<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 high current income and, as a secondary
objective, long-term capital appreciation.
KEMPER EMERGING
MARKETS INCOME FUND
"... A combination of relatively easy global monetary
conditions and an improving growth outlook have
helped emerging markets to stabilize. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Country Concentrations
8
Portfolio of Investments
10
Financial Statements
13
Notes to
Financial Statements
17
Financial Highlights
19
Shareholders'
Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS 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 14.95
CLASS B 14.29
CLASS C 14.11
LIPPER EMERGING MARKET DEBT CATEGORY AVERAGE* 17.72
- --------------------------------------------------------------------------------
</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.
* 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.
AS A NON-DIVERSIFIED FUND, THE FUND MAY INVEST A GREATER PROPORTION OF ITS
ASSETS IN THE OBLIGATIONS OF A SMALL NUMBER OF ISSUERS. AND MAY BE SUBJECT TO
GREATER RISK AND SUBSTANTIAL LOSSES AS A RESULT OF CHANGES IN THE FINANCIAL
CONDITION OR THE MARKET'S ASSESSMENT OF THE ISSUERS THAN A DIVERSIFIED FUND.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
4/30/99 10/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EMERGING MARKETS
INCOME FUND CLASS A $5.82 $5.39
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS
INCOME FUND CLASS B $5.81 $5.38
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS
INCOME FUND CLASS C $5.81 $5.39
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS INCOME
FUND LIPPER RANKINGS AS OF 4/30/99*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EMERGING MARKET DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #44 of 46 funds #45 of 46 funds #46 of 46 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF APRIL 30, 1999
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME $.3350 $.3109 $.3126
- --------------------------------------------------------------------------------
APRIL DIVIDEND $.0425 $.0384 $.0387
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE+ 8.75% 7.97% 8.01%
- --------------------------------------------------------------------------------
SEC YIELD+ 9.66% 9.37% 9.41%
- --------------------------------------------------------------------------------
</TABLE>
+CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON APRIL 30, 1999. DISTRIBUTION RATE
SIMPLY MEASURES THE LEVEL OF DIVIDENDS AND IS NOT A COMPLETE MEASURE OF
PERFORMANCE. THE SEC YIELD IS NET INVESTMENT INCOME PER SHARE EARNED OVER THE
MONTH ENDED APRIL 30, 1999, SHOWN AS AN ANNUALIZED PERCENTAGE OF THE MAXIMUM
OFFERING PRICE ON THAT DATE. THE SEC YIELD IS COMPUTED IN ACCORDANCE WITH A
STANDARDIZED METHOD PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION.
YIELDS AND DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR INCOME STYLE BOX
- --------------------------------------------------------------------------------
[MATURITY/QUALITY DIAGRAM]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. The Income Style Box
placement is based on a fund's average effective maturity or duration and the
average credit rating of the bond portfolio.
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 A 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. PLEASE CONSULT THE PROSPECTUS
FOR A DESCRIPTION OF INVESTMENT POLICIES.
BASIS POINTS The movement of interest rates or yields expressed in hundredths of
a percent. For example, 5.00% to 5.50% represents an increase of 50 basis
points.
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 an investment's total return, because
when investments are converted back into U.S. dollars it takes more of the
foreign currency to purchase U.S. dollars.
INTERNATIONAL MONETARY FUND (IMF) 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.
LEVERAGE The use of borrowed assets by a business to enhance the return of the
owner's equity. The expectation is that the interest rate charged will be lower
than the earning made on the money. However, leveraging may also increase a
fund's volatility.
<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
[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 B.A. 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 ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
FOR THE PAST YEAR AND A HALF, EMERGING MARKET DEBT INVESTORS HAVE ENDURED SOME
DIFFICULT MOMENTS. TODAY THESE MARKETS APPEAR READY TO SHOW THEIR GRACIOUS SIDE
AND REWARD INVESTORS WHO BRAVED THOSE VOLATILE DAYS. LEAD PORTFOLIO MANAGER
ISABEL SALTZMAN DISCUSSES THE RECENT SIX-MONTH PERIOD, AND THE FORCES BEHIND THE
MARKET MELTDOWN AND THE REMARKABLE RECOVERY THAT IS UNDERWAY.
