<PAGE> 1
ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED OCTOBER 31, 1998
KEMPER
LATIN AMERICA FUND
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
Seeks long-term capital appreciation through investment primarily in the
securities of Latin American issuers.
"... The Latin American equity market has been one of
the most volatile in the world in the past 10 months.
Fortunately, we positioned the portfolio in defensive
stocks and held some of the top performers. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
COUNTRY CONCENTRATIONS
10
LARGEST HOLDINGS
11
PORTFOLIO OF
INVESTMENTS
14
REPORT OF
INDEPENDENT AUDITORS
15
FINANCIAL STATEMENTS
17
NOTES TO
FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER LATIN AMERICA FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE 10-MONTH PERIOD ENDED OCTOBER 31, 1998 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A -23.05
CLASS B -23.58
CLASS C -23.58
LIPPER LATIN AMERICA FUNDS CATEGORY AVERAGE* -37.06
</TABLE>
Returns are historical and do not guarantee future results. Investment returns
and principal values will fluctuate so that shares, when redeemed, may be worth
more or less than original cost. Investment in foreign securities presents
special risk considerations including fluctuating currency exchange rates,
government regulation and differences in liquidity. These risks are generally
intensified for investments in emerging markets.
*Lipper Analytical Services, Inc. returns are based upon changes in net asset
value with all dividends reinvested and do not include the effect of sales
charges and, if they had, results may have been less favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/98 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER LATIN AMERICA FUND
CLASS A $7.31 $9.50
- --------------------------------------------------------------------------------
KEMPER LATIN AMERICA FUND
CLASS B $7.26 $9.50
- --------------------------------------------------------------------------------
KEMPER LATIN AMERICA FUND
CLASS C $7.26 $9.50
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Data provided by Morningstar, Inc., Chicago, IL (312) 696-6000. The
Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratios relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization. Please note that
style boxes do not represent an exact assessment of risk and do not represent
future performance. The fund's portfolio changes from day-to-day. A longer-term
view is represented by the fund's Morningstar category, which is based on its
actual investment style as measured by its underlying portfolio holdings as of
inception date 12/31/97. Morningstar has placed Kemper Latin America Fund in the
Latin America Stock Category.
EMERGING MARKET A developing or emerging country in the initial stages of its
industrial cycle. Developing or "emerging" markets involve exposure to economic
structures and political systems that are generally less diverse, mature and
stable than in the United States.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected impact of
management, products, sales, and earnings on 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.
LIQUIDITY A characteristic of an investment or an asset referring to the ease of
convertibility into cash within a reasonably short period of time.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year. The nation's budget
surplus for 1998 came in at $60 billion, with another budget surplus expected
for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2.5 percent and 3.5 percent for the second half of 1998 and is
anticipated to hover around 2 percent for the first half of 1999. The consumer
price index (CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOV 98 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1)* 4.53 5.64 6.03 6.53
PRIME RATE(2)* 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.49 1.50 2.08 2.99
THE U.S. DOLLAR(4) 0.83 6.86 9.65 3.46
CAPITAL GOODS ORDERS(5)* 2.51 7.47 10.64 9.19
INDUSTRIAL PRODUCTION(5)* 2.12 4.97 6.72 4.93
EMPLOYMENT GROWTH(6) 2.28 2.65 2.70 2.33
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF OCTOBER 31, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. The threat of impeachment, new
acts of terrorism or any other hints of crisis could prompt a downward spike in
our markets in the short run. In the long run, the keys to investment
performance remain moderate growth, low inflation and limited taxation and
regulation.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
MANAGING DIRECTOR
SCUDDER KEMPER INVESTMENTS, INC
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF DECEMBER 2, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[KENNEY PHOTO]
TARA KENNEY IS A MEMBER OF SCUDDER KEMPER INVESTMENTS' GLOBAL EQUITY GROUP,
FOCUSING ON PORTFOLIO MANAGEMENT OF LATIN AMERICAN EQUITY SECURITIES. KENNEY HAS
15 YEARS OF EXPERIENCE IN THE FIELD. SHE RECEIVED A BACHELOR'S DEGREE IN
POLITICAL SCIENCE AND LATIN AMERICAN STUDIES FROM THE UNIVERSITY OF NOTRE DAME
AND AN M.B.A. DEGREE IN FINANCE FROM NEW YORK UNIVERSITY.
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.
