<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED APRIL 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKS LONG-TERM GROWTH OF CAPITAL AND CURRENT
INCOME PRIMARILY FROM FOREIGN EQUITY SECURITIES.
KEMPER INTERNATIONAL GROWTH AND INCOME FUND
"... As far as the staying-power of this shift
[toward value] is concerned, we feel it
is safe to be optimistic. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
8
LARGEST HOLDINGS
9
PORTFOLIO OF
INVESTMENTS
12
FINANCIAL STATEMENTS
14
NOTES TO
FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
21
SHAREHOLDERS' MEETING
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL GROWTH AND
INCOME FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 6.98%
CLASS B 6.59%
CLASS C 6.69%
LIPPER INTERNATIONAL CATEGORY AVERAGE* 15.11%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
4/30/99 10/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERNATIONAL GROWTH
AND INCOME FUND CLASS A $10.43 $9.73
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL GROWTH
AND INCOME FUND CLASS B $10.35 $9.71
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL GROWTH
AND INCOME FUND CLASS C $10.36 $9.71
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL GROWTH AND
INCOME FUND LIPPER RANKINGS AS OF 4/30/99*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #521 of 565 funds #530 of 565 funds #529 of 565 funds
- --------------------------------------------------------------------------------
</TABLE>
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
INVESTMENT IN FOREIGN SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING
FLUCTUATING CURRENCY EXCHANGE RATES, GOVERNMENT REGULATION AND DIFFERENCES IN
LIQUIDITY.
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc. Chicago, IL. (312) 696-6000. The Equity Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market, and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most recent of the three
market-cap groups.
THE STYLE BOX REPRESENTS A SNAPSHOT OF THE FUND'S PORTFOLIO ON A SINGLE DAY. IT
IS NOT AN EXACT ASSESSMENT OF RISK AND DOES 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. CATEGORY PLACEMENTS OF NEW FUNDS ARE ESTIMATED. MORNINGSTAR HAS PLACED
KEMPER INTERNATIONAL GROWTH AND INCOME FUND IN THE FOREIGN STOCK CATEGORY.
PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES.
<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 INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
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 $280 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:
In April, investor enthusiasm drove the market to its second milestone in a
year -- the Dow Jones Industrial Average rose to 11,000 just a month after it
broke 10,000 for the first time. In May, expectations of rising inflation and
higher short-term interest rates led to a slowdown. But in early June, the
market rallied again. What drove the market rallies, and what, at the same time,
led to investor anxiety?
Inflation worries have been seeping into the market for months. The growing
conviction that Asian and Latin American economies are recovering is raising
commodity prices, particularly oil. The price of West Texas Intermediate oil
surged from less than $12 in February to almost $19 in early May. That alone
almost guarantees a rise in the "headline" inflation rate this year, which is
the rate of inflation as measured by the entire CPI. But it's important to note
that the Federal Reserve Board looks primarily at the core inflation rate, which
is the CPI minus food and energy -- and the core inflation rate looks at if it
will remain low at about 2 percent this year. Investors should note, however,
that the Federal Reserve Board also considers what will happen to inflation next
year -- and all indications are that the Fed expects inflation to increase in
2000.
As a result, the Fed is considering a change in monetary policy. Recent Fed
policy has been reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. That may change as the Fed tries to
preemptively halt inflation momentum. Such a change in monetary policy would
likely lead to an increase in short-term interest rates before the end of the
year. However, the change is likely to be small. Because we don't see pressure
toward sustained inflation, there's no reason for the Fed to want a sharp
slowdown in the overall economy.
The long-term economic situation, however, appears to be positive. The
federal budget surplus continues to benefit from good revenue gains (which are
based on good income gains, especially for households), good capital gains and
continued restraint in federal spending. The surplus this year is expected to
approach $100 billion.
This positive environment is exactly what sometimes poses risk for
investors, and is key to understanding recent volatility in the market. A strong
economy has the potential to feed inflation fears and drive up interest rates.
Indeed, recent market events illustrate the domino effect of investors reacting
to positive economic news, which they consider troubling at this point, more
than eight years into the economic expansion. In April, the steady stream of
positive economic news led to a sell-off in the financial markets based on fears
that the strong pace of economic growth would eventually lead to higher
inflation. The benchmark 30-year Treasury bond yield rose, which pulled stocks
lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., rose at an annual rate of 4.5 percent in the
first quarter, following a tremendous fourth-quarter surge of 6 percent. This is
very much in line with what we've grown accustomed to over the past year -- over
the four quarters of 1998, the U.S. economy expanded by 4.3 percent. Some people
aren't surprised at all by strong GDP growth that once would have alarmed them.
That's partially because we've grown accustomed to a strong economy. But it's
also because we've been able to absorb growth without driving up inflation.
That's important for investors. If prices had been rising as the economy was
growing, the Fed would have most likely raised short-term interest rates by now,
and that would have changed the financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first quarter while imports soared. This reflects the fact that the U.S. is one
of the few countries financially fit enough to buy goods produced elsewhere in
the world. But for as long as less vibrant international economies are unable to
buy U.S. goods, the profitability of U.S. companies trying to export will be
challenged.
