<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 2000
Seeking total return, a combination of capital growth and income, principally
through an internationally diversified portfolio of equity securities.
KEMPER
INTERNATIONAL FUND
"... The broad correction in global equity markets that began in March posed
several challenges, including persistent bouts of heightened volatility and a
particularly sharp sell-off in TMT stocks. Concerns about interest-rate hikes in
the United States, Europe and even Japan, combined with uncertain growth
prospects in these markets, led to a more cautious overall investment
environment. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
18
FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
23
NOTES TO FINANCIAL STATEMENTS
28
REPORT OF INDEPENDENT AUDITORS
29
TAX INFORMATION
AT A GLANCE
TERMS TO KNOW
KEMPER INTERNATIONAL FUND
TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL KEMPER INTERNATIONAL LIPPER INTERNATIONAL
KEMPER INTERNATIONAL FUND CLASS A FUND CLASS B FUND CLASS C FUNDS CATEGORY AVERAGE*
--------------------------------- -------------------- -------------------- -----------------------
<S><C> <C> <C> <C> <C>
-2.84 -3.69 -3.61 2.70
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
INVESTMENT IN FOREIGN SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING
FLUCTUATING CURRENCY EXCHANGE RATES, GOVERNMENT REGULATION AND DIFFERENCES IN
LIQUIDITY.
*LIPPER, 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; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER INTERNATIONAL FUND
CLASS A $11.67 $12.85
.........................................................
KEMPER INTERNATIONAL FUND
CLASS B $11.23 $12.50
.........................................................
KEMPER INTERNATIONAL FUND
CLASS C $11.25 $12.51
.........................................................
</TABLE>
KEMPER INTERNATIONAL FUND
RANKINGS AS OF 10/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #485 of 666 funds #523 of 666 funds #518 of 666 funds
..........................................................................................
5-YEAR #152 of 288 funds #192 of 288 funds #189 of 288 funds
..........................................................................................
10-YEAR #34 of 52 funds n/a n/a
..........................................................................................
15-YEAR #11 of 20 funds n/a n/a
..........................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE YEAR ENDED OCTOBER 31, 2000, KEMPER INTERNATIONAL FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.........................................................
<S> <C> <C> <C> <C> <C>
LONG-TERM CAPITAL GAIN $0.67 $0.67 $0.67
.........................................................
SHORT-TERM CAPITAL
GAIN $0.29 $0.29 $0.29
.........................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. as of 10/31/00.
BOX] Morningstar's International Equity Style Box(TM)
placement is based on a fund's price-to-earnings
and price-to-cash-flow ratios relative to the
MSCI EAFE, as well as the size of the companies
in which it invests, or median market
capitalization. The style box represents a
snapshot of a fund's portfolio on a single day,
but it's not exact because a portfolio changes
from day to day. A longer-term view is
represented by the fund's Morningstar category,
which is based on actual investment style as
measured by the fund's underlying holdings over
the past three years.
</TABLE>
CONSOLIDATION The reduction in the number of companies in a particular industry,
brought about by merger and acquisition activity.
CURRENCY WEAKNESS A significant decline of a currency's value relative to other
currencies, such as the U.S. dollar. Weakness may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a weakness in a foreign currency
can have the effect of reducing an investment's total return because the
investment, converted back into U.S. dollars, will require more of the foreign
currency to purchase dollars.
OVERWEIGHTING/UNDERWEIGHTING The allocation of assets -- usually in terms of
sector, industry or country -- within a portfolio relative to the portfolio's
benchmark index or investment universe.
RESTRUCTURING Implementation of major corporate changes aimed at greater
efficiency and adaptation to changing markets. Cost-cutting initiatives, debt
retirement, management realignments and the sale of noncore businesses are all
developments frequently associated with corporate restructuring.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.43 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- while volatile month-to-month, they have been up an average of 15
to 20 percent compared to a year ago for the past six months.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. We saw the first
evidence of how productivity slows along with economic growth in the third
quarter: Productivity gains dipped to just 3.3 percent from the second quarter's
remarkable 6.1 percent. Second, interest expense will surge (thanks to higher
rates and all that new debt. Third, depreciation costs are escalating. And
finally, the excessively weak euro and higher oil costs will sap earnings.
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.40 6.00 4.80
Prime rate (2) 9.50 9.25 8.50 8.00
Inflation rate (3)* 3.50 3.10 2.60 1.40
The U.S. dollar (4) 11.10 4.30 -0.70 1.20
Capital goods orders (5)* 7.00 17.10 12.30 -0.60
Industrial production (5)* 5.20 6.50 4.40 4.00
Employment growth (6)* 1.80 2.50 2.30 2.50
</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 10/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE> 5
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for good quality borrowers. Capital goods
orders are strong, so there's a lot of life left in business spending. Shoppers
are a little pickier, but they're still more interested in visiting the mall
than in filling their piggy banks. And after the election, no matter who wins,
fiscal policy is likely to be more stimulative than it has been for years. The
price to pay will likely be a rise in core inflation (inflation excluding food
and energy). We expect it to hit 3 percent next year, up from its recent rate of
2.5 percent. We believe we'll make it safely through 2001, but investors should
keep their hands on the wheel and their eyes peeled.
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 THE ECONOMIC ADVISORS OF SCUDDER
KEMPER INVESTMENTS, INC. AS OF DECEMBER 6, 2000, AND MAY NOT ACTUALLY COME TO
PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS
INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
Sincerely,
Scudder Kemper Investments, Economics Group
5
<PAGE> 6
ECONOMIC OVERVIEW
[THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
PERFORMANCE UPDATE
[CHENG PHOTO]
LEAD PORTFOLIO MANAGER IRENE CHENG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN
1993. PRIOR TO THAT, SHE WORKED IN MERCHANT BANKING AS AN EQUITY ANALYST, AND IN
OPERATIONS, FINANCE AND CORPORATE PLANNING. CHENG RECEIVED A BACHELOR'S DEGREE
SUMMA CUM LAUDE FROM HARVARD/RADCLIFFE COLLEGE, A MASTER'S DEGREE FROM THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY AND AN M.B.A. FROM HARVARD BUSINESS
SCHOOL.
[SLENDEBROEK PHOTO]
A NATIVE OF THE NETHERLANDS, PORTFOLIO MANAGER MARC SLENDEBROEK JOINED THE
COMPANY IN 1994. HE FOCUSES ON THE EUROPEAN COMPONENT OF THE PORTFOLIO AND ALSO
SERVES AS A PORTFOLIO MANAGER FOR KEMPER NEW EUROPE FUND.
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.
IN THE FOLLOWING INTERVIEW, LEAD PORTFOLIO MANAGER
IRENE CHENG AND PORTFOLIO MANAGER MARC SLENDEBROEK
DISCUSS KEMPER INTERNATIONAL FUND'S STRATEGY AND
THE INTERNATIONAL MARKET ENVIRONMENT DURING THE
12-MONTH PERIOD ENDING OCTOBER 31, 2000.
