<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
RESEARCH FUND
"... the fund was insulated ... by its broad diversification in geographic areas
that were more removed from tech-driven downward pressure, including Africa and
the Middle East, where market movement tends to be affected more by local
fundamentals than external factors. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
10
TERMS TO KNOW
12
LARGEST HOLDINGS
13
GEOGRAPHIC COMPOSITION
14
PORTFOLIO OF INVESTMENTS
19
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
24
NOTES TO FINANCIAL STATEMENTS
28
REPORT OF INDEPENDENT AUDITORS
29
TAX INFORMATION
AT A GLANCE
ABOUT YOUR REPORT
THIS FUND BEGAN OPERATIONS ON 2/14/90 AS THE CLOSED-END GROWTH FUND OF SPAIN. IT
CONVERTED TO AN OPEN-END FUND AND EXCHANGED ITS SHARES FOR A SHARES ON 12/11/98.
ON 4/10/00, THE FUND'S MANDATE WAS MODIFIED, ALLOWING FOR INVESTMENT BEYOND THE
IBERIAN PENINSULA WHILE RESTRICTING PORTFOLIO HOLDINGS TO THE INVESTMENT
ADVISOR'S TOP PICKS. THE FUND'S NAME THEN CHANGED ACCORDINGLY TO KEMPER
INTERNATIONAL RESEARCH FUND. ALL CLASSES HAVE THE SAME UNDERLYING PORTFOLIO.
PLEASE NOTE THAT RETURNS DEPICTED FOR CLASS A, B AND C SHARES PRIOR TO 4/10/00
ARE DERIVED FROM HISTORICAL PERFORMANCE OF THE FUND WHEN IT WAS LESS
DIVERSIFIED, AND ALSO REFLECT PERFORMANCE OF THE CLOSED-END PORTFOLIO FROM
2/14/90 TO 12/11/98, ADJUSTED FOR EXPENSE DIFFERENCES.
KEMPER INTERNATIONAL RESEARCH FUND
TOTAL RETURNS
FOR THE ONE-YEAR PERIOD ENDING OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES
CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL KEMPER INTERNATIONAL LIPPER GENERAL BOND
KEMPER INTERNATIONAL RESEARCH FUND CLASS A RESEARCH FUND CLASS B RESEARCH FUND CLASS C FUNDS CATEGORY AVERAGE*
------------------------------------------ --------------------- --------------------- -----------------------
<S> <C> <C> <C>
-1.82 -2.99 -2.94 2.70
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PERFORMANCE OF CLASSES WILL DIFFER.
*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 CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE.
INVESTMENT IN INTERNATIONAL AND EMERGING MARKETS SECURITIES PRESENTS SPECIAL
RISK CONSIDERATIONS INCLUDING FLUCTUATING CURRENCY EXCHANGE RATES, SHIFTING
GOVERNMENT REGULATION AND DIFFERENCES IN LIQUIDITY, ALL OF WHICH MAY AFFECT THE
VOLATILITY OF THE FUND.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER INTERNATIONAL
RESEARCH FUND CLASS A $13.28 $20.86
.........................................................
KEMPER INTERNATIONAL
RESEARCH FUND CLASS B $12.94 $20.67
.........................................................
KEMPER INTERNATIONAL
RESEARCH FUND CLASS C $12.95 $20.67
.........................................................
</TABLE>
KEMPER INTERNATIONAL RESEARCH 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 #438 of 666 funds #493 of 666 funds #490 of 666 funds
..................................................................................
5-YEAR #20 of 288 funds n/a n/a
..................................................................................
10-YEAR #16 of 52 funds n/a n/a
..................................................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR INTERNATIONAL EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR Source: Morningstar, Inc. as of 10/31/00. The
INTERNATIONAL EQUITY Morningstar International Equity Style Box(TM)
STYLE BOX] 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>
<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
[BLOOMFIELD PHOTO]
LEAD PORTFOLIO MANAGER JENNIFER BLOOMFIELD JOINED THE FIRM IN 1995 AND CURRENTLY
SERVES AS STRATEGIST ON SCUDDER KEMPER'S INVESTMENT COMMITTEE. SHE HAS ALSO
SERVED AS A RESEARCH ANALYST COVERING SOUTHEAST ASIAN COUNTRIES. BLOOMFIELD HAS
EIGHT YEARS OF INVESTMENT EXPERIENCE AND HOLDS A BACHELOR'S DEGREE FROM CORNELL
UNIVERSITY.
THE ANNUAL PERIOD ENDING OCTOBER 31, 2000, WAS
DRAMATIC. FOLLOWING AN IMPRESSIVE RALLY ON THE
STRENGTH OF INCREASED GLOBAL GROWTH AND SOARING
TECHNOLOGY STOCK PRICES, PERFORMANCE OF
INTERNATIONAL MARKETS WAS HIT HARD BY THE "TSUNAMI
EFFECT" OF SEVERE U.S. STOCK MARKET VOLATILITY IN
THE LATTER HALF OF THE 12-MONTH PERIOD. AGAINST
THIS SETTING, SHAREHOLDERS APPROVED A PROPOSAL TO
EXPAND THE INVESTMENT MANDATE OF GROWTH FUND OF
SPAIN ON APRIL 6, 2000, RESULTING IN A MORE
DIVERSIFIED AND ANALYST-DRIVEN PORTFOLIO. THUS,
JUST UNDER HALFWAY THROUGH THE ANNUAL PERIOD, THE
FUND'S TEAM OF RESEARCH ANALYSTS BEGAN THE EXCITING
PROCESS OF RESTRUCTURING THE FUND ACCORDING TO ITS
NEW MANDATE. IN THE FOLLOWING SECTION, TEAM
COORDINATOR AND LEAD PORTFOLIO MANAGER JENNIFER
BLOOMFIELD EXPLAINS THE ANALYSTS' STRATEGY FOR THE
NEW FUND AND INTERPRETS FUND PERFORMANCE SINCE THE
CHANGE IN MANDATE.
