<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKING TOTAL RETURN, A COMBINATION OF CAPITAL GROWTH AND INCOME,
PRINCIPALLY THROUGH AN INTERNATIONALLY DIVERSIFIED PORTFOLIO OF EQUITY
SECURITIES
KEMPER INTERNATIONAL FUND
"... We missed the short-term gains offered by
this bounce (in Southeast Asia and Latin America)
... our decision for reduced exposure in these economies
was a deliberate attempt to steer clear of
some fundamentally weak areas. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Largest Holdings
10
Portfolio of Investments
15
Report of Independent Auditors
16
Financial Statements
18
Notes to Financial Statements
22
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A 0.45
CLASS B -0.37
CLASS C -0.37
LIPPER INTERNATIONAL FUNDS CATEGORY AVERAGE* 4.07
</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.
<TABLE>
<CAPTION>
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/98 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERNATIONAL FUND
CLASS A $12.10 $12.68
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
CLASS B $11.90 $12.50
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
CLASS C $11.91 $12.51
- --------------------------------------------------------------------------------
</TABLE>
KEMPER INTERNATIONAL FUND
RANKINGS AS OF 10/31/98
COMPARED TO ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #370 of 489 funds #391 of 489 funds #391 of 489 funds
- --------------------------------------------------------------------------------
5-YEAR #61 of 145 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #18 of 36 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #7 of 12 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED OCTOBER 31, 1998, KEMPER INTERNATIONAL FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.0775 -- --
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $0.5500 $0.5500 $0.5500
- --------------------------------------------------------------------------------
</TABLE>
Investment in foreign securities presents special risk considerations including
fluctuating currency exchange rates, government regulation and differences in
liquidity.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
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 over the past three years. Morningstar has placed Kemper Interna-
tional Fund in the foreign stock category. Please consult the prospectus for a
description of investment policies.
INTERNATIONAL MONETARY FUND An organization focused on lowering trade barriers
and stabilizing currencies. While helping developing nations pay their debts,
the IMF usually imposes tough guidelines aimed at lowering inflation, cutting
imports, and raising exports.
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
[DEXTER PHOTO]
STEPHEN DEXTER IS A MEMBER OF SCUDDER KEMPER INVESTMENTS, GLOBAL EQUITY GROUP
AND IS CO-LEAD PORTFOLIO MANAGER OF KEMPER INTERNATIONAL FUND. STEVE HAS
GEOGRAPHIC RESPONSIBILITY FOR LATIN AMERICA, AFRICA, CANADA, ASIA, AUSTRALIA AND
NEW ZEALAND. HE JOINED SCUDDER KEMPER INVESTMENTS AS AN EQUITY ANALYST IN 1986
AND HAS TWICE BEEN NAMED "BEST OF THE BUY SIDE" BY INSTITUTIONAL INVESTOR. STEVE
RECEIVED A BACHELOR'S DEGREE IN ECONOMICS AND AN M.B.A. IN FINANCE FROM THE
UNIVERSITY OF WISCONSIN. HE ALSO GRADUATED FROM THE WISCONSIN APPLIED SECURITIES
ANALYSIS PROGRAM.
[SLENDEBROEK PHOTO]
MARC SLENDEBROEK JOINED THE ORGANIZATION IN 1994 AND IS BASED IN THE OFFICE OF
SCUDDER KEMPER'S LONDON BASED AFFILIATE, SCUDDER INVESTMENTS (U.K.) LIMITED. AS
CO- LEAD PORTFOLIO MANAGER OF KEMPER INTERNATIONAL FUND HE FOCUSES ON THE
EUROPEAN REGION. PRIOR TO JOINING SCUDDER KEMPER INVESTMENTS, MARC WAS WITH
KLEINWORT BENSON SECURITIES IN LONDON WHERE HE WAS MANAGER OF DUTCH RESEARCH. HE
ALSO WORKED FOR ENSKILDA SECURITIES IN LONDON AS AN EQUITY ANALYST. MARC HOLDS A
MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF LEIDEN, IN THE NETHERLANDS.
HE IS FLUENT IN ENGLISH, DUTCH, GERMAN, SWEDISH AND NORWEGIAN.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
THIS PAST YEAR WAS MARKED BY VOLATILITY IN INTERNATIONAL MARKETS. STRONG
COMPANIES FLOUNDERED AND LEVERAGED FIRMS FLOURISHED, SOMETIMES AGAINST COMMON
SENSE. WITH A FOCUS ON THE STRONGER, GROWTH-ORIENTED NAMES THAT SEEMED TO TAKE
THE WORST OF THE MARKET BEATINGS, KEMPER INTERNATIONAL FUND UNDERPERFORMED THE
INDEX FOR THE PERIOD. CO-LEAD PORTFOLIO MANAGERS STEPHEN DEXTER AND MARC
SLENDEBROEK DISCUSS THEIR MANAGEMENT APPROACH AND WHY THEY REMAIN COMMITTED TO
IT.
Q INTERNATIONAL MARKETS HAVE BEEN EXTREMELY VOLATILE THIS PAST YEAR. CAN YOU
GIVE A QUICK OVERVIEW OF WHAT THE COMMOTION WAS ALL ABOUT?
A Just over a year ago, Japan and other Southeast Asian countries found
themselves facing severe financial crises. Dozens of Asian banking systems and
finance companies were forced to suspend operations due to bad debt. As these
countries struggled against credit concerns and political turmoil, their
economies suffered slowing growth and falling corporate profits. Fleeing to
safer harbors, investors indiscriminately pulled their dollars from all emerging
regions spreading the 'Asian Flu' around the globe. Russia was particularly hard
hit. The country defaulted on loans and the government was on the verge of
collapse. In an effort to alleviate some of the strain being felt in emerging
economies, the International Monetary Fund stepped in with bailout packages for
countries that agreed to certain reforms.