When you think about it, vulnerability in regard to the international
economy is nothing new. Globally, the outlook is slightly more positive than it
was a few months ago. For example, the European markets are slowing down, which
has already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
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>
NOW (5/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10 Year Treasury Rate(1) 5.54 5.34 5.57 6.42
Prime Rate(2) 7.75 8.5 8.5 8.25
Inflation Rate(3)* 2.28 1.68 1.63 3.04
The U.S. Dollar(4) -1.22 8.17 5.05 7.67
Capital goods orders(5)* 11.67 3.05 12.61 3.93
Industrial production (5)* 2.01 2.71 5.92 6.44
Employment growth(6) 2.14 2.67 2.76 2.44
</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 APRIL 30, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates. As an example, consider Italy, which
recently asked for more leeway on its deficit targets. When leeway was granted,
this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of
a U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
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 JUNE 9, 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
<PAGE> 5
PERFORMANCE UPDATE
SHERIDAN REILLY IS A MEMBER OF SCUDDER KEMPER INVESTMENTS' GLOBAL EQUITY GROUP
AND LEAD PORTFOLIO MANAGER OF KEMPER INTERNATIONAL GROWTH AND INCOME FUND. HE
HAS 11 YEARS OF INVESTMENT EXPERIENCE. HE IS A MEMBER OF THE INTERNATIONAL
ASSOCIATION OF FINANCIAL ANALYSTS AND THE AMERICAN MATHEMATICS ASSOCIATION.
PORTFOLIO MANAGER LAUREN LAMBERT JOINED SCUDDER KEMPER INVESTMENTS, INC., IN
1994 AND BECAME CO-PORTFOLIO MANAGER OF KEMPER INTERNATIONAL GROWTH AND INCOME
FUND THIS YEAR. PRIOR TO JOINING THE COMPANY, SHE WORKED AS AN EQUITY ANALYST
FOR SEVEN YEARS.
PORTFOLIO MANAGER IRENE CHENG IS A MEMBER OF THE FIRM'S GLOBAL EQUITY GROUP,
FOCUSING ON PORTFOLIO MANAGEMENT AND RESEARCH FOR INTERNATIONAL EQUITY ACCOUNTS.
PRIOR TO JOINING SCUDDER KEMPER INVESTMENTS IN 1993, CHENG SPENT THREE YEARS IN
MERCHANT BANKING ACTIVITIES AT THE BLACKSTONE GROUP AND THREE YEARS AS AN EQUITY
ANALYST AT SANFORD C. BERNSTEIN & CO.
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.
A WEAKNESS IN COMMODITY PRICES AND THE OVERSEAS ECONOMIES CONTRIBUTED TO THE
UNDERPERFORMANCE OF VALUE STOCKS THROUGH MUCH OF THE SIX-MONTH PERIOD ENDED
APRIL 30, 1999. HOWEVER, THE CLOUDS LIFTED LATE IN THE PERIOD AS VALUE-STYLE
INVESTING MADE A COMEBACK IN APRIL. FOLLOWING, LEAD PORTFOLIO MANAGER SHERIDAN
REILLY DISCUSSES THE MARKETS AND KEMPER INTERNATIONAL GROWTH AND INCOME FUND'S
PERFORMANCE.
Q THE EARLY PART OF THIS REPORTING PERIOD WAS ROUGH FOR VALUE-ORIENTED FUNDS
SUCH AS KEMPER INTERNATIONAL GROWTH AND INCOME FUND. WHAT CAUSED VALUE STOCKS TO
UNDERPERFORM?
A To fully understand the slump in value stocks, it is necessary to consider
the bigger picture of what was happening in the global economy. Although growth
remains strong here in the United States, the investment backdrop in the rest of
the world was much less favorable. Some "Asian Tiger" countries were showing
signs of improvement, but most developing economies were still experiencing
negative growth. Japan, which is now showing strong signs of a turnaround, was
suffering from a deep recession. Even Europe, which was viewed as a "safe haven"
by many, was, and continues to be, beset by slow growth and high unemployment.
In a disinflationary environment where commodity prices are weak and the
economies of so many nations are struggling, it is only natural for pricing
power to decline, and as a result, corporate profits suffered. Investors became
increasingly willing to pay high price-to-earnings multiples for companies whose
earnings were perceived to be the most reliable; especially those in the
technology and health care sectors. Conversely, they avoided companies that were
losing pricing power, such as chemical producers, energy companies, and
manufacturing firms; all of which tend to be included in the value category. In
other words, the universe of stocks from which we make our selections was hurt
the most, while the stocks that benefited were too richly valued to fit within
our investment discipline.
Q BUT IN APRIL, WE SAW VALUE STOCKS TURN AROUND. WHAT DROVE THIS ABOUT-FACE
AND IS THE UPSWING SUSTAINABLE?