Q WHEN AND WHY WAS GROWTH FUND OF SPAIN TRANSFORMED INTO KEMPER
INTERNATIONAL RESEARCH FUND?
A Growth Fund Of Spain officially became Kemper International Research Fund
on April 10, 2000. The change was made primarily due to unrecoverable asset base
instability. When the fund converted from the closed-end format to an open-end
fund on December 11, 1998, the rash of enthusiastic profit taking that
followed -- despite a 2 percent redemption fee -- took its toll. Purchasing and
maintaining stocks that would benefit shareholders became increasingly
difficult. What's more, the fund's shrinking asset base resulted in
disproportionately high expenses for shareholders.
While the fund's investment objective remains absolutely the same -- to seek
long-term capital appreciation -- its policy was greatly changed. Previously,
the fund allowed investment only in companies based in the Iberian peninsula.
After the conversion, fund managers were given free rein to look for investment
opportunities around the globe, except for the United States and Canada. A new,
analyst-driven investment process is the foundation for this new freedom. It is
our hope that by broadening portfolio diversification, we can improve fund
performance and attract new investors, which ultimately should help decrease
fund expenses.
Q WILL YOU EXPLAIN HOW KEMPER INTERNATIONAL RESEARCH FUND'S INVESTMENT
APPROACH HAS CHANGED?
A While previously the fund was limited to investing in stocks issued by
companies located in Spain and Portugal, the new approach broadens the scope of
investment opportunity to include all developed and emerging international
markets. We use the fund's new benchmark index as a general guide for creating a
portfolio that is thoroughly diversified geographically, rebalancing quarterly
to reinstate regional neutrality.
Regional neutrality aside, the fund's investment approach is strictly "bottom
up." By that we mean that it is research driven. A bottom-up approach entails a
thorough analysis of the fundamental strengths of each stock. Within any given
region, the ana-
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
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
7
<PAGE> 8
PERFORMANCE UPDATE
lysts' best ideas with the greatest upside potential are chosen for the
portfolio. Normally, the fund will invest at least 65 percent of its total
assets in the common stocks of large foreign-based companies. In general, these
will have a market capitalization of $1 billion or more. Other investments may
include convertible or preferred stocks and investment-grade, or high-quality,
bonds.
Q HOW DO YOU CHOOSE INDIVIDUAL STOCKS IN WHICH TO INVEST?
A Our research analysts examine each company to determine which have strong
balance sheets and effective management in place, among other things. These may
be companies that appear to offer the potential for sustainable above-average
earnings growth or revenues, as well as those whose stock prices appear to be
low with respect to other measures of their worth, such as price-to-earnings
ratios.
Analysts examine the economies and business climates in the countries in which
companies are based or in which their products are sold. We're always looking
for change and hoping to spot emerging trends that may hurt or benefit whole
industries. Therefore, at any given time we may favor securities from different
countries and industries, although we do attempt to manage risk by limiting
sector bets.
Finally, analysts rank the stocks according to their projected upside
potential. The analysts coordinate to ensure that the most favorable stocks
within a region or sector get the largest representation. The goal is to
construct a portfolio roster of only the very best stocks, as determined by the
entire international and emerging markets analyst team.
Q WILL YOU EXPLAIN HOW YOUR SELL DISCIPLINE WAS PUT INTO EFFECT DURING THE
TRANSITION PROCESS?
A Normally we will sell a stock when we believe it has reached fair value,
when there is a major change in its fundamentals, or when other investments
appear to offer better opportunities. We also will sell a stock to reduce our
exposure to a geographic area or industry sector if we believe we have become
too heavily weighted. In converting the portfolio, we sold off nearly all the
previous holdings, retaining a 3 percent weighting in Spanish stocks. As with
any significant portfolio turnover, this move generated substantial capital
gains.
Q MOVING TO THE MARKET ENVIRONMENT, 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?
A Throughout the latter half of the period, world markets struggled with the
faltering euro exchange rate, concerns about rising interest rates and
pronounced moves in a narrow group of technology-related stocks. The Japanese
market, in which we are presently most heavily weighted, faced fundamental
challenges that grew increasingly evident over the past six months. 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, 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.
As all the major developed world markets dropped precipitously and suffered
extreme, even historic, levels of volatility throughout the latter half of the
period, the emerging markets experienced a delayed reaction to the March
correction.
8
<PAGE> 9
PERFORMANCE UPDATE
But by the end of April, concern about rising U.S. interest rates and the
potential subsequent slowdown of global growth led to a broad sell-off. As
investors sought refuge from risk, they turned away from the emerging markets in
a flight to quality. This phenomenon exacerbated existing liquidity problems,
which further devastated the emerging markets.
Q AGAINST THIS BACKDROP, WILL YOU PROVIDE AN OVERVIEW OF FUND PERFORMANCE
DURING THE PERIOD?
A Because of the major changes to the fund's portfolio, measuring fund
performance for the period as a whole is a challenge. Comparing relative
performance is even more difficult; no one benchmark provides an appropriate
measure. It is important to consider the period as one of transition and to
evaluate performance accordingly.
From November 1, 1999, through March 31, 2000, during which the fund was
invested solely in Spanish companies, the fund gained 13.55 percent (Class A
shares, unadjusted for any sales charges). This compares with the benchmark IBEX
35, which returned 22.52 percent for the same time period. The IBEX comprises
the 35 most actively traded stocks in cash (pesetas) among the securities on the
Joint Stock Exchange System, which includes the four Spanish stock exchanges.
From April 1, 2000, through April 30, 2000, the fund was relatively flat, with
a return of 0.85 percent (Class A shares, unadjusted for any sales charges).
This compares with a marked loss of 5.67 percent for the fund's new benchmark,
the Morgan Stanley Capital International Europe, Australasia, Far East plus
Emerging Markets index, or MSCI EAFE+EMF index. There are roughly 45 countries
in this index, which tracks performance of stocks in Europe, Japan, the Pacific
Rim, Latin America and other emerging markets, including Eastern Europe, the
Middle East and Africa. The fund also proved more resilient than Lipper's
average broad international fund, which lost 6.31 percent for the month.