Q CAN YOU DISCUSS SOME OF THE MORE IMPORTANT EVENTS THAT AFFECTED EMERGING
MARKET DEBT OVER THIS PERIOD?
A Last fall, investors were still anxious over the Russian crisis and were
wondering if Brazil, struggling under growing domestic debt and an overvalued
currency, was headed down the same path. Oil prices were coming down again,
causing more troubles for commodity-dependent emerging countries like Venezuela.
On top of that, presidential elections in Venezuela created political noise in
Latin America. But when the Federal Reserve Board cut U.S. Treasury rates by 25
basis points in November, it provided a boost to global liquidity. The increased
spreads on emerging market debt helped to attract investors back into the
market.
Investors had partially discounted the possibility of a Brazilian
devaluation, and when it finally happened in late January, there was some sense
of relief that foreign exchange reserves would not be used to defend the
currency. The sell-off subsequent to this event was thus short-lived. The
Brazilian government acted quickly to shore up support at the International
Monetary Fund (IMF) and World Bank, appointed a new central bank governor, and
adopted tough fiscal and monetary policy stances. A relief rally was soon
underway and, by March, prospects for an economic recovery in Latin America were
looking considerably brighter. Economies across the region were showing signs of
a turnaround, oil prices had risen, political situations were stabilizing and
foreign direct investment was up.
Meanwhile, much of Asia had been quietly staging an economic recovery of
its own. Surging demand in the United States provided a vital market for the
export-oriented Asian economies. In February, Korean debt was upgraded to
investment grade.
In emerging European markets, the Kosovo conflict has taken a toll on
surrounding countries. This impact is expected to be temporary, as fundamentals
still look solid in neighboring countries such as Bulgaria.
A combination of relatively easy global monetary conditions and an
improving growth outlook have helped emerging markets to stabilize. Global
liquidity has accommodated the external financing requirement for emerging
markets this year. Issuance is near the levels reached in 1995 and 1996, which
were strong years for emerging markets.
Q THE FUND RETURNED 14.95% (CLASS A SHARES UNADJUSTED FOR SALES CHARGES) FOR
THE SIX-MONTH PERIOD, SLIGHTLY LESS THAN THE JP MORGAN EMERGING MARKETS BOND
INDEX PLUS (EMBI+),* UP TO 15.87%, AND OUR LIPPER PEER GROUP AVERAGE (SEE PAGE
2). WHILE THESE ARE IMPRESSIVE
5
<PAGE> 6
PERFORMANCE UPDATE
NUMBERS FOR A SIX-MONTH PERIOD, WHY THE LESSER RELATIVE PERFORMANCE?
A Over the past six months, we were managing the fund conservatively in an
extremely volatile environment. We were a little hesitant to come back into
Brazil after the devaluation in January as we wanted to see some reform
initiatives instituted by the government, and therefore, we missed out on the
early stages of the rebound. In addition, we hold no Russian Eurobonds, which
have rebounded over 50 percent on the Russian government's assurances that they
will be paid. Given Russia's track record and our assessment of the actual hard
currency available to meet these obligations, we do not feel comfortable holding
a position in the Eurobonds.
* JP MORGAN EMERGING MARKETS BOND INDEX PLUS (EMBI+) IS GENERALLY REPRESENTATIVE
OF EMERGING MARKETS' EXTERNAL CURRENCY TRADED DEBT AND IS NOT AVAILABLE FOR
DIRECT INVESTMENT. SOURCE IS BLOOMBERG.
Q IN OUR LAST REPORT, RUSSIA WAS AT THE CENTER OF MUCH OF THE TROUBLES
PLAGUING THE EMERGING MARKETS. WHAT IS THE SITUATION IN RUSSIA TODAY?
A Russia missed its December 2 coupon payment on the Prins (a Russian debt
offering), putting the country into default. The Prins coupon was 6.625 percent,
to be paid 50 percent in cash and 50 percent in principle of the Interest Arrear
Notes (IAN). Russia wanted to pay the entire coupon in IANs, but creditors voted
against this.
As it became clear that the Russians would have difficulties servicing
their debt obligations, Russian government officials began to stress the
differences between debt issued by the Russian Federation and that issued by the
former Soviet Union. They felt that they were responsible for only paying the
Russian Federation debt and not the debt of the former Soviet Union. Because of
this, Russian Eurobonds saw a rebound as they are considered to be debt of the
Russian Federation.