Q INTERNATIONAL MARKETS PERFORMED WELL DURING THE FIRST HALF OF THE ANNUAL
PERIOD BUT TOOK A WELL-PUBLICIZED TUMBLE THROUGHOUT THE SIX MONTHS SINCE THE
SEMIANNUAL REPORT LAST SPRING. WHAT ARE THE FACTORS BEHIND THESE SWINGS? HOW DID
THE FUND HOLD UP?
A Throughout the period -- particularly in the latter half -- the developed
world markets struggled with the faltering euro exchange rate, concerns about
rising interest rates and dramatic moves in a narrow group of technology-
related stocks. The performance of the unmanaged MSCI EAFE index reflected this
challenging environment; the benchmark fell 2.66 percent for the one-year period
ending October 31, 2000. Confronted with the same circumstances, Kemper
International Fund declined 2.84 percent (Class A shares, unadjusted for sales
charges).
Given our focus on larger companies in the more developed economies, it is not
surprising that Europe and Japan -- and indirectly, the United
States -- continue to dominate in terms of their influence on the portfolio.
Let's look at each separately:
The Japanese market actually fared well for much of the first half of the
period. As the period progressed, however, fundamental challenges grew
increasingly evident. Soft macroeconomic conditions and low levels of consumer
confidence were -- and continue to be -- problematic. Ongoing concerns about the
sustainability of the country's economic recovery remain a central reason behind
this fragile sentiment. Additionally, by March, the worldwide appetite for
technology stocks weakened, and because larger Japanese tech companies compete
in the global marketplace, their stocks were generally correlated with their
counterparts in the United States and Europe. As a result, the Japanese market
as a whole began to retrace some of its gains. The continued unwinding of
domestic cross-shareholdings also had a negative impact on the supply/demand
balance in the Japanese equity market.
European markets were likewise influenced by stock market volatility
worldwide. The continued rise in global oil prices and interest rates hurt as
well. For much of the first half of the period, European markets experienced an
overwhelmingly positive investment environment. Accelerating economic growth, a
strong dollar exchange rate and healthy merger-and-acquisition (M&A) activity
helped fuel the market during that time. However, this enthusiastic sentiment
turned around abruptly as weakness in the U.S. equity market spread and the
European Central Bank began to raise interest rates. Valuations proved
unsustainable during the second half of the period, particularly among the
technology, media and telecommunications sectors (commonly referred to as the
megasector TMT). And despite the increasing evidence of solid economic recovery
all over the continent, the euro exchange rate continued its negative trend.
7
<PAGE> 8
PERFORMANCE UPDATE
Q YOU HAVE PREVIOUSLY EMPHASIZED TRENDS OF CONSOLIDATION AND CORPORATE
RESTRUCTURING. WHAT PROGRESS HAVE YOU SEEN?
A Corporate restructuring remains significant in both Europe and Japan.
However, M&A activity has slowed from the last year's fast pace. There are
several reasons for this slowdown. First, the global economic upturn has reduced
the level of pressure on companies to address structural concerns in their
businesses. Second, large M&A deals are inherently complex and difficult to
execute. The collapse of several large proposed transactions during this year
shows that this complexity cannot be underestimated. Last, it seems that the
regulatory environment for the approval of large deals has become less
accommodating, particularly in Europe.
Q HOW DID YOU POSITION THE PORTFOLIO THROUGHOUT THE PERIOD?
A The fund entered the period with an overweight position in the TMT areas.
We counterbalanced this exposure with substantial investments in "old-economy"
stocks, such as producers of industrial commodities and companies undergoing
significant corporate restructuring. The fund was underweight in areas such as
the retail, financial and consumer sectors, where we felt that the competitive
landscape was growing increasingly harsh due to the impact of the Internet and
the trend toward globalization.
This strategy worked particularly well in the first half of the period as our
investments in TMT generally produced strong returns. In fact, these were, by
and large, the only sectors that showed absolute gains during a period when
investors increased their focus on the "new economy." Most old-economy stocks,
including our investments in companies undergoing significant restructuring and
corporate change, performed below expectations during this time.
The broad correction in global equity markets that began in March posed
several challenges, including persistent bouts of heightened volatility and a
particularly sharp sell off in TMT stocks. Concerns about interest-rate hikes in
the United States, Europe and even Japan, combined with uncertain growth
prospects in these markets, led to a more cautious overall investment
environment. We initiated the process of selective profit-taking during the
second half of the period, following strong performance from a number of our TMT
selections, but we faced some significant challenges in the execution of our
trades; such trades proved difficult in the current volatile and illiquid
European markets. Thus, despite our efforts to reduce exposure within the TMT
sectors, the fund was overweight in the very telecom growth issues that were
negatively impacted even further by the summer's pricey European third-
generation license auctions.
To help mitigate the negative performance in these areas, we also reduced our
exposure to the more economically sensitive areas of the portfolio as it became
clearer that the central banks in the United States, and to a lesser extent
Europe, were committed to slowing economic growth. The proceeds of these sales
were largely redeployed to European financials. Stocks in this sector had
declined significantly over the past two years as interest rates rose, hopes for
further consolidation died down and the Internet threatened the demise of
traditional banking models. Suspecting that this news was fully discounted into
stock prices, we increased our position in this area during the spring. We are
further encouraged that the recent trend toward reducing capital gains taxes in
Europe will allow industry restructuring to once more build momentum, and that
bank managements are beginning to define promising strategies to use the
Internet to their advantage. With respect to Japan, the majority of the fund's
Japanese holdings are in areas experiencing significant long-term change, such
as the electronics, telecommunications, pharmaceutical and financial sectors.
We continue the process of reducing our exposure to areas where valuations
have become less fundamentally grounded, particularly in TMT. Our actions do not
reflect a view that the technological innovation is about to end, however. We
remain committed to this area, but we're placing greater emphasis on blue-chip
companies that we believe are still undervalued in relation to their growth
prospects. Our increased stake in optical telecom-infrastructure providers is an
example of this strategy.
Q WHAT ARE SOME OF THE IMPORTANT TRENDS THAT YOU FEEL WILL DRIVE THE
PERFORMANCE OF THE INTERNATIONAL MARKET?
A Although we employ a bottom-up approach to stock picking, we do consider
broader trends unfolding within the global economic environment. At present, the
construction of the portfolio
8
<PAGE> 9
PERFORMANCE UPDATE
reflects some of the key themes we see emerging in the year ahead:
- We expect that U.S. economic growth will slow, resulting in a global soft
landing. As noted, we have increased our exposure to European financials and
maintain a somewhat overweight position in technology in anticipation of this
development.