The emerging market melee did reach developed market shores. During the
12-month period, there were times when even these larger markets swung 10
percent in a single day due largely to shifts in investor sentiment. Banking
stocks, for example, saw dramatic drops following the Russian debt default due
to investor fears that these large institutions would suffer if loans made in
emerging regions went unpaid.
Q KEMPER INTERNATIONAL FUND (CLASS A SHARES, UNADJUSTED FOR ANY SALES
CHARGE) WAS KEEPING PACE WITH ITS BENCHMARK, THE MSCI EAFE INDEX*, THROUGH JULY
BUT LOST SIGNIFICANT GROUND IN THE LAST THREE MONTHS OF THE PERIOD. FOR THE 12
MONTHS ENDED OCTOBER 31, THE FUND WAS UP 0.45 PERCENT WHILE THE INDEX WAS UP
9.95 PERCENT. WHAT HAPPENED?
A Our earlier performance can be largely attributed to the strength of
Europe, which is benefiting from growing corporate profits, increased consumer
confidence and a growing equity culture. But markets worldwide took some
dramatic turns in the last few months of the period. Nearly all global markets
fell sharply in August but then an October rebound allowed recent market dogs to
have their day. Latin American and Southeast Asian markets surged; Hong Kong,
for example, was up 33 percent in dollar terms for the month.
We missed the short-term gains offered by this bounce because of our
lesser exposure to these markets compared to the index. We were underweight for
a couple of reasons. First of all, Kemper International Fund is never highly
exposed to emerging markets as a matter of policy but our decision for reduced
exposure in these economies was a deliberate attempt to steer clear of
5
<PAGE> 6
PERFORMANCE UPDATE
some fundamentally weak areas. We saw and continue to see ongoing political and
economic strife and eroding fundamentals in these markets, and it remains an
area where we have not been willing to put our investors' money at risk.
* The Morgan Stanley Capital International EAFE Index is a generally accepted
benchmark of stock market performance in Europe, Australia and the Far East.
Q WHY DID WE SEE THESE RISKIER COUNTRIES BOUNCE WHILE MORE STABLE COUNTRIES
DROPPED?
A Much of the bounce was tied to the Federal Reserve Board's interest rate
cuts in September and October. Governments in several key world markets, all who
seemed to be operating on the assumption that economically ailing countries
would benefit from lower interest rates, then mimicked the U.S. cuts. This show
of support for our GLOBAL economy by various world governments reignited
investor confidence as they moved from larger, highly liquid investments to less
established, cyclical companies with what we view as weaker fundamentals. The
fund was basically hit on two levels because of this shift: First, we hold the
highly liquid, growth-oriented companies that saw the bout of profit taking, and
second, we invest in quality companies and, therefore, avoid the cyclical names.
While this was going on in emerging markets, the more developed regions of
the world were being hit as investors reacted to expected down-grades in growth
forecasts for all markets.
Q HOW HAVE YOU MANAGED THE FUND DIFFERENTLY DURING THIS TUMULTUOUS YEAR?
A We've always focused on the fundamentals of valuation and growth to try to
achieve a strong, long-term track record. We don't change the way we run the
fund to suit short-term circumstances. When markets fluctuate as they have these
last few months, there are going to be times this management style doesn't look
its most appealing. But eventually markets stabilize and widen their scope to
focus on the long-term fundamentals.
We're facing a different environment where deflation is a major concern
rather than inflation. We haven't experienced this since the 1950s. In a
deflationary environment, a company cannot simply increase the cost of its
products to boost profit margins. We're looking for companies that are aware of
this difference and are adjusting to prosper in this new environment. Management
needs to know how to cut costs and use the capital they do have at a greater
rate.
Q WHEN DO YOU EXPECT TO SEE A TRUE TURNAROUND IN THE EMERGING MARKETS?
A We don't foresee an immediate recovery. The Asian countries need to
administer very tough medicine to their financial and banking sectors to try to
stabilize the economic footing of these markets. This means a painful
restructuring of the banking system as well as a mass restructuring of corporate
debt. In Latin America we must see the implementation of an extremely harsh
fiscal plan of restraint adopted in Brazil. There have been many bold
announcements of restructuring plans in both Southeast Asia and Latin America
but so far there has been little implementation.
Until we see true steps taken to create political, economic and currency
stability in the emerging markets, we are likely to steer clear of them. We
won't attempt to ride a bucking market trend to try to capture some incremental
returns.
Q WE HAVE TALKED ABOUT WHERE YOU AREN'T INVESTING, BUT COULD YOU TELL US
WHERE YOU ARE CONCENTRATING YOUR INVESTMENTS AND HOW YOUR ALLOCATIONS HAVE
CHANGED SINCE THE BEGINNING OF THIS PERIOD?
A Reflecting our enthusiasm for the European markets, we increased our
European holdings to 75 percent from 64 percent one year ago. Europe is the only
major non-U.S. region offering ongoing profit growth, strong consumer spending
and continued restructuring in industries to maximize profit margins. This
mirrors the restructuring that American companies implemented so successfully in
the early 1980s.
Within Europe our biggest increase was in the United Kingdom. We now hold
21 percent of the fund in the UK, up from 9 percent last year. It has been
under-performing the region and, as a result, is offering very attractive stock
valuations. The UK has also been cutting interest rates, which should be
positive for the economy going forward. Similarly, we increased exposure to
France as recent rate cuts are expected to benefit their lagging economy.