WITH LATIN AMERICAN EQUITY MARKETS INDEX (THE INTERNATIONAL FINANCE
CORPORATION'S LATIN AMERICA INDEX) DOWN NEARLY 38 PERCENT FOR THE YEAR-TO-DATE
PERIOD, MANAGING KEMPER LATIN AMERICA FUND SINCE ITS LAUNCH DECEMBER 31, 1997
HAS BEEN A CHALLENGE. NEVERTHELESS, THE YOUNG FUND HAS SOUNDLY BEATEN BOTH ITS
LIPPER PEER GROUP AND ITS INDEX (IFCI LATIN AMERICAN INDEX). PORTFOLIO MANAGER
TARA KENNEY DISCUSSES THE FACTORS AFFECTING THE LATIN EQUITY MARKETS AND TELLS
WHERE SHE FOUND SHELTER IN THIS DIFFICULT ENVIRONMENT.
Q THE LATIN AMERICAN EQUITY MARKETS HAVE BEEN SOME OF THE MOST VOLATILE IN
THE WORLD THE PAST 10 MONTHS. CAN YOU GIVE A BRIEF DESCRIPTION OF WHAT'S BEEN
HAPPENING IN THE REGION DURING THIS TIME?
A The problems began last year when everyone was worried that the Asian
financial crisis would spread to Latin America. This contagion factor has given
way to fears of deflation and global recession, and of deleveraging and a global
credit crunch. All these fears are particularly ominous for Latin America, which
is still dependent on external capital to fund its growth. Re-ignited fears of
devaluation in Brazil during this summer's Russian crisis prompted a dramatic
sell-off across the Latin equity markets. Healthy company fundamentals and the
vast gains made by restructuring at both company and government levels during
the past four or five years didn't seem to matter to investors.
Beginning on September 10, however, the Latin American markets began a
sharp rebound, rising some 60 to 70 percent in dollar terms through the end of
October. The upward movement was driven by U.S. interest rate reductions, the
re-election of Brazil's President Cardoso in early October and discussion of a
$30 billion to $40 billion aid package by the U.S. Treasury and international
agencies.
The outlook for commodities continues to be weak, which puts pressure on
copper exporters Chile and Peru and on oil exporters Mexico and Venezuela. On
the positive side, foreign direct investment continues to be strong thanks to
the trend toward privatization.
Q THE FUND IS CONCENTRATED IN THREE COUNTRIES: ARGENTINA, BRAZIL AND MEXICO.
WHAT IS DRIVING PERFORMANCE IN EACH OF THESE AREAS?
A Brazil has been the trigger for the region and the country most in the
spotlight. Its market has been particularly volatile this year, and is down 37.5
percent through the end of October. After winning a second term in office,
President Cardoso announced the long awaited fiscal package intended to reduce
the budget deficit. If implemented, the plan would fundamentally change the
fiscal foundation and enable profound, long-term improvement in Brazil's overall
economy. Interest rates are currently at 40 percent or more, and the most
important issue is how quickly these rates will decline. Another positive is a
trend toward privatization of government-owned companies, which generates
substantial revenues for the government. Last summer Telebras, the national
telephone company, was privatized and generated $19 billion. The resulting 12
new phone companies
5
<PAGE> 6
PERFORMANCE UPDATE
have provided some good investment opportunities.
The Argentine market is one of the best performing this year, down 19.7
percent through October. The sectors that have been hardest hit are those tied
most to Brazil -- steel and auto. Argentina's currency is pegged to the U.S.
dollar, and therefore we believe it should benefit the most from continued
reductions in U.S. interest rates. We have been very impressed with the
government's performance and determination to meet its financial needs for 1998
and anticipate those in 1999. Also, the country's $4 billion in local pension
funds serves as an effective floor in times of market duress. The country's
banking system is on much more solid footing than ever before. Despite the
short-term weakness in the market due to the announced declines in industrial
production, the long-term fundamental situation of Argentina looks very strong.
Mexico's equity market is down nearly 33 percent through October. We believe
that Mexico has been unduly punished given its strong monetary and fiscal
policies. The Mexican authorities' swift and strict response to the global
financial crisis should be commended. Their vigilance has been a key driver of
Mexico's recovery since the 1994 peso devaluation. Despite having an interest
rate that nearly doubled this year, the real economy still shows signs of
strength. The consumer has not slowed purchases as much as in Brazil or
Argentina, and this has benefited the bottom lines of many consumer-oriented
companies. Many of these companies are cash rich and have benefited from the
higher interest rate environment. These are the companies we like to hold in the
portfolio.
Q IT SOUNDS LIKE THESE COUNTRIES ARE ON THE RIGHT TRACK. WHY IS THEIR
ECONOMIC GROWTH SO SLOW?
