY THAT MAY INCREASE THE VOLATILITY OF YOUR INVESTMENT. INVESTMENT BY THE
FUND IN LOWER AND NON-RATED BONDS PRESENTS GREATER RISK TO PRINCIPAL AND INCOME
THAN INVESTMENTS IN HIGHER RATED SECURITIES.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/98 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EMERGING MARKETS
INCOME FUND CLASS A $5.39 $9.50
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS
INCOME FUND CLASS B $5.38 $9.50
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS
INCOME FUND CLASS C $5.39 $9.50
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE PERIOD, KEMPER EMERGING MARKETS INCOME FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $ .6100 $ .5612 $ .5620
- --------------------------------------------------------------------------------
</TABLE>
* LIPPER ANALYTICAL SERVICES, INC. RETURNS 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.
TERMS TO KNOW
CURRENCY DEVALUATION A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar. This may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a devaluation of a foreign
currency can have the effect of reducing the total return of their investment.
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.
OVER/UNDERWEIGHTING Refers to the allocation of assets -- usually by sector,
industry, or country -- within a portfolio relative to a benchmark index, (i.e.
the IFC Emerging Markets Investable Index) or an investment universe.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
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
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOV 98 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
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
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF 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
<PAGE> 5
PERFORMANCE UPDATE
[SALTZMAN PHOTO]
ISABEL SALTZMAN IS THE PRODUCT LEADER AND SENIOR PORTFOLIO MANAGER FOR SCUDDER
KEMPER INVESTMENTS' EMERGING MARKETS BOND GROUP. A NATIVE OF CHILE, SALTZMAN
RECEIVED A BACHELOR'S DEGREE IN POLITICAL SCIENCE AND ECONOMICS FROM TUFTS
UNIVERSITY IN 1975 AND AN M.I.A. DEGREE FROM THE SCHOOL OF INTERNATIONAL
AFFAIRS, COLUMBIA UNIVERSITY IN 1979. SHE HAS 17 YEARS OF EMERGING MARKET
INVESTMENT EXPERIENCE.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANYTIME, BASED ON MARKET AND OTHER
CONDITIONS.
EMERGING MARKETS HAVE BEEN SUFFERING THROUGH ONE OF THE MOST VOLATILE PERIODS
IN HISTORY. FINANCIAL CRISES IN ASIA AND RUSSIA SPREAD THROUGH THE MARKETS OVER
THE PAST YEAR. THE TROUBLES CAME TO A HEAD IN AUGUST WHEN HEDGE FUNDS FACING
MARGIN CALLS BEGAN A MASS SELL-OFF. PORTFOLIO MANAGER ISABEL SALTZMAN DISCUSSES
THE SITUATION AND HOW KEMPER EMERGING MARKETS INCOME FUND HAS WEATHERED THE
STORM.
Q EMERGING MARKET DEBT HAS BEEN EXTREMELY VOLATILE DURING THIS 10-MONTH
PERIOD. IN LATE SEPTEMBER, A MASS EXODUS FROM THE MARKET RAISED THE AVERAGE
SPREAD IN THE JP MORGAN EMERGING MARKETS BOND INDEX PLUS (EMBI+) TO 1,291 BASIS
POINTS OVER U.S. TREASURIES. WHAT HAPPENED TO DRIVE SPREADS TO SUCH INCREDIBLE
LEVELS?
A The uncertainty in the market started back in the summer of 1997 with the
devaluation of the Thai baht. For awhile the problems were contained to Asia. As
Asia's financial crisis moved north into Hong Kong in the fall, the EMBI+
suddenly widened a bit. The International Monetary Fund (IMF) stepped in with
bailout packages for several Asian countries. The big worry was whether Hong
Kong would hold its dollar peg. The general feeling was if the Hong Kong peg
would break, the emerging markets would completely break down.