We've cut our Japanese holdings nearly in half, to 7 percent from 12
percent. Japan was just heading into a recession a year ago. Over the course of
the year that recession has only worsened and we don't
6
<PAGE> 7
PERFORMANCE UPDATE
expect to see significant improvement in the near term. We've also completely
exited Southeast Asia, eliminating our 1 percent position there. We hold just
over 1 percent of the fund in Latin America, down from a 4.3 percent position
last year. Finally, we've lowered our Canadian holdings to 4 percent, down from
6 percent. Canada is obviously a politically stable country and we found some
good value and growth stories there, but we sold a few Canadian positions to
invest the money in Europe where we see better growth opportunities overall.
Q WHAT ABOUT BUSINESS SECTORS -- WHAT KINDS OF COMPANIES WITHIN THESE
REGIONS LOOK PROMISING, AND CAN YOU SHARE SOME PERFORMANCE STORIES WITH US?
A In Europe, we are still very attracted to corporate services. This area
supports the European trend toward corporate restructuring, a trend that has a
lot of room to grow. In the UK, Compass Group, which provides sanitary services
and catering services, and Rentokil, a provider of a wide range of corporate
services, have been very strong performers. We've also benefited from a few
telecommunications holdings, particularly Vodafone in the UK, Telefonica de
Espana, a Spanish telephone company, and Telecom Italia, a mobile
telecommunications provider. We also like the corporate services area in Japan.
Bellsystems 24 is a call center company that has done very well for us. Murata
Manufacturing, an electronics components manufacturer, has also been a top
performer.
But we did own some poorer performers as well. Kimberly Clark de Mexico is
a very well run consumer products company that we felt could still prosper in a
difficult economy but its performance tracked the Mexican market and dropped
when emerging markets were hit. Restaurant Brands, the New Zealand
franchise-holder of Pizza Hut and Kentucky Fried Chicken also hurt us. In
America fast food franchises are relatively recession proof, but we found that
in New Zealand people viewed even low-cost dining as a luxury to be eliminated
during a recessionary period. Finally, Sony is a company with great management
and phenomenal technology that was unfortunately hurt by the global slowdown.
The company is still fundamentally very strong so we are holding on to it
because, over the long haul, it could reward handsomely.
Q WITH THE GLOBAL MARKETS IN SUCH DISARRAY, IS THIS STILL A GOOD TIME FOR
INVESTORS TO HOLD INTERNATIONAL EQUITIES?
A We think so. One very sound reason for investing abroad is Europe. This
region is poised to generate superior economic and profit performance versus the
United States in the near future. We are seeing a new shareholder focus among
European companies that, historically, did not appreciate the value of rewarding
investors. These companies are increasing dividend payments, buying back shares
and cleaning up the corporate profiles. They're also streamlining operations to
focus on business areas of strength while eliminating peripheral businesses
dragging down the bottom line. If you consider the success of U.S. corporations
that began restructuring in the early 1980s, you see the potential for European
companies. Europe is only a year or two into this process. They have a long,
long way to go. A similar restructuring trend seems to be kicking-off in Japan
as well.
We recognize that volatile market conditions like those seen during the
last 12 months, make it difficult to focus on the significant potential that
remains in developed international markets. However, we firmly believe the
investor who is comfortable riding through some bumpy market patches will be
rewarded as huge economic regions such as Europe and Japan finally hit their
full stride.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL FUND CLASS A -5.31% 6.31% 7.51% 11.49% (since 5/21/81)
- -----------------------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS B -3.23 N/A N/A 6.55 (since 5/31/94)
- -----------------------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS C -0.37 N/A N/A 6.94 (since 5/31/94)
- -----------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper
International Consumer
Fund Class EAFE Price
A1 Index+ Index++
<S> <C> <C> <C>
5/21/81 9424 10000 10000
9515 10071 10089
8394 8910 10379
9390 9974 10468
8311 8828 10523
8077 8587 10802
8171 8440 10902
9651 9888 10869
10389 10472 10902
11441 11273 11080
11901 11558 11214
12357 12322 11281
13256 14219 11425
11495 12559 11548
11512 12650 11693
11234 13291 11726
11648 14571 11849
12093 15541 11982
13913 17872 12060
17515 20830 12172
20742 27074 12116
21716 29466 12194
23956 34037 12272
25248 35398 12305
27092 43664 12483
29491 46771 12639
31910 49427 12806
12/31/87 26877 44224 12851
28433 50999 12973
28953 48792 13140
28660 49137 13341
31513 56867 13419
32798 57057 13619
31749 53569 13820
35205 60241 13920
37365 63007 14042
36886 50584 14332
39318 55460 14466
32722 43742 14777
34564 48392 14900
37518 52034 15033
36632 49234 15145
37644 53498 15278
37718 54440 15356
37460 48021 15512
38061 49081 15613
34757 49869 15735
35912 47989 15802
37446 53787 15991
39814 59240 16080
44594 63211 16158
12/31/93 48715 63799 16236
46552 66071 16392
47003 69491 16481
48851 69605 16637
46767 68942 16670
46381 70280 16860
48356 70846 16982
52643 73856 17060
52828 76906 17094
56692 79186 17339
58697 80497 17450
58257 80457 17572
61837 81797 17662
62255 80575 17817
69010 91094 17851
71680 90510 17951
67404 83481 17962
75781 95824 18062
77324 96907 18125
63491 83194 18218
10/31/98 66687 91890 18218
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper
International Consumer
Fund Class EAFE Price
B1 Index+ Index++
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9877.13 10144.00 10034.00
10236.30 10160.00 10129.00
9761.44 10063.00 10149.00
9660.39 10259.00 10264.00
10054.50 10341.00 10339.00
10913.40 10781.00 10386.00
10929.00 11226.00 10407.00
11701.70 11559.00 10556.00
12088.00 11750.00 10624.00
11966.00 11744.00 10698.00
12/31/96 12677.20 11940.00 10753.00
12720.40 11761.00 10847.00
14069.00 13297.00 10868.00
14576.10 13212.00 10929.00
12/31/97 13684.40 12186.00 10936.00
15332.80 13987.00 10997.00
15626.40 14145.00 11051.00
12803.70 12144.00 11092.00
10/31/98 13235.80 13413.00 11092.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper
International Consumer
Fund Class EAFE Price
C1 Index+ Index++
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9858.00 10144.00 10034.00
10217.00 10160.00 10129.00
9761.00 10063.00 10149.00
9660.00 10259.00 10264.00
10054.00 10341.00 10339.00
10913.00 10781.00 10386.00
10929.00 11226.00 10407.00
11702.00 11559.00 10556.00
12098.00 11750.00 10624.00
11966.00 11744.00 10698.00
12/31/96 12681.00 11940.00 10753.00
12735.00 11761.00 10847.00
14073.00 13297.00 10868.00
14591.00 13212.00 10929.00
12/31/97 13688.00 12186.00 10936.00
15349.00 13987.00 10997.00
15642.00 14145.00 11051.00
12819.00 12144.00 11092.00
10/31/98 13451.00 13236.00 11092.00
</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.
