<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) ENDED JUNE 30, 1999
[MORNINGSTAR RATINGS LOGO]
Seeks high current income consistent with prudent total return asset management
by investing primarily in investment grade foreign and domestic fixed income
securities.
KEMPER
GLOBAL INCOME FUND
"... In January, no major central bank was expected to raise rates, all had
either a neutral or easing bias. By the end of June, all major central banks
with the exception of the Bank of England had a monetary policy stance which was
either neutral or tightening. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Geographic Composition Portfolio Statistics
9
Portfolio Of Investments
11
Financial Statements
13
Notes To Financial Statements
19
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER GLOBAL INCOME FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A -6.72%
CLASS B -6.91%
CLASS C -6.94%
LIPPER GENERAL WORLD INCOME FUNDS CATEGORY AVERAGE* -3.35%
- --------------------------------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
* LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES
IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT
OF SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AS OF AS OF
6/30/99 12/31/98
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER GLOBAL INCOME FUND CLASS A $8.13 $8.94
- ----------------------------------------------------------------------------------------------------------
KEMPER GLOBAL INCOME FUND CLASS B $8.16 $8.96
- ----------------------------------------------------------------------------------------------------------
KEMPER GLOBAL INCOME FUND CLASS C $8.18 $8.99
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER GLOBAL INCOME
FUND RANKINGS AS OF 6/30/99
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GENERAL WORLD INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #81 of 142 funds #99 of 142 funds #94 of 142 funds
- ---------------------------------------------------------------------------------------------------------------
5-YEAR #35 of 73 funds #47 of 73 funds #44 of 73 funds
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DISTRIBUTION AND YIELD INFORMATION FOR THE
FUND AS OF JUNE 30, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME $.2175 $.1879 $.1919
- ----------------------------------------------------------------------------------------------------------------
JUNE DIVIDENDS $.0300 $.0256 $.0264
- ----------------------------------------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE 4.43% 3.76% 3.87%
- ----------------------------------------------------------------------------------------------------------------
SEC YIELD 3.19% 2.73% 2.85%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON JUNE 30, 1999. DISTRIBUTION RATE
SIMPLY MEASURES THE LEVEL OF DIVIDENDS AND IS NOT A COMPLETE MEASURE OF
PERFORMANCE. THE SEC YIELD IS NET INVESTMENT INCOME PER SHARE EARNED OVER THE
MONTH ENDED JUNE 30, 1999 SHOWN AS AN ANNUALIZED PERCENTAGE OF THE MAXIMUM
OFFERING PRICE ON THAT DATE. THE SEC YIELD IS COMPUTED IN ACCORDANCE WITH A
STANDARDIZED METHOD PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION. YIELDS
AND DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
THE SPECIAL RISK CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE FUND,
INCLUDING RISKS RELATED TO FOREIGN INVESTMENTS AND TO A NON-DIVERSIFIED
INVESTMENT COMPANY, ARE DISCUSSED IN THE PROSPECTUS. RISKS ASSOCIATED WITH
FOREIGN SECURITIES, INCLUDING FLUCTUATING EXCHANGE RATES, GOVERNMENT REGULATIONS
AND DIFFERENCES IN LIQUIDITY, MAY AFFECT YOUR INVESTMENT. AS A NON-DIVERSIFIED
INVESTMENT COMPANY, THE FUND MAY INVEST MORE THAN 5% OF ITS ASSETS IN THE
SECURITIES OF A PARTICULAR FOREIGN GOVERNMENT.
TERMS TO KNOW
KEMPER FUND'S STYLE
- -------------------------------------------------------------------------------
MORNINGSTAR INCOME STYLE BOX
- -------------------------------------------------------------------------------
[MATURITY QUALITY DIAGRAM]
Source: Morningstar, Inc., Chicago, IL
312-696-6000. The Income Style Box placement is based on a fund's average
effective maturity or duration and the average credit rating of the bond
portfolio.
THE STYLE BOX REPRESENTS A SNAPSHOT OF A FUND'S PORTFOLIO ON A SINGLE DAY. IT IS
NOT AN EXACT ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE PERFORMANCE. THE
FUND'S PORTFOLIO CHANGES FROM DAY TO DAY. A LONGER-TERM VIEW IS REPRESENTED BY A
FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED ON ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE YEARS.
MORNINGSTAR HAS PLACED KEMPER GLOBAL INCOME FUND IN THE INTERNATIONAL BOND
CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT
POLICIES.
CURRENCY DEVALUATION A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar. This may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a devaluation of a foreign
currency can have the effect of reducing an investment's total return because an
investment, converted back into U.S. dollars, will require more of the foreign
currency to purchase dollars.
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to hedge or reduce the
possibility of a loss on an investment.
SPREAD Difference between the yields on securities of the same quality but
different maturities (or vice versa).
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON, MASS.
HE IS A MEMBER OF BOTH THE BLUE CHIP ECONOMIC AND FINANCIAL SURVEYS, AND SERVES
ON THE POLICY ADVISORY COMMITTEES OF THE FEDERAL RESERVE BOARDS OF CHICAGO AND
CLEVELAND.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
In his July 22 Humphrey-Hawkins testimony on the economy and Fed policy, Federal
Reserve Board Chairman Alan Greenspan indicated that the Fed will raise interest
rates soon unless job creation slows and productivity continues to increase. But
why, ask many investors, is the Fed tightening when there is no indication of
inflation?
Talk of rising interest rates began last spring, and on June 30 the Fed
boosted the overnight bank lending rate one quarter of a point (0.25%). With
this move the Fed said it was not inclined to increase rates again anytime
soon -- although it noted that it was alert to the potential emergence of
inflationary pressures that could undermine economic growth. The Fed might then
decide that the June rate increase wasn't enough.