Well, the straw that broke the camel's back wasn't the Hong Kong peg, it
was the blowup in Russia. The Russian government was spending more than it was
taking in and tapped into capital reserves to cover the difference. The country
had a lot of short-term debt, a huge percentage of which was owned by
foreigners. Investors were concerned about the loss of reserves but felt that
the IMF would certainly step in with a bailout package if Russia's reserves ran
out. The IMF did offer a package and made the first payment, but Russia didn't
follow through on the requirements attached to the package. Since Russia didn't
make the promised adjustments to their fiscal policy, the IMF didn't continue
the bailout payments. On top of that, it appears that much of the IMF money went
into the pockets of Russian officials.
Faced with huge debts and little income, in early August Russia decided to
devalue its currency and to default on this short-term debt. The currency
devaluation came as a big surprise because it was such an unlikely, and some
would say ineffective, response to the problem at hand. Major international
banks and investment community members had huge stakes in Russian debt and today
are trying to renegotiate with Russia over repayment terms. In light of Russia's
situation, investors began to worry about other countries with capital problems.
They focused on Brazil, but emerging market debt everywhere was affected, and
debt spreads over U.S. Treasuries were as wide as 1,800 basis points at one
point.
Another factor affecting bond prices was the volatility in commodity
prices. Countries that are dependent on commodities for revenues can have
problems meeting their obligations when commodity prices drop. In Venezuela, for
example, low oil prices have generated fiscal and political problems.
Today the volatility has calmed down and liquidity is coming back
5
<PAGE> 6
PERFORMANCE UPDATE
into the market. Volume has started to pick up again, and that is why we're
seeing a rally.
Q THE PROBLEMS IN THE MARKET BUILT UP OVER QUITE A LONG TIME. WHAT CAUSED
THE SPREADS TO WIDEN SO QUICKLY?
A The vast majority of the players in emerging market debt are hedge funds.
They buy the bonds, use them as leverage for more cash and then turn around with
that cash and buy still more bonds. So as Russia defaulted and the ruble
devalued, a lot of the hedge funds received margin calls. They had no choice but
to sell securities to meet the margin calls. They did this en masse, causing the
prices of the securities to fall further, which created more margin calls and so
on.
Part of the reason we're rebounding now is that the majority of the
leveraging has already been unwound, so you don't see this vicious circle of
selling. We're not likely to see a repeat performance by the hedge funds. There
just isn't the same appetite for risk today as there was before the debacle.
Q HOW HAS THE FUND PERFORMED IN THIS ENVIRONMENT?
A On October 31, the fund was down 38.39 percent (Class A shares, unadjusted
for any sales charge) since its inception December 31, 1997. That is behind our
mutual fund peer group performance and below the JP Morgan Emerging Markets Bond
Index Plus performance, which was -17.04 percent. The primary reason for our
underperformance was our overweight position in Russia this summer, relative to
the index. Most of our peers maintained a lesser exposure to Russia than we
chose to which hurt our performance relative to the category average (See page 2
for Lipper category performance). Another reason for the underperformance is
that the fund was leveraged early in the year. As a new fund, we needed to
leverage in order to take the positions we wanted.
Q WITH ALL THIS GOING ON IN THE MARKET, HOW DID YOU ADJUST YOUR WEIGHTINGS
AND REALLOCATE THE FUND DURING THE PERIOD?
A Our biggest portfolio adjustment was moving out of Russia over the past
four months. We held rather large positions in Russia when the bottom fell out
of the market. We weren't the only ones who were surprised by the Russian
situation -- one of the reasons the stock market crashed was because so many
investors were affected. In early July we held nearly 20 percent of the
portfolio there. We decided then to take our losses and began selling whatever
we could to get back to a neutral weighting against the JP Morgan Emerging
Markets Bond Index Plus benchmark. By August, Russia accounted for 13 percent of
the portfolio. It is down to 3 percent today, with most of that change due to
loss of market value.
We did make a few substantial moves besides Russia. In August we brought
our Mexican holdings up to 25 percent of the portfolio as a defensive play.