Since then, the fund, now managed per the new mandate, lost 14.27 percent
(Class A shares, unadjusted for any sales charges) by the close of the annual
period on October 31, 2000. This compares with a 10.25 percent loss posted by
the benchmark index and a 10 percent decline in the average international fund
as categorized by Lipper, Inc. The performance discrepancy owes largely to the
fund's overweight in communication services stocks, particularly telecom
operators. Downgraded telecom operators slaughtered the more developed markets
over the summer, including Germany, France and the United Kingdom. Such issues,
representing a large part of these markets, plummeted on the news of the very
high fees extracted from British and German auctions for third-generation
licenses. Ericsson, one of the fund's largest holdings, was dealt yet another
blow. As the world's leading supplier in the telecommunications and data
communications industry, providing advanced communications services for mobile
and fixed networks, as well as consumer products, Ericsson announced poor
results in its mobile handset division due to a severe component shortage.
However, even though there are concerns over the short term, Ericsson remains a
formidable global competitor. Ericsson's business is concentrated in mobile
infrastructure, where the company reported good results and has a leading global
franchise.
On a more positive note, the fund was insulated from additional damage by its
broad diversification in geographic areas that were more removed from
tech-driven downward pressure, including Africa and the Middle East, where
market movement tends to be affected more by local fundamentals than external
factors.
Q WHAT ARE YOUR EXPECTATIONS FOR THE INVESTMENT ENVIRONMENT IN THE NEAR
FUTURE?
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 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.
- Continental European economic growth should remain strong relative to Japan
and the United Kingdom.
- In Japan, the pace and sustainability of economic activity are less
predictable. We are maintaining our focus on company-specific issues as main
drivers of stock 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.
9
<PAGE> 10
PERFORMANCE UPDATE
- Corporate restructuring should resume its stance as a powerful secular trend,
resulting in increased profitability for corporations in Europe, Japan and the
Pacific Basin.
- In Latin America, the dominant markets of Mexico and Brazil have made great
strides economically and politically and are poised for growth.
- 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.
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
pickup 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 both developed and emerging
international markets for the long term will ultimately be rewarded by the
important changes that continue to transform overseas economies.
TERMS TO KNOW
BOTTOM-UP INVESTMENT STYLE An investment style that assesses the performance of
individual companies before considering the impact of economic trends. The
companies may be identified from research reports, stock screens or personal
knowledge of the products and services. This approach, which is the opposite of
"top-down" investing, assumes that individual companies can do well even if the
industry as a whole may not be performing well.
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.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected impact of
management, products, sales and earnings on their balance sheets and income
statements. Distinct from technical analysis, which evaluates the attractiveness
of a stock based on historical price and trading volume movements, rather than
the financial results of the underlying company.
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.
10
<PAGE> 11
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL RESEARCH FUND
CLASS A -7.46% 15.52% 10.36% 9.38% (since 2/14/90)
..........................................................................................................
KEMPER INTERNATIONAL RESEARCH FUND
CLASS B -4.87 N/A N/A -7.94 (since 12/14/98)
..........................................................................................................
KEMPER INTERNATIONAL RESEARCH FUND
CLASS C -2.94 N/A N/A -6.96 (since 12/14/98)
..........................................................................................................
</TABLE>
KEMPER INTERNATIONAL RESEARCH FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 2/28/90 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL U.S. CONSUMER PRICE
RESEARCH FUND CLASS A1 MSCI EAFE EQUITY INDEX+ INDEX++
---------------------- ----------------------- -------------------
<S> <C> <C> <C>
2/28/90 10000.00 10000.00 10000.00
9063.00 8572.00 10453.00
10520.00 9643.00 10773.00
12/31/92 8051.00 8501.00 11086.00
10369.00 11301.00 11391.00
10700.00 12212.00 11695.00
13175.00 13623.00 11992.00
12/31/96 17421.00 14489.00 12391.00
20960.00 14788.00 12602.00
31546.00 17794.00 12805.00
29897.00 22652.00 13148.00
10/31/00 26140.00 19546.00 13581.00
</TABLE>
KEMPER INTERNATIONAL RESEARCH FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 12/31/98 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL U.S. CONSUMER PRICE
RESEARCH FUND CLASS B1 MSCI EAFE EQUITY INDEX+ INDEX++
---------------------- ----------------------- -------------------
<S> <C> <C> <C>
12/31/98 10000.00 10000.00 10000.00
9686.00 9973.00 10024.00
9369.00 9737.00 10037.00
8875.00 10146.00 10067.00
8693.00 10560.00 10140.00
8519.00 10018.00 10140.00
8648.00 10411.00 10140.00
8340.00 10723.00 10171.00
8437.00 10764.00 10195.00
8356.00 10875.00 10244.00
8365.00 11285.00 10262.00
8798.00 11679.00 10268.00
12/31/99 8369.00 12730.00 10268.00
8892.00 11923.00 10299.00
8557.00 12246.00 10360.00
9457.00 12724.00 10445.00
9526.00 12056.00 10451.00
9262.00 11764.00 10464.00
9589.00 12227.00 10519.00
9017.00 11717.00 10543.00
9030.00 11821.00 10549.00
8327.00 11248.00 10598.00
10/31/00 7871.00 10984.00 10606.00
</TABLE>