That is exactly what appears to be happening. In his July 22 commentary to the
House Banking Committee, which was part of the Fed's twice-yearly outlook report
required by the Humphrey-Hawkins Full Employment and Balanced Growth Act of
1978, Greenspan didn't say that the Fed definitely would raise the overnight
bank loan rate at its next meeting on August 24. Still, the tone of his report
included more warnings than expected about the need to follow the June rate
increase with another.
The possibility of another rate hike frustrates many investors, who do not
understand why the Fed is tightening when there are no signs of inflation. But
Fed policymakers look at the rate hike another way: If the June 30 increase was
not enough to bring inflation risks into balance, a "euphoric" rise in stocks
may fuel increased consumer spending, which could necessitate a more disruptive
adjustment later. If new data confirms this theory, the Fed will likely act
promptly to prevent such an adjustment. In other words, the Fed strongly
believes that "a stitch in time saves nine" -- it wants to be preemptive by
raising interest rates and slowing the economy BEFORE an inflation problem
arises.
What data may confirm the Fed's theory? To start, the Fed forecasts that the
consumer price index (CPI), the average value of an imaginary "basket" of goods
and services in the economy, could rise as much as 2.5 percent this year, up
from 1.6 percent in 1998. The CPI is the standard measure of inflation in the
United States, so a marked increase would suggest rising inflation.
Employment growth also suggests inflation. Job creation has exceeded the
growth of the working-age population by almost one-half a percentage point
(0.50%) in the past year. The Fed believes that if the pool of job seekers
shrinks sufficiently, upward pressures on wage costs are likely. Such cost
increases have invariably presaged rising inflation in that past, and presumably
would in the future.
The Fed also believes that gross domestic product (GDP), the value of all
goods and services produced in the United States, is growing faster than it
would grow without inflation. The Fed believes that GDP can grow 3.0 percent to
3.5 percent per without generating inflation. Actual 1998 GDP growth was 4.3
percent, and 1999 GDP growth is projected to be 3.8 percent.
Productivity growth is another indicator of inflation pressure. After
languishing at about 1 percent in the 1970s and 1980s, productivity growth has
been above 2 percent in each of the past three years. Over the past four
quarters it has increased 2.8 percent, and could reach 3.5 percent if
second-quarter productivity growth comes in close to 4 percent. According to the
Fed, this has enabled output to grow beyond what normally would have been
expected -- and has held down inflationary pressures. But productivity must
continue to grow at an ever faster pace to keep inflation from accelerating. The
Fed is concerned that the gains in technology that have fostered the
productivity growth will slow, and any inflationary pressures in the labor
market could ultimately show in product prices.
The improving global economy could also contribute to inflation. Improving
economic conditions around the world mean that the U.S. economy will no longer
experience declines in basic commodity and import prices that curtailed
inflation in recent years. A rise in the price of imported crude oil -- which is
used to make everything from gasoline to plastic bags -- is already up 57
percent this year. To the Fed, which cut interest rates by 75 basis points last
year because of a slowdown in the global economy, raising interest rates in June
and again in August or October is only "taking back" some of what it gave last
year.
Clearly, then, if the Fed does raise interest rates in August or October, it
will do so to slow the economy. As a result, consumer spending will likely
decrease, leading to a decline in corporate profits. That will have negative
effects on capital spending. The end result could be a decline in the value of
equities in general.
Of course, if the economy slows naturally, the Fed is not likely to increase
interest rates. If stock markets don't continue "outsized" gains, consumer
spending could ease, and business investment could fall back, making a rate hike
unnecessary. But for several years the Fed has been counting on an economic
slowdown to keep inflation in check. So far, that hasn't happened. And now the
Fed feels that unexploited profit-making opportunities made possible by
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 (7/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.79 4.72 5.46 6.22
Prime rate (2) 8.00 7.75 8.50 8.50
Inflation rate*(3) 1.96 1.61 1.68 2.21
The U.S. dollar (4) -2.82 -4.37 8.79 7.32
Capital goods orders*(5) -0.21 12.89 10.92 7.87
Industrial production *(5) 2.71 1.55 3.59 5.07
Employment growth (6) 2.33 2.25 2.43 2.57
</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 6/30/99.
Source: Economics Department, Scudder Kemper Investments, Inc.
low inflation and the growth of technology may mute a natural cyclical slowdown.
All things considered, a hike of 25 basis points is likely when the Fed meets
in August or October. But one rate hike will likely be the end of the Fed's
interest in interest rates for the next six months. The Fed is unlikely to raise
rates between November and February because of the Y2K issue: It doesn't want to
encourage Y2K fears or appear responsible for Y2K-related volatility in the
financial markets.
The long-term possibility of interest rate hikes is likely to be affected by
political considerations. Election primaries begin in February 2000. Will
candidates be talking about tax cuts? Medicare reform? Social Security reform?
These will be the issues to consider when we look at the economy in early- to
mid-2000.
Hopefully it will be as easy for investors to obtain information about Fed
policies at that time as it is today. The Humphrey-Hawkins hearings were created
to give Congress and the public some idea of economic growth and inflation. But
this round of Humphrey-Hawkins hearings could be the last, because the
Humphrey-Hawkins law expires this year. Although Greenspan has said he thinks it
is important for the Fed to report to Congress, and House Banking Committee
Chairman Jim Leach intends to press for a new law, there has been no move to
enact a new reporting requirement. Although the Fed could still provide
hearings, without a law forcing it to do so within a certain framework, we would
likely have no consistent basis for analyzing monetary policy.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ John E. Silvia
John E. Silvia
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John Silvia as of July 26, 1999, and
may not actually come to pass. This information is subject to change. No part of
this material is intended as an investment recommendation.