Mexico is a good value relative to Argentina and has a better credit rating. In
early September we brought Morocco up to nearly 9 percent of the fund, up from a
3.75 percent weighting in early August. It provides some stability since it is
geographically isolated from other emerging markets and is not held as widely by
hedge funds. It is a close trading partner with European countries, so other
world events don't impact it as severely. Morocco had been sold off with all the
other emerging markets, but the fundamentals look strong so we expect it to pick
up again. Finally, we started to sell Brazil in September and then bought back
into it in late October. The market was concerned because the country had a lot
of outstanding debt and continued to lose reserves. We held about 27 percent of
the fund in Brazil in August, brought that down to 19 percent by early October
and then brought it back up to nearly 23 percent by the end of the month when it
became very cheap.
Q WHERE ARE YOU INVESTING THE FUND TODAY?
A We're focusing on countries with sound fiscal policies that have very
limited refinancing needs. Bulgaria is our largest overweight. The country has
all of its financing met through the year 2000 so investors won't flee this
market out of worry over getting paid on the short-term debt. Also, Bulgaria is
a big importer of oil so the lower commodity prices have actually helped that
country.
Peru, which has almost no short-term local debt, is another place we've
been buying lately and where we are overweight relative to the index. As an
agriculture-based economy, Peru is not as sensitive to the price fluctuations we
are seeing in other commodities such as oil and steel. El Nino did damage crops
but that is all behind us now.
We hold a slight overweight in Mexico as a defensive measure. They were
hit by declining oil prices but the government has adjusted its fiscal policy to
account for the drop. Because of this, Mexico has a high country rating. As a
defensive
6
<PAGE> 7
PERFORMANCE UPDATE
credit, Mexico may not go up as much when the market rallies, but may not drop
as sharply if the market declines.
Because of the shakeup and lingering investor fear, there are some great
values to be found in the emerging market bond arena today, especially in the
area of collateralized assets. Some bonds are actually trading below their
collateral (U.S. Treasury) value. Equador's par bonds (a type of Brady Bond),
for example, are backed by zero coupon U.S. Treasury Bonds. The value of that
collateral is more than 50 percent of the current price of those bonds, so
you're pricing in less than 50 percent for the country risk. That's incredibly
cheap.
Q SO WHAT IS YOUR OUTLOOK OVERALL? WILL THIS MARKET BEGIN TO RECOVER ANYTIME
SOON?
A Out to the end of this year, I think the market will continue to be
range-bound. The key will be world market volatility. If volatility starts to
diminish, emerging markets will perform better. If the Dow Jones Industrial
Average hits 9,000 and tanks again, emerging markets will go right down with it.
We also need to see the current credit crunch addressed. We've seen progress in
terms of rate cuts by the U.S. Federal Reserve, by Canada, and some European
countries. Japan remains a big question mark. If they can jump-start their
economy and straighten out the banking reform question, emerging markets will
benefit.
If these things happen, investors might get back their appetite for risk.
People will see that emerging markets are trading at 1,100 basis points over
Treasuries. A bond yielding 16 percent looks pretty good, and some people may be
attracted enough to start buying again. Once volume starts to pick up, liquidity
returns and the ball starts rolling again.
COUNTRY CONCENTRATIONS
GEOGRAPHIC DISTRIBUTION OF KEMPER EMERGING MARKETS INCOME FUND*
Based on total bond obligations on October 31, 1998.