A The markets did really change tenor in April. While a switch from growth
to value has historically been driven by a market correction, the recent shift
had a different catalyst. The two events that appear to have been responsible
were an interest rate cut by the European Central Bank and reports coming from
Compaq Computer warning that first quarter earnings would be roughly half what
analysts were expecting. Essentially, the rate cut reconfirmed government
intentions to keep the world on a growth path while Compaq Computer's earnings
news verified that there can even be disappointments in the market's current
superstar, technology.
As far as the staying power of this shift is concerned, we feel it is safe to
be optimistic. The European economies, while still weak, should begin to benefit
from the weak euro, the European Central Bank's rate
5
<PAGE> 6
PERFORMANCE UPDATE
cut in the second quarter and the Asian market recovery. We believe European
growth has bottomed and that earnings should begin to offer some support to
equity valuations. Globally, a lot depends on the U.S. averting a slowdown and
on Japan's stimulative policies gaining traction.
Q HOW DID THE FUND PERFORM AGAINST THIS BACKDROP?
A For the six-month period, the fund posted a 6.98 percent return (Class A
shares, unadjusted for any sales charge), versus a 15.73 percent return for its
unmanaged benchmark, the MSCI EAFE + Canada Index*. In a period where growth
stocks outperformed for the majority of the time, the fund's investment
discipline left it poorly positioned for the market environment. Our emphasis on
value exposed the portfolio to the accelerated decline in oil and basic
materials at the end of 1998. In addition, we sought to reduce downside risk
prior to the period by selling global financials and reducing positions in
companies with emerging markets exposure. When higher-risk stocks drove the
markets' recovery in the fourth quarter of 1998, the fund's upside potential was
limited as a result.
But, to provide a bit of perspective on where we may be headed as a result
of this value comeback, in April the fund was up 5.68 percent (Class A shares,
unadjusted for any sales charges) while the index returned 4.31 percent. We also
outpaced our peers, beating the 4.59 percent Lipper International Fund category
return.
* THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST +
CANDA INDEX (MSCI EAFE) IS AN UNMANAGED INDEX THAT IS A GENERALLY ACCEPTED
BENCHMARK FOR MAJOR OVERSEAS MARKETS AND CANADA.
Q PLEASE EXPLAIN THE PROCESS USED TO PICK STOCKS FOR THE FUND.
A Using a strict investment discipline that is based on relative dividend
yields, we buy stocks whose yields are higher than the median of the local
market, higher than the stock's own average three-year yield. Conversely, we
consider SELLING those holdings that have appreciated to the point where they
have a yield LOWER than that of their home market or their own three-year
average. Since a higher yield is indicative of a stock that is depressed (and
decreasing yields characterize a stock with a rising price), this strategy
compels us to buy companies that are reasonably valued, and to sell those with
valuations that are becoming inflated.
After narrowing down the investment universe in this manner, we use
rigorous fundamental analysis to select the strongest companies from among those
that meet our criteria. Each individual company's financial strength, projected
profitability, competitive positioning and management ability are reviewed to
uncover the stocks with the strongest long-term growth potential. In addition,
we pursue sector diversification in order to reduce the risks associated with
economic conditions and interest rate fluctuations in the countries where we
invest. Similarly, we seek to minimize currency risk and political risk by
diversifying among a large number of countries. The ultimate goal of this
intensive process is to provide superior risk-adjusted returns over the long
term.
Q IT SOUNDS LIKE THIS STRATEGY CAN ALSO BE USED TO UNCOVER OUT-OF-FAVOR
GROWTH STOCKS.
A Yes, it can. In fact, we found many opportunities in the area we refer to
as "bruised growth." Occasionally, a company will experience a glitch that hurts
its stock price in the near term, but has no effect on its long-term earnings
potential. Using our strong fundamental research capabilities, we dig beneath
the surface to determine when such a glitch indicates a positive transformation
taking place within the company, rather than a fundamental change for the worse.
One stock that falls in this category is SAP, the largest software manufacturer
in Europe. Earnings growth has decelerated as companies divert resources from
ERP (enterprise resource planning) software to fix problems associated with the
Year 2000 issue. We believe that once this problem is resolved toward the end of
the year, SAP's earnings will begin to recover. A further positive is that the
poor execution of the company's main competitors, Baan and Cap Gemini, has
opened the door for SAP to gain market share.
Q WHAT SECTORS DID YOU FIND TO BE PARTICULARLY ATTRACTIVE OVER THE LAST SIX
MONTHS?
A Telecommunications stocks were significant contributors to fund
performance for the majority of the period. After the collapse of stock
valuations following the Russian debt default and the Long-Term Capital
Management workout in October 1998, many stocks were left undervalued. Our
fundamental research revealed that telecommunications companies would continue
to benefit from technological change, and that in Europe, deregulation was not
resulting in the rapid share loss that had been expected for companies in this
sector. Even after their substantial gains, many telecommunication names still
fit within our value orientation. As the
6
<PAGE> 7
PERFORMANCE UPDATE
period progressed, investors began to recognize the value to be found in this
sector in Europe and they saw a nice run.