KEMPER INTERNATIONAL RESEARCH FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 12/31/98 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL U.S. CONSUMER PRICE
RESEARCH FUND CLASS C1 MSCI EAFE EQUITY INDEX+ INDEX++
---------------------- ----------------------- -------------------
<S> <C> <C> <C>
12/31/98 10000.00 10000.00 10000.00
9686.00 9973.00 10024.00
9372.00 9737.00 10037.00
8878.00 10146.00 10067.00
8692.00 10560.00 10140.00
8518.00 10018.00 10140.00
8647.00 10411.00 10140.00
8344.00 10723.00 10171.00
8437.00 10764.00 10195.00
8356.00 10875.00 10244.00
8365.00 11285.00 10262.00
8602.00 11679.00 10268.00
12/31/99 9380.00 12730.00 10268.00
8697.00 11923.00 10299.00
8568.00 12246.00 10360.00
9462.00 12724.00 10445.00
9538.00 12056.00 10451.00
9268.00 11764.00 10464.00
9562.00 12227.00 10519.00
9030.00 11717.00 10543.00
9036.00 11821.00 10549.00
8340.00 11248.00 10598.00
10/31/00 8120.00 10984.00 10606.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE 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%. FOR CLASS B SHARES, THE
MAXIMUM CONTINGENT DEFERRED SALES CHARGE
(CDSC) IS 4%. CLASS C SHARES HAVE NO
SALES ADJUSTMENT, BUT REDEMPTIONS WITHIN
ONE YEAR OF PURCHASE MAY BE SUBJECT TO A
CDSC OF 1%.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR MAXIMUM
APPLICABLE 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
RESEARCH 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. ON
4/6/2000, THE FUND CHANGED FROM
GROWTH FUND OF SPAIN, AN OPEN-END
EQUITY FUND THAT SOUGHT LONG-TERM
CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN THE EQUITY SECURITIES
OF SPANISH COMPANIES, TO ITS CURRENT
STRATEGY. THE FUND'S PERFORMANCE
PRIOR TO THAT DATE WOULD HAVE BEEN
DIFFERENT HAD THE CURRENT STRATEGY
BEEN IN EFFECT. THE PERFORMANCE OF
CLASS A SHARES REFLECTS THE
PERFORMANCE FROM WHEN THE FUND WAS A
CLOSED-END FUND KNOWN AS THE GROWTH
FUND OF SPAIN, INC. (THROUGH
12/11/98). BECAUSE THE FUND HAD NO
DAILY SALES OR REDEMPTIONS WHEN IT
WAS A CLOSED-END FUND, ITS
PERFORMANCE THEN MAY HAVE BEEN
DIFFERENT THAN IF IT HAD OPERATED AS
AN OPEN-END FUND.
+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 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. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
11
<PAGE> 12
LARGEST HOLDINGS
KEMPER INTERNATIONAL RESEARCH FUND 10 LARGEST HOLDINGS*
Representing 26 percent of the fund's total common stocks on October 31, 2000.
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C>
------------------------------------------------------------------------
VODAFONE AIRTOUCH
1. 3.9%
------------------------------------------------------------------------
BANQUE NATIONALE DE PARIS
2. 3.4%
------------------------------------------------------------------------
SOCIETE GENERALE
3. 2.8%
------------------------------------------------------------------------
DEUTSCHE BANK
4. 2.7%
------------------------------------------------------------------------
AVENTIS
5. 2.6%
------------------------------------------------------------------------
ERICSSON
6. 2.3%
------------------------------------------------------------------------
BANCO INTESA
7. 2.3%
------------------------------------------------------------------------
BAE SYSTEMS
8. 2.3%
------------------------------------------------------------------------
HEINEKEN HOLDING
9. 1.9%
------------------------------------------------------------------------
DAIWA SECURITIES
10. 1.8%
------------------------------------------------------------------------
</TABLE>
*PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
12
<PAGE> 13
GEOGRAPHIC COMPOSITION
GEOGRAPHIC COMPOSITION OF KEMPER INTERNATIONAL RESEARCH FUND*
BASED ON TOTAL COMMON STOCKS AS OF OCTOBER 31, 2000
[BAR GRAPH]
<TABLE>
<CAPTION>
ON 10/31/00
-----------
<S> <C>
Japan 23.00
United Kingdom 20.00
France 13.00
Germany 6.00
Netherlands 6.00
Switzerland 4.00
Korea 3.00
Finland 3.00
Hong Kong 3.00
Spain 3.00
Other 16.00
</TABLE>
- On 10/31/00
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
KEMPER INTERNATIONAL RESEARCH FUND
Portfolio of Investments at October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM NOTES--5.9% AMOUNT VALUE
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS--5.3%
Federal Home Loan Bank, 6.350%, 11/01/2000** $ 1,900,000 $ 1,900,000
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FIXED TIME
DEPOSITS--0.6%
Chase Euro Time Deposit, 6.438%, 11/01/2000** 221,000 221,000
---------------------------------------------------------------------------------
TOTAL SHORT-TERM NOTES
(Cost $2,121,000) 2,121,000
---------------------------------------------------------------------------------
COMMON STOCKS--92.9% SHARES
BRAZIL--1.0%
Embratel Participacoes S.A. (ADR)
(PROVIDER OF TELECOMMUNICATION SERVICES) 21,300 344,794
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CHINA--0.7%
China Petroleum and Chemical Corp.*
(EXPLORER AND PRODUCER OF OIL AND NATURAL GAS
IN CHINA) 1,212,000 237,781
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DENMARK--0.8%
Infineon Technologies AG*
(Manufacturer and marketer of semiconductors) 6,800 285,824
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FINLAND--2.9%
Nokia Oyj
(PROVIDER OF TELECOMMUNICATION SERVICES) 10,000 411,753
Sonera Oyj
(PROVIDER OF TELECOMMUNICATION SERVICES) 14,800 326,250
Tietoenator Oyj
(INFORMATION TECHNOLOGY SERVICE COMPANY) 16,000 307,732
---------------------------------------------------------------------------------
1,045,735
------------------------------------------------------------------------------------------------------------------------
FRANCE--12.5%
Aventis S.A.
(MANUFACTURES LIFE SCIENCE PRODUCTS) 12,800 923,875
Banque Nationale de Paris
(PROVIDER OF BANKING SERVICES) 14,300 1,233,713
Renault S.A.
(MANUFACTURER OF AUTOMOBILES, BUSES,
INDUSTRIAL AND AGRICULTURAL VEHICLES) 6,300 313,489
Rhodia S.A.
(MANUFACTURER OF DRUGS AND CHEMICALS PRODUCTS) 13,800 172,727
Societe Generale "A"
(PROVIDER OF FULL BANKING AND FINANCIAL
SERVICES) 17,900 1,016,866
Suez Lyonnaise des Eaux S.A.