A In many cases the market for their exports is weak. Also, the very austere
fiscal programs being implemented will slow down growth because governments
aren't putting money back into the economy. Finally, this period of global
credit contraction hurts growth because businesses aren't able to borrow as
easily as last year when money was cheaper.
Q EVEN THOUGH THE FUND IS DOWN 23.05 PERCENT YEAR-TO-DATE (CLASS A SHARES,
UNADJUSTED FOR ANY SALES CHARGE), IT IS OPERATING IN A MARKET DOWN 37.78
PERCENT. THAT MEANS IT ACTUALLY OUTPERFORMED ITS INDEX BY NEARLY 15 PERCENTAGE
POINTS. WHAT DID YOU DO TO ACHIEVE THIS STRONG RELATIVE PERFORMANCE?
A Our outperformance was due to a combination of stock picking and managing
cash levels appropriately. As a new fund, we built our position slowly during
the first few months of the year when the market was down. We built up more cash
during the summer months when the market was looking very dicey, and we put it
back in right before the rally that started September 10.
Q CAN YOU TELL US ABOUT SOME OF THOSE GOOD CALLS?
A Grupo Modelo, a Mexican brewery, is a large holding, and one of the best
performers this year in that market. Telefonos de Mexico, at 8 percent of
assets, is the fund's top performer. Our other top holdings include the
Argentine telecommunications company Telecom and YPF, a petroleum company. We
also own Banco Itau, a large Brazilian bank, which has continued to outperform.
Q AND WERE THERE ANY "MISSES" DURING THE PERIOD?
A Consistent with our bias toward consumer-oriented stocks and non-durables,
we have very little exposure to cyclical companies. But, that said, we did have
a couple of these types of holdings in the fund -- one in the pulp and paper
sector and one in the steel sector -- that fell out of favor early in the year.
When it became apparent that these companies no longer had the kind of pricing
power we look for in our portfolio holdings, we sold them taking some
incremental losses.
Q WHAT IS YOUR OUTLOOK FOR LATIN AMERICAN ECONOMIES?
A We think gross domestic product (GDP) growth in most Latin American
countries will continue to slow in 1999. Despite slowing GDP, we still expect to
find some investment opportunities. Recent conversations with management from
Brazilian companies in the electricity and telecommunications sectors indicate
they still expect robust growth in demand for services. And current figures
reported from Mexican retail and beverage companies show continued demand for
basic goods -- testimony to the ongoing strength of the consumer. Slower growth
may persist in Brazil into the year 2000, while a quicker recovery is likely in
the rest of Latin America. However, a recession in the United States would slow
the recovery considerably, particularly for Mexico.
Our general conclusion is that while significant risk remains on the macro
front, with higher interest rates and lower growth being the
6
<PAGE> 7
PERFORMANCE UPDATE
two most perilous factors for equities, the underlying company fundamentals are
still strong and the price levels are extremely attractive. While we continue to
be worried about the fiscal indebtedness in certain countries (namely Brazil)
and growing interest service, leverage on most companies' balance sheets is
under control.
Each country has its particular vulnerabilities. Mexico's ties to the
United States means that a slowdown in the U.S. economy could be terribly
harmful. Argentina needs to refinance its external debt next year, and Brazil is
still struggling with an enormous fiscal deficit. The good thing is each country
has done much to increase the transparency of its problems and strengthen its
banking system, which should help avert nasty surprises in the future.
Q WHAT DOES THIS MEAN FOR THE FUND?
A In the past few weeks, we have seen a major shift in investors'
perceptions of the region, despite the fact that major global problems still
loom. Several factors point to a better outlook for the equity markets next
year. First, the global easing of interest rates will continue to improve the
landscape for equities. Second, we see a firming in the outlook for commodity
prices, and third, there is a more positive outlook for the deficit and currency
crises in Brazil. We see signs of a return of confidence of both foreign and
local investors in Brazil, which could translate quickly into a recovery in
stock prices across the region.
All this translates into improved prospects for Kemper Latin America Fund
next year. Latin America looks like one of the best valuation plays in the world
today, trading at the lowest valuation levels in 10 years. It is one of the
cheapest regions with one of the highest earnings prospects for next year. If we
look at internal cash flow generation, estimates for 1999 look bright, even for
Brazilian companies that will encounter a recession next year. In addition,
given our strict discipline regarding leverage, most of the companies in the
portfolio should be able to repay all debt with existing cash flow within two
years. This will be even more important as we experience a slowdown and credit
contraction next year.