In the latter part of the period, we reduced our substantial overweight in
commodity cyclicals such as oil, paper and basic materials. We did this to fund
our efforts to increase exposure to higher quality cyclical names in the capital
equipment sector, to raise our weighting in Japan, and to diversify selectively
into consumer sectors. Examples of stocks we added were Adidas-Salomon which we
feel is well positioned for an earnings recovery; Allied-Domecq, an undervalued
UK pubs and spirits company; and ABB, which is exposed to the cyclical recovery
we anticipate in Europe and emerging markets.
Q WHAT IS YOUR VIEW ON JAPAN?
A Since the inception of the fund, we have maintained an underweight
position in Japan. Although we had only 19 percent of assets in Japan as of
April 30 (compared to 23 percent for the benchmark), this marks an increase from
the range of 8 to 12 percent we held there during the 1998 calendar year. In
March, we saw a real shift in momentum from Europe to Asia and, specifically,
Japan. Believing that the country's recession was nearing a bottom, we began to
add companies likely to benefit from at least one of three trends that we feel
will continue to fuel the turnaround that is underway: monetary stimulus,
restructuring, and the possibility of a weaker yen. This focus has led us to
invest in homebuilders that stand to benefit from an increase in the money
supply, such as Sekisui House, as well as highly competitive exporters, such as
Sony. While we intend to maintain an underweight position in Japan in the
immediate future, we feel that the valuations there are becoming increasingly
compelling.
Q WHAT ADVICE WOULD YOU OFFER TO SHAREHOLDERS AT THIS JUNCTURE?
A Above all, to be patient. We recognize that it can be frustrating when the
major indices are rising and your fund isn't. For people who are invested in a
sector that has underperformed for an extended period of time, it is natural to
consider reallocating assets into the areas that have been posting the strongest
returns. However tempting such a course of action may be, we feel that value
stocks, such as those held by Kemper International Growth And Income Fund,
continue to be a necessary element of a diversified portfolio. Despite the
recent underperformance, we are confident that a strategy emphasizing value and
relative yields, which has performed well on a historical basis, will again do
so in the future. Investment styles tend to move in and out of favor in extended
cycles, so investors who attempt to chase hot sectors may find themselves buying
high and selling low. We believe that such an approach is often detrimental to
the achievement of long-term investment goals. We viewed the slump in value
stocks as an opportunity to purchase quality companies at bargain prices. If
value is coming back into vogue, these names should be poised for significant
moves on the upside.
TERMS TO KNOW
- --------------------------------------------------------------------------------
CYCLICAL STOCKS Companies whose earnings are closely tied to the business cycle.
Cyclical industries include steel, cement, paper, machinery, and autos.
DISINFLATION The slowing down of the rate at which prices increase. This
phenomenon is generally associated with a slowing economy, and is distinct from
deflation, which is an outright decline in prices.
DIVIDEND YIELD With stocks, a company's payment out of earnings to shareholders
divided by its share price. For example, a stock that sells for $10 and pays
annual dividends totaling $1 has a yield of 10%; if the stock price goes up to
$20, the yield would fall to 5%.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected impact of
management, products, sales, and earnings on their balance sheets and income
statements. Distinct from technical analysis, which evaluates the attractiveness
of a stock based on historical price and trading volume movements, rather than
the financial results of the underlying company.
GROWTH STOCK Stock of a company that has displayed above average earnings growth
and is expected to continue to increase profits rapidly going forward. Stocks of
such companies usually trade at higher multiples to earnings (see price/earnings
ratio) and experience more price volatility than the market as a whole. Distinct
from value stock.
VALUE STOCK A company whose stock price does not fully reflect its intrinsic
value, as indicated by price/earnings ratio, price/book value ratio, dividend
yield, or some other valuation measure, relative to its industry or the market
overall. Value stocks tend to display less price volatility and may carry higher
dividend yields. Distinct from growth stock.
WEIGHTING (OVER/UNDER) Refers to the allocation of assets -- usually in terms of
sectors, industries, or countries -- within a portfolio relative to the
portfolio's benchmark index or investment universe.
SOURCES: SCUDDER KEMPER INVESTMENTS, INC., BARRON'S DICTIONARY OF FINANCE AND
INVESTMENT TERMS
7
<PAGE> 8
LARGEST HOLDINGS
KEMPER INTERNATIONAL GROWTH AND INCOME FUND'S TOP 20 HOLDINGS*
Representing 64.9 percent of the fund's equity holdings on April 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
HOLDING COUNTRY PERCENT
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
1. SAKURA BANK, LTD. Japan 4.8%
- ----------------------------------------------------------------------
2. ACCOR S.A. France 4.0%
- ----------------------------------------------------------------------
3. BAYER AG Germany 3.7%
- ----------------------------------------------------------------------
4. LASMO PLC United Kingdom 3.6%
- ----------------------------------------------------------------------
5. UBS AG Switzerland 3.5%
- ----------------------------------------------------------------------
6. HSBC HOLDINGS PLC Hong Kong 3.5%
- ----------------------------------------------------------------------
7. DEXIA FRANCE France 3.4%
- ----------------------------------------------------------------------
8. MARKS & SPENCER, PLC United Kingdom 3.3%
- ----------------------------------------------------------------------
9. ADIDAS-SALOMON AG Germany 3.2%
- ----------------------------------------------------------------------
10. INDUSTRIAL BANK OF JAPAN, Japan 3.1%
LTD.