Recently there has been some talk about the IMF giving Russia additional
money -- about $4.5 billion over the next 18 months -- but they will want to see
reforms implemented before they give Russia any money.
Q HOW DID YOU MANAGE THE FUND THROUGH THIS VOLATILE PERIOD? WHAT ADJUSTMENTS
DID YOU MAKE TO THE PORTFOLIO?
A Early on we were quite concerned about the situation in Brazil. We were
expecting some sort of currency adjustment, and we had reduced our Brazilian
exposure. We were holding all sovereign dollar bonds, so we weren't exposed to
currency risk, but when a currency falls as much as the Brazilian real did, it
affects the entire market.
In December, we began reducing Brazil and our Latin American exposure and
added into Europe and Asia. We bought some Korean and Philippine bonds and added
some positions in Bulgaria and Croatia. We benefited from a rally in Asia as the
yen began to stabilize. Korea is recovering very quickly from its economic
troubles of a year ago. The upgrade of Korean sovereign paper to investment
grade in February helped give Asian bonds a boost. In early February, we began
rotating out of Asia and back into Latin America as Korean spreads tightened to
250 basis points behind Treasuries and the situation in Latin America began to
stabilize. By March, the numbers were starting to look better in Brazil. Foreign
direct investment was returning, the currency had stabilized, interest rates
were declining, and the equity markets were picking up.
As the sentiment was shifting in Latin America, the Kosovo conflict began
heating up in Europe and its effects raised some questions. By the end of March,
we had begun reducing our exposure in the region due to concerns about the
impact of trade being interrupted, the costs of supporting the influx of
refugees and the drop in tourism on the country's gross domestic product (GDP).
The possibility of an extended conflict in Kosovo continues to weigh on Eastern
European spreads.
6
<PAGE> 7
PERFORMANCE UPDATE
Q THE DIVIDEND PAYMENT FOR KEMPER EMERGING MARKET INCOME FUND WAS CUT TWICE
DURING THE PERIOD. WHY WAS THIS NECESSARY?
A Since the Brazil crisis in January, emerging market debt yields have come
in quite a bit. With the market rallying, it became hard to support the previous
dividend based on income. As the market rallies and yields compress, the base
from which to draw cash flows tightens up. We're keeping the dividend in line
with market yields. The rate we had been paying was well above the market rate
and there was no way to support that. Today, the fund's dividend better reflects
market conditions.
Q WHAT DO YOU EXPECT TO SEE HAPPENING WITH EMERGING MARKET DEBT IN THE NEAR
FUTURE?
A We're seeing strengthening currencies, declining interest rates, and
rebounding commodity prices. The U.S. economy continues to display economic
growth with little evidence of inflation. Coupled with a strong U.S. equity
market, this growth is lending support to other economies around the world. We
are optimistic about the global environment and expect to see continued strength
in emerging market asset prices. As a reflection of our optimism going forward,
we've added leverage (see Terms To Know on page 2) to the portfolio over the
last few weeks. As of April 30, we were leveraged up to 15 percent of total
assets. The global environment continues to favor spread tightening and we
believe that the fund is well positioned to take advantage of this opportunity.