7
<PAGE> 8
PERFORMANCE UPDATE
TOTAL RETURNS*
FOR THE PERIOD ENDED OCTOBER 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF CLASS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER LATIN AMERICA FUND CLASS A -27.48% (since 12/31/97)
................................................................................................................
KEMPER LATIN AMERICA FUND CLASS B -26.64 (since 12/31/97)
................................................................................................................
KEMPER LATIN AMERICA FUND CLASS C -23.58 (since 12/31/97)
................................................................................................................
</TABLE>
[LINE GRAPH]
KEMPER LATIN AMERICA FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 12/31/97 to 10/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER LATIN AMERICA FUND IFC LATIN AMERICA INVESTABLE
CLASS A(1) RETURN INDEX+
------------------------- ----------------------------
<S> <C> <C>
12/31/97 10000.00 8840.00
3/31/98 9901.00 9842.00
8254.00 7954.00
6657.00 5799.00
10/31/98 7252.00 6220.00
</TABLE>
[LINE GRAPH]
KEMPER LATIN AMERICA FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class B shares from 12/31/97 to 10/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER LATIN AMERICA FUND IFC LATIN AMERICA INVESTABLE
CLASS B(1) RETURN INDEX+
------------------------- ----------------------------
<S> <C> <C>
12/31/97 10000.00 8840.00
3/31/98 10484.20 9842.00
8726.00 7954.00
7021.00 5799.00
10/31/98 7336.40 6220.00
</TABLE>
[LINE GRAPH]
KEMPER LATIN AMERICA FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class C shares from 12/31/97 to 10/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER LATIN AMERICA FUND IFC LATIN AMERICA INVESTABLE
CLASS C(1) RETURN INDEX+
------------------------- ----------------------------
<S> <C> <C>
12/31/97 10000.00 8840.00
3/31/98 10484.00 9842.00
8726.00 7954.00
7021.00 5799.00
10/31/98 7642.00 6220.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED, ADJUSTMENT FOR THE MAXIMUM SALES CHARGE. THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 5.75%. FOR CLASS B SHARES, THE
MAXIMUM CONTINGENT DEFERRED SALES CHARGE IS 4%. CLASS C SHARES HAVE NO SALES
CHARGE ADJUSTMENT, BUT REDEMPTIONS WITHIN ONE YEAR OF PURCHASE MAY BE
SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1%. SHARE CLASSES INVEST IN
THE SAME UNDERLYING PORTFOLIO. DURING THE PERIODS NOTED SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS AT THE END OF THIS
REPORT.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES
CHARGE IN EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. IN COMPARING
KEMPER LATIN AMERICA FUND CLASS A SHARES TO THE IFC LATIN AMERICA INVESTABLE
RETURN INDEX, YOU SHOULD ALSO NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGE IS REFLECTED IN THE PERFORMANCE
OF THE INDEX.
+ INTERNATIONAL FINANCE CORPORATION LATIN AMERICA INVESTABLE RETURN INDEX, IS
GENERALLY REPRESENTATIVE OF EQUITIES FROM SEVEN LATIN AMERICAN MARKETS THAT
ARE ACCESSIBLE TO FOREIGN INVESTORS.
8
<PAGE> 9
COUNTRY CONCENTRATIONS
[PIE CHART]
GEOGRAPHIC DISTRIBUTION OF KEMPER LATIN AMERICA FUND*
Based on total equity holdings on October 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C>
MEXICO 36%
- --------------------------------------------------------------------------------
BRAZIL 31%
- --------------------------------------------------------------------------------
ARGENTINA 15%
- --------------------------------------------------------------------------------
UNITED STATES 11%
- --------------------------------------------------------------------------------
PERU 3%
- --------------------------------------------------------------------------------
SWITZERLAND 2%
- --------------------------------------------------------------------------------
COLUMBIA 1%
- --------------------------------------------------------------------------------
PANAMA 1%
- --------------------------------------------------------------------------------
100%
</TABLE>
*Portfolio composition is subject to change.