- ----------------------------------------------------------------------
11. SONY CORP. Japan 3.1%
- ----------------------------------------------------------------------
12. NINTENDO CO., LTD. Japan 3.1%
- ----------------------------------------------------------------------
13. SCOR S.A. France 2.9%
- ----------------------------------------------------------------------
14. BRITISH STEEL PLC United Kingdom 2.9%
- ----------------------------------------------------------------------
15. UPM-KYMMENE OYJ Finland 2.9%
- ----------------------------------------------------------------------
16. ROYAL & SUN ALLIANCE United Kingdom 2.9%
INSURANCE GROUP PLC
- ----------------------------------------------------------------------
17. NOMURA SECURITIES CO., LTD. Japan 2.8%
- ----------------------------------------------------------------------
18. ENTE NAZIONALE IDROCARBURI Italy 2.8%
SPA
- ----------------------------------------------------------------------
19. BANK AUSTRIA AG Austria 2.7%
- ----------------------------------------------------------------------
20. ALLIED-DOMECQ PLC United Kingdom 2.7%
- ----------------------------------------------------------------------
</TABLE>
*PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF Investments
KEMPER INTERNATIONAL GROWTH AND INCOME FUND
Portfolio of Investments at April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT($) OR MARKET
CONVERTIBLE BONDS--3.9% NUMBER OF SHARES VALUE($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--1.9%
Glaxo SLF
2%, 05/20/2003
85,000 $ 89,463
(RESEARCHER, DEVELOPER, MANUFACTURER AND
RETAILER OF PHARMACEUTICALS)
-------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
UNITED STATES--2.0%
Diageo ML
2%, 04/14/2004
100,000 95,250
(OPERATIONS IN FOOD, ALCOHOLIC BEVERAGES AND
FAST FOOD RESTAURANTS)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
184,713
(Cost $191,600)
-------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--96.1%
- ------------------------------------------------------------------------------------------------------------------------------
AUSTRIA--2.5%
Bank Austria AG
1,870 115,996
(PROVIDER OF COMMERCIAL AND CORPORATE
BANKING SERVICE
-------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
CANADA--1.9%
2,014 91,859
BCE, Inc.
(TELECOMMUNICATION SERVICES)
-------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FINLAND--2.6%
4,100 124,108
UPM-Kymmene OYJ
(MANUFACTURER OF PAPER AND PAPER PRODUCTS)
-------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FRANCE--12.8%
650 171,346
Accor S.A.
(PROVIDER OF CATERING, HOTEL AND TRAVEL
SERVICES)
1,763 80,003
Compagnie Generale des Etablissements
Michelin "B"
(TIRE MANUFACTURER)
1,040 145,593
Dexia France
(PROVIDER OF MUNICIPAL AND LOCAL
DEVELOPMENT FINANCING)
511 79,365
Elf Aquitaine S.A.
(PETROLEUM COMPANY)
2,511 125,221
Scor S.A.
(PROPERTY, CASUALTY AND LIFE REINSURANCE
COMPANY)
-------------------------------------------------------------------------------------------
601,528
- ------------------------------------------------------------------------------------------------------------------------------
GERMANY--11.5%
1,388 136,677
Adidas-Salomon AG
(MANUFACTURER OF SPORT SHOES, CLOTHING AND
EQUIPMENT)
3,729 158,383
Bayer AG
(LEADING CHEMICAL PRODUCER)
1,137 44,808
Deutsche Telekom AG
(TELECOMMUNICATION SERVICES)
2,706 101,495
Metro AG
(OPERATOR OF BUILDING, CLOTHING, FOOD
STORES AND SUPERMARKETS)
308 98,601
SAP AG
(COMPUTER SOFTWARE MANUFACTURER)
-------------------------------------------------------------------------------------------
539,964
</TABLE>
9
<PAGE> 10
Portfolio of INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF SHARES VALUE($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG--4.1%
4,000 $ 148,631
HSBC Holdings PLC
(INTERNATIONAL BANKING AND FINANCIAL
SERVICES PROVIDER)
17,200 46,269
Hong Kong Telecommunications, Ltd.
(TELECOMMUNICATION SERVICES)
-------------------------------------------------------------------------------------------
194,900
- -----------------------------------------------------------------------------------------------------------------------------
ITALY--4.7%
17,900 117,823
Ente Nazionale Idrocarburi SpA
(EXPLORATION AND PRODUCTION OF OIL, NATURAL
GAS AND CHEMICALS)
23,900 104,036
La Rinascente SpA di Risparmio
(DEPARTMENT STORE CHAIN)
-------------------------------------------------------------------------------------------
221,859
- -----------------------------------------------------------------------------------------------------------------------------
JAPAN--19.2%
16,000 133,278
Industrial Bank of Japan, Ltd.