To obtain a Kemper Funds prospectus, download one from www.kemper.com, talk to
your financial representative or call Shareholder Services at (800) 621-1048.
The prospectus contains more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
4
<PAGE> 5
PERFORMANCE UPDATE
[FALLER PHOTO]
CO-LEAD PORTFOLIO MANAGER JAN FALLER JOINED SCUDDER KEMPER INVESTMENTS' GLOBAL
BOND GROUP IN 1999. PRIOR TO JOINING THE COMPANY, JAN WAS PART OF THE GLOBAL
FIXED INCOME PORTFOLIO MANAGEMENT TEAM AT PANAGORA ASSET MANAGEMENT. HE RECEIVED
A BACHELOR'S DEGREE FROM WESTMONT COLLEGE, SANTA BARBARA, AND AN M.B.A. FROM
AMOS TUCK SCHOOL, DARTMOUTH COLLEGE.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
GLOBAL BOND MARKETS HAVE OFFERED SOMEWHAT LACKLUSTER PERFORMANCE THUS FAR IN
1999. FOLLOWING, KEMPER GLOBAL INCOME FUND CO-LEAD PORTFOLIO MANAGER JAN FALLER
DISCUSSES THE EVENTS THAT HAVE IMPACTED MARKET AND FUND PERFORMANCE, AND OFFERS
HIS OUTLOOK ON WHAT LIES AHEAD.
Q WHAT WERE THE MAIN ECONOMIC EVENTS AFFECTING GLOBAL BOND MARKETS DURING
THE SIX-MONTH PERIOD ENDED JUNE 30, 1999?
A The main economic events affecting the global bond markets were the
differing policy stances among central banks, reflecting the economic cycle
disparity around the world. In mid-February, the Bank of Japan lowered its
short-term rate to nearly zero in an effort to stimulate an economy experiencing
deflation and negative growth. This rate policy limited the rise in long-term
Japanese bond yields as market participants took advantage of the "carry trade,"
in which they borrow short funds at nearly 0 percent and invest in longer-term
instruments at between 1.5 percent and 2 percent, thereby earning the "carry."
While not with the same desperation as the Japanese, the
newly-established European Central Bank also lowered the short-term rate in the
Eurobloc from 3 percent to 2.5 percent in an effort to encourage growth in that
region. Yield curves across Europe have steepened in response as investors
priced in the potentially inflationary effects of the monetary easing. This hurt
returns for the Eurobloc during the past few months.
Conversely, the U.S. Federal Reserve Bank first changed its bias toward
raising rates and then boosted Fed Funds by a quarter of a percent at the end of
June. This was viewed primarily as taking back a portion of the liquidity it had
provided last summer and fall during the global crisis precipitated by Russia's
default. The remarkable growth in the U.S. during the first half of 1999 made it
possible for the Fed to tighten without having to be concerned about slowing the
economy. Indeed, growth has been so strong that U.S. bond yields have been the
highest in the Salomon Brothers World Government Bond Index due to fears of
inflation.
The first half of 1999 also saw an increase in risk tolerance among bond
market participants. Brazil's devaluation of the real in early 1999 initially
created fears of even more instability in emerging markets. Instead, due to
credible indications of serious fiscal reform from that country, emerging
markets first stabilized and then rallied substantially.
Certainly, growth expectations have increased over the past six months
for most economies around the globe. In January, no major central bank was
expected to raise rates, all had either a neutral or easing bias. By the end of
June, all major central banks with the exception of the Bank of England had a
monetary policy stance which was either neutral or tightening.
Q AGAINST THIS BACKDROP, HOW DID KEMPER GLOBAL INCOME FUND PERFORM AND WHY
THE UNDER-PERFORMANCE RELATIVE TO ITS PEER GROUP?
A The Kemper Global Income Fund was down by 6.72 percent (Class A shares,
unadjusted for any sales charge) for the first half of 1999, compared to the
7.17 percent decline in the Salomon Brothers World Government Bond Index.*
5
<PAGE> 6
PERFORMANCE UPDATE
The fund outperformed the index largely because of our currency hedging
decisions. The U.S. dollar gained over 12 percent relative to the euro, and over
6 percent relative to the Japanese yen. We were significantly hedged in both of
those currencies, reducing the exposure of the fund, and benefiting from the
gain in value of the dollar.
The Lipper category was down 3.35 percent. Kemper Global Income Fund's
performance was adverse relative to its peer group due to our risk aversion
style. As noted earlier, emerging market bonds did particularly well in the
first six months of 1999 relative to the developed bond markets, with JP
Morgan's Emerging Markets Bond Index Plus** up over 10 percent. While we do hold
some emerging market bonds, we focus on the very high quality countries such as
Mexico and Panama.
* THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX IS AN UNMANAGED INDEX, ON A
U.S. DOLLAR TOTAL RETURN BASIS, WITH ALL DIVIDENDS REINVESTED AND IS
COMPRISED OF GOVERNMENT BONDS FROM 20 COUNTRIES. THE MINIMUM MATURITY IS ONE
YEAR. THE INDEX IS NOT AVAILABLE FOR DIRECT INVESTMENT. SOURCE: SALOMON SMITH
BARNEY.
** JP MORGAN EMERGING MARKETS BOND INDEX PLUS (EMBI+) IS GENERALLY
REPRESENTATIVE OF EMERGING MARKETS' EXTERNAL CURRENCY TRADED DEBT AND IS NOT
AVAILABLE FOR DIRECT INVESTMENT. SOURCE: BLOOMBERG.