9
<PAGE> 10
LARGEST HOLDINGS
KEMPER LATIN AMERICA FUND'S 20 LARGEST HOLDINGS*
Representing 74.9 percent of the fund's equity holdings on October 31, 1998
<TABLE>
<CAPTION>
HOLDINGS COUNTRY PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
1. TELEFONOS DE MEXICO Mexico 8.1%
- --------------------------------------------------------------------------------------------------------
2. FEDERAL NATIONAL MORTGAGE ASSOCIATION United States 7.0%
- --------------------------------------------------------------------------------------------------------
3. YPF Argentina 4.9%
- --------------------------------------------------------------------------------------------------------
4. TELECOM ARGENTINA Argentina 4.6%
- --------------------------------------------------------------------------------------------------------
5. TELECOMUNICACOES DE SAO PAULO Brazil 4.0%
- --------------------------------------------------------------------------------------------------------
6. TELEFONICA DE ARGENTINA Argentina 3.6%
- --------------------------------------------------------------------------------------------------------
7. BANCO ITAU Brazil 3.5%
- --------------------------------------------------------------------------------------------------------
8. GRUPO INDUSTRIAL MASECA Mexico 3.5%
- --------------------------------------------------------------------------------------------------------
9. GRUPO MODELO Mexico 3.4%
- --------------------------------------------------------------------------------------------------------
10. EMBRATEL PARTICIPACOES Brazil 3.4%
- --------------------------------------------------------------------------------------------------------
11. FOMENTO ECONOMICO MEXICANO Mexico 3.4%
- --------------------------------------------------------------------------------------------------------
12. BANCO BRADESCO Brazil 3.3%
- --------------------------------------------------------------------------------------------------------
13. PETROLEO BRASILEIRO Brazil 3.2%
- --------------------------------------------------------------------------------------------------------
14. GRUPO INDUSTRIAL BIMBO Mexico 3.1%
- --------------------------------------------------------------------------------------------------------
15. COMPANHIA ENERGETICA DE MINAS GERAIS Brazil 2.8%
- --------------------------------------------------------------------------------------------------------
16. PANAMERICAN BEVERAGES Mexico 2.8%
- --------------------------------------------------------------------------------------------------------
17. GRUPO CIFRA Mexico 2.7%
- --------------------------------------------------------------------------------------------------------
18. KIMBERLY CLARK DE MEXICO Mexico 2.6%
- --------------------------------------------------------------------------------------------------------
19. COMPANHIA SOUZA CRUZ INDUSTRIA E COMERCIO Brazil 2.5%
- --------------------------------------------------------------------------------------------------------
20. FORMENTO ECONOMICO MEXICANO Mexico 2.5%
- --------------------------------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER LATIN AMERICA FUND
Portfolio of Investments at October 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT ($)/ MARKET
SHORT-TERM NOTES--7.0% SHARES VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES Federal National Mortgage Association
5.45%, 11/2/98
(Cost: $102,984) 103,000 102,969
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES--93.0%
- -----------------------------------------------------------------------------------------------------------------------
ARGENTINA--15.5% Quilmes Industrial S.A. (ADR)
(OPEN-END FUND REGISTERED IN
ARGENTINA) 3,800 shs. 34,913
Telecom Argentina S.A. "B" (ADR)
(TELECOMMUNICATION SERVICES) 2,100 67,725
Telefonica de Argentina S.A. "B" (ADR)
(TELECOMMUNICATION SERVICES) 1,600 52,900
YPF S.A. "D" (ADR)
(PETROLEUM COMPANY) 2,500 72,344
----------------------------------------------------------------------------
227,882
- -----------------------------------------------------------------------------------------------------------------------
BRAZIL--31.4% Banco Bradesco S.A.
(COMMERCIAL BANK) 8,500,000 48,453
Banco Itau S.A.
(BANK) 105,000 51,053
Companhia Cervejaria Brahma
(LEADING BEER PRODUCER AND
DISTRIBUTOR) 75,000 35,199
Companhia Energetica de Minas Gerais
(pfd.)
(ELECTRIC POWER UTILITY) 2,137,935 41,584
Companhia Paranaense de Energia
(ELECTRIC UTILITY) 4,500,000 30,912
Companhia Paulista de Forca e Luz
(ELECTRIC POWER UTILITY) 310,000 25,987
Companhia Souza Cruz Industria e
Comercio
(HOLDING COMPANY: CIGARETTES AND 5,500 37,346
TOBACCO, FIBER CELLULOSE)
Embratel Participacoes
(PROVIDER OF LONG-DISTANCE
TELECOMMUNICATION SERVICES) 3,579,500 50,411
Petroleo Brasileiro S.A.
(PETROLEUM COMPANY) 375,000 47,154
Tele Norte Leste Participacoes
(PROVIDER OF LOCAL TELECOMMUNICATION
SERVICES) 2,300,000 28,921
Telecomunicacoes do Parana S.A.
(TELECOMMUNICATION SERVICES) 30,000 5,030
Telecomunicacoes de Sao Paulo S.A.