(COMMERCIAL BANK AND TRUST COMPANY)
22,000 96,325
Mitsubishi Heavy Industries, Ltd.
(DIVERSIFIED HEAVY MACHINERY MANUFACTURER
AND LEADING SHIPBUILDER)
1,400 130,448
Nintendo Co., Ltd.
(MANUFACTURER OF GAME EQUIPMENT)
11,000 118,610
Nomura Securities Co., Ltd.
(FINANCIAL ADVISOR, SECURITIES BROKER AND
UNDERWRITER)
53,000 204,546
Sakura Bank, Ltd.
(PROVIDER OF BANKING SERVICES)
8,000 89,544
Sekisui House, Ltd.
(HOME BUILDER)
1,400 130,682
Sony Corp.
(MANUFACTURER OF CONSUMER ELECTRONIC
PRODUCTS)
-------------------------------------------------------------------------------------------
903,433
- -----------------------------------------------------------------------------------------------------------------------------
NETHERLANDS--4.3%
5,140 76,844
Elsevier NV
(INTERNATIONAL PUBLISHER OF SCIENTIFIC,
PROFESSIONAL, BUSINESS, AND CONSUMER
INFORMATION BOOKS)
1,360 56,758
Koninklijke KPN NV
(TELECOMMUNICATION SERVICES)
1,230 71,606
Royal Dutch Petroleum Co.
(PETROLEUM COMPANY)
-------------------------------------------------------------------------------------------
205,208
- -----------------------------------------------------------------------------------------------------------------------------
SPAIN--2.2%
7,320 102,475
Iberdrola S.A.
(ELECTRIC UTILITY)
-------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SWEDEN--2.4%
2,450 111,218
Investor AB "B"
(INVESTMENT COMPANY WITH HOLDINGS IN LISTED
SHARES OF INDUSTRIAL COMPANIES)
-------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF Investments
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF SHARES VALUE($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWITZERLAND--9.4%
(a)(b) ABB AG (New) 65 $ 94,793
(MANUFACTURER OF ELECTRICAL EQUIPMENT)
283 105,358
Georg Fischer AG
(MANUFACTURER OF AUTOMOTIVE PRODUCTS AND
PIPING SYSTEMS)
(a) Swisscom AG 249 91,394
(OPERATOR OF TELECOMMUNICATION NETWORKS AND
NETWORK APPLICATION SERVICES)
442 150,066
UBS AG
(PROVIDER OF BANKING AND ASSET MANAGEMENT
SERVICES)
-------------------------------------------------------------------------------------------
441,611
- -----------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--18.5%
14,849 115,609
Allied-Domecq plc
(BREWERS AND DISTILLERS)
52,813 125,096
British Steel plc
(IRON AND STEEL PRODUCER)
12,201 103,775
EMI Group plc
(MUSIC RECORDING AND RETAILING COMPANY)
59,855 154,052
LASMO plc
(OIL PRODUCTION AND EXPLORATION)
20,423 140,033
Marks & Spencer, plc
(RETAILER OF CONSUMER GOODS AND FOODS)
7,820 113,716
Peninsular and Oriental Steam Navigation Co.
(PROVIDER OF MARINE SHIPPING AND TRANSPORT
SERVICES)
14,147 122,318
Royal & Sun Alliance Insurance Group plc
(MULTI-LINE INSURANCE HOLDING COMPANY)
-------------------------------------------------------------------------------------------
874,599
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
4,528,758
(Cost $4,157,627)
-------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
4,713,471
(Cost $4,349,227)
-------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $94,793 (1.9% of net assets). Its value
has been estimated by the Valuation Committee in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and
the difference could be material. The cost of this security at April 30,
1999 was $80,708. This security may also have certain restrictions as to
resale.
Transactions in written options during the year ended April 30, 1999 were:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS PREMIUMS($)
------------------- -----------
<S> <C> <C>
Outstanding at October 31, 1998 4,985.00 16,461.00
Contracts written -- --
Contracts closed (4,985.00) (16,461.00)
--------- ----------
April 30, 1999 -- --
========= ==========
</TABLE>
Based on the cost of investments of $4,349,227 for federal income tax purposes
at April 30,1999, the gross unrealized appreciation was $481,526, the gross
unrealized depreciation was $117,282 and the net unrealized appreciation on
investments was $364,244.