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BRAZIL 28%
MEXICO 23%
ARGENTINA 13%
BULGARIA 13%
MOROCCO 9%
PERU 4%
ECUADOR 4%
RUSSIA 3%
JAMAICA 2%
VENEZUELA 1%
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED OCTOBER 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF CLASS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EMERGING MARKETS INCOME FUND CLASS A -41.17% (since 12/31/97)
- ------------------------------------------------------------------------------------------------------
KEMPER EMERGING MARKETS INCOME FUND CLASS B -41.13 (since 12/31/97)
- ------------------------------------------------------------------------------------------------------
KEMPER EMERGING MARKETS INCOME FUND CLASS C -39.32 (since 12/31/97)
- ------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS FUND CLASS A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER EMERGING MARKETS JP MORGAN EMERGING MARKETS
INCOME FUND CLASS A(1) INVESTABLE INDEX+
----------------------- --------------------------
<S> <C> <C>
12/31/97 10000.00 10000.00
3/31/98 10070.00 10510.00
8949.00 9807.00
5507.00 7676.00
10/31/98 5883.00 8185.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS FUND CLASS B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER EMERGING MARKETS JP MORGAN EMERGING MARKETS
INCOME FUND CLASS B(1) INVESTABLE INDEX+
----------------------- --------------------------
<S> <C> <C>
12/31/97 10000.00 10000.00
3/31/98 10528.50 10510.00
9334.10 9807.00
5736.70 7676.00
10/31/98 5886.70 8185.00
</TABLE>
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS FUND C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER EMERGING MARKETS JP MORGAN EMERGING MARKETS
INCOME FUND CLASS C(1) INVESTABLE INDEX+
------------------------ --------------------------
<S> <C> <C>
12/31/97 10000.00 10000.00
3/31/98 10529.00 10510.00
9335.00 9807.00
5737.00 7676.00
10/31/98 6125.00 8185.00
</TABLE>
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.
* TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED, ADJUSTMENT FOR THE MAXIMUM SALES CHARGE.
THE MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4.5%. 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 CDSC OF 1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. 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 EMERGING MARKETS INCOME FUND TO THE JP MORGAN EMERGING MARKETS BOND
INDEX PLUS, YOU SHOULD ALSO NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEX.
+ JP MORGAN EMERGING MARKETS BOND INDEX PLUS IS GENERALLY REPRESENTATIVE OF
EMERGING MARKETS EXTERNAL CURRENCY TRADED DEBT AND IS NOT AVAILABLE FOR
DIRECT INVESTMENT.
8
<PAGE> 9
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C>
BONDS 91%
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 9
- --------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART]
ON 10/31/98
QUALITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C>
BB 72%
- --------------------------------------------------------------------------------
B 1
- --------------------------------------------------------------------------------
CCC 4
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 5
- --------------------------------------------------------------------------------
NOT RATED 18
- --------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART]
ON 10/31/98
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C>
AVERAGE MATURITY 14.3 years
- --------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER EMERGING MARKETS INCOME FUND
Portfolio of Investments at October 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
SHORT-TERM NOTES--14.7% AMOUNT ($) VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES
Federal National Mortgage Association,
5.45%, 11/2/98
(Cost $792,879) 793,000 792,879
- ---------------------------------------------------------------------------------------------------------------------------
BOND OBLIGATIONS--85.3%
- ---------------------------------------------------------------------------------------------------------------------------
ARGENTINA--11.1%
Argentine Republic, 9.25%, 2/23/01 50,000 48,750
Argentine Republic, Floating Rate Bond, Series L,
LIBOR plus .8125%, (6.625%), 3/31/05 407,981 338,624
Argentine Republic, 11.00%, 10/9/06 40,000 39,600
Argentine Republic, Collateralized Par Bond,
Series L, Step-up Coupon, 5.75%, 3/31/23 250,000 175,000
------------------------------------------------------------------------------
601,974
- ---------------------------------------------------------------------------------------------------------------------------
BRAZIL--23.4%
Federative Republic of Brazil, Eligible Interest,