- Continental European economic growth should remain strong relative to Japan
and the United Kingdom. We remain underweight in the United Kingdom, as well
as overweight in France, Germany and Italy.
- In Japan, the pace and sustainability of economic activity are less
predictable. We have decreased our exposure to the region and are maintaining
our focus on stock-specific issues as main drivers of performance. Additions
in the past year include real estate companies, which are poised to benefit
from regulatory reform and the introduction of a real estate investment trusts
market, as well as several companies in the pharmaceutical sector, where we
anticipate industry restructuring and where valuations are low relative to
their global peers. The general process of profit taking in TMT has led to a
reduction in the portfolio's Japanese technology holdings.
- Corporate restructuring should resume its stance as a powerful secular trend,
resulting in increased profitability for corporations in Europe, Japan and the
Pacific Basin.
- We expect that the explosion in mobile telephony, Internet and personal
computer applications will prove sustainable, and will result in continued
growth in demand for telecommunications infrastructure, content and consumer
access devices. With an eye toward valuation, we have selectively focused our
exposure on well-managed companies poised to flourish as these trends evolve.
We see two main risks over the next 12 months. The first is a concerted
downturn in the U.S. capital markets, marking the end of a 10-year bull-market
run. A downward spiral in U.S. equities, joined by a falling dollar, would
clearly not bode well for international markets. The second potential risk is a
pick-up in inflation, which could result in continued higher interest rates and
a hard landing for the global economy. While neither of these outcomes is likely
in our opinion, we do expect persistent volatility to rock the markets as these
concerns and others continue to occupy investor sentiment in the short term.
However, we believe that investors who stay in the international markets for the
long term will ultimately be rewarded by the important changes that continue to
transform the overseas economies.
9
<PAGE> 10
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL FUND CLASS A -8.41% 8.12% 7.95% 11.28% (since 5/21/81)
....................................................................................................
KEMPER INTERNATIONAL FUND CLASS B -6.39 8.29 n/a 7.44 (since 5/31/94)
................................................................................................
KEMPER INTERNATIONAL FUND CLASS C -3.61 8.48 n/a 7.47 (since 5/31/94)
....................................................................................................
</TABLE>
KEMPER INTERNATIONAL FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 5/31/81 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL U.S. CONSUMER PRICE
FUND CLASS A(1) MSCI EAFE EQUITY INDEX+ INDEX++
-------------------- ----------------------- -------------------
<S> <C> <C> <C>
5/31/81 9424.00 10000.00 10000.00
9390.00 9974.00 10468.00
9659.00 9888.00 10869.00
12357.00 12322.00 11281.00
11233.00 13291.00 11726.00
17515.00 20830.00 12171.00
12/31/86 25247.00 35398.00 12305.00
26874.00 44224.00 12851.00
31510.00 56867.00 13419.00
37361.00 63007.00 14042.00
34561.00 48392.00 14900.00
37714.00 54440.00 15356.00
35909.00 47989.00 15802.00
12/31/93 48711.00 63799.00 16236.00
46763.00 68942.00 16670.00
52823.00 76906.00 17094.00
61829.00 81797.00 17661.00
67396.00 83481.00 17962.00
72709.00 100455.00 18252.00
102741.00 127878.00 18742.00
10/31/00 79985.00 110342.00 19358.00
</TABLE>
KEMPER INTERNATIONAL FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 5/31/94 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL U.S. CONSUMER PRICE
FUND CLASS B(1) MSCI EAFE EQUITY INDEX+ INDEX++
-------------------- ----------------------- -------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9877.00 10144.00 10034.00
9761.00 10063.00 10149.00
10054.00 10341.00 10339.00
10929.00 11226.00 10407.00
6/30/96 12088.00 11750.00 10624.00
12677.00 11940.00 10753.00
14069.00 13297.00 10868.00
13684.00 12186.00 10936.00
6/30/98 15626.00 14145.00 11051.00
14614.00 14663.00 11112.00
14509.00 15266.00 11268.00
20509.00 18666.00 11410.00
18123.00 17929.00 11688.00
10/31/00 15851.00 16106.00 11786.00
</TABLE>
KEMPER INTERNATIONAL FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 5/31/94 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL U.S. CONSUMER PRICE
FUND CLASS C(1) MSCI EAFE EQUITY INDEX+ INDEX++
-------------------- ----------------------- -------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9858.00 10144.00 10034.00
9761.00 10063.00 10149.00
10054.00 10341.00 10339.00
10929.00 11226.00 10407.00
6/30/96 12098.00 11750.00 10624.00
12681.00 11940.00 10753.00
14073.00 13297.00 10868.00
13688.00 12186.00 10936.00
6/30/98 15642.00 14145.00 11051.00
14618.00 14663.00 11112.00
14526.00 15266.00 11268.00
20527.00 18666.00 11410.00
18155.00 17929.00 11688.00
10/31/00 15882.00 16106.00 11786.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
*THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES, IS 5.75% AND FOR CLASS B
SHARES, ADJUSTMENT FOR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGE
(CDSC) IS 3%. CLASS C SHARES HAVE NO
ADJUSTMENT FOR SALES CHARGE. THE
MAXIMUM CDSC FOR CLASS B SHARES IS 4%.
FOR CLASS C SHARES, THERE IS A 1% CDSC
ON CERTAIN REDEMPTIONS WITHIN THE
FIRST YEAR OF PURCHASE. SHARE CLASSES
INVEST IN THE SAME UNDERLYING
PORTFOLIO. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, 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 WITH THE MSCI 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 MSCI 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 WIESENBERGER(R).
++THE U.S. 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
WIESENBERGER(R).
10
<PAGE> 11
LARGEST HOLDINGS
KEMPER INTERNATIONAL FUND'S TOP 10 HOLDINGS
A comparison of the fund's top 10 equity holdings on October 31, 2000, with its
top 10 equity holdings on October 31, 1999
<TABLE>
<CAPTION>
AT 10/31/00 AT 10/31/99
<S> <C> <C> <C> <C>
<CAPTION>
HOLDING PERCENT HOLDING PERCENT
<S> <C> <C> <C> <C>
------------------------------------------- ------------------------------
1. VODAFONE GROUP 3.1% NTT MOBILE 2.5%
COMMUNICATIONS
NETWORK
------------------------------------------- ------------------------------
2. TOTAL FINA ELF 2.8% ELF AQUITAINE 2.3%
------------------------------------------- ------------------------------
3. E. ON 2.6% ORANGE 2.0%
------------------------------------------- ------------------------------
4. AVENTIS 2.4% NOKIA 1.9%
------------------------------------------- ------------------------------
5. MATSUSHITA ELECTRIC 1.8% RIO TINTO 1.6%
INDUSTRIAL
------------------------------------------- ------------------------------
6. REED INTERNATIONAL 1.8% MURATA MANUFACTURING 1.6%
CO.