See accompanying notes to Financial Statements
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost $4,349,227) $4,713,471
- --------------------------------------------------------------------------
Cash 93,829
- --------------------------------------------------------------------------
Foreign currency, at value
(Cost $15,932) 15,794
- --------------------------------------------------------------------------
Receivable for:
Investments sold 194,852
- --------------------------------------------------------------------------
Fund shares sold 3,781
- --------------------------------------------------------------------------
Dividends and interest 12,418
- --------------------------------------------------------------------------
Foreign taxes 3,236
- --------------------------------------------------------------------------
Reimbursement from Adviser 62,126
- --------------------------------------------------------------------------
Deferred organization expense 11,047
- --------------------------------------------------------------------------
TOTAL ASSETS 5,110,554
- --------------------------------------------------------------------------
LIABILITIES
Payable for:
Investments purchased 70,024
- --------------------------------------------------------------------------
Fund shares redeemed 22,110
- --------------------------------------------------------------------------
Other payables and accrued expenses 124,834
- --------------------------------------------------------------------------
Total liabilities 216,968
- --------------------------------------------------------------------------
NET ASSETS $4,893,586
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $4,943,487
- --------------------------------------------------------------------------
Accumulated net realized loss on investments (416,342)
- --------------------------------------------------------------------------
Net unrealized appreciation on:
Investments 364,244
- --------------------------------------------------------------------------
Foreign currency related transactions 90
- --------------------------------------------------------------------------
Undistributed net investment income 2,107
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $4,893,586
- --------------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share ($2,512,181
/ 240,962 shares outstanding) $10.43
- --------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of
net asset value or 5.75% of offering price) $11.07
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($1,936,108 / 186,993 shares outstanding) $10.35
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($445,297 / 42,973 shares outstanding) $10.36
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (unaudited)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
NET INVESTMENT LOSS
Dividends (net of foreign taxes withheld of $4,988) $ 41,587
- -------------------------------------------------------------------------
Interest 8,292
- -------------------------------------------------------------------------
Total investment income 49,879
- -------------------------------------------------------------------------
Expenses:
Management fee 22,860
- -------------------------------------------------------------------------
Distribution services fee 8,653
- -------------------------------------------------------------------------
Administrative services fee 5,715
- -------------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 115,693
- -------------------------------------------------------------------------
Professional fees 12,750
- -------------------------------------------------------------------------
Reports to shareholders 5,250
- -------------------------------------------------------------------------
Registration fees 151
- -------------------------------------------------------------------------
Amortization of organization expenses 1,448
- -------------------------------------------------------------------------
Directors' fees and other 3,300
- -------------------------------------------------------------------------
Total expenses before expense waiver 175,820
- -------------------------------------------------------------------------
Less expenses waived and absorbed by adviser (124,357)
- -------------------------------------------------------------------------
Total expenses after expense waiver 51,463
- -------------------------------------------------------------------------
NET INVESTMENT LOSS (1,584)
- -------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) from:
Investments (281,329)
- -------------------------------------------------------------------------
Options 16,652
- -------------------------------------------------------------------------
Foreign currency related transactions (1,883)
- -------------------------------------------------------------------------
(266,560)
- -------------------------------------------------------------------------
Change in net unrealized appreciation on:
Investments 603,681
- -------------------------------------------------------------------------
Options 1,647
- -------------------------------------------------------------------------
Foreign currency related transactions 254
- -------------------------------------------------------------------------
605,582
- -------------------------------------------------------------------------
Net gain on investments 339,022
- -------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 337,438
- -------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE SIX DECEMBER 31, 1997
MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income (loss) $ (1,584) 21,204
- ------------------------------------------------------------------------------------------------------------
Net realized loss (266,560) (151,350)
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) 605,582 (241,248)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 337,438 (371,394)
- ------------------------------------------------------------------------------------------------------------
Distribution from net investment income 0 (15,945)
- ------------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 285,169 4,638,318
- ------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 622,607 4,250,979
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 4,270,979 20,000
- ------------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $2,107) $4,893,586 4,270,979
- ------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper International Growth and Income Fund (the
fund) is a 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. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on 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 on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Forward foreign currency contracts
are valued at the prevailing forward exchange rate
of the underlying currencies on that day.
Portfolio debt securities other than money market
securities with an original maturity over sixty
days are valued by pricing agents approved by the
officers of the fund, which quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of 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.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses from sales and maturities of forward
foreign currency exchange contracts, disposition of
foreign currencies, and the difference between the
amount of net investment income accrued and the
U.S. dollar amount actually received. That portion
of both realized and unrealized gains and losses on
investments that result from fluctuations in
foreign currency exchange rates is not separately
disclosed.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Dividend income is recorded on
the ex-dividend date, and interest income is
recorded on the accrual basis. Realized gains and
losses from investment transactions are reported on
an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing the fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At October 31, 1998, the fund had a tax basis net
loss carryforward of approximately $148,000, 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
semi-annually 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.
- --------------------------------------------------------------------------------
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
April 30, 1999, after an expense waiver by Scudder
Kemper.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
In addition, Scudder Kemper has temporarily agreed
to absorb certain operating expenses of the fund.
Under these arrangements, Scudder Kemper waived and
absorbed expenses of $124,357 for the period ended
April 30, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
paid in connection with the distribution of Class A
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- -------------------
<S> <C> <C>
Period ended April 30, 1999 $756 7,542
</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 April 30, 1999, after an expense
waiver by Scudder Kemper. CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
CDSC RECEIVED DISTRIBUTION FEES PAID
BY KDI BY KDI TO FIRMS
------------- ----------------------
<S> <C> <C>
Period ended April 30, 1999 $2,301 14,022
</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 April 30, 1999, after an expense
waiver by Scudder Kemper. During the period ended
April 30, 1999, KDI paid fees of $5,715 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 $12,646
for the period ended April 30, 1999.