Floating Rate Bond, LIBOR plus .8125%,
(6.625%), 4/15/06 691,200 447,552
Federative Republic of Brazil, 9.375%, 4/7/08 140,000 95,288
Federative Republic of Brazil, "New" Money Bond,
Floating Rate Bond, LIBOR plus .875%,
(6.688%), 4/15/09 250,000 139,375
Federative Republic of Brazil, Debt Conversion
Bond, Series L, LIBOR plus .875%,
(6.688%), 4/15/12 310,000 163,525
Federative Republic of Brazil, Collateralized
Discount Bond, Floating Rate Bond, LIBOR plus
.8125%, (6.625%), 4/15/24 695,000 413,525
------------------------------------------------------------------------------
1,259,265
- ---------------------------------------------------------------------------------------------------------------------------
BULGARIA--11.0%
Republic of Bulgaria, Interest Arrears Bond,
LIBOR plus .8125%, (6.563%), 7/28/11 100,000 66,000
Republic of Bulgaria, Floating Rate Reduction,
Step-up Coupon Collateralized Bond "A",
2.25%, 7/28/12 513,000 282,150
Republic of Bulgaria, Collateralized Discount
Bond, Tranche A, LIBOR plus .8125%,
(6.563%), 7/28/24 350,000 245,000
------------------------------------------------------------------------------
593,150
- ---------------------------------------------------------------------------------------------------------------------------
ECUADOR--3.4%
Republic of Ecuador, Collateralized Global Par
Bond, Step-up Coupon, 3.50%, 2/28/25 400,000 182,000
- ---------------------------------------------------------------------------------------------------------------------------
IVORY COAST--.4%
Republic of the Ivory Coast, Front Loaded Interest
Reduction Bond, 2.00%, 3/29/18 100,000 23,000
- ---------------------------------------------------------------------------------------------------------------------------
JAMAICA--1.7%
Government of Jamaica, 10.875%, 6/10/05 125,000 93,750
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO--19.6%
(a)United Mexican States, Global Bond,
11.375%, 9/15/16 675,000 668,250
United Mexican States, Floating Rate Note Discount
Series C, 6.375%, 12/31/19 250,000 195,938
United Mexican States, Collateralized Discount
Bond, Floating Rate Bond, Series D, LIBOR plus
.8125%, (6.813%), 12/31/19 250,000 195,938
------------------------------------------------------------------------------
1,060,126
- ---------------------------------------------------------------------------------------------------------------------------
MOROCCO--7.6%
Kingdom of Morocco, Restructuring and
Consolidation Agreement, Tranche A, Floating
Rate Bond, LIBOR plus .8125%, (6.656%), 1/1/09 550,000 412,500
- ---------------------------------------------------------------------------------------------------------------------------
PERU--3.4%
Republic of Peru, Front Loaded Interest Reduction
Bond, 3.25%, 3/7/17 150,000 75,750
Republic of Peru, Past Due Interest Bond,
4.00%, 3/7/17 190,000 107,350
------------------------------------------------------------------------------
183,100
- ---------------------------------------------------------------------------------------------------------------------------
RUSSIA--2.6%
Russian Federation Principal Loan,
6.625%, 12/15/15 26,668 2,667
Russian Federation Principal Loan,
6.625%, 12/15/20 1,875,000 138,280
------------------------------------------------------------------------------
140,947
- ---------------------------------------------------------------------------------------------------------------------------
VENEZUELA--1.1%
Republic of Venezuela, Global, 9.25%, 9/15/27 100,000 60,000
------------------------------------------------------------------------------
TOTAL BOND OBLIGATIONS
(Cost $5,091,563) 4,609,812
------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $5,884,442) 5,402,691
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) At October 31, 1998, a portion of this security has been segregated to cover
a reverse repurchase agreement.
Based on the cost of investments of $6,784,173 for federal income tax purposes
at October 31, 1998, the gross unrealized appreciation was $126,288, the gross
unrealized depreciation was $1,507,770 and the net unrealized depreciation on
investments was $1,381,482.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER EMERGING MARKETS INCOME FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Emerging Markets Income Fund
(one of the portfolios constituting Kemper Global/International Series, Inc.) as
of October 31, 1998, and the related statements of operations and changes in net
assets, cash flows and the financial highlights for the period from December 31,
1997 (commencement of operations) to October 31, 1998. 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 audit.