* Average annual total return and total return measure net investment income and
capital gain or loss from portfolio investments over the periods specified,
assuming reinvestment of all 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 (CDSC)
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. Average annual
total return reflects annualized change while total return reflects aggregate
change. During the periods noted, securities prices fluctuated. For additional
information, see the Prospectus and Statement of Additional Information and
the Financial Highlights at the end of this report.
(1)Performance includes reinvestment of dividends and adjustment for the maximum
sales charge for Class A shares and the contingent deferred sales charge in
effect at the end of the period for Class B shares. In comparing kemper
International Fund Class A shares to the EAFE Index, you should also note
that the fund's performance reflects the maximum sales charge, while no such
charge is reflected in the performance of the index.
+ The EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far
EAST Index) Is an unmanaged index generally accepted as a benchmark for
major overseas markets. Source Is TowersData.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source Is TowersData.
8
<PAGE> 9
LARGEST HOLDINGS
KEMPER INTERNATIONAL FUND'S TOP 20 HOLDINGS*
A comparison of the fund's top 20 holdings on October 31, 1998 with its top
twenty holdings on October 31, 1997
<TABLE>
<CAPTION>
AT 10/31/98 AT 10/31/97
HOLDINGS PERCENT HOLDINGS PERCENT
<S> <C> <C> <C>
- -------------------------------------------- --------------------------------
1. NOVARTIS 3.6% BANK OF IRELAND 3.6%
- -------------------------------------------- --------------------------------
2. BRITISH TELECOM 3.6% ELF AQUITAINE 3.1%
- -------------------------------------------- --------------------------------
3. GROUPE DANONE 3.4% NOVARTIS 3.0%
- -------------------------------------------- --------------------------------
4. GLAXO WELLCOME 3.4% L.M. ERICSSON 2.7%
- -------------------------------------------- --------------------------------
5. VIAG 3.2% BARCLAYS 2.7%
- -------------------------------------------- --------------------------------
6. KONINKLIJKE AHOLD 2.9% GLAXO WELLCOME 2.6%
- -------------------------------------------- --------------------------------
7. VEDIOR 2.8% AEGON 2.3%
- -------------------------------------------- --------------------------------
8. TELEFONICA NACIONAL DE 2.6% PETRO CANADA 2.2%
ESPANA
- -------------------------------------------- --------------------------------
9. UNILEVER 2.6% ROCHE HOLDINGS 2.2%
- -------------------------------------------- --------------------------------
10. COMPASS GROUP 2.4% TELECOM ITALIA MOBILE 2.2%
- -------------------------------------------- --------------------------------
11. GETRONICS 2.3% ING GROEP 2.1%
- -------------------------------------------- --------------------------------
12. TELECOM ITALIA 2.2% BRITISH PETROLEUM 2.1%
- -------------------------------------------- --------------------------------
13. GEHE 2.1% TELECOM ITALIA 2.0%
- -------------------------------------------- --------------------------------
14. SOCIETE LYONNAISE DES 2.0% CARREFOUR 1.8%
EAUX
- -------------------------------------------- --------------------------------
15. RENTOKIL INITIAL 2.0% PHILIP SERVICES 1.7%
- -------------------------------------------- --------------------------------
16. MANNESMANN 1.9% HUDSON'S BAY CO. 1.6%
- -------------------------------------------- --------------------------------
17. ELECTRIDADE DE PORTUGAL 1.8% VEBA 1.6%
- -------------------------------------------- --------------------------------
18. TELEVISION FRANCAISE 1.7% KONINKLIJKE AHOLD 1.6%
- -------------------------------------------- --------------------------------
19. BAYERISCHE VEREINSBANK 1.7% SONY CORP. 1.6%
- -------------------------------------------- --------------------------------
20. ALCATEL 1.6% BANCO POPULAR 1.5%
- -------------------------------------------- --------------------------------
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
- --------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--21.4% BBA Group, PLC
MANUFACTURER OF AUTOMOTIVE COMPONENTS