------------------------------------------- ------------------------------
7. REUTERS GROUP 1.7% DAIWA SECURITIES CO. 1.5%
------------------------------------------- ------------------------------
8. SHELL TRANSPORT & 1.7% NEC CORP 1.5%
TRADING
------------------------------------------- ------------------------------
9. NESTLE 1.7% FUJITSU 1.4%
------------------------------------------- ------------------------------
10. MIZUHO HOLDINGS 1.6% SONY 1.4%
------------------------------------------- ------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER INTERNATIONAL FUND
Portfolio of Investments at October 31, 2000
<TABLE>
<CAPTION>
SHORT-TERM NOTES--3.4% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
COMMERCIAL PAPER--3.4%
Student Loan Marketing Association, 6.450%,
11/01/2000 $18,700,000 $ 18,700,000
----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
FIXED TIME DEPOSITS--0.0%
Chase Euro Time Deposit, 6.44% 11/01/2000 202,000 202,000
----------------------------------------------------------------------------------
TOTAL SHORT-TERM NOTES
(Cost $18,902,000) 18,902,000
----------------------------------------------------------------------------------
<CAPTION>
BONDS--0.0%
<S> <C> <C> <C> <C>
UNITED KINGDOM
British Aerospace PLC, 7.450%, 11/29/2003
(PRODUCER OF MILITARY AIRCRAFTS)
(Cost $86,403) 76,707 107,836
----------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--96.6% SHARES
<S> <C> <C> <C> <C>
AUSTRALIA--1.3%
Broken Hill Proprietary Co., Ltd.
(PRODUCER OF PETROLEUM, MINERAL AND STEEL
PRODUCTS) 387,344 3,786,453
OneSteel, Ltd.*
(MANUFACTURER OF STEEL LONG PRODUCTS AND
DISTRIBUTOR OF METALS IN AUSTRALIA) 96,836 46,571
WMC Ltd.
(DEVELOPER OF MINERAL PRODUCTS) 589,200 2,271,532
Woodside Petroleum, Ltd.
(PRODUCER OF OIL AND GAS) 140,100 1,032,646
----------------------------------------------------------------------------------
7,137,202
---------------------------------------------------------------------------------------------------------------------
CANADA--2.0%
Canadian National Railway Co.
(OPERATOR OF RAILROAD SERVICES) 189,700 5,976,764
Nortel Networks Corp.
(PROVIDER OF TELEPHONE, DATA, WIRELESS
PRODUCTS FOR THE INTERNET) 107,522 4,892,251
----------------------------------------------------------------------------------
10,869,015
---------------------------------------------------------------------------------------------------------------------
FRANCE--18.4%
AXA S.A.
(PROVIDER INSURANCE, FINANCE AND REAL
ESTATE SERVICES) 38,846 5,145,830
Accor S.A.
(OPERATOR OF HOTELS, TRAVEL AGENCIES AND
RESTAURANTS) 45,946 1,861,018
Alcatel Opronics*
(MANUFACTURER OF ELECTRONIC COMPONENTS) 6,967 414,714
Alcatel S.A.
(MANUFACTURER OF TRANSPORTATION,
TELECOMMUNICATION AND ENERGY EQUIPMENT) 125,623 7,669,774
Aventis S.A.
(MANUFACTURES LIFE SCIENCE PRODUCTS) 179,196 12,933,967
Banque Nationale de Paris
(BANK) 78,967 6,812,772
Bouygues
(DEVELOPER OF LARGE PUBLIC PROJECTS, REAL
ESTATE, OFF-SHORE OIL PLATFORMS AND
ENERGY NETWORK) 70,280 3,580,696
Cap Gemini S.A.
(PROVIDER OF COMPUTER CONSULTING
SERVICES) 21,288 3,398,421
Christian Dior
(MANUFACTURER OF LUXURY PRODUCTS) 101,100 5,142,360
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C>
Compagnie Generale d'Industrie et de
Participations
(PRODUCER OF AUTOMOBILE COMPONENTS,
DIAGNOSTIC EQUIPMENT AND ABRASIVE
PELLETS) 25,954 $ 1,088,719
Credit Lyonnais S.A.
(PROVIDER OF DIVERSIFIED BANKING
SERVICES) 128,552 4,400,238
Dassault Systemes S.A.
(MANUFACTURER OF SOFTWARE PRODUCTS) 23,823 1,817,603
Etablissements Economiques du Casino
Guichard-Perrachon S.A.
(OPERATOR OF SUPERMARKETS AND CONVENIENCE
STORES) 59,516 3,413,843
Eurotunnel S.A.*
(DESIGNER, FINANCER AND CONSTRUCTOR OF A
TUNNEL THAT RUNS UNDER THE ENGLISH
CHANNEL AND CONNECTS ENGLAND TO FRANCE) 4,754,834 4,320,198
Lagardere S.C.A.
(PRODUCER OF AUDIOVISUAL AND
TELECOMMUNICATION SERVICES) 49,519 2,813,083
Pinault-Printemps-Redoute S.A.
(OPERATOR OF DEPARTMENT STORES) 29,569 5,280,322
Rhodia S.A.
(MANUFACTURER OF DRUGS AND CHEMICALS
PRODUCTS) 283,820 3,552,426
Schneider Electric S.A.
(MANUFACTURER OF ELECTRONIC COMPONENTS
AND AUTOMATED MANUFACTURING SYSTEMS) 44,100 2,874,097
Societe BIC S.A.
(MANUFACTURER OF OFFICE SUPPLIES) 101,018 3,504,091
Suez Lyonnaise des Eaux S.A.
(DEVELOPER OF WATER AND ELECTRIC UTILITY) 46,373 7,080,100
Total Fina ELF S.A.