We conducted our audit 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 and financial highlights. Our procedures included confirmation of
investments owned as of October 31, 1998, 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 audit provides 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
Emerging Markets Income Fund of Kemper Global/International Series, Inc. at
October 31, 1998, the results of its operations, the changes in its net assets
and cash flows and the financial highlights for the period referred to above, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
December 16, 1998
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
Investments, at value
(Cost $5,884,442) $ 5,402,691
- ---------------------------------------------------------------------------
Cash 518
- ---------------------------------------------------------------------------
Receivable for:
Investments sold 68,104
- ---------------------------------------------------------------------------
Interest 116,628
- ---------------------------------------------------------------------------
Fund shares sold 113,071
- ---------------------------------------------------------------------------
Reimbursement from Adviser 2,575
- ---------------------------------------------------------------------------
Deferred organization expense 12,495
- ---------------------------------------------------------------------------
TOTAL ASSETS 5,716,082
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------
Liability under reverse repurchase agreements 332,696
- ---------------------------------------------------------------------------
Payable for:
Investments purchased 284,777
- ---------------------------------------------------------------------------
Other payables and accrued expenses 58,420
- ---------------------------------------------------------------------------
Total liabilities 675,893
- ---------------------------------------------------------------------------
NET ASSETS $ 5,040,189
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ---------------------------------------------------------------------------
Paid-in capital $ 7,587,311
- ---------------------------------------------------------------------------
Accumulated net realized loss on investments (2,083,650)
- ---------------------------------------------------------------------------
Net unrealized depreciation on investments (481,751)
- ---------------------------------------------------------------------------
Undistributed net investment income 18,279
- ---------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 5,040,189
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
THE PRICING OF SHARES
- ---------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($4,398,312 / 815,802 shares outstanding) $5.39
- ---------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $5.72
- ---------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($545,941 / 101,474 shares outstanding) $5.38
- ---------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($95,936 / 17,810 shares outstanding) $5.39
- ---------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the period from December 31, 1997 (commencement of operations) to
October 31, 1998
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------
Interest $ 517,606
- ---------------------------------------------------------------------------
Expenses:
Management fee 39,660
- ---------------------------------------------------------------------------
Interest expense 31,107
- ---------------------------------------------------------------------------
Distribution services fee 1,528
- ---------------------------------------------------------------------------
Administrative services fee 9,915
- ---------------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 103,650
- ---------------------------------------------------------------------------
Professional fees 31,500
- ---------------------------------------------------------------------------
Reports to shareholders 12,438
- ---------------------------------------------------------------------------
Registration fees 2,107
- ---------------------------------------------------------------------------
Amortization of organization expenses 2,505
- ---------------------------------------------------------------------------
Directors' fees and other 3,600
- ---------------------------------------------------------------------------
Total expenses before expense waiver 238,010
- ---------------------------------------------------------------------------
Less expenses waived and absorbed by adviser (138,031)
- ---------------------------------------------------------------------------
Total expenses after expense waiver 99,979
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME 417,627
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------
Net realized loss on sales of investments (2,087,556)
- ---------------------------------------------------------------------------
Net realized gain from futures transactions 3,906
- ---------------------------------------------------------------------------
Net realized loss (2,083,650)
- ---------------------------------------------------------------------------
Change in net unrealized depreciation on investments (481,751)
- ---------------------------------------------------------------------------
Net loss on investments (2,565,401)
- ---------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,147,774)
- ---------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS AND CASH FLOWS
For the period from December 31, 1997 (commencement of operations)
to October 31, 1998
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------
Net investment income $ 417,627
- ---------------------------------------------------------------------------
Net realized loss (2,083,650)
- ---------------------------------------------------------------------------
Change in net unrealized depreciation (481,751)
- ---------------------------------------------------------------------------
Net decrease in net assets resulting from operations (2,147,774)
- ---------------------------------------------------------------------------
Distribution from net investment income (399,348)
- ---------------------------------------------------------------------------
Net increase from capital share transactions 7,567,311
- ---------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 5,020,189
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------
Beginning of period 20,000
- ---------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $18,279) $ 5,040,189
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES
- ---------------------------------------------------------------------------
Decrease in net assets from operations $(2,147,774)
- ---------------------------------------------------------------------------
Non-cash items 307,404
- ---------------------------------------------------------------------------
Purchase of investments (5,678,075)
- ---------------------------------------------------------------------------
Net cash provided by operating activities (7,518,445)
- ---------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from net fund share activity 7,587,311
- ---------------------------------------------------------------------------
Proceeds from reverse repurchase agreements 331,000
- ---------------------------------------------------------------------------
Distributions to shareholders (399,348)
- ---------------------------------------------------------------------------
Net cash used in financing activities 7,518,963
- ---------------------------------------------------------------------------
Net increase in cash 518
- ---------------------------------------------------------------------------
Cash at beginning of period --
- ---------------------------------------------------------------------------
Cash at end of period $ 518
- ---------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Emerging Markets Income Fund (the fund) is a
non-diversified series of Kemper
Global/International Series, Inc. (the
Corporation), an open-end management investment
company organized as a corporation in the state of
Maryland. The fund commenced operations on December
31, 1997. The fund currently offers three 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.