(DEVELOPER OF WATER AND ELECTRIC UTILITIES) 2,100 320,622
Total Fina ELF S.A. "B"
(EXPLORER, DEVELOPER, PRODUCER, TRANSPORTER
AND MARKETER OF OIL AND NATURAL GAS) 3,600 515,400
---------------------------------------------------------------------------------
4,496,692
</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> <C>
GERMANY--4.9%
Deutsche Bank AG (Registered)
(PROVIDER OF FINANCIAL SERVICES) 11,600 $ 955,464
Deutsche Lufthansa AG
(PROVIDER OF AIRLINE SERVICES) 8,600 170,153
Metro AG
(OPERATOR OF RETAIL STORES) 7,500 302,510
Siemens AG
(DEVELOPER OF ELECTRICAL PRODUCTS) 2,600 331,169
---------------------------------------------------------------------------------
1,759,296
------------------------------------------------------------------------------------------------------------------------
HONG KONG--2.8%
China Mobil (Hong Kong) Limited (ADR)*
(PROVIDES CELLULAR TELECOMMUNICATIONS SERVICES
IN CHINA) 16,200 496,125
Legend Holdings Ltd.
(MANUFACTURER OF COMPUTERS AND RELATED
PRODUCTS) 276,000 233,580
MTR Corp.*
(PROVIDER OF PUBLIC TRANSPORT SERVICES IN HONG
KONG) 182,000 269,548
---------------------------------------------------------------------------------
999,253
------------------------------------------------------------------------------------------------------------------------
HUNGARY--0.6%
Magyar Tavkozlesi Rt (ADR)
(PROVIDER OF TELECOMMUNICATIONS SERVICES) 9,700 227,950
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
INDIA--0.6%
Infosys Technologies Limited
(DEVELOPER OF SOFTWARE) 1,700 233,750
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ISRAEL--1.0%
Check Point Software Technologies, Ltd.*
(DEVELOPER, MARKETER AND SUPPORTER OF
MANAGEMENT SOLUTIONS FOR ACTIVE NETWORKS) 2,200 348,425
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ITALY--2.2%
Banco Intesa SpA
(PROVIDER OF BANKING SERVICES) 196,400 815,520
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
JAPAN--21.7%
Asahi Glass Co., Ltd.
(MANUFACTURER OF A VARIETY OF GLASS PRODUCTS) 34,000 349,166
Benesse Corp.
(PROVIDER OF EDUCATIONAL SERVICES) 6,300 346,598
Canon, Inc.
(PRODUCER OF VISUAL IMAGE AND INFORMATION
EQUIPMENT) 6,000 238,218
Chugai Pharmaceutical Co., Ltd.
(PHARMACEUTICAL COMPANY) 10,000 169,815
Daikin Industries, Ltd.
(MANUFACTURER OF AIR CONDITIONING EQUIPMENT) 9,000 174,124
Daiwa Securities Co., Inc.
(PROVIDER OF BROKERAGE AND OTHER FINANCIAL
SERVICES) 59,000 654,053
Matsushita Electric Industrial Co., Ltd.
(MANUFACTURER OF CONSUMER ELECTRONIC PRODUCTS) 16,000 465,065
Matsushita Electric Works, Ltd.
(MANUFACTURER OF BUILDING MATERIALS AND
LIGHTING EQUIPMENT) 30,000 353,475
Mitsubishi Corp.
(GENERAL TRADING COMPANY) 47,000 387,860
Mizuho Holdings, Inc.*
(PROVIDER OF FINANCIAL SERVICES) 75 576,976
Murata Manufacturing Co., Ltd.
(MANUFACTURER OF CERAMIC APPLIED ELECTRONIC
COMPUTERS) 2,000 239,501
</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> <C>
NEC Corp.
(MANUFACTURER OF TELECOMMUNICATION AND
COMPUTER EQUIPMENT) 20,000 $ 381,441
NTT Docomo, Inc.
(PROVIDER OF VARIOUS TELECOMMUNICATION
SERVICES AND EQUIPMENT) 15 369,980
Nippon Telegraph & Telephone Corp.
(PROVIDER OF TELECOMMUNICATION SERVICES) 39 355,098
Sankyo Co., Ltd.
(PRODUCER OF LEADING ETHICAL DRUG ) 8,000 176,417
Shin-Etsu Chemical Co., Ltd.
(PRODUCER AND DISTRIBUTOR OF SYNTHETIC RESINS
AND CHEMICALS) 8,000 328,627
Sony Corp.
(MANUFACTURER OF CONSUMER AND INDUSTRIAL
ELECTRONIC EQUIPMENT) 5,600 447,754
Sumitomo Electric Industries, Ltd.
(MANUFACTURER OF ELECTRIC WIRES AND CABLES) 20,000 369,521
The Chiba Bank, Ltd.
(PROVIDER OF BANKING SERVICES) 99,000 411,214
Toyota Motor Corp.
(LEADING MANUFACTURER AND MARKETER OF
DIVERSIFIED AUTOMOTIVE PRODUCTS) 10,000 399,780
Yamada Denki Co., Ltd.
(SELLS AND REPAIRS CONSUMER ELECTRONIC
EQUIPMENT) 5,000 440,125
Yamanouchi Pharmaceutical Co., Ltd.
(MANUFACTURES AND MARKETS A WIDE VARIETY OF
PHARMACEUTICALS) 4,000 181,185
---------------------------------------------------------------------------------
7,815,993
------------------------------------------------------------------------------------------------------------------------
KOREA--2.9%
Korea Telecom Corp. (ADR)
(PROVIDER OF TELECOMMUNICATION SERVICES) 6,500 239,688
SK Telecom Co., Ltd.