Q IN APRIL YOU TOOK OVER AS LEAD PORTFOLIO MANAGER OF KEMPER GLOBAL INCOME
FUND. HOW HAS THIS CHANGE AFFECTED THE PORTFOLIO? HAVE YOU MADE ANY ADJUSTMENTS
TO THE INVESTMENT PROCESS?
A The change in management has had little impact on the portfolio. The fund
continues to seek securities and countries which appear to be undervalued based
upon a variety of measures used by our research analysts.
Very little change has been made in the investment process. The process
is best described as a rigorous, structured approach to following all of the
countries and currencies that are candidates for investment by the fund. The
process is structured such that we regularly review current and potential
holdings in a disciplined manner using consistent measures. Also, we consider
any political or other developments that might not be caught by the specific
valuation measures which we apply.
The investment approach of the fund focuses on three areas: country
selection, individual security selection, and currency selection. Because
changes in interest rates are the most significant determinant of bond returns,
identifying which countries will outperform and which countries will
underperform has a larger effect on portfolio performance than individual
security selection. However, once we determine which countries to own, we then
find attractive securities with high credit quality which can enhance the yield
of the fund without taking significant credit risk. Approximately 85 percent of
the fund's securities are rated single A or better by one of the major ratings
agencies.
Currency selection is of greater importance than either of the bond
decisions, because currency returns are generally more volatile than bond
returns. Again, we rely on a combination of specific valuation measures to
determine what the appropriate combination of hedges is for the fund at any
given time. The fund seeks to hold the optimal combination of hedges (see Terms
To Know on page 2) which try to minimize risk and enhance return; we will very
seldom be fully hedged into dollars or, conversely, fully unhedged. Instead the
goal is to have partial hedges which can help reduce the volatility of returns
for the fund.
Q WHAT MARKETS ARE YOU FAVORING?
A Currently we are closely watching the Eurobloc both because of its new
currency and its bond market. Slow growth in the large Eurobloc countries, a low
interest rate relative to the dollar, and inconsistent statements by various
European Central Bank officials have all contributed to the currency's weakness.
The euro deserves attention as the fall has been extreme enough that it appears
to be trading significantly below its fair value; and once the currency
stabilizes we intend to adjust our hedge accordingly.
The Eurobloc bond market has been hurt by the currency, as investors
holding the bonds have had returns eroded by the weakening euro. Furthermore,
both French and Italian government officials have been discussing whether the
Maastricht debt restrictions should be lifted in order to permit more fiscal
spending to stimulate growth in those countries. This would result in more debt
supply, causing yields to go up -- even the talk of this happening has put
significant negative pressure on bond yields in the European Monetary Union
region. Thus, we are carefully monitoring growth indicators for the area to
anticipate whether additional fiscal spending will be necessary, or if the
region can recover given current conditions.
We are also focusing on Japan, where we have our largest underweight.
Yields there have remained remarkably low, with ten year bonds at approximately
1.70 percent. Given the current economic situation, it
6
<PAGE> 7
PERFORMANCE UPDATE
would be difficult for yields to fall much further, but they could rise quite
substantially, making the country unattractive. We are watching for evidence of
either a recovery, which could cause a slow increase in yields as deflation
ends, or further economic deterioration that would lead to further debt issuance
and a sharp, substantial rise in yields. While both scenarios are bearish, we
are seeking to identify which will play out.
Certainly we are also closely following the U.S. market, which offers very
attractive yields relative to other countries in the index. That high yield
does, however, represent compensation for the risk of inflation. Growth has been
much stronger in the U.S. than in any other region around the globe, which has
created inflationary fears. We are following the relationship between labor
costs and productivity, as well as various commodity prices in an effort to
identify any signs of increasing inflation in the U.S.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We believe that the euro is currently below its fair value and that over
the medium-term it should rise relative to the dollar. As long as it continues
to trend down, we will not fight the trend, which has been strongly negative.
Once the trend is broken however, we will adjust our hedge to take advantage of
the expected move of the euro toward its fair value.
As mentioned earlier, there is little appeal to the Japanese bond market.
Almost any economic scenario indicates that yields should rise there, which
would hurt returns. Therefore, we are underweight in Japanese bonds in
anticipation of negative performance from that country relative to other
developed bond markets around the globe.
Furthermore, we anticipate that there will be at least one more rate hike
in the U.S. As noted earlier, the move by the Fed at the end of June served to
take away some of the liquidity which they had provided last fall after the
Russian crisis rather than to slow growth. The Fed has not yet brought rates
back to the level where they were before the crisis, and growth remains very
strong in the U.S. We believe this makes a second hike likely as they seek to
return to a pre-crisis level and remain preemptive about any potential inflation
in the U.S.
Q ARE THERE RISKS TO THIS OUTLOOK?
A If growth in the Eurobloc countries remains stagnant, it is possible that
the euro will fall further before it stabilizes. If we reduce our hedge on the
euro too early, the currency could continue to fall in value, thereby hurting
the performance of the fund. We are relying on a combination of a disciplined
forecasting process and fundamental inputs to minimize this risk.
For the Japanese outlook, the biggest risk is that an economic recovery
is slow and steady. Given this scenario, yields could remain at their low levels
for a significant period of time, rather than increasing due to either
oversupply or indications of inflation. Should yields remain at their current
levels, our underweight position could hurt the performance of the fund,
especially if yields in other major markets rose relative to Japan. This is not
a particularly likely scenario given the current volatility in the Japanese
market.