COUNTRY CONCENTRATIONS
PRIMARY GEOGRAPHIC DISTRIBUTION AS OF APRIL 30,1999*
[BAR GRAPH]
<TABLE>
<S> <C>
BRAZIL 27.00
MEXICO 21.00
ARGENTINA 17.00
VENEZUELA 7.00
PANAMA 6.00
PERU 5.00
PHILIPPINES 4.00
BULGARIA 3.00
ECUADOR 3.00
JAMAICA 2.00
MOROCCO 2.00
RUSSIA 2.00
COLOMBIA 1.00
</TABLE>
* GEOGRAPHIC DISTRIBUTION IS SUBJECT TO CHANGE.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER EMERGING MARKETS INCOME FUND
Portfolio of Investments at April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
BONDS--100% AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ARGENTINA--16.6%
Argentine Republic, Floating Rate Bond, Series L,
LIBOR plus .8125%, (5.9375%), 3/31/2005 474,300 422,127
Argentine Republic Global Bond, 11.375%, 1/30/2017 200,000 199,500
Argentine Republic, Collateralized Discount Bond,
Floating Rate Bond, Series L, 6.0625%, 3/31/2023 320,000 241,200
Argentine Republic, Collateralized Par Bond, Series L,
Step-up Coupon, 6%, 3/31/2023 250,000 177,656
Argentine Republic, 9.750%, 9/19/2027 10,000 8,750
Republic of Argentina, 11.000%, 12/4/2005 155,000 154,225
-----------------------------------------------------------------------------------
1,203,458
- -----------------------------------------------------------------------------------------------------------------------
BRAZIL--27.6%
Federative Republic of Brazil, IDU Floating Rate Bond,
LIBOR plus .8125%, (6.0625%), 1/1/2001 73,800 70,156
Federative Republic of Brazil, Eligible Interest,
Floating Rate Bond, LIBOR plus .8125%, (5.875%),
4/15/2006 356,250 284,332
Federative Republic of Brazil, "New" Money Bond,
Floating Rate Bond, LIBOR plus .875%, (5.9375%),
4/15/2009 240,000 171,600
Federative Republic of Brazil, Debt Conversion Bond,
Series L, LIBOR plus .875%, (5.9375%), 4/15/2012 435,000 276,225
Federative Republic of Brazil C Bond, 4.5% with 3.5%
Interest Capitalization, 8%, 4/15/2014 814,007 564,921
Federative Republic of Brazil, Collateralized Discount
Bond, Floating Rate Bond, LIBOR plus .8125%,
(5.875%), 4/15/2024 495,000 329,175
Federative Republic of Brazil Global Bond, 10.125%,
5/20/27 290,000 230,912
Federative Republic of Brazil, 11.625%, 4/15/2004 75,000 72,938
-----------------------------------------------------------------------------------
2,000,259
- -----------------------------------------------------------------------------------------------------------------------
BULGARIA--3.0%
Republic of Bulgaria, Interest Arrears Bond, LIBOR
plus .8125%, (5.875%), 7/28/2011 20,000 13,525
Republic of Bulgaria, Collateralized Discount Bond,
Tranche A, LIBOR plus .8125%, (5.875%), 7/28/2024 290,000 199,013
-----------------------------------------------------------------------------------
212,538
- -----------------------------------------------------------------------------------------------------------------------
COLOMBIA--1.1%
Republic of Colombia, 10.875%, 3/9/2004 45,000 47,381
Republic of Colombia, 8.625%, 4/1/2008 35,000 31,806
-----------------------------------------------------------------------------------
79,187
- -----------------------------------------------------------------------------------------------------------------------
ECUADOR--3.0%
Republic of Ecuador, Past Due Interest Bond, 3.75%
with 2.25% capitalization, 6%, 2/27/2015 347,751 146,055
Republic of Ecuador, Collateralized Discount Bond,
Floating Rate Bond, LIBOR plus .8125%, (6%),
2/28/2025 25,000 12,938
Republic of Ecuador, Collaterized Global Par Bond,
Step-up Coupon, 4%, 2/28/2025 130,000 55,088
-----------------------------------------------------------------------------------
214,081
- -----------------------------------------------------------------------------------------------------------------------
IVORY COAST--.2%
Republic of the Ivory Coast, Floating Rate Interest
Reduction Bond, 2.000%, 3/29/2018 70,000 17,850
-----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
JAMAICA--1.7%
Government of Jamaica, 10.875%, 6/10/2005 140,000 126,000
-----------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO--20.8%
United Mexican States, 9.875%, 1/15/2007 445,000 467,806
United Mexican States, 10.375%, 2/17/2009 145,000 155,513
United Mexican States Global Bond, 11.375%, 9/15/2016 175,000 200,813
United Mexican States, Floating Rate Discount Bond
(Detachable Oil Priced Indexed Value Recovery
Rights), Series D, LIBOR plus .8125%, (6.0975%),
12/31/2019 250,000 215,781
United Mexican States, Floating Rate Discount Note
(Detachable Oil Priced Indexed Value Recovery
Rights), Series C, LIBOR plus .8125%, (6.201%),
12/31/2019 250,000 215,781
United Mexican States, 11.5%, 5/15/2026 215,000 255,743
-----------------------------------------------------------------------------------
1,511,437
- -----------------------------------------------------------------------------------------------------------------------
MOROCCO--2.1%
Kingdom of Morocco, Restructuring and Consolidation
Agreement, Tranche A, Floating Rate Bond, LIBOR plus
.8125%, (6.0625%), 1/1/2009 190,238 155,757
-----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PANAMA--6.3%
Republic of Panama, Interest Reduction Bond, Step-up
Coupon, 4.000%, 7/17/2014 335,000 262,975
Republic of Panama, 8.875%, 9/30/2027 205,000 193,981
-----------------------------------------------------------------------------------
456,956
- -----------------------------------------------------------------------------------------------------------------------
PERU--4.9%
Republic of Peru, Floating Rate Interest Reduction