(PROVIDER OF TELECOMMUNICATION SERVICES) 19,100 478,694
Samsung Electronics (GDR)
(DIVERSIFIED ELECTRONICS MANUFACTURER) 4,500 333,000
---------------------------------------------------------------------------------
1,051,382
------------------------------------------------------------------------------------------------------------------------
MEXICO--1.6%
Fomento Economico Mexicano, S.A. de C.V. (ADR)
(PRODUCER OF BEER, SOFT DRINKS AND MINERAL
WATER) 5,500 210,031
Grupo Televisa S.A. de C.V. (GDR)
(OPERATOR OF ENTERTAINMENT BUSINESSES) 6,600 357,225
---------------------------------------------------------------------------------
567,256
------------------------------------------------------------------------------------------------------------------------
NETHERLANDS--5.6%
ABN AMRO Holding N.V.
(PROVIDER OF FINANCIAL SERVICES) 20,000 463,636
Heineken Holding N.V. "A"
(PRODUCER AND DISTRIBUTOR OF BEERS, SPIRITS,
WINES AND SOFT DRINKS) 19,300 688,321
KPNQuest NV*
(PROVIDER OF INTERNET SERVICES TO BUSINESSES) 9,600 232,735
Royal Dutch Petroleum Co.
(PETROLEUM COMPANY) 10,500 623,145
---------------------------------------------------------------------------------
2,007,837
------------------------------------------------------------------------------------------------------------------------
PORTUGAL--0.7%
Electricidade de Portugal S.A.
(PRODUCER AND DISTRIBUTOR OF ELECTRICAL
ENERGY) 92,000 249,990
---------------------------------------------------------------------------------
</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> <C>
RUSSIA--0.5%
Mobile Telesystems*
(PROVIDER OF CELLULAR PHONE SERVICE) 7,300 $ 201,663
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SPAIN--2.4%
Telefonica S.A.*
(PROVIDER OF TELECOMMUNICATION SERVICES) 31,500 601,033
Union Electrica Fenosa S.A.
(PRODUCER AND DISTRIBUTOR OF ELECTRICAL
ENERGY) 14,500 268,293
---------------------------------------------------------------------------------
869,326
------------------------------------------------------------------------------------------------------------------------
SWEDEN--2.3%
Ericsson LM "B"
(PRODUCER OF ADVANCED SYSTEMS AND PRODUCTS FOR
WIRED AND MOBILE COMMUNICATIONS) 62,200 827,591
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--4.1%
Credit Suisse Group (Registered)
(PROVIDER OF UNIVERSAL BANKING AND FINANCIAL
SERVICES) 1,293 242,415
Nestle S.A. (Registered)
(PRODUCER OF FOOD PRODUCTS) 261 540,876
Roche Holding AG
(MANUFACTURER OF PHARMACEUTICAL AND CHEMICAL
PRODUCTS) 47 429,341
UBS AG (Registered)
(PROVIDER OF BANKING AND ASSET MANAGEMENT
SERVICES) 1,916 265,415
---------------------------------------------------------------------------------
1,478,047
------------------------------------------------------------------------------------------------------------------------
TAIWAN--1.1%
Hon Hai Precision Industry Co.
(MANUFACTURER OF ELECTRONIC CONNECTORS AND
CABLE ASSEMBLIES) 13,010 149,290
Taiwan Semiconductor Manufacturing Co.*
(MANUFACTURER OF INTEGRATED CIRCUITS) 10,916 247,657
---------------------------------------------------------------------------------
396,947
------------------------------------------------------------------------------------------------------------------------
TURKEY--1.2%
Hurriyet Gazetecilik ve Matbaacilik A.S.
(PUBLISHER OF WEEKLY NEWSPAPERS) 37,267,500 447,900
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--18.8%
BOC Group PLC
(PRODUCER OF CHEMICAL PRODUCTS) 17,100 237,917
BP Amoco PLC
(PROVIDER OF OIL INTERNATIONALLY) 68,900 583,663
Bae Systems PLC
(PRODUCER OF MILITARY AIRCRAFT) 142,900 810,816
Barclays PLC
(PROVIDER OF COMMERCIAL AND INVESTMENT
BANKING, INSURANCE AND INSURANCE AND OTHER
FINANCIAL SERVICES) 17,784 508,270
Cable and Wireless PLC
(PROVIDER OF TELECOMMUNICATION SERVICES) 22,900 323,593
Glaxo Wellcome PLC
(DEVELOPER OF PHARMACEUTICAL PRODUCTS) 15,100 434,187
Granada Compass
(PROVIDER OF AN ASSORTMENT OF HOSPITALITY AND
MEDIA SERVICES) 43,900 377,928
Granada Media PLC*
(PRODUCER OF TV PROGRAMS, FEATURE FILMS AND
MADE FOR TV MOVIES) 48,000 278,961
J Sainsbury PLC
(RETAIL DISTRIBUTOR OF FOOD THROUGH
SUPERMARKETS) 49,500 277,815
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
RMC Group PLC
(PRODUCES AND SUPPLIES BUILDING AND
CONSTRUCTION MATERIALS) 34,400 $ 305,118
Railtrack Group PLC
(OPERATOR OF RAILWAY INFRASTRUCTURE) 14,100 217,839
Reuters Group PLC
(PROVIDER OF INTERNATIONAL NEWS AND
INFORMATION) 12,100 235,340
Scottish & Southern Energy
(PRODUCER AND DISTRIBUTOR OF ELECTRICAL
ENERGY) 40,100 333,010
SmithKline Beecham PLC
(MANUFACTURER OF ETHICAL DRUGS AND HEALTHCARE
PRODUCTS) 33,500 432,109
Vodafone Group PLC
(PROVIDER OF MOBILE TELECOMMUNICATION
SERVICES) 339,500 1,410,918
---------------------------------------------------------------------------------
6,767,484
---------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $37,516,743) 33,476,436
---------------------------------------------------------------------------------
PREFERRED STOCKS--1.2%
ProSieben Sat.1 Media AG
(PRODUCER AND BROADCASTER OF TELEVISION
PROGRAMMING, OPERATOR OF INTERACTIVE INTERNET
WEBSITES)
(Cost $530,477) 13,600 428,447
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $40,168,220)(a) $36,025,883
---------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $40,168,220. At October 31,
2000, net unrealized depreciation for all securities based on tax cost was
$4,142,337. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$1,631,668 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $5,774,005.