The risk with the Fed raising rates comes mainly from the potentially
negative effect on equity markets. A drop in U.S. equity markets is not positive
for bonds because credit spreads and emerging market spreads are highly
correlated with equity returns. We are managing this risk by remaining primarily
in high quality credit bonds and viewing our emerging market holdings as
tactical. At times that we believe our emerging market positions face a
potential increase in spreads, we will reduce our holdings in an effort to
reduce the risk.
7
<PAGE> 8
GEOGRAPHIC COMPOSITION
PORTFOLIO STATISTICS
GEOGRAPHIC COMPOSITION OF KEMPER GLOBAL INCOME FUND
BASED ON TOTAL INVESTMENTS ON JUNE 30, 1999 WHICH IS SUBJECT TO CHANGE.
[BAR GRAPH]
<TABLE>
<CAPTION>
GEOGRAPHIC COMPOSITION OF KEMPER GLOBAL
INCOME FUND ON 6/30/99
---------------------------------------
<S> <C>
Germany 20.0%
United States 18.0%
Norway 10.0%
Spain 10.0%
Italy 7.0%
Canada 6.0%
New Zealand 5.0%
Sweden 5.0%
United Kingdom 5.0%
Netherlands 4.0%
France 2.0%
Brazil 1.0%
Philippines 1.0%
Mexico 1.0%
Panama 1.0%
Argentina 1.0%
Turkey 1.0%
Jamaica 1.0%
Bulgaria 1.0%
</TABLE>
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/99 ON 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN/U.S. GOVERNMENT SECURITIES 61% 96%
- --------------------------------------------------------------------------------
OTHER+ 31 2
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 8 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 6/30/99 ON 12/31/98
+INCLUDES SUPRANATIONAL ENTITIES AND CORPORATES GUARANTEED BY GOVERNMENTS
AVERAGE MATURITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ON 6/30/99 ON 12/31/98
- -------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.2 years 7.0 years
- -------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER GLOBAL INCOME
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999
(DOLLARS IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
U.S. DOLLAR
CURRENCY ISSUER PRINCIPAL VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT AND CORPORATE OBLIGATIONS--92.5%
- -----------------------------------------------------------------------------------------------------------------------
BRITISH POUNDS--4.8%
United Kingdom Treasury Bond, 8.0%, 06/10/2003 $ 2,050 $ 3,521
--------------------------------------------------------------------------------
3,521
- -----------------------------------------------------------------------------------------------------------------------
CANADIAN DOLLARS--5.9%
Government of Canada, 4.5%, 06/01/2001 3,500 2,362
Government of Canada, 5.5%, 06/01/2009 2,937 2,006
--------------------------------------------------------------------------------
4,368
- -----------------------------------------------------------------------------------------------------------------------
EURO--32.8%
Depfa Pfandbrief Bank, 4.7%, 07/15/2008 2,200 2,268
Deutsche Ausgleichsbank, 4.0%, 07/04/2009 2,000 1,986
Ford Motor Credit Corp., 3.7%, 07/12/2004 3,400 3,412
Government of France, 4.5%, 07/12/2002 1,000 1,063
Government of the Netherlands, 5.75%, 1/15/2004 2,450 2,724
Kingdom of Spain, 5.15%, 7/30/2009 3,000 3,187
Kredit Fuer Wiederaufbau, 5%, 1/14/2009 3,180 3,345
Rheinische Hypo Bank, 4.5%, 08/26/2003 3,120 3,290
Treuhandanstalt, 6.75%, 5/13/2004 2,480 2,876
--------------------------------------------------------------------------------
24,151
- -----------------------------------------------------------------------------------------------------------------------
JAPANESE YEN--6.5%
Republic of Italy, 3.8%, 3/27/2008 500,000 4,751
--------------------------------------------------------------------------------
4,751
- -----------------------------------------------------------------------------------------------------------------------
NEW ZEALAND DOLLARS--5.3%
Government of New Zealand, 7%, 7/15/2009 2,400 1,311
Government of New Zealand, 8%, 04/15/2004 4,500 2,568
--------------------------------------------------------------------------------
3,879
- -----------------------------------------------------------------------------------------------------------------------
NORWEGIAN KRONER--9.7%
Kingdom of Norway, 5.75%, 11/30/2004 12,000 1,535
Norwegian Government, 5.5%, 05/15/2009 11,300 1,417
Norwegian Government, 7%, 05/31/2001 32,200 4,200
--------------------------------------------------------------------------------
7,152
- -----------------------------------------------------------------------------------------------------------------------
SWEDISH KRONOR--5.2%
Government of Sweden, 5%, 01/15/2004 20,000 2,407
Kingdom of Sweden, 5%, 01/28/2009 12,100 1,418
--------------------------------------------------------------------------------
3,825
- -----------------------------------------------------------------------------------------------------------------------
U. S. DOLLARS--22.3%
Argentine Republic, Bonos de Consolidacion de Deudas
Previsionales Pre 2 (BOCON), Variable Interest
Rate Bond, 4.912%, 04/01/2001 14 13
Argentine Republic Global, 11.375%, 01/30/2017 350 304
Federative Republic of Brazil, IDU Floating Rate
Bond, LIBOR plus .8125%, 6.0625%, 01/01/2001 652 623
Federative Republic of Brazil, Eligible Interest,
Floating Rate Bond, LIBOR plus .8125%, 5.825%,
04/15/2006 157 124
Federative Republic of Brazil C Bond, 4.5% with 3.5%
Interest Capitalization, 04/15/2014 180 118
Government of Jamaica, 10.875%, 06/10/2005 275 250
Kingdom of Spain, 5.875%, 7/28/2008 4,000 3,762
Republic of Bulgaria, Interest Arrears Bond, LIBOR
plus .8125%, 3.875%, 07/28/2011 250 169
Republic of Panama, Interest Reduction Bond, Step-up
Coupon, 4.000%, 07/17/2014 275 204
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. DOLLAR
CURRENCY ISSUER PRINCIPAL VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Republic of Panama, Past Due Interest Bond, LIBOR
plus .8125% (5.9375%), with Interest
Capitalization, 7/17/2016 $ 216 $ 161
Republic of Turkey, 9.875%, 02/23/2005 300 275
Republic of the Philippines, 8.875%, 04/15/2008 1,000 986
Sunamerica Institute Fund III, 5.75%, 2/16/2009 4,000 3,620
U.S. Treasury Note, 5.500%, 12/31/2000 1,000 1,001
U.S. Treasury Note, 5.750%, 08/15/2003 1,200 1,201
U.S. Treasury Note, 6.500%, 10/15/2006 2,974 3,071
United Mexican States, 11.500%, 05/15/2026 500 557
--------------------------------------------------------------------------------
16,439
--------------------------------------------------------------------------------
TOTAL GOVERNMENT AND CORPORATE OBLIGATIONS
(Cost $71,973) 68,086
--------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS--0.1%
- -----------------------------------------------------------------------------------------------------------------------
U. S. DOLLARS
Put on New Zealand Dollars, strike price .5366,
expires 7/22/1999
(Cost $34) 7,540 cts. 53
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--7.4%
- ------------------------------------------------------------------------------------------------------------------------
U. S. DOLLARS
Federal Home Loan Mortgage Corp., 4.6%, 07/01/1999 5,500 $ 5,500
--------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS
(Cost $5,500) 5,500
--------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $77,507) 73,639
--------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
The Fund is a non-diversified investment company and may invest a relatively