Bond, 3.75%, 3/7/2017 280,000 173,075
Republic of Peru, Past Due Interest Bond, 4.5%,
3/7/2017 275,000 185,625
-----------------------------------------------------------------------------------
358,700
- -----------------------------------------------------------------------------------------------------------------------
PHILIPPINES--4.2%
Republic of the Philippines, 8.875%, 4/15/2008 300,000 305,250
-----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RUSSIA--1.8%
(a)(b)Russian Federation Principal Loan, Floating Rate
Bond, LIBOR plus .8125%, (0.0%) 12/15/2020 1,805,066 130,868
-----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
VENEZUELA--6.7%
Republic of Venezuela, Debt Conversion Bond, Floating
Rate Bond, Series DL, LIBOR plus .875%, (5.9375%),
12/18/2007 454,284 366,834
Republic of Venezuela Global, 9.25%, 9/15/2027 160,000 116,000
-----------------------------------------------------------------------------------
482,834
-----------------------------------------------------------------------------------
TOTAL BOND OBLIGATIONS
(Cost $6,740,837) 7,255,175
-----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $6,740,837) 7,255,175
-----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
(b) On December 2, 1998, the Fund wrote down interest receivable of
approximately $27,000 and stopped accruing income from the Russian
Federation Principal Loan. At April 30, 1999 the bond is in default.
Based on the cost of investments of $7,601,841 for federal income tax purposes
at April 30, 1999, the gross unrealized appreciation was $500,859, the gross
unrealized depreciation was $847,525 and the net unrealized depreciation on
investments was $346,666.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost $6,740,837) $7,255,175
- --------------------------------------------------------------------------
Cash 50,623
- --------------------------------------------------------------------------
Receivable for:
Investments sold 262,069
- --------------------------------------------------------------------------
Interest 147,667
- --------------------------------------------------------------------------
Fund shares sold 41,543
- --------------------------------------------------------------------------
Reimbursement from Adviser 58,486
- --------------------------------------------------------------------------
Deferred organization expense 11,047
- --------------------------------------------------------------------------
Other assets 30,152
- --------------------------------------------------------------------------
TOTAL ASSETS 7,856,762
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------
Liability under reverse repurchase agreements 1,116,047
- --------------------------------------------------------------------------
Payable for:
Fund shares redeemed 14,418
- --------------------------------------------------------------------------
Investments purchased 323,143
- --------------------------------------------------------------------------
Other payables and accrued expenses 188,646
- --------------------------------------------------------------------------
Total liabilities 1,642,254
- --------------------------------------------------------------------------
NET ASSETS $6,214,508
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $8,342,921
- --------------------------------------------------------------------------
Accumulated net realized loss on investments (2,600,719)
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 514,338
- --------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (42,032)
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $6,214,508
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($4,880,055 / 837,945 shares outstanding) $5.82
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $6.18
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,148,878 / 197,785) $5.81
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($185,575 / 31,954 shares outstanding) $5.81
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (unaudited)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------
Interest $ 326,748
- -------------------------------------------------------------------------
Expenses:
Management fee 27,434
- -------------------------------------------------------------------------
Interest expense 2,012
- -------------------------------------------------------------------------
Distribution services fee 3,763
- -------------------------------------------------------------------------
Administrative services fee 6,858
- -------------------------------------------------------------------------
Custodian and accounting fees 90,425
- -------------------------------------------------------------------------
Transfer agent fees 13,707
- -------------------------------------------------------------------------
Professional fees 15,732
- -------------------------------------------------------------------------
Reports to shareholders 6,243
- -------------------------------------------------------------------------
Registration fees 223
- -------------------------------------------------------------------------
Amortization of organization expenses 1,448
- -------------------------------------------------------------------------
Directors' fees and other 4,695
- -------------------------------------------------------------------------
Other expenses 1,498
- -------------------------------------------------------------------------