AND INDUSTRIAL MATERIALS 701,567 $ 4,339
British Airways, PLC
PROVIDER OF PASSENGER AND CARGO
AIRLINE SERVICES 560,000 4,068
British Petroleum, PLC
MAJOR INTEGRATED WORLD OIL COMPANY 400,000 5,872
British Telecom, PLC
TELECOMMUNICATION SERVICES 1,670,353 21,585
Compass Group, PLC
INTERNATIONAL CATERING GROUP 1,446,500 14,649
Glaxo Wellcome, PLC
PHARMACEUTICAL COMPANY 654,887 20,346
Hays, PLC
BUSINESS SERVICES 416,157 6,130
National Westminster Bank
BANK 221,151 3,732
(a)Orange PLC
OPERATOR OF DIGITAL MOBILE TELEPHONE
NETWORK 523,600 4,869
Reed International, PLC
PUBLISHER OF SCIENTIFIC, PROFESSIONAL
AND BUSINESS TO BUSINESS MATERIALS 921,850 7,800
Rentokil Initial, PLC
ENVIRONMENTAL SERVICES COMPANY 1,954,550 12,236
Select Appointments Holdings
RECRUITMENT SERVICES FOR TEMPORARY AND
PERMANENT STAFF 490,000 4,265
Unilever, PLC
MANUFACTURER OF BRANDED AND PACKAGED
CONSUMER GOODS, FOOD, DETERGENTS AND
PERSONAL CARE PRODUCTS 1,576,990 15,838
Vodafone Group, PLC
TELECOMMUNICATIONS SERVICES 569,749 7,606
---------------------------------------------------------------------------
133,335
- --------------------------------------------------------------------------------------------------------------------
NETHERLANDS--13.7% Aalberts Industries
CAPITAL GOODS AND COMPONENTS 239,170 5,722
Aegon Insurance Group, N.V.
INSURANCE COMPANY 263 23
Content Beheer
RECRUITMENT SERVICES FOR TEMPORARY
STAFF 188,000 3,894
Getronics, N.V.
PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES 337,998 14,021
ING Groep, N.V.
INSURANCE AND FINANCIAL SERVICES 154,930 7,497
Koninklijke Ahold, N.V.
INTERNATIONAL FOOD RETAILER 519,096 17,254
Koninklijke Numico, N.V.
NUTRITIONAL FOOD MANUFACTURER 203,692 8,013
Laurus, N.V.
INTERNATIONAL FOOD RETAILER 65,560 1,649
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Laurus, N.V., scripts
INTERNATIONAL FOOD RETAILER 163,900 $ 412
(b)Nedcon Groep, N.V.
MANUFACTURER OF RACKING SYSTEMS 68,395 1,684
Unique International, N.V.
OPERATOR OF RETAIL CLOTHING STORES,
EMPLOYMENT AGENCIES, TECHNICAL TRADE
SCHOOLS AND ENGINEERING SERVICES 290,227 8,124
Vedior N.V. CVA
TEMPORARY EMPLOYMENT SERVICES 668,287 17,027
---------------------------------------------------------------------------
85,320
- --------------------------------------------------------------------------------------------------------------------
FRANCE--10.8% AXA S.A.
INSURANCE GROUP PROVIDING INSURANCE,
FINANCE AND REAL ESTATE SERVICES 59,903 6,770
Alcatel Alsthom
MANUFACTURER OF TRANSPORTATION,
TELECOMMUNICATION AND ENERGY EQUIPMENT 87,291 9,725
Groupe Danone
PRODUCER OF PACKAGED FOODS AND
BEVERAGES 77,033 20,366
Sanofi, S.A.
RESEARCHER AND MANUFACTURER OF HEALTH
CARE PRODUCTS AND BEAUTY AIDS 50,010 7,830
Societe Lyonnaise des Eaux, S.A.
WATER UTILITY 68,500 12,266
Television Francaise
TELEVISION BROADCASTING 62,600 10,342
---------------------------------------------------------------------------
67,299
- --------------------------------------------------------------------------------------------------------------------
GERMANY--9.5% Bayerische Vereinsbank A.G.
COMMERCIAL BANK 129,900 10,312
Gehe A.G.
PHARMACEUTICALS DISTRIBUTOR 166,000 12,476
Mannesmann A.G.
DIVERSIFIED CONSTRUCTION AND
TECHNOLOGY COMPANY 116,600 11,474
VEBA A.G.
ELECTRIC UTILITY, DISTRIBUTOR OF OIL
AND CHEMICALS 95,600 5,338
VIAG A.G.
PROVIDER OF ELECTRICAL POWER AND
NATURAL GAS SERVICES, ALUMINUM PRODUCTS,
CHEMICALS, CERAMICS AND GLASS 28,300 19,220
---------------------------------------------------------------------------
58,820
- --------------------------------------------------------------------------------------------------------------------
ITALY--6.0% (a)AEM, SpA
ELECTRIC AND GAS UTILITY 3,240,000 4,408
Assicurazioni Generali, SpA
LIFE AND PROPERTY INSURANCE COMPANY 156,425 5,602
Istituto Mobiliare Italiano, SpA
BANKING AND FINANCIAL SERVICES 564,000 8,672
Telecom Italia, SpA
TELECOMMUNICATIONS, ELECTRONICS AND
NETWORK CONSTRUCTION 1,872,000 13,535
Telecom Italia Mobile, SpA
CELLULAR TELECOMMUNICATION SERVICES 927,500 5,385
---------------------------------------------------------------------------
37,602
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWITZERLAND--4.8% Nestle, S.A.
FOOD MANUFACTURER 3,520 $ 7,479
Novartis, A.G.