(TELECOMMUNICATION SERVICES) 350,000 58,681
----------------------------------------------------------------------------
460,731
- -----------------------------------------------------------------------------------------------------------------------
COLOMBIA--.8% Bavaria S.A.
(BEER PRODUCER AND DISTRIBUTOR) 3,500 11,699
----------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO--36.1%
Fomento Economico Mexicano S.A. de C.V.
(PRODUCER OF BEER AND SOFT DRINKS) 14,000 36,080
Fomento Economico Mexicano, S.A. de
C.V. (ADR)
(PRODUCER OF BEER, SOFT DRINKS AND
MINERAL WATER) 1,900 49,519
Grupo CIFRA S.A. de C.V. "C"
(DISCOUNT RETAILER) 31,000 40,176
Grupo Continental, S.A.
(PRODUCER AND DISTRIBUTOR OF SOFT
DRINKS, SUGAR AND MINERAL WATER) 13,000 31,767
Grupo Financiero Inbursa, S.A. de C.V. "B"
(BROKERAGE, INSURANCE, BANKING AND
LEASING SERVICES) 7,000 12,271
Grupo Industrial Bimbo, S.A. de C.V. "A"
(PRODUCER OF BREAD AND OTHER BAKED
GOODS) 27,000 45,410
Grupo Industrial Maseca S.A. de C.V.
(ADR)
(FOOD PRODUCER) 4,100 50,738
Grupo Industrial Saltillo, S.A. de C.V. "B"
(MANUFACTURER OF STEEL PRODUCTS AND
AUTO PARTS) 7,400 16,692
Grupo Modelo S.A. "C"
(LEADING BREWERY) 24,000 50,574
Kimberly Clark de Mexico S.A. de C.V. "A"
(PRODUCER OF CONSUMER PAPER PRODUCTS) 13,000 37,683
Panamerican Beverages Inc. "A"
(SOFT DRINK BOTTLER) 2,000 40,500
Telefonos de Mexico S.A. de C.V. "L"
(ADR)
(TELECOMMUNICATION SERVICES) 2,250 118,828
--------------------------------------------------------------------------------
530,238
- ---------------------------------------------------------------------------------------------------------------------------
PANAMA--.7%
Banco Latinoamericano de Exportaciones
S.A. "E" (ADR)
(BANK) 500 10,844
--------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PERU--2.8%
Cementos Lima S.A. "T"
(CEMENT PRODUCER) 17,785 20,692
Union de Cerveceria Backus & Johnston
S.A. "T"
(PRODUCER OF MALTED, NONALCOHOLIC AND
CARBONATED DRINKS) 57,617 20,467
--------------------------------------------------------------------------------
41,159
- ---------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--2.0%
Nestle S.A. (ADR)
(FOOD PRODUCER) 275 29,150
--------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
UNITED STATES--3.7%
Colgate-Palmolive Co.
(MANUFACTURER OF HOUSEHOLD AND
PERSONAL CARE PRODUCTS) 350 30,949
Gillette Co.
(SHAVING AND PERSONAL CARE PRODUCTS) 500 22,469
--------------------------------------------------------------------------------
53,418
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $1,626,912) 1,365,121
--------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $1,729,896) 1,468,090
--------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $1,729,896 for federal income tax purposes
at October 31, 1998, the gross unrealized appreciation was $35,718, the gross
unrealized depreciation was $297,524 and the net unrealized depreciation on
investments was $261,806.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER LATIN AMERICA FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Latin America Fund (one of the
portfolios constituting Kemper Global/International Series, Inc.) as of October
31, 1998, and the related statements of operations and changes in net assets and
the financial highlights for the period from December 31, 1997 (commencement of
operations) to October 31, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement and financial highlights. Our procedures included confirmation of
investments owned as of October 31, 1998, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Latin America Fund of Kemper Global/International Series, Inc. at October 31,
1998, the results of its operations, the changes in its net assets and the
financial highlights for the period referred to above, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
December 16, 1998
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost $1,729,896) $1,468,090
- --------------------------------------------------------------------------
Cash 644
- --------------------------------------------------------------------------
Receivable for:
Dividends 2,562
- --------------------------------------------------------------------------
Fund share sold 70
- --------------------------------------------------------------------------
Reimbursement from Adviser 49,611
- --------------------------------------------------------------------------
Deferred organization expense 12,495
- --------------------------------------------------------------------------
TOTAL ASSETS 1,533,472
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Other payables and accrued expenses 72,974
- --------------------------------------------------------------------------
NET ASSETS $1,460,498
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $1,801,261
- --------------------------------------------------------------------------
Accumulated net realized loss on investments (86,792)
- --------------------------------------------------------------------------
Net unrealized depreciation on:
Investments (261,806)
- --------------------------------------------------------------------------
Foreign currency related transactions (12)
- --------------------------------------------------------------------------
Undistributed net investment income 7,847
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,460,498
- --------------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share
($1,133,062 / 154,993 shares outstanding) $7.31
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $7.76
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($277,938 / 38,286 shares outstanding) $7.26
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($49,498 / 6,819 shares outstanding) $7.26
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