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $40,168,220) $36,025,883
---------------------------------------------------------------------------
Cash 200,161
---------------------------------------------------------------------------
Foreign currency, at value (cost $1,059) 1,083
---------------------------------------------------------------------------
Dividend receivable 43,386
---------------------------------------------------------------------------
Interest receivable 40
---------------------------------------------------------------------------
Receivable for Fund shares sold 943
---------------------------------------------------------------------------
Foreign taxes recoverable 109,844
---------------------------------------------------------------------------
TOTAL ASSETS 36,381,340
---------------------------------------------------------------------------
LIABILITIES
Payable for Fund shares redeemed 43,238
---------------------------------------------------------------------------
Accrued management fee 22,860
---------------------------------------------------------------------------
Other accrued expenses and payables 390,218
---------------------------------------------------------------------------
Total liabilities 456,316
---------------------------------------------------------------------------
NET ASSETS, AT VALUE $35,925,024
---------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments $(4,142,337)
---------------------------------------------------------------------------
Foreign currency related transactions (18,850)
---------------------------------------------------------------------------
Accumulated net realized gain (loss) 15,476,591
---------------------------------------------------------------------------
Paid-in-capital 24,609,620
---------------------------------------------------------------------------
NET ASSETS, AT VALUE $35,925,024
---------------------------------------------------------------------------
NET ASSET VALUE
CLASS A SHARES
Net asset value and redemption price per share
($35,401,024/2,666,443 shares of capital stock
outstanding,
$.01 par value, 33,333,333 number of shares authorized) $13.28
---------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $13.28) $14.09
---------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price
(subject to contingent deferred sales charge) per share
($324,466/25,068 shares of capital stock outstanding,
$.01 par value, 33,333,333 number of shares authorized) $12.94
---------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price
(subject to contingent deferred sales charge) per share
($199,534/15,407 shares of capital stock outstanding,
$.01 par value, 33,333,334 number of shares authorized) $12.95
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $107,100) $ 579,565
----------------------------------------------------------------------------
Interest 342,487
----------------------------------------------------------------------------
Total income 922,052
----------------------------------------------------------------------------
Expenses:
Management fee 355,631
----------------------------------------------------------------------------
Services to shareholders 86,906
----------------------------------------------------------------------------
Custodian and accounting fees 153,990
----------------------------------------------------------------------------
Distribution services fees 3,311
----------------------------------------------------------------------------
Administrative services fees 118,543
----------------------------------------------------------------------------
Auditing 68,950
----------------------------------------------------------------------------
Legal 30,000
----------------------------------------------------------------------------
Trustees' fees and expenses 33,500
----------------------------------------------------------------------------
Reports to shareholders 97,500
----------------------------------------------------------------------------
Registration fees 42,998
----------------------------------------------------------------------------
Other 11,942
----------------------------------------------------------------------------
Total expenses, before expense reductions 1,003,271
----------------------------------------------------------------------------
Expense reductions (136,410)
----------------------------------------------------------------------------
Total expenses, after expense reductions 866,861
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 55,191
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 18,209,451
----------------------------------------------------------------------------
Foreign currency related transactions (124,401)
----------------------------------------------------------------------------
18,085,050
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments (16,684,174)
----------------------------------------------------------------------------
Foreign currency related transactions (1,772)
----------------------------------------------------------------------------
(16,685,946)
----------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,399,104
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,454,295
----------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
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) $ 55,191 $ 360,978
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 18,085,050 187,809,690
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (16,685,946) (161,013,241)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 1,454,295 27,157,427
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A -- (2,231,590)
--------------------------------------------------------------------------------------------------
Class B -- --
--------------------------------------------------------------------------------------------------
Class C -- --
--------------------------------------------------------------------------------------------------
From net realized gains
Class A (23,864,396) (28,432,104)
--------------------------------------------------------------------------------------------------
Class B (56,041) --
--------------------------------------------------------------------------------------------------
Class C (41,783) --
--------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 3,466,227 117,717,382
--------------------------------------------------------------------------------------------------
Reinvestment of distributions 6,080,578 --
--------------------------------------------------------------------------------------------------
Cost of shares redeemed (17,381,956) (435,069,016)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (7,835,151) (317,351,634)
--------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (30,343,076) (320,857,901)
--------------------------------------------------------------------------------------------------
Net assets at beginning of period 66,268,100 387,126,001
--------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $49,388 on October 31, 1999) $ 35,925,024 $ 66,268,100
--------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
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
ELEVEN
MONTHS
YEAR ENDED OCTOBER 31, ENDED YEAR ENDED NOVEMBER 30,
------------------------- OCTOBER 31, ---------------------------
2000(E) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $20.86 23.42 19.06 15.67 13.33 12.40
----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .02(a) .05(a) .11 .24 .36 .37
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .05 (.75) 5.72 4.15 2.69 1.01
----------------------------------------------------------------------------------------------------------------
Total from investment operations .07 (.70) 5.83 4.39 3.05 1.38
----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- (.14) (.11) (.17) (.42) (.45)
----------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions (7.65) (1.72) (1.36) (.83) (.29) --
----------------------------------------------------------------------------------------------------------------
Total distributions (7.65) (1.86) (1.47) (1.00) (.71) (.45)
----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.28 20.86 23.42 19.06 15.67 13.33
----------------------------------------------------------------------------------------------------------------
TOTAL RETURN %(B)(C) (1.82) (3.38) 32.90** 29.86 24.12 11.62
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in
thousands) 35,401 66,005 387,126 315,059 263,935 227,997
----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 2.10 1.97 1.43* 1.22 1.25 1.22
----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.82 1.96 1.43* 1.22 1.25 1.22
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .13 .29 .58* 1.29 2.46 2.89
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 135 76 10* 29 45 69
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2000(E) 1999(D)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $20.67 22.98
----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (.15) (.16)
----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .07 (2.15)
----------------------------------------------------------------------------------------------------
Total from investment operations (.08) (2.31)
----------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (7.65) --
----------------------------------------------------------------------------------------------------
Total distributions (7.65) --
----------------------------------------------------------------------------------------------------
Net asset value, end of period $12.94 20.67
----------------------------------------------------------------------------------------------------
TOTAL RETURN %(B)(C) (2.99) (10.05)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 324 151
----------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 3.71 2.86*
----------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.85 2.84*
----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.98) (.84)*
----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 135 76*
----------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2000(E) 1999(D)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $20.67 22.98
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (.13) (.14)
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .06 (2.17)
--------------------------------------------------------------------------------
Total from investment operations (.07) (2.31)
--------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment
transactions (7.65) --
--------------------------------------------------------------------------------
Total distributions (7.65) --
--------------------------------------------------------------------------------
Net asset value, end of period $12.95 20.67
--------------------------------------------------------------------------------
TOTAL RETURN %(B)(C) (2.94) (10.05)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 200 112
--------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 3.40 2.81*
--------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 2.80 2.79*
--------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.92) (.79)*
--------------------------------------------------------------------------------
Portfolio turnover rate (%) 135 76*
--------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the
period.