(EXPLORER OF OIL AND NATURAL GAS) 103,804 14,861,278
----------------------------------------------------------------------------------
101,965,550
---------------------------------------------------------------------------------------------------------------------
GERMANY--12.3%
Allianz AG
(PROVIDER OF MULTI-LINE INSURANCE
SERVICES) 19,535 6,643,554
Bayer AG
(PRODUCER OF CHEMICAL PRODUCTS) 197,746 8,580,510
Bayerische Hypo-und Vereinsbank
(PROVIDER OF BANKING SERVICES) 101,416 5,571,797
Celanese AG
(MANUFACTURER AND DISTRIBUTOR OF
INDUSTRIAL CHEMICALS) 15,396 261,470
Commerzbank AG
(PROVIDER OF BANKING SERVICES) 73,180 2,066,182
Deutsche Telekom AG
(PROVIDER OF TELECOMMUNICATION SERVICES) 75,410 2,820,716
Dresdner Bank AG
(PROVIDER OF BANKING SERVICES) 134,319 5,583,090
E.On AG
(DISTRIBUTOR OF OIL AND CHEMICALS) 272,666 13,868,909
ERGO Versicherungs Gruppe AG
(INSURANCE PROVIDER) 24,325 3,366,859
Metro AG
(OPERATOR OF BUILDING, CLOTHING,
ELECTRONIC AND FOOD STORES) 74,100 2,988,796
Muenchener Rueckversicherungs-Gesellschaft AG
(Registered)
(PROVIDER OF INSURANCE SERVICES) 21,639 6,835,411
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C>
SAP AG
(MANUFACTURER OF COMPUTER SOFTWARE) 16,404 $ 3,322,176
Siemens AG
(DEVELOPER OF ELECTRICAL PRODUCTS) 49,281 6,277,045
----------------------------------------------------------------------------------
68,186,515
---------------------------------------------------------------------------------------------------------------------
HONG KONG--1.8%
China Mobile, Ltd.*
(PROVIDER OF CELLULAR TELECOMMUNICATION
SERVICES) 846,000 5,424,050
Hutchison Whampoa, Ltd.
(PROVIDER OF INVESTMENT SERVICES) 205,600 2,557,280
Legend Holdings, Ltd.
(MANUFACTURER OF COMPUTERS AND RELATED
PRODUCTS) 1,288,000 1,090,042
Li & Fung, Ltd.
(OPERATOR OF AN EXPORT TRADING BUSINESS) 188,000 349,550
MTR Corporation*
(PROVIDER OF PUBLIC TRANSPORT SERVICES IN
HONG KONG) 290,500 430,241
----------------------------------------------------------------------------------
9,851,163
---------------------------------------------------------------------------------------------------------------------
ITALY--6.0%
Alleanza Assicurazioni S.p.A.
(PROVIDER OF LIFE INSURANCE SERVICES) 184,300 2,446,070
Assicurazioni Generali
(PROVIDER OF INSURANCE AND FINANCIAL
SERVICES) 204,400 6,725,694
Banco Intesa S.p.A.
(PROVIDER OF BANKING SERVICES) 1,396,835 5,800,140
Holding di Partecipazioni Industraili S.p.A.
(PRODUCER OF APPAREL AND SPORTS FOOTWEAR) 1,215,600 1,480,213
Mediobanca S.p.A.
(PROVIDER OF LOANS AND CREDIT TO
MANUFACTURING AND SERVICE FIRMS) 682,600 7,598,948
Riunione Adratica di Sicurta S.p.A.
(PROVIDER OF INSURANCE SERVICES) 343,250 4,509,053
San Paolo-IMI S.p.A.
(PROVIDER OF COMMERCIAL BANKING) 307,700 4,990,515
----------------------------------------------------------------------------------
33,550,633
---------------------------------------------------------------------------------------------------------------------
JAPAN--22.3%
Chugai Pharmaceutical Co., Ltd.
(PHARMACEUTICAL COMPANY) 315,000 5,349,166
DDI Corp.
(PROVIDER OF TELECOMMUNICATION SERVICES) 259 1,215,918
Daiwa Securities Co., Inc.
(PROVIDER OF BROKERAGE AND OTHER
FINANCIAL SERVICES) 319,000 3,536,319
East Japan Railway Co.
(OPERATOR OF RAILROAD SERVICES) 1,015 5,835,366
Fujitsu, Ltd.
(MANUFACTURER OF COMPUTERS) 59,000 1,051,678
Kyocera Corp.
(MANUFACTURER OF CERAMIC PACKAGING) 26,000 3,385,293
Matsushita Electric Industrial Co., Ltd.
(MANUFACTURER OF CONSUMER ELECTRONIC
PRODUCTS) 340,000 9,882,633
Mitsubishi Estate Co., Ltd.
(PROVIDER OF REAL ESTATE SERVICES) 446,000 4,743,811
Mitsui Fudosan Co., Ltd.
(REAL ESTATE COMPANY) 525,000 6,363,928
Mizuho Holdings, Inc.*
(PROVIDER OF FINANCIAL SERVICES) 1,150 8,846,965
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C>
Murata Manufacturing Co., Ltd.
(MANUFACTURER OF CERAMIC APPLIED
ELECTRONIC COMPUTERS) 3,700 $ 443,077
NEC Corp.
(MANUFACTURER OF TELECOMMUNICATION AND
COMPUTER EQUIPMENT) 251,000 4,787,090
NTT Docomo, Inc.
(PROVIDER OF VARIOUS TELECOMMUNICATION
SERVICES AND EQUIPMENT) 309 7,621,584
Nikko Securities Co., Ltd.
(PROVIDER OF BROKER AND DEALER SERVICES) 381,000 3,290,867
Nintendo Co., Ltd.
(MANUFACTURER OF GAME EQUIPMENT) 28,600 4,733,449
Nippon Telegraph & Telephone Corp.
(PROVIDER OF TELECOMMUNICATION SERVICES) 596 5,426,628
Nissan Motor Co., Ltd.*
(MANUFACTURER OF MOTOR VEHICLES) 654,000 4,491,528
Nomura Securities Co., Ltd.
(PROVIDER OF FINANCIAL SERVICES) 316,000 6,707,684
Sakura Bank, Ltd.
(PROVIDER OF BANKING SERVICES) 859,000 6,261,737
Sankyo Co., Ltd.
(PRODUCER OF LEADING ETHICAL DRUG) 235,000 5,182,239
Sanyo Electric Co., Ltd.
(MANUFACTURER OF CONSUMER ELECTRONICS) 369,000 2,808,271
Sony Corp.
(MANUFACTURER OF CONSUMER AND INDUSTRIAL
ELECTRONIC EQUIPMENT) 59,800 4,781,368
Sumitomo Electric Industries, Ltd.
(MANUFACTURER OF ELECTRIC WIRES AND
CABLES) 260,000 4,803,778
TDK Corp.
(MANUFACTURER OF MAGNETIC TAPES AND
FLOPPY DISCS) 600 60,517
Takeda Chemical Industries, Ltd.
(MANUFACTURER OF PHARMACEUTICALS) 79,000 5,208,234
Toshiba Corp.
(MANUFACTURER OF ELECTRIC MACHINERY) 344,000 2,460,297
Yamanouchi Pharmaceutical Co., Ltd.
(MANUFACTURERS AND MARKETS A WIDE VARIETY
OF PHARMACEUTICALS) 90,000 4,076,655
----------------------------------------------------------------------------------
123,356,080
---------------------------------------------------------------------------------------------------------------------
KOREA--0.6%
SK Telecom Co., Ltd.
(PROVIDER OF MOBILE TELECOMMUNICATIONS
SERVICES) 15,320 3,266,022
----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
NETHERLANDS--6.1%
ABN AMRO Holding N.V.