high percentage of its assets in the obligations of a limited number of issuers.
Based on the cost of investments of $77,507,000 for federal income tax purposes
at June 30, 1999, the gross unrealized appreciation was $120,000, the gross
unrealized depreciation was $3,988,000 and the net unrealized depreciation on
investments was $3,868,000.
At June 30, 1999, outstanding written options were as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT EXPIRATION STRIKE MARKET
(000'S) DATE PRICE VALUE $
CALL OPTIONS --------------------------------------------------------------------
<S> <C> <C> <C> <C>
NZD................................... 7,540 7/22/1999 .5616 1
--
Total outstanding written options
(Premium received $34).............. 1
==
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value,
(Cost: $77,473) $ 73,586
- ------------------------------------------------------------------------
Purchased options, at value,
(Cost: $34) 53
- ------------------------------------------------------------------------
Receivable for:
Investments sold 283
- ------------------------------------------------------------------------
Interest receivable 1,317
- ------------------------------------------------------------------------
Fund shares sold 1
- ------------------------------------------------------------------------
Unrealized appreciation on forward currency exchange
contracts 504
- ------------------------------------------------------------------------
TOTAL ASSETS 75,744
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND ASSETS
- ------------------------------------------------------------------------
Due to custodian bank 4,956
- ------------------------------------------------------------------------
Payable for:
Investments purchased 288
- ------------------------------------------------------------------------
Fund shares redeemed 111
- ------------------------------------------------------------------------
Management fee 28
- ------------------------------------------------------------------------
Distribution service fee 19
- ------------------------------------------------------------------------
Administrative service fee 11
- ------------------------------------------------------------------------
Custodian and Transfer agent fee and related expenses 121
- ------------------------------------------------------------------------
Written options, at market (premium received $34) 1
- ------------------------------------------------------------------------
Unrealized depreciation on forward currency exchange
contracts 90
- ------------------------------------------------------------------------
Total liabilities 5,625
- ------------------------------------------------------------------------
NET ASSETS $ 70,119
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities and assets and liabilities in
foreign currencies $ (3,487)
- ------------------------------------------------------------------------
Options 53
- ------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (50,199)
- ------------------------------------------------------------------------
Paid-in capital 123,752
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 70,119
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($58,077 / 7,144 shares outstanding) $8.13
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $8.51
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($9,795 / 1,200 shares outstanding) $8.16
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($2,247 / 275 shares outstanding) $8.18
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Income:
Interest (net of foreign tax $10) $ 2,077
- -----------------------------------------------------------------------
Expenses:
Management fee 292
- -----------------------------------------------------------------------
Administrative service fee 84
- -----------------------------------------------------------------------
Distribution fees 50
- -----------------------------------------------------------------------
Professional fees 35
- -----------------------------------------------------------------------
Reports to shareholders 69
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 158
- -----------------------------------------------------------------------
Trustees fees and other 21
- -----------------------------------------------------------------------
Total expenses 709
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 1,368
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
- -----------------------------------------------------------------------
Net realized loss on sales of investments and foreign
currency transactions (1,691)
- -----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments and assets and liabilities in foreign currency (5,176)
- -----------------------------------------------------------------------
Options 53
- -----------------------------------------------------------------------
Net gain (loss) on investment transactions (6,814)
- -----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(5,446)
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1999 DECEMBER 31,
(UNAUDITED) 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------
Net investment income $ 1,368 3,707
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) (1,691) 2,351
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (5,123) 2,547
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (5,446) 8,605
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (1,951) (3,960)
- ---------------------------------------------------------------------------------------------------
Tax return of capital -- (1,107)
- ---------------------------------------------------------------------------------------------------
Total dividends to shareholders (1,951) (5,067)
- ---------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (7,279) (17,797)
- ---------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (14,676) (14,259)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------
Beginning of period 84,795 99,054
- ---------------------------------------------------------------------------------------------------
End of period $ 70,119 84,795
- ---------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Global Income Fund (the "fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end,
non-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 (none issued at June
30, 1999) shares are offered to a limited group of
investors, are not subject to initial or contingent
deferred sales charges and generally 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 generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed CONSISTENTLY by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Portfolio debt
securities purchased with an original maturity
greater than sixty days are valued by pricing
agents approved by the officers of the fund, whose
quotations reflect broker/dealer-supplied
valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost. All other securities are
valued at their fair value as determined in good
faith by the Valuation Committee of the Board of
Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
rates 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
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
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.