PHARMACEUTICAL COMPANY 12,225 22,008
---------------------------------------------------------------------------
29,487
- --------------------------------------------------------------------------------------------------------------------
SPAIN--3.9% Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 327,938 8,265
Compania Telefonica Nacional de Espana S.A.
TELECOMMUNICATION SERVICES 353,568 15,964
---------------------------------------------------------------------------
24,229
- --------------------------------------------------------------------------------------------------------------------
SWEDEN--1.9% Astra, A.B.
PHARMACEUTICAL COMPANY 184,000 2,985
Gambro, A.B.
HEALTHCARE SERVICES AND MEDICAL-
TECHNOLOGY PROVIDER 198,000 2,209
(a)Industri-Matematik International Corp.
SERVICE SOFTWARE APPLICATIONS 120,000 555
Securitas A.B.
INSTALLS SECURITY SYSTEMS AND PROVIDER
OF GUARD SERVICES 508,800 6,264
---------------------------------------------------------------------------
12,013
- --------------------------------------------------------------------------------------------------------------------
PORTUGAL--1.7% Electricidade de Portugal, S.A.
ELECTRIC UTILITY 425,162 10,687
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
IRELAND--1.5% Bank of Ireland PLC
BANK 498,526 9,213
---------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--75.2% 468,005
- --------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- --------------------------------------------------------------------------------------------------------------------
JAPAN--6.7% Bellsystems 24, Inc.
TELEMARKETING FIRM 27,000 5,196
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 162,000 5,943
Fujitsu Support and Services Inc.
PROVIDER OF INFORMATION SERVICES AND
SUPPORT FOR COMPUTER NETWORK SYSTEMS 60,000 3,015
Murata Manufacturing Co., Ltd.
ELECTRONICS COMPONENTS MANUFACTURER 213,000 7,191
Nidec Corp.
MANUFACTURER OF SMALL-SCALE MOTORS FOR
HARD DISC DRIVES 67,000 6,107
Nikko Securities Co., Ltd.
LEADING SECURITIES BROKER AND DEALER 1,630,000 4,929
Sony Corp.
CONSUMER ELECTRONIC PRODUCTS
MANUFACTURER 83,000 5,277
Uni-Charm Co., Ltd.
LEADING MANUFACTURER OF SANITARY
NAPKINS AND PAPER DIAPERS 86,700 3,948
---------------------------------------------------------------------------
TOTAL PACIFIC REGION--6.7% 41,606
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMONWEALTH COUNTRIES
CANADA--3.5% BCE, Inc.
TELECOMMUNICATION SERVICES 167,000 $ 5,661
(a)Boardwalk Equities, Inc.
REAL ESTATE COMPANY 250,500 2,646
Canadian National Railway
RAILROAD OPERATOR 103,400 5,163
Petro-Canada
OIL AND GAS COMPANY 645,300 8,228
---------------------------------------------------------------------------
21,698
- --------------------------------------------------------------------------------------------------------------------
AUSTRALIA--2.0% Leighton Holdings
CONSTRUCTION SERVICES AND CONSULTING 1,525,000 5,662
St. George Bank, Ltd.
COMMERCIAL BANK 1,059,850 7,069
---------------------------------------------------------------------------
12,731
- --------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--.3% Restaurant Brands
FAST FOOD RESTAURANT CHAIN 4,475,000 1,943
---------------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--5.8% 36,372
- --------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- --------------------------------------------------------------------------------------------------------------------
MEXICO--1.1% Fomento Economico Mexicano S.A. de C.V.
PRODUCER OF BEER AND SOFT DRINKS 1,444,800 3,724
Kimberly Clark de Mexico S.A. de C.V.
PRODUCER OF CONSUMER PAPER PRODUCTS 1,075,400 3,117
---------------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--1.1% 6,841
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--88.8%
(Cost: $523,146) 552,824
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.51% to 5.71%
INSTRUMENTS--11.2% Due--November 1998
Bell Atlantic $ 13,400 13,392
Federal Home Loan Mortgage Corp. 14,000 13,998
Merita North 22,000 21,991
Other 20,500 20,485
---------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--11.2%
(Cost: $69,866) 69,866
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $593,012) $622,690
---------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
At October 31, 1998, the fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VALUE %
- --------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Cyclicals $ 95,820 15.3
- --------------------------------------------------------------------------------------
Communications 84,946 13.6
- --------------------------------------------------------------------------------------
Consumer Staples 84,626 13.6
- --------------------------------------------------------------------------------------
Health Care 67,854 10.9
- --------------------------------------------------------------------------------------
Finance 66,465 10.7
- --------------------------------------------------------------------------------------
Basic Industries 46,878 7.5
- --------------------------------------------------------------------------------------
Utilities 40,965 6.6
- --------------------------------------------------------------------------------------
Technology 27,874 4.5
- --------------------------------------------------------------------------------------
Energy 14,100 2.3
- --------------------------------------------------------------------------------------
Capital Goods 14,064 2.3
- --------------------------------------------------------------------------------------
Transportation 9,232 1.5
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 552,824 88.8
- --------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS 69,866 11.2
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS $622,690 100.0
- --------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $2,096,000 (.35% of net assets). Their values
have been estimated by the Valuation Committee in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for the securities existed, and the
difference could be material. The cost of these securities at October 31, 1998
aggregated $3,434,000. These securities may also have certain restrictions as to
resale.
Based on the cost of investments of $593,012,000 for federal income tax purposes
at October 31, 1998, the gross unrealized appreciation was $65,550,000, the
gross unrealized depreciation was $35,872,000 and the net unrealized
appreciation on investments was $29,678,000.
See accompanying notes to financial statements.