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. 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. Forward foreign currency
exchange contracts are valued at the prevailing
forward exchange rate of the underlying currencies
on that day. Futures contracts are valued at the
most recent settlement price. All other securities
are valued at their fair market value as determined
in good faith by the Valuation Committee of the
Board of Directors.
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.
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, and interest income is recorded on
the accrual basis. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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.
At October 31, 1998, the fund had a tax basis net
loss carryforward of approximately $1,223,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire in the period ended
2006.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income monthly 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.
ORGANIZATIONAL COSTS. Costs incurred by the fund in
connection with its organization and initial
registration of shares have been deferred and are
being amortized on a straight-line basis over a
five-year period.
OTHER CONSIDERATIONS. Investing in emerging markets
may involve special risks and considerations not
typically associated with investing in the United
States. These risks include revaluation of
currencies, high rates of inflation, repatriation
restrictions on income and capital, and future
adverse political and economic developments.
Moreover, securities issued in these markets may be
less liquid, subject to government ownership
controls, delayed settlements, and their prices
more volatile than those of comparable securities
in the United States.
- --------------------------------------------------------------------------------
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 1.00%
of average daily net assets. However, the fund
incurred no management fee for the period ended
October 31, 1998, after an expense waiver by
Scudder Kemper.
In addition, Scudder Kemper has temporarily agreed
to absorb certain operating expenses of the fund.
Under this arrangement, Scudder Kemper waived and
absorbed expenses of $138,031 for the period 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
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
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 Directors 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 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), a subsidiary of the Adviser. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS RETAINED COMMISSIONS ALLOWED
BY KDI BY KDI TO FIRMS
-------------------- -------------------
<S> <C> <C>
Period ended October 31, 1998 $1,306 10,642
</TABLE>
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. The fund incurred no distribution fees for
the period ended October 31, 1998, after an expense
waiver by Scudder Kemper. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
--------------- ----------------------
<S> <C> <C>
Period ended October 31, 1998 $116 17,200
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to 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. The
fund incurred no administrative services fees for
the period ended October 31, 1998, after an expense
waiver by Scudder Kemper. During the period ended
October 31, 1998, KDI paid fees of $3,481 to
various firms.
SHAREHOLDER SERVICES AGREEMENT. Kemper Service
Company (KSvC), is the transfer, dividend paying
and shareholder service agent for the fund. The
fund incurred shareholder services fees of $4,229
for the period ended October 31, 1998, $1,504 of
which is unpaid.
FUND ACCOUNTING AGENT. Scudder Fund Accounting
Corporation is responsible for determining the
daily net asset value per share and maintaining the
portfolio and general accounting records of the
fund. The fund incurred no accounting fees for the
period ended October 31, 1998, after a fee waiver
of $41,667 by Scudder Kemper.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the period ended
October 31, 1998, the fund made no payments to its
officers and incurred directors' fees of $3,000 to
independent directors.
SUBSEQUENT EVENT. On December 2, 1998, the Fund
wrote down a receivable by $27,375 as a result of a
restructuring of the Russia principal loan. Due to
the Russian Government's inability to service its
debts, the government has proposed a restructuring
scenario in which the cash portion of the interest
payment due December 2 would be paid in IANs.