(b) Total return does not reflect the effect of any sales
charge.
(c) Total return would have been lower had certain expenses not
been waived.
(d) For the period December 14, 1998 (commencement of Class) to
October 31, 1999.
(e) On April 6, 2000, the Fund adopted its current name and
objectives. Prior to that date, the Fund was known as Growth
Fund of Spain and its investment objective was to seek
long-term capital appreciation by investing primarily in
equity securities of Spanish companies. Financial
information prior to April 6, 2000 should not be considered
representative of the present Fund.
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper International Research Fund (the "Fund")
(formerly Growth Fund of Spain) is a diversified
series of Kemper Global/International Series, Inc.
(the "Corporation") which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment
company organized as a Maryland corporation. Until
December 11, 1998, the Fund was organized as a
single series of The Growth Fund of Spain, Inc.
("GSP"), a Maryland Corporation and was registered
under the 1940 Act as a diversified, closed-end
management investment company. Effective December
14, 1998, all of the common stock of GSP was
exchanged for Class A shares of the Fund and, on
December 14, 1998, the Fund commenced a public
offering of its Class A, Class B and Class C
shares. Prior to April 6, 2000, the Fund was known
as Growth Fund of Spain, an open-end
non-diversified Series of the corporation.
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 (none sold
through October 31, 2000) 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
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
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 Directors.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
rates of exchange. Purchases and sales of
investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses from sales and maturities of forward
foreign currency exchange contracts, disposition of
foreign currencies, and the difference between the
amount of net 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 the 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 accounting principles
generally accepted in the United States. 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 are
accreted for both tax and financial reporting
purposes.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
2 PURCHASE & SALES
OF SECURITIES For the year ended October 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $56,828,856
Proceeds from sales 66,748,908
--------------------------------------------------------------------------------
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 $355,631 for the year
ended October 31, 2000. This was equivalent to an
annual effective rate of .75% for the year ended
October 31, 2000.
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 $652.
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
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 charge
("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 $20,514,
after an expense waiver of $543, of which $986 was
unpaid at October 31, 2000.
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 pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees paid by KDI
for the year ended October 31, 2000 were $75,427
after an expense waiver of $43,116, of which
$15,740 was unpaid at October 31, 2000.
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 $69,868
for the year ended October 31, 2000.
FUND ACCOUNTING AGENT. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, is
responsible for determining the daily net asset
value per share and maintaining the portfolio and
general accounting records of the Fund. The Fund
incurred fund accounting fees of $83,554 for the
year ended October 31, 2000, of which $13,854 was
unpaid at 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 is officers and
incurred trustees' fees of $33,500 to independent
trustees.
26
<PAGE> 27
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 156,412 $ 2,228,210 33,243 $ 117,006,901
---------------------------------------------------------------------------------------
Class B 18,445 258,225 7,678 410,654
---------------------------------------------------------------------------------------
Class C 69,771 976,396 5,551 299,827
---------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 469,353 5,982,771 -- --
---------------------------------------------------------------------------------------
Class B 4,034 56,033 -- --
---------------------------------------------------------------------------------------
Class C 3,005 41,774 -- --
---------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,123,994) (16,423,819) (13,399,091) (435,057,994)
---------------------------------------------------------------------------------------
Class B (4,505) (64,012) (500) (8,084)
---------------------------------------------------------------------------------------
Class C (62,782) (890,729) (500) (2,938)
---------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 225 3,396 -- --
---------------------------------------------------------------------------------------
Class B (229) (3,396) -- --
---------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (7,835,151) $(317,351,634)
---------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5 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 and transfer agent fees were
reduced by $5,845 and $3,239, respectively, under
these arrangements.
--------------------------------------------------------------------------------
6 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 redemptions 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 5 percent of its net assets under
this agreement.
27
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER INTERNATIONAL RESEARCH FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper International Research Fund
(formerly Growth Fund of Spain), 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 1995. 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 or other
auditing procedures. 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 Research 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 1995, 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 Research Fund paid distributions of $7.65 per share 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
Research Fund designates $18,800,000 as capital gain dividends for the year
ended October 31, 2000.
Kemper International Research Fund paid foreign taxes of $107,101 and earned
$107,101 of foreign source income during the year ended October 31, 2000.
Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $0.04
per share as foreign taxes paid and $0.04 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
DIRECTORS&OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
JAMES E. AKINS MARK S. CASADY WILLIAM F. TRUSCOTT
Director President Vice President
JAMES R. EDGAR PHILIP J. COLLORA LINDA J. WONDRACK
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Director JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Director JOYCE E. CORNELL Assistant Secretary
Vice President
KATHRYN L. QUIRK BRENDA LYONS
Director and Vice President Assistant Treasurer
JOAN R. GREGORY
FRED B. RENWICK Vice President
Director
TARA C. KENNEY
JOHN G. WEITHERS Vice President
Director
THOMAS W. LITTAUER
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 BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL KEMPER DISTRIBUTORS, INC.
UNDERWRITER 222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
</TABLE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[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.
KIRF-2 (12/22/00) 4868