(PROVIDER OF FINANCIAL SERVICES) 339,190 7,863,035
Akzo Nobel N.V.
(PRODUCER AND MARKETER OF HEALTHCARE
PRODUCTS, COATINGS, CHEMICALS AND FIBERS) 64,970 2,959,832
Equant N.V.*
(PROVIDER OF INTERNATIONAL DATA NETWORK
SERVICES) 80,200 2,686,618
Fortis (NL) N.V.
(PROVIDER OF BANKING AND INSURANCE
SERVICES) 62,100 1,898,360
Gucci Group N.V. (New York Shares)
(DESIGNER AND PRODUCER OF PERSONAL LUXURY
ACCESSORIES AND APPAREL) 52,200 5,102,550
Heineken
(PRODUCER OF BEER AND SOFT DRINK) 108,400 5,891,064
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C>
Laurus N.V.
(OPERATOR OF SUPERMARKETS AND LIQUOR
STORES) 124,520 $ 1,194,819
Unilever, N.V.
(MANUFACTURER OF BRANDED AND PACKAGED
CONSUMER GOODS) 68,300 3,427,621
VNU N.V.
(PROVIDER OF INTERNATIONAL PUBLISHING
SERVICES) 58,710 2,766,875
----------------------------------------------------------------------------------
33,790,774
---------------------------------------------------------------------------------------------------------------------
SPAIN--0.9%
Telefonica SA
(PROVIDER OF TELECOMMUNICATION SERVICES) 252,871 4,824,881
----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
SWEDEN--1.0%
Ericsson LM "B"
(PRODUCER OF ADVANCED SYSTEMS AND
PRODUCTS FOR WIRED AND MOBILE
COMMUNICATIONS) 415,300 5,525,700
----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
SWITZERLAND--4.1%
Nestle SA (Registered)
(PRODUCER OF FOOD PRODUCTS) 4,320 8,952,434
Roche Holding AG
(MANUFACTURER OF PHARMACEUTICAL AND
CHEMICAL PRODUCTS) 417 3,809,257
Schwelzerische
Rueckversicherungs-Gesellschaft
(Registered)
(PROVIDER OF LIFE INSURANCE SERVICES) 1,550 3,056,885
UBS AG (Registered)
(PROVIDER OF BANKING AND ASSET MANAGEMENT
SERVICES) 49,776 6,895,257
----------------------------------------------------------------------------------
22,713,833
---------------------------------------------------------------------------------------------------------------------
TAIWAN--0.0%
GigaMedia, Ltd.*
(PROVIDER OF BROADBAND INTERNET ACCESS
SERVICES AND CONTENT) 51,900 253,013
----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--19.8%
ARM Holdings PLC*
(DESIGNER OF RISC MICROPROCESSORS AND
RELATED TECHNOLOGY) 169,245 1,667,951
BOC Group PLC
(PRODUCER OF CHEMICAL PRODUCTS) 278,284 3,871,845
BP Amoco PLC
(PROVIDER OF OIL INTERNATIONALLY) 1,028,969 8,716,563
Bae Systems PLC
(PRODUCER OF MILITARY AIRCRAFT) 792,782 4,498,254
British Airways PLC
(PROVIDER OF PASSENGER AND CARGO AIRLINE
SERVICES) 541,314 2,416,342
British Telecom PLC
(PROVIDER OF TELECOMMUNICATION SERVICES) 392,963 4,601,734
Cable and Wireless PLC
(PROVIDER OF TELECOMMUNICATION SERVICES) 311,830 4,406,370
Diageo PLC
(PRODUCER AND DISTRIBUTOR OF FOOD
PRODUCTS, BEER AND LIQUOR; OWNER OF FAST
FOOD RESTAURANTS) 544,800 5,136,211
EMI Group PLC
(PRODUCER OF MUSIC RECORDING) 545,074 4,076,276
Glaxo Wellcome PLC
(DEVELOPER OF PHARMACEUTICAL PRODUCTS) 107,338 3,086,352
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C>
Granada Media PLC*
(PRODUCER OF TV PROGRAMS, FEATURE FILMS
AND MADE FOR TV MOVIES) 332,115 $ 1,930,151
Prudential Corp. PLC
(PROVIDER OF A BROAD RANGE OF FINANCIAL
SERVICES) 357,332 4,800,761
Railtrack Group PLC
(OPERATOR OF RAILWAY INFRASTRUCTURE) 228,168 3,525,091
Reed International PLC
(PUBLISHER OF SCIENTIFIC, PROFESSIONAL
AND BUSINESS TO BUSINESS MATERIALS) 1,030,550 9,514,083
Rentokil Initial PLC
(PROVIDER OF ENVIRONMENTAL SERVICES) 617,257 1,422,400
Reuters Group PLC
(PROVIDER OF INTERNATIONAL NEWS AND
INFORMATION) 474,473 9,228,316
Rio Tinto PLC
(DEVELOPER OF MINING PRODUCTS) 506,109 8,178,570
Shell Transport & Trading PLC
(PROVIDER OF OIL INTERNATIONALLY) 1,124,454 9,036,530
SmithKline Beecham PLC
(MANUFACTURER OF ETHICAL DRUGS AND
HEALTHCARE PRODUCTS) 239,794 3,093,049
Vodafone Group PLC
(PROVIDER OF MOBILE TELECOMMUNICATION
SERVICES) 3,985,767 16,564,327
----------------------------------------------------------------------------------
109,771,176
----------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $526,125,102) 535,061,557
----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $545,113,505)(a) $554,071,393
----------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
(a) The cost for federal income tax purposes was $546,425,554. At October 31,
2000, the net unrealized appreciation for all securities based on tax cost
was $7,645,839. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost of
$54,316,826 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $46,670,987.