Consequently, the value of the Russia principal
interest was decreased to reflect the current
market value of the IANs to be received.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended October 31, 1998, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $18,660,198
Proceeds from sales 11,481,079
- --------------------------------------------------------------------------------
5 REVERSE REPURCHASE
AGREEMENTS The fund has entered into reverse repurchase
agreements with third parties involving its
holdings in foreign debt securities. At October 31,
1998, the Fund had outstanding reverse repurchase
agreements as follows:
<TABLE>
<CAPTION>
VALUE OF ASSETS SOLD WEIGHTED
UNDER AGREEMENT REPURCHASE AVERAGE
MATURITY TO REPURCHASE LIABILITY INTEREST RATE
-------- -------------------- ---------- -------------
<S> <C> <C> <C>
Demand $401,813 $332,696 2.25%
</TABLE>
- --------------------------------------------------------------------------------
6 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1998
-----------------------------
SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------------------
SHARES SOLD
--------------------------------------------------------------------------
Class A 794,635 $6,603,975
--------------------------------------------------------------------------
Class B 100,980 678,434
--------------------------------------------------------------------------
Class C 17,712 137,043
--------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
--------------------------------------------------------------------------
Class A 45,735 318,984
--------------------------------------------------------------------------
Class B 2,465 15,273
--------------------------------------------------------------------------
Class C 615 4,215
--------------------------------------------------------------------------
SHARES REDEEMED
--------------------------------------------------------------------------
Class A (25,270) (161,488)
--------------------------------------------------------------------------
Class B (2,673) (17,252)
--------------------------------------------------------------------------
Class C (1,219) (11,873)
--------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $7,567,311
--------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
For the period from December 31, 1997 (commencement of operations) to October
31, 1998
<TABLE>
<CAPTION>
---------------------------------------------
CLASS A CLASS B CLASS C
---------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.50 9.50 9.50
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .64 .53 .54
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (4.14) (4.09) (4.09)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations (3.50) (3.56) (3.55)
- ------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .61 .56 .56
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.39 5.38 5.39
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (38.39)% (38.87) (38.75)
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------------
Expenses absorbed by the fund before interest expense 1.68% 2.56 2.53
- ------------------------------------------------------------------------------------------------------------
Expenses absorbed by the fund after interest expense 2.46% 3.34 3.31
- ------------------------------------------------------------------------------------------------------------
Net investment income 10.59% 9.71 9.74
- ------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------------
Expenses before interest expense 5.12% 6.75 6.72
- ------------------------------------------------------------------------------------------------------------
Expenses after interest expense 5.90% 7.53 7.50
- ------------------------------------------------------------------------------------------------------------
Net investment income 7.15% 5.52 5.55
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------
Net assets at end of period $5,040,189
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 294%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
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.
20
<PAGE> 21
NOTES
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS
DANIEL PIERCE MARK S. CASADY ANN M. MCCREARY
Chairman and Director President Vice President
JAMES E. AKINS PHILIP J. COLLORA SHERIDAN P. REILLY
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK M. ISABEL SALTZMAN
Director JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY LINDA J. WONDRACK
Director JOYCE E. CORNELL Vice President
Vice President
KATHRYN L. QUIRK MAUREEN E. KANE
Director and DIEGO ESPINOSA Assistant Secretary
Vice President Vice President
CAROLINE PEARSON
FRED B. RENWICK JOAN R. GREGORY Assistant Secretary
Director Vice President
ELIZABETH C. WERTH
JOHN B. TINGLEFF TARA C. KENNEY Assistant Secretary
Director Vice President
BRENDA LYONS
JOHN G. WEITHERS THOMAS W. LITTAUER Assistant Treasurer
Director Vice President
- --------------------------------------------------------------------------------
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SHAREHOLDER KEMPER SERVICE COMPANY
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PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
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www.kemper.com
Long-term investing in a short-term world(SM)
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KEMIF - 2 (12/98) 1061700