For the period from December 31, 1997 (commencement of operations) to
October 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,760) $ 24,825
- -------------------------------------------------------------------------
Interest 10,775
- -------------------------------------------------------------------------
Total investment income 35,600
- -------------------------------------------------------------------------
Expenses:
Management fee 13,000
- -------------------------------------------------------------------------
Distribution services fee 1,183
- -------------------------------------------------------------------------
Administrative services fee 2,600
- -------------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 76,899
- -------------------------------------------------------------------------
Professional fees 27,000
- -------------------------------------------------------------------------
Reports to shareholders 7,907
- -------------------------------------------------------------------------
Amortization of organization expenses 2,505
- -------------------------------------------------------------------------
Directors' fees and other 3,995
- -------------------------------------------------------------------------
Total expenses before expense waiver 135,089
- -------------------------------------------------------------------------
Less expenses waived and absorbed by adviser (110,748)
- -------------------------------------------------------------------------
Total expenses after expense waiver 24,341
- -------------------------------------------------------------------------
NET INVESTMENT INCOME 11,259
- -------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on:
Investments (86,792)
- -------------------------------------------------------------------------
Foreign currency related transactions (net of CPMF tax
of $1,282) (3,412)
- -------------------------------------------------------------------------
(90,204)
- -------------------------------------------------------------------------
Change in net unrealized depreciation during the period
on:
Investments (261,806)
- -------------------------------------------------------------------------
Foreign currency related transactions (12)
- -------------------------------------------------------------------------
(261,818)
- -------------------------------------------------------------------------
Net loss on investments (352,022)
- -------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(340,763)
- -------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
OPERATIONS AND CAPITAL SHARE ACTIVITY
Net investment income $ 11,259
- --------------------------------------------------------------------------
Net realized loss (90,204)
- --------------------------------------------------------------------------
Change in net unrealized depreciation on investments (261,818)
- --------------------------------------------------------------------------
Net decrease in net assets resulting from operations (340,763)
- --------------------------------------------------------------------------
Net increase from capital share transactions 1,781,261
- --------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,440,498
- --------------------------------------------------------------------------
NET ASSETS
Beginning of period 20,000
- --------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $7,847) $1,460,498
- --------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Latin America Fund (the Fund) is a
non-diversified series of Kemper
Global/International Series, Inc. (the
Corporation), an open-end management investment
company organized as a corporation in the state of
Maryland. The fund commenced operations on December
31, 1997. The fund currently offers three classes
of shares. Class A shares are sold to investors
subject to an initial sales charge. Class B shares
are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions. Class B shares
automatically convert to Class A shares six years
after issuance. Class C shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. 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 exchange
contracts are valued at the prevailing forward
exchange rate of the underlying currencies on that
day.
Portfolio debt securities other than money market
securities with an original maturity over sixty
days are valued by pricing agents approved by the
officers of the fund, which quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of 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
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
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 $87,000 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.
The fund is also subject to a .20% Contribuicao
Provisoria sobre Movimentacoes Financeiras (CPMF)
tax which is applied to foreign exchange
transactions representing capital inflows or
outflows to the Brazilian market. This tax has been
reported as part of the net realized gain (loss) on
foreign currency related transactions.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles. These
differences are primarily due to differing
treatments for certain transactions such as foreign
currency transactions.
ORGANIZATIONAL COSTS. Costs incurred by the fund in
connection with its organization and initial
registration of shares have been deferred and are
being amortized on a straight-line basis over a
five-year period.
OTHER CONSIDERATIONS. Investing in emerging markets
may involve special risks and considerations not
typically associated with investing in the United
States. These risks include revaluation of
currencies, high rates of inflation, repatriation
restrictions on income and capital, and future
adverse political and economic developments.