14
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER INTERNATIONAL FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper International Fund as of
October 31, 1998, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the fiscal periods since 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1998, by correspondence with the custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
International Fund at October 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the fiscal periods
since 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 16, 1998
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $593,012) $622,690
- ------------------------------------------------------------------------
Cash 130
- ------------------------------------------------------------------------
Receivable for:
Investments sold 8,768
- ------------------------------------------------------------------------
Fund shares sold 3,309
- ------------------------------------------------------------------------
Dividends 478
- ------------------------------------------------------------------------
TOTAL ASSETS 635,375
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 26,695
- ------------------------------------------------------------------------
Fund shares redeemed 2,671
- ------------------------------------------------------------------------
Management fee 320
- ------------------------------------------------------------------------
Distribution services fee 92
- ------------------------------------------------------------------------
Administrative services fee 100
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 786
- ------------------------------------------------------------------------
Trustees' fees 27
- ------------------------------------------------------------------------
Total liabilities 30,691
- ------------------------------------------------------------------------
NET ASSETS $604,684
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $487,309
- ------------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 87,612
- ------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 29,763
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $604,684
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($424,431 / 35,064 shares outstanding) $12.10
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.84
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($137,224 / 11,529 shares outstanding) $11.90
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($26,337 / 2,212 shares outstanding) $11.91
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($16,692 / 1,373 shares outstanding) $12.16
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 10,798
- ------------------------------------------------------------------------
Interest 2,916
- ------------------------------------------------------------------------
13,714
- ------------------------------------------------------------------------
Less foreign taxes withheld 1,351
- ------------------------------------------------------------------------
Total investment income 12,363
- ------------------------------------------------------------------------
Expenses:
Management fee 4,612
- ------------------------------------------------------------------------
Administrative services fee 1,424
- ------------------------------------------------------------------------
Distribution services fee 1,289
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 4,110
- ------------------------------------------------------------------------
Professional fees 108
- ------------------------------------------------------------------------
Reports to shareholders 250
- ------------------------------------------------------------------------
Trustees' fees and other 108
- ------------------------------------------------------------------------
Total expenses 11,901
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 462
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 88,163
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies (74,800)
- ------------------------------------------------------------------------
Net gain on investments 13,363
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,825
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
- -------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) $ 462 (1,231)
- -------------------------------------------------------------------------------------
Net realized gain 88,163 29,101
- -------------------------------------------------------------------------------------
Change in net unrealized appreciation (74,800) 37,579
- -------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 13,825 65,449
- -------------------------------------------------------------------------------------
Net equalization charges -- (309)
- -------------------------------------------------------------------------------------
Distribution from net investment income (2,673) (4,092)
- -------------------------------------------------------------------------------------
Distribution from net realized gain (25,096) (27,136)
- -------------------------------------------------------------------------------------
Total dividends to shareholders (27,769) (31,228)
- -------------------------------------------------------------------------------------
Net increase from capital share transactions 30,559 81,914
- -------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 16,615 115,826
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------
Beginning of year 588,069 472,243
- -------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment income
of $2,725 for the year ended October 31, 1997) $604,684 588,069
- -------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper International Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The fund currently
offers four 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. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. 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 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 Trustees.
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. The Fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with net realized and
unrealized gain (loss) on investments, as
appropriate.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses from sales and maturities of forward
foreign currency exchange contracts, disposition of
foreign currencies, and the difference between the
amount of net investment income accrued and the
U.S. dollar amount actually received. That portion
of both realized and unrealized gains and losses on
investments that result from fluctuations in
foreign currency exchange rates is not separately
disclosed.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. Dividend income is recorded on the
ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the
information is available to the fund. Interest
income is recorded on the accrual basis. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
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.
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.
EQUALIZATION ACCOUNTING. Prior to November 1, 1997,
the fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a portion of the proceeds from sales and
the cost of redemptions of fund shares to
undistributed net investment income. As of November
1, 1997, the fund discontinued using equalization.
This change has no effect on the fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of equalization
accounting will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
decrease undistributed net investment income and
increase paid-in-capital previously reported
through October 31, 1997 by $2,011,000.