OPTIONS. An option contract is a contract in which
the writer of the option grants the buyer of the
option the right to purchase from (call option), or
sell to (put option), the writer a designated
instrument at a specified price within a specified
period of time. Certain options, including options
on indices, will require cash settlement by the
fund if the option is exercised. During the period,
the fund purchased put options on currencies and
wrote call options on currencies as a hedge against
potential adverse price movements in the value of
portfolio assets.
The liability representing the fund's obligation
under an exchange traded written option or
investment in a purchased option is valued at the
last sale price or, in the absence of a sale, the
mean between the closing bid and asked prices or at
the most recent asked price (bid for purchased
options) if no bid and asked price are available.
Over-the-counter written or purchased options are
valued using dealer supplied quotations. Gain or
loss is recognized when the option contract expires
or is closed.
If the fund writes a covered call option, the fund
foregoes, in exchange for the premium, the
opportunity to profit during the option period from
an increase in the market value of the underlying
security above the exercise price. If the fund
writes a put option it accepts the risk of a
decline in the market value of the underlying
security below the exercise price. Over-the-counter
options have the risk of the potential inability of
counterparties to meet the terms of their
contracts. The fund's maximum exposure to purchased
options is limited to the premium initially paid.
In addition, certain risks may arise upon entering
into option contracts including the risk that an
illiquid secondary market will limit the fund's
ability to close out an option contract prior to
the expiration date and that a change in the value
of the option contract may not correlate exactly
with changes in the value of the securities or
currencies hedged.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A
forward foreign currency exchange contract (forward
contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a
negotiated rate. During the period, the fund
utilized forward contracts as a hedge against
changes in the exchange rates relating to foreign
currency denominated assets.
Forward contracts are valued at the prevailing
forward exchange rate of the underlying currencies
and unrealized gain/loss is recorded daily. Sales
and purchases of forward contracts having the same
settlement date and broker are offset and any gain
(loss) is realized on the date of offset;
otherwise, gain (loss) is realized on settlement
date. Realized and unrealized gains and losses
which represent the difference between the value of
a forward contract to buy and a forward contract to
sell are included in net realized and unrealized
gain (loss) from foreign currency related
transactions.
Certain risks may arise upon entering into forward
contracts from the potential inability of
counterparties to meet the terms of their
contracts. Additionally,
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
when utilizing forward contracts to hedge, the fund
gives up the opportunity to profit from favorable
exchange rate movements during the term of the
contract.
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. 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.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing the fund's net assets
attributable to that class by the number of shares
of the class outstanding. Because of the need to
obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of
net asset value does not take place
contemporaneously with the determination of the
prices of the fund's foreign 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.
At December 31, 1998, the fund had a net tax basis
loss carryforward of approximately $42,482,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire during the period 1999
through 2002. However, of this amount, the
availability of approximately $14,000,000 obtained
through prior fund acquisitions is limited to
$7,000,000 per year from 2000 through 2001.
DISTRIBUTION OF INCOME AND GAINS. All of the net
investment income of the fund is declared as a
daily dividend and is distributed to shareholders
monthly. 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 primarily relate to
foreign denominated investments. 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.
15
<PAGE> 16
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 $292,000 for the
period ended June 30, 1999. Scudder Investments
(U.K.) Limited, an affiliate of Scudder Kemper
serves as sub-advisor for the fund and is paid by
Scudder Kemper for its services.
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 six months ended June 30,
1999 are $3,000.
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 six months ended June 30, 1999, are
$67,000.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. KDI in turn has various
agreements with financial services firms that
provide these services and pays these firms based
on assets of fund accounts the firms service.
Administrative services fees paid for the six
months ended June 30, 1999, are $84,000.
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 $93,000
for the period ended June 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the period ended June 30,
1999, the fund made no payments to its officers and
incurred trustees' fees of $11,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended June 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $82,100
Proceeds from sales 88,100
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Transactions in written options for the period
ended June 30, 1999, are summarized as follows:
OVER-THE-COUNTER OPTIONS ON CURRENCIES
(000 OMITTED)
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS
---------
NZD PREMIUMS
--------- --------
<S> <C> <C>
Beginning of Period -- $--
Written 7,540 34
Closed -- --
Exercise -- --
Expired -- --
----- ---
End of Period 7,540 $34
===== ===
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------
SHARES SOLD
-------------------------------------------------------------------------------
Class A 718 $ 6,268 991 $ 8,688
-------------------------------------------------------------------------------
Class B 181 1,566 409 3,579
-------------------------------------------------------------------------------
Class C 54 474 178 1,560
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-------------------------------------------------------------------------------
Class A 138 1,179 336 2,920
-------------------------------------------------------------------------------
Class B 24 202 78 682
-------------------------------------------------------------------------------
Class C 3 26 7 60
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES REDEEMED
-------------------------------------------------------------------------------
Class A (1,568) (13,411) (3,195) (27,830)
-------------------------------------------------------------------------------
Class B (382) (3,298) (797) (6,933)
-------------------------------------------------------------------------------
Class C (33) (285) (57) (498)
-------------------------------------------------------------------------------
Class I -- -- (3) (25)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
CONVERSION OF SHARES
-------------------------------------------------------------------------------
Class A 17 142 1,287 11,130
-------------------------------------------------------------------------------
Class B (17) (142) (1,285) (11,130)
-------------------------------------------------------------------------------
NET DECREASE FROM CAPITAL SHARE
TRANSACTIONS $ (7,279) $(17,797)
-------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS At June 30, 1999, the fund had the following
forward foreign currency contracts outstanding (in
thousands).