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 April 30, 1999, after a waiver of
$25,000 by Scudder Kemper.
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the period ended
April 30, 1999, the fund made no payments to its
officers and incurred directors' fees of $5,096 to
independent directors.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended April 30, 1999, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $4,317,599
Proceeds from sales 3,930,441
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund:
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
APRIL 30, 1999 OCTOBER 31, 1998
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 135,816 $ 1,341,305 226,411 $2,362,397
-------------------------------------------------------------------------------------------
Class B 46,580 460,402 184,498 1,985,454
-------------------------------------------------------------------------------------------
Class C 19,496 189,595 65,361 687,745
SHARES REISSUED IN REINVESTMENT OF DIVIDENDS
Class A 0 0 1,039 11,397
-------------------------------------------------------------------------------------------
Class B 0 0 314 3,449
-------------------------------------------------------------------------------------------
Class C 0 0 58 642
SHARES REDEEMED
Class A (108,558) (1,083,914) (14,309) (146,012)
-------------------------------------------------------------------------------------------
Class B (36,044) (354,860) (8,959) (92,920)
-------------------------------------------------------------------------------------------
Class C (25,334) (267,359) (17,183) (173,834)
-------------------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 285,169 $4,638,318
-------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS A
----------------------------------------------
FOR THE
PERIOD FROM
DECEMBER 31, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.73 9.50
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (.01) .13
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .71 .20
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .70 .33
- -----------------------------------------------------------------------------------------------------------
Less distribution from net investment income 0 .10
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.43 9.73
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.98% 3.31
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the fund 1.81% 1.81
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) .38 1.54
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 6.88 13.58
- -----------------------------------------------------------------------------------------------------------
Net investment loss (4.69) (10.23)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS B
----------------------------------------------
FOR THE
PERIOD FROM
DECEMBER 31, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.71 9.50
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (.02) .04
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .66 .22
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .64 .26
- -----------------------------------------------------------------------------------------------------------
Less distribution from net investment income 0 .05
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.35 9.71
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.59% 2.64
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the fund 2.69% 2.69
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) (.53) .66
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 8.49 15.21
- -----------------------------------------------------------------------------------------------------------
Net investment loss (6.33) (11.86)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS C
----------------------------------------------
FOR THE
PERIOD FROM
DECEMBER 31, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.71 9.50
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (.02) .05
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .67 .21
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .65 .26
- -----------------------------------------------------------------------------------------------------------
Less distribution from net investment income 0 .05
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 9.71
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.69% 2.65
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the fund 2.66% 2.66
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) (.43) .69
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 8.46 15.18
- -----------------------------------------------------------------------------------------------------------
Net investment loss (6.23) (11.83)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 31, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
<S> <C> <C> <C>
SUPPLEMENTAL DATA FOR ALL CLASSES
Net assets at end of period $4,893,586 $4,270,979
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 179% 97%
- -----------------------------------------------------------------------------------------------------------
</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
SPECIAL SHAREHOLDERS' MEETING
SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper
International Growth And Income Fund shareholders were asked to vote on two
separate issues: approval of the new Investment Management Agreement between the
fund and Scudder Kemper Investments, Inc., and to modify or eliminate certain
policies and to eliminate the shareholder approval requirements as to certain
other matters. The following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
254,340 2,082 2,062
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
<TABLE>
<S> <C> <C> <C>
Investment Objectives
For Against Abstain Broker Non-Votes
187,375 5,564 4,839 60,707
</TABLE>
<TABLE>
<S> <C> <C> <C>
Diversification
For Against Abstain Broker Non-Votes
187,658 5,280 4,839 60,707
</TABLE>
<TABLE>
<S> <C> <C> <C>
Lending
For Against Abstain Broker Non-Votes
187,375 5,564 4,839 60,707
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS&OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
JAMES E. AKINS MARK S. CASADY ANN M. MCCREARY
Director President Vice President
JAMES R. EDGAR 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 CORNELIA SMALL
Director JOYCE E. CORNELL Vice President
Vice President
KATHRYN L. QUIRK LINDA J. WONDRACK
Director and Vice President DIEGO ESPINOSA Vice President
Vice President
FRED B. RENWICK MAUREEN E. KANE
Director JOAN R. GREGORY Assistant Secretary
Vice President
JOHN G. WEITHERS CAROLINE PEARSON
Director TARA C. KENNEY Assistant Secretary
Vice President
ELIZABETH C. WERTH
THOMAS W. LITTAUER Assistant Secretary
Vice President
BRENDA LYONS
Assistant Treasurer
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
.............................................................................................
TRANSFER AND SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
.............................................................................................
CUSTODIAN BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
200 Clarendon Street
Boston, MA 02116
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
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Long-term investing in a short-term world(SM)
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KIGIF - 3 (6/25/99) 1076920