19
<PAGE> 20
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 .75%
of the first $250 million of average daily net
assets declining to .62% of average daily net
assets in excess of $12.5 billion. The fund
incurred a management fee of $4,612,000 for the
year ended October 31, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global 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 Trustees 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 Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
RETAINED BY ALLOWED BY KDI
KDI TO FIRMS
----------- --------------
<S> <C> <C>
Year ended October 31, 1998 $105,000 887,000
</TABLE>
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended October 31, 1998 $1,572,000 1,483,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
pays these firms based on assets of fund accounts
the firms service. Administrative services fees
(ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY THE ASF PAID BY KDI
FUND TO KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Year ended October 31, 1998 $1,424,000 1,438,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of
$2,432,000 for the year ended October 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended October 31,
1998, the fund made no payments to its officers and
incurred trustees' fees of $33,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $681,795
Proceeds from sales 657,925
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------------
Class A 99,055 $ 1,307,871 14,874 $ 187,364
------------------------------------------------------------------------------------
Class B 6,108 79,630 8,424 106,475
------------------------------------------------------------------------------------
Class C 6,453 83,701 1,156 14,610
------------------------------------------------------------------------------------
Class I 837 11,244 1,171 14,846
------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------------
Class A 1,539 18,354 2,001 22,720
------------------------------------------------------------------------------------
Class B 504 5,970 509 5,790
------------------------------------------------------------------------------------
Class C 57 669 42 481
------------------------------------------------------------------------------------
Class I 81 964 101 1,173
------------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------------
Class A (98,869) (1,319,184) (14,522) (184,532)
------------------------------------------------------------------------------------
Class B (5,480) (71,226) (5,205) (66,707)
------------------------------------------------------------------------------------
Class C (5,630) (73,743) (486) (6,267)
------------------------------------------------------------------------------------
Class I (1,023) (13,696) (1,094) (14,039)
------------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------------
Class A 1,040 13,786 433 5,529
------------------------------------------------------------------------------------
Class B (1,053) (13,781) (438) (5,529)
------------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 30,559 $ 81,914
------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS A
-------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of year $12.68 11.96 10.59 11.13 10.56
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 -- .04 .07 --
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain .01 1.52 1.50 .05 .86
- -----------------------------------------------------------------------------------------------
Total from investment operations .05 1.52 1.54 .12 .86
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 .12 .12 -- --
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain .55 .68 .05 .66 .29
- -----------------------------------------------------------------------------------------------
Total dividends .63 .80 .17 .66 .29
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $12.10 12.68 11.96 10.59 11.13
- -----------------------------------------------------------------------------------------------
TOTAL RETURN .45% 13.49 14.70 1.69 8.32
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 1.64% 1.57 1.64 1.57 1.54
- -----------------------------------------------------------------------------------------------
Net investment income .36% .16 .34 .83 .02
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
CLASS B
-------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31 TO
------------------------------ OCTOBER 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.50 11.81 10.46 11.09 10.58
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.08) (.12) (.06) (.02) (.04)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain .03 1.51 1.47 .05 .55
- ------------------------------------------------------------------------------------------------
Total from investment operations (.05) 1.39 1.41 .03 .51
- ------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .02 .01 -- --
- ------------------------------------------------------------------------------------------------
Distribution from net realized gain .55 .68 .05 .66 --
- ------------------------------------------------------------------------------------------------
Total dividends .55 .70 .06 .66 --
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $11.90 12.50 11.81 10.46 11.09
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (.37)% 12.32 13.59 .84 4.82
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses 2.62% 2.57 2.53 2.50 2.58
- ------------------------------------------------------------------------------------------------
Net investment loss (.62)% (.84) (.55) (.10) (.97)
- ------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------
CLASS C
--------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31 TO
------------------------------ OCTOBER 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.51 11.81 10.46 11.09 10.58
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.08) (.09) (.06) (.02) (.04)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain .03 1.49 1.47 .05 .55
- ------------------------------------------------------------------------------------------------
Total from investment operations (.05) 1.40 1.41 .03 .51
- ------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .02 .01 -- --
- ------------------------------------------------------------------------------------------------
Distribution from net realized gain .55 .68 .05 .66 --
- ------------------------------------------------------------------------------------------------
Total dividends .55 .70 .06 .66 --
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $11.91 12.51 11.81 10.46 11.09
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (.37)% 12.45 13.59 .84 4.82
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses 2.55% 2.49 2.50 2.50 2.52
- ------------------------------------------------------------------------------------------------
Net investment loss (.55)% (.76) (.52) (.10) (.91)
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
CLASS I
------------------------------------
YEAR ENDED OCTOBER 31, JULY 3 TO
---------------------- OCTOBER 31,
1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $12.72 11.99 10.61 10.09
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .07 .10 .04
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain .03 1.53 1.48 .48
- ----------------------------------------------------------------------------------------
Total from investment operations .14 1.60 1.58 .52
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .15 .19 .15 --
- ----------------------------------------------------------------------------------------
Distribution from net realized gain .55 .68 .05 --
- ----------------------------------------------------------------------------------------
Total dividends .70 .87 .20 --
- ----------------------------------------------------------------------------------------
Net asset value, end of period $12.16 12.72 11.99 10.61
- ----------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.18% 14.19 15.19 5.15
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------
Expenses 1.00% 1.04 1.10 .85
- ----------------------------------------------------------------------------------------
Net investment income 1.00% .69 .88 1.32
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $604,684 588,069 472,243 364,708 418,282
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 105% 76 104 114 103
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data were determined based on average shares outstanding for the years ended
1995, 1996 and 1998, respectively.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
TAX INFORMATION
The fund paid a distribution of $.55 per share from net long-term capital gains
during the year ended October 31, 1998, of which 56% represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$88,776,000, as capital gain dividends for the year ended October 31, 1998, of
which 100% represent 20% rate gains.
The fund paid foreign taxes of $1,351,000 and earned $10,626,000 of foreign
source income during the year ended October 31, 1998. Pursuant to Section 853 of
the Internal Revenue Code, the fund designates $.0179 per share as foreign taxes
paid and $.0954 per share as income earned from foreign sources for 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.
24
<PAGE> 25
NOTES
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY MAUREEN E. KANE
Chairman and Trustee President Assistant Secretary
DAVID W. BELIN PHILIP J. COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
LEWIS A. BURNHAM ELIZABETH C. WERTH
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
BRENDA LYONS
DONALD L. DUNAWAY THOMAS W. LITTAUER Assistant Treasurer
Trustee Vice President
ROBERT B. HOFFMAN ANN M. MCCREARY
Trustee Vice President
DONALD R. JONES KATHRYN L. QUIRK
Trustee Vice President
SHIRLEY D. PETERSON STEVEN H. REYNOLDS
Trustee Vice President
WILLIAM P. SOMMERS LINDA J. WONDRACK
Trustee Vice President
EDMOND D. VILLANI
Trustee
- ---------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ---------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ---------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
- ---------------------------------------------------------------------------
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
- ---------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- ---------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, I
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Global and International Funds prospectus.
KIF - 2(12/98) 1061650