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN GAIN (LOSS) AT
TO BE (DELIVERED)/RECEIVED U.S. DOLLARS 12/31/98
------------------------------------------------------------------
<C> <S> <C> <C>
199,403 Japanese Yen $ 1,678 $(29)
------------------------------------------------------------------
(21,200) Swedish Krona 2,514 151
------------------------------------------------------------------
(6,726) Swedish Krona 798 7
------------------------------------------------------------------
(17,165) Euro 17,799 316
------------------------------------------------------------------
(3,039) Canadian Dollar 2,074 8
------------------------------------------------------------------
(3,239) Norwegian Krona 3,963 (61)
------------------------------------------------------------------
(921) British Pound 1,453 22
------------------------------------------------------------------
NET UNREALIZED GAIN $414
------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS A
------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------
1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.94 8.58 8.97 9.05 8.55 9.29
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .37 .48 .52 .61 .60
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.81) .50 (.33) (.02) 1.05 (.74)
- -------------------------------------------------------------------------------------------
Total from investment operations (.59) .87 .15 .50 1.66 (.14)
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .22 .40 .47 .58 1.16 .38
- -------------------------------------------------------------------------------------------
Tax return of capital distribution -- .11 .07 -- -- .22
- -------------------------------------------------------------------------------------------
Total dividends .22 .51 .54 .58 1.16 .60
- -------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.13 8.94 8.58 8.97 9.05 8.55
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (6.72)% 10.48 1.80 5.87 19.89 (1.47)
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 1.72% 1.58 1.32 1.48 1.34 1.53
- -------------------------------------------------------------------------------------------
Net investment income 3.62% 4.31 5.56 5.77 6.43 6.67
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS B
------------------------------------------------------
SIX MONTHS MAY 31
ENDED YEAR ENDED DECEMBER 31, TO
JUNE 30, -------------------------- DECEMBER 31,
1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.96 8.60 9.00 9.09 8.56 8.70
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .31 .41 .46 .56 .30
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.80) .49 (.33) (.02) 1.05 (.14)
- -------------------------------------------------------------------------------------------------
Total from investment operations (.61) .80 .08 .44 1.61 .16
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .34 .42 .53 1.08 .19
- -------------------------------------------------------------------------------------------------
Tax return of capital distribution -- .10 .06 -- -- .11
- -------------------------------------------------------------------------------------------------
Total dividends .19 .44 .48 .53 1.08 .30
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.16 8.96 8.60 9.00 9.09 8.56
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (6.91)% 9.56 1.03 5.11 19.21 1.89
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 2.36% 2.32 2.18 2.14 1.98 2.27
- -------------------------------------------------------------------------------------------------
Net investment income 2.98% 3.57 4.70 5.11 5.79 5.89
- -------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS C
------------------------------------------------------
SIX MONTHS MAY 31
ENDED YEAR ENDED DECEMBER 31, TO
JUNE 30, -------------------------- DECEMBER 31,
1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.99 8.62 9.02 9.09 8.56 8.70
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .32 .42 .48 .57 .30
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.81) .49 (.33) (.02) 1.05 (.14)
- -------------------------------------------------------------------------------------------------
Total from investment operations (.62) .81 .09 .46 1.62 .16
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .34 .43 .53 1.09 .19
- -------------------------------------------------------------------------------------------------
Tax return of capital distribution -- .10 .06 -- -- .11
- -------------------------------------------------------------------------------------------------
Total dividends .19 .44 .49 .53 1.09 .30
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $8.18 8.99 8.62 9.02 9.09 8.56
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (6.94)% 9.72 1.09 5.31 19.26 1.91
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 2.21% 2.13 2.11 2.06 2.06 2.23
- -------------------------------------------------------------------------------------------------
Net investment income 3.13% 3.76 4.77 5.19 5.71 5.93
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $70,119 84,795 99,054 131,761 152,959 170,700
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 216% 313 283 276 220 378
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Per share
data for 1999, 1998, 1997 and 1996 were determined based on average shares
outstanding. Data for the six months ended June 30, 1999 is unaudited.
20
<PAGE> 21
NOTES
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK CASADY LINDA J. WONDRACK
Trustee President Vice President
MAUREEN E. KANE
LEWIS A. BURNHAM PHILIP J. COLLORA Assistant Secretary
Trustee Vice President CAROLINE PEARSON
and Secretary Assistant Secretary
DONALD L. DUNAWAY ELIZABETH C. WERTH
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer BRENDA LYONS
ROBERT B. HOFFMAN Assistant Treasurer
Trustee ANN M. MCCREARY
Vice President
DONALD R. JONES
Trustee ROBERT C. PECK, JR.
Vice President
THOMAS W. LITTAUER
Trustee and Vice President KATHRYN L. QUIRK
Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- ----------------------------------------------------------------------------
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 64121-9066
- ----------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- ----------------------------------------------------------------------------
CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Tech Center
Brooklyn, NY 11245
- ----------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Global and International Funds prospectus.
KGIF - 3 (8/18/99) 1083650