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
As of October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value, (cost $545,113,505) $554,071,393
----------------------------------------------------------------------------
Cash 715
----------------------------------------------------------------------------
Foreign currency, at value, (cost $1,917) 1,719
----------------------------------------------------------------------------
Receivable for investments sold 1,336,352
----------------------------------------------------------------------------
Dividends receivable 462,750
----------------------------------------------------------------------------
Interest receivable 7,685
----------------------------------------------------------------------------
Receivable for Fund shares sold 6,444,627
----------------------------------------------------------------------------
Foreign taxes recoverable 839,341
----------------------------------------------------------------------------
TOTAL ASSETS 563,164,582
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 10,669,766
----------------------------------------------------------------------------
Payable for Fund shares redeemed 1,539,676
----------------------------------------------------------------------------
Accrued management fee 336,494
----------------------------------------------------------------------------
Other accrued expenses 995,654
----------------------------------------------------------------------------
Total liabilities 13,541,590
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $549,622,992
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ 14,773
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities 8,957,888
----------------------------------------------------------------------------
Foreign currency related transactions (119,093)
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 35,407,743
----------------------------------------------------------------------------
Paid-in capital 505,361,681
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $549,622,992
----------------------------------------------------------------------------
NET ASSETS VALUE
CLASS A SHARES
Net asset value and redemption price per share
($362,541,312 / 31,061,555 outstanding shares of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $11.67
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $11.67) $12.38
----------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($132,981,237
/ 11,844,428 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized) $11.23
----------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($41,962,284 /
3,728,445 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $11.25
----------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($12,138,159 /
1,020,904 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $11.89
----------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $520,997) $ 7,038,590
----------------------------------------------------------------------------
Interest 996,286
----------------------------------------------------------------------------
Total income 8,034,876
----------------------------------------------------------------------------
Expenses:
Management fee 4,732,087
----------------------------------------------------------------------------
Services to shareholders 2,330,144
----------------------------------------------------------------------------
Custodian and accounting fees 482,588
----------------------------------------------------------------------------
Distribution services fees 1,492,548
----------------------------------------------------------------------------
Administrative service fees 1,529,429
----------------------------------------------------------------------------
Auditing 89,782
----------------------------------------------------------------------------
Legal 16,340
----------------------------------------------------------------------------
Trustees' fees and expenses 49,141
----------------------------------------------------------------------------
Reports to shareholders 209,420
----------------------------------------------------------------------------
Registration fees 58,118
----------------------------------------------------------------------------
Other 210,351
----------------------------------------------------------------------------
Total expenses, before expense reductions 11,199,948
----------------------------------------------------------------------------
Expense reductions (58,358)
----------------------------------------------------------------------------
Total expenses, after expense reductions 11,141,590
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (3,106,714)
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 95,870,555
----------------------------------------------------------------------------
Foreign currency related transactions 246,927
----------------------------------------------------------------------------
96,117,482
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments (86,908,555)
----------------------------------------------------------------------------
Foreign currency related transactions (115,421)
----------------------------------------------------------------------------
(87,023,976)
----------------------------------------------------------------------------
Net gain (loss) on investment transactions 9,093,506
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,986,792
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (3,106,714) (1,941,420)
----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 96,117,482 77,529,702
----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (87,023,976) 66,099,771
----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 5,986,792 141,688,053
----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net realized gains
Class A (29,549,468) (61,942,665)
----------------------------------------------------------------------------------------------------
Class B (10,474,973) (20,233,947)
----------------------------------------------------------------------------------------------------
Class C (2,462,330) (4,003,851)
----------------------------------------------------------------------------------------------------
Class I (1,108,329) (2,276,359)
----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 1,997,932,905 2,755,716,125
----------------------------------------------------------------------------------------------------
Reinvestment of distributions 41,359,185 81,048,233
----------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,110,271,510) (2,836,468,859)
----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (70,979,420) 295,499
----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (108,587,728) 53,526,730
----------------------------------------------------------------------------------------------------
Net assets beginning of period 658,210,720 604,683,990
----------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $14,773 and $5,134, respectively) $ 549,622,992 658,210,720
----------------------------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.85 12.10 12.68 11.96 10.59
-------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03)(a) (.01) .04(a) -- .04 (a)
-------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.19) 2.57 .01 1.52 1.50
-------------------------------------------------------------------------------------------------
Total from investment operations (.22) 2.56 .05 1.52 1.54
-------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (.08) (.12) (.12)
-------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.96) (1.81) (.55) (.68) (.05)
-------------------------------------------------------------------------------------------------
Total distributions (.96) (1.81) (.63) (.80) (.17)
-------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.67 12.85 12.10 12.68 11.96
-------------------------------------------------------------------------------------------------
TOTAL RETURN % (B)(C) (2.84) 23.47 .45 13.49 14.70
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 362,541 464,213 424,431 409,470 352,961
-------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.46 1.59 1.64 1.57 1.64
-------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.46 1.59 1.64 1.57 1.64
-------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.21) (.12) .36 .16 .34
-------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 140 105 76 104
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.50 11.90 12.50 11.81 10.46
-------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.15)(a) (.11) (.08)(a) (.12) (.06)(a)
-------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.16) 2.52 .03 1.51 1.47
-------------------------------------------------------------------------------------------------
Total from investment operations (.31) 2.41 (.05) 1.39 1.41
-------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (.02) (.01)
-------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.96) (1.81) (.55) (.68) (.05)
-------------------------------------------------------------------------------------------------
Total distributions (.96) (1.81) (.55) (.70) (.06)
-------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.23 12.50 11.90 12.50 11.81
-------------------------------------------------------------------------------------------------
TOTAL RETURN % (B)(C) (3.69) 22.50 (.37) 12.32 13.59
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 132,981 138,518 137,224 143,144 96,369
-------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.37 2.44 2.62 2.57 2.53
-------------------------------------------------------------------------------------------------
Ratio of expenses after reductions (%) 2.37 2.43 2.62 2.57 2.53
-------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.14) (.96) (.62) (.84) (.55)
-------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 140 105 76 104
-------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED OCTOBER 31,
-----------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $12.51 11.91 12.51 11.81 10.46
------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.13)(a) (.10) (.08)(a)(.09) (.06)(a)
------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.17) 2.51 .03 1.49 1.47
------------------------------------------------------------------------------------------
Total from investment operations (.30) 2.41 (.05) 1.40 1.41
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (.02) (.01)
------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.96) (1.81) (.55) (.68) (.05)
------------------------------------------------------------------------------------------
Total distributions (.96) (1.81) (.55) (.70) (.06)
------------------------------------------------------------------------------------------
Net asset value, end of period $11.25 12.51 11.91 12.51 11.81
------------------------------------------------------------------------------------------
TOTAL RETURN % (B)(C) (3.61) 22.49 (.37) 12.45 13.59
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 41,962 40,895 26,337 16,658 7,320
------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.24 2.33 2.55 2.49 2.50
------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.24 2.32 2.55 2.49 2.50
------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.01) (.85) (.55) (.76) (.52)
------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 140 105 76 104
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
YEAR ENDED OCTOBER 31,
------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $13.01 12.16 12.72 11.99 10.61
-------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .03(a) .05 .11(a) .07 .10(a)
-------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.19) 2.61 .03 1.53 1.48
-------------------------------------------------------------------------------------------
Total from investment operations (.16) 2.66 .14 1.60 1.58
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (.15) (.19) (.15)
-------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.96) (1.81) (.55) (.68) (.05)
-------------------------------------------------------------------------------------------
Total distributions (.96) (1.81) (.70) (.87) (.20)
-------------------------------------------------------------------------------------------
Net asset value, end of period $11.89 13.01 12.16 12.72 11.99
-------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B)(C) (2.32) 24.25 1.18 14.19 15.19
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 12,138 14,585 16,692 18,797 15,593
-------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .97 1.03 1.00 1.04 1.10
-------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .97 1.02 1.00 1.04 1.10
-------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .25 .45 1.00 .69 .88
-------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 140 105 76 104
-------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper International Fund (the "Fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
diversified management investment company organized
as a Massachusetts business trust.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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 offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. 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, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation 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 value as determined in good faith by the
Valuation Committee of the Board of Trustees.