Total expenses before expense waiver 174,038
- -------------------------------------------------------------------------
Less expenses waived and absorbed by adviser (121,541)
- -------------------------------------------------------------------------
Total expenses after expense waiver 52,497
- -------------------------------------------------------------------------
NET INVESTMENT INCOME 274,251
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------
Net realized loss on sales of investments (517,069)
- -------------------------------------------------------------------------
Change in net unrealized appreciation on investments 996,089
- -------------------------------------------------------------------------
Net gain on investments 479,020
- -------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 753,271
- -------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS AND CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS FROM DECEMBER 31,
ENDED 1997 (COMMENCEMENT
APRIL 30, 1999 OF OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------------
Net investment income $ 274,251 417,627
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) (517,069) (2,083,650)
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) 996,089 (481,751)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 753,271 (2,147,774)
- -------------------------------------------------------------------------------------------------------
Distribution from net investment income (334,562) (399,348)
- -------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 755,610 7,567,311
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,174,319 5,020,189
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
Beginning of period 5,040,189 20,000
- -------------------------------------------------------------------------------------------------------
END OF PERIOD (including accumulated distributions in excess
of net investment income of $42,032 and undistributed net
investment income of $18,279) $ 6,214,508 5,040,189
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES
- -------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 753,271
- -------------------------------------------------------------------------------------------------------
Non-cash items (884,254)
- -------------------------------------------------------------------------------------------------------
Purchase of investments (1,025,007)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (1,155,990)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES
- -------------------------------------------------------------------------------------------------------
Proceeds from net fund share activity 755,610
- -------------------------------------------------------------------------------------------------------
Proceeds from reverse repurchase agreements 785,047
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders (334,562)
- -------------------------------------------------------------------------------------------------------
Net cash used in financing activities 1,206,095
- -------------------------------------------------------------------------------------------------------
Net increase in cash 50,105
- -------------------------------------------------------------------------------------------------------
Cash at beginning of period 518
- -------------------------------------------------------------------------------------------------------
Cash at end of period $ 50,623
- -------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
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 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 purchased 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.
13
<PAGE> 14
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.
STATEMENT OF CASH FLOWS. Information on financial
transactions which have been settled through the
receipt and disbursement of cash is presented in
the Statement of Cash Flows. The cash amount shown
in the Statement of Cash Flows is the amount
reported as cash in the fund's Statement of Assets
and Liabilities and represents the cash position in
its custodian bank account at April 30, 1999.
REVERSE REPURCHASE AGREEMENTS. The fund may borrow
through the use of reverse repurchase agreements
whereby the fund agrees to sell and simultaneously
agrees to repurchase certain securities at a
mutually agreed date and price. At the time the
fund enters into a reverse repurchase agreement, it
is required to pledge securities subject to
repurchase. The sale of these securities is not
recorded and the fund agrees to later repay cash
plus interest. Should the securities' value decline
below the repurchase price, the fund may be
obligated to pledge additional collateral to the
lender in the form of cash or securities. Reverse
repurchase agreements involve the risk that the
market value of the securities purchased with the
proceeds from the sale of securities subject to
reverse repurchase agreements may decline below the
value of the securities the fund is obligated to
repurchase. The risk in borrowing, as with any
extension of credit, consists of the possible delay
in the recovery of securities or possible loss of
rights in the collateral should the counterparty
fail financially. Additionally,
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
there is the risk that the expense associated with
the transaction may be greater than the income
earned from the investment of the proceeds of the
transaction.