Moreover, securities issued in these markets may be
less liquid, subject to government ownership
controls, delayed settlements, and their prices
more volatile than those of comparable securities
in the United States.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of 1.25%
of the first $250 million of average daily net
assets, 1.20% of the next $750 million of average
daily net assets, declining to 1.15% of average
daily net assets in excess of $1 billion. However,
the fund incurred no management fee for the period
ended October 31, 1998, after an expense waiver by
Scudder Kemper.
In addition, Scudder Kemper has temporarily agreed
to absorb certain operating expenses of the fund.
Under these arrangements, Scudder Kemper waived and
absorbed expenses of $110,748 for the period ended
October 31, 1998.
ZURICH/B.A.T MERGER On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services business of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Directors of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved of the new investment
management agreement through a proxy solicitation
that concluded in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distribution, 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 October 31, 1998 $129 3,103
</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
from redemptions of Class B and Class C shares. The
fund incurred no distribution fees for the period
ended October 31, 1998, after an expense waiver by
Scudder Kemper. Distribution fees, CDSC and
commissions related to Class B and Class C shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
CDSC RECEIVED DISTRIBUTION FEES PAID
BY KDI BY KDI TO FIRMS
------------- ----------------------
<S> <C> <C>
Period ended October 31, 1998 $89 9,939
</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
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
assets of fund accounts the firms service. The fund
incurred no administrative services fees for the
period ended October 31, 1998, after an expense
waiver by Scudder Kemper. During the period ended
October 31, 1998, KDI paid fees of $1,228 to
various firms.
SHAREHOLDER SERVICES AGREEMENT. Kemper Service
Company (KSvC) is the transfer, dividend paying and
shareholder service agent for the fund. The fund
incurred shareholder services fees of $4,342 for
the period ended October 31, 1998, $700 of which is
unpaid.
FUND ACCOUNTING AGENT. Scudder Fund Accounting
Corporation is responsible for determining the
daily net asset value per share and maintaining the
portfolio and general accounting records of the
fund. The fund incurred no accounting fees for the
period ended October 31, 1998, after a fee waiver
of $41,667 by Scudder Kemper.
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the period ended
October 31, 1998, the fund made no direct payments
to its officers and incurred directors' fees of
$3,000 to independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended October 31, 1998, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $2,173,508
Proceeds from sales 459,804
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER-31, 1998
--------------------------
SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------------------
SHARES SOLD
Class A 174,127 $1,545,225
--------------------------------------------------------------------------
Class B 43,991 383,435
--------------------------------------------------------------------------
Class C 25,380 189,834
--------------------------------------------------------------------------
SHARES REDEEMED
Class A (19,836) (148,437)
--------------------------------------------------------------------------
Class B (6,407) (50,967)
--------------------------------------------------------------------------
Class C (19,263) (137,829)
--------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $1,781,261
--------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
For the period from December 31, 1997 (commencement of operations) to October
31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.50 9.50 9.50
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .04 .04
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (2.25) (2.28) (2.28)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.19) (2.24) (2.24)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.31 7.26 7.26
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (23.05)% (23.58) (23.58)
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the fund 2.21% 3.09 3.06
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 1.38% .50 .53
- ----------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 12.75% 14.38 14.34
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (9.16)% (10.79) (10.75)
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
Net assets at end of period $1,460,498
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 55%
- ----------------------------------------------------------------------------------------------------------------------------
</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
The fund paid foreign taxes of $2,000 and earned $15,000 of foreign source
income during the year ended October 31, 1998.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS AND OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
DANIEL PIERCE MARK S. CASADY ANN M. MCCREARY
Chairman and Director President Vice President
JAMES E. AKINS PHILIP J. COLLORA SHERIDAN P. REILLY
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK M. ISABEL SALTZMAN
Director JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY LINDA J. WONDRACK
Director JOYCE E. CORNELL Vice President
Vice President
KATHRYN L. QUIRK MAUREEN E. KANE
Director and Vice President DIEGO ESPINOSA Assistant Secretary
Vice President
FRED B. RENWICK CAROLINE PEARSON
Director JOAN R. GREGORY Assistant Secretary
Vice President
JOHN B. TINGLEFF ELIZABETH C. WERTH
Director TARA C. KENNEY Assistant Secretary
Vice President
JOHN G. WEITHERS BRENDA LYONS
Director THOMAS W. LITTAUER Assistant Treasurer
Vice President
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LEGAL COUNSEL DECHERT PRICE & RHOADS
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Boston, MA 02109
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SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
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CUSTODIAN BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
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INDEPENDENT ERNST & YOUNG LLP
AUDITORS 200 Clarendon Street
Boston, MA 02116
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PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
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Long-term investing in a short-term world(SM)
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