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
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
exchange rates at period end. 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 between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and 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 results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
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.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. These differences relate primarily to
certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain
(loss) on investment transactions for a reporting
period may differ significantly from distributions
during such period. Accordingly, the Fund may
periodically make reclassifications among certain
of its capital accounts without impacting the net
asset value of the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis. All discounts and
premiums are amortized for both tax and financial
reporting purposes.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES For the year ended October 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $558,327,135
Proceeds from sales 619,685,976
24
<PAGE> 25
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 $4,732,087 for the
year ended October 31, 2000. This was equivalent to
an annual effective rate of .73% for the year ended
October 31, 2000. In addition, during the year
ended October 31, 2000, the Adviser reimbursed the
Fund $5,048,866 for losses incurred in connection
with certain portfolio transactions.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. ("KDI"). Underwriting
commissions retained by KDI in connection with the
distribution of Class A shares for the year ended
October 31, 2000 are $70,113.
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 and CDSC received by KDI
for the year ended October 31, 2000 are $1,992,559,
of which $110,845 is unpaid as of October 31, 2000.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with Kemper
Distributors, Inc. (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 Class A, Class B and
Class C shareholders. KDI in turn has various
agreements with financial services firms that
provided these services and pays these firms based
on assets of fund accounts the firms service.
Administrative services fees paid by the Fund to
KDI for the year ended October 31, 2000 are
$1,529,429, of which $109,027 is unpaid.
Additionally, $1,732 was paid by KDI to affiliates.
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
$1,556,306, of which $392,339 is unpaid as of
October 31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or trustees of
Scudder Kemper. For the year ended October 31,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $49,141 to independent
trustees.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
2000 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 127,381,446 $ 1,737,418,313 204,100,882 $ 2,385,885,625
-------------------------------------------------------------------------------------------
Class B 5,894,751 77,977,681 4,540,058 52,194,727
-------------------------------------------------------------------------------------------
Class C 12,802,858 166,698,198 26,282,751 302,284,272
-------------------------------------------------------------------------------------------
Class I 387,119 5,381,167 475,723 5,898,912
-------------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 1,999,067 27,827,033 5,044,534 55,843,045
-------------------------------------------------------------------------------------------
Class B 754,453 10,185,225 1,807,855 19,579,064
-------------------------------------------------------------------------------------------
Class C 165,583 2,238,603 309,305 3,349,772
-------------------------------------------------------------------------------------------
Class I 78,493 1,108,324 203,974 2,276,352
-------------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (136,238,583) (1,861,213,108) (208,883,469) (2,452,807,682)
-------------------------------------------------------------------------------------------
Class B (5,084,183) (66,416,319) (5,963) (67,875,174)
-------------------------------------------------------------------------------------------
Class C (12,509,814) (164,338,959) (25,534,217) (294,933,593)
-------------------------------------------------------------------------------------------
Class I (566,210) (7,845,578) (930,779) (11,399,821)
-------------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 784,062 10,457,546 809,624 9,452,589
-------------------------------------------------------------------------------------------
Class B (804,190) (10,457,546) (829,614) (9,452,589)
-------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (70,979,420) $ 295,499
-------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum
of 33 percent of its net assets under the
agreement.
--------------------------------------------------------------------------------
6 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the year ended October 31, 2000,
the Fund's custodian fees and transfer agent fees
were reduced by $10,928 and $47,430, respectively,
under these arrangements.
--------------------------------------------------------------------------------
7 REORGANIZATION On November 29, 2000 the Trustees of the Fund
approved an Agreement and Plan of Reorganization
(the "Reorganization") between the Fund and the
Scudder International Fund, pursuant to which
Scudder International Fund would acquire all or
substantially all of the assets and liabilities of
the Fund in exchange for shares of the Scudder
International Fund. The proposed transaction is
part of Scudder Kemper's initiative to restructure
and streamline the management and operations of the
funds it advises. The Reorganization can be
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
consummated only if, among other things, it is
approved by a majority vote of the shareholders of
the Fund. A special meeting of the shareholders of
the Fund to approve the Reorganization will be held
on or about May 24, 2001.
As a result of the Reorganization, each shareholder
of the Kemper International Fund will become a
shareholder of the Scudder International Fund and
would hold, immediately after the closing of the
Reorganization (the "Closing"), that number of full
and fractional voting shares of the Scudder
International Fund having an aggregate net asset
value equal to the aggregate net asset value of
such shareholder's shares held in the Fund as of
the close of business on the business day preceding
the Closing. The Closing is expected to take place
during the second quarter of 2001. In the event the
shareholders of the Fund fail to approve the
Reorganization, the Fund will continue to operate
and the Fund's Trustees may resubmit the Plan for
shareholder approval or consider other proposals.
27
<PAGE> 28
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, 2000, and the related statements of operations for the year then
ended, 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 1996. 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 auditing standards generally
accepted in the United States. 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, 2000, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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, 2000, 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 1996, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 2000
28
<PAGE> 29
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
Kemper International Fund paid distributions of $0.67 per share, respectively,
from net long-term capital gains during the year ended October 31, 2000, of
which 100% represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, Kemper International Fund
designates $51,000,000 as capital gain dividends for the year ended October 31,
2000.
Kemper International Fund paid foreign taxes of $986,120 and earned $986,120 of
foreign source income during the year ended October 31, 2000. Pursuant to
Section 853 of the Internal Revenue Code, the Fund designates $0.02 per share as
foreign taxes paid and $0.02 per share as income earned from foreign sources for
the year ended October 31, 2000.
Please contact 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 account, please call 1-800-621-1048.
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY MAUREEN E. KANE
Trustee President Assistant Secretary
LEWIS A. BURNHAM PHILIP J. COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
LINDA C. COUGHLIN BRENDA LYONS
Trustee JOHN R. HEBBLE Assistant Treasurer
Treasurer
DONALD L. DUNAWAY
Trustee IRENE T. CHENG
Vice President
ROBERT B. HOFFMAN
Trustee ANN M. MCCREARY
Vice President
DONALD R. JONES
Trustee KATHRYN L. QUIRK
Vice President
THOMAS W. LITTAUER
Chairman, Trustee WILLIAM F. TRUSCOTT
and Vice President Vice President
SHIRLEY D. PETERSON LINDA J. WONDRACK
Trustee Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
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[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 Equity Fund prospectus.
KIF - 2 (12/22/00) 4831
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