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
April 30, 1999, 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 $121,541 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), 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 April 30, 1999 $86 867
</TABLE>
For services under the distribution 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. 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 April 30, 1999 $85 22,435
</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 us 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 $4,572 to various
firms.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
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 $4,616
for the period ended April 30, 1999, $2,453 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 April 30, 1999, after a fee 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 $4,695 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended April 30, 1999, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $10,617,169
Proceeds from sales 8,544,599
- --------------------------------------------------------------------------------
5 REVERSE REPURCHASE
AGREEMENTS The fund has entered into reverse repurchase
agreements with third parties involving its
holdings in foreign debt securities. At April 30,
1999, 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 $1,191,865 $1,116,047 4.285%
</TABLE>
- --------------------------------------------------------------------------------
6 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 138,139 $ 755,017 794,635 $6,603,975
------------------------------------------------------------------------------
Class B 111,079 608,023 100,980 678,434
------------------------------------------------------------------------------
Class C 52,735 292,844 17,712 137,043
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 47,018 256,521 45,735 318,984
------------------------------------------------------------------------------
Class B 6,261 33,996 2,465 15,273
------------------------------------------------------------------------------
Class C 643 3,517 615 4,215
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (163,014) (867,813) (25,270) (161,488)
------------------------------------------------------------------------------
Class B (21,029) (111,791) (2,673) (17,252)
------------------------------------------------------------------------------
Class C (39,234) (214,704) (1,219) (11,873)
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 755,610 $7,567,311
------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS A
-------------------------------------------------
FOR THE PERIOD
FOR THE FROM
SIX MONTHS DECEMBER 31, 1997
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 $5.39 9.50
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .27 .64
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .50 (4.14)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .77 (3.50)
- -----------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .34 .61
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.82 5.39
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.95% (38.39)
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------
Expenses absorbed by the fund before interest expense 1.67% 1.68
- -----------------------------------------------------------------------------------------------------------------
Expenses absorbed by the fund after interest expense 1.75% 2.46
- -----------------------------------------------------------------------------------------------------------------
Net investment income 10.11% 10.59
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------
Expenses before interest expense 6.06% 5.12
- -----------------------------------------------------------------------------------------------------------------
Expenses after interest expense 6.13% 5.90
- -----------------------------------------------------------------------------------------------------------------
Net investment income 5.73% 7.15
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS B
-------------------------------------------------
FOR THE PERIOD
FOR THE FROM
SIX MONTHS DECEMBER 31, 1997
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 $5.38 9.50
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .53
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .45 (4.09)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .74 (3.56)
- -----------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .31 .56
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.81 5.38
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.29% (38.87)
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------
Expenses absorbed by the fund before interest expense 2.59% 2.56
- -----------------------------------------------------------------------------------------------------------------
Expenses absorbed by the fund after interest expense 2.67% 3.34
- -----------------------------------------------------------------------------------------------------------------
Net investment income 9.51% 9.71
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------
Expenses before interest expense 6.87% 6.75
- -----------------------------------------------------------------------------------------------------------------
Expenses after interest expense 6.94% 7.53
- -----------------------------------------------------------------------------------------------------------------
Net investment income 5.24% 5.52
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------
CLASS C
------------------------------------------
FOR THE PERIOD
FOR THE FROM
SIX MONTHS DECEMBER 31, 1997
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 $5.39 9.50
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .28 .54
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .45 (4.09)
- -------------------------------------------------------------------------------------------------
Total from investment operations .73 (3.55)
- -------------------------------------------------------------------------------------------------
Less distribution from net investment income .31 .56
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $5.81 5.39
- -----------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.11% (38.75)
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses absorbed by the fund before interest expense 2.54% 2.53
- -------------------------------------------------------------------------------------------------
Expenses absorbed by the fund after interest expense 2.62% 3.31
- -------------------------------------------------------------------------------------------------
Net investment income 9.16% 9.74
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses before interest expense 7.47% 6.72
- -------------------------------------------------------------------------------------------------
Expenses after interest expense 7.54% 7.50
- -------------------------------------------------------------------------------------------------
Net investment income 4.24% 5.55
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------
Net assets at end of period $6,214,508 5,040,189
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 315% 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.
18
<PAGE> 19
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper Emerging
Markets 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>
710,377 0 3,876
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
639,732 185 3,876 70,460
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
639,917 0 3,876 70,460
</TABLE>
19
<PAGE> 20
TRUSTEES AND OFFICERS
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 DIEGO ESPINOSA Vice President
Vice President Vice President
MAUREEN E. KANE
FRED B. RENWICK JOAN R. GREGORY Assistant Secretary
Director Vice President
CAROLINE PEARSON
JOHN G. WEITHERS TARA C. KENNEY Assistant Secretary
Director Vice President
ELIZABETH C. WERTH
THOMAS W. LITTAUER Assistant Secretary
Vice President
BRENDA LYONS
Assistant Treasurer
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Global and International Funds prospectus.
KEMIF - 3 (6/21/99) 1076900
